[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Lloyds Bank Plc v Ellicott [2002] EWCA Civ 1333 (8 February 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1333.html Cite as: [2003] BPIR 632, [2002] EWCA Civ 1333

[New search] [Printable RTF version] [Help]

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SOUTHAMPTON COUNTY COURT
(His Honour Judge Anthony Thompson QC)

		Royal Courts of Justice Strand London WC2 Friday, 8th February 2002

1. LORD JUSTICE WARD: The appellant, Mrs Nicola Ellicott, is the former wife of the respondent, Richard Ellicott. Over the past decade they have been locked in litigation following the breakdown of their marriage and the institution of divorce proceeding by Mrs Ellicott in 1992. There is, however, an interesting little twist in the current struggle which brings them to this court. This is an appeal, brought with permission we granted earlier this morning, to appeal against the order of His Honour Judge Thompson QC, sitting in the Southampton County Court on 28th August 2001, when he dismissed Mrs Ellicott's Part 20 claim against Mr Ellicott that he indemnify her against or otherwise contribute towards a claim brought against her by Lloyds TSB Bank Plc.
2. The facts which give rise to the dispute can be fairly shortly stated. In 1988 Mr Ellicott was a director and a shareholder in an engineering company and he needed to finance a management buy-out of the shares held by others, including, in particular, shares held by Mrs Ellicott's stepfather. To raise the necessary finance he went to the National Westminster Bank, who were prepared to offer him a business loan, but it had to be in the joint names of himself and Mrs Ellicott. That borrowing was shortly thereafter re-arranged with Lloyds Bank and the parties signed a joint business loan agreement with Lloyds Bank on 1st November 1988. They also arranged an overdraft facility on their joint current account, which was operated for their mutual benefit.
3. By 1992, as I have indicated, the marriage appears to have broken down and divorce proceedings commenced. I think a decree absolute was pronounced at some time in 1994. There are three children of the family. The two adult girls no longer live with their mother but visit frequently, and certainly the younger girl regards her mother's home as very much still her home, wherever else she may be living. I think the boy is still at school and he lives with his father, who has recently remarried. His new wife has children of her own.
4. The ancillary relief proceedings which followed seem to have carried on over a number of days and an order was made dealing with the various claims. The order was expressed, perhaps curiously, to be "before District Judge Lowe sitting on 14th, 15th, 16th and 17th March 1994 and confirmed by District Judge Wood on 24th June 1994". It is important to note that the order was made by consent. I can summarise the effect of that order. It was that the former matrimonial home would be sold and the wife would receive a lump sum equal to 5 per cent of the purchase price of a much smaller property she was going to purchase with the benefit of a mortgage which the husband was to guarantee. It was also provided (incidentally, in the events which had happened) that he would sell 50 per cent of the shareholding in the engineering company for which the borrowing had been arranged and pay that by way of additional lump sum to the wife. In fact, that provided no benefit for her because that company was put into liquidation shortly before he was obliged under the order to sell his shares. There were orders for periodical payments to the wife and children.
5. The important terms of the order for present purposes are contained in the several undertakings which were given by the husband, particularly his seventh undertaking, which was in these terms:

"To assume full responsibility for, and to make, the repayments in respect of the Lloyds Bank loans [the business loan and the overdraft] and to indemnify the Petitioner [the wife] in respect of the [business loan]."

6. That was varied on 28th July 1994 by an order made by District Judge Lowe, which recorded that that undertaking:

"Shall be interpreted to include any loans needed for the buying, replacing referred to in the original order."

7. I confess to being as baffled as Judge Thompson was as to the exact effect of that provision, but it does not matter for present purposes. I also agree with the judge, as he said in his judgment: "I think the upshot of all that really comes to this, that the previous undertakings in relation to the loans by the bank were accepted by Mr Ellicott as being still binding upon him."
8. The original order also contained a term which Judge Thompson regarded as significant. It came right at the end of the order and it provided:

"Both parties to have liberty to apply with regard to implementation and enforcement of the above terms, in the first instance such applications to be made to District Judge Lowe."

