Chapman v Louei

A payment made by one party to discharge a mortgage securing another’s debt may create a personal right to reimbursement where it enables the mortgaged property to be transferred free of the charge. A later reduction in consideration under a related corporate transaction does not extinguish or reduce that obligation without an agreement to that effect. Agreement is determined objectively from external acts; an uncommunicated understanding cannot establish it. An appellate court should not interfere with factual findings merely because it might draw a different inference from the documents. Intervention is justified only where the trial judge’s conclusion falls outside the generous ambit within which reasonable disagreement is possible.

Paul Chapman and Joseph Louei were businessmen who agreed to divide their hotel interests. As part of the arrangement, Chapman paid £209,343.33 to discharge a mortgage over property owned by Louei, enabling its transfer free of the mortgage. The parties later completed a corporate de-merger using a reduced transferred-borrowing figure. Chapman claimed reimbursement, while Louei argued that the later reduction had accounted for or superseded that liability.

The county court awarded Chapman the mortgage payment, subject to a set-off on Louei’s counterclaim, and ordered payment of the balance. Louei appealed, contending that the judge wrongly treated the payment as arising from a separate agreement and failed to give proper effect to the de-merger documents. The central issue was whether the judge’s factual and contractual conclusions were open to him.

1. Appeal dismissed. The appellant’s challenge was principally to findings of fact and to the conclusion that the later de-merger did not extinguish the reimbursement obligation.
2. The Court applied the appellate standard stated in Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642, [2003] 1 WLR 577. An appellate court should not interfere where the trial judge’s conclusion falls within the generous ambit of reasonable disagreement. The judge was entitled to rely on his assessment of the witnesses and was not required to refer expressly to every document relied upon on appeal.
3. The evidence did not establish any express agreement linking the £215,000 reduction in transferred borrowing with the payment made to discharge the mortgage. The relevant email did not mention the property, the mortgage or the payment. The documentary history was obscure, and the independent evidence did not clarify the alleged connection.
4. Agreement had to be established objectively by reference to the parties’ external acts. An uncommunicated understanding was irrelevant. No implied term cancelling the reimbursement obligation had been pleaded, and the evidence did not support one. The assertion that the payment was “accounted for” by the reduction likewise required an agreement between the parties.
5. The payment gave rise to a right to reimbursement, and the appellant failed to prove that the obligation had been removed or reduced. Any perceived commercial double recovery could have been addressed by insisting that the reduction cancelled the personal obligation, but that was never done. The county court’s judgment, subject to the set-off already allowed, therefore stood.

• Court of Appeal (Civil Division): [2011] EWCA Civ 155. Appeal dismissed.
• Plymouth County Court: His Honour Judge Leeming QC awarded judgment to the claimant for the mortgage payment, allowed the defendant’s counterclaim in part by way of set-off, and ordered payment of the balance.