Day v Shaw & Anor

This is the Claimant’s appeal from an order made by Deputy DJ Toussaint (“the District Judge”) on 8 July 2013. On 14 October 2013, Judge Mc Cahill QC granted the Claimant permission to appeal. The Claimant/Appellant is Mr Andrew James Day and the Defendant/Respondents are Mr Jeffrey Graham Shaw and his wife, Mrs Patricia Ann Shaw.

In summary, the issue between the parties arises in this way. Mr and Mrs Shaw’s home was a freehold property which they jointly owned. They granted a second charge over that property, in favour of Barclays Bank plc (“Barclays”). The property has now been sold, the sums due to Barclays have been paid and the resulting net proceeds of sale are held by the solicitors for Mr and Mrs Shaw, in accordance with an order of the court. The issue is whether Mrs Shaw is entitled to be indemnified by Mr Shaw in relation to her liability under the second charge and whether any such right to an indemnity is the subject of an equity of exoneration. Any such equity would produce the result of increasing the extent of her beneficial interest in the property and leaving Mr Shaw with no part of the net proceeds of sale. Mr and Mrs Shaw are agreed that Mrs Shaw should be indemnified in this way and should have such an equity of exoneration. However, Mr Day has obtained a judgment against Mr Shaw and has a final charging order over Mr Shaw’s interest in the property in relation to that judgment debt. It is in Mr Day’s interests to contend that Mrs Shaw is not entitled to the indemnity and the equity of exoneration which she asserts. The District Judge decided the issue in favour of Mr and Mrs Shaw and Mr Day now appeals.

Mr Selway appeared on behalf of Mr Day and Ms Brown appeared on behalf of Mr and Mrs Shaw.

In 1964, Mr and Mrs Shaw jointly purchased a house, 6 Lime Close, Locking, Weston-super-Mare. The house was transferred into their joint names and they were duly registered as proprietors at the Land Registry under Title No ST129055.

On 8 June 2001, Mr and Mrs Shaw charged the property to Cheltenham & Gloucester plc, which later became part of Lloyds TSB Bank plc (“Lloyds”) and which duly registered its charge against the registered title to the property. Mr and Mrs Shaw accept that they are to be regarded, as between themselves, as equally liable for the sums due under this charge. Mrs Shaw does not claim any indemnity from Mr Shaw in relation to her share of the sums due under that charge nor any equity of exoneration in that respect.

On 4 March 2002, Mr and Mrs Shaw granted a second charge, this time in favour of Barclays. That charge was duly registered against the registered title to the property. Mrs Shaw contends that she is entitled to an equity of exoneration from Mr Shaw in relation to her liability under that charge with the result that the liability under that charge to pay monies to Barclays will fall first on Mr Shaw’s share in the property before any part of that liability should fall on Mrs Shaw’s share in the property.

The property has now been sold. The proceeds of sale before costs and charges were £145,500. The costs of the sale were £2,921.00. The sum paid to Lloyds to redeem the first charge was £27,302.38. The sum paid to Barclays to redeem the second charge was £70,000; this was a negotiated figure which was less than the amount which Barclays originally asserted was due under the second charge. Without any equity of exoneration as claimed by Mr and Mrs Shaw, the net proceeds of sale of £45,276.62 would be divided equally between them and Mr Shaw’s half share in the property would be represented by one half of that amount, namely, £22,638.31. Mr Day’s charging order would capture that sum (as Mr Day’s judgment debt plus interest exceeds that sum). Conversely, if Mrs Shaw is entitled to the equity of exoneration which she claims, then the £70,000 due to Barclays will have to be met first out of Mr Shaw’s half share in that property. That half share of the proceeds of sale, after allowing for the costs of sale and payment of the sums due to Lloyds, but before any payment to Barclays, would be £57,638.31 and so it would be wholly used up towards payment of the sum due to Barclays and, in that event, Mr Day’s charging order would have nothing to bite on.

The charge in favour of Barclays came about because Barclays lent monies to its customer, Avon Independence Ltd (“Avon”). Avon had previously borrowed from the Royal Bank of Scotland but in 2002 it changed its bank and obtained new banking facilities from Barclays. Avon then owed to Barclays whatever it had previously borrowed from Royal Bank of Scotland and it seems that Avon thereafter continued to borrow further sums from Barclays.

