Case No: 2009 FOLIO 1569 & 2010 FOLIO 705
Neutral Citation Number: [2011] EWHC 2491 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/10/2011

Before :

MR JUSTICE DAVID STEEL
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Between :

	PARAGON MORTGAGES LIMITED	Claimant	
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	(1) ROBERT McEWAN-PETERS
(2) RACHEL FRANCES McEWAN-PETERS	

Defendants	

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MR HUGH JACKSON (instructed by GORDONS SOLICITORS) for the Claimant
MISS LISA LINKLATER (instructed by 3 VOLUTION LLP) for the Defendant

Hearing dates: 13th, 14th & 15th June 2011
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Judgment
MR JUSTICE DAVID STEEL : 
1.	The claimant (“Paragon”) is part of a group of companies which specialises in providing mortgage funds to professional investor landlords in the ‘buy-to-let’ market.   The defendants are husband and wife.  
2.	The defendants, initially as a partnership and later through a number of companies, operated a substantial business purchasing and then letting out residential properties, particularly to university students.  The business was primarily financed by mortgage loans from Paragon.
3.	Indeed by 2007 some 200 properties had been acquired, mostly in the Leeds area.  At the peak of the borrowings, the overall debt to Paragon was about £32 million.  This has now reduced somewhat to about £27 million.
4.	The present action is in regards to two claims which have initially been advanced against Mr. McEwan Peters (“RMP”) alone pursuant to an order of Mr Justice Christopher Clarke:
i)	a claim for £3,198,061 as of 23 November 2011 under 10 guarantees  given by RMP in respect of mortgage loans made to RMP Properties (Leeds) Ltd (“RMP Leeds”);
ii)	a claim for £3,654,482 as of 23 November 2011 in respect of 14 mortgage loans (12 being original loans and 2 being further advances) made to the defendants.
5.	As regards the claims, the primary contention of RMP is that Paragon is estopped from making a demand when less than three month’s arrears were outstanding.  As appears, there is a further sum of £20 million outstanding in regard to which Paragon asserts that RMP provided valid guarantees.  There is no present claim in respect of this sum, but RMP counterclaims for a declaration that the guarantees relating to these further loans are not binding on him by reasons of disparity between the date of the guarantee and the date of the associated charge.
Witnesses
6.	Paragon called five witnesses:
i)	Mr. Christopher Berwick, Operations Director of First Mortgage Servicing, a division of Paragon, responsible for managing all buy to let loans.  
ii)	Mr. Andrew Hilton, a portfolio relationship manager in the same division with particular responsibility for collection on the defendant’s account.
iii)	Mr. David Smith, Head of Mortgage Credit, responsible for writing new business.  
iv)	Mr. Richard Shelton, group solicitor for Paragon Group  responsible for loan and mortgage documentation.
Paragon also interposed oral evidence by video link from Mr. John Heron, Director of Mortgages of Paragon Group.  All these witnesses had served with the Paragon Group for many years.  
7.	The only witness for RMP was himself.  A notable absentee was his financial advisor throughout, Mr. Brian Holden.  Whilst I was left with the clear impression that the Paragon witnesses gave truthful and reliable evidence, RMP gave a far less satisfactory impression.  In particular, he regularly avoided responding to a question by diverting to a different topic.  But impressions can be misleading, particularly when speaking of events from some time ago.  In such circumstances I respectfully endorse the observations of Lord Justice Robert Goff in The Ocean Frost [1985] Lloyds Rep 1 at p.57 to the effect that “where there is a conflict of evidence ….. reference to the objective facts and the documents, to the witnesses’ motives and to the overall probabilities can be of very great assistance to a judge in ascertaining the truth”.
Documentary history
8.	In the course of 2007, the defendants’ business ran into difficulty, particularly in regard to one of their companies, RMP Leeds, which was concerned with no less than 73 properties in the overall portfolio.
