Prebble v Costa

In March 2005 Mr Marco Costa owned a house known as The Ladyholt in Kenley. It was his intention to sell it but not immediately. He was in the process of acquiring a more expensive property elsewhere. He was a business man but was experiencing cash flow problems. He knew and was on good terms with his neighbour Mr David Prebble. Mr Prebble had been a police officer but was now seriously disabled and his wife was terminally ill. Mr Prebble was keen that his daughter and son-in-law, Emma and Adrian Tapping, should come to live nearby. Mr Tapping was employed in Mr Costa’s business. However, the Tappings were short of capital to put towards the purchase of The Ladyholt. On 29 March 2005 there was a meeting at the property attended by Mr Costa, Mr Prebble and the Tappings. In fact, Mr Costa had permitted the Tappings to move into The Ladyholt shortly before the meeting. An agreement was reached at the meeting. The present dispute is concerned with its terms and, indeed, its parties. According to Mr Prebble the agreement was one whereby he would lend £70,000 to Mr Costa which was to be repaid on the eventual sale of the property. In the meantime, the Tappings were to live in it. The case for Mr Costa is that Mr Prebble was to lend £70,000 to the Tappings and, to the extent that Mr Costa received or benefited from that sum, it would represent rent payable by the Tappings. It is common ground that on or about 5 and 6 April 2005 Mr Prebble transferred £70,000 to or to the order of Mr Costa. It was raised pursuant to Mr Prebble’s overdraft facility. The sum was paid in three parts. £14,000 was paid into Mr Costa’s bank account. A cheque for £20,000 was paid to Mr Franki, a supplier to whom Mr Costa owed money. A cheque for £36,000 was made payable to Mr Costa personally. At about the same time, a second meeting took place. Mr Costa told Mr Prebble that his accountant had advised against renting the property because of the tax implications. He raised the possibility of Mr Tapping eventually purchasing the property. In the event, the Tappings remained in the property for about 12 months but no rent was paid or demanded. In about March 2006 Mr Costa sold The Ladyholt to a third party with vacant possession. Mr Prebble then sought repayment of the £70,000 by Mr Costa, who denied liability on the basis that he had not borrowed the money. He maintained that it had been advanced to Mr Tapping but applied for the benefit of Mr Costa, initially on the understanding that it would relate to rent but later on the basis that it would relate to an eventual purchase of the property by the Tappings.

Mr Prebble commenced proceedings in the Croydon County Court against Mr Costa, claiming repayment of the loan and interest. At the hearing on 17 August 2009 it was agreed between counsel that the issue in the case was whether Mr Prebble had lent £70,000 to Mr Costa on the basis of an oral agreement made on 29 March 2005 with a liability to repay on the sale of the property or whether the money had been paid to or to the order of Mr Costa on behalf of Mr Tapping who was the true borrower.

Judge Baucher decided that there had been an oral loan agreement whereby Mr Prebble had lent Mr Costa £70,000. She said that Mr Prebble “came over as giving his evidence in a clear, concise and consistent fashion in accordance with his witness statements and in accordance with the documentation”. She added:

“He was clear that this was a loan direct to [Mr Costa]. Why was he so clear? Because he had his own concerns about the realistic basis or otherwise of Mr and Mrs Tapping ever purchasing the property. There was as much chance of Father Christmas purchasing this property as there was a chance of Mr Tapping purchasing it, in my view, and Mr Prebble having been an experienced police officer and a man of this world, well knew that and he obviously well knew his son-in-law, but he was desperate to have his daughter next door, and that was why he paid over £70,000 and he did not care less, in reality, what interest he was paying on his overdraft as long as his daughter was next door.”

She also observed that Mr Prebble had paid the money over before any discussion in relation to the potential purchase of the property and had paid it either directly to Mr Costa or to his nominee. On the other hand, she found Mr Costa to be an unimpressive witness. She said:

“It is evident from his own evidence … , evidence which had to be dragged from him in relation to his cash flow at the time. He was asked about three times whether he had cash flow problems. It took about five minutes [for him] to give an answer that, yes, he did have cash flow problems. I am satisfied that he was desperate for cash because he wanted to purchase this property for £3.25 million. He had not been in a position to sell The Ladyholt. He had all sorts of fingers in various pies because of his business transactions. He was not able to get his hands on cash earlier on.”

