Jones v Morgan and another

Mortgage –– Clog –– Enforcement –– Legal charge –– Later agreement requiring chargor to transfer interest –– Whether duress –– Whether unconscionable bargain –– Whether clog on equity of redemption The respondents were the trustee owners of a farm. In 1994 the appellant made a loan to the trustees, secured upon the farm by a legal charge, to enable the trustees to develop part of the land; there was an understanding that the appellant would have a share in that development. By 1997, the respondents were in substantial financial difficulties in meeting the obligations under the charge. In November 1997 the parties entered into a new agreement, by which the appellant permitted the sale of specified lands belonging to the trustees, upon terms that he was paid moneys owed under the 1994 legal charge, and that there should be a transfer to him of a half-share or interest in certain specified retained land. By the present proceedings, the appellant sought payment of moneys due under the 1994 legal charge and an order of specific performance of the obligation to transfer the half-share. The respondents advanced, inter alia, two defences to the claim for specific performance: that the 1997 agreement had been procured by duress and that the agreement was a harsh and unconscionable bargain. In the court below, the judge rejected the defence on duress, but held that the bargain was harsh and unconscionable. The appellant appealed. The respondents sought to uphold the judge’s order on two additional grounds: that the agreement was procured by economic duress, and, alternatively, that it constituted a clog on the equity of redemption. Held: The appeal was dismissed. The 1997 agreement was not an unconscionable bargain. There was no duress. However, the 1997 agreement was a clog on the equity of redemption. The principle that prevents a mortgagee from stipulating for an interest in the mortgaged property at the time of the mortgage did have application in the circumstances of the present case, notwithstanding that the stipulation was contained in the 1997 agreement, rather than in the 1994 legal charge. It was artificial to regard the 1997 agreement as being, in substance, independent of the 1994 mortgage transaction. The 1997 agreement gave effect to an understanding between the parties, reached in 1994, that the appellant would have a share of the development. The 1997 agreement constituted a variation of the contractual terms upon which the respondents were entitled the redeem the mortgage property. Per Lord Pill LJ, dissenting: The 1997 agreement was a distinct contract; the doctrine on the equity of redemption did not render it unenforceable. The following cases are referred to in this report. Barton v Armstrong [1976] AC 104; [1975] 2 WLR 1050; [1975] 2 All ER 465 Bradley v Carritt [1903] AC 253 Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 CTN Cash & Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, CA Kreglinger (G&C) v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 Lewis v Frank Love Ltd [1961] 1 WLR 261; [1961] 1 All ER 446 Lobb (Alec) (Garages) Ltd v Total Oil (Great Britain) Ltd [1983] 1 WLR 87; [1983] 1 All ER 944, ChD Multiservice Bookbinding Ltd v Marden [1979] Ch 84; [1978] 2 WLR 535; [1978] 2 All ER 489 Noakes & Co Ltd v Rice [1902] AC 24 Pao On v Lau Yiu Long [1980] AC 614; [1979] 3 WLR 435; [1979] 3 All ER 65 Reeve v Lisle [1902] 1 Ch 53 Reeve v Lisle [1902] AC 461 Samuel v Jarrah Timber & Wood Paving Corp Ltd [1904] AC 323 Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366; [1982] 2 WLR 803; [1982] 2 All ER 67; [1982] 1 Lloyd’s Rep 537, HL This was an appeal by the appellant, Tudor Jones, against the decision of Judge Moseley QC, sitting as a judge of the High Court in Cardiff, in proceeding by the appellant against the respondents, William and John Morgan, for specific performance. Milwyn Jarman QC (instructed by Hughe James Ford Simey, of Cardiff) appeared for the appellant; Anthony Tanney (instructed by Clarke Willmott Clarke, of Bristol) represented the respondents. Giving judgment, CHADWICK LJ said: 1. This is an appeal against an order made on 9 March 2000 by Judge Moseley QC, sitting as a judge of the High Court in Cardiff, in proceedings brought by the appellant, Mr Tudor Jones, to enforce an agreement made on 12 November 1997 for the transfer to him by the respondents, Mr William Morgan and his brother, Mr John Morgan, of a one-half share in property at Aberthaw, near Barry, in the Vale of Glamorgan. The judge refused the order sought on the ground that the bargain made by the agreement of 12 November 1997 was harsh and unconscionable. He gave permission to appeal to this court. Underlying facts 2. The property subject to the agreement of 12 November 1997 was part of a larger property known as West Hall Farm, Aberthaw, which comprised a substantial farmhouse with outbuildings and some 40 acres of adjacent land. At all material times before 12 January 1998, the respondents held West Hall Farm as trustees of the will of their mother, Mrs Gertrude Mary Morgan. That property, together with some further land, had been vested in the respondents and their sister, Glain Morgan, by an assent dated 10 October 1989, as trustees for sale and to hold the net proceeds of sale and the rents and profits until sale upon trust for the three of them as tenants in common in equal shares. 3. Glain Morgan died on 22 January 1992. On her death, the legal estate vested in the respondents by survivorship. We were told that her beneficial interest as tenant in common in a one-third share devolved under her intestacy to her six siblings. On that basis, a further one-eighteenth share accrued to each of the respondents, with the result that, following the death of their sister, each of the respondents was entitled beneficially to the extent of seven-eighteenths of the net proceeds of sale and the rents and profits until sale. The remaining126 four-eighteenths was held, at least prima facie, for the benefit of the other four surviving siblings. 4. Mr William Morgan had plans for the development of the farmhouse and outbuildings as a nursing home. For that purpose, he had entered into a building contract with Buildform Construction Ltd. It seems that, by early 1994, he was unable to make the payments due under that contract. Work ceased. The building contractors obtained a judgment and secured the judgment debt by a charging order over all, or part, of West Hall Farm. Mr William Morgan (or Will Morgan as he is commonly called) turned to the appellant, whom he knew socially, for financial help. The appellant was a retired investment broker and near neighbour of Mr Will Morgan, and he or his wife had funds available. He was in a position to lend £105,000. 5. The loan was to be secured by a legal charge over West Hall Farm. The charge document was prepared by Mr J Anthony Taylor, a solicitor practising with the firm Gaskell & Walker, in Cowbridge, on the instructions of Mr Will Morgan. The parties were Mr Will Morgan (described as the debtor), his brother and co-trustee, Mr John Morgan, and the appellant (described as the lender). The first recital referred to the 1989 assent and to the beneficial tenancy in common. It was apparent, therefore, on the face of the document, that the respondents were not, or were not necessarily, themselves entitled to the whole beneficial interest in the property to be charged. Recitals 3 and 4 set out the position as to the loan and the security. They were in these terms: (3) The Lender has agreed with the Debtor to lend him the sum of One Hundred and Five Thousand Pounds (£105,000) (hereinafter called “the Principal Debt”) upon having the repayment of it with interest secured as hereinafter appearing to enable the Debtor to discharge monies owing under a building contract for the refurbishment of West Hall Farm, Aberthaw, South Glamorgan which land forms part of the Property (4) The Debtor and the said John Thomas Morgan have agreed that this Legal Charge should be executed in order to secure payment to the Lender of the principal Debt together with interest at the rate of fifteen per cent per annum and also payment of any further monies which the Lender may at any time lend to the Debtor to discharge any other liabilities and debts arising from the works of refurbishment of West Hall Farm aforesaid and the Lender’s costs of and in relation to the negotiation preparation and execution of this Legal Charge… 6. Clause 1 of the legal charge contained a joint and several covenant by Mr Will Morgan (as debtor) and his brother to pay on demand all moneys due to the appellant (as lender). By clause 2, the respondents charged the property with payment of all moneys covenanted to be paid. Clause 4 provided that the statutory power of sale should be exercisable if default were made in payment of the principal debt or other moneys secured on the property, or if interest due were unpaid for two months. 7. There are two unusual features in the charging document. First, the effect of the first recital is to bring the beneficial interests onto the title, so that the lender knows that there are, or may be, persons beneficially interested in the property who are not parties to the transaction and whose consent to the transaction cannot be taken for granted. Second, it appears from the third recital that the charge is being given to secure a debt owed by Mr Will Morgan alone. There is nothing on the face of the document to suggest that that debt was, or could properly have been, incurred by Mr Will Morgan as trustee. For my part, I have very considerable doubt as to whether the legal charge could have been enforced against the wishes of the other persons entitled to the one-third share that had devolved under the will or intestacy of Glain Morgan, or that, if enforceable, the appellant would have had the proceeds of enforcement free from those other interests. But this was not a point taken before the judge, and we have not thought it right to allow it to be raised in this court. The case was argued below –– and has been argued in this court –– on the basis that, as against the appellant, the respondents are to be treated as if they were absolute owners of the property charged. Nevertheless, it is important to emphasise that nothing that we decide on this appeal will, necessarily, bind the other persons beneficially interested in the property. 8. The legal charge is dated 7 June 1994, although the judge thought that it was probably executed some time after that date. Shortly before that date, Mr Will Morgan signed an acknowledgement or undertaking, dated 6 June 1994. The undertaking was addressed to the appellant and was in these terms: I, William David Morgan of [address] hereby agree that, in consideration of you lending me sufficient monies to discharge both the mortgage on the above property in favour of Buildform Construction Limited, and other agreed debts and liabilities which have arisen as a result of the construction works on the above property, I will procure by way of formal documentation, the Transfer to yourself or your duly appointed nominee or agent, a fifty per cent share holding or interest in the Company, organisation or business which is set up to hold the assets of and to run and administer the business of the Nursing Home intended to be carried on at the above premises. There was, neither then nor at any time thereafter, no company to which that undertaking could refer. 9. On 1 August 1994 the appellant lent a further £10,000 upon the security of the legal charge dated 7 June 1994. The loan was expressed to be made to both respondents and was to be used for the payment of outstanding bills incurred in relation to the development of West Hall Farm. 10. The 1994 loans were required, as the documents suggest, to discharge existing indebtedness. The respondents continued to be without sufficient funds to complete the development as a nursing home. By 1996, Mr Will Morgan was seeking further finance, without (it seems) reference to the appellant, from other sources. A business plan was prepared by accountant Mitchell & Meredith. That valued the property at £520,000 and stated –– surprisingly, in the circumstances –– that there were no outstanding borrowings. Additional finance to complete the project was sought in the amount of £400,000. It was said that the value of the premises upon completion would be £645,000. It is, perhaps, not at all surprising that there was little or no interest from any outside investor. An injection of £400,000 to add value of £125,000 to the project is not, at first sight, an attractive investment. 