Cheltenham & Gloucester plc v Krausz [1997] 1 WLR 1558
Facts
Mr Krausz fell into arrears and the lender obtained a possession order concerning his mortgaged home. He wanted time to sell the property himself, but the proposed sale would not discharge the secured debt and no sufficient additional funds were available. The dispute concerned whether possession could be suspended under section 36 of the Administration of Justice Act 1970 and how that jurisdiction related to the court’s separate power to order sale under section 91 of the Law of Property Act 1925. The lender was itself taking steps to realise its security.
Legal Issue
Could possession be suspended to permit a borrower’s sale which would leave an uncovered shortfall, and did the separate judicial sale power require that course?
Held
The Court of Appeal refused the proposed suspension. Section 36 could not be used on the stated sale proposal when its proceeds would not discharge the mortgage debt and there was no means of making good the shortfall. The court distinguished the power to order a sale under section 91, which can exist despite negative equity, from a right to delay a lender already pursuing possession and sale. Palk did not establish that borrowers should control every sale or that the lender must be restrained whenever they suggest an alternative. The decision therefore turns on the proposed repayment route, not a universal prohibition on relief whenever market value falls below the debt.
⭐ Legal Principle
Section 36 does not justify postponement for a proposed sale that cannot discharge the mortgage debt without available funds for the shortfall. The separate section 91 sale jurisdiction is not confined to positive equity, but does not give the borrower automatic priority in conducting a sale.
Significance
Krausz is useful for separating suspension of mortgage possession from a court-ordered sale. Negative equity affects a repayment proposal, but does not answer every possible statutory application in the same way. Ellis likewise requires evidence that an intended sale can achieve the relevant repayment objective. The court needs figures, timing and a viable mechanism, rather than an abstract suggestion that a sale may eventually occur. Each requested remedy must be tested against its own statutory conditions.
Common exam questions about this case
Did negative equity make every judicial sale impossible?
No. The separate section 91 power can permit a sale despite negative equity. The difficulty here concerned suspension of possession under section 36 on a proposal that would leave the debt unpaid. The existence of one statutory power does not automatically satisfy the conditions of another.
Would funds covering the shortfall matter?
Yes. The proposed sale failed as a repayment solution because its proceeds were insufficient and no adequate additional funds were available. Evidence of another reliable source covering the balance would materially change that assessment. A bare hope of finding money would not be equivalent to such evidence.
Why did Palk not decide the result for Mr Krausz?
Palk established a separate ability to order sale, including in negative equity. It did not require the court to displace a lender already taking active recovery steps whenever a borrower wished to sell. The court still had to assess the statutory route and the particular proposal.