Pendleton & Anor v Westwater & Anor

A judgment against one of several defendants does not invariably establish an irrevocable election barring proceedings against another. The court must examine the claim as pleaded, the basis on which judgment was obtained and whether the claimant made an unequivocal choice between inconsistent liabilities. A default judgment, entered without consideration of the merits, does not automatically amount to such an election. The doctrine must be applied narrowly where its operation would cause injustice. Where illegality is raised late, the court must exercise particular caution and should refuse enforcement only where the evidence establishes the claimant’s knowing participation without creating a palpable risk of injustice.

The claimants, husband and wife, managed a hotel operated by the second defendant company, which was controlled by the first defendant. They claimed repayment from the first defendant of three sums advanced during the company’s financial difficulties. The first defendant argued that a previous default judgment against the company amounted to a conclusive election barring recovery from him.

A separate claim concerned an agreement for the second claimant’s purchase of property from the first defendant. The purchase price had been falsely stated as £29,000 to obtain a £20,000 mortgage. The first defendant argued that the second claimant knowingly participated in the deception and that the agreement should not be enforced. The county court rejected both arguments. The Court of Appeal considered whether the default judgment created an election and whether the evidence established knowing participation in the illegality.

1. Appeal dismissed. The first defendant was liable for the sums found to have been lent to him personally, and the second claimant was entitled to the relief arising from the property transaction.
2. The rule in Morel Bros v Earl of Westmoreland, [1903] 1 KB 64, [1904] AC 11, applies where a claimant has made a conclusive election between defendants whose liabilities are alternative and inconsistent. It does not establish that entry of judgment against one defendant is automatically conclusive in every case.
3. The court must examine the whole claim, including the pleadings and the circumstances in which judgment was obtained. Here, the pleadings included personal, joint and company liabilities. The default judgment was entered without consideration of the merits, and the materials before the district judge did not identify the precise legal or factual basis of the company’s liability. The claimants therefore had not made an unequivocal election.
4. The doctrine of election should be applied rigorously, carefully and narrowly where it would operate unjustly. The court expressly confined its conclusion to the particular facts and did not decide generally whether a default judgment can bar a claim against another defendant.
5. As to illegality, the guidance in Birkett v Acorn Business Machines [1999] 2 All ER (Comm) 429 required special caution because the allegation emerged late and had not been explored at the original trial. The burden lay on the first defendant. The county court judge was entitled, having assessed the evidence and the second claimant’s sophistication, to find that knowing participation in the deception had not been proved. The Court of Appeal would not substitute its own view for that of the trial judge.
6. Lord Justice Thorpe and Mr Justice Harrison agreed with Laws LJ. The appeal was dismissed, with costs, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division) — [2001] EWCA Civ 1841: appeal from orders made by HHJ Walton in Newcastle-upon-Tyne County Court dismissed. Costs awarded against the first defendant and leave to appeal to the House of Lords refused.
• Newcastle-upon-Tyne County Court — Judgment given on 1 March 2000 and further orders made on 4 January 2001: the claimants succeeded on the personal loans and the illegality argument was rejected.