England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE PLYMOUTH COUNTY COURT
His Honour Judge Cotter
7PL03458

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th October 2014

Lord Justice Patten :

1. This is an appeal by the claimant, Commercial First Business Limited ("CFB"), against an order made by HH Judge Cotter QC in the Plymouth County Court on 3 October 2013. The judge allowed an appeal by the defendants and set aside an order made by Deputy District Judge Hall on 25 January 2013 by which he had refused to suspend or set aside a warrant for possession of 13 November 2012 obtained by CFB in respect of a property known as Wakeham Farm House, South Milton, near Kingsbridge ("the Farm House"). This second appeal by CFB is brought with the permission of Christopher Clarke LJ.
2. The relevant background facts can be summarised as follows. In June 2006 the defendants borrowed some £1,352,000 from CFB on the security of the Farm House together with (by a separate loan agreement) a further £1,007,500 on some adjoining barns which had been converted to holiday cottages ("the Cottages"). The loans were intended to re-finance existing borrowings. Separate charges were executed in respect of each loan.
3. Clause 1 of each charge provided that the relevant property was charged with:

"the payment and discharge of:

(i) all monies now or at any future time due to [CFB] from [the defendants] under each and every loan agreement, now or at any time made between the lender and the borrower, on the Commercial First general lending terms and conditions".

The defendants, Mr Jonathan Clive Munday, and his mother, Mrs Freda Rose Munday, were joint mortgagors under both charges.