She also found Mr Costa’s version of events to be “inherently unlikely” and attached significance to the fact that he, a man of business, had never sought a penny in rent from the Tappings. She expressed surprise at the lack of contemporaneous documentation to support Mr Costa’s case. She would have expected such documentation given his business background. Moreover:

“I do not believe Mr Prebble would have lent his son-in-law £70,000 as a deposit towards his purchase, because I do not believe that Mr Prebble ever thought that his son-in-law was capable of purchasing the property.”

Mr Prebble’s evidence was also supported by evidence from the Tappings.

It is obvious from these extracts from the judgment that the judge had formed a very clear view as to where the truth lay on the basis of her assessment of the witnesses. The dispute was essentially factual. How, then, does Mr Costa seek to overturn the judge’s order on appeal? Before addressing the grounds of appeal, it is necessary to describe the course of the trial in more detail.

At trial, the evidence of Mr Prebble and the Tappings proceeded uneventfully. Counsel then appearing for Mr Costa (not Mr Plewman) put part of Mr Prebble’s witness statement to him in cross-examination. The transcript reads:

“Counsel: You say: ‘the defendant went on to explain that he needed to raise some cash and asked if I could raise a substantial sum to help him. The defendant said that the money would be used as key money. I understood that to mean that if I loaned him an amount to be agreed then he would hold that money and use it whilst Adrian and Emma rented the property’.

A: That’s correct.”

In answer to another question in cross-examination Mr Prebble said:

“What he explained to me was he had a cash-flow problem and he needed the £70,000 – he needed a substantial sum of money to cover some debts that he had. That’s why he wanted money from me, and he would use that. We were talking about his key money, as money that I loaned to him so that he could use it as he saw fit, not to pay any rent, no.”

When Adrian Tapping gave evidence he said in chief:

“When the keys were given to me by the defendant his primary wish was that the property was not vacant. He had said to me that he would give me projects during his employment to cover the rent in the future.”

In cross-examination, counsel asked:

“Q: Is it not the case that the money which was loaned was in fact money for the purpose of you remaining in the property and effectively rent money?”

That prompted an intervention from the judge in these terms.

“This is not part of the pleaded case. It is not your pleaded case.”

There was then an exchange between counsel and the judge in which the judge observed that in the recently Amended Defence the pleading was that the £70,000 was advanced as a deposit towards a purchase of the property rather than in respect of rent. When counsel resumed cross-examination, the following answer was soon elicited:

“Certainly it was very clear from the outset that Mr Costa required monies quickly and that, in return for those monies being transferred quickly, he would allow for my wife and I and two children to stay at the property. There wasn’t a discussion either on the 29^th March nor the 6^th April in relation to a rental amount, neither a purchase price or agreement to purchase the property.”

The cross-examination soon came to an end following a further intervention from the judge expressing concern about departure from Mr Costa’s pleaded case.

Emma Tapping gave evidence. Her cross-examination included this passage:

“Q: Was it not the case that the £70,000 was a deposit for the purposes of a mortgage, in respect of you and your husband obtaining a mortgage?

A: No the £70,000 was nothing to do with me. It was an agreement between my father and Mr Costa.

Q: So your evidence is that it was never anything to do with you and your husband. It was purely an agreement between Mr Costa and Mr Prebble.

A: With regards to the £70,000, yes.”

When Mr Costa came to give evidence in chief he simply confirmed his witness statement. Paragraph 2 of the witness statement stated:

“Initially the transaction between us was to be on the rental basis but this soon changed because it was believed at that time that Adrian and Emma could obtain a mortgage … ”

That part of the witness statement was concerned with discussions between Mr Costa and the Tappings, rather than with Mr Prebble. As regards the eventual agreement, paragraph 7 of the witness statement said:

“The agreement was that Adrian and Emma would borrow the money from the claimant, who was, after all, Emma’s father and that they would pay back this money when they were in a position to do so. Adrian and Emma told me that it was their intention to obtain a mortgage which would cover all costs relating to the purchase of the property.”

