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IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONLEEDS DISTRICT REGISTRY

No. 4PA41550

1 Oxford Road, Leeds, LS1 3BG

Thursday, 9 th March 2017

Before:

HIS HONOUR JUDGE MARK RAESIDE QC

B E T W E E N :

BANK OF SCOTLAND PLC Claimant

- and -

(1) PAUL MICHAELS(2) CHARLOTTE MICHAELS

Defendants

_________

Transcribed by BEVERLEY F. NUNNERY & CO.(a trading name of Opus 2 International Limited)Official Court Reporters and Audio Transcribers

5 New Street Square, London, EC4A 3BFTel: 020 7831 5627 Fax: 020 7831 7737

[email protected]

_________

MR. A. McCLUSKEY (instructed by Eversheds Sutherland (International) LLP) appeared on behalf of the Claimant.

MR. P. MICHAELS appeared In Person for the Defendants. __________

J U D G M E N T(As approved by the Judge)

JUDGE RAESIDE:

1 This is an ex tempore oral judgment which will cover the following matters. After a short introduction, I will set out the background facts, then the proceedings, pleadings and issues before this court followed by the question of possession and after that the question of what is called the “Hands Down Agreement” followed by the application of the Administration of Justice Act 1970 and then I will deal briefly with the defence and counterclaim before I conclude this judgment. As agreed with the parties on receipt of the transcript I have made corrections.

2 This case concerns an attractive property in North Yorkshire owned by the defendants, Mr. Paul Michaels and Mrs. Charlotte Sarah Michaels, and known as Low Newbiggin Estate or Farm, Aislaby, North Yorkshire. As described by Carter Jonas (Estate Agents) in the sales brochure, the property is as follows: “Newbiggin Estate offers a rare opportunity to acquire a small, private estate lying between the beautiful Esk Valley and the North York Moors National Park. The estate includes three-quarters of a mile of frontage onto the River Esk which is now highly regarded for the quality of the salmon and sea trout fishing provided. The natural beauty is enhanced by the mature woodland on the bankside to the south of the river and the open valley bottom which enhances the views to the east. Approaching the house via the private road, the tree-lined drive leads to an attractive courtyard behind the principal house, incorporating parking and turning area, lawns and gardens and numerous landscaped borders. The main house, which includes well-proportioned rooms of individual character, has been modernised and improved to a high standard. It is well suited to a family or sporting lodge with a double height galleried dining hall acting as the social heart of the building. It is believed to date back to 1772 with late additions and accommodations arranged in three floors. To the rear of the property the courtyard buildings have been converted into two cottages which are currently run as holiday homes. There is further potential to create an additional unit alongside those cottages.”

3 This case concerns possession of that property which is sought by the claimant, the Bank of Scotland Plc, as a result of a mortgage and charge on the property. Generally, this is a straightforward possession action but it contains two ingredients which are maybe unusual. The first is the very substantial sums of money involved and the second is the Hands Down Agreement which has complicated the case. Because of that, this court has transferred the action to the Chancery Division in the High Court with the agreement of the parties.

BEVERLEY F. NUNNERY & CO.OFFICIAL COURT REPORTERS AND AUDIO TRANSCRIBERS

Background Facts

4 A mortgage deed was settled between the Bank of Scotland and Mr. and Mrs. Michaels dated 17th January, 2007 and signed by both of them and witnessed. It is plain from the mortgage deed that it incorporates mortgage conditions which are the Bank of Scotland Mortgage Conditions 2004 (Second Edition). The relevant terms so far as this mortgage is concerned are contained in clauses 17 and 18. Clause 17.1 under the heading of “Entitlement,” provides: “If any of the things mentioned in this condition happen, you must pay us the debt immediately. [Namely] if you do not pay any two monthly payments (they do not have to be consecutive)...” Clause 18(a) provides under the heading, “Our right to take possession of the property”: “You must pay off the debt immediately under condition 17… we may make you leave the property if you have not already done so (so that we can take possession of it).” The wording is clear and undisputed: should the Michaels fail to make two monthly payments the bank was entitled to possession of the property.

5 By a letter dated 2nd April, 2007 from the Bank of Scotland marked “Private and confidential” and addressed to the defendants at Low Newbiggin House details were given of an overdraft facility. The overdraft limit on that property, Low Newbiggin House, was £1,200,000 and it was clear from the express terms of that letter that all overdrafts were repayable on demand. The use of that facility indicated that it may be used only for the purpose of land in Canada and the purchase of the barn at Bohunt Manor in Liphook. The security under clause 50 was a second charge over the entire estate at Low Newbiggin. That document also was signed by Mr. and Mrs. Michaels on 2nd April, 2007. By a letter dated 26th November, 2007 from the Bank of Scotland that overdraft was increased to £1,215,000 on the condition that the property was put on the market for sale and monthly updates on progress were to be provided. The Carter Jonas brochure set out above is an example of sale details of the property.

6 The Land Registry for Low Newbiggin House indicates that the title absolute as proprietors was initially given to Mr. and Mrs. Michaels on 12th October, 2001. The price as at 29th June, 2001 was £575,000. There are two quite separate registered charges shown on the land title deeds which is no.NYK256562. The first is in paragraph 2. It shows as being registered on 23rd January, 2007 and is the registered charge dated 17th January 2007. The second quite separate charge and always referred to as “the second charge” is in paragraph 5 which was registered on 6th June 2008 and refers to a registered charge of 2nd June 2008. It is important in this case to appreciate the difference between those two charges on the property each of which has been subject to separate proceedings and agreements.


7 So far as the ability of these defendants to pay their debts under this mortgage, evidence is given by Linda Williams who was in charge of this file since March 2014 for the Bank of Scotland Plc (as part of Lloyds Banking group Plc.) It is indicated in paragraph 4 of her witness statement that at the time these proceedings were issued the Michaels were in arrears of £17,363.04 but at the time of her statement on 20th October, 2016, the outstanding arrears had increased to £52,093.52. The total amount outstanding was £1,224,102.70 and the current monthly instalments were £1,335.56. Details of those outstanding payments were contained in a schedule to her statement and although the Michaels doubt this schedule there has, in truth, been no dispute. What it shows is that between 2000 and January 2007 and March 2008 these defendants made regular due payments as required month by month. By May 2008 they were in arrears and that position of arrears continued from May 2008 until July 2009. After that, for a period of time, some of these payments were made and that took place between August 2009 and August 2010. Thereafter, there was a series of advances to allow payments to be made between September 2010 and November 2012. Thereafter, the matter returned into arrears. Thus from December 2012 until September 2016 there is an increasing amount of arrears owed to these claimants and none of the full monthly payments was being made by the defendants. On the face of this evidence the Court can be in no doubt and I find as a fact that the defendants were in arrears of payment of two months and more for the purposes of clause 17 of the mortgage deed.

8 As at today’s date the total mortgage arrears now claimed by the claimant is £1,261,074.81and the total arrears have now increased to £58,771.32. It is that figure that this court will consider when considering the orders it shall make in due course.

9 The claimants issued proceedings in the High Court in London, Queen’s Bench Division, on 27th October 2009 in action HQ09H04774. The claim brought by the Bank of Scotland Plc against Mr. and Mrs. Michael was in respect of an overdraft, the value of which was £1,334,561.90 and interest. The particulars of claim referred to that written agreement of 2nd April, 2007 and it indicated that the claimant had advanced the defendant £1,200,000 by way of an overdraft, that they had sent letters on 7th May, 2009 making a formal request for payment of the outstanding sum of £1,334,561.90 to which interest was accruing and, therefore, they sought a specific sum of money in relief and interest which was as follows, that figure of £1,334,561.90, interest of £27,223.09 and continuing at a daily rate of £165.32.

10 The defence and counterclaim at this stage was settled by the defendants themselves and signed on 8th June, 2010 with a statement of truth from Mr. and Mrs. Michaels. It indicated amongst other matters that the bank had registered derogatory information with credit reference agencies which they felt did not


reflect its own failures in the business transaction and that the credit rating had suffered to the extent that they could not refinance the property to bring a remedy to the situation. Indeed, they asserted that there were two separate occasions when the bank had advised them to refinance to private lenders so that it could snatch the property at the end of twelve months. They sought immediate rectification of their credit file.