9.	On 13 July 2007, Paragon made a formal demand for all loans in regard to RMP Leeds  and another associated company RMP Properties (Headingley) Ltd (“RMP Headingley”).  At this stage, the arrears in regard to RMP Leeds was £139,979 and in regard to RMP Headingley was £37,913. These demands were expressed to be without prejudice to “appointment of a receiver of rent”.
10.	A discussion ensued on 17 July 2007 between Mr. David Smith and Mr. Andrew Hilton as representatives of Paragon, and RMP together with his financial advisor, Mr. Brian Holden, with a view to achieving a rectification of the default.
11.	By December 2007, the arrears on the RMP Leeds portfolio were £51,643.    However, that said, at this stage RMP had requested the return of a cheque post-dated 21 December 2007 for £81,643 (although £30,000 was paid on 17 December 2007).  Mr. Hilton, in an email dated 19 December 2007 following a meeting with RMP the previous day, expressed the need for further funds in respect of the payment that had become due in November, and added this comment:
“Part of the Leeds portfolio is currently 1 payment in arrears and further payment will be required on the accounts in December in order to avoid those accounts sitting at 2 months arrears at month end.  (Note. Ordinarily, enforcement action would be taken on any corporate portfolio carrying arrears of 1 or more instalments.  We have been working with you to avoid that action.  Please be aware however that, notwithstanding the advised “bigger picture”, if the Leeds portfolio were to hit 2 months arrears at December month end, I would regrettably have to put enforcement action in motion.  I therefore await receipt of further funds onto the Leeds portfolio by TT in December in order to pre-empt that.”
12.	In the event, much of the RMP Leeds portfolio was indeed two months in arrears by January 2008.  In an email dated 7 January 2008 Mr. Hilton warned RMP that “the portfolio is at serious risk of enforcement being directed when reviewed on 11 January”.  Mr. Hilton put forward various proposals for corrective action.
13.	At this stage, whilst RMP Headingly was in arrears, the defendant’s personal portfolio was up to date.  The position in February had, however, deteriorated.  In an internal Paragon email dated 1 February 2008, Mr. Hilton informed Mr. Berwick that the RMP Leeds portfolio was in the two to three month arrears bracket.  In consequence, RMP had been warned that Paragon was “virtually on the point of instructing ROR”.  Furthermore, RMP had been told that in that eventuality the receivership would apply to all his businesses.
14.	Concurrent with this email, Paragon made formal demands in regard to RMP Leeds, RMP Headingley and the defendants both in their role as mortgagors and guarantors.  Although the personal account was not in arrears, Mr. Hilton observed in his email: “We could not leave these to be isolated and available to RMP”.
15.	As recorded in his email to RMP dated 8 February 2008, Mr. Hilton set out the arrears as being £245,903 on RMP Leeds and £30,268 on RMP Headingley.  Mr. Hilton said in terms: “the accrued arrears have put the portfolio at a critical tipping point and unless the position is corrected then I regret that the appointment of a Receiver of Rent will have to take place this month.”
16.	By July 2008 the situation had improved marginally, associated with the disposal of part of the portfolio.  On RMP’s account, Mr. Berwick telephoned in mid July to press for payments with the threat that if the accounts went more than three months in arrears he would appoint a receiver.  On 18 July a personal meeting took place at the Thistle Hotel, East Midlands Airport between Mr. Berwick and Mr. Hilton on the one hand and RMP on the other.  It was RMP’s evidence that, at that meeting, he was given an assurance that enforcement measures would not be taken unless the arrears reached three months.  This evidence, vigorously challenged by Paragon, formed the basis of the estoppel defence.
17.	On 21 July 2008, Mr. Hilton emailed RMP referring to the meeting on the previous Friday.  The email recorded Paragon’s position as follows:-
“As also discussed on Friday, our immediate priority is that the arrears be cleared and the portfolio fully serviced.”
18.	When  RMP wrote to Mr. Hilton on 29 July 2008, his conclusion was as follows:
“The Way forward
The ongoing monthly cash shortfall is not sustainable and a measured and rational sale of 90% of the portfolio is the only real option, together with cash injections from the sale of the development sites as mentioned above.  This will largely clear the arrears to date, but these will continue to occur for the foreseeable future.
