Commercial First Business Ltd v Munday and another

Mortgage – Enforcement – Possession – Appellant making two separate loans to respondents secured by separate charges over farmhouse and cottages – Each charge containing “all-moneys” clause securing all lending from appellant – Appellant bringing two sets of proceedings for possession of each property and judgment for sum due under corresponding loan – Whether appellant entitled to warrant for possession of farmhouse for sums due under cottages loan – Whether estopped from relying on all-moneys clause to enforce farmhouse charge as security for cottages loan – Whether relevant estoppel of procedural nature or arising by convention – Appeal dismissed In June 2006, the respondents borrowed £1.352m from the appellant, secured by a charge over a farmhouse, plus a further £1.0075m secured by a separate charge over some adjoining holiday cottages. By clause 1(i) of each charge, the relevant property was charged with “all monies now or at any future time due to [the appellant] from [the respondents] under each and every loan agreement, now or at any time made between the lender and the borrower, on the [appellant’s] general lending terms and conditions”. The respondents fell into arrears with repayments on the two loans with the result that, in November 2007, the appellant was successful in two sets of proceedings for possession orders in respect of the properties and money judgments for more than £1.42m under the farmhouse loan and £1.06m under the cottages loan. The appellant then obtained warrants for possession of the properties, suspended on terms as to the repayment of the outstanding sums. Those terms were not met and, in May 2009, the appellant took possession of the cottages. The amount owing under the farmhouse loan was later reduced by sales of the farm land and, although the appellant obtained further warrants for possession, these were withdrawn on reduction of the arrears until, by February 2009, the debt under the farmhouse loan had been reduced to approximately £116,000. The appellant subsequently brought proceedings for a charging over the farmhouse in respect of the cottages loan. Although those proceedings were defective and were eventually abandoned, in September 2012 the appellant wrote to the respondents indicating that it proposed to rely on clause 1(i) of the charge over the farmhouse as giving it security for both loan debts. It then obtained a further warrant for possession in respect of the farmhouse. The respondents’ application to set aside the warrant was dismissed by a deputy judge but allowed by a judge on appeal. The judge held that the appellant was estopped from relying on the farmhouse charge as security for the cottages loan by reason of a common shared understanding, on which the respondents had relied to their detriment, that the farmhouse charge would not be enforced as security for the cottages loan. The appellant appealed. Held: The appeal was dismissed. (1) The judge had set aside the warrant for possession on an erroneous basis. For there to be an estoppel by convention of the kind relied on, it was not sufficient merely to show that both parties shared the same view about the effect of the relevant contract. It had also to be shown that the appellant had some responsibility for conveying that understanding of the contract’s effect to the respondents, in the expectation that it would be relied on so as to create a shared understanding of what rights the appellant had under the farmhouse charge. The instant case was a long way from that situation. The charging order application made by the appellant, and later abandoned, was not consistent only with the appellant sharing a belief that it did not already have an all-moneys charge. The charging order application could not be regarded either as an unambiguous representation that the appellant would not rely on the farmhouse charge as security for the cottages loan or, for the purposes of an estoppel by convention, as a communication to the respondents of its view of the meaning of clause 1(i), on which it expected them to rely. Further, neither of the respondents had suggested in their evidence that they had any positive understanding about the effect of clause 1(i) at the time when they executed the charges, or later when the farm land was sold; nor had they alleged that the separate proceedings in respect of each loan, and the fact that the money judgments sought in each were no more than the current balance of the relevant loan accounts, had created any positive understanding or impression on their part about the all-moneys clause. There were similar problems with reliance and detriment. The respondents had failed to show that they were somehow induced, by the shared understanding as to the appellant’s rights, to refrain from taking some action otherwise available to them to reduce the debt. (2) The appellant was nonetheless barred by a procedural estoppel from relying on clause 1(i) of the farmhouse charge in order to recover the balance of the cottages loan. The estoppel arose from the fact that the appellant had obtained judgment in the proceedings relating to the farmhouse for no more than the outstanding balance of the farmhouse loan. Once a judgment was obtained for the amount due under a loan agreement, including interest, then the contract merged in the judgment so that the lender no longer had a cause of action in contract for either the principal or any continuing interest. Its remedy was to seek execution of the judgment with statutory interest on the judgment until payment. Further, a cause of action estoppel would arise to bar the right of a claimant to assert in later proceedings a cause of action which was identical to that litigated and decided on in the earlier proceedings. Once litigated, the cause of action merged in the judgment in the earlier proceedings and the right to re-assert it in later proceedings was permanently lost: Arnold v National Westminster Bank plc [1991] 2 AC 93; [1991] 2 EGLR 109; [1991] 30 EG 57s applied. Applying those principles to the instant case, the appellant had sought and obtained judgment for the “outstanding mortgage” on the farmhouse in the amount of the then balance of the farmhouse loan, and had chosen to obtain judgment for the cottages loan in the other set of proceedings. Its causes of action for the recovery of those loans and accrued interest merged in those respective judgments and the appellant could not now seek to recover the balance of the cottages loan in any new proceedings. Its remedies for the recovery of that loan were limited to the execution of that judgment, which did not include an order for possession of the farmhouse. The judgment for the sums due under the farmhouse charge was limited to the balance of the judgment in the farmhouse proceedings, which was now the only sum due under the farmhouse charge apart from continuing interest: Lloyds Bank plc v Hawkins [1998] 3 EGLR 109; [1998] 47 EG 137 applied. It followed that the appellant could not now rely on an argument that the farmhouse charge was an all-moneys charge to oppose the grant of relief in relation to the warrant of possession. James Hall (instructed by Moore Blatch LLP, of Southampton) appeared for the appellant; Nathaniel Duckworth (instructed by Michelmores LLP, of Exeter) appeared for the respondents. Sally Dobson, barrister   Click to read transcript: Commercial First Business v Munday and another