Calvert v Clydesdale Bank Plc & Ors

This is a renewed oral application for permission to appeal following the refusal of permission on paper by Kitchin J in October last year. The case has taken some time to come to a full hearing, not least because Mrs Dolores Calvert, who is the appellant and was the claimant below, acting as personal representative of her late husband, sought assistance in particular from the Bar Pro Bono Unit. When the matter last came before me on 20th April this year she had just had a communication which indicated that it might be possible for her to get that assistance, so I adjourned the hearing in the hope that she would succeed in that respect. Unfortunately they have not been able to help her in time for this hearing. Mrs Calvert has put before me a good deal of well directed paperwork, including a written note from which she has made her oral submissions this afternoon. I should mention that in addition to the application for permission to appeal, she has also put before the court and issued an application for a protective costs order. That, as I believe I explained to her on the last occasion, would only arise if permission to appeal is granted, and, if it does arise, would have to be dealt with on notice to the respondent. So this hearing is only concerned in substance with the permission to appeal application.

As I say, she brings the appeal as the personal representative of her late husband, Mr Peter Robert Calvert, who died in December 2003. She obtained a grant of representation to his estate in September 2009. The proceedings concern dealings with a property referred to as Crossroads Garage at Selby in North Yorkshire. Mr Calvert was the sole owner of this property, which comprised three units. One of those units was used by a company, Carfort Limited, which was owned by Mr Calvert, and the other units were let from time to time.

On 15th March 1991 Mr Calvert executed a guarantee in favour of Yorkshire Bank for the liabilities of the company limited to £27,000, and also a mortgage of Crossroads Garage to secure the liabilities of the company to the bank. It is not suggested that at that stage Mr Calvert was at that time of anything other than full legal capacity. Sadly, by some five years later at any rate Mr Calvert had symptoms which led to a diagnosis of Alzheimer's disease. Certainly by the next stage of the history it is to be taken that he was not of full legal capacity. What this case is about is the steps taken by Yorkshire Bank after that to enforce and to realise its security so as to be able to obtain repayment of the debt owed to it by the company.

Mrs Calvert was a director of the company so that Mr Calvert's mental incapacity would not necessarily by itself have stopped the company from operating, but in fact it did cease trading in 1996. In 1997, by which time Yorkshire Bank had become aware of Mr Calvert's mental condition, the bank demanded payment of the indebtedness from the company and from Mr Calvert as guarantor. Mrs Calvert points out that there were at that time no arrears and no reasons were given for the demand, but it was a facility that was repayable on demand and it cannot be suggested that the bank was not entitled to demand payment at that time.

Some year or so later in 1999, repayment not having been effected despite, as I understand it, attempts in the meantime to sell the property, Yorkshire Bank appointed the second and third defendants as receivers pursuant to the Law of Property Act 1925 under the mortgage, and from 2000 the receivers took steps to realise the mortgaged property. They sold it at a price of £55,000. Mrs Calvert tells me that they had advertised it only a couple of weeks before accepting the cash offer. They advertised it in the local press for £90,000. Notwithstanding that, they sold it at a price of £55,000. Recently, in January of this year, the property was sold to new purchasers on a cash sale for £135,000 as Mrs Calvert tells me.

Mrs Calvert's case is that, first of all, the appointment of the receivers and the sale could not have taken place validly because Mr Calvert was not of legal capacity and could not have taken place without Mr Calvert having a receiver appointed under the Mental Health Act 1983. Her alternative ground is that the sale was at an undervalue and therefore in breach of duty.

As to the latter point, His Honour Judge Behrens, whose order dated 21st April 2011 is under appeal, recorded that Yorkshire Bank was not the only secured creditor. Burmah Oil held a charging order and was owed some £60,000. So he pointed out that there was a total secured debt of over £94,000. He commented that if the sale price, £55,000, was less than the proper price, the proper price would have had to have been high enough to have left net proceeds of sale exceeding £94,000 before anything could be recoverable for Mr Calvert's estate. There was before the judge no evidence to support a value higher than that.

On this aspect of the case Mrs Calvert puts the case to me today in this way, and I quote from her submissions, there was no need for her to obtain a retrospective valuation because she could rely on the valuation that the receivers must have obtained in order to advertise the property at £90,000. She goes better than that because she says:

So her proposition is that the value ought to be taken to be at least £100,000.

