England and Wales Court of Appeal (Civil Division) Decisions

Case Nos: B3/2000/6433, B3/2000/6435, B3/2000/6435

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM BRISTOL COUNTY COURT

(HIS HONOUR JUDGE NELIGAN)

Royal Courts of Justice

Strand, London, WC2A 2LL

Friday 26 October 2000

LORD JUSTICE LAWS:

INTRODUCTORY

1 This is an appeal by the defendants in the action, with permission granted by Potter LJ on 23 March 2000, against orders of His Honour Judge Neligan made in the Bristol County Court on 4 November 1999. In the form in which they were drawn up the orders provided that there be judgment for the claimant bank (who are respondents to the appeal) against both defendants for the sum of £209,742.36, and that the defendants do deliver up to the claimant the possession of 1 York House, Church Road, Easter Compton, Bristol.

2 There followed certain provisions relating to the prospective sale of the property at 1 York House; then it was ordered that the defendants' counterclaim be dismissed and their application for permission to appeal be refused. Certain other procedural matters were dealt with.

3 At the hearing in this court on 3 October 2000, we granted an application by Mr Nathan QC for the appellants to amend their notice of appeal so as also to mount an appeal against an order of His Honour Judge Neligan made on 1 November 1999, when he declined to adjourn the trial of the action. We also admitted certain further evidence sought to be relied on by both sides. The major focus of the appeal has been to the judge's refusal to adjourn on 1 November 1999; indeed it was this that was said to undermine the substantive orders made on November 4.

THE FACTS

4 The appellants are husband and wife. They live at the property at 1 York House, Easter Compton, of which they are joint tenants. On 26 May 1981 they granted a legal charge in respect of that property to the respondent bank. The charge was in what has been called the bank's standard "all monies" form:

"The mortgagor covenants with the bank to pay to the bank on demand all money and liabilities whether certain or contingent which are or at any time hereafter may be due, owing or incurred by the mortgagor to the bank....

The property was charged as a continuing security with the payment to the bank of all such money as was covenanted to be paid. There was a prior charge dated 26 March 1979 in favour of Nationwide Building Society. At the time the charge to the respondent bank was entered into, the sum secured by this prior charge was about £32,000.

5 Mr Nathan says that at the time it was executed the bank's charge was in fact ineffective, for there were no debts then owed by the appellants to the bank upon which it could bite. However on 23 July 1987 the appellants executed a guarantee in favour of the bank in respect of any liabilities to it of the private company of which they were shareholders and directors, York House Industrial and Marine Services Limited.

6 In 1988 the appellants decided to sell 1 York House, and buy another property, called "Upper Pink", in Gwent. In July 1988 it seems that they borrowed £15,000 from the bank (against the security of the charge) to go in whole or in part against the deposit they would have to pay. On 1 August 1988, by a bid at auction, the appellants entered into a contract to buy Upper Pink for £180,000. Completion was due on 31 August 1988. But (and this is their own case) they had no binding contract for the sale of York House: far less any completed transaction. They approached the bank for bridging finance. They dealt with an employee of the bank, Mr Mages. It is their case that the bank agreed to provide a bridging loan amounting to the whole of the price for Upper Pink, at 10% per annum fixed for 2 years.

7 Unfortunately for the appellants, a prospective purchase of York House fell through in October 1988 and from then until April 1990 the appellants had both houses on their hands; and they were unable to pay any interest or capital relating to the bridging advance which the bank had provided. At length in April 1990 Upper Pink was sold at auction for the price for which they had bought it - £180,000.

8 Before that, however, in September 1988 or thereabouts, the bank had opened a current account in their books in the appellants' name. The appellants say that they knew nothing whatever about this at the time. Thereafter the bank debited a home loan account with the sum of £60,000 so as partially to reduce what the appellants owed on the bridging loan. Other payments were, on the face of the bank's documents, debited to this account. The appellants say that all this was done without any vestige of authority on their part given to the bank.

