Faircharm Investments Ltd v Citibank International Plc

An irregular judgment need not automatically be set aside where the defendant would inevitably lose on a properly argued application for summary judgment. The court may uphold the result where setting aside the judgment would serve no useful purpose and no fundamental procedural error requires that course.

A prior encumbrancer who is paid off by a subsequent encumbrancer must not destroy or prejudice the rights secured by the prior encumbrance. A subsequent encumbrancer who pays off the prior debt is subrogated to the prior encumbrancer’s rights and remedies. The prior encumbrancer must preserve those rights or compensate the subrogatee for their loss.

Mr Frost mortgaged property and assigned a life policy to Citibank as security. Faircharm later obtained a judgment against him, charged the property and arranged its sale. Faircharm paid Citibank’s redemption figure on the understanding that Citibank would remit the policy surrender proceeds.

Citibank released the security but then represented to the insurer and Mr Frost’s solicitors that it had no further interest and that the policy had been sent for surrender. The insurer consequently paid the proceeds to Mr Frost. A deputy master ordered an assignment of the policy and later refused to set aside a judgment entered for damages. Judge Levy QC dismissed Citibank’s appeals. This was Citibank’s appeal to the Court of Appeal concerning the irregular judgment and Faircharm’s entitlement to the policy proceeds.

1. Appeal dismissed. The judgment entered for Faircharm was irregular because judgment had been entered in default of defence before the time for service of a defence had begun. Nevertheless, an irregular judgment does not invariably have to be set aside. Where the defendant would be bound to lose on a properly argued application for summary judgment, the court may decline to set it aside if doing so would be pointless, unless the procedural error is so fundamental that the judgment cannot properly stand.
2. Citibank was bound to lose on the true facts. The deputy master had found, in a decision no longer under appeal, that Citibank agreed to remit the policy proceeds to Faircharm. That agreement carried an implied term that Citibank would not destroy Faircharm’s entitlement by representing that it had no further interest in the policies or that they had been sent for surrender.
3. Independently, Faircharm was entitled to be subrogated to Citibank’s rights in the policy after paying off Citibank’s prior security. The doctrine requires a subrogator not to destroy or prejudice rights or remedies to which the subrogee becomes entitled. The same principle applies to a prior encumbrancer paid off by a subsequent encumbrancer. Citibank’s conduct caused the insurer to pay the proceeds to Mr Frost and made those proceeds unavailable to Faircharm.
4. Faircharm was not precluded by any failure to notify the insurer during the relevant period. Its conduct was directed to obtaining an assignment, and any delay was insignificant compared with Citibank’s delay and failure to give proper information. The judgment therefore stood as a judgment for damages equal to the policy proceeds, £7,788.99. A larger recovery based on sale of the policy was too late to claim.

Lord Justice Aldous and Lord Justice Henry agreed with Sir Christopher Staughton. The appeal was dismissed with costs.

• Judge Levy QC, sitting as a High Court judge: dismissed Citibank’s appeals from the deputy master’s orders, including the refusal to set aside the judgment for damages.
• Court of Appeal (Civil Division): dismissed Citibank’s appeal and ordered that the judgment stand as a judgment for damages equal to the insurance proceeds, with costs.