England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BRISTOL DISTRICT REGISTRY

		12th April 2000

MR. JUSTICE NEUBERGER

Introduction

1. The issue which I have to determine is whether the Legal Aid Board ("the Board") is entitled to a charge, pursuant to Section 16(6) and/or (7) of the Legal Aid Act 1988, over two pieces of freehold land ("the land"), which are part of Field Farm, Appleton, Gloucestershire ("the Farm"). The land consists of 33 acres ("the 33 acres") and 73 acres ("the 73 acres") respectively registered under Title Nos.: ON87380 and ON87389 at the Gloucester District Land Registry. The issue is of some difficulty and also of some significance.

The Facts

2. Colin, David, Margaret, Derek, Richard and Nigel Morgan ("the Morgans") traded as an agricultural partnership ("the partnership") on the 33 acres, owned by Margaret Morgan ("Margaret"), and the 73 acres, owned by Margaret, David and Colin Morgan ("the Claimants"). On 3rd October 1989, the Morgans entered into two legal charges ("the mortgages") with Barclays Bank PLC ("Barclays") whereby the Claimants covenanted to pay all monies owed to Barclays by the partnership on demand; by the first of the mortgages, Margaret charged the 33 acres, and by the second of the mortgages, the Claimants charged the 73 acres, to Barclays as security for the repayment of these monies.
3. On 31st July 1991, the Claimants purported to grant an annual tenancy ("the first tenancy") to S Morgan & Sons Ltd ("the Company") of the73 acres; on the same day, Margaret granted a tenancy ("the second tenancy") to the Company of the 33 acres. The following month, the Morgans dissolved the partnership and transferred the farming business to the Company.
4. On 7th August 1991, Barclays issued a writ out of the High Court against the Morgans for £818,266.25, being the amount then outstanding on the current account of the partnership. On 25th September, the Morgans served a Defence and Counterclaim in this action ("the first action"), whereby the Morgans claimed damages against Barclays for breach of contract, negligence and misrepresentation. During October 1991, Barclays issued a summons for summary judgment and also served a Reply and Defence to Counterclaim, to which the Morgans served a Reply on 18th December 1991.
5. On 31st January 1992, the District Judge ordered summary judgment in the first action in favour of Barclays in the sum of £500,000, but gave unconditional leave to the Morgans to defend as to the balance of Barclays' claim. The Morgans served a Notice of Appeal some seven days later. The appeal was heard on 20th May, 21st May and 2nd June 1992, and His Honour Judge Laurie gave the Claimants unconditional leave to defend, save that the Claimants were put on terms that they did nothing to devalue or prejudice Barclays' security; Barclays was given liberty to apply for judgment for £500,000 in the event that the tenancies were binding on it.
6. Meanwhile, on 12th May 1992, the Company had issued a writ out of the High Court against Barclays claiming a declaration that the Company was tenant under the first and second tenancy ("the tenancies") and that the tenancies were binding on Barclays as mortgagee of the land. Barclays served a Defence and Counterclaim in this action ("the second action") and joined the Morgans as parties to the Counterclaim. In their Defence and Counterclaim in the second action, Barclays alleged that the tenancies were shams or fraudulent devices, and in any event not binding on Barclays. On 19th February 1993, the Morgans and the Company served a Reply and Defence to Counterclaim in the second action.
7. On 2nd October 1992, Legal Aid was granted to the Claimants in the first action "to include continuing to defend [the] proceedings... up to but excluding trial". On 7th October 1992, the Claimants were each granted Legal Aid in the second action to "continue to defend the Counterclaim... up to but excluding setting down".
8. On 2nd April 1993, Barclays' solicitors telephoned the solicitors acting for the Morgans and the Company stating (according to the latter solicitor's note) "that Barclays will accept £230,000 in full and final settlement of the Morgan matters". This proposal was, in principle, acceptable to the Morgans, but they did not have sufficient assets themselves to be able to raise £230,000. In his affidavit, Mr Peter Williams ("Mr Williams"), the Morgans' solicitor says that it was:

"extremely difficult for them to obtain facilities with another Bank in order to fund the proposed agreement with [Barclays]. Further, where the opportunity to obtain funding existed, it was to provide facilities for the Company (which by this stage had established a trading record) as opposed to the Morgans themselves (who had no current trading record)".

9. There then followed negotiations as to the precise terms of the consent order then negotiated between the solicitors. On 21st July 1993, the solicitors acting for the Morgans wrote to Barclays solicitors stating that a provision in the agreed order "for the discharge of the [mortgages]" was "an absolute requirement on the part of the Morgans if they are to raise the finance to discharge the payment to [Barclays]". In their reply, Barclays' solicitors agreed "that the security be released" but:

"only when you confirm to us that you hold the sum of £200,000 in your client account and that upon discharge of the security the same will be sent to use by telegraphic transfer."

