LAVIN v JOHNSON [2002] EWCA Civ 1138

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM YEOVIL COUNTY COURT

(MR RECORDER BULLEN)

[2002] EWCA Civ 1138

Case No Case No: B2/2001/2065+2065A

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Between

LAVINAppellant

JOHNSONRespondent

Before

Lord Justice Pill

Lord Justice Robert Walker

Sir Martin Nourse

Mr Paul Morgan QC and Mr Stephen Jourdan (instructed by Burges Salmon) for the appellant

Mr Gordon Apsion (instructed by Thursfields) for the respondent

Hearing dates : 16, 17 and 18 July 2002

Date 31 July 2002

Lord Justice Robert Walker:

Introduction

[1]This is an appeal, with the permission of the judge, from an order of Mr Recorder Bullen made on 11 July 2001. The proceedings were instituted in the Yeovil County Court but the hearings took place in Bristol and Bath. The original form of the proceedings was an apparently straightforward claim by a landlord for possession of agricultural property for non-payment of rent. But the defence and counterclaim raised issues of some interest and difficulty as to whether what were ostensible transactions of sale, lease-back and option to repurchase should, in the eyes of the law, be regarded as mortgage transactions. If that was their true legal character, further questions arose as to whether the transactions were extortionate so as to entitle the borrower to relief under sections 137 ff of the Consumer Credit Act 1974 (“the 1974 Act”).

[2]The claimant seeking possession of the agricultural property was Mr Anthony Lavin, a wealthy entrepreneur who is based in Worksop. He built up a successful business importing motorcoaches and developing and running coach depots in the north of England. He came to have many diverse business interests.

[3]The defendant was Mr Alfred Johnson who has been a farmer all his life, latterly near the villages of South Perrott and North Perrott in Dorset. The land at Wisley, Surrey which also plays a part in the story represents a remnant from his earlier farming activities.

[4]The outcome of the proceedings before the judge was a decision in principle that Mr Johnson was entitled to protection under the 1974 Act, and a fairly complicated order for accounts and inquiries which has been stayed until the disposal of this appeal. It is against that order that Mr Lavin appeals. The detailed provisions of the order cannot be usefully addressed until after a summary of the facts. The facts: down to 19 April 1994

[5]At the beginning of 1994 Mr Johnson was farming a substantial area of land in Dorset, primarily as a dairy farmer. The scourge of foot and mouth disease had not yet come to add to the troubles of dairy farmers, but nevertheless Mr Johnson’s business was in a very bad way. Mr Johnson had improved his farms with loans provided by Lloyds Bank, with which he regarded himself as having a good relationship. His indebtedness amounted to rather over £1m. Then in October 1991 the bank appointed a receiver and in the autumn of 1993 there was a further appointment of what Mr Johnson has called an agricultural receiver to take full control of the farming business.

[6]Mr Johnson was afraid that the receiver might sell off land piecemeal in such a way as to destroy the business potential of what was left. It was in those circumstances that Mr Johnson was introduced to Mr Lavin by Mr John Nicholson. Mr Nicholson played an ambiguous part, minor but not wholly insignificant, in the events which the judge had to make findings about. His part was ambiguous in the sense that Mr Lavin’s case was that Mr Nicholson was a friend of Mr Johnson, and Mr Johnson’s case was that Mr Nicholson was an associate or go-between of Mr Lavin. The judge’s findings favoured the latter view.

[7]Before going into the details of the transactions which took place during 1994 and subsequently it may be helpful to say something about the various areas of farmland which are mentioned. The details are not important but it is useful to have a general idea of the layout. i) To the south was Pipplepen Farm, South Perrott, with a listed farmhouse, modern dairy and grain-storage and drying facilities, and about 189 hectares of land. ii) North of Pipplepen (and to some extent bisected by the main railway line to the south-west) was Hazelbury Park Farm, North Perrott, with a traditional farmhouse, modern dairy buildings, and about 108 hectares of land. iii) Eastfield Farm, to the east, had modern dairy buildings for a smaller herd and about 108 hectares of land. iv) Downclose Farm consisted of about 36 hectares of accommodation land. The land and facilities as a whole could carry about 550 dairy cows. Mr Johnson also had a milk quota which was at that time a valuable asset.

[8]The land at Wisley consisted of about 8 hectares bordering the M25. It was thought to have some potential for development although nothing very definite emerges from the evidence. One valuation put its market value at £27,000 and its forced sale value at £20,000. During the negotiations Mr Johnson suggested to Mr Lavin that it might be worth £100,000 on the basis that in that part of Surrey it would fetch £5,000 per acre, even without planning permission, for pony paddocks.

[9]The course of negotiations between Mr Lavin and Mr Johnson was closely examined at trial because of Mr Johnson’s reliance on undue influence and economic duress. He failed on that issue and it has not been pursued on appeal (although there is a lengthy respondent’s notice). But Mr Gordon Apsion (for Mr Johnson) has sought to support the judge’s conclusion that the relevant transactions were credit transactions, and for that reason also evidence of the course of the negotiations, and the parties’ intentions, is admissible.

[10]The solicitors acting for Mr Lavin were Eversheds (then styled Eversheds Hepworth & Chadwick) of Leeds. A number of solicitors in that firm participated at different stages but the individual most involved was Mr Timothy Field, an assistant solicitor who had qualified in 1988. Mr Johnson’s solicitors were Thursfields of Kidderminster. The individual most involved was Mr Stephen Wyer. He too had qualified in 1988; he was an assistant solicitor at the beginning of 1994 but was made a partner a few months later. It is clear that not all the negotiations were conducted through solicitors. On the contrary, there was a great deal of largely undocumented contact between the clients. Indeed at one stage Mr Johnson told Mr Lavin (in a letter dated 14 February 1994) that he was not going to mention to Thursfields a plan (which Mr Johnson and Mr Lavin had been discussing between themselves) to sue the receivers over their conduct in relation to Mr Johnson’s milk quota.

[11]However the sequence of events as it appears from the correspondence was as follows. The solicitors made contact at the beginning of February 1994. Eversheds’ letter of 4 February (not written by Mr Field) indicates that the original proposal for secured lending had been changed to a proposed sale with a lease-back and an option to repurchase. Sales of land in the meantime were to reduce the consideration payable on exercise of the option. The Wisley land was to be included in the sale and its net proceeds on resale were to be divided in equal shares.

[12]No figures were put forward for the amount of the consideration, either on sale or on exercise of the option to repurchase. Indeed it appeared that Mr Lavin had not had a valuation and wished to obtain one at Mr Johnson’s expense (a recurring feature of the matter is that Mr Lavin sought to throw all his expenses on Mr Johnson, including legal fees, stamp duty and other taxation liabilities which would normally fall on Mr Lavin).

[13]Within three days Mr Johnson had obtained a valuation from Mr Paul Lewis FRICS, the senior partner in Symonds Sampson of Sturminster Newton. But Mr Lavin insisted on his own valuation (at Mr Johnson’s expense) from Mr Antony Lalonde FRICS, a partner in James Harris of Winchester, first at market value and then (on 14 March 1994) at forced sale value. Between these valuations half of Hazelbury (54 hectares) was sold off.

[14]It is convenient to set out the valuations in tabular form (the proportions between the figures suggest that the forced sale value for Hazelbury, although said to be for 135 acres ie 54 hectares, may have contained an error). Symonds & Sampson (o.m.v) £m James Harris (o.m.v) £m James Harris (forced sale) £m Pipplepen (189 ha) 1.200 1.000 0.830 Hazelbury (108 ha or 54ha) 0.520 0.385 0.303 Eastfield (108 ha) 0.500 0.333 0.302 Downclose (36 ha) 0.120 0.108 0.090 600,000 litres milk quota 0.270 0.240 [say 0.240] 2.610 2.066 1.765

[15]Thursfields replied on 8 February after there had been discussions between the clients. Their letter stated that “the proposed structure” was “acceptable in principle”. However it continued, “Clearly, your client wishes to be fully secured in respect of the redemption monies which he will effectively be paying over to the Receivers but both we and the Receivers would be reluctant to see assets passing at a gross under value and indeed, the Receiver has advised that in such circumstances he would require an indemnity in respect of his own liability for countenancing such a sale. Our proposal is that sufficient land be transferred to your client in consideration of the payment of the redemption monies which both leaves your client secured to his (and your) satisfaction and which enables both our client and the Receiver to feel comfortable that assets are not being transferred at a gross under value. We understand that your client has indicated that, subject to discussing the matter with you, he would be prepared to consider taking less than all the remaining assets, subject to his feeling satisfied with the “security” provided.”

[16]On 10 February Eversheds sent draft heads of agreement to Thursfields. The plan had changed again. The basic transaction embodied in the heads was a secured loan of about £1m (to pay off the receivers), with annual interest at 10 per cent, for a maximum period of 14 months. Mr Johnson was to pay “all Mr Lavin’s costs in respect of this agreement, including legal and professional fees, stamp duty and other related expenses”. There was also to be an arrangement fee (not previously mentioned in any correspondence) of £200,000. The Wisley land was to be vested in Mr Lavin who would try to obtain planning permission and sell it. The net proceeds were to be divided equally but only if Mr Johnson complied with all his obligations. Otherwise all the proceeds would belong to Mr Lavin.

[17]On 11 February Thursfields raised some points on the draft heads of agreement, including an inquiry whether Eastfield Farm could be left out of the charge. They also asked whether the Wisley land was to pass by way of gift. On 14 February Mr Johnson raised these and other points in the direct letter to Mr Lavin which I have already mentioned. On 15 February Eversheds sent new draft heads of agreement. These were said to be incapable of being “amended or altered in any way whatsoever” and they were required to be accepted by 5 pm on the following day, 16 February. These were on the same general lines as the previous draft, except that the arrangement fee had become a commitment fee of £150,000 and there was a provision about milk quota:

“Mr Johnson agrees to assign to Mr Lavin the proceeds of sale of the milk quota as referred to and more particularly described in correspondence between the parties and their lawyers to date. The value of the milk quota is estimated to be £240,000. In the event of a sale of the aforementioned milk quota, the non-payment to Mr Lavin by Mr Johnson of the assigned proceeds shall constitute an event of default under the arrangements to be entered into by the parties hereto. Further to the payment of the proceeds of sale to Mr Lavin, Mr Lavin, will, provided the proceeds amount to circa £240,000 release from the security held by him Eastfield Farm.”

