England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL ( CIVIL DIVISION )
ON APPEAL FROM CENTRAL LONDON CIVIL JUSTICE CENTRE
(HIS HONOUR JUDGE DIGHT)

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th October 2010

Lord Justice Ward:

1. This is an appeal against that part of the order made by HHJ Dight in the Central London County Court on 4 June 2009 which ordered the defendant, Mr Craig Powell, to repay monies lent to the claimant, Ms Emma Lowe, in the sum of some £57,662.80 with interest of £1744.10. He made no order as to the costs of the claim and the counterclaim.
2. The background is this. The parties began a relationship in about May 2005, indeed a child was born to them in November 2006, but the relationship broke down in February 2008 and it broke down acrimoniously. Their deep-seated and bitter differences have been litigated now in the Family Division as well as before HHJ Dight. The judge had to resolve financial claims and counterclaims, some of them substantial and some of them much more trivial.
3. The main areas of dispute were these. At the beginning of their relationship the defendant was heavily in debt to the tune of about £47,000 and was unable to pay his creditors, who were pressing for payment. The claimant discharged those debts for him. She asserted that the money paid was a loan to the defendant. He said it was a gift made to him. The judge found in favour of the defendant.
4. The next dispute related to the property in which they eventually lived together, being a property at 3 St Paul's Terrace in Southeast London. This property was bought by the claimant, who paid the deposit of some £100,000 or thereabouts and borrowed the balance of £228,000 on mortgage. The defendant made no financial contribution to the acquisition of that property, but he alleged, nonetheless, that it was to be held on trust, again equally. The judge rejected his contention. There was a dispute about the property that they had used during their relationship together, and in some respects the claimant lost that issue. There was a question about her shareholding in a company of his and her signing a share transfer back to him, and she lost that, but the dispute with which we are concerned relates to the property at Queen's Court Road, again in Southeast London. This was acquired on 12 January 2007 in the name of the defendant. It was common ground that the claimant contributed some £57,000 or thereabouts towards the acquisition of this property. So she claimed that she had a beneficial interest in the property accordingly. The judge rejected that claim, but the claimant had alleged in the alternative that the money which she had paid, which the defendant had admitted was a loan, was money of which she was entitled to repayment, and it is on that issue that she succeeded and it is on that issue that the defendant appeals with the permission granted by Sir Scott Baker.
5. So far as Queen's Court Road is concerned the judge dealt with the issue which divided the parties in this way. He held in paragraph 50 of his judgment that:

"Having regard to the evidence which I have heard and the documents which I will come to in a moment, it seems to me that the understanding which the parties had reached was not that this property was to be shared beneficially, but that the claimant was making a loan which was going to be repaid out of the proceeds of sale subsequently."

6. One of the documents to which he referred was an unsigned document headed "Legal Contract". There was a dispute about that, as there was about everything, and the defendant alleged that it was a fabricated document, an allegation which the judge rejected. The judge found that in fact this was a document which the parties created together, as he put it, "as an accurate record of what they intended to do in respect of Queen's Court Road." Its relevant passages (I omit some of them) are to this effect:

"The amount of the monies transferred into the account of Craig Powell with Williams & Co for the purchase of 20 Queens Court Road, Sydenham London with Emma Lowe will be used for the purchase of this property in the name of Craig Powell. All monies transferred will be owed and paid to Emma Lowe on completion on the sale of this property. This money is only to be used for the purchase of this property, and if exchange and completion does not happen, the said monies will be owed immediately back to Emma Lowe, and will be paid back into an account of her choosing …This contract acts as proof of these payments and an equal ownership of the said monies will remain with Emma Lowe. Under no circumstances is any money to be paid back to Emma Lowe before the sale of this property; only upon completion. Any profits made on the sale of the property will be agreed and determined in another document, to be joined to this contract at a later date."