10. The bank which was prepared to provide facilities to the Company was Clydesdale Bank PLC ("Clydesdale"), but, according to Mr Williams, Clydesdale's offer of funds to the Company was:

"on condition that the Company acquired the freehold interest in the... land so that the security which Clydesdale would be able to take would be against the freehold land rather than the leasehold interest".

11. The negotiations through the solicitors to settle the two actions, and the attempts to obtain funding from Clydesdale both proved successful. Accordingly, the Morgans, the Company and Barclays entered into two orders ("the consent orders") in "Tomlin" form disposing of the first and second actions. The order in the second action was agreed on 9th August, and was passed and entered on 12th August, 1993. In summary, this provided as follows:

(1) The Morgans and the Company were to pay Barclays £200,000 on 9^th August 1993

(2) The Morgans and the Company were to pay Barclays £30,000 by 1st December 1993;

(3) If and when the £200,000 was paid, Barclays would enter into an agreed form of compromise of the first action in full and final settlement of all claims and, in particular, "Barclays would undertake to do all acts necessary to release the land from the [mortgages]".

(4) If the instalment of £30,000 was not paid, Barclays was entitled to sue for it.

(5) Each party was to bear its own costs, but there was to be Legal Aid Taxation of the costs of each of the Morgans.

12. On the same day, 9th August 1993, Margaret transferred the 33 acres to the Company for £150,000, and the Claimants transferred the 73 acres to the Company for £80,000. The Company contemporaneously granted a mortgage over the land to Clydesdale, as security for the Company's borrowing from Clydesdale, and in particular the £230,000 which Clydesdale was advancing to the Company to enable it to pay for the two transfers of the land. This money was then used, as I understand it, by the Claimants to pay the £230,000 due to Barclays under the terms of settlement of the second action.
13. The £200,000 having been paid to Barclays pursuant to the settlement of the second action, Barclays, the Company and the Morgans entered into the consent order to dispose of the first action, on 16th August 1993. The terms upon which the first action was compromised effectively mirrored those of the second action. The parties have complied with their respective obligations under the consent orders.
14. When the Company was acquired in 1991, Richard and Nigel Morgan each held one of the two shares issued by the Company. Immediately following the settlement, further shares were issued so that Richard, Nigel, Colin and David Morgan each had five shares and Derek Morgan had four shares. I understand that that remains the position today.
15. The Board and the Claimants have each issued an application for a determination as to whether, as a result of the terms of the consent order, the Board has a charge over the land.

The Statutory charge

16. It is common ground that the Board funded the legal costs of the Claimants in both actions, and that, in this connection, the Board has paid £66,871.36 in relation to the first action, and £8,739.77 in relation to the second action, which it has not recovered. The issue between the parties is whether the Board is entitled to a charge over the land, i.e the 33 acres and the 73 acres, by virtue of Section 16(6) and/or 16(7) of the 1988 Act. Although the land is now owned by the Company, it is the Claimants rather than the company who are ultimately interested in this issue, because, in their respective transfers to the Company on 9^th August 1993, Margaret (in the case of the 33 acres) and the Claimants (in the case of the 73 acres) respectively gave covenants for title in favour of the Company.
17. Section 16 of the 1988 Act provides, so far as relevant, as follows:

"(6) Except so far as regulations otherwise provide-

(a) ...

(b) a sum equal to any deficiency by reason of [a person's] total contribution being less than the net liability of the Board on his account,

shall be a first charge for the benefit of the board on any property which is recovered or preserved for him in the proceedings.

(7) For the purposes of sub-section (6) above it is immaterial what the nature of the property is and where it is situated and the property within the charge includes the rights of a person under any compromise or settlement arrived at to avoid the proceedings or bring them to an end and any sums recovered by virtue of an order for costs made in his favour in the proceedings..."

There is nothing of relevance to the present dispute in the regulations.