[18]The new heads of agreement do not seem to have been signed but they do seem to have been acted on, in that there is then a three-week gap in the correspondence, apparently because Mr Field was investigating title and drafting a number of legal documents. Then on 8 March he wrote to Mr Lavin pointing out a difficulty: Mr Johnson would, as mortgagor, have an entrenched legal power to grant agricultural tenancies (the Agricultural Holdings Acts 1948 and 1986 placed a restriction on section 99(13) of the Law of Property Act 1925, under which a mortgagor’s powers of leasing can normally be excluded or varied by agreement). The outcome was that on 14 March Mr Field told Mr Wyer that the transaction was to take the form of a sale, not a charge. Mr Wyer pointed out that this would impose additional expense (especially in stamp duty) on Mr Johnson.

[19]On 14 March Mr Lavin’s chosen valuers produced their forced sale figures, although these were not in the end used to provide the amounts of consideration to be inserted in the various documents. On 23 March Mr Field sent Mr Wyer a number of drafts and raised some questions on title. On 12 April there was a meeting at Eversheds’ Leeds office attended by Mr Field, Mr Wyer, Mr Lavin, Mr Johnson and Mr Nicholson. Mr Field said in his witness statement that he had mislaid his notes of the meeting but that it took 2½ to 3 hours and that much of the discussion was about Eastfield Farm and the milk quota. On 15 April Mr Field sent further drafts relating to Eastfield Farm, stating in this letter, “Whilst I appreciate that we are trying to keep Eastfield Farm out of the transaction, I am concerned that your client may not be able to sell the Milk Quota with the ease with which he has suggested. I have therefore prepared this Agreement which will be signed and held subject to the terms of the side letter, a copy of which I also enclose.”

[20]All these negotiations were following their tortuous course against a background of pressure from the receivers to realise their security by sales of land. Bond Pearce & Co, who acted for the receivers, had reached an advanced stage (and no doubt incurred substantial costs) in arranging for sales. Mr Paul Morgan QC (appearing in this court with Mr Stephen Jourdan for Mr Lavin) produced a schedule (which had not been in evidence below) appearing to indicate that the redemption sum increased, at some late stage, from about £1.022m to about £1.268m (including over £100,000 for estimated tax liability). Mr Morgan was unable to produce any conventional completion statement but it is apparent that the sum eventually paid to the receivers was £1,288,633.30, precisely the same sum as the consideration under the master sale agreement mentioned below.

[21]The documents were completed on or shortly after 19 April 1994. They are summarised below. On 20 April Mr Johnson sent a manuscript letter to Mr Lavin, full of appreciation and gratitude to him for having got him out of the hands of the receivers after nearly three years. Unfortunately Mr Johnson had, in getting out of the hands of the receivers, got himself into an even worse predicament, as quickly became apparent. Transactions on 19 April 1994

[22]The documents executed on 19 April 1994 can be summarised as follows. In relation to Pipplepen, Hazelbury Park and Downclose Farms there were three agreements: i) There was a master agreement for sale of the land for £1,288,633.30, with provision for a tenancy to be granted to Mr Johnson, and a clause relating to milk quota. It was to be held by Mr Johnson in trust for Mr Lavin and to be sold to a third party for not less than £270,000, to be paid to Mr Lavin, with Mr Johnson being liable for any shortfall. ii) The call option agreement related to the above property, so far as unsold during the option period, which was to expire on 30 September 1995. The consideration on exercise of the option was to be the whole or a proportionate part of(a) (A) £1.288m (approximately) plus

(b) (B) £0.175m (presumably the latest version of the commitment fee). Money raised from sales during the option period were to go to reduce the consideration payable on exercise of the option (clause 3.2). Any other capital receipts were also to reduce what was referred to as “the indebtedness” (clause 3.3), including any sum reimbursed by the receivers, which was to be paid by Mr Johnson to Mr Lavin (clause 3.4). There were also some detailed provisions about minimum prices for sales of parts of Pipplepen Farm. There was also a wide indemnity to Mr Lavin in respect of costs, expenses and tax liabilities. iii) The tenancy agreement was for a so-called Gladstone v Bower tenancy (see

[1960] 2 QB 384

) of about 279 hectares at a rent of £14,500 per month for the period ending on 30 September 1995.

[23]In relation to Eastfield Farm there was an agreement for Mr Johnson to sell it to Mr Lavin for £1. There was a clause relating to milk quota in terms similar but by no means identical to those in the master agreement. In particular, clause 11.1 of the agreement provided that simultaneously with the sale of Eastfield Farm the milk quota (600,000 litres) should be transferred by Mr Johnson to Mr Lavin for £1. Clause 11.4 provided that if the milk quota had been sold and accounted for in full (that is, to the extent of £270,000) Mr Lavin was “to re-assure [Eastfield] to [Mr Johnson] at a nominal consideration”. There was also provision for a Gladstone v Bower tenancy at a nominal rent until 30 September 1995. Clause 14 was as follows:

“This Agreement shall remain in full force and effect as to any of its stipulations obligations and conditions which shall not have been performed and which shall remain to be performed notwithstanding the completion of the Transfer of the Property to the Purchaser.”

[24]In relation to the Wisley land Mr Johnson agreed to sell it to Mr Lavin for £20,250. Schedule 3 to the agreement provided for Mr Johnson to get the benefit of half of any net profit, but only if Mr Lavin had obtained satisfactory planning permission, and only if Mr Johnson exercised his option during the option period.

[25]There were also three side letters, each dated 19 April 1994: i) Mr Wyer agreed on behalf of Mr Johnson that the Wisley purchase money (£20,250) would be repaid to Mr Lavin in respect of his costs and disbursements. ii) Mr Lavin agreed that if the receiver made a reimbursement reducing the redemption sum due to the bank to less than £1m, the sum of £175,000 in the option agreement could be reduced to £150,000. iii) Mr Lavin signed a further letter to Johnson in the following terms:

“In consideration of you today entering into a contract for the transfer of the above property together with the 600,000 litres of Milk Quota registered in your name at the Milk Marketing Board I hereby confirm that I will not serve a Completion Notice (as defined in the Agreement) provided that the Milk Quota shall have been sold to a third party buyer within the period of one month from the date hereof and I shall have received £270,000 from you. For the avoidance of doubt if the Milk Quota shall not have been sold within that period I will be free to exercise my rights as contained within the Agreement.”

[26]As the last-mentioned letter implies, completion of the sale of Eastfield for £1 was to depend on a completion notice served at a time of Mr Lavin’s choice. However Mr Johnson handed over to Eversheds the deeds evidencing what was, at that stage, the unregistered title to Eastfield Farm. Completion of the sales of the other farms and the Wisley land took place as soon after 19 April as it took for the documents to be exchanged. The facts: April to October 1994

[27]Completion of these documents seems to have led to an extraordinarily rapid cooling of cordiality. On 26 April Mr Field sent Mr Wyer a schedule showing that £19,562 was due from Mr Johnson. The schedule showed stamp duty, Land Registry fees, valuation fees and legal fees totalling nearly £40,000, reduced by the sum of £20,250 in respect of Wisley. Mr Field added, “Of course, in addition to these sums, Alf has got to pay the rent and find £270,000 to ensure that Eastfield Farm is not transferred to Tony.”

[28]On 12 May 1994 Mr Field sent a fax, apparently direct to Mr Johnson (or possibly Mr Nicholson to pass to Mr Johnson). The first two paragraphs stated:

“1. Alf [Mr Johnson] owes Tony [Mr Lavin] the figures on the attached schedule plus one month’s rent ie £14,500. Therefore amount payable is £34,062.74 payable by 18 May (ie next Wednesday). 2. I have instructions to issue proceedings for possession if payment not made.”

Mr Lavin said in cross-examination that he could not remember giving any such instructions.

[29]The correspondence during May, June and July 1994 covered several different topics, but the most important were the linked topics of the sale of the milk quota, and Mr Johnson’s wish to recover the deeds of Eastfield Farm so that he could use them as security. His failure to recover the deeds led him into increasing difficulties and ultimately (on his case) into the new arrangements, even more detrimental to Mr Johnson, which were put in place in October 1994. Mr Lavin’s case is that there was no obligation to hand over the deeds and that there was in any case no causal connection between the non-delivery of the Eastfield deeds and the new arrangements.

[30]Throughout this period there was a good deal of activity, but little progress, in trying to sell property (in particular, different parts of Pipplepen Farm) to outside purchasers so as to reduce the sum which Mr Johnson would need to find in order to exercise his option. Mr Lavin instructed the Salisbury office of Savills, while Mr Johnson himself approached other possible purchasers. Neither side has acknowledged any responsibility for the lack of progress and each has tended to blame the other. Later Mr Lewis of Symonds Sampson was instructed. In the event the first sale (of one of the Pipplepen cottages for £71,000) was not achieved until July 1995.

[31]It is unnecessary (and perhaps not possible) to trace in detail the course of the sale of the milk quota. Mr Johnson gave instructions promptly to two specialist agents and they promptly negotiated contracts at the expected price level (that is about 43p a litre). But the market practice was that after the purchase price had been paid in full it was kept on deposit and was not released to the seller until the necessary registration had been effected by the Intervention Board.

[32]Mr Field’s doubts about payment within one month of 19 April 1994 were therefore justified, although the sale contracts were entered into during that period. On 20 May Mr Field wrote to Mr Wyer:

“Tony is obviously concerned to ensure that the £270,000 is received as soon as possible. However, as a concession, he is prepared to extend the period in which payment must be made to him to the 19 th June 1994. If payment is not received by then he will enforce the sale of the property.”

