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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Heffernan & Anor v Grangewood Securities Ltd [2001] EWCA Civ 1082 (19 June 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1082.html Cite as: [2001] EWCA Civ 1082

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
APPLICATION FOR PERMISSION TO RELY ON FURTHER EVIDENCE
ON APPEAL FROM ORDER OF HIS HONOUR JUDGE HOLT
(KING'G LYNN COUNTY COURT)

		Royal Courts of Justice Strand London WC2 Tuesday, 19th June 2001

1. LORD JUSTICE CHADWICK: This is an appeal against an order made on 27th January 1999 by His Honour Judge Holt sitting at King's Lynn County Court in a redemption action brought by the appellants, Mrs Linda Mary Heffernan and her husband, Mr Patrick John Heffernan, as mortgagors of property known as Denver Hall, near Downham Market, Norfolk against their mortgagees, Grangewood Securities Ltd.
2. Grangewood Securities Ltd ("the lender") carries on business as a moneylender. In April 1992 Mr and Mrs Heffernan (together "the borrowers") sought a loan to enable them to repay existing bank and building society borrowing (amounting to £72,150) and to provide additional funds. The amount which the lender was willing to advance was £96,500, to be secured on the borrowers' home, Denver Hall. The terms of the loan were set out in a document described as "Memorandum of Agreement for Secured Loan" signed by the borrowers and dated 24th April 1992. The principal sum (£96,500) with the amount of "total interest charged" (£470,437.50) was to be repaid by 300 monthly instalments over 25 years at the rate of £1889.80 per month. The "total interest charged" was computed by applying a flat rate of 19.5 per cent to the principal sum over the contractual period of the loan. The amount of each monthly instalment was obtained by dividing the aggregate of the principal sum and the total interest charged (together £566.937,50) by the number of instalments to be paid over that period. The Memorandum of Agreement provided for early redemption upon the terms set out in clause 9:

"The Borrower may at any time repay the whole of the Principal Sum outstanding but in the event that such repayment shall take place prior to the expiration of the term whether at the request of the Borrower or following the exercise of the Lender's power of sale the Borrower shall pay the total sum of Principal and interest calculated in accordance with the formula known as the Rule of 78. The settlement date for calculation of rebate under the said Rule of 78 may be deferred at the Lender's option by 6 months."

3. The monies due or to become due in respect of the loan were secured by a legal charge also dated 24th April 1992.
4. The present proceedings were commenced on or about 10th December 1997. The principal relief sought is an account of what, if anything, is due under the legal charge together with declarations, in the alternative, that the borrowers have paid off all monies secured by the charge or are entitled to redeem on payment off of whatever sum may be found due. It is clear from the particulars of claim that the borrowers challenge a redemption statement provided by the lender as at 24th February 1997. It is convenient to refer to that redemption statement in order to identify the grounds of challenge.
5. The figure for redemption as at 24th February 1997, provided by the lender, was £209,176.04, computed as follows: (i) the principal sum (£96,500) is added to the total interest charged (£470,437.50) so as to make an aggregate amount of £566,937.50; (ii) the amount of £291,391.48 in respect of rebate of interest under Clause 9 is deducted from that aggregate amount, leaving a balance of £275,546.48; (iii) credit is given for payments received from the borrowers (£98,757.86) and for other credits (£7,076.80), leaving a balance owing of £169,711.36; and (iv) there are added to that balance owing items in respect of disbursements (£11,764.58), additional/default interest (£25,556.96) and administration charges (£1,964.39). The figures cannot be reconciled precisely; but the methodology is clear enough.
6. In paragraph 6 of the particulars of claim in the current proceedings the borrowers assert that neither the memorandum of agreement, nor the legal charge, contains any provision entitling the lender (i) to add disbursements to the mortgage debt, (ii) to add additional/default interest to the debt, or (iii) to add administration charges. Paragraph 7 contains the assertion that the effect of the provisions of the memorandum of agreement as to the payment of interest and the computation of the amount payable on early redemption, alternatively the way in which the lender has applied those provisions, alternatively the conduct of the lender in adding extra charges, fees and interest to the mortgage debt is to operate as a clog or fetter on the borrower's equity of redemption and are void for that reason. Paragraph 8 pleads, in the alternative, that those provisions are in the nature of penalties, and so unenforceable. Paragraphs 9, 10.1 and 10.2 are in these terms:

"9 Further the provision of the Agreement as to the payment of interest and/or the calculation of early settlement rebate and/or the way the Defendants have wrongfully calculated the above-mentioned settlement figure are unconscionable and/or oppressive.

10.1 Further and/or alternatively, the Plaintiffs apply to have the Agreement re-opened, pursuant to Section 137 of the Consumer Credit Act 1974.

