The practical application of Practice Direction 51Z; Issues that may arise

Following the analysis by my colleague, Alice Scott, of Practice Direction 51Z a recent case from the Court of Appeal has tested the legality of PD 51Z, Arkin v Marshall (2020) EWCA Civ 620.

This was a possession case to recover properties which were security for mortgage loans for which the Claimant contended sums were due and / or other terms of the mortgage agreement had been breached. A case management conference listed for 26^th March 2020 did not take place on that day as the parties agreed directions for trial of the case. The agreed order was sealed on 27^th March 2020, which was the day that Practice Direction 51Z came into force. The parties made written submissions to Judge Parfitt as to whether the stay imposed by PD 51Z applied to the proceedings. Judge Parfitt decided that the proceedings were stayed and that he had no power to lift the stay.

The Claimant appealed that decision. The appeal was transferred to the Court of Appeal by Kerr J pursuant to CPR 52.23.

The issues for the Court of Appeal to decide were:

“(1) Does this court have jurisdiction to consider the vires of PD 51Z, and should it do so? 


(2)  If so:

• (a)  Was the making of PD 51Z properly authorised by CPR Part 51.2 as a pilot scheme “for assessing the use of new practices and procedures in connection with proceedings”? 

• (b)  Is PD 51Z inconsistent with or rendered unlawful by the provisions of the Coronavirus Act 2020? 

• (c)  Is PD 51Z inconsistent with article 6 of the European Convention on Human Rights or the principle of access to justice? 


(3)  Does PD 51Z apply to cases allocated to the multi-track in which case management directions had been given before it was introduced? 


(4)  Does the court have jurisdiction to lift the stay imposed by paragraph 2 of PD 51Z? 


(5)  If so, should the Judge have lifted the stay in this case?”

In summary the court’s decisions on the above questions, which have wider implication for possession cases, are as follows:

• The Court of Appeal did have the power to deal with the issue of whether the decision was ultra vires. It was emphasised that “…the circumstances of the present case are unusual” and that the court was not departing from previous case-law. There are circumstances in which considerations of justice and pragmatism may make it appropriate for a public law challenge to be heard in private law proceedings. The court considered that it was inevitable that permission to apply for judicial review would have been granted and so there was no real unfairness nor any insuperable difficulty for the court to deal with this issue (paragraphs 13 to 18).
• The wording of PD 51Z made it clear that it was a pilot and was “intended to assess modifications to the rules and [PDs] that may be necessary during the Coronavirus pandemic and the need to ensure that the administration of justice, including the enforcement of orders, is carried out so as not to endanger public health”. Their lordships accepted these stated reasons for PD 51Z made it plain that this was a pilot scheme to; “(a) relieve pressures on the administration of justice during the pandemic, (b) reduce the risks of spreading the virus occasioned by enforcing possession orders and thereby forcing citizens to move home rather than stay at home as the Government has advised, and/or (c) to abrogate court hearings, whether remotely or face to face, in possession proceedings, thereby avoiding the need for court staff and litigation parties to risk transmission of the virus.” (paragraphs 19 to 26).
• PD 51Z was not inconsistent with the Coronavirus Act 2020. The Act changed the substantive law to first, place a new requirement in the Rent Act 1977 for landlords to serve 3 months notice of intention to commence possession proceedings against statutory tenants and second, for landlords to apply to the court to dispense with the new notice requirements if the court considered it would be “Just and equitable to do so” (section 3(4B) of RA 1977). The pilot scheme of a blanket stay on all possession proceedings was quite different as it was a temporary stay to manage court capacity and public health during the peak of the Covid-19 pandemic. The changes introduced by the Coronavirus Act 2020 were to last for two years however the pilot scheme of PD 51Z was to last for 90 days. There was no conflict between the two provisions (paragraphs 27 to 28).
• PD 51Z was compatible with Article 6 of the European Convention on Human Rights and Fundamental Freedoms. The short delay to possession litigation was “amply justified by the exceptional circumstances of the Coronavirus pandemic” as it was necessary to ensure that the administration of justice and enforcement of any possession orders would not endanger public health by causing unnecessary transmission of Covid-19 (paragraphs 29 to 34).
• The court found that the wording of paragraph 2A(c) of PD 51Z allowed the court to approve directions agreed by the parties and no more; there was value in the parties agreeing directions which take effect either post stay or during the stay (even if they are unenforceable during the stay). If the parties could apply to the court during the stay if directions were not complied with this would be contrary to the stay. Additionally Judges did retain the power to lift the stay in individual cases as PD 51Z did not formally exclude operation of the court’s general powers of case management under CPR 3.1. However, although Judges can lift the stay the court had “great difficulty in envisaging such a case”; they did not consider any normal case management reasons could be enough to justify an individual judge lifting the stay imposed by PD 51Z given that it has been imposed to protect public health and the administration of justice generally, which are circumstances beyond the relationship of landlord and tenant or mortgagee and mortgagor. If the stay was operating to defeat the purpose of PD 51Z, that could justify lifting the stay but otherwise such action would almost always be wrong in principle unless “exceptional circumstances” existed.

