SKYPARKS GROUP PLC v FELICIANA MARKS SHANTI SHAH [2001] EWCA Civ 319

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HER HONOUR
JUDGE ELIZABETH STEEL)
[2001] EWCA Civ 319Case No Case No: B2/2000/3104Venue Royal Courts of Justice, Strand,, London, WC2A 2LL, Friday 9th March 2001
Between
SKYPARKS GROUP PLCRespondentFELICIANA MARKS SHANTI SHAHAppellants
Before
Lord Justice Robert WalkerLord Justice KeeneMr Justice ColmanMr P Griffiths (instructed by D J Freeman for the appellants)Mr E Denehan (instructed by Freeman Box for the respondent)Date 9 March 2001

LORD JUSTICE ROBERT WALKER:

Introduction

[1]This is an appeal and cross-appeal, both with the permission of Jonathan Parker LJ, from an order made on 8 September 2000 by Her Honour Judge Elizabeth Steel when she was sitting as an additional judge of the Chancery Division of the High Court. The claimant in the proceedings is Skyparks Group plc ("Skyparks"). The first defendant is Mr Nicholas Marks and the second defendant is his wife Mrs Feliciana Marks. She is also a defendant with Mr Shanti Shah (her son by a previous marriage) in their capacity as trustees of a trust, governed by Jersey law, known as the Chanick Trust. Mrs Marks (both personally and as a trustee) and Mr Shanti Shah (as a trustee) are the claimants in respect of a counterclaim under CPR Part 20, the defendants to the counterclaim being Skyparks and Mr Marks.[2]As that recital of the parties suggests, the issues before the judge were not entirely straightforward. The proceedings in the Chancery Division were commenced on 13 August 1999 but they were the sequel to earlier proceedings in the Queen's Bench Division between Skyparks as claimant and Knightsbridge & Chelsea Carparks Ltd ("KCC"), a company whose liability Mr Marks had guaranteed, and Mr Marks as defendants.[3]The Queen's Bench Division proceedings ended with judgment against the defendants for a sum of just over £276,000, plus costs, and a charging order made on 5 January 1999 in respect of Mr Marks' beneficial interest in a dwelling house known as Woodwinds, 49c Howards Thicket, Gerrards Cross, Buckinghamshire. As I shall have to explain in more detail, Mr Marks was the sole registered proprietor of Woodwinds but he claimed to have no beneficial interest in it. That led to a hearing before Master Murray on 16 April 1999 and an appeal hearing before Sullivan J on 18 May 1999. Sullivan J dismissed Mr Marks' appeal from the Master's decision that Mr Marks had some beneficial interest in the house, but the Master foresaw that there would have to be further proceedings in the Chancery Division in order to enforce the charging order.[4]The further proceedings foreseen by the Master have ensued, and are now constituted with the parties which I have mentioned. But initially Skyparks sued Mr Marks alone, with a simple statement of case seeking enforcement of the charging order by an order for possession of Woodwinds and its sale. Mrs Marks applied successfully to be joined as a party and put in a defence and counterclaim. This was elaborately pleaded but its general effect was that the beneficial interest in the house was either in the Chanick Trust, or belonged to her entirely or as to part. This pleading was amended when Mr Shanti Shah also applied successfully to be joined as a defendant and Part 20 claimant. In its amended reply and defence to counterclaim Skyparks joined issue with most of Mrs Marks' case. It was specifically pleaded that the orders in the Queen's Bench Division proceedings estopped Mr Marks and Mrs Marks, or alternatively Mr Marks, from denying that the legal and beneficial interests in Woodwinds have since 23 October 1996 (the date of its acquisition) been vested in Mr Marks. The judge recorded in her judgment that Mr Marks, as well as Mrs Marks, had defended the action, but Mr Marks' pleadings are not in the appeal bundle. He has taken no part in the appeal. The facts[5]Before examining the issues in any more detail I must summarise the undisputed facts, and try to identify the principal matters of fact on which the judge was required to make findings. Mr Marks is South African by birth and claims to be domiciled there although he has lived in England for some years. He is a director of a number of companies. He met Mrs Marks in London in 1993 (when she was working as an occupational therapist) and from 1995 they lived together with her children at her house at 10 Ovesdon Avenue, Harrow, Middlesex. They got married on 31 October 1996 but in summarising the facts I shall continue to refer to Mrs Marks by her married name whether or not she was married at the time.[6]Mr Marks had not been married before. Mrs Marks (who is Italian by birth and claims to retain an Italian domicile) had been married before and had two children, Shanti (born in 1978) and Julio (born in 1984). Mr and Mrs Marks have one child of their marriage, Alexander, born on 6 March 1998.