A deep cost reduction exercise is underway.  Staff and infrastructure costs in particular are being heavily cut which will have an immediate impact on wages and creditor payments.”
19.	On 8 August 2008 Mr. Hilton sent an email to RMP confirming that the arrears amounted to £282,645 primarily in regard to RMP Leeds.  Mr. Hilton concluded: 
“You will recall that formal demand letters were issued last year due to the breach position on the portfolio at that time.  As a consequence of the current portfolio position those notices need to be reissued and you should therefore expect to receive those in the usual few days.”
20.	Indeed demands across the board were sent out on 12 August 2008.  In his response dated 20 August 2008, RMP spelt out the various steps he was taking to try and remedy the position.  Importantly he concluded: “I have no problem with allocating the rent risk as you suggest”.  It was Paragon’s case that this concession reflected an agreement by RMP that Paragon could transfer sums from the personal property accounts to alleviate the arrears in RMP Leeds.  This was challenged by RMP.
21.	Be that as it may, transfers were duly made on 20 August and 28 August 2008.  In the interim on 24 August RMP went on holiday during which he sustained a serious accident which hospitalised him.  He returned to England on 2 September.  In the meantime, however, it is of some significance that he had cancelled all direct debits relating both to the personal portfolio and RMP Leeds.  
22.	This led to a telephone conference on 22 August 2008 between RMP and Mr. Berwick and Mr. Hilton.  Mr. Heron also participated in that call.  RMP maintained that the assurance that no enforcement procedures would be invoked if the arrears were less than three months was repeated yet again.  In contrast Mr. Heron added the following note to Paragon’s internal computer record: “Impressed on RMP critical condition of portfolio and poss. Enforcement impacts”.  
23.	Indeed on 1 September 2008 Mr. Berwick sent an internal email which recorded the position in these terms:
“The preferred route remains to achieve a cooperative relationship with RMP to enable the effective management of this portfolio however, in the event of non-cooperation or his non-availability, the non-cooperative route may need to be implemented at very short notice hence the reasons for developing the contingency at this stage.”
24.	On 4 September 2008 RMP met with various representatives of Paragon.  His own note (which was not forwarded to Paragon but which was not as such controversial) read:
“Portfolio 2.8 months in arrears, must not to to 3 months and make payments of £50k by Friday 5 September and £90K - £100K by end of September 08, plus arrears cash collected of c.25K”
25.	A further meeting took place on 11 September 2008.  In an email the following day, Mr. Berwick summarised the outcome as follows:
“As indicated, it is imperative that to achieve the position of a) nil arrears being registered with the Credit Reference Agencies for the position at the end of August on the RMP personal portfolio and, b) for September month end, nil arrears being maintained on the RMP personal portfolio and the remaining portfolio arrears being kept at less than 3 months; the following payments must be made:
i)	£50,000 of cleared funds received by Paragon by 5pm on Friday 12 Sept (today) and,
ii)	£116,000 of cleared funds received by Paragon by 5pm on Tuesday 30 Sept.
We will continue to work with you to achieve this however, in the absence of these payments, we reserve the right to progress through the various exit strategies that were explained and discussed more fully with you yesterday.”

26.	The £50,000 was still not paid by 13 September 2008 and on 15 September RMP wrote to Mr. Hilton and Mr. Berwick seeking to withdraw from “the previous agreement” to re-allocate funds across the portfolio.  On the face of it this was to avoid any adverse credit reference as regards the defendants’ financial position.  The reply from Mr. Berwick was in an email dated the same day which insisted on payment of £160,000 by 30 September and rejecting the request to reverse the re-allocation.
27.	The outcome was a letter dated 17 September 2008 from BHP Law, a firm of solicitors retained by the defendants.  This now claimed that the re-allocation had never been authorised.  A meeting between RMP and Mr. Holden for RMP and Mr. Berwick and Mr. Hilton for Paragon took place on 18 September.  In his confirmatory email Mr. Berwick repeated the commitment to work with RMP but added: “In the absence of the payments previously agreed we reserve the right to progress through the various exit strategies and options available”.  The email went on to observe that any reversal of allocation would have to be on the basis that Paragon would have direct control of all rents.