4. By September 2007 there were arrears in respect of both loans and CFB commenced proceedings for possession and payment in respect of both properties. Separate claims were issued in respect of each loan using the standard County Court N5 claim form and the N120 form of particulars of claim. In the claim for possession of the Farm House, the pleaded mortgage arrears were those in respect of the Farm House loan. On 13 November 2007 possession orders were made in both sets of proceedings together with money judgments for £1,422,622.63 in respect of the Farm House loan and £1,060,562.24 in respect of the Cottages loan.
5. CFB then proceeded to obtain warrants of possession for both properties but on 18 April 2008 these were suspended on terms that the global amount of the arrears on both loans (some £203,223) would be repaid by monthly instalments.
6. In the event, these were not met and in May 2009 CFB obtained possession of the Cottages. The defendants say that the Cottages were 'mothballed' by CFB and that there was undue delay in proceeding with the completion of their conversion into holiday lets resulting in the physical deterioration of the Cottages and loss of rental income. But there is a considerable dispute about that. The claimant's evidence is that there was a problem about rights of way to the property over the defendants' adjoining land which required to be resolved before a planning application for the development of the Cottages could proceed; that Mr Munday actively opposed the grant of planning permission for the development and that when planning permission was granted and the work did eventually begin in December 2011, attempts were made by Mr Munday to obstruct them. Mr Munday's evidence was that he was co-operative about access and parking but that CFB was content for the Cottages to lie empty and unused and failed to take up his offers to provide access and parking using the Farm House land. What, he says, he opposed was CFB's own planning application which involved a different parking arrangement within the Cottages site that was impractical and adversely affected the value of the Farm House land. He denies physically obstructing the development after planning permission was granted.
7. What, however, is not in dispute is that in September 2008 some land secured by the Farm House charge was sold thereby reducing the amount of the loan secured on that property. CFB had issued a warrant for possession in 2008 based on the non-payment of the arrears on the Farm House loan but had voluntarily withdrawn the warrant once the defendants were able to reduce the arrears on the mortgage account. This was achieved by the sale of the farm land in 2008. There was a further occasion in 2011 when the defendants failed for a time to maintain the monthly payments in respect of the residue of the Farm House loan and a further warrant was issued. But this was again withdrawn once the amount of the arrears had been reduced and the account continued to be maintained at an acceptable level. By February 2009 the debt had been reduced to about £116,000 and it remained at about that level until October 2012.
8. In September 2011 CFB issued an application for a charging order over the Farm House in order to secure the money judgment previously obtained in respect of the Cottages loan. The amount outstanding on the mortgage account for the Cottages was £1,343.811.77 (as of June 2011) and the most recent valuation of the property obtained by CFB was in the sum of £1,250,000. The purpose of the charging order was to attempt to secure the shortfall. Reliance on a charging order over the Farm House would also avoid a possible suspension of any possession order under the provisions of s.36 of the Administration of Justice Act 1970. As mentioned above, the Farm House loan was by then only £116,000 and had continued to be properly serviced so that, taken alone, the continued suspension of the 2007 order was not unlikely.
9. The application for the charging order had, we are told, a number of procedural defects and was opposed by the defendants on the basis, inter alia, of their counterclaim for loss of rental income due to CFB's delay in progressing the development. In the event, it was eventually abandoned early in 2012. But on 7 September 2012 CFB's solicitors wrote to the defendants' solicitors indicating that it proposed to rely on the all monies clause contained in clause 1(i) of the Farm House charge as giving it the benefit of that security for both mortgage debts. It therefore proposed to obtain possession of the Farm House and on 13 November a warrant was issued for that purpose.
10. The defendants applied to the County Court to set aside or suspend the execution of the warrant. In their evidence in support of the application the defendants explained that they had obtained the loans to assist their farming business (the Farm House loan) and to enable them to complete the conversion of the Cottages into holiday lets (the Cottages loan). They had reduced the size of the Farm House loan by selling off most of the adjacent farm land but wished to counterclaim against CFB for its delay over the five years since the possession order in failing to let or sell the Cottages.
11. They said that they had never been advised by CFB or anybody else that the all monies clause in the two charges was intended to provide security for both loans and asserted that this was never the intention. Their evidence is that they deliberately structured the borrowing as two separate loans, each with its own independent security, over the relevant property and that, until the letter of 7 September 2012, that appeared to have been CFB's own understanding as is evidenced by their application for the charging order.
12. At a hearing on 25 January 2013, Deputy District Judge Hall refused to set aside the warrant for possession. He rejected the argument that the terms of the charge were ambiguous. In his view, they clearly extended to cover sums due under other loan agreements with CFB which, in this case, include the Cottages loan. In the alternative, Counsel for the defendants had argued that CFB was estopped from relying upon the all monies clause in the charge because of the way in which it had proceeded to enforce its security. It had treated the two loans as separate transactions by commencing separate proceedings in respect of each loan and obtaining separate orders for possession. The possession order in respect of the Farm House had been obtained on the basis of the arrears on that loan and not in respect of the arrears on the Cottages loan. This was said to give rise to some kind of procedural estoppel and to make the current attempt to rely upon the all monies clause in the Farm House charge an abuse of process. Moreover, the farm land had been sold and payments accepted to service the remaining Farm House loan on the basis that these were the only liabilities secured on the property. There was therefore, he argued, either a collateral agreement not to rely upon the Farm House charge as security for the Cottages loan or, alternatively, a representation by conduct to that effect which made it unconscionable for CFB to be allowed to go back on that understanding.
13. The Deputy District Judge rejected these submissions. He held that there had been no agreement not to rely on the Farm House charge as security for the Cottages loan nor any intent to create legal relations so as to create a collateral contract to that effect. The estoppel argument failed, he said, because of a lack of any detriment on the part of the defendants:

"10. ….as I have made several times a point during the course of this case, it was very much in Mr Munday's interest and his mother's interest to stay in the farmhouse. They would expect to pay for the benefit of staying in the farmhouse because they have a mortgage on that property in favour of the bank and I cannot see that they have acted to their detriment if they have only paid what is due and owing which has been calculated at I think £662 or thereabouts, on a mortgage of £114,000.

11. I do not see that they have in any way acted to their detriment if they have not made that payment, the chances are perhaps, almost certainly, they would have been ordered to give possession of the farmhouse because they would be expecting to stay there rent free, mortgage free and obviously that is not consistent with the creditor, the lender bank, having its security realised and getting back its investment. So I do not think there is any question of a promissory estoppel, or collateral agreement. Neither is there a question of a procedural estoppel."