[33]In the event none of the £270,000 was paid to Eversheds by 19 June 1994, although all the milk quota money was by then on deposit in the agents’ hands. It seems to have reached Eversheds from one agent (Ian Potter) by three cheques (totalling £57,159) in June and July and from the other agent (Symonds Sampson) by a cheque for £206,070 on 1 September 1994, possibly with some interest to follow. The computations were complicated by the deduction of the agents’ fees, the addition of deposit interest, and (most significantly) some uncertainty about accounting for VAT. Mr Johnson (who seems to have been acting without legal advice at this stage, a point it will be necessary to return to) was trying to do his own calculations, which tended to get mixed up with his liability for his monthly rent of £14,500. But Mr Johnson himself made two further payments (of £8,292.71 and £14,130) which Mr Lavin’s counsel accept to have been paid on account of the £270,000 and, in the case of the £14,130, in respect of stamp duty and land registry fees.

[34]The position at the end of September 1994 was that Mr Field was advising Mr Lavin that Mr Johnson had not paid in full; Mr Johnson believed that he had paid in full; and (as is accepted in the skeleton argument for Mr Lavin) neither Mr Field nor Mr Lavin told Mr Johnson that he had not paid in full. The opposing positions (as set out in Mr Lavin’s supplementary skeleton, and no doubt the product of comparatively recent analysis) were apart by only about £3,332, the principal reason for which is a deduction (on Mr Lavin’s figures) of £2,350 for Eversheds’ fees incurred after completion.

[35]It is common ground that during September there were discussions between Mr Lavin and Mr Johnson without their solicitors being involved. Mr Lavin’s evidence was that Mr Johnson contacted him and proposed new arrangements. Mr Lavin stated in his witness statement “Mr Johnson said that it suited him to give me what I originally wanted and to transfer Eastfield Farm to me. Mr Johnson explained that he had a concern over having assets in his name at that time as he wanted to continue to qualify for legal aid in order to pursue an action against his previous Receivers and Bank.” He denied that he put any pressure on Mr Johnson.

[36]In his witness statement Mr Johnson gave a different, but not very specific account of the matter. He stated, “When I subsequently entered into the purported Deed of Variation with him whereby the Call Option was purportedly re-negotiated in October 1994, I did so as a result of having been gravely misled by the Claimant and on the misunderstanding of the strength of my and the weakness of the Claimant’s position in relation to Eastfield Farm. I actually thought I had no alternative but to agree the variation and did not question the options available to me with my solicitors, but simply gave instructions that the transaction was to be effected.”

[37]In his oral evidence Mr Johnson enlarged on that. He explained he had no farm machinery (he had sold three tractors for £20,000 which went towards paying his rent) and no money to buy any and so he put forward a proposal for the larger part of the holding of which he was tenant to be relet to Mr David Foot. He denied that he put forward a new arrangement about Eastfield, or that he asked for the option period to be extended. He also denied that he had a telephone conversation with Mr Lavin in which he spoke of a transfer of Eastfield improving his eligibility for legal aid.

[38]There was therefore a severe conflict of evidence as to the reasons for the deed of variation which was executed, together with other documents giving effect to it, on 28 October 1994. The documentary material before the court starts with a file note dated 3 October made by Mr David Harter, then a newly-qualified solicitor who was working under Mr Field at Eversheds. The note records that Mr Harter told Mr Wyer that Eversheds were instructed in a “transaction which involves transfer of Eastfield Farm and surr[ender] of Johnson’s current Gladstone v Bowers”. Mr Wyer said that he was not instructed and that he would take instructions.

[39]There are three file notes dated 4 October. In the first Mr Wyer recorded a telephone conversation with Mr Johnson. The note must be set out in full:

“SJW speaking to Alf Johnson who returned SJW’s call of 3 rd October. Alf confirmed that the proceeds of the milk quota sale had now been paid over to Mr Lavin and these amounted to £240,000. This obviously reduced the outstanding indebtedness considerably. However, Alf is short of working capital himself and is not able to obtain sufficient from the Bank to be able to farm his extensive acreage as an arable farm. Without being able to farm he cannot generate the income to pay Mr Lavin. A new arrangement has therefore been agreed under which a contract farmer, David Foot, will be allowed to farm 600 acres of Pipplepen Farm under a new Gladstone Bower tenancy at a rental equivalent to that which Alf is currently paying, payable to Tony Lavin. This will be used to discharge Alf’s liability. Tony Lavin will retain the Deeds of Eastfield Farm and Alf’s Option Agreement will be extended to tie in the option period with the expiration of the new Gladstone Bower Tenancy. Alf’s existing Gladstone Bower Tenancy will have to be surrendered but we need to consider carefully how Alf’s occupation of the remainder of the Farm not to be leased to David Foot is to be secured. Query whether we can deal with this by way of a grazing agreement between David Foot and Alf. SJW subsequently telephoned David Harter at Eversheds to confirm instructions and David Harter said that he would let SJW have draft documentation as soon as possible. Time engaged: 30 mins”

[40]There was a good deal of discussion in this court as to how Mr Wyer came to write £240,000 (rather than £270,000) since Mr Johnson’s belief at the time (and subsequently) was that the £270,000 had been paid in full. One possible explanation is that it was literally more or less correct, in that Mr Johnson’s manuscript calculations made in mid-September showed £241,457 net from sales of quota topped up by a credit of £20,250 from Wisley and a payment by Mr Johnson, from other funds, of £8293. But as with many things in this case, it is hard to be sure about the true explanation.

[41]The next two notes are Mr Harter’s. He spoke to Mr Wyer and the relevant part of his note, expanded from abbreviations, reads “[Mr Wyer] thought that the deeds to Eastfield would simply remain with Lavin. However [Harter] explained that the deal is that Eastfield will in fact be transferred to Lavin. Wyer has instructions to approve all necessary documents etc.”

[42]It may be thought remarkable that Mr Wyer, on learning of this significant error in his understanding of the deal, did not think it necessary to confirm his instructions. The third note records a conversation between Mr Harter and Mr Foot, the new tenant. Mr Harter recorded himself as telling Mr Foot (for reasons which are not apparent) “ ... that under no circumstances must Alf continue to farm and even [Mr Johnson renting grass keep for his animals] could be a problem from Lavin’s point of view.”

[43]On 5 October Eversheds wrote to Thursfields confirming the proposed transaction, subject to contract. The letter stated that “Mr Johnson will transfer title to Eastfield Farm to Mr Lavin” but most of the letter was concerned with the new letting arrangements. Again Mr Johnson was to be liable for all Mr Lavin’s legal costs. Eversheds set about preparing legal documents and obtaining plans for the new tenancies. On 7 October they sent four drafts to Thursfields (one a draft Rule 72 transfer of Eastfield Farm) and a further draft tenancy agreement to Mr Foot’s solicitors.

[44]In relation to the events of October 1994 the bundle of correspondence before this court contained, as we were told, all relevant written communications (or records of oral communications) between Mr Wyer and Mr Johnson, in respect of which privilege was waived. These communications discuss several aspects of the new tenancies (including a warning to Mr Johnson that a default by Mr Foot in paying rent could invalidate his option) but no reference to Eastfield (other than as included in Mr Johnson’s new tenancy). Mr Johnson said in his oral evidence that he was trying to slow things down, but on 24 October Evershed wrote by fax that the documents must be completed that week, and that they would carry out no further work until Thursfields undertook to be responsible for Evershed’s costs whether or not the matter proceeded to completion. On the same day Thursfields replied saying that Mr Johnson was sending a cheque, and raising points relating to the tenancies.

[45]An attendance note made by Mr Harter records that on 26 October 1994 he spoke by telephone to Mr Lavin. This is the note which records Mr Lavin as saying that all he was interested in was ‘the £’. It also appears to record a three-way conference (presumably by telephone) with Mr Lavin and Mr Johnson (not explored, so far as I can see, during the oral evidence). The note states enigmatically “Eastfield – side letter saying could take back [because] milk quotas £ ... -–never took back.”

[46]Apart from that single inexplicable reference there is no record of any discussion or advice about the effect of the Rule 72 transfer (Rule 72 of the Land Registration Rules permits a transfer of land which is not registered, but in respect of which the transferor has the right to be registered as proprietor). Indeed Mr Wyer’s note of 28 October does not even mention the transfer:

“SJW attending upon Alf Johnson when he called in to execute documentation in connection with the new Gladstone [v] Bower tenancy agreements and the amendments to the call option agreements.”

Yet it is not in dispute that Mr Johnson also signed the Rule 72 transfer on that occasion. Transactions of 28 October 1994

[47]Five legal documents were executed on 28 October 1994: i) a surrender by Mr Johnson of his existing tenancy dated 19 April 1994; ii) a new tenancy agreement between Mr Lavin and Mr Johnson; iii) a new tenancy agreement between Mr Lavin and Mr Foot’s company, D H J Foot Limited (“the Foot company”); iv) a deed of variation varying the option agreement dated 19 April 1994; and v) the Rule 72 transfer of Eastfield.

[48]The new tenancies were both Gladstone v Bower tenancies for a period of one year and four days, expiring on 31 October 1995. Mr Johnson’s holding was about 122 hectares, consisting of part of Eastfield and some outlying areas. The Foot company’s holding was about 255 hectares, consisting of most of the land to the south and an outlying area to the north-east (there are some useful plans annexed to Mr Lavin’s amended reply and defence to counterclaim). Mr Johnson’s rent was £51,750 and the Foot company’s rent was £90,000, both payable by equal monthly payments in advance.

[49]The deed of variation was made between Mr Lavin and Mr Johnson and was expressed to be supplemented to the option agreement. It did three things: i) It extended the period for exercise of the option by one month, that is to 31 October 1995. ii) It linked the continuing validity of the option to non-default in payment of rent on the part of the Foot company as well as Mr Johnson. iii) It inserted a new provision (the details of which are not relevant) for rent reduction if the ‘A’ element of the option price (see paragraph 22(ii) above) were reduced below £750,000.

[50]The deed of variation did not provide for Eastfield to become subject to the option. Mr Morgan submitted that this was a drafting error and that everyone assumed that Eastfield did become subject to the option or (as it was put in various oral exchanges which it will be necessary to come back to) “in the pot”.

