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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Barclays Bank Plc v Burgess [2002] EWCA Civ 291 (11th March, 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/291.html Cite as: [2002] EWCA Civ 291

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Barclays Bank Plc v Burgess [2002] EWCA Civ 291 (11th March, 2002)

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM DISTRICT REGISTRY
(His Honour Judge Boggis QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		11 March 2002

Lord Justice Chadwick :

1. This is an appeal from an order made on 1 June 2001 by His Honour Judge Boggis QC, sitting as a Judge of the High Court in the Chancery Division at Birmingham, in mortgage proceedings brought by Barclays Bank Plc against Mr Victor John Burgess and his wife, Mrs Shirley Ann Burgess. The issue raised by the appeal is whether, following realisation of the mortgaged property, the Bank is now entitled to debit the whole of the joint indebtedness against Mrs Burgess’ half share of the proceeds of sale; leaving Mr Burgess’ share of the proceeds available for the repayment of indebtedness for which he alone is liable.

The underlying facts

2. Mr and Mrs Burgess were the owners of property known as Brookfield House, at Kings Sutton near Banbury. The house, which they occupied as their home, had been purchased in 1982 with the assistance of a mortgage advance from the Bank. The legal charge which they granted to the Bank to secure that advance was in the Bank’s standard “all monies” form; that is to say, by its terms the charge secured all monies owing by them, or either of them, to the Bank on any account. But the Bank undertook, by a side letter, not to treat the legal charge as security for further advances without their written consent. In 1989 the Bank advanced monies for the purchase of a property in Cyprus, to which Mr and Mrs Burgess intended eventually to retire. In 1989 and 1990 the Bank advanced monies to Mr Burgess for the purposes of his business. In each case Mrs Burgess gave her consent in writing. By 1991 the business was in serious financial difficulties. In September 1993 Mr Burgess made proposals under Part VIII of the Insolvency Act 1986 for an individual voluntary arrangement with his creditors. In December 1993 the Bank made formal demand for the monies secured by the legal charge; and, some twelve months later on 9 December 1994, it commenced these proceedings in the Banbury County Court.
3. The Bank claimed to be secured under the 1982 legal charge in respect of monies owing on five separate accounts: (i) an account (34107209) – “the home mortgage account” - to which the original mortgage loan to purchase Brookfield House had been debited in 1982; (ii) an account (24108191) – “the Cyprus loan account” - which had been opened in June 1989 in order to fund the purchase of the property in Cyprus; (iii) and (iv) two business loan accounts (respectively 24107748 and 4105761) under which the Bank had made loans in July 1989 (£100,000) and April 1990 (£60,000) to support Mr Burgess’ business; and (v) a joint current account (0224731).
4. The Banks made a summary application in the proceedings for a possession order. In response to that application Mrs Burgess swore an affidavit, on 1 March 1995, in which she raised what may conveniently be described as the O’Brien defence (see Barclays Bank Plc v O’Brien [1994] 1 AC 180) in relation to the security claimed in respect of the indebtedness on the two business accounts. Nevertheless, there being no effective defence to the validity of the legal charge as security for the home mortgage account and the Cyprus loan account, a possession order was made on 2 March 1995. Sensibly, however, it was agreed that Mr and Mrs Burgess would have conduct of the sale of the house; and that they would remain in occupation until sale. A sale was completed on 15 August 1995, with the concurrence of the Bank as chargee. The net proceeds of sale (£222,744.25) were placed on deposit with the Bank pending resolution of the issues raised by Mrs Burgess.
5. In January 1996 Mrs Burgess served a defence and counterclaim in the proceedings in which she set out the matters upon which she relied in support of her contention that the documents which she had signed in connection with the first and second business loans were not binding upon her and ought to be set aside. In a reply and defence to counterclaim, dated 7 February 1996, the Bank made it clear (at paragraphs 9 and 24) that it did not contend that Mrs Burgess was personally liable in respect of the two business loans – it accepted that the documents which she had signed did not have that effect – but that it did contend that Mr Burgess’ liability in respect of those loans was secured by the legal charge.
6. The position, therefore, from February 1996, was that there was no dispute that Mr Burgess was liable in respect of the indebtedness on each of those five accounts; and no dispute that Mrs Burgess was jointly and severally liable, with her husband, in respect of the indebtedness on the home mortgage account and the Cyprus loan account. There was no dispute that she was not, herself, liable for the indebtedness on the two business loan accounts; but there was a dispute whether the indebtedness on those accounts was secured by the legal charge. And there was a dispute – or, at the least, a latent dispute – whether Mrs Burgess was herself liable for (and whether the legal charge was security for) so much of the indebtedness on the joint current account as arose from debits made by the Bank against that account in respect of interest which had accrued in respect of the two business loans.