7. And so the judge found, as he expressed it in paragraph 54 of his judgment, that that reinforced his view that the property was to be owned beneficially by the defendant, that the claimant was always to be repaid the money which she put into the property by way of loan. It also suggested there would be a subsequent agreement relating to the profits made on the sale, but that agreement was never made and there has never been that problem.
8. And so the judge came to express his conclusions, conclusions which, it should be borne in mind, were in an extempore judgment given at the end of the hearing. He referred to a part of the chronology which is important, namely that although the defendant had in fact, as we understand it, carried out renovations to the property inasmuch as he had converted this house into two separate flats, the result of that was that he had acted in breach of the covenants of the leasehold interest which he held, which I assume contained the usual covenants not to allow work to be done on the property or alterations to be made to the property without the landlord's consent. The landlord had not given consent, and so, as the judge recorded, in September 2008 the Leasehold Valuation Tribunal, in the absence of any representations from the defendant, found in favour of his landlord that the defendant had acted in breach of the covenants in the lease against altering the property and held that the landlord was therefore entitled to pursue proceedings under section 146 of the Law of Property Act 1925. There are at present forfeiture proceedings being brought by the landlord and proceedings being brought by the mortgagee for possession of that property. In other words the defendant had failed to pay the mortgage repayments and the mortgagee had brought an action accordingly.
9. The judge then came to express his conclusions. I am bound to say they are robustly addressed. They are perhaps skimpy in their detail. They are extremely shortly expressed. The relevant conclusion is in paragraph 66 of his judgment through to paragraph 68. In paragraph 66 he said this:

"Thirdly, the claimant's claim as to a beneficial interest in 18A Queensthorpe Road: I reject the assertion that the property was held on trust, as I have already found. It seems to me that the proper analysis is that the claimant lent substantial monies, as admitted by the defendant in his witness statement, to him, to enable him to purchase the property; she is entitled to repayment of those monies, on a pure debt basis."

There he is finding that the money is due as a debt and not as damages.

10. Paragraph 67 reads:

"Fourthly, the issue that then arises in respect of the repayment of those monies is this: the defendant says that the monies will only become repayable on the sale of the property, and that since the sale has not yet come about no obligation to repay has arisen. The claimant says that the development has been delayed and realisation of the profit of the development has also been delayed. She says that both delays result directly from the defendant's failure to carry out the renovations and pay the mortgage and obtain the appropriate consent from his landlord. In the circumstances it is submitted that the defendant should repay the loans now rather than wait for a sale of the property before doing so. It seems to me that that argument is right. It cannot be correct that the defendant is entitled to borrow money, monies the repayment of which depends upon his performing certain obligations, then fail to perform those obligations and claim the money is consequently not yet repayable. He would, in that sense, be relying on his own role to deprive the lender of repayment of those monies and in the circumstances it seems to me that the proper conclusion is that the monies are repayable now."

68. It follows that I reject the claimant's claim for breach of trust in respect of Queen's Court Road, and to the extent I have indicated, I find in her favour in respect of the implied obligations to renovate, pay the mortgage and obtain consent to alterations and prevent the property from being put at risk of being repossessed by the mortgagee and landlord."

11. In order to understand that judgment, one must look at the way the case was pleaded and presented. The claimant's main claim in respect of Queens Court Road was that she had a beneficial interest in it. In his defence and counterclaim the defendant contended in paragraph 7 of that pleading, and I quote:

"The claimant therefore agreed with the defendant to pay the deposit and stamp duty for the property, to be repaid by the defendant once the property had been renovated and sold."

12. That led the claimant to seek, belatedly it would seem, the amendment of her claim, an application for which was accepted by the judge, and she by that amendment pleaded in paragraph 17(b) of the Amended Particulars of Claim the following :

"Furthermore or in the alternative, [if] the terms of the agreement were as set out in paragraph 7 of the Defence, it is averred that the agreement referred to in paragraph 11 above [which was her case on the beneficial interest] or the agreement referred to in paragraph 7 of the Defence (if which is denied any agreement was made on those terms) was subject to the following implied terms (such terms to be implied to give business efficacy to the agreement and/or as a matter of obvious inference and/or to reflect the obvious but unexpressed intention of the parties):"

And then followed the three implied terms upon which she relied:

"1) That the renovation and sale of 18A Queensthorpe Road would be completed within a reasonable time;

2) That the defendant would not do or fail to do anything which might lead to the forfeiture of its leasehold interest in 18A Queensthorpe Road;

3) That, in the event that the defendant failed to comply with either of the foregoing, the sums paid by the Claimant would be immediately repayable."

