Chelsea Building Society v Nash

On 16 December 2009, following a hearing at Hastings County Court before HHJ Hollis, judgment was given in favour of the claimant, the Chelsea Building Society, against the defendant, Lorraine Patricia Nash, in the sum of £27,020 together with interest, being the sum due from Ms Nash as joint mortgagor of her former matrimonial home. This is her appeal against that order.

The appeal raises the issue whether the claimant's “full and final settlement” with Ms Nash's former husband and joint mortgagor had the effect of releasing Ms Nash from her liability under the legal charge. I have been assisted by submissions by counsel on behalf of the parties before the trial judge, Mr Denman on behalf of the appellant and Ms Creer on behalf of the respondent.

The factual background is this. On 31 May 1989 William Ernest Upton and Lorraine Patricia Upton entered into a legal charge with Chelsea Building Society by which they charged their home at 185 Woodmansterne Road, Streatham, London for the repayment of a mortgage advance of £85,000. Under the legal charge they covenanted jointly and severally to make monthly repayments of capital and interest. Almost from the start they fell into arrears. In or about June 1992 Mr and Mrs Upton separated. Mrs Upton left the matrimonial home with the children and moved to the Hastings area. Mr Upton remained in the house but arrears continued to accumulate. The house was repossessed on, or shortly after, 15 April 1996, placed on the market and sold, the sale being completed on 22 July 1996 for a price of £55,000.

The arrears and costs of sale amounted to £109,040. Once credit was given for the sale price the sum outstanding from the mortgagors was £55,040. Following the separation Mrs Upton reverted to her maiden name of Nash.

On 7 June 1999 the claimant instructed a firm of debt recovery specialists, Wacks Caller. The claimant's recoveries administrator, Martin Ball, wrote to Wacks Caller as follows:

A week later the claimant indicated to Wacks Caller that it was prepared to reduce Mr Upton's payment from £6,000 to £5,000. Mr Upton met that liability by making a payment of £5,000 in or about July 1999. Meanwhile, on 21 June 1999 the claimant wrote to Wacks Caller providing them with information relevant to the attempt to trace the former Mrs Upton. On 5 September 2000 Mr Ball, the recoveries administrator for the claimant, wrote to the defendant at her then current address in St Leonards on Sea, East Sussex. He informed Ms Nash that Mr Booth of Wacks Caller was no longer dealing with the matter. Mr Ball asked Ms Nash to contact him with a view to making an arrangement as to regular monthly payments for a full and final settlement.

On 26 October 2000 Mr Ball again wrote to Ms Nash informing her that the claimant and their indemnifiers were not prepared to write off the debt. He informed her that a temporary moratorium had been placed on her account. She would be expected to commence making monthly repayments in January 2001. The claimant was seeking a monthly payment of £5. He proposed that the level of payment would be reviewed periodically but Ms Nash would not be requested to increase her payments unless her circumstances permitted it. If a regular monthly payment was made the total period would be limited to 60 monthly repayments. If no monthly repayment was commenced in January 2001 Ms Nash would be asked to complete a personal and financial assessment form.

On 3 January 2001 Mr Ball wrote confirming the contents of his earlier letter. A personal and financial assessment form was enclosed. That document was completed by Ms Nash and signed by her on 15 January 2001. She wrote:

On 18 January 2001 Mr Ball wrote confirming receipt of the completed personal and financial assessment form. He described Ms Nash's "share of the residual debts still outstanding" as £27,020.17. He informed Ms Nash that if she were to commence the payments at the rate of £5 per month her outstanding debt would be limited by the claimant to £1,500.