9. Sadly, Mr Ellicott's fortunes appear not to have prospered. On about 12th May 1999, in proceedings in the Bournemouth County Court, he made proposals for an individual voluntary arrangement under Part VIII of the Insolvency Act 1986, he then being in the unhappy position that he was unable to pay his debts as they fell due, his assets being exceeded by his liabilities. At the creditors meeting which was summoned Lloyds Bank objected to the voluntary arrangement, but they were outvoted by other creditors, in particular a creditor for rent unpaid on the commercial premises occupied by a successor company to the engineering business. The unsecured claims amounted to over £216,000. The Inland Revenue appeared to lay claim to another £8,000-odd. The hopes of a substantial dividend were very slight indeed; at best I think it might have been 15 pence in the pound, and it got worse as time went on.
10. What is important to note, however, is that - not surprisingly, of course - Mrs Ellicott was not named as a creditor. At the time she had no claim against her former husband and she therefore had no notice of this voluntary arrangement. Although we were told this afternoon that the bank had in fact introduced Mr Ellicott to the insolvency practitioner who set up this arrangement, the bank, whose chances of getting the money from Mr Ellicott were rapidly disappearing, chose to bring separate proceedings against Mrs Ellicott, claiming against her the monies due on the two accounts, £16,000-odd on each account.
11. At a case management conference on 19th April 2000, some four months after the proceedings commenced, Mrs Ellicott was required to inform the court by 12th May whether or not a Part 20 claim was being made against Mr Ellicott to claim an indemnity and/or to show cause why he should not be added as a party to the action. On 23rd May 2000 District Judge Dancey ordered that, if Mrs Ellicott intended to seek permission to issue a Part 20 claim against Mr Ellicott, she should do so by 16th June 2000. That she did. She issued an application dated 16th June, which has been placed before us today, in which she gave notice that she intended to apply for an order that permission be given to bring Part 20 proceedings against Mr Ellicott because, as a result of ancillary relief proceedings concluded on 24th June 1994, Mr Ellicott became solely liable for this debt and is in breach of contract by failing to repay the same.
12. At case management conferences (what happened at which is not clear from the papers before us) it seems that the bank applied for summary judgment against Mrs Ellicott and directions were given for that to be heard together with the application for permission to bring a Part 20 claim.
13. Both those applications came before District Judge Edwards on 23rd August 2000. He dealt with the matter and came to the conclusion certainly that Mrs Ellicott's defences of undue influence were unsustainable against the bank. The district judge therefore entered summary judgment for the bank for some £34,700-odd. The order reads to the effect that there be judgment in that sum. Provision was made for the payment of costs. There was a stay of execution on enforcing any charging order to be obtained on Mrs Ellicott's home until 1st December 2000, with liberty to Mrs Ellicott to seek a further extension. Nothing was said in that order about whether or not the district judge had granted permission to Mrs Ellicott to proceed with her Part 20 claim. We shall have to look more closely at what happened and see, from the transcript now available, what actually transpired.
14. As a footnote to those proceedings - though a footnote of monumental importance to Mrs Ellicott - the bank have pursued their claim against her. They have charging orders absolute. Indeed, there is an order in our papers showing that the bank now have an order for sale. They have an order that possession be given on 30th September 2001. The order drawn by the Bournemouth County Court (which is not exactly clear, and that hardly surprises me) recites that it is:

"UPON the Defendant reserving her right to apply for the extension of the period of suspension in paragraph 2 below if she believes that there is a prospect that the debt can be otherwise paid

AND UPON it being agreed between the Claimant and the Defendant

AND UPON the Court taking note it is hereby declared that nothing in this Order shall affect the continuance of the Defendant Part 20 claim against Richard Ellicott

IT IS ORDERED THAT ..."

15. Frankly, much of that is gobbledegook, but, as I say, this case leads me to suspect that that may occasionally occur in the Bournemouth County Court.
16. So whether or not permission had actually been given for the Part 20 proceedings, the Part 20 claim was actually issued out of the Bournemouth County Court on 8th September. In that claim Mrs Ellicott sought to be indemnified against the bank's claim and the costs of the action or for a contribution to it on the grounds that in the ancillary relief proceedings the undertaking had been given as I have recited. She went on to aver that Mr Ellicott became contractually bound as between them to repay the loans and is in breach of the contract by failing to repay the same. Alternatively, she sought to be indemnified in respect of the business loan account. She asserted in paragraph 5, quite plainly and expressly, that:

"Leave was granted to the Part 20 Claimant to join the Part 20 Defendant by District Judge Edwards on the 23rd August 2000."

