England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TAUNTON COUNTY COURT
SITTING AT THE LAW COURTS BRISTOL
His Honour Judge Weeks QC

		Royal Courts of Justice Strand, London, WC2A 2LL Friday 20th July 2001

LORD JUSTICE WALLER:

Introduction

1. This is an appeal from a decision of His Honour Judge Weeks QC given on 18^th December 2000. He reversed a decision of Deputy District Judge Wilkinson given on 10^th May 2000, in which the Deputy District Judge had enforced a charging order obtained by Lloyds Bank by ordering a sale of Mr and Mrs Shorney's home, Lyddons Mead, Nailsbourne, near Taunton. The charging order had been obtained over Mr Shorney's interest in that property in relation to a judgment obtained by the Bank against Mr Shorney. The judge reversed that decision on the basis (putting it shortly for the present) that in relation to an earlier mortgage entered into between Mr and Mrs Shorney, and the Bank, (i) Mrs Shorney had paid off the same, and was entitled to be subrogated to the Bank's charge over the property, and (ii) the Bank were precluded from relying on a term of the mortgage which the Bank argued prevented Mrs Shorney exercising the right of subrogation as against the Bank.
2. The judge held that the Bank was prevented from relying on the relevant clause because they had failed to disclose to Mrs Shorney increases in the liabilities of Mr Shorney. The appeal thus raises points on the extent to which a Bank may come under a duty to disclose matters to a surety during the currency of the surety contract, and points on the construction of the terms of the Bank's standard mortgage.

The Facts

3. On 28^th February 1989 two documents were executed in favour of the Bank. First, Mr Shorney and a Mr Tyler entered into a guarantee of the liabilities of a company, GT Lighting, up to the sum of £150,000. It seems that Mr Shorney had sold his interest in this company to Mr Tyler but continued to guarantee its overdraft with the Bank. Second, on the same day and as security for Mr Shorney's liabilities, Mr and Mrs Shorney executed the mortgage which is the critical document so far as this appeal is concerned. The important terms of the mortgage were as follows:-

"1. In consideration of the Bank making or continuing advances and/or granting or continuing banking accommodation or facilities or giving time or releasing any security or releasing any party from any obligation in respect of advances accommodation or facilities to:

James Herbert Shorney of Lyddons Mead, Nailsbourne, Taunton (hereinafter called "the Customer") or others the Mortgagor as beneficial owner charges by way of legal mortgage subject to any prior charges or mortgages mentioned in the schedule hereto (hereinafter called "the prior mortgages") and to the principal money interest and other money thereby secured the property specified above together with all buildings and fixtures thereon with payment to the Bank on demand of

A. (a) all money and liabilities (including further advances made hereafter by the Bank and secured directly or indirectly by this mortgage) whether certain or contingent which now are or at any time hereafter may be due owing or incurred from or by the Customer to the Bank anywhere on any current or other account or in any manner whatsoever whether as principal or surety and whether alone or jointly with any other person firm or corporation and in whatever style name or form including:

(i) . . . . .

(ii) . . . .

(b) . . . .

(c) . . . .

PROVIDED that this mortgage may be determined by notice of discontinuance given in writing by the Mortgagor or by the personal representatives of the Mortgagor to the Bank but the giving of such notice of discontinuance shall not affect the amount recoverable under this mortgage at the date of receipt by the Bank of the notice.

B.… PROVIDED that the total amount recoverable by the Bank from the Mortgagor under this Mortgage shall not exceed the sum of ONE HUNDRED AND FIFTY THOUSAND POUNDS (£150,000).

16. The Bank may without any consent from the Mortgagor and without affecting this mortgage renew vary increase or determine any advances accommodation or facilities given or to be given to the Customer or any other person and agree with the Customer or any such person as to the application thereof hold renew modify or release or abstain from taking perfecting or enforcing any security or guarantee or right now or hereafter held from or against the Customer or any other person in respect of any liability hereby secured and grant time or indulgence to or compound with the Customer or any other person and this mortgage shall not be affected or discharged by anything which would not have affected or discharged it if the Mortgagor had been a principal debtor to the Bank.