At the trial before the District Judge, the evidence as to ownership and control of Avon was rather limited. It will be necessary later in this judgment to consider whether I should allow Mr Day to adduce evidence on that matter, which he did not adduce before the District Judge. At that point in the judgment, I will consider in more detail what evidence there was, and what there might have been, as to the ownership and control of the company. It will suffice at present to record that the District Judge proceeded on the basis that: Mr Shaw and the couple’s daughter (Mrs Shergold) were directors of the company; Mr Shaw and Mrs Shergold ran the company; and Mrs Shaw was not a director of the company and was not directly involved in the running of the company.

On 4 March 2002, Mr Shaw and Mrs Shergold entered into a joint and several guarantee in favour of Barclays in relation to the sums owed by Avon to Barclays. The guarantee stated that the maximum amount for which the guarantors were to be liable was £30,000 plus interest and certain other costs and expenses. The District Judge accepted the evidence of Mr Shaw that from time to time after March 2002, when Barclays was asked to, and did, make further advances to Avon, Barclays asked Mr Shaw and Mrs Shergold to extend their liabilities under the guarantee to cover the further liabilities of Avon to Barclays and Mr Shaw and Mrs Shergold did so.

Also on 4 March 2002, Avon described as “the Principal Debtor” and Mr and Mrs Shaw described as “the Mortgagor” entered into the second charge in favour of Barclays, to which I have referred. By the charge, Avon covenanted with Barclays that it would pay on demand all monies which it owed Barclays. The Mortgagor covenanted with the Barclays that it would pay on demand all monies due owing or incurred to Barclays by the Mortgagor. Clause 22 of the charge further provided that a reference to the Mortgagor included each of two persons who comprised the Mortgagor. The covenant by the Mortgagor stated that it applied to any such liability, whether entered into solely or jointly with any other person and whether as principal or surety. In this way, Mr and Mrs Shaw covenanted that they would pay the sums due from Mr Shaw to Barclays, pursuant to the guarantee which Mr Shaw had entered into jointly with Mrs Shergold. Further, Mr and Mrs Shaw charged the property by way of legal mortgage with the payment of all monies and liabilities covenanted to be paid under the charge, whether by the Principal Debtor or by the Mortgagor. Accordingly, Mr and Mrs Shaw charged the property with: (1) the payment of the sums due from Avon to Barclays; and (2) the payment of the sums due from Mr Shaw to Barclays under the joint guarantee with Mrs Shergold. By clause 20 of the charge it was provided that as between the Principal Debtor on the one hand and the Mortgagor and the property on the other hand, the Principal Debtor should be primarily liable for the payment of the monies covenanted to be paid by the Principal Debtor.

Before the property was sold, Avon owed more than £70,000 to Barclays which it was unable to pay. At some point, Avon went into liquidation. A bankruptcy order was made in relation to Mrs Shergold on 29 November 2010. The only way in which Barclays would be paid would be from the proceeds of sale of the property. I do not know if Mrs Shaw at any time contended that the charge in favour of Barclays was not binding upon her by reason of the principles explained in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773. However, Mr and Mr Shaw agreed with Barclays that Barclays would restrict its claims against the property to £70,000 and, when the property was sold, that sum was paid to Barclays. The case was argued before me on the basis that the charge in favour of Barclays was a valid charge and that £70,000 was properly paid to Barclays under that charge.

In 1997, Mr Day lent a sum of money to Mr Shaw and Mrs Shergold. The loan was repayable in 2007 but it was not repaid. Mr Day sued Mr Shaw and Mrs Shergold in the county court. The claim was defended but the defence failed. On 26 October 2010, Mr Day obtained judgment for £9,800 plus interest and costs, which together came to a sum in excess of £22,000. This sum was not paid by Mr Shaw or Mrs Shergold. Mrs Shergold petitioned for her own bankruptcy and she was made bankrupt on 29 November 2010. Mr Day says that he is unlikely to receive any dividend in her bankruptcy. Mr Day then proceeded to obtain a charging order in relation to the judgment debt. An interim charging order was made final on 1 March 2011. The charging order relates to the interest of Mr Shaw (but not that of Mrs Shaw) in the property. Mr Day brought the present proceedings against Mr and Mrs Shaw to enforce the charging order. The property was sold without the need to obtain an order for sale. The issue raised on this appeal has been the substantive issue raised in Mr Day’s proceedings.