17. Mr Ellicott put in a defence to that claim on 2nd November 2000. He alleged, among other things, that:

"(4)The Claimant bank is bound by the individual voluntary arrangement and in the premises the Part 30 Defendant [himself], ... has and continues to discharge all his liabilities to the Claimant bank.

(5)In the premises it is denied that the Part 20 Defendant is in breach of the undertaking given to the Court on 24th June 1994.

(6)It is further denied that the undertaking gave rise to a contractual relationship ..."

18. He admitted the undertaking to indemnify Mrs Ellicott in respect of the business loan account, but denied that he was in breach. No point was taken that permission had not been given.
19. It may be significant that District Judge Edwards himself held a case management conference on 2nd February and gave directions for trial. One would be astonished if he had not seen the allegation that permission had been given and, even when the matter came back before him on 13th June, the proceedings went ahead without comment. They duly came before Judge Thompson on 28th August, as I have indicated.
20. Before I deal with his judgment there is one more relevant fact to recite. It appears that on 16th June 2000 District Judge Weintroub in Bournemouth made an order in the divorce proceedings. It was that the former husband pay "a lump sum of £12,000, for the avoidance of doubt such sum is to be paid under the provision of s.31(7a) and (7b) of the Matrimonial Causes Act 1973"; that is, by way of a variation of the periodical payments order that had been made in her favour. The attachment of earnings order against him was discharged. Arrears under the periodical payments order were remitted. The periodical payments order itself was dismissed and this order took effect as a clean break between the parties. All their respective claims for ancillary relief, financial provision, property adjustment orders and claims under the Inheritance (Provision for Family and Dependants) Act 1975 were dismissed.
21. I turn now to the judgment of Judge Thompson. We are told that he heard the case for a day and a half. This is the way he dealt with it. He was troubled by three matters:

(1)whether permission was actually given to bring the Part 20 proceedings;

(2)whether there was some conflict of jurisdiction between the County Court and the Family Division; and

(3)as to the effects of the IVA.

22. He looked at the matter from the records available to the court at the time. He apparently had access to the district judge's notebook, which recorded the hearing ending at 3.38pm. He said that it was "clear from the notes of the learned district judge that he made no reference whatever to the Part 20 application". He pointed out that no order was drawn by the court. He thought that the order as drawn "faithfully reflected what was recorded in the district judge's notebook". He was very critical indeed of the procedures, and he thought that, because no order was drawn by the court and there was no note by the district judge and no grant of permission, the proceedings were irregular. He said that it was quite clear that permission was required. He referred to Part 20.5 of the Civil Procedure Rules. There may be a quibble as to whether or not permission was actually required. It may be, pursuant to 20.6, that it is not, if it is a claim for a contribution or an indemnity; but I need not enter into that dispute.
23. The judge asked himself:

"... do I simply regard it as being a formality? No, I do not think one can say that this is a mere formality, because it is quite clear from Part 20 paragraph 3.1 that a Part 20 claim is to be treated as if it were a claim, and it is more than a formality where permission is required to issue proceedings to have a court order to that effect.

Should it be assumed that District Judge Edwards either did give leave or, if he did not, that he would have given leave? I find this a very difficult question. It seems to me not only did the application not comply with the rules for the reasons which I have already set out, but it also seems to me that it is not really appropriate for there to be Part 20 claim after judgment has been issued. The appropriate way for the matter to proceed to my way of thinking would be by the way of separate proceedings. The judgment having been entered on the 23rd August 2000, those proceedings between Lloyds Bank and Mrs Ellicott were therefore resolved, and in my judgment there should clearly have been separate proceedings."

24. I regret that I find the judge's intervention frankly astonishing. It was apparently a point taken by him. It was not raised by Mr Ellicott. There is no reason why judges cannot take points; but if they do, they ought to take care that they are good points. Here the judge was faced with an apparent irregularity on the documents before the court. But he had adequate powers to deal with that. They are contained in CPR 3.10, which provides:

"Where there has been an error of procedure such as a failure to comply with a rule or practice direction -

(a)the error does not invalidate any step taken in the proceedings unless the court so orders; and

(b)the court may make an order to remedy the error."