13. Mr Gabriel Buttimore, who appears before us this morning as he appeared at the trial, submits that the judge did not make the relevant findings on that amended pleading which would justify his conclusion, and he submits, moreover, that those implications should not be drawn. It is his submission that, given the terms of the document, with the emphasis that under no circumstances would the money be repaid to the claimant before the sale of the property but only on completion, it is inconsistent with an express term of the contract, namely to repay on sale, to imply a term as to when the sale was to take place. I confess I simply do not understand that argument. The event which is to trigger repayment is the sale of the property, but there is nothing in the terms of that so-called "legal contract" which would indicate when the sale was to take place and for how long the sale could be deferred. It seems to me that in order to give business efficacy to the contract one does need to imply into it some term as to when that event should take place. It seems to me that the reasonable bystander hearing this young couple living together as they were then would have said, "Well of course we envisage that you are going to renovate this property within a reasonable time and you are going to complete the sale within a reasonable time, so that I can get my money back." For my part I can see no reason at all why that term should not have been implied.
14. The judge, in my judgment, must be taken to have found that there was a term to that effect even though he does not expressly say so. He correctly analysed the issue between the parties at the beginning of paragraph 67 of his judgment. He understood full well the defendant's case that the monies would only become repayable on the sale of the property and the property has not been sold, ergo the money is yet due, but then he recorded the claimant's case not only that the development was delayed and the realisation of the profit ie the proceeds of sale of a completed sale had also been delayed but also that the result of his failure to obtain the appropriate consent from the landlord was the forfeiture and his hands being tied and being unable to sell. The implication is that the delay quite clearly was an unreasonable delay. Hence his saying "in the circumstances it is submitted that the defendant should repay the loans now rather than wait for a sale to take place before doing so", because, as he said, "it cannot be correct that the defendant is entitled to borrow money, monies the repayment of which depends on his performing certain obligations. Those obligations must include the pleaded obligations both of renovation and of completing the sale. He cannot then say, "I can sit on my hands and do nothing". Although the judge did, it is of course correct, conclude that that amounted to his relying on his own wrong, he went on in paragraph 68 to make it plain that he found in her favour in respect of the implied obligations and, as I read the judgment as a whole, those implied obligations included the pleaded obligation of completing a sale within a reasonable time.
15. One gets some flavour of his thinking from the argument that followed on costs and his observation in the short judgment he gave there that:

"The order I have made is not that the claimant will receive her monies from the proceeds of sale but that [these are the important words] because of the breach by the defendant of his entire obligations he has deprived himself of the opportunity of leaving repayment until the sale takes place."

