CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
[2017] EWCH 1973 (Ch) / No. 4PA41550
1 Oxford Road,
Leeds, LS1 3BG
Thursday, 9th March 2017
Before:
HIS HONOUR JUDGE MARK RAESIDE QC
B E T W E E N :
BANK OF SCOTLAND PLCClaimant
- and -
(1)PAUL MICHAELS
(2) CHARLOTTE MICHAELS
Defendants
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MR. A. McCLUSKEY (instructed by Eversheds Sutherland (International) LLP) appeared on behalf of the Claimant.
MR.P. MICHAELS appeared In Person for the Defendants.
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J U D G M E N T
(As approved by the Judge)
JUDGE RAESIDE:
1This is an ex tempore oral judgment which will cover the following matters. After a short introduction, I will set out the background facts, then the proceedings, pleadings and issues before this court followed by the question of possession and after that the question of what is called the “Hands Down Agreement”followed by the application of the Administration of Justice Act 1970 and then I will deal briefly with the defence and counterclaim before I conclude this judgment. As agreed with the parties on receipt of the transcript I have made corrections.
2This case concerns an attractive property in North Yorkshire owned by the defendants, Mr. Paul Michaels and Mrs. Charlotte Sarah Michaels, and known as Low Newbiggin Estate or Farm, Aislaby, North Yorkshire. As described by Carter Jonas (Estate Agents) in the sales brochure, the property isas follows:“Newbiggin Estate offers a rare opportunity to acquire a small, private estate lying between the beautiful Esk Valley and the North York Moors National Park. The estate includes three-quarters of a mile of frontage onto the River Esk which is now highly regarded for the quality of the salmon and sea trout fishing provided. The natural beauty is enhanced by the mature woodland on the bankside to the south of the river and the open valley bottom which enhances the views to the east. Approaching the house via the private road, the tree-lined drive leads to an attractive courtyard behind the principal house, incorporating parking and turning area, lawns and gardens and numerous landscaped borders. The main house, which includes well-proportioned rooms of individual character, has been modernised and improved to a high standard. It is well suited to a family or sporting lodge with a double height galleried dining hall acting as the social heart of the building. It is believed to date back to 1772 with late additions and accommodations arranged in three floors. To the rear of the property the courtyard buildings have been converted into two cottages which are currently run as holiday homes. There is further potential to create an additional unit alongside those cottages.”
3This case concerns possession of that property which is sought by the claimant, the Bank of Scotland Plc, as a result of a mortgage and charge on the property. Generally, this is a straightforward possession action but it contains two ingredients which are maybe unusual. The first is the very substantial sums of money involved and the second is the Hands Down Agreement which has complicated the case. Because of that, this court has transferred the action to the Chancery Division in the High Court with the agreement of the parties.
Background Facts
4A mortgage deed was settled between the Bank of Scotland and Mr. and Mrs. Michaels dated 17thJanuary, 2007 and signed by both of them and witnessed. It is plain from the mortgage deed that it incorporates mortgage conditions which are the Bank of Scotland Mortgage Conditions 2004 (Second Edition). The relevant terms so far as this mortgage is concerned are contained in clauses 17 and 18. Clause 17.1 under the heading of“Entitlement,”provides: “If any of the things mentioned in this condition happen, you must pay us the debt immediately. [Namely] if you do not pay any two monthly payments (they do not have to be consecutive)...” Clause 18(a) provides under the heading, “Our right to take possession of the property”:“You must pay off the debt immediately under condition 17… we may make you leave the property if you have not already done so (so that we can take possession of it).” The wording is clear and undisputed: should the Michaels fail to make two monthly payments the bank was entitled to possession of the property.
5By a letter dated 2ndApril, 2007 from the Bank of Scotland marked “Private and confidential” and addressed to the defendants at Low Newbiggin House details were given of an overdraft facility. The overdraft limit on that property, Low Newbiggin House, was £1,200,000 and it was clear from the express terms of that letter that all overdrafts were repayable on demand. The use of that facility indicated that it may be used only for the purpose of land in Canada and the purchase of the barn at Bohunt Manor in Liphook. The security under clause 50 was a second charge over the entire estate at Low Newbiggin. That document also was signed by Mr. and Mrs. Michaels on 2ndApril, 2007. By a letter dated 26thNovember, 2007 from the Bank of Scotland that overdraft was increased to £1,215,000 on the condition that the propertywas put on the market for sale and monthly updates on progress were to be provided. The Carter Jonas brochure set out above is an example of sale details of the property.
6The Land Registry for Low Newbiggin House indicates that the title absolute as proprietors was initially given to Mr. and Mrs. Michaels on 12thOctober, 2001. The price as at 29thJune, 2001 was £575,000. There are two quite separate registered charges shown on the land title deeds which is no.NYK256562. The first is in paragraph 2. It shows as being registered on 23rdJanuary, 2007 and is the registered charge dated 17thJanuary 2007. The second quite separate charge and always referred to as “the second charge” is in paragraph 5 which was registered on 6thJune 2008 and refers to a registered charge of 2ndJune 2008. It is important in this case to appreciate the difference between those two charges on the property each of which has been subject to separate proceedings and agreements.
