National Westminster Bank Plc v Rushmer & Anor

This is an application for permission to appeal from an Order of Master Moncaster dated 3 November 2009. By his Order the Master required the Appellant (“Mrs Rushmer”) to deliver up vacant possession of a property known as Little Orchard House, Bears Den, Kingswood, Surrey KT20 6PL (“the Property”) 14 days after the Respondent, National Westminster Bank plc (“Natwest”) notifies her of an agreed sale of the property or on 17 February 2010, whichever is the later event to occur. For procedural reasons that it is unnecessary to go into, I heard full argument on the merits of the proposed appeal. As will appear, it is appropriate to grant Mrs Rushmer permission to appeal.

In 1999 the First Defendant (“Mr Rushmer”) gave a personal guarantee to Natwest of the indebtedness of Audio Visual Asset Management Limited (“AVAM”) limited to the sum of £1 million. On 20 May 2004 Peter Smith J made an order appointing Andrew Tate of Baker Tilly and Graham Petersen of Benedict Mackenzie (“the Administrators”) as joint administrators of AVAM. On 19 May 2005 AVAM went into liquidation and on 21 July 2005 Kenneth Touhey of Chantrey Vellacott DFK and Stephen Grant of Wilkins Kennedy (“the Liquidators”) were appointed as joint liquidators.

On 25 April 2005, Natwest obtained judgment against Mr Rushmer for £987,480 together with costs of £9,000. That judgment remains unsatisfied and interest on it continues to accrue at 8% per annum.

On 15 June 2005 Natwest obtained a final charging order over Mr Rushmer’s interest in the Property. On 27 September 2005 Natwest obtained a final charging order over Mr Rushmer’s beneficial interest in another property at 13 Regents Bridge Gardens, Rita Road, Vauxhall, London SW8 1JR, known as “the Winery”. The Winery was the former matrimonial home of Mr and Mrs Rushmer before they moved to the Property. After their move to the Property, Mr and Mrs Rushmer had rented out the Winery.

On 19 May 2006 Natwest issued proceedings for the sale of the Property. Those proceedings came to a final hearing before Master Moncaster on 17 July 2007. At that hearing neither Mr Rushmer nor Mrs Rushmer was legally represented. They had, however, both filed a number of witness statements in the proceedings. In addition, they had both filed two skeleton arguments.

The financial position at the time of the hearing before Master Moncaster on 17 July 2007 was approximately as follows. The debt owing under the judgment stood at over £1 million. The Property was valued at approximately £1.2 to £1.3 million. It was subject to a mortgage of about £440,000. Accordingly, the equity in the Property was approximately £800,000 and Mrs Rushmer’s half share was worth approximately £400,000. The Winery was on the market at an asking price of £840,000. That was subject to a £400,000 mortgage. Accordingly, Mrs Rushmer’s half share of the Winery was worth around £200,000 subject to Capital Gains Tax. There was also an endowment policy with a surrender value of approximately £90,000. Thus the position was that, even after realisation of both houses and the surrender of the endowment policy, there would still be a significant shortfall for Natwest. In the meantime, as I have already observed, interest continued to run at 8%.

The application for sale of the Property by Natwest was made under section 14 of the Trusts of Land and the Appointment of Trustees Act 1996 (“TOLATA”). Section 14 gives the court a discretion to make such order as it thinks fit including an order for sale. Section 15(1) sets out matters to which the court is to have regard in determining an application under section 14. These include:

“(a)

the intentions of the person or persons (if any) who created the trust,

(b)

the purposes for which the property subject to the trust is held,

(c)

the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and

(d)

the interests of any secured creditor of any beneficiary.”

In his judgment dated 17 July 2007, Master Moncaster considered these factors in turn. In relation to (a) and (b), he found that the persons who created the trust were Mr and Mrs Rushmer and that their intention was to provide a home for themselves and their family. That purpose still persisted. The Property was still occupied by Mr and Mrs Rushmer and their two children, James, who at that time was 17, and Katie, who at that time was 11. The Master observed that Mrs Rushmer was a perfectly innocent party and not a judgment debtor. So too were the children. He nevertheless concluded at [21] that, although the purpose of the trust as being to provide a family home would still continue, it was right to make an order for sale given that Mrs Rushmer would have capital of something approaching £600,000 from her share of the two houses. Even on the most pessimistic view, it could not be less than half a million pounds. On the evidence, he found that it was perfectly possible for Mrs Rushmer to acquire an adequate house in the right area of Surrey to be convenient for her children and their schools and a hospital attended by James. As he pointed out, any suggestion that they could not acquire a perfectly adequate three bedroom house for half a million pounds was unrealistic.

In relation to factor (c), the Master dealt in turn with the position of Jamie and Katie. At [23] he concluded, that absent any special circumstances affecting the children, he was not satisfied that their interests and welfare would be sufficiently affected by a move in house to outweigh the injustice to Natwest in being kept out of its money. He then considered the specific matters put forward in relation to the two children.

In relation to James, these were twofold. First, that he was just about to start his A level year. The Master concluded at [27] that that was not a significant matter. Secondly, that James had to go to Epsom Hospital periodically. The Master concluded at [28] that that was not significant either, since it was perfectly easy for a replacement house to be acquired within easy reach of Epsom Hospital.

In relation to Katie, again two specific matters were relied upon. First, there was evidence from a psychologist concerning Katie’s learning difficulties. The Master concluded at [31] that Katie’s learning difficulties were slight and were unlikely to be seriously affected by a move of house. The second matter that was relied on was that Katie was an exceptional swimmer and she needed the use of the private swimming pool at the Property in order to train. This was despite the fact that she had the use of pools both at her school and at her swimming club. At [33] the Master accepted that the loss of the private swimming pool might be detrimental to Katie’s training, but nevertheless concluded that loss to Katie was not something that could outweigh the injustice to the bank if it were to be kept indefinitely out of its money until Katie was grown up.

