Barclays Bank v Rowley & Anor

J U D G M E N T

1. LORD JUSTICE CHADWICK: This is an application for permission to appeal from an order made on 4th May 2004 by His Honour Judge Norris QC, sitting in Birmingham as a judge of the High Court in the Chancery Division, in proceedings between Barclays Bank plc, Mr Keith Rowley and his wife, Mrs Susan Rowley, and Halifax plc.

2. There has been a history of litigation between the bank and Mr and Mrs Rowley. Mortgagee possession proceedings were commenced by the bank on 17th July 1998, now more than six years ago. They were tried by His Honour Judge MacDuff on 5th April 2001 in the absence of the defendants, Mr and Mrs Rowley. The circumstances in which Judge MacDuff thought it right to proceed in their absense are set out in his judgment on 5th April 2001; and in a judgment, [2001] EWCA Civ 2040, which I delivered in this Court on 19th December 2001 on an application for permission to appeal from the order of 5th April 2001. I refused the application for permission. In particular I refused to extend time for appealing for the reasons set out in my judgment of December 2001. That judgment should be read with this judgment as a summary of the background to this litigation.

3. Following the order of Judge MacDuff, which included orders for possession of two properties -- one at Siddaway Street and one at 24 Eggington Road, Wollaston, Stourbridge -- the bank obtained possession of 24 Eggington Road and agreed a sale of that property. But the bank was unable to complete that sale without first freeing the property from charges in favour of Halifax plc, dated, respectively, 28th April 1981, 30th July 1982 and 23rd April 1991. And the bank was unable to agree with the Halifax amount that was payable to the Halifax to discharge those charges and so was unable to make title to its contracting purchaser.

4. It was in those circumstances the bank made an application under section 50 of the Law of Property Act 1925. Section 50(2) provides that the court can direct payment into court of such sum as will be sufficient to meet the encumbrance and thereupon may, either after or without any notice to the encumbrancer, as it thinks fit, declare the land to be freed from the encumbrance and make any order for conveyance or vesting proper for giving effect to the sale and give directions for the retention and investment of the money in court. The purpose of that section is to enable a mortgagee who is exercising a power of sale to make title, notwithstanding that there is a dispute between the mortgagee and some prior or other mortgagee, to whom he would have to account for the proceeds.

5. It was in reliance on that section that by a Part 8 application issued on 21st January 2004, the bank applied to the High Court for an order enabling it to transfer 24 Eggington Road freed from the charges in favour of the Halifax. That application was supported by a witness statement made by Denise Fawcett, a solicitor acting for the bank. The relief sought was an order that the bank be at liberty to lodge in court to the credit of the action the balance of the proceeds of sale of 24 Eggington Road after payment of sums due and owing to the bank and the costs of sale and that, upon such lodgement being made, a declaration should be made that the property is freed from the restrictions and charges set out in the application, including the three charges to which I have already referred. The application asked for an order dispensing of the service of the claim form on the defendants, Mr and Mrs Rowley and Halifax.

6. That application came before Mr John Martin QC, sitting in Birmingham as a Deputy Judge of the High Court, on 26th January 2004. He made the order sought. In particular he dispensed with service of the part 8 claim form on Mr and Mrs Rowley and Halifax. He ordered that the claimant lodge in court the balance of the proceeds of sale after payment of sums due and owing to the claimant -- the payment being a minimum of £110,000 -- and that the claimant was to be at liberty to apply, when such lodgement was made, for a declaration that the property was freed from the charges on the property. He made that order on the claimant -- that is the bank -- undertaking that, if the court subsequently found that the sum paid into court was less than the sum properly payable to the Halifax and secured by its charges at the date of payment in, then the claimant would make up the shortfall to the maximum of the sums which it had received from the sale of that property.

7. The effect of that order was that the property was not to be freed from the Halifax charges unless and until some further order was made on application by the claimant. On that further application the bank would need to satisfy the court that the amount to be lodged had in fact been lodged. That, of course, required the claimant to satisfy the court what sum was due and owing to it under the terms of its charge. Although there is nothing in the papers which indicates when that was done; it plainly must have been done, because, on 17th February 2004, the solicitors for the bank wrote to Mr and Mrs Rowley enclosing by way of service an order of the court of 27th January 2004, and informing them that 24 Eggington Road had been sold and that the Barclays Bank charge redeemed. The letter went on:

"Halifax plc are the first charge holder. The charge has now been redeemed the proceeds have indeed been paid into court under the terms of the enclosed court order. It is a matter between yourselves and Halifax as how those funds are distributed. I will now close our file."

Barclays is saying, therefore, that, as far as it is concerned, the dispute between the Rowleys and the Halifax is now transferred to a dispute about the money in court; and that the bank regards itself as having accounted by paying into court the proceeds of sale of 24 Eggington Road.

8. There is, of course, nothing in that document -- or in the order of the court -- which strikes an account between the Rowleys and the bank in relation to the proceeds of sale of 24 Eggington Road; and nothing in the order of 26th January 2004 which prevents the Rowleys from asserting against Barclays that it did not pay a sufficient amount into court. The only effect of the order is to enable Barclays to make title free from the security held by the Halifax. The order does not affect the Rowleys' rights to an account from Barclays; nor does it affect the Rowleys' rights in relation to the Halifax. All that it does is to transfer the Halifax's security over the property to the money in court; supported, of course, by Barclays Bank's undertaking to make up any shortfall.

