Kathryn Bassano (Grantor/Claimant) v Alfred Toft (First Defendant) Peter Biddulph and Peter Biddulph Ltd (Second Defendants) Borro Loan Ltd and Borro Loan 2 Ltd (Third Defendants)
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Popplewell |
| Judgment Date | 26 February 2014 |
| Neutral Citation | [2014] EWHC 377 (QB) |
| Docket Number | Case No: TLQ/12/0906 |
| Court | Queen's Bench Division |
| Date | 26 February 2014 |
[2014] EWHC 377 (QB)
The Hon. Mr Justice Popplewell
(sitting additionally as a judge of the Central London County Court)
Case No: TLQ/12/0906
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
AND IN THE CENTRAL LONDON COUNTY COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Bassano (by leave of the Court) for the Claimant
Mr Allston (instructed by Hartnells LLP) for the First Defendant
Ms Taylor (instructed by Rubinstein Phillips Lewis LLP) for the Second Defendants
Mr Payton (instructed by Wright & Wright LLP) for the Third Defendants
Hearing dates: 14–17 January 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The Claimant, Mrs Bassano, is a professional musician. For many years she owned a valuable viola, whose manufacture is attributed to Ceruti in Cremona in 1803. In 2009 she and her husband were experiencing financial difficulties. Between 2009 and 2011, she used the viola to raise finance by way of successive loans from the Defendants. In these proceedings the Defendants seek to enforce repayment of the loans, in part against the proceeds of sale of the viola.
The first loan in time was made by the Second Defendants, who are Peter Biddulph and Peter Biddulph Limited, the company through which Mr Biddulph deals in fine instruments. Nothing now turns on any distinction between Mr Biddulph and his company and I shall refer to both simply as Peter Biddulph. Peter Biddulph lent Mrs Bassano £50,000, interest free, in the summer of 2009, to be repaid from the proceeds of a sale of the viola which he was to seek to achieve. No part of that sum was repaid by Mrs Bassano.
The second lender was the First Defendant, Mr Toft, who is also by profession a dealer in fine stringed instruments. In February 2010 he lent Mrs Bassano £100,000 for 12 months with interest payable monthly. Mrs Bassano paid interest for the first 10 months, but has not thereafter paid any further instalments of interest or repaid the capital.
The last lender was the Third Defendant, which is named as Borro Loan Limited and Borro Loan 2 Limited, who are members of the same corporate group. I shall refer to both as "Borro" save where it is necessary to distinguish between the two. Borro carries on business as a pawnbroker. In July 2011, Borro lent Mrs Bassano £130,000 on the security of the viola by way of pledge. The loan carried interest. No part of the capital or interest has been repaid.
The issues in the action have become simplified as a result of an agreement reached between the Defendants inter se shortly before the trial, and two orders I made at the beginning of the trial to give effect to their agreement (to which Mrs Bassano did not consent). The effect of those orders was as follows:
(1) The viola was sold to Peter Biddulph for £230,000, being the best price reasonably obtainable in the light of unsuccessful attempts to sell the viola at an acceptable price for the previous 4 years.
(2) The proceeds of the sale were paid into court to abide the outcome of the proceedings.
(3) The issues between Peter Biddulph and Mrs Bassano fell away. Peter Biddulph undertook, as one of the terms on which the sale was ordered, no longer to pursue any claim for the repayment of the £50,000 advanced to Mrs Bassano, and made no claim against the proceeds of sale to be paid into Court. Mrs Bassano abandoned a small damages claim previously advanced against Peter Biddulph alleging minor damage to the viola.
(4) The Defendants resolved between themselves the previous competing claims to security in the viola or its proceeds of sale. Peter Biddulph fell out of the proceedings. Mr Toft does not pursue a claim to have any security interest in the viola or its proceeds. It was agreed (between the Defendants) that Borro had a valid and enforceable claim and security interest as pledgee in respect of the amount of its loan plus interest.
As a result, the remaining claims which fall to be determined in the action are the following:
(1) Mr Toft's claim for a money judgment for repayment of his loan plus interest;
(2) Borro's claim for a money judgment to enforce repayment of its loan plus interest;
(3) Borro's claim to a priority security interest in the proceeds of sale of the viola by virtue of its position as pledgee.