Housing and Property practitioners will be aware that PD 51Z comes to an end on 30^th October 2020. Whether it continues beyond October, is modified or replaced by something entirely different is anybody’s guess at the time of writing. As lockdown eases it may be that more guidance as to the practical operation of PD 51Z will be released. However at the time of writing the government has announced that the stay on possession proceedings of 90 days in PD 51Z will be increased by 2 months to the end of August [https://www.gov.uk/government/news/ban-on-evictions-extended-by-2-months-to-further-protect-renters]. Additionally the mortgage holiday has been extended for a further three months at the time of writing [https://www.bbc.co.uk/news/business-52767058]. As such it seems likely the current situation will continue for the foreseeable future.

When will possession orders be made once more by the courts?

Although the government has allowed individuals to start buying houses again, the resumption of the making of possession orders and the expiration of PD 51Z are likely to ultimately depend on the stage which the pandemic has reached and overall assessments of public health risks. If there is a ‘second spike’ of infections the current restrictions could conceivably extend beyond the 30^th October 2020.

Potential effects on possession cases under the Housing Acts 1985 and 1988.

In cases under the Housing Act 1985 (‘HA 1985’) and 1988 (‘HA 1988’) where possession is sought on a discretionary ground, the key test is taken from Cumming v Danson (1942) 2 All E.R. 653 CA “the duty of the judge is to take into account all relevant circumstances as they exist at the date of the hearing . . . in a broad, common sense way . . . giving weight as he thinks right to the various factors in the situation”.

Given the automatic stay on proceedings by paragraph 2 of PD 51Z and the significant difficulties in satisfying the test of “exceptional circumstances” to lift the stay, what sort of arguments are likely to emerge in the future as part of the reasonableness test?

Cases where possession is sought due to rent arrears

Given the implications of furlough and redundancies which may well arise from the fallout from Covid-19, the following arguments are likely to become relevant factors in the reasonableness test:

• The fact of the imposition of the stay itself and any resulting effect on the amount of time afforded to the tenant to arrange for arrears to be repaid. This can foreseeably cut both ways, because the stay is neither the fault of the tenant or the landlord and arguably neither should be prejudiced by the imposition of conditions outside their control. In the writer’s view this factor is likely to be afforded a lot of weight in the County Courts;
• Given the unprecedented situation created by the pandemic, whether it was reasonable for a landlord to pursue possession for rent arrears caused by reasons due to the pandemic;
• The obvious difficulty in making out exceptional circumstances to lift the stay in an individual case; and
• The reasons for the tenant falling into arrears; for instance has the tenant been furloughed? What is their income while on furlough? Are they likely to go back to work at the end of the furlough period? Did the tenant have a good payment history before the pandemic? Has the tenant been made redundant for reasons connected with the pandemic (for instance a business downsizing the scope of it’s operations due to Covid-19), when are they likely to obtain further employment in the situation of the job market at the time?

The basis of these financial affordability arguments will be familiar to social housing practitioners but the situation caused by Covid-19 magnifies and increases their scope.

As a result of Covid-19 there is likely to be an increase in cases where the order of the court is long-term suspension of possession orders. There is precedent for this in the case of Lambeth LBC v Henry (2000) 32 HLR 874, where the Court of Appeal upheld a decision to impose a suspended order for 23 years deciding that it was within the court’s discretion in the circumstances of that case.

One possibility is that as the stay does not apply to an application for case management directions which are agreed by all the parties (paragraph 2A(c) of PD 51Z) there may be scope for the parties to agree orders adjourning the case generally with terms for periodical repayments. It is difficult to see how paragraph 2A(c) could apply however to agreed orders for suspended possession orders disposing of the case during the stay, as this would require the court’s approval in the form of a Judgment, which the wording of PD 51Z does not appear to cover.

Cases where possession is sought due to anti-social behaviour

The effect of the stay on possession on grounds of antisocial behaviour (Ground 2 of Schedule 2 HA 1985 or Ground 14 Schedule 2 HA 1988) is another issue. Media reports suggest that anecdotally, with the lockdown having forced many to work from home or stay at home, incidences of noisy neighbours have increased [https://www.bbc.co.uk/news/newsbeat-52579586].

Again, the imposition not only of PD51Z but also the various versions of The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (of which there have been 3 versions at the time of writing) are likely to impact the reasonableness test on any attempts to seek possession:

• Has the imposition of PD 51Z prevented the Landlord from effectively addressing any anti-social behaviour by seeking possession? Given that the test of raising the stay would appear to only apply in exceptional circumstances, it is difficult to see how any except the most serious cases of anti-social behaviour would result in a lift of the stay to pursue possession under the PD 51Z regime. The importance of maintaining public health is likely to be a key factor for the court in assessing reasonableness of possession during this period;
• Has the anti-social behaviour engaged in by the tenant included breaches of the Coronavirus Regulations putting the local community and neighbours at risk? The Courts may very well consider that given the pandemic and the resulting unprecedented restrictions on civil liberties, any breaches may very well be a ‘one off’ event due to the extraordinary circumstances, especially if such behaviour would not normally be considered as conduct causing or likely to cause nuisance. Alternatively, it may also be arguable that a proven breach of the regulations by the tenant shows that compliance with an injunction by the tenant to control the behaviour would be unlikely. Each case would of course turn on it’s own facts. Always remember that such alleged breaches of the Regulations, if there is no conviction or record of a fine, would need to be proven on the balance of probabilities (Wandsworth LBC v Webb (2008) EWCA Civ 1643).

