EILEEN JOAN ROSINA FILBY and MORTGAGE EXPRESS (No 2) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice May |
| Judgment Date | 18 June 2004 |
| Neutral Citation | [2004] EWCA Civ 759 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B2/2003/2339 |
| Date | 18 June 2004 |
[2004] EWCA Civ 759
The Right Honourable Lord Justice Kennedy
The Right Honourable Lord Justice May and
The Right Honourable Lord Justice Hooper
Case No: B2/2003/2339
Rg 401828
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS COUNTY COURT
HIS HONOUR JUDGE BEHRENS
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr Paul Marshall(instructed by Langleys) for the Appellant
Miss Nicole Sandells (instructed by Addleshaw Goddard) for the Respondent
Introduction
This appeal against part of the judgment and order of HH Judge Behrens sitting in the Leeds County Court on 6 th August 2003 concerns the equitable remedy of subrogation. The label subrogation has been recognised as confusing. Some of the cases relating to the remedy show a tension between two approaches. One approach sees the remedy as flexible and adaptable to reverse what would otherwise be seen as unjust enrichment. The other approach may be more confined by formal equitable principles beyond which flexibility may perhaps not go. On one view, the present appeal is at the margin of these approaches. A similar tension was described by Lord Goff of Chieveley in Westdeutche Bank v Islington Borough Council [1996] AC 669 at 685, in which, in considering the ambit of resulting trusts, he referred to the anxiety of equity lawyers that underlying equitable principles should not be distorted by the legitimate ambition of restitution lawyers.
Facts
Mr and Mrs Filby were married in 1977. On 7 th December 1984, they bought a house in Berkshire, 52 Gainsborough in Bracknell, for £59,000. This was subject to a mortgage in favour of Halifax Building Society to secure a loan of £35,000.
In about 1988, Mr Filby started to carry on a business of property development. Mrs Filby had some involvement in this business. By 5 th April 1990, they had two accounts in their joint names with Midland Bank. A business account had a debit balance of £43,188. A development loan account had a debit balance of £194,586. Mr Filby was then in the process of arranging to remortgage 52 Gainsborough with the claimants.
On 15 th May 1990, a mortgage deed was apparently executed between Mr and Mrs Filby as mortgagors and the claimants as mortgagee. It appeared to effect a first legal charge on 52 Gainsborough as security for a loan of £106,138. After certain deductions, a net amount of £104,054 was transferred by the claimants to their solicitors, Davies Donovan & Co, who thought they were acting also for Mr and Mrs Filby on instructions received from Mr Filby. The solicitors paid £40,859 to the Halifax to discharge the then outstanding Halifax debt and thereby redeem the Halifax mortgage. After deduction of smaller amounts for the Land Registry fee, an insurance premium and the solicitors' costs, there was a balance of £60,801. They paid this amount on Mr Filby's instructions to Midland Bank in reduction of the debit balance on the joint development loan account.
In 1992, Mr and Mrs Filby signed a second charge on the property in favour of Midland Bank. Midland Bank are now HSBC. They are not parties to these proceedings and questions relating to them have not been judicially determined. However, a statement of account which was before the judge in the present proceedings indicates that on 24 th September 2002 HSBC wrote off a then outstanding debit balance on the business development loan account of £28,062. This appears to indicate that the amount outstanding in 1990 after the payment of £60,801 had been reduced over the years. We understand that HSBC claim that the amount which they wrote off in September 2002 is secured by their second charge on the property.
Payments due under the claimant's mortgage were paid from time to time over the years after 1990. From May 1995, payments were paid to the claimants by the Department of Social Security. Some of these payments were paid by or on behalf of Mrs Filby. But from as early as September 1991, payments under the mortgage were in arrears.
In September 1994, the claimants issued possession proceedings. On 3 rd November 1994, a possession order was made in favour of the claimants. The amount then outstanding under the mortgage was £132,248. The claimants did not then enforce the possession order. Much happened between November 1994 and October 2000 which was relevant to issues which the judge decided on which there is no appeal to this court. Mr and Mrs Filby divorced in June 1995. She had not lived at the property during parts of this period. She finally moved out in August 2000.