14. The defendants' appeal was heard by HH Judge Cotter QC on 20 September 2013. He expressed no concluded view about the construction of the all monies clause or the claim based on a collateral contract but concentrated instead on the estoppel argument. The two claims, he observed, had been treated separately on the basis that the indebtedness and security in each case was self-contained. It was also clear from CFB's evidence in support of the application for a charging order that it did not regard the Farm House as providing security for the Cottages loan. This is confirmed by the application itself which was inconsistent with the construction of the charge for which CFB subsequently contended.
15. The judge therefore concluded that in the period from when possession was first ordered in 2007 up to the solicitors' letter in September 2012 there had been a common and shared assumption that the Farm House charge would not be enforced as security for the Cottages loan. This conclusion, he said, was based on the way in which CFB proceeded separately to enforce the two charges and, in particular, on its application for the charging order. The defendants were not told anything to contradict what appears to have been the claimant's understanding of its rights until they received the solicitors' letter in September 2012.
16. The judge continued:

"35. Looking at the consequential conduct as a whole the result of the assumptions has been that the debt on the barns has increased substantially. Mr Munday has taken steps by way of objecting to planning permission and allowing that debt to increase, very obviously to his very considerable financial detriment, because he thought that the debt could not be enforced against his farmhouse.

36. Had it been the position that it was the understanding of the parties that the charge could be enforced against the farmhouse, as is now claimed by the Respondent, Mr Munday would have been in no practical position to object to a sale of the barns in any way and the security of the farmhouse would have been viewed by him in a very significantly different light. The parking could easily have been made part of the barns because the Respondent would have had an entitlement to both properties. Mr Munday would have been foolish in the extreme to have taken the stance that he has. The net result would surely have been that there would have been a realisation of the barns' capital value and a significantly reduced debt.

37. The Deputy District Judge gave a view in relation to procedural estoppel. However, it seems to me that what the judge should have considered was estoppel via the course of dealing, whether by representation or convention. I remind myself of the legal requirements in re1ation to an assertion of estoppel. Estoppel is an evidential doctrine and it does not, save in the case of proprietary estoppel, create any substantive lights or a cause of action, although given some recent cases that statement may now be somewhat controversial. It is a commonly-used phrase, that estoppel operates as a shield and not a sword. Here it is quite obviously being used as a shield."

17. He then went on to consider the requirements for an estoppel by convention as set out by Briggs J in HM Revenue & Customs v Benchdollar Ltd & Ors [2009] EWHC 1310 (Ch) as follows:

"(i) It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them.

(ii) The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it.

(iii) The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter.

(iv) That reliance must have occurred in connection with some subsequent mutual dealing between the parties.

(v) Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position."

18. The judge held that the common shared understanding (which, as I have said, he derived from CFB's charging order application and the defendants' belief that the charges over each property were self-contained) was relied upon by the defendants to their detriment. They had, he found, allowed the Cottages loan to increase over the five-year period since possession was ordered in 2007 in the belief that any excess over the value of the Cottages could not be recovered by a sale of the Farm House. CFB, for its part, had delayed the development and sale of the Cottages as a result of problems about access and parking in the belief that it needed the defendants' agreement as owners of the Farm House in order to obtain those rights. This served to confirm the defendants' belief that they could safely protect the value of the Farm House by, for example, objecting to the grant of planning permission for the development of the Cottages without thereby incurring any liability for any shortfall on the Cottages loan. The reality, however, was that CFB could have exerted pressure on the defendants to grant rights of access because any increase in the Cottages mortgage debt occasioned by the delay would ultimately be recoverable under the Farm House charge.
19. The judge concluded:

"I think there would be very grievous financial harm indeed if, as I have indicated, for five years there has been a state of affairs based on a common understanding in relation to the barns and possession of them that has led to a result the barns, clearly valuable items, standing idle for all of those years, the debt increasing, that the respondent is now allowed to ignore. If that is not an action to the detriment of Mr Munday which it would now be unconscionable to unravel, I can think of little better example."

