National Westminster Bank Plc v Feeney

J U D G M E N T

1. LORD JUSTICE CARNWATH: This is a second appeal against an order of Mr Recorder Pulman QC dated 6 January 2003 whereby he allowed an appeal from the order of District Judge Glover on 6 November 2002, declaring that the respondents' counterclaim was automatically stayed pursuant to Part 51 of the Civil Procedure Rules. There was an appeal also against the judge's order awarding the defendants' their costs on the basis that they had succeeded. I need say no more about that. It seems to me that the judge was clearly entitled to make that order. The mere fact that, as Miss Phelps said, he was rather quick off the draw in taking the point she was about to make does not change the fact that her clients lost.

2. The background facts can be stated quite briefly. The defendants had executed a second charge over their property at 46 Northumberland Way, Northumberland Heath, Erith, Kent in November 1990 as security for the debts of the bank limited to £25,000 plus interest. The bank commenced proceedings for possession in April 1998. The claims were simply for possession of the property and costs, and no money judgment was in terms sought. In June 1998 the defendants put in a defence and counterclaim, but in the event only one limb of the counterclaim survived, alleging misrepresentation by the bank in March 1993 in relation to the credit worthiness of a customer. The case was that, as a result of relying on that credit worthiness, Mr Feeney accepted substantial orders on credit terms, non-payment of which led to the collapse of his joinery business. That aspect of the counterclaim was only very indirectly linked to the claim in the sense that the failure of the business may have contributed to the defendants being unable to pay the money claimed.

3. In January 1999 the bank issued a summons to strike out the defence. An order was granted on 4 March 1999 striking out the defence altogether and certain aspects of the counterclaim, but leaving the aspects of the counterclaim relating to the alleged misrepresentations by the bank to continue in their own right. The order made by the judge at that time simply stated that the defence should be struck out and that the plaintiff have vacant possession of the property within 28 days. There having been no monetary claim there was no reference to a monetary claim in the order.

4. Where an order for possession is made on a dwellinghouse the court has power to make various orders by way of suspending execution, where it appears that the mortgagor is likely to be able to pay within a reasonable period sums due under the mortgage. One finds that power in the Administration of Justice Act 1970 at Section 36, as amended. It is clear that that is a discretionary power which needs to be invoked by the mortgagor. It is not a matter that follows automatically from the making of an order for possession.

5. In this case the defendants did invoke that power. Following the judgment of March 1999, the bank issued a warrant for possession on 12 July 1999. Over the course of the next 18 months the defendants issued four applications to suspend the warrant. Three of the hearings took place in the period which is critical for these proceedings, that is between 26 April 1999 and 25 April 2000. The first was on 13 January 2000 when the application was dismissed and the warrant was ordered to lie in the court office until 3 February 2000. On 22 February 2000 a second application was heard and the warrant for possession was suspended for eight weeks. On 13 April 2000 the third application was heard. The warrant was suspended for a further two months and the bank was ordered to serve a witness statement setting out details of the total sum owed by the first defendant to the bank. Subsequently a consent order was agreed between by the parties and approved by the court on 14 February 2001 whereby the defendants agreed to pay the bank £30,000 in exchange for the release of the charge. In all those hearings there had been no reference to the counterclaim. As far as one can see, no issue was raised about the counterclaim by the defendants and certainly no reference was made to it in any of the orders.

6. In August 2002 the defendants sought directions for the counterclaim. That gave rise to the present dispute. The bank's solicitors wrote to the defendants' solicitors asserting that the counterclaim was automatically stayed under the transitional provisions of the Civil Procedure Rules regime. The defendants' application for directions came before District Judge Glover who decided that there should be an automatic stay, but that decision was reversed by Mr Recorder Pulman in January 2003.

7. The relevant provisions in the Civil Procedure Rules are in Practice Direction 51 which contains transitional arrangements. The general scheme of the transitional arrangements is described in paragraph 2, being:

(a) to apply the previous rules to undefended cases, allowing them to progress to their disposal; but

(b) to apply the CPR to defended cases so far as is practicable."

Central to the arrangements is the definition of "existing proceedings". Paragraph 1 (1) states:

"This Practice Direction deals with the application of Civil Procedure Rules to proceedings issued before 26 April 1999 ('existing proceedings')."