10.2 The credit bargain which comprises the Agreement is extortionate, both in its construction and operation and all the circumstances. Such Order should be made as is considered just. The Credit Agreement was delivered to the Plaintiffs by taxi. They had no time to consider the same. They had no adequate time to seek legal advice (the actual percentage rate was not disclosed to the Plaintiff). The amount of equity in the property vastly exceeds the loan made. The true effect of the way the Agreement has been implemented is to render the actual charge for credit in excess of the rate of interest, shown in the Agreement."

7. A defence was served on or about 12th February 1998. Paragraph 2 of the defence refers to earlier possession proceedings brought by the lender against the borrowers in the King's Lynn County Court under reference KL 401002; and to two orders made in those proceedings. The first is an order for possession of the mortgaged property made in default of defence on 25th May 1994, but suspended on terms that the borrowers paid off the arrears due under the legal charge (£5,593.40) at the rate of £550 per month in addition to tohe instalments then currently due under the memorandum of agreement. The second is a consent order made on 20th December 1995 dismissing the borrowers' application to set aside the possession order of May 1994 and suspending the execution of a warrant for possession issued under that order on payment by the borrowers of £2,779.69 per month. Paragraphs 3 and 4 of defence are in these terms:

"3 The Defendant will aver that these proceedings are an abuse of process in that:

(a) the matters raised in this action could and should have been raised by way of defence to the action referred to in paragraph 2 herein;

(b) notwithstanding that the Plaintiffs have neither redeemed, nor unconditionally offered to redeem, the mortgage of 24 April 1992, the Plaintiffs wrongfully seek an account in this action;

(c) insofar as the Plaintiffs seek to re-open the loan agreement pursuant to section 139 of the Consumer Credit Act 1974, the Plaintiffs have failed to commence proceedings by way of originating application as required by Order 49 rule 4 of the County Court Rules.

4 Further and/or in the alternative, by reason of the matters set out in paragraph 2 herein the Plaintiffs are now estopped from pursuing the remedies sought in this action."

8. The proceedings came before District Judge Hayes at King's Lynn on 8th June 1998. He ordered that there be tried, as preliminary issues and before the other questions or issues in the action,

"(a) The question or issue raised by paragraphs 2 and 4 of the Amended Defence as to whether the plaintiffs are now estopped from pursuing the remedies sought in this action.

(b) The question or issue raised by paragraph 3 of the Amended Defence namely whether these proceedings are an abuse of process."

9. Those issues were tried by the same district judge on 7th September 1998. He decided both issues in favour of the lender and dismissed the borrowers' action. The borrowers appealed to the Circuit Judge. After a hearing on 27th January 1999 Judge Holt dismissed that appeal. He did so upon the primary ground that the possession order of 25th May 1994 gave rise to what he described as a cause of action estoppel within the principle identified by Sir James Wigram VC in Henderson v Henderson (1843) 3 Hare 100. He said this at page 8 B-F of the transcript:

"Now, in the first action the Plaintiffs were seeking possession. They could only obtain possession, persuade the Court to make an Order for Possession, I should say, if they could prove arrears. If there were no arrears that they could prove then the Court would not make an Order for Possession. In the event, the Court having read the affidavits of Mr Hawkins, and it being unchallenged, the Court, on the 25th May decided, firstly, that there were £5,593.40 of arrears, and then went on to make the order for Possession. So clearly the issue as to whether there were any arrears under the mortgage was before the Court, and if any of the matters raised in the current action had been before the Court and successfully proved, then there would have been no arrears."

10. The judge went on to consider the second limb of the defence, that based on the consent order of 20th December 1995. He siad this at page 10 C-F:

"There is however a second limb of the Defence which relies on the consent Judgment which was made by the Court on the 20th December 1995. It is argued that by the application which was made on the 8th August 1995, this put in issue the right of the then Plaintiffs to arrears under the mortgage, and that is quite plain because the application seeks an Order setting aside the Order for Possession. It then sets out two grounds, both of which allege that there would be no arrears.

The then Plaintiffs, by their solicitor, however, consented to that application being dismissed, and the Court made the Order on the 20th December."