11 The reality of the situation is set out in a credit review of Mr. and Mrs. Michaels that took place on 17th March, 2011. They were described in terms of their credit rating score as having 496 points, namely very poor. Of the individual properties which were then owned by Mr. and Mrs. Michaels Low Newbiggin House shows that there is a six-month non-payment of rent arrears, described as the worst status. On their asset liability, it is apparent that there are several bodies to which Mr. and Mrs. Michaels owe money. They include: Northern Rock with a personal loan of £17,371; Barclaycard, £24,904; a second Barclaycard account, £9,703; an HSBC business loan of £6,494; a mortgage on the Bohunt property to which I briefly referred of £506,889; a Northern Rock mortgage on what is known as Dove House in the sum of £247,510; and, lastly so far as the property in this action is concerned, Low Newbiggin, £1,340,454. It indicated that so far as their income and expenditure was concerned at that time, their monthly income was £11,883 but their expenditure was £13,453. That is a document with a declaration with Mr. and Mrs. Michaels’ names on of 6th June, 2011. It is quite apparent from this document that the position of the defendants at this time was financially precarious in that they were living above their means.

12 The High Court action was settled by a consent order made by Master Cook dated18th July, 2011. It is a standard consent order: upon the parties agreeing terms, the action including the claimant’s claim and the defence and counterclaim was settled. The terms were that the defendants were to pay the claimants £330,000 which comprised a series of payments from 31st July, 2011 to 30th June, 2012 of £1,200 per month and then a larger payment on or before 31st July, 2012 of £315,600.

13 As is clear from the schedule referred to above these payments were not made. Accordingly 10th January, 2013 the claimant entered judgment in the sum of £1,534,497.16. As a matter of administrative record, it is apparent that in due course that judgment debt became recorded in the usual way and it is shown on 10th January, 2013 in the amount of £999,999, being a penny under the million pounds for which such debts are recorded. That judgment was enclosed by a letter to Mrs. Michaels by Underwoods Solicitors on 18th January, 2013.

14 The defendants took affront to these matters and made a complaint to the Financial Ombudsman Service on 3rd January, 2014. The Ombudsman copied


in the bank who replied on 7th February, 2014 and indicated that they did not agree with all aspects of the complaint but paid £250 into the Defendants’ account being £150.00 for distress and inconvenience and £100.00 to cover the telephone calls.

Proceedings, Pleadings and Issues before this Court

15 On 28th November, 2013 the Bank of Scotland informed Mr. and Mrs. Michaels that the monthly payments in respect of the debt of £1,335,056 was due on 30th December, 2013 and their arrears were by now £13,656.36 in respect of Low Newbiggin House. They indicated that in the absence of payment, they would take legal action. The Michaels were advised to go to a Citizen’s Advice Bureau. On 20th December, 2015 they were advised that they had instructed solicitors to commence legal action and again advised the Michaels that they should take advice from the Citizen’s Advice Bureau or other such agencies.

16 Thus it was that on 12th March, 2014 a possession action claim was commenced in the Middlesbrough County Court in which the claimants sought possession of Low Newbiggin House, particulars of which were provided in the particulars of claim. The attached particulars of claim for possession gave details in the usual way in a pro forma document the nine paragraphs of information in such cases. Paragraph 1 provided that the claimants had a right to possession of Low Newbiggin House. Paragraph 2 provided that the mortgage was on 17th January, 2007 on the above property. So far as paragraph 3 was concerned, to the best their knowledge, that was a property in the possession of Mr. and Mrs. Michaels. Paragraph 4 confirmed that there was no credit agreement or consumer regulations applicable. Paragraph 5 made it clear that the claimants were seeking possession on the grounds that there were arrears of 12th March, 2014 in the sum of £17,363.04, which accords with the schedule, and referred the mortgage conditions which I have set out more fully above. The total amount loaned referred to in paragraph 6 was £1 million. The current repayments were £1,335.56 per month and the amount required in total, therefore, had increased as at 12th March, 2014 to £1,135,021.47. The rates of interest were set out and it cites the letter dated 28th November, 2014 that I have just referred to. So far as details of these defendants in paragraph 8 were concerned, it was noted that they were not in receipt of social security benefits and to the best of the claimant’s knowledge they had mortgaged the property and they occupied it. It was made clear that no provisions of the Family Law Act or the Matrimonial Homes Act or the Matrimonial Homes Act 1967 applied. The relief sought was twofold: firstly, a claim for possession of the premises; and, secondly, payment to the claimant of the total outstanding under the mortgage. Those particulars of claim are dated 12th March, 2014.


17 Originally, Mr. and Mrs. Michaels acted for themselves and provided more than one document described as a defence. One of the versions provides details of an explanation for the fact and the background to this claim, including reference to the Ombudsman. The document included a letter of 6th August, 2014 setting out at length the Defendants’ position.

18 The matter came before District Judge Neaves in the Scarborough Justice Centre on 3rd September, 2014. He made an order in which, having heard the solicitor, Underwoods, for the claimant and the defendants acting in person that a substitute defence could be allowed provided it was filed and served by 29th August, 2014. It was as a result of that order that Mr. and Mrs. Michaels sought representation from solicitors and thereon, until 2nd March, 2016, they have been represented by solicitors and, indeed, have had pleadings settled so far as this court can tell by counsel, Toby Watkin. The solicitors instructed throughout are Michelmores LLP. In accordance with that order a defence and counterclaim were settled. I read from the key paragraphs alone because, in due course, there is a list of issues to which I shall come. Responding to the particulars of claim to which I have just referred, paragraph 1 is denied. That is to say it was denied that the claimant was entitled to possession. It set out details of the accounts as between the parties and the mortgage and the interest rate. So far as material, paragraph 10 provided that there would be no admissions as to the amount of arrears and the claimant was put to strict proof. I have already set out the evidence of the claimant proving the arrears of those mortgage payments which has been provided in the witness statement to which I have already referred and to which there can be no positive challenge before this court, though there might be complaint by these defendants.

19 It refers to what is described as a “Hand Down Agreement” and paragraph 12 provides that the claimant was a beneficiary of a second charge of 2nd June, 2008, referred to as the “second charge.” It indicates in paragraph 13 that on 17th January, 2013 a judgment was entered against the defendants in respect of the sum said by the claimants to be due under that facility, that being the facility of 2nd April, 2007. It indicates that there was an agreement made between the claimants and Underwoods and Robert Lockyer and that the defendants in about October 2013 in a part recorded letter dated 3rd October and 14th October, 2014 agreed certain terms. One particular term which I note is this in paragraph 13(vii):

“The claimant would not register the judgment or the fixed sum debt in such a way as to adversely affect the defendants’ credit files and would not cause or permit the defendants’ credit file to be adversely affected by the judgment or the fixed sum debt.”


20 Paragraph 14 implies a term. The term is implied in order to give business efficacy to the contract and provides:

“The claimant would not use any collateral right which it might have or acquire in order to recover possession of the property and/or independently to sell the same so long as the defendants continued diligently to seek the sale of the same.”

21 As a result of that, paragraph 15 pleads that there was an unlawful derogation from the Hands Down Agreement. Paragraph 17 pleads that the claimant was prevented from relying upon the mortgage to seek recovery of the property while and so long as the defendants continued to seek diligently to sell the same. Paragraph 18 provides the alternative, that there was a breach of the Hands Down Agreement and the claimant caused or permitted judgment to be entered. The particulars given are threefold. Paragraph 18.1 indicates a judgment was registered against the defendants’ credit files in or around January 2013. Paragraph 18.2 indicates that the defendants’ credit ratings were adversely affected and paragraph 18.3 gives reference to a Mr. Neil Robinson of the claimant’s various discussions with the defendants postdate the Hands Down Agreement of which complaint is made.