28.	On 23 September 2008, Paragon appointed two receivers (one being Mr. Shelton).  On the next day an application was made for Administrative Orders.  The orders were duly made on 2 October 2008.  Such orders were not challenged.  
29.	On 6 May 2009 a formal demand for payment of outstanding balances on the personal portfolio was made.  This is the demand which is relied upon in the present claim.  On 14 May 2009 Messrs. Clarion (new solicitors retained by the defendants) wrote as follows:
“As you are aware our client and his wife have various personal properties that are mortgaged to yourselves.  In respect of the various company portfolios as well as our clients’ individual portfolio, your client’s Andrew Hilton and Chris Berwick informed our client that Paragon would not take any enforcement action in respect of the portfolios provided that the mortgage accounts did not go over 3 months in arrears.  This reassurance is evidenced in our client’s contemporaneous attendance note of the meeting of 4 September 2008, in Chris Berwick’s email to our client dated 6 September 2008, in Chris Berwick’s email to Brian Holden dated 2 September 2008 and Robert McEwan-Peters’ fax to Andrew Hilton/Chris Berwick dated 15 September 2008 (all of these documents can be found at exhibit “RMP 11” of Robert McEwan-Peters’ second affidavit).  Our client relied and acted upon this assurance.  In consequence, your client was not entitled to call in the loans nor take any other form_of enforcement action unless the arrears went over 3 monthsl”
30.	The response from Paragon in a letter dated 26 May 2009 drafted by Mr. Shelton attempted to assess what was meant by “enforcement action” and also raised the question of which mortgage accounts it was suggested needed to be more than the three months in arrears.  There was no response to these points.
31.	Formal demands in regard to guarantees in respect of the corporate loans were made on 30 November 2009.
Promissory Estoppel
32.	This became the primary issue between the parties. It related to the entirety of the claim and the counterclaim. In summary RMP’s submission was that Paragon had promised not to enforce its legal rights under the mortgages and the guarantees unless the arrears amounted to three months. There are in my judgement a number of insuperable difficulties with this submission.
33.	Even on RMP’s case it remained wholly obscure as to when and in what circumstances any such promise was given. I have already made the observation that RMP gave an unsatisfactory impression as a witness. His account of the “promises” made to him were a paradigm example of the problem. The pleaded case was that the assurances were given on a number of occasions in “the summer of 2008.” This was developed in some further information. Conversations were said to have taken place mainly with Mr Hilton from ‘mid to late 2007’ onwards. This was said to lead up to July 2008 and a face to face meeting on 18 July 2008 together with a telephone conversation on 22 August 2008 where “it was emphasised…going over three months default would be a trigger point for enforcement.” 
34.	This account was discursive and lacking in any degree of particularity. Furthermore it sat very uncomfortably with the initial reaction of RMP’s solicitors to the formal demands in May 2009 as quoted above. These focussed entirely on meetings and correspondence in September 2008. In turn this assertion was all the more remarkable given that RMP had already cancelled all standing orders in late August. In short it involved an assurance which was said to have been relied upon but which post dated the decision to cease payment.
35.	In any event the assurance said to have been given is inconsistent with the probabilities. Paragon had been pressing RMP to rectify the position in regard to all the accounts. Company policy was to threaten enforcement where any account became more than two months in arrears. There was no reason whatsoever to accord RMP greater flexibility let alone an unequivocal promise not to take action until the arrears exceeded three months.
36.	In short I accept the evidence of Paragon’s witnesses that no such assurance was given. There is nothing in the contemporary documentation to support it. The most that could be said is that Paragon made it plain that if the arrears exceeded three months, enforcement would occur. This is quite a different matter from undertaking not to take enforcement action if the arrears were less than three months.