The Board's case

18. The Board's case, as presented on its behalf by Miss Jane Collier, may be summarised in the following propositions:

(1) It is accepted that, in a case to which Section 16(6) alone applies, "property" can only normally be treated as "recovered or preserved...in the proceedings" if it was in issue in the proceedings;

(2) However, the present case is within Section 16(7) because it involved a "compromise or settlement" of each of the two actions;

(3) Accordingly, the Board's rights under Section 16 can extend to any right in property, which, although not in issue in the proceedings, was included as part of the settlement or compromise agreement;

(4) Property belonging to a legally aided person which was subject to an encumbrance, but which is released from the encumbrance, is property which is "recovered" within the meaning of Section 16(6), and therefore is within the ambit of Section 16(7);

(5) As the land was subject to the mortgages in favour of Barclays until the settlement agreements in August 1993, as the terms of the settlement agreements specifically provided that Barclays would release the land from the mortgages, and as the land was owned by the Claimants who were legally aided, the effect of Section 16(7) is to give the Board a charge over the land in respect of its unrecovered costs in the first and second actions;

(6) The fact that the land was transferred to the Company in no way affects this conclusion.

Common ground

19. So far as the first of these propositions is concerned, it is not in dispute. Where proceedings go to judgment (i.e. are not compromised or settled), then property can only fall within Section 16(6) "if it has been in issue in the proceedings-recovered by the claimant if it has been the subject of a successful claim, preserved to the respondent if the claim fails", per Lord Simon of Glaisdale in Hanlon -v- The Law Society [1981] A.C. 124 at 180F-G. Lord Simon went on to say this at 180G-H:

"In property adjustment proceedings, in my view, it is only property the ownership or transfer of which has been in issue which has been "recovered or preserved" so as to be the subject of a legal aid charge. What has been in issue is to be collected as a matter of fact from pleadings, evidence, judgment and/or order. I can see no reason for extending the words to items of property the ownership or possession of which has never been questioned."

20. The Board accepts that it follows from this that, if either or both actions had gone to judgment, in which case Section 16(6) would have applied, the Board would have had no right to a charge over the land, because the question of its ownership or possession had not been at issue, at least as between the Claimants and Barclays. In particular, there was no challenge to the Claimants' freehold ownership of the land, or as to the validity of the mortgages over the land. It is true that, if the counterclaim in the first action had succeeded, the amount charged on the land would (albeit as an indirect consequence) have been reduced or even, conceivably, extinguished. It is true that Barclays' right to possession of the land as against the Company (rather than as against any of the Morgans) could be said to have been in issue in the second action. However, neither of these points is relied on by Miss Collier to suggest that the Board could have claimed a charge over the land under Section 16(6) if the actions had gone to judgment.
21. The second proposition is self-evidently correct.
22. As I understand it, Mr. Stephen Jourdan, who represents the Claimants, does not dispute the fourth of the propositions. He accepts that, where the question of whether or not land owned by a person should be released from a mortgage is in issue in proceedings, and the Court orders the release, then the land would be "recovered or preserved for" that person, within the meaning of Section 16(6). That would appear to accord with the reasoning and decision in Jones -v- Frost (1872) L.R. 7 Ch. App. 773. That case was decided under Section 28 of the Solicitors Act 1860, which provided a solicitor with a lien over his client's property in certain circumstances. The wording of that provision, referring as it did to "property recovered or preserved", and the purpose of that provision, were similar to the wording and the purpose of section 16 of the 1988 Act.
23. In Jones at 777, James LJ said this:

"I am of opinion that the property was property recovered by the instrumentality of the solicitor. It was freed from that charge... which affected it, by the suit; and therefore the solicitor is entitled to the charge he asks for."

24. It seems clear from what Lord Simon said in Hanlon at [1981] A.C. 180D-H that cases on provisions such as Section 28 of the 1860 Act "are of value" when considering the effect of Section 16 of the 1988 Act. However, at 177A he said that the "liberal approach to construction [of the Solicitors Acts] is not appropriate for a charge for a social service" where the words should be accorded their "ordinary sense which is appropriate in the context"; I also note that Lord Lowry doubted the value of subjecting cases under the Solicitors Acts to "detailed analysis" in this context- see at 190E. Even taking into account these latter observations, I consider that the reasoning of James LJ in Jones applies to cases under Section 16 of the 1988 Act.

The main issue: the relevance of the land not having been in issue in the actions: the approach in principle