8. The Direction goes on to set out circumstances in which the previous rules will normally apply and circumstances where the Civil Procedure Rules will normally apply. There is a special provision in paragraph 15 dealing with the circumstances whereby proceedings "come before a judge (whether at a hearing or on paper)" for the first time after 26 April 1999. The judge is given the power to direct how the Civil Procedure Rules are to apply to proceedings. Paragraph 16 deals with the case where pleadings are deemed to close on or after 26 April 1999. That paragraph sets out how existing proceedings are to be dealt with in various different circumstances, including where a defence and counterclaim are served.

9. The provision with which we are directly concerned is paragraph 19, headed "Existing proceedings after one year". The relevant parts read as follows:

"(1) If any existing proceedings have not come before a judge, at a hearing or on paper, between 26 April 1999 and 25 April 2000, those proceedings shall be stayed.

(2) Any party to those proceedings may apply for the stay to be lifted."

Sub-paragraph (3) deals with certain exclusions.

"(4) For the purposes of this paragraph proceedings will not be 'existing proceedings' once final judgment has been given."

The purpose of that provision is fairly clear. The object is to ensure that cases which have some life in them will proceed under the new Civil Procedure Rules. Those that are moribund will be stayed unless the parties concerned can show that there is sufficient life in the case to justify the stay being lifted.

10. The issue before the courts below and before us is whether the hearings which took place relating to the possession order were sufficient to keep alive the counterclaim. The rival contentions can be shortly stated. The bank's submission, which appealed to the district judge, was that once the order had been made on the claim of 4 March 1999 the surviving part of the counterclaim became, in effect, freestanding. The order of March 1999 was a "final judgment" on the claim because at that point the court had determined all the substantive issues arising on the claim and the only remaining matters were related to enforcement. The effect of that was that the possession claim was no longer "existing proceedings" because there had been a final judgment within the meaning of Practice Direction 51 paragraph 19 (4). The counterclaim therefore has to be seen as an independent claim, and the hearings which took place in the critical year were not related in any way to that counterclaim. Accordingly the stay applies.

11. The alternative view which appealed to the judge starts from the proposition that one should give a "broad interpretation" to the word "proceedings". Reliance was placed by the judge on the statement to that effect by Mr Justice Aikens in C v L [2001] 2 Lloyd's Rep 459 at 476. He also relied on the glossary in the Civil Procedure Rules which gives "counterclaim" the meaning -

"A claim brought by a defendant in response to the claimant's claim, which is included in the same proceedings as the claimant's claim."

Thus, in ordinary language, the counterclaim is part of one set of proceedings with the claim. If one treats the counterclaim as part of the same set of proceedings as the claim, then undoubtedly the proceedings, in that global sense, did come before the court when the judge was considering the suspension orders. For similar reasons, the possession order made in March 1999 was not a final judgment, because a final judgment in relation to any set of proceedings must mean a judgment which deals finally with each of the issues in the proceedings, whether brought by claim or counterclaim. The mere fact one has a final judgment on the claim does not mean one has a final judgment of the proceedings as a whole.

12. There the battle lines were drawn, and similar contentions have been repeated before us.

13. For my part, I confess I have not found it an easy case to resolve and my mind has fluctuated since it first came before me on the papers for permission to appeal. On the one hand, there is force in the bank's argument that in applying a purposive approach the counterclaim was, in substance, a separate case to which the hearings in the year were irrelevant. On the other hand, it is difficult to reconcile the language of paragraph 19 with the view that one can split up the proceedings in that way. In the ordinary sense, as confirmed by the glossary, a set of proceedings includes both claim and counterclaim. Practice Direction 51 contains some indications that that is the sense in which it uses "existing proceedings". Paragraph 16 seems, for example, to deal with the claim and the counterclaim as one set of existing proceedings. When one comes to paragraph 19 one notes that it talks about existing "proceedings" and not about existing "claims".