11. By the middle of 1997, if not earlier, Mr Will Morgan’s plans had changed. He had abandoned the nursing home project, and had sought and obtained planning permission for the conversion of West Hall farmhouse and outbuildings to residential flats. The appellant knew of this change of plan and was happy with it. As he said in the witness statement that he signed on 22 October 1999: During this period, I continued to be on friendly terms with Will Morgan but at no time did he discuss anything to do with the affairs of the nursing home. I heard various rumours that there were proposals to move ahead with the development and as far as I know nothing at all came to fruition, but I did hear from Will Morgan that there was a possible change of plan in that he had sought planning permission for the use of the building as residential flats. I was quite happy with this change and offered to consider making a further advance to enable the development to proceed and to complete the building scheme. This would have been a loan from myself to the three of us (Will, his brother and myself) as Partners. 12. Before any terms for a new loan from the appellant were agreed, two developments took place. First, Mr Will Morgan negotiated a sale to a neighbouring farmer, Mr Philip Lougher, of the 40 acres of adjacent farmland that had been included in the 1994 legal charge. The price to be paid by the purchaser was £125,000, and it seems to have been understood by everyone that the proceeds of that sale would be applied towards the discharge of the secured debt, which (with the inclusion of unpaid interest) was well in excess of £125,000. The appellant’s consent to the sale was required because, in practice, completion would not take place unless the land to be sold was released from the legal charge. 13. Second, the appellant served on Messrs Gaskell & Walker, the solicitor acting for the respondents, a handwritten document dated 30 September 1997. The document is addressed to the solicitor and is in these terms: Dear Sirs, William David Morgan and John Thomas Morgan T/A Westhall Farm, Aberthaw, Vale of Glamorgan With reference to the Legal Charge dated June 7th 1994 between the above named and myself. 127 As the Debtor has paid no interest whatsoever on this loan since inception I hereby exercise my right of a Statutory Power of Sale forthwith. As you are at present holding the Title Deeds and Documents to my order would you kindly arrange for me to take physical possession as soon as possible.” 14. The circumstances in which that notice was served were described by the appellant in his evidence at trial. In chief, he said: Q: And how did that letter come about, why did you write it? A: It was basically at the instigation of Mr Taylor of Gaskell and Walker, I had been talking to, and in effect he said, “Well, you know, you’ve not actually formally asked Will Morgan for repayment.” So, as you can see, I jotted the letter down in particular terms and sent it to him. His answer to a question put in cross-examination was to much the same effect: Q: You are saying that you will sell the property and get your money back. A: I think I explained earlier on, this came from Tosh Taylor, because he informed me that along the line, nowhere had I ever put in writing a request, a formal request to obtain monies at all. In other words, the agreement apparently, as I recall it, said I had to give notice that I wanted interest payments or anything, and I had not asked for anything in writing at all. I asked him verbally several times, loads of times, but nothing actually in writing, and that’s what this was. Mr Taylor had no recollection of the conversation to which the appellant refers in those answers, but he accepted that it might have taken place. 15. Following service of the notice by the appellant that he required repayment, Mr Taylor prepared a draft agreement for the release of the farmland that was to be sold to Mr Lougher. The draft was in substantially the form in which the agreement of 12 November 1997 was later signed, save that it contained two recitals and a clause that were not in the document as signed. Recital 7 of the draft –– which was not in the agreement as signed –– was in these terms: The Lender has further agreed to re-invest the said purchase monies or such part thereof as shall be required to finance the actual works necessary to convert the Retained Property into flats in accordance with the said or any subsequent planning permissions or consents” Clause 3 of the draft, which, also, was not in the agreement as signed, was to similar effect: The Lender will provide such finance as is required to complete the works necessary to convert the Retained Property into flats as aforesaid or in accordance with any such scheme as shall be approved by the Debtors and the Lender… 16. Those provisions were not included in the agreement as signed because the appellant was not prepared to accept them. In the course of his evidence-in-chief, he explained why: Q: Were you prepared to agree to those clauses? A: Not in those terms. I certainly said that I would consider reinvesting the money from the sale of the land into the further conversion of the property, but it seemed to me, reading that, that it was an open-ended agreement, in as much as there were no prices or anything, and I was aware of no prices at all. And it seemed, you know, whatever the price was I would have to lend the money on that, and I wasn’t happy with that at all, but I was quite happy to lend, given the appropriate information. That explanation was not challenged. 17. The agreement for the release of the farmland on a sale off was signed on 12 November 1997. The sale of the farmland to Mr Lougher was completed on 12 January 1998. After deduction of agents’ fees and legal costs, the balance of the purchase price (£121,616) was paid to the appellant. The balance of the debt was discharged on 30 September 1998, after these proceedings had been commenced. Agreement of 12 November 1997 18. The agreement dated 12 November 1997 is made between the respondents (there together described as the debtors) and the appellant (there described as the lender). The first recital to the agreement defines as “the property” the farmhouse and premises at West Hall Farm, together with the adjacent lands. The second recital refers to the legal charge dated 7 June 1994. The third recital explains that the respondents have agreed to sell part of the property (being the adjacent farmland, defined as “the lands”) to a third party at a price of £125,000, but that “the principal sum with interest thereon remaining owing on the security of the legal charge is greater than the said agreed purchase price”. The fourth recital defines the part of the property other than the lands as “the retained property”, and refers to planning permission having been obtained for the conversion of the farmhouse into flats. The fifth recital is in these terms: The Lender has agreed to the sale of the Lands upon condition that the purchase monies thereof shall be paid to him in part discharge of the said principal monies and interest owing on the Legal Charge and that the Debtors shall transfer to the Lender a one half share or interest in the Retained Property in manner hereinafter appearing. 19. The two operative clauses give effect to the agreement described in that recital: 1. The Lender shall permit the sale of the lands to be completed upon payment to him of the purchase monies thereof and upon signature of the documentation referred to in Clause 2 and shall execute a Deed of Release to release the Lands from the provisions of the Legal Charge upon such payment. 2. The Debtors will upon completion of the sale of the Lands transfer to the Lender a one half share or interest in the legal estate and proceeds of sale and the net rents and profits thereof until sale of the Retained Property and the Debtors shall execute all such documentation as is required to effect such formal transfer as aforesaid. 20. It is common ground that no interest had been paid on the moneys lent by the appellant throughout the period June 1994 to November 1997. Simple interest at the rate of 15% pa on the moneys lent over that period amounted to approximately £59,000. So, if the whole of the purchase moneys payable on the sale off of the farmland (£125,000) were to be paid to the appellant in discharge of the moneys lent, and interest, there would be a shortfall of £49,000 or thereabouts. If (as, in the event, happened) the appellant were to receive only the net proceeds of sale of the farmland, after payment of agents’ and solicitors’ fees, the shortfall could be expected to be in excess of £50,000. 21. A preliminary question that arises under the agreement of 12 November 1997 is whether the balance of the moneys lent –– that is to say, the shortfall of £50,000, or thereabouts, after the payment to the appellant of the moneys to be received from the purchaser of the farmland –– was to remain as a debt owing to the appellant and secured on the retained property, or whether that sum was to be treated as consideration for the transfer of the one-half share of the retained property. In the latter case, the effect of the bargain would be that the whole of the secured debt would be extinguished, the appellant receiving the proceeds of the sale of the farmland and a one-half share in the unsold property in satisfaction of the remaining indebtedness. In the former case, the effect of the bargain would be that the appellant would be entitled to be repaid the whole of the secured loan and to acquire, in addition, a one-half share in the property. In those circumstances, the only consideration, or price, that the appellant would give for that share in the property would be his agreement to the release of the farmland from the security upon payment to him of what appears to have been the full market price for that land. 22. If that question fell to be considered de novo as a matter of construction, there would, I think, be something to be said for the view that the intention of the parties was that the remaining indebtedness should be satisfied by the transfer to the appellant of a one-half share in the unsold property. The language that the parties have used in the fifth recital to the agreement of 12 November 1997, and in the operative clauses, is equivocal, and the court would be entitled to construe that language in a way that gives commercial sense to the bargain. A construction that leads to the conclusion that the appellant was to remain entitled to repayment of the balance of the secured debt, and to have a one-half share in the property as the price for agreeing to the release of the farmland from the security upon payment to him of the128 full market price for that land, invites the query as to whether that could have been what the parties intended. 