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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Adamson v Halifax Plc [2002] EWCA Civ 1134 (30 July 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1134.html Cite as: [2003] 1 WLR 60, [2002] EWCA Civ 1134, [2003] 4 All ER 423

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		Neutral Citation Number: [2002] EWCA Civ 1134
		Case No: B2/2001/2031 & 2031A

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER COUNTY COURT
(District Judge Freeman)

		Royal Courts of Justice Strand, London, WC2A 2LL
		30th July 2002

B e f o r e :

LORD JUSTICE POTTER
SIR MURRAY STUART-SMITH
____________________

Between:


	Adamson	Appellant
	- and -
	Halifax plc	Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Michael Mulholland (instructed by CP Morley, Manchester) for the appellant
Kathrine McQuail (instructed by Walker Morris, Leeds) for the respondent
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Crown Copyright ©

Sir Murray Stuart-Smith :

Introduction

1. This is an appeal from the judgment of Freeman DJ sitting at the Manchester County Court and given on 14^th June 2001.
2. The claimant Janet Adamson entered into a mortgage deed with the defendant, Halifax plc, then a building society, in September 1991 in order to purchase her flat, Flat 3 Manor Park, Manor Avenue, Urmston. She fell into arrears with the payments and on 31^st August 1995 the defendant took possession of the flat. It did so without a court order. One of the claims made by the claimant was that the defendant had wrongfully taken possession; she alleged that she was still in possession. She claimed that the defendant had wrongfully disposed of her possessions valued at £2,000 and she claimed aggravated damages. The judge dismissed this claim; he did not accept the evidence of the claimant or her mother. He accepted the evidence of Mr Delaney, called on behalf of the defence, which was corroborated by the contemporaneous documents, to the effect that she had vacated the flat. There is no appeal on this issue; but it has relevance to the question of interest and costs, the judge’s award on these matters being subject to appeal and an application for permission to cross appeal.

Damages

3. The main issue in the appeal related to the claimant’s claim that the defendant, after repossessing the property, sold at a substantial undervalue. The flat was sold for £17,000. The judge held that the true value of the property in the condition it was, which was a poor one, was £23,000. Again there is no dispute on this aspect of the case, or as to the judge’s finding that the defendant was in breach of the duty to take reasonable care to ensure the best price that can reasonably be obtained (imposed by the Building Societies Act 1986 Schedule 4 paragraph 1(1)(a), but subsequently repealed in the Building Societies Act 1997 Section 12).
4. The judge did not award the claimant £6,000, the difference between the sale price and the proper price, but only £1,000. That came about in this way. The claimant was indebted to the Royal Bank of Scotland (the Bank) in the sum of £4,736.27. It appears to have been an unsecured debt. On 17^th December 1993 the Bank obtained a judgment for this sum. On 4^th May 1994 the Bank entered a caution on the register of title. On 14^th February 1995 the Bank obtained a charging order nisi on the flat, which was made absolute on 3^rd April. The charging order is not recorded on the office copy of the register of title before the court; but this is because the copy is dated 6^th February 1995. It existed as a subsequent encumbrance to the defendant’s mortgage and the defendant was aware of it. What is now clear is that, after the sale, the defendant accounted to the Bank for £22, which was all that was left from the proceeds of sale after the satisfaction of the defendant’s claim.
5. It is common ground that if the defendant had sold the property at £23,000 shortly after 24^th November 1995 (when contracts were exchanged) it would have accounted to the Bank as a subsequent encumbrancer for £5,000 (the amount of the judgment plus costs rounded up to £5,000) and to the claimant as mortgagor (see LPA 1925 s.105) for £1,000. However, the situation was that the Bank had never made any attempt to enforce its judgment (beyond the £22) against the claimant, no doubt for the very good reason that it did not consider that she had any money. Neither had it made any claim against the defendant for damage to its own interest as a subsequent encumbrancer by selling at an undervalue. In the light of the judge’s judgment, it is clear that it could have done so. But it can do so no longer, because its claim is now barred by limitation, 6 years having elapsed since the 24^th November 1995. At the time the District Judge gave judgment, namely on 14^th June 2001, the 6 years had not yet expired; but the Bank had shown no signs whatever of making a claim against the defendant. So far as the claimant was concerned she gave evidence that the Bank had “written off” the debt. It is probable that by this she meant no more than that the Bank had not pursued her. There was certainly no formal release and nothing that could give rise to an estoppel. No action can now be brought to enforce the Bank’s judgment against the claimant (see Limitation Act 1980 Section 24). But a writ of execution to enforce the judgment can be issued with the permission of the court, even though 6 years has elapsed from the date of judgment. (see CPR Sc46.2 and similar provisions for warrants of execution in the County Court CC26.5).
6. The judge decided that the claimant should recover no more than £1,000 because he considered that that was the extent of her loss. Had the defendant sold for the full market value it would have had to satisfy the Bank, before accounting to her. That being so, the judge considered that she should not obtain a ‘windfall’ of £5,000 because the Bank had taken no steps to recover their money.
7. Mr Mulholland who appeared in this court on behalf of the claimant, but not in the court below, submitted that the judge was in error. He submitted that the claimant’s damage consisted in the diminution in value of the equity of redemption; damage should be assessed at the time of trial. If the full £6,000 is paid to the claimant, she remains at risk of enforcement proceedings at the suit of the Bank. Mr Mulholland recognised that, at the time the judge gave judgment, there was a possibility of a claim being made by the Bank against the defendant; in these circumstances he submitted that a possible alternative course would have been for the judge to have ordered £5,000 to be paid in to court to abide any claim by the Bank. If it made no claim against the defendant before 24^th November 2001, the money then should be paid out of court to the claimant.
8. In support of his submission Mr Mulholland referred the court to the advice of Lord Templeman to the Privy Council in Downsview Ltd v First City Corporation Ltd [1993] AC 295; at page 311F he said:

