Nolan v Wright

This is the oral renewal of an application for permission to appeal against orders of HHJ Hodge Q.C., sitting as a judge of the Chancery Division in Manchester on 26 February. There are two aspects to the appeal: one is against one feature of his order on the substantive position, so to speak, and the other aspect concerns his order as to costs.

The judge’s judgment on the substantive issue before him was on an appeal. District Judge Needham had refused to give summary judgment for the claimant. The claimant appealed against that. In the course of preparation for the appeal a preliminary issue was ordered on certain limitation points. These had been ventilated before the district judge. I am sure it was right and convenient that these should be identified for separate decision either way, whether or not summary judgment should be granted. The judge’s judgment on the substantive matter is [2009] EWHC 305 (Ch) and that was a reserved judgment. His judgment on costs is not separately reported, but I have a transcript of it. The appeal, as I say, is in one respect on substance and in other respects on costs. One of the grounds of appeal on costs is a point on which Patten LJ granted permission to appeal when he considered the papers on 17 July this year.

The action is for the recovery of a very large sum of money from the defendant borrower pursuant to an unregulated credit agreement and a legal charge. The defendant seeks to set aside the loan documentation as a sham or procured by undue influence or misrepresentation. He also sought to have the loan documentation set aside or re-opened as an extortionate credit bargain under the Consumer Credit Act 1974. A number of items of conduct on the part of the claimant were alleged. The preliminary issue was as to whether the claim to re-open the credit agreement as an extortionate credit bargain was statute barred under section 8 of the Limitation Act. There was also a defence that the claimant’s own claim was barred by limitation.

The judge in his reported judgment held that the extortionate credit bargain claim was subject to a 12-year limitation claim and it was out of time, subject only to one point. In the rejoinder to the reply and the reply to the defence to counterclaim, Mr Nolan, the claimant, having said in his defence to the counterclaim that the extortionate credit bargain claim was barred by limitation, Mr Wright, the defendant, said that he would rely if necessary on the provisions of section 32 of the Limitation Act and would say that the defendant’s counterclaim is based on the fraud of the claimant or that the facts relevant to the right of action had been deliberately concealed from him by the claimant. The pleading sets out briefly the case in that respect. It says that they were sham documents and that there was a fraud. Plainly if it was a sham document then it is not an enforceable document and it is unnecessary to rely on limitation because no rights will arise from the document.

Equally if the document was procured by fraud it would be set aside and the question would arise under section 32. The judge dealt with this at paragraph 19 of his judgment on the substantive issues. He says he accepted Mr Freedman’s submission, then, as before me, for the claimant, that this is not an action based on the claimant’s fraud nor is it one for a relief from the consequences of a mistake. He said:

“On the basis of the material which is presently before me, I confess to some difficulty in understanding how the defendant can realistically assert that any fact relevant to his right to reopen the credit agreement as an extortionate credit bargain was deliberately concealed from him by the claimant so as to enable him to invoke paragraph (b) section 32 (1): either his claim that the loan documentation was a sham succeeds (in which event there is no credit agreement to reopen), or it fails (in which event the factual basis for a plea of deliberate concealment is missing). Similar reasoning applies to the defendant's allegations of deceit and undue influence which, if successful, would lead to the setting aside of the loan agreement. It also seems to me that the defendant may find it difficult to resist the conclusion that, with reasonable diligence, he could have discovered any fraud, concealment or mistake in or about October 1995 when his solicitors, Inesons, received the correspondence and loan statement from the claimant which tended to indicate that he was intending to stand by the strict terms of the loan documentation.”

All of that sounds pretty convincing to suggest that this is a plea that ought not to be allowed to stand on the pleadings. The judge went on as follows:

“However, I am conscious that the defendant's invocation of the 1980 Act is particularly fact-sensitive; and, for this reason, if the claim is one that should otherwise go to trial, then my decision on the preliminary issue should not be taken to preclude the defendant from seeking to rely upon section 32 by way of escape from my decision that his claim to reopen the loan transaction as an extortionate credit bargain is otherwise statute-barred.”

The judge then went on to consider the question of whether he should grant summary judgment and he decided that the district judge was right not to grant summary judgment, for reasons which he explained, particularly in paragraph 28 of his judgment. Then he dealt with the consequences at paragraph 30 and he said that there was only one aspect of the defence that ought to be struck out or on which summary judgment should be granted, namely the plea that the claim itself was statute barred, the claim having been brought just two days short of the 12^th anniversary of the earliest date for the repayment under the loan agreement. Subject to that, the judge allowed and directed that the matter should proceed to trial and, having done so, and going back to paragraph 19, he held that the section 32 point should remain in issue.