Mrs Bassano was not well enough to attend the trial. She was represented, with my permission, by her husband Mr Bassano, who conducted her case with conspicuous skill. In relation to the claim by Mr Toft, she challenges the enforceability of the loan by reference to the provisions of the Consumer Credit Act 1974. In relation to the claim by Borro, her pleaded position (in a pleading previously settled on her behalf by counsel) was that Borro's loan and security was valid and enforceable. That validity and enforceability had been challenged on behalf of Peter Biddulph prior to the settlement between the Defendants inter se, on grounds which were pleaded and elaborated upon in a written skeleton argument settled by counsel for Peter Biddulph. At the hearing I gave permission for Mrs Bassano to advance against Borro the arguments challenging the enforceability and validity of the loan and security interest claimed by Borro which had previously been advanced by Peter Biddulph against Borro before Peter Biddulph dropped out of the action. The arguments advanced are (1) that the agreement was not properly executed, and/or (2) that Borro has lost its security interest by parting with possession of the viola.
Before addressing those issues, I should set out a fuller narrative of events.
Narrative
Mrs Bassano approached Peter Biddulph in June 2009. She agreed with Peter Biddulph that he should seek to sell the viola on her behalf. In return he agreed to advance sums, interest free, which were to be repaid out of the proceeds of sale. He took possession of the viola in order to sell it and insured it for £350,000. He lent her another viola for her to play, and between June and August 2009 advanced to her a total of £50,000 in three separate instalments.
Mrs Bassano sought to raise further finance later that year. Mr Toft came to be approached in late 2009 by a fellow member of the congregation at his church, Mr Atkinson. Two documents were drawn up by Mr Atkinson and a firm of solicitors proposed by him, whose fees were paid by Mrs Bassano. The first was a document entitled "Offer of Loan Finance" signed by Mr Toft on 8 February 2010 and by Mrs Bassano on 10 February 2010. It recorded that Mr Toft was to lend £100,000 for the private use of Mrs Bassano for a period of up to 12 months, extendable by mutual agreement, with simple interest at the rate of 2.5% per month payable monthly in arrears. The offer was expressed to be subject to a loan agreement being drawn up, and to Mr Toft inspecting the viola to satisfy himself as to its authenticity, value and suitability as security for the loan. Mr Toft, together with members of his family, met Mrs Bassano at Peter Biddulph's premises in London to examine the viola, and agreed to proceed with the loan on the terms of the Offer of Loan Finance document against the security of the instrument. He was not told and did not know of the previous advance to Mrs Bassano of £50,000 by Peter Biddulph.
The loan agreement was embodied in a chattel mortgage deed executed by Mrs Bassano and Mr Toft on 19 February 2010 ("the Chattel Mortgage"). The Chattel Mortgage recorded the terms of the loan and contained a covenant to repay the principal and interest. Clause 4 conferred a charge by way of first mortgage over the viola as security for repayment of the loan and interest.
Mrs Bassano made the monthly payments of interest of £2,500 per month for each of the 10 months from March to December 2010 but made no further payments of interest or capital.
The Chattel Mortgage was not registered as a bill of sale, as was necessary to perfect a security interest in the viola. Moreover the form of the Chattel Mortgage was defective in that it failed to comply with the Bills of Sale (1878) Amendment Act 1882 ("the 1882 Act"). As a result of section 9 of the 1882 Act, it was thereby rendered void. The result is that the Chattel Mortgage is ineffective and unenforceable as a document conferring a security interest, or as a document containing an enforceable covenant to repay: Davies v Rees (1886) 17 QBD 408. In due course an application to register the Chattel Mortgage as a bill of sale out of time was made to the Queen's Bench Division, but such application was not ultimately pursued, because of the defect in the form of the document and because any such late registration would be subject to prior security interests and would therefore be subjected to the security interest of Borro which Mr Toft does not dispute.
Peter Biddulph endeavoured to sell the viola, and for these purposes allowed potential purchasers to take possession of the instrument in order to assess and play it, as is normal when seeking to sell such an instrument by private treaty. In due course Mrs Bassano was approached by a dealer who lived in Tokyo called John Duffy who told her he had a purchaser who was interested in the viola. She authorised Mr Duffy to collect the viola from Peter Biddulph in order to allow a player in the Far East to try it out, to which Peter Biddulph agreed. The player decided not to buy the viola and Mr Duffy returned it not to Peter Biddulph, but to...
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