England and Wales Court of Appeal (Civil Division) Decisions

LTA 98/7670/3 96/0346/3

IN THE SUPREME COURT OF JUDICATURE

(HIS HONOUR JUDGE MADDOCKS (Sitting as a High Court Judge) and

MR JUSTICE JOHATHAN PARKER )

Royal Courts of Justice

Strand

London WC2

Friday 18 December 1998

B e f o r e:

LORD JUSTICE MANTELL

LORD JUSTICE ROBERT WALKER

MR JUSTICE KAY

- - - - - -

YORKSHIRE BANK PLC

Plaintiff/Respondents

- v -

(1) HARRY HALL

(2) JOHN SIDNEY HALL

(3) RICHARD DELANEY HALL

(4) DOROTHY HILDA MANN

Defendants/Appellants

- - - - - -

CHANI 97/0922-3/3

(1) HARRY HALL

(2) JOHN SIDNEY HALL

(3) RICHARD DELANEY HALL

(4) DOROTHY HILDA MANN

Plaintiffs/Appellants

-v-

YORKSHIRE BANK PLC

Defendants/Respondents

- - - - -

(Transcript of the Handed Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

- - - - - -

MR J MACDONALD QC and MR N LE POIDEVIN (Instructed by Messrs Ingham Clegg & Crowther, Preston, PR1 3JJ) appeared on behalf of the Defendants.

MR HALL appeared in person.

MR A MALEK QC and MR DAVIES-JONES (Instructed by Hammond Suddards, Leeds, LS3 1ES) appeared on behalf of the Yorkshire Bank.

- - - - - -

J U D G M E N T

(As approved by the Court)

- - - - - -

©Crown Copyright

Friday 18 December 1998

JUDGMENT

LORD JUSTICE ROBERT WALKER:

I

Introductory

There are before the court three separate appeals which have been heard together. They all arise from the same sequence of events, in which Yorkshire Bank plc (“the Bank”) made secured loans to Mr Harry Hall, his two brothers and his sister (“the Halls”) in order to enable them to take up further shares in Bradford Investments plc(“the company”) in which they were together controlling shareholders.

The three orders under appeal are as follows.

(1) On 9 November 1995 Judge Maddocks, sitting at Leeds, gave judgment in consolidated proceedings by the Bank against the Halls (Mr Harry Hall, Mr John Hall, Mr Richard Hall and Mrs Dorothy Mann) and also against Mrs Pauline Hall (the wife of Mr John Hall). The order of Judge Maddocks contained several money judgments against particular defendants or groups of defendants and also two orders of possession in respect of 17/17A North Park Road, Bradford (the residence of Mr Harry Hall) and 18 Briarwood, Wrose, Shipley (the residence of Mr John Hall and his wife).

(2) On 16 January 1997 Jonathan Parker J, Vice-Chancellor of the County Palatine of Lancaster, dismissed an application by the Halls (and Mrs Pauline Hall) to have the order of Judge Maddocks set aside or discharged.

(3) On the same occasion the Vice-Chancellor dismissed an appeal from an order of District Judge Bellamy, made at Leeds on 5 July 1996, striking out an action which the Halls had on 7 April 1995 commenced against the Bank in the Chancery Division of the High Court. The District Judge had struck out the action on the ground that the statement of claim disclosed no reasonable cause of action, and further or alternatively as an abuse of process.

Leave to appeal from part of the order of Judge Maddocks was granted by this court (Beldam and Millett LJJ) on 2 February 1996 and there was a further hearing on 30 July 1996 as to the extent of the partial leave which had been granted. Leave to appeal from the two orders of the Vice-Chancellor was granted by this court (Aldous and Judge LJJ) on 27 June 1997, when it was directed that all the appeals should be heard together.

The appeals raise or seek to raise a variety of issues. These include the duties owed by mortgagees to mortgagors and sureties, s. 151 of the Companies Act 1985 (which contains a general prohibition on a company providing financial assistance for the acquisition of its own shares), the rule in Henderson v Henderson (1843) 3 Hare 100, and the powers of different courts to transfer or consolidate proceedings, and to hear possession actions. In order to explain how those different issues have arisen it is necessary to set out the background facts and to trace the different strands of the ensuing litigation. The following summary of the facts is based mainly on the full and careful judgment of the Vice-Chancellor. Although he was concerned mainly with a strike-out application, that application was based partly on abuse of process and an affidavit was filed and considered.

II

The facts down to the start of the litigation

For many years the Halls had carried on in partnership the business of property dealers and managers and licensed deposit-takers. The Vice-Chancellor described it in these terms,

"This business consisted primarily of buying houses at the lower end of the property market and reselling them on credit over a specified period, generally ten years. To enable the partnership to extend the necessary credit it accepted deposits from members of the public."

The partnership was a licensed deposit-taker under the two-tier system of banking regulation which existed under the Banking Act 1979. The partners’ decision to transfer their business to the company may have been influenced by the impending introduction of a new system of regulation by the Banking Act 1987. In the event the company was authorised under the successive Banking Acts of 1979 and 1987 and so came under the supervision of the Bank of England.