There was not, so far as I am aware, anything in the way of expert evidence before the judge to that effect, and it is not apparent that the case was put to him in quite that way, but Mrs Calvert goes on to meet the judge's point as to the effect of there being a total secured debt of over £94,000 this way. She says that charges secured against her property are of no relevance to the property's true open market value and, more particularly, that the sale at the undervalue resulted in there being a shortfall in respect of the second mortgage and that, because Burmah Oil was not fully paid off, meant that there was a debt remaining and binding on the estate and that, she says, resulted in a charging order being made against her home. That she repaid after her husband's death and the order was then discharged. So in effect what she is saying is that by virtue of that succession of events, she and her husband's estate did suffer loss even if the property should have been sold at a price which would not have generated as much as £94,000 by way of net proceeds of sale because if it had generated more than £55,000, albeit less than £94,000, there would have been that much less of a shortfall in respect of the liability under the second mortgage. That is, as I see the papers, a new way of putting the argument. It is not how the judge understood the case to be put. It may be none the worse for that, but it is difficult to criticise the judge for having approached in the way that it was actually put to him. I am satisfied that there is no reasonable prospect of Mrs Calvert succeeding on an appeal on this point. Her attempt to get round the judge’s reasoning depends on material which was and is not before the court as to valuation. If she cannot avoid his reasoning in that way, she certainly cannot show that it was wrong in its own terms.

Before I go further, I should say that the judge's judgment given on 21st April 2011 was given on applications by both the first defendant and the other defendants -- the second and third being the receivers and the fourth and fifth being an estate agency concerned -- to strike out Mrs Calvert's claim on a number of different grounds without the matter going to trial. The judge accepted that the matter could not successfully proceed to trial for several reasons. One is the point about Mr Calvert's lack of capacity, which is the main point in the case and to which I shall shortly return. The second main complaint that the judge referred to was the issue that I have already mentioned, namely sale at an undervalue. The judge said about that that even if £55,000 was an undervalue, that would not give Mr Calvert a cause of action, a reason being that there was this second charge. I quote from his judgment at paragraph 34:

The judge then went on to refer to a number of other points which I need not mention. At paragraph 38 he came to this, which I mention because of something Mrs Calvert has said today:

Taking the matter together, he concluded that there was no realistic prospect of success against the second to fifth defendants nor, for the same reasons, against the bank as first defendant. All that being said, I must turn back to what is the main point in the case, namely the relevance of the fact that when the mortgage was executed, Mr Calvert was of full capacity but that by the time the Law of Property Act receivers were appointed, and by the later time that they sold the property, he was no longer of capacity having sadly succumbed to Alzheimer's disease.

So far as this aspect of the matter is concerned, Mrs Calvert relies on the proposition that, speaking in general, the authority of an agent comes to an end or cannot be created if a principal becomes or is not mentally capable. As she put it succinctly and neatly in her submissions to me today, an agent's competence to engage in transactions is restricted by the competence of the principal. That is undoubtedly the general proposition. She also says, correctly, that at least in name the receivers acted as agents of Mr Calvert. So, she argued, they could only so act if Mr Calvert could have given them new or continued authority at the time that they did act but he could only have done that, because of his unfortunate illness, if there had been a Mental Health Act receiver appointed to act on his behalf, leaving aside the possibility of an enduring power of attorney which did not arise in fact.

The mortgage and the guarantee both included provisions stating that they would not come to an end even if the mortgagor or guarantor ceased to be of legal capacity. In the guarantee the provision is in clause 7, which started:

The mortgage has at clause 28 the following provision:

But, Mrs Calvert points out, that is all very well, but if the legal effect is that the incapacity of the principal brings to an end the authority of the agent, that is not something which you can contract out of, otherwise than, as relevant, by an enduring power of attorney or its present equivalent. She also pointed out that both the guarantee and the mortgage contained provisions to the effect that the exercise of powers conferred on the bank by each document is subject to compliance with any statutory requirement at the time being in force, and she says that the appointment of the Mental Health Act receiver is a statutory requirement that was in force at the time.

