Angeli Kotonou and Another v National Westminster Bank Plc

THE DEPUTY JUDGE:

This is a judgment in proceedings to which CPR part 8 applies. The claimants are Mr. A.L. Kotonou and Mrs. D.A. Kotonou, his wife; and the defendant is National Westminster Bank Plc.

These proceedings are no more than ancillary to much more substantial proceedings under CPR part 7 (which I shall refer to as "the guarantee proceedings") in which the bank has sued Mr. Kotonou as guarantor of the indebtedness of Olympic Resources and Services Plc to the bank. That company, which I shall refer to as "ORS", was the holding company in a large group of companies which collapsed in 2002 and the ensuing two years.

The guarantee was executed by Mr. Kotonou on 12 ^th July 2001, and it covered the liability of ORS to the bank under a written loan agreement of the same date. Under that loan agreement the bank advanced to ORS £425,000 repayable within 12 months, subject to earlier demand following any event of default. The guarantee expressly covered all monies owing to the bank by ORS, but it is common ground that it was intended to cover, and does only cover, the indebtedness under the loan agreement.

The guarantee provided that the maximum recoverable under it – and whether in relation to principal, interest or costs – should be £425,000 plus any interest on amounts demanded under the guarantee from demand until payment.

An event of default occurred in the form of the liquidation of one of the companies in the Olympic group, and demand under the loan agreement was made on 13 ^th February 2002. No repayment has at any time been made.

Pertinent to the part 8 proceedings which is the subject of this judgment, and as security for the due fulfilment by Mr. Kotonou of his obligations to the bank under the guarantee, Mr. and Mrs. Kotonou executed on 13 ^th July 2001 a legal mortgage of their matrimonial home, "Domani", in Mount Park Road, Harrow on the Hill, Middlesex. These proceedings involve a dispute in relation to the proper interpretation of this legal mortgage —and it is because this interpretation is unaffected by the substantial issues of fact in the guarantee proceedings that I have been requested, and felt able, to deliver judgment ahead of the judgment in the guarantee proceedings.

All I need say about the guarantee proceedings is that Mr. Kotonou defends the bank's claim in its entirety on a number of bases, that the trial has involved a considerable amount of documentary and oral evidence extending over nine days, and that judgment in those proceedings is not expected to be given by me until some time after the Easter vacation.

For reasons which will be apparent, it will be of value to Mr. Kotonou to have an early answer to the questions which arise on the interpretation of the legal mortgage. And at his counsel, Mr. Wormington's request —there being no objection by Mr. Gourgey QC, counsel for the bank —I have agreed to deliver judgment today dealing with those questions.

I should add that these part 8 proceedings were ordered to be, and were, heard at the same time as the guarantee proceedings, but of the nine days of trial I would estimate that they occupied the court for no more than an hour or so.

In order to set the scene for the issues of construction under the mortgage, I must set out the relevant clauses of the mortgage. It was made between Mr. and Mrs. Kotonou, defined as "the mortgagor", of the one part and the bank of the other part. All I need to quote are the first three clauses, although I shall add the first sentence of clause 16 for the sake of completeness.

"1 If the expression 'the Mortgagor' includes more than one person it shall be construed as referring to all and/or any one or more of those persons and their obligations shall be joint and several and none of them shall be released from liability hereunder by reason of this Mortgage ceasing to be a continuing security as regards any other or others of them.

2 Where there is more than one person comprised in the term the Debtor reference to the Debtor shall where the context admits take effect as reference to such persons or any of them and where the Debtor is a firm shall include the person or persons from time to time constituting the firm whether or not under the same style or firm name and generally where the context so admits the singular will include the plural.

The mortgagor with full title guarantee charges by way of legal mortgage all and every interest in or over the property described above which the Mortgagor now or hereafter has power so to charge and charges in equity all other interests therein (the Mortgaged Property) and the proceeds of sale thereof and charges to the Bank, all moneys to be received under any policy of insurance effected in respect of the Mortgaged Property as a continuing security to the Bank for the discharge on demand by the Bank on the Mortgagor of all present future actual and/or contingent liabilities of:-

Angeli (known as Angelos) Luki Kotonou of Domani Mount Park Road, Harrow on the Hill, Middlesex, Company Director

(the Debtor) to the Bank whether on account of moneys advanced bills of exchange promissory notes guarantees indemnities interest commission banking charges or otherwise and whether incurred solely severally and/or jointly and all legal and other expenses (on a full indemnity basis) howsoever incurred by the Bank in connection therewith and so that as against the Mortgagor interest shall be deemed to continue to accrue and be a liability of the Debtor hereby secured notwithstanding that for any reason interest may have ceased to accrue against the Debtor.

Provided that the total amount recoverable in relation thereto under this Mortgage shall not exceed

Four Hundred And Twenty Five Thousand pounds

or the equivalent thereof at the date of demand on the Mortgagor in one or more currencies (the equivalent of any amount not expressed in Sterling being assessed by reference to the Bank's spot rate of exchange at the time of demand hereunder)

and in addition for the payment of interest on the foregoing day by day from demand hereunder until full discharge such interest to be chargeable at the rate of interest payable or deemed to be payable by the Debtor (whether before or after judgment) and for the payment of the Bank's costs and expenses (on a full indemnity basis) incurred in connection with the enforcement of this Mortgage. Such interest will be calculated and compounded as agreed or in such manner as the Bank may reasonably determine from time to time.

The costs and expenses referred to herein shall include (for avoidance of doubt) all amounts the Bank may from time to time require to compensate it for its internal management and administrative costs and expenses".

The first sentence of clause 16 which I have mentioned above is as follows:

"A demand or notice hereunder shall be in writing, signed by an officer or agent of the bank and may be served on the mortgagor by hand or post or by facsimile machine (fax)".

It will be seen that the mortgage purported to cover all liabilities of the debtor, that is to say Mr. Kotonou. However, as in the case of the guarantee, it was common ground before me that the mortgage was intended to secure, and did secure, only the liabilities of Mr. Kotonou under his guarantee of the liabilities of ORS under the loan agreement. Nothing, I might add, turns on this oddity in both the guarantee and the mortgage so far as concerns the construction issues which have to be decided.

Such was the mortgage, and it is to be noticed that recovery under it was subject to a maximum amount of £425,000 (whether in respect of principal, interest or expenses). However, that maximum could be increased, first, by interest "from demand hereunder" until full discharge and, secondly, by "the bank's costs and expenses (on a full indemnity basis) incurred in connection with the enforcement of this mortgage".

It is the effect of those two elements additional to the maximum of £425,000 that is in dispute in these proceedings. If the bank's contentions are correct, the two additional elements could double the maximum in respect of which the house will stand as security in respect of any indebtedness of Mr. Kotonou established by the bank in the guarantee proceedings. On Mr. and Mrs. Kotonou's contentions, there would only be a very limited increase of the maximum for which the house will stand as such security.

The house is of considerable value and is a potential source of finance to fund these and the guarantee proceedings as well as imminent directors' disqualification proceedings which have been taken out against Mr. Kotonou. However, to release those funds, Mr. and Mrs. Kotonou and, no doubt, any prospective lender, need to know how large their unencumbered equity is in the house, and that depends on the impact of these two above-mentioned elements which could swell the maximum for which the house will stand as security to the bank.

It was with this in mind that Mr. and Mrs. Kotonou launched interlocutory proceedings which came before Mr. Justice Pumfrey last year, with a view to an early determination of these construction issues. I will not dwell on the details of the extensive hearings...