[51]The Rule 72 transfer has received more attention in this court than it did below. It is a very simple and straightforward document containing (clause 1) a transfer, (clause 2) an indemnity by the transferee and (clause 3) a certificate of value. Clause 1 is in the following terms (omitting the parties’ addresses): “In consideration of £1.00 (One Pound) the receipt of which is acknowledged ALFRED WILLIAM JOHNSON ... (“the Transferor”) as Beneficial Owner hereby transfers to ANTHONY THOMAS LAVIN of ... (“the Transferee”) the freehold estate in the property described in Schedule 1 (“the Property”) SUBJECT TO and (where appropriate) WITH THE BENEFIT of the matters specified in Schedule 2 so far as they respectively still subsist are capable of being enforced and relate to the Property.” ‘The Property’ was Eastfield Farm identified by a plan and a reference to the last previous conveyance on sale. The facts – events since October 1994

[52]It has been necessary, for reasons which will become apparent, to cover the events down to this point in considerable detail, referring to negotiations and advice which would be irrelevant and inadmissible if the only issue were as to the correct construction of commercial agreements. Subsequent events can be covered in a much more summary way, and I take them largely from Mr Jourdan’s very helpful chronology.

[53]There continued to be a lack of progress in effecting sales to third parties. Eversheds expressed concern about this to Thursfields in June 1995. In July there was a sale of a single cottage for £71,000, with completion in August. In accordance with the option agreement this money was paid to Mr Lavin and went to reduce the ‘A’ element of the option price. By September negotiations were in progress for a sale of some of the land to Mr Foot, a new tenancy of the remainder and a new option agreement (the draft of which did include Eastfield Farm).

[54]During October 1995 Mr Johnson received a reimbursement of no less than £100,000 (a curiously round sum) from the receivers. This represented an over-provision for tax made by them. Mr Johnson paid this sum straight to Mr Lavin.

[55]In November 1995 the new proposals were brought to a halt because Mr Johnson was facing a bankruptcy petition in the Yeovil County Court. On 11 December 1995 Eversheds told Thursfields that unless they heard from them by the next day, Mr Lavin would conclude that Mr Johnson did not wish to proceed with a new option. Thursfields did send them a letter by fax on 12 December saying that they hoped to get the bankruptcy claim disposed of before Christmas. The petitioner was either the Inland Revenue or Customs & Excise, but it was supported by Mr Nicholson, who was claiming £12,000 from Mr Johnson for his services. In the event Mr Lavin paid £12,000 to Mr Nicholson and the official claim seems to have been met somehow.

[56]However the new option agreement never emerged. In December 1995 Mr Lavin granted the Foot company (by a farm business tenancy under the Agricultural Tenancies Act 1995) a new tenancy of all the land for a term of 11 months. In March 1996 the Foot company surrendered some buildings to enable them to be let to Mr Johnson. In September 1996 Mr Lavin granted Mr Johnson a farm business tenancy of a substantial area for a 23-month term at the equivalent of a monthly rent of £14,500. Mr Johnson found that he could not cope with so much land and he asked for a tenancy of Pipplepen Farm alone at a reduced rent. Mr Lavin agreed and on 16 October 1998 he granted Mr Johnson a new farm business tenancy of Pipplepen alone, for a 23-month term, at the equivalent of a monthly rent of £4583. This was the tenancy which was still on foot when Mr Lavin gave notice to terminate the tenancy on 14 December 1999, followed by the commencement of proceedings on 24 March 2000 seeking possession of Pipplepen Farm and just over £50,000 arrears of rent.

[57]In the meantime Mr Lavin had in April 1999 sold part of Eastfield Farm with vacant possession for £612,500. The facts: taking stock

[58]In this court there has been some criticism of the judge (and had time allowed there might have been more criticism of the judge) for expressing himself in terms strongly adverse to Mr Lavin without any adequate assessment of the quality of his evidence and without an adequate foundation of dispassionately-found facts. During the hearing in this court I myself was critical of Mr Lavin for accepting £100,000 from Mr Johnson at a time when it must have been perfectly obvious that he was not going to be able to exercise the option by 31 October 1995, and Mr Morgan was right to point out that at that time there were active negotiations for the grant of a new option. Those negotiations were frustrated by the threat of Mr Johnson’s bankruptcy (although that fact by itself must cause scepticism as to whether there was thereafter any realistic prospect of Mr Johnson raising enough money to exercise the option, however often it might have been renewed).

[59]I have therefore tried, in summarising the facts and identifying the disputed areas of fact, to do so as dispassionately as possible. There may well be force in Mr Morgan’s submission that the judge was much too critical of Mr Lavin. On the undisputed facts Mr Lavin showed considerable patience, and even perhaps some generosity, to Mr Johnson in 1997, 1998 and 1999. But by then Mr Johnson was in dire need of generosity, since by then (in addition to personal misfortunes) he had lost virtually everything.

[60]At the beginning of 1994 Mr Johnson owned land, buildings and milk quota with an open market value of the order of £2.3m (the mean of the two open market valuations) subject to secured indebtedness of the order of £1.2m (the sale consideration less the £100,000 reimbursed by the receivers). Even on a receivers’ sale of all the land he might have hoped to be left with some free capital which, with funding from another bank, might have enabled him to make a fresh start. Had Mr Lavin’s participation taken the form of a mortgage (as it did at both the first stage and the third stage of the original negotiations) the position would have been not much different, except that Eversheds’ fees would have been substituted for those of the receivers and their solicitors, and Mr Johnson could have hoped that Mr Lavin would be much more receptive than the receivers to Mr Johnson’s views as to what land should be sold in order to discharge the secured liability.

[61]Events took a different turn at a late stage in the negotiations, apparently because of a legal technicality as to a mortgagor’s power of granting leases of agricultural land. The end result has been that (subject to the outcome of these proceedings) Mr Johnson no longer has any land or buildings (apart from his disputed tenancy of Pipplepen Farm) and no milk quota. Mr Lavin has for an initial investment of £1.288m in April 1994 (and at no cost in legal fees or stamp duty, since these were paid by Mr Johnson) received in round terms: i) £441,000 from the milk quota money, the receivers’ reimbursement and the sale of the cottage; ii) £612,000 from the sale of part of Eastfield, for which Mr Lavin had paid £1; iii) the unsold parts of Eastfield Farm, Hazelbury Park Farm and Downclose Farm or their proceeds of sale; iv) Wisley or its proceeds of sale; and v) the freehold of Pipplepen Farm subject to Mr Johnson’s disputed tenancy. Mr Lavin has also been receiving (so long as Mr Johnson could afford to pay it) rental income fixed (as is common ground) to reflect a commercial return on a loan, rather than an ordinary level of agricultural rent. Whatever Mr Lavin’s motivation, the strikingly different outcomes for the two men is bound to lead the court to look closely at Mr Johnson’s claim that he has been wronged by Mr Lavin. The proceedings below

[62]There were many unsatisfactory features about the proceedings in the Yeovil County Court, beginning with the pleadings. The defence and counterclaim were quite extensively amended on 26 January 2001, less than three weeks before the trial. In its amended form the defence claimed that sums due to Mr Johnson from his landlord exceeded the amount of the arrears of rent claimed; and that Mr Lavin’s ownership of the farm was acquired by an extortionate credit bargain contrary to sections 137-140 of the 1974 Act. The amended counterclaim set out the background facts and pleaded an agreement (“the first agreement”) made in February 1994 but evidenced by the documents of 19 April 1994. The first agreement was alleged to have been an extortionate credit bargain affecting the land subject to the option.

[63]There was a separate claim that “if and insofar as the defendant purported to sell Eastfield Farm to the claimant for £1 that was an extortionate credit bargain”. In a separate part of the pleading it was alleged that Mr Johnson was paid the whole, or almost the whole of the milk quota money and that Mr Lavin was not entitled to retain ownership and possession of Eastfield because the sale was part of an extortionate credit bargain. Later paragraphs elaborated allegations as to what amounted to interest (or other charges for credit) under the bargain. There was an allegation that Mr Lavin had wrongfully refused to return to Mr Johnson the deeds of Eastfield Farm.

[64]There was a further pleading of the deed of variation (“the second agreement”) by which (among other things) “Eastfield Farm was conveyed to the claimant”. It was pleaded that the second agreement was the result of oppressive conduct by Mr Lavin and was “invalid and/or revocable”, or was an extortionate credit bargain. In relation to Wisley the counterclaim relied on a sale at an undervalue on the basis of misplaced trust, and on the 1974 Act. The counterclaim sought a variety of relief including a declaration that Mr Johnson is the true beneficial owner of Pipplepen and Hazelbury Park Farms and what remains of Eastfield Farm, and an order for their transfer to him.

[65]In short the amended defence and counterclaim was lengthy and in places obscure. A request under CPR part 18 did not produce much clarification. The amended reply set out a clear and positive case including a detailed challenge to the figures pleaded on behalf of Mr Johnson as to the payment of the milk quota money.

[66]The trial itself had many unsatisfactory features. It had to be adjourned and resumed four times. The hearing dates (all in 2001 and all inclusive) were 13 to 16 February, 8 March, 26 and 27 April and 11 to 15 June. The hearing started in Bristol but for the last six days it was in Bath. The closing speech of Mr Johnson’s counsel (Mr Apsion) occupied all or part of the day for five days. Mr Jourdan’s closing speech took less than a day, and Mr Apsion was then permitted to make further submissions in reply.

[67]It is also clear from the transcripts that the trial did not proceed as a witness action conducted by experienced and responsible counsel should proceed. Mr Jourdan (who appeared on his own below) frequently had to object to questions put by Mr Apsion, either because he was asking leading questions in supplementary examination in chief or in re-examination, or because they were in substance not questions at all but assertions (sometimes several sentences long). The judge was not sympathetic to these objections, but I have to say that they seem to me to have been justified. Conversely Mr Apsion frequently interrupted Mr Jourdan’s cross-examination, especially when Mr Johnson was giving evidence. The judge also intervened quite often, in the hope of making matters clearer, but not always with that effect. Mr Johnson had a tendency to answer questions by raising other topics. The overall result was that the oral evidence came out slowly, painfully and disjointedly.

[68]The other matter which increased the judge’s burdens was the lack of definition of the issues. There were recurring doubts as to whether matters raised in the pleadings had been conceded or were still live issues. The most important of these was whether it was Mr Apsion’s case that the arrangements embodied in the documents dated 19 April 1994, although expressed in terms of sale, leaseback and option, should in the eyes of the law be seen as a mortgage, or at any rate a credit transaction. But in the end the judge decided the case on that point and Mr Morgan accepted that this court must consider it. It was also clear in this court, if not below, that despite the references in the counterclaim to oppression and breach of trust, Mr Apsion has not been relying on unconscionable bargain, oppression or undue influence except as an element in, or a reflection of, his case on extortionate credit bargain.