The company was incorporated as a private company in 1985 but by October 1986 it had an issued capital of at least £50,000 divided into 50,000 £1 ordinary shares, all of which belonged to the Halls, who were directors. There were also some preference shares with limited voting rights (this court has not been told about the size or date of issue of the holdings of preference shares but information can be gleaned from the second reported judgment of Hoffmann J mentioned below). The ordinary shares should have been fully paid up in cash, but it seems that that did not happen. On 1 November 1986 the company was registered as a plc. On 31 December 1986 the Halls transferred the partnership business to the company in consideration of the issue and allotment at par of 1.059m ordinary shares. That transaction was later held by Hoffmann J to have infringed s. 103 of the Companies Act 1985, which lays down stringent requirements when a public company allots shares for a non-cash consideration. There is no indication that these irregularities were at the time known or suspected either by the Bank of England or by the Bank.

The Bank of England took the view that the company should have a more solid capital base and a higher risk/asset ratio. The Halls met the Bank of England’s requirement by agreeing to take up a further 320,000 ordinary shares in the company, to be issued at par and fully paid in cash. In order to raise the necessary funds each of the Halls agreed to borrow £80,000 from the Bank, secured in various ways, including certain guarantees. It is from that secured borrowing that all this litigation has arisen.

The loans which the Bank made to the Halls were on the terms set out in four separate facility letters dated 24 December 1986. These letters were in similar but not identical form. The most important terms common to all the facility letters were as follows: (a) the loan was of £80,000 (clause 2) and was to carry interest at 2½ per cent over the Bank’s base rate (then 11 per cent) with a minimum of 8½ per cent; (b) it was (clause 1) for the express purpose of investing in ordinary shares in the company; (c) as to repayment clause 6 provided “quarterly payment of debit interest for a maximum of 3 years, during which time it is expected the company will enter the USM and repayment of the advance will be made from the proceeds” (but clause 8 made clear that the loan could be called in at any time); and (d) clause 12 (special conditions) provided that the company’s banking business would be transferred to the Bank and the Bank would be given sight of monthly management accounts.

The variations in the facility letters were in relation to the security to be provided. Each of the borrowers was to provide security in the form of a deposit of shares in the company to a nominal value of £100,000. In addition Mr Harry Hall and Mr and Mrs John Hall were to provide a legal charge and a second legal charge respectively on their houses; and a £30,000 guarantee of the borrowings by each of Mr Richard Hall and Mrs Mann was to be provided jointly and severally by Mr Harry Hall and Mr and Mrs John Hall. Legal charges and guarantees were executed in accordance with the facility letters. 400,000 shares in the company were made subject to memoranda of deposit of share certificates.

A week before the facility letters were sent out Mr Harry Hall had sent a letter dated 18 December 1986 to Mr Palmer, the manager of the Bank’s branch at North Parade, Bradford. The letter was signed by Mr Harry Hall “for Bradford Investments” (the partnership) and for the company. This letter (which was strongly relied on by the Halls before Judge Maddocks) confirmed “our intention to maintain our banking accounts with [the Bank]” as soon as transfer arrangements had been completed. It referred to various practical matters and stated in the penultimate paragraph that the borrowers intended to use the loans in order to subscribe for shares in the company and therefore wished to place the funds at once in an account in the company’s name. The letter went on,

"The commitment fees and other charges will be borne by [the company]."

On 6 January 1987 Mr Harry Hall as chairman of the company sent a completed company mandate form and other documentation to the branch manager. The Halls’ case before Judge Maddocks was that the reference to “other charges” included interest; that the letter authorised the Bank to charge interest on the Halls’ borrowings to the company’s account with the Bank; and that the Bank acted on the letter and so created a tripartite agreement (between the Bank, the borrowers and the company) under which the company was to be liable for the interest.

That was, as Judge Maddocks observed in his judgement, a large edifice to be constructed on limited foundations. Nevertheless for some time after the loans were made (early in January 1987) the Bank debited interest on the loans to the company’s account. This practice continued until June 1988 or thereabouts. Judge Maddocks (who heard the oral evidence of the witnesses as well as scrutinising the documentary evidence) came to the conclusion that

"there was no agreement between the company and the bank under which the company was to be liable for interest, either alone or jointly with the borrowers. There was nothing more than an informal arrangement that interest would be paid from the company’s account as each instalment fell due and on each such occasion the company was informed of what was taking place."

Having found that there was no such agreement, Judge Maddocks did not have to consider whether it was illegal as infringing s. 151 of the Companies Act 1985, or the consequences of illegality. He observed (with a reference to Brady v Brady [1989] AC 755) that in any case arrangements under which the company (which was at that time making good profits) paid the interest but passed on the liability to the Halls, its controlling shareholders, would have been lawful and feasible.

