Legal
Mortgage
co.uk

Chess Pieces
wig and book pic
Changes
Archive
ENE pic

April 2011

For a copy in Word form, click here:

Apr 11 Update

Want to sign up for FREE monthly updates e-mail your request to: update@legalmortgage.co.uk

Case name Bank of Scotland v Pereira
Neutral citation [2011] EWCA Civ 241
Legal points Mortgage litigation - civil procedure - re-hearings CPR 39.3 and appeals CPR 52
Facts In a fraudulent sale and leaseback scheme, Mr & Mrs P sold their residential property to a company S on the basis that they could remain in the property rent free for the rest of their lives. Company S which was controlled by Mr J arranged for the property to be purchased by a nominee Ms P, who was in a relationship with Mr J, with funds provided on mortgage by BoS. The purchase price was paid over to company S and Mr & Mrs P received no financial benefit apart from the discharge of an existing charge. Following default in repayment, BoS claimed possession of the property and a money judgment against Ms P. Mr & Mrs P counterclaimed for rescission of the sale and rectification of the register. The claim and counterclaim were allocated to the multi-track and listed for hearing on 21 June 2007 before Judge M. Ms P did not attend. Judge M made an order for possession and a money judgment against Ms P. He also ordered rescission of the sale and transfer and awarded Mr & Mrs P damages to be assessed. The net effect was that Mr & Mrs P remained in possession subject to the mortgage. On 8 July 2009 Ms P applied to set aside parts of the order (rescission and damages) under CPR 39.3. Judge E refused the application, holding that Ms P had failed to act promptly and did not have a good reason for not having attended the hearing. He also expressed doubt about her prospects of success on the merits. Ms E applied for permission to appeal (1) to the High Court against Judge E’s refusal to set aside the judgment, and (2) to the Court of Appeal against Judge M’s substantive order. The Court of Appeal agreed to hear both appeals pursuant to s 57 Access to Justice Act 1999.
Held The Court would first consider the appeal against Judge E’s refusal to set aside Judge M’s order under CPR 39.3. If the Court upheld Judge E’s refusal to set aside the order it would then consider the application for permission to appeal against the order, but this involved a difficult issue about the interrelationship between a defendant’s application to set aside an order under CPR 39.3 and her right of appeal under CPR 52. The principles applicable to an application to set aside an order made in a party’s absence under CPR 39.3 is subject to clear rules. The court no longer has a broad discretion (Regency Rolls Ltd v Carnall [2000] EWCA Civ 379). All three of the conditions listed in CPR 39.3(5) must be satisfied before it can be invoked to enable a court to set aside an order. The court may grant the application only if the applicant: (a) Acted promptly when he found out that the court had exercised its power to strike out or to enter judgment or make an order against him; (b) Had a good reason for not attending the trial; and (c) Has a reasonable prospect of success at the trial. Although an appeal against a judge’s refusal to set aside a judgment does not normally involve challenging a discretion, an appellate court would be slow to overturn a decision of this nature unless satisfied that the judge went wrong in principle. “CPR 39.3 exists essentially to ensure that a defendant has an opportunity to present her case to a judge. If she had no good reason for not attending the trial, she has had the opportunity to appear and did not take it. If she fails to apply to set aside the order promptly, she has also lost the opportunity afforded to her by the rules to set aside the original judgment, and present her case at a rehearing. If she fails to persuade the judge at the CPR 39.3 hearing that she would have an arguable case at a rehearing, setting aside the original judgment would be pointless – and anyway she has had the opportunity to put her case to a judge, namely the judge hearing the CPR 39.3 application” As to the interrelationship between an application to set aside an order under CPR 39.3 and an appeal under CPR 52, six points can act as guidelines: 1. Where the defendant is seeking a new trial on the ground that she did not attend the trial, then, even though she may have other possible grounds of appeal, she should normally proceed under CPR 39.3 , provided she reasonably believes that she can satisfy the three requirements of CPR 39.3. If a defendant seeks to appeal without first making a CPR 39.3 application, when she could have made such an application, the appellate court could still entertain her appeal, although particularly following our judgments in this case, it will normally require unusual facts before it should do so. 2. If the defendant concludes that she cannot establish that she had a good reason for not attending the trial and/or that she made her CPR 39.3 application promptly, it would obviously be silly for her to make a CPR 39.3 application. In such a case, she can nonetheless seek to appeal against the trial judge's decision in the same way as any other defendant. I do not see why the rights of appeal of an unsuccessful defendant should be any different in principle depending on whether the judgment was given in her presence or her absence. If the trial judge made an appealable decision, either in his final judgment or during the hearing, the defendant's ability to challenge the decision by way of an appeal under CPR 52 should in principle be the same. CPR 39.3 is, in that sense, merely an additional potential course given to a defendant who, with good reason, was unable to attend the trial. 3. Where a defendant makes an application under CPR 39.3 and that application fails on the ground that she had no good reason for not attending the trial and/or that she did not make her CPR 39.3 application promptly, it seems to me that her right to appeal the trial judge's order should, in principle, be no different from what it would have been if she had not made the CPR 39.3 application. Unless she appeals against the dismissal of her CPR 39.3 application, she would not be able to argue on any attempt to appeal the trial judge's order that the judgment should be set aside simply because it was given in her absence. 4. Where the defendant has made a CPR 39.3 application which failed on the ground that her arguments on the substantive issues would have no prospect of succeeding at any retrial, she should not normally be entitled to raise the same arguments through the medium of an appeal against the trial judge's decision. The proper course would usually be to challenge the refusal of the CPR 39.3 application on this ground. 