On or about 16 March 2001 the claimant issued instructions to a firm of debt recovery specialists called DMS. On 13 September 2001 DMS wrote to the defendant expressing disappointment at the lack of response to previous correspondence and seeking proposals for repayment. In 19 October 2001 Ms Nash completed a monthly income and expenditure form to which she added the following note:

On 15 September 2002 DMS again wrote to the defendant seeking proposals. Ms Nash returned the letter to DMS with the following note endorsed on it:

On 10 August 2007 the claimant completed a recoveries index report in which it was noted that the case had last been "worked" in September 2002. In the report the following information was noted:

Consideration was in August 2007 being given by the claimants to the institution of legal proceedings against Ms Nash. Mr Darrell Booth, formerly of Wacks Caller, had become a partner in Henderson, Booth and Snell. Someone from the claimants contacted the firm with a view to ascertaining what information it could provide about the history of the matter. Mr Michael Snell of Henderson, Booth and Snell wrote to Russell Elliott at the claimants' recoveries department as follows, on 15 October 2008:

The “screen dump” to which Mr Snell was referring comprised a computer generated diary of events in the briefest of terms, somewhat confused by the addition of a question mark against most of its entries. It said nothing of worth about the settlement with Mr Upton. Furthermore, there was before the learned judge no evidence as to whether Mr Booth or Mr Snell had any personal contact with Mr Upton at the time when the agreement was made.

The witness who gave evidence on behalf of the claimant at the hearing before HHJ Hollis was Russell Elliott. He had not been involved in the original negotiations with Mr Upton nor in the making of the final agreement. He explained that generally, upon the separation of married parties, the claimant would, in the case of joint mortgagors, elect to pursue each mortgagor separately for a 50% share of the outstanding sum. That would explain the terms of the written instructions to Wacks Caller. He accepted, however, that he had no personal knowledge of negotiations between Wacks Caller and Mr Upton. He explained that the claimant would inform the debtor with whom it was dealing that negotiations were in respect of that debtor sharing the total liability only, but the claimant would not necessarily disclose to a “co-debtor” that the claimant was negotiating on this basis. His justification for doing so was the Data Protection Act, an explanation which the learned judge roundly dismissed.

Mr Elliott drew attention to the correspondence between the claimant and Wacks Caller in which Wacks Caller was instructed to negotiate with Mr Upton purely in respect of the one-half share of the total liability. In cross-examination Mr Denman, on behalf of the defendant, established that there was no correspondence disclosed between Wacks Caller and Mr Upton which might establish the basis of the settlement made with him. No one from Wacks Caller was to give evidence, and the only information available was the "screen dump" and the hearsay letter provided by Mr Snell which, on the evidence, may have amounted to multiple hearsay.

Mr William Upton gave evidence in the defendant's case. He informed the judge that he understood he was negotiating with Wacks Caller in respect of the whole debt owed by himself and his former wife. Indeed, when arriving at the figure of £5,000 by way of settlement, he telephoned Ms Nash to ask whether she was able to make a contribution towards that £5,000 settlement. Mr Upton's recollection was that the agreement was confirmed in a letter which was addressed both to himself and to "Mrs L P Upton". He said:

Asked by Ms Creer whether he might have been mistaken about the heading in the letter recording the agreement, he replied:

Ms Nash gave evidence that she had very little recollection of the sequence of events save as demonstrated to her by the copy correspondence. She maintained that she had been hounded by the debt recovery specialists, principally by telephone calls but also in correspondence. She resolutely denied sending a letter to DMS on 17 April 2002 and the judge said that he would ignore that letter. Her evidence was that while her former husband, Mr Upton, informed her at some stage in a telephone call that he had "sorted" the debt problem, the debt recovery agents continued to insist that she remained liable for £27,020. Not knowing the details of the negotiations between Mr Upton and the claimant, and not at that time being on particularly good terms with him, she responded to the demands for information about her financial position.

Mr Denman submitted to the judge that, where one of joint and several debtors reaches accord and satisfaction with the creditor, the general rule is that the other debtors are also discharged. Unless parties making the accord agreed to something different, the effect of their agreement was to release all the debtors from liability. Mr Denman submitted that the evidence was all one way. The claimant had neglected to establish what were the terms of the agreement between Mr Nash and the claimant. Mr Upton's evidence was unequivocal that he believed he was entering into a settlement which extinguished the debt entirely.

I shall pause before describing the judge's conclusions upon this evidence to note that neither in submissions made to the learned judge nor in any response to this appeal has it ever been suggested on behalf of the Chelsea Building Society that there was a challenge to accord and satisfaction upon the basis that satisfaction could not be achieved when all that had occurred was a part payment of a debt undoubtedly owed by the joint mortgagor.