“The owner of property entering into a mortgage does not by entering in that mortgage cease to be the owner of that property any further than is necessary to give effect to the security he has created. The mortgagor can mortgage the property again and again. A second or subsequent mortgage is a complete security on the mortgagor’s interests subject only to the rights of prior encumbrancers. If a first mortgagee commits a breach of his duties to the mortgagor, the damage inflicted by that breach of duty will be suffered by the second mortgagee, subsequent encumbrancer or the mortgagor, depending on the extent of the damage and the amount of each security. Thus if a first mortgagee in breach of duty sells property worth £500,000 for £300,000, he is liable at the suit of any subsequent encumbrancer or the mortgagor. Damages of £200,000 will be ordered to be taken into the accounts of the first mortgagee or paid into court or to the second mortgagee who, after satisfying, as far as he can, the amount of any debt outstanding under his mortgage, will pay over any balance remaining to the next encumbrancer or to the mortgagor if there is no subsequent encumbrancer. In practice the encumbrancer who first suffers from the breach of duty by the first mortgagee and needs the damages payable by the first mortgagee to obtain repayment of his own debt will sue the first mortgagee. If the encumbrancers do not suffer because they have been able to obtain repayment of their debts without recourse to the damages, then it will be the mortgagor who will sue.”

9. Mr Mulholland submitted that if for any reason the second encumbrancer chooses not to sue the first mortgagee, the mortgagor is entitled to sue and recover all the loss caused by the first mortgagee’s breach of duty. The first mortgagee can recover no more than its debt. It is not right that it can retain £5000, the amount of its liability for its own breach of duty, to meet a claim that has not been made, is very unlikely to be made, and now cannot be made, by the Bank.
10. Miss McQuail disputed these submissions. She contended that if the defendant had done what it ought to have done, the claimant would have recovered no more than £1,000. On the sale at the proper valuation of £23,000, the defendant would have satisfied its own debt, paid £5,000 to the Bank and accounted to the claimant for £1,000; she could get no more now.
11. In my judgment Mr Mulholland’s submissions are to be preferred. The court had to award damages for breach of statutory duty, the prima facie measure of damage being the reduction in the value of the equity of redemption. The assessment of damages is to be made at the time of trial with the benefit of the knowledge of what has happened theretofore. Although theoretically at the time the judge gave judgment, there was a possibility that the Bank might have sued the defendant, I think the judge might well have concluded that the chance of it doing so before the limitation period expired was so small that such chance could be ignored. The Bank had shown no interest in the litigation and probably considered that it was not worth while pursuing a claim. Alternatively, if the judge considered that the possibility could not be discounted, he could have ordered the £5,000 to be paid into court. If no claim was made against the defendant by 24^th November 2001, the money should be paid out to the claimant. The claimant still remains vulnerable to an application by the Bank for permission to issue a warrant of execution. But, so far as the defendant is concerned, there is no longer any risk of it being sued by the Bank.