20. He therefore allowed the appeal and set aside the warrant for possession.
21. CFB rely on a number of grounds of appeal which challenge both the evidential basis for the judge's finding that the defendants relied to their detriment on a shared understanding about the meaning and effect of the all monies clause and also whether reliance of the kind found by the judge is sufficient to estop CFB from thereafter relying upon its strict legal rights under the Farm House charge. This includes an argument that the judge was in any event wrong to hold that the effect of the estoppel was permanent. But I want to begin with the judge's finding about the parties' shared understanding of the meaning and effect of clause 1(i) and whether the facts and matters relied upon by the defendants as detriment are capable of giving rise to either an estoppel by convention or some other form of estoppel by representation.
22. The premise for the defendants' pleas of estoppel has to be that the all monies clause in the Farm House charge does, on its true construction, extend to the Cottages loan. In these circumstances, one starts with a state of affairs in which the defendants contracted in these terms and CFB had (and continues to have) the benefit of the Farm House charge for that purpose unless estopped from exercising its legal rights.
23. There was no oral evidence at the hearing in the County Court and the judge's findings were therefore based on the various witness statements filed by the parties. In particular, neither Judge Cotter nor the Deputy District Judge was able to resolve the dispute about the alleged delay in progressing the development of the Cottages or the true reasons for it. So far as any findings of fact were made, they were limited to what the defendants say in their untested evidence about their understanding of the limits of CFB's rights under the Farm House charge.
24. Mr Munday's evidence on this is contained in his witness statement of 10 December 2012. He confirms that he and his mother were advised in relation to the two loans by Messrs Burges Salmon and that they attended their solicitors' offices on 23 June 2006 in order to execute the charges. He says that he was not advised by Burges Salmon that he was executing an all monies charge but he does not suggest that anything was said or done by CFB prior to the execution of the charge to indicate that they did not regard the Farm House charge as providing security for any part of the Cottages loan. The point simply never arose.
25. He goes on to say that the form of the subsequent possession proceedings in which CFB sought recovery of each loan separately in respect of each charge and did not seek a judgment in the Farm House proceedings for any part of the Cottages loan again did not raise any suggestion that the Farm House charge was an all monies one. What he does say is that after the farm land was sold in 2008 to reduce the Farm House loan he was told by one of CFB's managers (Mr John Barber) that if he and his mother continued to meet the monthly repayments on the remaining amount of the Farm House loan then the Farm House would be safe. But he does not suggest that the decision to sell the farm land was itself made in reliance on any such assurance and Judge Cotter did not base any of his findings on this evidence.
26. It is, I think, common ground that the first occasion when CFB made it expressly clear to the defendants that it proposed to rely on the all monies clause in the Farm House charge to recover the shortfall in respect of the Cottages was in the solicitors' letter of 7 September 2012. The judge inferred that the earlier application in 2011 for a charging order over the Farm House was consistent only with CFB sharing a belief that it did not have an all monies charge. That is a possible explanation. But there may be others, including a possible desire to avoid the complications presented by s.36 of the Administration of Justice Act 1970. However, even if it was then labouring under an actual misapprehension as to the scope of its legal rights, for the defendants to succeed, the charging order application has to be treated either as an unambiguous representation that it would not rely on the Farm House charge as security for the Cottages loan or (for the purposes of an estoppel by convention) as a communication to the defendants of its construction of clause 1(i) which it expected them to rely upon. There seem to me to be obvious difficulties with both those propositions.
27. In the first place neither Mr Munday nor his mother in her own evidence suggests that they had any positive understanding about the effect of clause 1(i) at the time when they executed the charges. The highest that it is put is that their own solicitors did not draw its possible implications to their attention at the time. The same can be said about the sale of the farm land in 2008. Again, it is not suggested in the evidence that the fact that there were separate proceedings taken in respect of each loan and that the money judgments sought in each were no more than the current balance of the relevant mortgage accounts created any positive understanding or impression on the part of the defendants about the all monies clause. All their evidence is expressed in terms of what they were not told.