After the company had been trading for little more than a year the Bank of England raised concerns about its management. The judgments under appeal do not go into detail about those concerns, but it appears that part of the concern was as to whether the company had over-extended itself by acquiring a substantial amount of property in Lancashire to add to its housing stock. The outcome was that a new managing director, Mr John Hampson, was appointed in about May 1988 (but the circumstances of his appointment entailed that he ceased to hold that office at the end of 1988). Apart from the Halls there were two other directors, Mr Flasher (who was also company secretary) and Mrs Kirk. The Halls’ relations with Mr Hampson were not good to begin with, and got worse. The Halls continued as non-executive directors until April 1989, when they resigned. Mr Flasher and Mrs Kirk had by then also resigned so that left the company with no de jure director. There was litigation in the Companies Court in relation to the affairs of the company ( Re Bradford Investments [1990] BCC 740, [1991] BCLC 224; Re Bradford Investments (no 2) [1991] BCLC 688). The judgments of Hoffmann J in those two cases provide a lot of detailed information about the company’s business and the procedural irregularities which punctuated its short life.

In or about August 1988 Mr Hampson informed the Bank that the Halls were no longer entitled to any remuneration and that interest on their borrowings could no longer be debited to its account at the Bank. The Bank wrote to the Halls inviting them to make proposals for the future payment of interest on their loans, and for repayment of the principal of the loans. During the next year the sum of £8,000 was paid on account of accruing interest, but nothing was paid in respect of principal. During the first half of 1989 there were various communications between the Halls and the Bank in which the Halls strenuously represented to the Bank that the company was not being run properly. The Bank was asked to intervene and even to nominate some of its own employees for appointment as directors of the company, but it declined to do so.

III

The course of the litigation

On 7 August 1989 the Bank formally demanded repayment of the loans (having already made a demand during the previous January). Repayment was not made. The Bank then commenced proceedings against the Halls. On 27 October 1989 the Bank issued a writ (1989 Y 9442) in the Queen’s Bench Division of the High Court, Leeds District Registry, against the Halls and Mrs Pauline Hall. The statement of claim sought money judgments against them for different amounts as follows:

(a) against Mr Harry Hall and Mr John Hall (as principal debtors and guarantors) about £155,800 each plus interest;

(b) against Mr Richard Hall and Mrs Mann (as principal debtors) about £95,800 each plus interest;

(c) against Mrs Pauline Hall (as guarantor only) £60,000 plus interest.

The statement of claim alleged that none of the defendants had paid any interest. The sum of about £95,800 specified in the statement of claim seems to have included an unquantified element for capitalised interest.

On 20 November 1989 the Bank issued two summonses in the Bradford County Court (89/15688 and 89/15689) against Mr and Mrs John Hall and Mr Harry Hall respectively seeking possession of their respective mortgaged properties at Wrose and Bradford. Proceedings in the County Court were mandatory under s. 21(3) of the County Courts Act 1984, which provides (so far as now material) that where mortgaged property consists of a dwellinghouse outside Greater London, and the County Court has jurisdiction to hear a mortgagee’s possession action, no other court shall have jurisdiction to hear and determine that action.

On 20 December 1989 Mr Registrar Greenwood made two orders in the Bradford County Court transferring the two possession summonses to the Chancery Division of the High Court, Leeds District Registry. On 31 January 1991 Deputy Judge Cliffe, sitting at Leeds, made a consent order transferring the Queen’s Bench Division action to the Chancery Division, Leeds District Registry. On 25 March 1991 District Judge Bower, sitting at Leeds, made a consent order for the future conduct of the three sets of proceedings (then designated as 1990 Y 9, 1990 Y 10 and 1991 Y 70A) including a direction that the proceedings should be consolidated and carried on as one action. This sequence of apparently sensible and unexceptionable steps has given rise to difficulties, both because of s. 21(3) of the County Courts Act 1984 and because of s. 18(1A) of the Supreme Court Act 1981 and RSC O. 59 r. 1B(1)(d), under which leave to appeal is required against orders which include the giving of possession of land.

There are however some further events to be noted, before it is possible to identify precisely the issues which are before this court on the appeals for which leave has been granted, and the further issues on which the Halls and Mrs Pauline Hall have sought to extend the limited leave granted by Beldam and Millett LJJ.

Early in 1991 the company went into creditors’ voluntary liquidation. On investigating the company’s affairs the liquidator discovered that the company had until mid-1988 been paying interest to the Bank on the Halls’ borrowings in apparent contravention of s. 151 of the Companies Act 1985, and he demanded repayment. When the interest was not repaid he caused the company (in liquidation) to issue proceedings against the Bank. The Bank then capitulated and refunded the interest to the liquidator. It then sought to recover the refunded interest (which with further interest on it amounted to £141,425) as part of its claim against the Halls and Mrs Pauline Hall.