The above facts make it critical to determine the extent of Mr Shaw’s interest in the property. On the basis of the figures explained earlier, Mr Day contends that Mr Shaw’s interest is represented by one half of the net proceeds of sale (with the debt to Barclays being borne equally by the shares of Mr and Mrs Shaw); this is the figure of £22,638.31. Mr and Mrs Shaw contend that the debt to Barclays is to be paid first out of his share before any of it is to be paid out of her share. In this way, Mr Shaw does not receive any net proceeds of sale and Mr Day’s charge is worthless.

The case for Mr and Mrs Shaw is that Mrs Shaw is entitled to an equity of exoneration which produces the above result in her favour and contrary to the contention of Mr Day. It is said on their behalf that Mrs Shaw is essentially in the position of a surety for the liability of Mr Shaw under the joint guarantee which he gave with Mrs Shergold. It is submitted that, as between Mr and Mrs Shaw, it is he who should be liable first of all for the debt to Barclays and that this case comes easily within the established principles as to the equity of exoneration .

Mr Day accepts that, in some circumstances, a party who joins in a mortgage of a jointly owned property in relation to the debt of the other joint owner is entitled to be exonerated by that other, so that the debt falls first on the share of that other. However, counsel for Mr Day contends that it is necessary in this case to identify the principal debtor which owed the debt to Barclays. It is said that the principal debtor was Avon, rather than Mr Shaw. Avon was not a joint owner of the property and Mr Shaw (who was a joint owner) was not the principal debtor. It is said that if Mr Shaw and Mrs Shergold had not entered into a joint guarantee, it would have been clear that Mr and Mrs Shaw were equally liable, as between themselves, for the debt of Avon. It is submitted that it makes no difference that Mr Shaw and Mrs Shergold entered into the joint guarantee under which they owed a secondary liability only in relation to the principal debtor, Avon. It is accepted that if Mr Shaw had been the principal debtor, then Mrs Shaw would have been entitled to an equity of exoneration in relation to that debt.

The District Judge referred to the background facts, to the guarantee and the mortgage and the authorities to which she was referred. She referred to the argument for Mr Day that the equity of exoneration did not apply because the principal debtor was Avon rather than Mr Shaw. She rejected that argument on the ground that “ … the principal debtor, it seems to me, can equally be Mr Shaw who is the guarantor …”. The District Judge dealt with this point quite shortly. She dealt at greater length with the submission made to her that the liability to Barclays had been undertaken for the benefit of Mr and Mrs Shaw together. The suggestion seems to have been that Mr and Mrs Shaw’s joint financial position was tied up with the prosperity of Avon so that borrowings for Avon’s business were indirectly for the joint benefit of Mr and Mrs Shaw and so that there was no equity which justified the liability for Avon’s debts falling first on Mr Shaw’s share in the property. The District Judge did not accept that submission.

On this appeal, Mr Day contends that the District Judge was wrong to treat the case as one where Mr Shaw was the principal debtor. It is submitted that because the principal debt was that of Avon the equity of exoneration did not apply to a property jointly owned by Mr and Mrs Shaw. Mr Day does not seek to challenge the District Judge’s further finding that it would be wrong to regard the debt of Avon as being for the joint benefit of Mr and Mrs Shaw, rather than Mr Shaw alone. At the hearing of this appeal, there was considerable discussion as to the position of the parties as regards primary and secondary liability and as to the law which applies where two or more persons are liable for the same underlying debt and one of those persons seeks a contribution or an indemnity from another.

I was referred to a number of passages in Halsbury’s Laws of England, 5^th Ed., where the equity of exoneration is discussed. The subject is discussed, in particular, at vol. 5 (Bankruptcy and Personal Insolvency), para. 674, vol. 49 (Financial Services and Institutions), para. 1152 and vol. 72 (Matrimonial and Civil Partnership Law), paras. 239 - 242. The matter is described in essentially the same way in each place although the language differs somewhat. In volume 49 at para. 1152, the matter is described in this way:

“Mortgages and charges

A person who mortgages his property to secure the debt of another stands in the relation of guarantor towards the person whose debt is thus secured, and is entitled to be exonerated by the principal debtor. This principle also applies where jointly owned property is charged to secure the indebtedness of one co-owner.”