25. The first and main issue is whether the third and fifth propositions are correct. In this connection, it seems to me (and I believe that it is common ground) that, subject to the sixth proposition, the fifth proposition follows if the third and fourth propositions are correct, and, as I have indicated, the Claimants do not dispute the fourth proposition. It is for this reason that, as I see it, the third and fifth propositions can effectively be considered together.
26. Ultimately, what has to be determined is the effect of Section 16(7), extending, as it does, the charge under Section 16(6) to "the rights of a person under any... settlement arrived at to [bring] the proceedings... to an end", on the fact that the consent orders included a provision that the land was to be released from the mortgages. Miss Collier argues that the words in Section 16(7) are unqualified and, as the land was "recovered or preserved" in the consent orders, the Board has a charge over it. Mr. Jourdan contends that, as the land was not "in issue" in either of the actions, the effect of Section 16(7), when read together with Section 16(6), is that the Board enjoys no such charge. Considering that issue free of authority, I am of the opinion that, while it is by no means an easy problem to resolve, the Board's charge under Section 16 does not extend to the land.
27. It seems to me that Section 16(7), in so far as it is dealing with compromises or settlements, is essentially directed towards extending the scope of Section 16(6) to substitutions, i.e. to property which is included in the terms of settlement and which, while not in issue itself, in some way represents or replaces property or, I believe, rights, in issue. To take a simple example, if a legally aided claimant was seeking to recover £200,000 from a defendant, and the claim was compromised by the defendant transferring a house to the claimant, the effect of Section 16(7) would be to ensure that the Board's charge would extend to the house even though there would have been no question of the house being in issue in the proceedings: absent Section 16(7), it would fall outside the ambit of Section 16(6). It is true, as Miss Collier argues, that there is no express qualification in Section 16(7) to the general words "rights of a person under any ... settlement arrived at to [bring] the proceedings...to an end". However, those words cannot be construed in isolation. Indeed, they do not merely take their colour from Section 16(6); they are governed by the words "for the purposes of sub-section (6)", and they are specifically introduced by the words "the charge includes", which also takes one back to Section 16(6), and its scope.
28. As I have mentioned, Section 16(6) has been interpreted by the House of Lords in Hanlon [1981] AC 124 as being limited to property "in issue in the proceedings". In those circumstances, it seems to me legitimate, indeed appropriate, to treat the relevant words of Section 16(7) as applying to property which, as part of the settlement, has been recovered or preserved by the legally aided person, either because it was in issue in the proceedings or because it was, directly or indirectly, substituted in whole or in part for such property as part of the settlement. Such an extension is necessary in the case of settlements because, unlike where a case goes to judgment, parties are free to include terms in the order which extend to property and rights not "in issue" in the litigation. While one can easily see why it is appropriate to extend the charge to substitutions, it is hard to discern any justification in extending the charge to assets which, while included in the overall agreed terms, are really extraneous, or no more than incidental, to the issues in the proceedings in respect of which legal aid has been granted.
29. If this approach is correct, then, where a legally aided person settles an action, and the Board contends that it is entitled to a charge over property which is recovered or preserved by the legally aided person as part of the settlement, a two stage process may be involved. The first stage is the same as the process involved in a case which goes to judgment, namely to consider whether the property concerned was in issue in the proceedings. If it was, then no further inquiry is needed: subject to any special factors, the Board has a charge over it. If the property concerned was not in issue in the proceedings then one moves to the second stage: the Board will nonetheless be entitled to a charge over it if it can fairly be said that the property concerned was effectively recovered or preserved by the claimant in substitution for property (or even, I believe, rights) in issue in the proceedings. In most cases, I believe that this second stage will be relatively easy, and, at least in general, it should not raise any greater difficulties than the first stage. In some cases, however, more detailed investigation may be required. However, a risk of a more detailed investigation of the facts surrounding a settlement seems to me to be inherent in what is envisaged by the relevant part of Section 16(7) in any event. In a case which goes to judgment, one would normally not expect to look further than the "pleadings, evidence, judgment and/or order" as Lord Simon said. However, where the parties have settled the action, then, as I see it, irrespective of how widely one construes the relevant words of Section 16(7), it may in some cases be necessary to consider matters more widely. Thus one may have to investigate whether, at the same time the parties entered into the consent order, they also agreed other terms, not included or even referred to in the order, which conferred other benefits on a legally aided party, which included property being preserved or recovered by him.
30. In other words, as I read Section 16(7), where proceedings to which a legally aided person have been settled, one should look at all the terms of settlement and, in some cases the negotiations leading up to the settlement (and not merely the formal order recording settlement and documents referred to in it). One then considers what property can be said to have been preserved or recovered by the legally aided party, and one then asks whether that property was either in issue in the proceedings, or can be said to have been substituted in some way for rights, property or claims which were in issue in the proceedings. That appears to me to be the proper construction of the relevant provision in Section 16(7), if one reads it in the context of Sections 16(6) and 16(7) as a whole, particularly in light of the way in which Section 16(6) has been interpreted by the House of Lords.