The order of 10 December 1996

7. On 17 October 1996 the Bank gave notice of its intention to apply for an order (a) that judgment be entered against Mr Burgess for the full amount owing “under the Legal Charge”, (b) that judgment be entered against Mrs Burgess for the indebtedness on the home mortgage account and the Cyprus loan account, and (c) that the Bank be entitled to apply from the proceeds of sale of Brookfield House – “(i) the sum required to repay the [home mortgage account] and the [Cyprus loan account] in discharge of the joint liabilities of the Defendants and (ii) one half of the remainder in part payment of the liabilities of [Mr Burgess] to the [Bank].” That application was supported by an affidavit sworn by a solicitors’ clerk, Mrs Christine Bradfield, on behalf of the Bank. She set out the amounts of the indebtedness on each of the five accounts as at 10 December 1996 and explained that, in addition to the amount then representing the proceeds of sale of the property (£232,750.07), the Bank held on deposit a further sum (£19,292.12) which had been received under the Land Compensation Act 1973 in respect of injurious affection to Brookfield House by reason of a planning consent for, I think, the extension of the M40 motorway. Paragraph 6 of the affidavit is in these terms:

“The Plaintiff therefore seeks an Order that it be entitled to apply from the proceeds of sale and compensation monies the sums required to repay the [home mortgage account] and the [Cyprus loan account] in discharge of the joint liabilities of the Defendants and one half of the remainder in part repayment of the liability of the First Defendant in respect of the joint Current Account and the two [business] Loan Accounts in his name only.”

8. The Bank’s application came before Deputy District Judge Bradley, in the Banbury County Court, on 10 December 1996. He gave judgment against Mr Burgess in the sum of £431,651.54; and he gave judgment against Mrs Burgess in the sum of £47,014.74. It is not in dispute that the basis upon which judgment was given against Mr Burgess in the sum of £431,651.54 was that that represented the aggregate indebtedness on the five accounts as at 10 December 1996. Nor is it in dispute that the judgment against Mrs Burgess in the sum of £47,014.74 reflected her admitted joint and several liability, as at that date, in respect of the home mortgage account and the Cyprus loan account. By paragraph 3 of his order of 10 December 1996 the district judge directed that the Bank have leave:

“to apply £126021.09 in part satisfaction of the judgment against [Mr Burgess] and £47014.74 in satisfaction of the judgment against [Mrs Burgess], retaining the balance of £79006.36 on the same terms as here and so far until further order.”

9. The amount of the funds on deposit as at 10 December 1996 - being the aggregate of the net proceeds of the sale of Brookfield House, the compensation monies and interest on those sums - was £252,042.19. The effect of paragraph 3 of the order, therefore, was to enable the Bank to appropriate one half of the deposit monies (£126,021.09) towards satisfaction of the judgment debt entered against Mr Burgess and to appropriate £47,014.74 out of the other half of the deposit monies to the satisfaction of the judgment debt entered against Mrs Burgess. That was not the order which the Bank had sought in its application of 17 October 1996. Nor (in the absence of agreement between the Bank, Mr Burgess and Mrs Burgess) was it an appropriate order to make in the circumstances. There is nothing in the material before us which explains how that order came to be made. But there is no suggestion that the order was made by consent; and no suggestion that the order as drawn does not accurately record the intention of the district judge. There has been no appeal against that order.

