Vickers v Jackson

Mortgage – Enforcement – Illegality – Legal charge granted to appellant over respondent’s property – Sums expressed to be secured by charge not due – Charge a sham to mislead creditors of respondent – Court ordering removal of charge on application of respondent – Appellant’s counterclaim for payment of sums due under charge dismissed – Whether respondent entitled to rely on charge notwithstanding illegality of underlying transaction – Appeal dismissed In 1996, the appellant agreed with the respondent vineyard owner, who was in acute financial difficulties, to negotiate a reduction of the respondent’s debts with the various creditors in return for remuneration of 20% of any reduction so achieved. The appellant was also given a 20% shareholding in a new company set up to run the vineyard business in return for helping to restructure that business. In 1997, the respondent executed a charge over the vineyard in favour of the appellant. The charge purported to secure £48,078 for professional services as invoiced plus further services up to a maximum of £50,000.In 1999, the appellant made a demand for payment under the charge. The respondent responded that the charge had not been intended to be enforced. In 2009, he brought proceedings for a declaration that the charge was void and for the deletion from the land charges register of the various entries pertaining to it. The appellant counterclaimed for the payment of £75,376 pursuant to the 1999 demand and for possession of the property.The judge found that the fees that the charge purported to secure were not due from the respondent to the appellant and that the charge was a sham intended to mislead and deceive the respondent’s creditors and protect the vineyard from them, which intention involved illegality. He accordingly made the orders that the respondent sought.The appellant appealed. He contended that: (i) he was entitled to enforce his property rights under the charge, which were not vitiated by the illegal nature of the transaction by which they had been created; and (ii) the respondent, on the other hand, could not dispute the amount secured by the charge without impermissibly relying on his own illegality.Held: The appeal was dismissed. Any sham transaction was likely to have an element of illegality in the sense of an intention to mislead or deceive. Although the complicit parties were likely to be held to their expressed intentions as against an innocent party, the position might be different as between themselves. Where vested property rights were created, they might be enforceable even where they had been acquired under a transaction affected by illegality, provided that could be done without relying on the illegal contract: Tinsley v Milligan [1994] 1 AC 340 considered. Although the rights on which the appellant relied arose at law, since he had the benefit of a legal charge, he could not assert and rely on his rights under the charge without having to rely on the underlying reason for the transaction as part of which it had been created. Even where a mortgage recited a loan and contained an acknowledgement of its receipt, the borrower could put in issue whether any, and if so what, amount was truly owing and secured: Mainland v Upjohn (1889) LR 41 Ch D 126 and Close Asset Finance v Taylor [2006] EWCA Civ 788; (2006) 150 SJLB 708 applied. The appellant was, in substance, the party seeking to rely on and enforce the transaction and seeking the court’s assistance for that purpose. He was asserting that sums were due to him from the respondent and secured by the charge, and he sought their payment and possession of the mortgaged property in order to enforce his security. In that regard, he was directly affected by the principle that the court would not assist a party to enforce obligations arising under an illegal contract. He could not prove that the respondent owed him any money without alleging the agreement under which it fell due. Since evidence had been brought before the court, it was bound to investigate the legality of the transaction and, having found it to be illegal, to refuse to give effect to it in the appellant’s favour.Consequently, the appellant was not entitled to any remedy under the charge because no money was due under it and it was not security for any debt. Once that was established, the respondent was entitled, as owner of the property, to have the entries relating to the charge removed from the register.John Stenhouse (instructed by under the Public Access Scheme) appeared for the appellant; Myriam Stacey (instructed by Higgs & Son Solicitors) appeared for the respondent.Sally Dobson, barrister