23. But that question is not for decision on this appeal. The matter was argued below on the basis that it was the common understanding of the parties that the balance of the loan would remain outstanding, and would remain secured on the retained lands, so that the bargain was, indeed, that the appellant should be paid the debt in full, as well as having a transfer of a one-half share in the property. That was the basis upon which the claim was put in the statement of claim served on behalf of the appellant on 31 July 1998, and that was the basis adopted in the defence served on behalf of the respondents on 30 September 1998. It was on that basis that, on or about 30 September 1998, the appellant was paid, and accepted, a sum of £55,351 on account of the outstanding balance. It is clear that the judge addressed the case on the basis that the bargain was that the appellant should be paid in full as well as having a transfer of a one-half share in the property. Neither party has sought to contend that that was not the intended effect of the bargain that they made. 24. A second preliminary question is: how did the parties intend that effect should be given to clause 2 of the agreement? The question arises because it impossible, in law, to give literal effect to an agreement to transfer “a one half share or interest in the legal estate and proceeds of sale and the net rents and profits thereof until sale”. Since 1 January 1926, the law has not permitted the legal estate in land to be held in undivided shares: see section 34 of the Law of Property Act 1925. Where persons are entitled to land in undivided shares, they hold the legal estate as joint tenants upon a trust for sale. So, absent a partition of the land –– which was probably impractical in the present case and which no one suggests was in the contemplation of the parties –– it was never possible to transfer “a one half share or interest in the legal estate”. All that could be done in relation to the legal estate was for the respondents, in whom, at the date of the November 1997 agreement, the legal estate was vested as joint tenants, to transfer it to themselves and the appellant. The effect of that would be that, thereafter, the legal estate would be held by the three of them as joint tenants in law. And, prima facie, it would be held by them subject to the legal charge to secure the indebtedness of the respondents to the appellant. There is no conceptual difficulty in a legal charge over land vested at law in A, B and C to secure a debt owed to A by B and C. 25. A transfer of legal estate by two joint tenants to themselves and another, not being a transfer on sale, would not, of itself, have any effect on the beneficial interests under the trust for sale upon which the legal estate would continue to be held. Whatever the parties intended to achieve by a transfer under clause 2 of the agreement of 12 November 1997, it is clear that they had in mind something more than a transfer of the legal estate. The appellant was to have a beneficial share or interest in “the proceeds of sale and the net rents and profits… until sale of the Retained Property”. Prima facie, the interest that he was to have was “a one half share”. In the circumstances that the respondents were not, themselves, absolute beneficial owners of the property (as disclosed in the first recital to the 1994 legal charge and, again, in the first recital to the 1997 agreement), it might, perhaps, have been possible to contend that the parties intended that the appellant should have a share equal to one-half of the combined share to which the respondents were then entitled. But the better view, I think, is that the appellant was to have a beneficial interest equal to a one-half share in the whole of the retained property. That is the basis upon which the appellant seeks relief in these proceedings, and it has never been suggested by the respondents that that was not the bargain that they intended to make. 26. It follows that, on the basis that Glain Morgan’s share under her mother’s will had devolved to her six siblings under her own intestacy, the effect of the bargain, if the agreement were carried into effect, would be that the retained property would be held beneficially as to nine-eighteenths for the appellant, as to five-eighteenths for the respondents, and as to the remaining four-eighteenths for the other four siblings. 27. A third preliminary question is whether it was intended that any part of the secured debt would fall on the beneficial interest that the appellant was to have under clause 2 of the 1997 agreement. The point can be illustrated by an example. Suppose that the retained property were sold at a price of £270,000 at a time when the secured debt (that is to say, the debt that had remained secured on the retained property following the sale of the farmland, with accrued interest) was, say, £54,000. If it were the intention that no part of the secured debt should fall on the appellant’s beneficial interest, the proceeds of sale would be paid: (i) as to £189,000, to the appellant (being the aggregate of £54,000 in respect of the secured debt and £135,000 in respect of his one-half share in the proceeds of sale); (ii) as to £21,000, to the respondents (being the balance of their five-eighteenths share in the proceeds of sale (£75,000) after deduction of the debt (£54,000) for which they alone were responsible); and (iii) as to £60,000, to the other four siblings (being their four-eighteenths share). If, on the other hand, the intention were that the appellants’ beneficial interest should be a one-half share of the net proceeds of sale (after payment of the secured debt), the proceeds of sale would be paid: (i) as to £162,000, to the appellant (being the aggregate of £54,000 in respect of the secured debt and £108,000 in respect of a one-half share of the net proceeds of sale (£216,000) after discharging the secured debt); and (ii) as to the other £108,000, between the respondents and their four siblings. On the basis that there is no reason (of which we have been made aware) why the other siblings should bear any part of the debt that the respondents alone had incurred, they would be entitled to £60,000 (being their four-eighteenths share of the proceeds of sale), and the remaining £48,000 would go to the respondents. The effect of a distribution in accordance with the latter view would be that one-half of the secured debt would fall on the appellant’s share, and the respondents would be relieved of the burden of the debt to that extent. 28. For my part, I can see no reason why, as a matter of construction of clause 2 of the 1997 agreement, one-half (or any other proportion) of the secured debt should fall on the beneficial interest that the appellant was to have under that clause. The obligation on the respondents is to transfer “a one half share or interest in the… proceeds of sale”; the obligation is not limited to “a one half share or interest in the… net proceeds of sale” –– that is to say, in the proceeds of sale after discharge of the secured indebtedness. Nor is there any reason why it should be. It is, I think, plain enough that if the respondents were to pay off the secured debt before the retained property were sold (as has, in the event, happened), the appellant would expect to receive both the amount of the debt and a one-half share in the proceeds of any subsequent sale of the property. It seems to me, therefore, that the effect of the bargain made in clause 2 of the 1997 agreement was that the appellant should have a beneficial one-half share in the retained property, and that, as between the appellant and the respondents, the respondents should remain liable for the whole of the secured debt. The consequence, as the illustrative example set out in the previous paragraphs shows, is that (after taking account of the interests of their four siblings) the respondents might be left with a relatively small financial interest in the property. These proceedings 29. The writ, issued by the appellant on 30 July 1998, sought payment of principal and interest under the 1994 legal charge, and, in default of payment, an order for foreclosure or sale. The respondents made payment on 30 September 1998 of the amount that they admitted to be due (£55,351), and the claim for payment in excess of that amount –– based upon the contention that interest should be compounded with yearly rests –– was not pursued. But the relief sought by the writ included an order, by way of specific performance of clause 2 of the 1997 agreement, for the transfer to the appellant and the respondents of the retained property upon trust to hold a one-half share or interest therein for the benefit of the appellant. 30. The respondents advanced a number of defences to the claim for specific performance, of which all, save one, were rejected by the judge after hearing evidence at the trial. It is necessary to refer only to two of the pleaded defences. First, in the defence and counterclaim, it was alleged that the appellant had procured the apparent agreement of the respondents to the 1997 agreement “by the exercise of illegitimate129 pressure amounting to duress”. It was alleged that the agreement was “a harsh and unconscionable bargain”, from which the respondents were entitled to be relieved. 31. The judge rejected the defence based on duress. He said, at para 27(1) of the written judgment that he handed down on 9 March 2000: I accept that it is possible to avoid contract on the grounds of economic duress, but that principle has no application because the defendants were not under any duress. At the time they executed the November agreement they were under no obligation to Mr Lougher; so it was not essential that the agricultural land be released from the charge. The 1994 memorandum of loan was prima facie not binding because the nursing home project had been abandoned; so that was not a pressing problem. Mr Tudor Jones was indeed threatening to recover possession and to enforce his power of sale as mortgagee, but he had taken no steps to enforce either remedy other than writing his letter. The defendants had many options available to them other than giving away a half interest in the farm: they had the option either of themselves selling the property or allowing Mr Tudor Jones as mortgagee to sell the property. There was ample equity in the property to repay the loan. In my view the facts do not remotely suffice to amount to coercion of the will resulting in a vitiation of consent (see Pao On v Yiu Long [1980] AC 614 at 635B). 32. Nevertheless, the judge held that the bargain was harsh and unconscionable. He referred to the three elements that Mr Peter Millett QC (when sitting as a deputy judge of the High Court) had identified, in Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1983] 1 WLR 87, as characteristic of a case in which the court would interfere to relieve a party of a bargain on the ground of unconscionability: (i) that one party was at a serious disadvantage to the other, “whether through poverty or ignorance or lack of advice or otherwise”, so that circumstances existed of which unfair advantage could be taken; (ii) that the weakness of the one party had been exploited by the other in some morally culpable manner; and (iii) that the resulting transaction had been not merely hard and improvident, but overreaching and oppressive. As Browne-Wilkinson LJ put it in Multiservice Bookbinding Ltd v Marden [1979] Ch 84 at p110F: In my judgment a bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience. 33. The judge held that the elements necessary to justify the intervention of the court were present. He said at para 25 of his judgment: (1) The two defendants were at a serious disadvantage to Mr Tudor Jones. Mr John Morgan’s lack of understanding of business transactions was not even challenged in cross examination. I am satisfied that he relied entirely on his brother and understood very little of what was going on other than that he was entering into a contract by which he intended to be bound. It was unfortunately a case of the blind leading the blind. Mr Will Morgan is na”ve, trusting and unbusinesslike and no match for an astute businessman like Mr Tudor Jones. It is clear that he barely understood what he was doing. No reasonable person would have committed himself in writing, as Mr Will Morgan did in 1994, to transferring a half share in valuable property in return for a loan and a hope that some financial assistance would be provided. In the 1997 agreement he again promised Mr Tudor Jones a valuable interest in the property without procuring anything of value in return. He accepted the absurd argument put to him by Mr Tudor Jones that because he had made a promise in 1994 he should make another, different, promise in 1997. The only doubt I have had concerning this element of the principle concerns Mr Taylor’s participation. I have mentioned that I intend to reach no conclusion concerning the performance of Mr Taylor’s retainer because that is not directly in issue. It is however clear that for one reason or another Mr Morgan’s interests were not well protected by Mr Taylor. There was no evidence that he had received any advice from Mr Taylor not to enter into such an absurd transaction. I do not think that Mr Taylor’s advice restores the imbalance between the respective positions of Mr Tudor Jones on the one hand and the defendants on the other. In my view the defendants were indeed at a serious disadvantage viz-‡-viz Mr Tudor Jones. (2) The defendants’ weakness was exploited by Mr Tudor Jones in what I regard as a morally culpable manner shocking to the conscience of the court. Mr Tudor Jones was at all times willing to reinvest the proceeds of sale of the agricultural land in the flats project, but because of a misunderstanding by Mr Will Morgan and by Mr Taylor, which he undoubtedly appreciated, he was able to enter into a bargain free of that commitment. To take advantage of a mistake made by an unbusinesslike person inadequately advised by his solicitor seems to me morally reprehensible exploitation of the kind envisaged by the principle. (3) The transaction is harsh, oppressive and unconscionable. In return for (in effect) accepting part re-payment of his loan and, in order to enable that part re-payment to be made, releasing the agricultural land from his security, Mr Tudor Jones