§ Amendments as to ultimate incidence of contributions under Part I of the principal Act.
§ Mortgagors and Mortgagees.
§ 4.—(1) Where—
- (a) the whole or parts of different storeys of a house or building are occupied by two or more persons in different apartments or tenements and the house or building comprises more than one contributory property, but each of the contributory properties is used or suitable for use for residential purposes and has a contributory value not exceeding thirty-five pounds; or
- (b) land which is farmed as a single unit or consists only of land so farmed together with other land either normally farmed therewith or, if it consists of or comprises buildings, intended to form part of the unit, comprises more than one contributory property, but the aggregate of the contributory values does not exceed five hundred pounds,
§ the house or building or, as the case may be, the land shall be deemed for the purposes of Section twenty-five to be a single contributory property to which that section applies.
§ 11.—(1) At the end of sub-paragraph (1) of paragraph 6 of the Fourth Schedule there shall be added the folowing proviso:—
§ "Provided that where it is shown that the rent is greater by any amount than it would otherwise have been by reason of the landlord undertaking to bear any tenant's rates, or rendering or providing, or procuring to be rendered or provided any services or goods, the proportion appropriate to the tenancy shall be calculated as if the rent were reduced by the said amount."
§ (2) For the avoidance of doubt it is hereby-declared that for the purposes of the said sub paragraph (1) the proportion of rent to value—
- (a) in the case of a tenancy under which no rent is reserved, is less than one quarter;
- (b) in the case of a tenancy under which the rent reserved is not a money rent, is the proportion which the money value of the rent, or the annual equivalent thereof, bears to the value of the land.
§ General provisions as to indemnities.
§ 12. A right to indemnity conferred by Part. I of, "or the Fourth Schedule to, the principal Act shall not be enforceable until the 758 discharge of the liability in respect of which the right arises:
§ Provided that on the discharge of part of the liability the said right shall be enforceable as respects a proportionate part of the amount of the indemnity.
LORD BALFOUR OF BURLEIGH moved, in paragraph (4) (1), after head (b), to insert:
(c) land which has been developed by a housing association (being an association within the meaning assigned to it by Section one hundred and eighty-eight of the Housing Act, 1936) for the purpose of providing houses for the working classes, if the developed land consists of or comprises more than one contributory property,''
§ The noble Lord said: The Amendment which I have put on the Paper attempts to do justice to a very deserving set of bodies, the housing associations. Housing associations have always had the sympathy of your Lordships' House in the work which they are trying to do, that is to provide houses at low rents for that portion of the population who can only afford low rents. They have done a great deal in the way of housing reform. At the end of the last war, when housing became a very urgent public issue, I think it is correct to say these societies really did whole-heartedly respond to the urgent appeal of the Government to do what they could to stimulate housing reform and to meet the shortage of houses throughout the country. Many of them had to contract considerable mortgage loans and at very high rates of interest—some up to 6½ per cent. I know of cases where societies borrowed from the Public Works Loan Board on terms of that kind. Under the War Damage Act, 1941, where the mortgage relates to only one property the mortgagee is required to pay a portion of the contributions on the property if the Schedule A valuation does not exceed £150, and in other cases the mortgagee is absolved from, payments. That is the circumstance which is making things very difficult at the moment for these housing associations.
§ There are two versions of my Amendment on the Paper, and if I may I will formally move the first. The second version, if I may be allowed to refer to it, is an attempt to meet certain objections which the noble and learned Viscount on the Woolsack is sure to make to the Amendment in its first form. I am going to appeal to the noble and learned 759 Viscount to help me in the matter because it is very technical and I think the object is one with which he will sympathize, although he will be the first to point out practical difficulties. My idea in putting in limiting words in the second version was to do something to remove the objections which I anticipate on the part of the noble and learned Viscount.
I would like to give one or two instances of the sort of way in which present arrangements are working to the detriment of these housing associations. I have here a statement by the Welsh Town Planning and Housing Trust Ltd. It is as follows:
''The annual contributions payable by our twelve societies amount to £4,994. It is a most severe handicap not to be able to recover the equitable proportions from mortgagees. We are already carrying the burden of increased cost of repairs and maintenance and higher taxation. The two societies at Rhiwbina and Burry Port, during the years of the industrial depression in South Wales, had to reduce rents (with the approval of the Minister) by 30 per cent., involving a loss of rent income of several thousand pounds. The P.W.L.B. refused to reduce interest rates (6½ per cent.). The societies cannot now raise rents (although tenants are earning higher wages); the P.W.L.B. continue to demand the 6½ per cent. interest: yet we are denied the comparable right of other mortgagors of claiming from the P.W.L.B. the equitable proportion of the War Damage Contributions.
§ I think it is relevant to say in connexion with that, that these housing associations were encouraged from official quarters to do their housing work when rates of interest were high. Official assurances were given that in bearing the burden of the high rates of interest and building at a time of big cost the societies would not be placed at a later date in a disadvantageous position. That has come about. These societies now, owing to the War Damage Contribution and the impossibility of passing it on to the mortgagors, are really in a very difficult position indeed. With these few words I beg to move the first version of my Amendment in order that I might have the advantage of hearing the reply of the noble and learned Lord Chancellor.
Page 22, line 22, at the end insert the said words.—(Lord Balfour of Burleigh.)
§ THE LORD CHANCELLOR
My noble friend raised this question when we had the main measure before us a year or more ago. His interest in housing associations 760 is well understood and I think that there will be a general feeling in the House—certainly I share it—that the work done by these associations is very meritorious. My natural inclination would be, therefore, to try to see if I could meet my noble friend. But as I pointed out to your Lordships in the last debate on the subject, so I must point out now, that really consistently with the scheme of the Act this is not possible. The great majority of the mortgages of the housing associations raise money generally on a large contributory property and are not in the least in line with the provisions which my noble friend has quoted from Section 25. The Treasury, and the other Departments concerned, I am informed have considered this matter with great care and sympathy. They realize that the housing associations have a very meritorious claim upon our sympathies. But just consider what is involved in what my noble friend has just said. He gave an instance in which an association has borrowed from the Public Works Loan Board. There are also—as he knows and as others in your Lodships' House know also—a great many instances in which housing associations have borrowed from local authorities, and the broad question is, are you in these matters to depart from the principle of Section 25 and to call upon the lender to take a share—I do not pause for a moment to discuss how difficult it would be to work it out—of the burden of contribution?
It is really fundamental to the view of the Bill that normally the relation between the lender and the borrower—between the mortgagee and the mortgagor—is of this kind: the mortgagee advances money at a rate of interest—usually a low rate—and he does it on the basis that that is the full extent both of his possible gains and his possible losses. If the mortgagor does well out of the loan and makes profits out of it, that does not advantage the mortgagee in the very least. He simply advances money at the rate quoted, and it is the borrower who takes the rough with the smooth as to whether he may make a good thing out of it or not. What my noble friend is asking is that because housing associations are, as we all agree, very meritorious bodies, in their case, as an exception, those who have advanced money to them should be treated in a different 761 way from which they would be treated if they were not housing associations. I do not think that it would be easy for your Lordships to agree that the local authorities that lend money to housing associations, or for the matter of that any other lenders, should be put in a quite exceptional position.
The trouble is, and I am sure that I very much regret it, that owing to the circumstances of the war some of' these associations are faced with very great difficulties. The instance which my noble friend quoted is an example. But this is not a difficulty which is to be met by this kind of thing at all. The burden of War Damage Contribution is not the only cause, or the main cause, of the difficulties in which some housing associations find themselves. It is not that at all. It is the fact that they have unhappily lost revenue owing to properties becoming vacant—what is called voids—or may be owing to the transfer or flight of considerable portions of the population. In so far as they are faced with an emergency, I am not denying it, but I must respectfully but firmly insist that it is not to be met by giving them this exception—this really unwarrantable and unjustified exception from the general scheme of the Bill. It must be considered in other ways. It has been stated that when housing associations have paid their ordinary annual outgoings they will not have sufficient net income to pay the contribution. Well it is the practice of the Inland Revenue Department to give careful consideration to cases in which a person charged is unable out of income or from other resources to meet the liability as it falls due. I am authorized to say that, in such cases, the Department is prepared, on being furnished with the facts of a particular case, to consider any proposals for extension of the time for payment.
But I am not prepared, and I hope that your Lordships will support the Government in this matter, to alter the general relation between mortgagor and mortgagee by which a mortgagee lends at a low rate of interest because all the risks of the enterprise do not rest upon him but rest upon the borrower. I am not prepared to alter that in this special case. If I did it would be the beginning of an avalanche of cases of all sorts and kinds. I regret very much that an association which has 762 borrowed money for philanthropic purposes should not get this assistance, but what we have to consider is would that justify a departure from the general principle of the Bill which I think by this time is approved by the judgment of all sensible people? I am bound to give the answer that it would not. I do not pause to say that the definition of "housing association" as a matter of fact might very well let in some people who are not quite in the mind of my noble friend. Much as we sympathize with the difficulties of these particular borrowers they cannot expect to be made a special exception because they have borrowed from local authorities or from public loan funds.