11. The judge then referred to a passage in Foskett on the Law and Practice of Compromise (4th Edn, 1996) at paragraph 607 and reached the conclusion that the order of 20th December 1995 - being, as I have said, a consent order - provided a second ground for dismissing the appeal.
12. The judge refused permission to appeal. Permission was granted by this court (Lord Justice Auld) on 14th June 1999.
13. In order to address the issues raised on the appeal it is necessary to set out in summary form the history of the earlier possession proceedings KL401002. The proceedings were commenced on 24th March 1994 following the service on 7th March 1994 of default notices under the memorandum of agreement; there having been default in the payment of the monthly instalments provided for by that agreement. No defence was filed in those proceedings. The matter came before the district judge on 25th May 1994, who, in the absence of the borrowers, made the suspended order for possession to which I have already referred. The borrowers failed to make the payments required under that order. A warrant for possession was issued and a bailiff's appointment to execute that warrant was arranged for 9th November 1994. Execution of the warrant, however, was stayed from time to time over the next nine months while the borrowers put forward proposals for the sale off of part of the mortgaged property, and for re-financing of the loan. It seems that nothing came of those proposals. On 16th June 1995 the warrant was again suspended until 11th August 1995.
14. On 8th August 1995 the borrowers made application for an order setting aside the order for possession which had been made on 25th May 1994. The application, which is signed by the borrowers' solicitors, was in these terms:

"For an Order setting aside the Order for Possession dated 25-5-94 herein on the grounds that:

1. The repayment due under the terms of the mortgage are not in arrears, no date for commencement of repayments having been specified in the lender's Memorandum of Agreement.

2. In addition, or alternatively, the execution of the mortgage herein was obtained by misrepresentation and/or breach of fiduciary duty."

15. That application was supported by an affidavit sworn on 9th August 1995. The affidavit contained the following paragraphs:

"3 The memorandum of agreement also sets out in paragraph 9 that an early settlement should be calculated in accordance with the rule of 78 plus six months. None of the documents that I have seen show such a calculation.

4 Paragraph 12 of the Legal mortgage provides that if there is default the Plaintiffs may give notice in writing requiring payment of the whole balance outstanding, but unless there has been default no such notice could be given.

5 I am further concerned that this legal charge was entered into by the Defendants apparently wholly in the absence of any legal advice and as such the enforceability thereof must be questionable.

6 There is now produced to me and marked MF1 a statement provided on behalf of the Plaintiffs which shows the amount claimed to redeem is £195,274.36. Since the amount lent in 1992 was £96,500.00 it seems difficult to accept that the debt has increased by over £100,000.00 at an APR of 19.31%. This is as at what is said to be the 17th May 1995.

7 There is now produced to me and marked MF2 a calculation received which shows on the 24th May 1995 the figure was said to be £191,721.83. As regards that figure it will be seen that an attempt is being made to debit the Defendants with what is said to be debited disbursements of £5,800.00 odd undebited costs of £884.25 default interest of £7,624.92 and administration charges of £1694.39. No explanation has been given as to how the entitlement to these somewhat astonishing figures arise.

8 In all these circumstances it is my submission on behalf of the Defendant that this is not a suitable case for a summary order for possession. The Defendants were not I believe represented when the order for possession was made on the 25th May 1994. Clearly the Court was not appraised of all the circumstances and it is just and equitable that the Order should be set aside and the Court give directions for the matter to be dealt with on a defended basis. The Defendants will of course have to serve a defence ..... "

16. A draft defence was exhibited. Also exhibited to that affidavit are copies of the calculation of the redemption figure as at 24th May 1995 to which the deponent had referred. The calculation of that figure follows closely (as one would expect) the later calculation in 1997 set out in the particulars of claim to which I have already referred. In particular, it shows an amount in respect of rebated interest, and debits in respect of disbursements as to administration chareges - those being items that it is sought to query in the present proceedings.
17. On 5th October 1995 an employee of the lender's solicitors made an affidavit in response to the affidavit of 9th August to which I have just referred.
18. The matter was due to come before the court on the basis that the original possession order made on 25th May 1994 was under challenge on the grounds that there were no monies owing; alternatively, that the execution of the mortgage had been obtained by misrepresentation; alternatively, as appears from the affidavit itself, that the transaction was oppressive and that the lender was seeking to charge amounts which it was not entitled to charge. That application was due to be heard by District Judge Birchall on 20th December 1995. It appears from the copy order made that day that the parties reached terms. We were told - and there is no reason to think otherwise - that those terms were reached outside the door of the court. Certainly, there is no material in the documents before us which show any negotiations leading up to an agreement to compromise.
19. The order of 20th December 1995 contained, at paragraph 1 -

"liberty to amend the Notice of Application dated 8/8/95 to include as [a new paragraph] an application for a suspension of the warrant of possession under section 36 of the Administration of Justice Act 1970."

20. Paragraphs 2 and 3 of the order were in these terms:

"2 Paragraphs 1 and 2 of the Defendants application be dismissed.

3 The warrant of possession of the property known as Denver Hall Ely Road Denver Downham Market be suspended for so long as the Defendant do pay to the Plaintiff each and every month the sum of £2779.69, the first of such payments to be made on or before 24 January 1996."