21. Until all money and liabilities and other sums due owing or incurred by the Customer to the Bank shall have been paid or discharged in full notwithstanding payment in whole or in part of any sum recoverable from the Mortgagor hereunder or any purported release or cancellation hereof the Mortgagor shall not by virtue of any such payment or by any other means or any other ground (save as hereinafter provided):

(a) claim any set-off or counter-claim against the Customer in respect of any liability on the part of the Mortgagor to the Customer

(b) make or enforce any claim or right against the Customer or prove in competition with the Bank whether in respect of any payment by the Mortgagor hereunder or in respect of any money including proceeds of realization of the mortgaged premises and any chattels hereby charged retained or applied by the Bank hereunder or otherwise

(c) be entitled to claim or have the benefit of any set-off counter-claim or proof against dividend composition or payment by the Customer or the Customer's estate

(d) be entitled to claim or have the benefit of any security or guarantee now or hereafter held by the Bank for any money or liabilities or other sums due or incurred by the Customer to the Bank or to have any share therein

(e) claim or enforce any right of contribution against any surety."

4. On 29^th September 1989 and 15^th January 1991 further guarantees were executed by Mr Shorney and Mr Tyler, in relation to GT Lighting Limited, increasing Mr Shorney's liabilities under the guarantees to the sum of £290,000. Mrs Shorney was not informed.
5. Barclays Bank obtained a second charge over the property on 16 April 1991.
6. GT Lighting having defaulted, proceedings were issued against Mr Shorney for sums due under the guarantees, and on 29^th May 1992 judgment was entered against him in default for £238,893.63 plus £14,085.19 interest plus £186 costs.
7. On 7^th October 1992 an action was commenced against Mr and Mrs Shorney to enforce the mortgage. It is in dispute whether at this stage Mrs Shorney became aware of the further guarantees. A suspended possession order was made by consent on 2^nd December 1992.
8. On 16^th April 1993 the Bank sought to enforce its judgment against Mr Shorney, and for that purpose obtained a charging order absolute over Mr Shorney's interest in the property.
9. In the meanwhile Mr and Mrs Shorney had been litigating a claim against financial advisers, Messrs Christies, in relation to a business venture in Scotland which had gone seriously wrong. To stave off an application by the Bank for a warrant of possession, Andrew Gregg & Co, (Andrew Gregg) solicitors acting for the Shorneys in the litigation against Christies, gave the following undertaking:-

"We hereby undertake to pay to Lloyds Bank such sum as is necessary to discharge the indebtedness of Mr and Mrs Shorney to Lloyds Bank from the monies recovered by Mr and Mrs Shorney as damages or otherwise from an action in the Bristol Mercantile court between Thornmills Limited and Mr and Mrs Shorney and Christies."

10. The action against Christies was ultimately settled, and Andrew Gregg received £550,000. Andrew Gregg paid out sums to other creditors of Mr Shorney. Andrew Gregg maintained that their undertaking to the Bank was to pay that which was due under the mortgage i.e. only £150,000. The Bank maintained that the undertaking covered the whole of Mr Shorney's indebtedness. If the Bank were right, Andrew Gregg were faced with a shortfall.
11. The Bank sued Andrew Gregg, and by a consent order made on 4^th April 1997 that action was compromised on payment of a sum of £210,000 to the Bank on terms that (i) the Bank would procure the discharge of the mortgage; (ii) £150,000 would be applied to discharge the outstanding indebtedness of Mr Shorney secured by the mortgage, and £60,000 in reduction of Mr Shorney's liabilities to the Bank for guarantee liabilities to GT Lighting. It was acknowledged that the terms were not intended to extinguish the charging order over Mr Shorney's beneficial interest, or the balance of Mr Shorney's indebtedness that remained.
12. It is not now in issue that the £210,000 was almost exclusively monies of Mrs Shorney. That accordingly would clearly provide Mrs Shorney with a claim for restitution against Mr Shorney for the money paid out to discharge his indebtedness. Furthermore in so far as £150,000 was being paid to discharge the mortgage, prima facie, by virtue of section 5 of the Mercantile Law Amendment Act 1856, Mrs Shorney would be entitled to "keep the mortgage alive" for her own benefit in relation to Mr Shorney's share in the property. Section 5 provides:-