28. Judge Cotter considered that the common assumption that the Farm House charge did not extend to the Cottages loan came into existence after 2008 as a result of a combination of two factors: the first was that nothing was said to the defendants until September 2012 to indicate that CFB did rely on there being an all monies charge; the second was CFB's failure to let or sell off the Cottages coupled with its application for a charging order over the Farm House. With respect to the judge, I am not convinced about this. For there to be an estoppel by convention of the kind relied upon it is not enough merely to show that both parties shared the same view about the effect of the relevant contract. As mentioned earlier, it must also be demonstrated that the party alleged to be estopped had some responsibility for conveying that understanding of its effect to the other party in the expectation it would be relied upon so as to create a shared (almost consensual) understanding of what rights CFB had under the Farm House charge. The present case is a long way from that. Mr Munday does not say that either he or his mother took CFB's delay in selling or letting the Cottages as an indication that it believed it had no right of recourse to the Farm House for any shortfall in the Cottages loan. Nor does he say that the application for a charging order altered his perception. The highest it can be put is that none of this caused the defendants to realise or to believe that CFB would in due course assert that it had the benefit of an all monies charge. But in my view that is not enough.
29. There are similar problems with reliance and detriment. Judge Cotter decided that there had been detriment because the mortgage debt under the Cottages loan had considerably increased between 2008 and 2012 as a result of Mr Munday objecting to the grant of planning permission including the arrangements for parking. In fact it increased because the defendants failed to pay the monthly instalments of interest. But, in any event, Mr Munday's evidence was that the delays in the development were all down to the conduct of CFB and that he only objected to the proposed parking arrangements contained in the planning application once his own access and parking proposals had not been taken up by CFB. His proposed counterclaim for damages in negligence proceeds on the basis that any loss of rent or delays in the sale of the Cottages are not attributable to anything which he or his mother were responsible for. Consistently with this, it is difficult to see how the judge could find that Mr Munday was the operative cause of the increase in the indebtedness due to the action he took to oppose the planning application.
30. The alternative way it is put is that the delay in the sale of the Cottages and therefore the postponement of any decrease in the balance of the Cottages loan was the result of the parties' shared belief that the Farm House charge was not an all monies charge. It is said that but for this belief, CFB could have effectively forced Mr Munday to grant access and parking rights on the Farm House land and Mr Munday would have been more co-operative in this regard. But to establish the estoppel the defendants must prove that they relied on the shared understanding to their detriment: not that CFB failed to take action because it had the same belief about the limits of its security. In this case, as already explained, Mr Munday had to show that he was somehow induced by the shared understanding of the rights which CFB had to refrain from taking some action otherwise available to him to reduce the debt. His evidence in fact is that he did his best to promote the early development and sale of the Cottages but was frustrated by the intransigence of CFB: hence his proposed counterclaim for damages. He does not suggest that he could have paid off or reduced the Cottages loan with other sources of finance but was persuaded not to do so in the belief that CFB could not recover any shortfall against his other property. On his own case, he had no room to manoeuvre at all.
31. For these reasons, I consider that the judge was wrong to find that CFB was estopped from relying upon clause 1(i) of the Farm House charge in order to recover the balance of the Cottages loan and it is unnecessary to consider the further arguments about the duration of any estoppel or whether, having failed properly to service the Cottages loan, the defendants are disentitled in equity to the benefit of the plea. I should, however, add that I find it difficult to see how a positive decision by the defendants not to pay the instalments of the Cottages loan in the belief that CFB had no effective remedy for the recovery of any shortfall can amount to a form of detriment sufficient to raise an estoppel of the kind alleged. On that point I agree with the Deputy District Judge.
32. In these circumstances, it becomes necessary to consider the other arguments raised in the proceedings but not considered by Judge Cotter on the first appeal. The three issues in question are: (i) whether the defendants can rely upon some kind of procedural estoppel based on the fact that CFB has obtained judgment in what I shall refer to as the Farm House action for no more than the outstanding balance of the Farm House loan; (ii) whether there was a collateral contract between the parties which prevents CFB from enforcing the Farm House charge as security for the Cottages loan; and (iii) whether, on its true construction, clause 1(i) of the charge does extend to cover the Cottages loan? The Deputy District Judge decided all three issues against the defendants.