The consolidated proceedings in which the Bank was plaintiff took a long time to come on for trial. While the consolidated proceedings were still pending the Halls on 7 April 1995 issued a writ (1995 H 177) against the Bank in the Chancery Division of the High Court, Leeds District Registry, seeking damages for loss caused to them after 12 April 1989 “ by the negligence and/or breach of contract and/or breach of statutory duty and/or misfeasance of the [Bank]” in failing after that date to safeguard the value of 400,000 shares in the company placed with the Bank as security. The writ was followed on 16 August 1995 by a statement of claim which (though not settled by counsel) was a clear and detailed statement of the Halls’ complaints against the Bank in respect of its failure to intervene in the company’s affairs. That is the action which District Judge Bellamy struck out and the striking out of which the Vice-Chancellor affirmed.

The consolidated proceedings in which the Bank was plaintiff were heard by Judge Maddocks over about three days at the beginning of November 1995. Mr Harry Hall appeared in person and the other defendants were represented by leading and junior counsel, Mr John Macdonald QC and Mr Nicholas Le Poidevin. The Bank was represented by Mr Ali Malek QC and Mr Jonathan Davies-Jones. The representation of the parties before this court has been the same, but before the Vice-Chancellor none of the Halls was legally represented.

In his judgment given on 9 November 1995 Judge Maddocks rejected, as has already been noted, the defendants’ arguments for a tripartite agreement under which the company, and not the individual borrowers or guarantors, became liable for interest. He did not therefore have to explore the issue of illegality in depth, but he did observe that there would have been no illegality in the company paying interest as a matter of convenience so long as it was in substance paid or borne by the borrowers.

The Judge understood that the figures had been agreed. Leading counsel for the Bank asked for money judgments in the amounts shown in his written submissions (he did also make a passing reference to a refund). The initial reaction of junior counsel for the defendants was that he saw no problem with those figures, but subsequent exchanges revealed that the figures were not agreed (although the problem seems to have been in specifying the various joint and several liabilities, rather than the interest refunded by the Bank).

After Judge Maddocks gave judgment there was also some discussion about the orders for possession which he was asked to make. Leading counsel for the Bank drew attention to s. 21 of the County Courts Act 1984 and to the transfer to the High Court which had been directed under s. 42 of that Act. Junior counsel for the defendants did not take issue with the submission that the Judge had power to make orders for possession, and he did so.

Finally the question arose of the need for leave to appeal. Junior counsel raised the point and said he thought that leave was not required. The following dialogue then ensued:

The Judge: I am sure you cannot need it. I would probably be minded to give leave, if it were necessary.

Counsel: It was my understanding that we did not need it.

The Judge: I am sure you do not.

Counsel: With that assurance I will sit down.

However it is clear that leave was required, under RSC O. 59 r. 1 B(1)(d), which applies to all appeals except where the order under appeal was made and the appeal was set down before 1 October 1995. The change was therefore very recent. Nevertheless it is regrettable that neither the Judge nor counsel was aware of this important change in the rules.

On 2 February 1996 there was an inter partes hearing in this court of the application by the Halls and Mrs Pauline Hall for leave to appeal. Mr Harry Hall spoke for all of them. It is clear from the transcript that there was some uncertainty about what parts of the Judge’s order the would-be appellants sought to challenge. Millett LJ noted that Judge Maddocks had been wrong in stating in his judgment that the Bank first debited the directors’ loan accounts and then transferred those debits to the company’s account; but nothing really turned on that. Millett LJ then referred to the litigation between the company (in liquidation) and the Bank, and to the would-be appellants’ reliance on s. 151 of the Companies Act 1985. He made clear that he would refuse leave to appeal from that part of the decision. He then referred to a narrower ground of appeal, based on the argument that the letter of 18 December 1986 signed by Mr Harry Hall did constitute

"a sufficient authority to the Bank to debit the company’s account in the first instance, leaving it to the company’s accountant in due course to arrange affairs so that the company was reimbursed the amount of interest by debiting the directors’ remuneration or loan accounts with the company. Such an arrangement would not, I apprehend, be unlawful and would authorise the Bank to do what it did, namely debit the company’s account in the first instance.

...

If the argument is correct then it is arguable that the defendants have a defence in relation to the interest claim, namely that of payment. The fact that the Bank may subsequently have reimbursed the liquidator the amount of the interest is neither here nor there. I express no view as to whether such an argument should succeed, but I cannot say that it has no prospects of success."

Beldam LJ agreed.

It is perfectly clear from this passage in Millett LJ’s judgment, and also from what was said at the further hearing on 30 July 1996, that leave to appeal was granted in respect of this narrow argument applicable only to interest actually debited to the company. It did not extend to the argument that the effect of s. 151 was that the individual borrowers were not liable to pay any interest.

Mr Macdonald accepts that leave granted by Beldam and Millett LJJ was meant to extend only to the interest actually paid by the company. The Bank has conceded that claim with the result there is nothing left in that appeal unless (i) leave to appeal against the order of Judge Maddocks is not required, despite RSC O. 59 r. 1B (1)(d); or (ii) this court can and does grant leave to appeal against the whole of the decision of Judge Maddocks. Those two questions of jurisdiction are considered in sections IV and V below.