9 It is next alleged by the appellants that in about April 1990 they sought to arrange a re-mortgage of York House and were offered £95,000 by Lloyds Bank Insurance Services, upon condition that the respondent bank released their legal charge. So the appellants went to see the bank's employee, Mr Bendell. They made proposals to the effect that they would pay off all but £15,000 of what they owed to the bank by handing over the £95,000 which would be paid under the re-mortgage, and by proffering also monies from the anticipated sale proceeds of Upper Pink on condition that the bank released the charge. If that was not acceptable, then the whole of their debt to the bank would be paid off by the addition of a further £15,000 to be advanced by a friend of the appellants, Mr Guest. The appellants were to plead that at a meeting on 30 May 1990 the bank declined to accept any such arrangement. In consequence the charge was not released, and the re-mortgage for £95,000 did not go ahead.

10 Then it is claimed by the appellants that the following year, in about August 1991, they again approached Mr Bendell of the bank with a further proposal. This time they offered to pay £85,000 in full and final settlement of all their indebtedness to the bank. They were to allege that in September 1991 Mr Bendell accepted this proposal on behalf of the bank, and it was agreed that the legal charge would be released so as to allow a re-mortgage to go ahead after all. In consequence the appellants made arrangements for a re-mortgage package with another finance house of £85,000, and incurred costs in doing so. Then, however, on 27 November 1991, the appellants say that the bank reneged upon their earlier agreement: two of their officials, Mr Moon and Mr Thorn, are said to have stated that the bank would not accept £85,000 to settle the appellants debts, nor would they release the legal charge.

11 Finally (at this stage) there was an issue relating to a boat belonging to the first appellant Mr Dix. That was sold by the bank as mortgagee in about October 1992. The appellants were to complain that the sale was at an undervalue.

12 On 3 December 1991 the bank served upon both appellants a formal demand for payment of monies due (though in the ensuing litigation the appellants expressly declined to admit that it had been served). The sums said to be due, as they were to be pleaded in the bank's amended particulars of claim, fell into three categories:

a) What was due under the bridging loan - said to be £120,285.44 as at 20 October 1995;

b) Overdraft on the current account - said to be £60,649.72 as at 20 October 1995;

c) The appellants' company's overdraft and thus the debt on the guarantee - said to be £109,396.93 - as at 20 October 1995.

Much later, on 1 November 1999 when HHJ Neligan dealt with the appellants' application to adjourn the trial, the total due on all the accounts was said to be in the region of £465,000; however, in circumstances which I will explain, the bank did not then (and does not now) seek to recover anything like that amount.

13 Nothing was paid by the appellants, either after the formal demand in 1991 or after the letter before action sent by the bank (which the appellants admit) on 1 May 1995. So it was that on 25 October 1995 the bank issued these proceedings in the Bristol County Court. The particulars of claim pleaded the charge and the amounts then said to be due, and sought possession of York House, together with a money judgment. A defence and counterclaim was served on 23 February 1996, of which particulars were sought in May 1996. Then on 5 June 1996 the particulars of claim were amended so as to refer to the guarantee relating to the company's borrowing. The defence and counterclaim was amended in April 1997 pursuant to leave given by the District Judge. There followed an amended reply and defence to counterclaim.

14 Much of the account I have so far given of the facts of the matter is taken from the appellants' pleading. I need not, I think, go into the details given in the further and better particulars provided of the defence and counterclaim. In the amendment of April 1997, the case being made by the appellants was as follows.

(i) The appellants were induced to accept the bridging loan which the bank offered by reason of negligent representations made by Mr Mages, and the bank was vicariously responsible for any loss suffered by the appellants in consequence. I need not set out the allegations of negligence. By way of set-off and counterclaim the appellants sought to recover from the bank, under this head, "all sums of interest accruing upon the principal capital sum of £180,000 advanced under the terms of the bridging loan agreement in excess of 10% and all other sums and charges debited to the account. Further all debits to the Current Account."

(ii) By reason of the bank's refusal to release the legal charge pursuant to the offers put forward in April/May 1990 (to which I have referred), the legal charge fell to be condemned as unlawful and invalid, so that the bank might not rely upon it in order to obtain possession of York House.

(iii) The bank's repudiation of their agreement in 1991 to accept £85,000 in full and final settlement of the appellants' debts gave rise to a claim for damages in the appellants' hands.

