National Guild of Removers and Storers Ltd v Jones & Coid

These two appeals, which have been listed together, concern orders made in the Patents County Court upon applications by the appellant for final charging orders pursuant to the Charging Orders Act 1979 and CPR 73.8. Mr Jonathan Hill appears for the appellant. Mr Jones appears personally as respondent in the first appeal. His wife does not appear. Mr Coid appears in person as respondent to the second appeal. The actions from which the proceedings for charging orders arise came about as a result of the appellant’s business as the trade association. The appellants have members who use that membership to promote their business as removers and storers. Promotion is achieved by providing customers with an assurance of standards of service supported by an industry ombudsman. Membership entitles members to advertise their services by using the association’s logo and by making reference to their membership.

I shall describe the background facts to these appeals in chronological order. Mr Coid at the relevant time carried on business as a remover under the title of Magpie Services. On 14 February 2008 the appellant issued a claim in the Patents County Court against Mr Coid alleging that he had been falsely passing himself off as a member of the appellant’s association in the promotion of his removal business. On 4 May 2010 the appellant obtained judgment in the sum of £2,400. A judgment on liability was entered in default. There then followed proceedings relating to quantum, including disclosure, resulting in the setting of a date for a hearing as to quantum of damages. At the hearing the issue was settled between the parties by an agreement that Mr Coid would pay the sum of £2,400 in damages and the appellant’s costs of the action, subject to a detailed assessment of those costs on the standard basis. The consequence unfortunately for Mr Coid, the respondent, is that he was ordered to pay, following that assessment, a total sum of £27,431.92. In other words, the award of damages attracted a costs assessment of £25,635. Mr Coid has made two repayments of £250 in January and February of 2011. He paid the sum of damages in full. On 11 January 2011 HHJ Birss QC made an interim charging order over Mr Coid’s home at 122 Newlands Lane South in Workington to secure the judgment debt and costs then outstanding of £27,101.50. The hearing for consideration whether the interim order should be made final was fixed under CPR 73.4(2)(b) for 16 May 2011 by which date the judgment debt had risen to £27,431.93, including the costs of the appellant’s application for the final order.

On 7 June 2010 the appellant issued a claim in the Patents County Court against Simon Paul Jones and Kim Susan Jones, the respondents in the second appeal. Mr and Mrs Jones traded as ATR Removers at that time. They were, between 4 April 2008 and 2 July 2009, members of the appellant’s association. By its claim the appellant alleged that, having relinquished their membership, Mr and Mrs Jones continued in breach of their written agreement with the association to act as though they were members. On 25 January 2011 the appellant obtained judgment for the sum of £9,673.34. As I understand it, there is to be a detailed assessment of costs not yet attached to the judgment debt. No payments were made in discharge of the debt and on 12 April 2011 HHJ Birss QC made an interim charging order over the respondent’s home at 65 Neuman Crescent, Bracknell, securing the judgment of that debt by then amounting to £9728.00. The hearing for consideration of a final charging order was also fixed for 16 May 2011, by which time the judgment debt had risen to £9910.80.

As at the date of the final hearing, none of the respondents to these two appeals had lodged evidence showing cause why a final charging order should not be made. At the hearing Mr Coid informed the judge that his business had suffered in the deteriorating economic circumstances. His turnover was down by two-thirds on the previous year and he was in no position, he said, to make periodical payments. He had other debts, including utility bills. His intention was to borrow against the equity of his home in which his wife was a co-owner and by that means hoped to be in a position to pay the judgment debt in full by November 2011. The judge declined to make a final charging order. He extended, as the judge put it, the interim order and fixed the hearing date for 1 December 2011. In the meantime he ordered the accrual of interest at the judgment rate of eight per cent to be suspended. If Mr Coid failed to make good his intention, he indicated that the final order would be made on the return date and the accrual of interest at the judgment rate would be reinstated as from that day. The effect of the judge’s order was that, whether or not Mr Coid made payment of the judgment debt before 1 December 2011, the appellant would not recover interest on the judgment sum which otherwise would have accrued between 17 May and 30 November 2011.