The law is described in a similar way in Fisher and Lightwood’s Law of Mortgage, 13^th ed., at paras. 45.7:

“Mortgage for another’s debt

A person who has mortgaged his property to secure the debt of another is presumed in the absence of other evidence to be only a surety and is entitled to be exonerated by the principal debtor. The same is true where jointly-owned property is mortgaged to secure money raised for the benefit of one joint owner.”

The law was considered and applied by Scott J (as he then was) in re Pittortou [1985] 1 All ER 285 where a property jointly owned by husband and wife was charged to secure repayment of the husband’s overdraft at the bank. Scott J said at 288 c-f:

“It is, I think, clear that the effect of the equity of exoneration in a case such as this is indeed to enhance the proprietary interest of the surety/joint mortgagor and not simply to give the surety a personal right to an indemnity from the debtor who is the other joint mortgagor. Re Cronmire, ex p Cronmire [1901] 1 KB 480 establishes the entitlement of a wife, whose property has been charged to secure her husband's debts, to prove in his bankruptcy in respect of the indemnity which he owes her. A subsequent case, Re a debtor (No 24 of 1971), ex p Marley (J) v Trustee of the property of the debtor [1976] 2 All ER 1010, [1976] 1 WLR 952, establishes that in addition to the right to claim an indemnity the surety can claim an enhanced proprietary interest. In that case Foster J, with whose judgment Fox J agreed, said ([1976] 2 All ER 1010 at 1013, [1976] 1 WLR 952 at 955):

'As between the bankrupt's father and the bankrupt, and bearing in mind that the father is admittedly only a surety, it should be implied that their intention was that the bankrupt's beneficial interest should bear the burden. If that is so, it seems to me that the bankrupt's interest vested in his trustee in bankruptcy, subject to an inchoate right of indemnity, if the surety were called on to pay, or the debt fell to be discharged, as it would have to be, out of the proceeds of sale of the property. Alternatively, I think that the father could be regarded as having an actual charge on the bankrupt's interest within the principle discussed by Warrington J in Gee v Liddell [1913] 2 Ch 62 at 72 … '

However, the equity of exoneration is a principle of equity which depends on the presumed intention of the parties. If the circumstances of a particular case do not justify the inference, or indeed if the circumstances negate the inference, that it was the joint intention of the joint mortgagors that the burden of the secured indebtedness should fall primarily on the share of that of them who was the debtor, then that consequence will not follow. In Paget v Paget [1898] 1 Ch 470, [1895–9] All ER Rep 1150 the Court of Appeal so found in a case where the indebtedness had been incurred in order to finance the luxurious living of the family, and had been taken advantage of and had been to the benefit of both joint mortgagors, notwithstanding that it was in law the debt of only one of them. And Walton J in Re Woodstock (a bankrupt) (19 November 1979, unreported) drew attention in his judgment to the need for the courts, in considering how the equity of exoneration should work as between a husband and a wife, to take into account the relationship which husbands and wives bear, or ought to bear, to one another in their family affairs in current times. The guide that Victorian cases can provide to the inferences which should be drawn from the dealings with one another of husbands and wives today is often not very valuable. Walton J, commenting on Hall v Hall [1911] 1 Ch 487, said:

'I do not think I have to go into the interesting question whether that case is now good law in view of completely changed social conditions. It appears to me that that case was decided in the days when the wife did nothing except sit at home and run the household and boss the servants about, and the husband was expected to be, and indeed was, the provider. Times have now changed, and I am very far from that if that case were to be heard on precisely the same facts tomorrow, the decision would necessarily be the same.'”

The later discussion in Re Pittortou concerned the question as to what the result should be in relation to sums drawn by the husband from the bank and spent on household expenses and sums drawn and spent on the husband’s business or on other matters for the benefit of the husband. It was held that the wife was entitled to an equity of exoneration in relation to sums spent on the husband’s business and the other matters but not in relation to sums spent in relation to household expenses.

As Re Pittortou makes clear, the joint owner who is effectively in the position of a surety for the other joint owner is not only entitled to be indemnified by the other joint owner in relation to the relevant debt but the right to an indemnity carries with it a proprietary right over the indemnifying party’s share in the property. Thus, the party with the benefit of an equity of exoneration has not only a personal claim but is also a secured creditor in relation to that claim. This is significant as regards that person’s other creditors. It is pointed out in footnote 6 to Halsbury’s Laws, 5^th ed., vol. 49, para. 1152 that there were dicta in some of the early cases on this subject suggesting that the right of exoneration should be postponed to the rights of other creditors but there is no support for this approach in later cases.