In relation to factor (d), the Master found that the only secured creditor was Natwest and that its interests were in favour of the sale of the Property. He noted that it had been held by the Court of Appeal in Bank of Ireland Home Mortgages Ltd v Bell [2001] 2 All ER (Comm) 920 that it is generally unjust to keep a creditor out of its money if no payments are made. Nevertheless, he said that in the instant case there was a possibility of further money coming in. In relation to that he said this:

“14.

Mr Rushmer feels very strongly about the events that have occurred because he ascribed the failure of his company to faulty advice from the accountants, and he also considered that there had been maladministration by the administrators who were appointed. He pointed to an apparent gap of some £100,000 in their [unclear].

15.

He has issued a claim against the accountants. Manches & Co act for him, a very well-known London firm, who have instructed leading and junior counsel, both of whom signed particulars of claim. That claim has got to the stage of allocation, questionnaires having been put in. They have a threat of summary judgment application by the defendants themselves, but there is going to be mediation, or it is strongly hoped that there is going to be mediation in their case.

16.

Although, unfortunately, the agreement is not in evidence, Mr Rushmer tells me that that litigation is being undertaken under a conditional fee agreement, with the lawyers getting no payment at all except on success. If that is right, it does suggest that the lawyers must consider that the case has at least a reasonable prospect of success and it cannot be regarded as a merely speculative claim. The same would go for a claim not yet issued against the administrators where the pre-action protocol letters had just been written, and the time has expired (I think I am right in saying) and is ready for issue. Again, Manches and the same team of counsel are acting on a CFA.

17.

Therefore, it is the case, it seems to me, that there is a real prospect of monies, substantial monies, coming in in the future which may in fact pay off the bank in full. On the other hand, it is obvious that litigation is always chancy and one cannot possibly rely on either of the claims (the existing one or the one about to be issued) going to succeed and produce a great deal of money for the bank. But there is, it seems to me, a reasonable chance that monies to pay off the bank will be derived in that way.

18.

But it does not seem to me in general that it could be right to expect the bank to await the outcome of that litigation unless it gets some return on its money in the meanwhile. If the amount of the claim can be frozen so that the amount owing to the bank does not keep increasing because the interest is accruing on it, then it would, it seems to me, be right to suspend the order to await events to see what happens in the litigation. To leave the position in that way would require Mrs Rushmer to make payments to the bank so to speak in lieu of rent of their half share. What has been canvassed before me are payments of 8% on the value of Mr Rushmer’s half share. The money for those proceeds would have to come, presumably, out of Mrs Rushmer’s half share of the proceeds of the sale of the London house when that is sold.

19.

I will suspend the order if Mrs Rushmer does decide to make those payments. If those payments are made, I feel uncertain as to how long I should make the suspension for, I think it should be for a fixed period although, of course, there will be the opportunity to apply to extend that period depending on how future events turn out. I think because it is unlikely that all those will be [unclear] that the litigation, unless accepted, can be completed in a year, but I will suspend the order until two years or the earlier conclusion of the litigation.”

In the light of the judgment, Master Moncaster made a declaration that Natwest was entitled to an equitable charge on Mr Rushmer’s interest in the Property and he made an Order, paragraph 1 of which was in the following terms:

“That if the Second Defendant pays (such payments not to be made out of the assets of the First Defendant) to the Claimant the sum of £2,666.67 by 4 p.m. on the 17^th day of each calendar month beginning with 17^th October 2007, paragraphs (2) to (5) and (7) and (8) of this Order shall not take effect until the earlier of

(i)

4 p.m. on 17^th July 2009; and

(ii)

14 days after the later of:

(a)

the conclusion howsoever resolved of Claim No. HQ07X01187; and

(b)

the conclusion howsoever resolved of the claim intended to be issued by the First Defendant against the former administrators of Audio Visual Asset Management Limited provided that the First Defendant diligently pursues the said claim.”

The remainder of the Order was in fairly conventional form.

Claim No. HQ07X01187 was Mr Rushmer’s claim against Mervyn Smith trading as Mervyn E Smith & Co, who was AVAM’s accountant and auditor. That claim was tried by Jack J in mid-November 2008. In his judgment dated 30 January 2009, [2009] EWHC 94 (QB) he held that the claim failed. Having found the facts, he expressed the following conclusions:

“62.

Mr Rushmer’s primary case, that he received draft accounts from Mr Smith in May 2002 and received advice from him at a meeting, fails because I have found that there were then no draft accounts, and there was no meeting and no advice.

63.

Mr Rushmer has a fall back position that he did on any view receive negligently overstated accounts which showed the company to be in a very much better position than it actually was, and had he not received those accounts first in draft in mid July 2002 and in final form in September 2002, he would have taken a different course with AVAM: he would not have ‘grown’ the company but would have wound it down with the outcome that the liability on his guarantee would have been avoided or much reduced.

….

66.

I therefore conclude that Mr Rushmer did not rely on the figures produced by Mr Smith in the 2001/2 accounts to decide what he should do with AVAM. I have already pointed out that, contrary to his evidence, he did not grow the company. There was an investment of £125,000 in September 2002 that was not an investment made on the strength of Mr Smith’s accounts.

….

68.

The claim against Mr Smith therefore fails because I find that Mr Rushmer did not rely on Mr Smith’s accounts as he said that he did. I have also found that no representations going beyond that constituted by the provision of the accounts was made.”

It can be seen from the paragraphs quoted that Mr Rushmer’s claim failed on the facts. For good measure, Jack J went on to conclude that it was also subject to legal difficulties. It is also relevant to note what Jack J said about Mr Rushmer’s evidence at [8]:

“Because there is a dispute about what was said at the meeting, I must begin by saying something about Mr Rushmer and Mr Smith as witnesses. I mention that they were the only witnesses whom I heard as to the facts. There were a number of matters which arose in the course of Mr Rushmer’s evidence which persuaded me that I should be cautious before accepting what he said on matters of dispute…. I have made up my own mind of the truthfulness of Mr Rushmer as a witness, but I record that in other litigation in which Mr Rushmer was a defendant the Court of Appeal referred to his ‘lack of credibility’ and ‘obstructive dishonesty’: see Dickinson v Rushmer t/a FJ Associates 14 February 2000.”

