WHITEHEAD and another v HOUSEHOLD MORTGAGE CORPORATION PLC [2002] EWCA Civ 1657

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SOUTHEND COUNTY COURT
(HIS HONOUR JUDGE YELTON)
[2002] EWCA Civ 1657Case No Case No: 2002/0624Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Thursday, 14 November 2002
Between
WHITEHEAD and anotherAppellantsHOUSEHOLD MORTGAGE CORPORATION PLCRespondent
Before
Lord Justice ChadwickLord Justice SedleyLord Justice Scott BakerMr F Banning, solicitor advocate (instructed by Messrs Smithson Clarke, Newcastle upon Tyne for the Appellants)Mrs S Putnam (instructed by Messrs Davis & Co, High Wycombe, Bucks for the Respondent)Date 14 November 2002

Lord Justice Chadwick :

This

[1]is an appeal from an order made on 11 March 2002 by His Honour Judge Yelton sitting at Southend County Court in proceedings between the appellants, Mr Keith Whitehead and his wife Mrs Fidelma Whitehead, and Household Mortgage Corporation Plc ("HMC"). The substantive issue raised by the appeal is whether HMC - having valued its security as mortgagee at less than the amount of the mortgage debt and accepted payment by way of dividend under an individual voluntary arrangement in respect of the estimated shortfall - was entitled, on the subsequent sale of the mortgaged property for an amount in excess of the mortgage debt, to apply the proceeds of sale in satisfaction of the whole balance of the mortgage debt, giving credit only for the amount actually received under the arrangement. The underlying facts[2]The underlying facts are not in dispute. Mr and Mrs Whitehead were the owners of property known as 110 Alexandra Road, Southend on Sea. On 17 May 1988 they charged that property by way of legal mortgage to Westpac Banking Corporation to secure a principal sum of £90,492, with interest at the variable rate therein specified. The mortgage contained an express covenant by Mr and Mrs Whitehead to pay the principal sum on demand in the event of default in the payment of interest. It was provided that that covenant (and any other covenants in the mortgage) should be deemed to be joint and several. On 1 May 1991 the benefit of the charge was transferred to the respondent, HMC.[3]Within a very short time the Whiteheads were finding it impossible to keep up the interest payments due under the mortgage. By the end of 1991 arrears of interest were in excess of £10,000. HMC issued a summons for possession in the Southend County Court. On 17 March 1992 an order was made for the delivery of possession of the mortgaged property within 28 days; and, thereafter, a warrant of possession was issued. On 27 May 1993 the warrant was suspended, pursuant to section 36 of the Administration of Justice Act 1970. From that date until 30 April 1999, the matter was before the county court on no fewer than eleven occasions. There was a history of failure to meet the conditions imposed by orders in force from time to time. On 30 April 1999 the court ordered that the warrant for possession "be suspended for so long as the defendant pays current instalments together with £1,500 within 7 days, £750 within 28 days thereafter and the balance at £100 for every calendar month, off arrears of £4,766.50". The first of those payments was made in accordance with the terms of that order; the second payment, due in June 1999 was not made; nor were the current instalments of interest which fell due in May and June. But, in July 1999, all arrears of interest were discharged; and the possession order which had been made some seven years earlier was treated as spent.[4]In the meantime, Mr Whitehead had made proposals to his creditors for an individual voluntary arrangement under Part VIII of the Insolvency Act 1986. Those proposals were approved, with modifications, at a meeting of creditors held on 27 April 1994. In broad terms, the proposals provided for Mr Whitehead's father to withdraw his claim to payment of £40,000 owed to him; for Mr Whitehead to make payments to the supervisor at the rate of £200 per month over a period of five years (that is to say, £12,000 in all); and for Mr Whitehead to bring into the arrangement any after-acquired assets. On Mr Whitehead's failure to comply with the requirements imposed on him by the arrangement, the arrangement would be deemed to have failed and (in that event) the supervisor was required to summon a meeting of creditors to agree the course of action to be taken. Mrs Whitehead undertook to bring into account any windfall gain during the five year period – on the basis that the arrangement would be treated as having failed if she failed to honour that undertaking. At the end of the five year period, absent default, the funds subject to the arrangement would be distributed to the participating creditors. I return, in a later section of this judgment, to a more detailed consideration of the relevant terms of the arrangement.[5]In support of his proposals, Mr Whitehead had obtained a valuation of the property, 110 Alexandra Road, from Woolwich Property Services. In reliance on that valuation the nominee (as chairman of the meeting) treated HMC's claim as secured to the extent of £75,500. He admitted the claim, for the purpose of entitlement to vote at the creditors' meeting, at an amount of £25,046.06 – that being the balance of the debt then claimed. HMC voted against the proposals; but they were approved by the votes of 76.2% in value of the creditors present in person or by proxy.