The main issue: application of the approach in this case

31. Applying that approach to the present case, one starts with the agreed position that the land was not in issue in either of the actions, and that, therefore, subject to Section 16(7), the land would not fall within the scope of the Board's charge under Section 16(6). It is then necessary to consider whether the release of the land from the mortgages was in substitution for any rights, claims or property which were in issue in the first or second action. It might be argued that any benefit accorded to a legally aided person (whether it is preserved or recovered) as part of a settlement, either must have been in issue in the proceedings concerned, or, almost by definition, it must have been in substitution for something in issue in the proceedings, as otherwise it would not have been accorded to the legally aided person as part of the settlement. In most cases where property has been recovered or preserved by a legally aided person as part of a settlement, that argument would, I expect, be unanswerable, but in some cases, it would not. An example might be where the terms of settlement extend not only to what was in issue in the proceedings in question, but also to another dispute or potential dispute which existed between the parties but which had not yet become litigious (or which even had been the subject of other proceedings).
32. In the present case, the issue in the first action was the amount, if any, owed by the Morgans to Barclays after the Morgans' counterclaim and set off was taken into account (or, indeed, the amount Barclays owed to the Morgans if their counterclaim exceeded their overdraft); the issue in the second action was the status of the tenancies, and whether they were binding on Barclays. The terms on which the actions settled was that the Morgans (and, indeed, the Company) agreed with Barclays that the claims and counterclaims would be compromised on terms that the Morgans paid Barclays £230,000 by two instalments in full and final settlement of the claims and counterclaims in the two actions. Whether or not anything had been said about the mortgages, it seems to me that it was an inevitable consequence of that settlement that the mortgages would be discharged, albeit only once the agreed amount owing to Barclays had been paid in full. In those circumstances, it appears to me that there is considerable force in the argument that the fact that the land was released from the mortgages is no more than an inevitable by-product of the settlement, that it is something which would have happened in any event. That is, I think, demonstrated by the fact that, if the Court had decided in the first action that, after taking the Morgans' counterclaim into account, the amount owing to Barclays was £230,000, then, as soon as that sum had been paid to Barclays, the land could have been released from the mortgages, and, as is accepted by Miss Collier, in those circumstances no charge could have been claimed over the land by the Board pursuant to Section 16(6).
33. There are, however, as I see it, two reasons for contending that the Board should nonetheless be entitled to a charge over the land. The first is that the release of the land from the mortgages is actually referred to in the agreed orders. The second is that Barclays agreed to bring forward the date on which the land was released from the mortgages: rather than releasing the land on receipt of the whole of the agreed £230,000, the release was to occur on receipt of the first instalment of £200,000. So far as the point is concerned, it seems to me that it involves contending that form should triumph over substance. If it had simply been agreed or determined that Barclays should be paid £230,000 in full and final settlement of both actions, that would not have involved the charge arising over the land in favour of the Board, even though the consequence would have been that the land was freed of the mortgages. In those circumstances, the mere fact that the parties have expressly agreed in the order to give effect to that, that consequence should not, in my judgment, alter the position. As to the second point, if it had been agreed that release of the land from the mortgages immediately after payment of the whole £230,000 would not give rise to a charge over the land in favour of the Board, it seems to me that it would be very unlikely that the legislature could have intended that a wholly different result attained merely because the release of the mortgages took place a little earlier. Further, the only reason that the release of the land from the mortgages was expressly provided for and accelerated in the judgment, was to enable the parties to settle the action, as Mr Williams explains in his affidavit.
34. The main issue: the authorities
35. That is the conclusion I would reach if the matter were free of authority. However, there are a number of authorities which have been referred to by counsel on this issue, and which plainly merit consideration.
36. The decision upon which Miss Collier principally relies is that of Balcombe J in van Hoorn -v- The Law Society [1985] 1 QB 106. That case involved a dispute between the widow and children of the deceased, and the deceased's mistress. The principal assets in the estate of the deceased were a house and a hotel, and his executors brought an action for possession of the hotel against the widow and her son. That action succeeded, and the appeal of the widow and her son was compromised on terms that she surrendered her interest in the hotel but acquired an absolute interest in the house. The issue was whether the Board had a statutory charge over the house, given that the widow was legally aided and, although not in issue in the proceedings, the house had been "recovered or preserved for [her]" under the terms of the settlement. At 114D-E, Balcombe J said:

"I can see no reason, simply as a matter of the language used, for limiting the "rights under any compromise" in sub-section (7) to rights in property which has been in issue in the proceedings. Indeed, if a compromise is made "to avoid" proceedings - i.e., is made after legal aid has been granted, but before the proceedings have been commenced - it may not be possible, using the tests propounded by Lord Simon of Glaisdale and Lord Scarman in Hanlon ... to determine what property would have been in issue had the proceedings been commenced. Yet sub-section (7) clearly includes rights under a compromise arrived at to avoid the proceedings as being within the charge for the benefit of the legal aid fund."