In the present case, there are various persons who are liable in different ways for the debt owed to Barclays. There is no doubt that, overall, Avon was the principal debtor. Mr Shaw and Mrs Shergold owed a secondary liability for that debt under their joint and several guarantee. Further, Mr and Mrs Shaw had a secondary liability under the mortgage. As described earlier, Mr and Mrs Shaw jointly and severally covenanted that they would pay to Barclays the sum due from Mr Shaw under the guarantee. By reason of the charge over the jointly owned property in relation to the debt of Avon and of Mr Shaw under the guarantee, Mr and Mrs Shaw were essentially in the position of surety for those debts.

What then were the rights of the various parties to call on others for a contribution or an indemnity to the relevant liability? The primary liability was that of Avon. If Mr Shaw or Mrs Shergold had paid the debt to Barclays under the joint and several guarantee than they would be entitled to be indemnified by Avon, as the principal debtor. If Mr and Mrs Shaw as mortgagors of the property were liable to pay the debt to Barclays out of the proceeds of sale of the property, they too would be liable to be indemnified by Avon. However, the right to an indemnity from Avon is of no value in view of its liquidation.

The real question in this case is as to the respective rights of the joint and several guarantors (Mr Shaw and Mrs Shergold) and of the mortgagors (Mr and Mrs Shaw), as between themselves. If Mr Shaw and Mrs Shergold paid the debt in accordance with the guarantee, could they claim a contribution or an indemnity from Mr and Mrs Shaw on the ground that they were liable under the mortgage? Alternatively, could Mr and Mrs Shaw claim a contribution or indemnity from Mr Shaw and Mrs Shergold? This depends on how one analyses the respective positions of these parties who each have a secondary liability for the debt of the principal debtor. Are they all co-sureties or sureties at the same level of liability or in the same rank of liability; or is one group of sureties effectively sub-sureties for the other group? I consider that the answer to these questions is clear. Although, the guarantee and the mortgage were entered into on the same day, it is clear that in substance, Mr Shaw and Mrs Shergold were sureties for the debt of Avon and Mr and Mrs Shaw, as mortgagors, were sub-sureties. I do not consider that the guarantors and the mortgagors can be considered to be co-sureties equally liable for the principal debt. The result is that the sub-sureties (Mr and Mrs Shaw) are entitled to be indemnified by the sureties (Mr Shaw and Mrs Shergold) in just the same way as a surety is entitled to be indemnified by a principal debtor. Although, overall, Avon is the principal debtor, if one asks as between the guarantors and the mortgagors who is the principal debtor, the answer is: the guarantors.

The above analysis, which distinguishes between a case of co-sureties and sub-sureties, is well established by authority: see Craythorne v Swinburne (1807) 14 Ves Jun 160 (a judgment of Lord Eldon LC), In re Denton’s Estate [1904] 2 Ch 178, Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562 and Fox v Royal Bank of Canada [1976] 2 SCR 2.

The above conclusion means that, in addition to Mr and Mrs Shaw as mortgagors having a theoretical right to an indemnity from Avon, they also have a right to an indemnity from Mr Shaw and Mrs Shergold. It can be seen that, as so expressed, Mr Shaw appears to have both the right and the obligation in relation to this indemnity. Further, Mrs Shergold is also liable (with Mr Shaw) to indemnify Mr and Mrs Shaw. I therefore need to consider how the existence of this right to an indemnity is to have effect as between Mr and Mrs Shaw for the purposes of the equity of exoneration.

There is no difficulty with the fact that the right to the indemnity is against Mr Shaw and Mrs Shergold. Their liability to Barclays under the guarantee is joint and several. Mr and Mrs Shaw as mortgagors, having paid the principal debt owed to Barclays, are subrogated to Barclays’ rights against Mr Shaw and Mrs Shergold under the guarantee. As there is no prospect of payment by Mrs Shergold, the position is that Mr and Mrs Shaw are entitled to be indemnified by Mr Shaw. As Mr and Mrs Shaw are entitled to be indemnified by Mr Shaw, I consider that for the purpose of establishing the position between Mr and Mrs Shaw, in relation to the equity of exoneration, Mr Shaw cannot deny his liability to indemnify Mrs Shaw.