[6]The monthly contributions which Mr Whitehead was required to make under the arrangement were not maintained. By June 1997 there were arrears of £2,674. No further contributions were made by Mr Whitehead in the following months. On 11 March 1998 the supervisor of the voluntary arrangement wrote to inform creditors that "Mr Whitehead has been unable to bring his contributions up to date due to his present financial position". He referred to a proposal that the arrangement be modified so as to bring it to completion on receipt of a further £6,000 which was said to be available from a third party source. There is nothing in the material before us to suggest that HMC responded to that letter; nor to suggest that the proposed modification was approved by creditors. Nor is there anything to explain why the supervisor did not summon a meeting of creditors, as he was required to do by the terms of the arrangement.[7]On 28 September 1998 the supervisor wrote again:
"Mr Whitehead has recently provided me with the funds required to complete his arrangement in accordance with the original proposal document. I understand that the funds have been obtained from a family member. Therefore, I will shortly be in a position to pay a first and final dividend to creditors."
It appears that that letter followed an earlier telephone conversation between the supervisor (or a member of his staff) and HMC. That conversation is referred to in a fax message sent by the supervisor to HMC on 24 September 1998:
"I refer to our recent conversation and should be grateful if you would kindly confirm the amount which you will be claiming for in the Individual Voluntary Arrangement after taking into consideration the value of your security situated at 110 Alexandra Road, Southend on Sea . . . "
On 30 September 1998, in response to the fax message of 24 September and the letter of 28 September, HMC sent a fax to the supervisor in these terms:
"The amount we will be claiming for in the IVA is £37,109.05"
The amount claimed (£37,109.05) was the difference between the total amount then shown as owing on the loan account in respect of the principal sum and arrears of interest (£102,109.05) and £65,000. The necessary inference is that HMC had valued its security at £65,000. It is an ironic feature of this litigation that, had the security been given that value in 1994, there would not have been the necessary majority to approve the voluntary arrangement. But nothing turns on that.[8]On 1 February 1999 the supervisor wrote to inform creditors that the administration of the voluntary arrangement had been completed. The letter contained the following paragraphs:
"Throughout the term of the arrangement, Mr Whitehead continually struggled to meet the voluntary contributions, which has been a direct result of fluctuating pay whilst employed. This culminated in extensive arrears to his voluntary contributions which have eventually been brought up to date by a cash injection by a third party. The third party payment has been made as a result of Mr Whitehead's present financial position. . . . I enclose a cheque representing a dividend of 5.05p in the pound in settlement of your liability and wish to inform you that this now brings the arrangement to a conclusion."
The amount received by HMC on the terms of that letter was £1,874; that being 5.05% of the sum (£37,109.05) claimed in the fax message sent on 30 September 1998. The payment was credited to the mortgage account in reduction of arrears of interest.[9]In addition to the mortgage of 17 May 1988 in favour of HMC, the property had been charged to a second mortgagee, National Guardian Mortgage Corporation ("NGMC"), and to a third mortgagee, Allen & Associates. It appears that NGMC had obtained an order for possession as long ago as 3 October 1990. That order was suspended on terms as to payment which were not met; but warrants of possession issued from time to time to enforce that order were themselves suspended on terms. In March 1994, in anticipation of the individual voluntary arrangement, the county court had ordered that the warrant then current should lie in the office until further order. In or about March 2000 NGMC sought leave to issue a further warrant. That application was opposed by Mr and Mrs Whitehead on the ground that the effect of the individual voluntary arrangement, and the dividend paid under it, had been to extinguish the debt secured by the second mortgage. The District Judge rejected that contention, on the basis that (in the case of the second mortgage) no estimate had been made of the value of the security; that it was impossible to say that NGMC had agreed with the supervisor to treat the whole of its debt as unsecured; that, accordingly, the dividend had to be treated as paid only in respect of the (unquantified) portion of the debt which was unsecured; and that it could not be said that the secured portion of the debt had been extinguished. But, in the course of the judgment which he handed down on 21 March 2000, he said this:
"The [second mortgagees] argue that however the dividend was calculated they are entitled to treat it as a simple payment against the balance outstanding and rely on their security for the whole of the remaining balance because it is clear that their security was not affected by the IVA. I am unable to accept that argument. If they receive a dividend, they have agreed to accept that in full discharge of the unsecured portion of the debt."