25. I would have thought it highly to be argued that, in allowing the proceedings to go ahead as District Judge Edwards did, he was sanctioning any failure, but certainly Judge Thompson had the power under sub-rule (b) to remedy the error, and he ought to have done so. This was a point of the finest technicality. It made no difference to the proceedings whatsoever. If there was a breach of the rule, it was not a breach so heinous that it would have justified the striking out of the claim in any event. It was, in my judgment, a sad decision by the judge. I have no hesitation whatever in saying that, if he had applied himself to rule 3.10, he would have remedied this technical error.
26. Now that we have a transcript of what happened, the position becomes even less defensible. I will not take great time to read all that happened before District Judge Edwards on 23rd August. Perhaps a few passages will capture some at least of the flavour. For example, if we turn to page 27 of that transcript, Mr Belben, counsel then appearing for Mrs Ellicott, referred to the Part 20 proceedings and the district judge commented:

"I think I can say, subject to any arguments of Mr Tolley, I will be sympathetic to [Mrs Ellicott's wish to bring Mr Ellicott into these proceedings]."

27. Mr Belben clearly took that as an indication that he would get his Part 20 relief, and the case went on principally to deal with the bank's claim.
28. Mr Belben (at p.40 of this transcript) concluded his submissions by saying that that really brought him full circle to where he began. He continued:

"I will reserve my submissions on the question of the Part 20 application because you have given me the very helpful indication and I need not say any more about that. Obviously ----

DISTRICT JUDGE EDWARDS: That is subject to the bank's position.

MR BELBEN: Subject to the bank's position on that. ..."

29. Mr Tolley, appearing for the bank, stood up, voiced no objection to the Part 20 proceedings, but continued to address the judge on his client's claim for summary judgment.
30. Having entered summary judgment, the judge then turned to the burning issue which then arose as to whether or not there should be a stay. In the course of that discussion there was the following exchange:

"DISTRICT JUDGE EDWARDS:Yes. Then we come on to the issue of Part 20. Is there any measure of agreement between you on that?

MR BELBEN:I do not think my learned friend is actually opposing the application.

MR TOLLEY:If I could make my position clear. I certainly do not oppose it and it is not part of my role to oppose the joinder of Mr Ellicott by way of a Part 20 claim but I do take up the suggestion that you made, sir, that it is rather odd to have a Part 20 claim where the main claim is in effect resolved and that you suggested during the course of submissions that it was open to Mrs Ellicott to bring separate proceedings. Of course, my learned friend quite rightly said, well, it is obviously much more convenient to have them as part of the same proceedings. That would be right if these main proceedings were continuing. Given that judgment has been granted, in my submission, the better course, as a matter of pure procedure, the better course is for separate proceedings to be brought. I take no point on the merits of the potential claim against Mr Ellicott. It is no part of my role to say anything about it, but ----

DISTRICT JUDGE EDWARDS: But no saving in costs.

MR BELBEN:There would be if we were able to because we would have to start and all the fees that are incurred on issuing fresh proceedings would be incurred. There is nothing in the rules to prevent the Part 20 claim being issued once summary judgment has been given under Part 24 in favour of a claimant at all. Here, Mrs Ellicott, as you know, is legally aided. It would mean applying for a fresh certificate.

DISTRICT JUDGE EDWARDS:She will need a certificate for public funding. I will write that in.

MR BELBEN:Please, yes."

31. They then went on to discuss a stay of execution. Mr Belben said:

"Sir, may I, therefore, have my leave under Part 20 because the stay of execution point really is contingent on that. It is, in my submission, more convenient by a degree."

32. The transcriber then records the district judge's response to be:

"I am making a total."

33. I simply do not know what that means. There must be a mis-transcription. Later the judge went on to say:

"Have you been able to consider in detail whether your client would be in a position to succeed under Part 20?

MR BELBEN:Subject to the IVA point, yes, she would be able to, but there has been no waiver or any discharge of the obligations.