Ms Creer, on behalf of the respondent, made an application to this court that she be permitted to lodge a respondent's notice out of time taking this point on the respondent's behalf. Asked for his reaction to that application, Mr Denman pointed out to the court that the circumstances in which Mr Upton made his full and final settlement with the Chelsea Building Society included the fact that within a very short time of the Chelsea Building Society taking possession of his home, over which there was a mortgage of £85,000, the Chelsea Building Society resold it for the figure of £55,000. While Mr Denman was prepared to accept for the purpose of argument before this court that Ms Creer may have a good argument as to whether or not accord and satisfaction could have taken place in this case in the absence of consideration, he was not prepared to concede that this was a case in which no consideration did move from Mr Upton. Had this point been taken in the court below Mr Denman would have needed to explore, particularly with Mr Upton but also with his own client, Ms Nash, the question whether this was a case of simple part payment of a debt or whether it was a case in which a possible claim by the Uptons against the building society was also compromised.

There is no doubt that Mr Denman has not had the opportunity of dealing with this argument. It seems to me that it is raised on behalf of the Chelsea Building Society far too late. Had it been raised at trial it is almost inevitable that an exploration of the issue in the evidence would have been required; that investigation never took place, and I would refuse the respondent's application to file a respondent's notice out of time so as to take the point.

Returning to the judgment. The learned judge noted the terms in which the claimant had instructed its agents, Wacks Caller, to pursue both Mr Upton and his wife for their respective shares of the total debt. At paragraph 5 of his judgment the judge observed:

In the light of the observations I have just made about the lateness of the accord and satisfaction point being taken by Ms Creer, one’s confidence that the court has even remotely before it the full picture is undermined by the observation made by the learned judge that even at first instance disclosure had been incomplete. Considering Ms Nash's evidence the judge observed:

The judge continued:

Mr Denman submitted that paragraph 10 of the judge's judgment betrayed a misunderstanding of the ultimate question for his decision on the issues which had been placed before him. Furthermore, he contended that the judge's observation that Mr Upton had conceded that he may have misunderstood his agreement with the Chelsea Building Society was inaccurate. Mr Upton had qualified his concession by saying that this was unlikely. Mr Denman submits that the burden was upon the claimant to establish that in making its agreement with Mr Upton it had reserved its rights to pursue the balance of the debt against Ms Nash. As to the facts, Mr Denman submitted that the inference that Wacks Caller carried out their instructions was not fairly available in the absence of any evidence from the claimant as to what happened during their negotiations. Unless Wacks Caller were aware of the significance of ensuring precision in the terms in which the accord and satisfaction were expressed, it was just as likely that the negotiator expressed himself in words such as:

Mr Denman argued that the judge was wrong to conclude Mr Upton had conceded that he misunderstood the effect of the agreement. What he said was that he may have been wrong in his recollection that the heading to the letter he had received from Wacks Caller was in joint names. When he was asked whether he might be mistaken about the effect of the agreement he had reached, he replied it was possible but unlikely, having regard to the conversation which (as the judge accepted) had taken place between himself and Ms Nash. In this regard Mr Denman points out that it was never suggested to Mr Upton that there was any express reservation of rights against Ms Nash. The claimant simply was not in a position to make that suggestion. Furthermore, no instruction appeared in the correspondence from the claimant to Wacks Caller that any express reservation should be made. On the contrary, in his written submissions Mr Denman said that in their letter of 7 June 1999 Wacks Caller were instructed to inform Mr Upton that:

It is therefore necessary to examine what is the effect in law of accord and satisfaction by one co debtor upon the others. As I have observed, if the court is to refuse leave to Ms Creer to argue that accord and satisfaction could not take place since all that was happening was part payment of an admitted debt then the court is concerned only with the express and possibly implied terms of the agreement reached between the claimant and Mr Upton in full and final settlement.