"Every person who, being surety for the debt or duty of another, or being liable with another for any debt or duty, shall pay such debt or perform such duty, shall be entitled to have assigned to him, or to a trustee for him, every judgment, specialty, or other security which shall be held by the creditor in respect of such debt or duty, whether such judgment, specialty, or other security shall or shall not be deemed at law to have been satisfied by the payment of the debt or performance of the duty, and such person shall be entitled to stand in the place of the creditor, and to use all the remedies, and, if need be, and upon a proper indemnity, to use the name of the creditor, in any action or other proceeding, at law or in equity, in order to obtain from the principal debtor, or any co-surety, co-contractor, or co-debtor, as the case may be, indemnification for the advances made and loss sustained by the person who shall have so paid such debt or performed such duty, and such payment or performance so made by such surety shall not be pleadable in bar of any action or other proceeding by him,: Provided always; that no co-surety, co-contractor, or co-debtor shall be entitled to recover from any other co-surety, co-contractor, or co-debtor, by the means aforesaid, more than the just proportion to which, as between those parties themselves, such last-mentioned person shall be justly liable."

Issue in broad terms

13. The issue in broad terms is whether an order should be made for the sale of the property, and that point turns on whether Mrs Shorney's charge by virtue of s.5 takes priority over the charging order obtained by the Bank. On Mrs Shorney's behalf the submission is that her charge takes priority and thus that the position is as follows. The property is valued at £210,000; the Barclays Bank mortgage, it is common ground, takes priority over the Bank's charging order and such charge as Mrs Shorney holds. That reduces the £210,000 to £140,000; Mrs Shorney then has a half share in the property unencumbered which leaves £70,000 in round terms as the value of Mr Shorney's interest. If Mrs Shorney has priority over the Bank, there is nothing against which the Bank can enforce its order, and no sale should be ordered.
14. On behalf of the Bank the submission is that Mrs Shorney has agreed by virtue of clause 21 in the mortgage that until all Mr Shorney's liabilities to the Bank have been discharged, she will not either enforce any claim against Mr Shorney, or be entitled to have the benefit of any security held by the Bank. If this submission is accepted, Mr Shorney's interest of £70,000 would be available to the Bank on a sale, and a sale should be ordered.

Mr Knox's arguments

15. The first points to address logically relate to the true construction of the mortgage.
16. First, Mr Knox for Mrs Shorney relies on the negotiations leading up to the signing of the relevant documents which he says demonstrated that the documents were to relate to a guarantee of £150,000, a mortgage as security for that guarantee, and nothing more. He relies also on the proviso "the total amount recoverable by the Bank from the mortgagor under this mortgage shall not exceed the sum of £150,000". He submits that the effect of the proviso is to preclude the Bank from using the mortgage or any of the provisions of the mortgage (defined at paragraph 29(b)(iii) as extending to every independent stipulation), to enable it to recover from the property or Mr Shorney any sums greater than £150,000.
17. The second argument relies again on the fact that the mortgage was sought and given for the purpose of securing Mr Shorney's liability under the particular guarantee for £150,000. No other transaction was contemplated at the time. Thus it is suggested the replacement of that guarantee with further guarantees for £290,000 meant that the principal transaction was materially different from that which the mortgage was intended to secure. Mr Knox submitted that in relation to clause 16; (i) there is no question of consent having been sought or obtained, and that (ii) that the words "and this mortgage shall not be affected or discharged by anything which would not have affected or discharged it if the Mortgagor had been a principal debtor to the Bank" simply do not apply so as to entitle the Bank to charge Mrs Shorney's interest with the increased guarantees. So the argument runs, Mrs Shorney's interest remained charged with £150,000, and thus when she paid that sum off and discharged the mortgage she took an assignment of the mortgage by virtue of section 5 of the Mercantile Amendment Act 1856. She was then entitled to enforce that mortgage in priority to subsequent encumbrancers including the Bank in relation to its charging order. Clause 21, it is argued, does not prevent such an assignment in that either (1) the benefit of clause 21 was assigned with the benefit of the mortgage, or (2) because clause 21 cannot give to the Bank rights in relation to liabilities created under transactions entered into without Mrs Shorney's consent and with which the property has never been charged under the mortgage.
18. The third argument assumes again the transaction being that which Mr Knox has previously emphasised, but then assumes that clause 21 means what the Bank suggests. On that basis submitted Mr Knox, by entering into the further guarantees further burdens would be placed on Mrs Shorney under the mortgage. On the Bank's construction of clause 21, Mrs Shorney having paid off the £150,000 and obtained the assignment of the mortgage, would still rank in priority behind the Bank. That additional burden was something, so argues Mr Knox, Mrs Shorney was not bound to accept. That, Mr Knox submitted, gave rise to a duty on the Bank to disclose the same. If the Bank did not disclose the same, then Mrs Shorney was entitled to be subrogated free from clause 21.