claims to be entitled to receive half the remaining property, a benefit valued at about £200,000. During his oral evidence Mr Tudor Jones played down the value of the benefit, stating that it was worth no more than his loan at the time that he made it. I do not entirely understand the relevance of that assertion which he repeated several times: his loan was to be repaid with interest; but in any case his assertion is contradicted by the 1996 valuation which shows the property to be worth £400,000. Accordingly, the judge dismissed the claim for specific performance and set aside clause 2 of the agreement dated 12 November 1997. He granted permission to appeal to this court. Issues raised on this appeal 34. The appellant challenges the judge’s conclusion that the bargain evidenced by clause 2 of the 1997 agreement was harsh and unconscionable. The respondents, by notice under CPR 52.5, seek to uphold the judge’s order on the additional ground that the agreement was procured by economic duress. At the hearing of the appeal, the respondents’ counsel was given permission to amend the notice under CPR 52.5 to raise a further ground: that clause 2 of the 1997 agreement constituted a clog on the equity of redemption and was unenforceable for that reason. Unconscionable bargain 35. The law is not, I think, in dispute. I would respectfully adopt the observation of Browne-Wilkinson LJ in Multiservice Bookbinding Ltd v Marden, that a bargain cannot be unconscionable unless one of the parties has imposed the objectionable terms in a morally reprehensible manner; that is to say, in a manner that affects his conscience. Millett LJ approved that test in Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 at pp152J-153B. His own formulation in Alec Lobb (Garages) Ltd at p95C-D: In short, there must, in my judgment, be some impropriety, both in the conduct of the stronger party and in the terms of the transaction itself (though the former may often be inferred from the latter in the absence of an innocent explanation) which in the traditional phrase “shocks the conscience of the court,” and makes it against equity and good conscience of the stronger party to retain the benefit of a transaction he has unfairly obtained. is to the same effect. The inquiry is not whether the conscience of the party who has obtained the benefit of the transaction is affected in fact, the inquiry is whether, in the view of the court, it ought to be. 36. The moral culpability identified by the judge appears from the passage in para 25(2) of his judgment that I have already set out: because of a misunderstanding both by Mr Will Morgan and by Mr Taylor, which he undoubtedly appreciated, he [the appellant] was able to enter into a bargain free of that commitment [to reinvest the proceeds of sale of the agricultural land in the flat project]. To take advantage of a mistake made by an unbusinesslike person inadequately advised by his solicitor seems to me morally reprehensible exploitation of the kind envisaged by the principle. [Emphasis added.] 37. The mistake, or misunderstanding, to which the judge is referring in that passage is itself identified in paras 14 and 15 of his judgment. As I have already indicated, the draft of the 1997 agreement prepared by Mr Taylor, and sent by him to the appellant on or about 16 October 1997, contained a clause –– clause 3 –– that did seek to impose upon the appellant an obligation to provide further finance. The appellant refused to accept an obligation in that form, for the reason that he gave in evidence, that he was not happy with an open-ended commitment. Mr Taylor then struck out of the draft both clause 3 and the introductory recital, recital 7. The recital was in more limited terms, in that it referred to the appellant’s agreement to reinvest the proceeds of sale of the farmland. The judge thought that Mr Taylor had failed to appreciate that130 there was any relevant difference between clause 3 and recital 7. He said at para 15 of his judgment: Mr Taylor does not appear to have understood, until it was pointed out to him in court by me, that there was a distinction between recital 7 and clause 3; he appears to have thought until then that clause 3 merely implemented the agreement recited. Upon receipt of that letter [of 16 October 1997] Mr Tudor Jones contacted Mr Taylor and made it clear to him that clause 3 was unacceptable. Mr Taylor’s letter to Mr Will Morgan dated 23 October 1997 confirms that it was that clause to which he objected, not the commitment recited in recital 7. Mr Will Morgan asserted in the witness box that Mr Tudor Jones objected to both recital 7 and clause 3. I did not believe that evidence. In particular I do not believe that until the distinction was pointed out in court by me he understood that there was any distinction between the two obligations. Unfortunately, Mr Taylor then re-drafted the agreement omitting both recital 7 and clause 3. 38. There was no evidence that the appellant was willing to accept an obligation in terms of recital 7. Indeed, his answer to the only question put to him on the point –– which I have already set out –– suggests that he was not. Nor was there any evidence that the appellant appreciated that there was any relevant distinction between recital 7 and clause 3. On one reading of the passage that I have just set out, the judge found that he did not. Nor was there any evidence to support the finding of the judge, in para 25(2) of the judgment, that the appellant “undoubtedly appreciated” that Mr Taylor had made a mistake by deleting recital 7, as well as clause 3. The point was never put to him. In the circumstances that an experienced solicitor, Mr Taylor, thought that the recital and the clause stood or fell together –– which would, after all, be the usual position where a recital is included in order to explain the operative clause of a deed –– it was not open to the judge to make an inference of fact, in the absence of any evidence on the point, that the appellant took a different view. Still less, as it seems to me, was it open to the judge to hold that, in executing a document prepared by the respondents’ solicitor that contained neither recital (7) nor clause 3, the appellant was guilty of morally reprehensible conduct. 39. That would be sufficient to dispose of the finding that the bargain was unconscionable. But there are two other points that I should mention. First, although the bargain evidenced by clause 2 of the 1997 agreement may be seen as unwise or improvident, it does not seem to me to be so harsh and oppressive as to make it self-evident that no competent solicitor could have advised his client to enter into it, or that we would have been obliged to withdraw if, against his advice, the client was determined to proceed with the transaction. The position was that Mr Will Morgan had been content, in 1994, to promise the appellant a half-share in the development project. I do not find it surprising that, in 1997, the appellant, who had had no return on his investment for over three years, should be looking for repayment, nor that, if the project were to continue in a modified form, the appellant would expect effect to be given to the promise made in 1994. Nor do I find it surprising, or, as the judge put it, absurd, that Mr Will Morgan should be prepared, in 1997, to renew (in the light of the change of plan) the promise that he had made in 1994. Mr Will Morgan had tried and failed to raise finance from other sources. He needed the appellant’s support if the project were to proceed. He would be unlikely to receive that support if it were perceived by the appellant that he, Mr Will Morgan, had reneged on the earlier promise. It seems to me that Mr Will Morgan might well have taken the view, in 1997, that it was in his interest to keep the appellant “on board”, and that to give him the incentive of an interest in the property was a price worth paying in the expectation of further investment. He would not have been the first to take the view that “half a loaf is better than no bread”. The real vice underlying clause 2, as it seems to me, was not that the concept of a half-share in the development value was necessarily oppressive; the real vice (if any) lay in a failure to think through what the financial consequences of a clause in that form might be. It is in that respect that Mr Morgan could be expected to rely upon his solicitor. 40. Second, the judge held that the respondents were at a serious disadvantage to the appellant. As he put it: “Mr Will Morgan is na”ve, trusting and unbusinesslike and no match for an astute businessman like Mr Tudor Jones.” But it is for a solicitor to advise the na”ve, the trusting or the unbusinesslike in their dealings with the more astute. In such a case, the client relies upon the solicitor to protect his interests, and, if the solicitor is competent and fulfils his role, the imbalance that would otherwise exist by reason of the client’s na”veté, trust and lack of business experience is redressed. The parties meet on equal terms, at least in that respect. 41. The judge took the view that whatever advice Mr Will Morgan received from his solicitor, Mr Taylor, that advice did not restore “the imbalance between the respective positions of Mr Tudor Jones on the one hand and the defendants on the other”. He found that “there was no evidence that he [Mr Will Morgan] had received any advice from Mr Taylor not to enter into such an absurd transaction”. The difficulty, of course, is that the appellant was in no position to investigate (or to adduce evidence as to) the advice that the respondents had received. Any attempt to do so would have been met with a claim for privilege –– as was recognised at the trial: see transcript 15 February 2000 at p34B-C. This is not a case, for the reasons that I have already expressed, in which it can be said that that no competent solicitor could have advised his client to enter into the transaction, or that he would have been obliged to withdraw if, against his advice, the client was determined to proceed. In those circumstances, there was no basis upon which the judge could infer that Mr Will Morgan did not receive advice appropriate to the circumstances. 42. If Mr Will Morgan did receive appropriate advice, there is no foundation for the judge’s finding under para 25(1) that “the defendants were indeed at a serious disadvantage viz-‡-viz Mr Tudor Jones”. It is important, in this context, to have in mind that the judge rejected the contention that the respondents were subject to undue influence or duress. As he found, when rejecting the defence of duress, in the passage to which I have already referred: “The defendants had many options available to them other than the giving away of a half interest in the farm.” This is not a case, on the facts found by the judge, in which the respondents were not in a position to evaluate and act upon whatever advice they received from their solicitor. Duress 43. The passage to which the judge referred, in the opinion of the Privy Council in Pao On v Lau Yiu Long [1980] AC 614 at p635, is authority for the proposition that duress, whatever form it takes, must amount to a coercion of the will so as to vitiate consent; in a contractual situation, commercial pressure is not enough. We were referred to three further passages in the reports. First, a passage in the speech of Lord Diplock in Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at p384B-C: The rationale is that his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind. It is a rationale similar to that which underlies the avoidability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threats of physical duress. 44. Second, a passage in the speech of Lord Scarman, in the same appeal, at p400B-D, where, after referring to Barton v Armstrong [1976] AC 104 and Pao On, he said: The authorities upon which these two cases were based reveal two elements in the wrong of duress: (1) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted. There must be pressure, the practical effect of which is compulsion or the absence of choice. Compulsion is variously described in the authorities as coercion or the vitiation of consent. The classic case of duress is, however, not the lack of will to submit but the victim’s intentional submission arising from the realisation that there is no other practical choice open to him. 45. Third, a passage in the judgment of Steyn LJ, in this court, in the appeal in CTN Cash & Carry Ltd v Gallaher Ltd [1994] 4 All ER 714 at p718E-J, in which he cited, with approval, the observation in131 Professor Birks’ work, An Introduction to the Law of Restitution (1989), at p177, in relation to the element of illegitimacy: It is tolerably clear that, at least where they [the judges] can be confident of a general consensus in favour of their evaluation, the courts are willing to apply a standard of impropriety rather than technical unlawfulness”. 