Estoppel — Estoppel per rem judicatam — Legal charge — Guarantee — All moneys charge — Debtor liable under loan and guarantee — County court judgment for possession and repayment of loan — Whether cause of action in favour of bank for moneys due under guarantee — Whether bank estopped by earlier county court judgment
In 1982 the
defendant executed an all moneys charge of his freehold property in favour of
the plaintiff bank. In 1987 the defendant executed a guarantee in respect of
the current and future liabilities of G, a company in which he was interested.
The defendant and G got into financial difficulties, and in 1995 the bank
demanded from the defendant sums advanced to him and a sum due under the
guarantee by reason of G’s default. Proceedings were commenced in the county
court in which the particulars of claim referred, inter alia, to the
guarantee but omitted to state the sum due under it; the total sum claimed was
£105,000, being the loans to the defendant. The bank obtained judgment for
possession of the freehold property and a money judgment for £107,948.26
described as the ‘amount outstanding under the mortgage’; that sum did not
include a sum of about £300,000, being the defendant’s liability under the
guarantee. The freehold property was sold and the money judgment was satisfied.
The bank then issued the present High Court proceedings against the defendant
claiming the sum due under the guarantee as an unsecured liability. In the
court below Mr Walter Aylen QC held that the bank’s cause of action had merged
with the earlier county court judgment and there was estoppel per rem
judicatam. The bank appealed.
possession and for a money judgment in respect of the total amount due under
the legal charge, and having obtained a money judgment and not having made any
attempt to get either the judgment varied or the pleadings varied, then to
start fresh proceedings in the High Court based on the guarantee. The case was
essentially indistinguishable from the decision of the High Court of Australia
in Chamberlain v Deputy Commissioner of Taxation (1987–1988) 164
CLR 502.
The following
cases are referred to in this report.
Arnold v National Westminster Bank plc [1991] 2 AC 93; [1991] 2 WLR
1177; [1991] 3 All ER 41; [1991] 2 EGLR 109; [1991] 30 EG 57
Chamberlain v Deputy Commissioner of Taxation (1987–1988) 164 CLR 502
Drake v Mitchell (1803) 3 East 251
Henderson v Henderson (1843) 3 Hare 100
Seddon v Tutop (1796) 6 TR 607; 1 Esp 401; 3 RR 299
Thoday v Thoday [1964] P 181; [1964] 2 WLR 371; [1964] 1 All ER
341, CA
Wegg-Prosser v Evans [1895] 1 QB 108
This was an
appeal by the plaintiff, Lloyds Bank plc, from a decision of Mr Walter Aylen
QC, sitting as a deputy judge of the Queen’s Bench Division, who gave judgment
to the defendant, Roger Hawkins, on a summons under RSC Ord 14A in proceedings
by the bank under a guarantee.
Richard
Handyside (instructed by Cameron McKenna, of Bristol) appeared for the
appellant; Piers Feltham (instructed by Darbys, of Oxford) represented the
respondent.
Giving the
judgment of the court, ROBERT WALKER
LJ said: This is an appeal with the leave of a single lord justice
from an order of Mr Walter Aylen QC, sitting as a deputy judge of the Queen’s
Bench Division, made on January 22 1998. By his order the judge dismissed an
action by Lloyds Bank plc, the plaintiff below and the appellant in this court,
against Mr Roger Hawkins, the defendant below and the respondent in this court.
The order was made on a summons under RSC Ord 14A raising a question of whether
the bank’s cause of action had merged in an earlier judgment the bank had
obtained against Mr Hawkins on February 25 1997 in Aylesbury County Court. The
judge held that it had merged and that there was an estoppel per rem
judicatam. The bank appeals against that decision.
The essential
facts can be quite shortly stated, although there are some points of detail on
the form of the county court proceedings to which I shall have to return later.
Mr Hawkins was
a customer of the bank. On March 18 1982 he executed in favour of the bank a
second charge of his freehold property, Wootton Farmhouse, near Dinton in
Buckinghamshire. It was an ‘all moneys’ charge in standard form, with a
covenant in clause 1 for payment on demand of:
all money and
liabilities whether certain or contingent which now are or at any time
hereafter may be due owing or incurred by the Mortgagor [Mr Hawkins] to the
Bank or for which the Mortgagor may be or become liable to the Bank on any
current or other account or in any manner whatever (and whether alone or jointly
with any other person and in whatever style or name and whether as principal or
surety) together with interest …
Clause 3
contained a charge by way of legal mortgage of the farmhouse as a continuing
security, subject to a prior mortgage in favour of Eagle Star Insurance. On
January 12 1987 (nearly five years later) Mr Hawkins executed a guarantee in
favour of the bank of the ‘current and future liabilities’ of a company called
Graficas Ltd, in which he was interested. In the meantime, Mrs Linda Hawkins
had executed a deed of postponement of any beneficial interest that she might
have in the property, but nothing turns on that.