Mr Pymont QC's arguments

19. Before the Judge and the District Judge the Bank were arguing that Mrs Shorney stood as surety for the whole of Mr Shorney's liabilities to the Bank, and that the property was mortgaged to the bank as security for the whole of Mr Shorney's liabilities. Reliance was placed on clause 1(A) and the language used. The argument was that the proviso simply placed an upper limit on recovery. The judge found that the mortgage only secured part of Mr Shorney's liabilities, that part being £150,000. That finding of the judge was not challenged on appeal. As I understood Mr Pymont's argument on construction on this appeal, he still stressed the general words in clause 1 in order to suggest that the mortgage did not simply cover Mr Shorney's liability of £150,000 under the guarantee, but any liability of Mr Shorney up to that amount.
20. His argument then was that the Bank was free to enter into any arrangements whatever with Mr Shorney which might or might not have increased his liability to the Bank. Such liabilities were contemplated by the mortgage, and the entry into the same did not materially alter the underlying contract, because the limit of £150,000 was at all times maintained. So it would never have been necessary to seek consent as contemplated by clause 16. Thus the entry into the further guarantees without consent did not discharge Mrs Shorney from the mortgage. In the alternative Mr Pymont submitted that if there was a material variation to the underlying contract, although he had difficulty relying on much of clause 16, no discharge followed by virtue of the concluding words of clause 16:-

". . . and this mortgage shall not be affected or discharged by anything which would not have affected or discharged it if the Mortgagor had been a principal debtor to the Bank."

21. His argument then turned to the words of clause 21. He suggested that the wording was clear. It contemplated subrogation in just the circumstances which had occurred in this case, but it also made clear that until

"all ... liabilities incurred by the customer to the Bank shall have been paid or discharged in full … the mortgagor shall not … make any claim in competition with the Bank ... or be entitled to … have the benefit of any security … held by the Bank for any monies or liabilities ... incurred by the customer to the Bank …."

22. In answer to the suggestion that if clause 21 did apply as he suggested, that did involve a material alteration to Mrs Shorney's position when further liabilities were incurred by Mr Shorney to the Bank, he did not accept that was so because the wording of the mortgage contemplated that other liabilities might be incurred and that all liabilities would have to be paid before Mrs Shorney could make her claim against her husband; in the alternative he fell back on the final words of clause 16. On that basis he submitted that there could be no question of the mortgage being discharged. In any event he submitted that there could be no question of disclosure. The further guarantees he submitted would not have been disclosable if entered into prior to the mortgage being signed. There could in any event be no question of disclosure during the currency of the mortgage.
23. His final arguments were ones not raised before the judge. He submitted that if there was any non-disclosure this took place at the time the guarantees were entered into. That, he submitted, would have avoided the mortgage as at that date, and it would follow that Mrs Shorney was a volunteer when she paid off the mortgage, and she would thus gain no rights of subrogation. In the further alternative he wished to raise a point on estoppel. He submitted that Mrs Shorney could and should have raised the points on non-disclosure at the time when the Bank applied for its possession order. Not having done so the suggestion was that Mrs Shorney was now precluded from taking the point by virtue of what is termed the rule in Henderson v Henderson. (1843) Hare 100.