(iv) A claim arose by virtue of the sale by the bank of the first appellant's boat at an alleged undervalue.

15 In fact the amended defence and counterclaim is somewhat less tight than this summary would suggest: it pleads the alleged creation of a secret bank account; this is of course the current account to which I have already referred. But it is far from clear what monetary loss that is said to have occasioned. An amended reply and defence to counterclaim dated 30 July 1997 made some positive allegations on the bank's behalf, but generally put the appellants' case in issue.

16 The case was listed for trial before Her Honour Judge Darwall Smith at the Bristol County Court on 26 October 1998, with a 5 day estimate. However upon the appellants' application that date was vacated by order of 22 October 1998. At length it was relisted for trial before His Honour Judge Rutherford on 7 June 1999.

17 About two weeks before that trial date, the appellants' counsel's clerk informed their solicitors that counsel would be unavailable for the trial. Other counsel was instructed: Mr Clutterbuck. However, he either withdrew or his instructions were withdrawn; though not before he had given an opinion, adverse to the appellants' case, which went to the Legal Aid Board. A third counsel was instructed; she delivered opinions to the Legal Aid Board on Friday 4 June 1999 and Sunday 6 June 1999. In light of what she had to say (and, no doubt, taking account of the opinion of Mr Clutterbuck) the Legal Aid Board put a stop on the appellants' legal aid certificate on the morning of 7 June 1999 - which was, of course, fixed as the first day of the trial. Faced with this state of affairs His Honour Judge Rutherford decided to adjourn the trial. I should say that the appellants insist that the adjournment was also ordered because two of the bank's witnesses who would fall to be cross-examined for the appellants were not available. Judge Rutherford ordered in addition that when the matter came back to court there should be a split trial: legal submissions were to be made on 1 and 2 November 1999, and they were to be followed by a further hearing (at which, presumably, evidence would be given) on 23-25 November 1999.

18 In due course the appellants' legal aid certificate was reinstated, in virtue of a successful appeal against its revocation. However it was limited to the taking of advice and did not cover solicitors or counsel for any future trial; so that at that time the appellants could have had no settled, objective expectation that they would be represented at the public expense at any such trial. Pursuant to the terms of the restored certificate on 28 September 1999 leading counsel, Mr Peter Sheridan QC, was instructed to advise in writing upon the merits of the appellants' case.

19 On 4 October 1999 the appellants wrote personally to the court, seeking an adjournment of the fixed November date. This letter is of some importance in light of the submissions now made on their behalf. They stated: "At this point in time, we do not know whether we shall have legal representation, or have to appear as Litigants in Person." They proceeded to indicate that they no longer trusted the firm of solicitors which had acted for them, following the departure from it of Mr Stevens, who had previously dealt with their case; and they said, "We have been given permission, after a fight, to take Mr Stevens with us [sc. to the trial] as a friend". Later in the letter, this:

"Should leading counsel give a positive response, we will have to... take our case to another firm of solicitors. This will take time to find one suitable, or there is a possibility Mr Stevens will join another one, but this will also take time. Alternatively our only other option will be to represent ourselves."

This letter was not, I think, replied to before the hearing on 1 November.

20 At length Mr Sheridan prepared a 31-page opinion. It was received by the Legal Aid Board on 27 October 1999. In light of its contents, on 28 October 1999 the Legal Aid Board put a stop on the then current legal aid certificate and issued a notice to show cause by 11 November 1999 why this certificate should not be discharged. So it was that the lawyers withdrew from the forthcoming trial. On the date fixed for the first hearing ordained by Judge Rutherford, 1 November 1999, the appellants went to court themselves. They did so without the papers in the case - they had remained with Mr Sheridan who mistakenly thought that there was another set; the bank sent a set of papers by courier to York House, but that was left in the rain and ruined. But Mr Stevens went to court with the appellants on 1 November 1999, as they had foreshadowed in their letter of 4 October to the court. It is clear from the transcript of the proceedings on 1 November 1999 that Judge Neligan was anxious that Mr Stevens should act as the appellants' "spokesman": that is the word he used: 1st transcript of 1 November, 10G. And so Mr Stevens undertook that role. He had for more than three years acted under conventional instructions as the appellants' solicitor; and after ceasing to act formally, had continued to advise them.

