England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
His Honour Judge Collins CBE
Claim No CHY09408

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/11/2011

Mr Justice Warren:

Introduction

1. The Respondent, Mr Robertson, is the father-in-law of the Appellant, Mr Jules. He is the claimant in the action in which Mr Jules is the first defendant. His daughter, Mrs Jules, is the second defendant. By the action, Mr Robertson sought to recover from Mr and Mrs Jules certain sums of money which he had made available to one or other or both of them. The Judge, HH Judge Collins CBE, sitting in the Central London County Court, delivered an ex tempore judgment ("the Judgment") at the end of a 2-day hearing. He held that Mr Robertson was entitled to recover from Mr Jules one of the sums made available, the first in time, which he found to be £75,000; he held that a further sum of £40,000 was a gift by Mr Robertson to Mrs Jules; and he held that Mr Robertson was entitled to recover from both Mr Jules and Mrs Jules a third sum of £100,000. His order, dated 27 April 2010, gave judgment, in paragraph 1, in the sum of £75,000 against Mr Jules and, in paragraph 2, in the sum of £100,000 against Mr Jules and Mrs Jules jointly. He ordered both of them to pay costs, which he summarily assessed.
2. Mr Jules now seeks to appeal against paragraph 1 of the order. Mr Christopher Boardman, who appears for Mr Jules, relies on the facts that the £75,000 was, as the Judge held, made by way of loan to Mr Jules and that Mr Jules subsequently entered into an Individual Voluntary Arrangement ("IVA") under the Insolvency Act 1986. He submits that Mr Robertson was bound by the IVA with the result that he no longer had a cause of action in relation to the debt owed to him by Mr Jules by the time these proceedings commenced.
3. Mr Noel Dilworth who appears for Mr Robertson, having been instructed late in the day and for whose assistance I am grateful, submits that it is not open to Mr Jules to take the point about the effect of the IVA for reasons which I will come to. If the point is open, Mr Dilworth accepts that the effect of the IVA is to preclude Mr Robertson from obtaining judgment for the £75,000 as a debt incurred in 2002. In the light of that concession, it is not necessary to refer at all to the provisions of the Insolvency Act 1986 relevant to IVAs and their effect. In my view, however, the concession is correctly made.
4. Even so, Mr Dilworth has an argument based on proprietary estoppel or some other equitable intervention, the result of which, he submits, is that paragraph 2 of the order should take effect with the substitution of £175,000 for £100,000 with paragraph 1 being deleted. Mr Dilworth accepts that he will need to amend the Respondent's notice to raise this point; as to that, there is a dispute about the nature of the necessary amendment, Mr Boardman contending that the point can only be raised by way of appeal.

The facts

5. The facts so far as relevant to this appeal can be stated quite briefly:

i) In about 2002, Mr Jules decided to open or acquire a wine bar. In the event, he acquired shares in a company owning such premises at a price of £170,000. Mr Robertson agreed to provide financial assistance for that acquisition. The Judge found that he did so by way of loan to Mr Jules in the sum of £75,000.

ii) In order to raise the money, Mr Robertson had to borrow on the security of a mortgage on his home. Mr Jules undertook that the mortgage instalments would be paid off out of the income of the business. Unfortunately, after only a few months, Mr Jules was unable to comply with that undertaking because the business was not doing very well. Mr Robertson therefore found himself in the unhappy position of having to pay the mortgage instalments himself.

iii) At the beginning of 2004, Mr Robertson moved in to live with Mr and Mrs Jules. He did so for essentially two reasons. The first was that he had to sell his own house because he could not meet the mortgage instalments out of his own resources and was receiving no payments from Mr Jules or his company. The second reason was that he was getting on in age; he thought he would be able to have a future living with his daughter until he died.

iv) The wine bar eventually folded. Mr and Mrs Jules found themselves, by February 2004, with a possession order being made against them in relation to their own house with about £15,000 of arrears and a desperate need for cash in order to avoid being thrown out of their house and to be able to make something of their future. There were debts of nearly £100,000 to be paid off.

v) On 18 February 2004, Mr Jules entered into an IVA with his creditors.

vi) Mr Robertson's home was eventually sold in November 2004 for £240,000. The net proceeds of sale were £158,000. £100,000 went to Mrs Jules to pay off debts. Subsequently he provided her with a further £40,000 which the Judge held was a gift.