22 Lastly, paragraph 19 deals with the provisions of the Administration of Justice Act 1970 in which it is alleged that if, which is not admitted, the defendants are in arrears in respect of the mortgage and if (contrary to the defendants’ case) the claimant is presently entitled to rely upon a right pursuant to the mortgage to seek recovery and possession of the property, the defendants request that the court exercise its powers under s.36(1) of the Administration of Justice Act 1970 to adjourn the proceedings, alternatively stay or postpone the execution of any order for such period as the court thinks reasonable on the grounds the defendants are likely within a reasonable period to be able to remedy any default or mortgage. There are three particular matters relied upon alone and they are as follows:

“19.1 The property upon which the claimant mortgage remains (sic) a first charge remains for sale through Messrs Cundalls at the price of £1.45 million.

19.2. The sale of 35 Dove House Drive, Henlow [with an address] fell through on 2nd September, 2014 for reasons connected with the purchaser’s own sale. The defendants accepted the said purchaser’s offer from a number of offers that were made. The defendants have immediately re-offered the property for sale. The offers previously received by the defendants would, upon completion of sale, generate funds capable of clearing the existing arrears.


19.3 The defendants continue to seek to recover funds invested in their assets in Canada.”

23 Paragraph 7 of the particulars of claim is admitted and paragraph 22 and paragraph 23 also admit that there is no social security or benefits as is admitted in paragraph 9 and paragraph 24 of the defence. On that basis at paragraph 25 of the defence it is denied that the claimant is entitled to the relief sought or any relief. So far as the counterclaim is concerned, it simply says this at paragraph 26, “The defendant repeats paragraphs 13 to 18 of the defence.”

24 Interest is then claimed and the relief sought is damages to be assessed. That is settled with a truth statement of 9th September, 2014.

25 So far as material the reply and defence to counterclaim required as a result of the order of District Judge Neaves is dated 23rd September, 2014. The relevant paragraphs are as follows. In paragraph 7 the claimant relies upon the terms and conditions of the mortgage and the statement of accounts and arrears provided to date. Paragraph 8 indicates that so far as the Hands Down Agreement is concerned, the defendants are put to strict proof of their assertions and in the absence of any evidence to the contrary, the claimant denies it entered into any agreement which prevents it from enforcing its right to enforce the terms of the mortgage. Paragraph 11 provides in response to paragraph 18 that the claimant denies so far as alleged that it owed the defendant any duty of care or breaches of the registration in terms of the money judgment. Paragraph 12 indicates that the claimant is put to strict proof of any registration of money judgment.

26 Paragraph 13 provides, and it must, I think, be a typographical error for paragraph 19, though in fact it says paragraph 10, that whilst it is admitted that in general the court has a discretion to suspend the mortgage right to a possession under s.36(1) of the Administration of Justice Act 1970, the defendants are put to strict proof that they are likely to be able to clear their payment arrears or other sums due under the mortgage within a reasonable time and they note that the last payment received under the mortgage was in June 2014 and was only £250. It also notes that the attempts to make a sale of the property in 2007 were not successful. Lastly, it puts the defendants to strict proof as to the existence of assets and investments in Canada. The counterclaim is denied. That document contains a truth statement dated 24th September, 2014.

27 As a result of that close of pleadings and other orders the matters came back before District Judge Neaves at which the claimant and defendants were


represented, counsel for the claimant, solicitors for these defendants, on 2nd June, 2016. Orders were made for the trial of the action in a window between 1st November, 2016 and 20th January, 2016 with a two-day trial estimate. Counsel who attended on that occasion and attends before me today indicates, though it is not recorded, that the parties agreed both a case summary and a list of issues. That is recorded in a document dated 11th May 2016 for Eversheds LLP, solicitors acting for the claimants. It sets out the background to the claim in the usual way as I have described it so far and the defence and the counterclaim. It then sets out a chronology of the proceedings to which I have generally referred and indicates that these are the seven issues in the case:

(1) Does the claimant have a right to possession of the property? That is consideration of the particulars of claim, paragraph 1 and 2 of the defence and counterclaim.

(2) What are the sums outstanding on the defendants’ mortgage account? That is paragraph 8 and 10 of the defence and counterclaim and paragraph 5(a) of the particulars of claim.

(3) Did the parties enter into a Hands Down Agreement? That is paragraph 13 and 14 of the defence and counterclaim and paragraph 8 of the reply.

(4) If the answer to (3) is yes, what are the consequences of the claimant’s claim, referring to paragraph 15, 17 and 25 of the defence and counterclaim and paragraph 8 of the reply.

(5) If the answer to (3) is yes, has the claimant breached the Hands Down Agreement, making reference to paragraph 18 of the defence and 11 of the reply.

(6) If the answer to (5) is yes, what relief if any are the defendants entitled by reason of the same? Reference is made to paragraph 18 and 26 of the defence and counterclaim and paragraph12, though having reviewed those documents I believe paragraph13 must also be relevant of the defence and counterclaim.

(7) If the claimant should otherwise be entitled to possession of the property, can and should the court exercise the powers under s.36(1) of the Administration of Justice Act 1970 to adjourn the proceedings or postpone execution and, if so, on what terms? That is paragraph 19 of the defence and paragraph 13 and 14 of the reply.


28 It is agreed and the defendants accept that those are the issues which this court has to resolve in this trial and no other issues.

29 I therefore propose to deal with the issues such as they are and if in due course I form a view that an issue is resolved one way or the other, it is unnecessary to refer to further issues which are conditional upon my decision. I therefore take, essentially, the three most important issues and I couple the issues together under these headings. Firstly, I look at the question of possession of the property and outstanding sums due and that is essentially issues 1 and 2. Secondly, I look at the Hands Down Agreement and that is essentially issues 3 to 5. As a result of my judgment on those matters, I therefore go straight to the third matter in this case, which is the question of the Administration of Justice Act 1970 which is issue 7. Then I will briefly, however, deal with the defence and counterclaim and the allegations of breach in respect of the Hands Down Agreement being issues 5 and 6 at the end.

Possession (Issues 1 and 2)

30 The rules on possession have been well established before these courts for really very many years. A short summary from “Law of Real Property”, Megarry & Wade, 8th Edition (2012) which at paragraph 25-024, under the heading, “To take possession” provides: “Since a legal mortgage gives the mortgagee estate and possession he is entitled subject to any agreement to the contrary to take possession of the mortgaged property as soon as the mortgage is made, even if the mortgagor is guilty of no default. A legal chargee has a corresponding statutory right. The mortgagee ‘may go into possession before the ink is dry on the mortgage.’ He may do so without court order even in those cases where the mortgage property has included a dwelling house and the court could have granted a relief to the mortgagor.” Reference is made in this textbook to the start of that line of authority, which is Birch v Wright (1786) 1 TR 378 at p.383 and the well-known decision of Four-Maids Limited v Dudley Marshall (Properties) [1957] (Ch) 317, a decision of Harman J which was subsequently agreed with by Dillon J, as he then was, in Westminster City Council v Haymarket Publishing [1980] 1 WLR 683 at p.686. It was described by Dillon J as a well-established rule.

31 The most recent case in this area not cited in that textbook is Bank of Scotland Plc v Zinda [2012] 1 WLR 728 which is a judgment of the President, he was then Munby LJ, sitting with Mummery LJ and Hedley J. As I have before me litigants in person who believe they have been treated unfairly I quote from maybe more of this case than one would usually do should these defendants have still been represented by counsel. Munby LJ in setting out his judgment described it in this way: “This appeal raises a short but important point of principle of great practical significance in relation to the standard form of


suspended possession order used in mortgage cases and granted on a daily basis in hundreds of County Courts up and down the land.” Whilst I appreciate this is not a dispute as to the standard form, in terms of the fundamental rules that apply to this court, paragraphs 15 to 18 set out the position in this way:

“15. Bearing in mind some of Mr Zinda’s submissions it may be useful to start with some elementary propositions of law which provide the context in which the possession order came to be made.

16. A mortgage is a charge on property to secure the repayment by a debtor to his creditor of monies lent. The word mortgage is used in a number of different senses. Colloquially it may be used to refer to the loan (as in ‘I have a mortgage from the bank’) or to the overall contractual arrangements (as in ‘I have a mortgage with the bank’). In law, however, the mortgage is neither the loan nor the contract. It is that element of the overall transaction constituting the charge on property which gives the lender his security. The effect of the Law of Property (Miscellaneous Provisions) Act 1989 is that the mortgage or charge can only be created by a written document complying with certain statutory formalities. Typically, as in the present case, the document is in the form of a deed.