33. The order obtained in the Farm House action on 13 November 2007 requires the defendants to give possession of the Farm House and to pay the claimant £1,422,622.63 "for outstanding mortgage". As explained earlier, the amount of the money judgment represents the sums outstanding on the mortgage account relating to the Farm House loan including accrued interest up to the date of judgment. Judgment for the amount outstanding on the Cottages loan was included in the order made in the separate Cottage loan proceedings.
34. A warrant of possession can be issued once the court has made an order for possession. Its issue is essentially an administrative act leading to the execution of the court's order. It is unconnected as such with the amount of any judgment for the mortgage debt. Once in actual possession the mortgagee can exercise his powers of sale under the charge and recoup himself out of the proceeds of sale so far as entitled to do so. But the state of account between the parties may be highly relevant to whether the court should exercise its powers under s.36 of the Administration of Justice Act 1970 to suspend execution of the warrant. It was, I think, CFB's expectation in this case that, provided the defendants were able to maintain the payments due under the Farm House mortgage account (as they were), it was likely that the court would exercise its power of suspension.
35. The applications which were made by the defendants in December 2012 to suspend the warrant of possession issued in respect of the Farm House were applications made under s.36. The issue raised about CFB's ability to rely upon the Farm House charge as security for the Cottages loan was critical to the outcome of those applications because it is, I think, common ground that if CFB is able to look to the Farm House charge as security for that loan under clause 1(i) of the charge then the defendants will not be able to satisfy the court that they have any realistic prospect of paying the sums due within a reasonable period which is the test under s.36.
36. On this part of the appeal we are therefore faced with a relatively narrow issue as to whether, by obtaining the money judgments it has, CFB has disentitled itself from opposing the application for the suspension of the warrant on the ground that it has the benefit of an all monies charge over the Farm House. As an alternative to their arguments about estoppel by convention, the defendants contend that CFB's rights of recourse to the Farm House charge are now limited to the sum for which it obtained judgment in the Farm House action and are prevented by a cause of action estoppel based on that judgment from asserting in relation to the suspension application that the charge also stands as security for the Cottages loan. In the alternative, they say that it would be an abuse of process for CFB to be allowed in effect to re-litigate that issue.
37. Some basic principles are not in dispute. It is well established that once a judgment is obtained for the amount due under a loan agreement (including interest) then the contract merges in the judgment so that the lender no longer has a cause of action in contract for either the principal or any continuing interest. His remedy is to seek execution of the judgment with statutory interest on the judgment until payment. For this reason, mortgages often provide (as the charge did in this case) that the covenant to pay continuing interest does not merge in the judgment for the principal due: see Director General of Fair Trading v First National Bank plc [2001] UKHL 52 at [3]-[4].
38. It is equally clear that cause of action estoppel will arise to bar the right of a claimant to assert in later proceedings a cause of action which is identical to that litigated and decided upon in the earlier proceedings. The principle extends to include points relevant to the existence of the cause of action which might have been but were not decided in the earlier proceedings. Once litigated, the cause of action merges in the judgment in the earlier proceedings and the right to re-assert it in later proceedings is permanently lost: see Arnold v National Westminster Bank plc [1991] 2 AC 93 per Lord Keith at p. 104.
39. These principles were applied by this court in Lloyds Bank plc v Hawkins [1998] 47 E.G. 137 to deny the bank's right to bring a second set of proceedings against the defendant to recover his liabilities to them under a guarantee. The bank had the benefit of an all monies charge over the defendant's home which secured both a personal loan and a guarantee liability in respect of the debts of his company. The bank commenced possession proceedings and obtained judgment for the amount of the personal loan as "the amount outstanding under the mortgage". It neither claimed for nor obtained judgment for the additional sums due under the guarantee. After the property was sold, the bank issued separate proceedings seeking to obtain judgment for the sums due under the guarantee. The court held that the bank's cause of action had merged in the judgment and that it was not entitled post judgment to seek to recover the guarantee liability in the subsequent proceedings. Robert Walker LJ said (at p. 111):