Discussion

24. Where a wife has signed a standard form document securing the indebtedness of her husband, even when advised in relation thereto, it may seem to lack an air of reality to suggest that she should have read the terms and understood them, and to take that as the starting point. However, that, as it seems to me, is the appropriate starting point. Of course the addition of a proviso to the standard terms must be given due weight that being a term actually negotiated, and if that term were inconsistent with others of the standard variety that term would take precedence.
25. Reading the terms of the mortgage which are relevant, it seems to me that on their face they provide as follows. First, Mr and Mrs Shorney charged their house with payment to the Bank of all money and liabilities whether certain or contingent which are now or at any time hereafter owing or incurred. Second, the mortgage could be terminated at any time, liability then being limited to the liability incurred at the date of receipt of the notice. Third, the limit on recovery was £150,000.
26. In the context of the above clauses and without the impact of clause 21, the mere entry into further guarantees could be said not to constitute a material variation of the underlying contract affecting the liability of Mrs Shorney. So far as the mortgage was concerned it would not matter what Mr Shorney's liabilities to the Bank became or what they arose under, the limit remained at £150,000. Clause 16 could on this basis be argued to be irrelevant.
27. But what about the affect on Mrs Shorney's remedies against Mr Shorney and in particular what about clause 21? Mr Knox would submit that clause 21 in the context of the proviso only applies to £150,000 of liabilities i.e. he suggests "all money and liabilities and other sums …" relate only to such sums and liabilities in relation to which the mortgage could have been enforced, and, on his argument, those are confined to £150,000 worth of liabilities. Thus he would submit that Mrs Shorney, when she paid £150,000, discharged all liabilities and that clause 21 has nothing further to bite on. I do not think that this is the proper construction of clause 21.
28. It seems to me that the meaning of clause 21 is reasonably clear. It is helpful in relation to construction to consider first the position of a mortgagor who is not the customer, and a customer who is seeking an overdraft on a current account. In such a situation it must be assumed that the mortgagor has put up as security a house in relation to the debts of a customer but that the limit on the mortgagor's liability is £150,000, and it can be assumed as a first example that the Bank holds no other security over the indebtedness of the customer. The assumption then is that the mortgagor has paid off £150,000, and the mortgage has been released. On the above assumption, the mortgagor has a claim to be reimbursed the £150,000 from the customer. By clause 21 the mortgagor clearly, as it seems to me, agrees that until the Bank has been paid in full, the mortgagor will not seek to obtain reimbursement of the £150,000 either by way of set-off (sub paragraph (a)), or by making any claim against the customer (subparagraph (b)).
29. If the example is altered so as to assume that the Bank does hold some security in addition to the mortgage, that does not alter the applicability of sub-paragraphs (a) and (b), but in addition sub-paragraph (d) disentitles the mortgagor to have the benefit of any security until the Bank has been fully paid.
30. If one alters the example again to facts slightly nearer the instant case, and assumes (i) that the mortgagor is two persons one of whom is the customer, and (ii) that the security which the Bank holds is simply security for the mortgage, and that the Bank holds no other security for the customer's debts or liabilities, again because where there are two mortgagors the covenants are joint and several (clause 29(a) (iii)), the principles of sub-paragraphs (a) and (b) still apply, furthermore (e) now also applies in addition to (d) until the customer has paid the Bank in full.
31. It is important in my view to recognise how each of the above provisions bite when considering Mr Knox's arguments. Because of their width I reject his argument which would seek to construe the term "all liabilities" in clause 21 as limited to £150,000. But the question still is whether Mr Knox can succeed on an argument based on the very width of clause 21.