The course of these proceedings after 10 December 1996

10. The proceedings continued in relation to the issues which had been raised by Mrs Burgess in her defence. In December 1997 Mrs Burgess amended her defence to raise, formally, the issue whether she was, herself, liable for (and whether the legal charge was security for) so much of the indebtedness on the joint current account as arose from debits made by the Bank against that account in respect of interest which had accrued in respect of the two business loans. The Bank pleaded to that issue by an amendment to its reply dated 19 January 1998. Save for those pleading amendments, little progress appears to have been made until the advent of the Civil Procedure Rules in 2000.
11. On 27 July 2000, in response to an enquiry from the solicitors instructed by Mrs Burgess, the Bank’s solicitors wrote: “We confirm that our clients will not be pursuing their claims in respect of the two business loan accounts that your client disputes in full.” In the circumstances that it had been accepted by the Bank some four and a half years earlier – in its pleading of 7 February 1996 – that it did not contend that she was personally liable for the indebtedness on the two business loan accounts, the only issue between the Bank and Mrs Burgess in relation to those accounts was whether that indebtedness was secured by the legal charge. That was the issue in respect of which she had raised an O’Brien defence. I find it a matter of no surprise that, thereafter, it was assumed by those advising Mrs Burgess – and by the judge – that the Bank had conceded that the indebtedness on the two business accounts was not secured by the legal charge; that is to say, that the Bank had conceded that its security in respect of that indebtedness was limited to Mr Burgess’ interest in the proceeds of sale of Brookfield House.
12. The proceedings were transferred to the Chancery Division of the High Court in August 2000. They came before His Honour Judge Boggis QC for directions on 9 October 2000. He ordered that the action be set down for the trial of an issue, which he defined in these terms:

“The consequences of the interim judgment of 10^th December 1996: whether the making of the interim judgment prevents the Court from re-apportioning the proceeds of sale of Brookfield House . . . between bank accounts held by the Claimant in the names of the First or Second Defendants, or both of them jointly.”

That issue was listed for trial before His Honour Judge Boggis QC on 4 December 2000. But the trial did not proceed on that day. It is clear that the judge took the view that the parties’ respective contentions were not properly defined. He adjourned the hearing with directions for points of claim and points of defence. But he did so on the basis that the Bank had conceded the O’Brien defence in relation to the business loan accounts. That appears from a passage in the transcript of the proceedings before the judge on 4 December 2000:

“I think the safest thing is that I declare that the O’Brien defence has been successful because that is the effect of the correspondence, and we go on from there.”

He gave effect to that self-direction in the order which he made that day, which contained the recital:

“It appearing that the bank has conceded the O’Brien defence in relation to the two business loans.”

13. The adjourned hearing was listed before His Honour Judge Boggis QC on 1 June 2001. In the meantime the Bank had recalculated the amount for which Mrs Burgess was properly liable, jointly and severally with her husband, in respect of the joint current account. That amount was said to be £89,225.46 as at 4 December 2000; but that figure includes interest at the contractual rate payable in respect of the joint current account after, as well as before, 15 August 1995. The amount for which Mrs Burgess was liable as at 15 August 1995 has been agreed at £54,948.83.

The judgment of 1 June 2001

14. The first question before His Honour Judge Boggis QC in June 2001 was whether the Bank was entitled to appropriate out of the monies (£79,006.36) which were to be retained under the order of 10 December 1996 the whole of that part of the indebtedness (£54,948.83, as at 15 August 1995) on the joint current account for which Mrs Burgess is jointly and severally liable. He answered that question in the affirmative. He said this:

“The question is whether the bank is entitled to appropriate the net proceeds of sale in the way which it desires to do, namely, requiring Mrs Burgess’ half share to pick up all of the joint and several liabilities. As to that it seems to me that paragraph 3 of the order of the deputy district judge is definitive. It has never been appealed, there has been no challenge to it, because that order expressly allows the bank to work the appropriation which it now relies upon and, as I have already pointed out in this judgment, interestingly, departs from what was said in the bank’s affidavit. There must have been consideration of this point because the deputy district judge’s order makes it quite clear that half the net proceeds of sale are to go completely to the bank in settlement of Mr Burgess’ liability and £47,000 of Mrs Burgess’ share are to go to the bank expressly to meet the full liability under the mortgage, under the home loan and the Cyprus loan. The only question that remained was as to the balance of her beneficial interest, and that was to be retained on the same terms as here and so far until further order, namely, until resolution of the defences. The defences have been resolved. The bank accepts that the O’Brien defence works, to the extent that Mrs Burgess’ share is not to be used to meet any liabilities under the business loans, or servicing of the business loans, but the bank’s position is, once the current account is re-ordered and the liability is then clarified at £54,000, that sum must come out of what is left in the joint account, being the remainder of Mrs Burgess’ beneficial share.

