Chelsea Building Society v Nash

Where one joint and several debtor reaches an accord and satisfaction with the creditor, the creditor should expressly reserve its rights against co-debtors. If it does not, the court must decide whether such a reservation is necessarily implied from the circumstances existing when the agreement was made. The creditor bears that burden. A court errs if it instead asks whether the debtor positively agreed that the co-debtor’s liability would be discharged. A new point raised for the first time on appeal may be refused where deciding it would require fact-finding that the other party had no fair opportunity to obtain below.

Joint mortgagors William Upton and Lorraine Nash were liable for a mortgage shortfall after their property was repossessed and sold. The building society accepted £5,000 from Mr Upton in full and final settlement of his liability, but later pursued Ms Nash for the remaining shortfall. The County Court gave judgment against Ms Nash, finding no agreement that Mr Upton’s payment discharged the whole mortgage liability. Ms Nash appealed. The central issue was whether the settlement with one joint and several mortgagor released, or otherwise prevented enforcement against, the other, and whether any reservation of rights could be implied.

1. Late consideration point. The application to introduce the argument that no accord and satisfaction could arise because the payment was merely part payment of an undisputed debt was refused. The point had not been argued below and determining it would have required evidence and findings that could no longer fairly be obtained.
2. Applicable principles. The court considered the general rule stated in Deanplan Limited v Mahmoud and Another [1992] 3 AER 945, described as authoritative in Johnson and Anr v Davis and Anr [1998] 2 AER 649. The analysis in Watts v Lord Aldington, Tolstoy v Aldington [1999] LTR 578 required the agreement to be assessed objectively. The relevant question was whether the agreement precluded the creditor from enforcing the co-debtor’s liability, having regard to its express terms and any terms necessarily implied from the surrounding circumstances.
3. Reservation of rights. A creditor seeking to preserve its rights against co-debtors should expressly reserve them. In the absence of an express reservation, the creditor must establish that a reservation was necessarily implied. The burden lay on the building society. The trial judge instead asked whether there had been a positive agreement to discharge Ms Nash’s liability, thereby reversing the burden.
4. Application. There was no evidence of an express reservation. Mr Upton’s request that Ms Nash contribute to his payment was inconsistent with an understanding that the payment did not release her. The building society’s earlier instructions to its agents to pursue both debtors did not establish a necessary implication at the time of settlement, particularly in the absence of evidence about the negotiations immediately before the payment. The subsequent correspondence was capable of suggesting that the building society itself had doubts about pursuing Ms Nash. The reservation was therefore not established and the appeal was allowed.
5. Lord Justice Gross emphasised that the decision depended on the sparse facts of the individual case and had no wider authority than the reasoning stated. Lord Justice Sedley agreed.

• Court of Appeal (Civil Division): On 19 October 2010, allowed the appeal. [2010] EWCA Civ 1247
• Hastings County Court: On 16 December 2009, HHJ Hollis gave judgment for Chelsea Building Society for £27,020 plus interest and costs, finding that the payment by Mr Upton did not discharge the whole liability.