LORD BALFOUR OF BURLEIGH
I am indebted to the noble and learned Lord Chancellor for what he has said. What I intend to do is not to ask your Lordships to depart from the whole principle of the Bill except to very nearly the same extent that it has been done already. My Amendment goes in as (c) to paragraph 4 of the First Schedule. Now (a) and (b) are already two exceptions. It will be noticed that head (a) says that where—"the whole 'or parts of different storeys of a house or building are occupied by two or more persons in different apartments or tenements and the house or building comprises more than one contributory property, but each of the contributory properties is used or suitable for use for residential purposes and has a contributory value not exceeding thirty-five pounds,then—the house or building … shall be deemed for the purposes of Section twenty-five to be a single contributory property to which that section applies.It consequently gets relief. My Amendments is so drawn as to bring another small category, morally entitled to this relief, within the umbrella of those who are legally entitled to get it.
In those circumstances, I cannot understand the noble and learned Lord Chancellor saying that this is a derogation of the whole principle of the Bill. On the point of letting in other people who do not deserve it, I am aware that there is some substance in that, and, to meet that point, I have put down an alternative Amendment on the Paper, which in the circumstances I should prefer to move, if I may, by leave, withdraw the present Amendment.
§ Amendment, by leave, withdrawn.763
LORD BALFOUR OF BURLEIGH moved, in paragraph 4 (1), after head (6), to insert:
(c) land, the proprietory interest of which is vested in a housing association (being an association whose objects and constitution are within the meaning of Section one hundred and eighty-eight of the Housing Act, 1936, which defines a 'housing association') established for the purpose of providing houses for the working classes and the land by virtue of having been developed for that purpose consists of or comprises more than one contributory property and each contributory property has a contributory value not exceeding thirty-five pounds.
The noble Lord said: It may be that some further tightening-up is required, and, at the next stage, it might be desirable to amend the Amendment, so that instead of referring to a housing association as defined in the Act of 1936, the definition is made more narrow. The definition in the Housing Act, 1936, is as follows:
'Housing association' means a society, body of trustees, or company established for the purpose of, or amongst whose objects or powers are included those of, constructing, improving or managing or facilitating or encouraging the construction or improvement of, houses
and so on. I would suggest that the words" or amongst whose objects or powers are included those of" be omitted from the definition in this Bill, so that it would read that a housing association
means a society, body of trustees or company established for the purpose of constructing, improving or managing
§ and so on. That would have the effect of bringing this body of admittedly meritorious people, as the Lord Chancellor has been kind enough to describe them, within the little exception provided for in this Schedule, and would bring them into line with the building societies' borrowers, who already get this relief. I hope that the Lord Chancellor will think that that will have the effect of achieving, in this limited way, what I think I am entitled to say that he would like to see done. In those circumstances, I hope that he will be able to accept the Amendment.
Page 22, line 22, at end insert the said words.—[Lord Balfour of Burleigh.]
§ THE LORD CHANCELLOR
I do not wish to detain your Lordships, but, although my noble friend is perfectly right when he says that he desires to add housing associations as a further category, (c), to the two categories which are called 764 (a) and (b) in the Second Schedule, realty he is asking for something which is not in the least like (a) or (b). The general scheme of the Bill is that under Section 25 of the original Act you will not get a limiting of the contribution unless you have a mortgage which is on a single property of a limited value, which is, broadly speaking, a building society mortgage. What is (a), to which my noble friend wishes to join his own proposal? Head (a) provides, in substance, that if there is a flat in which different persons occupy different tenements or apartments, each portion shall be treated as one unit. That is obviously sensible; if you have a law about small houses you must obviously have a law about small flats, and the fact that several of them are put together in a single building would be a very artificial reason for doing anything about them. Head (a) is not an exception, but a working out of the scheme.
What is head (b)? It deals with the agricultural case. The only instance in which, as the Bill stands, a mortgagee has to bear a share of the contribution for agricultural land is where he has advanced money to buy land, the land itself not being worth more than £500. Head (b) provides thatland which is farmed as a single unit or consists only of land so farmed together with other land either normally farmed therewith or, if it consists of or comprises buildings, intended to form part of the unit, comprises more than one contributory property, but the aggregate of the contributory values does not exceed five hundred pounds,—so that that falls exactly within the £500 limit. My noble friend's housing associations may, and probably do, raise a very large loan over a very large area of properties which they own. This is not a case, therefore, of the addition of a little head (c), which is just like (a) or (b), just to make things comfortable; it is a totally different principle, and I do not see my way to agree to it.
LORD BALFOUR OF BURLEIGH
I do not wish to be pertinacious, but the Lord Chancellor said that if, say, six flats are included in one block, then they are to get the relief. If six houses, with a rateable value of under £35, are also included in one block, I think that they ought to get the relief too. I think it is an entirely analogous case, and I hope your Lordships will support me if I press it to a Division.
§ On Question, Whether the said words shall be there inserted?
|Salisbury, M.||Maugham, V.||Barnby, L. [Teller.]|
|Esher, V.||Atkin, L.||Fairlie, L. (E. Glasgow.)|
|Exmouth, V.||Balfour of Burleigh, L. [Teller.]||Gainford, L.|
|Simon, V. (L. Chancellor.)||Addison, L.||Jessel, L.|
|Norfolk, D. (E. Marshal.)||Bethell, L.||Latham, L.|
|Albemarle, E.||Blackford, L.||Mendip, L. (V. Clifden.) [Teller.]|
|De La Warr, E.||Boyle, L. (E. Cork and Orrery.)|
|Dundonald, E.||Monkswell, L.|
|Huntingdon, E.||Braye, L.||Palmer, L.|
|Lucan, E.||Bruntisfield, L.||Perry, L.|
|Manvers, E.||Cecil, L. (>V. Cranborne.)||Rushcliffe, L.|
|Ypres, E.||Clwyd, L.||Sherwood, L.|
|Denham, L.||Snell, L.|
|Chaplin, V.||Ebbisham, L.||Soulbury, L.|
|FitzAlan of Derwent, V.||Ennisdale, L.||Southwood, L.|
|Hailsham, V.||Faringdon, L.||Stanmore, L.|
|Trenchard, V.||Hampton, L.||Strabolgi, L.|
|Hardinge of Penshurst, L.||Templemore, L. [Teller.]|
|Aberdare, L.||Hare, L. (E. Listowel.)||Teviot, L.|
|Addington, L.||Hutchison of Montrose, L.||Wardington, L.|
§ Resolved in the negative,, and Amendment disagreed to accordingly.
VISCOUNT MAUGHAM moved, after paragraph 6, to insert:
7.—(1) Where the interest of a direct or indirect contributor in respect of a contributory properly to which Section twenty-five does not apply is at the revelant date subject to a mortgage as hereinafter defined and the amount secured by the mortgage at the relevant date is more than one-third of a sum equal to twenty times the contributory value, the contributor shall be entitled to be indemnified by the mortgagee to the extent set forth in subsection (1) of Section twenty-five, the sum equal to twenty times the contributory value being substituted in paragraphs (a), (b), (c) and (d) of subsection (1) of Section twenty-rive for the price of acquisition of that interest.
(2) Subsection? (2) and (3) and paragraph (b) of subssction (8) of Section twenty-five shall apply but so that in subsection (3) the sum equal to twenty limes the contributory value shall be substituted for the price of acquisition.
(3) For the purposes of this provision, the expression 'mortgage' shall mean any mortgage or charge on any property for securing money or money's worth which vests a legal estate in the mortgagee or confers upon him a legal interest within the meaning of Section one of the Law of Property Act, 1925, but shall not include any debenture or floating charge.
§ The noble and learned Viscount said: In moving the Amendment which stands in my name, I feel that the Committee deserves an apology for the jargon in which the Amendment is framed, because it is quite unintelligible to any person who766
§ Their Lordships divided: Contents, II; Not-Contents, 47.
§ is not in a position to compare what is said there with the original Act and with the present Bill. The meaning of the Amendment is simply this. It is to extend the principle of Section 25 of the War Damage Act to other mortgages in the ordinary sense. The Amendment particularly leaves out of consideration such charges as debenture holders' charges and bankers' charges and all floating charges, and relates simply and solely to what may be called straight mortgages of houses and buildings.
§ In order that your Lordships should appreciate what I want, I must tell you what Section 25 of the original Act does. It gives a right to a mortgagor against a mortgagee in a very limited class of cases to a certain contribution towards the five contributions which are at present required from the owners of property in this country to help the Government with the payments which it is going to make in respect of war damage. I should like to make clear from the start, so as to brush that matter out of the way, that this Amendment does not affect the Government or the amount that the Government have to pay at all. It is merely a question between mortgagors and mortgagees. And although I am afraid I must take a little time in explaining to your Lordships why what I am suggesting is fair, in one sentence what I am going to contend is that it is fair and just that in 767 the cases which I mentioned—straight mortgages of land and property—the mortgagee should bear a share except when the amount secured, as compared with the value of the property, is such that he really is not an interested person. Now what does Section 25 do?—and I think those of your Lordships who have not yet been able to study it will be rather surprised when they find how limited it is. There are four conditions which have to be complied with before Section 25 helps a mortgagor. I will state them briefly, because they are wrapped up in verbiage which I am afraid laymen would not readily understand.