21 So it was that Judge Neligan on 1 November 1999 was faced with an application on the appellants' behalf to adjourn the case again. In his judgment refusing the adjournment, he said this (6E - 7A):

"In opposing the application to adjourn Mr Dight, counsel for the bank, has said that the bank is prepared to limit its claim for possession and limit any money judgments to the equity. The total due to the bank on all accounts is put at about £465,000, the property is worth about £120,000, and, after costs of sale and the first mortgage to the Nationwide Building Society at £30,000 being provided for, the net proceeds of sale would be somewhere between £90,000 to £95,000. The bank considering proportionality, as one has to do, is prepared to limit its claim in the way I have described."

22 The judge then undertook a broad review of the contentions advanced by the appellants by way of defence and counterclaim. He referred (9B - E of the transcript) to the appellants' reliance upon "the suggestion and allegation" that a letter purporting to have been written by Mrs Dix was a forgery, in effect, by the bank. I shall refer to this again, because it figures expressly in a new draft pleading put forward on the appellants' behalf by Mr Nathan. On 1 November 1999 the judge said (9C - E):

"But, despite requests in various letters, the bank was not informed about that new allegation: less still has there been an application for leave... to amend the defence and/or counterclaim. The position now is that the application to adjourn is buttressed by this allegation, which in my view could have been raised - if it is a viable allegation - a lot sooner than it has been now."

23 The judge proceeded to direct himself fully and clearly in accordance with the approach to procedural issues enjoined by the Civil Procedure Rules, and referred in terms to the overriding objective set out at Part 1.1. He concluded (10F - 11A):

".... I have to do broad justice between the parties on an equal footing. In my judgment it would be a denial of justice to the bank to grant yet another adjournment of this protracted litigation."

24 So the adjournment was refused, and Judge Neligan proceeded to hear argument as to the points of principle in the case, in accordance with the procedural directions which had been given by Judge Rutherford on 7 June 1999. He heard no live evidence. 0n 4 November he gave judgment on the substantive issues. His decision was such as to render unnecessary any further hearing (contemplated by the order of Judge Rutherford) on 23-25 November 1999 or at all. He made it plain, as was and is the fact, that the bank limited its claim to an order for possession and a money judgment to the value of the equity in York House. Not least in light of that he concluded that there was nothing in the defence and counterclaim. By way of example it rendered irrelevant an argument about the effect of a "conclusive evidence clause" in the guarantee which the appellants had given. The judge held that even were it proved that the bank had opened the current account without any authority, the appellants had suffered no loss in consequence; that there was no sustainable claim in relation to the bank's dealings with the first appellant's boat; and that the legal charge was valid and subsisting, citing authority for the proposition that a mortgagor cannot generally resist his mortgagee's claim for possession by a claim to a set-off in an unliquidated sum said to exceed the mortgage arrears. The judge said (25F-G):

"... I find that the counterclaim does not succeed to extinguish the liability of the defendants under the charge or under the guarantee to the bank. I find that on the amount that the defendants admit is due to the bank, putting it at its lowest, the bank's case for a possession order is clearly made out."

25 As I have said, the order made on 4 November 1999 was drawn so as to show a judgment in the bank's favour for the sum of £209,742.36. That is greatly in excess of the value of the net equity in York House, as the bank acknowledges; so that even if they do not otherwise prosper on this appeal, since the bank strictly limits its claim to the equity's value (as Miss Appleby QC accepted in terms on the bank's behalf), the appellants will be entitled to have the money judgment amended. However it is quite clear where the figure of £209,742.36 came from. The appellants served a schedule in the proceedings on 12 May 1999, stating their own case as to what was due to the bank on the company account (that is, under the guarantee) and on the bridging loan account. On the former they accepted a sum due of £109,728.63, and on the latter £100,013.73, which of course together amount to £209,742.36. That figure, then, comes from the appellants' own admission. As regards the amount of the equity's value, there seems to be some consensus that the right figure is £85,000 (a sum appearing in the appellants' original pleading in relation to the alleged agreement of August 1991), and also in a proposed amendment to which I shall refer shortly, though I am not sure that that is distinctly proved or agreed as a true assessment of the equity's value.