[69]The judge reserved judgment for a month and gave an oral judgment on 11 July 2001. His judgment falls into four main parts. The first part (pages 1 to 12 of the transcript) summarises the undisputed facts and also contains some important findings of fact on disputed issues. Some of those findings are challenged in this appeal.

[70]Then in the second part of his judgment the judge dealt with the law. He dismissed the claim based on undue influence (pages 13 to 15). This was perhaps a little surprising, in view of the judge’s very adverse findings about Mr Lavin, but it is not challenged on the cross-appeal. The judge did conclude that the transactions of 19 April 1994 together constituted a financial accommodation (and therefore credit under the 1974 Act) and that the transaction as a whole was an extortionate credit bargain (pages 15 to 21).

[71]Then in the third part of his judgment (pages 21 to 24) the judge returned to the facts in relation to the transactions of 28 October 1994 and made further findings of fact, some of which are challenged on appeal. On the strength of those further findings of fact the judge concluded that Mr Lavin had wrongfully converted the title deeds to Eastfield Farm, and that Mr Johnson’s entry into the October transactions was caused by the conversion. He added (at page 24), “I have noted above that the option agreement was not altered to include Eastfield so that it appears Eastfield has been transferred to Mr Lavin either because of the marginal shortfall in the £270,000, by less than £2,000 says the Claimant even now, or because of the delay in the money being received. It can be seen that the resulting loss of Eastfield with the market value of £0.5 million is wholly unconscionable and/or exorbitant. I am told that the parties intended it to go into the option. Whether it would or not is speculation. Suffice it to say that I have not seen any goodwill on Mr Lavin’s part which would give me any confidence that it would have been so treated.”

[72]In the final part of his judgment, after referring to Wisley as being part of the extortionate credit bargain, and after dismissing another claim which is not pursued on appeal, the judge considered what remedies could be appropriate. His order as drawn up granted the following relief:(i) a wide order for an account of sums received by Mr Lavin;

(ii) enquiries as to what orders should be made under the 1974 Act, and what damage had been suffered as a result of the conversion of the title deeds; and

(iii) an injunction restraining further disposals of land without the consent of Mr Johnson. The judge gave permission to appeal to both sides, stayed the accounts and enquiries pending any appeal, and reserved costs. The issues on the appeal

[73]The issues on the appeal can be summarised as follows: i) points on which there is a challenge to the judge’s findings of fact; ii) whether the arrangements of 19 April 1994, taken as a whole, amounted to an extortionate credit bargain under the 1974 Act; iii) whether Mr Lavin is liable for substantial damages for conversion of the title deeds to Eastfield; and iv) if the judge was wrong (either because of mistaken findings of fact or otherwise) in his conclusions on the 1974 Act and on conversion, whether there are nevertheless grounds open to this court for holding that Mr Johnson is entitled to some relief. Issues of fact

[74]Before any detailed discussion of the disputed issues of fact it is appropriate to say something about the judge’s general approach. Soon after the beginning of his judgment he observed, “I rely heavily upon the contemporary records because after such a length of time memories can be distorted. They can also be influenced by what is at stake and a very considerable amount is at stake here on both sides. I have of course seen both parties give evidence at some length. As a result I have formed a very strong view of whose account I accept and whose I reject. This is not to say that I have not taken into account genuine mistakes caused by the intervening years and the undoubted pressure put upon Mr Johnson.” It quickly became apparent that he was very critical of Mr Lavin’s conduct and disbelieved some of his evidence.

[75]Close attention to the contemporaneous documentary evidence was plainly the right course, as a means of testing conflicting oral testimony about negotiations carried on or intentions formed over six years before. But I have to say that the judge does not seem to have analysed all the documentary evidence as fully as he might have done. Of course the judge had the great advantage of seeing and hearing the witnesses, and where ordinary testimony (rather than the evidence of expert witnesses) is concerned, a trial judge need not usually give detailed reasons for finding one witness to be more truthful or reliable than another.

[76]Nevertheless a trial judge should be very cautious about making strongly adverse findings against a witness in relation to matters which were not put to the witness, and he must be consistent in his findings. The judge did not observe these requirements in relation to Mr Lavin or the two witnesses from Eversheds, Mr Field and Mr Harter. For instance the judge rejected what he saw as Mr Lavin’s denial that he had given instructions for the fax of 12 May 1994 (see paragraph 28 above) on the basis that that would have involved “gross misconduct” on the part of Eversheds. But a little later in the judgment he said that it was clear that “Mr Lavin and his solicitors knew [that Mr Johnson was very anxious to get back the deeds to Eastfield] and were determined to thwart him by fair means or foul.” None of this had been properly put to the witnesses. The only criticism properly put to the solicitors was that Mr Harter had shown a tough, ‘take it or leave it’ attitude in October 1994.

[77]There are ten particular issues of fact raised in the main appeal skeleton prepared by Mr Jourdan. Two of these relate to Wisley and need not be pursued. One related to the fax of 12 May 1994, which I have already referred to. The others (lettered (d) to (j) inclusive in the skeleton argument) were as follows:(i) “Having seen Mr Lavin I have no doubt that he had no intention of letting Mr Johnson have the deeds back and every obstacle was put in the way of such an event happening.” (judgment page 8);

(ii) the passage (page 9) about thwarting Mr Johnson quoted in paragraph 76 above;

(iii) the findings (pages 9 and 11) that the figure of £240,000 mentioned by Mr Johnson to Mr Wyer on 4 October could only have come from Mr Lavin or his solicitors and (page 21) that Mr Johnson believed that he had not paid the full amount;

(iv) the judge’s expressed doubt (pages 10, 20 and 24) whether Eastfield was intended to go “into the pot” in the sense of being subject to the call option;

(v) the judge’s rejection (page 20) of the evidence of Mr Lavin and Mr Nicholson that Mr Johnson wanted Eastfield to go “into the pot” to facilitate his application for legal aid;

(vi) the judge’s apparent acceptance (page 12) of Mr Johnson’s allegation in his witness statement that he had been “gravely misled” by Mr Lavin; and

(vii) a variety of adverse findings against Mr Lavin (at pages 10 to 12) such as that he was on “a cold-hearted and single-minded course of conduct to strip Mr Johnson of every single penny and leave him nothing” and that he “displayed a manipulative attitude and was clearly not honest in his accounting of money received in respect of the milk quota.”

[78]On the last of these points I would accept the criticisms of the judge which were advanced by Mr Jourdan in his skeleton, and which Mr Morgan adopted but did not develop in his oral submissions. The judge’s findings were very serious. No case of fraud or dishonesty had been pleaded or put forward at trial. Mr Johnson himself, in his oral evidence, did not support these imputations against Mr Lavin.

[79]All the remaining findings (paragraph 77 (i) to (vi) above) are concerned, directly or indirectly, with the knotty and intertwined issues of the milk quota payment and the title deeds to Eastfield Farm, and it is better to defer consideration of them until a later stage in this judgment. Were the April 1994 transactions an extortionate credit bargain?

[80]It is not in dispute that whether a deed effects a mortgage or some other type of transaction is in one sense a matter of substance, not form. The whole of the English law of mortgages has developed from equity’s intervention to permit the redemption of grants which according to their terms were (or had become) absolute. Extrinsic evidence is admissible to show that a grant, although in terms absolute, was intended to be by way of security only (see Barton v Bank of New South Wales

(1890) 15 App Cas 379

, 380-1).

[81]In this case Mr Johnson relied on a number of features as showing that the transfers of Pipplepen, Hazelbury Park and Downclose Farms, although ostensibly outright transfers on sale, were in substance made by way of security only. The most important of these were - i) the fact that the farms were transferred at what Mr Wyer (and, it seems, the receivers) regarded as a gross undervalue; ii) the fact that the purchase price was the exact sum required to pay off the receivers; iii) the fact that the rent payable under Mr Johnson’s tenancy was (as is common ground) fixed by reference to a commercial return on a loan, rather than as a normal agricultural rent; iv) the fact that although Mr Johnson was not legally obliged to exercise the option and pay the A + B sum (less payments on account), in economic terms he was compelled to do so if he was to avoid a disastrous loss (moreover he was obliged, under clauses 3.3 and 3.4 of the option agreement, to pass to Mr Lavin any capital receipt including any reimbursement from the receivers); and v) the fact that both parties and their solicitors did from time to time, both in the documents themselves and after the transactions had been effected, use terms such as ‘indebtedness’ or ‘interest’ which were appropriate to a credit transaction, not an outright sale.

[82]This is a formidable catalogue and it led the judge to the conclusion that the transactions amounted to a ‘financial accommodation’ and so to the provision of credit within the meaning of the 1974 Act. But to say that the identification of a mortgage is a matter of substance, not form, is not to say that any transaction which is expected to produce the same economic consequences as a mortgage must be a mortgage in the eyes of the law. That is clear from numerous authorities, including the decision of the House of Lords in Manchester, Sheffield and Lincolnshire Railway Company v North Central Wagon Company

(1888) 13 App Cas 554

. Mr Morgan referred to that decision (which was concerned with a sale, leaseback and option to purchase railway wagons) and also to the decision of this court in Welsh Development Agency v Export Finance Co Ltd

[1992] BCLC 148

(which was concerned with whether there was a sale or charge on goods under a master agreement for the finance of exports of computer disks).

[83]In Welsh Development Agency Dillon LJ said at p.161 “In my judgment there is no one clear touchstone by which it can necessarily and inevitably be said that a document which is not a sham and which is expressed as an agreement for sale must necessarily, as a matter of law, amount to no more than the creation of a mortgage or charge on the property expressed to be sold. It is necessary therefore to look at the provisions in the master agreement as a whole to decide whether in substance it amounts to an agreement for the sale of goods or only to a mortgage or charge on goods and their proceeds.” He then referred to two well-known passages in the speeches of Lord Herschell and Lord Watson in McEntire v Crossley Brothers

[1895] AC 457

, 462-3, 467.