17. From the point of view of the lender – the mortgagee – a mortgage has a number of advantages. In the first place it enables him, if the borrower defaults, to obtain possession of the mortgaged property and sell it in order to recoup the monies he has lent. The mortgagee does not need to obtain a money judgment and then a charging order; he can proceed immediately to obtain a possession order. Second, it gives him priority over the borrower’s unsecured creditors. Assuming there is adequate equity in the mortgaged property, the lender will recover his debt in full, even if the debtor is insolvent. But a mortgage also has a number of advantages from the point of view of the borrower – the mortgagor. Precisely because the debt will be secured, a lender is likely to be more willing to lend money to people whose credit would otherwise be thought inadequate and, crucially, more willing to lend larger amounts and at a lower rate of interest than he would be prepared to agree if the loan was unsecured. It is, after all, these commercial and economic realities which have enabled so many people to become the owner-occupiers of houses which they would otherwise never have been able to afford.

18. Absent a contractual fetter, the mortgagee is entitled to take possession of the mortgaged property whether or not the mortgagor has defaulted. As Harman J (as he then was) famously observed in Four-


Maids Ltd v Dudley Marshall (Properties) Ltd... ‘The mortgagee may go into possession before the ink is dry on the mortgage unless there is something in the contract express or by necessary implication, whereby he has contracted himself out of that right.’ Typically the modern bank or building society mortgage does, as in the present case, contain just such a provision. And typically, as in the present case, the terms of an instalment mortgage (whether the instalments cover both principal and interest or, as in the present case, interest only) are, as I have said, that so long as the mortgagor pays the monthly instalments the mortgagee will not seek repayment of the capital or possession of the property, but if he falls into arrears the full amount of the secured indebtedness becomes payable and the mortgagee becomes entitled to take possession.”

32 I shall return to this case in due course but what is quite apparent from the facts I have so far set out as part of the background is, firstly, that this is a case in which there was a deed in writing between the defendants and the claimants. Secondly, this was a case in which in this case the defendants have failed to pay their mortgage. Thirdly, that so far as the legal effect of that is concerned, and one has to consider the terms of the mortgage, possession is permitted in a sense as day follows night. I have looked at the terms of the mortgage and the perfectly clear wording in clauses 17 and 18. In the event that these defendants were in arrears of two months of the mortgage, these claimants could take possession of the property forthwith. At this stage and so far as this judgment is concerned I am perfectly satisfied that these claimants are entitled to possession of the property. There is nothing in the mortgage terms which suggests that they can do otherwise. That is to say I am satisfied that there has been failure on the part of these defendants to make the two monthly payments. Indeed, there has been a long litany of failure to make payments. Insofar as the law is concerned, these claimants are therefore entitled to possession. The only matters which will affect that are the two further matters to which I shall come: namely, whether somehow the Hands Down Agreement affects that right; and, secondly, whether as a matter of the Administration of Justice Act 1970 this court should not allow the effects to be put into operation immediately.

Hands Down Agreement (Issues 3 to 5)

33 In terms of its background, that is to say the negotiations for that agreement, the evidence is perfectly clear to this court. On 12th September, 2013 Mr. Michaels wrote to Mr. Lockyer of the claimants and told him that:

“Unfortunately, due to circumstances beyond our control i.e. global economic climate, the associated valuation constraints imposed on property values, the last seven years has had a massive negative input on our credit file. We therefore are unable to pay you any monies in the


immediate future. Due to the arrival of our baby, Victoria, seven weeks ago and the added responsibilities to our already unhealthy workload I need to ensure that any unnecessary pressure is taken from Charlotte as soon as physically possible. In order to bring rectification to our predicament, we have to break the deadlock and move things forward by correcting our credit file. In the absence of a profitable or, indeed, any sale of [they refer to the property in this case, Low Newbiggin] or our Canadian properties, we are suggesting the following immediate effect. (1) Bank of Scotland/Lloyds write off any and all monies and interest owed to them under the overdraft loan contract or subsequent agreements. (2) Any reference and derogatory information regarding the above is removed from our credit files. (3) The exception is removed from Bohunt Manor. (4) Confirmation is sent by Lloyds to the Bank of Scotland lawyers that the above has been carried out.On the basis the above is sanctioned, agreed and executed, we will with immediate effect... [We will] (a) continue to manage and develop the property and the Barnes and Canada funds; (b) agree to pay 30 per cent of the profits of the sale of a Canadian business; (c) consider without any obligation an option for us between Lloyds and Bank of Scotland; (d) work with the bank and Government to help repay the outstanding debt.”

34 That was responded to by Mr. Lockyer of the claimants on 19th September, 2013. I will quote from his letter in full: “For info I have broad agreement for a Hands Down Agreement. Am working on details but briefly we’ll release BMB, keep second charge on LNB. [That is, of course, a reference to Bohunt, Manor Barn and Lower Newbiggin the property in this action.] We’d take no further action but would cap receipt funds of [the property of this action] at £250,000 and overall from Canada and the property as indicated at £350,000. Speak Monday.”

35 A letter of 1st October, 2013 without prejudice was sent by Underwoods Solicitors LLP to Mr. and Mrs. Michaels. I am not going to quote from it but I will note that that letter is not identical to the actual letter that became in evidence as far as writing is concerned the Hands Down Agreement. By way of an obvious example, it does not contain any term relating to the death or disability of either of the defendants.

36 On 7th October, 2013 a letter was sent by Underwoods LLP to the Michaels in which they indicated that they will, “Send to you our letter of 3rd October,” namely a separate and different draft. “We would be grateful if you would sign and return it to us evidencing your agreement.” It is apparent that on 7th October Mr. Michaels writes in reply and acknowledges the letters of 1st and 7th

October and he understands and agrees to the terms therein. He thanks them for their assistance.


37 As a matter of record, on 8th October, 2013 Bank of Scotland wrote to both Mr. and Mrs. Michaels in respect of the due debts of £1,335.56 and arrears of £10,000 in respect of the property and they indicated that, if this was not paid, “We will charge you interest in accordance with your mortgage conditions. To avoid further fees and arrears being paid immediately...” It is therefore quite clear at that stage and before this Hands Down Agreement was signed that both the Michaels sometime around 8th October would have known about the position the bank took having regard to the two different charges to which I have referred.

38 On 14th October, 2013 Mr. Michaels informed Mr. Lockyer and his solicitors that they did intend to sign and post “the letter today with copies attached” and he indicated that he could call to discuss the update on the Canadian property sale. He also asked whether they could have the unilateral notice registered against the Bohunt Manor Barn removed.

39 The actual agreement itself is dated 3rd October, 2013 so far as the letter sent by Underwood & Co. is concerned. It shows a signature of both Mr. and Mrs. Michael on 14th October, 2013. In view that this is the key letter and the key pleaded item which in the defence and counterclaim will avoid the effects of possession and give rise to a defence and counterclaim I think it is important I should read it in its full. It provides as follows, being headed, “Without prejudice”:

“We have a proposal from our client to end the current dispute. Our client realises that you have limited funds, particularly now that you, Mrs. Michaels, have recently given birth. The best prospect of payment to our client is through monies realised from the Canadian property.

Our client, though, had the security of Low Newbiggin and full security over Bohunt Manor Barn in Liphook. Our client proposes you will pay the sum of £600,000 which will be in full and final settlement of the amount which you owe to our client in respect of the judgment entered against you. It will include all interests and costs.

Our client will put no deadline for payment to be made. On sale of Low Newbiggin it would be agreed to limit our charge to £250,000 and no more and we would provide a form of release on receipt of that sum. If you can raise funds elsewhere and pay £250,000 to our client, it would then release its charge. If on sale the amount realised after payment of the sum is due to the first chargeholder and costs of sale are less than £250,000, then the bank will not unreasonably withhold its consent to sale.


From the Canadian property our client would expect to receive a minimum of £350,000.