Notwithstanding the proviso to paragraph 1(ii)(b) of Master Moncaster’s Order, requiring Mr Rushmer diligently to pursue his claim against the former administrators of AVAM, no such claim was commenced. The explanation given for this by Mrs Rushmer in her fourth witness statements in these proceedings was as follows:

“I should explain that because of a restriction on funds, my husband was unable to proceed with both actions at the same time and indeed received advice from lawyers, more specifically leading counsel, to pursue the claim against Mr Smith initially rather than trying to conduct both actions together.”

At some point Natwest served a statutory demand on Mr Rushmer, seeking payment of monies due. Mr Rushmer applied to set aside the statutory demand. That application was dismissed on 19 February 2008. On 21 February 2008 Natwest presented a bankruptcy petition against Mr Rushmer. Mr Rushmer obtained permission to appeal against the dismissal of his application to set aside the statutory demand, but on 6 November 2008 Blackburne J dismissed his appeal. An application for permission to the Court of Appeal against that order was unsuccessful. The bankruptcy petition was stayed pending the outcome of the action before Jack J, but an order of bankruptcy was made on 17 February 2009.

Master Moncaster’s Order dated 17 July 2007 was conditional upon Mrs Rushmer paying the sum of £2,666.67 per month. In the event, she made 12 such payments, but ceased paying after October 2008.

On 21 May 2009 Mrs Rushmer applied for a variation of the 17 July 2007 Order. The application notice did not specify the nature of the variation sought. As formulated in a draft order annexed to counsel’s skeleton argument for the hearing, however, the order sought was that paragraphs (2) – (5), (7) and (8) of the 17 July 2007 Order should not take effect until the earlier of:

“(i)

4 p.m. on 17^th June 2011;

(ii)

14 days after the conclusion howsoever resolved of the claim intended to be issued by the second defendant against the former administrators of Audio Visual Asset Management Limited provided that the second defendant diligently pursued the said claim. ”

Shortly afterwards, Natwest made a cross-application for variation of the order with regard to the mechanics of giving possession. Mrs Rushmer’s application was supported by three witness statements of hers. Both applications came for hearing before Master Moncaster on 17 June 2009. At the hearing, Mrs Rushmer’s primary case was that there should be a further suspension of the order for sale of the Property in the terms of the draft order quoted above with no payment by her in the meantime. In the alternative, she contended that the order should be conditional upon the payment by her of £1,000 a month. In the further alternative, she contended that the order should be conditional upon the payment by her of a sum reflecting the accruing interest.

Master Moncaster reserved his judgment and handed it down in writing on 3 November 2009. A draft was made available to the parties approximately 24 hours before. In his judgment the Master began by briefly setting out the background to his Order dated 17 July 2007. He then summarised the subsequent events to which I have referred above. He noted that, even if Mrs Rushmer had complied with the condition for monthly payments, the order for sale of the Property would have taken effect on 17 July 2009, but that in view of Mrs Rushmer’s failure to continue making the payments, the suspension had come to an end and the order for sale was effective.

The Master then set out paragraphs [15]-[18] of his judgment dated 17 July 2007 as containing the reasons why he had suspended the order for sale. He continued:

“I was, it now appears, misinformed by Mr Rushmer as to the CFA. Although the solicitors were acting under a CFA, counsel were not. Furthermore, Manches ceased to act for Mr Rushmer before the trial of the Smith action, being replaced by Geoffrey Parker Bourne, the firm which is acting for Mrs Rushmer on the current application. I was also misinformed as to the imminence of the action against the administrators, which was not in fact about to be issued. It is now said that Mr Rushmer was advised that this action should be kept on hold until after the conclusion of the other action. Initially Mrs Rushmer’s application was for a further two years extension of the suspension of the order for sale and making no monthly payments at all during those two years. That was and is, in my view, a plainly unreasonable application and I infer that Mrs Rushmer subsequently advice to that effect, because very shortly before the hearing she made a seventh witness statement in which she proposed that she would start making monthly payments again in July from a repayment of a loan which was due for repayment then, although she was only offering to make payments at the reduced rate of £1,000 a month. However, I was informed by the Bank’s solicitors in a letter dated 22 September that Mrs Rushmer had made no further payment to the Bank, so that apparently Mrs Rushmer’s application had reverted to being one to have a further two years’ grace while making no payment at all to the Bank.”

The Master then proceeded to consider the reasons advanced by Mrs Rushmer as to why the order for sale should be suspended for a further period of two years. He said that they amounted to three different grounds. First, that further time should be allowed to enable Mrs Rushmer to bring the proceedings against the Administrators which Mr Rushmer had previously said that he intended to bring. Secondly, it was said that Natwest was in breach of its duty in realising The Winery and had unreasonably refused to accept an offer by Mrs Rushmer to purchase its interest. Thirdly, Mrs Rushmer contended that the change in market conditions meant that a sale would not be in the bank’s own interests and there would be little or no equity in her share to enable her to rehouse herself and her family. The Master proceeded to consider those three heads in turn.

In relation to the proposed litigation, the Master began by observing that, although the main argument was based on the alleged intention to sue the Administrators, it was illuminating to consider Mrs Rushmer’s desire to bring further proceedings against Mr Smith. This was based on Mrs Rushmer’s suggestion that she should take an assignment from the Liquidators of AVAM’s claim against Mr Smith. The Master commented:

“This illustrates the complete lack of reality which Mrs Rushmer has. All she says about the failure of Mr Rushmer’s claim is ‘unfortunately my husband failed in the claim before the court and costs were awarded against him’. The claim against Mr Smith failed because the allegation by Mr Rushmer that he relied on Mr Smith’s figures was false. Therefore the claim was bound to fail because it was based on untruthful statements by Mr Rushmer and any intent to litigate on it is equally bound to fail.”