[10]Following that decision in March 2000, NGMC obtained possession of the mortgaged property, and proceeded to a sale at a price of £137,000. A redemption statement prepared on behalf of HMC, as first mortgagee, in anticipation of that sale, shows that the amount required to redeem the first mortgage as at 29 March 2001 was £118,665.25. Whether HMC received that amount, or (as Mr and Mrs Whitehead have asserted) the larger amount of £122,907.44, on the sale by NGMC, it is clear that the first mortgage has now been redeemed. The present dispute relates to the redemption monies. These proceedings[11]As I have said, by July 1999 all arrears of interest under the first mortgage had been cleared off, and the possession order of 17 March 1992 was treated as spent. But the interest payment due in August 1999 was not made; and thereafter (save for one payment in November 1999) Mr and Mrs Whitehead made no further payments of interest. It was in those circumstances that the present proceedings were commenced by the issue of a summons for possession on 28 March 2000. A possession order was made in these proceedings on 16 August 2000; but (so far as I am aware) no warrant of possession to enforce that order was ever issued.[12]Mr Whitehead consulted solicitors. On 2 November 2000 a defence was served on his behalf. After referring to the voluntary arrangement into which Mr Whitehead had entered in 1994, that defence continued with the following paragraphs:
"9. The individual voluntary arrangement further provided that payments made to creditors to whom both the First and Second Defendants were jointly liable were to be accepted as being paid in settlement of the joint liability. 10. By correspondence dated 24 September 1998 and 30 September 1998, the supervisor and the Claimant agreed that the amount of the Claimant's unsecured claim against the Defendants was £37,109.05 11. On 1 February 1999, the supervisor on behalf of the First Defendant paid to the Claimant a dividend calculated on the basis of 5.05p in the pound with respect to the agreed debt £37,109.05. 12. As a consequence of the foregoing, the joint liability of the Defendants was satisfied by the said payment of the dividend. 13. The Defendant accordingly seeks an accounting of the debt in this matter on the basis that the debt outstanding as of 2 February 1999 was £65,000."
A defence in the same terms was served on behalf of Mrs Whitehead in January 2001. It may be that Mr and Mrs Whitehead were encouraged to raise the point that they did by the views which had been expressed by the District Judge in his judgment of 21 March 2000 in NGMC's proceedings.[13]On 13 January 2001 the District Judge ordered the defences served on behalf of Mr and Mrs Whitehead to stand as claims for an account of the debt secured by the first mortgage. The issue was listed for hearing before him in September 2001; but it may be that that hearing was adjourned until later in the year. He delivered a judgment on 14 January 2002. He addressed, first, the contention, raised on behalf of HMC, that the principle recognised in Henderson v Henderson (1843) 3 Hare 100 – that a party should bring forward his whole case – precluded the Whiteheads from relying on the payment of £1,874 made in February 1999 by way of dividend under the voluntary arrangement. It was said that, if they had wished to assert that the mortgage debt had been reduced by £37,109 in consequence of that payment, they had the opportunity to do so when the earlier proceedings were before the court in April 1999. The District Judge accepted that contention. He said this: "The question of the balance that was outstanding was before the court on the 30th of April 1999 and that was the time when this point should have been and could have been raised. It is not for me to say whether it was in anybody's mind or not but it should have been. I can say, with complete confidence, that it was not raised and as a result of it not being raised in those proceedings, those proceedings came to a conclusion without the issue being raised at all when it was particularly relevant. . . . . . . I come to the conclusion that this is an abuse of such a nature that the defendant may not now raise the question of the effect of the IVA on the balance of the debt that is due to the claimants and that neither of them may do so. On the basis of his conclusion that it was an abuse of process to seek to raise a point which could and should have been raised some three years earlier, the District Judge did not find it necessary to address the substantive question whether, by accepting a dividend of £1,874 in the IVA, HMC must be taken to have agreed to extinguish such part (£37,109) of the mortgage debt as corresponded to the amount on which the dividend had been paid. But, in the light of his earlier judgment in the second mortgagee's proceedings, it is, I think, reasonable to suppose that he would have decided that question in favour of Mr and Mrs Whitehead.[14]The Whiteheads appealed to the County Court Judge. That appeal came before His Honour Judge Yelton in March 2002. He dismissed the appeal, holding, first that, whether or not the payment and acceptance of the dividend under the voluntary arrangement had the effect of releasing Mr Whitehead from liability in respect of £37,109 of the mortgage debt, it did not have that effect in relation to Mrs Whitehead. So the debt was not extinguished, even in part, and HMC could rely on its security for the whole amount. He went on to hold, in the light of the decision of the House of Lords in Johnson v Gore Wood [2002] 2 AC 1 , that it was "an abuse of the process of the court to raise this issue when for many years both before and particularly after the payment of the dividend the Whiteheads made representations to a contrary effect, and the court has already recorded its findings on the arrears in interlocutory orders."