In the meantime, we will take steps to remove the unilateral notice registered at... Bohunt Manor Barn... We should be grateful if you would both confirm in writing that this is agreed. We look forward to hearing from you.

Either the disability or death of either of you would not affect the agreement.”

40 It is apparent that on 15th October there is a signed agreement enclosed sent on notepaper from Low Newbiggin House by the defendants. It is equally apparent that as at 12th November, 2013 Underwood Solicitors write to Mr. and Mrs. Michaels as follows: “We enclose... our letter from the Land Registry in Weymouth showing that our client’s unilateral notice has been cancelled. That then brings the end of the matter. We have from you the signed letter which confirms the basis on which you will pay our client, whether from Low Newbiggin or the Canadian property. In the circumstances we advise there is no need for you to contact either this firm (or indeed the bank) until you have news of a proposal for payments to our client from the two sources.”

41 That is the documentary evidence so far as the court has been provided with. It is quite clear from the face of that agreement which I have quoted in full that the particular term pleaded by the defendants in their defence and counterclaim, namely, “The claimant would not register the judgment or the fixed sum debt in such a way as to adversely affect the defendants’ credit files and would not cause or permit the defendants’ credit file to be adversely affected by the judgment or the fixed sum debt,” is not on the face of the express terms of this letter. It therefore follows should a term of that sort be a term of this settlement, it can only be an oral term agreed between the two parties which is quite clear from the evidence before this court are only Mr. Michaels and Mr. Lockyer. I therefore turn to their evidence as to that matter.

42 Mr. Lockyer in his first statement sets out his evidence on the agreement and, in fairness to him, I think I ought to quote from it fairly and fully and then I will quote from what Mr. Michaels says. He says as follows in paragraphs 17 to 21:

“17. By September 2013 it was clear the bank would not recover the judgment debt from the defendants and, as above, I considered there was no viable means of recovery (or security) from the Canadian property and, in fact, I considered there would be no recovery without some


action by the bank. I considered the position and concluded that there was very little equity in the charged properties. The defendants had no money. I did not see how the bank could make a meaningful recovery through assertive action against the defendants. There was no viable assets in which the claim could attach. I was therefore keen to bring an end to the matter for which I could see no real recovery from the bank as quickly as possible. I therefore considered whether there was any prospect of a settlement which may have the effect of possibly achieving some recovery but at least allow me to close the file.

18. I was at this time receiving telephone calls from Mr. Michaels on a regular basis in a case where I believed the bank would be unlikely to recover its debt. There was also operational reasons underlying my keenness to find an early settlement.

19. In around September 2013 I spoke to the bank’s own solicitor, Underwood LLP, and instructed Underwoods that I wanted to bring the matter to an end and my understanding that full recovery was frankly an impossibility, that any recovery would be a bonus. That instruction became an instruction for Underwoods to put together a form of words by which the judgment debt would be fixed at only £600,000, which was a sum which could conceivably be recovered from the Canadian property and from Low Newbiggin.

20. I settled on a figure of £600,000 because I considered that it was an absolute best result that may come out of this matter and, to be frank, I expected to do worse than this.

21. I do not think there was sufficient value in the property at Low Newbiggin to mean that there would be any recovery if the bank took an action under its second charge and, therefore, I saw no point in taking an action under the second charge.

22. However, I intended the defendants would accept the second charge at Low Newbiggin would remain but would be limited to £250,000, that the defendants would accept an obligation, albeit a moral one (to pay the bank a sum of money for the Canadian property) if it was sold.”

43 Further down, he says these two matters in paragraphs 29 to 31 as follows:

“29. It was to my mind because of the October 2013 agreement was a settlement of the judgment claim in HQ09X04774 (in respect of the overdraft) and therefore it was a settlement in respect of (only) of the overdraft secured over Low Newbiggin by the second charge.


30. I have seen paragraph14 of the defence and counterclaim and in response I can confirm it was not a term (implied or otherwise) of the October 2013 agreement the bank would not seek to recover possession of Low Newbiggin under the first charge. That was never discussed nor considered. It was not in the contemplation of any party.

31. I was aware that there was a first charge on Low Newbiggin. However, my authority was limited to the second charge (itself subject to the judgment which had been compromised by the October 2013 agreement). To the extent that I had any thought for the first charge at all at this time (early October 2013) it was that the first charge would be enforced in the usual way in the event that the defendants did not maintain that account. The onus, therefore, was on the defendants to pay their mortgage.”

44 I have permitted two hours of cross-examination by Mr. Michaels representing himself and his wife of Mr. Lockyer. I found him a very credible witness. He answered all the questions fairly. He attempted in every way to assist or understand what were on occasions quite long questions and I found him to be entirely honest in his answers and his approach to every question. What is clear from his witness statement is that his authority and his knowledge of this case related to only one of those two charges and he had no authority in respect of the other charge. I accept his evidence on that and no cross-examination or any matters or questions asked by these defendants affect my judgment of him in all these respects.

45 I therefore come to what Mr. Michaels himself said about these matters in his witness statement. I read from his witness statement quite fully because it is a document prepared whilst he still had instructing solicitors and, therefore, this court could assume in a sense this is the best case he can put forward on this point. I entirely appreciate that he now represents himself and his wife but this is in terms of preparation of a witness statement pursuant to a court order what you might describe as his case at its highest. He says this and I am going to read from paragraph 30 to 42, so it is all in context because this is his case in his statement:

“30. As a result of my financial difficulties we became involved in an initial piece of litigation with the claimant in 2012.

31. Following proceedings being issued against us by the claimant in relation to the overdraft facility, judgment was entered on 17th January, 2013. At that point Underwoods LLP were acting for the claimant.


32. In July 2013 our daughter, the first child, was born. Ensuing stress levels that were experienced were so severe we became desperate in trying to resolve matters with the claimant in relation to the judgment that had been obtained by us.

33. Until we learned that Charlotte was pregnant in October 2012 we were still working in Canada a great deal trying to sell the shares in the business and ensure the business was operationally functional.

34. However, to try to resolve the then proceedings with the claimant we negotiated at length with Underwoods LLP to achieve a realistic amount that we felt we could pay the claimant. The deal was predicated on a successful sale of our interest in New Brunswick, Canada and/or sale of the property.

35. At the same time we stressed to Underwoods LLP that any agreement that we entered into with the claimant would not in any way impact on our credit rating or otherwise affect our ability to borrow money or raise finance that should recover any derogatory/adverse information registered against us with the credit reference agencies. The claimant rejected the suggestion that they had registered any information. We insisted there was information that could affect our ability to fulfil our agreement or obligation to the claimant which were unacceptable.

36. It was crucial to us because, clearly, that was what we needed to try and alleviate some of our financial concerns and difficulties. We also stressed the need for us to carry on with our efforts to sell the property as a means to paying monies back to them but we needed to know the claimant would not seek to take any of our properties or business interests from us or force a sale of them that would cause us further financial loss and hardship.

37. After detailed discussions we entered into what is called the Hands Down Agreement which was recorded in letters from Underwoods on 3rd

and 14th October, 2013. As part of that agreement, we requested no judgment be entered against us.

38. The terms of the agreement were that subject to available funds we would pay the claimant £600,000 in full and final settlement of the loan agreement and should include the interest and costs. Bank of Scotland entered a judgment for approximately £1.5 million against our will. We questioned why they had done this, querying why they could not pay £300,000. Would the bank further harm our credit rating and financial


status by offing five times the amount? We were given a standard unsatisfactory response, basically saying it was normal, and gave them the opportunity to consider any offer when money became available to us in the future. I questioned why we would register the alleged FULL amount when the bank had ‘marked down the FULL amount of the loan in 2008’?

39. Our offer of £600,000 was double the outstanding amount of an earlier agreement amount sanctioned by the claimant as a full and final settlement. It was understood to be the basis and reason of the open-ended timeframe for payment.

40. Hence there was no deadline for the payment to be made and so it was agreed that on the sale of the property the claimant would agree to limit the charge to £250,000 and no more and would provide a form of release upon receipt of that sum. There was a provision for us to obtain similar relief if we could obtain funds from elsewhere and pay £250,000. It was also agreed that if on the sale of the property the amount realised after payment of the sum due under the mortgage and the costs of the sale was less than £250,000, then the claimant would not unreasonably withhold its consent to sale.