It appears
that both Mr Hawkins and Graficas got into financial difficulties. On September
17 1995 the bank, by three separate letters, formally demanded payment from Mr
Hawkins of sums of £62,000-odd and £13,000-odd, plus interest, those being sums
due on accounts in the name of Mr Hawkins himself, and from the company,
Graficas, the sum of £223,000-odd. One of the letters to Mr Hawkins referred to
the legal charge and gave notice of the bank’s intention to enforce its
security. All three letters seem to have come from the same branch of
the bank, at Thame in Oxfordshire, and other documents show that all three
accounts were indeed at that branch. On September 21 1994 the bank sent a
letter making formal demand on Mr Hawkins for the company’s indebtedness which
had been called in by a letter five days earlier. The letter of September 21
1994 also referred to the legal charge and gave notice of the bank’s intention
to enforce its security.
However, no
immediate action was taken, and the bank’s solicitor sent a letter before
action on May 30 1996 referring to the legal charge, the guarantee and all the
formal demands made in 1994, as I have mentioned. The sums claimed in the
letter before action dated May 30 1996 were £76,000-odd on the overdraft,
£17,000-odd on what was called the secured loan (although in fact, of course,
all this indebtedness was secured) and a sum of £260,000-odd in respect of the
indebtedness of Graficas.
Proceedings
were commenced by the bank in Aylesbury County Court on January 23 1995. The
outcome was an order of Aylesbury County Court made on February 25 1997, which
was not opposed by Mr Hawkins. The order was essentially for possession of
Wootton Farmhouse, that order not to be enforced for 84 days, and a money
judgment, not to be enforced during the same period, for the sum of
£107,948.26. That was described in the order as ‘the amount outstanding under
the mortgage’, but it is and has always been common ground that that sum did
not include Mr Hawkins’ liability as the guarantor of Graficas, a liability
that by then amounted to a sum of the order of £300,000. Mr Robin Toms, of the
bank’s Recoveries Business Banking section, in an affidavit sworn on November
28 1997, has referred to this omission as ‘an oversight’. During the 84-day
period, it appears that Mr Hawkins succeeded in selling the property himself,
and the judgment debt was satisfied out of the proceeds.
The bank did
not, it seems, take or attempt to take any step to have the matter reopened in
the county court. It accepted that Mr Hawkins’ liability as guarantor was no
longer a secured liability. The bank contended, however, that it remained
unextinguished as an unsecured liability. On September 10 1997 the bank started
a second set of proceedings in Southend District Registry of the High Court
with a writ and statement of claim that made no mention of the legal charge,
and claimed a sum by then amounting to some £301,000-odd under the guarantee
dated January 12 1987. That led to the summons under Ord 14A and the judgment
appealed from.
The judge was
referred to a number of authorities, which he referred to in the course of his
careful judgment. In particular, he cited the speech of Lord Keith in Arnold
v National Westminster Bank plc [1991] 2 AC 93* at p104, a case of issue
estoppel that nevertheless has a useful summary of the law on cause of action
estoppel. Lord Keith said:
*Editor’s
note: Also reported at [1991] 2 EGLR 109
It is
appropriate to commence by noticing the distinction between cause of action
estoppel and issue estoppel. Cause of action estoppel arises where the cause of
action in the later proceedings is identical to that in the earlier
proceedings, the latter having been between the same parties or their privies
and having involved the same subject matter. In such a case the bar is absolute
in relation to all points decided unless fraud or collusion is alleged, such as
to justify setting aside the earlier judgment. The discovery of new factual
matter which could not have been found out by reasonable diligence for use in
the earlier proceedings does not, according to the law in England, permit the
latter to be re-opened.
After a
reference to the law of Scotland, which I need not read, Lord Keith continued:
Cause of
action estoppel extends also to points which might have been but were not
raised and decided in the earlier proceedings for the purpose of establishing
or negativing the existence of a cause of action.
Lord Keith
then referred to Henderson v Henderson (1843) 3 Hare 100, in
particular the much-quoted passage from the speech of Sir James Wigram V-C at
pp114–115.
The same point
as to the essentials of cause of action estoppel was expressed by Diplock LJ in
Thoday v Thoday [1964] P 181 at p197:
’cause of
action estoppel’ is that which prevents a party to an action from asserting or
denying, as against the other party, the existence of a particular cause of
action, the non-existence or existence of which has been determined by a court
of competent jurisdiction in previous litigation between the same parties. If
the cause of action was determined to exist, ie, judgment was given upon it, it
is said to be merged in the judgment, or, for those who prefer Latin, transit
in rem judicatam.