In my judgment, the bank is entitled to pursue that course. It has done the appropriation. The appropriation has been clear since December 1996, and there is no basis, under statute, or equity of exemption, or any other way, in which Mrs Burgess may now upset the appropriation that was done in December 1996 and say that as a matter of principle the joint liabilities should come out first and only then should the net proceeds be divided into their two beneficial shares. In my judgment, the position is that the liability under the joint account, as now clarified, is a liability which the bank is entitled to discharge out of Mrs Burgess’ half beneficial share, so that of the sum that in 1996 was £79,000, standing to the credit of the account, the liability under the joint account comes out of that and only what is left goes to Mrs Burgess.”

15. The second question for the judge on 1 June 2001 was whether the Bank should be entitled to add to the amount of the indebtedness on the joint current account for which Mrs Burgess was jointly and severally liable (£54,948.83, as at 15 August 1995) interest at the contractual rate in respect of the period since 15 August 1995; or whether, in effect, the claim for interest should be treated as satisfied by the interest which had accrued on the monies held by the Bank on deposit. The judge did not address that question in the judgment of which we have a transcript; but the order which he made reflects a decision that the Bank should have no additional interest after 24 September 1995 – the amount, with interest, as at that date being the sum of £55,470.13 which appears in his order. The judge’s rejection of the Bank’s claim to interest at the contractual rate was the subject of a cross-appeal. A respondent’s notice was served; but that cross-appeal has not been pursued.
16. The judge gave effect to his decision by an order (i) that the Bank was entitled to the sum of £55,470.13 out of the funds remaining in the deposit account and interest earned on that sum and (ii) that Mrs Burgess was entitled to the balance of the funds in the deposit account; and he directed (for the avoidance of doubt) that the Bank was not to be entitled to retain moneys in excess of the sum of £55,470.13 plus interest in respect of its entitlement to costs. Mrs Burgess appeals from that order with the permission of this Court.

The issue on this appeal

17. The appeals turns, as it seems to me, on two questions: (i) what were the rights of the parties in relation to the monies held on deposit – that is to say, the monies representing the proceeds of sale of Brookfield House, the compensation payment and interest – immediately before the order of 10 December 1996; and (ii) what was the effect of that order.
18. The rights of the parties in relation to the monies held on deposit are derived from, and must reflect, the terms upon which, by agreement between the Bank on the one hand and Mr and Mrs Burgess on the other hand, the sale of Brookfield House was completed. It is pertinent to keep in mind that, although the sale was not completed by a transfer made by the Bank under the powers conferred by the legal charge, nevertheless the sale could not have been completed without the concurrence of the Bank. The sale was completed by a transfer made by Mr and Mrs Burgess as owners of the property; but, in order to enable them to effect a transfer free from the legal charge, the Bank discharged that charge on terms that the proceeds of sale were paid to, and retained by, the Bank’s solicitors “pending the determination of the issues between our Clients and your Clients”. In those circumstances, what terms are to be implied in relation to the monies placed on deposit? The answer is not, I think, open to any real doubt; and it has not been a matter of dispute on this appeal. The monies placed on deposit were held upon the trusts that would have been applicable to money received by the Bank as mortgagee upon the exercise of the mortgagee’s power of sale; that is to say, the trusts (if any) set out in the legal charge and, subject thereto, imposed by section 105 of the Law of Property Act 1925. So far as material in the present context, those were trusts to hold the monies until “the determination of the issues” between the parties; and then to discharge the monies due under the mortgage and to pay the residue to the persons held to be entitled to the mortgaged property. The issues to be determined were (i) whether the indebtedness on the business loan accounts was secured by the legal charge, and, if not, (ii) for what part of the indebtedness on the joint current account was Mrs Burgess liable. Determination of those issues would resolve the question: “what monies were due under the legal charge?”.
19. The judge rejected that approach. He said this:

“I do not accept that argument, because this case has not been a sale by a mortgagee. What happened was that, in accordance with normal good sense by reputable lenders, once the order for possession had been made, the mortgagee was quite happy for the mortgagor to sell and for the money to go into an account to abide the outcome of the dispute between mortgagor and mortgagee, which in this case meant pending the resolution of the arguments raised in Mrs Burgess’ defence. So this was not a sale by a mortgagee at all; it was a sale expressly by agreement of the mortgagee, a sale by the mortgagor and the money going into a joint account. . . .

So I do not accept that this is a section 105 case at all, . . .”

20. The judge was plainly correct to take the view that section 105 of the Law of Property Act 1925 had no direct application; because, as he pointed out, the sale was not a sale by a mortgagee. But, as it seems to me, he overlooked the fact that, when the parties agreed that the property should be sold by the mortgagors with the concurrence of the mortgagee, on terms that the proceeds be held by the mortgagee’s solicitors pending the determination of the issues in dispute, they must have intended that (while those issues remained unresolved) the solicitors were not free to deal with the monies save at their joint direction. In that sense the monies were, necessarily held upon trust. Further, the parties must be taken to have intended that the manner in which the sale was effected (by a transfer by the mortgagors rather than by a transfer by the mortgagee) would not affect their respective rights in the proceeds of sale. The obvious purpose of the arrangement was to preserve whatever rights they each had until those rights had been determined, either by the court in the litigation then pending or by agreement.
21. On the basis that the Bank must now be taken to have accepted that the indebtedness on the two business accounts was not secured by the legal charge, it can be seen (with hindsight) that the true position immediately before the sale of Brookfield House in August 1995 was this. Mr and Mrs Burgess were jointly and severally liable to the Bank for the indebtedness on the home mortgage account (say, £30,000), the Cyprus loan account (say, £12,500) and for part of the indebtedness on the joint current account (say, £55,000) – an aggregate of joint and several indebtedness in the amount of £97,500 or thereabouts. That joint and several indebtedness was secured by a legal charge on the property which was in their joint names. Mr Burgess was also, himself, liable for the two business loans (respectively, say, £107,500 and £105,500) and for the balance of the indebtedness on the joint current account (say, £52,000) – an aggregate separate indebtedness of £265,000. That separate indebtedness was secured by a charge – which, necessarily, had effect in equity only – on Mr Burgess’ share as tenant in common under the trust for sale upon which the property was held. If the property had been sold by the Bank as mortgagee for, say, £243,000 (taking into account the compensation payment), the Bank would have been entitled to apply the proceeds of sale in payment of the secured debt (£97,500). The balance (£145,500) would have been payable to Mr Burgess and Mrs Burgess in equal shares. But the Bank would have been entitled to retain Mr Burgess’ half share (£72,750) and to apply that towards satisfaction of his separate indebtedness. It would not have been entitled to apply any part of Mrs Burgess’ half share in payment of Mr Burgess’ separate indebtedness. She was not liable for her husband’s separate indebtedness; and her beneficial interest in the property (after discharge of the joint indebtedness secured by the legal charge) was not security for his separate indebtedness.
22. Mr Sutcliffe QC, who appeared for the Bank on this appeal, did not dissent from the analysis which I have set out in the previous paragraph. Nor did he dissent from the conclusions which follow, necessarily, from that analysis. First, it follows that the rights of the parties in relation to the monies held on deposit immediately before the order of 10 December 1996 were (as can now be seen) to have those monies applied in discharge of the secured debt (now held to be £102,484.87 – being the aggregate of £47,014.74 and £55,470.13) before any payments were made to, or for the benefit of, either Mr or Mrs Burgess or of any person claiming through either of them. Second, it follows that Mrs Burgess’ interest in those monies (£74,778.66) - being one half of the balance (£149,557.32) remaining after payment of the secured debt (£102,484.87) out of the deposit monies (£252,042.19) - was not available either (i) to satisfy any part of the