One key aspect of the reasonableness test in anti-social behaviour cases is the structured discretion (in section 85A(2) of HA 1985 and section 9A of HA 1988):

“The court must consider, in particular–

(a)  the effect that the nuisance or annoyance has had on persons other than the person against whom the order is sought;

(b)  any continuing effect the nuisance or annoyance is likely to have on such persons;

(c)  the effect that the nuisance or annoyance would be likely to have on such persons if the conduct is repeated.”

The question may very well be whether or not part of the contributing factors for the nuisance are borne out of the lockdown regulations, for instance neighbours may experience more noise from tenants if they have been restricted to being at home or having to work from home. A court may well consider that in individual cases that if the timing of the increase in noise reported by neighbours correlates with the lockdown measures, this can be expected to improve once the lockdown rules are sufficiently relaxed for people to be able to leave their homes again.

When considering whether any possession order should be postponed or suspended, the law indicates that there needs to be an assessment of the future conduct of the tenant, which includes assessing past behaviour, circumstances of any promise to comply and the reliance which the court can place on the word of the promisor (Leeds & Yorkshire Housing Association v Vertigan (2011) HLR 13). The imposition of the stay on possession proceedings by PD 51Z may well result in situations where tenants have an opportunity to prove their conduct can improve during the period of the lockdown.

Taking into account the above comments in anti-social behaviour cases it appears that in the current pandemic an application for an injunction under the Anti-Social Behaviour, Crime and Policing Act 2014 will be the best remedy for landlords under the PD 51Z regime. It appears that such an application for an injunction can still be made under PD 51Z. Paragraph 3 of the Practice Direction reads: “For the avoidance of doubt, claims for injunctive relief are not subject to the stay in paragraph 2, and the fact that a claim to which paragraph 2 applies will be stayed does not preclude the issue of such a claim”. Applying for an injunction has the added advantage for landlords of showing to a court that other methods have been attempted before having to resort to possession proceedings.

Effect on mortgage possession cases

Currently, in cases where possession is sought by a mortgagee against a mortgagor for a dwelling house, the court has a discretion under the Administration of Justice Acts of 1970 (section 36) and 1973 (section 8) to either adjourn the proceedings or stay or suspend any possession order or postpone possession. Section 8(2) of the 1973 Act sets out the key test:

“A court shall not exercise by virtue of subsection (1) above the powers conferred by section 36 of the Administration of Justice Act 1970 unless it appears to the court not only that the mortgagor is likely to be able within a reasonable period to pay any amounts regarded (in accordance with subsection (1) above) as due on account of the principal sum secured, together with the interest on those amounts, but also that he is likely to be able by the end of that period to pay any further amounts that he would have expected to be required to pay by then on account of that sum and of interest on it if there had been no such provision as is referred to in subsection (1) above for earlier payment”.

The central test is what is a reasonable period, but how might this be interpreted in the time of Covid-19? The factors for the court to apply come from Cheltenham Building Society v Norgan (1996) 1 WLR 343:

• “How much can the borrower reasonably afford to pay, both now and in the future?
• If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last?
• What was the reason for the arrears which have accumulated?
• How much remains of the original term?
• What are relevant contractual terms, and what type of mortgage is it, i.e. when is the principal due to be repaid?
• Is it a case where the court should exercise its power to disregard accelerated payment provisions (section 8 of the Act of 1973)?
• Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the whole of the original term, or (2) within a shorter period, or even (3) within a longer period, i.e. by extending the repayment period? Is it reasonable to expect the lender to capitalise the interest or not?
• Are there any reasons affecting the security which should influence the length of the period for payment?

In the light of the answers to the above, the court can proceed to exercise its overall discretion, taking account also of any further factors which may arise in the particular case…”

In cases of furlough or redundancy caused by Covid-19, factors (b) and (c) are likely to become highly relevant; relevant questions are how long is furlough likely to last? If there is redundancy how likely is the mortgagor to obtain further employment and when? Have the arrears occurred due to the furlough or redundancy? It is also highly likely that the mortgage holiday and the imposition of PD 51Z by themselves will count as being ‘further factors’ which arise in such cases coming out of the Covid-19 lockdown.

Conclusions

Given the continuing uncertainty as to what the ‘new normal’ will be and given the public health concerns which caused the introduction of PD 51Z practitioners in this area of housing law can expect an interesting time in dealing with the application and effect of PD 51Z over the coming months.

This article on ‘The practical application of Practice Direction 51Z; Issues that may arise’ was written by James Byrne. For further on how to instruct James or another member of the Property team please contact our clerks via the switchboard on 020 7353 0711 or via email: clerks@pumpcourtchambers.com