41. At that time it was hoped we were able to fund payment of the balance of the £600,000 from our existing Canadian investment. That has not been possible and it now seems the value of our investment has been lost (because the Bank of Canada has sold the property that we owned there for a tenth of its confirmed market value). As part of the agreement [which means the Hands Down Agreement] the claimant also agreed to remove the unilateral charge registered on 15th June, 2009 over one of our other properties Bohunt Manor... which then enabled us to remortgage and finish the development of our future home and that would also increase the ceiling of the LTV ratio, allowing the bank to revalue our risk.

42. As part of the Hands Down Agreement it was understood by Underwoods LLP and so the claimant the claimant would not use any other right under the mortgage or otherwise in order to recover possession of the property or sell the same for as long as we could continue diligently seeking to sell the property. This does not appear expressly in the letters that referred to the agreement. The bank justified the lack of detail by stating that the agreement was simply a ‘broad-brush’ summary of the deal. We did not have solicitors acting for us and clearly should have dealt with this more carefully. I do not recall Underwoods LLP specifically advising us at the time to seek


independent legal advice in relation to the terms of the letter. They did say that they could not advise any recourse against Savills Private Finance as they acted for them.

43. Again, as I have said above, it was also agreed as part of the agreement that the claimant would not register the judgment or the agreement in relation to £600,000 or any other agreement under the banner of Lloyds Bank of Scotland, including Halifax Bank of Scotland or TMB, so as to adversely affect our credit files and would not cause or permit our credit files being adversely affected by the judgment or other Hands Down Agreement in relation to £600,000. This does not appear expressly in the letters that refer to the agreement. Again, we did not have solicitors acting for us and clearly should have dealt with the matter more carefully. Again, I do not recall Underwoods LLP specifically advising us at the time to seek independent legal advice in relation to the terms of the letters.

44. Notwithstanding the express terms of the written agreement but also the (inaudible) agreement as above, the claimant caused or permitted the judgment be registered against our credit file, such that our credit rating was then adversely affected...”

46 What one sees from that witness statement is that it is fairly described so far as this court is concerned as a description of what took place and much of it appears to this court to be what might be described as a subjective understanding of the motives of Mr. Michaels. What it does not say in terms so far as this court reads this witness statement is that there was on a certain day at a certain time a conversation in terms between Mr. Lockyer and himself in which the particular express term was orally agreed that I have quoted above. Nor does it suggest, and it is not, I believe, the case, that it was agreed with Underwoods.

47 Secondly, it is equally clear from his evidence that the approach given by these defendants in this witness statement has a number of facts which are confused in terms of their date order and maybe whilst that is understandable, it is therefore less reliable. By way of obvious example it indicates that litigation started in 2012. I have set out the background and that is plainly incorrect. It also indicates that the question as to the need for the agreement to not register the judgment gives the impression to this court that that happened as a result of the Hands Down Agreement. I have referred to the undisputed facts above. That is plainly not the case. It therefore follows I have found the witness statement less reliable and, indeed, unreliable in many regards and unsatisfactory.


48 In terms of the evidence when he was cross-examined I have to say that on many matters Mr. Michaels did his best to answer questions and was straightforward. It does not therefore follow that what he told the court was an accurate statement of fact. On many occasions in my note of his evidence it was apparent to me that he was doing his best to remember matters. The date order was wrong, the sequence was wrong and, therefore, he was doing his best to recall how he wished, in a sense, to put or argue his case. In that regard in terms of his reliability I found him a less reliable witness than Mr. Lockyer and certainly as regards to the Hands Down Agreement on all matters I prefer the evidence of Mr. Lockyer to that of Mr. Michaels and accept that Mr. Lockyer’s account was correct.

49 Starting first of all with the express terms, it is quite clear to this court that that document provided by a firm of solicitors to the Michaels in its iterative form, that of 1st October and then it is changed to 3rd October, contained two minor amendments which show the effect of negotiations between the parties. The final form is, however, firm in its terms. If, in fact, there was a term said to be expressed orally as between Mr. Michaels and Mr. Lockyer, then I would have naturally expected that to be in this agreement because it is now an important term. Indeed, it is a critical term not just to the defence of these defendants to the possession action but it is the springboard for their defence and counterclaim of which they claim damages to be assessed. If that term was of that importance, then in my judgment I would have expected that to appear in this document.

50 In terms of the wider evidence, I have reviewed with counsel for the claimant’s assistance whether in fact these matters are raised around that time at all. The reality is that even after this agreement and until the defence and counterclaim were settled by counsel as opposed to the first version of these defendants these matters simply were not raised. In my judgment this express term was not discussed between Mr. Lockyer and Mr. Michaels. Mr. Lockyer made it perfectly plain it was not part of his job. He had no authority to make any such agreement. He was a conscientious, serious man and I am quite satisfied he would understand his authority and would not have had a discussion of that sort with Mr. Michaels. It therefore follows any attempt to include an oral term outside this agreement is rejected fundamentally by this court.

51 I ought to briefly indicate that in their closing submissions the defendants have cited a series of authorities. Mr. Michaels indicated to me that they had legal assistance. It is on a separate printed paper entitled, “Law on Express Terms.” It relied upon Investors Compensation Scheme Ltd. v West Bromwich Building Society [1997] UKHL 28 and Chartbrook Ltd v Persimmon Homes Ltd. [2009] UKHL 38. However, the most recent authority that is now usually cited is Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 as confirmed in Arnold v


Britton [2013] AC 1619. Contracts of compromise are dealt with in the same way as contracts generally. That is apparent from BCCI v Ali [2002] 1 AC 251.

52 This is a carefully worded compromise agreement settled on Mr. Lockyer’s instructions by Underhills (solicitors) which was provided to the Michaels and after minor amendments was accepted as an agreement containing all the agreed terms. Any further express terms more recently relied upon by the Michaels were as a fact simply not agreed and they did not appear in the Hands Down Agreement which was a complete and accurate record of all matters agreed upon and which having considered it, the Michaels signed as an accurate record.

53 Coming thus to the implied term, I record that the defendants’ closing also referred to the usual cases on implied terms which I accept it may be helpful if I provide some details of my approach. Implied terms are now subject to some clarification in the recent decision in Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742. Having approved in paragraph 18 the Privy Council decision of Lord Simon in BP Refinery v Shire of Hastings [1977] UKPC 13 which was relied on by the defendants in their closing note and I do not need to set out such well-known proposition here, Lord Neuberger said this at paragraph 21: “In my judgment, the judicial observations so far considered represent a clear, consistent and principled approach. It could be dangerous to reformulate the principles, but I would add six comments on the summary given by Lord Simon in BP Refiner supra as extended by Sir Thomas Bingham in Philips supra... First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 27, although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be


satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts 5th ed (2011), para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

54 I remind myself that as a matter of business efficacy the implied term is: “… that the defendant would not use any collateral right which it might have acquired (under the mortgage or otherwise) in order to recover possession of the property and/or independently to sell the same for so long as the defendants continued diligently to seek the sale of the same.”

55 In their written closing the defendants rely on the implied term that the claimants “would not bring possession proceedings” and by reference to Mr. Lockyer’s email of 19th September, 2013 appear to assert for the first time that this is an express term. If this is an attempt to convert an implied term of business efficacy into an express term I reject this very late and new case. As a matter of record Mr. Lockyer’s email of 19th September, 2013 expressly states the contrary viz “keep 2nd charge on LNB”. I am quite satisfied that there was no such express term that was in fact agreed between the parties which either as literally pleaded or more loosely described in the defendants’ closing was agreed between the parties but not expressed in the Hands Down Agreement

56 In their written opening the claimants relied on four basic arguments as to an implied term: (1) it would rob the commercial reality of the compromise; (2) it is not “necessary” for such a term to be implied to make the compromise effective; (3) a distinction is drawn between the first and second charge; and (4) it contracts the express terms of the compromise. These arguments were expanded upon in the claimant’s oral closing submissions.

