Together Commercial Finance Limited v Fay of London Limited

Permission to amend a statement of case should be refused where the proposed case lacks a real prospect of success. The merits test requires more than an arguable case: the pleading must carry some degree of conviction, be coherent and properly particularised, and be supported by evidence establishing its factual basis.

An intention that property should be used as a family home does not, without more, establish an intention as to beneficial ownership. Where occupation is provided through a company’s ownership of the property and the grant of a licence, that arrangement may be inconsistent with the alleged proprietary interest. Not every occupier of mortgaged premises must be joined to possession proceedings.

The claimant mortgagee sought possession of a flat leased to the defendant company after default under a bridging loan. Ms Peganova applied to be joined as a defendant, and the defendant and Ms Peganova sought permission to amend the defence and bring a counterclaim.

Ms Peganova alleged that she had a beneficial interest in the lease through proprietary estoppel or a common intention constructive trust. The defendant’s proposed defence depended on establishing that interest and then contending that the loan and security were regulated mortgage transactions under the Financial Services and Markets Act 2000, with consequences arising from the claimant’s alleged lack of authorisation.

The issues were whether the proposed proprietary claims had a real prospect of success, whether amendment and joinder should be permitted, and whether a possession order should follow.

1. Merits of amendment. The court applied the approach in Kawasaki Kisen Kaisha Limited v James Kemball Limited. A proposed case must have a real, rather than fanciful, prospect of success. It must carry some degree of conviction, be coherent and properly particularised, and be supported by evidence establishing its factual basis.
2. Proprietary estoppel and constructive trust. Proprietary estoppel requires an assurance or representation, reliance and detriment. A common intention constructive trust requires an agreement, understanding or arrangement that the claimant is to have a beneficial share in the property, together with detrimental reliance.
3. The pleaded intention that the flat should be a permanent family home did not identify any intention concerning beneficial ownership. The court applied the reasoning of Lloyds Bank plc v Rosset that an intention to renovate or share a property as a family home does not, without more, illuminate beneficial ownership.
4. The asserted arrangement was also inconsistent with the structure by which the defendant company held the lease, its shares were acquired by the trust, and occupation was permitted through the company’s nominated representative under the lease. A beneficial interest or occupation otherwise than under that arrangement could potentially constitute a breach giving rise to forfeiture. The evidence did not establish that the company was party to, or had adopted, the alleged common understanding.
5. Ms Peganova’s proposed case therefore failed the merits test. Permission to amend was refused. The defendant’s proposed defence and counterclaim was wholly parasitic on that case and also failed.
6. Joinder was not required merely because Ms Peganova occupied the mortgaged property. Notices to occupiers and eviction notices addressed to other occupiers showed that a possession order could operate without joining every occupier. The judge nevertheless indicated a willingness to join her if necessary to bind her to the determination.
7. The possession claim was not disputed on grounds appearing substantial, so a possession order should be made, subject to consequential terms being agreed or determined. No monetary judgment was sought at that stage.