37. At any rate on their face, those observations do appear to provide support for the broad way in which the Board puts its case here, and in particular for the third and fifth of Miss Collier's propositions. However, I am not persuaded that the reasoning I have quoted from van Hoorn should dissuade me from reaching the conclusion indicated above.
38. First, the observations of Balcombe J are not actually inconsistent with the conclusion I would have reached free of authority. I accept that any property which was recovered or preserved by a legally aided person under the terms of a settlement can be subject to the Board's charge, if its recovery or preservation was in some way in substitution for property (or even, I suspect claims) in issue in the proceedings. It does not appear to me that the distinction between property recovered or preserved as part of a settlement which was in substitution for property in issue in the proceedings, on the one hand, and, on the other hand, property which was wholly extraneous or incidental to what was in issue in the proceedings was raised in argument before Balcombe J (in this connection see the argument for the widow at 108F-109D). Indeed, given that a close analysis of the facts of that case is not possible (at least on the basis of the report), it may well be that the house was indeed recovered or preserved by the widow in van Hoorn in substitution for property or rights which were in issue in the proceedings.
39. Furthermore, unlike Balcombe J, I do not derive much assistance from considering the effect of a settlement reached before the action is even brought. As was pointed out by Lord Simon in Hanlon, one looks, among other things, at the Legal Aid Certificate to discover what property is "in" issue. If by the time the dispute is settled, there are no pleadings, no doubt one also looks at the application for legal aid, together with any documents accompanying the application, in order to decide what was "in issue" in the dispute for which legal aid was granted.
40. It seems to me that there is also force in Mr Jourdan's contention that two decisions of the Court of Appeal appear to have proceeded on the assumption that the decision in van Hoorn (at least as interpreted by Miss Collier, and I shall call this "the van Hoorn approach") was wrong. In Curling -v- The Law Society [1985] 1 WLR 470, the issue in the proceedings had been whether the wife, who had an undisputed interest in the matrimonial home, should be entitled to an order for sale. Her claim (together with other issues) was settled on the basis that the husband aid her £15,000, and the issue was whether the Board had a charge over that sum in respect of the wife's costs, because she was legally aided. On the van Hoorn approach, the point would have been obvious: the £15,000 had obviously been "recovered" by the wife. That is not the basis upon which the case was argued or decided. In the leading judgment, Neill J said this at [1985] 1 WLR 477G-478A:

"It is true that the sum of £15,000 merely represented [the wife's] agreed share of the proceeds of sale. The question is whether the party's right to recover the property has been in issue in the proceedings and for this purpose I can see no reason to limit the relevant issue to that of ownership alone. The Judge took the view that the wife recovered the £15,000 in the proceedings because she achieved an immediate or at any rate an accelerated right to her share in the proceeds of sale. He referred to the mention made by Lord Simon of Glaisdale in Hanlon's case of both ownership and possession. I agree with the Judge."

41. In other words, even though the £15,000 had undoubtedly been recovered by the wife under the consent order, it was still necessary to ask whether it was in issue in the proceedings or represented something in issue in the proceedings.
42. Oliver LJ, who agreed with Neill J, said this at 482B:

"Speaking only for myself,... I would hold... that (apart from such unusual circumstances as one finds for instance in van Hoorn....) there is no different criterion applicable to what is property recovered or preserved for the purposes of sub-section (6) from that which is applicable to such property for the purpose of sub-section (7)".