DISTRICT JUDGE EDWARDS:Yes, I suppose there is the IVA point I have in mind really. That seems to be possible.

MR BELBEN:That apart, she would be entitled, in my submission, to Part 24 judgment under a Part 20 claim against Mr Ellicott."

34. Unfortunately, there was no agreement about the terms of the stay. Adjournments were granted for the parties to talk. Mr Belben was under some time pressure because he had a conference at 3.30pm. The case was adjourned. Mr Belben was prepared, in resisting the stay, to undertake to pursue Mrs Ellicott's claim under Part 20 against Mr Ellicott and keep the bank informed as to progress. The district judge repeated that he was in favour of giving her further rights. He was clearly sympathetic, but in the end he resolved the dispute himself and simply made the order for the stay which I have already recited.
35. No doubt everybody was mightily relieved to have got that conclusion to the matter and nobody thought to ask the district judge whether he had in fact granted the permission. Having read the transcript, I am in absolutely no doubt whatever that he would have done and that he should have done. I would be perhaps inclined almost to say that the order could be corrected under the slip rule but, either way, I am satisfied that this claim should not have been dismissed for a technicality of the kind that so impressed Judge Thompson.
36. I turn to his second reason. He was troubled whether a correct form of proceedings had been followed. He accepted that Mrs Ellicott's claim was, as he put it, "to try and make her former husband liable in respect of these loans, which stems from the consent order which was approved by District Judge Lowe on 24th June 1994". But he felt that the liberty to apply with regard to implementation and enforcement incorporated in that order required an application in relation to implementation and enforcement to be made in the first instance in the matrimonial proceedings. He had in mind an authority which was then unreported. He said that it was Miller v Beard. But Mr Self, who today appears for Mrs Ellicott, has traced it. It is in fact Naylor and Boyle v Beard [2001] 2 FLR 1346. In that case the district judge dealing with a partnership dispute had ordered disclosure of a partner's affidavits filed in the divorce between that partner and his wife. The Court of Appeal felt that the application should have been made to the matrimonial court. Judge Thompson said in his judgment:

"If it is appropriate for a party who is a complete stranger to the former marriage to be able to make an application in matrimonial proceedings for disclosure of an affidavit in matrimonial proceedings, then a fortiori I would have thought that the appropriate way is for one party to a resolution of a matrimonial dispute to go back to the court making the consent order in the matrimonial proceedings to seek to enforce it."

37. He said:

"... I confess my complete ignorance of all matters in relation to Matrimonial Causes Act and matrimonial matters generally as I do not sit in that jurisdiction ..."

38. I am sympathetic with that. It is not uncommon for those who do not practice in the Family Division, or even for those who used to practice in the Family Division, to treat ignorance as bliss.
39. The judge went on to address an argument made by Mr Belben that the effect of the order of 16th June affecting the clean break effectively brought the divorce proceedings to an end. But the judge remained of the view, reinforced by the view he took of the IVA, that the proceedings should be heard in the Family Division.
40. In my judgment he was quite wrong about all of that. The part of the order upon which he relied, namely the provision that there be liberty to apply with regard to implementation and enforcement of the above terms, is a standard order in some ancillary relief orders. Its purpose is to make sure that the parties can go back for the clarification and working out of any parts of the order relating to lump sums and property adjustment orders which need to come back to the court. The reason for it is that, once a lump sum order or property adjustment order has been made, the court has no power to make another. That is the effect of section 23 of the Matrimonial Causes Act 1973, which Mr Belben endeavoured to draw to Judge Thompson's attention. The liberty to apply provision does not give the matrimonial court any power to take on civil proceedings for the enforcement of debts or otherwise. I suppose the other possibility is that the proceedings could have been taken in the Family Division somehow to enforce the undertaking, but that seems to me to be fraught with difficulties. The undertaking can be enforced by way of committal, but not without difficulties where it is an undertaking to pay money or money's worth as opposed to an undertaking to do or abstain from doing an act. But the remedies for committal do not include the power to order the payment of the sums of money which have not been paid pursuant to the undertaking. There is no judgment debt for the failure to comply with the undertaking capable of being enforced by judgment summons, even if the judgment summons procedure is appropriate, great doubts having been cast upon that: see Mubarak v Mubarak [2001] 1 FLR 673. The Family Division was bereft of power to deal with this particular dispute and it was quite wrong of the judge, who professed his ignorance of what happened there, to say that what happened there should prevail, when he did not know what was going to happen there.
41. I turn to the problems posed by the former husband's individual voluntary arrangement. The judge noted that it was "effective and is still up and running". He dealt with Mr Belben's suggestion that a judgment against Mr Ellicott was still worthwhile because it was thought that Mr Ellicott may have some money somewhere or other - in his pension scheme, in a house he owned or under a trust deed. The judge asked:

"So what benefit will these proceedings bring if Mrs Ellicott obtains a judgment? No purpose, says Mr Ellicott, because it would simply make him bankrupt. Well, of course the fact that somebody is going to be bankrupted by having a judgment against him is not a reason for not entering a judgment. It again comes back, in my judgment, to the situation in relation to the matrimonial position."

42. He referred to the 17-year-old son living with Mr Ellicott and his second family. He referred to the difficulties for Mrs Ellicott if she was not to be indemnified and the suffering she would undergo if the bank enforced their debt against her. He said that there was no room for sympathy in the common law and that was another reason for shovelling it all back to the Family Division.
43. There is, it seems to me, some misunderstanding as to the effect of that IVA. My Lord explained it in a trenchant judgment in Johnson v Davies [1999] Ch 117, and I will attempt inadequately and inelegantly to give my precis of what my understanding is, such as to justify the learned agreement I gave to my Lord's judgment on that occasion. Broadly, the position is this. If there are joint debtors (as here, husband and wife who are joint debtors to the bank), then the question arises whether the compromise of the creditors' claim vis-à-vis one of those debtors acts as a release of the debt of the co-debtor. The IVA takes effect as a statutory form of compromise in the proposals put to the Bournemouth County Court. That is made clear, although it is also clear by statute. The proposals in paragraph 74 of the scheme recite that:

"Unless and until a non-compliance certificate is issued, creditors bound by the voluntary arrangement may only look to the voluntary arrangement and shall not be entitled to commence or continue legal or other proceedings or process ... against me or my property ..."

44. It was made clear, in paragraph 72, that:

"Subject to the issue of a compliance certificate, I [Mr Ellicott] shall be released from all liability to the creditors bound by the voluntary arrangement in respect of the debts provable in the voluntary arrangement."

45. But whether or not that voluntary arrangement was binding as a compromise, so as to release the debt entirely, depends upon the terms of the proposal for the voluntary arrangement. It was made explicit in an earlier letter from a Mr Whalley, who was managing this for Mr Ellicott that:

"... no creditor would be precluded from pursuing such remedies as they might have against third parties."

