Ashley Guarantee Plc v Zacaria
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE RALPH GIBSON,LORD JUSTICE WOOLF |
| Judgment Date | 20 September 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0920-3 |
| Docket Number | 91/0879 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 September 1991 |
[1991] EWCA Civ J0920-3
Lord Justice Nourse
Lord Justice Ralph Gibson
Lord Justice Woolf
91/0879
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BOW COUNTY COURT
(HIS HONOUR JUDGE BUTTER)
Royal Courts of Justice
MR MARK WARWICK, instructed by Messrs Wedlake Bell, appeared for the Appellants (Defendants).
MR MICHAEL TENNET, instructed by Messrs Heald Nickinson, appeared for the Respondent (Plaintiff)
In National Westminster Bank Plc v. Skelton 26th May 1989 (unreported) this court decided that the mortgagor cannot usually resist a legal mortgagee's action for possession by claiming an equitable set-off for an unliquidated sum exceeding the amount of the mortgage arrears. Now we have to decide whether any distinction is to be made where the mortgagor is not the principal debtor of the mortgagee but only a guarantor.
By clause 2 of a legal charge dated 28th November 1986 and made between the defendants ("the Mortgagor") of the first part, the plaintiff, now called Ashley Guarantee Plc ("the Lender") of the second part, and Med East Gulf Exports Limited, now called London Pride Confectionery Limited ("the Company") of the third part, the defendants charged by way of legal mortgage the residential freehold property known as 48 Monkhams Drive, Woodford Green, Essex "with the payment or discharge of all monies and liabilities hereby covenanted to be paid or discharged by the Company". Clause 1(a) and the first part of clause 1(b) of the legal charge were in these terms:
"1(a) The Lender has advanced monies to the Company and the Mortgagor has agreed with the Lender to advance monies to the Company upon its security of the mortgaged property (as hereinafter defined) to the intent and as is hereby agreed that the Lender shall be entitled to enforce its rights and remedies contained referred or implied herein over and in respect of the mortgaged property in the event that the Company makes default in any of its obligations to the Lender.
1(b) The Mortgagor hereby covenants with the Lender that the Mortgagor will on demand in writing made to the Company pay or discharge to the Lender all moneys and liabilities which shall for the time being (and whether on or at any time after such demand) be due owing or incurred to the Lender by the Company…"
It is common ground that the plaintiff lent monies to the company, that those monies were repayable on demand, that demands for payment were made both on the company and on the defendants and that no payment has been made. The plaintiff's particulars of claim issued in the Bow County Court on 1st May 1990 allege that the amount then remaining due and owing was £151,193.64. They contain a prayer for payment of that sum, together with accrued interest, or in default possession of the mortgaged property. The defendants do not contest the figure of £151,000-odd. Shortly stated, their defence is that the company has cross-claims against the plaintiff which give it a right of equitable set-off for an unliquidated sum exceeding that figure or indeed any other figure at which the company's indebtedness to the plaintiff may stand. They also counterclaim for rectification of the legal charge so as to limit the defendants' liability thereunder to £50,000 plus interest and costs.
The matter first came before Mr District Judge Platt. The plaintiff asked for an order for possession with a view to exercising its statutory power of sale out of court. In a careful written judgment delivered on 17th January 1991 the district judge decided that the defendants were entitled to have their claims to equitable set-off and rectification tried before any possession order was made. He also ordered the action to be transferred to the Chancery Division after the time for appealing against his order had expired.
The plaintiff applied for the district judge's order to be varied or rescinded, but when the matter came before His Honour Judge Butter he dealt with it as an appeal. By his order made on 18th April 1991 the learned judge allowed the plaintiff's appeal with costs, holding that it had established that it was entitled to possession and that there was no answer to that claim. Since the mortgaged property consisted of a dwelling-house, the judge adjourned the matter for further consideration under section 36 of the Administration of Justice Act 1970. He reserved the matter to himself. He gave the defendants leave to appeal, although it is not clear to me that leave was needed.