32. What Mr Pymont submitted in effect was that if the words had the width that I have suggested then the position of Mrs Shorney was that when she entered into the mortgage she should have contemplated (a) that the limit of her liability was £150,000; but (b) that so far as any arrangements that the Bank might make with her husband, the customer, his liability might arise in any way and was not limited to a liability under the guarantee; (c) the liabilities of Mr Shorney to the Bank might well rise above £150,000, reliance being placed on the "all monies" language in clause 1; and (d) if Mrs Shorney paid up to the limit of her liability out of her own money, then Clause 21 made it clear that she would not be able to claim reimbursement from Mr Shorney until the Bank had been paid. If all that accurately describes what Mrs Shorney should contemplate, then Mr Pymont would argue that the increasing of Mr Shorney's liabilities was in fact in contemplation, and in no way affected Mrs Shorney's liabilities or rights under the mortgage. Mrs Shorney still remained liable for only £150,000; she should not be surprised by the fact that Mr Shorney's liabilities exceeded £150,000, and she would know that if, when she paid £150,000, Mr Shorney still had liabilities to the Bank, she would not be able to claim reimbursement from Mr Shorney until the Bank had been paid. In the alternative Mr Pymont argued that if the increase in Mr Shorney's liabilities was not something that Mrs Shorney should necessarily contemplate, then by virtue of clause 16 it was still something the Bank were free to do without Mrs Shorney's consent, and thus Mrs Shorney was bound by all terms of the mortgage including clause 21.
33. The argument however of Mr Knox based on clause 21 having the wide meaning suggested is very powerful. Mrs Shorney's liability under the mortgage was limited to £150,000. That liability reflected a guarantee for precisely that sum in relation to liabilities of the company GT. The matrimonial home was being put up as security for that liability and that liability alone. This was not a case of supplying a security of a limited nature to provide part security for a running account where it maybe that the surety should contemplate that even though his liability was limited, as between Bank and customer liabilities might well increase. This was a case where Mr Shorney was providing a guarantee limited to £150,000 to secure the running account of a company for which he would otherwise have no liability. Any material increase in Mr Shorney's liability above £150,000 would thus prejudice her position if the Bank relied on clause 21. If the liability remained at £150,000, then repayment of that amount to the Bank by Mrs Shorney would mean that the house was released, the Bank would have no further claim in relation to which they could say she was postponed, no further claim in relation to which they could get a charging order, and she could make her claim against Mr Shorney and enforce the same against his interest in the house. If however the £150,000 liability was increased materially, then even after payment of the £150,000, Mrs Shorney could make no claim against Mr Shorney until the Bank had obtained the amount of the increase from Mr Shorney, if necessary by obtaining a charging order against his share in the house. So unless the Bank disclosed to Mrs Shorney the intention to increase Mr Shorney's liabilities and allowed her the opportunity of considering whether to give notice and terminate as she would be entitled to do under clause 1, should not the Bank be precluded from relying on clause 21?
34. Mr Knox submitted that clause 16 did not give the Bank the right to vary Mrs Shorney's position by allowing Mr Shorney to increase his liabilities to them without her consent, and submitted that even if it did, that clause did not allow the Bank to do so without notifying Mrs Shorney, there being in Mr Knox's submission, a difference between notification and consent.
35. Mr Pymont suggested that even if Mr Knox were right in saying that Mrs Shorney's position was prejudiced in the way he argued, this was prejudice which the Bank were entitled to inflict on Mrs Shorney by virtue of Clause 16. As I have already said, he accepted that it was difficult to bring the matter within that part of clause 16 which would appear to be the part relied on before the judge (see the quotation of clause 16 in the judge's judgment at p.3 C-D), but he submitted that it did fall within the final words "and this mortgage shall not be affected or discharged by anything which would not have affected or discharged it if the mortgagor had been a principal debtor to the Bank".
36. I am quite unpersuaded that if the Bank were prejudicing Mrs Shorney's rights under the mortgage, that clause 16 provided a basis on which they were entitled to do so. The entry into further guarantees simply does not fall within the wording of the first part of clause 16, the only words relied on being:-