On 23 rd October 2000, the claimants were given permission to enforce their possession order. A subsequent application to set aside the possession order was abandoned. The claimants discovered that the property had been abandoned by Mrs Filby. So they took possession voluntarily. They subsequently sold the property for £190,416 on 18 th May 2001. The questions which Judge Behrens had to decided related to the distribution of the proceeds of sale.
The trouble was that Mrs Filby never signed the claimants' mortgage application form nor the mortgage deed. Her apparent signature on these documents was forged, presumably by or at the instigation of Mr Filby. Historically there may have been an issue about this, but it did not survive into the proceedings. Mrs Filby contends that the mortgage is a nullity and that she is not bound by it. Her counterclaim in the proceedings was that she is beneficially entitled to a full half share in the proceeds of sale.
The claimants eventually accepted that her signature had been forged, but contended that she had ratified the charge or that she was estopped from denying that she signed it. They did not pursue to trial their ratification case, but they did maintain their estoppel case. The judge accepted Mrs Filby's evidence that she did not know of the mortgage application to the claimants and was not aware of the borrowing from them at the time that it was made. He also accepted that she did not appreciate that there was a mortgage in favour of the claimants until late 1994 and that she did not know of the forgery until November 1994. She told her then solicitors about the forgery on the 25 th November 1994. For reasons which it is not necessary to go into, the claimants were not notified of the forgery until 10 th May 1999. The judge considered evidence relevant to the issue of estoppel, which he decided in favour of Mrs Filby. There is no appeal against this decision nor the findings of fact on which it was based.
The subrogation claims
The claimants contended that they were entitled to be subrogated to the rights of Halifax Building Society under their 1984 mortgage. They so claimed because £40,859 of the loan which they advanced in 1990 upon an expected security which had failed was used to discharge the Halifax mortgage. This claim was conceded on behalf of Mrs Filby before the hearing. The principle on which this concession was correctly made is shortly stated by Millett LJ (as he then was) in Boscawen v Bajwa [1996] 1 WLR 328 at 335B; and in more extended terms by Walton J in Burston Finance Limited v Speirway Limited [1974] 1 WLR 1648 at 1652B-C:
"… where A's money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B's rights as a secured creditor … [subrogation] finds one of its chief uses in the situation where one person advances money on the understanding that he is to have a certain security for the money he has advanced, and, for one reason or another, he does not receive the promised security. In such a case he is nevertheless to be subrogated to the rights of any other person who at the relevant time had any security over the same property and whose debts have been discharged, in whole or in part, by the money so provided by him, but of course only to the extent to which his money has, in fact, discharged their claim."
That principle applied exactly to the discharge in the present case of the Halifax mortgage with money provided by the claimants in expectation of obtaining a first legal charge over 52 Gainsborough which they did not obtain because of the forgery.
The judge accordingly ordered that the claimant was entitled against Mrs Filby to be subrogated to the Halifax mortgage dated 7 th December 1984 to secure the amount of £40,859.70 as at 15 th May 1990, Mrs Filby to be credited with an agreed percentage of all payments subsequently credited to the claimant's mortgage account. All issues of quantification were reserved.
The claimants also claimed to be entitled to be subrogated to the rights of Midland Bank (now HSBC) against Mrs Filby to the extent that and because her joint debt to them was discharged by the payment of £60,801 on 15 th May 1990. The claimants contended that there was no relevant distinction between the discharge of the Halifax loan and the reduction of the Midland Bank debt and that an equivalent consequence should follow in law. Mrs Filby resisted this contention. Differences of fact were that the Halifax loan was secured on the property, but the Midland Bank loan was not; and that the claimants' advance was made on condition that the Halifax loan was discharged but there was no such condition relating to the Midland Bank loan. The claimants contend that the Midland Bank loan was discharged with money in which they retained a legal and beneficial interest until it merged with the Midland Bank debt. Mrs Filby contends that the claimants retained no legal...
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