5. Where the defendant's CPR 39.3 application fails, she will normally be in severe difficulties in seeking to contend, by way of appeal against the trial judge's order, that she should be entitled to rely on evidence which was not before the trial Judge, or that she should have a retrial. In such cases, the appellate court's approach must depend to some extent on the facts. 6. If the defendant makes no CPR 39.3 application, but appeals the trial judge's decision and seeks to put in new evidence or an order for a retrial, very similar considerations seem to me to apply. However, as it will not have been determined whether the three requirements of CPR 39.3.5 have been satisfied, the appellate court may have to make that decision for itself (unless it decides that the defendant should first have applied under CPR 39.3 to set aside the trial judge's order (in which case the appellate court may nonetheless decide the issue itself, remit the issue to the court below as a CPR 39.3 application, or make some other appropriate order). On the facts, Judge E was entitled to refuse Ms P’s application to set aside Judge M’s order and that permission to appeal Judge M’s order would be refused.
Comment This is an important and helpful summary of what in practice can often present as conflicting principles between an application to set aside a judgment or order made at trial in a party’s absence, and a straightforward appeal against the judgment or order. There is a lot of detail in the decisions of Lord Neuberger MR and Lloyd LJ (Gross LJ gave a short concurring judgment) and practitioners should review the principles carefully before opting for one or other application. Three additional points are worth bearing in mind: First, CPR 39.3 assumes that the party who fails to attend has been properly served with notice of the trial. If not, he may apply to set aside an irregular judgment as of right under CPR 3.1(2)(m) and CPR 3.10. Second, CPR 39.3 only applies where a party fails to attend a trial. It doesn’t apply for example where a party fails to attend a summary judgment application. In such a case an application to set aside will have to be made under CPR PD 24 para 8. If a party fails to attend any other hearing, the proper course may be apply for relief from sanction under CPR Third, for the purposes of CPR 39.3(1)(b) a party is present if his solicitor attends.
Case name UCB Home Loans Corporation Limited v Grace
Neutral citation [2011] EWHC 851 (Ch)
Legal points Mortgages - defective security - appointment of receiver by way of equitable execution
Facts Ds acquired a portfolio of 92 buy to let properties, financed by a mortgage loan from a lender. Following financial difficulties, Ds proposed to refinance 18 of the 92 properties with UCB. Although funds were transmitted, Ds failed to complete leaving UCB without the security of a first registered charge. Ds subsequently defaulted in payment. Some of the properties were sold by the prior lender. UCB applied for (1) a worldwide freezing injunction in respect of Ds assets, and (2) for the appointment of receivers over the balance of the properties in the portfolio.
Held In respect of (2) - the appointment of receivers, it was recognised that had UCB obtained valid security, it could have appointed Law of Property Act receivers in respect of the properties to receive the rental income, but because the transaction did not complete, it was unable to do so. However, it was still open to UCB to apply to the court for the appointment of receivers by way of equitable execution under s 37 Senior Courts Act 1981, and the court affirmed some of the applicable principles arising out of Masri v Consolidated Contractors International Company [2008] EWCA Civ 303 and Maclaine Watson & Co Ltd v International Tin Council [1988] Ch 1: (1) The court has no jurisdiction to appoint a receiver by way of equitable execution merely because in all the circumstances it would be a more convenient mode of obtaining satisfaction of a judgment than the usual modes of execution. (2) Second, the special circumstances which would justify the making of an order must be such circumstances as would have enabled the Court of Chancery before the Judicature Acts to have intervened by way of injunction or the appointment of a receiver at the suit of the judgment creditor (3) The authorities showed that what was required was that there should be some hindrance arising from the nature of the property which prevented the judgment creditor from obtaining execution at law, but which the appointment of a receiver could overcome. (4) Holmes v Millage was not authority for the proposition that a receiver by way of equitable execution could not be obtained over property in which the judgment debtor had a legal, and not a merely an equitable, interest. (5) There is no reason why the court should not exercise a power to appoint a receiver by way of equitable execution over future receipts from a defined asset. There is no longer a rule, if there ever was one that an order can only be made in relation to property which is presently amenable to legal execution. There is no firm foundation in authority for a rule that the remedy is not available in relation to future debts. There is no principle which prevents the development of existing authority to extend the remedy to the property which was the subject of the receivership order in this case. On the facts, UCB had no other realistic prospect of enforcing its judgment in the short term, and no other way of enforcement against the rents payable by the tenants of the properties. The court could appoint receivers over all of the remaining properties but the order would be without prejudice to the interests of other lenders and in particular without prejudice to their entitlement to appoint LPA receivers. In the circumstances it was just and convenient to make the appointment.
Comment It is important to remember that s 37 Senior Courts Act 1981 contains a statutory power for the High Court to appoint a receiver in all cases in which it appears to the court to be just and convenient to do so. The order may be made either unconditionally or on such terms and conditions as the court thinks just. Such a power may be exercised whether or not a charge has been imposed under s 1 Charging Orders Act 1979. Court appointed receivers are relatively rare. Most lenders will be able to rely on their contractual or statutory powers to appoint LPA receivers. This case is a prime example of when a court appointment may be necessary - where the charges have not completed and the lender has been left with defective security.