IV

County Courts Act 1984 ss. 21, 41 and 42

Reference has already been made to s. 21 of the County Courts Act 1984 (“the 1984 Act”). Section 41 of that Act gives the High Court power to transfer county court proceedings to the High Court, and s. 42 gives the county court a similar power. All three sections were amended by the Courts and Legal Services Act 1990 (“the 1990 Act”) or by the High Court and County Courts Jurisdiction Order 1991 (“the 1991 Order”) made under s. 1 of the 1990 Act. Section 1 of the 1990 Act came into force at once. The 1991 Order came into force on 1 July 1991.

Before these alterations were made the county court limit (as defined in s. 147 of the 1984 Act) set a financial ceiling to the county court’s jurisdiction under s. 21. The removal of that limit by the 1991 Order had the incidental effect of widening the county court’s exclusive jurisdiction under s. 21(3). It is reasonably clear that in a case where the county court had exclusive jurisdiction under s. 21(3) a transfer to the High Court could not have been ordered by the county court under s. 42 in its original form, because s. 42(3) referred to “all proceedings commenced in a county court which the High Court would have jurisdiction to hear and determine if they were commenced in it, other than [certain family matters which are not now material].”

The 1990 Act (s. 2(2)) amended s. 41 by adding a new subsection (3):

"The power conferred by subsection (1) shall be exercised subject to any provision made -

(a) under section 1 of the [1990 Act]; or

(b) by or under any other enactment."

The 1990 Act (s. 2(3)) also substituted a new s. 42 which (in subsections (2) and (7)) introduced into s. 42 the same limitation as is contained in s. 41(3), in the place of the previous test of notional commencement in the High Court.

The new provisions were considered by Rattee J in National Home Loans Corporation v Yaxley (13 December 1996). Rattee J had expressed doubts as to whether a transfer from the county court to the High Court can give the High Court a jurisdiction which s 21 of the 1984 Act says it has not got. However Rattee J was persuaded that those doubts were ill-founded. He said that he had not been referred to any provision made under s. 1 of the 1990 Act or by or under any other enactment (apart from the 1984 Act itself) which restricted the county court’s power to make a transfer. He considered that such a power would be consistent with Parliament having provided for the county court to be “the first port of call” for a mortgage action for possession of any dwellinghouse outside Greater London.

Section 1 of the 1990 Act gives the Lord Chancellor very wide powers, including power to amend or repeal primary legislation (see s. 1(7) and (8)). It was therefore feasible for the 1991 Order to alter s. 21(3) of the 1984 Act, which on its face gives exclusive jurisdiction to the county court “to hear and determine” actions of the type to which it applies. But it does not appear to me that it had that effect. Moreover I would respectfully differ from Rattee J if (as seems likely) he read the expression “any other enactment” in the new s. 42(7) (b) as excluding the 1984 Act itself. I read those words as excluding the 1990 Act (and statutory instruments such as the 1991 Order) but not as excluding the 1984 Act itself. Rattee J seems not to have been taken through the history of these changes as fully as this court has been, and I think that Rattee J was correct in his initial doubts.

The Vice-Chancellor considered this point (but not National Home Loans Corporation v Yaxley , as it had not yet been decided) and saw two short answers: that any point on jurisdiction should be taken on appeal, not on an application to set aside; and estoppel. I consider that Mr Harry Hall (who developed the appellants’ case on this point) is correct in submitting that jurisdiction cannot be conferred by estoppel, any more than by consent. Mr Harry Hall realistically recognised that both houses covered by the possession orders have now long since been sold, and that neither he nor Mr and Mrs John Hall can hope to rewrite history. But he did submit that even if Judge Maddocks could have made orders for possession on 9 November 1995, he could have done so only by deconsolidating the proceedings, transferring the possession actions back to Bradford County Court (under s. 40 of the 1984 Act as substituted by the 1990 Act, s. 2(1)) and then making the orders as if he were sitting in the county court. Had he done so, the order made in the deconsolidated action for money judgments would not have included any order for possession. RSC O. 59 r.1B (1)(d) would not have applied to the money judgments and the appellants would not have required leave to appeal against those.

Mr Macdonald made precisely that point in the course of his very brief but very effective reply. I can see no answer to it. Even if the rest of this jurisdiction point is now academic (see Ainsbury v Millington [1987] 1 WLR 379) justice requires that the appellants should not be shut out from this appeal, which they would otherwise be entitled to make as of right, by an error as to jurisdiction.

V

The application to extend the scope of the appeal from Judge Maddocks

On the assumption that he did or might need leave, Mr Macdonald applied to this court for leave to extend the scope of the appeal from Judge Maddocks. That potentially raised a separate issue as to jurisdiction which Mr Macdonald most properly drew to the court’s attention, citing two authorities which were not cited in Greenalls Management v Canavan [1997] Times Law Reports 280, C.A.