It follows that for the purposes of the equity of exoneration, Mrs Shaw can establish that she is entitled to be indemnified by Mr Shaw in relation to the debt owed to Barclays. As explained in the above authorities relating to the equity of exoneration, this right to an indemnity is not merely a personal right but is a proprietary right binding Mr Shaw’s share in the property and having priority over Mr Day’s charging order. It follows that Mrs Shaw is able to show that the liability under the mortgage to Barclays should fall first on Mr Shaw’s share. On that basis, on the figures in this case, Mr Shaw has no entitlement to any net proceeds of sale and Mr Day’s charging order does not attach to any property of Mr Shaw.

It can be seen that the above analysis depends on my conclusion that the liability of Mr and Mrs Shaw under the mortgage is by way of a sub-surety for the liability of Mr Shaw and Mrs Shergold under the guarantee. That makes it unnecessary to consider what the position would have been if there had not been a guarantee and the only obligations were the primary liability of Avon and the surety liability of Mr and Mrs Shaw under the mortgage. However, this matter was considered in the course of the hearing and I will comment upon it. The way in which the point arose was that counsel for Mr Day submitted that all that was relevant was that Avon was the principal debtor and that Mr and Mrs Shaw as mortgagors were sureties for the principal debtor and that each was liable to contribute equally to the liability but neither was obliged to indemnity the other against that liability. I will therefore discuss this approach although I think it is inappropriate to ignore the liability of Mr Shaw and Mrs Shergold as guarantors and (as I have held) their liability to indemnify Mr and Mrs Shaw as mortgagors.

If there had not been a guarantee by Mr Shaw and Mrs Shergold which, on the above analysis, made them liable to indemnity Mr and Mrs Shaw, the case would have been one where the principal debtor was Avon and the mortgagors, standing in the position of sureties, were Mr and Mrs Shaw. What then would have been the ultimate liability for the debt, as between Mr and Mrs Shaw? Prima facie, each would be liable to the same extent. Each would be able to require the other to contribute an equal share of the liability but neither would be liable to indemnify the other.

However, this prima facie position is a default position which might be affected by the circumstances of the case. The issue as to when the circumstances of the case justify an approach other than that of equal contributions is discussed in Goff & Jones, The Law of Unjust Enrichment, 8^th ed. at para. 20-77 ff. The different responses of a court of equity, as to what is an equitable division of the liability, can be illustrated by referring to a number of examples. Take first the case where the principal debtor is a company which is equally owned and controlled by a husband and a wife and where they mortgage their jointly owned house to secure the debt of the company; in such a case, there is no reason to move from the default position of equal liability. Take next the case where the principal debtor is a company owned and controlled by a friend of the husband and wife, who are persuaded to mortgage their house to secure the debt of the company; a more probable version of this example would be the case where the company is owned and controlled by their son or daughter; in such cases, there would again be no reason to move from the default position of equal liability. Lastly, take the case where the company is owned and controlled by the husband alone and he persuades his wife to join in a mortgage of the jointly owned house to secure the debt of the company. As between husband and wife, can the wife say that the debt is the responsibility of the husband so that he should indemnify her in relation to it and her right to an indemnity will be the subject of a proprietary right as against the husband’s share of the house, pursuant to the equity of exoneration?

Counsel for Mr Day submitted that the question of ownership and control of the company in these examples was irrelevant to the issue of the equitable division of the liability. He submitted that in all cases, the debt is that of the company and not of its shareholders. It did not matter whether the shares were held by a stranger or by a relative or by one of the mortgagors. He stressed the separate corporate personality of the principal debtor.

I am not able to accept that approach. The issue is as to what is equitable between the husband and the wife. For that purpose, I do not think that it should matter whether the debt is undertaken to fund the business of the husband as a sole trader, or a business in which he is a partner or a business run by a company which is wholly owned and controlled by him.