When Mr Costa was cross-examined, the following passages materialised:

“Q: In March 2005 your plan was that you would rent The Ladyholt to the Tappings.

A: Yes

Q: That they would look after the property for a year, two years. Potentially you would do some improvements to the property and then you would sell it later. That was the original plan in March 2005.

A: There was no intended development to be done to the property because we had agreed that they would rent the property for two years.

Q: So that was two years from March 2005?

A: For two years from 2005. That’s how we got to the £70,000.”

And a little later:

“Q: So why was the claimant going to pay you £70,000?

A: It was two years’ rent … in advance.”

Counsel then complained that the evidence was inconsistent with the Amended Defence and, once again, the judge intervened in support of that complaint. Counsel for Mr Costa said:

“With respect, Your Honour, the defendant is stuck with, as you rightly say, the pleading.”

Soon after that the judge suggested a brief adjournment and counsel for Mr Costa gratefully accepted. When the hearing resumed, counsel pointed out to the judge the passage in paragraph 2 of the witness statement containing the reference to the initial transaction being by way of a rental agreement. The cross-examination continued. Counsel pointed out to Mr Costa that, one way or another, he had had the benefit of the £70,000 but that, if it was considered to be a deposit in relation to a proposed purchase, the purchase did not proceed. Counsel asked:

“Why have you not repaid it to Mr Tapping?”

The answer seems to have been that the occupation of the property by the Tappings had caused loss to Mr Costa by reference to the eventual sale price to a third party and liabilities incurred in respect of Mr Costa’s purchase of his new property. The judge intervened:

“I am coming to a decision in respect of this case. The more your client gives his evidence, the case is a complete shambles on your part.”

She then referred again to the discrepancies as between the witness statement and the Amended Defence and between both of those and the oral evidence. The judge expressed strong views about the unlikely suggestion that Mr Tapping, on an apparent income of £30,000 per annum in the employment of Mr Costa, might be able to obtain a mortgage of £600,000 which would be necessary if he were to purchase The Ladyholt. This soon led to the following exchange between the judge and counsel for Mr Costa:

“Judge: I am struggling to see how there is a defence to this action.

Counsel: The only defence, Your Honour, is what the defendant says in the Defence, which is that it was for a deposit …

Judge: How can I proceed on that basis if your client has given evidence to the contrary?

Counsel: That is the difficulty … On the one hand, in the witness statement he clearly says in paragraph 2 as to the rental issue, but does not specify how much rent was to be; does not go into particulars. Then in paragraph 8, Mr Costa then goes into the issue of it turning into a deposit for a mortgage, but the first point, as raised in paragraph 2, is not actually pleaded in the Defence.”

The judge then adverted to other difficulties that had emerged from the evidence of Mr Costa before saying:

“I cannot really see how your client can continue to give evidence in respect of this case in the light of the pleadings.”

The evidence then came to an abrupt end. Counsel made submissions and the judge made the findings to which I referred earlier in this judgment.

The relevant parts of the Amended Defence were paragraphs 6 and 8. In paragraph 6, dealing with the meeting on 29 March, it was pleaded:

“The defendant did not agree to borrow money from the claimant nor, consequently, to repay money to the claimant. The defendant understood that the claimant was lending money to Mr and Mrs Tapping … ”

Paragraph 8 then stated:

“By this date [vis 6 April] the defendant had agreed with Mr Tapping that Mr Tapping would borrow £70,000 from his father-in-law and would arrange for such monies to be paid to the defendant (and/or his nominee). Those monies would be by way of deposit against eventual purchase of the property by Mr Tapping. As a result, Mr Tapping had procured that the claimant made the payments directly to the defendant (and/or in part to his nominee) on their behalf, while he (Mr Tapping) had in turn agreed to make the repayment of such loan to the claimant separately.”

