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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> The Co-Operative Bank Plc v Phillips  EWHC 2862 (Ch) (21 August 2014)
Cite as:  EWHC 2862 (Ch)
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2 Redcliff Street,
Bristol, BS1 6GR
B e f o r e :
| THE CO-OPERATIVE BANK PLC
|- and -
|DESMOND VICTOR JOHN PHILLIPS
Mr Stephen Davies QC (instructed by Michelmores LLP) for the Defendant
Hearing dates: 14th and 25th July 2014
Crown Copyright ©
Mr Justice Morgan :
(1) Should the Bank pay Mr Phillips' costs of these proceedings on the indemnity basis rather than the standard basis? In order to answer this question, I am asked to determine whether the Bank brought these proceedings for a collateral purpose which was beyond its powers as a chargee and/or whether these proceedings were an abuse of process.
(2) Is the Bank able to add the costs incurred by it in these proceedings (including the sums it is liable to pay to Mr Phillips in relation to Mr Phillips' costs) to the sums secured by the charges and so that they are a debt owed by Mr Phillips to the Bank?
(3) Is the Bank entitled to set off its liability to pay Mr Phillips' costs against sums otherwise due from Mr Phillips to the Bank?
The loan to County Capital plc
The loan to Mr Phillips
Statements pre-proceedings as to negative equity
Costs on the indemnity basis
Should I decide the issues as to indemnity costs?
Exercise of mortgagee's power for improper purpose: the principles
"Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for the repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower. These principles and rules apply also to a receiver and manager appointed by the mortgagee."
"The estate, rights and powers of a mortgagee, however, are only vested in a mortgagee to protect his position as a mortgagee and to enable him to obtain repayment. Subject to this, the property belongs in equity to the mortgagor."
"In equity, a mortgagee has a limited title which is available only to secure satisfaction of the debt. The security is enforceable for that purpose and no other: Quennell v Maltby  1 WLR 318, 322H (Lord Denning MR); Downsview Nominees Ltd v First City Corporation Ltd  AC 295, 312G (Lord Templeman).
"A dissection of a mortgagee's motives is likely to be difficult in practice. Moreover, unlike statutory powers conferred for the public benefit, or trustees' powers conferred for the benefit of beneficiaries (which were two analogies on which [counsel] relied) a mortgagee's powers are conferred upon him for his own benefit. In such circumstances "purity of purpose" may be difficult to achieve. The cases do support the proposition that a power of sale is improperly exercised if it is no part of the mortgagee's purpose to recover the debt secured by the mortgage. Where, however, a mortgagee has mixed motives (or purposes) one of which is a genuine purpose of recovering, in whole or in part, the amount secured by the mortgage, then in my judgment his exercise of the power of sale will not be invalidated on that ground. In addition I consider that it is legitimate for a mortgagee to exercise his powers for the purpose of protecting his security."
"It follows that any act by way of enforcement of the security (at least if it is purely) for a collateral purpose will be ineffective, at any rate as between mortgagor and mortgagee."
The position of a second mortgagee
Did the Bank claim possession for a collateral purpose?
Abuse of process
"For the purpose of [the] general rule, what is meant by a "collateral advantage"? The phrase manifestly cannot embrace every advantage sought or obtained by a litigant which it is beyond the court's power to grant him. Actions are settled quite properly every day on terms which a court could not itself impose upon an unwilling defendant. An apology in libel, an agreement to adhere to a contract of which the court could not order specific performance, an agreement after obstruction of an existing right of way to grant an alternative right of way over the defendant's land — these are a few obvious examples of such proper settlements. In my judgment, one can certainly go so far as to say that when a litigant sues to redress a grievance no object which he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance. On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject matter of the litigation and that, but for his ulterior purpose, he would not have commenced proceedings at all, that is an abuse of process. These two cases are plain; but there is, I think, a difficult area in between. What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired by product of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it. But on the view I take of the facts in this case the question does not arise and it is neither necessary nor desirable to try to lay down a precise criterion in the abstract."
Any other reason for indemnity costs?
Adding the costs to the security