Mr Freedman makes the very fair point that, as a matter of case management, that is highly inconvenient because it means that the extortionate credit bargain issue has to be ventilated, has to be prepared, and has to be tried, even though the question of whether it is available at all depends entirely on the defendant being able to make good his section 32 argument, which, for reasons identified by the judge at paragraph 19, seems extremely unpromising. Mr Freedman has shown me the way in which the matter is pleaded in the reply to the defence to counterclaim, and I can see exactly where the judge gets his comments as to the difficulty in understanding how that case can be made. I think I can see the basis for the judge’s view that if the case as a whole is one that should go to trial, as he held it should, for reasons that he explains, it would be right for the defendant to be able to keep open his section 32 point. But logically the section 32 point, as the judge himself identified, is a discrete point. As a matter of principle, especially in this sort of case, a limitation point ought, it might be said, to be taken as a preliminary issue, especially if failure to take it as a preliminary issue may very well involve the incurring of very substantial costs on the substantive point, which may turn out to be unnecessary and altogether wasted.

It seems to me that, both because of the internal contradiction in the section 32 plea itself and because of the case management implications of the judge’s decision, while I express no particular view as to the prospective outcome on the appeal, it would be appropriate to allow the claimant to raise this ground of appeal on the full appeal that will take place before this court and, accordingly, I grant permission to appeal on the point that arises from the judge’s substantive judgment.

Turning then to costs, Mr Freedman identifies, fairly, four separate stages or aspects of costs, bearing in mind the issues that have been before the court and the fact in particular that the part of the defence has been struck out and that a major point has been decided against the defendant in respect of limitation as it affects the extortionate credit bargain point even though, subject to the point that I have just been considering, that still retains what may be a precarious presence on the pleadings.

First of all, there will have been some costs incurred at the stage of pleadings in dealing with the points which are now the subject of decisive rulings on limitation, perhaps not very substantial costs but some. Secondly, there were the costs of the application to the district judge for summary judgment. I am not sure that I know what order the district judge made, but he presumably awarded them to the defendant. Then came the appeal and the identification and direction of the preliminary issue as to limitation, in relation to which some costs would have been incurred, and then finally the costs of the hearing before HHJ Hodge, as to which the claimant was successful on limitation points subject to one very small qualification and the defendant was successful on summary judgment generally.

HHJ Hodge, in his judgment as to costs, looked at the balance of success before him and said that it might fairly be said that each side had been successful to some extent and a percentage order should be made to reflect the parties’ relative degrees of success in both the appeal and the preliminary issue. He said overall the defendant had achieved a greater degree of success than the claimant and, at paragraph 21, he said that the defendant can be said to be successful to the extent of some two-thirds and the claimant to the extent of one third. He then said:

“I could order the claimant to pay the defendant two thirds of his costs and the defendant to pay one third of the claimant’s costs.”

But he says:

“…it seems to me the appropriate and sensible order is to order the claimant (and appellant) to pay one third of the defendant’s costs of the appeal and the preliminary issue, and to make no order as to the balance of the costs.”

He did not disturb the order of the district judge because he said there was no ground for disturbing the discretion of that judge.

Patten LJ has given permission to appeal on the question of whether it was right to make a net costs order having no information about the amount of the claimant’s costs or, for that matter, the amount of the defendant’s costs. It is impossible to tell, simply by saying A should pay one third of B’s costs and B should pay two thirds of A’s costs, that the equivalent of that can be achieved in a net way unless you know that the costs of each side are broadly the same. So I do not need to consider that issue. The question is whether, on the remaining grounds of appeal, the judge was wrong in principle, having made the striking out orders that he did, in not following the normal rule that the costs consequence of striking out is that the winning party should have the costs of the issues that disappear from the proceedings as a result of that striking out. The judge said, in effect, that he was taking that matter into account when he made his net order. That is made clear in an e-mail exchange shortly after the hearing and it seems to me that there is force in the submission that, for exactly the same reasons as are relevant to ground 1, that was an error of principle or a completely flawed exercise of discretion in the absence of knowledge or some clue as to what the relevant costs were. Accordingly, I will add that issue to the grounds that are open on appeal.

In effect the third costs point is that the judge was wrong not to review and modify the district judge’s order as to costs. This was not, Mr Freedman says, a question of interfering with the district judge’s discretion. It is a question of recognising and giving effect to the fact that the landscape had changed and it was after the decision on the preliminary issue and indeed the striking out of the defendant’s own limitation defence. Issues had been at large before the district judge which the district judge chose not to decide or thought it fit not to decide, which, as a result of the judge’s decision, had been decided and had been decided adversely to the defendant. Mr Freedman says, accordingly, it would have been right for the judge to revisit the costs below including of course the costs incurred at the outset in dealing with that issue as a matter of pleading and to vary the district judge’s order so as to reflect the claimant’s success on the limitation points.

I can see a good deal more scope for saying that that is a matter which was within the judge’s discretion but, with some hesitation on that point, I nevertheless come to the conclusion that it would be right to grant permission to appeal to the claimant on all the grounds of appeal asserted, other than of course the one on which Patten LJ has already granted permission.

This is a second appeal, in form, but the scope of the case had changed so much on the first appeal, because of the preliminary issue as to limitation, that despite the more stringent second appeal test, it seems to me right to grant permission to appeal on these additional points.

So the appeal will proceed on the substantive point as well as on the several points as to costs. That being so, I propose to vary the indications given by Patten LJ on granting permission to appeal. I will direct that the appeal be listed with a time estimate of four hours. It should be listed before a three-judge court, which may include a High Court judge and which shall include at least one with Chancery experience.