§ These are the four conditions. The first is that the amount secured on mortgage must be more than one-third of the price for which the property was acquired. The second is that the contributory value under Schedule A—because the amount you pay is called the contributory value, and is ascertained under Schedule A, where Schedule A applies, or according to the rateable value where there is no such basis available—the contributory value must not exceed £150. The third condition is this, that the property must be used, or be suitable for use, as a residence or must comprise a residence. In other words, all shop property is ruled out, and all those unfortunate small retail traders all over the country who are being driven out of their shops—no doubt quite properly—by diverse war measures which are thought to render such a course necessary, are not within Section 25. I have said it was £150, but, if it is agricultural land, I should have added that the Schedule A contributory value must be less than £500 annually. Then comes the fourth of the conditions. The mortgage must have been created to secure a capital sum on the occasion of the acquisition of the property or of the execution of the works of improvement on the property, provided, as I understand the rule, that the acquisition was of only one property.
§ I ask your Lordships what is the real suggested ground for keeping to the view that the advantage given to the mortgagor is to be limited to cases which are residential. Why should it be limited to properties which are under £150 annual value and, worst of all, why should it be limited to mortgages created for the purpose 768 of buying the property? What principle of justice is involved in that? The system which Section 25 has adopted in cases where the section is applicable is that the mortgagee must contribute from one-sixth of the mortgagor's liability to two-thirds of the liability, varying of course with the proportion that the amount secured bears to the price of the acquisition of the property. For the purposes of my Amendment, I have adopted precisely the same proportion, and have indeed worked in the Amendment which I have the honour to submit with Section 25 as it stands. I must express regret that I have lost two most valuable supporters—one my noble friend Lord Swinton, who has unfortunately had to go away on Government service, and the other my late noble friend Lord Stamp, who was greatly in favour of the sort of Amendment I have put before your Lordships. He made some observations when the matter was last before your Lordships which I shall take the privilege of reading. Lord Stamp, Lord Swinton, and I - did not have an Amendment before the House when the matter came up on the, last occasion on March 12, 1941, but we took the step of making some suggestions to the noble Viscount on the Woolsack who, I am glad to see, is still appearing for the Government in this case. We made some suggestions to him in the hope that the Government would see the justice of what we were contending for.
Lord Stamp, whose name is one of the most revered among your Lordships, was a moderate-minded man who expressed moderate things, but when he pointed out this extraordinary anomaly in Section 25—that it turned on the accident of the mortgage being raised for acquisition—he said this:
If there are two people side by side, one of whom has bought the property with the assistance of a mortgage and the other of whom has found it necessary to borrow the money otherwise, why should these two people be in a different position?
And he went on to say:
One observes, 'When I bought the house I raised the money from A,' and the other says, 'I did not do that. I was in possession of the house for two years, but I wanted the money for other reasons.'
Then Lord Stamp said:
Could you have anything more arbitrary, more inexact, more unscientific and unfair as between two people?
§ These words of Lord Stamp have just the same weight to-day as they had then. I remember speaking to him after the debate was over, and we both agreed that the argument had never been answered or dealt with at all Lord Swinton had the same view. The editor of The Economist, a journal which has a high reputation—certainly with me—made some observations a few days ago to the same effect. He dealt with other matters, I agree, but also with this matter of mortgages.
§ I suggest that the purpose for which the mortgage was created is wholly irrelevant to the question as to whether it is just that the mortgagee should make some contribution towards the amount due from the mortgagor. A man who borrows to send his son into medicine or to the Bar, to assist his daughter to marry, or to discharge his own debts, is just as much entitled to consideration as a person who has bought his house with the advantage of borrowed money, borrowing it probably from a building society or some other institution. As I understand it, there is another anomaly here. If a man has borrowed to buy two separate houses, Section 25 does not apply. I agree that the proviso to subsection (5) is a little difficult to understand, but that was alleged to be its meaning in the other place, and I understand there was no denial that that was what the effect was.
§ Now let me say something of a general nature before going on to tell your Lordships what I submit is the real justice of the case. I think it is true that the Government did not find themselves in a position to deal complete justice to everybody. It is a rough-and-ready scheme intended to meet an emergency, and the proportions in Section 25, for instance, are not scientific proportions; they go in jumps from one class to a different class. I do not expect to find in this measure—it would be silly to expect to find—complete fairness to everybody. "Rough justice" is what it has been called both in another place and here, and I should attribute, myself, very little weight to a particular hard case or hard cases which I could mention, if the principle involved is sound. But what is the principle of this measure? Surely it is this, that all persons with a real interest in land and buildings have to bear their share, all of them. The Government are going to come in after a sum 770 which is estimated, I think, to be £200,000,000, have been expended in discharging war liabilities, and the people who are going to contribute in the first instance to the money the Government are to find are not the general property owners of the country, but those property owners who have land and buildings. But why any particular class of those people should be singled out for exemption, I am totally unable to understand.
§ I have given you the illustrations of the man who has borrowed the money because he needs it, and I have given you the other case, but the real question is, are the mortgagees of land and houses owners of a real stake in the land and houses in question? Are they not really the people with a stake in it, and is it fair that they should pay no contribution at all? Let me pause here to ask your Lordships not to believe that this is a question of law or a question for lawyers. It is not. It is a question of the purest common sense, and has really nothing to do with law except to understand what the meaning of the word "mortgage" may be. It is a question of fairness, and I am going to urge your Lordships to support me in doing something which I submit is fair for all classes of the community who have been suffering during the last two years a grave hardship. Your Lordships will remember that under the terms of the Act (Section 92) contributions are to be treated for all purposes as outgoings of a capital nature, and your Lordships will remember that it is a capital tax on land and buildings which normally falls on owners of houses, on agricultural property and on certain fishing rights and things of that sort. There are five annual instalments of 2s. in the pound on the net annual value of the property which do not resemble an insurance premium in the very least. It is compulsory on owners of land and buildings. It is an outgoing of a capital nature, it is quite irrespective of the risk, so that people, we will say, who have houses in Appleby pay precisely the same as people who have houses in Dover, Portsmouth or Plymouth. Really, so far as I can see, it is no more of the nature of an insurance premium than Income Tax is.
§ The nature of the Amendment is one which relates simply to ordinary mortgages. Debentures, floating charges and deposits of deeds and bankers' charges 771 are left out, and I have left them out for the reason that I admit I did hear on the last occasion, and I have read more recently in another place, arguments which have some weight in relation to such things as debenture holders and floating charges. I admit, for instance, that the man who borrows money on overdraft which he may be called upon to pay off at any moment is in rather a different position from the man who has mortgaged his property for half or three-quarters of its value, mortgaged it definitely for a period which is expected to last for a considerable time—a permanent fixed loan with a fixed rate of interest. I will only just remind your Lordships—and it is the only scrap of law I intend to worry you with—of these facts as regards a mortgagor and a mortgagee. In the first place, the property passes to the mortgagee, under the definition which I have used in my Amendment. If the mortgagor wants to get it back he has to redeem—that is to say, he has to pay principal, interest and costs, and unless he does that it is the mortgagee's property; the right to take possession is vested in the mortgagee. It is true that since the War Emergency Powers Act he has got to get the leave of the Court, but apart from that the mortgagee is entitled to go into the property if he can get it without a breach of the peace, and if he does not find it easy to do that he can apply for possession to the Court. The mortgagee is entitled to sell after three months' notice unless the mortgage gives him a right to sell at an earlier date. The mortgagee's rights in the land are, therefore, far more valuable and important than those of the mortgagor.
§ The Legislature has agreed that there are cases where the mortgagee has taken possession or obtained a receiver, for they are actually the subject of a section in this very Act which we are proposing to amend. Who is going to tell me that after the war is over, and smiling times come once more perhaps, that the mortgagee is going to give up possession of the property to the mortgagor and that the mortgagor in most cases will be able to pay him? In the cases where the step has been taken of appointing a receiver, or where the mortgagee has been able to recover possession there in substance the interest of the mortgagor has vanished to a point at which it is practically invisible. 772 In theory he still has a right to redeem, but he has to find the money and in nine cases out of ten the real right of the mortgagee is in the property. I need not elaborate that. I might ask, does anybody suppose that with regard to the mortgagees in my Amendment there are 2 per cent. who would have lent the money but for the security of the property? Of course it is the property that is looked at in the mortgages which I am considering, not the possibility of getting the money by an action against the mortgagor.
§ I will ask your Lordships another thing. Supposing in a dangerous area, say, there is a strong probability of bombing, and this Act comes to an end, perhaps because for some reason the Government think it has expended its usefulness, or supposing, only in theory, we wipe it out, who is going, under a voluntary scheme, to insure the property, the mortgagor or the mortgagee? It is absolutely certain that in such a case the majority of the insurers would be the mortgagees. They are the people who are really interested in the great majority of cases. I should have thought that all that was absolutely clear.