THE APPELLANTS' CASE ON APPEAL

26 Reduced to its essentials, Mr Nathan's submissions in this court may be encapsulated in three propositions. (1) His clients were deprived of their right to a fair trial (whether under the common law or Art. 6(1) of the European Convention on Human Rights) by the judge's refusal to adjourn on 1 November 1999. (2) At least with the benefit of an adjournment, the appellants might have succeeded in establishing as much of their contentions set out in the amended defence and counterclaim which was before the court in November 1999 as would extinguish the bank's money claim against them, and defeat the claim for possession. (3) In the alternative to (2) the appellants should now be allowed to amend their pleading so as to put forward a case which better expresses their original allegations, in particular to firm up their accusations against Mr Mages, and also to allege in terms that servants of the bank forged a letter in the second appellant's name.

28 I have sufficiently described the facts of the case in order to arrive at an adjudication upon the first of these three submissions. But I should say something about Mr Nathan's proposed amendment. Although the document would re-cast the appellants' case in fresh language, save for one point it adds little of substance to the case as it had been earlier formulated. Thus it is sought (see paragraphs 7 and 10) to plead a contractual obligation upon the bank to cancel the charge upon request being made at such time the appellants owed nothing to the bank; but this adds nothing to their equitable right of redemption. Then it is said (paragraph 8) that at the time of the charge's execution the bank's assistant manager owed fiduciary duties, arising out of a relationship of trust and confidence with the appellants who had not had legal advice and to whom the effect of the charge was not explained. In the absence of very special facts (of which there is no whisper here) such a contention is self-evidently bad, as is the suggestion that the assistant manager was "in a position of influence" over the appellants. Then I may go forward to paragraph 24, which reads in part:

"In late July or early August 1999 the Defendants obtained from Black Horse a photocopy of a letter purportedly signed by the Second Defendant alone, accepting certain special terms offered by Black Horse with regard to the joint endowment policy... This letter was not written by either of the Defendants and it is the Defendants' case that the Second Defendant's signature thereon has been forged. Further, the Claimant has disclosed a copy letter dated 31 January 1989 from the Claimant to the Defendants, purporting to refer to the new mortgage. The Defendants never received the said letter. The Defendants believe that this letter was concocted by a person or persons within the Branch."

This allegation is the point in the case which is new to the pleadings, although it will be recalled that this same suggestion of forgery had been raised in argument before the judge on 1 November and had been robustly dismissed by him (see paragraph 18 above in this judgment). Paragraph of Mr Nathan's amended pleading alleged a "Mortgage of Life Policy Form" apparently executed by the appellants on 31 August 1988 was also a forgery, but Mr Nathan withdrew that paragraph saying that he had misunderstood his instructions.

29 It is unnecessary to travel any further into the detail of the proposed amended pleading.

CONCLUSIONS

30 As regards the first of Mr Nathan's three positions which I have set out in paragraph 26, I would certainly accept that the case is a remarkable one on its facts: twice the appellants' legal aid was withdrawn immediately before the proposed substantive hearing of the case. I would accept also that the appellants were put at some disadvantage, for the purpose of their dealing with the merits of the case, by the judge's refusal to adjourn on 1 November 1999. There were difficulties over the papers. Mr Stevens' knowledge of the case may have been somewhat stale and he was not a specialist advocate (though I should emphasise that as it seems to me his appearance before Judge Neligan was an admirable piece of professional work undertaken in difficult circumstances). However there is at least one important countervailing factor. The appellants knew or should have known from 7 June 1999 that they might have to represent themselves at trial. When their legal aid certificate was restored in August 1999, it was for advice only. They knew of the November hearing date when it was fixed by Judge Rutherford on 7 June. In their letter to the court of 4 October 1999 they recognised in terms that they might have to face the trial as litigants in person.