At the hearing of the application in respect of Mr and Mrs Jones, Mr Jones told the judge that the industry was facing hard times. He employed three workers who depended upon him for their livelihood. Mr Jones offered to repay a sum between £80 and £100 per month. The judge observed that the purpose of a charging order was to recover the money and to enforce the order but not to punish. The judge declined to make the final order and in lieu accepted the offer to make payments at the rate of £100 per month. The judge calculated that these payments would be sufficient to pay the accruing interest and at least some of the capital. He warned Mr Jones that if he did not make the payments as required a final charging order would be made on further application.

The appellant appealed against these orders made by the judge on the following grounds, which I summarise.

Turning now to the jurisdiction exercised by the judge, under section 1(1) of the Charging Orders Act 1979, a judgment in the High Court or a county court may be enforced by application for a charging order over such property of the debtor as may be specified in the order for the purpose of securing payment of the money due under the judgment. Under section 1(5) the court is required to:

“consider all the circumstances of the case and, in particular, any evidence before it as to –

(a)

the personal circumstances of the debtor, and

(b)

whether any other creditors of the debtor would be likely to be unduly prejudiced by the making of the order.”

The procedure to be followed when making an application for a charging order is provided by CPR 73. The first step is an application in writing which may be made without notice and it is considered without a hearing (CPR 73.3(1) and 73.4(1)). The judge may make an interim order – formerly called a charging order nisi – which imposes a charge over the judgment debtor’s interest in the asset to which the application relates. In the case of land, in order to be effective the charge will require registration pursuant to section 3 of the 1979 Act. In the case, as here, of registered title, a notice of restriction will be entered under the Land Registration Act 2002. The judgment creditor is required by CPR 73.5 to serve upon the judgment debtor within 21 days a copy of the interim order. The court will, under CPR 73.4(2)(b), have fixed a date for a hearing to consider whether the interim order should be made final (formerly called absolute). Under CPR 73.8(1), in terms which I have already quoted, any person objecting to the making of the final order must file written evidence stating the grounds of objection not less than seven days before the hearing. Rule 73.8(2) states:

“At the hearing the court may (a) make a final charging order confirming that the charge imposed by the interim charging order shall continue with or without modification; (b) discharge the interim charging order and dismiss the application; (c) decide any issues in dispute between the parties or between any of the parties and any other person who objects to the court making a final charging order; or (d) direct a trial of any such issues and, if necessary, give directions.”

By section 3(5) of the 1979 Act the court may at any time on the application of the debtor or anyone else interested in the property discharge or vary a charging order. The ultimate sanction is a further application to the court under CPR 73.10 for the sale of the property the subject of the charging order. Where, as here, the property comprises the matrimonial home of the judgment debtor, powerful reasons will be required to persuade the court to order a sale. The editors of the current edition of the White Book have made the following comments at 73.10.10 on the effect of the current general economic outlook:

“At the time of this edition the UK is recovering from recession which saw two banks nationalised and most others receive Government help. Lenders remain concerned about their balance sheets.

A debt which would otherwise be a bad debt but which is then secured by a charging order will now appear on the balance sheet as an asset. This has led to many courts being inundated with applications for charging orders. The courts will make the order, subject to normal principles, but generally do so merely to give security rather than as a prelude to an order for sale. Unfortunately many courts have now been receiving many unmeritorious applications for an order of sale, often made by an assignee, in respect of small or modest debts (such as credit card debt) purchased at a knock down price. Such applications are likely to be dismissed as totally without merit and subject to an adverse costs order.”

There are two distinctions immediately to be made between the sort of case upon which the editors were commenting and these two appeals. First, these are judgment debts arising out of actions for passing off. They are not debts owed to a bank resulting in a judgment debt. Secondly, the appellants are not assignees of debt. They are the original claimants to the actions in respect of which the debt has been incurred. Nevertheless, the important distinction between providing security for the judgment debt and the order for sale of the property on which the judgment debt is secured applies equally to these appeals, in my judgment, as they do in the case referred to by the editors.

The appellant contends that there is a burden upon the judgment debtor to show why a final charging order should not be made, in other words, that the making of the interim order creates a presumption in favour of the making of a final order. I have reached the conclusion that the application of a legal burden of proof is not determinative of the issues which arise in this appeal. However, I would wish to draw attention to the development of the law relating to charging orders in order to raise the question whether it is appropriate to speak of a legal burden resting upon the judgment debtor. The predecessor to the Charging Orders Act 1079 was section 35 of the Administration of Justice Act 1956. Section 35(2) permitted the court to make a charging order “either absolutely or subject to conditions”. A similar provision appears in section 3(1) of the 1979 Act. However, the rules of the Supreme Court originally imposed procedural requirements for an application for a charging order. By order 50, rule 1, paragraph (2):

“Any such order shall in the first instance be an order to show cause, specifying the time and place for further consideration of the matter and imposing the charge until that time in any event.”