46. That was not, as far as I have seen, explicit in the proposals put to the court, but nothing was said to suggest anything else, and it seems to me quite clear, therefore, that, although the bank would have to abide by the arrangement whether they had agreed to it or not vis-à-vis enforcing their claim against Mr Ellicott, they were not precluded from enforcing their claim against Mrs Ellicott. The fact that there may have been an issue about that is a reason why it was wholly appropriate for these Part 20 proceedings to be joined, so that one court could decide all those issues. Since Mrs Ellicott was not given notice of and, indeed, was not a creditor of Mr Ellicott at the time of the voluntary arrangement that they set up and approved, she is not bound by the compromise that binds the creditors who were given notice. Consequently, there is nothing to prevent her now enforcing her claim against Mr Ellicott.
47. We have not had a full trial of the action, but both parties sensibly agree that enough costs have been incurred - indeed, wasted - by several journeys to the Bournemouth County Court, including a further attempt to go to the Family Division in Bournemouth. It is time to call a halt to this unhappy saga and to take a robust view of the litigation. It is clear to me that Part 20 proceedings should have been brought, and should have been treated as properly brought by Judge Thompson. It is clear to me that the undertaking given in the Family Division in a consent order, although it operates as an order of the court, does not undermine the contractual basis of that arrangement and there is therefore a contractual obligation on Mr Ellicott to pay both the loans and expressly to indemnify Mrs Ellicott in respect of the business loan. He has failed to do so and he is in breach. He is therefore in my judgment clearly liable to Mrs Ellicott to make good that which she will have to pay the bank. His IVA affords him no defence.
48. Accordingly, I would allow this appeal and enter judgment in Mrs Ellicott's favour against Mr Ellicott for an indemnity and a full contribution of all she is required to pay to the bank, including her costs of the proceedings of the bank against her.
49. LORD JUSTICE CHADWICK:This appeal raises, amongst other issues, a short point of practice of some general interest. The course which these proceeding have taken so far suggests that the parties' legal and other advisers may not have been fully aware of the point. If that is an indication of any more general lack of awareness amongst those advising in this field, it may be of assistance if I take this opportunity to explain the point.
50. The point arises where one of two co-debtors enters into an individual voluntary arrangement with his creditors; and the creditor in respect of the joint, or joint and several, debt takes proceedings against the other co-debtor. It arises, in the present case, because Mr and Mrs Ellicott were jointly and severally liable to Lloyds Bank plc in respect of indebtedness on two loans; Mr Ellicott subsequently entered into an IVA; and the bank claimed payment of the whole of the indebtedness against Mrs Ellicott. The point is accentuated, in the present case, by the fact that, in ancillary relief proceedings brought by Mrs Ellicott against Mr Ellicott following the break-up of the marriage, Mr Ellicott gave an undertaking, as the term of a consent order made some years before he entered into the IVA, that he would assume responsibility for the two loans and would indemnify Mrs Ellicott in respect of her liability in respect of one of them. Prima facie, therefore, if Mrs Ellicott is required to pay to the bank the whole of the indebtedness under those loans, she has not only the right of contribution that one co-debtor has against another co-debtor; she has also a right of indemnity comparable to that to which a surety is entitled against a principal debtor.
51. What, then, is the effect of the IVA? There are two points to note at the outset. First, the IVA takes effect as a contract between the debtor, Mr Ellicott, and those of his creditors who are bound by its terms under statute - as this court sought to point out in Johnson v Davies [1999] Ch 117. Second, Mrs Ellicott is not bound by the terms of the IVA. She was not a creditor of Mr Ellicott at the time when he entered into the IVA (because, at that time, she had made no payment to the bank in respect of the indebtedness); and she was not served with notice of Mr Ellicott's proposals for the IVA. The position, therefore, is that, if the bank can enforce its claim against her, there is nothing in or arising out of the IVA which prevents her from enforcing her claim to contribution and indemnity against Mr Ellicott.
52. The relevance of the IVA lies in the question whether it imposes any fetter on the bank's right to pursue Mrs Ellicott for the indebtedness in respect of which she and Mr Ellicott were co-debtors. If the IVA does have that effect, then it affords Mr Ellicott a defence to Mrs Ellicott's claim for contribution and indemnity. But it does that not directly, but indirectly. Mrs Ellicott's claim against Mr Ellicott arises (if at all) from her liability to the bank. If she is not liable to the bank, then she has no claim for contribution or indemnity against Mr Ellicott. She has no right of contribution or indemnity against him because, on that hypothesis, she has no need of such a right. There is, in that case, no liability against which indemnity is required or in respect of which contribution can be made.
53. The question whether the IVA imposes any fetter on the bank's right to pursue Mrs Ellicott for the indebtedness in respect of which she and Mr Ellicott were co-debtors does not turn on any contract or other arrangement between the bank and Mrs Ellicott. There is no contract or arrangement between those two parties. The question turns on the contract between the bank and Mr Ellicott; a contract of which the terms are to be found in the IVA and which was, in this case, imposed on the bank under section 260(2) of the Insolvency Act 1986. The fetter arises (if at all) because it would be inconsistent with the terms of the arrangement made between Mr Ellicott, the bank and his other creditors - under the IVA - to allow the bank to pursue Mrs Ellicott in circumstances in which enforcement against her would lead indirectly to the debt being enforced against Mr Ellicott's assets, through the route of her claim to contribution and indemnity. The principles are set out in Johnson v Davies - see in particular at pp.125A-C, 127A-C and 130A-C.
54. It for these reasons that, if one of two co-debtors has entered into an IVA, the question whether the IVA has any (and, if so, what) effect on the ability of the creditor to pursue the other co-debtor - and so on the ability of the other co-debtor to seek indemnity and contribution from the one who has entered into the IVA - should be raised (if at all) in proceedings to which the creditor and both co-debtors are parties. The procedural route to that end, where the creditor brings proceedings against one co-debtor alone, is for that co-debtor to bring his (or, in this case, her) claim against the other co-debtor under CPR Part 20. In that way all parties interested in the question are bound by a decision in proceedings in which they can all take part.
55. The proper course in this case, therefore, (if the IVA defence was thought to have any substance at all) would have been for the Part 20 claim to have been issued before judgment was given against Mrs Ellicott on the bank's application under CPR Part 24. It may well have been convenient to decide - as a preliminary issue as between her and the bank - whether her defence under Barclays Bank v O'Brien had any chance of success; but a decision on that point in favour of the bank should not have led to a judgment against her if the IVA point had any substance. What should have been ordered on 23rd August 2000, once the district judge had been told that Mr Ellicott had entered into an IVA by which the bank was bound, was that the claim for judgment be adjourned to enable it to come on with her Part 20 claim against Mr Ellicott. In fairness to the district judge, he was not asked to do that by counsel who then appeared before him.
56. In the event, however, the failure to adopt the proper course has not prejudiced either Mrs Ellicott or Mr Ellicott. The reason is that, on examination, the IVA defence has no substance in this case. There is nothing in the IVA which Mr Ellicott proposed to his creditors - and which was approved at a meeting on 7th June 1999 - which has the effect of imposing any fetter on the bank's right to pursue Mrs Ellicott in respect of the joint debt. Nor does it appear that it was intended by Mr Ellicott that there should be. In a letter of 19th March 1999 sent by the accountant and insolvency practitioner instructed by Mr Ellicott to his creditors - a letter which suggests an informal compromise - there is the sentence to which my Lord has referred:

