Lloyds TSB Bank Plc v Pygott

An all monies guarantee remains a continuing security while money is owed by the principal debtor, despite payments reducing the overdraft, even where those payments exceed the guarantee’s cap. A mortgagee’s possession and sale of charged property to reduce secured debt is an exercise of mortgage rights, not a gift or transfer at an undervalue for the purposes of sections 423 and 424 of the Insolvency Act 1986. A party with no viable defence is not entitled to a full evidential trial, and summary disposal may comply with Article 6 where the case has been fairly considered. Permission to appeal after two prior decisions requires an important point of principle or practice or another compelling reason.

Lloyds TSB Bank Plc sought possession of a property under a mortgage securing Mr and Mrs Pygott’s liabilities under an all monies guarantee for Mottramcourt Ltd’s debts. Mr Pygott alleged that payments had discharged the guarantee and challenged the bank’s dealings with the company’s mortgaged farm under sections 423 and 424 of the Insolvency Act 1986. A District Judge struck out the defence and ordered possession. His Honour Judge Sennett dismissed the appeal. Mr Pygott then applied for permission to appeal, arguing that the issues required a trial and that summary disposal breached Article 6. The central questions were whether any proposed ground had a real prospect of success and whether there was an important point of principle, practice or other compelling reason for a further appeal.

Lord Justice Aldous, sitting alone, refused both applications for permission to appeal.

1. Permission threshold. Following two previous judicial decisions, CPR 52.13 applied. Permission required an important point of principle or practice, or some other compelling reason for the Court of Appeal to hear the case. No such ground was established.
2. Guarantee. The guarantee was an all monies guarantee. While Mottramcourt Ltd remained indebted to the bank, payments by Mr and Mrs Pygott which reduced the company’s overdraft did not discharge the guarantee, even if they exceeded £250,000 in aggregate. The guarantors remained liable up to the contractual limit of £150,000. The District Judge was right to reject the alleged discharge.
3. Mortgage security. The mortgage existed and entitled the bank to exercise its mortgagee rights, including possession and sale. Obtaining possession and selling the farm to reduce the secured debt was not a gift or a transfer to the bank at an undervalue. The proposed amendment based on sections 423 and 424 of the Insolvency Act 1986 therefore had no real prospect of success.
4. Summary procedure and Article 6. A person with no defence is not entitled to a full hearing involving witnesses and disclosure. A court may strike out an action without a trial where it could not succeed. The documents and hearing showed fair consideration of the case, and Article 6 did not require a futile trial. The interests of the opposing party also included protection from vexatious litigation that could not succeed.
5. The remaining allegations, including complaints concerning the Official Receiver and other persons, disclosed no cause of action against the bank. The applications were refused.

• Court of Appeal (Civil Division): Applications for permission to appeal refused: [2002] EWCA Civ 1315.
• County Court, His Honour Judge Sennett: Appeal dismissed against the orders striking out the defence and ordering possession.
• County Court, District Judge Kirby: Defence struck out and possession ordered, subject to non-enforcement during the occupation of the property by Mr Pygott’s mother; the money claim was adjourned generally with liberty to restore.