Procedural matters

6. I turn to the procedural matters relevant to Mr Jules' ability to rely on the IVA as a defence to Mr Robertson's claim in respect of the £75,000. I can start with an amended defence dated 8 September 2009. At this stage, Mr Jules was not represented and I understand that this document was prepared without the benefit of legal assistance. It is not entirely clear whether permission was ever given to serve that amended defence but nothing turns on that for present purposes since Mr Robertson knew of the contents of the amended defence well before the trial: I am concerned not so much with the formalities but with what Mr Robertson and his advisers understood to be the points which Mr Jules wished to rely on. Paragraphs 3 and 9 of the amended defence refer to the IVA although it is fair to point out that the amended defence does not anywhere expressly plead that any amount owing was effectively extinguished by the IVA (it being denied in any case that anything was in fact owing). The IVA was, however, clearly in the frame.
7. On 19 March 2010, Mr and Mrs Jules applied to strike out the claim on two grounds. The first was an alleged failure to comply with an order of HH Judge Serota dated 17 August 2009 pursuant to which Mr Robertson was to file and serve amended particulars of claim supplying further and better particulars about the agreements which Mr Robertson relied on. The second was that "there be determination by the court as to whether [Mr Robertson's] claim be valid in view of [Mr Jules'] IVA which was successfully completed....in March 2005 three years after [Mr Robertson's] alleged loan was made to [Mr Jules]".
8. That application was originally listed for hearing on 13 April 2010, just under 2 weeks before the trial was due to commence. It was adjourned on that date by HH Judge Dight and eventually came on for hearing before him on 23 April 2010. The order which the judge made on that occasion is not before this Court. There is disagreement about what Judge Dight actually decided at the hearing. Mr Jules, who was present, says that the Judge dismissed the first ground of the application; but, having insufficient time to deal with the second ground, adjourned it to the trial which was due to commence before HH Judge Collins on 26 April. Ms Ballard, Mr Robertson's solicitor, who appeared for him on the application, says that the entire application was dismissed. Mr Boardman tells us that he has seen a copy of the sealed order in which the judge ordered that the application stand dismissed but also ordered that the costs be costs in the application. The costs order makes no sense unless there was some live part of the application which would be dealt with at a later time. That lends strong support to Mr Jules' version of events.
9. It seems to me, however, that little if anything turns on this. What is clear is that the issue of the effect of the IVA was a live issue between the parties and well-understood to be in dispute. Even if Judge Dight had indeed refused the entire application as Ms Ballard says he did, that does not mean that the issue of the effect of the IVA had been decided against Mr Robertson. Judge Dight might have thought the matter arguable or simply that, as a matter of case management, it should be dealt with as part and parcel of the trial. Mr Jules clearly thought the issue was live as is shown by the document entitled "Statement of Issues" which he prepared for the trial. It is dated 23 April 2010 and includes, at paragraph 4, the following:

"Furthermore [Mr Jules] successfully completed an IVA in March 2005 thereby absolving [Mr Jules] from all previous debts to the completion of the IVA. It is also shown that [Mr Robertson] had full knowledge of [Mr Jules'] IVA but never declared the £70000.00 as a personal debt to [Mr Jules]."

