Andrew James Day (Claimant/Appellant) v Jeffrey Graham Shaw and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 17 January 2014 |
| Neutral Citation | [2014] EWHC 36 (Ch) |
| Docket Number | Case No: 2WM00078 |
| Court | Chancery Division |
| Date | 17 January 2014 |
[2014] EWHC 36 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Bristol Civil Justice Centre
2 Redcliff Street, Bristol, BS1 6GR
Mr Justice Morgan
Case No: 2WM00078
Mr M Selway (instructed by Powells with Chawner Grey) for the Claimant/Appellant
Miss D Brown (instructed by Alletsons) for the Defendants/Respondents
Hearing dates: 11 December 2013
Introduction
This is the Claimant's appeal from an order made by Deputy DJ Toussaint ("the District Judge") on 8 July 2013. On 14 October 2013, Judge Mc Cahill QC granted the Claimant permission to appeal. The Claimant/Appellant is Mr Andrew James Day and the Defendant/Respondents are Mr Jeffrey Graham Shaw and his wife, Mrs Patricia Ann Shaw.
In summary, the issue between the parties arises in this way. Mr and Mrs Shaw's home was a freehold property which they jointly owned. They granted a second charge over that property, in favour of Barclays Bank plc ("Barclays"). The property has now been sold, the sums due to Barclays have been paid and the resulting net proceeds of sale are held by the solicitors for Mr and Mrs Shaw, in accordance with an order of the court. The issue is whether Mrs Shaw is entitled to be indemnified by Mr Shaw in relation to her liability under the second charge and whether any such right to an indemnity is the subject of an equity of exoneration. Any such equity would produce the result of increasing the extent of her beneficial interest in the property and leaving Mr Shaw with no part of the net proceeds of sale. Mr and Mrs Shaw are agreed that Mrs Shaw should be indemnified in this way and should have such an equity of exoneration. However, Mr Day has obtained a judgment against Mr Shaw and has a final charging order over Mr Shaw's interest in the property in relation to that judgment debt. It is in Mr Day's interests to contend that Mrs Shaw is not entitled to the indemnity and the equity of exoneration which she asserts. The District Judge decided the issue in favour of Mr and Mrs Shaw and Mr Day now appeals.
Mr Selway appeared on behalf of Mr Day and Ms Brown appeared on behalf of Mr and Mrs Shaw.
The title to the property
In 1964, Mr and Mrs Shaw jointly purchased a house, 6 Lime Close, Locking, Weston-super-Mare. The house was transferred into their joint names and they were duly registered as proprietors at the Land Registry under Title No ST129055.
On 8 June 2001, Mr and Mrs Shaw charged the property to Cheltenham & Gloucester plc, which later became part of Lloyds TSB Bank plc ("Lloyds") and which duly registered its charge against the registered title to the property. Mr and Mrs Shaw accept that they are to be regarded, as between themselves, as equally liable for the sums due under this charge. Mrs Shaw does not claim any indemnity from Mr Shaw in relation to her share of the sums due under that charge nor any equity of exoneration in that respect.
On 4 March 2002, Mr and Mrs Shaw granted a second charge, this time in favour of Barclays. That charge was duly registered against the registered title to the property. Mrs Shaw contends that she is entitled to an equity of exoneration from Mr Shaw in relation to her liability under that charge with the result that the liability under that charge to pay monies to Barclays will fall first on Mr Shaw's share in the property before any part of that liability should fall on Mrs Shaw's share in the property.
The sale of the property
The property has now been sold. The proceeds of sale before costs and charges were £145,500. The costs of the sale were £2,921.00. The sum paid to Lloyds to redeem the first charge was £27,302.38. The sum paid to Barclays to redeem the second charge was £70,000; this was a negotiated figure which was less than the amount which Barclays originally asserted was due under the second charge. Without any equity of exoneration as claimed by Mr and Mrs Shaw, the net proceeds of sale of £45,276.62 would be divided equally between them and Mr Shaw's half share in the property would be represented by one half of that amount, namely, £22,638.31. Mr Day's charging order would capture that sum (as Mr Day's judgment debt plus interest exceeds that sum). Conversely, if Mrs Shaw is entitled to the equity of exoneration which she claims, then the £70,000 due to Barclays will have to be met first out of Mr Shaw's half share in that property. That half share of the proceeds of sale, after allowing for the costs of sale and payment of the sums due to Lloyds, but before any payment to Barclays, would be £57,638.31 and so it would be wholly used up towards payment of the sum due to Barclays and, in that event, Mr Day's charging order would have nothing to bite on.