Rule 1(3) provided that the application could be made ex parte. Rule 1(6) provided as follows: “

It follows that the rules, as then enacted, created a specific burden upon the judgment debtor once the charging order nisi had been made to show cause why the order should not be made absolute. In Roberts Petroleum Ltd v Bernard Kenny Ltd [1982] 1 WLR 301 (CN) the judgment creditors, Roberts, obtained a charging order nisi to secure a debt of £74,000. Before the hearing of the application to make the order absolute, the judgment debtor, Kenny, held an extraordinary meeting at which it resolved that the company should be wound up and a liquidator appointed. Two days later the judgment creditor obtained an order for a charging order absolute. On appeal Bristow J discharged the order on the grounds that the judgment debtor was irrevocably on the road to liquidation and the judgment creditor should not, in those circumstances, be permitted to obtain an advantage over the creditors generally. The decision of the judge was overturned by the Court of Appeal but, for reasons which do not concern this appeal, was restored in the House of Lords ([1983] 2 AC 192). In the Court of Appeal Lord Brandon of Oakbrook identified several principles of general application. He identified at page 307F the principle that “the burden of showing cause why the charging order nisi should not be made absolute is on the judgment debtor”. That statement of principle was not challenged by the judgment debtor on appeal to the House of Lords ([1983] 2 AC 195 C-H). It is to be observed that at the time of the decisions in Roberts v Kenny the rules of the Supreme Court provided as I have extracted them into this judgment. It is noticeable that on some future occasion the rules of the Supreme Court were amended so that, for example, in the 1999 edition of the White Book, Rule 1(6) was no longer a rule of the Supreme Court.

The terms of RSC Order 50, Rule 1 are not replicated in its successor under CPR 73.8, which provides only that a judgment debtor wishing to object to the making of a final order must file and serve written evidence stating the grounds of his objection not less than seven days before the hearing. There is no explicit requirement upon the court to make the order final unless the judgment debtor shows cause for not making the order. In my view this is not surprising, having regard to the terms of section 1(5) of the 1979 Act. The interim order is made without a hearing and usually without notice to the debtor. The court is unlikely at the interim stage to be furnished with full information about the debtor’s financial circumstances. The prescribed form for an application relating to land is Form 379, which must be supported by a statement of truth. The court is informed of the judgment debt and will be made aware of any payment history and the fact that the judgment debt has not been paid. The court will be informed of the property in respect of which the charging order is sought and the interest of the judgment debtor in that property. The judgment debtor is required to inform the court of any other creditors of which it is aware.

In my view the burden at the stage of the written application must surely be upon the judgment creditor to demonstrate why it is that he requires the protection of a charging order. The debtor has the opportunity in preparation for the hearing to present in writing his objections to the making of the order and to make oral representations to the judge. At the final hearing the judge is required to consider the matters to which reference is made in section 1(5) of the 1979 Act and to exercise his discretion accordingly.

I have set out what I regard to be an argument that there is no legal burden upon the judgment debtor at the final hearing to demonstrate why a final charging order should not be made. We have not received full argument either from the appellant or from the respondents, who, as I have said, appear in person. Accordingly, while this is not the occasion upon which to make a decision as to whether or not there is a burden upon the judgment debtor, and, if so, whether it is a legal burden or an evidential burden, I mention the issue here in order that the profession shall be aware of it.

I turn to the grounds of appeal as they affect the respondent, Andrew Coid. Unfortunately we have no transcript of the judgment in either case. There was a technical fault in the recording equipment. Nevertheless, counsel for the appellant made a reasonably full note which has not been challenged by Mr Coid or indeed by Mr Jones and I have summarised the effect of the judge’s words earlier in this judgment. Mr Hill has submitted that the judge must have misunderstood the effect of a final charging order because he appeared to conclude that it was necessary to relieve Mr Coid from the threat of a charging order while he made arrangements for an advance against his beneficial interest in his home. The judge’s order simply had the effect of adjourning or postponing the application for the final charging order to 1 December 2011, and it is no longer disputed by the appellant that the judge had that power. The judge was, in my opinion, quite entitled to exercise his discretion by adjourning the application in order to put Mr Coid’s expression of intention to the test. The adjourned date, 1 December 2011, has of course passed by reason of the institution of this appeal.