46. On the facts found by the judge in the present case, the respondents failed to establish either of the elements necessary to found a duress. First, as the judge held at para 27(1) of his judgment (in a passage to which I have already referred): The defendants had many options available to them other than the giving away of a half interest in the farm: they had the option either of themselves selling the property or allowing Mr Tudor Junes as mortgagee to sell the property. There was ample equity in the property to repay the loan. 47. Second, the judge rejected the submission advanced on behalf of the respondents that the appellant’s notice of 30 September 1997 was written with the object of putting pressure on Mr Will Morgan to agree the transfer of a one-half interest in the property to the appellant. It was suggested that the appellant had had no genuine desire to be repaid when he sent that notice to Mr Taylor, and that this was borne out by the fact that the notice made no demand for repayment. The threats of foreclosure or sale were to be treated as illegitimate or improper pressure, calculated to coerce agreement to an oppressive bargain. 48. For my part, I am not at all sure that the sending of the notice of 30 September 1997 to the respondents’ solicitor could be treated as illegitimate or improper pressure, in the context of a defence of duress, even if the appellant’s primary purpose in sending the notice was to obtain confirmation of the promise as to a one-half share that he thought had been made in June 1994. It seems to me impossible to suggest that the appellant had no proper interest in being repaid the money that he had lent, and upon which he had received no return. But it is unnecessary to decide that point. There was no foundation in fact for the suggestion that the notice was sent in order to obtain agreement as to the transfer of a one-half share in the property. The judge said in para 13 of his judgment: Mr McMeel [counsel then instructed on behalf of the respondents] put to Mr Tudor Jones that the purpose of the letter [of 30 September 1997] was to put pressure on Mr Morgan to agree the term now embodied in clause 2 of the agreement dated 12 November 1997 which is the subject matter of these proceedings. I reject that line of argument. Allowance must be made for the fact that Mr Tudor Jones is not a lawyer and was unrepresented. The letter draws attention to the non-payment of interest and is explicable on the basis that the writer missed out the formal demand and went straight to the remedies of possession and sale which he desired. There was not a shred of evidence that the letter had any connection with the term which later became clause 2 of the November agreement. I do not accept that Mr Jones in writing the letter dated 30th September 1997 had any such motive as was put to him by Mr McMeel. 49. I have set out earlier in this judgment the explanation that the appellant gave as to the circumstances in which the notice of 30 September 1997 was sent. His evidence was that it was prompted by a suggestion from Mr Taylor, the respondents’ solicitor. There was nothing to contradict that evidence. In my view, there is no doubt that the judge was entitled to make the finding of fact that he did. Indeed, I cannot see that any other finding was open to him on this point. He was right to reject the defence based on duress. Clog on the equity of redemption 50. It is now almost 90 years since the House of Lords considered, in G&C Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25, how far the former rule in the Court of Chancery, which precluded a mortgagee who was a lender of money from stipulating for any collateral advantage as part of a mortgage transaction, had survived the repeal of the usury laws. It is convenient to set out the seminal passage in the speech of Lord Parker of Waddington, at pp55-56: The last of the usury laws was repealed in 1854, and thenceforward there was, in my opinion, no intelligent reason why mortgages to secure loans should be on any different footing from other mortgages. In particular, there was no reason why the old rule against a mortgagee being able to stipulate for a collateral advantage should be maintained in any form or with any modification. Borrowers of money were fully protected from oppression by the pains always taken by the Court of Chancery to see that the bargain between borrower and lender was not unconscionable. Unfortunately, at the time when the last of the usury laws was repealed, the origin of the rule appears to have been more or less forgotten, and the cases decided since such repeal exhibit an extraordinary diversity of judicial opinion on the subject. It is little wonder that, with the existence in the authorities of so many contradictory theories, persons desiring to repudiate a fair and reasonable bargain have attempted to obtain the assistance of the Court in that behalf. My Lords, to one who, like myself, has always admired the way in which the Court of Chancery succeeded in supplementing our common law system in accordance with the exigencies of a growing civilization, it is satisfactory to find, as I have found on analysing the cases in question, that no such attempt has yet been successful. In every case in which a stipulation by a mortgagee for a collateral advantage has, since the repeal of the usury laws, been held invalid, the stipulation has been open to objection, either (1) because it was unconscionable, or (2) because it was in the nature of a penal clause clogging the equity arising on failure to exercise a contractual right to redeem, or (3) because it was in the nature of a condition repugnant as well to the contractual as to the equitable right. [emphasis added] 51. The distinction between the second and third of the categories identified by Lord Parker in the final sentence of that passage appears earlier in his speech at p50: The nature of the equitable right [to redeem] is so well known that, upon a mortgage in the usual form to secure a money payment on a certain day, it must be taken to be a term of the real bargain between the parties that the property shall remain redeemable in equity after failure to exercise the contractual right. Any fetter or clog imposed by the instrument of mortgage on this equitable right may properly be regarded as a repugnant condition and as such invalid. There are, however, repugnant conditions which cannot be regarded as mere penalties intended to deter the exercise of the equitable right which arises when the time for the exercise of the contractual right has gone by, but which are repugnant to the contractual right itself. A condition to the effect that if the contractual right is not exercised by the time specified the mortgagee shall have the option of purchasing the mortgaged property may properly be regarded as a penal clause. It is repugnant only to the equity and not to the contractual right. But a condition that the mortgagee is to have such an option for a period which begins before the time for the exercise of the equitable right has arrived, or which reserves to the mortgagee any interest in the property after the exercise of the contractual right, is inconsistent not only with the equity but with the contractual right itself, and might, I think, be held invalid for repugnancy even in a Court of Law. [Emphasis added.] 52. It is, I think, clear that a condition of the nature described in the final sentence of that passage falls into the third of the three categories later identified at p56. A condition of that nature in a mortgage would, in Lord Parker’s view, have been held repugnant to the transaction –– and so invalid –– both in the Court of Chancery and in a court of law. With the passing of a further 90 years since the enactment of the Supreme Court of Judicature Acts 1873 to 1875, the distinction may, perhaps, have less impact today than it did at the beginning of the last century. Lord Parker went on, at pp50-51, to say: This consideration affords a possible and reasonable explanation for the rule referred to in some of the authorities, to the effect that a mortgagee cannot as a term of the mortgage enter into a contract to purchase, or stipulate for an option to purchase, any part of or interest in the mortgaged premises. [Emphasis added.] 53. It is instructive to examine the examples by which Lord Parker illustrates both the operation of, and the limitations to, that rule. The first is at pp 50-51: Suppose the following simple case, namely, a conveyance by way of mortgage with a proviso for reconveyance if the mortgagor pay to the mortgagee 500l. and interest at the end of six months, and then a further stipulation that the mortgagee should have an option of purchasing the property for another six months. If the mortgagor pays the moneys secured by the specified date the mortgagee comes under a contractual liability to reconvey, and if he does reconvey he reconveys his whole interest in the mortgaged property, thus destroying his option. The option, therefore is inconsistent with and repugnant to the proviso for reconveyance, which embodies the terms of the contractual132 right to redeem. It may, therefore, be rejected. It is also inconsistent with and repugnant to the equity of redemption, which arises on failure to exercise the contractual right to redeem. It is, therefore, though not strictly a penalty, sometimes referred to as a clog on this equity. Next, at pp52-53: I have pointed out that in mortgages in common form an option to purchase is inconsistent with and repugnant to the proviso for reconveyance on payment of the money secured. But is there any such repugnancy or inconsistency in the following case? A agrees to give B an option for one year to purchase a property for 10,000l. In consideration of such option B agrees to lend, and does lend, A 1000l to be charged on the property without interest, and to be repayable at the expiration or earlier exercise of the option. I cannot myself see that there is any inconsistency or repugnancy between the provisions of this perfectly simple and straightforward transaction. It would have been very different if A had conveyed the property to B with a proviso that on payment of the 1000l there should be a reconveyance, and the deed had then provided for the year’s option. Here the option would be inconsistent with, and would in fact have been destroyed by, the reconveyance. And a third, at pp53-54: We will suppose again that a firm of manufacturers desires to take in a new partner, proposing to charge a premium of 3000l. A wants to buy a partnership, but before entering this firm desires some further acquaintance with the extent and methods of its business. It is therefore arranged that A shall be taken on as a clerk for a year and have a year’s option of entering the firm as a partner at a premium of 3000l, and in the meantime shall advance the firm 3000l, charged on some partnership property, to be set off against the premium if the option be exercised, but otherwise refunded at the end of the year. To suggest that such an arrangement was bad because it infringed the maxim of “once a mortgage, always a mortgage,” would, in my opinion, be erroneous. If the option were exercised the transaction would not according to the true intention of the parties be a mortgage at all. 54. In an earlier passage, at p53, Lord Parker had observed that the maxims “once a mortgage, always a mortgage” or “a mortgage cannot be made irredeemable” were of little assistance where the court was faced with a new or doubtful case. He said: [Those maxims] obviously beg the question, always of great importance, whether the particular transaction which the Court has to consider is, in fact, a mortgage or not, and if they be acted on without a careful consideration of the equitable considerations on which they are based, can only, like Bacon’s idols of the market place, lead to misconception and error. 