§ Now I want to give your Lordships an illustration, if you will bear with me for one minute, because I think it is a fair one, and it will show you how great the interest of the mortgagee is in a case which is not a very surprising one. I am going to take the normal case of a house and premises worth £2,000, which has, accordingly, in all probability a Schedule A value of £100, because everybody knows that twenty times the Schedule A gives you roughly the value of the house. The property is mortgaged for three-quarters of its value which is the ordinary maximum that a prudent lender lends on the security of a house—that is to say, £1,500. We may take the normal interest rate at 5 per cent. In order to make the illustration clear I will not assume that the man is living in his property at the time we have to consider, but that he has had to go out, perhaps to go abroad to fight. He has let his house, and I will assume that he has been lucky enough to let it for £100, which is the same as the Schedule A value. His annual contribution is £10 and that is to go on for five years. As the law now stands, the mortgagor will get £100 for rent less 773 £10 for annual contribution, less £75 for interest on the £1,500. That is to say he will get, as the law now stands, £15 per annum, and out of that and of other property he has somehow to pay Income Tax, but I will not say anything about that because it is very fluctuating, and I do not know at what stage now he would get off. The mortgagee gets out of the property £75 per annum as compared with the mortgagor's £15. The mortgagee gets five times as much as the mortgagor. Yet there are people who pretend that the mortgagee is not interested in the property.
§ Now I want to tell your Lordships what will be the effect of my Amendment if it is passed. The mortgagee, under the terms of my Amendment, will contribute £5 per annum towards the £10 annual contribution. That is to say he will be left with £75 for interest, less £5 towards the contribution under the War Damage Act. The mortgagor, instead of £15, will get £20. The result is that the mortgagor will have an interest in the property of £20 during the war and the mortgagee's interest will be £70. Of course the mortgagee's interest will be much the greater.That is because the interest of the mortgagor in the land and property is always a right in a margin. The person who has got the real and prior right is the mortgagee. The mortgagor has got nothing but a margin and in the illustration I have given, where three-quarters is lent on mortgage, the interest of the mortgagee is very much more than the interest of the mortgagor. Yet the Government apparently adept a non possumus attitude and treat the mortgagee as if he were not really concerned as the person who has got the real interest in the property in question.
§ I come next to the main objection, as I understand it, to the Amendment which I put forward. The main objection is that the mortgagor has convenanted to pay principal, interest and costs. Is that really any reason for fixing on him the whole liability for these War Damage Contributions which neither the mortgagor nor the mortgagee contemplated at the time when the mortgage was entered into? I cannot see why, when the Government are distributing various amounts as due for War Damage Contributions to mortgagor and mortgagee, the mortgagee should be held not to be a proper person to discharge some portion of them if he has, as I have 774 established, a real interest in the land and house. Why not? I confess I cannot see it. The Government can do what they like and arc only concerned with the fairness of the proposal. In a large number of cases which the Government have not thought to bother about the mortgagors are unable now, and will be unable, to pay a penny. The diminution in the value of houses has been very great even in cases where they have not been damaged by bombs. In cases where they have the position is really tragic for the unfortunate mortgagor. The only real security of the mortgagee is in the property, and it is fair that he should bear a certain proportion of the burden.
§ There is only one other argument I have ever heard which is worth your Lordships' consideration. It is that this is an interference with the sanctity of contract. I cannot see what sanctity has to do with this matter of fairness. In a special emergency this war tax of a capital nature was imposed to meet the special case of war damage to property which falls on the just and the unjust alike. The damage will not be due to the acts or defaults of property owners. It is a misfortune which comes from the fact that we are at war with a foreign Power. The tax was an unforeseen and unanticipated one which the Government were perfectly entitled to impose equitably as between mortgagors and mortgagees. But the Act itself disregards such questions as sanctity of contract. We have in the Act the most elaborate interference with the rights of landlords. As between landlord and tenant there are enormous changes introduced as compared with the position which would exist if you left existing leases to operate. Yet I have not heard that anybody is shocked at that because it interfered with the sanctity of contract.
§ If your Lordships know anything about Income Tax—I hope you do not—you will be well aware that the Income Tax Acts all along have contained a provision that no contract or other instrument of any kind which seeks to throw liability on some party other than the person who is in receipt of rent or interest or other charge of that sort is to be valid. The Acts have always declared them void. That, you may say, is an interference with contracts. But has anybody ever thought it unfair? When the Crown is imposing Income Tax, it is entitled to say: ''We will impose a certain share of 775 that tax on the person who is going to receive the interest on a debt, none the less because he is a creditor and the other man a debtor." Why should it not be so? In this present Bill the sanctity of contracts is disregarded. The only reason I can think why landlords have been treated as they are by this Act, if it be true that the sanctity of contracts is to be regarded, must be that landlords for some reason must be regarded as criminals. By a parity of reasoning, I suppose, mortgagors must be regarded as misdemeanants. But if you are going to be fair to the mortgagors you must, I submit, have regard to the fact that the persons really interested in a vast number of cases are the mortgagees—they are predominantly interested. But although there are some cases in which the interest of the mortgagee is smaller, that, I suggest, is a matter for attempting a slight Amendment to my Amendment. I have taken the form or proportion which the Government have accepted, and I think it works out at something like rough justice as between mortgagors and mortgagees.
§ There has been no vote yet in either House on this particular Amendment. It was not voted on before in this House because it never was before your Lordships. It was not voted on in the other place because the Amendment then before the House included an Amendment which related to bankers' charges and debenture holders and floating charges, and there were interests arrayed against any interference with those particular interests. There was, however, very wide support coming from all sides of the House in the other place even with the Amendment in the wider form. The voting in fact on the Amendment was 87 against and 53 in favour of the Amendment. My conjecture is that limited as the Amendment now is it would have been carried, and I have, as I have said, the great authority of the late Lord Stamp, Viscount Swinton and other noble Lords, some of whom I hope will speak in this debate, in favour of the Amendment which I have put on the Paper.
§ I hope that we are not once more going to be favoured with a statement that this is a departure from the principle of the Bill. The real principle of the Bill is to be fair alike to all the people who have houses or land property. That is the 776 principle of the Bill. There is no principle in favour of treating mortgagors as if they had done something disgraceful, though the Government have long been urging legislation which has been encouraging them to buy their houses and also to borrow money from building societies on the faith of the security of the property. I have long been concerned in endeavours, to the best of my ability, to secure justice. Well, I am completely disinterested in this matter as I used to be in dealing with those matters which came before me in the past. I am not a mortgagor or a mortgagee. I am not even happy enough to be, so far as I know, a debenture holder. But I am interested in justice, and for the reasons I have given I urge your Lordships to support this Amendment on the simple ground that it is just and equitable. I beg to move.
Page 22, line 48, at end insert the said new paragraph.—(Viscount Maugham.)
§ LORD BARNBY
I am sure that the Committee will have been overwhelmed by the lucidity, the logic—and to use a phrase which the noble Lord emphasized—the common sense approach to the subject with which my noble and learned friend has been good enough to explain this Amendment. He referred to the debate on this point which took place when the principal and original Act came before the House, and he quoted in support of his reasoning the opinion of one who, alas! is no longer with us, but which opinion nevertheless evidently carries now, as it did then, great weight with your Lordships. This is shown by the wisdom of my noble and learned friend in deeming it appropriate to quote that opinion now. It so happened that that debate arose on an Amendment which was put down in my name, and for that reason I ask for the indulgence of the Committee in order that I may add some words on this particular point now. I think I shall have the sympathy of the Committee when I ask you to recognize the position in which I as a layman now find myself. The position for one like myself, inexperienced in the law and in speaking, is indeed one of some inconvenience seeing that I come in, as it were, between the expressed opinions of a former Lord Chancellor and the reply on behalf of the Government of the present Lord Chancellor.
777 I make that explanation in the hope that it may gain for me the indulgence of your Lordships, and I now venture to ask your attention to the simple aspects of this proposal. I think you will all understand my relief at my good fortune that, instead of moving the Amendment which stood in my name, a task which would have involved some attempt on my part to deal with the legal aspects, that task of dealing with legal aspects has been performed with the brilliance, skill and overwhelming conviction of which my noble and learned friend is a master. The explanation which he has given to the House relieves me of the necessity of attempting to deal with the legal angle at all. I feel that the Committee will have been convinced of the force of the analogy which he gave on the subject of interference with the sanctity of contract. When your Lordships hear from a former Lord Chancellor so clear an analogy I have no doubt that you will be convinced that, on the legal side, there is no foundation at all in what has been put forward on behalf of the Government by the Chancellor of the Exchequer in another place.
Speakers may well cite the case of a company the shares of which are held by a multitude of small investors on whom, therefore, great hardship may fall if they are forced into the position of being called upon to pay the whole of the War Damage Contribution which is a capital charge. In an instance which was quoted in another place and to which I propose to refer in a minute, an example was given of a company that had to pay £70,000 a year. I do not know whether the shareholders were large or small. That means that £140,000 of income is required in order to pay £70,000 net as War Damage contribution. It may well be, moreover, that this will be a case where the other £70,000 would have been paid anyhow under Schedule A.