[84]Staughton LJ said at p.185:

“We were referred to a bewildering array of authority on this topic, some of it by no means easy to reconcile. The problem is not made any easier by the variety of language that has been used: substance, truth, reality, genuine are good words; disguise, cloak, mask, colourable device, label, form, artificial, sham, stratagem and pretence are ‘bad names’, to adopt the phrase quoted by Dixon J in Palette Shoes Pty Ltd v Krohn (1937) 58 CLR I at 28. It is necessary to discover, if one can, the ideas which these words are intended to convey. One can start from the position that statute law in this country, when it enacts rules to be applied to particular transactions, is in general referring to the legal nature of a transaction and not to its economic effect.”

Then after referring to some authority on that point he set out (at p.186) what he called two routes by which the legal nature of a transaction (embodied in one or more documents) could be ascertained:

“The first, which I will call the external route, is to show that the written document does not represent the agreement of the parties. It may, if one wishes, then be called a sham, a cloak or a device. The second is the internal route, when one looks only at the written agreement, in order to ascertain from its terms whether it amounts to a transaction of the legal nature which the parties ascribe to it.”

[85]In this case both Mr Lavin and Mr Johnson had instructed solicitors, who paid close attention to the nature and form of the transactions which their clients were proposing to enter into. The court has been able to follow the negotiations in detail and it is clear that (after Mr Field had on 8 March 1994 raised the point on section 99 of the Law of Property Act 1925) Mr Lavin made a considered decision, reluctantly accepted by Mr Johnson after taking advice, to return to the proposal for sale, leaseback and option. The judge’s finding that before 8 March Mr Lavin “had already determined that he was going to acquire ownership by sale and that any other route was simply not open” is in my view against the weight of the evidence. It would have the implication that the letter of 8 March was a predetermined ploy to put pressure on Mr Johnson at the last moment. It would have been most reprehensible for Mr Field and Mr Harter to have engaged in that sort of orchestrated sharp practice, and the accusation was never put to either of them.

[86]Moreover Mr Apsion made clear, both at first instance and in this court, that he was not putting forward a case of sham. He was relying, not on what Staughton LJ referred to in Welsh Development Agency as the first route, but on the second route. On that basis it is in my view impossible to uphold the judge’s conclusion on this point. The documents which effected the transactions in relation to Pipplepen, Hazelbury Park and Downclose Farms were professionally drafted and (with the exception of clause 12.1 of the master agreement in relation to milk quota and clause 3.3 and 3.4 of the option agreement in relation to capital receipts including any reimbursement from the receivers) there can be no doubt as to their legal effect. They effected a sale, a leaseback and the grant of a call option (even though the exercise of the option was for Mr Johnson, in economic terms, a matter of necessity rather than unconstrained choices). The two exceptions mentioned above fit uneasily into the scheme but their presence is not enough to alter its fundamental character. The transactions as a whole did not amount to a credit transaction, and it is unnecessary to consider whether they would, as such a transaction, have been extortionate in the statutory sense. Conversion of title deeds

[87]In my view the judge fell into error on this point also. He correctly directed himself as to the law, citing the decision of Millett J in Barclays Mercantile Business Finance Ltd v Sibec Developments Ltd

[1992] 1 WLR 1253

, 1257-8:

“Demand is not an essential precondition of the tort: what is required is an overt act of withholding possession of the chattel from the true owner. Such an act may consist of a refusal to deliver up the chattel on demand, but it may be demonstrated by other conduct, for example, by asserting a lien. Some positive act of withholding, however, is required; so that absent any positive conduct on the part of the defendant, the plaintiff can establish a cause of action in conversion only by making a demand.”

[88]The judge found that Mr Johnson had demanded the title deeds to Eastfield Farm by his two undated faxes sent to Mr Field in the early part of September 1994 and that Mr Field (acting on behalf of Mr Lavin) refused the demand by an unidentified communication whose existence the judge inferred from Mr Field’s letter of 16 September 1994 to Mr Lavin. The judge’s conclusions on these points were plainly influenced by the finding (which he had already made twice, at pages 9 and 11 of the transcript of the judgment) that Mr Johnson believed that only £240,000 of the £270,000 had been paid, and that this belief had been induced by some unidentified communication by Mr Field or Mr Lavin.

[89]In my view this part of the judgment cannot be upheld. The documentary evidence, and the oral evidence of Mr Johnson himself, show that Mr Johnson was very anxious to recover possession of the Eastfield deeds, and that he believed that he had paid off the full amount of £270,000 in order to achieve that result. But he was not sure of the state of the account. In his oral evidence he expressed his justified indignation that Mr Field had not replied to his letters and either confirmed or challenged his calculations (Mr Morgan said that Mr Field had to take instructions from Mr Lavin, who was on holiday; I do not find that a wholly satisfactory explanation).

[90]In short Mr Johnson (who seems not, at that time, to have been receiving advice from Mr Wyer) was in a state of doubt and anxiety. It appears that at that time he still regarded Mr Lavin with a mixture of gratitude and respect. He did not see himself as being in any position to make demands on Mr Lavin, and in my view neither of the two faxes relied on amounted to a demand. The language of the first (“I look forward to this being acceptable”) was not the language of demand, and the second added nothing to the first. Nor is there any sufficient evidence of a refusal. The transactions affecting Eastfield

[91]I have identified the fourth issue on the appeal as being whether, if the judge was wrong on the 1974 Act and on conversion, there are nevertheless grounds open to this court for granting Mr Johnson some relief. In discussing this part of the appeal I must at once recognise a difficulty which has caused me considerable anxiety. The judge did in his judgment (page 24) reach separate conclusions about the successive transactions affecting Eastfield, and this court made clear to Mr Morgan (at an early stage of the appeal hearing) that we regarded Eastfield as the appellant’s biggest difficulty.

[92]However, neither the respondent’s notice, nor Mr Apsion’s skeleton argument on the appeal, identified (still less developed) what appeared to me to be the most promising argument for Mr Johnson obtaining some relief. Mr Apsion did not adopt the point when it was suggested to him. There are therefore obvious difficulties about an appellate tribunal raising a new point which has not been put forward by counsel. Not least of the difficulties is the danger (which I readily acknowledge) of a judge being over-receptive towards an argument originating from the same judge.

[93]I hope that I have given full weight to these dangers. But this is (fortunately) an exceptional case. I must regretfully record that Mr Johnson’s counsel was unable to give the court any real assistance, either in his written submissions or when he addressed the court. I regret to say that Mr Johnson might almost have been a litigant in person. The court is entitled and indeed bound to raise any argument which appears to be available to a litigant in person. The line of argument set out below was clearly put to Mr Morgan and was the main topic which Mr Morgan addressed in his full and careful speech in reply.

[94]The facts in relation to the successive transactions affecting Eastfield, in April and October 1994, have already been set out (paragraphs 23, 25 (iii) and 34 to 46 above). Mr Morgan rightly conceded that the April agreement affecting Eastfield was made by way of security, because of the express provision (in clause 11.4) for re-assurance for a nominal consideration after payment of the full £270,000. Moreover clause 14 (non-merger) provided that completion of the contract after service of a completion notice should not displace any provision of the agreement which was still capable of having effect.

[95]In relation to Eastfield, therefore, the April 1994 arrangements (including the side-letter) amounted in substance to an equitable charge to secure payment of £270,000 due to be paid (after the extension) by 19 June 1994. If shortly after 19 June, with all or most of the sum still unpaid, Mr Lavin had given notice calling for completion of the transfer of Eastfield for £1, he would have been entitled to do so. The effect in legal terms would have been to turn an unusual form of equitable charge into an unusual form of legal charge. It would not have been to transfer to Mr Lavin, for £1, Mr Johnson’s valuable equity of redemption in Eastfield. The obligation for re-assurance on payment of the full £270,000 would have continued to have effect.

[96]That much Mr Morgan was, as I understood his position, prepared to accept. But he submitted that the whole purpose of what was done in October 1994 was to make new arrangements, and that those new arrangements had the effect of superseding and nullifying the right to re-assurance under clause 11.4 of the Eastfield agreement.

[97]That is to my mind a fairly startling proposition. Although there is still a dispute over the precise state of the account over the milk quota payments, the difference between the parties is now agreed to be no more than about £3,332 at most – little more than one per cent of the total sum. Mr Johnson’s equity of redemption in Eastfield Farm was therefore worth (even on Mr Lavin’s case about the state of the account) very little less than its open market value (over £400,000 on the mean of the open market valuations) and yet Mr Johnson was, on this view, selling the equity of redemption for £1.

[98]If the package of new arrangements (on whose novelty Mr Morgan placed great reliance) had conferred very valuable alternative benefits on Mr Johnson, the view that Mr Johnson was giving up his equity of redemption might have been more readily supportable. But the package had only two other elements: the surrender of Mr Johnson’s existing tenancy and its replacement by two tenancies (one to Mr Johnson and one to the Foot company); and the extension of the option period by one month.

[99]Neither of those matters conferred any large advantage on Mr Johnson. The rearrangement of the tenancies was at his request, because with his depleted resources he could not farm the original holding. But he remained liable for a substantial rent on his new holding, and his future was to some extent put into Mr Foot’s hands, since the exercise of his option now depended on the payment of rent by both tenants. The extension of the option period by a month was not something which Mr Johnson had asked for, nor did it confer any obvious benefit on him. It was in fact a purely technical adjustment, as the correspondence shows, in order to accommodate the need for a Gladstone v Bower tenancy to run for more than one year.

[100]What view should the judge have taken as to the events of October 1994, and as to their legal effect? In considering that question I have been greatly assisted by the very thorough and detailed analysis put forward by Mr Jourdan, first in his written preliminary closing submissions on the facts (on which he relied at trial) and then in his first skeleton argument on this appeal. I accept many of the points which he has put forward but I cannot accept the final conclusion for which he contends.

[101]There are as I see it three competing versions or interpretations of the events of October 1994. Mr Lavin’s version is that Mr Johnson made a positive decision that he wanted to make a transfer of Eastfield in order to improve his eligibility (or apparent eligibility) for legal aid. This was supported by the evidence of Mr Lavin and Mr Nicholson, and also derived some support from Mr Johnson’s letter of 14 February 1994 to Mr Lavin, discussing a possible claim (not through Thursfields) against the receivers. It might have derived further support from the evidence of Mr Foot, had we allowed that evidence to be admitted on appeal. But we declined to admit the evidence, as failing at least two and possibly all three of the tests in Ladd v Marshall

[1954] 1 WLR 1489

(as to the position under the CPR see Briody v St Helens and Knowsley Area Health Authority

[2002] 2 WLR 394

, 409).