secured debt (because Mrs Burgess’ interest can be quantified only after the secured debt has been paid or provided for) or (ii) to satisfy any part of Mr Burgess’ separate indebtedness (because his separate indebtedness is not secured on her interest). Third, it follows that the Bank was entitled to apply the whole of Mr Burgess’ interest in those monies (£74,778.66) towards satisfaction of his separate indebtedness. In summary, it can now be seen (with hindsight) that, immediately before the order of 10 December 1996, the Bank was entitled to apply £177,263.53 out of the deposit monies - being the aggregate of the joint indebtedness (£102,484.87) secured on the property and the amount of Mr Burgess’ interest in the balance (£74,778.66), on which his separate indebtedness (£329,166.67) was secured – in or towards the payment of the debts owed to it; and was required to account to Mrs Burgess for the remainder of the deposit monies (£74,778.66) – that being her interest over which the Bank had no claim as a secured creditor.
23. Mr Sutcliffe accepts that those conclusions follow if the matter is approached on the basis that the Bank is unable to contend that Mr Burgess’ separate indebtedness – that is to say, the indebtedness in respect of the two business loan accounts and so much of the indebtedness on the joint current account as is referable to those business loans – is secured by the legal charge. But he challenges that premise. He sought to persuade us that the Bank had never accepted that Mr Burgess’ separate indebtedness was not secured by the legal charge.
24. In my view it is not now open to the Bank to resile from the concession made in the letter of 27 July 2000 to which I have referred earlier in this judgment. As I have sought to explain, the Bank’s confirmation, through its solicitors, that it would not be pursuing “claims in respect of the two business loan accounts that your client disputes in full” can only relate to the claims that the indebtedness on each of the business loan accounts was secured by the legal charge. Those were the only claims, in relation to the business accounts, that were made against Mrs Burgess in the proceedings; and those were the only claims to which her O’Brien defence could relate. The reason why she was not personally liable for the indebtedness on the business loan accounts had nothing to do with the O’Brien defence. She was not personally liable for that indebtedness because the business loans were made to her husband alone and she had never signed any document undertaking responsibility for re-payment. But, if and so far as there was any doubt as to the concession which the Bank had intended to make in its letter of 27 July 2000, the opportunity to explain, limit or resile from that concession was at the hearing before the judge on 4 December 2000. It is plain that the Bank did not take that opportunity. The matter was adjourned for further hearing on the basis - expressed by the judge in the passage to which I have referred and recorded in the order which he made on that day - that the Bank had conceded the O’Brien defence in relation to the two business loans.
25. That that was the understanding of those advising Mrs Burgess appears from the points of claim served on her behalf in response to the order of 4 December 2000. Paragraph 3 of that pleading defines the dispute to be resolved as “the isolated question of the manner in which the proceeds of sale of [Brookfield House] should be distributed now that it has been conceded and declared that Mrs Burgess’s Barclays v O’Brien type defence succeeded.” [emphasis added]. But Mr Sutcliffe has drawn our attention, first, to paragraph 10 in the Bank’s points of defence; and, second, to a paragraph in the “Claimant’s Second Skeleton Argument”, prepared on 25 May 2001 for use at the hearing on 1 June 2001. Paragraph 10 of the points of defence contains the surprising assertion that Mrs Burgess’ reliance on an O’Brien defence “was not necessary or relevant. There has never been a live Barclays Bank v O’Brien issue in this case”. In the skeleton argument, under the heading “No Barclays Bank v O’Brien defence”, there appears the following:

“Finally, and for the avoidance of any doubt, I confirm that the Second Defendant’s statement (paragraph 3 of the Points of Claim) that the Second Defendant has succeeded in a Barclays Bank v O’Brien type defence is incorrect for the simple reason that no claim was ever made against the Second Defendant in relation to the First Business Loan and the Second Business Loan. The claim against the Second Defendant was only ever in relation to the Mortgage, the Cyprus Loan and the Joint Current Account (in respect of all three of which the Second Defendant has now conceded liability).”