"The Bank may without any consent from the Mortgagor and without affecting this mortgage renew vary increase or determine any advances accommodation or facilities given or to be given to the Customer or any other person … "

37. Furthermore, I am quite unpersuaded that the last general words assist the Bank at all. Mr Pymont relied on National Westminster Bank v Riley [1986] BCLC 268 and in particular a passage in the judgment of May LJ at 274 dealing with the applicability of rather similar words to the situation in that case. The language did fit the situation in that case, but it would take a great distortion of the same to make it fit the taking of the further guarantees from Mr Shorney in the instant case.
38. The fact that what the Bank did in this instance did not fall within the main part of clause 16, seems to me to be of considerable significance. First, what is contemplated by the general words is very much the norm so far as increase in facilities affecting guarantees is concerned. If this mortgage had been granted to support the grant of facilities on a current account of Mr Shorney, then an increase above an original £150,000 (a) might be expected, and (b) would clearly fall within clause 16. But in this instance the mortgage was to support a guarantee for £150,000, which was itself to support facilities to a company for whom otherwise Mr Shorney would have no liability to the Bank. It seems to me to be outside the norm to expect that further guarantees would be given without notification to Mrs Shorney. Clause 16 cannot be said itself to warn her that that might happen. Second, and this is the most significant point so far as Mr Pymont's arguments are concerned, since the taking of further guarantees does not come within clause 16, the Bank simply cannot rely on that clause. The distinction drawn in argument between "consent" and "notification", a distinction which the judge accepted, is of no consequence in my view, even if there is such a distinction. Clause 16 simply does not apply.
39. What then is the position if the Bank cannot rely on clause 16? Then, as it seems to me, the Bank has to recognise that if they take increased guarantees and then rely on clause 21, they do materially prejudice the position of Mrs Shorney as co-surety as compared with the position she was in with a limit of £150,000 directly referable to a guarantee of £150,000. The very existence of clause 16 referring to increasing facilities seems to me to preclude reliance on for example clause 1 as entitling the Bank to alter Mrs Shorney's position by entering into further guarantees. The Bank thus has no term of the contract which excludes the normal right in equity of Mrs Shorney to be protected. The position might be different if it could be shown by the Bank as a fact that it was in the contemplation of Mrs Shorney that the Bank would be taking increased guarantees from Mr Shorney in relation to the indebtedness of the company, and that what the Bank were asking for was a mortgage with a limitation on it albeit the liabilities of Mr Shorney would in fact be much greater, but that does not equate with the factual situation.

Authorities

40. The Bank is concerned that the judge has decided some key issue of principle so far as disclosure is concerned. In the way the judge expressed himself that may at first sight appear to be right in that he took the view first that even if clause 16 applied there was a distinction between notification and the obtaining of consent, and it was on that basis he would not have allowed reliance on clause 16 (p.16 E-F); he held that there would have been a duty of disclosure on the Bank if the further guarantees had been entered into before the mortgage was signed relying on Levett v Barclays Bank [1995] 1 WLR 1260 (17A-C); and he thus found there was a duty of disclosure during the currency of the mortgage relying on Phillips v Foxall [1872] LR 66. Phillips v Foxall was a case concerned with a fidelity guarantee where the circumstances are somewhat different to those existing in Bank guarantee cases and this difference has been recognised in a number of cases e.g. London General Omnibus Co Ltd v Holloway [1912] 2 KB 72. Mr Pymont for the Bank has thus expressed concern as to the duty of disclosure, which the judge held to exist.
41. In my view the conclusion reached by the judge was right and can be reached simply by the application of principles which have applied over the years. The basic principles, so far as sureties are concerned, were not in issue and are as follows:-

(1) "Equity intervenes to protect the guarantor. To protect the guarantor's right to pay the guaranteed debt and after paying it to sue the principal debtor in the name of the creditor, a guarantor is discharged if the creditor without his consent, either releases the principal debtor or enters into a binding arrangement with him to give him time without reserving his rights against the guarantor." (This must mean the rights "against" the guarantor. As the note indicates the principle had been "established for a long time" beginning with Rees v Berrington (1795) 2 Ves 540, an authority relied on by Mr Knox.) (See Halsbury's Laws Volume 20 paragraph 304).

(2) "To protect the guarantor's right on paying the guaranteed debt to have the benefit of all the securities which the creditor had, a guarantor is discharged if the creditor without the guarantor's consent fails to make that security properly available to the guarantor." (See Halsbury's Laws Volume 20 the same paragraph)

(3) The creditor cannot increase the liability of the guarantor under the underlying transaction or vary the underlying contract in a way which prejudices the position of the guarantor without the consent of the guarantor. (See the same paragraph)

(4) The terms of the guarantee may contain provisions which allow the creditor to act in a way which would otherwise release the guarantor in equity and or which alter the position that the guarantor might otherwise have in equity. (See Halsbury's Laws Volume 20 paragraph 306).