I have described the course of the trial at this length because it provides the background against which the judge came to the conclusions expressed in her judgment. The judge’s interventions, from her first interruption of the evidence of Mr Costa, were, on any view, robust and some might say excessively so. However, the grounds of appeal, as amended, do not assert unfairness.

The main grounds of appeal are subsumed under a general ground pleaded in this way:

“The learned judge erred as a matter of fact and/or law which renders her conclusions of fact plainly wrong. Had the learned judge properly weighed up the documentary evidence and the inherent probabilities in [Mr Prebble’s] account, she would have dismissed the claim against [Mr Costa].”

That general ground is then particularised. There is then a further ground which seeks to attack the finding that it was implausible that Mr Tapping could ever have afforded to purchase the property. The basis of this further ground is said to reside in fresh evidence.

Mr Plewman, who has come into this case only recently, has conducted his appeal with conspicuous ability. It is plain from a reading of the transcript that the judge’s robust interventions met with little by way of resistance from counsel representing Mr Costa at trial. Nevertheless, Mr Plewman has resisted the temptation to widen the appeal so as to embrace an allegation of unfairness. He is wise to do so. Accordingly, this is an appeal against the factual findings of the judge, with all the difficulty that entails, particularly in a case which turns on the formation of an oral agreement. The judge formed a clear view as to the reliability of the witnesses. The question for us is whether that view was plainly wrong in the light of (i) the documentary evidence, or (ii) the inherent probabilities, or (iii) the fresh evidence.

The documentary evidence

This was an unusual transaction between friends and neighbours. There was no contemporaneous documentation. The documentation produced at trial was largely correspondence between Mr Prebble and Mr Costa between 6 January 2007 and 18 May 2007, after which solicitors became involved.

It is plain from Mr Prebble’s first letter of 6 January 2007 that he had been pressing Mr Costa for repayment. In the letter, he referred to

“ … the problem we have over the money I gave you in April 2005 initially as a deposit for the rental of The Ladyholt for three years, and then, to be held by you until the sale of the property.”

Mr Prebble then made an offer to compromise by allowing a sum of £24,000 “for the rent of the house as a private agreement between us”. Failing that, he threatened proceedings before adding:

“I am sorry to have to take this line with you but I entered into this arrangement with you in good faith and on the understanding that it was between we two … I was aware that when I paid over the money to your jeweller and to your private account I was helping out on a cash flow problem and have not pushed hard for the return of this money because I believe that I am dealing with an honourable man who would return the money in return in the terms of our original arrangement that only changed on advice from an accountant.”

Mr Costa replied by a letter dated 17 January 2007 in which he said:

“Adrian said that it may be possible for him to obtain a part of the house deposit from yourself as things were very hard for both of us at this stage. Being that you are Emma’s father it seemed a kind gesture from you to lend them this money until they were in a position to pay you back. It was Adrian and Emma’s intention to obtain this money through the mortgage lender which would also cover all costs relating to the house purchase.”

There was a further reference in the letter to Mr Prebble “lending them this money”. The letter concluded by saying that it had been compiled “with the assistance of Adrian as remembering specific dates and transactions over a year old sometimes can be quite difficult”. The letter was signed by Mr Costa and then countersigned by Mr Tapping beneath these words:

“I Adrian Tapping accept full responsibility to repay Mr D Prebble any outstanding amounts relating to The Ladyholt … ”

In his next letter, dated 21 January 2007, Mr Prebble, referring to the March meeting, said:

“We agreed that the house would be rented for up to three years and that I would get the £70K back. Adrian would be liable for the rent and the interest on my overdraft.”

Later in the letter he said:

“I must point out that this sum of money is considerably more than my annual salary and would not have entered into this arrangement had you not assured me that you would pay it back when the house was sold, hopefully to my son-in-law.”

That letter elicited no response from Mr Costa. On 12 March 2007 Mr Prebble wrote again, repeating his earlier offer to settle the matter and adding:

“You surely remember that at the time of our arrangement you informed me that you had a cash flow problem and that it would help to tide you over until you sorted the problem at the time.”

