Burton v Walters

LADY JUSTICE HALLETT: The Applicant seeks permission to appeal the judgment of His Honour Judge Coltart, sitting at the Brighton County Court, delivered on 29 June 2015. Before him was a claim for possession of the Applicant's family home and enforcement of loan notes arising from the sale of a sausage making business. Both the Applicant and her husband gave a charge over their home for debts arising from the sale.

There are two proposed grounds of appeal before me. First, the issue of undue influence and second, the issue of the amount of interest payable.

Dealing with ground one first, the undue influence as far as the Applicant is concerned was said to be that of her husband. Mr Clargo on behalf of the Applicant invited me to note that the transaction as far as the Applicant was concerned involved her giving security for debts of a third party with no obvious benefit to her (whatever the benefit to her husband) at the time she entered into the charge. He invited me to find that she and her husband had a relationship of trust and it is in that context that the transaction must be considered.

He criticised the judge for not analysing the issue of undue influence in the correct way. He accepts that at the first stage the burden of proof was on the Applicant to establish that there had been a relationship of trust leading to a potential for undue influence. However, at the next stage when one moves on to consider the transaction itself and whether or not there was any gain to the Applicant, he maintained that given the relationship between the parties, the evidential burden in disputing undue influence shifted to the other parties.

He accepts that the presumption of undue influence could then have been rebutted by the party in the ascendancy, here the husband, by establishing that the wife had entered into the agreement of her own free will. But here, he claimed the judge reached that ultimate conclusion without considering whether the evidential burden had shifted.

He submits that it was particularly important for the judge to consider the issue with care on the facts here. Until the first day of trial the Applicant shared legal representation with her husband. It is in that light the judge should have considered the contents of her witness statements and the pleadings and he should not have been unduly critical of her if she failed to mention her husband’s influence over her in them. It was only on the first day of the trial when she arrived at court that Applicant discovered that she was not, as she expected, to be represented by her husband's lawyers. This feature, he invited me to find, puts the proposed appeal on a different footing from those where an attempt is made to appeal clear findings of fact simply on the basis they are adverse to the applicant.

He further argued that if it is arguable that the judge should have found undue influence on the part of the husband, then he would have had a good case on constructive notice on the part of the Claimants. This could be imputed from the nature of the transaction. He repeated that at the time of signing the charge, there was no expectation that the Applicant would receive any benefit, albeit a year or so later she did receive some 50 shares at the same time as her husband received 296 shares.

Before coming into court, I read His Honour Judge Coltart's ex tempore judgment in full. I acknowledge Mr Clargo's observations that the judge does not explicitly set out his approach to the various stages as Mr Clargo would have wished. But the judge's finding on the ultimate issue could not be clearer. The judge was not satisfied there was any undue influence. He was clearly satisfied that the Applicant entered into the charge of her own free will and was not subject to any undue influence. In reaching that conclusion, he had considered not only her witness statements, in which no reference had been made to undue influence and considered the oral evidence before him from her and her husband.

It was, therefore, open to him to reach such a conclusion. The hurdle of appealing findings of fact that Mr Clargo accepted would be a high hurdle in this court becomes a virtually impossible hurdle to mount. This is in essence, as eloquently and persuasively as Mr Clargo argued the ground, essentially an attempt to appeal the clear findings of fact made by the trial judge.

As far as the wife's position when it came to legal representation is concerned, the judge was clearly aware of it. He mentioned it in terms. He was far better placed than the Court of Appeal would be to assess whether the Applicant had truly been placed at any disadvantage by the fact she had been represented by the same lawyers as her husband until the trial and then did not have the benefit of representation during the hearing. I am not persuaded, therefore, that ground one is arguable and has a realistic prospect of success.

As far as the second ground is concerned, that depends on a construction of the agreement. It provides at clause 3 that:

"The consideration for the sale of the business was in total £625,000. An initial consideration of £400,000 was payable on completion."

At clause 3.4 it states:

"The deferred consideration of £225,000 is to be satisfied by the issue of 5 per cent loan notes on the terms set out in part 2 of schedule 2."

Part 2 states:

"Amount due: £125,000. Payment due two years after the completion date. Amount due: £100,000. Payment due three years after the completion date."

Clause 3.5 states:

"Interest at the rate of 5 per cent per annum on the amount outstanding from time to time of deferred consideration should be paid every three months from completion in arrears."

His Honour Judge Coltart in reaching the conclusion that this meant interest was payable from completion placed emphasis on the words "shall be paid every three months from completion in arrears". Mr Clargo places emphasis on the words "on the amount outstanding". He argues that nothing was outstanding until either two years after the completion date for the sum of £125,000 or three years after the completion date for the sum of £100,000. This must mean that interest only became payable after those payments became due in accordance with schedule 2 part 2.

He invited my attention to the contents of the loan notes themselves and clause 4 under the heading "Interest” as an example. It states:

"The company will pay interest to the note holder on the principal sum at a rate of 5 per cent per year quarterly in arrears both before and after any judgment until the principal sum is paid in full."

He observed that this is a default position for the interest payable in the event of litigation and submits it supports his interpretation that emphasis should be placed on the words "on the amount outstanding" rather than on the words "from completion".

Mr Clargo's argument was an interesting one. As is so often the case, one can see that the terms of an agreement could have been made simpler and clearer, but I have to say I read the words in the same way as His Honour Judge Coltart did and Christopher Clarke LJ in refusing permission to appeal did. They read them a providing that interest at the rate of 5 per cent per annum on the deferred consideration shall be paid every three months from completion. With respect to Mr Clargo's argument, I do not understand what the words "every three months from completion" would mean unless they bear the interpretation put upon them by my predecessors.

For all those reasons, therefore, as indebted as I am to Mr Clargo for his succinct and helpful submissions, I am not persuaded there is a realistic prospect of success in this ground either. The renewed application for permission to appeal must be refused.