The Master then turned to consider the proposed claim against the Administrators. He summarised the description of the proposed claims given by Mrs Rushmer in her fourth witness statement. The nature of the proposed claim was a claim for misfeasance under paragraph 75 of Schedule B1 of the Insolvency Act 1986, which she was capable of bringing herself since she, like Mr Rushmer, was a creditor of AVAM. He noted her statement that she believed that the claim had a value in excess of £3m, but observed that he did not know whether she had any grounds on which to base that belief. He then quoted Mrs Rushmer’s explanation as to why the claim had not been pursued by Mr Rushmer. He commented:

“That ‘restriction on funds’ brings out the false basis on which I was persuaded to make my earlier order for suspension of the order for sale. This was made on the basis that the lawyers would only have to be paid if the claim succeeded, whereas counsel would have required paying if the claim against the administrators was to be started, and they did require payment in the claim against Mr Smith. Their fees were apparently paid by Mrs Rushmer out of her share of the proceeds of the sale of the Winery.”

He continued:

“Whether or not there are any real prospects of success in a claim which has deliberately not been prosecuted for this length of time, I am not in a position to judge. I have seen no opinion or advice from counsel or solicitors that the claim is a good one or estimating the sum which would be recoverable in it. The fact that the claim against the administrators was kept on hold in favour of pursuing the claim against Mr Smith suggests that the claim against Mr Smith was seen as the stronger claim. Plainly if the claim relies to any extent on Mr Rushmer’s evidence there is a grave weakness in it, because given the past history of his litigation, no reliance at all can be placed on anything said by Mr Rushmer. I am therefore deeply sceptical about any prospect of successful litigation.”

He went on to say:

“Even if it were shown that there were possible claims that could be pursued with some prospect of success, that would not in my view justify a further postponement of the sale. What really matters, it seems to me, is that Mr Rushmer and Mrs Rushmer have deliberately not instituted any such proceedings, although one of the grounds of the two year suspension of the possession order was Mr Rushmer’s assertion that the issue of these proceedings was imminent, and the stay was conditional on the proceedings being pursued diligently. The two years was fixed on the basis that litigation should be at an end then. Admittedly it was contemplated that an extension of time might be necessary. Obviously, if the claim had been heard by the cut off date of 14^th July but judgment had been reserved, an extension of time until after delivery of judgment would be granted. And if, although the claim had not got to trial, the trial was imminent, again an extension might well have been granted. But here absolutely nothing has been done, and that decision to do nothing was quite deliberate. In my judgment there can be no justification for extending time in those circumstances, leaving the bank out of its money for a further two years with interest continuing to run and with no prospects of the bank ever recovering that further interest.”

The Master rejected Mrs Rushmer’s contention that Natwest was at fault for having made Mr Rushmer bankrupt. He went on to observe that Mrs Rushmer would have to finance any litigation so that she would be unable to make the payments to the bank. He noted that Mrs Rushmer’s share of the proceeds of the Winery had not been kept for use for purchase of a replacement house nor used in making payments to the bank. Instead, they had been used for paying counsel’s fees and other disbursements of the Smith action and other expenses. He commented:

“Mrs Rushmer has not been prepared to use her own money in pursuing further litigation, and it would be thoroughly imprudent of her to spend any money on further litigation, the strong likelihood that this would be throwing good money after bad. Her assertion that the Bank should finance this speculative realisation rather than realising its security over Mr Rushmer’s share in the Surrey house is fanciful.”

The Master then went on to deal with Mrs Rushmer’s complaint in respect of the sale of the Winery. The basis for that complaint was that Mrs Rushmer had made an offer in February 2007 of £175,000 for Natwest’s interest in the property. That was based on valuing the property at £750,000. The bank’s response to that offer in short was not to reject it, but to say that the property should be placed on the open market in order to determine its true value. In the event, as related above, the bank put the property on the market at £840,000 but it only sold a year later at £705,000. The Master’s conclusion was as follows:

“Of course with hindsight one can see that the Bank would have done better to accept Mrs Rushmer’s offer of £175,000 (assuming Mrs Rushmer would have stood by it and raised the money). But that fact does not begin to show that the Bank acted improperly in declining to accept Mrs Rushmer’s offer without having first tested the market. The principle that the Bank was entitled to take that position had indeed been accepted by the Master and the judge when making the order for sale and refusing permission to appeal. Because there had been an earlier offer by Mrs Rushmer which she submitted the Bank should accept without testing the market. In any event if Mrs Rushmer had wanted to buy the Winery she was free to make an offer to the Bank at the time of its sale but she made no further effort to buy it between the February 2007 offer and the sale.”

The Master then turned to Mrs Rushmer’s contention that there should be a further suspension of the order for sale by reason of a change of circumstances. The main change of circumstances that have been suggested was the fall in the property market. The Master noted that Mrs Rushmer had produced no evidence as to the extent of that fall in the area of the Property. He calculated that, even if the value of the Property had fallen by a third, Mrs Rushmer had capital approaching £300,000. In addition, she had a salary from which she was able to pay her household commitments and monthly repayments of £740 on the mortgage. He concluded:

“She must be able to obtain a substantial mortgage given that she would be putting down say £250,000 of her own money in the purchase. Nor, in my view, can she rely on the fact that she had spent nearly all of her share of the proceeds of sale of The Winery as a reason for varying the order for sale. On these figures I can see no reason to suppose that Mrs Rushmer would be unable to buy an adequate three bedroom replacement house for herself and her family, though of course it would be much smaller and a very much less desirable house than Little Orchard. Mrs Rushmer has in any case not provided full and frank information about her finances which it was incumbent on her to do if she wished to argue that the purchase of a replacement home was beyond her capacity.”

He went on to say that he did not accept that the bank should wait until the market improved before selling the house for its own sake as well as for Mrs Rushmer’s. It was entirely speculative whether and if so by how much property prices would increase over the next two years. Even if one assumed a fall in the value of a third, a sale would still produce £175,000 for the bank. A sum of that size justified a sale even though it was a relatively small proportion of the debt.