43. That passage is interesting for two reasons. First, by equating the approach of the Court under the two sub-sections, it appears to me to be consistent with my conclusion that one effectively asks the same sort of question in relation to whether property was "in issue" under Section 16(7) as one does in relation to Section 16(6). Indeed, I consider that the discussion in the judgment of Oliver LJ from 482H-483E is consistent with the approach I have suggested, rather than the van Hoorn approach. Thus, in connection with the question he had to decide in Curling, Oliver LJ quoted the same passage from the speech of Lord Simon in Hanlon [1981] AC 124, 180G-H as I quoted above, and he went on to describe the £15,000 as "the monetary equivalent of her interest" -see at 483F. Secondly, Oliver LJ appears to have thought the facts of van Hoorn "unusual"; it is a matter of speculation what he had in mind in this connection. It could have been that there was property included in the settlement which was not in issue in the action, but, if that was the case he would have reached his conclusion in Curling itself much more shortly and easily, one would have thought. Of he could have concluded that van Hoorn was a case of substitution. Or he may have been politely leaving open the question whether van Hoorn had been rightly decided for another occasion. I accept that it is conceivable that he could have been approving van Hoorn, so I do not propose to draw any specific assistance from that aspect of Oliver LJ's judgment.
44. The second decision of the Court of Appeal which seems to have proceeded on the assumption that the van Hoorn approach was wrong is Parkes -v- The Legal Aid Board [1997] 1 WLR 1547. In that case, the defendant was granted legal aid to defend a claim for possession and sale of a house she owned jointly with the plaintiff, with whom her relationship had broken down. The action was settled on the basis that the defendant could remain in the house until a certain date, provided she paid the mortgage instalments. The Court of Appeal, upholding the Judge, concluded that the Board had a charge over the defendant's beneficial interest in the property. Again, given that the property was included in the consent order, and she clearly had retained the right to possess it, it would seem that, on the van Hoorn approach, the defendant would have had no case. However, although van Hoorn was cited (see at 1548E) the Court of Appeal reached its decision by reference to the reasoning of Lord Simon in Hanlon and of Neill J and Oliver LJ in Curling. Dismissing the cross appeal, Waite LJ (who gave the only reasoned judgment) said that the Board could not succeed on the basis of one its arguments, because "the beneficial interests were not in issue": that would be irrelevant on the Board's case here. The same point may be made about the reasoning of the Judge which is summarised at 1555H-1556C, and which Waite LJ described as "entirely correct" at 1557E.
45. Another decision of the Court of Appeal to which I should refer is McKay -v- Legal Aid Board (unreported, 23rd January 1997). In that case, a legally aided defendant had successfully applied for judgment against him to be set aside, but on terms that he had to pay some £3,000 into Court. Thereafter, although he filed a defence, he let matters lie, so the judgment was entered against him, and the plaintiffs took the money out of Court. The defendant successfully applied to have the judgment set aside, and the plaintiffs had to pay the money back into Court. The action was then compromised on terms that included the money in Court being paid out to the defendant. The question is whether that money was "recovered or preserved" by the defendant, so that it was subject to a charge in favour of the Board. The Court of Appeal held that the money was not subject to the charge. In the leading judgment, Ward LJ said that the answer to the question "was the money in Court recovered or preserved" "depends on whether it had been in issue" (see page 6 of the transcript). He went on to indicate that the answer to that question depended on identifying "the proceedings in which [the defendant] was represented with the benefit of civil legal aid" (see page 7 of the transcript). At the bottom of page 9 of the transcript, having referred to Re Wadsworth, Rhodes -v- Sugden (1885) 29 Ch D 517, he said this:

"Although it may be difficult to see that if money is saved from a peril which once afflicts it, it is not money preserved, but the point of the judgment, as I understand it and with which I agree, is that money paid by way of security for costs cannot in any sense be described as monies which were the subject of the proceedings in issue."

46. Leggatt LJ agreed with Ward LJ. Pill LJ agreed in the result. At page 11 of the transcript he said that "in most cases a reference to the Legal Aid Certificate will determine the extent of the charge."
47. Two points, which in a sense are different sides of the same coin, may be made about McKay. First, even where it can be said that property has been "preserved or recovered" by a legally aided person as part of a settlement, that does not automatically mean that it falls within the ambit of Section 16(7). One still has to decide whether it can be said that the property was in any meaningful way "in issue" according to the test laid down in Hanlon, or, I would respectfully add, whether it can be said to have been in substitution for such property. Secondly, the decision does not seem to me to be consistent with the van Hoorn approach. The only way in which the two decisions can be reconciled, so far as I can see, is on the basis that there is a difference between money and other property. It is fair to say that some observations in the judgment of Ward LJ could be invoked to support the view that his decision was influenced by the fact that it was money which was at stake. However, it seems to me that the main thrust of his reasoning (and indeed that of Pill LJ) does not seem to me to be dependent on that feature.
48. I do not know whether van Hoorn was cited to the Court of appeal in McKay, but I presume that the Board would have referred to it if it had been considered relevant. I note that counsel representing the Board was the same counsel as represented the Board in Parkes [1997] 1 WLR 1547, and, as I have mentioned, van Hoorn was cited in that case.
49. In these circumstances, although I accept that, at least on one reading, my conclusion is inconsistent with the decision of Balcombe J in van Hoorn, it appears to me that a proper analysis of the relevant cases seems to be consistent with the conclusion I have reached on the basis of the way in which the Statute is worded.

The second issue: Was there recovery or preservation "for" the Claimant?

