England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CLERKENWELL COUNTY COURT
(His Honour Judge Reynolds)

		Royal Courts of Justice Strand London WC2 Friday, 17th May 2002

1. LORD JUSTICE CHADWICK: This is an adjourned hearing of a renewed application for permission to appeal from an order made on 16th July 2001 by Jacob J in proceedings brought by Alan Russell and his wife, Pamela Russell, against Mr Wyndham Sheen. The order of 16th July 2001 was itself made on appeal from orders made, respectively, on 25th January and 29th March 2001, by His Honour Judge Reynolds in the Clerkenwell County Court. It can be seen, therefore, that the appeal for which permission is now sought would be a second appeal within section 55(1) of the Access to Justice Act 1999. No appeal lies to this court against the decision of Jacob J unless this court considers that the appeal would raise an important point of principle or practice, or that there is some other compelling reason for this court to entertain it. Unless the applicant can surmount that threshold, permission to appeal cannot be granted (see CPR 52.13).
2. Nevertheless, the application has been listed for hearing on notice, with appeal to follow if permission is granted. When adjourning the renewed application, which was before him on 4th September 2001, Sedley LJ explained why he had given that listing direction. He said this:

"The reason is that deciding whether an application for permission to appeal raises the kind of issue that has to be raised for a second appeal to get off the ground, is itself, I think, quite difficult in this situation."