[7]Three offshore trusts appear in the evidence in the case. One is the Silver Leaf Trust, established by Mr Marks' father, which (through an offshore holding company) holds shares in various companies (including KCC) of which Mr Marks is or was a director. The Chanick Trust was established on 22 October 1996 with a nominal sum stated to have been provided by Mr and Mrs Marks (who are described as the settlors). It is stated to be governed by Jersey Law. The original trustees were a Swiss company, Radcliffes Trustee Company SA, and a Jersey company, Central Independent Trustees Limited. Advice for setting up the trust came from Radcliffes Crossman Block ("Radcliffes"), who are London solicitors. The beneficial trusts (in clause 6) were for Mr and Mrs Marks in equal shares for their joint lives and for the survivor during the remainder of his or her life, and then on discretionary trusts, but subject (even during the settlors' lives) to wide discretions (in clause 7) exercisable by the trustees. The Feliciana Trust was a comparable trust (except that Mrs Marks was the only settlor) established in 1997 in order to purchase a flat in Lots Road, Fulham.[8]It is not in dispute that the Chanick Trust was established (for tax-planning reasons which may or may not have justified the professional fees and expenses involved) as a vehicle to hold a new home for Mr and Mrs Marks, who were finding Ovesdon Avenue too small for their needs. It is also not in dispute that Ovesdon Avenue belonged (initially free of any charge) to Mrs Marks alone. She had acquired it in 1993 following on the dissolution in 1986 of her first marriage.[9]The plan for the Chanick Trust was originally discussed in May 1996, when Mr and Mrs Marks were interested in a property called Acorn Cottage. However that purchase did not proceed, possibly because Mrs Marks was finding it difficult to sell Ovesdon Avenue. So according to her evidence (which the judge regarded as not wholly reliable, although much more reliable than that of Mr Marks) she and her husband decided that she should mortgage her house for £50,000, that he would borrow £30,000 from Coutts & Co, and that the £80,000 would be used as a deposit on a new house. She effected the remortgage on 31 July 1996 and £50,275 was remitted to Radcliffes. Mr Marks did borrow £30,000 from Coutts & Co, but not until just before completion of the purchase of the new house at the end of October 1996. When Ovesdon Avenue was eventually sold (in January 1997, for £101,500) £30,000 was sent to Coutts & Co to pay off her husband's borrowing. That is evidenced by a completion statement dated 29 January 1997 prepared by Radcliffes, from which it appears that over £65,000 went in redemption of the mortgage.[10]The judge grappled with some curious evidence about how the £50,275 remitted to Radcliffes grew to about £65,000, and the circuitous route which it followed in doing so. It seems that Radcliffes, acting on Mr Marks' instructions, remitted the money to a building society account held in the name of Mrs Marks (but designated on the passbook as trustee for her son Julio). £60,000 was then paid from the building society account to an account which Mr Marks had at Lloyds Bank (the increase coming, as Mrs Marks stated but the judge did not accept, from her personal savings). From there it went to his account at Coutts & Co and from there £65,000 was paid to Radcliffes' client account, ostensibly on behalf of the Silver Leaf Trust. No satisfactory explanation has been given of these extraordinary manoeuvres but Mrs Marks summarised the position (in para 15 of her second witness statement) by stating that she had paid £90,000 directly or indirectly towards the purchase of Woodwinds.[11]Mr and Mrs Marks found Woodwinds in August or September 1996 and on 27 September Mr Marks' offer was accepted. It was hoped that Midland Bank plc ("Midland") would make a mortgage advance enabling the house to be purchased by the two overseas companies which were trustees of the Chanick Trust (and a previous mortgage application had been made on that basis). But by the first week of October it was clear that Midland, although willing to advance £340,000, was not willing to make a mortgage advance to offshore trustees. So it was decided that Mr Marks should become the registered proprietor of the house and should enter into the mortgage. The balance (a sum well in excess of £87,000, to cover legal fees, stamp duty and other disbursements) came immediately from Radcliffes' client account, which had received not only the £65,000 - plus already mentioned but also a sum of £20,500, received immediately before completion, of which the judge said that it was a mystery where it had come from.[12]I proceed to describe, without further comment at this stage, the formal legal documents by which the transaction was completed. On 22 October Mr and Mrs Marks, in each case acting by an attorney in Geneva, executed the Chanick settlement. Then on 23 October completion took place at Radcliffes' offices (that firm acting for Mr and Mrs Marks and for Midland). Four instruments were executed (or in the case of the transfer delivered after previous execution by the vendors):(i) a standard form transfer on sale;(ii) a consent by Mrs Marks (who received advice from an unidentified independent solicitor) to the execution of a legal charge in favour of Midland;(iii) the legal charge, executed by Mr Marks as sole transferee of the legal title; and(iv) a declaration of trust expressed to be made between Mr Marks and the two offshore trust companies (but executed only by Mr Marks).