10. An examination of the transcript of the hearing shows that, during his closing submissions, Mr Jules relied on the IVA, clearly making the point that any debt had been extinguished. It is apparent from the Judgment that the Judge was well aware of the IVA and the point which Mr Jules had made. At [6] of the Judgment, he asked himself a number of questions concerning the character of the payment of the first advance (which he later held was £75,000). One question was this: "If it was a loan to Mr Jules, was it effectively extinguished by the terms of the independent voluntary arrangement Mr Jules had entered into?" although, unfortunately, the Judge did not anywhere in the Judgment address that question further or give an answer to it.
11. Mr Dilworth submits that Mr Jules should not now be able to rely on the IVA as extinguishing the £75,000 debt. His position, as I understand it, is that the IVA point was not pleaded in the amended defence and that, although the IVA was mentioned, it was only by way of background and it was nowhere pleaded that the effect of the IVA was to compromise or extinguish any debt owing to Mr Robertson. Without such an amendment, Mr Jules is not entitled, he says, to rely on the defence. There was no application before the Judge to amend the defence to raise the point explicitly and the Judge did not invite such an application. In effect, the Judge made a case-management decision that there should be no amendment to the pleading, a decision with which this Court should not interfere.
12. In my judgment, Mr Jules should be entitled to rely on the IVA point in this Court. If and to the extent that an amendment is required to the defence in the action or, indeed, to the Appellant's Notice, I would give permission to make such amendments. In the first place, the amended defence, in referring to the IVA at paragraphs 3 and 9, does put the IVA into the frame. Although the impact if the IVA on the £75,000 is not pleaded, that impact is a matter of law once the fact of the loan and of the existence of IVA are accepted. No doubt Mr Robertson could have sought further information concerning the IVA, but he may already have known perfectly well of the existence of the IVA and that it post-dated the loan. There is sufficient in the amended defence to entitle Mr Jules to rely on the IVA point. But, in the second place, even if that is wrong, once the strike-out application had been issued in March 2010, it was clear that the IVA point was in issue. Even if Judge Dight did dismiss the whole application, it was clear that the IVA point would be an issue at trial (as confirmed by Mr Jules' Statement of Issues). The absence of a defence explicitly raising the point would be the most technical of defects. It would be unjust, and contrary to the overriding objective, to prevent Mr Jules relying on the point. I do not agree with Mr Dilworth's submission in relation to the suggested case-management decision made by the Judge. I can detect no such decision. On the contrary, the question appears to have been a live one so far the Judge was concerned as can be seen from the question he asked himself in [6] of the Judgment. Nowhere in the Judgment does any such case-management decision appear; nor have we been shown anything in the transcript of the hearing which could be interpreted as such a decision.

The character of the payments of £75,000 and £100,000

13. A substantial part of the Judgment is concerned with the events leading up to the payment of £100,000 to Mr and Mr Jules and with the evidence which went to the nature of that payment. The Judge referred to a number of letters, including letters from Mr Robertson signed by him but which Mr Jules had dictated or written. One of these, dated 28 May 2004, was to Mr Robertson's solicitor. It concerned the sale of Mr Robertson's home and the disposition of the proceeds of sale. The Judge quoted a number of passages from that letter. It was clear to the Judge that Mr Jules was agreeing to transfer his interest in his own house to Mr Robertson "for the purpose of repaying the investment in the wine bar". The Judge referred to the IVA and quoted from paragraph d) of the letter which contained the following passage:

"As for the IVA it is my intention to make a settlement offer to them [the creditors] for which they have been notified an offer will be made."

14. The letter also refers to using the proceeds of sale to discharge a charge in favour of First Plus and to reduce the mortgage (that is to say, on the house of Mr and Mrs Jules) with Abbey National. Mr Robertson wrote, as the Judge recorded, as follows:

"So you see I would like to have this done as soon as possible which would make me feel comfortable in knowing that I have recovered my money in the future value of the property."