"By agreeing to this proposal, however, no creditor would be precluded from pursuing such remedies as they might have against third parties."

57. That sentence did not find a place in the formal proposal made on 12th May 1999. At paragraph 31 of that formal proposal it is disclosed in terms:

"My former wife has a joint and several liability with me to Lloyds Bank plc."

58. The proposals contain, at paragraph 72, provisions for a future release of Mr Ellicott on the issue of a certificate of compliance - that is to say, when the arrangement has been fully implemented. For the reasons set out in Johnson v Davies at pp.127H-128D, an arrangement with such a term does not operate as a present release of the debtor. In this case it did not operate as a present release of Mr Ellicott. Further, it cannot operate as a release of Mrs Ellicott as a joint debtor. The debt is deliberately kept alive until compliance has been certified. The proposals contain, at paragraph 74, an express fetter on proceedings against Mr Ellicott. But there is no comparable fetter on proceedings against Mrs Ellicott as the co-debtor identified in paragraph 31. For the reasons set out in Johnson v Davies at pp.128G-129A, no such fetter is to be implied.
59. In the circumstances that the IVA defence is of no substance, no harm has been done by the failure to take the correct course. But it is to be borne in mind, first, that individual voluntary arrangements - in what is, I think, a standard or conventional form used in this case - do not have the effect of preventing the creditor from proceeding against the co-debtor, or the effect of preventing the co-debtor from claiming contribution and indemnity against the assets which are the subject of the voluntary arrangement. If that object is desired, then it needs to be spelt out in the arrangement. But, of course, if it is spelt out in the arrangement, it will be unlikely that any creditor who has a debt which he can hope to enforce against a co-debtor will agree to the arrangement. A court faced with an application by such a creditor to set aside the arrangement might well be persuaded to do so. Secondly, it does need to be kept in mind in cases of this nature -in which there is an individual voluntary arrangement to which one of the co-debtors is party - that, if the IVA defence is to be taken, then the CPR Part 20 route needs to be followed.
60. On the facts in the present case I agree that, for the reasons which my Lord has given, this appeal should be allowed.
Order: application for permission to appeal granted; appeal allowed with costs here and below; orders below discharged and judgment entered in Mrs Ellicott's favour; public funded costs assessment.