3. It is necessary, therefore, to set out the facts and the litigation history in some detail. In November 1981 the three parties, Mr. and Mrs Russell and Mr. Sheen, purchased a residential property known as 46, Axminster Road, London, N7. The purchase price was £25,000. Of that sum, £10,000 was provided by Mr. and Mrs Russell in cash. The balance of £15,000 was funded by a building society advance secured by a mortgage on the property. Each of the three parties, Mr. Russell, Mrs Russell and Mr. Sheen, were named as borrowers under that mortgage. The property was registered at Her Majesty's Land Registry in their joint names under title LM158278.
4. It appears that the parties lived together in the property for a short time. But by the middle of 1982 Mr. and Mrs Russell had moved out. Mr Sheen thereafter let rooms at the property. He did not account to the Russells for the rent; but it seems to be common ground that he did pay the instalments (at the rate of £184.75 per month) payable under the mortgage. By October 2000, when these proceedings were commenced, the principal debt outstanding under the mortgage had been reduced to about £7,800.
5. By their claim in the Clerkenwell County Court, Mr. and Mrs Russell sought an order for the sale of the property pursuant to section 14 of the Trusts of Land and Appointment of Trustees Act 1996. The value of the property by then was said, in the particulars of claim, to be £230,000. After deducting the mortgage debt and agents' fees at the rate of one and a half per cent, the net sum for distribution, if a sale were achieved at that valuation, would have been £219,050. Mr. and Mrs Russell sought a declaration in the proceedings that they were each entitled to £100,480 out of that sum; leaving a balance of £18,090 for distribution to Mr Sheen.
6. The basis of that claim, as set out in the particulars of claim, was that Mr. and Mrs Russell had each contributed 40 per cent to the purchase price; Mr. Sheen had contributed 20 per cent to the purchase price; and that Mr. and Mrs Russell were together entitled to two-thirds of the surplus rent which, after discharge of the mortgage instalments and expenses, they put at £38,581.
7. Mr. Sheen did not resist an order for sale in principle - although he resisted an order at that stage - but he did contest the division of the proceeds. On 12th December 2000 an order was made by the District Judge for the sale of the property by private treaty. The order gave conduct of the sale to the claimants. Paragraph 5 of the order, as drawn, provided that the sale should be conducted by a firm of solicitors instructed by the claimants; and that that firm was to hold the sale proceeds after discharge of the mortgage and the costs of the sale, to the order of the court. The proceedings were to be listed for further hearing on 21st February 2001 to determine the parties' respective interests in the property.
8. It is necessary to refer shortly to the circumstances in which paragraph 5 came to be included in the order of 12th December 2000 when it was drawn up on 15th December. It appears that, in the course of the hearing before the District Judge, the question was raised whether a company, Commercial Law Direct Limited - which was appearing by one of its directors, Mr. Joe Sykes, as representative for the claimants, Mr. and Mrs Russell, at that hearing - were in a position to undertake conveyancing services. The judge was told that it was; and it seems plain that, when the parties left the court, it was contemplated that Commercial Law Direct would be instructed to carry out the conveyancing of the property. In the course of that afternoon, it occurred to counsel for Mr. Sheen that nothing was known about Commercial Law Direct; in particular, it was not known whether that company was a licensed conveyancer. Inquiries were made. Counsel and Mr. Sheen's solicitors reached the conclusion that it was necessary for the protection of the interests of their client, Mr. Sheen - who was, at that time, in custody in Her Majesty's Prison Pentonville - that some control should be placed upon the conduct of the sale and the designation of the proceeds. In those circumstances, counsel for Mr. Sheen telephoned the District Judge at the court. It was as a result of that telephone call that the District Judge amended the order so as to include paragraph 5. Paragraph 5, of course, leaves the conduct of the sale in the hands of Mr. and Mrs Russell; but required that the sale should be transacted through a firm of solicitors; and makes provision for the security of the proceeds of sale.
9. The matter came back to the District Judge on 20th December 2000. On that day and on notice - but very short notice - counsel for Mr. Sheen applied to the District Judge for an order that the conduct of the sale be entrusted to a named solicitor, still to act on behalf of the claimants. We have been told that three names were suggested to the District Judge. He selected one of them. The District Judge made the order appointing the named solicitor - who was not the solicitor for Mr. Sheen - to have conduct of the sale of the property on behalf of the claimants. He did that without hearing Mr. or Mrs Russell or Commercial Law Direct; either through Mr. Sykes or through anyone else.
10. Mr. Sykes, who now appears as counsel for Mr. and Mrs Russell in this court, was a director of Commercial Law Direct. At the relevant time in December 2000 and January 2001, he was neither a barrister nor a solicitor. Nevertheless, he had appeared as advocate for Mr. and Mrs Russell at the hearing before the District Judge on 12th December. On their instructions he applied to the county court judge to discharge the order of 20th December 2000. That application came before His Honour Judge Reynolds on 25th January 2001. The judge set aside paragraph 5 of the order of 12th December 2000 and set aside the order of 20th December 2000. But, in the order which he made on 25th January 2001, he gave conduct of the sale to the same solicitor who had been named in the District Judge's order of 20th December 2000. He directed that that solicitor should have conduct of the sale of the property on behalf of the claimants, Mr. and Mrs Russell; and should hold the sale proceeds pending determination by the court of the distribution of those proceeds. He also ordered (paragraph 8 of his order of 25th January) that Mr. and Mrs Russell should pay to Mr. Sheen his costs of the application on 25th January 2001 and of the hearing on 20th December 2000. That is now the only paragraph in the order of 25th January 2001 which is relevant to the application now before us.
11. Mr. and Mrs Russell, still represented by Commercial Law Direct and Mr. Sykes, immediately lodged notice of appeal to the Chancery Division of the High Court. They made application to Jacob J on 26th January 2001. By that date contracts for the sale of the property had been exchanged. Exchange had taken place shortly after the hearing on 12th December. Completion was fixed and due to take place in a few days time, on 31st January 2001. In those circumstances, the judge stayed each of the orders of 12th December 2000, 20th December 2000 and 25th January 2001, on terms that the proceeds of sale of the property be paid into a joint account in the names of Commercial Law Direct and Mr. Sheen's solicitors. He made no order as to the costs of the application before him on 26th January 2001.
12. On 31st January 2001 the property was sold and transferred to a developer at a price of £210,000. The matter came back before His Honour Judge Reynolds on 21st February 2001 to determine the distribution of the proceeds of sale. Mr. and Mrs Russell were represented again by Mr. Sykes, still at that date unqualified. Mr. Sheen was represented by counsel and solicitors. He was at that time still serving his sentence of imprisonment; but he was able to attend court in order to give evidence which the judge accepted. In the judgment which the judge was to give on 29th March 2001, he said, in express terms, that, where there was a conflict between the evidence given by Mr. Sheen and the evidence given by Mr. and Mrs Russell, he preferred the evidence of Mr. Sheen as being more accurate than the evidence of Mr. and Mrs Russell (see paragraph 12 of that judgment). He said this, at paragraph 11:

"Of the witnesses that I heard I formed the view that Mr. and Mrs Russell had no very clear memories of the events around the time of the purchase of the property. Their oral evidence was not always in accordance with their written statements and their two statements differed in important details the one from the other. I had the distinct impression that the phraseology in the statements was not that of the witnesses themselves but of their adviser."

