England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM NEWCASTLE UPON TYNE COUNTY COURT
(His Honour Judge Walton)

		The Royal Courts of Justice The Strand London WC2A Friday 16 February 2001

Friday 16 February 2001

1. LORD JUSTICE ROBERT WALKER: This is an application by Mrs Sandra McDonnell, who has appeared in person, for permission to appeal from an order of His Honour Judge Walton made in the Newcastle upon Tyne County Court on 10 November 2000. By that order the judge directed that possession should be given to the claimant, Mortgage Express Ltd, of a house at 11 Granada Close, Whitley Bay, Tyne & Wear.
2. The order was made against three defendants, Mr Keith Robson (who is Mrs McDonnell's brother), Mr Paul McDonnell (who is her husband) and Mrs McDonnell herself. The proceedings for possession were commenced as long ago as November 1991, that is, over nine years ago. The very - indeed, shockingly - slow course of the proceedings results partly from the complexity of the matter, which I regret to say has involved dishonesty on the part of Mr Robson and Mr McDonnell, and from Mortgage Express having in permitting a very long period of inactivity while they were pursuing a former solicitor, Mr Alan Bownes, who was at one stage acting for both Mr Robson and Mortgage Express in the matter. Mr Bownes was struck off the roll of solicitors on 30 June 1994. I do not know the reasons why he was struck off, but he was certainly guilty of grave breaches of professional duty, and may have been dishonest.
3. I will summarise the essential facts as briefly as I can. In the early 1980s Mr McDonnell was in financial trouble. He was unemployed. His previous business was being investigated by the Inland Revenue and he knew that he would be unable to obtain a mortgage himself. In 1984 he acquired a house, 5 Woodburn Way (all the houses in question are at Whitley Bay in Tyne & Wear) with a mortgage obtained in the name of a Mr Atkinson. Mr McDonnell falsely signed documents in Mr Atkinson's name. He did the same a few years later (using the equity which he had obtained from the sale of 5 Woodburn Way) in order to acquire 62 Queen's Road. It was acquired with a mortgage in the name of Mr Robson, who is his brother-in-law and has from time to time worked overseas in Libya. Again, Mr McDonnell falsely signed in Mr Robson's name. In 1990 he pleaded guilty to forgery and received a suspended custodial sentence.
4. Meanwhile, in late 1988 or early 1989, Mr Robson and Mr and Mrs McDonnell agreed to sell their two properties, 62 Queen's Road and 5 Mulberry, Red House Farm, in order to acquire 11 Granada Close as a sort of joint enterprise. Unfortunately, it was a joint enterprise which has gone very badly wrong. It was acquired in the sole name of Mr Robson with money provided approximately as follows: £23,500 from 62 Queen's Road; £9,500 from 5 Mulberry; £55,000 from a mortgage loan from Midland Bank - making a total of £88,000, which covered the purchase price of £87,000, together with expenses. The solicitor, Mr Bownes, acted for Mr Robson and Mortgage Express. Mrs McDonnell has told me that he did not act for her husband or herself, but it seems very likely that he must have had funds of theirs in his client account and that he knew that Mr and Mrs McDonnell and their children were going to live in the house. However, he did not disclose that in his report on title and, in doing so, was in breach of his duty to the Midland Bank. However, worse was to come.
5. Unfortunately, Mr Robson fell out with the McDonnells. He evicted them from the house and he changed the locks. On 24 April 1989 the McDonnells obtained a without notice order in the North Shields County Court enabling them to return to the property, and on 3 May 1989 undertakings were given pending trial (a trial which was postponed for an almost unbelievable length of time) in order to determine beneficial ownership. In October 1989 Mr Bownes started to act for Mr Robson alone. That may have involved him in a further conflict of interest.
6. But, again, worse was to come. In August 1990 Mr Bownes assisted Mr Robson to remortgage the property, 11 Granada Close, to Mortgage Express. In doing so he gave a false certificate and undertaking as to title. The remortgage was for no less than £120,150. A substantial part of that went to Midland Bank in order to pay off its charge. The rest appears to have been used by Mr Robson for his own purposes, although there were no clear findings about that. The charge to Mortgage Express seems to have been an "all monies" charge.
7. In December 1990 Mr and Mrs McDonnell heard of the remortgage. They had, by then, solicitors acting for them who were certainly honest, and appear from the correspondence to have been reasonably competent, although the solicitors did not at that time make any energetic reaction. They simply wrote to Mortgage Express, announcing that their clients had an interest in the mortgaged property. By March 1991 the mortgage was £5,000 in arrears. In November 1991 Mortgage Express started proceedings for possession and in April 1992 they were consolidated with the existing proceedings; that is, the proceedings between the McDonnells on one side and Mr Robson on the other side. In June 1992 Mortgage Express' solicitors started pressing Mr Bownes' firm over his apparent breach of duty, but matters moved very slowly. It was only in 1993 that the Solicitors' Indemnity Fund became involved and in 1994, as I have mentioned, Mr Bownes was struck off the roll. There were long delays while the position of Mr Bownes was investigated, considered and discussed.
8. Eventually, in 1997, the proceedings went into forward motion again. There was apparently an agreement between the Solicitors' Indemnity Fund and Mortgage Express that they would be bound by the findings of fact made at trial. The judge had a very difficult case to try. The matter had been going on for a very long time. The judge had to decide who was telling the truth. He also had to decide difficult questions as to the effect of the doctrine of illegality on this confused situation, and also the effect of the doctrine of subrogation under which an apparently valid mortgage granted to Midland Bank had been paid off by a questionable mortgage in favour of Mortgage Express.
9. It was accepted that, apart from these matters, if the McDonnells had an equitable interest in the house (and there seems to be every reason for supposing that they did) it would be an overriding interest under section 70(1)(g) of the Land Registration Act 1925 (binding Mortgage Express, which would be left to its remedy against the Solicitors Indemnity Fund standing in the shoes of Mr Bownes).
10. The judge did not accept the evidence of Mr McDonnell unless it was corroborated. Mrs McDonnell did not give evidence. The judge said of her position:

"So far as Mrs McDonnell is concerned, she indicated that she did not wish to give evidence and of course she is quite entitled to that position. She did draw my attention in a short statement to the length of time it has taken for the proceedings to reach this stage. She has put a statement into court emphasizing the distress which the long continuation of these proceedings has caused and a point is also made about the knowledge of a solicitor acting for the claimants at the time the claimants' charge was effected. I should make the point generally about Mrs McDonnell's position that although she is a separate defendant she has not throughout the long history of the case attempted to put forward a separate case to that of her husband and, likewise, in what has been said to me in the course of the hearing, there has been no attempt to say that her position is in any way distinct and different from Mr McDonnell's."

11. The judge held that the illegality tainting the transaction shut out any claim by Mr and Mrs McDonnell to an equitable interest. In reaching that conclusion, he distinguished the decision is the House of Lords in the important case of Tinsley v Milligan [1994] 1 AC 340, a case about two women who shared a flat which was in the name of only one of them and who engaged in deception in order to obtain maximum social security benefits. The judge went on to say that if that were wrong, Mortgage Express would be entitled to be subrogated to the rights of Midland Bank, which did bind the McDonnells as they had agreed to the original mortgage in favour of Midland Bank. The judge referred to and relied on the case of Equity & Law Homes v Prestridge [1992] 1 AllER 909.
12. In this court Mrs McDonnell, for whom it is impossible not to feel great sympathy, has submitted that her rights have been overlooked and that they have never been explained to her. I can understand her anxiety, and, indeed, her indignation, at the length of time that the proceedings have taken, and it is sincerely to be hoped that that could not occur today, since the reforms of civil justice. On the other hand, it is not possible to reopen the whole matter and start again. The judge fairly said that Mrs McDonnell had decided not to give evidence at the hearing. I have to look at what the judge decided and see whether there would be any reasonable prospect of a successful appeal.
13. The judge's conclusion as to the effect of subrogation in relation to Midland Bank's mortgage seems to me clearly right, at any rate as regards the principal and interest on the Midland Bank loan which had gone into 11 Granada Close. I have to say that I am not at all sure that the judge was right on the Tinsley v Milligan point. I am certainly not sure that he was wrong either, but it is to my mind a point of real difficulty whether it is possible to distinguish the facts of this case from the facts of Tinsley v Milligan, in which the House of Lords decided by a majority of three to two that the claim could succeed despite the illegality of the two women involved in that case in working a fraud on the social security.
14. The difficulty which I feel is - and it is an important principle - that the Court of Appeal hears appeals against orders rather than against reasons given in judgments. The subrogation point by itself would almost certainly be sufficient to enable Mortgage Express to obtain an order for possession if there is no possibility of Mrs McDonnell being able to make realistic proposals to pay off the amount which had gone to Midland Bank when the remortgage was effected. But had the judge made a declaration as to the effect of illegality, I would with no hesitation have granted permission to appeal in relation to that declaration.
15. The matter is therefore one of some difficulty and complexity, but it seems to me that in all the circumstances I should resolve any doubt which I feel in favour of Mrs McDonnell. Without holding out to her any great hopes of ultimate success, I think that the complexity of this matter is such as to merit the consideration of the full court, and I will grant permission to appeal and a stay of execution in the meantime, that permission to appeal being granted only to Mrs McDonnell, who has made clear that she is acting on her own behalf and not on behalf of either her husband or Mr Robson.
16. I will direct that Mrs McDonnell should have a transcript of this judgment at public expense. She has told me that she intends to try and obtain free legal advice through the Citizens' Advice Bureau at Gateshead and it is plainly most desirable that she should obtain legal advice before proceeding with this appeal.
ORDER: Applications to appeal and for a stay of execution allowed. A copy of the transcript of this judgment to be provided at public expense. (Order not part of approved judgment)