[13]The legal charge was not included in the appeal bundle but appears to have been in standard form. Master Murray read out two passages from it, provisions that the chargor should not without Midland's written consent "at any time create or allow any other mortgage, charge or burden in relation to [the mortgaged property]" or "in any other way agree to, or dispose of, or create, any legal estate or interest in [the mortgaged property]"[14]The declaration of trust was expressed to be supplemental to the trust deed of the Chanick Trust and to the transfer on sale of Woodwinds (defined as 'the property'). It recited in imprecise terms that funds had been provided by the trust to assist in the purchase of the property. The operative part of the deed contained only two clauses. By clause 1 Mr Marks declared that he held the property in trust for the trustees and agreed to transfer or deal with the property at their direction. By clause 2 the trustees covenanted to indemnify Mr Marks from all liabilities (including mortgages) in respect of the property. The fact that the trustees did not execute the deed means that clause 2 cannot operate as an express covenant, but equity would in any case impose an obligation to indemnify a chosen nominee.[15]The transfer and legal charge were registered at the Land Registry. The declaration of trust was not registered or noted on the register. There followed a number of events which I have already noted out of their chronological sequence: Mr and Mrs Marks' marriage at the end of October 1996; the sale of Ovesdon Avenue in January 1997; the creation of the Feliciana Trust and the purchase of the Lots Road flat in June and August 1997; and the birth of Alexander in March 1998. At some date in 1998 Skyparks began the proceedings against KCC and Mr Marks which led to the judgment for about £276,000 on 7 December 1998, an order to show cause on 9 December 1998, an order absolute on 5 January 1999, and then the hearings before Master Murray and Sullivan J which have given rise to the issue of estoppel or quasi-estoppel.[16]The judge had to address several issues of primary fact, some of which could not be satisfactorily resolved on the evidence before her. In this court there has been little dispute as to issues of primary fact, except as to the state of knowledge of Mrs Marks and the trustees during the Queen's Bench Division proceedings in relation to the charging order. The main dispute has been as to the principles of estoppel, including (among other points) what Master Murray and Sullivan J really did decide. Once their conclusions have been identified there is a further issue (to the extent that it is not precluded by estoppel) as to the correctness of the conclusions which they reached, on the material before them, as to the beneficial ownership of Woodwinds. It is therefore necessary to look fairly closely at the charging order proceedings in the Queen's Bench Division. The Queen's Bench Division charging order proceedings[17]Before Master Murray Skyparks was represented by counsel, Mr Denehan, who has also appeared in the Chancery Division proceedings and in this court. Mr Marks was represented by counsel (Mr Buckhaven) instructed by Radcliffes. The essential issue was whether (as Mr Marks contended) he had no beneficial interest in Woodwinds (because it was all in the Chanick Trust) or (as Skyparks contended) the whole beneficial interest (subject of course to the charge in favour of Midland) was in Mr Marks. There was affidavit evidence on that issue from Mr Marks, Mr Simon (the senior partner in Radcliffes), Mr Hand (an experienced conveyancing solicitor, also a partner in Radcliffes) and Mr Crook (a non-practising solicitor employed by Radcliffes Trustee Company SA in Geneva). All these deponents (except Mr Crook) were cross-examined on their affidavits. Master Murray (unlike Judge Elizabeth Steel) did not make any adverse comment on the credibility of Mr Marks (or any other of the witnesses).[18]Master Murray gave a fairly short ex tempore judgment. After outlining the background and identifying the witnesses he recorded Mr Simon's "entirely candid" evidence about the Chanick Trust having been established for tax-avoidance reasons, to take advantage of the settlors' overseas domiciles. The master described it as a perfectly legitimate manoeuvre. Then he said, "However, on one simple preliminary point, [clause] 6.(1) of the Jersey Trust says that the trustees of that settlement, who are the two trustee companies, hold the income to pay the same to the settlors, that is to say to Mr Marks and his wife, in equal shares. So there is, on the very face of the instrument, a beneficial interest. That, in my view, suffices to make a charging order. It will be for the Chancery Division in the proceedings for an order for sale to determine the extent of such interest."[19]Had the master's judgment stopped there it would to my mind have been impeccable. But the master went on to say that he took a "dim view" of the effectiveness of the Chanick Trust. He referred to the evidence of Mr Hand that Midland had rejected the idea of having overseas trustees as mortgagors and had insisted on Mr Marks being the registered proprietor. In their instructions to Radcliffes Midland required an undertaking by the solicitors to notify it of any matter which might affect its lending decision. The master then referred to the provisions in the legal charge mentioned in para 13 above and observed that "by accepting the mortgage upon which the property was purchased, it went outwith the power of Mr Marks to create any settlement at all." He described the declaration of trust as "utterly spurious". He declined to set aside the charging order. Nevertheless he ordered that leave to serve out should be given so that the trustee companies could be heard in the Chancery Division, if they should wish to be heard.