57 It would be most surprising if when the parties agreed compromise terms on one charge, by implication the parties would agree terms on the second charge which formed no part of the Hands Down Agreement: quite the reverse to the extent that the other charge was at all discussed prior to the compromise the position of the claimant was that the second charge on Lower Newbiggin would be kept. It really makes no commercial sense that this compromise would impliedly cover a quite separate contractual arrangement which as a matter of fact Mr. Lockyer was not authorised to settle and it was not necessary


for this term to be imposed to make the compromise binding within its own express terms. To the extent necessary it is also doubtful that this term could be implied because the effect is to place a condition on the claimant’s right to enforce the other charge and this would be contradictory to the express terms: That is a central principle to all implied terms reiterated as a “cardinal rule” in Marks and Spencer v Paribas (supra) at paragraph 28 and followed since in more recent cases.

Administration of Justice Act 1970 (Issue 7)

58 Again, the law on this is well-known and for the record the standard textbook, the “Law of Real Property” supra, is dealt with in some detail by those learned authors. Paragraph 25-031 says this: “In determining what amounts to a “reasonable period” under both the 1970 and 1973 Acts, the Court will take into account the interests of both mortgagor and mortgagee. The starting point will normally be the full terms of the mortgage and the Court will consider the mortgagor’s ability to pay off all the arrears over that time. However, a shorter period is likely to be imposed where the mortgagor cannot discharge the arrears by periodical payments but only by a sale of the property…”

59 Fisher and Lightwood’s “Law of Mortgage” 14th Ed. (2014) provides a further explanation of a “reasonable time” from paragraph 29.44 and at paragraph 29.46 under the heading “Postponing possession pending completion of sale by mortgagee”. It provides: “The Court may postpone possession so as to allow the mortgagor to remain in occupation pending completion of the sale by the mortgagee if the Court is satisfied that: (a) possession would not be required by the mortgagee pending completion of the sale, but only by the purchaser on completion; (b) the presence of the mortgagor pending completion would enhance, or at least not depress, the purchase price; and (c) the mortgagor would co-operate in effecting the sale. In practice, it is seldom likely those conditions will be satisfied and the jurisdiction should be used sparingly and with great caution; it is unlikely to be appropriate to take that course if the mortgagee does not consent,” citing Cheltenham & Gloucester Building Society v Booker [1996] 73 P&CR 412 (which is the same case relied on in Megarry and Wade above).

60 In order to update that and, again, it is authority not cited in those textbooks and the most recent authority I am aware of, I return to the decision of Mummery LJ as he then was in the Zinda case. In Bank of Scotland v Zinda supra the Court of Appeal continued when reviewing what was described as the legal context of that case to review the workings of s.36 of the Administration of Justice Act 1970 and, again, because the defendants are


acting in person, I am going to read from that section so the law that binds me is clear to them as it has always been clear to this court. Paragraph 20:

“It was in these circumstances that the legislature intervened with the enactment of section 36 of the Administration of Justice Act 1970. So far as is material, section 36 is in the following terms:

‘(1) Where the mortgagee under a mortgage of land which consists of or includes a dwelling house brings an action in which he claims possession of the mortgaged property, not being an action for foreclosure in which a claim for possession of the mortgaged property is also made, the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage...

21. The effect of the words ‘pay any sums due under the mortgage’ in subsection (1), was that in order to satisfy the requirements for obtaining statutory relief the mortgagor had to be able to show that he was likely to be able to pay within the reasonable period referred to not only the arrears of instalments but also the principal sum due under the mortgage: Halifax Building Society v Clark [1973] Ch 307.

22. Following that decision there was further legislative intervention with the enactment of section 8 of the Administration of Justice Act 1973...

23. Now as Mr Grant correctly submitted, the effect of these provisions is two-fold. First, there is the jurisdictional gateway created by the requirement on the mortgagor to demonstrate that he is (section 36(1)) ‘likely to be able within a reasonable period to pay’ both (section 8(1)) the ‘amounts [he] would have expected to be required to pay if there had been no... provision for earlier payment’ – in other words, the arrears of the instalments due to date – and (section 8(2)) the ‘further amounts that he would have expected to be required to pay by then’ – in other words, the future instalments accruing during the reasonable period. The power of suspension exercisable by the court under section 36 is conditional on its appearing to the court that in the event of the exercise of the power the mortgagor is likely to be able to pay the sums in question within a reasonable period. Absent such proof, the court has no jurisdiction to stay or suspend the order for possession: Royal Trust Co of Canada v Markham [1975] 1 WLR 1416, 1422B, 1423B, 1424E.


24. Second, and assuming that the mortgagor surmounts the jurisdictional hurdle, the court is given a wide discretion under sections 36(2) and (3)...

25. Mr Grant understandably placed much emphasis upon this last point. And in my judgment he was right to do so. Whereas the existence of the court’s jurisdiction is focused upon an examination of what is likely to happen before the end of the reasonable period referred to in section 36(1), the exercise of the jurisdiction, once established, is not so limited...”

61 That is a summary of the law and it indicates that there are what might be called gateways to my jurisdiction to permit the exercise for the benefit of these defendants of s.36(1) of the Administration of Justice Act 1970. It is clear from that case and it is trite law for very many years now that if this court is to exercise that jurisdiction it must have the necessary evidence. The evidence is there for the benefit of these defendants and, therefore, I now need to consider whether I have a jurisdiction to apply that Act.

62 The three pleaded matters raised, and I have quoted them already above are: firstly, the question of sale of the property itself; secondly, the question of Dove House; and, thirdly, the question of the Canada business. I therefore see, and again being entirely fair to these defendants as they had a witness statement when they were instructed by solicitors, what it is they put in their witness statement to achieve this result of the application of this Act. In fairness to them I read fully from what I have found to be the material paragraphs. 70 to 74:

“70. Unfortunately, at the same time as we had the most recent difficulty with the claimant we have also encountered severe difficulty with our investment in Canada. As above, although we have registered a claim against the Royal Bank of Canada and others, at this stage we have no firm expectation of realising any further monies from Canada (to provide any return on that money).

71. The claimant was well aware that these monies were being invested in Canada because they were sent by the claimant to the Bank of Canada. The problem that we encountered in Canada may well be related to the global recession and if so we have suffered more perhaps than most as a result of recession and downturn. If the claimant was to take a longer term view in line with the shareholders and deposit policies and marketing, then our property portfolio should, given an even playing field, offer the claimant enough of a ceiling for further funding support.


72. We strongly believe that we have the best place to ensure the property is properly marketed and sold on the basis that we have knowledge of the property and its surroundings and can therefore assist in marketing with a view to the like.

73. Of course, it may well be that the optimum time for selling the property will not be until perhaps New Year in 2015 but, irrespective, we are committed to maintaining the property in the interim to ensure that our interested parties do start the process of purchasing the property and it is ready in its best condition possible to ensure a speedy sale at an excellent price. Savills are indicated the optimum time for a sale would be the three years which fit with the anticipated exit of the ten-year recession. This fits with the Bank of England’s opinion and physical planning strategy, European banks, US and Canadian banking policies and belief.

74. In the meantime, we are also hopeful of being able to make payments either from sale of Dove House Drive property in Henlow, Beds. (to use as a base from which to commute to and from London business from Monday to Thursday) or from the sale of the Canadian property portfolio. As an interim measure of ‘goodwill’ and in ‘good faith’ we would offer the claimant the sum of £475 per month towards ongoing mortgage liability and arrears as set out in our solicitor’s email of 15th October, 2014.”

63 Further evidence was provided in paragraph 96 and 97 of Mr. Michaels’ witness statement.

“96. For the reasons set out above and in particular as a result of the advice received from Winkworth’s and also given the terms of the agreement and our defence and counterclaim in that regard we would ask the court to refuse, stay or postpone execution of any possession order the claimant continues to seek until at least the end of summer 2015 to allow a sale to be concluded insofar as one is not concluded in March and April 2015 (which, of course, is what we would hope for to be the case given the advice from Winkworth’s).