Mrs Calvert does not of course suggest that the bank's rights under the mortgage were affected by her husband becoming mentally incapable. Those rights arose on the creation and execution of the mortgage and were not affected by later incapacity of whatever kind. That is the position in principle quite apart from the express terms of the documents. Thus, the bank itself could have exercised its own power of sale under the Law of Property Act 1925 as mortgagee without doing anything that required, even on the face of it, any further authority from Mr Calvert. However, as is frequently the case on the part of bank mortgagees, it chose not to do so itself but to appoint receivers under section 109 of the Law of Property Act 1925, the first two subsections of which are as follows:

There is no doubt that that the bank was entitled to appoint the receivers under subsection (1), apart from Mrs Calvert's point about capacity. So far as subsection (2) is concerned, that gives the basis of her argument because it says that the receiver is deemed to be the agent of the mortgagor, and she says how can a receiver be deemed to be the agent of a mortgagor who is not competent to appoint him as agent? On that basis therefore Mrs Calvert argues that as agent or purported agent of Mr Calvert, the position of the receivers was affected by the mental incapacity of their apparent principal and the agency could not be created in 1999 without there being a Mental Health Act receiver or another order of the court to that effect. However, as Fisher and Lightwood in the 13th edition of the Law of Mortgages point out at paragraph 28.8, the agency of a Law of Property Act receiver is one which is deemed to exist by statute and is unusual, special and of a limited nature. For example, a principal cannot discharge the agent, nor does the power to appoint a receiver or the ability of the receiver to act come to an end on the death of the principal. That was decided in a case called Re Hale [1899] 2 Ch 107 at page 117, and as the matter was put by Goulding J in a case called Sowman v David Samuel Trust [1978] 1 WLR 22, which was concerned with a mortgage created by a corporate debtor, the rights under the debenture are not the property of the mortgagor but that of the mortgagee. He said this, it being a case where a company which had created the debenture equivalent to the mortgage had gone into liquidation:

Then this sentence, which is critical:

Thus, as with other cases of agency created by way of or in connection with the giving of security over assets, it does not come to an end on the incapacity of the mortgagor and it does not depend on any act of the mortgagor other than the original creation of the authority. So it does not require the mortgagor to give consent or to be capable of giving consent at the time when the security is enforced. Accordingly, Mrs Calvert's argument that Yorkshire Bank were not able to proceed to enforce their mortgage by the appointment of receivers or the receivers to proceed to sell the property without there being a separately appointed receiver under the Mental Health Act to act on behalf of Mr Calvert is not correct, and is not even arguably correct. She says that this amounts to contracting out of the statutory provisions designed to protect those who lose mental capacity, but I do not accept that proposition. That protection is necessary and is imposed in relation to a transaction by which the indebtedness or the liability or the security are created, namely in the present case the guarantee and the mortgage. Once those are validly in place, the bank's proprietary interest in the mortgaged property exists and is effective and it does not depend on the mortgagor's continued legal capacity any more than it depends on his not becoming bankrupt or his remaining alive, or in the case of a corporate borrower or giver of a corporate security, on its remaining a functioning company rather than one which is in liquidation. Section 22 of the Law of Property Act 1925, to which Mrs Calvert referred me, does indeed apply, but it only applies when the mortgage is executed, not thereafter, even though the Law of Property Act receivers are, as we have seen, deemed to be the agents of the mortgagor. For the same reasons, the appointment of the receivers and the sale by the receivers did not involve any disposal of property of Mr Calvert because it did no more than implement and realise the rights of the bank which Mr Calvert had created and conferred on the bank when he was of legal capacity on the giving of the guarantee and the execution of the mortgage. Nor is there anything in this which in my judgment is either contrary to public policy or to the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contracts Regulations. For those reasons it seems to me that the judge's decision was correct and that there is no reasonable prospect of Mrs Calvert succeeding on the appeal.

She also complained of the second and fifth defendants being able to pursue their application before the judge despite not complying with case management directions. That failure is regrettable, but it cannot preclude the judge from hearing the case if he considered that Mrs Calvert had had sufficient notice of the application and of the material used in support.

Mrs Calvert put her case in a variety of ways but I am satisfied that it cannot succeed on any basis. I agree with the judge and with Kitchin J (as he then was) who refused permission to appeal on paper and it seems to me that to grant permission would do no kindness either to Mrs Calvert or to anyone else because she would be bound to lose the appeal and would therefore be exposed to additional cost and exposure to the respondents' costs and I therefore dismiss the application for permission to appeal.

I have mentioned that Mrs Calvert had in addition an application for a protective costs order. Since I have refused her permission to appeal, that issue will not arise and as a matter of formality, I dismiss that application as well.