England and Wales Court of Appeal (Civil Division) Decisions

1. LORD JUSTICE HIRST: This is an appeal against an order of Judge Cotterill made on 7th February 1996 in the Barnstable County Court which refused the application of the applicant, Mrs Muriel Adams, who is an 80 year old lady with a considerable physical handicap, to be joined in the proceedings. Those proceedings are a possession action brought by the plaintiffs, the Commercial Union Life Assurance Company Limited, as mortgagees of certain property, which I shall shortly describe, against two defendants, Arthur William Adams and Hazel May Adams, who are husband and wife and who were the mortgagors. Mrs Adams, the lady who sought unsuccessfully to be joined, is Mr. Adams' mother.

2. The property as described in the charge is described as Claytown Farm in Umberly, North Devon, and in fact comprises a number of fields and agricultural property and also a farmhouse. It is the farmhouse which is presently the bone of contention so far as these proceedings are concerned.

3. The history of the matter briefly is that most of the property was originally owned by Mr. Adams senior; that is Mrs Adams' late husband and also the father of Arthur Adams, the first defendant. Mr. Adams senior died in 1967 and his property was then inherited by Mrs Muriel Adams. In fact, she arranged for her son, Arthur Adams, to continue to farm the land and granted him an agricultural tenancy. Over the next decade or so, Arthur Adams bought some more land contiguous to the original farm which had originally belonged to his father, extending the agricultural property beyond that which it had originally comprised.

4. In August 1982 there occurred a most important event when Mrs Adams made a deed of gift of the land which had formerly belonged to her husband to her son. That included land on which the farmhouse stood and four fields adjoining the farmhouse. By a further document which is also of great importance in the case, executed on the same day in August 1982, Mrs Adams took or purportedly took a 30 year lease from her son, Arthur Adams, of the farmhouse and the four fields. That is evidenced by what is apparently a copy document and which, on its face, is signed by Arthur Adams and Mrs Adams, so that if that lease, to which I shall be returning later, is a valid one, then, for a period of 30 years from August 1982 or upon her earlier death, she had a leasehold interest in the farmhouse and in the four adjoining fields. There had been at an earlier stage a mortgage executed between Arthur William Adams and Hazel Adams as borrowers to the Agricultural Mortgage Corporation securing a mortgage and that was dated 14th January 1985. I shall be returning to that in a moment. When the mortgage presently in issue was executed between the Commercial Union and Arthur and Hazel Adams, part of the sum advanced was used to pay off the A M C mortgage.

5. Sometime after the execution of the Commercial Union mortgage, the defendants, Mr. and Mrs Arthur Adams, fell into arrears under that mortgage, and the present possession action was then launched by the Commercial Union against him and his wife. I shall have to deal in more detail later with the course of those proceedings. For the present initial summary, it is sufficient to say that, to start off with, he and his wife defended the possession order, but in August 1995, after a number of adjournments, he and the second defendant, his wife, agreed to a consent order giving the plaintiffs possession of the whole of the mortgaged land which included the farmhouse and the four fields.

6. During some of the earlier hearings before the District Judge Mrs Adams was represented by solicitors, and those solicitors intimated to the court that she had this lease of the farmhouse and the four fields, but in fact she never took any steps to intervene as a party to the possession action, and the possession order made by Judge Cotterill was finally made at a hearing at which she was not represented. The order made was a consent order which was not made with her agreement. She has testified on affidavit that she did not at the material time fully appreciate exactly what was happening. However, after the making of the possession order, in about November of the same year, that is after an interval of about three months, she did come to appreciate that she must take steps to protect her interest as a tenant in occupation of the farmhouse and the four fields, and she applied to the judge under County Court rule O.15, r. 31 to be joined as a party in the action. The judge in his judgment of 7th February 1996 -- that is the judgment presently appealed against -- refused her application substantially on the basis that he did not accept as adequate her explanation of the delay that had taken place, nor why she had not made the application earlier. He dismissed in strong terms the evidence which was placed before him by affidavit, sworn by her, as to the difficulties which beset her as a result of her age and her confusion about her legal representation. The judge further exercised his discretion against granting leave to intervene because he considered that the plaintiffs would be prejudiced since, if she was allowed to come in and dispute the possession order, there would then be a further delay, with the result that larger sums of interest would accumulate owing to the plaintiffs. Nowhere in his judgment -- this may not have been his fault because it is not clear how fully the case was presented to him -- does the judge refer to the lease or, indeed, to the merits of any defence which Mrs Adams might have. County Court rule Ord.15,r.3(1) provides as follows:

7. It is common ground that in applying that rule there are four criteria which must be considered: firstly, the proposed intervener must show that she is in possession of the land or part of it -- that is apparent here -- secondly, that she is not already a party to the action -- that is apparent here -- thirdly, that she has a legitimate purpose for being joined -- that is apparent here because she says she is a tenant -- fourthly -- here the first serious argument arises between the two sides -- that she has a reasonably arguable case on the merits for achieving that purpose. Mr. Wonnacott on behalf of the respondents, rightly I think, emphasizes that that last test is a little bit higher than an O.14 test but, none the less, it is not an insuperably high hurdle as is shown by the well known leading case of the Saudi Eagle [1986] 2 Lloyds Reports 221. So far as the position is concerned where it is sought to set aside a default judgment, the principles have been laid down recently in the unreported case of Shoced v Goldschmidt, decided in this court on 1st November 1994 by Leggatt, Roch and Morrit LJJ. At page 12H, Leggatt LJ, giving the leading judgment, stated as follows, having cited a number of earlier authorities:

8. That is in contrast to the much more stringent test where there has been a judgment after a hearing, which I do not need to read out but which is to be found at page 16E-F of the judgment. Quite apart from the application of the test that I have just quoted in relation to a default judgment, it is of course incumbent on the appellant in a case of this kind to establish good grounds for the court to interfere with what was plainly the exercise of discretion by the judge in refusing to join the applicant. In other words, what must be demonstrated is some error of principle on the judge's part, which includes, of course, any failure to take into account a plainly relevant factor.

9. I am now going to consider the points which arise on the merits which are three in number and which have been advanced extremely ably and persuasively by Mr. Wonnacott on the Commercial Union's behalf, and which, if he is right, should any one of them succeed, would demonstrate that the substantive case was doomed to fail and that, therefore, the fourth of the Saudi Eagle tests, which I outlined a moment ago, would not be fulfilled. His first point turns on the terms of the lease itself. So that its significance can be borne in mind, it is that the document in question by its terms is incapable of being a lease, since Mrs Adams' right of occupancy is expressly made subject to her sharing with Mr. Adams and his family, and that, in consequence, she has not got a right to exclusive possession and therefore is not a tenant. The lease is to be found at page 25 of the core bundle:

10. Those words "signed sealed and delivered" at the bottom are apparently signed in manuscript by Mr. Adams, his wife, Hazel May Adams, and against Muriel Adams by Mrs Adams herself. Those signatures are all witnessed by what appears to be the name C. Vernon. Mr. Wonnacott's submission is that it is manifest and beyond any doubt that, on a proper construction of that document, Mr. Adams had a right to a shared occupancy. He accepts that clause 1 is an unequivocal grant of a lease which, taken by itself, would entitle Mrs Adams on general principles to exclusive possession. But he submits that the words at the beginning of clause 2, "For so long as Mr Adams continues to occupy the property jointly with his mother . . .", and the opening words of clause 4, "Subject only to the shared occupancy with her son, Mr. Adams, and his family it is expressly agreed . . .", show beyond a peradventure that he has shared occupancy rights. He invites us to reach that conclusion at the present juncture without there having been any evidence -- this point was only raised for the first time by a respondent's notice -- before any court of first instance as to the matrix in which that agreement was entered into. He invites us, however, to regard as the matrix what he says is Mrs Adams' case on the facts at its highest, as set out in her first affidavit at paragraphs 6 to 8, which states as follows:

11. In my judgment, the construction which Mr. Wannacott seeks to put on the lease, while it may well turn out in the end to be correct -- I would not comment on that firmly either way -- is nothing like so clear and unequivocal as he suggests. It seem to me, firstly, that it is reasonably arguable that there is no clear grant at any stage to Mr. Adams of a right of occupancy. Secondly, clause 4, which is the one on which Mr. Wonnacott expressly focuses, seems to me at least reasonably arguably to be open to the construction that what is connoted is that she will not allow anybody else to share the house with her other than her son, without any corollary that he has a right to a shared occupancy. Thirdly, it seems to me open to question whether, even if there was such an apparent right granted, contrary to the doubts I have expressed, that is clearly enough defined as to its terms and duration, and also whether it is subject to termination by notice, and, if so, how. Mr. Wonnacott submits that it is plain as a pikestaff that he had a right to a shared occupancy so long as he wanted it. In other words, he could stay as long as he liked until he himself terminated it. But that does not seem to me by any means clearly apparent from this document.