I come back to this simple illustration, which concerns the common-sense view of the situation. Here is a mortgagor who, as I have tried to emphasize, may merit the good will and the support of the community, because he has been trying to provide housing accommodation for the working-classes. He finds it necessary to raise capital, because he probably has no capital of his own, and so he uses other people's money, making use of the 778 ordinary machinery for the purpose. He is helping to keep the country going, but hs is called upon to pay the whole of this contribution, without, should he have effected a mortgage, getting any contribution from the mortgagee. That does not seem good logic or good sense. It is not equity. My noble and learned friend said that during a long life he had been occupied in pleading for equity. He brings the richness of his accumulated knowledge to bear on this question, and gives the Committee the benefit of his long experience. I am sure that his arguments must be found overwhelmingly convincing.
It is a curious thing that, where a mortgage applies to a house of a rental of £150 and under a year, an exemption is made, but that exemption is denied to other cases which may be regarded as equally entitled to consideration. It is a curious thing that this provision applies to houses but not to tenements. If a man without much capital, who is trying to develop the country and provide accommodation for the working-classes, provides that accommodation in the form of houses, the Act applies; but if a company builds a large block, giving the same accommodation, upwards instead of horizontally—in the form of flats instead of houses—it does not apply. That stultifies the whole principle of the Bill, and there is no logic in it at all. I instance that as one example which I hope will appeal to the Committee. I hope that 'the Committee appreciate the difficult position which I am in, in speaking to an Amendment such as this, when I find myself confronted with those who are so qualified to speak on the legal aspects of the measure. This, however, is not a legal matter. If the Official Report of the proceedings in another place is studied, it will be clear that, because of the character of the measure, people are afraid of it; they think that it is something which they do not understand. It is plain, I think, that an overwhelming majority of the members of the other House do not understand it, and one might almost assume, from the attendance here to-day, that there are many members of this House who do not take any interest in it, even though they may be directly or indirectly affected—and we are all indirectly affected, because we are all taxpayers. This may seem to be a very involved question, but it is really a very simple one. It is a question which, 779 as my noble and learned friend has emphasized, is one of pure equity and common sense.
My noble and learned friend has emphasized that his Amendment does not include bankers' charges. This matter was raised in a debate in your Lordships' House on another occasion. I notice that my noble friend Lord Wardington is present, and he may have something to say on the matter. He will probably feel that when my noble and learned friend presses his Amendment to a Division, the Amendment will be adopted. In another place a speech was made by someone who has definite associations with banking and who, curiously enough, quoted as an example, to support his argument, the case of a very large property company which would be particularly interested in this matter. It was curious that he should have chosen this to illustrate his argument, because it is a case which affords the strongest support to the argument that the mortgagee should be asked to contribute something. When an Amendment dealing with this question was moved in another place, it was specifically provided that banks should be excluded, because short-term advances, of three months or so, could not be regarded as a definite mortgage. In any event, when it was argued that a portion of the contribution should be made by the mortgagee, it was provided that that should not exceed at the most 50 per cent. of the interest paid.
My noble and learned friend said that it was evident in another place that there was an "array of opposition" to the Amendment which dealt with this point. In that connexion there is one point which, with the indulgence of the Committee, I should like to make. The property owners who happen to be poor people who have mortgages are not organized, but the big banks, the insurance companies and the investment companies are strongly organized. It is a curious thing that the case put forward by my noble friend Lord Balfour of Burleigh, in the Amendment which he moved a short time ago, should not have received the support of Labour members of the Committee. His Amendment suggested something for the benefit of the smaller men, to alleviate distress in the case of the smaller men who have tried 780 to build houses for the working-classes. It is an amazing thing that Labour members of this Committee should have voted against it.
I am very glad that, as circumstances have turned out, I withheld my Amendment, and left the first attack to my noble and learned friend Viscount Maugham, who has been able to deal so brilliantly and so convincingly with the legal aspect of this matter. It is hard to understand that in a matter like this, where the hardship is often borne by small people who have organized themselves to build houses for the working classes, the Labour Party should be found in opposition. If, as I believe, the Committee support my noble and learned friend, then there will be an additional evidence of the inconsistency which has already been conceded by the Government in the case of the building society and the £150 line. My noble and learned friend emphasized the fact that there was no question of the sanctity of contract in this case, because the Rent Restrictions Act has already introduced something which has broken the sanctity of contract, and he gave the further instance of Income Tax.
Possibly the noble and learned Viscount is going to concede this point. At any rate, I am convinced he will see that there is logic in the wider concession being made, which would correct the injustices that already exist, and which is manifastly fair, and would exclude all the arguments of difficulty with regard to short-term loans, such as are made by banks, while meeting the argument so strongly put forward in another place for this necessary correction. And if the noble and learned Viscount does not concede this point to-day, I hope he will consider the propriety of making the concession at a later stage in the Bill. At any rate I hope I have convinced the Committee on pure logic and equity. The opinion of the noble and learned Viscount. Lord Maugham, is an emphatic one, and I suspect the Lord Chancellor might well feel doubtful about the fairness of this treatment of the mortgagor, which I consider to be harsh, though in the position in which he finds himself he has to adopt a different attitude. I hope that if my noble and learned friend presses his Amendment he will receive the support of the Committee.
§ LORD WARDINGTON
I would like to say a word on this rather difficult and vexed question of the respective responsibilities of mortgagees and mortgagors. I ventured to speak on the subject when it was before your Lordships this time last year, when the principal Act was being discussed, and I remember that the noble and learned Viscount thought I was wrong in the views I expressed at that time. I am, therefore, very diffident in rising to-day and saying that I am unable to accept or support his Amendment. I am all the more sorry because his Amendment has to a very large extent met the objections which I had formerly on two very important points, and I will not therefore refer to them—the objections regarding temporary fluctuating loans secured by a banker's charge on the one hand, and the difficulty in connexion with a debenture on the other. The noble and learned Viscount's Amendment has recognized those difficulties, and expressly eliminated the holder both of an equitable mortgage and of a debenture from liability to contribute. From the business point of view therefore, the Amendment is designed to get over those two practical difficulties.
But I would like to approach the subject, not merely from the point of view of what is administratively easy and practicable, and certainly not from the legal point of view, when I should have such a formidable opponent as the noble and learned Viscount, but, like both him and my noble friend Lord Barnby, I would like to approach it on the broader and more general grounds of what is equitable and fair and in accordance with common sense. I, like all other Englishmen, think I have a certain amount of common sense in my composition, and a sense of what is just and fair. It only shows what a funny thing common sense must be, because people who pride themselves on this quality differ when they test it on a particular point. Let me bring it down to quite the simplest form that I can. If I am the owner of a house, it is naturally my business and interest to protect it as far as I can against any damage which it is likely to suffer. I therefore insure it against fire. If I am unfortunate enough to live in a country which is liable to tempests and earthquakes I insure it against those possibilities, also against floods, burst pipes and frost, destruction of glass by hail, and anything else that I 782 can think of which is necessary or desirable. It is my property, and it is my business to look after it and to protect it as far as I can against these eventualities.
If, having done that, I wish to borrow a sum of money on it to put into a promising venture which I believe will yield me a considerable profit, would it be reasonable for me to expect that the mortgagee or the lender should be liable for any of those premiums, when all that he gets out of the transaction is a small fixed interest, and he has no interest whatever in any possible ultimate profit which is made? I do not believe there is anybody who can think that that would be fair. I know of course that the noble and learned Viscount thinks that the analogy of fire and other similar insurances is fallacious, and that War Damage Contribution is quite another matter, and he points out that this Bill deals, not with what might be called more or less ordinary and foreseeable risks, but with accidents due to a war. He pointed out to your Lordships that the mortgagors have already suffered very much from the depreciation of their property owing to the war, but mortgagees have also suffered very considerably. If fire and other similar insurance is not a proper analogy, I should like to draw your Lordships' attention to another measure which seems to me to be entirely on all fours and to constitute a complete analogy. The commodity insurance scheme under the War Risks Insurance Act, 1939, makes compulsory the insurance against war damage of goods for sale. No one has ever suggested, as far as I know, that, when these goods are pledged, the pledgee should contribute towards the cost of insurance.
§ LORD WARDINGTON
I do not think that the fact that the one is paid out of capital and the other out of income has really very much to do with the argument. I feel, myself, that the insurance of these goods owing to the war is very much on all fours with the insurance of property, and I cannot see why, in all fairness, house property should be specially favoured and not treated in the same way. I have another case where it seems to me to be quite inequitable to ask the mortgagee to bear the whole responsibility. Let us take the case of a limited company 783 formed for the purpose of dealing with properties. In its capital structure there are three classes of persons who have contributed to the erection of the buildings and their maintenance—the mortgagee, the preference shareholder, and the owner of the equity or ordinary shares. Why the mortgagee, of these three, should be expected to contribute and the preference shareholder, for instance, goes scot-free, I cannot see, in common sense, fairness, or anything else. It must not be assumed, as it sometimes is, that the borrower is generally poor and the lender rich, and that therefore the former should receive some special degree of compassion. Beneficiaries under a trust, the funds of which are invested in a legal mortgage of property, are often in dire need of their small incomes, and deserving of greater consideration than the mortgagor, who may be much better off than they are. It surely is not fair that their small incomes should be depleted by the deduction of the contribution to the relief of the mortgagor who, besides the property, has given his personal covenant, which is of value.