In Deanplan Limited v Mahmoud and Another [1992] 3 AER 945, HHJ Paul Baker QC, sitting as an additional judge of the High Court, considered the question whether:

The judge proceeded to examine a number of authorities relevant to the issue of joint obligations. He concluded at page 959 J to 960 E:

The learned judge applied his analysis to the facts of the case before him, asking whether there was in the document giving accord and satisfaction any reservation of rights against other parties or from which the same could be construed as a covenant not to sue. Finally, he posed the question whether there was anything in the surrounding circumstances which would rebut the prima facie meaning of the agreement. He found that there was not, and that the intermediate lessee was released.

HHJ Baker's statement of the general rule of law was described by the Court of Appeal in Johnson and Anr v Davis and Anr [1998] 2 AER 649 at page 658e as "authoritative". Chadwick LJ, with whom the other members of the court agreed, proceeded to examine the effect upon the general rule of the decision of the Court of Appeal in Watts v Lord Aldington, Tolstoy v Aldington [1999] LTR 578, a decision made on 15 December 1993. Lord Aldington had obtained judgment for defamation in the sum of £1.5 million against Mr Watts and Count Tolstoy. They were thus joint and several judgment debtors. There were several linked sets of proceedings in which Mr Watts and Lord Aldington were parties. By a written agreement a compromise was reached that third parties would pay £10,000 to Lord Aldington on behalf of Mr Watts. In consequence of the agreement Mr Watts sought a declaration against Lord Aldington that the settlement of 20 March 1991 constituted a release of all rights which Lord Aldington had against both himself and Count Tolstoy. Count Tolstoy sought an order directing his trustee in bankruptcy to reject Lord Aldington's proof in respect of the original judgment debt. At first instance Morritt J, as he then was, held that the agreement did not constitute a release of the joint judgment debtors but an agreement by Lord Aldington not to sue Mr Watts. Thus Lord Aldington's right to enforce judgment against Count Tolstoy remained intact.

At page 655(f) to (j) Chadwick LJ explained the analysis of their Lordships in Watts as follows:

In Watts’ case the court regarded as unsatisfactory the attempt to distinguish between on the one hand a covenant not to sue and on the other a release. The real question was whether the common law would, having regard to the circumstances objectively viewed, imply a reservation by the creditor of his rights against co-debtors. As Neilll LJ concluded:

Accordingly, the current state of the law is that, in order for the creditor to reserve his rights against co-debtors, he should expressly reserve those rights in his agreement. If he does not make express reservation the court will need to determine whether a term is necessarily to be implied from the circumstances which existed at the time of the agreement. In this case there was only one version of the agreement in evidence before the learned judge and that was provided by Mr Upton whose evidence the judge, to a large extent, accepted. There was no evidence before the judge of any express reservation by the claimant of its rights to pursue Ms Nash and the judge made no finding that such a reservation had expressly been made.

It seems to me that there were, on the issues presented to the judge, two questions of fact which required decision. The first was whether, notwithstanding the evidence of Mr Upton, the judge was able to conclude by inference that an express reservation was made. In view of the other findings made by the judge, I regard such a possibility as remote. The second, and alternative, question was whether, notwithstanding the absence of an express reservation, it was necessary by virtue of the surrounding circumstances to imply such a reservation. The evidence of Mr Upton accepted by the judge was that, having agreed to make a payment of £5000, he made a request of Ms Nash to contribute towards that payment. Such a request would have been inconsistent with an understanding between himself and the claimant that payment of £5000 did not constitute a release not only of himself but also of his co-debtor. The contrary indication, also accepted by the judge, was that, when giving instructions to their agents on 7 June 1999, the claimant indicated its intention to pursue both debtors for their respective shares of the total debt. I do not accept Mr Denman's written submission that the undertaking suggested to Wacks Caller that no third party would seek to recover any further sum from Mr Upton was consistent only with release of Ms Nash. The undertaking then proposed, it seems to me, referred not to any contribution sought by Ms Nash from Mr Upton as a result of further payments made by her, but to the balance between the payment of £5000 and the sum of £27,020 being compromised in Mr Upton's case. Accordingly, the insertion of such a term in the accord between Mr Upton and the claimant would have been equally consistent with reservation of the claimant's rights against Ms Nash. However, the agreement between Mr Upton and the claimant was made in July 1999. The last letter written by the claimant to its agent was dated 21 June 1999 in which the claimant was giving to Mr Booth information about Mrs Upton's last known whereabouts. The judge had before him no evidence of events which occurred between the sending of that letter and the acceptance of the sum of £5000. The next link in the chain of correspondence is a letter dated 5 September 2000 when the claimant wrote to Ms Nash referring to correspondence between herself and Wacks Caller, informing her that Mr Booth was no longer dealing with the matter. Somewhat surprisingly, the letter was followed by an offer on 26 October 2000 to Ms Nash accepting settlement by 60 monthly payments of £5, depending upon a change in means, and a follow-up letter of 18 January 2001 offering to limit her liability to £1500 in total. One possible construction of these events available to the learned judge would have been that the claimant, following settlement with Mr Upton, had serious doubts about the propriety of pursuing Ms Nash for her half of the total liability; that is to say £27,020.