At the hearing, I asked the parties to make submissions on this way of analysing the position. I then permitted both counsel to add further submissions in writing following the hearing and they did so. Neither side cited any authority which contradicted the above approach. Indeed, my own researches have revealed a persuasive authority in the form of the Australian case of Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 Sup Ct (Eq Div) NSW, but also reported in [1999] BPIR 754. The case is cited in Goff & Jones, the Law of Unjust Enrichment, 8^th ed. and Chitty on Contracts, 31^st ed. The facts were as follows. Mr and Mrs P owned and controlled W Ltd. W Ltd borrowed monies from Citibank which took security for repayment in the form of a charge over the home of Mr and Mrs P and also a charge over the home of the parents of Mr P. On the face of the documents, Mr and Mrs P and the parents of Mr P were co-sureties for the debt of W Ltd. W Ltd defaulted and Mr and Mrs P were made bankrupt. Their trustee in bankruptcy sold their home and repaid the debt to Citibank. The trustee then claimed an equal contribution from Mr P’s parents on the basis that they were co-sureties with Mr and Mrs P and that the default position was that the co-sureties were equally liable to contribute to the payment of the debt. The claim by the trustee in bankruptcy was dismissed. It was held that Mr P’s parents had entered into the charge at the request of Mr and Mrs P and therefore Mr and Mrs P were liable to indemnify Mr P’s parents and, accordingly, were not entitled to claim a contribution from them. It can be seen that the judge (Bryson J) held that although the money was borrowed by W Ltd and the documents recited that it was W Ltd which requested Mr P’s parents to provide security, nonetheless it was possible to identify Mr and Mrs P as persons who requested the involvement of Mr P’s parents and who had benefited from the loan. The judge also considered the point that the default position for co-sureties was an equal liability to contribute. However, he held that equity would have regard to the circumstances of the case to consider the appropriate equitable response. The judge stated that where one co-surety took the whole benefit of the loan, then it may be equitable to require that surety to indemnify his co-sureties. The judge cited textbook authority for the proposition that a court could regard a shareholder in the company which had borrowed the money as someone who had taken the benefit of the loan. The judge then concluded that if he treated the corporate form of W Ltd and its separation from the legal personalities of Mr and Mrs P and held that the four co-sureties stood at the same distance from the principal debtor, W Ltd, he would fail to give effect to the circumstances of the case. I agree with the approach in the Australian case which mirrors the analysis I put to counsel at the hearing.

This approach to the question of contribution or indemnity between the two mortgagors requires some understanding of the position of each of them in relation to Avon. That question was not very thoroughly investigated in the course of the evidence before the District Judge. There were scraps of evidence as to Mrs Shaw’s involvement in Avon. The District Judge concluded that Avon was run by Mr Shaw and Mrs Shergold and that Mrs Shaw “was not involved directly with the company”. The District Judge was not given any reliable evidence about the shareholdings of Mr Shaw or Mrs Shergold. She considered in some detail an argument that Mrs Shaw derived benefits from Avon so that it could be said that Avon’s debts were incurred for the benefit of Mrs Shaw, amongst others. The District Judge firmly rejected the argument that Mrs Shaw derived benefits from the company or that the debts were incurred for her benefit. However, in the course of her discussion of that point she stated: “[i]t is right that she is a shareholder”. The District Judge did not make any finding as to the extent of such a shareholding nor as to whether such shares were held nominally or beneficially. She regarded the shareholding as insignificant when assessing whether Mrs Shaw derived benefits from Avon.

In his submissions in support of the appeal, counsel for Mr Day did not rely in any way on the District Judge’s apparent finding that Mrs Shaw was a shareholder in Avon. Nor did he challenge the reasoning that Mrs Shaw did not derive benefits from Avon, nor that the debts of Avon were not incurred for the benefit of Mrs Shaw, amongst others. Nonetheless, in the course of the hearing, in view of the analysis which I have set out above which attaches importance to the ownership and control of Avon, I inquired as to the evidence as to the shareholdings in Avon. I was then referred to the following passage in the evidence given by Mrs Shaw:

“Mr Selway: And the other question was in respect of shareholding in the company, it’s right to say, isn’t it that you own jointly with your husband some shares in Avon Independence Limited, or owned?

Mrs Shaw: I did, I did, yes.

Mr Selway: And am I right in saying that it was 600 shares you owned jointly with Mr Shaw?

Mrs Shaw: I’ve no idea.

Mr Selway: And did you take those shares out, did you get those shares –

Mrs Shaw: No. I never had any –

Mr Selway: No, no, did –

Mrs Shaw: Anything.

Mr Selway: Did, did you get those –

Mrs Shaw: Sorry?

Mr Selway: Did you get those shares when the company was incorporated back, first incorporated back in 1998?

