Annulment Funding Company Ltd v Cowey and Cowlam [2010] EWCA Civ 711.
We here at NL often joke that, if any of us were appointed to judicial office then we doubt that anyone would ever get possession orders from us; not only are we able to demonstrate a degree of pedantry that would flummox most claimants* but, frankly, we are (sometimes) attracted to result-focused reasoning.** It is the latter point that – whilst never expressed – I get the distinct impression was what was happening in Annulment Funding Company Ltd v Cowey and Cowlam [2010] EWCA Civ 711. It’s a morally pleasing case and an example of a factual situation that – annecdoally – is becoming quite common.
Mr Cowey and Ms Cowlam were long-standing cohabitees and the joint owners of a property. There was a first charge (presumably the mortgage that they used to purchase the property) in favour of Cheltenham & Gloucester Plc and c.£430,000 of equity. Mr Cowey was made bankrupt in the sum of c.£100,000 (c.£120,000 after costs, expenses etc) by the Inland Revenue and his share of the property vested in his trustee in bankruptcy.
The appellant company specialised in providing finance to people who – if they weren’t bankrupt – would hold valuable interests in land. The idea is that the money is lent to clear the bankruptcy and then repaid by a re-mortgage of the property. It looks like that this “bridging loan” is secured on the property in the meantime, to be paid off by way of a complete re-mortgage of the property.
In the present case, that didn’t happen. The loan from the appellant remained as a charge on the property (accruing interest at 1.5% per month, albeit that no interest was charged for the first three months) and possession proceedings were issued. Ms Cowlam defended the possession proceedings on the basis that her consent to the charge had been procured by undue influence by Mr Cowey and the company was fixed with notice of that undue influence.
The defence was successful at trial. The judge found that the respondents did not understand that nature of the transaction and, in particular, that it would give rise to a charge over the property. Mr Cowey had – probably inadvertently – misled Ms Cowlam as to the nature of the loan. He had also applied pressure to her to persuade her to agree to the loan. In total, this amounted to actual undue influence or, in the alternative, was such that undue influence should be presumed. He went on to find that the appellant was fixed with notice of the undue influence, such that both the loan and the charge were set aside as against Ms Cowlam.
An appeal to the Court of Appeal was dismissed. The judge had heard the evidence and concluded that there was actual undue influence. His comments about presumptions were an alternative basis for his judgment. Whilst the distinction between actual and presumed undue influence could be confusing, what the appellant was really complaining about was a finding of fact and such an appeal was doomed to fail, particularly where – as here – the appellant did not challenge any of the findings of fact, but merely the weight attributed to them. Whilst it might have been possible to sever the loan from the charge, the judge had been entitled to find that both the loan and charge were equally tainted by undue influence and, in those circumstances, severance was not appropriate.
* or, as we see it, if you want to evict someone, you should get the law and procedure right.
** for the avoidance of doubt, if I – or any other NL writer – am/are ever appointed to any judicial role, I/we will, of course, be perfectly fair at all times.
Hi J,
I was the McKenzie friend at both first instance in the CA, assisted the Ds/Rs in drafting all the skeleton arguments and submissions and was given exceptional rights of audience in both courts (as I have only just been called to the Bar in November and I am , as is common among recent bar grads, yet to find pupillage). The case is now reported as [2010] All ER (D) 205 (Jun). I think it was because Ms Cowlam entered a post-judgment plea of actual undue influence in addition to the presumed undue influence plea already entered that the trial judge decided both were found in the alternative once the facts had come to light at trial, even though the presumption alone would have carried Ms Cowlam home. I think the first instance court took a dim view, albeit implied in both judgments, of the C’s failure to ensure independent legal advice for Ms Cowlam when the terms of the loan were found to be so disadvantageous to her. The dicta of Lord Nicholls in Etridge (No. 2) were cited abundantly in skeleton arguments in both courts, and hopefully AFCL v Cowey and anr bolsters the protection for surety partners against entering these burdensome bridging loan transactions for the benefit of their other halves.