[20]I shall have to come back to various points on this judgment but at this stage it is to be noted that the position of Mrs Marks received very little attention. She was not a party to the proceedings, nor did she give any written or oral evidence. She is mentioned in the judgment only as a party to the Chanick Trust and as a beneficiary under clause 6. This court was not shown the affidavit evidence which was before the master, or any transcript of the oral evidence. We were shown a transcript of part of the cross-examination of Mr Marks when he was examined as to his means on 14 April 1999 (that is two days before the hearing before Master Murray). His evidence was that Woodwinds belonged to the Chanick Trust and that his wife had contributed £85,000 to the trust. But it has not been shown that that evidence was brought to the attention of Master Murray, and the absence of any reference to it in his judgment suggests that it may not have been.[21]Mr Denehan (who also appeared for Skyparks at the examination of Mr Marks) told the court that news of the Chanick Trust came as a 'bolt from the blue' shortly before the hearings on 14 and 16 April. Until then Mr Marks had appeared to be the sole legal owner, and presumptively the sole beneficial owner, of Woodwinds. It is entirely understandable that its disclosure was treated with a good deal of scepticism. But Mr Denehan has never contended that the trust itself was a sham (and he explained that paragraph 6(7) of Skyparks' amended defence and counterclaim was not intended to put forward that contention).[22]On 18 May 1999 Sullivan J dismissed an appeal from Master Murray (and an application for permission to appeal from Sullivan J was subsequently dismissed, having been rejected on paper by Sir Anthony McCowan and not renewed in open court). Sullivan J referred to the terms of the Chanick Trust and the terms of the Charging Orders Act 1979. He quoted from the master's judgment the passage set out in para 18 of this judgment. He agreed that on the assumption that the declaration of trust of Woodwinds had any effect, the master's approach was correct. But he then went on to consider the wider point and agreed with the master that the declaration of trust was "utterly spurious". In reaching that conclusion he distinguished the decision of the House of Lords in Abbey National Building Society v Cann [1991] 1 AC 56 (especially at pp.92-3) as to the correct analysis of the operation of sections 23(1) and 70(1)(g) of the Land Registration Act 1925 when a transfer on sale and a legal charge are executed simultaneously and are "indissolubly bound together". He apparently accepted Mr Denehan's submission that it was inconceivable that Radcliffes "would have conducted themselves as they did if the declaration of trust was to have any genuine effect at all and was not simply something that was available to be presented to the Inland Revenue if the need arose." The judgment under appeal[23]The judge gave a full and careful reserved judgment listing over thirty authorities which had been cited to her, and eight textbooks to which she had been referred. She summarised the background and the issues and recorded the witnesses from whom she had heard oral evidence: Mr and Mrs Marks; Mr Simon and Mr Hand of Radcliffes; and Mr David Schlagman, an accountant. By that time Radcliffes were no longer acting for either Mr Marks or Mrs Marks (if indeed they had ever acted for her, a point which is surprisingly obscure: they had written to her on 27 August 1999 indicating that they were ceasing to act for her husband, because of unpaid bills, and advising her to obtain legal advice as soon as possible).[24]The judge found Mr Marks a totally unsatisfactory witness. She said of him:
"In his evidence he contradicted himself on many occasions, he was unable to deal satisfactorily with contemporaneous documents or to give proper, or any, explanations for discrepancies between the evidence given in this court and in the Queen's Bench Proceedings. The first question asked in cross-examination by Mr Denehan was: "
I am going to put to you that you are somebody who habitually tells lies and misleads individuals and courts when it is to your financial advantage and that of your wife to do so. Do you agree with that? A. No I don't." In the course of the next day/day and a half, by reference to documents it was clear that the original proposition was correct. The husband had been cavalier in his approach to financial matters, overstating income and assets, and understating, or forgetting, liabilities. He had sought to deal with Woodwinds after the purchase and Declaration of Trust as his own, seeking remortgage facilities on the basis of wildly unrealistic estimates of income and valuations (his own) of companies as if they were valuations, as he said, of dot com companies."