The judge thought that the matter was concluded in favour of the plaintiff by National Westminster Bank Plc v. Skelton, which he described as being of the utmost degree of importance in the case and which had not been cited to the district judge, no doubt because it has never been reported. There the defendants had charged their house by way of legal mortgage as a continuing security to the bank for the discharge on demand by the bank on them of all present, future, actual and/or contingent liabilities of a named company to the bank. In other words that, like the present, was a case where the company was the principal debtor and the mortgagors were in the position of guarantors. They too claimed that the company was entitled to recover unliquidated damages against the bank which could be set off against the sums owing by the company to the bank and which would more than extinguish the company's debt. This court was prepared to assume that the mortgagors would succeed in that claim, but they held that it could not be a defence to the bank's claim to immediate possession of the property.
In explaining his reasons for that view, Slade L.J., who gave the leading judgment, referred to Four-maids Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch. 317, Birmingham Citizens Permanent Building Society v. Caunt [1962] Ch. 883, Samuel Keller (Holdings) Ltd v. Martins Bank Ltd [1971] 1 W.L.R. 43, Western Bank Ltd v. Schindler [1977] Ch. 1, Mobil Oil Co. Ltd v. Rawlinson (1982) 43 P. & C.R. 221, Barclays Bank Plc v. Tennet, Court of Appeal 6th June 1984 (unreported) and Citibank Trust Ltd v. Ayivor [1987] 1 W.L.R. 1157. He referred with approval to a principle established by those authorities, in essence a synthesis of those deducible from Birmingham Citizens Permanent Building Society v. Caunt and Samuel Keller (Holdings) Ltd v. Martins Bank Ltd. The principle, which Slade L.J. called "the Mobil Oil principle", can be stated thus. Contract and statute apart, a legal mortgagee's right to possession of the mortgaged property cannot be defeated by a cross-claim on the part of the mortgagor, even if it is both liquidated and admitted and even if it exceeds the amount of the mortgage arrears.
Slade L.J. then considered a submission by counsel for the mortgagors that the Mobil Oil principle was not applicable in a case where the cross-claims were not mere cross-claims but claims which would give the mortgagors rights by way of equitable set-off. As to that submission, he said:
"I say nothing about the case where a mortgagor establishes that he has a claim to a quantified sum by way of equitable set-off. Possibly such a claim might have the effect of actually discharging the mortgage debt. In my judgment, however, the Mobil Oil principle is applicable both where the cross-claim is a mere counterclaim and where it is a cross-claim for unliquidated damages which, if established, would give rise to a right by way of equitable set-off. In none of the decisions mentioned has any distinction been drawn between the two".
Later, after referring to observations in the Mobil Oil and
Samuel Keller cases, he continued:
"I cannot accept the submission that the Mobil Oil principle is not applicable where the mortgagor has a claim to unliquidated damages by way of equitable set-off, and in my judgment it makes no difference that such a claim may in the event prove to exceed the amount of the mortgage debt."
Mr Justice Anthony Lincoln gave a brief concurring judgment.
It is to be noted that Slade L.J. expressed no view as to the effect of a cross-claim for a liquidated sum giving rise to a right of equitable set-off. That is not a question for decision here. However, Mr Warwick, who appears for the plaintiff and to whose conscientious argument the court is indebted, accepts that National Westminster Bank Plc v. Skelton is authority, binding on this court, for the view that the Mobil Oil principle applies where the mortgagor's cross-claim is one for unliquidated damages which, if established, would give him a right of equitable set-off. He maintains that that decision can be distinguished on a ground which can best be understood by starting with a further reference to that case, in which counsel for the mortgagors had gone on to submit that the Mobil Oil principle was not in any event applicable because special considerations applied where the mortgage was merely one by way of guarantee intended to afford security for the debts of a third party. Reliance had been placed on passages in Halsbury's Laws of England, fourth edition, volume 20, paragraph 190 and Rowlatt on Principal and Surety, fourth edition, at page 103, the former of which is in these terms:
"On being sued by the creditor for payment of the debt guaranteed, a surety may avail himself of any right to set-off or counterclaim which the principal debtor possesses against the creditor, and any division of the High Court can give effect to it or to any equitable defence raised."
Counsel had submitted that on being sued by the bank for possession the...
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