"I fully accept that the bank had initially two separate sets of contractual rights, one of which was backed by security over Mr Hawkins' property. Because of the customarily wide terms of any bank's all monies charge, these two sets of rights and the remedies to enforce them overlapped to a considerable extent. There was nothing secured by the promise in the guarantee, which was not also automatically secured by the terms of the all monies charge in the legal charge. No doubt it was open to the bank, subject to rules of court relating to mortgage actions and subject also to general rules as to abuse of process, to decide to enforce some only of its rights and remedies against Mr Hawkins. It might have decided to seek a money judgment without seeking possession of the farmhouse, or it might have decided to take the converse course. In his affidavit Mr Toms gives examples of circumstances in which such a course might have been advantageous to the bank and not necessarily oppressive to the customer.

But what it was not open to the bank to do was to go for possession and for a money judgment in respect (and I quote from para 10 of the particulars of claim) of "the total amount outstanding under the . . . [legal charge]", and having obtained a money judgment and not having made any attempt to get either the judgment varied or the pleadings varied, then to start fresh proceedings in the High Court based on the guarantee."

40. It seems to me that CFB have the same difficulties in this case. They sought and obtained judgment for the "outstanding mortgage" on the Farm House in the amount of the then balance of the Farm House loan. They chose to obtain judgment for the Cottages loan in the other set of proceedings. Their causes of action for the recovery of those loans and accrued interest have now merged in those respective judgments. CFB cannot now seek to recover the balance of the Cottages loan in any new proceedings. Their remedies for its recovery are limited to the execution of that judgment which does not include an order for possession of the Farm House. More particularly, the amount of the judgment for the sums due under the Farm House mortgage is limited to the balance of the judgment in the Farm House action. That, to use the words of s.36, is the only sum due under the mortgage apart from continuing interest. It does not include any part of the Cottages loan.
41. The consequence is that CFB cannot, save as appears from paragraphs 42 and 43 of this judgment, in my view rely upon an argument that the Farm House mortgage was an all monies charge to oppose the grant of relief in the s.36 application relating to the warrant of possession in respect of the Farm House. The court in those proceedings is limited to considering the amount of the money judgment obtained in respect of the mortgage over that property. These problems could have been avoided by CFB obtaining an order for possession but not a money judgment for the amount of the outstanding mortgage in the sum which it did. It could then have exercised its power of sale as a mortgagee in possession to recover what was in fact contractually due under the charge. CFB may now have other remedies in respect of its judgment for the Cottages loan including possibly an application for a charging order over the Farm House. But the judge was right in my view to hold that the amount due under the Cottages loan judgment ought not to be taken into account on this application.
42. That leaves a small, but perhaps important, issue about the defendants' liabilities for continuing interest which did not merge in the two judgments obtained. The existence of the judgment in the Cottages loan action is not therefore a bar in itself to the recovery of the post-judgment interest on that loan in subsequent proceedings against the defendants. Nor is the judgment obtained in the Farm House action. The interest in question has continued to accrue post-judgment on both loans and, on established principles, would be recoverable by action against the defendants. It is not therefore part of the rem judicatam even in the wide sense described earlier and there can be no cause of action estoppel in respect of it. Mr Duckworth for the defendants accepted this but argued that CFB could not bring into account the post-judgment interest on the Cottages loan because it has not yet obtained a judgment for that interest or an order for possession based on the arrears.
43. I am not persuaded by that. It seems to me that the court on a s.36 application to suspend the warrant issued pursuant to the earlier judgment is duty bound to consider whether the mortgagor is likely to be able to pay "any sums due under the mortgage" within a reasonable time. These provisions apply even where the mortgagee obtains no judgment for the arrears as such but seeks and obtains an order for possession based on the mortgagor's failure to pay. The court must then consider whether to allow the mortgagee to take possession and sell in order to recover the mortgage debt. The present case is no different in respect of the defendants' liability for continuing interest. Although CFB is limited to the amount of the Farm House judgment in relation to pre-judgment arrears, it is not so limited in respect of continuing interest and I can see no reason in principle why it should not be able to ask the Court to consider for the purposes of s.36 any contractual liability which the defendants have under the Farm House charge that survived the judgment in that action. It is therefore necessary to go on to consider the arguments about construction and collateral contract that were rejected by the Deputy District Judge.
44. I can deal with these arguments quite shortly. Mr Duckworth concedes that the literal construction of clause 1(i) is against his clients. But he says that the background circumstances are such that the Court should give the words a purposive construction which recognises that the two loans were taken out for very different purposes and that it is unlikely that the defendants would have agreed to their home standing as security for a start-up business in the form of the Cottages. This, he says, is consistent with the way in which CFB subsequently dealt with the loans; treating them as separate and self-contained up to and including in the proceedings for possession.