Accordingly, the Master dismissed Mrs Rushmer’s application. He acceded to Natwest’s application, and there is no appeal from that part of his Order.

Mrs Rushmer challenges Master Moncaster’s Order dated 3 November 2009 on four grounds. The first ground of appeal is that the Master’s decision was unjust because of a serious procedural irregularity within CPR rule 52.11(3)(b). This ground of appeal arises out of Natwest’s solicitors’ letter dated 22 September 2009 referred to in the Master’s judgment. This letter reads as follows:

“We refer to the hearing before Master Moncaster on 17^th June 2009 when evidence was put before the Court that Mrs Rushmer had failed to comply with the order dated 17^th July 2007 and in particular had failed to make any payments to the claimant after October 2008.

At the hearing on 17^th June 2009, the matter was adjourned for judgment to be delivered. We can confirm that since that date, Mrs Rushmer has made no payment to the claimant, whether in relation to the sums she should have paid in accordance with the order dated 17^th July 2007 or in relation to her current occupation of the Property.”

This letter neither purported on its face to be, nor was in fact, copied to the solicitors acting for Mrs Rushmer.

Counsel for Mrs Rushmer submitted that it was improper for Natwest’s solicitors to communicate with the court in that manner. He argued that the bank’s solicitors had no business to be writing to the Master at all. If the bank had any further submissions to make, the proper course was to re-list the matter for further argument on notice to the Defendants. Still less did the bank’s solicitors have any business writing to the Master without copying their letter to the Defendants. Counsel further submitted that, having received the letter, the Master should either have entirely ignored it or given Mrs Rushmer a proper chance to respond to it. The one thing he should not have done was to rely upon the letter in his judgment without giving Mrs Rushmer the chance to respond to it. That, counsel submitted, constituted a flagrant breach of the audi alterem partem principle. Finally, counsel submitted that the Master had been wrong to conclude from Natwest’s solicitors’ letter that Mrs Rushmer had abandoned her alternative cases. This was a fundamental error because it meant that he failed to consider those alternative cases in his judgment.

Counsel for Natwest accepted that the letter should have been copied to Mrs Rushmer’s solicitors, and apologised on behalf of those instructing him. He submitted that the contents of the letter amounted to a pure statement of fact, the accuracy of which was not challenged by Mrs Rushmer. He was unable to offer any coherent explanation, however, as to why the bank’s solicitors had thought it fit to put that information before the Master when they did. Counsel submitted that there had been no serious procedural irregularity because, even if the letter had been copied to Mrs Rushmer’s solicitors, there was nothing that they could or would have been likely to say in response. He pointed out that Mrs Rushmer’s counsel and solicitors had made no objection or comment about the reference to the letter either upon receipt of the draft judgment or during the judgment hearing or immediately after the judgment hearing. They had not even requested a copy of the letter in question before launching the appeal. Counsel further submitted that there had been no injustice as a result. He accepted that the Master had not dealt with Mrs Rushmer’s alternative cases in his judgment, but he submitted that this had not resulted in any injustice because the purpose of Mrs Rushmer’s application was to obtain a further suspension of the sale to enable her to pursue litigation and that application had wholly failed.

In my judgment the sending of the letter by Natwest’s solicitors to the Master without copying it to Mrs Rushmer’s solicitors, the Master’s failure to give Mrs Rushmer a chance to respond to the letter and the Master’s reliance upon the letter as indicating that Mrs Rushmer had abandoned her alternative cases taken together amount to a serious procedural irregularity. There was a plain breach of the audi alterem partem principle, and as a result Mrs Rushmer was treated as having abandoned part of her case when she had not in fact done so.

The more difficult question is whether this irregularity renders the Master’s decision unjust. Counsel for Mrs Rushmer accepted that it did not affect the Master’s reasoning in dismissing Mrs Rushmer’s primary case. He submitted, however, that the judgment was tainted as a result, and accordingly the appeal should be allowed, irrespective of the merits of Mrs Rushmer’s case. The entire judgment, he submitted, should be set aside and the matter remitted for rehearing before a different Master.

Although I have accepted that there was a serious procedural irregularity, I do not accept that it renders the entire decision unjust. As I see it, the consequence of the procedural irregularity was simply that the Master failed to deal with Mrs Rushmer’s alternative cases. It has no bearing upon his reasoning in relation to her primary case. In those circumstances Mrs Rushmer is entitled to a decision on her alternative cases. It does not follow that she is also entitled to a complete rehearing of her primary case. One possibility would be to remit the matter to the Master in order for him to deal with Mrs Rushmer’s alternative cases. I am conscious, however, that this application has been pending since May 2009. To remit the matter to the Master would entail a substantial further delay in the final resolution of the matter, particularly given the possibility of a further appeal to this Court. In the circumstances, it seems to me that the better course is to treat the appeal as a rehearing within CPR rule 52.11(1)(b), rather than a review of the Master’s decision, and to determine Mrs Rushmer’s alternative cases myself. As will appear, there is also another reason why I consider that this is the appropriate course to take.

Mrs Rushmer’s second ground of appeal is that the Master’s decision was irrational. Counsel for Mrs Rushmer advanced six reasons as to why he contended that the decision was irrational. Each of these reasons relates to the Master’s decision that it was not appropriate to give Mrs Rushmer an opportunity to bring a claim against the Administrators of AVAM. I am not persuaded that the Master’s decision was irrational. It is not necessary for me to consider these issues in detail, however, because it emerged on the hearing of the appeal that the true position is rather different to that presented to the Master.

At the hearing, counsel for Mrs Rushmer applied, without objection from counsel for Natwest, to adduce additional evidence in the form of a witness statement from Tony Kirton of Mrs Rushmer’s solicitors. That evidence revealed that on 25 August 2009 Mrs Rushmer applied to the Croydon County Court for permission to commence and prosecute proceedings against the Liquidators for misfeasance under section 212 of the Insolvency Act 1986. The application is supported by a witness statement of Mrs Rushmer dated 24 August 2009. Mr Kirton’s statement also exhibits Mrs Rushmer’s draft Points of Claim in the proposed proceedings.