15. £25,000 was, in the event, utilised in effecting settlement of the IVA. The balance was not used to pay off any part of the mortgage but was used to pay off a variety of other debts of Mr and Mrs Jules. Mr Robertson did not prove for the £75,000 or any part of it in the IVA.
16. The Judge saw the letter as "the clearest possible statement that payments made by Mr Robertson were to be reflected in the house". Later, he put it this way:

"40. The letter of 28 May 2004 makes it clear that the intention was to reflect in the value of the property not only Mr Robertson's advances out of the sale of his property but also the money that he had borrowed to go into the wine bar because Mr Jules specifically says so…"

17. After deciding (in [41] of the Judgment) that the £40,000 was a gift, he turned to consider the other amounts saying this:

"42. What is the position about the £75,000 and the £100,000 which was advanced? It was not advanced as a loan apart from the £75,000. It was advanced with the express intention of acquiring an interest in the property on the basis that certain documents would be forthcoming, which were never forthcoming. The question is: what is the legal analysis of that situation? I have heard no submissions from Ms Ballard [the solicitor then representing Mr Robertson] or from the defendants. It seems to me that it would be possible to analyse the position legally in two ways. One is by way of constructive trust; the other is by way of proprietary estoppel. Maybe the same result would be obtained whichever legal route one went down. The extreme informality of the situation suggests that the more appropriate analysis is one of proprietary estoppel, namely, that the defendants made a representation to Mr Robertson that if he were to put money up he would acquire an interest in their property. In reliance upon that, he sold his own property and moved in with them and the necessary arrangements were never made.

….

44. On the basis that there is a proprietary estoppel to that effect, the court has a discretion as to what is the appropriate remedy to deal with it. An interest in the property is valueless to Mr Robertson as may be any money judgment unless Mr and Mrs Jules win the lottery tomorrow. The proper order to make is that that [sic] the claimant should be repaid the sum of £75,000 by Mr Jules and £100,000 by Mr and Mrs Jules jointly…."