55. The principles that I derive from those passages, so far as material to the present appeal, may be summarised as follows: (i) there is a rule that a mortgagee cannot as a term of the mortgage enter into a contract to purchase, or stipulate for an option to purchase, any part of or interest in the mortgaged property; (ii) the foundation of the rule is that a contract to purchase, or an option to purchase, any part of or interest in the mortgaged property, is repugnant to, or inconsistent with, the transaction of mortgage of which it forms part, and so must be rejected; (iii) the reason why the contract or option to purchase is repugnant to, or inconsistent with, the mortgage transaction is that it cannot stand with the contractual proviso for redemption or with the equitable right to redeem –– the proviso for redemption (and, where the contractual date for redemption is past, the equitable right to redeem) requires the mortgagee to reconvey the mortgaged property to the mortgagor in the state in which it had been conveyed to him at the time of the mortgage; and (iv) it is essential, in any case to which the rule is said to apply, to consider whether or not the transaction is, in substance, a transaction of mortgage. 56. Kreglinger followed, in time, a number of appeals in which similar points had been raised before the House of Lords in the preceding decade: see Noakes & Co Ltd v Rice [1902] AC 24, Reeve v Lisle [1902] AC 461, Bradley v Carritt [1903] AC 253, and Samuel v Jarrah Timber & Wood Paving Corp Ltd [1904] AC 323. I find nothing in those appeals that is inconsistent with the principles that, as it seems to me, are to be derived from Lord Parker’s speech in Kreglinger. Nor, as it seems to me, is there anything inconsistent with those principles to be found in the speeches of the other members of the House of Lords in that case. 57. In Noakes, the mortgage of a leasehold public house contained a covenant with the mortgagee, a brewery, that the mortgagor and his successors in title would not, during the continuance of the leasehold term and whether or not any money should be owing on the security of the mortgage, sell malt liquor in the public house other that that purchased from the brewery. The covenant was held not to be enforceable after redemption. The point was put shortly by Lord Lindley at p36: My Lords, I agree in thinking that the covenant contained in this mortgage, and by which the mortgagees have attempted to convert the house mortgaged from a free public-house into a tied public-house even after redemption, is invalid. I see no answer to the objection taken to it that upon payment off of the mortgage money the mortgagor cannot get back what he mortgaged, namely, a free public-house. 58. In Reeve v Lisle [1902] AC 461, the facts were more complex. In April 1896 the plaintiffs agreed to lend £5,000 to the defendant to be secured by a ship mortgage (which was executed in July of that year). If at any time during the period of two years the plaintiffs should elect to enter into partnership with the defendant, they would relieve the defendant of liability for payment of the mortgage money, and would transfer the ship, free of the mortgage, so that it could form part of the capital of the partnership. The plaintiffs did not exercise their right to enter into partnership within the two years, but the loan of £5,000 remained outstanding. A further mortgage was executed, as additional security, in June 1898. In July 1898 the parties entered into a further agreement, which, after referring to the existing mortgages, the fact that the moneys were outstanding and that there was a request from the defendant for further time for payment, provided that the plaintiffs should have the right, for a further five years, to enter into partnership with the defendant, in which case the same consequences would follow as had been agreed in the April 1896 agreement. In February 1900 the plaintiffs sought to exercise the right to enter into partnership with the defendant. The defendant resisted, on the basis that the right granted by the July 1898 agreement was in the nature of a clog on the right to redeem the mortgage made in June of that year. The Court of Appeal, reversing Buckley J on the facts, held that the June 1898 mortgage and the July 1898 agreement were separate and distinct transactions. On that basis, there was nothing objectionable in the grant of an option over the mortgaged property in the July agreement. Williams J explained the position in the following passage at [1902] 1 Ch 53 at p71: I did not understand the defendant’s counsel to dispute that it is competent for a mortgagee to enter into an agreement to purchase from the mortgagor his equity of redemption. The only objection to such an agreement is, that it must not be part and parcel of the original loan or mortgage bargain. The mortgagee cannot, at the moment when he is lending his money and taking his security, enter into an agreement the effect of which would be that the mortgagor should have no equity of redemption. But there is nothing to prevent that being done by an agreement which in substance and in fact is subsequent to and independent of the original bargain. The argument in the House of Lords was limited to the question of whether the mortgage of June 1898 and the agreement of July 1898 were, in reality, one and the same transaction. The House of Lords rejected that contention. As Lord Macnaghten put it at [1902] AC 461 at p464: Notwithstanding the very able and ingenious argument… by [counsel for the appellant] to prove that the purpose of this document [the July 1898 agreement] was consolidation and rearrangement of the mortgages, in my opinion it was nothing of the kind. There is a passage in the speech of Lord Lindley to the same effect at p465: In point of fact, the real transaction was not taking a mortgage security for 5000l or getting a better security than they had… The real transaction [in July 1898] was that the mortgagees were bargaining for a share in the partnership on certain terms. 133 The case is authority, on its facts, for the proposition set out in the headnote: A mortgagor and mortgagee may, by a separate and independent transaction subsequent to the mortgage, make a valid agreement which gives the mortgagee the option of purchasing the mortgaged property, and thus may have the effect of depriving the mortgagor of his right to redeem. 59. In Bradley, shares in a tea company had been mortgaged to secure a loan from a tea broker upon terms that the mortgagor would use his best endeavours to ensure that the mortgagee should thereafter have sale of the company’s teas. The mortgage contained a covenant that if the company sold its teas otherwise than through the mortgagee, the mortgagor would pay to the mortgagee an amount equivalent to the commission that he would have earned from the company as broker. The majority in the House of Lords (Lord Macnaghten, Lord Davey and Lord Robertson), despite a powerful dissenting speech by Lord Lindley, held that the case fell within the principle in Noakes v Rice. The decision was subsequently explained by Lord Parker of Waddington in Kreglinger at pp59-60: The real question, in my opinion, was whether it [the clause in question] was inconsistent with or repugnant to the contractual right of the mortgagee [quÆre, mortgagor] to have his property restored unfettered if he paid the money secured with interest as provided in the agreement, and the consequential equitable right to have the property so restored if he paid his money with interest and costs at any time. On this point there was room for difference of opinion… There is really no difficulty in the decision itself. It is merely to the effect that the case was within the principles of Noakes & Co v Rice. Lords Macnaghten, Davey, and Robertson all thought that if the stipulations in question were binding after redemption the mortgagor would not upon redemption get back his property intact; in other words, that the stipulation was repugnant both to the contractual right and the equity. 60. In Samuel, the appellant advanced £5,000 to the respondent company, upon the security of £30,000 mortgage debenture stock of the company, upon terms that he should have the option to purchase the whole or any part of that stock at 40% at any time within 12 months. The company sought to repay the advance within the period of 12 months, whereupon the appellant claimed to purchase the whole of the stock at the agreed price. The company brought a redemption action, seeking a declaration that the option was void. The House of Lords (the Earl of Halsbury, Lord Chancellor, Lord Macnaghten and Lord Lindley), upholding Kekewich J and the Court of Appeal, held that company was entitled to the declaration that it sought. Lord Halsbury and Lord Macnaghten reached that conclusion with obvious reluctance. Lord Lindley affirmed that the doctrine “once a mortgage, always a mortgage” was not confined to deeds creating legal mortgages; it applied to all mortgage transactions. He went on at p32 to say: The doctrine… means that no contract between a mortgagor and a mortgagee made at the time of the mortgage and as part of the mortgage transaction, or, in other words, as one of the terms of the loan, can be valid if it prevents the mortgagor from getting back his property on paying off what is due on his security. Any bargain which has that effect is invalid, and is inconsistent with the transaction being a mortgage. This principle is fatal to the appellant’s contention if the transaction under consideration is a mortgage transaction, as I am of opinion it clearly is. 61. I return to Kreglinger, which came before the House of Lords some 10 years after the quartet of appeals to which I have just referred. The appellant was a firm of woolbrokers that had lent to the respondent company the sum of £10,000 on the security of a floating charge over its undertaking. The agreement for loan provided that, for a period of five years, the appellant should have a right of first refusal over all sheepskins sold by the company. The company paid off the loan, but the appellant claimed that it was entitled to continue to exercise its right of first refusal. It was held that the right of first refusal formed no part of the mortgage transaction; it was a collateral contract entered into as a condition of the company obtaining the loan, and that the appellant was entitled to enforce it. As I have indicated, the House of Lords took the opportunity to review the principles relating to collateral advantages obtained in connection with mortgage transactions. The substantive speeches were those of Viscount Haldane LC and Lord Parker of Waddington. The Earl of Halsbury and Lord Atkinson expressly agreed with both of them. Lord Mersey also agreed, but added some words of his own, including the well-known observation that the equitable doctrine prohibiting the imposition of a clog on the mortgagor’s right to redeem is “like an unruly dog, which, if not securely chained to its own kennel, is prone to wander into places where it ought not to be”. 62. I have already cited extensively from the speech of Lord Parker in Kreglinger. I can refer to the speech of Viscount Haldane LC more shortly. At p38, he stated what he described as “the wider principle”: the other and wider principle remains unshaken, that it is the essence of a mortgage that in the eye of a Court of Equity it should be a mere security for money, and that no bargain can be validly made which will prevent the mortgagor from redeeming on payment of what is due, including principal, interest, and costs. He may stipulate that he will not pay off his debt, and so redeem the mortgage, for a fixed period. But whenever a right to redeem arises out of the doctrine of equity, he is precluded from fettering it. This principle has become an integral part of our system of jurisprudence and must be faithfully adhered to. He went on at pp38-39 to identify the issue for decision: What was the true character of the transaction? Did the appellants make a bargain such that the right to redeem was cut down, or did they simply stipulate for a collateral undertaking, outside and clear of the mortgage, which would give them an exclusive option of purchase of the sheepskins of the respondents? The question is in my opinion not whether the two contracts were made at the same moment and evidenced by the same instrument, but whether they were in substance a single and undivided contract or two distinct contracts. He held, in effect, that the agreement for a right to purchase the respondent’s sheepskins was in the nature of a collateral bargain “the entering into which was a preliminary and separable condition of the loan”. As I have already indicated, I find nothing in his speech inconsistent with the principles that are to be derived from the speech of Lord Parker. 