[102]However Mr Johnson denied that he had had any such conversation as Mr Lavin alleged, and the judge decisively rejected the evidence of Mr Lavin and Mr Nicholson. On this point I see no possible reason for interfering with the judge’s clear finding, which is entirely in line with the documentary evidence. Throughout the negotiations leading up to the first round of agreements, Mr Johnson had been doing all he could to keep Eastfield out of the arrangements, as his only means of obtaining secured credit from another bank. Throughout the summer he had been doing all he could to get the milk quota money paid off in full in order that he could recover the deeds. The reason put forward by Mr Lavin for Mr Johnson’s change of attitude was inherently improbable, and it was roundly rejected by the judge after he had seen and heard the witnesses.

[103]There are however also serious difficulties in the way of the second possible view of the case, put forward in Mr Johnson’s witness statement and apparently accepted by the judge, that Mr Johnson had been gravely misled by Mr Lavin. There was, as the judge noted, no pleaded claim of misrepresentation. The judge had no basis for concluding that Mr Johnson’s figure of £240,000 (mentioned to Mr Wyer when he was belatedly reinstructed on 4 October 1994) could only have come from Mr Lavin or Mr Field. If criticism is to be made of them on this point, it is not because they gave misinformation to Mr Johnson but because they increased Mr Johnson’s anxieties by not telling him whether or not his figures were agreed.

[104]The third possible view of the facts is that Mr Johnson was not intending to sell for £1 the equity of redemption in his one remaining asset of any substance, and that the transactions in October 1994 were largely driven by his need to alter the arrangements under which the land was being farmed. The documentary evidence shows that Mr Wyer did agree Mr Harter’s proposals very soon after they were put to him (see paragraphs 38 to 42 above) and it may well be that they were presented to Mr Wyer as a package which had already been agreed between the clients, and was no longer open to negotiation. But I can find no convincing evidence that that agreed package included the sale for £1 of the equity of redemption in the farm which Mr Johnson was regarding as his one hope for the future. It seems to me much more likely that the parties’ intention, whether subjectively or objectively assessed, was to complete the security provided for in the original Eastfield agreement.

[105]The Rule 72 transfer contains nothing to suggest that it was operating as the beneficial transfer of the equity of redemption in Eastfield. It was in a form entirely consistent with the terms of the original Eastfield agreement of 19 April 1994, under which the transfer would undoubtedly have been by way of security only (and would, but for the side letter, have been something which Mr Lavin could have called for at any time).

[106]Nor do the communications between the parties (which would be admissible on the principle stated in Barton v Bank of New South Wales ) give any support, in my view, to the notion that what was happening was anything more than the perfection of a security for the unpaid balance of the £270,000 which Mr Lavin claimed was due. I have set out the most relevant communications in paragraphs 34 to 46 above and I need not repeat them. All their emphasis is on the rearrangement of the tenancies as the prime business, with the variation of the option period (and the possible rental reduction) as consequential details, and the Rule 72 transfer as a formality.

[107]Mr Morgan submitted that it was highly unlikely that Mr Lavin would have taken a transfer by way of security in respect of a relatively trivial sum which was likely to be paid off soon. But Mr Lavin was a man who wished to obtain, and saw himself as in a position to obtain, the fullest protection for his financial interests. In my view this course of action on his part is less unlikely than the competing explanations.

[108]In his written submissions Mr Jourdan placed great weight on Mr Johnson having agreed in cross-examination (after some initial hesitation) that Eastfield was going “in the pot”. That meant that it was going to become part of the property subject to the call option, and (by implication) that it was to cease to be subject to a separate regime as a security for the milk quota money. But Mr Johnson’s answer in cross-examination, years after the event, cannot be taken as a reliable guide to his views in October 1994 on a point of some legal technicality. As Mr Johnson said in the course of the same part of his cross-examination:

“It’s only when it gets complicated, with jargon that I don’t necessarily understand ... I understand more now that [?than] I did six years ago.”

[109]Moreover as a matter of fact Eastfield Farm was not put “in the pot” by the deed of variation of the option agreement. That is a very significant fact in a matter in which the drafting of legal documents has (on the whole) been to a fairly high standard. It has been suggested to us that that was an error, and that if Mr Johnson had ever been in a position to exercise his option Mr Lavin would have retransferred Eastfield also. That may be so, but it is a matter of speculation. The court must at least start from these documents in the form in which they were executed.

[110]Mr Jourdan also relied, in his written submissions, on Mr Johnson’s repeated evidence that his solicitor thought, and Mr Johnson reluctantly accepted from him, that he was already obliged to make a transfer of Eastfield. For instance Mr Johnson said (Day 3, page 66) on being asked how he was misled about Eastfield:

“That’s right. I didn’t know that we had already agreed that East .... In the previous negotiations, we had already given away Eastfield in the April agreement, the option to .... we couldn’t get Eastfield. Steven Wyer said to me “We’ve already .... There is no choice. I can’t object to Eastfield being transferred.”

That advice was correct, if the transfer was by way of perfecting Mr Lavin’s security under the original Eastfield agreement. To my mind it helps to establish the essential continuity between what happened in April and in October 1994. It does not support the case for the October transactions being, in this respect, a radical departure which swept away what had gone before.

[111]For these reasons I conclude that after October 1994 Mr Lavin held Eastfield, not as absolute owner, but as mortgagee. This conclusion does not depend on the application of the 1974 Act, since Eastfield was held as a security for a liability (the payment of the milk quota money) which did not carry interest. It is unnecessary to consider the scope of section 139 of the 1974 Act (reopening of extortionate agreements). It is also unnecessary to express any view about the decision of Arden J in J A Pye (Oxford) Estates Ltd v Ambrose (21 March 1994, unreported). But Mr Lavin must be treated as having received rental income from Eastfield, and as having sold it, as a mortgagee and he must account on that basis. I would remit to the County Court the issue whether he must account as a mortgagee in possession in the technical sense.

[112]Mr Johnson did for some years conduct himself towards Mr Lavin in a way consistent with Mr Lavin being an absolute owner, and not a mortgagee, of the land. But Mr Morgan confirmed that estoppel did not form any part of Mr Lavin’s case.

[113]The taking of the account is likely to show a substantial balance due to Mr Johnson, far exceeding his arrears of rent. If there is any lingering balance due to Mr Lavin on the security (a point more appropriately dealt with on the taking of the account) that can be set off so enabling the unsold part of Eastfield Farm to be retransferred to Mr Johnson. If my lords agree with me as to the general disposal of the appeal the precise form of order will be a matter for further submissions.

[114]For these reasons I would allow Mr Lavin’s appeal from the judge’s order, but provide relief for Mr Johnson in respect of Eastfield on the lines indicated above. Sir Martin Nourse:

[115]I agree with the judgment of Lord Justice Robert Walker. I add some observations of my own on the October transactions in relation to Eastfield, being the only matter on which there is a difference of opinion between him and Lord Justice Pill.

[116]Like Lord Justice Robert Walker, I start from the position that the proposition that those transactions were intended to effect an outright sale of Mr Johnson’s equity of redemption in Eastfield (worth over £400,000 on the mean of the open market valuations) for £1 to be a startling one, so startling that some other explanation must in reason and justice be sought. I agree that there are three other possible explanations: first, Mr Johnson transferred Eastfield to Mr Lavin in order to improve his eligibility (or apparent eligibility) for legal aid; second, Mr Johnson made the transfer because he had been gravely misled by Mr Lavin; third, he made it by way of security pursuant to the original Eastfield agreement.

[117]Mr Morgan QC, for Mr Lavin, submitted that the only rational explanation was that Mr Johnson had made the transfer in order to improve his position in regard to legal aid. Had it not been for the judge’s decisive rejection of the evidence of Mr Lavin and Mr Nicholson on this point, I would have seen great force in the submission. It may be ironical that if the judge had taken that view of the transaction, Mr Johnson would, on the face of it, have been entitled to a reconveyance of Eastfield under the principle of Tinsley v Milligan

[1994] 1 AC 340

. But that of course, like so many other things in this troubling case, was not explored in the court below. As for the second possible explanation, I agree with Lord Justice Robert Walker that it is not maintainable.

[118]That leaves the third possible explanation, which is that Mr Johnson transferred Eastfield to Mr Lavin by way of security under the original Eastfield agreement. Lord Justice Robert Walker has set out the various factors which point to this as being the most probable explanation. As briefly as I can, I will state my reasons for agreeing with him.

[119]The starting-point is the Eastfield transaction of 19 th April 1994, the material provisions of which are referred to in paragraphs 23, 25(iii) and 26 of Lord Justice Robert Walker’s judgment. In essence, they provided for the sale of Eastfield by Mr Johnson to Mr Lavin at the price of £1, with completion to take place 5 working days after the service of a completion notice, provided that if, on a sale of the milk quota, Mr Lavin should have received not less than £270,000 in respect thereof, he would reconvey Eastfield to Mr Johnson at a nominal consideration. The deeds of Eastfield were handed over to Mr Lavin's solicitors. It is now accepted, correctly, on behalf of Mr Lavin that if what became the Rule 72 transfer had been executed shortly after 19 th June 1994, it would without doubt have been construed as taking effect by way of security and not by way of an outright sale (effectively a gift) of Mr Johnson’s equity of redemption in Eastfield. Moreover, and this has now become a very important point in the case, if Mr Lavin had wished to establish that there had been an outright sale, he would have had to adduce evidence to that effect. It would not have been necessary for Mr Johnson to adduce evidence that the transfer had been made by way of security.

