Lloyds Bank Plc v Ellicott

A technical procedural error in bringing a Part 20 claim does not invalidate the proceedings unless the court so orders. The court should ordinarily use rule 3.10 of the Civil Procedure Rules 1998 to cure an error which causes no prejudice.

An undertaking in a matrimonial consent order to assume joint debts and indemnify the other party may also create a contractual obligation enforceable in civil proceedings. An individual voluntary arrangement affects a creditor’s rights against a co-debtor only to the extent provided by its terms. A conventional arrangement which restrains proceedings only against the debtor does not prevent proceedings against the co-debtor or that co-debtor’s claim for contribution and indemnity.

The former spouses were jointly and severally liable to Lloyds Bank for a business loan and overdraft. In ancillary-relief proceedings, the husband undertook to assume responsibility for both liabilities and to indemnify the wife in respect of the business loan.

After the husband entered into an individual voluntary arrangement, the bank obtained summary judgment against the wife. She brought a Part 20 claim against the husband for indemnity and contribution. His former wife had not been a creditor when the arrangement was proposed and had not received notice of it.

His Honour Judge Anthony Thompson QC, in the Southampton County Court, dismissed the Part 20 claim on procedural, matrimonial-jurisdiction and IVA grounds. The appeal concerned whether the claim should have proceeded and whether the IVA afforded the husband a defence.

Appeal allowed unanimously. Ward LJ gave the principal judgment. Chadwick LJ agreed and added guidance on the proper procedural course where an IVA may affect a claim between co-debtors.

1. The absence of a recorded grant of permission for the Part 20 claim was, at most, a technical procedural error. The transcript showed that District Judge Edwards was sympathetic to the claim and would have granted permission. In any event, rule 3.10 of the Civil Procedure Rules 1998 meant that the error did not invalidate the proceedings and should have been remedied. It caused no prejudice and could not justify striking out the claim.

2. The standard liberty-to-apply provision in the matrimonial consent order did not require the wife to pursue this civil debt claim in the Family Division. Its function was to enable implementation or clarification of financial and property terms. It did not confer jurisdiction to determine civil enforcement proceedings. Section 23 of the Matrimonial Causes Act 1973 explained why such a provision was used, but the Family Division had no effective remedy to order payment of the unpaid debt under the undertaking.

3. The undertaking remained contractually effective between the former spouses although it was embodied in a court order. The husband had undertaken both to repay the joint liabilities and expressly to indemnify the wife for the business loan. His failure to do so was a breach, entitling her to indemnity and contribution for sums payable to the bank.

4. The IVA was a statutory contractual compromise whose effect depended upon its terms. Applying [1999] Ch 117, the court held that the arrangement neither presently released the husband nor restricted the bank’s rights against the wife. No restriction against the co-debtor could be implied. As the wife was not bound by the arrangement, it did not bar her consequential claim against the husband.

5. Chadwick LJ stated that, where an IVA defence may have substance, the appropriate course is a Part 20 claim joining the creditor and both co-debtors before judgment. That enables all interested parties to be bound by the determination. Here the failure to follow that course caused no prejudice because the IVA defence failed.

The orders below were discharged. Judgment was entered for the wife for an indemnity and full contribution for all sums she was required to pay the bank, including her costs of the bank’s proceedings.

• Court of Appeal (Civil Division) Permission to appeal was granted and the appeal was allowed: [2002] EWCA Civ 1333. The orders below were discharged and judgment entered for Mrs Ellicott against Mr Ellicott.
• Southampton County Court His Honour Judge Anthony Thompson QC dismissed Mrs Ellicott’s Part 20 claim against Mr Ellicott.
• Bournemouth County Court District Judge Edwards entered summary judgment for the bank against Mrs Ellicott. The intended Part 20 claim against Mr Ellicott was discussed but permission was not recorded in the drawn order.