37.	Even if any such assurance had been given as pleaded or as described by RMP it is a long way short of being clear and unequivocal. Indeed Paragon’s letter of the 26th May 2009 in reply to RMP’s then solicitors makes the point in an unanswerable fashion. The immediate questions are:-
a)	What are the accounts that need to be more than three months in arrears?
b)	How many of the mortgages need to be in arrears?
c)	What is encompassed within the word enforcement, in particular does it include a demand for payment?
d)	Does it make any difference if the demand follows cancellation of all the standing orders?
38.	Even if some unequivocal assurances had been given it remains wholly unclear on what basis RMP asserts an alteration of position (let alone a detriment) flowing from some reliance on it. No explanation is forthcoming. There was no sale of any property. There was no reduction in expenditure. There was no explanation as to the use of which the August rent toll amounting to £100,000 was put.
39.	Finally it is common ground that any promise was merely suspensive. The demands relied upon by Paragon were made in May 2009. By that time demands had already been sent out in August 2008, receivers had already been appointed in September 2008 and an administration order had been made in October 2008. It is noteworthy that none of these steps were met with any contemporary challenge or any complaint from RMP which further undermines any case that reliance was placed on any promise not to enforce in regard to the account as they then stood.
40.	In the result I reject the submission that RMP can rely on any equitable estoppel in regard to the claims pursued by Paragon. 
Further advances
41.	One of the points taken by RMP was that the scopes of the claims were restricted to the original advances. Further advances, it was said, were not covered and were unsecured. These further advances were evidenced by standard form acceptances signed by RMP both in his capacity as the director of the mortgagor company and “separately as a guarantor”. These acceptances did not create any obligation on the part of Paragon to make any advance. However, the offer was expressly on the basis that the existing mortgage payments would be increased to include the new loan. Furthermore clause 2.7 of the conditions read as follows, “this further advance is made subject to [RMP] signing the attached consent form agreeing that the existing guarantee covered this advance as well.” In my judgement it is simply not arguable that further advances were neither secured nor guaranteed. Indeed in the event that I do not understand RMP to suggest otherwise in his oral evidence. 
Release of surety in the guarantee claim
42.	This issue arises in regard to all the guarantee claims. It was RMP’s case that the eventual transfer by Paragon of the properties to associate companies (Yorkshire Freeholds Ltd and Yorkshire Leaseholds Ltd) discharged the guarantees. 
43.	The difficulty with this argument is to be found in the terms of clause 3 of the guarantees:-
“3.2 – None of your liability under this guarantee shall be reduced, discharged or adversely affected by:
3.2.1 – The modification discharge, exhaust or renewal of any right or claim which we have (or may in the future have) from or against the company or any other person
3.2.2 – Any dealings or transactions between us and the company or any other person
3.2.3 – Any compromise, scheme or arrangement affecting the company or any other person
3.2.4 – Any act or faiklure to act by us or any other person, taking up or enforcing any security or guarantee from or against the company or any other person
3.2.5 – Any termination or modification of the charge…”
44.	This is a wide ranging and all embracing anti-release of security clause which manifestly covered the events relied upon.
45.	There is an associated issue which would arise only if Paragon was not entitled to recover the sums claimed from the corporate borrowers. Accordingly I make the point briefly. Clause 3.3 of the guarantee provides as follows:-
“3.3 – as an original independent obligation under this guarantee you agree that any sum referred to in 2.1.1 which may not be recoverable from you on the footing of the guarantee whether by reason of any limitation or incapacity on or of the company or by reason of any other fact or circumstance whatsoever (or whether any act or circumstance shall be known to us or not) shall nevertheless be recoverable from you as though it had been incurred by you as sole and principal debtor and should be paid by you on demand.” 
46.	This (taken with clause 3.2) ensures that RMP is not released from his guarantee.
47.	One other point arises in this connection. RMP places reliance, in the fact of the transfer to the Yorkshire Company, on the principal that where a mortgagee disposes of the security and cannot return it to the mortgagor, he loses his entitlement to have judgement for the debt. 
