Royal
Courts of Justice
Strand
London, WC2
Wednesday, 22nd October 2003
B E F O R E:
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P Marshall
QC and S Hattan (instructed by Messrs Stevens & Bolton) appeared on behalf
of the applicant
The Respondent did not appear and was not represented
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1. I will ask Sir Martin Nourse to give the first judgment.
2. When this renewed application was first considered by my Lord, Lord Justice Longmore, on the documents, he put aside all procedural objections without examining how forceful they might have been and considered the claim which the defendant now wishes to make on its merits. In approaching the matter in the same way, I too have come to the conclusion that the claim is not sufficiently meritorious to justify the grant of permission to appeal.
3. The defendant claims that both parties erroneously thought that the shares and loan notes could be validly charged by him as security for the overdraft facilities granted to him by the bank. I will certainly assume at this stage that the common mistake could be established. But where does it lead?
4. Mr Marshall submits that the whole transaction was void, including the defendant's obligation to repay the loans, notwithstanding that he has had the benefit of them. He has referred us to the decision of Scott J in Re Cleveland Trust Plc [1991] BCLC 424, where it was held that, owing to a common mistake, the common law principle of mistake was applicable to a bonus issue in the same way as to an ordinary contract. He relies in particular on a passage in the judge's judgment at page 435:
The 'subject matter' of the contract, for present purposes, was the issue of the bonus shares. It was fundamental to the issue that the dividend deriving from McInnes's capital profit could be used in paying up the bonus shares. The true state of affairs, in which the capital profit could not be so used and the Gunnergate dividend was repayable, did, in my judgment, 'render essentially and radically different the subject matter which the parties believed to exist'.
5. That was a case of a single transaction with, for material purposes, one element in it. This transaction was a single transaction, but it had two quite separate elements in it. It was the simple case of a secured loan, comparable with any other mortgage, whether of land, or shares, or a ship or anything else. The security agreement is, as a matter of substance, different from the contractual obligation to repay monies which have been advanced under the loan agreement. It is axiomatic that the mortgagee's right to sue on the personal covenant is distinct from any right that he has in respect of the security. Again I am prepared to assume that the effect of the common mistake was to render the security arrangement void. But I cannot see, either on the authority of Re Cleveland Trust Plc or of Associated Japanese Bank (International) Ltd v. Credit du Nord SA [1989] 1 WLR 255 (a decision of Steyn J), how the common mistake can have any effect on the contractual obligation to repay. The defendant has had the money. He agreed to repay it, and the common mistake which was made did not affect his obligation under that part of the agreement. It seemed to me, if I may say so, that Mr Marshall's argument was at times reverting to an argument based on estoppel; in other words, that there was some representation or agreement, or the like, that the security should be treated (in his words) as the first port of call. Any argument based on estoppel has now been dropped. I can well understand why that is so, because there seems to be no evidence to support the necessary representation or agreement. But whether that be right or wrong does not matter. The claim as put in mistake cannot, in my opinion, affect the defendant's obligation to repay.
6. Suppose, however, that Mr Marshall was right on that point. He then accepts, quite rightly, that the result of the whole transaction having been void would be that the bank would have an action for restitution against the defendant. Then Mr Marshall says the defendant would have a defence of change of position. For that purpose he relies on the well-known statement of the law by Lord Goff of Chieveley in Lipkin Gorman v. Karpnale Ltd [1991] 2 AC 548, at pages 579 to 580. On page 579 Lord Goff says:
In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution.
So that makes it clear that the first thing that the innocent defendant must establish is that he will suffer an injustice if called upon to repay.
7. For my part, I cannot think that the defendant would suffer an injustice within that principle in this case. It is perfectly true that he has expended sums advanced in a manner which would make it either very difficult, perhaps in some cases where he has given the money away impossible, to make repayment. But he has had the benefit of all the monies which have been advanced to him. If he has chosen to give them away, that is his decision. I cannot see that it would mean that he would suffer an injustice if he had to repay them.
8. There is a further material passage in Lord Goff's speech at page 580, where he says:
At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things.
That makes it clear that a change of position defence is an equitable one. It is subject to the equities of the particular case. Again, I, for my part, cannot understand how it could be said that it would be inequitable to make the defendant repay the money in this case, where the bank has been just as innocent as he has in the matter. I emphasise that the defendant has had the benefit of this money, and I do not conceive that there is any equitable principle on which he could not be required to repay.
9. For these reasons, I would refuse this application.
10. I agree. On this renewed application Mr Marshall has submitted that it was an essential term of the loan agreement that security be provided and that that security was to be the first port of call, as he put it. It is not, in my view, remotely arguable that the loan agreement itself can be void merely because the security is void and is thus unavailable to the bank. This transaction is no different from hundreds of other facilities given by banks every day. No doubt security is important, both to the bank and to the borrower, but if for any reason it is unavailable to meet the indebtedness, the obligation to repay must remain.
11. Even if Mr Marshall can in some miraculous way get rid of the original contract by submitting it is void, nevertheless the defence which Mr Austin wishes to run is still subject to all the difficulties to which Sir Martin has adverted, and I therefore agree that this application must be dismissed.
ORDER: Application for permission to appeal refused.