50. This issue, which concerns the correctness of the sixth proposition, does not arise if my conclusion on the main point is correct. However, I should briefly deal with it, as it was fully argued and this matter may go further. Mr. Jourdan says, on behalf of the Claimants, that the land was in any event not recovered or preserved for the claimants, but for the Company, which did not, of course, receive Legal Aid. Accordingly, runs the argument, the land cannot fall within the Section 16 charge at all.
51. Miss Collier's first argument in this connection is that there was a scintilla temporis, a notional moment, between the release of the mortgages in favour of the Claimants and the transfer of the land to the Company on 9^th August 1991. Therefore she says that the Claimants did recover or preserve the land albeit they at once transferred it to the Company. I reject that point. First, the technical argument cannot, in my view, stand, even as a matter of theory, in the light of the reasoning of the House of Lords in Abbey National Building Society-v- Cann [1991] AC 56, where the reasoning of the Court of Appeal in Church of England Building Society-v-Piskor [1954] Ch 553, upon which Miss Collier's argument seems to me to rely, was expressly overruled. Lord Oliver of Aylmerton described the scintilla temporis as "no more than a legal artifice" which "flies in the face of reality" and rejected it (see at 92E-93C). Lord Jauncey of Tullichettle took the same view (see at 102A-C).
52. Secondly, whether property has been recovered or preserved for a legally aided person is not, I think, to be determined by reference to technicalities, let alone legal artifices, but by looking at the realities. This certainly seems to have been the view of the Court of Appeal in Manley-v-The Law Society [1981] 1 WLR 335-see especially per Lord Denning MR at 346C-F and Ormrod LJ at 351E-F. In the latter passage one finds this:

"[T]he court should adopt the broader approach and construe the phrase "property...recovered or preserved" looking at the reality of the matter rather concentrating exclusively on the form of the transaction, particularly when the court is concerned with a compromise."

53. Miss Collier's second argument adopts the approach in Manley: she contends that the reality of the matter is that, while the land has, as a result of the consent orders, ended up with the Company, the Claimants or the Morgans, or at least those with an interest in the Company, have really preserved or recovered the land free of the mortgages, and that the Section 16 charge therefore bites on the land.
54. Mr. Jourdan argues that this is not a permissible conclusion particularly in the light of the fact that the evidence of the Claimant's solicitor, Mr. Williams, was not challenged. He says that it is clear that there would have been no settlement without the land passing to the Company, as it was only the Company, not the Claimants, who could raise the money to settle with Barclays, and the Company needed the land as security for that money.
55. I must confess to finding this a difficult issue to resolve. Subject to one point, the reality appears to me to have been that the overall effect of the settlement on the Claimants was that they sold the land free of the mortgages, but the money they received for the sale was not retained by them: it was all paid to Barclays. Accordingly, possibly unless the transfers of the land to the Company were at an undervalue, the Claimants have not in reality recovered or preserved the land or the proceeds of sale thereof. If the sales were at an undervalue, then I think that there might be an argument open to the Board to the effect that, in reality, the Claimants recovered something which they chose to forego in favour of the Company. However, if such an argument is to be mounted, the fact that the transfers were at an undervalue would have had to have been agreed by the Claimants or established by cross-examination.
56. I mentioned that this view was subject to one point. Given that two of the three Claimants (i.e. other than Margaret) acquired shares in the Company at the same time as the actions were settled, there may have been room for argument that this gave rise to a charge over their shares in the Company. Miss Collier did not pursue such an argument, and in my view rightly so. First, as there was no evidence that the Company had acquired the land at undervalue, it would have been difficult for the Board to get any such argument off the ground so far as the land was concerned. Further, apart from the fact that the shares were not raised in the applications before me, there would not only have had to have been valuation evidence, there would probably have had to have been cross-examination as to the basis upon which, and the consideration for which, they were allotted.
57. In the event, therefore, it seems to me that the Claimants are also correct in challenging the sixth proposition. Accordingly, even if I had concluded that the land would have been subject to a Section 16 charge, if it had been retained by the Claimants, I would nonetheless have found against the Board on this alternative ground.

Conclusion

58. In these circumstances, it seems to me that I must allow the Claimants' application and dismiss the Board's application. Given that the Claimants are legally aided, I do not believe that any order for costs is appropriate, save that there should be Legal Aid assessment of the Claimants' costs. The question of permission to appeal has already been raised. Before they knew my decision, both the Claimants and the Board accepted that whoever lost should be given permission to appeal. My impression at the end of the argument was that this case was one where permission to appeal should be given. Having considered the matter now in a little more detail, I remain of that view.
59. I am grateful to both counsel for their well-presented arguments. In the event, I determine that the Board does not enjoy a charge over the land pursuant to Section 16 of the Legal Aid Act 1988. I make no order for costs save for Legal Aid assessment of the Claimant's costs, and I grant the Board permission to appeal.