63. The question, therefore, is how those principles apply to the facts of the present case. It is, I think, convenient to address that question in two parts: (i) would a provision in the terms of clause 2 of the 1997 agreement have been repugnant to, or inconsistent with, the right to redeem if it had been included in the 1994 mortgage?; and (ii) if so, does it make any difference that the provision is in the 1997 agreement and not in the 1994 mortgage? 64. Since 1 January 1926, when the Law of Property Act 1925 came into force, a legal mortgage of freehold land is no longer created by conveyance with a proviso for reconveyance on redemption –– the method that underlies Lord Parker’s analysis in Kreglinger. The methods of creating a legal mortgage of freehold land are now prescribed by section 85(1) of the 1925 Act: A mortgage of an estate in fee simple shall only be capable of being effected at law either by a demise for a term of years absolute, subject to a provision for cesser on redemption, or by a charge expressed to be by way of legal mortgage… Where a legal mortgage of freehold land is created by a charge by deed expressed to be by way of legal mortgage, the mortgagee shall have the same protection, powers and remedies as if a mortgage term of 3,000 years had been created in favour of the mortgagee: see section 87(1) of the Act. In the present case, the 1994 charge was a charge by deed expressed to be by way of legal mortgage. But the effect is the same as if it had been a mortgage by demise. 65. The principle repeatedly affirmed in the authorities to which I have referred is that, upon redemption, the mortgagor’s estate is to be restored to him in the state in which it was when he parted with it as security. Applying the principle to the position as it is following the 1925 Act, the requirement is that, upon cesser of the mortgage term, the mortgagor’s freehold interest is unencumbered by any interest created as a term of the mortgage. It seems to me impossible to escape the conclusion that a stipulation, agreed as a term of the mortgage, that the134 mortgagee shall have a share or interest in the mortgaged property, is inconsistent with that requirement. 66. The position can, I think, be tested in this way. Suppose a transaction, under which A agrees to lend money to B upon terms that A will have both the security of a mortgage over Blackacre (which B owns absolutely) and the right to have Blackacre transferred into the names of A and B (subject to the mortgage) upon a trust for sale and to hold the proceeds of sale for A and B in equal shares. When the mortgage is redeemed, by B repaying to A the money that has been lent, B will no longer have the absolute and unencumbered ownership of Blackacre that he did have before he entered into the transaction. He will have a property that he holds, jointly with A, upon a trust for sale under which effect has to be given to the beneficial interest of A as a tenant in common in equity entitled to a one-half interest in the proceeds of sale. It can make no difference, as it seems to me, if the transaction is between A (on the one hand) and B and C (on the other hand), but the terms are otherwise the same. B and C are not restored to the position in which they were before they entered into the transaction because, following redemption, they hold Blackacre upon a trust for sale under which effect has to be given to the beneficial interest of A. 67. The question, therefore, is whether, if a provision in the terms of clause 2 had been included in the 1994 mortgage, the transaction would have been regarded as a mortgage transaction, of which the terms of clause 2 formed an integral part. Or, to put the point another way, could clause 2 have been regarded as a separate or collateral transaction? In my view, having regard to the terms of the assurance given by Mr Will Morgan on 6 June 1994, there could be only one answer to that question. The agreement to transfer a share of the property would have been an integral part of the mortgage transaction. It would have been a term of the loan that, upon redemption, the property was held upon trusts under which the appellant had an interest. 68. I turn to consider whether it makes any difference, in the present case, that the provision in the terms of clause 2 was not included in the 1994 mortgage, but is included in the 1997 agreement. The judge thought that it did. He said at para 27(2) of his written judgment: Mr McMeel [counsel for the respondents] relying on Kreglinger v New Patagonia Meat [1914] AC 25 argued that clause 2 of the 1997 agreement was an unlawful clog on the equity of redemption. I regret that I cannot see how that principle can possibly apply to a case in which the equity of redemption was created in 1994 but in which the alleged clog was not created until 3 years later in 1997. The equity of redemption when created was free of any fetter and if the argument is to succeed it must be established that no clog on the equity of redemption can be created as between mortgagor and mortgagee subsequent to the creation of the charge. Mr McMeel argued that there was indeed such a principle, but he cited no authority for it. In my view there is no principle which precludes a mortgagee from taking an interest in the mortgaged property by contract entered into after the creation of the mortgage. 69. The judge was correct to reject the proposition that a mortgagee could never take an interest in the mortgaged property by an agreement made after the mortgage had been granted: see Reeve, to which I have referred. But he was not correct to hold that there were no circumstances in which the principle that prevents a mortgagee from stipulating for an interest in the mortgaged property at the time of the mortgage could have application to stipulation agreed subsequently. The question, in each case, is whether the arrangement made after the mortgage has been granted is “in substance and in fact subsequent to and independent of the original bargain”: see the observations of Williams LJ in that case at p71. It is, to my mind, clear that the House of Lords would not have reached the decision that they did in Reeve v Lisle if they had not been satisfied that the Court of Appeal were correct to hold, on the facts, that the July 1898 agreement was independent of the June mortgage. 70. A related point has arisen, more recently, in Lewis v Frank Love Ltd [1961] 1 All ER 446. In that case, the plaintiff, who was indebted to mortgagees under a mortgage on which judgment had been recovered, agreed with the defendant that it would pay off the existing mortgagees and take a transfer of the existing mortgage, upon making an advance of a small additional sum and upon terms that it would have an option to purchase part of the mortgaged property on condition that it did not require repayment of the principal for a period of two years. The small additional sum was never advanced. The defendant sought to exercise its option, and the plaintiff claimed that the option was invalid as a clog. Plowman J explained the point at pp451H-I: It was argued by counsel for the defendants that the doctrine of a clog on the equity does not apply where the clog was not imposed as part of the original mortgage transaction, and that there had not heretofore been a case in which the doctrine had been applied where the transaction in question was a transfer of an existing mortgage and not the original mortgage itself. It is agreed that there is not, in the reports, any such case. But in my view the principles on which the courts have held that a clog on the equity of redemption is void apply just as much to a transfer of a mortgage which is arranged between the mortgagor and the transferees, where one of the terms of that arrangement is that the transferees in return for parting with their money shall have an option to purchase part of the mortgaged property. 71. In my view, the principle that prevents a mortgagee from stipulating an interest in the mortgaged property at the time of the mortgage does have application in the circumstances of the present case, notwithstanding that the stipulation was contained in the 1997 agreement, rather than in the 1994 mortgage. There are two reasons that lead me to that conclusion. First, it seems to me artificial to regard the 1997 agreement as being, in substance, independent of the 1994 mortgage transaction. It is, I think, important to have in mind that the genesis of clause 2 of the 1997 agreement was the assurance given to the appellant on 6 June 1994. The judge took the view that that assurance was spent when Mr Will Morgan abandoned the plan to develop the farmhouse at West Hall Farm as a nursing home. Whether or not that would be correct if the assurance were otherwise enforceable as a contract, the true position was that the appellant sought, and the respondents were content to concede, the inclusion of clause 2 in the 1997 agreement because that gave effect, in the context of the new plan to develop the farmhouse as residential flats, to the understanding that had been reached in 1994. It was, throughout, the intention of the parties to the mortgage transaction that the appellant should have a share of the development. The 1997 agreement sought to give effect to that intention. 72. Second, the 1997 agreement constituted a variation of the contractual terms upon which the respondents were entitled to redeem the mortgaged property. Prior to that agreement, the position was that they were entitled to redeem the mortgage upon payment off of the whole of the principal and interest then secured. On redemption, they would get back the whole of the mortgaged property free from any encumbrance created by, or at the time of, the mortgage. The effect of the 1997 agreement was that they were entitled to redeem part of the mortgaged property, that is to say, the part that was to be sold to Mr Lougher, on payment of an amount equal to the price that they were to receive from the purchaser, and they were entitled to redeem the remainder of the mortgaged property, that is to say the retained lands, upon payment of an amount equal to the balance of the principal and interest then outstanding, and further interest accruing thereafter. In substance, the effect of the 1997 agreement was to convert what had been a single, indivisible mortgage loan into two distinct mortgage loans. It seems to me that there is no reason why the principle that prevents a mortgagee from stipulating an interest in the mortgaged property should not apply to a transaction that has that effect. Plainly, the principle would apply if the transaction in 1997 had taken the form of a payment off of the whole of the secured loan, a discharge of the existing mortgage, and a relending of the difference between the amount of the secured loan and the moneys to be received from the purchaser upon the security of a mortgage of the retained lands. Although different in form, the 1997 transaction was identical in substance. 73. For those reasons, I am satisfied that the judge was wrong to reject the contention, advanced in argument before him (although not in the respondents’ pleaded defence), that clause 2 was repugnant to the mortgage transaction into which the parties had entered. 