Again there was no response before Mr Prebble wrote again on 18 March 2007 saying:

“I cannot and will not accept your view that it is Adrian’s debt. I assumed that I was dealing with an honourable man who simply had a cash flow problem and would meet his debt to me when the house was sold.”

Again, there was no response. On 6 May 2007 Mr Prebble wrote again saying that he was left with no alternative “but to pursue your debt to me through the courts”. In the same letter he threatened to inform the Inland Revenue of the transaction and, indeed, enclosed a draft letter to the Inspector of Taxes. The draft letter included these passages:

“On behalf of my son-in-law and daughter I paid to Mr Costa the sum of £70,000 initially as a deposit for them to rent a property owned by Mr Costa and then, at his instigation, as a deposit for the house to be sold to my son-in-law. … My son-in-law was unable to raise sufficient to buy the house but stayed in the house until March 2006 when it was sold by Mr Costa to a third party. Mr Costa then failed to return the deposit to me and has since failed to do so. I have since made an offer of settlement where I am willing that he holds £24,000 as rent for their time in the house but this too will have to be declared by him should he agree to my proposal.”

Upon receipt of that letter, Mr Costa instructed solicitors.

Mr Plewman submits that Mr Prebble’s letters undermine his evidence about the nature of the transaction. It is true that there are passages in the letters which are expressed differently from his evidence. For example the description in the letter of 6 January 2007 of the £70,000 as being “money I gave you in April 2005 initially as a deposit for the rental of The Ladyholt for three years …”. Also the offer to settle on the basis of a discount of £24,000 “as the rent for the property”, as suggested in the letter of 12 March 2007. Mr Plewman attaches particular significance to the draft letter to the Inspector of Taxes in which Mr Prebble said that he had paid Mr Costa money “on behalf of” the Tappings.

The judge had these letters well in mind. Her consideration of them in her judgment fell into two parts. First, she thought it appropriate to make allowances for Mr Prebble’s predicament at the time of the transaction and thereafter. She said:

“I have no doubt that Mr Prebble, having suffered the loss of his wife and all the trauma and the stress that that caused, and his own significant disability, which he has put to one side and never mentioned to me in the course of his evidence, he has had to battle on regardless and put this to the bottom of the pile, namely the repayment of this loan. He then decided, once he had had a sufficient period to get through his mourning, and to put his life back on track so to speak, to recover this sum.”

Secondly, she did not consider Mr Prebble’s letters to be so inconsistent with his evidence. The letters have to be read as a whole. Although the letter of 6 January referred to his having given Mr Costa the money “initially as a deposit for the rental …”, the letter also referred to the arrangement having been “on the understanding that it was between we two” and went on to say that he believed that Mr Costa “would return the money in the terms of our original arrangement”. Then, in the letter of 21 January, he said that “I would get the £70K back” and “Adrian would be liable for the rent and the interest on my overdraft”. The letter of 6 May, which enclosed the draft letter to the Inland Revenue, referred to Mr Prebble’s intention “to pursue your debt to me through the courts”. The draft letter to the Inland Revenue has to be seen in that context.

In my judgment, all this goes to show that it cannot be said that the letters undermine Mr Prebble’s evidence. They are entirely susceptible to the interpretation that he was asserting that the £70,000 was a loan to Mr Costa, repayable by Mr Costa, but was offering to accept a lesser sum to reflect the fact that the Tappings had paid no rent for their period of occupation. So far as Adrian Tapping’s counter-signature to the letter of 17 January was concerned, Mr Tapping gave evidence about feeling under great pressure from Mr Costa, his employer, at the time and that he had signed the letter reluctantly. The judge concluded:

“I have no doubt that he felt a sort of moral obligation to sign this letter in the hope that somehow this matter would not come to any court proceedings and matters might be resolved amicably.”

Having seen the witnesses, the judge was entitled to come to that conclusion about Mr Tapping in addition to her conclusion about the significance of the letters written by Mr Prebble.