I confess that I find it difficult to see how counsel (not Mr Sutcliffe QC) could have put his name to that skeleton argument. The statement that no claim was ever made against Mrs Burgess in relation to the business loans is plainly wrong. The Bank had claimed against her, as co-owner of the property charged by the legal charge, that the indebtedness on the business loan accounts was secured by that charge. It was in relation to that claim – and only in relation to that claim – that the O’Brien defence was deployed. Mr Sutcliffe accepted, I think, that the statement was plainly wrong. He sought to rely upon it as demonstrating the Bank’s thinking at the time; which he described as “pragmatic”. I am unable to take the view that the paragraph demonstrates any thinking at all, pragmatic or otherwise. It seems to me to demonstrate only a lamentable lack of any informed thought in a matter which, however unimportant it may have seemed to the Bank, was and is of real importance to Mrs Burgess.

26. It is clear that it was never brought home to the judge, on 1 June 2001, that the Bank was seeking to resile from the concession which he thought had been made on 4 December 2000. In a passage at page 8 in the transcript of his judgment the judge referred to the fact that the Bank had accepted that Mrs Burgess had no personal liability for the business loans – because, as he said, there was no personal covenant by her to repay the business debts – and went on to say this:

“. . . but I am not sure that the bank has really understood that the effect of the mortgage, without the O’Brien defence, would be that the property would be encumbered by the business loans. However, before me [counsel] for the bank has quite clearly conceded that there is no question of Mrs Burgess’ beneficial interest bearing any liability for the business loans . . .”

The judge recognised that, without the O’Brien defence, the business loans would be secured on the property; and must have appreciated that only basis on which (absent agreement) there could be “no question of Mrs Burgess’ beneficial interest bearing any liability for the business loans” was that the Bank had conceded the O’Brien defence.