The judge said of the wife's evidence:

"On the one hand, Mr Griffiths puts the wife forward as an unsophisticated housewife unskilled in financial matters and dependent on the husband in all matters. On the other hand, Mr Denehan suggests that she is shrewd and financially knowledgeable, that she has lied in connection with her application for mortgage advance and effectively is untrustworthy. I think the truth lies somewhere in the middle. There is no doubt that on her application for mortgage advance on Lots Road she was "economical with the truth"
. I have also formed the clear opinion that she is an intelligent woman who had a long period of negotiation/proceedings (we know not which) following her first divorce and that she is financially prudent. I have no doubt that Mr Simon is correct in his recollection that she wished to be included as a settlor on the Chanick Trust because she had indeed provided a substantial sum towards the purchase of Woodwinds. In her evidence in these proceedings she was adamant that her motivation was solely to provide a home in which the family could live with security and not to protect her financial investment. That is a particularly naive approach and does not fit with the remainder of her evidence. I find that Mr Simon's recollection is to be preferred. I am more prepared to accept her evidence than that of the husband as to what happened, certainly as to what she believed and understood at any particular time, although she is clearly unreliable in a number of instances."[26]The judge found (quoting from the transcript of Mrs Marks' oral evidence) that from about the middle of April 1999 she knew that the master had decided that Mr Marks had an interest in Woodwinds, and that it was at risk. Her husband told her not to worry because there was to be an appeal, and she left it to him to deal with. She was aware of the proceedings before Sullivan J.[27]At an early stage in her judgment the judge had set out the three ways in which Mrs Marks had sought to resist an order for sale of Woodwinds by way of enforcement of the charging order. These were as follows:(1) The first contention was that Mr Marks held the house as a nominee for the trustees of the Chanick Trust, under the express terms of the declaration of trust or alternatively under a constructive trust, or by estoppel.(2) The second contention was that he held the house on a resulting trust for Mrs Marks as the only person who had contributed (directly or indirectly) to its purchase.(3) The third and least ambitious contention was that Mrs Marks had a partial beneficial interest in the house proportionate to her contribution to the purchase.[28]I should add at this point that on 7 July 2000 the two offshore trust companies retired from the trusteeship of the Chanick Trust, and Mrs Marks and her adult son Mr Shanti Shah (then aged 20 or 21) were appointed in their place. They are both beneficiaries under the trust and so are not on the face of it particularly suitable trustees for a trust which confers very wide discretions. Presumably their appointment was dictated by expediency, with Radcliffes wishing to disentangle themselves from a situation of some embarrassment . But it has not been suggested that the appointment was invalid, and it provided the basis for Mr Shah to be joined as a defendant in the Chancery Division proceedings. When the judge referred to Mrs Marks she must on some occasions (but not of course on all occasions) have been intending to refer not only to Mrs Marks in her personal capacity but also to her and Mr Shah in their fiduciary capacity.[29]The judge referred to the decision of this court in House of Spring Garden v Waite [1991] 1 QB 241 and said that the circumstances of the case before her were very similar to those in that case. She held that Mrs Marks' interest was the same as that of her husband and that she had knowingly abstained from taking any step to be joined in the proceedings. She held that Mrs Marks as well as her husband was bound by the decision of Sullivan J and that that precluded her from advancing any part of what I have called the first contention. This conclusion may also, possibly, have been intended to apply to the trustees of the Chanick Trust.[30]The judge held that Mrs Marks was not estopped from putting forward the second and third contentions, and she reached a decision on the merits of those points. She rejected Mrs Marks' claim to outright beneficial ownership (the second contention) for reasons which she stated very briefly. She acceded to the third contention to the extent of according Mrs Marks a 13 per cent share in the house. In reaching that conclusion she made such findings of fact as she could about the manoeuvres by which the purchase was funded (see paras 9 and 10 above). She referred in passing to the very helpful judgment of Bagnall J in Cowcher v Cowcher [1972] 1 WLR 425 but did not mention (and did not in her order give effect to) the explanation (at pp.432-3) of how accounts may have to be adjusted if one co-owner contributes cash and the other (either alone or together with the first co-owner) assumes liability for a mortgage debt, and the house is sold before the mortgage has been discharged.