9. The Rowleys, on receipt of the letter of 17th February 2004, immediately made application to the court to set aside the order of 26th January 2004 -- about which they had learned for the first time. The application notice asked that the order be set aside under Chancery Guide 5.4, Chancery Guide 1.9, CPR 8.2, 13, and 8.2(16). The Rowleys relied on the Chancery Guide on the basis that it had been wrong to make the application under section 50 of the Law of Property Act without giving prior notice to them. But they overlooked, perhaps, that section 50 plainly contemplates that the court may, if it thinks right, make an order without notice to the subsequent encumbrancer. That is what happened in this case. Plainly the court took the view, on 26th January 2004, that what it was asked to do would not affect the Rowleys' rights in any way at all and therefore it was unnecessary for them to be given notice.

10. The application of 22nd February 2004 was processed within the court on 5th March 2004. The court gave notice that the application would be heard on 4th May 2004. The judge, having seen the application, appears to have made a direction of his own motion that the application was to be listed for hearing on 2nd April so that the Rowleys might show cause why it should not be struck out. No notice of that direction was given to the Rowleys. So they did not attend on 2nd April 2004, and the application was struck out on 2nd April by Hart J. That led to a further application by the Rowleys, on 8th April 2004, to set aside the order of 2nd April.

11. Those two applications -- the application to set aside the order of 2nd April 2004 and the application to set aside the order of 22nd February 2004, both applications came before Judge Norris on 4th May 2004. He allowed the application of 8th April 2004 (wrongly described in his order as "an application dated 14th April"). That had the effect of setting aside the order striking out which had been made on 2nd April; and left the application of 22nd February to set aside the earlier order of 26th January 2004.

12. The judge refused that application and he refused permission to appeal. He did so for the reasons set out in his judgment. He explained the background; and explained how it was that he had two applications before him. He explained why he was allowing the first of those applications. He then went on to deal with the application of 22nd February 2004. It is important to keep in mind that he was addressing that application on the basis that what was before him was a hearing to show cause why the application should not be struck out. As he said:

"I will ... consider their application dated 22nd February, testing it to see whether it has any prospect of success."

13. The judge reached the conclusion that by reference to that test he must dismiss that application. That is clear from the first sentence in paragraph 27. He identified five submissions. First, that Barclays should never have got a possession order in the first place; but, as he pointed out, that involved an attack on the judgment of Judge MacDuff which had contained that possession order, and against which this Court had refused permission to appeal. So, as the judge said, there was not the slightest doubt that Barclays was entitled to possession.

14. The second submission was that Barclays was claiming the wrong amount. The Rowleys contended that the Barclays' charge only secured £5,000 and that, accordingly, the judgment for £73,000 under Judge MacDuff's order was the wrong amount. Further, as the judge recorded, the Rowleys contended that the judgment in Barclays' favour made no mention of the other property at Siddaway Street which Barclays had sold. The judge rejected those contentions, on the grounds that they had been concluded by the judgment of Judge MacDuff. It was not open to the Rowleys to go behind the judgment of Judge MacDuff; but, equally plainly, if Siddaway Street had been sold and Barclays had satisfied its debt, in whole or in part, out of the proceeds of sale of Siddaway Street, it had to bring that sum into account in computing the amount of the proceeds of sale of Eggington Road for which they were secured. But that is a matter of accounting between the Rowleys and the bank. Nothing that has been decided below in this application has affected that.

15. Third, the judge addressed the question whether there should have been two sets of proceedings -- that being a reference to proceedings which, it seems, the Rowleys had started against the Halifax (or the Halifax had brought against the Rowleys) to determine what was due under the Halifax charge. But, as the judge pointed out, that was not the issue in the section 50 application. The issue was not what was due to the Halifax as against the Rowleys; the object of the section 50 order was to preserve that argument for another day.

16. Fourth, the judge referred to an argument that there should not have been a sale of 24 Eggington Road; because the person with the power of sale was the Halifax and not Barclays Bank. However there was nothing in that point. Section 50 enabled Barclays Bank to sell free from the Halifax charge, provided that the monies were brought into court.

17. The judge addressed each of the arguments which he had identified. He came to the conclusion that the application of 22nd February 2004 could not succeed and so ought to be struck out, or dismissed, without calling on either Halifax or Barclays to address him. Part of the reason, no doubt, why he took that view was that -- if there was going to be another hearing involving the Halifax and Barclays -- there would simply be further legal costs run up which both of those secured lenders would seek to attach to their securities, and which would, therefore, ultimately fall on the Rowleys. So that, if the application was indeed hopeless, the sooner it was dealt with the better.

18. The appellant's notice sets out a number of grounds of appeal; including the ground that the judge was wrong, in effect, to seek to deal with the matter on a "show cause" basis and was wrong to refuse to allow the application of 22nd February 2004, so as to give the Rowleys a full hearing at a trial at which the bank and the Halifax were present.

19. In my view, there is no prospect that this Court would interfere with the judge's decision to deal with the matter in the way that he did. The application to set aside Mr Martin's order of 26th January was plainly misconceived. The right application -- if there is a quarrel between the Rowleys and Barclays Bank as to the amount for which the bank should account out of the proceeds of sale of 24 Eggington Road, taken together with the proceeds of sale of Siddaway Street -- it is for them to seek an account under section 105 of the Law of Property Act. Equally, if they have a dispute with the Halifax, the order of 26th January 2004 provides the machinery for that dispute to be resolved. There is no basis upon which the order itself should be set aside; a fortiori in the circumstances in which, no doubt, it has been acted upon and the property has been sold and conveyed to a third party free of these charges. The third party will have obtained a good title to the property, because the charges will have been removed from the Land Registry. Reopening the order of 26th January is not going to affect that.

20. There is ample scope for the Rowleys to continue their litigation against Barclays Bank and the Halifax, if that is what they want to do; but there is no scope for doing it through this particular application. Accordingly, the application is dismissed.

ORDER : Application dismissed. No order as to costs.