31 Balancing these considerations, I think it would be reasonable to conclude that the appellants should have prepared themselves for trial as litigants in person for 1 November 1999. But in light of the legal aid history here (extraordinary enough for Master Venne to write on this court's behalf to the Legal Services Commission so that they might consider attending the appeal), and the suggestion that a very late withdrawal of legal aid might be particularly vulnerable to assault under Art. 6 ECHR (see Airey v Ireland (1979-80) 2 EHRR 305), I would propose not to condemn the appellants on that ground. If I considered that an adjournment on 1 November 1999 would or reasonably might have made a material difference to the outcome of the litigation, I should for my part be prepared to order a new trial.

32 However Mr Nathan was, I think, at first prepared to submit that even if this court were satisfied that on the facts the appellants had no prospect of resisting an order for possession and a money judgment for the value of the equity, still they should obtain relief here - presumably in the form of an order for a new trial - if it were demonstrated that the proceedings below were infected by procedural irregularity or unfairness. He pointed to differences between RSC Order 59 Rule 11 and CPR Part 52.11(3) as tending to show a heightened importance accorded by the new Rules, in the context of appeals to this court, to the requirements of procedural fairness. It is unnecessary to set out these provisions since Mr Nathan was at length disposed to accept that in a case where no procedural guarantees (or indulgences) could save a party from an inevitable conclusion on the merits that his case was truly hopeless, this court should not somehow allow him to go back into the fray because there had been some failure of fairness along the way. That would be for the court to act in vain, which it does not do. Nor, I should add, does Art. 6 of the European Convention on Human Rights require it to do so; though I would accept that that provision may raise nice questions as to the balance to be struck, case by case, between the force of a procedural defect on the one hand and the force of an apparently secure result, not flowing from any such defect, on the other. Those questions do not arise, however, where the litigation has only one possible result. And as I shall shortly demonstrate that, in my judgment, is the position here.

33 Looking first at the case through the pleadings as they were before Judge Neligan in November 1999, and given the critical fact that the bank's money claim is limited to the equity in York House, I consider that the judge's conclusions were inevitably right and the appellants' case was doomed to failure and would therefore reject the second submission made by Mr Nathan as I have summarised it above at paragraph 26. There was and is no question of the charge being invalid or ineffective. On the appellants' own pleading there is no basis in law upon which the bank were obliged to accept what it is said was put to them in April/May 1990. Nor is there any basis for the assertion that the bank's alleged repudiation of the contract said to have been made in 1991 for the settlement of the appellants' debts for £85,000 sounds in damages. If the facts they plead are true, the appellants should have tendered £85,000; if the bank refused to accept it, they might have had a case.

34 Turning to the proposed amendment, everything I have said in the foregoing paragraph applies, as I see it, with no less force. There is simply no basis arising from anything pleaded or sought to be alleged that is capable of defeating the bank's claim for possession and a money judgment for the equivalent of the net equity's value of York House. Paragraph 24 of the proposed amendment, as was put to Mr Nathan by my Lord the Master of the Rolls in the course of argument, contained pleas which it was not proper for counsel to make. It is elementary that counsel should not allege fraud in a pleading unless he is satisfied that there is evidence which may be reasonably be taken to support the charge. Paragraph 24 ("it is the Defendants' case that the... signature... has been forged": "The Defendants believe that this letter was concocted...") was on its face an improper evasion of that responsibility.

35 Mr Nathan stated in the course of argument that he had clear instructions as to the allegations contained in paragraph 24, and would seek to delete the words "it is the defendants' case that..." and "The defendants believe that...". However, even if one sets aside such misgivings about these allegations as obviously arise given the form of the original draft pleading, they are not in my judgment capable of affording any defence to the limited claim for relief now persisted in by the bank. Any forgery or like misconduct would (it goes without saying) be wholly deplorable, and if committed by servants of a bank acting as such, perfectly scandalous; but there is, in truth, nothing here to touch the validity of the charge on which the bank relies or what I may call the raw minimum debt owed by the appellants to the bank.

36 There is in my judgment nothing in this appeal, which I would dismiss. If my Lords agree, the appellants' further application to admit new evidence becomes academic and requires no further consideration.

LORD JUSTICE MAY:

37 I agree.

LORD PHILLIPS MR:

38 I also agree.