42. Clauses 16 and 21 are the provisions on which the Bank places reliance in relation to the principles set out in (4) above. But the clauses provide for different things. Clause 16 allows the Bank to vary the underlying transaction without consent in situations where the guarantor would otherwise have been released. Clause 21 limits the way in which the guarantor may exercise the remedies provided by equity, but clause 21 does not allow for any alteration of the underlying transaction which might otherwise affect the remedies available. Clause 16 simply does not cover what the Bank did in the instant case because the underlying transaction was a liability of Mr Shorney for the debts of the company. Clause 21 allowed the Bank to prevent Mrs Shorney exercising the rights that equity otherwise gave her, but, and this is the nub of the case, there is nothing in the clause which allows the Bank to put Mrs Shorney in a position which she would not reasonably have contemplated so far as her rights against Mr Shorney were concerned. What Mrs Shorney, on the particular facts of this case, reasonably contemplated was a liability of Mr Shorney under a guarantee itself limited to £150,000 of the debts and liabilities of the company and reliance by the Bank on clause 21 in that state of affairs.
43. If the Bank of course had obtained Mrs Shorney's consent to the prejudice to her position caused by entering into further guarantees, then they would be able to enforce clause 21 against her; but if they did not then the protection she needs is that the Bank should be precluded from relying on clause 21. The cases demonstrate that the guarantor's equitable remedy is not simply to be relieved altogether from the surety document, but will be tailored to fit the equity with which the court is concerned. (See e.g. Egbert v National Crown Bank [1918] AC 908 and Scales Trading Ltd v Far Eastern Shipping Company Public Ltd [2001] Lloyd's Rep. (Bank) 29).
44. It seems to me that it is not permissible to look at the general wording of an "all monies charge" in order to suggest that Mrs Shorney should have contemplated further guarantees being entered into. The very fact that the wording of clause 16 does not cover what the Bank did here adds force to the argument that she should not have contemplated it.
45. In my view this case does not thus in reality raise new points relating to duty of disclosure or a continuing duty of disclosure, save in the sense that the Bank needed the consent of Mrs Shorney to increase the guarantees or needed a provision, such as clause 16, to cover what they were seeking to do without her consent. The disclosure case Levett v Barclays is however helpful since in dealing with what has to be disclosed pre guarantee it recognises what might otherwise relieve a surety from liability. The quotation relied on by the judge says this:-

"The creditor is under a duty to the surety to disclose to the surety contractual arrangements made between the principal debtor and the creditor which both, (a) make the terms of the principal contract something different from those which the surety might naturally expect and, (b) materially affect the degree of the surety's responsibility."

46. It seems to me the case recognises that without consent, including consent by virtue of the terms of the contract of guarantee itself, the Bank cannot act in a way that "materially affects" the surety's position.
47. Mr Pymont had then the further arguments with which I should deal. He submitted that the Bank's failure to notify Mrs Shorney of the increased guarantees was a non-disclosure at that time and that thus the mortgage was avoided at that time. From that point he extrapolates two further points; first he submitted that since Mrs Shorney did not rely on the non-disclosure when the Bank obtained an order for possession, Mrs Shorney is now precluded from taking the point by reference to the rule in Henderson v Henderson; second, he submitted that because the mortgage was void for non-disclosure, when she paid the £150,000 out of her own money she did so as a volunteer and thus was not subrogated to the Bank's security in the house at all.
48. There are short answers to these points. First, this was not in reality a non-disclosure case. The Bank would have been entitled to increase the guarantees and not rely on clause 21. It was only when they relied on clause 21 that they were acting inequitably. It is for that reason also that this is an obvious case where if the point had been taken by Mrs Shorney when she found out about the increased guarantees, she would not have been entitled to succeed on an argument that she was released entirely from the mortgage; equity would simply have relieved her from the prejudice about which she had a justified complaint i.e. clause 21.
49. She was thus not bound to take any point during the possession proceedings since again she could not know whether the Bank would in fact rely on clause 21 or not. Furthermore she was in no way a volunteer when she paid under threat of the mortgage being enforced.
50. I should add that in so far as Henderson v Henderson is concerned, there is in fact a dispute about whether Mrs Shorney knew at the time of the possession proceedings of the increase in the guarantees, but it is unnecessary to resolve that issue in the light of the views already expressed.

Conclusion

51. For reasons that differ slightly from those of the judge I would hold that the Bank are precluded from relying on clause 21 by their failure to obtain the consent of Mrs Shorney to the further guarantees. For those reasons I would dismiss the appeal.

LORD JUSTICE LATHAM: I agree.

MR JUSTICE ASTILL: I also agree.

ORDER: Appeal dismissed; Appellant to pay Respondent's costs. (Order does not form part of approved Judgment)