27. If the judge had misunderstood the concession that the Bank intended to make on 4 December 2000 and, again, on 1 June 2001, there was a further opportunity to correct that misunderstanding in the respondent’s notice that was served in connection with the Bank’s cross-appeal. But the point finds no place in that respondent’s notice; and Mr Sutcliffe made no application to amend the notice in order to challenge the judge’s understanding of the position. He submitted that there was no need to do so. The judge, it is said, had understood, correctly, that the Bank had not conceded the O’Brien defence. The only concession that the Bank intended to make, while maintaining that the business loans were secured by the legal charge, was that no recourse could be had to Mrs Burgess’ beneficial interest in the property charged. For the reasons which I have sought to explain, there is no sensible basis (absent the agreement of both Mr and Mrs Burgess) upon which a concession could be made in those terms. I find it impossible to accept that the judge could have understood that the Bank was seeking to maintain that the business loans were secured by the legal charge.
28. It follows that I think it right to approach this appeal on the basis that the Bank must be taken to have accepted that the indebtedness on the two business accounts was not secured by the legal charge. On that basis, I would hold that the true position immediately before the order of 10 December 1996 was as I have set out. The question, then, is whether (and if so how) the rights of the parties were affected by that order.
29. There is nothing in paragraphs 1 and 2 of the order of 10 December 1996 which is inconsistent with the rights of the parties as they were immediately before that order was made. The Bank was entitled to judgment against each of them for the whole of their respective joint and several liabilities. But it is important to recognise that the Bank could not be allowed to recover both judgments in full. The total indebtedness was limited to £431,651.54.
30. Further, there is nothing inconsistent with their existing rights (as they are now seen to be) in permitting the Bank to apply a total of £173,035.83 (the aggregate of £126,021.09 and £47,014.74) in satisfaction of the indebtedness (£102,484.87) for which Mr and Mrs Burgess have now been held jointly and severally liable and (as to the balance, £70,550.96) towards the satisfaction of Mr Burgess’ separate debt. As I have sought to explain, the true position immediately before 10 December 1996 (as it can now be seen to be) is that the Bank was entitled to apply £177,263.53 out of the deposit monies in or towards the payment of the debts owed to it. It was required to account to Mrs Burgess for the remainder of the deposit monies (£74,778.66) over which the Bank had no claim. That obligation, as it seems to me, has been preserved (although, perhaps, fortuitously) by the terms in which paragraph 3 of the order of 10 December 1996 was made. The Bank was to retain the balance of the deposit monies (£79,006.36) “on the same terms as here and so far until further order”. On the basis that the terms, or trusts, upon which the deposit monies were held required the Bank to give effect to the interests of the parties in the proceeds of realisation of the property subject to the legal charge and the compensation monies, it can now be seen that the balance to be retained under paragraph 3 of the order of 10 December 1996 was and is held upon terms that £74,778.66 be paid to Mrs Burgess and (subject to provision for the costs of these proceedings since 10 December 1996) the remainder (£4,227.70) be paid to the Bank.
31. The judge took the view that the order of 10 December 1996 authorised the Bank to appropriate “half the net proceeds of sale” - by which he meant one half of the proceeds of sale (£126,021.29) before discharging the debt secured by the legal charge – “in settlement of Mr Burgess’ liability” – by which he meant Mr Burgess’ separate liability. As he said, in the passage of his judgment which I have set out: “the deputy district judge’s order makes it quite clear that half the net proceeds of sale are to go completely to the bank in settlement of Mr Burgess’ liability and £47,000 of Mrs Burgess’ share are to go to the bank expressly to meet the full liability under the mortgage, under the home loan and the Cyprus loan. . . . [The] bank’s position is, once the current account is re-ordered and the liability is then clarified at £54,000, that sum must come out of what is left in the joint account, being the remainder of Mrs Burgess’ beneficial share. . . . [The] bank is entitled to pursue that course. It has done the appropriation.”
32. It is plain that the judge took the view that he did because the figures which appear in the order of 10 December 1996 point strongly to the conclusion that that was the basis upon which it had been made. But that was not the basis upon which an order for interim payment out of the deposit monies had been sought by the Bank; there is no suggestion that the order was made on that basis with the consent of Mrs Burgess (or Mr Burgess); and (in the absence of agreement) that basis would, plainly, have been misconceived. If the order of 10 December 1996 had that effect, it could not be upheld. For my part, I would have been ready to entertain an application to appeal from the order of 10 December 1996; although now long out of time. But it is unnecessary to pursue that route. The order of 10 December 1996 does not, in terms, have the effect which the judge attributed to it.
33. The order does not have that effect, first, because there is no appropriation of £126,021.09 out of the deposit monies towards the satisfaction, only, of Mr Burgess’ separate debt. The sum is to be applied in part satisfaction of the judgment against him; and the judgment (£431,651.54) includes the joint indebtedness as well as the separate indebteness. Second, the judgment against Mrs Burgess (£47,014.74) is not expressed to be a judgment in respect of her liability for the indebtedness on the home mortgage account and the Cyprus loan account only. The amount of the judgment does, of course, reflect her admission of liability for that indebtedness; but the form of the judgment is equally consistent with the view that it was intended to be an interim judgment in respect of the whole amount claimed against her in the proceedings – as His Honour Judge Boggis QC described it when he defined the preliminary issue on 9 October 2000. Third, there is no reason why £47,014.74 should not be applied in satisfaction of an interim judgment against Mrs Burgess; provided, of course, that there is a proper accounting in due course. Fourth, the order does not require, in terms, that the balance of the deposit monies (£79,006.36) be applied in satisfaction of the whole of that part of the indebtedness on the joint current account for which Mrs Burgess may be jointly and severally liable – although that may well have been the thinking behind the order at the time. As I have said, the order requires that that balance is retained “on the same terms as here and so far until further order.”
34. In those circumstances, I am satisfied that there was nothing in the order of 10 December 1996 which prevented the court, in June 2001, from apportioning the proceeds of sale of Brookfield House between the parties so as to give effect to the rights which arose when that property was sold in August 1995. The judge was wrong to answer the preliminary issue in the way that he did.
35. I would allow this appeal and direct payment to the appellant of the sum of £74,778.66 (or such other sum as the parties may agree after consideration of our judgments) together with accrued interest on that sum out of the monies retained under the order of 10 December 1996.

Lord Justice Ward:

36. I entirely agree with the judgment of Chadwick LJ and although we are differing from an experienced judge, there is nothing I can usefully add. The appeal must be allowed as my Lord has directed.
Order: appeal allowed; counsel to submit an agreed draft order within 14 days. (Order does not form part of the approved judgment).