[31]The judge's order ran to 21 paragraphs, with some complex directions about costs which need not be explained at this stage. The most important substantive provisions of the order were declarations (paras 1 and 2) that the beneficial interests of Mrs Marks and her husband were 13 and 87 per cent respectively; (para 3) that his interest was charged as security for the judgment debt, the costs of the original proceedings and further costs under the order; and (paras 4-7) that the defendants should give possession of the house to enable the charging order to be enforced by sale, the sale to be by private treaty and to be conducted by Skyparks' solicitors. The grounds of appeal[32]By their appellant's notice Mrs Marks and her son contend that the judge erred on the estoppel issue, and should have decided (on the first contention) that the declaration of trust created an express trust for the Chanick Trust. It follows, they say, that the judge should not have made orders for possession or sale of Woodwinds. Alternatively the judge should have found that Mrs Marks was entitled to a 21 per cent beneficial interest in the house.[33]Skyparks has put in a respondent's notice supporting the judge's decision on estoppel on the additional ground of abuse of process, and cross-appealing on two grounds. The respondent's notice asserts that the order of Sullivan J created an estoppel under a judgment in rem and so shut out Mrs Marks not only from the first contention but also from the second and third contentions. It also asserts that in any event Mrs Marks made no contribution to the purchase of Woodwinds and has no interest in it under any sort of trust. Estoppel and abuse of process[34]House of Spring Gardens v Waite [1991] 1 QB 241 needs to be examined in some detail. One of the claimants had invented a bullet-proof vest. It had huge commercial potential, including a prospective sale of 50,000 vests to the Libyan army at a price of about £20m. The inventor entrusted manufacturing and marketing to three individuals (WW, SW and McL) who betrayed his trust, misused confidential information and made secret profits. There were several rounds of litigation in the Republic of Ireland and in England, with subsidiary proceedings elsewhere. Eventually in 1983 the Irish High Court gave judgment in proceedings against WW, SW and McL and damages were assessed at nearly £3.5m. An appeal by all three defendants to the Supreme Court of Ireland was substantially unsuccessful in 1985. None of the defendants had paid anything to satisfy the judgment but about £1m had been recovered from other sources.[35]Immediately after the unsuccessful appeal WW and SW (but not McL) started fresh proceedings in Ireland, claiming that the original judgment had been obtained by fraud. That action was based on exactly the same allegations as had been made (on behalf of all three defendants) in a motion before the Supreme Court for a new trial. The new action was dismissed in 1987, after a 22-day hearing, and an appeal was dismissed. Meanwhile the claimants had started proceedings in England to enforce their judgment against all three defendants, who all relied in their defences on the new action pending in Ireland. The English proceedings (in which an Order 14 summons was issued) were held in abeyance until the dismissal of the second appeal in Ireland. Peter Pain J held that McL, as well as WW and SW, was estopped from contending (as a defence to the summons for summary judgment) that the original Irish judgment had been obtained by fraud.[36]An appeal to this court was rejected. The main judgment was given by Stuart-Smith LJ who dealt with the position of McL at pp.252-4. He stated the general principle that an estoppel binds not only parties but also those who are (in the traditional expression) privy to the parties bound, the relevant privity in this case being privity of interest. Stuart-Smith LJ observed that a mere interest in the outcome of litigation is not sufficient. He cited two passages from the judgment of Sir Robert Megarry V-C in Gleeson v Wippell [1977] 1 WLR 510, 515:
"but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest'."
And at p.516:
"A defendant ought to be able to put his own defence in his own way, and to call his own evidence. He ought not to be concluded by the failure of the defence and evidence adduced by another defendant in other proceedings unless his standing in those other proceedings justifies the conclusion that a decision against the defendant in them ought fairly and truly to be said to be in substance a decision against him. Even if one leaves on one side collusive proceedings and friendly defendants, it would be wrong to enable a plaintiff to select the frailest of a number of possible defendants, and then to use the victory against him not merely in terrorem of other and more stalwart possible defendants, but as a decisive weapon against them."