The judge
below also referred to a decision of the High Court of Australia in Chamberlain
v Deputy Commissioner of Taxation (1987–1988) 164 CLR 502. That was a
remarkable case in which a tax claim for a sum of A$255,000-odd was the subject
of a writ claiming the sum of A$25,500, apparently as a result of the decimal
place being in the wrong place in an addition of sums of tax claimed. Judgment
for the smaller sum, one-tenth of the items claimed in the statement of claim,
was entered by consent. Four days later the tax authorities issued separate
proceedings claiming the other nine-tenths of the sum rather than, as it might
have been thought they would have done better to do, seeking to reopen the
matter in the court in which the consent order had been made.
The plurality,
Deane, Toohey and Gaudron JJ, referred to some Australian authorities as to the
basis of cause of action estoppel, and referred to the importance of
identifying what is meant by the imprecise expression ’cause of action’. The
plurality judgment said at p508:
To determine
whether or not the appellant’s argument should succeed, it is necessary to
identify the cause of action upon which the respondent relied in the first
proceeding. There can be no doubt that the respondent sued for a debt due to
the Crown by the appellant in respect of income tax assessments and additional
tax for late payment for the years in question. Equally, there is no doubt that
in the second proceeding the respondent sued for a debt due to the Crown in
respect of the same assessments and the same additional tax for late payment.
Whether one focuses on the facts supporting a right to judgment or on the right
impugned or on the substance of the action, the conclusion is inevitable that
the cause of action relied upon by the respondent in the second proceeding is
that upon which he had earlier relied.
The plurality
said at p510:
The point of
the present appeal is that the respondent brought an action against the
appellant and recovered judgment against him. He obtained a judgment of the
Court in which the cause of action upon which he relied merged, thereby
destroying its independent existence so long as that judgment stood. And, so
long as that judgment stands, it is not competent for the respondent to bring
further proceedings in respect of the same cause of action. It is no answer to
say that the Court might, if appropriate, stay the second action as an abuse of
process. The impediment goes deeper than that.
And at p511:
So long as
the respondent chooses, as he does, to take no step to set aside the judgment
and to raise no issue in the second action as to the circumstances in which
that judgment was obtained, he must accept the consequences of res judicata.
There is nothing in the Act or arising from the position of the respondent as a
public officer that precludes the operation of that doctrine. The matter is not
one for the discretion of the Court; by operation of law the cause of action
relied upon by the respondent has ceased to exist.
I add that I
take the reference to ‘the circumstances in which the judgment was obtained’ to
be a reference to possible fraud or collusion. There is, of course, absolutely
no suggestion of fraud or collusion in this case.
Brennan and
Dawson JJ, in separate judgments at pp504–505 and 512 respectively, agreed with
the plurality, but added doubts as to whether Wigram V-C’s reference to
‘special circumstances’ in Henderson v Henderson gave the court
any discretion in true cases of estoppel per rem judicatam.
The judge also
considered a number of older authorities cited and relied on on behalf of the
bank. Two of those, Drake v Mitchell (1803) 3 East 251 and Wegg-Prosser
v Evans [1895] 1 QB 108, were cases
respect of pre-existing joint liabilities. It seems to me that it is
significant that each of those cases involved a pre-existing joint liability.
The judge also
had cited to him an even older case, which has been cited to us: Seddon
v Tutop (1796) 6 TR 607. That was a case in which the plaintiff had, in
proceedings at Guildhall, sought to recover judgment on two distinct money
claims, but finding himself unable to prove one, had, as the judgment reports,
taken a verdict on the first money claim only. It was held that in those
circumstances there was no bar to his proceeding in separate later proceedings
on the second claim. However, Lord Kenyon CJ said at p609:
the plaintiff
who brings a second action ought not to leave it to nice investigation to see
whether the two causes of action be the same: he ought to shew beyond all
controversy that the second is a different cause of action from the first in
which he failed.
Having
considered carefully all those authorities, the judge pointed out in his
judgment that there was sometimes extreme difficulty in applying
well-established rules (here the identification of the relevant cause of
action) to the facts of the particular case. But in the instant case the judge
found no such difficulty. He said:
The fact of
the matter is that a claim was raised against the defendant in respect of his
indebtedness under the guarantee and, by virtue of that, that claim was part of
the cause of action levelled against him in the county court proceedings.
Liability under the guarantee, in the terms I have quote above, is clearly
covered by the terms of the legal charge, also quoted above. The passages which
I have already quoted from the pleading and the affidavit in support seem to me
to establish this proposition quite clearly.