18. There are a number of points which I need to make about the passages quoted in the preceding two paragraphs.
19. [42] and [44] draw distinctions between the positions of the £75,000 and the £100,000. The former was a loan but the latter was not. The third sentence of [42] to the end of the paragraph appears to be directed at the £100,000. Thus the "It" in the third sentence, can only be a reference to the £100,000 since the £75,000 (paid over in 2002) was clearly not advanced with the express intention referred to, the idea of Mr Robertson obtaining an interest in the house belonging to Mr and Mrs Jules arising only in 2004.
20. However, this gives rise to what appears to be an internal inconsistency in the Judgment, since at [40], the Judge expressed the clear view that the intention was to reflect both amounts in the value of the property. Perhaps the Judge intended his proprietary estoppel analysis to apply to both amounts with Mr Robertson agreeing to provide the £100,000 on the basis that he would obtain an interest in the house reflecting both amounts. But this is not clear.
21. In this context, as I have already noted, nowhere in the Judgment did the Judge address or answer the question which he had asked himself as to whether the IVA effectively extinguished the £75,000 loan. It is possible that he simply overlooked the point and that the order for payment of the £75,000 was seen by him as a straightforward order for repayment of the debt. I have to say that the passages I have quoted from [40] to [44] of the Judgment do not sit comfortably with that possibility. It may perhaps be that he had, without expressly saying so, decided in his own mind that the £75,000 debt had indeed been extinguished as a result of the IVA so that he needed to find an alternative route to liability.
22. Having decided that Mr Robertson could establish an interest in the house based on proprietary estoppel, the Judge then observed, at [44], that an interest in the property was valueless to Mr Robertson, valueless on the basis, as I understand it, that there was no equity in the house given the amount secured by charges on it. Perceiving that a declaration that Mr Robertson had an interest of a determined amount in the property would provide him with no real remedy, the Judge then stated baldly that the proper order to make was that Mr Robertson should be "repaid" the two sums.
23. The Judge does not explain his reasoning for reaching that conclusion. In my judgment, it is not a conclusion which he could properly have reached. The effect of the proprietary estoppel as identified by the Judge in [42] was that, if Mr Robertson were to put money up, he would acquire an interest in the property. It is correct, as the Judge said in [44] that the court has some discretion where a proprietary estoppel is established about the appropriate way in which to give effect to it. He did not identify the possibilities but they include the following: a claimant might be awarded the entirety of the property, or a share in it; he might be awarded a time-limited interest such as a lease or a licence for a fixed period or for life; or he might obtain a charge over the relevant property for a specified sum of money. Further, I do not rule out the possibility of a monetary award against the property owner personally with or without a charge over the property.
24. However, where the court decides to give effect to the proprietary estoppel by way of a monetary award of that sort, it could not in my judgment, save perhaps in the most exceptional circumstances (which are difficult to conceive and which are certainly not found in the present case), make an order which exceeded the value of the property in the hands of the defendant. This is because proprietary estoppel is an equitable remedy which is concerned with establishing an interest in property and with preventing the property owner from insisting on his strict legal rights. It is not possible to award a claimant a greater interest in a property than 100% and even then the interest taken by the claimant will be subject to any charges subsisting at the time of the events giving rise to the claim. It would not be right, save perhaps in the most exceptional circumstances, to give effect to the proprietary estoppel by making an order for payment which imposed a personal liability on the owner greater than that which would result from an award of 100% of the property itself subject to such charges.
25. Accordingly, if the Judge was saying that the discretion given to the Court about how it gives effect to a proprietary estoppel enabled it on the facts of the present case to make an order for the payment of either £100,000 or £75,000 or both, I would respectfully disagree. An interest in the property, as the Judge put it, was valueless to Mr Robertson in the light of the amounts secured on it. To make such an order would be, in effect, to create a novel sort of restitutionary remedy for which there is no foundation.
26. If on the other hand the Judge is saying that there is some other justification for giving a money judgment, he may be right in relation to the £100,000. There may be a claim in restitution for that amount although I do not decide the point. There is no need to do so because Mr Jules does not seek to disturb the money judgment against him for that amount.
27. The position in relation to the £75,000 is different. That sum was, on the Judge's finding, a debt, so that, had it not been for the IVA, there would have been a clear right of recovery. Equally clearly, the claim in debt could no longer be asserted after the completion of the IVA and Mr Dilworth does not argue to the contrary. It is not suggested by Mr Dilworth that the events in 2004 gave rise to a contractual obligation on Mr Jules, whether alone or together with Mrs Jules, to pay £75,000 to Mr Robertson. Accordingly, a money claim would have to rest on some non-contractual juridical basis.
28. For my part, I do not see what claim there could be once it is acknowledged that the proprietary estoppel which the Judge identified cannot support the order for the payment of money which he made. The assertion of a constructive trust cannot assist Mr Robertson any more than a proprietary estoppel since the only property which could possibly be subject to such a trust is the house owned by Mr and Mrs Jules, which has no equity value. That leaves only a restitutionary or equitable claim based on unjust enrichment.
29. But such a claim in respect of the £75,000, in contrast with the £100,000, faces what is, in my view, an insuperable difficulty. It is this: such a claim can arise only by virtue of the payment of £100,000 to Mr and Mrs Jules in 2004; but the unjust enrichment, if there was any at all, was in the amount of £100,000 because that is all that Mr and Mrs Jules received. The fact that the parties may have intended that the payment of the £100,000 should give Mr Robertson an interest in the house which reflected both that advance and the earlier loan of £75,000 does not mean that Mr and Mrs Jules were enriched by any more than the amount which they actually received in 2004.
30. In my judgement, it follows that Mr Robertson has no claim to the £75,000.
31. I would therefore refuse permission to Mr Robertson to amend his Respondent's notice to assert a claim to the £75,000 based on a proprietary estoppel or other equitable intervention.
32. This makes it unnecessary to deal with Mr Boardman's submission, which came first in submissions to us, that we should not entertain the new arguments based on proprietary estoppel because this would amount to procedural unfairness: further evidence might have been led or cross-examination might have taken a different course if Mr Robertson's claim had been put in that way. Nor is it necessary to consider the complication arising from the facts (i) that Mrs Jules is not a party to this appeal and (ii) that the relief sought by Mr Robertson might have some repercussions for her own liability or on her interest in the house.
33. It follows that I would allow Mr Jules' appeal in relation to the £75,000 and discharge paragraph 1 of the Judge's order.

Lord Justice Rimer

34. I agree.

Lord Justice Longmore

35. I also agree.