The draft Points of Claim are short and lacking in particularity. On the other hand, further particulars are contained in Mrs Rushmer’s statement. Be that as it may, it is sufficient for present purposes to quote the key paragraph in the draft Points of Claim, paragraph 6:

“Until disclosure herein, the following is the best information the Applicant can give. In breach of the statutory obligation, the First and Second Respondents:

(a)

failed to properly investigate or investigate at all the actions of the Joint Administrators whilst in office, and in particular to investigate the failure on the part of the joint administrators to properly secure the position of the Company in respect of various block discounting agreements entered into by the Company with third party funders;

(b)

failed to investigate properly or at all and to document the sums recovered on behalf of the third party agreements and upon what contractual basis this recovery occurred, and to ascertain the cost of such recovery and who paid such costs;

(c)

failed to investigate properly or at all the failure on the part of the Joint Administrators to properly prosecute litigation matters of significant value while allowing other matters so litigated to become of no value to the creditors by allowing costs to become disproportionate with sums claimed or recovered;

(d)

failed to properly prosecute remaining litigation cases in a proper and diligent manner and/or failed to properly control the costs incurred on those cases with such failure allowing the costs to become disproportionate with the sums actually recovered;

(e)

failed to secure the best market price for the specialised equipment belonging to the company and/or to properly control the costs incurred in the sale of such equipment.”

Mr Kirton’s statement reveals that, although Mrs Rushmer had made her application without notice, the court subsequently directed that the application be heard inter partes. The present position is that an order has been made for the Liquidators to file evidence by 8 April 2010 with Mrs Rushmer having 14 days to file any evidence in reply. The hearing has been adjourned to the first available date after 4 May 2010 with an estimate of one day. It is clear that the application will be hotly contested by the Liquidators.

It can therefore be seen that Mrs Rushmer has not commenced proceedings against the Administrators as was her stated intention at the time of the hearing before the Master. Instead, a little over a month after that hearing, she commenced proceedings against the Liquidators. No evidence was put before me explaining this change of tack or explaining why it was not brought to the Master’s attention either before or after he gave judgment. Nor is there any explanation as to why the position was not revealed in counsel’s skeleton argument in support of the application for permission to appeal, which proceeded on the basis that it remained Mrs Rushmer’s intention to sue the Administrators.

As counsel for Natwest submitted, it follows that Mrs Rushmer has effectively abandoned the application which she was making before the Master, which was for a further suspension of the sale pending her proposed claim against the Administrators, and instead is now making a different application, namely for a suspension of the sale pending the resolution of her claim against the Liquidators. In those circumstances, Mrs Rushmer’s criticisms of the Master’s reasoning with regard to the proposed claim against the Administrators are by the by. Indeed, the position now revealed may be regarded as vindicating his conclusion that the sale should not be further postponed pending the resolution of the proposed claim against the Administrator, even if not all the details of his reasoning.

This aspect of the matter does not end there. Counsel for Mrs Rushmer very properly disclosed on instructions, which he undertook to confirm by means of a further witness statement, information concerning the loan by Mrs Rushmer referred to in the Master’s judgment which had not been revealed to the Master. This was that the loan, which was of £100,000, was made on 14 April 2009 to Mr Kirton. The terms at that stage were that the loan was to be repaid on 20 June 2009 with interest payable at £2,000 per month. Mr Kirton in turn lent the money to his then firm on terms that it was to be repaid on the same date, but with interest payable at £3,000. In June the loans were extended to 20 August 2009 on the same terms. At that date repayment was not demanded, and the loans were allowed to run on to 1 October 2009. On that date, Mr Kirton changed firms and the loan was novated to Mr Kirton’s new firm on terms that Mr Kirton became a guarantor instead. The loan is now repayable on 31 December 2010 and interest is payable at £4,000 per month.

Mr Kirton’s firm is conducting the proceedings against the Liquidators on a conditional fee agreement. Counsel informed me that Mr Kirton had assured him that the existence of the loan had not affected his firm’s judgment in entering into that agreement. Be that as it may, this demonstrates, in my judgment, that the Master was right to be critical of the lack of proper financial disclosure made by Mrs Rushmer in support of her application, and in particular to be sceptical as to the manner in which any proceedings were to be financed.

This turn of events provides a further reason why it is appropriate to treat this appeal as a rehearing rather than as a review of the Master’s decision. I must therefore decide whether it is appropriate to give Mrs Rushmer a further suspension of the order for sale pending the determination of her claim against the Liquidators. Before doing so, I must consider Mrs Rushmer’s third and fourth grounds of appeal.

The third ground of appeal is that the Master wrongly failed to consider or give effect to Article 8 of the European Convention of Human Rights. Counsel for Mrs Rushmer had submitted to the Master that, in exercising its discretion under sections 14 and 15 of TOLATA the court, as a public authority within the meaning of section 6 of the Human Rights Act 1998, must not make an order which constitutes a disproportionate interference with Article 8 rights. Despite this, the Master failed to consider Mrs Rushmer’s Article 8 rights in his judgment.

On this point my attention was drawn to two decisions of His Honour Judge Purle QC sitting as a judge of the High Court. In the first decision, Close Invoice Finance Ltd v Pile [2008] EWHC 1580 (Ch), [2008] BPI 1465 he said this:

“12.

It does seem to me quite plain that, in the exercise of the discretion under CPR 73.10, the provisions of the European Convention on Human Rights had to be taken into account and the court’s discretion must be applied compatibly with the Convention rights. The Convention right in question is the respect for private and family life and home and the enjoyment of possessions. It is of course in accordance with the law that a charging order has been made and, to the extent that it is now enforced, that will be in accordance with the law also. It will also be in the public interest to enforce charging orders generally, because of the economic importance of ensuring that there is an efficient machinery for the enforcement of debt obligations, even though, unlike in the case of a legal mortgagee, this was not a debt obligation which was voluntarily provided as a secured obligation.