97. I can now confirm that our property known as Dove House has now been sold (with the sale being completed). Clearly, this will help our financial position. As a result and as a gesture of goodwill we will shortly be making an interim payment to the claimant which will go towards the mortgage. Subject to cash flow, we intend to make every effort to make our monthly payments. Our concern is that any payment made may be in vain and not achieve anything, although hopefully it will


be not the case. It would be much easier if the claimants would agree to stay so that we can concentrate on securing our personal and financial position and not having to defend these proceedings.”

64 That was what was said when that statement was settled by both defendants on 14th November, 2014. We are now in 2017 and the court has therefore reviewed such evidence as it has as to the promises that are there made by the Michaels and also the background so far as the documents are available to this court. There are a series of documents to which consideration can be given and many of them are, in truth, of an historic nature and simply evidence the fact that the defendants have been using agents to advertise the property: an example is set out in the introduction to this judgment.

65 Starting with Canada, when I asked Mr. Michaels under oath whether that could create anything from his Canada assets, his answer was “No.” I accept his admission. All the evidence I have seen makes it not just improbable but so highly unlikely that that will happen and this court can wholly dismiss that as a possibility. At the time of the Hands Down Agreement it was the best chance, according to the claimant, to get return and that now is nugatory.

66 So far as the Dove House property is concerned outside London, when asked about that at 4.55 p.m., being cross-examined by reference to that, Mr. Michaels indicated that that money had gone to repaying borrowings from his wife’s parents and they had also used running expenses. As he explained in the defence and counterclaim that was running expenses within the property itself. Again, the promise made in his witness statement as to sale, and I have gone back to look at the mortgage on that property which I have set out, has resulted in no possibility whatsoever in the future of using that property to pay back these claimants. That has come and gone and, therefore, none of that money is available to these claimants and I can dismiss that entirely.

67 In their written closing the Defendants submitted that they “disagreed wholeheartedly” with the Claimants’ case that they broke their promise to pay the Claimants out of the sale proceeds of Dove House Henlow because they used the “main tranche” of the monies to pay the running costs of Low Newbiggin. I find this a most curious argument. It is not for the Defendants to decide how to spend their debt to the Claimant (absent agreement); the concept that the Claimant benefited from “indirect payment” is misguided. On the Defendants’ own case they have spent the proceeds of sale on the running costs of their home instead of repaying the ever growing debts of the Claimants in breach of their pleaded promise of payment from those proceeds.

68 The only question, if at all there be a question over the matter as to my jurisdiction to consider these, is the property itself. As far as that is concerned,


I have reviewed not just the financial status of these defendants which I have already set out but the evidence such as it is as to the property itself. The position was, and this was part of the original defence of these defendants, that they were receiving from those cottages which I have described between the years August 2013 and July 2014 an average monthly income of £1,855. Evidence was given as to the amounts of lettings of those properties which I have noted and also as part of their closing I have looked at that evidence and it is clear to me that the basic source of income of these defendants is these properties and, therefore, in the event that possession is granted, that income necessarily is going to cease and, therefore, the ability of actually creating income of that sort in the future in this court’s judgment is illusory.

69 In their written closing the Defendants indicated that the house itself has “only a few bookings in” and similarly only a “handful” of cottage bookings (c. £1,500 month worth) and in the present year only six confirmed bookings. Thus as the Defendants admit the “income is very little and is used to keep the property dry and warm and … maintain and insure the property.” Accordingly, there can be no confidence placed on the letting past or future to give any realistic prospect of the Defendants having any real basis to fund their increasing debts to the Claimant.

70 The Court is not satisfied that the presence of the Defendants in the property pending completion would enhance the purchase price or at least not depress it. Endless attempts so far of the Defendants to sell the estate have proved unsuccessful and matters cannot be helped by the house and cottages being rented out. The Claimants have understandably drawn a line on this and now seek possession in order that they can sell with vacant possession. In their written skeleton closing the Defendants do approve the Claimant taking responsibility for sale provided amongst other matters the Defendants can have a “reasonable time” to find alternative accommodation and appear to want to impose a condition onto the minimum value that the Claimant is permitted to accept for the sale of the estate being “not less than … £1.1 million.” I am not aware of any contractual or legal basis on which the Defendants can make such a demand: none is suggested by the Defendants. A reasonable time allowed to the Defendants to give vacant possession can be dealt with in any order that this Court makes and the parties can make submissions accordingly before I draw up any order.

71 The only argument raised in the Defendant’s written submissions when dealing with this Act was that they were entitles to a reasonable time in the period of the mortgage and that was the starting point for my consideration. However, the reality of this case is that on Mr. Michaels’ own admission when asked by me what the value was in Lower Newbiggin he openly conceded that the present day figure was £1.4 million. As at the date of this trial evaluation of


the evidence before me having regard to: the sums due in the Hands Down Agreement of £250,100 which remains a binding obligation on the defendants to the claimant; the unchallenged evidence of debt set out in the claimant’s schedule referred to at the start of this judgment; the larger present day sum provided by counsel for the claimant of £1,261,074.18 now due, it is probable that there is no equity in the property which the defendants could raise to make payment to the claimant of the sums due. To give yet more time to the claimants, in particular the period of the mortgage for payment is totally unrealistic. I have no real basis on the evidence to be satisfied that (a) possession is not required by the claimant (b) that the defendants’ presence would enhance the purchase price: thus far, despite very many estate agents’ ongoing involvement, no sale has been achieved and I simply do not accept that these defendants are interested in allowing possession as their case is that this is their home and they do not wish to leave it or (c) that the claimants are willing to cooperate with a sale by the defendants. The claimants have been waiting a long time to realise this asset in order to cover their debts and it is quite understandable that they should now themselves attempt to achieve that end. There is nothing I have seen in this case to induce me to treat the case as an exception: quite the opposite. It is simply not likely that these defendants will be able to pay the sums in question within a reasonable time or really at all.

72 It therefore follows that I in my judgment do not have the basic ability to apply the provisions of s.36(1) of the Administration of Justice Act 1970 because these defendants have been quite unable to provide any evidence or convince this court that within a reasonable time they have the ability to pay those sums that I have discussed. Not only that, in this court’s judgment I am quite satisfied that that ability has not existed for some very considerable period of time and the promises or assertions made in the defendants’ witness statements in 2014 have simply not come to fruition, nor in truth, do I consider, will they ever. It therefore follows that in respect of issue 7 I find that I do not have jurisdiction to open the door to exercise my discretion and, therefore, I cannot give relief under that statutory provision.

Defence and Counterclaim (Issues 5 and 6)

73 I promised to briefly deal with the defence and counterclaim and that covers, therefore, the issues on the breach of contract based on the Hands Down Agreement. I am quite satisfied that there are no terms in that agreement be they an expressed term or implied term which gives a springboard to any claim by these defendants which defends this action or gives rise to a counterclaim. It therefore follows I do not need to go into details of the case in that regard. I am grateful for the detailed and helpful submissions of counsel for the claimants in each of those matters and would it be that I had not decided that


the term is inapplicable and therefore no defence and counterclaim arises whatsoever, I would and could have gone into that evidence. In summary, I have formed the view, having reviewed each of those matters as if they were terms of that contract that the defendants would have been unsuccessful. At present, in view of the time, I do not go into that evidence and, indeed, there is no need to because I have formed firm views as to the genesis of any defence or counterclaim based on the Hands Down Agreement. That is the sole basis on which with a parallel duty in tort they bring and it is bound to fail in limine.

My conclusions

74 The relief sought in the particulars of claim and the agreed issues so far as material are twofold. Firstly, since 12 March, 2014 these claimants have sought possession of the premises. Those premises are, of course, Low Newbiggin House, Aislaby, Whitby. Secondly, they have sought payment of the total amount outstanding under the mortgage. I therefore grant the claimant’s possession of Low Newbiggin House, Aislaby, Whitby, YO21 1TQ title number NYK256562. Secondly, I am going to grant the claimant the outstanding monies under the mortgage. As far as those figures are concerned, I am going to invite the claimant to make the summation of those monies which he has made clear to me and I have set out in this judgment and provide that to these defendants so, as a matter of mathematics, they can agree the figure and that is the sum for which they will get judgment. I refuse to exercise the power given by section 38(1) of the Administration of Justice Act 1970 as the jurisdiction does not arise on the facts of this case.

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