[15]Mr and Mrs Whitehead obtained permission from this Court (Lord Justice Jonathan Parker and Lord Justice Longmore) for a further appeal. In giving permission Lord Justice Jonathan Parker identified as an important point of principle or practice the question whether a mortgagor could rely, on a subsequent application to suspend execution of a warrant of possession, on a matter on which he could have relied (but did not rely) on an earlier application. But the permission granted does not limit (and could not sensibly have limited) the appeal to that ground. In my view the more convenient course is to consider, first, the effect of the payment and acceptance of the dividend under the voluntary arrangement. The effect of the voluntary arrangement[16]Section 260 of the Insolvency Act 1986 provides that a voluntary arrangement which has been approved at a meeting of creditors summoned under section 257 of the Act takes effect as if made by the debtor at the meeting and binds every person who, in accordance with the rules, had notice of and was entitled to vote at the meeting as if he were party to the arrangement. The effect of that section was considered by this Court in Johnson and another v Davies and another [1999] Ch 117. In a judgment with which the other members of the Court (Lord

Justice Kennedy and Lord Justice Ward) agreed, I said this ( ibid , at page 138C-D):

"The statutory hypothesis [in section 260(2) of the 1986 Act] requires [the creditor] to be treated as if he had consented to the arrangement. The consequence, as it seems to me, is that the legislature must be taken to have intended that both the question whether the debtor is discharged by the arrangement and the question whether co-debtors and sureties are discharged by the arrangement were to be answered by treating the arrangement as consensual; that is to say, by construing its terms as if they were the terms of a consensual agreement between the debtor and all those creditors who, under the statutory hypothesis, must be treated as being consenting parties."
The question, therefore, is whether – construing the voluntary arrangement in the present case as a consensual agreement between Mr Whitehead and Housing Mortgage Corporation – the payment and acceptance of a dividend on part of the mortgage debt has the effect of reducing the amount for which the mortgage is charged as security by the amount on which the dividend is paid.[17]Appendix 1 to the proposal for the arrangement describes Mr Whitehead's financial position as at 1 March 1994. The assets listed include:
"Freehold property – joint interest domestic premises at 110 Alexandra Road" at a value of £75,500. That description is amplified in the body of the proposal: "
ASSETS (1) 11 0 Alexandra Road, Southend on Sea, Essex It will be seen from my Statement of Affairs the current sums owing to my secured creditors exceed the likely sale price. Accordingly there is no equity in the freehold property for the general purposes of the arrangement. Both the mortgagee and the 2nd charge holder have obtained possession orders which are at present suspended. The value of £75,500 is based upon a valuation given by Woolwich Property Services who attended the property at the beginning of February of this year. In the event of there being a shortfall to secured creditors, such a shortfall will constitute a further unsecured liability in the arrangement. " [emphasis added] Appendix 2 to the proposal set out a list of the "Secured & Partly Secured Creditors" of Mr and Mrs Whitehead. That list included HMC in the amount of £92,623.85, as well as NGMC and Allen & Associates. The expected shortfall to secured creditors is shown as £46,403.85. Appendix 2(a) set out a list of Mr Whitehead's creditors (£20,233.17); and appendix 2(b) a list of the joint creditors of Mr and Mrs Whitehead (£60,545.17). Appendix 3 is a comparison of possible outcomes as between bankruptcy and a voluntary arrangement. That reflected the recognition, expressed in the introduction to the proposal, that the alternatives available to Mr Whitehead were bankruptcy or a voluntary arrangement. The purpose of the comparison was to demonstrate that a voluntary arrangement was likely to lead to "a greater return to unsecured creditors". In making that comparison the expected shortfall to secured creditors has been taken into account.[18]The General Conditions subject to which the proposal was made include the following:
"GENERAL CONDITIONS (1) Secured Creditors It is not proposed that anything in this proposal should affect the rights of any secured creditor to enforce its security. . . . (4) Joint Unsecured Creditors Although my wife has no income she is prepared to assist the arrangement by making whatever necessary domestic adjustments are required, and should she obtain employment then she undertakes to inform the supervisor and make contributions should he judge that she is financially able. I therefore propose that the payments made to creditors to whom my wife and I are jointly liable be accepted as being paid in settlement of our joint liability. [emphasis added] . . . (7) Guarantees No guarantees have been given in respect of any of my liabilities by any other person than my wife. She is jointly liable with me in respect of the secured liabilities charged against our house and the unsecured liabilities so indicated in appendix 2(b). [emphasis added] (8) Duration It is proposed that the voluntary arrangement should last for forty-eight months from the date of the Creditors' Meeting. In that period of time it is anticipated that the supervisor will have been able to agree all claims. . . . (9) Proposed Dates of Distribution It is proposed that there will be a single distribution within one month of the end of the time specified above, or otherwise agreed, provided that all claims have been agreed . [emphasis added] . . . (19) Failure and Default The term 'failure of the arrangement' shall mean any of the following events: (a) any matter which would entitle any person to petition for my bankruptcy under sections 264(1) and 276 of the Act; (b) any bankruptcy petition being filed against me in respect of any debt arising after the approval of the arrangement; (c) my failure to comply with the terms or conditions of this arrangement; (d) any act or thing which in the opinion of the supervisor renders the continued implementation of the arrangement impossible or frustrated unless such act or thing is envisaged or catered for in this proposal. Where the arrangement is deemed to have failed the supervisor shall report such fact to the creditors and shall summon a meeting of creditors to agree the course of action to be taken. . . (20) Completion of the Arrangement On completion of the arrangement the supervisors shall in writing notify the creditors accordingly."
The proposal was approved by a majority at the meeting of creditors with two modifications (so far as material in the present context): first, that Mrs Whitehead should undertake to pay any windfall sums to the supervisor for the benefit (initially) of the joint creditors; second, that the duration of the scheme be extended to five years and that the supervisor pay a dividend after two and a half years and at the end of the arrangement.[19]General condition (1) reflects the provision in section 258(3) of the Insolvency Act 1986 that a creditors' meeting shall not approve any proposal or modification which affects the right of a secured creditor of the debtor to enforce his security, except with the concurrence of the creditor concerned. At the risk of stating the obvious, the value placed on the security in accordance with rule 5.18(3)(b) and (5) of the Insolvency Rules 1986 (SI 1986/1925) - for the purposes of enabling the secured creditor to vote at the meeting convened under section 257 of the Act – does not preclude the creditor from enforcing his security for the full amount of the secured debt. It is, I think, clear – and it is not in dispute – that nothing in the arrangement would have prevented HMC, during such time as the arrangement continued or after it had failed, from realising its security and applying the proceeds of realisation in satisfaction of the amount of the mortgage debt; or from requiring payment of the mortgage debt in full on redemption by a subsequent mortgagee or by the Whiteheads. The effect of the arrangement, while it continued, was that HMC was prevented from suing Mr Whitehead for payment under his covenant. It is necessary, if the arrangement is to be given efficacy, that a term to that effect be implied – see Johnson v Davies at [1999] Ch 117, 128F-G, and Khan v Permayer [2001] BPIR 95, 99 at paragraph (19).[20]In my view there is no real doubt that it would have been open to HMC, and other creditors, to treat the arrangement as having failed on receipt of the supervisor's report in June 1997 (if not before). It is plain from that report that Mr Whitehead had failed to comply with his obligation to make monthly payments of £200. His failure to comply with that obligation was a 'failure of the arrangement' under general condition (19). The arrangement having failed, the moratorium which it imposed was lifted; and creditors were free to sue for their debts or to petition for bankruptcy – see section 276(1) of the 1986 Act. But HMC did not take that course. It accepted the supervisor's invitation, in his letter of 28 September 1998, to claim in the arrangement; and it accepted a payment by way of dividend on the amount of its claim. It could not, thereafter, have been permitted to sue Mr Whitehead on his covenant. Nor, I think, could it have been permitted to sue Mrs Whitehead on her several covenant. It would be artificial, in this case, to construe the final sentence in general condition (4) of the proposal as distinguishing between joint and joint and several liability.[21]The conclusion that it would not have been open to HMC, after February 1999, to sue either Mr or Mrs Whitehead on their covenants does not lead, of itself, to the further conclusion that HMC agreed to release any part of the mortgage debt from the security of its legal charge. The claim which it had made in the voluntary arrangement was a claim as an unsecured creditor. By accepting the dividend payment in settlement of that claim, it accepted that it could not pursue either Mr or Mrs Whitehead for any part of the mortgage debt which was not secured. But HMC did not, in terms, abandon its security for any part of the mortgage debt which was secured; nor did it agree, in terms, that it would not rely on its security for so much of the mortgage debt as exceeded £65,000 (or any other figure). The question, as it seems to me, is whether it must be taken to have done so. Is that a necessary implication from the fact that it had made a claim as an unsecured creditor and accepted a dividend in settlement of that claim?