The company
The charge in favour of Barclays came about because Barclays lent monies to its customer, Avon Independence Ltd ("Avon"). Avon had previously borrowed from the Royal Bank of Scotland but in 2002 it changed its bank and obtained new banking facilities from Barclays. Avon then owed to Barclays whatever it had previously borrowed from Royal Bank of Scotland and it seems that Avon thereafter continued to borrow further sums from Barclays.
At the trial before the District Judge, the evidence as to ownership and control of Avon was rather limited. It will be necessary later in this judgment to consider whether I should allow Mr Day to adduce evidence on that matter, which he did not adduce before the District Judge. At that point in the judgment, I will consider in more detail what evidence there was, and what there might have been, as to the ownership and control of the company. It will suffice at present to record that the District Judge proceeded on the basis that: Mr Shaw and the couple's daughter (Mrs Shergold) were directors of the company; Mr Shaw and Mrs Shergold ran the company; and Mrs Shaw was not a director of the company and was not directly involved in the running of the company.
The guarantee
On 4 March 2002, Mr Shaw and Mrs Shergold entered into a joint and several guarantee in favour of Barclays in relation to the sums owed by Avon to Barclays. The guarantee stated that the maximum amount for which the guarantors were to be liable was £30,000 plus interest and certain other costs and expenses. The District Judge accepted the evidence of Mr Shaw that from time to time after March 2002, when Barclays was asked to, and did, make further advances to Avon, Barclays asked Mr Shaw and Mrs Shergold to extend their liabilities under the guarantee to cover the further liabilities of Avon to Barclays and Mr Shaw and Mrs Shergold did so.
The mortgage
Also on 4 March 2002, Avon described as "the Principal Debtor" and Mr and Mrs Shaw described as "the Mortgagor" entered into the second charge in favour of Barclays, to which I have referred. By the charge, Avon covenanted with Barclays that it would pay on demand all monies which it owed Barclays. The Mortgagor covenanted with the Barclays that it would pay on demand all monies due owing or incurred to Barclays by the Mortgagor. Clause 22 of the charge further provided that a reference to the Mortgagor included each of two persons who comprised the Mortgagor. The covenant by the Mortgagor stated that it applied to any such liability, whether entered into solely or jointly with any other person and whether as principal or surety. In this way, Mr and Mrs Shaw covenanted that they would pay the sums due from Mr Shaw to Barclays, pursuant to the guarantee which Mr Shaw had entered into jointly with Mrs Shergold. Further, Mr and Mrs Shaw charged the property by way of legal mortgage with the payment of all monies and liabilities covenanted to be paid under the charge, whether by the Principal Debtor or by the Mortgagor. Accordingly, Mr and Mrs Shaw charged the property with: (1) the payment of the sums due from Avon to Barclays; and (2) the payment of the sums due from Mr Shaw to Barclays under the joint guarantee with Mrs Shergold. By clause 20 of the charge it was provided that as between the Principal Debtor on the one hand and the Mortgagor and the property on the other hand, the Principal Debtor should be primarily liable for the payment of the monies covenanted to be paid by the Principal Debtor.
Before the property was sold, Avon owed more than £70,000 to Barclays which it was unable to pay. At some point, Avon went into liquidation. A bankruptcy order was made in relation to Mrs Shergold on 29 November 2010. The only way in which Barclays would be paid would be from the proceeds of sale of the property. I do not know if Mrs Shaw at any time contended that the charge in favour of Barclays was not binding upon her by reason of the principles explained in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773. However, Mr and Mr Shaw agreed with Barclays that Barclays would restrict its claims against the property to £70,000 and, when the property was sold, that sum was paid to Barclays. The case was argued before me on the basis that the charge in favour of Barclays was a valid charge and that £70,000 was properly paid to Barclays under that charge.
The charging order
In 1997, Mr Day lent a sum of money to Mr Shaw and Mrs Shergold. The loan was repayable in 2007 but it was not repaid. Mr Day sued Mr Shaw and Mrs Shergold in the county court. The claim was defended but the defence failed. On 26 October 2010, Mr Day obtained judgment for £9,800 plus interest and costs, which together came to a sum in excess of £22,000. This sum was not paid by Mr Shaw or Mrs Shergold. Mrs Shergold petitioned for her own bankruptcy and she was made bankrupt on 29 November 2010. Mr Day says that he is unlikely to receive any dividend in her bankruptcy. Mr Day then proceeded to obtain a...
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