Commercial First Business Limited v Munday & Anor

Cause of action estoppel may prevent a mortgagee from relying on an all-monies charge to recover a different secured debt after obtaining a judgment framed as the outstanding mortgage debt. Contractual causes of action merge in the judgments, so later proceedings cannot recover a liability omitted from the relevant judgment. On an application under the Administration of Justice Act 1970, s.36, the court must consider the sums legally due under the mortgage. Pre-judgment arrears are confined to the amount adjudicated, but contractual interest accruing after judgment remains capable of consideration. The court remitted the question whether a separate agreement restricted enforcement while the farmhouse loan was serviced.

The borrowers obtained two loans from Commercial First Business Limited. One was secured on a farmhouse and the other on adjoining cottages, with separate charges containing all-monies clauses. Separate possession proceedings produced separate possession orders and money judgments in 2007.

After the cottages debt remained unpaid, the lender sought to enforce the farmhouse warrant against the cottages shortfall. The borrowers relied on estoppel, cause of action estoppel, abuse of process, collateral contract and construction of the charge. The County Court set aside the warrant on estoppel grounds. The central issues on the second appeal were whether the lender could rely on the farmhouse security after the separate judgments, and whether any later agreement had restricted that security.

1. Outcome. The Court of Appeal rejected the County Court’s estoppel-by-convention reasoning but upheld its order setting aside the warrant on the distinct ground of cause of action estoppel. Execution of the warrant was suspended until further order, and the collateral-contract issue was remitted to the County Court.
2. Estoppel by convention. The defendants had not shown that CFB conveyed an understanding that the farmhouse charge excluded the cottages loan, or that they relied on that understanding to their detriment. Mere silence, separate enforcement proceedings and the charging-order application were insufficient. The evidence did not establish that the defendants’ conduct caused the increase in the cottages debt. A decision not to pay instalments because the lender was thought unable to recover the shortfall would not readily constitute the necessary detriment.
3. Cause of action estoppel and merger. Once judgment had been obtained for each loan, the contractual causes of action for the loans and accrued pre-judgment interest merged in the respective judgments. Applying Arnold v National Westminster Bank plc and Lloyds Bank plc v Hawkins, CFB could not use the farmhouse possession proceedings or the s.36 application to recover the cottages loan through the farmhouse charge. Its remedies for that debt were confined to execution of the cottages judgment, subject to other available remedies.
4. Continuing interest. Post-judgment contractual interest did not merge in the judgments and was not barred by cause of action estoppel. On an application under s.36 of the Administration of Justice Act 1970, the court had to consider whether the mortgagors could pay any sums due under the mortgage within a reasonable time. This included post-judgment interest, although pre-judgment farmhouse arrears were limited to the amount in the farmhouse judgment.
5. Construction and collateral contract. The standard all-monies clause extended on its ordinary meaning to liabilities under both loans. The correspondence did not objectively establish a variation or agreement not to enforce the charge, but the County Court had not properly determined the alleged 2008 agreement or consideration. That issue was remitted for directions and trial.

• Court of Appeal (Civil Division): [2014] EWCA Civ 1296. The court upheld the order setting aside the warrant on cause of action estoppel, suspended execution until further order, and remitted the alleged 2008 collateral-contract issue.
• Plymouth County Court: HH Judge Cotter QC allowed the borrowers’ appeal on 3 October 2013 and set aside the warrant for possession.
• Plymouth County Court: Deputy District Judge Hall refused to set aside the warrant on 25 January 2013.