Chantal Wheatley, advocate on the North-eastern Circuit, considers the recent judgment in Southern Pacific Mortgage Limited v. Green [2015] EW Misc B42,

In a recent case in the County Court at Bristol, the issues of disability discrimination and the interference with the human rights of borrowers were considered in the context of possession proceedings that had been issued by a lender on the basis of mortgage arrears.

 

The Facts

 

In Southern Pacific Mortgage Limited v. Green [2015]EW Misc B42(Green),the residential property had been remortgaged with a 20 year repayment loan from the mortgagee (S). The mortgagor(G) subsequentlybegan to experience financial difficulties and was later diagnosed with depression and signed off work. G’s insurance, which shehad taken out tocover the mortgage, met the payments due under the mortgage. G had initially claimed the insurance on the basis of unemployment and later on the basis of her diagnosis. G later applied for, and was in receipt of, payments from the Department of Work and Pensions (DWP). As payments from the DWP were sufficient to cover the monthly interest, G asked S to switch to an interest-only mortgage to assist her in maintaining payments; this was declined. S subsequently issued proceedings for possession of the property. In challenging S's claim to possession, G relied on ss.19(1)(b) and 20(2) of the Disability and Discrimination Act 1995 (DDA), ss.15, 19 and 21 of the Equality Act 2010 and Article 8 of the European Convention on Human Rights (ECHR). G asserted that S had failed to make reasonable adjustments in light of her disability by refusing to switch the account to an interest-only mortgage, thereby making S's decision unlawful.

 

The Decision

 

The Court found that Article 8 of the ECHR did not offer a defence as S was not a public authority (McDonald v. McDonald [2014] EWCA Civ 1049), that S's refusal to switch the account to an interest-only mortgage did not amount to discrimination against G and that it was proportionate and legitimate in these circumstances for S to protect its security by refusing. The Court did, however, raise concerns about the conduct of S prior to issuing proceedings and noted the absence of an internal policy in place to address similar circumstances.

 

The Court did acknowledge that G had a “far stronger case” in the disability discrimination aspect of her case and therefore did not dismiss it outright. It was firstly noted that it is unlawful for a service provider, which includes financial services, to discriminate against a disabled person (s.19 DDA 1995), that discrimination in this context included the failure of the service provider to comply with the s.21 duty imposed on them in relation to the disabled person (s.20 DDA 1995), and that this duty required the service provider to take reasonable steps to change a relevant practice or policy or procedure which made it “... impossible or unreasonably difficult for disabled persons to make use of...” (s.21 DDA 1995). In the case of R(JL) v. Secretary of State for Defence [2013] EWCA Civ 449, it was held that the responsibility for considering whether a disabled person was being discriminated against was ongoing and, “must be considered at every stage from pre-action compliance... to the decision to pursue the case to trial, and thence to possession”. Indeed, in Green, the Court stated it was necessary to consider the “appropriateness” of proceedings at “every stage”in light of the borrower’s disability.

 

In discharging that responsibility, the lender firstly has to be aware that a borrower is disabled. In Green, S was aware of G's disability prior to proceedings being issued as it was abasis on which G’s insurance was paid out. It should be noted that, in Green, G had a medical diagnosis of depression and the absence of any medical documentation may make identifying a borrower's disability difficult. Indeed, there is no legislative requirement within the DDA 1995for borrowers to disclose any disabilities they may have to their mortgage lender. Nevertheless, the DDA 1995does define a disabled person as one that has a physical or mental impairment that has a '”substantial and long-term adverse effect on his ability to carry out normal day-to-day activities” (s.1(1) DDA 1995). Therefore, in their interaction and communication with borrowers, and in considering the conduct of the mortgage account, lenders may be put on notice of a borrower's disability. Indeed, in Green,it was G's disability that had caused the arrears.

 

The second step is to consider whether a practice, policy or procedure is impossible or unreasonably difficult for a disabled person to use; s.21 DDA 1995makes reference to issuesthat relate to a physical feature, for example access to a building, or an auxiliary aid or service, such as the provision of information. In Green, however, G had asserted that the repayment mortgage was unreasonably difficult as she was unable to afford it because of her disability and that S therefore had a statutory duty to switch it to the more affordable interest-only mortgage, as a reasonable adjustment. In considering this, the Court referred to the Court of Appeal decision in Edwards v. Flamingoland Ltd [2013] EWCA Civ 801, where it was held that adjustments to services did not require the provider to take steps that would fundamentally alter the nature of their service.

 

In Green, it was noted the adjustments unders.21 DDA 1995 only had to be “reasonable” and that it would not be a reasonable step for the lender to forego its security for a more speculative one by switching to an interest-only mortgage. S, therefore, did not need to adopt an alternate service that would “impose on the lender a riskier and more unsatisfactory payment vehicle”. The Court also addressed the issue of whether a blanket policy of refusal to switch to interest-only mortgages was direct or indirect discrimination and held, for the above reasons, namely the lender needing to protect its security, that the policy was justified. It is important to note, however, that although a blanket policy may be applied, the Court stated that it was still necessary for a lender to consider a disabled borrower's request to alter its service and for the lender to consider the borrower's disability when making a decision to apply the policy. It was not considered appropriate for S to have automatically refused and for possession proceedings to be seen as a matter of course when dealing with a borrower that has a disability. The Court ultimately held that G's casehad failed and, in any event, found that it did not have authority under s. 36 of the Administration of Justice Act 1970 to delay S from taking possession.

 

Analysis

 

Whilst a borrower's disability does not appear to automatically and directly affect a lender's entitlement to possession, or indeed force the lender to adopt a riskier financial position in favour of the borrower, it does affect the process by which lenders deal with a disabled borrower's account prior to issuing proceedings and whether it is appropriate to issue proceedings at all at that particular time. Indeed, once put on notice of a borrower's disability, the Court will expect a lender to be able to evidence a reason-based decision-making process that specifically takes into consideration the borrower's disability when it either declines to make, or agrees to adopt, changes to its practices which are intended to assist the borrower in servicing the mortgage. Courts will also expect lenders to have policies in place to deal with such situations, as was stated in Green. The risk for lenders in failing to comply with their duties under s.21 DDA 1995 is that the borrower could make a counterclaim for damages on the basis of unlawful discrimination and, if successful, the Court could order damages to be credited to the mortgage account. Whilst the Court in Green dismissed G’s counterclaim for damages, it did note that the Financial Ombudsman had considered an earlier complaint by G and had ordered S to pay G compensation; the Court therefore ordered that the sum be added to G’s mortgage account and a statement be produced at the next hearing to show such had been done.