21. We were told - and again there is no reason to doubt - that the sum of £2779.69 referred to in paragraph 3 of that order was computed by dividing the total amount owing under the mortgage -including the amounts the lender had sought to add in its redemption statements - by the number of months that would elapse before the end of the 25-year term. In other words, the order was made on the basis, first, that the challenge to the mortgage and the computations under the mortgage that had been raised by the application of 8th August 1995 - and particularised in the affidavit of 9th August 1995 - were being abandoned. That is the effect of paragraph 2 of that order dismissing the application. Second, that the warrant would be suspended under the powers conferred by Section 36 of the 1970 Act and Section 8 of the Administration of Justice Act 1973 upon payment of an apportioned sum representing monthly instalments of the whole of the outstanding debt.
22. The question which now arises is whether the borrowers can now be permitted to raise, in a fresh action, complaints which are either the same as, or very similar to, the complaints raised in the August 1995 application; and which were dismissed by consent on 20th December 1995.
23. It is common ground that the law in relation to abuse of process is now set out in the judgments of the House of Lords in Johnson v Gore Wood & Co (a firm) [2001] 2 WRL 72. It is sufficient to read the passage in the judgment of Lord Bingham of Cornhill at page 90 A-F. He said:

"But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, Iwould not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."

24. Lord Bingham was concerned in that passage with issues which could have been raised in earlier proceedings but which were not raised. But the principle applies with at least as much force to issues which were raised in earlier proceedings, but which were deliberately abandoned. The question is whether to raise issues which have been deliberately abandoned in earlier proceedings is abusive.
25. This court considered in Securum Finance Ltd v Ashton [2001] Ch 291 the question whether a party whose earlier proceedings had been struck out for want of prosecution or delay could, within the limitation period, raise the same issues in a subsequent action. It reached the conclusion that where the claim in the second action was indistinguishable from the claim in the first action it could be said with force that to seek to pursue that claim in a second action - when it could and should have been pursued properly and in compliance with the rules of court in the first action - was an abuse of process. It was an abuse because it was a misuse of the court's limited resources - resources which could be employed in the resolultion of disputes between other parties. To allow a party a "second bite at the cherry" was an unnecessary and wasteful use of the court's limited resources - see particularly at page 315 F. Securum Finance was a case where the earlier proceedings had been struck out; but the same principle must apply a fortiori where the earlier proceedings, or issues in those earlier proceedings, have been abandoned; and that abandonment recognised by an order for dismissal by consent.
26. The question for decision, therefore, is whether - having allowed the earlier proceedings in which issues of unconscionability and account were raised to be dismissed by consent - the borrowers can now raise what are essentially the same issues in a subsequent action. By doing so they seek to raise against the lender issues which the lender had every reason to think had been laid to rest by the consent order which was made on 20th December 1995. It is not without significance that that order provided for payment off of the arrears over the whole of the period of the loan, that is to say, a period of some 20 years or more. In my view the lender is entitled to say that the borrowers had the opportunity to pursue the issues which they had raised in 1995, and quite deliberately chose not to do so. In those circumstances it would now be an abuse of the court's process to seek to re-open those issues by proceedings commenced in 1997.
27. For my part I would dismiss the appeal on that ground.
28. For completeness, however, I should add that I would not, myself, regard the order of 25th May 1994 as leading to the conclusion that these proceedings should be struck out on grounds of abuse. The circumstances in which the order of 25th May 1994 was made were that the lender was seeking an order for possession on the strength of its title under the legal charge. All that the lender it had to show was that there had been a default in the payment of the instalments provided for by the memorandum of agreement. The judge was wrong, in my view, to suggest that it was necessary for the lender, on that application, to establish the state of the account. The question was whether the contractual bar to the taking of possession which had been imposed under the terms of the mortgage - in particular by Clause 6 - had been removed by the events of default. It was unarguable that there had not been default in the payment of the instalments. No question of an additional charge for disbursements or administration charges arose. The issues on that application were not the issues which the borrowers now seek to raise and were not then before the court. There was no reason why they should have been.
29. I would dismiss this appeal. But I would set aside the order of the district judge made on 7th September 1998 to the extent that he dismissed the borrowers' action against the lender. The hearing before the district judge was confined to the preliminary issues. It does not follow that, if the preliminary issues are decided in favour of the lender, there is no foundation for a redemption action in which the borrowers can ascertain - as a matter of arithmetic - what sum they are required to pay in order to redeem the mortgged property. What they cannot do is re-open the questions of principle covered by the preliminary issues.
30. LORD JUSTICE JUDGE: I agree.
31. LORD JUSTICE KENNEDY: I also agree.
Order: Appeal dismissed