13. In particular, His Honour Judge Reynolds accepted the evidence of Mr. Sheen, in paragraph 9 of his first witness statement, as to the agreement that had been made before the property was purchased in 1981. That evidence was to this effect:

"The claimants therefore suggested that we could jointly purchase a property which we could develop and sell and earn a profit on. They would use the proceeds of the sale of the house in Wales to fund the deposit and would pay the gas and electricity bills once we moved in. My contribution would be to take responsibility for paying the mortgage only and the rates, since the claimants were unable to raise a mortgage on their own. My contribution would roughly equate to the claimants' contribution. Having converted the property, we would redeem the mortgage and then go our separate ways. Until this happened we would each own 50% of the equity in the property. The discussions thus envisaged a Russell/Sheen split of 50/50. There was no question of one- third, one third, one third division as is now suggested had been discussed. These discussions occurred in or about May 1981."

14. The judge noted in his judgment that Mr. Sheen had qualified that passage by confining the agreement as to outgoings to the mortgage, not including the rates.
15. As the judge said at paragraph 8 of his judgment of 29th March 2001, Mr. Sheen was not cross-examined or challenged on that evidence in paragraph 9 of his statement. On the basis of that evidence His Honour Judge Reynolds held that the equity in the property was to be divided on the agreed basis, 50% to Mr. Sheen and 50% to Mr. and Mrs Russell jointly.
16. The county court judge then turned to the division of the rent. As to that, he came to the following conclusions: first, that the gross rent received over the period was £87,955; second, that that figure should be discounted by 30 per cent to cover general household expenses and outgoings; third, that Mr. Sheen should have credit for the rates, community charge or council tax which he had paid over the years, a sum of £12,174; fourth, that he should have credit for insurance premiums, £6,351, and repairs and renewals in the amount of £23,300; but, fifth, that, as it was part of the bargain made in 1981 that Mr Sheen should be responsible for servicing the mortgage, he should have no credit for that, either in relation to interest or principal. Deducting the 30 per cent discount and the three items that I have mentioned from the gross rent gives a net figure of £16,837.72. The judge awarded Mr. and Mrs Russell one half of that; that is to say, £8,419. His decision is reflected in the order which he made on 29th March 2001. He ordered that the moneys held jointly by Commercial Law Direct and Mr. Sheen's solicitors were to be divided 50 per cent in favour of the claimants' jointly and 50 per cent in favour of Mr. Sheen. He ordered that Mr. Sheen account to the claimants in the sum of £8,419, being one half of the net rent after allowable expenses, and that that sum should be deducted from his entitlement to one half of the proceeds.
17. In respect of costs he ordered (1) that the joint fund was not to bear any costs, save for the claimants' costs of the issue of the proceedings in the sum of £120 - that to be deducted before the division pursuant to paragraph 1; (2) that the costs of the action were to be paid by the claimants, subject to detailed assessment, on the standard basis until 21st February 2001 and thereafter on the indemnity basis; and (3) that the costs of 20th December 2000 and of 25th January 2001 were to be excluded from the last paragraph and to be the subject of an order in the High Court of Justice.
18. Mr. and Mrs Russell appealed from that order to the High Court. That appeal came before Jacob J on 16th July 2001. By that date Mr. Sykes had been called to the Bar. Jacob J dismissed the appeal. The judge referred to the evidence in paragraph 9 of Mr. Sheen's first witness statement, which I have already set out, and said this, at page 4G in the transcript of his judgment:

"That evidence was clearly given, the judge accepted it. It was not challenged in cross-examination. The judge did more than just accept it, as perhaps since it was not cross-examined he was bound to. The judge provided his own cross checks."