45. I am unable to accept these submissions. Clause 1(i) is an absolutely standard form of all monies provision which is commonly found in mortgages of this kind. It was not the subject of negotiation between the parties and was included as part of the standard form charge used by CFB. The defendants' evidence, as explained earlier, was that they were not advised about its potential effect but that is not enough to justify it being given anything but its ordinary and established meaning. It does, in my view on its true construction, extend to all the defendants' liabilities to CFB under both loans.
46. The remaining issue is whether there was a collateral contract to the effect that the Farm House charge would not stand as security for the Cottages loan. The collateral contract was rejected by the Deputy District Judge on the basis that one could not spell out of the dealings between the parties subsequent to the execution of the charges or before any intention to create legal relations outside the two charges.
47. The contract relied on is not collateral to the charges in the sense of being made at the same time as those agreements were entered into. The contract is said to have come into existence not earlier than 2008 when CFB agreed in correspondence to withdraw the warrant for possession it had issued in respect of the Farm House following the reduction of the arrears on the mortgage account. It is said that this evidences an agreement to the effect that CFB would not seek to enforce its rights under the Farm House charge so long as the interest payments on the Farm House loan were maintained. An alternative way of characterising the agreement is that CFB would look to the Farm House as security only for the Farm House loan.
48. If the terms of the agreement were the second of these two alternatives then, as Mr Hall points out, there are obvious difficulties with its enforceability. It would constitute a subsequent agreement to vary the terms of clause 1(i) of the charge. Quite apart from whether there could be a valid such contract given the provisions of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (which has not been argued before us), the Court would have to attribute to CFB's willingness to withdraw enforcement action an intention to contract in the terms alleged and to find that there was consideration for any such agreement.
49. The mere fact that one party to an existing contract harbours a mistaken belief as to its scope and effect and acts in conformity with that belief is not, in my view, sufficient to provide objective proof of an intention to contract in those terms. Indeed the fact that CFB appears to have misunderstood the extent of its rights as mortgagee negatives the existence of an intention to vary the contract. The parties never corresponded or negotiated about the effect of clause 1(i) until after the letter of 7 September 2012 and I am unable to accept that one can spell out of the correspondence in 2008 any of the terms of a contract to vary the charge. Some reliance was also placed on a passage in a 2012 witness statement of Mr Kaluza, a litigation assistant with CFB's solicitors. But that takes the matter no further.
50. There is also the question of consideration. In the case of a collateral contract in the conventional sense, this is provided by the parties entering into the principal contract. But in this case that is not possible and the only consideration which the defendants could have provided for the contract was the due performance of the existing contractual obligations.
51. The position is, I think, more complicated if the version of the contract contended for is simply an agreement not to enforce the Farm House charge so long as the instalments of interest on the Farm House loan were paid. This does not involve any variation of the terms of the charge but it does still raise the question whether the agreement was supported by consideration. Mr Duckworth submitted that at the relevant time CFB held a judgment for the full amount of the Farm House loan so that the defendants were in effect agreeing to treat the Farm House loan as if it were continuing. But that is not correct. The continuing interest remained payable contractually and the same difficulties about consideration still arise.
52. In these circumstances, my initial view was that the argument based on a collateral contract does not assist the defendants even though it was rejected by the District Judge on narrow and different grounds and was not considered by Judge Cotter. But I have been persuaded that it would not be right for this Court to make a final determination of the issue in the absence of any real determination by the court below of the terms of the alleged agreement which may impact on the issue of consideration. Mr Duckworth contended that this issue should be remitted for determination by the County Court if CFB's appeal succeeded on the estoppel issue and, since this part of the case is relevant to the defendants' liability for continuing interest on both loans, that is the order which I propose we should make.
53. In summary, therefore, I would uphold Judge Cotter's order setting aside the order of the Deputy District Judge on the ground that it is prevented, save as appears from paragraphs 42 and 43 of this judgment, by cause of action estoppel from relying upon the Farm House charge as security for the Cottages loan. I would also remit to the County Court the question whether there was an enforceable contract in 2008 to the effect that CFB would not seek to enforce the Farm House charge so long as the instalments on the Farm House loan continued to be paid. The County Court will need to give directions about evidence and possible pleadings prior to the trial of that issue which needs to be resolved before further consideration is given to the enforcement of the Farm House charge. I would therefore suspend execution of the warrant of possession until further order in the County Court proceedings.

Lord Justice Underhill :

54. I agree.

Lord Justice Briggs :

55. I also agree.
>>> <<<