If I am right in the views expressed in section IV above it is strictly unnecessary to explore this other point about jurisdiction but as Mr Macdonald thought it right to draw the court’s attention to his doubts, and as the point is of some general importance, I should refer to it. In Greenalls Management v Canavan Lord Woolf MR (with whom Ward and Mummery LJJ agreed) identified three categories of leave to appeal which might be granted: general leave ; general leave accompanied by a non-mandatory indication of those grounds on which the appellant appears to have an arguable case; and leave to appeal on one or more particular points or issues. In cases within the third category it is, the Master of the Rolls said,

"still open to an appellant to seek to rely on the grounds in relation to which leave has not been given if, and only if, he gets the leave of the court to rely on those grounds."

Mr Macdonald drew our attention to two previous decisions of this court which seem not to have been cited in Greenalls Management v Canavan : John Redmond v Filecroft [1991] 1 WLR 692 and Daisystar v Town & Country Building Society [1992] 1 WLR 390. In John Redmond this court held that in view of s. 54(6) of the Supreme Court Act 1981 it had no power to review or entertain an appeal from the decision of a single Lord Justice imposing the requirement of a payment into court as a condition of granting leave to appeal. In Daisystar this court reached the same conclusion where a single Lord Justice had refused leave. In my view there is no inconsistency because those cases were concerned with whether there would ever be a substantive hearing of the appeal. In each case the single Lord Justice had reached a decision (either to impose the condition of a payment-in, or simply to refuse leave) which created either a conditional or an absolute bar to the substantive appeal being heard at all. But once an appeal reaches the Court of Appeal for hearing, its power to regulate its own proceedings, and to permit new points to be taken, cannot be rigidly limited by the terms in which leave has been granted: see paragraphs 18 and 19 of the practice direction by Lord Woolf MR issued on 17 November 1998.

Nevertheless the power should be sparingly exercised, for the reasons stated in the practice direction. Where (as here) a point has been considered twice by the full court, and leave to appeal on that point has been expressly refused on each occasion, it would be very rare indeed for the appellant to be permitted to reopen the point at the hearing of the appeal. If the appellants had required leave in this case I would not have thought it right to grant them leave.

VI

The appeal from Judge Maddocks

This court did therefore hear, on a provisional basis, submissions in support of and in opposition to the wider grounds of appeal for which this court was unwilling to grant leave, if required. By then only a limited amount of time was available for oral argument, but the parties sensibly agreed that the matter should be considered on the basis of the full skeleton arguments, supplemented by references to the oral evidence of Mr Harry Hall (a transcript of which became available only on the day before the start of the appeal hearing).

Having considered the written submissions and the transcript I have no doubt but that Beldam and Millett LJJ were right to refuse to grant leave for a wider appeal from Judge Maddocks. The defence under s. 151 of the Companies Act 1985 can only get off the ground if the company actually made itself liable to the Bank for payment of interest on the Halls’ borrowings. The giving of a mandate permitting interest to be debited to the company’s account at the Bank did not by itself amount to evidence that the company intended to make itself contractually liable for the interest. The Halls had to base their case on the letter of 18 December 1986.

Mr Harry Hall (whose evidence Judge Maddocks found to be commendably frank) said in evidence that he had not regarded the letter of 18 December 1986 as being particularly significant. He had forgotten all about it until it was later unearthed by his legal advisers. In my judgment it is not surprising that he did not regard it as significant. Its casual reference to “commitment fees and other charges” cannot in my judgment possibly bear the weight which the Halls have subsequently sought to place on it, especially in the light of the four facility letters which the Halls signed shortly afterwards. The conduct of the Halls and the company during the next three years was entirely consistent with the Halls being liable, and the company not being liable, for interest on the borrowings. The case now relied on by the Halls was first raised in affidavits sworn in January 1990 in opposition to the Bank’s application for summary judgment in the action then pending in the Queen’s Bench Division.

The conclusion that the company never made itself liable for interest can be supported by the principle stated by Lord Oliver in Brady v Brady [1989] AC 755, 783,

"that where an agreement can be performed in alternative ways, one lawful and one unlawful, it is to be presumed that the parties intended to carry it out in the lawful and not the unlawful manner."

That principle can be applied to the mandate which the company gave enabling interest to be debited to its account. But the Halls’ case really fails on a simpler and more basic point, that is that on the documentary evidence, and the primary facts as found by the Judge, there was no tripartite agreement of the sort which the Halls had to establish.

VII

Striking out: mortgagees’ duties

The action which the Vice-Chancellor struck out as hopeless was pleaded (as I have already noted) in a statement of claim which was not drafted by counsel but was nevertheless a coherent and detailed statement of the Halls’ complaints against the Bank. The statement of claim makes clear that (for limitation reasons) the complaints relate to alleged breaches of duty on the part of the Bank after 12 April 1989. That was the day on which the Halls (who were on the point of resigning as directors of the company) had a meeting with Mr Eddy of the Bank. They told him that they thought the company’s assets were being sold off at an undervalue by the company’s management (led by Mr Hampson who was then, apparently unknown to anyone, a de facto but not a de jure director). The Halls asked the Bank to intervene, in particular by appointing two of its own staff as directors of the company.