48.	This point emerged at a very late stage and was never fully articulated.  The position appears to be that the transfers were affected subject to the charge and I so find. Thus if MWP were to pay under the guarantee, he would stand in Paragon’s shoes as regards to security. I reject the submission that there has in effect been a foreclosure and consequent loss of the equity of redemption or that otherwise the charges were terminated or rendered unenforceable. 
Synchronicity
49.	This issue arises on the counterclaim only. I suspect that the point is effectively redundant in the sense that it is not suggested that all the guarantees covered by the counterclaim are invalid because of the disparity between the date of the guarantee and the underlying mortgage. Accordingly RMP’s exposure on the guarantees under the counterclaim where there is no such disparity will probably be in excess of £10m and thus way beyond his resources in any event. This point is emphasised by Mr Shelton’s statement which included a schedule which identified those loans where the guarantees were dated on the same day as the mortgages or where there had been a disparity which was expressly waived by RMP. This made up 54 of the total 98 transactions. 
50.	The background to this is Paragon’s internal policy which was only to draw RMP’s attention to a disparity where it exceeded 7 days. Some 41 transactions fell within this category. It was Paragon’s case (not perhaps as such pleaded) that the parties proceeded on a mutual understanding that the guarantees were effective despite the disparity. I am unable to accept this submission. It is clear that Paragon were not content to proceed on the basis that any disparity of dates would be ignored.  Indeed it pressed for confirmation where the disparity was in excess of a self-selected figure of seven days. RMP was wholly unaware of Paragon’s policy in this regard.
51.	Paragon referred to Amalgamated Property Co. v Texas Bank [1982] 1QB 84. But the present case is not an example in my judgement of the parties acting upon an agreed assumption that a particular state of facts would be accepted as true. No estoppel arises. 
Unfair relationship
52.	Under Section 140 (a) of the Consumer Credit Act 1974 as amended, the court may intervene in connection with a credit agreement if it concludes that the relationship arising from the agreement is unfair to the debtor, not merely in regard to the terms of the agreement but also in regard to the way in which the creditor has exercised or enforced its rights. 
53.	I understand it to be accepted that the point cannot arise under the guarantees as they do not constitute credit agreements. This point was decided in Paragon Mortgages Ltd v Hyah, 29th November 2010 H.H.J Pelling QC, paras 7-12. In the event that the matter remained controversial, I agree with that decision. 
54.	It is RMP’s case that Paragon’s enforcement of its rights as regards to the personal loans (which were indeed credit agreements) was unfair. The demands on the personal portfolios were made in May 2009. I am unable to accept that such demands were unfair:-
a)	The mere fact that the mortgages were payable on demand is not unfair. Such terms were common place in the industry.
b)	It is not suggested that demand was prompted by an improper motive or was the consequence of an arbitrary decision
c)	Although the original demand in August 2008 was made at a time when the personal portfolio was not in arrears, by May 2009 the position was entirely different.
d)	In any event the RMP Leeds portfolio had been substantially in arrears since February 2008 with regards to 70% of its properties.  In August 2008 following an agreement to transfer funds from the personal portfolio to the company accounts, RMP simply cancelled all bankers orders without notice and then failed to account for the ensuing rent roll.
55.	I accept the submission made by Paragon that the whole of RMP’s personal and corporate “buy-to-let” business was in terminal trouble. The leverage was successive. On a falling market disposals of property were being used to fund outgoings. The intervention by way of demand in May 2009 cannot remotely be categorised as unfair. 
Personal claims – on demand
56.	The issue here appears to be one of notice if it be still alive. The terms of the personal mortgages include the following condition:
“3.2 – the borrower shall pay the outstanding balance on demand.”
It is RMP’s submission that this was an unusual term that was never sufficiently brought to his attention. 
57.	The threshold problem from RMP’s perspective is that there had been a large number of earlier transactions on the very same terms. The terms were clear and unambiguous, readily available for reading and comprehension by both RMP and his solicitors. The provision was a commonplace one in the industry. My judgement RMP is bound by it.