12. In order to construe this document properly, I think, bearing in mind the well known principles laid down in Prenn v Simmonds , it is necessary to have full evidence of its setting or matrix at the time it was executed which could only take place at an oral hearing before a trial judge. I would add finally that Mrs Adams' description of the matrix does not seem to me, with all respect to Mr. Wonnacott, to assist his case since she clearly in paragraph 8, for better or for worse, is describing her son and his family's rights as a licence and no more. "I have allowed my son and my family to live with me in the farmhouse". For all those reasons, I am unable to treat Mr. Wonnacott's reason number 1 as a complete answer on the merits to this case.

13. His point 2 I can deal with shortly indeed. His submission on that point is as follows. The second reason why the document cannot be a lease is because it purports to be for a term of 30 years. A lease for that term can only be made by deed and the document relied on by Mrs Adams is not a deed because it was not sealed: and having been executed prior to 31st July 1990 (when different rules came in under section 1(11) of the Law of Property (Miscellaneous Provisions) Act 1989), it could only take effect as a contract to create a lease, which was not registered. In fact, what we have here apparently is not an original document but a copy document, and there is evidence from Mrs Adams' solicitor on affidavit, which I do not need to read out, which shows that extensive searches have been made for the original which had not at the time of the affidavit, and presumably have still not, borne fruit. The fact of the matter is that the document is described as being signed, sealed and delivered, both by Mr. and Mrs Adams junior and by Mrs Adams herself. In my judgment, it would be wrong at the present juncture to assume, as a matter of fact, without evidence as to exactly what happened about these documents, that the original was not sealed. I therefore reject that point as a complete answer to the present application.

14. The third point is a rather more complicated one for which I will quote Mr. Wonnacott's admirable skeleton argument which puts it clearly:

15. This was a decision of the Court of Appeal consisting of Lord Justice McCowan, Lord Justice Peter Gibson and Sir John May on 8th December 1994. The principle on which Mr. Wonnacott relies is neatly quoted in the Castle Phillips Finance case from a judgment of Lord Jenkins in Ghana Commercial Bank v Chandiram [1960] AC 372 where he stated as follows:

16. That refers to a dictum of Warrington J in Butler v. Rice at page 282 where he said:

17. Here, there is no doubt, as I have already recorded in the opening passages of this judgment, that the Commercial Union paid off the A M C mortgage and, therefore, says Mr. Wonnacott, that brings this doctrine of subrogation into play. The A M C mortgage is to be found in the file at page 112. It states as follows:

18. The recital states as follows:

19. The borrowers are as stated in the statement of parties, Arthur William Adams and Hazel May Adams. Mrs Adams' only function in the document is that she gives a guarantee in clause 17, which I do not need to read out in detail, that in consideration of the loan, she covenants and guarantees that, in the event of any capital transfer tax or other duties being leviable in any part of the world in respect of the scheduled property or any part thereof on her death, she will discharge it. In other words, her sole role is to safeguard the Commercial Union should capital transfer tax or other duties become leviable.

20. Mr. Wonnacott, in a very clear argument, submits that the position is as follows. The recital says that the mortgage property is free of incumbrances: she is a party to the AMC mortgage in the manner described as a donor: her covenant concerning the capital transfer tax, he submits, which is given in consideration of the loan, only makes sense if the freehold is unencumbered: and therefore it follows that, not having disclosed the lease at the time she entered into that document, she would not now be entitled to turn round and say, in answer to the Commercial Union's claim, that she is the lessee of the property comprised in the farmhouse and the four fields.

