England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM NEWCASTLE
UPON TYNE COUNTY COURT
(HIS HONOUR JUDGE WALTON)

		Royal Courts of Justice Strand London WC2 Monday, 30th April 2001

Monday, 30th April 2001

1. LORD JUSTICE RIX: This is an application for permission to appeal by the first defendant, Mr Alan Westwater, in a matter which is covered by a judgment on liability of His Honour Judge Walton dated 1 March 2000, and also a subsequent judgment which was made on 4 January 2001 at a time when an application was made to the judge for the permission to appeal.
2. Amongst other claims, the claimants, Mr and Mrs Pendleton made a claim in respect of a loan evidenced by three cheques for £3,000, £4,000 and £7,000 respectively, totalling £14,000. The first and third of those cheques were made out to Mr Westwater personally and the second was made out to a third party. The Pendletons obtained judgment against Mr Westwater in respect of those three cheques and there was a subsequent hearing concerning quantum as a result of which the Pendletons obtained judgment in respect of that claim in a net amount of £6,204.35, the balance being made up of counter payments made by Mr Westwater to the Pendletons, which went to his credit.
3. In the particulars of claim the monies in respect of these three cheques were pleaded to be personal loans granted to Mr Westwater himself. Only in respect of one of them, being the cheque for £4,000, it was also pleaded that:

"If (which is not admitted) it was not a loan to the first Defendant it was a loan to the second Defendant"

that is to say to Swingware Limited, Mr Westwater's company, the second defendant.

4. However, in the prayer but only in the prayer, various heads of claim including that concerning the cheques were set out by reference to the paragraphs in which they were pleaded under the heading of the plaintiff's claim against the first and/or second defendant. It might have been said that the reference to first and/or second defendant depended upon the way in which the matter was pleaded in the body of the paragraph referred to. It is also fair to point out that at a subsequent stage of the prayer there are three particular claims which are said to be claims against Mr Westwater only. So the analysis of the prayer is perhaps somewhat problematical.
5. Be that as it may, before the matter first came on for trial the Pendletons had obtained default judgment against the second defendant, the company, by an order made on 28 January and drawn on 4 February 1998. That order included summary judgment against the company in the liquidated sum of £18,002.91, which represents the three cheques, and a further sum of £4,002.91, about which I need say nothing further.
6. The first argument on this application on behalf of Mr Westwater is that that judgment against the company represents a conclusive election on the part of the Pendletons to pursue their claim on the three cheques against the company presumably as the principal of transactions in respect of which Mr Westwater as a director of that company was acting as an agent, rather than against Mr Westwater himself, which on the pleading was the Pendletons primary case, and indeed in respect of two of the cheques might be said to be their only case subject to the confusion introduced by the prayer, to which I have averred.
7. At the subsequent trial the judgment against the company was relied upon by Mr Westwater as a conclusive election. The judge rejected that plea and also the reliance which Mr Westwater placed on a leading case in this area of the law, Morel Brothers v Earl of Westmoreland [1903] 1 KB 64. The judge rejected Mr Wastwater's submissions on the basis that Morel v Westmoreland and other cases in the same line of authority could be distinguished since the claim had been advanced, not just against Mr Westwater and the company in the alternative, also by way of joint or several liability, and therefore the judgment was not a conclusive election.
8. It seems to me that there is a realistic prospect of success on the argument that when one looks at the pleadings there was no case of joint liability, and that if there was any basis upon which the Pendletons could have signed judgment against the company in respect of all three cheques, it could only have been on the basis that Mr Westwater was acting in respect of these loans as the company's agent. Therefore, it is submitted, judgment against the company is inconsistent with a continuing claim against Mr Westwater as the true principal. I am prepared to give permission to appeal on that ground.
9. The second ground upon which permission to appeal is sought is that of illegality. This relates to a transaction under which Mr Westwater sold to the Pendletons a property of his on terms that he would maintain the mortgage payments. In the event he did not, the property was repossessed with a resultant liability on the Pendletons of, I am told, £16,544.12, a sum which appears in the order of 16 January 2001. The question of illegality which arises out of this transaction is this. The agreement between the Pendletons and Mr Westwater was that the price of the property would be £20,000, but when it appeared that the building society would not grant a one hundred percent mortgage, the price was adjusted upwards to £29,000, thus permitting a £20,000 mortgage, the obtaining of which was an essential part of the transaction. The balance of £9,000 was said to have been paid as the deposit, but it was not paid, and as the judge found, £20,000 was the true agreement between the parties.
10. No question of illegality was raised at the trial on liability. Nevertheless, in the light of the evidence which he had heard from Mrs Pendleton as well as Mr Westwater the judge said, to quote from paragraph 65 of his judgment that:

"Both cases involve deception of the building society but neither side has pleaded or relied upon illegality so I put that matter aside."

11. However, when on 4 January 2001 permission to appeal was sought on the ground inter alia of illegality, the judge, who still had jurisdiction over the case on liability, as it appears, because no order had as yet been perfected, re-visited the question of illegality and found that Mrs Pendleton did not have sufficient knowledge of the ultimate form of the transaction as as would make her a party to an illegal transaction and thus bring the Pendletons' claim within the maxim of ex turpi causa.
12. On this application it is submitted on behalf of Mr Westwater that in the light of Mrs Pendleton's evidence, which is now before me in transcript whereas the judge on that second occasion had to work from his own notes and the parties' notes, the judge ought not to have found that Mrs Pendleton lacked guilty knowledge. It seems to me that in the light of the judge's first view of the matter (see paragraph 65 of his first judgment which I quoted) and in the light of his findings in paragraphs 51 and 52 of that judgment in relation to Mrs Pendleton's evidence and in light of her evidence as it appears from the transcripts before me, there is a realistic prospect on appeal of the Court finding guilty knowledge on the part of Mrs Pendleton and that the question of illegality should go forward to an appeal, albeit it was not originally pleaded.
13. I have had in mind the general principles in this connection set out at Chitty on Contracts in paragraph 17-196, about which there may well in due course be submissions on appeal.
14. In my judgment, permission should be given on both points. Neither point goes to the personal merits of Mr Westwater but, nevertheless, he is entitled to succeed on this application.
15. He has also asked for a stay of execution pending appeal. That I am not prepared to grant. At present it appears that there has been no move on the execution front and that in any event the general principle is that an appeal does not lead to a stay of execution. If, hereafter, execution proceedings are taken out, any such argument that Mr Bloomfield has raised this morning can be re-visited in that context.
16. In any event the two points on which I have given permission to appeal do not relate to a sum of £2,437.50 and interest on that, which forms part of the judgment sum, and I am also dubious, although Mr Bloomfield submits otherwise, whether another element of the judgment sum, that of £6,619.10 representing rents collected by Mr Westwater from tenants of the property in question, would fall within the illegality point, even if it were to be successful on appeal. That however will no doubt be part of the debate.
(Application for permission to appeal granted; stay refused)