19. Jacob J then went through the factors which had led the judge to accept the unchallenged evidence of Mr Sheen that was before him. Jacob J went on at page 6 of the transcript to say this:

"This is an appeal, I am not hearing the matter de novo. I have to be satisfied that the judge was wrong. I am not so satisfied. There was an attempt to suggest that the judge was irrational in accepting Mr Sheen's evidence which he generally did at almost every point when it was in conflict with that of the Russells. Mr. Sheen is serving a prison sentence, which I take to be a substantial prison sentence for offences concerning Class A drugs. The judge was manifestly aware of that in considering his evidence. It is not open to me on appeal to say the judge was obviously wrong in accepting Mr Sheen's evidence."

20. Jacob J then turned to the question of rent. He reviewed the findings of fact made by His Honour Judge Reynolds and came to the conclusion that he could not say that the judge had been wrong in his calculations. In particular, he rejected the suggestion that there had been an element of double counting in allowing, first, a 30 per cent discount from gross rent to cover household expenses and outgoings, and then deducting a further £23,200 for repairs and renewals. Jacob J said this:

"I was concerned that the figure included repairs and renewals [that is the discount] and that these were double counted by the judge. But as one looked at it more closely it is clear that the repairs and renewals are essentially more in the way of capital replacements such as replacement of central heating systems and the like and I cannot say that the judge was wrong."

21. So the appeal to Jacob J in respect of the division of the proceeds of sale, and in respect of the sum for which Mr. Sheen was accountable in respect of rents, failed. But Jacob J varied the county court judge's order in relation to the costs of the action. In addition to the £120 attributable to the issue of proceedings, he ordered that Mr. Sheen should pay all the costs of obtaining the order for sale down to and including 12th December 2000. He did that on the basis that, until the hearing before the district judge on 12th December 2000, Mr. Sheen had been resisting an immediate order for sale. So, as he held, the Russells had been justified in taking proceedings to obtain a sale. But he dismissed the appeal in relation to the costs of the hearing before His Honour Judge Reynolds on 21st February 2001, and in relation to the interlocutory hearings on 20th December 2000 and 26th January 2001.
22. In relation to those interlocutory hearings, the judge set out the history which had given rise to the variation of the order of 12th December 2000, to the application on 20th December 2000, and to the further application to the county court judge on 25th January 2001. No doubt, he had in mind that he himself had heard the application on 26th January 2001 and had made no order in relation to the costs of that day. Jacob J said this:

"Whilst I wish to make it absolutely clear that Commercial Law Direct and Mr Sykes in particular appeared to me to be perfectly competent, indeed perhaps more competent than many others, the concerns were not about him as an individual, the concerns were such that were proper to be raised by a firm of solicitors for a client.

It might, therefore, be suggested that the appropriate order is that the defendant should have his costs of that hearing, which must be the bulk of the costs with which I am concerned anyway, but that the costs of the events in December, the variation of the agreed order and the letter and the hearing of the 20th, should be dealt with separately. I have come to the conclusion, however, that they should not. The truth is there was one global dispute. The full position as to the capacity for Commercial Law Direct to act had not been disclosed at the time when the matter was being considered on the 12th. If it had been fully disclosed then, like His Honour Judge Reynolds, I come to the conclusion that the District Judge would very likely have made an order very much as the order that finally was made, namely, that Commercial Law Direct should not act and that a firm of solicitors should. That would be really the only prudent thing to do."

23. In those circumstances, he came to the conclusion that something had had to be done in relation to the failure to inform the District Judge at the hearing on 12th December 2000 that Commercial Law Direct was not a licensed conveyancer; and that the costs of remedying that failure were properly to be taken with the costs of the remaining proceedings.
24. It is from that order of 16th July 2001 that Mr and Mrs Russell seek permission to appeal to this court. As I have said, that application cannot be granted unless an appeal would raise an important point of principle or practice, or there is some other compelling reason why this court should entertain a second appeal.
25. The first point of principle which Mr. Sykes advances in this court is that the order which Jacob J made in relation to the interlocutory costs on 20th December 2000 and 25th January 2001 was disproportionate. It is put in this way, at paragraph 13 and 14 in the supplementary skeleton argument lodged in this court on 15th May:

"The first point of principle concerns the parties' interlocutory costs: proportionality considerations apply where costs are caused by a counsel who unilaterally, privately and without notice obtains a change in agreed orders from a judge.