[22]In seeking to persuade the Court to give an affirmative answer to that question, reliance is placed on the decision of this Court in Khan v Permayer [2001] BPIR 95. But that was a case in which it was clear from the terms of the arrangement itself that the creditor, Mr Permayer, intended to abandon his security; he had agreed to be treated as an unsecured creditor in respect of the whole of the debt – see paragraphs (21) to (26) in the judgment of Lord Justice Morritt, at pages 99-100, and the observation of Sir Christopher Staughton, at page 104 (paragraph 43) that:
"It seems a plain inference that the security was abandoned as part of the arrangement"
. In the present case there is nothing in the terms of the arrangement itself which suggests that HMC intended to abandon any part of its security. Indeed, it is plain from the terms of the arrangement that it was to be entitled to rely on its security for what it was worth. The question in the present case turns on the circumstances in which, in September 1998, HMC made a claim in the voluntary arrangement and, in February 1999, accepted a dividend payment in respect of that claim.[23]In seeking an answer to that question it is, I think, pertinent to have in mind the provisions in Chapter 9 of Part 6 of the Insolvency Rules 1986, which provide for the position of a secured creditor in a bankruptcy. A secured creditor is entitled to prove in the bankruptcy for the unsecured balance of his debt; and, for that purpose, may put a value upon his security in his proof of debt. A creditor may re-value his security for the purposes of his proof; but, if he has voted in respect of the unsecured balance of his debt, he may do so only with leave of the court – see rule 6.115. In circumstances analogous to those in the present case - where the outcome at a creditors' meeting has not turned on his vote - there would be no reason, in a bankruptcy, to refuse the creditor leave to re-value his security. The incentive to value (or re-value) at a figure which is realistic is provided by rule 6.117 (which permits the trustee to redeem at the value placed upon the security by the creditor); and a further check is provided by rule 6.118 (which enables the trustee to require the property to be offered for sale). Rule 6.119 is in these terms: If a creditor who has valued his security subsequently realises it (whether or not at the instance of the trustee) -(a) the net amount realised shall be substituted for the value previously put by the creditor on the security; and(b) that amount shall be treated in all respects as an amended valuation made by him." A creditor who has realised his security may prove for the balance of his debt after deducting the amount realised –see rule 6.109 of the Insolvency Rules; but not so as to disturb any dividend already paid – section 325(1) of the 1986 Act and rule 11.8(1) of the Rules. If, after a creditor's proof has been admitted, the amount of the proof is reduced – say, on a revaluation of the security under rule 6.119 following realisation of his security – the creditor is liable to repay to the trustee in bankruptcy, for the benefit of the insolvent estate, any amount overpaid to him by way of dividend – see rule 11.8(3). He is not required to bring into the insolvent estate the whole amount by which the proceeds of realisation exceed the value which he had placed upon his security.[24]I accept, of course, that those provisions of the bankruptcy code have no direct application to the position in a voluntary arrangement. The effect of the arrangement has to be determined by construing its terms in the context of the events which have happened. But those provisions are, I think, helpful in that they show how the problem which arises in the present case is dealt with under the bankruptcy code. The problem arises where a secured creditor who has not realised his security is required to decide whether to participate in a distribution of assets which are available to meet the claims of unsecured creditors. It is plain that, unless he abandons his security, he can only participate in that distribution on the hypothesis (which may turn out to be wrong) that part of his debt is unsecured; and then only by putting a value on his security so as to quantify that part for the purposes of the calculation and payment of dividend. It would be possible, in principle, to require him to make an irrevocable election; to permit him to participate in a distribution of assets available to meet the claims of unsecured creditors only on the basis that he does abandon his security in respect of that part of the debt which is treated, for the purposes of the distribution, as unsecured. But that is not the solution to the problem which has been adopted in bankruptcy. It has been thought more satisfactory to allow the secured creditor whose security may not be sufficient to satisfy the whole of his debt to participate in a distribution of assets available to meet the claims of unsecured creditors on a provisional basis. If it turns out, on a realisation of the security, that he has been paid too much out of the assets available to meet the claims of unsecured creditors, then he must repay the overpayment; but he is allowed to apply the proceeds of realisation in or towards satisfaction of his secured debt. In the absence of an express term in the voluntary arrangement itself – or agreed between the supervisor and the secured creditor at the time when the creditor claims in the arrangement – I think that the court should be slow to imply a term which would lead to a result which differs in so material a respect from that to which the statutory code would have led in the bankruptcy for which the voluntary arrangement was proposed as a substitute.