7So far as the ability of these defendants to pay their debts under this mortgage, evidence is given by Linda Williams who was in charge of this file since March 2014 for the Bank of Scotland Plc (as part of Lloyds Banking group Plc.) It is indicated in paragraph 4 of her witness statement that at the time these proceedings were issued the Michaels were in arrears of £17,363.04 but at the time of her statement on 20thOctober, 2016, the outstanding arrears had increased to £52,093.52. The total amount outstanding was £1,224,102.70 and the current monthly instalments were £1,335.56. Details of those outstanding payments were contained in a schedule to her statement and although the Michaels doubt this schedule there has, in truth, been no dispute. What it shows is that between 2000 and January 2007 and March 2008 these defendants made regular due payments as required month by month. By May 2008 they were in arrears and that position of arrears continued from May 2008 until July 2009. After that, for a period of time, some of these payments were made and that took place between August 2009 and August 2010. Thereafter, there was a series of advances to allow payments to be made between September 2010 and November 2012. Thereafter, the matter returned into arrears. Thus from December 2012 until September 2016 there is an increasing amount of arrears owed to these claimants and none of the full monthly payments was being made by the defendants. On the face of this evidence the Court can be in no doubt and I find as a fact that the defendants were in arrears of payment of two months and more for the purposes of clause 17 of the mortgage deed.
8As at today’s date the total mortgage arrears now claimed by the claimant is £1,261,074.81and the total arrears have now increased to £58,771.32. It is that figure that this court will consider when considering the orders it shall make in due course.
9The claimants issued proceedings in the High Court in London, Queen’s Bench Division, on 27th October 2009 in action HQ09H04774. The claim brought by the Bank of Scotland Plc against Mr. and Mrs. Michael was in respect of an overdraft, the value of which was £1,334,561.90 and interest. The particulars of claim referred to that written agreement of 2nd April, 2007 and it indicated that the claimant had advanced the defendant £1,200,000 by way of an overdraft, that they had sent letters on 7th May, 2009 making a formal request for payment of the outstanding sum of £1,334,561.90 to which interest was accruing and, therefore, they sought a specific sum of money in relief and interest which was as follows, that figure of £1,334,561.90, interest of £27,223.09 and continuing at a daily rate of £165.32.
10The defence and counterclaim at this stage was settled by the defendants themselvesand signed on 8thJune, 2010 with a statement of truth from Mr. and Mrs. Michaels. It indicated amongst other matters that the bank had registered derogatory information with credit reference agencies which they felt did not reflect its own failures in the business transaction and that the credit rating had suffered to the extent that they could not refinance the property to bring a remedy to the situation. Indeed, they asserted that there were two separate occasions when the bank had advised them to refinance to private lenders so that it could snatch the property at the end of twelve months. They sought immediate rectification of their credit file.
11The reality of the situation is set out in a credit review of Mr. and Mrs. Michaels that took place on 17thMarch, 2011. They were described in terms of their credit rating score as having 496 points, namely very poor. Of the individual properties which were then owned by Mr. and Mrs. Michaels Low Newbiggin House shows that there is a six-month non-payment of rent arrears, described as the worst status. On their asset liability, it is apparent that there are several bodies to which Mr. and Mrs. Michaels owe money. They include: Northern Rock with a personal loan of £17,371; Barclaycard, £24,904; a second Barclaycard account, £9,703; an HSBC business loan of £6,494; a mortgage on the Bohunt property to which I briefly referred of £506,889; a Northern Rock mortgage on what is known as Dove House in the sum of £247,510; and, lastly so far as the property in this action is concerned, Low Newbiggin, £1,340,454. It indicated that so far as their income and expenditure was concerned at that time, their monthly income was £11,883 but their expenditure was £13,453. That is a document with a declaration with Mr. and Mrs. Michaels’ names on of 6thJune, 2011. It is quite apparent from this document that the position of the defendants at this time was financially precarious in that they were living above their means.
12The High Court action was settled by a consent order made by Master Cook dated18thJuly, 2011. It is a standard consent order: upon the parties agreeing terms, the action including the claimant’s claim andthe defence and counterclaim was settled. The terms were that the defendants were to pay the claimants £330,000 which comprised a series of payments from 31stJuly, 2011 to 30thJune, 2012 of £1,200 per month and then a larger payment on or before 31stJuly, 2012 of £315,600.
13As is clear from the schedule referred to above these payments were not made. Accordingly 10thJanuary, 2013 the claimant entered judgment in the sum of £1,534,497.16. As a matter of administrative record, it is apparent that in due course that judgment debt became recorded in the usual way and it is shown on 10thJanuary, 2013 in the amount of £999,999, being a penny under the million pounds for which such debts are recorded. That judgment was enclosed by a letter to Mrs. Michaels by Underwoods Solicitors on 18thJanuary, 2013.