135 Conclusion 74. It follows that I would uphold the judge’s order dismissing the claim for specific performance of the 1997 agreement, but for reasons that are different from those that he gave. I would dismiss this appeal. Dissenting, PILL LJ said: 75. I gratefully adopt Chadwick LJ’s statement of the facts. I agree with his conclusions on unconscionability and duress and for the reasons he gives. I have the misfortune to disagree with his conclusion that clause 2 of the agreement of 12 November 1997 (the 1997 agreement) is unenforceable as a clog on an equity of redemption in a mortgage transaction. The proposition was advanced by the respondents at the trial and Judge Moseley QC rejected it in the single paragraph in his judgment that Chadwick LJ has cited. The respondents did not raise the point in their notice under CPR 52.5, but, when it was raised at the hearing of the appeal, they were granted permission to amend their notice to include it. 76. My difference with Chadwick LJ is not as to the principles of law to be applied but as to their application to the facts of this case. The legal charge dated 7 June 1994 was undoubtedly a mortgage to which the principle stated by Lord Parker of Waddington in Kreglinger at pp50 and 51 could have applied. By 1997, however, circumstances had changed substantially: (i) The respondent, Mr Will Morgan, having commissioned and received a business plan from chartered accountants, and having been unsuccessful in attempts to obtain finance from sources other than the appellant, abandoned the project for a nursing home at West Hall Farm, which was the intended project at the time of the 1994 legal charge and the acknowledgement or undertaking given by him at that time. (ii) By no later than mid-1997, Mr Will Morgan had sought, and obtained, planning permission for the conversion of West Hall Farmhouse and outbuildings to residential flats. He formed the intention to develop the buildings in that way. (iii) The appellant was happy with the change and was always willing, the judge found as a fact, and the finding is not challenged, to reinvest the proceeds of sale of the farmland in the flats project: see p12 of the judgment. What he was not prepared to do was to commit himself (proposed clause 3) to “provide such finance as is required to complete the works necessary to convert the retained property into flats”, an open-ended commitment of a most onerous kind. (iv) Mr Will Morgan negotiated a sale to a neighbouring farmer of the 40 acres of farmland also included in the 1994 legal charge. If that sale was to proceed, it was necessary for the appellant to release that land from the legal charge. By the 1997 agreement, the appellant agreed to release the agricultural land from that charge upon payment of the proceeds of sale to him. In the event, the net proceeds amounted to over two-thirds of the sum due to him by reason of the legal charge (including interest). (The balance was paid in 1998.) (v) When the 1997 agreement was negotiated, Mr Will Morgan was seeking further finance for the redevelopment of the retained land and buildings as flats. While the appellant was not prepared to make the open-ended commitment contemplated in clause 3 of the draft, he was prepared to invest in the redevelopment project. When Mr Will Morgan entered into the 1997 agreement, he believed, and expected, and was entitled to believe and expect, that finance would be forthcoming from the appellant. (I agree with Chadwick LJ’s analysis (para 37) of the circumstances in which Mr Taylor, Mr Will Morgan’s solicitor, deleted recital 7 from the draft when he deleted clause 3. It was not open to the judge to find that the appellant appreciated that Mr Taylor had made a mistake.) (vi) Mr Will Morgan was advised by a solicitor throughout the 1997 negotiations. With one reservation, I agree with the reasoning of Chadwick LJ (para 39) when rejecting the respondents’ case that the 1997 agreement was not enforceable because it was unconscionable. The reservation is as to Chadwick LJ’s reference to Mr Will Morgan renewing his 1994 promise; the occurrence of such “renewal” contributing to a conclusion that the 1997 agreement was not independent of the 1994 agreement. I agree with the judge that the 1994 promise, which referred in terms to the nursing home, was spent when that project was abandoned. The promise was by its terms based upon “the business of the nursing home intended to be carried on at the above premises”. In 1997, Mr Will Morgan made a new agreement, at arms length and with the benefit of legal advice. (vii) Mr Will Morgan had, when he entered into the 1997 agreement, tried and failed to raise finance from other sources and needed the appellant’s support if the project were to proceed. As Chadwick LJ puts it at para 39, Mr Will Morgan may well have taken the view that the incentive of an interest in the property was a price worth paying in the expectation of further investment, although Mr Will Morgan failed to think through the consequences of the new agreement. 77. In those circumstances, I have to conclude not only that the 1997 agreement was not unconscionable but also, applying the principles laid down in Kreglinger, that it did not involve a clog on an equity of redemption. In the changed circumstances of 1997, Mr Will Morgan was concerned to pay off the existing mortgage and to raise funds for a new commercial venture. Advised by a solicitor, he entered into a commercial agreement, which, he believed, had prospects of success and which involved a transfer of title to the appellant. 78. The doctrine of clog on the equity of redemption does not, in my judgment, arise upon that transfer, so as to render the 1997 agreement unenforceable. The agreement undoubtedly conferred an advantage on the appellant, but as part of a commercial transaction that falls to be treated as independent of the mortgage transaction of 1994. In the Court of Appeal, in Reeve v Lisle [1902] 1 Ch 53, Vaughan Williams LJ, having referred to the principle of clogging the equity of redemption, stated at p71: “But there is nothing to prevent that being done which in substance and fact is subsequent to and independent of the original bargain.” In the House of Lords, in Reeve, a case analysed by Chadwick LJ at para 58, Lord Macnaghten rejected the submission that the later agreement was “really consolidation and re-arrangement of the mortgages”, and I would do the same in the present case. 79. In Kreglinger, Viscount Haldane LC identified at p38 the issue for decision: What was the true character of the transaction? Did the appellants make a bargain such that the right to redeem was cut down, or did they simply stipulate for a collateral undertaking, outside and clear of the mortgage, which would give them an exclusive option of purchase of the sheepskins of the respondents. The question is in my opinion not whether the two contracts were made at the same moment and evidenced by the same instrument, but whether they were in substance a single and undivided contract or two distinct contracts. 80. Given the change of circumstances between 1994 and 1997, and the situation existing in 1997, I regard the 1997 agreement as a distinct contract. Thus, I regret that I am unable to accept either of the bases upon which Chadwick LJ has concluded that a clog was created on the equity of redemption. The 1997 agreement was, in my judgment, neither in substance a rearrangement of the 1994 mortgage nor in substance a fresh mortgage loan. Being a commercial agreement made in the circumstances described, the doctrine of clog on the equity of redemption does not extend to render it unenforceable. 81. The effect of this conclusion is not to cast doubt upon the decision in Lewis v Frank Love Ltd [1961] 1 All ER 446. Chadwick LJ has set out the statement of principle made by Plowman J at p451 in Lewis. It is not in issue in this case. The transfer of the mortgage in that case was subsequent to the original mortgage transaction, but was plainly a mortgage transaction between the mortgagor and transferee. 82. In his summary of the facts, Plowman J stated at p448C: On Feb 11, 1955, the plaintiff’s solicitors wrote to the defendants’ solicitors saying this: “Our client [ie the plaintiff] is anxious to obtain a mortgage of the property in the sum of £6,500, and over the past few weeks negotiations have been going on between our respective clients on the understanding that in consideration of your clients’ granting the appropriate mortgage to our client, he will grant to them an option to purchase part of the land at a figure to be agreed as and when certain demolitions have taken place and town planning consent to your clients’ extensions has been obtained.” 136 The defendants’ solicitor, Messrs Stilgoes, having received that letter, at once saw the red light, and wrote on 14 February to Messrs Ruston Clark & Ruston, on behalf of the plaintiff, to say: “We think we must make it quite clear that we shall be unable to advise our clients to advance a sum of money on security of the property and for the mortgage to secure the advance, to contain an option to purchase any part of the mortgaged property. Such a bargain would be void as a clog on the equity of redemption.” To that, the plaintiff’s solicitors replied on 15 February saying that they: “quite appreciate the point that you make. Perhaps our letter was not very clearly expressed, but there was certainly no intention of the option and the mortgage being contained in the same document. They must, of course, be separate transactions for the reason stated in your letter.” Then there were various suggestions made as to how the difficulty could be overcome. 83. Having considered the devices suggested, and the one adopted, which involved the use of two documents, Plowman J stated at p451F-G: On the facts I am satisfied, first of all, that at all material times the defendants were well aware of the fact that the plaintiff required a loan of £6,500. I am satisfied that the defendants were prepared to make a loan to the plaintiff of that amount, provided that they got an option to purchase the green land, as it was called in the agreement which I have read, but not otherwise. I am satisfied that the plaintiff was prepared to grant such an option if he got a loan of £6,500, but not otherwise. In other words, I am quite satisfied that the loan of £6,500 and the grant of the option were all part and parcel of one transaction. It was to those facts that Plowman J applied, at p 454I, the principle that “in a case such as that of a clog on the equity, equity looks to the substance and not to the form”. 84. That was a case in which it was attempted, by the form of transaction adopted, to evade the effect of what all concerned knew was in substance a mortgage with a clog on the equity of redemption. In the present case, the facts are very different, and there was in substance a commercial arrangement to provide for the development of flats. 85. The effect of agreeing with Chadwick LJ on unconscionability and duress and disagreeing with him on clogging the equity is that I would allow the appeal. Agreeing with Chadwick LJ, Lord Phillips MR said: 86. I too adopt Chadwick LJ’s statement of the facts and agree, for the reasons that he gives, with his conclusions on unconscionability and duress. This appeal turns on the question of whether clause 2 of the 1997 agreement is unenforceable as a clog on the equity of redemption of a mortgage. That question I have found far from easy because: (i) the doctrine of a clog on the equity of redemption is, so it seems to me, an appendix to our law that no longer serves a useful purpose and would be better excised; and (ii) the nature of the 1997 agreement and the circumstances in which it was concluded are neither clear nor satisfactory. My conclusions are, however, as follows: Nature of the 1997 agreement 87. The 1997 agreement was a variation of the 1994 mortgage agreement under which: (i) Mr Jones agreed to release part of his security (the farmland) so that it could be sold; (ii) the loan was reduced by the proceeds of sale of the farmland; (iii) the balance of the loan remained secured on the remaining part of the security (the retained property); (iv) Mr Will Morgan agreed to transfer to Mr Jones a 50% interest in the retained property (clause 2). 88. The contractual role of Mr Jones in this transaction was solely that of a lender of money. Although Mr Will Morgan may have believed that Mr Jones was undertaking to invest money in the development of the retained property, Mr Jones had declined to bind himself to do so. 89. Mr Jones was, at all times, entitled to interest on the outstanding indebtedness. 90. The retained property was, at all times, mortgaged as security for the outstanding indebtedness. 91. Before the repeal of the usury laws in 1854, the consideration that a lender could exact from a borrower was strictly controlled, in that: (i) there were restrictions on the amount of interest that could be charged; (ii) the borrower could not lawfully stipulate for any collateral advantage beyond repayment of his principal with interest. 92. The position, following the repeal of the usury laws, is that there is now no rule in equity that precludes a lender from stipulating for any collateral advantage, provided that the stipulation is not: (i) unfair or unconscionable; (ii) in the nature of a penalty clogging the equity of redemption; or (iii) inconsistent with or repugnant to the right to redeem: see E&C Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 at p61. 93. The 1997 agreement varied the loan and the mortgage that secured it, but did not alter the nature of the contract. It was, in effect, a refinancing agreement. Clause 2 was inserted as an integral part of the refinancing agreement. It was not part of a collateral contract. 94. The facts of this case are analogous to those of Lewis v Frank Love Ltd [1961] 1 All ER 446. I endorse the conclusion of Chadwick LJ that clause 2 constituted a clog on the equity of redemption of the mortgaged property and was, in consequence, void. Accordingly, this appeal must be dismissed. Appeal dismissed.