[25]It is said that it is necessary to imply a term that, by claiming to participate in the voluntary arrangement and by accepting payment of a dividend under the arrangement in respect of part of his debt, a secured creditor agrees to treat that part of his debt as unsecured. So, it is said, he has agreed to abandon his security in respect of that part. This must follow from the requirement, in general condition (9) of the arrangement, that a distribution in respect of unsecured liabilities will not take place until "all claims have been agreed"; and from the provision, in general condition (4), that payments made to creditors to whom Mr and Mrs Whitehead are jointly liable "be accepted as being paid in settlement of our joint liability".[26]In my view, that is to ignore the provision, in general condition (1), that nothing in the arrangement is to affect the rights of any secured creditor to enforce its security; and the further provision, in the description of Mr Whitehead's assets, that it is the "shortfall to secured creditors" that is to constitute an additional unsecured liability in the arrangement. It is, I think, plain that "shortfall to secured creditors", in that context, means shortfall after realisation of the security; it does not include a shortfall which arises as the result of a valuation of the security. It is important to keep in mind that the arrangement was proposed on the basis that there were no circumstances in which unsecured creditors could share in any proceeds of sale of 110 Alexandra Road. The exclusion of unsecured creditors from any share in the principal asset could be explained – and could be expected to be acceptable to the unsecured creditors – only on the hypothesis that there would be no surplus on the sale of that property after discharging the secured debts. That hypothesis is made express in the arrangement itself. But the corollary is that the unsecured creditors were entitled to expect that they would not be in competition with secured creditors under the arrangement save to the extent that there was an actual shortfall on realisation. To allow the supervisor to agree with a secured creditor that part of its debt would be treated as unsecured (save on a provisional basis) would lead to the possibility(i) that a secured creditor who had not realised its security could compete with the unsecured creditors under the arrangement in circumstances in which there was no actual shortfall; and(ii) that, by reducing the amount of the debt for which the creditor was to be treated as secured, any surplus on realisation of the security would pass to the Whiteheads, not to the unsecured creditors. I am satisfied that the arrangement could not have been intended to have that effect. I am satisfied, also, that the arrangement can work – by analogy with the position in a bankruptcy – by allowing a secured creditor to claim in the arrangement in respect of any anticipated shortfall (on a provisional basis) without requiring it to surrender the right to apply the proceeds of sale of its security towards satisfaction of the whole of the unpaid balance of its debt.[27]It follows that I am not persuaded that the fact that HMC made a claim in the voluntary arrangement and accepted a dividend in respect of that claim requires that it must be treated as having elected to abandon its security for any part of the mortgage debt which was secured; or as having agreed that it would not rely on its security for so much of the mortgage debt as exceeded £65,000 (or any other figure). In my view HMC was entitled to insist (as it did) that its security be redeemed for the full amount of the mortgage debt. I would dismiss this appeal on that ground. Abuse of process[28]The conclusion which I have reached on the substantive point makes it unnecessary to consider, at any length, the question whether it is an abuse of process for Mr and Mrs Whitehead to raise that point in these proceedings in the circumstances that they could have raised the same point at the hearing in April 1999 in the earlier proceedings. But the question has been identified as an important point of principle and has been addressed in the written submissions which the parties have put before the Court. In those circumstances, although we did not invite oral argument at the hearing of the appeal, I think it appropriate to make two observations which may be of assistance should the question arise in future cases.[29]The first is that it necessary to have in mind that, as Lord Bingham of Cornhill pointed out in Johnson v Gore Wood [2002] 2 AC 1 , at page 31C-D, the mere fact that point could have been raised in earlier proceedings does not lead, necessarily, to the conclusion that it should have been raised in those proceedings; so as to render the raising of it in later proceedings abusive. As he said:
"That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved . . ."