[37]Stuart-Smith LJ also referred to what Lord Denning had said in giving the opinion of the Privy Council in an appeal from the West African Court of Appeal, Nana Ofori Atta II v Nana Abu Bonsra II [1958] AC 95 , 102-3 , in which Lord Denning had himself quoted from Lord Penzance in Wytcherley v Andrews (1871) LR 2 P&M 327, 328, "that if a person, knowing what was passing, was content to stand by and see his battle fought by somebody else in the same interest, he should be bound by the result, and not be allowed to re-open the case. That principle is founded on justice and common sense, and is acted upon in courts of equity, where, if the persons interested are too numerous to be all made parties to the suit, one or two of the class are allowed to represent them; and if it appears to the court that everything has been done bona fide in the interests of the parties seeking to disturb the arrangement, it will not allow the matter to be re-opened."[38]That was the principle which this court applied in House of Spring Gardens v Waite , Stuart-Smith LJ stating (at p.255) that it would be a travesty of justice to allow the issue of fraud to be relitigated again. He made that observation in a part of his judgment in which he indicated that the same conclusion could be reached on the wider ground of abuse of process.[39]The principle stated by Lord Penzance clearly has at least two essential ingredients: identity of interest (in the sense described by the Vice-Chancellor in Gleeson v Wippell ) and an informed decision to stand by and let the battle be fought by another. Mr Griffiths submitted that there is also a third requirement, found in the words 'that everything has been done bona fide in the interests of the parties seeking to disturb the arrangements'.[40]That is no doubt a third requirement in the limited sense that a non-party who believed that his case was being fought in his best interests by another, when in fact it was being collusively thrown away by another, would not be bound (that again is echoed by the Vice-Chancellor's reference to 'collusive proceedings and friendly defendants'). But the fact that Skyparks did not attempt to join Mrs Marks or the trustees as parties to the charging order proceedings in the Queen's Bench Division does not to my mind come anywhere near collusion or any other sort of misconduct. If there was any collusive element (and I do not think there was, although Mr Marks' evidence was most severely criticised) it was in Mr Marks' denial that he had any beneficial interest of any sort in Woodwinds.[41]Mr Griffiths was however on much firmer ground, in my view, in submitting that there was neither sufficient identity of interest between Mr and Mrs Marks nor sufficiently informed consent on the part of Mrs Marks to stand back and let her battle be fought by her husband. There was obviously a degree of common interest in persuading the master that the house belonged to the Chanick Trust, because that outcome held out the best prospect of the house being preserved as a family home (so long as the charge to Midland could be kept down). And a husband who is facing insolvency may wish to prefer his wife's proprietary claims to his own. Nevertheless Mr Marks, Mrs Marks and the trustees all had competing financial interests, as would have become immediately apparent if Skyparks had proceeded (as it might have done) to make Mr Marks bankrupt at the same time as pursuing the charging order.[42]The judge described the circumstances of this case as similar to those of House of Spring Gardens v Waite . But to my mind there are significant differences. In that case WW, SW and McL were joint tortfeasors (and probably also conspirators). Their interests were identical and they were jointly and severally liable for enormous damages. McL not only knew about the Irish proceedings alleging fraud but actually pleaded them as a defence in the English action. His decision not to join in the Irish proceedings was deliberate and he offered no explanation of it (see the observations made by Stuart-Smith LJ at pp.253-4).[43]The evidence of Mrs Marks (which the judge seems to have accepted on this point) was that she knew of the master's decision at about the time when it was made and that she was told not to worry because there was to be an appeal. She (unlike McL) had had no previous involvement in the litigation and there is no suggestion that she took (or was at any time before August 1999 advised to take) independent advice. Had she (or the trustees) applied to be joined as parties at the stage of the appeal to Sullivan J, they might well have been met by the objection that Master Murray envisaged that they (or at any rate the trustees) would have a chance of being heard in the Chancery Division.[44]I should at this point note that counsel made some submissions as to whether there is a standard two-stage procedure for the enforcement of a charging order, with issues as to the quantum of a charged interest being deferred to the second stage (normally in the Chancery Division). I do not think that there is any standard procedure, since section 2 of the Charging Orders Act 1979 is in very wide terms and a wide variety of cases may occur, some very straightforward and others a good deal more complicated. But because a charging order is enforceable in the same manner as an equitable charge under hand, a charging order made in the Queen's Bench Division on land, or on a limited equitable interest in land or investments, may well lead to separate enforcement proceedings in the Chancery Division; and in a complicated case issues as to the extent of the charge may be left outstanding for the Chancery Division to deal with. In this case the master contemplated that the trustees might be heard in the Chancery Division. Whether or not it was a standard procedure, it was a sensible course for him to take, but it is inconsistent with the notion that he was finally deciding anything other than that Mr Marks did have some beneficial interest in Woodwinds.