One further point seems to me worthy of mention. This Amendment leaves the holders of mortgages from third parties under liability to contribute. People are frequently kind enough to deposit their deeds and to pledge them to secure a loan for a friend, or to deposit their deeds in support of a guarantee for the same purpose. It cannot be regarded as fair to ask the mortgagees in that case to pay any of the contribution when it is quite uncertain they will have to resort to that particular security for the debt which the debtor will most likely discharge himself. If your Lordships think I am wrong, and that, on the contrary, you regard as equitable and common sense the suggestion that mortgagees should contribute, I confess I cannot find that ruling principle in the Amendment of the noble and learned Viscount. Under it, liability to contribute will depend not upon any particular principle, or on the nature of the interest of the party concerned, but merely on the form in which the relevant document is drawn. No doubt it has been framed with the object of overcoming the administrative difficulty of making banking securities and security for temporary advances liable to contribute.
Although I greatly acknowledge this concession in favour of banking securities, 784 I wish to be quite unbiased in my mind, and I cannot find any ruling principle of fairness in this. Moreover, even from a bank's point of view, bank mortgages are very often legal hard-and-fast ones which would not be eliminated by the terms of this Amendment. It is perhaps difficult, if not impossible, to frame a Bill of this kind without hardship or unfairness to anyone, but it has been most carefully considered and most patiently debated, and on the whole it appears to me to be as fair as it can be made. I hope therefore it will stand as it is, and that your Lordships will not think it right to accept this Amendment.
§ THE LORD CHANCELLOR
The argument in favour of this Amendment has been very powerfully and elaborately presented to the Committee, and the time has come when your Lordships generally would wish to know the view which is taken of it from this Bench. I shall try and state the arguments which I wish to present briefly, though the matter itself is complex and technical, and no doubt that makes it very difficult to deal adequately with the subject in a few words. The first consideration would ask your Lordships to weigh is this. This is a proposal greatly to extend Section 25 of the main Act—the War Damage Act, 1941, which became law in March of last year. The subject matter was discussed when the main Act was passing through the House of Commons. It was discussed, as your Lordships remember, in this House, and the clause was maintained without alteration by the majority of your Lordships.
§ THE LORD CHANCELLOR
Then it was maintained unanimously by this House! I quite agree that my noble and learned friend's Amendment was not available to the House of Commons. It is a most ingenious work of art which does him infinite credit, but the question was considerably debated in the House of Commons on this Bill, and the Bill comes up in the form in which we see it.
I have to say quite bluntly, on behalf of the Government, that our desire is that in this respect the Bill should stand as it is. As regards the merits of the Amendment, my noble and learned friend protested quite properly and naturally 785 that he was disinterested. I hope that in this matter we are all disinterested. I should think so. He pointed out that it is not a matter in which the Government have any concern in the sense that the Government have to find the money. The Government have no bias in the matter whatever. The Government have received a very great deal of advice and a great deal of consideration, and analyses have been devoted to this; subject for many months. The view of the Government is that in this admittedly imperfect world the Bill in this respect is about right. My noble friend may say he has devoted the whole of his life to the pursuit of justice. So also, I think, have others of us——
§ THE LORD CHANCELLOR
I hope most of it. At any rate he pointed out that he was deeply moved on this matter.
§ THE LORD CHANCELLOR
He was deeply moved on this subject, and feels about it no doubt most sincerely. So do other people. We really have to look at the thing without any prejudice on one side or the other, from the pure dictates of common sense to which my noble friend Lord Barnby referred. Indeed he said his view was that they were so powerful it was not necessary to go on speaking at all.
§ THE LORD CHANCELLOR
Certainly, I understand that. It does appear that even so sensible a man as Lord Wardington takes exactly the opposite view. I could understand it if this proposal of my noble and learned friend which is now before us really had the slightest justification to be the application of principle. Justice no doubt depends amongst other things on trying at least to observe good principles. He claimed in the course of his speech that the principle was that all who had an interest in land and buildings should contribute to this War Damage Contribution. That is a principle. Whether it is the right principle I will examine in a moment, and whether it could be practically applied, 786 I will also consider in a moment. But the first point is that my noble and learned friend's Amendment does not embody that principle at all. He is careful to say—and I quite understand the reason, because he remembers the last debate—that his Amendment is limited to legal mortgages. He commends them to your Lordships by describing such things as straight mortgages. That is an expression which I myself do not know, but I am not so familiar with the law of mortgages as he is.
Supposing a man borrows money by the deposit of the title deeds of his house. That, as I understand, is not a legal mortgage. Then, according to this Amendment, if he does that, there is no principle of justice that requires that the mortgagee, the lender of the money, should contribute anything at all. Why not? If the principle is that the man who lends money on mortgage ought to bear a portion of this contribution, what conceivable reason is there according to common sense that he should only do so if it was a legal mortgage? Exactly the same consequences in common sense ought to follow in the case of an equitable mortgage. The first thing which a Court of Equity, about which my noble and learned friend knows so much more than I do, does is to see that the man who has the equitable mortgage is not denied the rights he would have if he had a proper legal mortgage. There is no possible distinction in principle whatever on which you should take the one and leave out the other, except this. If my noble and learned friend was really to write down an Amendment which embodied this principle, it would at once be exposed as being completely impracticable.
Then my noble friend wishes to leave out bankers' charges or floating charges, or debentures. A very distinguished Chancery lawyer has declared before now that he did not know what debentures were. That is what Lord Lindley said. Why should certain things be left out if the principle is that in the matter of this contribution for war damage people who have advanced money on security must be expected to take their share and pay their whack? What conceivable difference can it make in principle or in common sense that the advance takes the form of debentures? Indeed the thing becomes perfectly fantastic. Suppose you 787 have two builders working side by side, one of whom receives the money for developing his estate by what my noble and learned friend calls a straight mortgage. Then in the sacred name of principle such a person must contribute. But supposing the builder happens to be a limited company and raises exactly the same sum of money by issuing debentures; then he has not to contribute at all. It surely is quite obvious to everybody who looks at this thing that, whatever may be the merits of this proposal, it has not the smallest claim to be regarded as an application of a principle.
There is a second difficulty which I must state with the greatest respect to my noble and learned friend who has studied this subject and has presented it to your Lordships very persuasively. In this matter some regard must be had to practicability. The law is not always as technical as some people suppose, but if Acts of Parliament are so drafted, or are so amended, as to produce great complications, it is the fault of the Legislature. In this instance it would be the fault of the House of Lords; it is not the fault of the law or of the draftsman: Let us see what would be the result if we were to apply this principle. I think I remember on the last occasion that my noble friend Lord Wardington pointed out in reference to such things as floating charges or bank charges, or if you like bank loans, that you would at once get into a fearful complication because the particular loan which was charged on the house was also charged on a lot of other things as well. A man goes to his banker and says: "I want such-and-such a loan for the purpose of my business, will you lend me £2,000?" The banker says: "What security can you offer?" It is very likely, for it constantly happens, that he offers a collection of securities, he offers an insurance policy, he offers his reversion under somebody's will, amongst other things he may offer the title deeds of his house. You cannot determine what is the proper amount of this war risk contribution in respect of the house that should be borne by the mortgagee without going through the most elaborate valuation of all the items of the property. That is one of the reasons why my noble friend in his Amendment has endeavoured to exclude some of these cases, but as a result 788 he has completely sacrificed any principle there could be in the matter whatever.
Let me take practicability. If mortgagees are to bear a share of the contribution, elementary justice requires that the extent of the contributions which they are to pay should be related to the extent to which they are concerned in the preservation of the property—that is to say, to the relation between the amount of the mortgage deed on the one hand and, on the other hand, the value of the rest of the interests of the property mortgaged. Then, if a bank has got a legal mortgage on a particular property as well as a variety of other securities, which may be stocks and shares that are constantly changing their value, this Amendment would require that the authorities who were trying to work this scheme in order to find out how much the contribution should be from the mortgagee, will have to value all these items. I can only say that I have made inquiries about it from the War Damage Commission and that the persons responsible think that, as a matter of administrative machinery, this is a burden they are most unwilling even to contemplate.
§ VISCOUNT MAUGHAM
I am sure the noble and learned Viscount will pardon me. I only want to understand the illustration. I confess I do not understand it at the moment. The banker may lend £10,000. He gets a mortgage on part of the property of the borrower for, say, a couple of thousand pounds: what is the difficulty?