14. However the key seems to me to lie in paragraph 19 (4) on which Miss Phelps principally relies. She says that the obvious purpose of paragraph 19 (4) is to distinguish between the judgment on the claim itself and the enforcement process. Consistently with the general purpose of the Civil Procedure Rules, it was intended to ensure that the process to judgment on the claim was not delayed, but no constraint was necessary or appropriate on the process of enforcement. Hence paragraph 19 (4) says that the "existing proceedings" limitations cease once final judgment has been given and no question of a stay arises thereafter. She says that, to achieve that purpose, it is necessary in a case where there are separate claims - whether because one has two claimants or because one has a claim and counterclaim - to read words into paragraph (4). She says it must be intended to mean that a claim or counterclaim shall not be treated as part of existing proceedings once final judgment has been given on that claim.

15. My first reaction to that was that it involved re-writing the provision in a way that was not permissible as a matter of construction, particularly in a provision cutting down the rights of a claimant or counter-claimant. However, he says that if one does not read in those words one produces a very odd result. In this case, for example, if the bank had failed to bring any enforcement proceedings in the critical year then the automatic stay would have applied to it, because its claim was still to be treated as part of the same set of proceedings as the counterclaim. Thus it would have lost the right to enforce, which it would have retained had there been no counterclaim, and would have lost it solely because of the failure of the counter-claimant to do anything to advance his own claim.

16. Even more striking to me is the example given by Kennedy LJ in argument, where there are two claims against the same defendant, and the defendant submits to judgment for claimant 1, but defends against claimant 2. If claimant 2 fails to do anything during the critical year, then, if the judge is right, claimant 1 loses the right to enforce thereafter through no fault of his own. It seems to me that that cannot have been intended. For that reason, I agree that paragraph 19 (4) must be read as having the effect for which Miss Phelps contends.

17. It is important also to bear in mind that this does not mean that the defendant is shut out altogher from advancing the counterclaim. What it means is that an application will have to be made for the stay to be lifted. I appreciate that that means he is at the mercy of the court. We were referred to Neo Investments Inc v Cargill International SA [2001] 2 Lloyd's Rep 33, where Mr Justice Aikens refused to lift a stay in circumstances where the claim was regarded as "a very old stale case". How the defendant would fare in this case depends very much on the merits of his counterclaim and, no doubt, to what extent he can justify any delay there may have been. That is not a matter for us. The purpose of the rule is not to shut out meritorious claims, but to ensure they are brought within control under the Civil Procedure Rules.

18. For these reasons, although expressing respect for the careful judgment given by the judge, I would allow this appeal and restore the district judge's order.

19. LORD JUSTICE KENNEDY: I agree. The problem, as it seems to me, posed by the facts of this case in relation to Part 51 of the Civil Procedure Rules is whether, for the purposes of that Part, the bank's claim for possession was still existing proceedings after 4 March 1999 when the order for possession was made or whether thereafter the only existing proceedings, for the purposes of Part 51, consisted of the counterclaim.

20. The purpose of Part 51 was simply to encourage parties to get on with proceedings during the period of transition prior to the implementation of the Civil Procedure Rules. With that in mind, it seems to me that what Part 51 was concerned to encourage between April 1999 and April 2000 was action on the counterclaim in the context of this case. It was not concerned with applications to stay the warrant of execution in relation to the order for possession. As Mr Leighton conceded during the course of his submissions, had the counterclaim stood alone as an action of itself then his position would, in the context of Part 51, have been hopeless. The counterclaim would have been stayed.

21. Does it achieve any further life because during that critical year two applications to stay were made by the defendant in relation to - and apparently only in relation to - the order that there should be possession? To my mind it would be surprising if those applications did have the effect which the judge found them to have had, not only because, as Miss Phelps explained, that would have had a considerable knock-on effect on the position of the bank, but also, as explained by my Lord in relation to a different type of action, if there were two claimants, one of whom was successful, then that claimant's rights would have been very seriously jeopardised by the implementation of Part 51 in relation to what would be regarded as existing proceedings, namely the claim as it originally stood before a concession was made in relation to the successful claimant.

22. I cannot so read Part 51. In my judgment it must be read in the way contended for in this appeal by the bank.

23. So, the words "existing proceedings" mean those proceedings which are still capable of being effectively litigated.

24. I therefore too would allow this appeal.

Order: Appeal allowed with the costs subject to detailed assessment not to be enforced without application to court.