[30]Second, it is necessary to have in mind the nature of the task on which the county court was engaged at the hearing in April 1999. The application then before it was for an order under section 36(2) of the Administration of Justice Act 1970 staying execution of a warrant for possession issued in an action by a mortgagee for possession of a dwelling-house. Section 36(1) of the 1970 Act enables the court to make such an order "if it appears to the court that in the event of its exercising the power [conferred by subsection (2)] the mortgagee is likely to be able within a reasonable period to pay any sums due under the mortgage". That provision must be read in conjunction with section 8(1) of the Administration of Justice Act 1973. The court may treat as due under the mortgage on account of the principal sum secured and interest on it "only such amounts as the mortgagor would have been expected to be required to pay if there had been no . . . provision for earlier payment [in the event of any default by the mortgagor]". The county court appears to have been faced, on 30 April 1999, with proposals by Mr and Mrs Whitehead under which they would pay current interest as it fell due, would pay £2,250 off arrears of interest (said to be £4,766.50) within 28 days, and would pay the balance of the arrears at the rate of £100 per month. That would lead to the arrears being discharged within a couple of years. It may be thought surprising, having regard to the previous history of default, that the court felt able to place any reliance on proposals for payment advanced by Mr and Mrs Whitehead; but, in the event, the arrears were paid off within three months. What is not surprising – at least to my mind - is that the hearing on 30 April 1999 was not seen as an occasion to investigate the principal amount secured by the mortgage; nor even to challenge the amount of the arrears. Mr and Mrs Whitehead were, understandably, concerned with the immediate problem of avoiding eviction from their home. They had put forward proposals which, as they thought, would persuade the court to stay execution of the existing warrant of possession. Whether or not they had, or should have, appreciated that the point which they now seek to take was open to them, it would not, in my view, have been an abuse for them to decide that that was a point to be brought forward in a different context, after they had dealt with the immediate problem which confronted them. For my part, had I been persuaded that the substantive point which they now seek to take had merit, I would not have thought it right to dismiss the appeal on the ground of abuse. Conclusion[31]While I do not consider that Mr and Mrs Whitehead were precluded from taking the substantive point, I am not persuaded that it has merit. I would dismiss this appeal on the ground that the circumstances in which HMC made a claim in Mr Whitehead's voluntary arrangement, and accepted a dividend in respect of that claim, do not lead to the conclusion that it must be treated as having elected to abandon its security for any part of the mortgage debt; or as having agreed that it would not rely on its security for so much of the mortgage debt as exceeded £65,000 (or any other figure).

Lord Justice Sedley:

[32]I agree with the judgment of Chadwick LJ on both issues. I wish to add my appreciation of Mr Banning's advocacy on behalf of Mr and Mrs Whitehead. Arguing the appeal from an unexpected angle, he dealt knowledgeably and candidly with some demanding questions from the court.

Lord Justice Scott Baker:

[33]I agree.

ORDER

Appeal dismissed with a detailed assessment of respondent's costs if they are not agreed. (Order does don form part of the approved judgment)

Cited in 1 later judgment