Bank of Scotland v Pereira & Ors

Factual and Procedural Background

In 2003, the owners of a property ("the Property") faced financial difficulties and were introduced to an individual ("Mr James") who proposed a sale arrangement whereby the owners could continue living rent-free while a company he controlled would provide funds. The owners agreed to sell the Property to a contracting purchaser ("Ms Pereira"), who was in a relationship with Mr James, for a recorded price of £276,000. The Bank agreed to advance £238,000 secured by a legal charge on the Property. The purchase completed in January 2004, but the owners received no benefit from the funds, which never existed, and continued living at the Property. The Bank later discovered the sale was part of a fraudulent scheme orchestrated by Mr James, with Ms Pereira never residing at the Property.

In 2006, the Bank initiated possession proceedings against the owners and Ms Pereira. The owners defended and counterclaimed against Ms Pereira, seeking rescission of the transfer and rectification of the register. Ms Pereira did not participate in these proceedings. At a hearing in June 2007 before Judge Milligan, conducted in Ms Pereira's absence, the court made an order ("the Order") that included possession recovery by the Bank, rescission of the sale, payment of damages by Ms Pereira to the owners, and repayment of the loan to the Bank.

Ms Pereira later applied to set aside parts of the Order, which was refused by Judge Ellis in August 2009. She then sought permission to appeal both Judge Ellis's decision and the original Order, including an application for permission to appeal out of time. The appeals were consolidated and heard together by the Court of Appeal.

Legal Issues Presented

1. Whether the application to set aside the Order under CPR 39.3 should have been granted, considering the requirements of promptness, good reason for absence, and reasonable prospect of success at retrial.
2. Whether permission to appeal out of time against the original Order should be granted.
3. The proper relationship and procedural interplay between an application under CPR 39.3 to set aside a judgment given in absence and an appeal against that judgment under CPR 52.
4. The merits of Ms Pereira's defence to the claims against her, including her status as nominee and potential liability for fraudulent misrepresentations made by Mr James.

Arguments of the Parties

Appellant's Arguments

• Ms Pereira contended she did not attend the trial because she believed Mr James was handling the case on her behalf and that some documents bearing her signature were forged by Mr James.
• She argued she had not been afforded a fair hearing and had a good arguable case that she was a nominee unaware of Mr James's fraudulent representations.
• She sought an extension of time for permission to appeal and argued that the Order should be set aside or varied to allow a retrial.
• She claimed that the delay in applying to set aside the Order was due to being duped by Mr James and subsequent slow action by former solicitors.

Respondents' Arguments

• The Bank and the owners argued that Ms Pereira had actual or constructive knowledge of the hearing and the Order, and that she had no good reason for her absence.
• They contended that the delay in making the application to set aside was excessive and unjustifiable.
• They maintained that the Order was properly made, including rescission and damages, and that Ms Pereira was liable as a party to the fraudulent scheme or as nominee bound by Mr James's actions.
• They argued against granting an extension of time for appeal due to the significant delay and the importance of finality.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the application under CPR 39.3 to set aside the Order made in Ms Pereira's absence. It applied the three strict conditions: promptness, good reason for absence, and reasonable prospect of success. The court found that Ms Pereira was aware of the hearing and consciously chose not to attend without good reason. Her delay in applying to set aside the judgment was excessive, spanning nearly two years, and thus not prompt. The court also found that the evidence she relied upon was inconsistent and largely disbelieved by Judge Ellis, who was entitled to reject her explanations and conclude she knew of the hearing and judgment.

Regarding the relationship between CPR 39.3 applications and appeals, the court emphasized that CPR 39.3 provides the appropriate remedy for judgments given in absence and generally overrides the right to appeal on those grounds. However, distinct grounds unconnected to absence may be appealed. The court outlined six guiding principles on this procedural interplay, underscoring that a failed CPR 39.3 application usually limits the scope of subsequent appeals, especially when fresh evidence was available but not presented at trial.

On the merits, the court examined Ms Pereira's role as a nominee purchaser and her knowledge of the fraudulent scheme. Evidence indicated she was involved and aware of Mr James's misrepresentations, but there was some arguable defence that she acted solely as nominee without knowledge, which could limit her liability for damages. However, she remained liable to the Bank for the mortgage debt.

The court found no substantial irregularity in the trial judge's procedures, noting that the absence of a reasoned judgment was not fatal given Ms Pereira's failure to participate. The amendment to add a damages claim was proper.

In considering the application for permission to appeal out of time, the court applied the factors in CPR 3.9 and concluded that the delay was unjustified and the prejudice to finality and the respondents outweighed Ms Pereira's interests. Although Ms Pereira might have some arguable defence on a retrial, the procedural history and delay militated strongly against granting permission.

The court rejected Ms Pereira's attempt to rely on fresh evidence not presented at trial, as it failed the Ladd v Marshall criteria and the CPR 39.3 procedural safeguards.

Holding and Implications

The court DISMISSED Ms Pereira's appeal against Judge Ellis's refusal to set aside the Order and her application for permission to appeal out of time against the original Order made by Judge Milligan.

The direct effect is that the Order stands as made, including possession recovery by the Bank, rescission of the sale, repayment obligations, and damages to be assessed in favour of the owners. The court emphasized the importance of finality and adherence to procedural rules concerning judgments made in absence. No new precedent was established beyond reaffirming the strict application of CPR 39.3 and the procedural relationship with appeals under CPR 52.