Mr Richard
Handyside, whose submissions have been very clear and helpful, realistically
accepts that if the judge was right in that view, then he fails on the first
limb, on which there is no element of discretion, and that the question of Henderson
v Henderson is not reached. In my judgment, the judge was right in
taking that view, although, in order to explain my reasons for that, I must
refer in more detail to the form of the county court proceedings.
The
particulars of claim were described by Mr Toms in his affidavit as having, by
an oversight, not extended to the guarantee liability. However, I have to say
that that seems to me an incomplete description of what occurred. The
particulars of claim in para 1 refer, with complete accuracy and in detail, to
the guarantee. The guarantee is mentioned again in para 5(iii) of the
particulars, although it is common ground that that reference was mistaken. The
formal demand on the company is correctly identified in para 6(i) of the
particulars of claim, and the letters referred to in para 6(ii) and what should
be 6(iii) (although it is a second 6(ii)) also cover the guarantee liability as
well as the liability of Mr Hawkins as a principal debtor.
Finally, para
10, which is the last paragraph of the particulars of claim, states that the
plaintiff (that is the bank) was asking that judgment be entered against the
defendant for the total amount outstanding under the legal charge.
The affidavit
sworn on February 11 1997 by Mr Brian Bosworth, the senior manager at the
bank’s Thame branch, is on the same lines. It expressly confirms that the facts
alleged in the particulars of claim are true and correct, and the deponent says
that he repeats and adopts those facts in his affidavit. It seems to me,
therefore, that it cannot be said that there was an inadvertent omission of any
reference to the guarantee; on the contrary, the guarantee was repeatedly
referred to in the particulars of claim. The outstanding error in the
particulars of claim was not to insert the correct sum or, indeed, any sum that
was truly due under the guarantee.
In these
circumstances, the grounds of appeal set out in the notice of appeal and
elaborated in Mr Handyside’s submissions, seem to me not to get the bank home.
I fully accept that the bank initially had two separate sets of contractual
rights, one of which was backed by security over Mr Hawkins’ property. Because
of the customarily wide terms of any bank’s all moneys charge, these two sets
of rights, and the remedies to enforce them, overlapped to a considerable
extent. There was nothing secured by the promise in the guarantee that was not
also automatically secured by the terms of the all moneys charge in the legal charge.
No doubt it was open to the bank, subject to rules of court relating to
mortgage actions and subject also to general rules as to abuse of process, to
decide to enforce only some of its rights and remedies against Mr Hawkins. It
might have decided to seek a money judgment without seeking possession of the
farmhouse or it might have decided to take the converse course. In his
affidavit, Mr Toms gives examples of circumstances in which such a course might
have been advantageous to the bank and not necessarily oppressive to the
customer.
But what it
was not open to the bank to do was to go for possession and for a money
judgment in respect (and I quote from para 10 of the particulars of claim) of
‘the total amount outstanding under the … [legal charge]’, and having obtained
a money judgment and not having made any attempt to get either the judgment
varied or the pleadings varied, then to start fresh proceedings in the High
Court based on the guarantee. Mr Handyside makes the point that the guarantee
was a continuing guarantee, and it is possible, theoretically, to imagine the
situation in which a bank might have enforced its rights against Mr Hawkins as
guarantor, while still continuing to lend money to Graficas. However, it seems
in the highest degree unlikely, in the circumstances of this case, that that is
more than a technical point. Although the guarantee was a continuing guarantee,
any claim in respect of money advanced after the date of proceedings against Mr
Hawkins would, it seems to me, be the subject-matter of a separate cause of
action arising from the continuing nature of the guarantee.
It is said
that Mr Hawkins must have known that the guarantee liability could not have
been included in the judgment to which, in practical terms, he submitted. That
might well have been a matter that would have carried weight with the county
court judge had an application promptly been made to him for some sort of
amendment (and I will not speculate any more as to what form it might have
taken) to the proceedings in the county court. I do not wholly rule out the
possibility of such an application being made even now, although I express
absolutely no view about its chances of success.
However, on
the other side there is no explanation at all, apart from Mr Toms’ reference in
his affidavit to an ‘oversight’, of the extraordinary circumstance of how the
solicitors, who wrote a letter before action claiming a sum of over £345,000 on
May 30 1996 then came, on January 23 1997, to issue particulars of claim,
signed by the same firm of solicitors and bearing the same reference, claiming
a sum of £105,000-odd.
For those
reasons, despite the clear and helpful submissions of Mr Handyside, and despite
the result, which may appear to some surprising, it seems to me that the judge was
correct in treating this case as essentially indistinguishable from the
decision of the High Court of Australia in Chamberlain v Deputy
Commissioner of Taxation, and I would dismiss this appeal.
BUXTON and MANTELL LJJ agreed and did not add
anything.
Appeal
dismissed with costs; leave to appeal to the House of Lords refused.