Interest

12. The judge awarded no interest to the appellant. Unhappily there is no official transcript of this part of the judgment or that on costs. The two solicitors’ notes do not agree as to the reason given by the judge for depriving the claimant of all interest. The respondent’s solicitor’s note records that it was “the enormous delay in bringing the evidence as to the charging order nisi”. The appellant’s solicitor’s note indicates that is was “the delay in issuing the proceedings and counsel did not object”. The former is not a good reason. Both parties knew of the charging order, neither saw fit to include the relevant documentation in the bundle. It was only after the judge had decided as a matter of principle that the amount of the Bank’s judgment should not be recoverable, that the order was produced. In my judgment it was an irrelevant consideration, and if the judge based his decision upon it, he was wrong.
13. Delay in issuing the proceedings can be a valid reason for reducing the period for which interest is awarded, though rarely, if at all, for depriving a successful party of all interest. The proceedings were not issued until nearly 4½ years after the cause of action arose; it came on for trial about a year later. Although the action was started well within the limitation period, 4½ years was a long delay for which there was no satisfactory explanation. It had the incidental effect that the claimant is, in my judgment, very likely to obtain the full £6,000 without accounting to the Bank for its 1993 judgment. There was no delay in prosecuting the action; but the delay in starting it justifies some reduction in the interest awarded. Mr Mulholland concedes that the claimant should not be awarded interest on the £5,000 until 24^th November 2001. In my judgment the claimant is entitled to interest on her damages as to £1,000 from 24^th November 1997 (2 years after the cause of action arose) and as to £5,000 from 24^th November 2001.

Costs

14. Cross appeal. The judge’s order for costs was that “the defendant should pay half of the claimant’s costs save that it should pay the entirety of such sum in respect of the claimant’s surveyors fees as shall be found reasonable, such costs and fee to be subject to a detailed assessment in default of agreement”. The judge refused permission to appeal on costs, and the Single Lord Justice adjourned the question of permission to the full court.
15. Miss McQuail submits that the proper order for costs is that there should be no order for costs. That is because the defendant was successful on the issue of wrongful eviction which took half of the volume of the pleadings, preparation for trial and the time for the hearing. The defendant she submitted should have been entitled to the costs on this issue; but that would effectively equal the costs on the undervalue claim, so the proper order is that the court should make no order for costs. She also submitted that the court should make an adverse order to the claimant to mark her conduct in bringing a mendacious claim on the wrongful eviction issue.
16. Costs are in the discretion of the trial judge and this court will only interfere with the exercise of that discretion on well-defined principles. As I said in Roache v News Group Ltd [1998] EMCR at 172:

“Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”

That statement was approved in AEI v Phonographic Performance Ltd [1999] 1 WLR 1507 at p. 1523 per Lord Woolf MR. Although that decision was before the CPR came into force, it is clear that the court applied the same principle in relation to interfering with the trial judge’s discretion.

17. The claimant was the successful party in the litigation in the sense she had to come to court to recover anything. It may be that the defendant could not have made a payment into court because of the problem of the Bank’s judgment; but it could have made a written offer; and if the offer had equalled or bettered the judgment, then the defendant would have been the successful party.
18. It is clear that the judge did take into account the fact that the claimant had failed on the wrongful eviction claim. He also took into account the fact that he had “severe doubts about her credibility”; though he did not go so far as to say that the whole of that claim was a knowingly fraudulent one. In my view he took into account the relevant considerations and exercised his discretion in accordance with CPR part 44.3. (See particularly 44.3(2)(a) and (4)(b)). Even if this court were inclined to make an order that would be somewhat more favourable to the defendant, I am clear that we should not do so. Moreover since we are allowing the appeal, I see no reason to think now that the order for costs was too favourable to the claimant. I would refuse permission to cross appeal.
19. In the result I would allow the appeal, the judgment should be varied in that judgment be given for the claimant for £6,000; interest at the appropriate rate should be awarded on £1,000 from 24^th November 1997 and on £5,000 as from 24^th November 2001. The order for costs below is not varied.

Potter LJ: I agree.

Order:
20. The Appellant’s appeal against the judgment of District Judge Freeman, dated the 14^th. June 2001, that the Respondent do pay the Claimant the sum of £1,000 damages be allowed.
21. That the said judgment be varied so the there be judgment entered for the Appellant in the sum of £6,000 together with interest.

A. On the sum of £1,000 from the 24^th November 1997 to date; and

B. On the sum of £5,000 from the 24^th November 2001 to date.

22. The Respondent’s application for permission to appeal be refused.
23. The Respondent do pay the Appellant’s costs of the appeal and application for permission to appeal, such costs to be the subject of a detailed assessment if not agreed.
24. That there be a detailed assessment of the Appellant’s publicly funded costs, pursuant to Part 47.17 of the Civil Procedure Rules.
(Order does not form part of the approved judgment)