13.

In those circumstances, I am quite satisfied that the power to enforce a charging order is compatible with the Convention. Indeed, the contrary is not argued. I am also satisfied, however, that in applying the court’s discretion, it must be applied in a way which gives due respect to the right of all those living in the property, not just the debtors, to have respect for their family life and their home. Against that must be weighed the rights of the chargee under the equitable charge, that is, to say the claimant, not to have to wait indefinitely for payment or to have no means of enforcing its security.”

In the second case, C. Putnam & Sons v Taylor [2009] EWHC 317 (Ch), [2009] BPIR 769, he said this:

“27.

Mrs Taylor says that any suggestion of a sale would be completely wrong, partly because of her entire innocence in relation to the debt for which her husband is liable, and relies also on the fact, as I have said, that that indebtedness was incurred against an agreement she reached with her husband and behind her back. She says, in addition to the matters referred to in TLATA (as I shall call the 1996 Act for short), that any order for possession and sale would contravene her human rights. In particular, she refers to and relies upon the European Convention on Human Rights, which has now been incorporated into English law, and the right to respect to family and private life under article 1 of the Convention. She also relies upon article 1 of the first protocol.

28.

I considered these provisions in the decision of Close Invoice Finance Ltd v Pile [2008] BPIR 1465, and concluded that, in the exercise of the court’s discretion, the provisions of the European Convention on Human Rights did have to be taken into account and the court’s discretion had to be applied compatibly with Convention rights. However, I also noted (borrowing language from the first protocol) that it was in accordance with the law when a charging order was made and, to the extent that it is enforced, that also is in accordance with the law. I also said:

‘It will also be in the public interest to enforce charging orders generally because of the economic importance of ensuring that there is an efficient machinery for the enforcement of debt obligations, even though, unlike in the case of a legal mortgagee, this is not a debt obligation which was voluntarily provided as a secured obligation.’

29.

In those circumstances, I was quite satisfied that the power to enforce the charging order is compatible with the Convention. That was a case where both of the legal owners were also debtors. In this case, of course, Mrs Taylor was not a debtor at all, and her interests had to be taken into account under section 15. In my judgment, section 15 is human rights compliant. Mrs Taylor’s human rights are to be taken into account (as are indeed Mr Taylor’s). It does not follow from this that Mrs Taylor’s interests are necessarily to prevail over the interests of the secured creditor; nor is the reverse true. A balance has to be struck between the various competing interests.”

I agree with Judge Purle that the power to enforce a charging order under section 14 of TOLATA is compatible with the Convention. I also agree with Judge Purle that the court’s discretion under section 15 has to be exercised compatibly with the Convention rights of those affected by an order for enforcement. In my judgment, it will ordinarily be sufficient for this purpose for the court to give due consideration to the factors specified in section 15 of TOLATA. That will ordinarily enable the court to balance the creditor’s rights, which include its rights under Article 1 of the First Protocol, with the Article 8 rights of those affected by an order for sale. I would not rule out the possibility that there may be circumstances in which it is necessary for the court explicitly to consider whether an order for sale is a proportionate interference with the Article 8 rights of those affected, but I do not consider that this will always be necessary.

In the present case I do not consider that it was necessary for the Master to give explicit consideration to the Article 8 rights of the Rushmer family, or that his failure to do so gives rise to any ground of appeal. In his judgment dated 17 July 2007, Master Moncaster gave careful consideration to the factors specified in section 15 of TOLATA. He did so in a manner which took into account the Article 8 interests of the Rushmer family, and balanced it against the bank’s interests. That balancing exercise was not the subject of any appeal. The Master’s conclusion was that the bank’s interest outweighed the Article 8 interests of the Rushmer family, and accordingly he made an order for sale. He nevertheless granted the Defendants a suspension of the order for sale on grounds unconnected with their Article 8 rights. In considering whether it was appropriate to exercise his discretion to grant them a further suspension on the present application, I do not consider that it was incumbent on the Master to revisit his earlier decision in this regard. In any event, however, the Master did consider whether enforcement of the order for sale was appropriate in the light of the circumstances pertaining at the time of the hearing before him. In doing so, he explicitly weighed the competing interests of the creditor and of the innocent wife and children (although it may be noted that James was over 18 by that point in time). In my judgment, he thereby discharged any duty that he may have had under section 6 of the Human Rights Act 1998.

The fourth ground of appeal is that, in his 3 November 2009 judgment, the Master failed explicitly to have regard to the factors set out in section 15 TOLATA and in particular those specified in paragraphs (b) and (c). Counsel for Mrs Rushmer submitted that, even though the Master had explicitly addressed the relevant factors in his judgment dated 17 July 2007, he was obliged to reconsider those factors in his subsequent judgment in the light of the changed circumstances. Counsel argued that there were two relevant changes of circumstances.

The first suggested change of circumstances was the fall in property prices since July 2007. I do not accept that that was a change in circumstances which required the Master to re-exercise his discretion under section 15 of TOLATA. In any event, the Master did consider that change of circumstances in his 3 November 2009 judgment and concluded that it did not justify any further suspension of the order for sale.

The second suggested change of circumstances was that Katie Rushmer’s swimming career had progressed to the point that she is now in training for the 2012 Olympic Games. It is fair to say that this is not a point which was explicitly considered by the Master in his 3 November 2009 judgment. I am not persuaded, however, that this is a relevant change of circumstances. On the contrary, the Master had fully considered Katie Rushmer’s desire to continue using the private swimming pool at the Property for training in his 17 July 2007 judgment.

I turn to consider whether it is appropriate to grant Mrs Rushmer a further suspension of the order for sale pending the resolution of her claim against the Liquidators. In my judgment it is not. My reasons are as follows.