However, the judge did not explain his reason for suspending in the meantime the accrual of interest. There are, it seems to me, two possible inferences. It may be that the judge intended it to be an incentive for Mr Coid to do what he said he would. On the other hand, the order made could not have acted as an incentive since, upon that order, the interest suspended during the period of adjournment would never be added back to the judgment debt whether or not the judgment debt was paid by borrowing against the beneficial interest in the respondent’s home. With respect to the judge, it does not seem to me that the reduction of the judgment debt by suspending the accrual of interest was a legitimate exercise of the judge’s discretion in the context of an application for a final charging order. Mr Hill made the submission to the court that the judge had no power under any circumstances to suspend or reverse a decision as to the accrual of interest. Again, the court has not had the benefit of full argument from the judgment debtors upon this issue and it is unnecessary for me to express a view one way or another. I shall therefore confine my judgment to the question of whether in the present context it was appropriate for the judge to suspend the accrual of interest, assuming for the moment that he had a power to do so.

No reason was advanced by Mr Coid before the judge as to why the normal judgment rate should not continue to run during the period of adjournment until either payment of the judgment debt or the date of the adjourned hearing. Mr Coid says that he told the judge that he could not afford to make periodical payments. In his submissions to us Mr Coid produced a witness statement in which he described the precarious nature of his current financial position and creditable efforts to pay off by periodical payments substantial debts which he owes to HM Revenue and Customs, to his bank and to utilities. Mr Coid feels some resentment towards the costs order in a sum exceeding £25,000, in an action in which damages recovered amount to £2400. Mr Coid’s ability to make periodical payments was an entirely separate consideration, it seems to me, from the issue whether interest should accrue on the outstanding sum. I can see no basis for depriving the appellant of the interest to which it was entitled under section 74 of the County Courts Act 1984, the County Courts (Interest on Judgment Debts) Order 1991 (as amended), the Judgment Debts (Rate of Interest) Order 1993 and the County Courts (Interest on Judgment Debts) Order 1991. It may be, in the alternative, that the judge had in mind article 4(1) of the latter order, which states that where a judgment creditor takes proceedings in the county court to enforce payment under the relevant judgment the judgement sum should cease to carry interest thereafter, except where those proceedings failed to produce any payment from the debtor. However, by article 4(2), enforcement proceedings for these purposes do not include proceedings under the Charging Orders Act 1979. It follows that if it was this provision which the judge had in mind, it had no application to the proceedings before him.

In my judgment, neither in the court below nor before this court has Mr Coid advanced any legitimate reason why interest should have been suspended. I would allow the appellant’s appeal to the extent of deleting paragraph (iv)of the order made by the judge at page 11 of the appeal bundle and by substituting for it “Interest on the judgment debt will continue to accrue”. Subject to the views of my Lord and my Lady, the effect of such an order would be to enable the appellant to apply for the resumption of the final hearing should it, on advice, seek a final order under section 1 of the 1979 Act.

In his judgment in the case of Mr and Mrs Jones, the judge appeared to accept that the burden was on them to show that the final order should not be made. The judge remarked:

“The purpose of making the order is to successfully recover the money and enforce the court order, not to punish Mr Jones.”

I respectfully agree. Mr Hill argues on behalf of the appellant that either the learned judge, by expressing himself as he did, took account of an immaterial factor since punishment is no part of the purpose of imposing a final charging order or alternatively, if he did not, then there was no ground for not making a final charging order. The only consequence of a final charging order would have been to provide security for the judgment debt. It would not have imposed any additional financial burden upon the respondents and, since the property concerned was the respondent’s matrimonial home, the imposition of a final order would have created no presumption that the security would be realised in the form of a sale, particularly where the sum outstanding is just short of £10,000. The learned judge accepted from the respondent an offer to make payments of £100 per month. Interest would, in the meantime, be accruing on the judgment debt of £9,910.80 at the rate of eight per cent per annum. Repayments at the accepted rate would endure for several years.