Inherent probabilities

Inherent probabilities or improbabilities often assist in determining the terms of an oral agreement. However, on any view the facts of this case are unusual. It is of little benefit to ask what normally happens in such situations because this was not a normal situation. Mr Prebble was advancing money that he did not have and had to obtain on overdraft. Mr Costa was not a conventional landlord in search of a tenant. Nor was he an immediate vendor of the property. He had a short-term need for The Ladyholt to be occupied prior to sale and he had significant personal cash-flow problems. The Tappings were not conventional house-hunters. Their interest in the particular property was driven more by immediate family needs than by anything else. On any view, their modest income by itself could never support a mortgage of £600,000. The oral agreement was made at a short meeting between friends and neighbours. Everybody present was beset with personal difficulties of different kinds.

This is the background against which Mr Plewman submits that the judge’s findings are at variance with the inherent probabilities. I reject this submission. Whilst I accept that, on one view, Mr Prebble and Mr Costa could have entered into an oral agreement for the loan without the presence or involvement of the Tappings and that it is odd that the Tappings paid no rent either before or after the expectation changed from renting to purchasing, there are other features which militate strongly against Mr Costa’s case. First, why should the £70,000 be related to rent when the understanding was that Adrian Tapping would pay rent out of increased earnings made available through his employment by Mr Costa? Secondly, if the arrangement was as suggested by Mr Costa, he should have accounted to the Tappings once they fell out of the picture as potential purchasers. He never did so. Thirdly, the fact that he did not see the occupation of the property by the Tappings in purely commercial terms is shown by his omission to seek rent at any stage. There was evidence, accepted by the judge, that Mr Costa wanted someone in the house whilst it was on the market and that he stood to benefit from any modest maintenance to it by the Tappings. Fourthly, Mr Costa’s evidence in cross-examination to the effect that he had incurred a loss on the eventual sale as a result of the occupation by the Tappings was simply opportunistic.

In a case where there was no contemporaneous documentation and the unusual circumstances rendered inherent probabilities elusive, the decision was bound to turn on the judge’s assessment of the witnesses. She came to a clear conclusion about them. I can well understand why. The ground of appeal based on inherent probability must fail.

Fresh evidence

The third ground of appeal is accompanied by an application to admit fresh evidence pursuant to CPR 52.11(2). It is common ground that the principles expounded in Ladd v Marshal [1954] 1 WLR 1489 remain relevant. The evidence all relates to the Tappings’ financial potential as mortgagors. It seeks to undermine the conclusion of the judge that “there was as much chance of Father Christmas purchasing this property as there was a chance of Mr Tapping purchasing it”.

The new evidence comprises the following documents:

In my judgment, even if it can be said that this evidence could not have been obtained with reasonable diligence for use at the trial, it is not evidence which would probably have had an important influence on the result of the case. At trial, it was common ground that the Tappings had been seeking a mortgage facility with a view to the purchase of The Ladyholt. Indeed, Mr Costa knew one of the financial intermediaries involved. It was the very one from which the second document, the letter of 4 April 2005, emanated. That the Tappings were still seeking mortgage facilities in relation to The Ladyholt in early 2006 is neither here nor there. It provides no assistance in determining what was agreed on 29 March 2005. Moreover, neither the documents from the financial intermediaries nor the Experian credit report cast any doubt on the judge’s conclusion about the Tappings’ inability to raise a mortgage of £600,000. What they show are attempts to secure a mortgage but they do not dispel the inevitable inference that, even in those days of self-certification mortgages, their prospect of obtaining one in that amount on an honest basis was negligible. What the Experian report shows is that when, later, Adrian Tapping did succeed in obtaining a mortgage it was for less than half the amount that would have been necessary for a purchase of The Ladyholt. In my view, the newly acquired documents are of no assistance in determining what was agreed in March or April 2005.

It follows from what I have said that none of the grounds of appeal succeed. The judge’s approach to Mr Costa’s evidence was, in my view, rather heavy-handed. However it does not afford a ground of appeal. Nor is it suggested on Mr Costa’s behalf that it does. I would describe it as crude but shrewd. I would dismiss the appeal.

I agree.

I also agree.