The starting point is Master Moncaster’s judgment dated 17 July 2007. In that judgment, the Master carefully considered the factors set out in section 15 of TOLATA. Balancing those factors, he concluded that the interests of the bank as secured creditor should prevail over the interests of Mrs Rushmer and the two children. Accordingly, he made an order for sale of the Property. It is clear, that absent what he then regarded as a real prospect of substantial recovery by Mr Rushmer on one or both of his proposed claims, he would not have suspended the order for sale. He suspended the order for sale because he was persuaded that Mr Rushmer should have the opportunity of bringing those claims first. As I have said, there was no appeal by the Defendants against that decision.

In the event, Mr Rushmer’s claim against Mr Smith wholly failed for the reasons identified above. Moreover, whatever the Master was told about the funding of that litigation at the hearing on 17 July 2007 and whether or not he misinterpreted it either then or in his later judgment, it is now clear that counsel’s fees and other disbursements in those proceedings were funded by Mrs Rushmer from the proceeds of the sale of the Winery. It follows that the litigation yielded no benefit for either Mr Rushmer or Natwest. Furthermore, contrary to Master Moncaster’s intention in making his 17 July 2007 Order, the debt owed by Mr Rushmer to the bank has increased as a result of Mrs Rushmer’s failure since October 2008 to continue making the payments specified in that Order. Still further, as the Master pointed out in his 3 November 2009 judgment, Mrs Rushmer’s ability to fund the re-housing of the family in a new house has been depleted as a result of her own actions, although she retains enough equity to do so.

Turning to the other claim that was then proposed, Mr Rushmer did not merely not pursue this diligently, he did not bring it at all. Mrs Rushmer says that this was because he could not afford to litigate on two fronts and was advised to bring the claim against Mr Smith first. I am prepared to assume that that is correct. I agree with the Master that the obvious inference is that Mr Rushmer was advised to prioritise what was then perceived to be the stronger of the two claims. Mrs Rushmer also complains about the bringing by Natwest of the bankruptcy proceedings against Mr Rushmer. Again, I agree with the Master that that was not a helpful step on the part of the bank, but nevertheless it is immaterial since Mr Rushmer was not made bankrupt until 12 February 2009, by which time his claim against Mr Smith had failed in circumstances which would in any event have made it difficult for him to pursue a further claim against the Administrators. Furthermore, Mrs Rushmer could have brought a claim against the Administrators at any time.

Turning to the claim brought by Mrs Rushmer against the Liquidators, the evidence goes nowhere near establishing that this is a claim which offers a real possibility of substantial recovery for the benefit of Natwest. Like the claim against the Administrators, it is a claim which both Mr Rushmer and Mrs Rushmer have standing to pursue as creditors of AVAM. No evidence has been adduced as to the prospects of success of the claim whether in the form of an opinion on the merits from counsel or otherwise. Nor has any evidence been adduced as to the quantum of the claim. Still less has any evidence been produced of the extent to which the bank would benefit from any recovery.

The claim suffers from a number of obvious difficulties. First, it is a claim which requires the permission of the court in order to be brought. As I have related, that permission has yet to be obtained and is being strenuously resisted by the Liquidators. Secondly, the claim is one for misfeasance by liquidators in the discharge of their duties. Such a claim, which is akin to a claim for professional negligence, faces obvious difficulties. Thirdly, Mrs Rushmer says in her witness statement dated 24 August 2009 that in preparing the statement she had been heavily reliant on information provided by Mr Rushmer. It seems clear that the claim will be considerably dependent on the evidence of Mr Rushmer. That in itself casts doubt upon its prospects of success in circumstances where his evidence has been disbelieved by two different courts in two different sets of proceedings. Fourthly, it is apparent from paragraph 6 of the draft Points of Claim that, at least in part, the claim against the Liquidators is dependent upon complaints made about the conduct of the Administrators. That again casts doubt upon the prospects of the success of the claim in circumstances where neither Mr Rushmer nor Mrs Rushmer has seen fit to pursue the proposed claims against the Administrators themselves. Fifthly, it is clear that, if the claim reaches trial, it will be a substantial and complicated matter. It will therefore be costly to pursue, particularly as the Liquidators are separately represented. As related above, Mr Kirton’s firm has agreed to act on a CFA. As yet, however, no counsel has been found to agree to act on the same basis. Accordingly, it appears that pursuit of the claim will result in further depletion of Mrs Rushmer’s resources. Sixthly, as I have said, I do not consider that Mrs Rushmer has given proper disclosure of her means, and hence her ability to finance the litigation. Finally, even if the claim is ultimately successful, it appears that the damages will be in the nature of damages for loss of a chance.

For all of these reasons, the claim against the Liquidators can only be regarded as a highly speculative one. Accordingly, I do not consider that it justifies a further suspension of the order for sale. Furthermore, the pursuit of the claim appears likely to make it more difficult for Mrs Rushmer to rehouse her family.

Counsel for Mrs Rushmer indicated that, in the event that the matter was remitted or reheard, Mrs Rushmer would also wish to pursue her complaint about Natwest’s handling of the sale of the Winery. As for that, I agree with the Master’s reasoning and conclusion.

As noted above, Mrs Rushmer’s primary case is that there should be a suspension without any payment by her in the interim. In my view that proposition is even more unrealistic now than it was on 17 July 2007. As for Mrs Rushmer’s first alternative case, the only effect of a monthly payment by Mrs Rushmer of £1,000 would be to reduce the rate at which Mr Rushmer’s debt to Natwest increases. Even a monthly payment equal to the accruing interest, as proposed on Mrs Rushmer’s second alternative case, would not in and of itself provide any justification for a further postponement of the sale. On the contrary, the bank has been kept out of its money long enough.

Given that I have concluded that it is appropriate to treat this appeal as a re-hearing, I have given independent consideration to the factors specified in section 15 of TOLATA and the Rushmer family’s Article 8 rights even though I do not consider that the Master made any error in that regard. I am satisfied that enforcement of the order for sale is justified and proportionate in the light of those considerations. Indeed, I consider it likely that a further suspension would be contrary to the Rushmer family’s own interests.

The appeal is dismissed.