In his submissions to this court Mr Jones relied upon the fact that the judgment debt arose from what, to him, was pure mistake on the part of the respondents. He informed the court that his current mortgage was £290,000. An informal valuation of the property is in the sum of £305,000 to £310,000. He had been paying, as he promised, £100 per month and recently voluntarily he paid an extra £25 per month. On his calculation he was repaying £20 per month off the principal judgment debt, which would amount to the sum of £300 per year.

As I have said, the application of a burden of proof is not required to resolve this appeal. I conclude that the learned judge erred in law in concluding that a final charging order would have amounted to a punishment in the circumstances before him and he failed to take account of the consequences of a refusal to make the order to the appellant’s reasonable prospect of recovery of the judgment debt. Exercising that discretion afresh, it seems to me that in the circumstances a final charging order was clearly appropriate. Without it the appellants would be left with an unsecured debt for many years, with no reasonable proposal for repayment of the principal sum. The appellant was not, as I understand it, seeking an order for periodical payments, certainly not in the sum ordered by the judge. The consequence of the judge’s order was to bind the appellant to the receipt of minimal periodical repayments of the principal judgment debt. Provided the respondent kept up the payments, the debt would remain unsecured and the appellant would enjoy no priority over subsequent creditors.

I would allow the second appeal also and vary the judge’s order, which appears at appeal bundle page 11, in the terms set out in section 7 of the appellant’s Notice of Appeal at appeal bundle page 5. As I understand it, the effect of such an order would be to remove the periodical payments but to grant the final charging order which the appellants had sought.

I agree.

I agree that these appeals must be allowed for the reasons given by Pitchford LJ in his full and careful judgment, but I wish to add a few words of my own on one aspect.

The respondents, Mr Jones and Mr Coid, each made their submissions on their respective appeals clearly and articulately. On their case, their liability to the appellant in these unfortunate circumstances would not have arisen if they had had access to competent legal advice. Even more clearly, the extent of the liability of each of the respondents to the appellant in respect of the costs of these proceedings is attributable to the fact that they did not have access to competent legal advice.

This is well illustrated by the facts relating to the claim brought by the appellant against Mr Coid which have been summarised by my Lord in his judgment. Mr Coid fought the appellant’s claim, which we were told was for a sum in the region of £15,000 all the way to the door of the court. Just before the start of the trial, he agreed to pay the appellant £2400 plus their costs. Those costs have now been assessed at over £20,000, excluding the costs of the settlement. It is very unsatisfactory – some may say alarming – that a successful claim for £2,400, which was simply a year’s subscription to the appellant’s organisation, should give rise to an adverse costs order on the standard basis of over £20,000 when the matter had not even gone to trial.

I mention three points arising from this melancholy state of affairs. First, it is to be hoped that the various weapons in the judicial armoury will be used in cases such as this to ensure, or at least to minimise, the risk of this sort of disproportionality between costs and damages occurring again. The weapons I have in mind include case management, costs management, alternative dispute resolution, the invocation of the overriding objective, and proportionality.

Secondly, if Mr Coid had obtained access to competent legal advice I strongly suspect that the claim against him would have been disposed of far more quickly, with far less, if any, court involvement, and far more cheaply. Mr Coid has told us he is in the unfortunate position of being too badly off to be able to pay for legal advice himself but not badly off enough to qualify for legal aid from the Legal Services Commission. That state of affairs – sadly, not unfamiliar – is likely to become more common with the projected reduction of the availability of legal aid. The consequences for individual litigants are self-evident and are well illustrated by this case.

The third point is that I have some concern as to whether Judges should be able, or encouraged, to supervise, comment on, warn against, or even veto, consent orders of the sort Mr Coid agreed in this case. Litigants in person often do not appreciate the effect of the agreement that they have reached as to costs, the points that they might have been able to argue on costs, and the actual liability in sterling terms they have taken on when agreeing an order for costs.

The obvious person to assist them on such an issue is the judge, but if the judge is to be able, let alone to be encouraged, to negotiate, to advise on, to warn against, or even to veto, such projected settlements in order to protect litigants in person, that could involve changing the nature of the judicial function and increasing the complexity and court time involved in many negotiations.

In the future this may be a topic that needs to be addressed. As it is, for the reasons given by Pitchford LJ, I, also, would allow these two appeals.