The respondent's (current) counsel obtained a change to orders agreed by him on 12.12.01 on that day, by telephoning the district judge in his room from the privacy of counsel's room in chambers. That led to a series of orders, all ultimately reversed by the High Court on appeal by the appellants. Proportionality must apply to costs resulting from conduct by a counsel of that type. To award all the costs that flowed from that act to the counsel's client because of that counsel's motive (as the High Court did) must in principle be wrong. The point is an undecided point of principle."

26. In my judgment, there is no point of principle at all. There is a curious point arising in the particular circumstances of this case. But the submissions that I have just read ignore wholly that the problem arose because Mr. Sykes, as director of Commercial Law Direct, did not inform the District Judge - nor, it seems, counsel for Mr Sheen - that Commercial Law Direct was not a licensed conveyancer and were proposing to charge a fee in the transaction. That - as it seems to me - would have been unlawful. Further, there was no security for the proceeds of the sale - some £200,000 - in respect of which Mr. Sheen had a claim to a beneficial interest.
27. In my judgment, counsel for Mr. Sheen and his solicitors were put in the position where they had to bring to the notice of the District Judge that the course which he had apparently authorised was a course that was wholly improper and, indeed, on the face of it, probably unlawful. Criticism was made by Jacob J of the way in which counsel achieved that objective, namely by a telephone call. It is not at all clear to me why a telephone call in those circumstances was to be criticised. The position would have been the same on an immediate application that afternoon, or the following morning, by counsel or solicitors in person. The problem was that their client's interests were unprotected. That had arisen because the District Judge had not been told of the true facts.
28. The District Judge, on learning the true facts, made the order which he did; that is to say, he gave conduct of the sale on behalf of Mr. and Mrs Russell to solicitors who they were entitled, under paragraph 5 of the order of 12th December as varied, to select. By 20th December 2002, no solicitors having been selected and Commercial Law Direct appearing to be unwilling to countenance any variation of an order which allowed them to continue to act for a fee, although not licensed as conveyancers, the District Judge nominated a solicitor from a list. The decision to vary the order - and to appoint a named solicitor - was his decision.
29. In my view, the situation which had arisen on 12 December 2000 was not a situation which the court could allow to go unremedied. Some further order had to be made, following the order of 12th December; and the costs of that further order should properly have fallen on the party whose conduct had given rise to it, namely Commercial Law Direct and Mr. and Mrs Russell, for whom that company acted. Not only is there no point of principle; it is quite impossible to say that Jacob J was wrong in taking the view that he did.
30. The second point of principle identified in the skeleton argument is no longer pursued. That is said to turn on the proportionality of costs in a hostile trustee action in the circumstances that a Part 36 offer had been made on behalf of Mr Sheen which would have been considerably more favourable to Mr. and Mrs Russell than the outcome following a trial. I am not at all surprised that that point is not being pursued.
31. The third point is that there are said to be points of principle arising in respect of the judge's decision that the equity of the property was to be shared 50/50. It is said that the decision of the county court judge was perverse and against the clear evidence of the equity at purchase. The county court judge's decision was based upon a finding of fact that there was a pre-purchase agreement between Mr. and Mrs Russell and Mr. Sheen as to the ownership of the property which they were about to purchase. Not only is there no point of principle; given that the judge had made the finding of fact that he did, there was no other conclusion of law to which he could properly have come. The real criticism sought to be advanced in this court was that the county court judge should not have made the findings of fact that he did. But, in the circumstances that Mr. Sheen's evidence at the trial was unchallenged, it seems to me impossible to criticize the judge for accepting it. Further, as the judge made clear, wherever Mr. Sheen's evidence was in conflict with that of Mr. and Mrs Russell, he preferred the evidence of Mr. Sheen.
32. A further point of principle said to arise is the submission that the judge fell into the error of double counting in giving to Mr. Sheen credit for the household expenses and other outgoings, as well as a sum of £23,300 for repairs and renewals. But that is a matter with which Jacob J dealt on the facts. There is no point of principle. The judge did not intend to double count. He did not think that he was double counting; and, on the facts as found, he was not double counting.
33. For all those reasons, it seems to me that no point of principle or practice is identified on this application and there is no compelling reason why this court should entertain a second appeal in this litigation. I would refuse the application.
34. LORD JUSTICE WALLER: I agree.
Order: Application refused with costs; the sum of £7,500 to be paid on account within 28 days.