On 17 April 1989 the Halls did resign as directors. On 19 April Mr Hampson purported to appoint three individuals as new directors, but those appointments were subsequently held by Hoffmann J to have been invalid. On 24 April the Halls wrote to the Bank challenging the validity of the appointments but the Bank continued to act on mandates given by those claiming to be directors of the company. The company was advised by a well-known firm of solicitors that it did have a properly-constituted board. Between early May and early July the Halls, and especially Mr Harry Hall, repeatedly tried to make contact with Mr Eddy, but all approaches were rebuffed. Finally on 27 July 1989 there was a meeting between the Halls and Mr Eddy and two other senior employees of the Bank. The Halls’ request for the Bank to appoint directors was repeated, but firmly refused. The Bank’s spokesmen said that the Bank did not do that sort of thing. Soon afterwards, litigation ensued, as already mentioned. The Bank’s security (so far as it consisted of shares in the company) proved worthless. The Bank submits that the shares were already worthless on 12 April 1989, although that is not the point which it puts in the forefront of its case in submitting that the action against it was bound to fail.

The statement of claim in the Halls’ action against the Bank is more fully analysed, with some direct quotation, in the Vice-Chancellor’s judgment. He focused on paragraph 4 and noted that its three numbered subparagraphs conveniently summarised the three general themes underlying the detailed complaints which followed,

"1. The defendant failed to exercise its rights in the shares as security.

2. The defendant continued to operate the company bank accounts even though the defendant knew, or ought to have known that, and was under notice or effective notice from the plaintiffs to the effect that the persons purporting to act for the company with the authority of the plaintiffs had no such authority to do so.

3. The defendant improperly altered the terms of the loans."

The Vice-Chancellor referred to these as head, 1, 2 and 3. It is agreed that for the purposes of this appeal head 1 and head 2 are the live issues. Mr Macdonald indicated that if the action is not struck out the Halls would seek to amend their claims to plead breach of an equitable duty, rather than a duty in contract or tort.

Before going to the authorities to which this court was referred on head 1, it is helpful to step back and reflect on the nature of the security (apart from the Halls’ two houses) which the Bank obtained. Had the company itself been the borrower, it might have granted the Bank a fixed charge over its stock of residential property and a floating charge over the rest of its assets and undertaking. In the event of default the Bank would have been in a position to appoint receivers who would have been treated as agents of the company, so permitting intervention in the company’s business affairs without the Bank becoming subject to the onerous obligations of a mortgagee in possession (see for instance the explanation given by Rigby LJ in Gaskell v Gosling [1896] 1 QB 669, 691, which was cited and referred to as a “classical judgment” by Goulding J in Sowman v David Samuel Trust [1978] 1 WLR 22, 29).

In this case the Bank did not have any security whatsoever over the assets of the company. It had a charge (by way of memorandum of deposit of share certificates) over 400,000 ordinary shares in the company, that is about 30 per cent of the ordinary shares. It subsequently appeared (from the decisions of Hoffmann J already mentioned) that all the ordinary shares were for the time being disenfranchised, and that the limited voting rights attached to the preference shares had become exercisable. It seems to me very questionable whether the Bank, even if minded to intervene, would have got any further than the Halls did. These points seem not to have been discussed in any detail before the Vice-Chancellor, and it is not necessary to discuss them in detail now. But they do to my mind make this a singularly inappropriate case for this court to take a leap forward (as Mr Macdonald urged us to) in setting new standards in the duties owed by mortgagees who have charges over business assets.

On head 1 the Bank relied on principles stated by the Privy Council in the well-known cases of China and South Sea Bank v Tan Soon Gin [1990] 1 AC 536 and Downsview Nominees v First City Corporation [1993] AC 295 and by the House of Lords in National Bank of Greece v Pinios Shipping [1990] 1 AC 637. Those cases together establish or reaffirm that a mortgagee’s duty to the mortgagor or to a surety depend partly on the express terms on which the transaction was agreed and partly on duties (some general and some particular) which equity imposes for the protection of the mortgagor and the surety. The mortgagee’s duty is not a duty imposed under the tort of negligence, nor are contractual duties to be implied. The general duty (owed both to subsequent encumbrancers and to the mortgagor) is for the mortgagee to use his powers only for proper purposes, and to act in good faith ( Downsview at page 317). The specific duties arise if the mortgagee exercises his express or statutory powers ( Downsview at page 315). If he exercises his power to take possession, he becomes liable to account on a strict basis (which is why mortgagees and debentureholders operate by appointing receivers whenever they can). If he exercises his power of sale, he must take reasonable care to obtain a proper price.

A mortgagee is also under a duty to take any necessary steps to perfect his security, for instance by registering a bill of sale ( Wulff v Jay (1872) LR 7 QB 756). That is because of the mortgagee’s duty to hand over the security, on redemption, to the mortgagor (or the surety if it is he who redeems). But that point does not assist the Halls here.

Mr Macdonald referred the court to a passage in the opinion of the Privy Council delivered by Lord Templeman in China and South Sea Bank (at page 545), that

"No creditor could carry on the business of lending if he could become liable to a mortgagor for a decline in value of the mortgaged property, unless the creditor was personally responsible for the decline."