Mrs Shaw: I can’t remember actually.

Mr Selway: Ma’am, that was just all the questions – I’ve got for Mrs Shaw.

Miss Brown: Can you confirm whether, as a shareholder, you ever received any dividends?

Mrs Shaw: No, nothing at all.

Miss Brown: As far as you are aware, did the company ever make any profit?

Mrs Shaw: Not that I’m aware of.”

Mr Shaw, who plainly knew much more about the workings of Avon, was not asked about the position as to shareholdings. I doubt if the discussion in the evidence as to Mrs Shaw having a shareholding in Avon really justified a finding that she did have such a shareholding. It seems to me that the position was simply not established one way or the other by these exchanges. In any case, there was no evidence that Mrs Shaw had the specific number of 600 shares in Avon nor as to the total number of issued shares.

It seems obvious from the questions put to Mrs Shaw that counsel for Mr Day had some information as to the position in relation to the shareholdings. He told me that he had a one page extract from Avon’s accounts for the year ended 30 September 2008 which referred to the position as to the shareholdings. I indicated that information as to the shareholdings might have been relevant and counsel informally applied to me for permission to adduce new evidence on this appeal. I was then shown the extract from Avon’s accounts. I invited counsel to make written submissions following the hearing in relation to this application and they did so.

In his written submissions following the hearing, counsel for Mr Day did not in the event press an application for permission to adduce new evidence. He repeated his primary case that the shareholdings in Avon ought not to be taken into account. Nonetheless, I have, for the sake of completeness, considered whether it would be right to permit Mr Day to rely on new evidence and to make the case that Mrs Shaw was a substantial shareholder in Avon. I have concluded that it would not be right to admit the new evidence, for a number of reasons. First, the suggested new evidence was available to Mr Day at the hearing before the District Judge and his counsel decided not to adduce that evidence but instead accepted answers from Mrs Shaw to the effect that she did not know what the position was. Secondly, the extract from the directors’ report may very well not show the whole picture as to the shareholdings. If Mr Day had wanted to argue before the District Judge that Mr and Mrs Shaw were equal shareholders in Avon and that Avon was just as much Mrs Shaw’s company as it was his, then Mr and Mrs Shaw should have been given the opportunity to address that contention. It would not be right to rely upon the extract and make adverse findings against them when they have not had that opportunity. It would also not be right to order a retrial on this issue. Further, on this appeal, Mr Day has not tried to challenge the District Judge’s assessment that Mrs Shaw derived no benefits from Avon and the debts of Avon were not incurred for her benefit.

Earlier in this judgment, I gave the example of Mr and Mrs Shaw standing surety for a company owned and controlled by their son or daughter. In this case, Mr and Mrs Shaw’s daughter was a director of Avon. However, there was no evidence as to whether she owned shares in Avon and if so to what extent. Further, Mr Day did not argue before the District Judge nor on this appeal that Mr and Mrs Shaw should be equally liable because they equally benefited by the loan to Avon because they were helping their daughter. In view of this, it would be wrong to speculate as to the position in that respect or to allow the fact that Mrs Shergold was a director of Avon to influence the result.

I consider that it has been demonstrated that Mr Shaw as one of the two guarantors is liable to indemnify Mrs Shaw as one of the two mortgagors in relation to the debt owed to Barclays and that her right to an indemnity gives her a proprietary right in relation to Mr Shaw’s share in the property. I consider that it is possible to reach a confident conclusion to that effect. That was the conclusion of the District Judge. If that analysis were for some reason not justified, then I would be inclined to hold that Mr Shaw is liable to indemnify Mrs Shaw on the ground, as the District Judge held, that Avon’s debts were not incurred for her benefit but were incurred for the benefit of Mr Shaw. However, I would be less confident about this alternative analysis, not because of any uncertainty as to the legal principles to be applied, but because the question of ownership and control of Avon was not sufficiently explored before the District Judge. In these circumstances, I consider that Mr Day’s challenge to the reasoning and the conclusion of the District Judge must fail and the appeal must be dismissed.

At the hearing of the appeal, I understood it to be agreed between counsel that if the appeal were to be dismissed then it would be dismissed with costs.

To save further costs, I am content to hand down this judgment without any attendance on behalf of the parties. If there are any consequential matters, I direct that they be raised with me in writing within 14 days of judgment being handed down.