[45]The judge did not make any findings about the trustees of the Chanick Trust having had an interest identical to that of Mr Marks, or about their having been content to let Mr Marks fight their battle for them. The fact that Mr Marks had Radcliffes acting for him, and that the two offshore trust companies were associated with Radcliffes, may raise conjectures but it does not amount to a finding. The burden of proof of an estoppel is on the party who asserts it, and the elements of estoppel were neither pleaded (see para 26A of the amended reply and defence to counterclaim) nor proved against the trustees.[46]On that short point the judge's conclusion on estoppel cannot stand. But I have thought it right to consider the position of Mrs Marks also, and I conclude that she too (in her personal capacity) ought not to be bound by the order of Sullivan J. In the circumstances of this case the plea of abuse of process (which was not raised until the respondent's notice) cannot add anything to Skyparks' arguments on estoppel. Nor did the order of Sullivan J create an estoppel under a judgment in rem , which is a specialised and somewhat misleading term of art limited to judgments concerned with status (see Halsbury's Laws of England 4 th ed Vol 16 para 984; Spencer Bower, Turner and Hadley, The Doctrine of Res Judicata 3 rd ed paras 234-263). It is not the case that every judgment about immovable property is a judgment in rem . The declaration of trust[47]At one stage during the argument it appeared to me that Mr Denehan (who, like Mr Griffiths, argued skilfully the points which were open to him, and did not waste time on hopeless points) was conceding that if he failed on estoppel and abuse of process, he could not support Sullivan J's conclusion that the declaration of trust was 'utterly spurious'. However he did make some brief submissions in support of that conclusion.[48]Mr Denehan submitted that (despite the absence of a plea of sham, as described by Diplock LJ in Snook v London & West Riding Investments [1967] 2QB 786) the master and Sullivan J had been right to find that the declaration was a bit of 'window dressing' for production to the Inland Revenue if necessary, but of no real effect. He referred to the observation by Sullivan J that Radcliffes did not think the declaration of trust was incompatible with their undertakings to the bank, "no doubt because they recognised that it did not genuinely transfer the beneficial interest from Mr Marks". Sullivan J, like Master Murray, seems to have thought it inconceivable that Radcliffes could have really intended to advise or permit Mr Marks to take a course of action inconsistent with the terms of the legal charge in favour of Midland.[49]The fact is, however, that Radcliffes did so. That firm is not a party to these proceedings and it may possibly (although the court was told nothing about this) have to face a claim from Midland, for whom it was acting when Woodwinds was acquired and charged. It is therefore better to say as little as possible about its professional conduct. But in order to dispose of this appeal it is necessary to say something. Mr Denehan's submission relies on the inherent improbability of one view of Radcliffes' conduct (an apparent breach of its professional duty to the bank) but puts forward an explanation which would amount to even worse (and therefore inherently even more improbable) misconduct (that is the deliberate bringing into existence of a false document in order to deceive the Inland Revenue). Such serious impropriety cannot be concealed by euphemisms such as 'window dressing'.[50]On any view the legal charge provided Midland with an effective security enforceable against Woodwinds (and not merely against some limited or partial interest in Woodwinds). The terms to which the master referred were contractual obligations additional to its security, which imposed no more than contractual restrictions on Mr Marks' power to deal with the equity of redemption in the property. The partners in Radcliffes who gave evidence may or may not have taken too casual a view of the seriousness of a contravention of these contractual restrictions (and Mr Griffiths may be right in submitting that the bank has suffered no loss by the contravention, since its security remains intact). But the improbability of a breach of professional duty to the bank cannot be invoked as a reason for concluding that there was something tantamount to a fraud on the Inland Revenue.[51]In my judgment, therefore, the judge erred in following the conclusion reached in the Queen's Bench Division proceedings. She should have held that the declaration of trust was effective, even if it involved a breach of a contractual obligation, and that Mr Marks held Woodwinds as a nominee on the express trust created or evidenced by the declaration of trust. It is not necessary to go further into how the judge dealt with the second and third contentions.[52]Mr Marks does have a beneficial interest in Woodwinds - a life interest in a half share under clause 6 of the Chanick Trust, subject to the trustees' discretions in clause 7. That beneficial interest remains subject to the charging order, but it is a defeasible interest with no realisable value, and it is insufficient to serve as a basis for the orders for possession and sale which the judge made. Whether all or any of the clause 7 powers can be exercised by the present trustees (who are also beneficiaries) is a point on which the court heard no argument, but on which Mrs Marks and her son will no doubt take advice.[53]I would therefore allow this appeal. Counsel should please agree the terms of the order so far as they can, and give the court advance notice of any points on the form of the order on which they cannot agree.

LORD JUSTICE KEENE: I agree. MR JUSTICE COLMAN:

[55]I also agree.

ORDER

Appeal allowed with costs here and below ("below" covering the claim and the counterclaim), all those costs to be subject to detailed assessment. Application for interim payment refused. So far as the costs come out of the Chanick Trust, they will come out on an indemnity basis. The charging order will be varied so as to apply to the beneficial interest of Mr Marks in the property, and the entrance on the Land Register is to be altered so that that charging order is protected by a caution and not by any substantive entry of a charge. (Order does not form part of approved Judgment)

Cited in 8 later judgments