§ THE LORD CHANCELLOR
I should have thought that it did make a difference whether the mortgagee was really depending on the particular hereditament which is at risk of being destroyed or on a whole series of other securities. I should have thought it quite unfair to call upon the mortgagee to make the same contributions in respect of a house on which he held a legal mortgage if that was the only security he had, so that it really did depend on the existence of the house, as in the case of a house which was a mere make-weight in a whole series of securities which had nothing to do with the house. That is the suggestion I make. I do not believe, and those who have examined this confirm me here, that it could be worked with reasonable convenience and facility. The plain fact is that in order to define the extent of the contribution to be paid by 789 mortgagees, it would be necessary for a valuation to be undertaken in every case of the value of the freehold or leasehold property that is mortgaged, and other securities which are held in many cases.
My noble friend has spoken as if the only thing mortgaged is the fee simple. There are plenty of cases of mortgages o f leaseholds. The complications which would arise, in the opinion of those who advise me, who have been working at this thing in the Department for many months, are such that they really cannot face them. It may be said: "You protest that the Amendment does not carry out any principle but does the Act as it stands embody a principle?" I admit at once that Section 25 may very well be regarded as an exception. I think myself that it is well justified, and well justified on this ground. I am not using the language of technicality, but I am endeavouring to use the language of common sense. A contribution is required under Section 25 from mortgagees who fall within that section on the ground that the mortgage transactions dealt with in that section really partake more of the nature of a joint adventure between the mortgagee and the borrower than of a transaction in which capital is advanced on security and in which the borrower is intended to take all the risks. Substantially it is the ordinary building society case. Anyone who has been on the outskirts of London where estates are being developed by building societies, will have noticed placards stating that a certain house is offered and may be bought at 18s. 6d. per week, or whatever it may be. That is, of course, only in a manner of speaking. Strictly speaking, no doubt the occupier is the person who has mortgaged the property through the building society, and I am quite free to admit that were we to proceed with pedantic precision we should apply the same rule here as elsewhere. But as a matter of reasonable adjustment, and with the acquiescence of the building societies, we have said that if it is a case of a man acquiring his small house as his own residence, not worth more than £150 a year, there shall be a contribution made in effect by the building society.
May I ask the noble and learned Viscount if he could explain at this juncture the distinction between houses up to £150 annual value and dwellings in the nature of flats which 790 would be of the same rateable value, which would form in the aggregate a building which would be the property of a company, the owners of which would be all small shareholders?
§ THE LORD CHANCELLOR
My noble friend makes a perfectly good point, and I do not reproach him because he has not read every word of the Bill. If he will turn to page 22, at line 9 he will find paragraph 4 and immediately under that subparagraph (a). I think I may summarize that by saying that that is proposed to meet the exact point he makes. I think he was right up to this moment that if a builder built a series of small houses horizontally, the proviso to Section 25 (5) would come into play, but if he built them vertically it might not come into play. That is a perfectly good point, and it is dealt with in paragraph 4 (a). He will have the satisfaction of knowing that, whether building was horizontal or vertical, as long as there is a residence within the limits of value laid down for the two cases, the same law will apply.
What I was saying was that Section 25 is admittedly in the nature of a limited exception. It is an exception to which the building societies agreed. It is true that the small man engaged in acquiring his house is really in effect in a joint venture with the building society, but outside that you really come to the point which I think myself is conclusive here. I do not speak hotly, because I know great authorities take a different view. If you try and apply the principle that lenders of money on mortgages must share with the mortgagors, then this Amendment does apply, but nobody knows better than my noble and learned friend Viscount Maugham, that if you applied it universally, you would get into a terrible confusion between equitable mortgages, floating charges, debentures and the rest of it. It is not the case that debentures are always issued by limited companies. There is a golf club which, finding itself short of money recently, raised money by issuing debentures to two or three of its more wealthy members. There is no sense in saying that you will not require a contribution if the lender is a debenture holder, but will require it if the lender is a mortgagee. That is a point of principle. The point of practicability is just as important. We must have a machine that will work. It is certainly not my wish to oppose my noble friend, but I assure him it is not a 791 practicable matter to enter upon an immense number of additional valuations which would have to be entered upon. It must be one of our objects to make this thing simple. At present it does not look too simple to judge from some of the Amendments I have moved this afternoon. I ask your Lordships to support the Government and not make the matter more complicated still.
§ VISCOUNT MAUGHAM
I cannot say that I am surprised at the attitude my noble and learned friend has taken, because the Government have rather a reputation for not accepting any Amendments moved from outside and for administering, if not a reproof, at any rate something like a reproof to those who bother them to consider something which they have not themselves thought of. Let us see where we are. In the first place, the noble and learned Viscount addressed to us some very excellent observations with his usual skill in reference to this Amendment. He tried to show that it was not the application of a principle and that accordingly it ought to be disregarded. I was prepared to make some observations on the subject of Section 25. But I knew very well that my noble and learned friend would be clever enough to see that all the observations he had previously been making were, in effect, destroyed by the fact that the Bill contains the elaborate provisions of Section 25.
It is no good saying that you must never touch the rights of mortgagees by requiring any obligation from them when you have already done it, and the only apology for doing it that came from my noble and learned friend was that in the case of the particular mortgages there described there was a joint adventure between the mortgagor and the mortgagee. My answer is that there is, to an equal extent, a joint adventure between a mortgagor and a mortgagee in practically every case where a mortgage exists. The mortgagee is acquiring the property subject to the right of the mortgagor to redeem. The mortgagor is putting himself in the position that he may be thrown out if he is not able to pay the money. That is a real joint adventure of a kind, and it is just as much a joint adventure if the money is borrowed for the purpose of a mortgagor sending his boy to a 792 University as if he borrows for the purpose of improving his property and putting an extra building on to it.
The real truth, I submit, is that the whole of the argument of the Government against this Amendment is one which rests upon this false view that if you cannot do complete justice on a particular principle you ought not to do justice at all. The suggestion they make is that the Amendment rules out debentures and floating charges, that therefore you have to agree that it is not a universal yardstick for justice, and that, that being so, you ought not to go on and do what you can do. I know that half a loaf is better than no bread, and I know that in the case of emergency legislation in particular you cannot deal with every case, but I think that my noble friend Lord Wardington must have felt a little bit uneasy when he heard the Lord Chancellor explaining that debentures and debts due to debenture and floating charges and bankers and equitable charges and so forth could not be differentiated from the Amendment which I have placed before your Lordships.
I have here—and I could read them to your Lordships if it were not that I do not wish to delay you—two passages in which Lord Wardington showed that these were different cases to that of the ordinary mortgage. Of course he is right. There is a distinction between them—they are cases of different sorts. I am not denying for a moment that you can put before me the case of a debenture which is exactly the same as that of a legal mortgage in a special case, but I do submit—and I am well aware of this—that in ninety-nine cases out of 100 a debenture is a different sort of thing to a legal mortgage, it has different effects, a different commercial value and different commercial result. That is the reason why, very largely, my noble friend Lord Wardington on the last occasion complained that the suggestion would hurt debenture holders, and, in the same way, he pointed out that there was the very greatest objection to temporary loans on the security of deposits of title deeds. These again are different in their nature to such instruments as I am asking your Lordships to help me about here.
I submit that really the argument against the Amendment is no more than this. I agree that it is imperfect. Let, it be so. I agree that it does not touch 793 some things which may be very near the line. Nevertheless, if it is fair to the people who are going to have the benefit of the Amendment, if it should become law, is there any reason in the world why we should not do it? This seems to me rather like what the noble and learned Viscount said not long ago with regard to logic chopping. I am not here to defend logic. I am here to try to do justice to these people, and if there are a certain number of cases that will not be within my Amendment I am sorry, but I know very well, as your Lordships also know, that with emergency legislation of this kind you cannot have complete justice to everybody. You can only do the best you can with the material and in the time available to you. My noble and learned friend asks, what is the matter with an equitable mortgage and why is not that included? I agree that there may be certain equitable mortgages that are only in form different to legal mortgages, but these are not normally cases of equitable mortgages. I am leaving them out because I want to cover the real genuine case where a mortgagee is deeply interested in the property in question because he has a legal interest in it, the case of a mortgagee who is entitled to foreclose, who is entitled to possession subject to leave of the Court, and to sell subject to giving a certain notice.
These cases, I venture to think, are obviously cases in which the mortgagee is deeply interested in the property, and, as indeed in normal cases, is far more interested in the matter of stake than the mortgagor himself. What is my noble friend's answer to that? I have listened with great attention and I have not noticed that any answer has been given to that at all. It is true that he says that the suggestion contained in the Amendment is not a practicable suggestion. That rested upon some advice that was given to him by somebody, we know not whom, and I do not understand why in the least it is not practicable. I do not follow his point about a banker having a legal mortgage. If a banker is, making an advance to a particular individual, say, an advance of £10,000, on the security of his land and his stocks, that is a normal case which any ordinary banker would have to deal with daily. In the ordinary way he could take a bankers' charge for that to cover the whole lot, and it would be generally for a fluctuating account with 794 an interest varying according to the bank rate.