[120]What is there in the October transactions to show that the Rule 72 transfer was made with the common intention that it should effect an outright sale of the equity of redemption? Neither the form of the transfer itself nor the overwhelming probabilities support the view that the parties intended that Mr Johnson should effectively make a gift of so valuable an asset to Mr Lavin. As Lord Justice Robert Walker has pointed out, the emphasis of the contemporary communications between the parties was on the rearrangement of the tenancies as the principal concern of the October transactions. In my view it is of great significance that the deed of variation of the option agreement was silent as to Eastfield. The omission cannot be brushed aside, as Mr Lavin’s solicitor would have had it, as a mere oversight. The considerations pointing the other way are not of equal strength. In particular, it does not follow from Mr Johnson’s acceptance in cross-examination that Eastfield was going “into the pot” that Mr Lavin was intended to take it as absolute owner. The description was consistent with Mr Lavin’s taking control of the property by having it in his name and retaining the title deeds. I agree with Lord Justice Robert Walker that the picture that emerges of Mr Lavin is of someone who wished to obtain the fullest protection for his financial interests. Indeed, he said as much himself.

[121]For these reasons, as well as for those given by Lord Justice Robert Walker, I am unable to hold that Mr Lavin has established a common intention that there should be an outright sale to him of Eastfield. The effect of the Rule 72 transfer was to vest it to him as mortgagee. Accordingly, though I would allow Mr Lavin’s appeal, I too would provide relief for Mr Johnson in respect of Eastfield. Lord Justice Pill:

[122]I adopt Robert Walker LJ’s statement of the facts and history of the litigation and do so gratefully because of its clarity and thoroughness. I agree that Mr Lavin’s appeal from the judge’s order should be allowed, for the reasons given by Robert Walker LJ but, albeit reluctantly, I would not provide relief for Mr Johnson in respect of Eastfield on the basis stated by Robert Walker LJ, namely that after 28 October 1994 Mr Lavin held Eastfield, not as absolute owner, but as a security for the unpaid balance of the £270,000 due to Mr Lavin as a result of earlier transactions in relation to Mr Johnson’s milk quota.

[123]The sum outstanding was, in context, trivial, Mr Morgan QC accepting that he needed to succeed in establishing that payment of Evershed’s fee of £2,350 could not be treated as part payment if he was to establish a deficit. I would be prepared to hold that a small sum was due because I accept the submission of Mr Morgan, and reject that of Mr Apsion, in relation to the Evershed fee. That finding, which is contrary to the case put forward on Mr Johnson’s behalf, operates in his favour on the present issue because it could provide a possible factual basis in support of a finding that the intention of the parties when entering into the transaction of 28 October 1994, set out by Robert Walker LJ at paragraph 51 of his judgment, was to provide security, albeit for only a trivial sum of money.

[124]Mr Johnson gave inconsistent evidence as to whether he did nor did not believe that he had paid the required sum of £270,000 pursuant to the agreement of 19 April 1994. The bulk of it, £206,070, was paid on 1 September. The judge found that Mr Johnson “had paid more than was required to secure full rights over Eastfield” (that is more than £270,000) though this finding is difficult to reconcile with other findings of the judge. There is no evidence to support the judge’s finding that “Mr Johnson was informed and believed that he had not raised sufficient to allow him the full rights over Eastfield”.

[125]Before expressing my reasons for disagreeing, I add that, not without hesitation, I do not dissent from the view that the Court is, in the circumstances of this case, entitled to raise the point on which Robert Walker LJ has reached a conclusion favourable to Mr Johnson. Plainly there are dangers, if the Court is to do justice between the parties, in a court itself raising and basing its decision on points not raised by the party itself and doing so on the basis that the party might almost have been a litigant in person.

[126]The document on which Mr Lavin relies to establish that he became an absolute owner, is, as Robert Walker LJ states, a “very simple and straightforward document”. The freehold estate in Eastfield was transferred for a nominal consideration. When delivering the advice of the Privy Council in Barton v Bank of New South Wales

(1890) 15 App Cas 379

at 381, Lord Watson stated:

“Where there is simply a conveyance and nothing more, the terms upon which the conveyance is made not being apparent from the deed itself, collateral evidence may easily be admitted to supply the considerations for which the parties interchanged such a deed.”

[127]On behalf of Mr Johnson, it was at the trial sought to impugn what appeared to be a transfer of ownership by the document of 28 October 1994 on the ground that the transaction was entered into as a result of the title deeds to Eastfield having been tortuously converted by Mr Lavin. For the reasons given by Robert Walker LJ, that conclusion cannot stand. Moreover, arguments based on undue influence, which were rejected by the judge, are also doomed to failure for reasons given by Robert Walker LJ and unconscionability has not been pursued. Mr Johnson was represented by a solicitor at the material time and the solicitor was provided with the document in draft. The 28 October 1994 transaction in relation to Eastfield was, if it took effect in accordance with its terms, to say the least ill-advised from Mr Johnson’s point of view.

[128]In the circumstances, I am very willing to look for evidence from which a conclusion may be drawn that, following the transaction of 28 October 1994, Mr Lavin held Eastfield as security for a small sum of money. The improvidence of the transaction, from Mr Johnson’s point of view, requires that a conclusion to that effect may readily be drawn but there must be evidence to support it. I have not been able to find evidence which establishes such an arrangement or which indicates that the intention of the parties was to create that relationship. In my view, the evidence points away from that.

[129]Other possible reasons for an outright transfer have been canvassed. The judge rejected Mr Lavin’s claim that Mr Johnson did not want the title to Eastfield in his name because, if it was, his right to the legal aid he sought to pursue other claims would be prejudiced. It is not open to this Court to reverse that finding and the application to call further evidence to support Mr Lavin’s claim has been refused. I agree with Robert Walker LJ (paragraph 103) that the possibility that Mr Johnson entered into the transaction because he was gravely misled by Mr Lavin must also be rejected.

[130]The rejection of other, and possibly sensible, explanations cannot of itself permit a conclusion that the transaction was a mortgage and not what it appeared to be. The evidence about events in October 1994 may well demonstrate a confused Mr Johnson (though he was represented by a solicitor) and a determined Mr Lavin but I have found nothing to suggest an intention in either party that Eastfield, a valuable property, was transferred so as to become or remain security for a trivial sum thought by Mr Lavin to be outstanding on the milk quota arrangement. Mr Lavin of course wanted the best security he could obtain for the large sum owed to him as a result of his payment to the bank of about £1.3 million and wanted arrangements which were advantageous to him. There is, however, nothing in the contemporaneous material before the Court which demonstrates, in my view, concern by Mr Lavin about the small sum which he believed to be outstanding. The April agreements had provided for the repayment of £270,000 within a short time but Mr Lavin did not seek to enforce his legal rights and the time limit was relaxed. No demand was made even in October 1994 for the small sum claimed to be due and there is nothing to suggest that the concern of the parties in October 1994 was the payment of that sum. Security for that sum was provided by the April agreement and no completion of the security was required by a further transaction.

[131]The events which led to the signing of the October agreements were canvassed in evidence. Nothing emerged to suggest that the balance of the £270,000 was a material factor.

[132]When Mr Johnson was cross-examined, he agreed that Mr Lavin had never complained to him that he had not paid the £270,000. It had not been suggested to him that failure to pay it would lead to the enforcement of rights under the April agreement or otherwise. He was not told that, on Eversheds’ calculation, a small balance was outstanding.

[133]Mr Lavin’s evidence was that he was seeking full control and security over the farms. It was Mr Lavin’s wish to put Eastfield “into the pot” which led to the October agreements. He wanted Eastfield treated in the same way as Pipplepen, Hazelbury Park and Downclose, to be leased out during the option period, sold off if Mr Johnson want to sell it and to be re-acquired by Mr Johnson on the exercise of the option. Mr Field, Mr Lavin’s solicitor, gave evidence that it was simply an oversight that the call option was not varied to include Eastfield. (On the evidence, had Mr Johnson sought to exercise the call option, he could have relied on the principle in Barton to urge that the combined effect of the documents was to include Eastfield in the option.) In evidence Mr Johnson agreed that the new agreement, that is the October agreement, put Eastfield “in the pot”. No reference was made to any alleged default by Mr Johnson with respect to the £270,000.

[134]It is clear that in October 1994 the parties still contemplated that Mr Johnson would exercise his option to re-purchase. That was Mr Lavin’s evidence and that assumption is implicit in the file note of Mr Wyer, Mr Johnson’s solicitor, written following a discussion with Mr Johnson on 4 October, and in his subsequent letters. Mr Wyer did not express concern about the proposed transaction concerning Eastfield. The draft document of transfer, along with the draft deed of variation relating to the call option agreement and draft tenancy agreement, was sent to him for his approval.

[135]Reliance in Mr Johnson’s favour on his evidence about the conversation between him and Mr Wyer, cited by Robert Walker LJ at paragraph 110 (the “no choice” advice), appears to me to be tantamount to finding that Mr Lavin is responsible for Mr Johnson being misled by his own solicitor. In any event, the £270,000 limit upon the security now contended for was not, on Mr Johnson’s account, mentioned by Mr Wyer.

[136]Whatever Mr Lavin’s motivation in October 1994, as revealed in the evidence, it does not include a wish to protect himself against the small amount outstanding as a result of the milk quota arrangement. I have to conclude that what remained of the sum due was not a factor in the contemplation of either party when the agreement was made.

[137]Insofar as they throw light on the October events, the subsequent events do not assist Mr Johnson. Eastfield was in the event treated in the same way as the other properties. Moreover, there was no demand for the small sum from the £270,000 claimed to be outstanding. The arrangement made in October 1994 was allowed to continue for several years without there being, on Mr Lavin’s part, any pressure or threat of eviction or, on Mr Johnson’s part, any conduct suggesting that Mr Lavin was other than the absolute owner of Eastfield.

[138]While the Court should look to the evidence for explanations which give a transaction, such as that of 28 October, a commercial or at least a rational purpose, it does not follow from the absence of a better explanation that the mortgage explanation must or can be accepted. The Court must have regard to the evidence and cannot adopt an explanation unsupported by evidence. Nor in the absence of evidence supporting it, can the mortgage explanation be accepted on the ground that it is the least unlikely or illogical of the competing explanations. In the absence of evidence of an explanation giving the document a different effect, the document takes effect at its face value.

[139]For those reasons I would allow the appeal.

LAVIN v JOHNSON [2002] EWCA Civ 1138

Lord Justice Robert Walker:

Introduction

Cited in 2 later judgments