The Co-Operative Bank Plc v Desmond Victor John Phillips
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 21 August 2014 |
| Neutral Citation | [2014] EWHC 2862 (Ch) |
| Docket Number | Case No: A30BS280 |
| Court | Chancery Division |
| Date | 21 August 2014 |
[2014] EWHC 2862 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Bristol Civil Justice Centre
2 Redcliff Street,
Bristol, BS1 6GR
Mr Justice Morgan
Case No: A30BS280
Ms Karen Troy (instructed by Shoosmiths LLP) for the Claimant
Mr Stephen Davies QC (instructed by Michelmores LLP) for the Defendant
Hearing dates: 14 th and 25 th July 2014
Introduction
Mr Phillips is the chargor and the Co-operative Bank plc ("the Bank") is the chargee under two charges of two residential properties owned by Mr Phillips. The charges in question were second charges ranking behind earlier charges in favour of Barclays Bank plc ("Barclays"). On 19 April 2013, the Bank brought proceedings by way of two separate claims for possession of the two properties asserting its right to possession as chargee of those properties. On 18 June 2014, the Bank served notice of discontinuance of both its claims. The Bank accepts that it is liable under the Civil Procedure Rules to pay to Mr Phillips his costs of the proceedings, which the Bank says should be the subject of detailed assessment on the standard basis.
The principal questions which I am now asked to decide are:
(1) Should the Bank pay Mr Phillips' costs of these proceedings on the indemnity basis rather than the standard basis? In order to answer this question, I am asked to determine whether the Bank brought these proceedings for a collateral purpose which was beyond its powers as a chargee and/or whether these proceedings were an abuse of process.
(2) Is the Bank able to add the costs incurred by it in these proceedings (including the sums it is liable to pay to Mr Phillips in relation to Mr Phillips' costs) to the sums secured by the charges and so that they are a debt owed by Mr Phillips to the Bank?
(3) Is the Bank entitled to set off its liability to pay Mr Phillips' costs against sums otherwise due from Mr Phillips to the Bank?
The properties
Mr Phillips has been, and is, the freehold owner of two residential properties, namely, Vole Farm, Vole Road, Mark, Somerset and Chestnut Farm, Vole Road, Mark, Somerset. Mr Phillips and his wife have throughout lived at Vole Farm. Chestnut Farm has throughout been occupied by Mr and Mrs Fussell and Mr and Mrs Tudor. Mrs Fussell is Mr Phillips' sister. Mrs Tudor is Mr Phillips' daughter.
Vole Farm has been, and is, subject to a first legal charge dated 15 November 2005 in favour of Barclays. Chestnut Farm has also been, and is, subject to a first legal charge also dated 15 November 2005, again in favour of Barclays.
The loan to County Capital plc
By a loan agreement dated 19 April 2007, the Bank agreed to lend a sum in excess of £2.1 million to County Capital plc ("the company"), a company of which Mr Phillips was then a director. One of the terms of the loan agreement was that Mr Phillips would grant to the Bank a second legal charge over Vole Farm and a second legal charge over Chestnut Farm. A further term of the advance was that Mr Phillips would provide a capital guarantee in an amount of £290,000 and an interest shortfall guarantee in an amount of £550,000.
The loan to Mr Phillips
On 3 May 2007, the Bank entered into a loan agreement with Mr Phillips under which the Bank was to lend Mr Phillips a sum up to a limit of £1,790,000. Repayment of the loan was secured on two properties other than Vole Farm or Chestnut Farm.
The guarantee
By a guarantee dated 30 May 2007, Mr Phillips guaranteed to the Bank the payment of sums due to the Bank from the company up to a limit of £550,000 in respect of interest and a limit of £290,000 in respect of the principal sum due.
The charges
On 22 June 2007, Mr Phillips granted to the Bank a second legal charge over Vole Farm to secure the repayment of all monies due from the company to the Bank. Such monies were deemed to be due for the purposes of section 101 of the Law of Property Act 1925 on demand. By clause 9 of the charge, all costs charges and expenses incurred by the Bank and all other monies paid by the Bank in connection with the charge or the charged property were recoverable from Mr Phillips and/or the company as a debt and were to be charged on the charged property. Such costs were expressed to include all costs incurred by or charged to the Bank (on a full indemnity basis) in taking, perfecting, enforcing or exercising (or attempting to perfect, enforce or exercise) any power under the charge. In view of some of the submissions made to me I emphasise that the principal sums secured by the charge were owing from the company to the Bank and not from Mr Phillips to the Bank.