Mr Macdonald submitted that on the facts pleaded in the Halls’ statement of claim, the Bank was responsible for the decline in value of the company’s shares. But (quite apart from any problems of causation) Mr Malek is in my judgment right in submitting that this argument assumes what it seeks to prove. Apart from bad faith (which is not asserted against the Bank) it had no duty (even if it had power, which is doubtful) to intervene in the company’s thoroughly confused affairs in the hope of preserving the value of its security.

Mr Macdonald referred the court to some other cases ( Palk v Mortgage Services Funding [1993] Ch 330, especially at 337 - 8 and A.I.B. Finance v Debtors [1997] 2 BCLC 354, especially at 362 - 3; affirmed on other grounds [1998] 2 AER 929, C.A.). But the passages on which he relied were observations made in the context of a mortgagee in possession. Mr Macdonald also invited the court to make new law in imposing a wider equitable duty on a mortgagee in circumstances in which there is no conflict between his interests and those of the mortgagor. But such a principle would in my judgement be fraught with uncertainty and difficulty, and I can find no warrant for it in the authorities. It is true that the authorities can be seen as establishing that a mortgagee may (within the limits already noted) prefer his interest to that of the mortgagor where they conflict; but that is no basis for imposing undefined and novel duties merely because there is for the time being no such conflict.

As to what the Vice-Chancellor called head 2, he concluded that it was plainly and obviously unarguable because (in the absence of any tripartite agreement) the Bank’s only relevant duty was to the company as its customer, and not to the Halls either as shareholders in the company or as borrowers from the Bank. He referred to the well-known decision of this court in Prudential Assurance v Newman Industries [1982] Ch 204.

The circumstances in which a shareholder can sue for a wrong done to the company in which he holds shares have been considered in numerous more recent cases. One of the latest is the decision of this court in Johnson v Gore Wood & Co (12 November 1998) in which there is a six-point summary about three-quarters of the way through the (so far unreported) judgment of the court. It is not necessary, for present purposes, to go into the more recondite points in that summary. On the facts of this case as pleaded in the statement of claim, it is in my judgment clear that in relation to the Bank’s operation of the account of its customer, the company, it owed no duty to the Halls either as shareholders or as mortgagors. The Vice-Chancellor was right to conclude that this part of the claim also was hopeless, and to strike out the action against the Bank.

VIII

Striking out: the rule in Henderson v Henderson

For my part I would not have struck out the action against the Bank on the alternative ground that it was an abuse of process under the rule in Henderson v Henderson (1843) 3 Hare 100, under which (in the much-cited words of Sir James Wigram V.C. at pp. 114 -5).

"Where a given subject-matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."

That rule has recently been examined by this court, with a full citation of authority, in Johnson v Gore Wood & Co (12 November 1998). It is limited to cases in which a party’s failure to deploy his full case at an earlier stage amounts to an abuse of process: see Yat Tung v Dao Heng Bank [1975] AC 581, 590: Brisbane City Council v A - G for Queensland [1979] AC 411, 425; Arnold v National Westminster Bank [1991] 2 AC 93, 105 - 7.

In this case the Halls’ misconceived claims against the Bank arose out of the same sequence of events as the Bank’s claims against the Halls, but (especially as regards the claims for possession) they were cross-claims rather than defences (see Ashley Guarantee v Zacharia [1993] 1 WLR 62). When the Halls’ solicitors first aired the claims in February 1994 the reaction of the Bank’s solicitors was that the Halls were raising “new issues which should be dealt in separate proceedings”, and in a letter dated 24 October 1995 (that is, very shortly before the trial in front of Judge Maddocks) they rejected a proposal for consolidation of the existing consolidated proceedings with the Halls’ action against the Bank as impracticable at that stage. I do not think the Bank is to be criticised for taking that attitude. In February 1994 talk of a counterclaim may have been seen as a delaying tactic, and the same may have been true of the proposal for consolidation in October 1995. But to my mind that indicates that the Halls’ cross-claims, if otherwise well founded, might have failed on the basis that they have been too slow to seek equitable relief. They would not in my view have failed under the rule in Henderson v Henderson .

IX

Conclusions

I would therefore allow the appeal from Judge Maddocks to the extent to which Beldam and Millett LJJ were willing to grant leave to appeal (that is, to the extent that the Bank has already conceded that the appeal should be allowed). I would hold that in actuality leave to appeal from the money judgments in the order of Judge Maddocks was not required, but I would dismiss the appeal so far as it goes beyond what has been conceded.

I would dismiss the appeals from the Vice-Chancellor of the County Palatine on the basis that he was procedurally correct to dismiss the application to set aside the order of Judge Maddocks, and was right to uphold the District Judge’s order striking out the action against the Bank as one which had no realistic prospect of success.

MR JUSTICE KAY: I agree.

LORD JUSTICE MANTELL: I also agree.

Order: Appeal No 96/0346 allowed in part: 97/0922 and 97/0923 dismissed. Costs to follow the event as per draft order as amended.