21. I am not saying that this is wrong but I do say, for a number of reasons, that this is not a point which we can decide on the papers before us at present as constituting necessarily a complete answer on behalf of the Commercial Union. I say that for the following reasons. Firstly, I do not think that it is necessarily clear that she herself, as donor, in contrast to the borrowers, was necessarily under a duty at the time that this A M C document was executed to disclose the tenancy. Secondly, I think it is debatable whether and to what extent the subrogation doctrine, which I have already identified, applies to her in her limited capacity as donor in contrast to its obvious application to the two borrowers, Mr. and Mrs Adams. Thirdly, I think that, once again, this point is much better considered in the matrix of evidence which would be before a trial judge, rather than as a cold legal point such as is presented to us by Mr. Wonnacott today. Fourthly and most important, there is a decision of the House of Lords in the case of Orakpo v. Manson Investments Limited [1978] AC 95 where this doctrine of subrogation was considered. In the course of his speech, Lord Salmon stated at page 111C:

22. There are statements to the same effect by Lord Diplock at page 105C and from Lord Edmund Davies at page 115E. Mr. Wonnacott says that those are only dicta and cannot be treated as binding in the light of the subsequent decision of the Court of Appeal in Castle which he says is conclusive in his favour: and that even if that is wrong, it would be correct to distinguish those three dicta on the footing that they would not apply to an imperfect charge such as the present one is, or as it would be, if Commercial Union cannot obtain vacant possession. He may be right about that, but it is not a question which we should be deciding without mature consideration of all the relevant authorities, and also without knowing the solution to the other three points which I identified earlier. I stress, I hope clearly, that all these points are fully open to him at a trial hearing and nothing I have said is to be treated as a Court of Appeal decision concluding the matter against him.

23. I now come down to the question of discretion. As I have said, we do not know exactly how the hearing went before the learned judge, so that when I say, as I am about to, that there was a serious omission in his equation when he came to exercise his discretion, I do not want that to be regarded as critical of him. I go back to Lord Justice Leggatt in the Goldschmidt case, when he stated very clearly that in an application where, as here, there has been a default judgment, it is the merits which are the cardinal factor to be weighed against the matters on the other side, such as the delay and the validity of any explanations of why the judgment was allowed to go by default. Here, unfortunately, the judge did not mention the merits at all. He did not even mention the lease and, therefore, in my judgment, there was a very serious omission in the balancing exercise, in that he omitted points which clearly he should have taken into account, with the result that it is open to us under well established principles to review that discretion.

24. Mr. Wonnacott says is that even despite that omission we should still uphold the judge. He relies on the evidence as set out in the affidavit of his instructing solicitor starting at page 61 of the bundle. He points out that after the summons for possession was issued, solicitors on Mrs Adams behalf confirmed that they were instructed by her and wrote a letter saying that they anticipated receiving detailed instructions from the two defendants, Mr. and Mrs Adams, also. On the first hearing before the District Judge on 15th March 1995, the same solicitors, still acting for Mrs Adams, sought an adjournment in order to assess whether she had an interest in the property, as a result of which an adjournment was granted. At the adjourned hearing on 25th April, the solicitor acting on Mrs. Adams behalf told the judge that Mrs Adams had the benefit of a 30 year lease dated 18th August 1982. The District Judge adjourned "on the basis that there was some question as to the ownership of the land and Mrs Muriel Adams" -- and another lady -- "may wish to be joined as parties to the proceedings." Thereafter, he says that nothing happened, and when the plaintiff issued a notice of appeal against the second adjournment order on 25th April 1995, she did not bother to appear, was not represented and let it go by default, and then, to compound her failure to take proper steps, she did not apply to have the order set aside until the following November, resulting in another delay of three months. He says that that justifies us in ruling her out of order so far as her application is concerned, even despite the views we have on the possible merits of her case.

25. In my judgment, that is not a correct approach. Once there is, as there is here, an arguable case on the merits, there is a strong case for allowing that to be tried and not shutting the proposed intervener out because of the sort of delays we see here which, to my mind, are not very culpable when one bears in mind the age and infirmity of Mrs. Adams. In my judgment, the desirability in the interests of justice of allowing her to be joined far outweighs any minor criticisms of her conduct such as Mr. Wonnacott has advanced.

26. Finally, he says that even if we allow the appeal, it should be on terms that she should pay into court any interest which may have been lost at the rate of about £15,000 a year as from today's date. In my judgment, that would be most unjust. I would allow the appeal and order that Mrs Adams be allowed to intervene in the action unconditionally.