At no stage did the judge pose for himself the question whether, notwithstanding the absence of evidence of an express reservation, the circumstances required the implication of such an implied term. The burden of establishing such a term lay upon the claimant. The question posed by the judge was whether there was a positive agreement between Mr Upton and the claimant to the effect that Ms Nash's liability would be discharged. In posing the question in that way, it is my view that the judge reversed the burden. Ms Creer conceded as much in argument. While I accept that the judge had every justification for finding that the claimant's intention was properly reflected in contemporaneous letters passing between the claimant and his agents, I do not consider that it was a necessary implication that, at the time the agreement was made between the claimant's agent and Mr Upton, the claimant either was, through its agent, intending to reserve its rights against Ms Nash, or that it was a necessary implication of the agreement that they were doing so. Such was the uncertainty, save in the mind of Mr Upton, as to the circumstances prevailing at the time of the agreement, I consider that the claimant failed to meet the burden upon it to establish the reservation either expressly or by implication, and I would allow the appeal.

I agree, and add only a few words of my own. On what I shall call Ms Creer's application to introduce the “no consideration" point, it is far too late. The matter was first canvassed in Ms Creer's oral submissions; it did not feature in her skeleton argument; perhaps more importantly, it was not argued before the judge. The submission comes to this. A creditor is not bound by part payment of an undisputed debt. Accordingly, no consideration moved from Mr Upton to the Chelsea Building Society. The point is certainly one of respectable vintage; it dates back to the rule in Pinnel's Case (1602) 5 Co Rep 117a. As Ms Creer would have advanced it, the argument was that because of the rule in Pinnel's Case the agreement between the respondent and Mr Upton could not disclose an accord and satisfaction. That Mr Upton may himself have had a defence of waiver or estoppel would not have assisted the appellant. Accordingly, the respondent would have been able to proceed against her.

The point is one of interest and is not necessarily straightforward. Ordinarily, a balance might have been struck between lateness and importance by permitting the respondent to advance it against payment of a suitable sum in costs. Here, however, as it seems to me, there is a fatal objection to giving permission at this stage. The reason is that the opportunity of making fact-findings before the judge has been irretrievably lost. For example, in the skeleton of the (now) appellant in the court below there is this passage:

Turning to the points which were properly before this court, the decision we make is based entirely on the facts of the individual case. As Pitchford LJ has made clear, there was no express reservation of the respondent's right to proceed against the appellant. Furthermore, for the reasons given by Pitchford LJ and with which I respectfully agree, such reservation cannot be implied in the particular circumstances and on the sparse facts of this case. The respondent could have protected its right to proceed against the appellant simply and straightforwardly by inserting an express reservation in the agreement entered into with Mr Upton. For whatever reason, it did not do so. In my judgment, the decision on this appeal is of no wider authority than that which I have outlined.

In the circumstances which my Lords have described, I agree that it would be an unjust use of this court's powers to allow the respondent to take a root and branch point of which the appellant has had no notice, either here or (much more materially) below. As to the single question which therefore remains, apart from my doubt as to whether what passed between the claimant and its agent was relevant or admissible at all, I agree that, for the reasons given by my Lords and on the unusually sparse known facts, this appeal succeeds.