14The defendants took affront to these matters and made a complaint to the Financial Ombudsman Service on 3rd January, 2014. The Ombudsman copied in the bank who replied on 7th February, 2014 and indicated that they did not agree with all aspects of the complaint but paid £250 into the Defendants’ account being £150.00 for distress and inconvenience and £100.00 to cover the telephone calls.
Proceedings, Pleadings and Issues before this Court
15On 28thNovember, 2013 the Bank of Scotland informed Mr. and Mrs.Michaels that the monthly payments in respect of the debt of £1,335,056 was due on 30thDecember, 2013 and their arrears were by now £13,656.36 in respect of Low Newbiggin House. They indicated that in the absence of payment, they would take legal action. The Michaels were advised to go to a Citizen’s Advice Bureau. On 20thDecember, 2015 they were advised that they had instructed solicitors to commence legal action and again advised the Michaels that they should take advice from the Citizen’s Advice Bureau or other such agencies.
16Thus it was that on 12thMarch, 2014 a possession action claim was commenced in the Middlesbrough County Court in which the claimants sought possession of Low Newbiggin House, particulars of which were provided in the particulars of claim. The attached particulars of claim for possession gave details in the usual way in a pro forma document the nine paragraphs of information in such cases. Paragraph 1 provided that the claimants had a right to possession of Low Newbiggin House. Paragraph 2 provided that the mortgage was on 17thJanuary, 2007 on the above property. So far as paragraph 3 was concerned, to the best their knowledge, that was a property in the possession of Mr. and Mrs. Michaels. Paragraph 4 confirmed that there was no credit agreement or consumer regulations applicable. Paragraph 5 made it clear that the claimants were seeking possession on the grounds that there were arrears of 12thMarch, 2014 in the sum of £17,363.04, which accords with the schedule, and referred the mortgage conditions which I have set out more fully above. The total amount loaned referred to in paragraph 6 was £1 million. The current repayments were £1,335.56 per month and the amount required in total, therefore, had increased as at 12th March, 2014 to £1,135,021.47. The rates of interest were set out and it cites the letter dated 28th November, 2014 that I have just referred to. So far as details of these defendants in paragraph 8 were concerned, it was noted that they were not in receipt of social security benefits and to the best of the claimant’s knowledge they had mortgaged the property and they occupied it. It was made clear that no provisions of the Family Law Act or the Matrimonial Homes Act or the Matrimonial Homes Act 1967 applied. The relief sought was twofold: firstly, a claim for possession of the premises; and, secondly, payment to the claimant of the total outstanding under the mortgage. Those particulars of claim are dated 12th March, 2014.
17Originally, Mr. and Mrs. Michaels acted for themselves and provided more than one document described as a defence. One of the versions provides details of an explanation for the fact and the background to this claim, including reference to the Ombudsman. The document included a letter of 6thAugust 2014 setting out at length the Defendants’ position.
18The matter came before District Judge Neaves in the Scarborough Justice Centre on 3rd September, 2014. He made an order in which, having heard the solicitor, Underwoods, for the claimant and the defendants acting in person that a substitute defence could be allowed provided it was filed and served by 29th August, 2014. It was as a result of that order that Mr. and Mrs. Michaels sought representation from solicitors and thereon, until 2ndMarch 2016, they have been represented by solicitors and, indeed, have had pleadings settled so far as this court can tell by counsel, Toby Watkin. The solicitors instructed throughout are Michelmores LLP. In accordance with that order a defence and counterclaim were settled. I read from the key paragraphs alone because, in due course, there is a list of issues to which I shall come. Responding to the particulars of claim to which I have just referred, paragraph 1 is denied. That is to say it was denied that the claimant was entitled to possession. It set out details of the accounts as between the parties and the mortgage and the interest rate. So far as material, paragraph 10 provided that there would be no admissions as to the amount of arrears and the claimant was put to strict proof. I have already set out the evidence of the claimant proving the arrears of those mortgage payments which has been provided in the witness statement to which I have already referred and to which there can be no positive challenge before this court, though there might be complaint by these defendants.
19It refers to what is described as a “Hand Down Agreement” and paragraph 12 provides that the claimant was a beneficiary of a second charge of 2ndJune, 2008, referred to as the “second charge.” It indicates in paragraph 13 that on 17thJanuary, 2013 a judgment was entered against the defendants in respect of the sum said by the claimants to be due under that facility, that being the facility of 2ndApril, 2007. It indicates that there was an agreement made between the claimants and Underwoods and Robert Lockyer and that the defendants in about October 2013 in a part recorded letter dated 3rdOctober and 14thOctober, 2014 agreed certain terms. One particular term which I note is this in paragraph 13(vii):
“The claimant would not register the judgment or the fixed sum debt in such a way as to adversely affect the defendants’ credit files and would not cause or permit the defendants’ credit file to be adversely affected by the judgment or the fixed sum debt.”