16. Reading the judgment as a whole and making allowances and it is fair to say a generous allowance for the fact that this is an extempore judgment, which could have been expressed more felicitously and could have been the subject of closer legal analysis, the germ of it is there and the germ of it is that the judge did find that renovation and sale both had to be completed within a reasonable time, that the implied term was that if the appellant could not complete the sale within a reasonable time the money would become repayable, and in my judgment he sufficiently found the facts to enable him to conclude that there was an implied term to that effect, that there was a breach, indeed insofar as it was necessary to say so, it was a breach which went to the root of the contract. In my judgment he was entitled to find that these monies were repayable, and I would dismiss the appeal.
17. There is then an appeal on the issue of cost. The judge there indicated in his short judgment that his initial reaction was that the parties had effectively reached a draw, and so the proper order for costs was no order for costs. He said that it seemed to him that the parties effectively came out equally insofar as the numbers do not quite add up on either side. Mr Buttimore submits, and submits forcefully again, that the judge was wrong to take the view that the overall reality is that, effectively, they both won and lost, as the judge said in his judgment. That is not the reality, submits Mr Buttimore, because when one analyses the time taken on these issues, and when one adds up the score on the issue of the home in which they lived and the counterclaim, there the defendant lost. He did not have the beneficial interest in the claimant's home. On the other hand she did not have an interest in his property, so as a result the score is 1-1. She claimed return of £47,000 for money lent and she lost, but she did win £57,000 in respect of the monies paid on Queensthorpe. She won one, she lost one, the score is still by now 2-2, but she lost other matters relating to some of the sticks of furniture and the paintings and the cabinet and the Nintendo but she recovered a number of other items. It may be said in the result she recovered enough of them for the score to be 1-1, but Mr Buttimore says "Ah, but she lost those which were seriously in dispute and she lost the question of her shareholding", so overall he was the victor. Moreover in terms of time taken, the issues on which she lost, mainly her beneficial interest in Queensthorpe Road, hugely outweighed the time taken on the loan because the money was admitted to have been a loan and the argument on repayment was perfunctory.
18. I understand the force of those arguments. I can readily see that many judges looking at the matter in terms of time as opposed simply to adding up who won what and who lost what, might well have come to the conclusion that more of the court's time was spent on matters on which the claimant lost than on those on which she won, and many judges could well have acceded to the argument, perhaps not to have awarded the defendant as much as the 85 per cent of his costs which Mr Buttimore suggests, but at least to give him some of his costs of that trial lasting over the time it did. But in order to obtain permission from this court, he has to show he has a real prospect of success and he has to show that at a full appeal the judge's discretion on costs would be held to have been plainly wrong. It must have exceeded the generous ambit within which there is reasonable room for disagreement, and whilst therefore I might not have come to the same conclusion, and many judges may not have come to the same conclusion, it does seem to me that, looking at the case in the broad way the judge did and as he was entitled to, he was entitled to say this is a score draw and he was not so outside the parameters of reasonable disagreement as to incline me to give permission to appeal, and I would dismiss that application accordingly.

Lord Justice Moore-Bick:

19. I agree. In the course of argument Mr Buttimore felt obliged to accept that if the agreement under which Ms Lowe lent money to Mr Powell for the renovation of 18A Queensthorpe Road contained the implied terms pleaded in paragraph 17(b) of the Amended Particulars of Claim, it would be difficult for him to succeed on this appeal. In my view the judge did accept that those terms were to be implied into the contract and held that, as Mr Powell had failed to complete the renovation and sale of the property within a reasonable time, he could not rely on his own wrongdoing to justify the delay that caused to the sale. Mr Buttimore submitted that the judge was wrong to hold that the contract contained those implied terms, in particular the implied term that the renovation and sale of the property would be completed within a reasonable time, because, he said, such a term is inconsistent with the express terms that the repayment would be made only after a sale.
20. I am not able to accept that submission. It is true that the agreement states that no money is to be repaid prior to completion, but that merely emphasises that repayment is linked to the sale. It does not say anything about when the sale is to take place. I find it impossible to accept that the agreement imposed no obligation whatsoever on Mr Powell in relation to the renovation and sale of the property, over which it must be remembered he had sole control. A term will be implied into a contract when it would be regarded as obvious by any person acquainted with the transaction that it went without saying. That is sometimes called the "officious bystander" test. In my view it is not hard to find an implied term in this case that the work would be carried out and the property sold within a reasonable time or that the loan would be repayable if the borrower failed to achieve that. I think it is reasonably clear that the judge proceeded on that basis and I think he was entitled to do so. Insofar as it was necessary for Ms Lowe to treat the contract as having been discharged, though I think it was not, she did so by asking for her money back. Mr Buttimore's complaint that Ms Lowe did not allege and that the judge failed to find in terms that the contract had been discharged by Mr Powell is in my view irrelevant. In substance that was the basis of his decision based on the implied terms to which I have referred, as one can see from his judgment on costs, to which Ward LJ has already referred.
21. As far as the appeal against the judge's order for costs is concerned, there is nothing that I would wish to add. In those circumstances I would dismiss the appeal and refuse permission to appeal in relation to the judge's order for costs.

Order: Application refused