That is the normal case. The noble and learned Viscount says to me—and it is true—that the bank may have a legal mortgage. Of course it may, but what docs it do in that case? I am taking the normal case, not an exceptional case. The bank, let us say, is lending £10,000 on the security of land and buildings and of certain stocks, and it wants a legal mortgage. It does not take a legal mortgage in any form except the ordinary form, at any rate in nine cases out of ten. I have seen plenty of these things when I was younger and a member of the Chancery Bar. In such cases, the bank would take a floating charge in the sense of a bankers' charge on the bankers' terms on the ordinary property, and take a legal mortgage for a specific sum with, as in any legal mortgage, a covenant to repay in six months, which is the ordinary term, and with the proviso for redemption, and all the rest of it; and the amount secured would be the amount which the bank considered was sufficiently secured by the property. The bank would not put in £10,000 if the property was worth only £2,000, because the amount would affect the stamps, and bankers do not throw money into the sea on stamps, any more than other people. The bank would therefore get the ordinary banker's charge on stocks and, if they wished it, take a legal mortgage for the value of the property, which might be anything you like up to a few thousand pounds.
What is the difficulty, if that is the case, in dealing with the Amendment before the Committee? There is no question of any valuation at all. This would be a case where the bank receives a mortgage in the ordinary form, or to use the words of the Amendment, a mortgage "for securing money or money's worth which vests a legal estate in the mortgagee," and that would be the bank. The bank would therefore have all the rights of a legal mortgagee. If I take it that the mortgage is for £2,000, a specific mortgage on property, that mortgage would be dealt with for the purposes of contribution in precisely the same way as a mortgage for £100 or £1,000 granted to someone who builds his property with the money or who, alternatively, after he has built his property borrows money on it for some proper purpose. I cannot 795 help thinking, with the greatest respect to the noble and learned Viscount, that this notion about the impracticability of this Amendment is really based on some misconception either of what the Amendment does or of what the real facts are.
I do not like to take up the time of the Committee any longer. I have dealt substantially, I hope, with the answers which have been made to me. But I ought to refer to the argument of my noble friend Lord Wardington, that people may mortgage properties for the benefit of third parties. That is a true observation. It is one of those rare cases which may sometimes occur; but, if I purport to mortgage my property for the purpose of
§ Resolved in the negative, and Amendment disagreed to accordingly.
THE LORD CHANCELLOR moved, in paragraph 11, to leave out sub-paragraph (2) and insert:
(2) For the avoidance of doubt it is hereby declared that the said sub-paragraph (1) has effect—
§ The noble and learned Viscount said: Sub-paragraph (2) is for the avoidance of doubt, but after it was produced there seemed to be some doubt as to whether it avoided the doubt, so here is the substitute796
§ an advance of £1,000 to me, and hand the money over to a third party, I ought to pay my share of the annual contribution like anybody else, and I would get it from the person whom I was obliging. I can see no injustice there. It is a very rare case, but where it does occur it does not seem to me that it leads to any injustice. I am afraid that, with the very greatest respect, I am unable to accept the views of the noble and learned Lord Chancellor, and I ask the Committee to deal with the matter on a Division.
§ On Question, Whether the proposed new paragraph shall be there inserted?
§ Their Lordships divided: Contents, 5; Not-Contents, 34.
§ formula, which is said to avoid the doubt better. I hope it will.
Page 25, line 21, leave out sub-paragraph (2) and insert the said new sub-paragraph.—(The Lord Chancellor.)
§ On Question, Amendment agreed to.
LORD BARNBY moved, in paragraph 12, immediately before the proviso, to insert:
Except in any case where the Commissioners of Inland Revenue have allowed the discharge of such liability to be deferred by reason of the fact that a payment in respect of expenditure on the making good of wax damage to property has accrued or is accruing but has not been discharged.
§ The noble Lord said: I drew attention to this point on the Second Reading, and I hope the noble and learned Viscount may see his way to give some concession on the matter. Where a ground landlord 797 and the owner of a lease puts up a building and there is a ground rent, it would seem only reasonable that, in the event of damage being done by enemy action and the payment being deferred, the lessor should be able to recover from the ground landlord before the quittance has been received for the payment for the damage to the building.
Page 25, line 32, at end insert the said words.—(Lord Barnby.)
§ THE LORD CHANCELLOR
An Amendment to similar effect was, I believe, proposed in another place, and the Chancellor of the Exchequer then explained that the Government could not accept it. It really is a necessary principle that the direct contributor should make his contribution first. If the direct contributor is able to recover from the indirect contributor before he has paid, there is no security as to what the direct contributor is going to do with the money. Moreover, if the indirect contributor had paid, but the Revenue had not received anything, the result might very likely be that the Revenue would deduct the contribution, and in effect, therefore, the deduction would be suffered twice. The thing will not fit in with the Bill. I am sorry therefore that I cannot accept the Amendment.
§ LORD BARNBY
I still hope that the noble and learned Viscount may be able to review the situation between now and the later stages of the Bill. I should like to point out that the reasons advanced in another place in opposition to this Amendment have since been dealt with rather at length from different sources, and there seems no reason why some such modification should not be made. But, while I am quite satisfied to leave the matter in the hands of my noble and learned friend, I will ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Second Schedule, as amended, agreed to.
§ Third Schedule [Amendments in Part II (Goods)]:
§ THE LORD CHANCELLOR moved to add to the Schedule:
"7. Application of s. 88.
The provisions of Section eighty-eight (which relate to amendments by Defence
Regulations) shall apply to amendments of this Schedule as they apply to amendments of Part II of the principal Act.
§ The noble and learned Viscount said: I ask the Committee to insert this Amendment, and your Lordships may be glad to know, even at this late hour, that a consolidated Bill, which brings the whole of the provisions together, I hope in a more intelligible form, has been promised. It is necessary to make this Amendment in order that this consolidated Bill may be drawn up.
Page 27, line 35, at end insert the said new paragraph.—[The Lord Chancellor.]
§ On Question, Amendment agreed to.
§ Third Schedule, as amended, agreed to.
§ Fourth Schedule:
|Provision of principal Act amended.||Amendment.||Provision of this Act on which amendment consequential.|
Page 28, line 30, after ("therein") insert ("or of a rentcharge charged thereon").—[The Lord Chancellor.]
§ On Question, Amendment agreed to.
§ Amendment moved—
§ Page 28, line 23, at end, insert—
|("Section seven, subsection (3), paragraph (c).||After "hereditament" insert "and of rentcharges (if any) to which it is subject."||First Schedule, paragraph 5.")|
§ On Question, Amendment agreed to.799
§ Amendment moved—
§ Page 28, line 49, at end insert—
|("Section nine, sub-section (5).||After "proprietary interests in the hereditament" insert "and of rent-charges (if any) to which it is subject".||First Schedule, paragraph 5.")|
§ On Question, Amendment agreed to.
§ Amendment moved—
§ Page 29, line 37, at end, insert—
|("Section thirty-three, sub-section (2).||For "immediately before the occurrence of the war damage" substitute "at the date by reference to which the disposal of the value payment is to be regulated"||First Schedule, paragraph 6.")|
§ On Question, Amendment agreed to.
§ Amendment moved—
§ Schedule 4, page 30, line 36, at end, insert—
|("Section forty-five||In subsection (1), after "proprietary-interest" insert "or rentcharge", after "under-lease" insert "or a rent-charge being an equitable interest", and at the end insert "or the legal estate in respect of the rentcharge, as the case may be"; in subsection (2), for "to the legal term" substitute "thereto", and after "proprietary interest" insert "or rentcharge"; and in subsection (3) after "proprietary-interest" insert "or rentcharge".||First Schedule, paragraph 5.|
|Section forty-six||In subsection (1), for "a proprietary" in both places where those words occur substitute "an", and the words "Sections nine and fifteen of" shall be omitted.||First Schedule, paragraph 5.")|
§ On Question, Amendment agreed to.800
§ Amendment moved—
§ Page 31, line 40, at end, insert—
|("Section ninety-six||After subsection (9) insert— "(9A) For any reference to a rentcharge there shall be substituted a reference to a feuduty and to a ground annual and any reference to the owner of a rent-charge shall be construed accordingly ".||First Schedule, paragrap[...] 6.|
|Section ninety-six||After subsection (10) insert— "(10a) Subsection (5) of Section three shall have effect as if for the words "any other incumbrance" there were inserted the words "any ground annual or other incumbrance and any liability to pay feuduty ".||First Schedule, paragraph 6."|
§ On Question, Amendment agreed to.
§ Amendment moved—
§ Page 31, line 55, at end, insert—
|("Second Schedule, paragraph 1.||After "pounds" insert "or, in the case of a payment to the owner of a rent-charge the amount whereof does not exceed twenty-five pounds per annum ".||First Schedule, paragraph 5."|
§ On Question, Amendment agreed to.
Page 32, line 34, column 2, at the beginning, insert ("After 'proprietary interests' insert 'or any rentcharge,' and").—(The Lord Chancellor.)
§ On Question, Amendment agreed to.
Page 32, line 35, column 3, leave out ("paragraph") and insert ("paragraphs 5 and").—(The Lord Chancellor.)
§ On Question, Amendment agreed to.
§ Fourth Schedule, as amended, agreed to.