By a deed dated 22 June 2007, Mrs Phillips postponed any rights she may have had in Vole Farm to the rights of the Bank under the second legal charge of Vole Farm.
Also on 22 June 2007, Mr Phillips granted to the Bank a second legal charge over Chestnut Farm in the same terms as in the charge of Vole Farm.
By deeds dated 22 June 2007, Mr and Mrs Fussell and Mr and Mrs Tudor postponed any rights they may have had in Chestnut Farm to the rights of the Bank under the second legal charge of Chestnut Farm.
There was also a loan by the Bank to another company with which Mr Phillips was connected and a guarantee and the grant of security in relation to that loan. It is not necessary to set out the detail in relation to those matters.
The default
On 30 July 2008, the Bank demanded re-payment from the company of a sum in excess of £2.2 million. There were also subsequent demands made by the Bank on the company. The company did not pay the sum demanded.
Also on 30 July 2008, the Bank demanded payment from Mr Phillips as guarantor of £840,000 (being £290,000 and £550,000). Mr Phillips did not pay the sum demanded.
The IVA
On 15 December 2009, Mr Phillips made a proposal for an individual voluntary arrangement. The proposal was on terms that Vole Farm and Chestnut Farm were to be excluded from the IVA. Further, the proposal was not to affect the rights of any secured creditor to enforce its security. The statement of affairs, which accompanied the proposal, stated that Vole Farm had a value of £825,000 and the amount owed to Barclays under the first legal charge of Vole Farm was £986,689, so that there was negative equity of £161,689, even before considering the Bank's second charge. The statement showed Chestnut Farm as having a value of £725,000 and the amount owed to Barclays under the first legal charge of Chestnut Farm was £821,794, so that there was negative equity of £96,794, even before considering the Bank's second charge. The statement showed the Bank as a secured creditor for a sum in excess of £2 million. The statement also showed the Bank as an unsecured creditor in relation to Mr Phillips' liability under the guarantee and possibly other matters.
Mr Phillips' proposal for an IVA was accepted by his creditors on or about 10 January 2010. The IVA was to last for a period of 4 years from 10 January 2010 to 10 January 2014.
Statements pre-proceedings as to negative equity
I have referred to the fact that the statement of affairs prepared for the IVA stated that the amounts due to Barclays which were secured on Vole Farm and Chestnut Farm exceeded the then value of those properties so that both were the subject of negative equity.
From around June 2012, the Bank threatened to bring possession proceedings in relation to Vole Farm and Chestnut Farm. Mr Phillips responded by again asserting that, taking account of the sums owed to Barclays and secured by the first charges over those properties, the properties were the subject of negative equity and no sum could be realised if the Bank was to attempt to sell the properties. Mr Phillips wrote letters to the Bank making this point on 5 September 2012, 4 October 2012 and 8 January 2013.
The proceedings
On 19 April 2013, the Bank brought two sets of proceedings against Mr Phillips in the Weston-super-Mare County Court. One set related to Vole Farm and the other to Chestnut Farm. Apart from the identity of the relevant property, the two sets of proceedings were in the same terms and I will refer to them together rather than separately.
In each case, the sole claim was for possession of the relevant property. The claim forms stated that the claims for possession were because the Bank wished to exercise its power of sale of the charged property. Paragraph 10 of each Particulars of Claim pleaded that the Bank's power to sell the charged property had arisen and the Particulars of Claim then stated that the Bank relied on paragraphs 1 to 10 as the ground on which it was asking for possession of the charged property.
Paragraph 13.1 of the Particulars of Claim stated that the relevant property was the subject of a first legal charge in favour of Barclays but that the Bank was not aware of the extent of the indebtedness.
On 31 May 2013, Mr Phillips served a witness statement in response to the proceedings. He referred to the statement of affairs which accompanied the proposal for the IVA which had stated that there was negative equity in the two properties by reason of the first legal charges to Barclays. He also stated that the extent of the negative equity was significantly greater than that shown in the statement of affairs.
On 17 June 2013, Mr Phillips served a single Defence and Part 20 Claim in the two sets of proceedings. The Defence and Part 20 Claim raised many issues not all of which I need to describe. The Defence addressed the claim to possession in a number of ways. It was pleaded that the parties had made a certain agreement which meant that the Bank was not entitled to pursue its possession claim. It was also...
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...when there was no prospect of an order for possession of the mortgaged property. 26 The case of The Co-Operative Bank Pic v. Phillips [2014] EWHC 2862 (Ch) is instructive. In that case the defendant owned two residential properties that were mortgaged to Barclays Bank. He took two further ......