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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Garwood v Bank of Scotland Plc [2012] EWHC 415 (Ch) (04 March 2013) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2013/415.html Cite as: [2012] EWHC 415 (Ch) |
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CHANCERY DIVISION
The Rolls Building London, EC4A 1NL |
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B e f o r e :
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Christopher Charles Garwood (As Trustee of the estate in bankruptcy of Adekunbi Ibrahim Fabumni-Stone) |
Appellant |
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- and - |
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Bank of Scotland Plc |
Respondent |
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Miss Nicole Sandells (instructed by Cobbetts LLP and Walker Morris LLP) for the Respondent
Hearing date: 28 November 2012
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Crown Copyright ©
Mr Justice Norris :
"The Borrower charges by way of legal mortgage and with full title guarantee the Property with the payment of all monies payable by the Borrower to the Lender under the mortgage conditions".
"The mortgage secures the payment of (a) the mortgage debt and (b) any other money which the Borrower owes to the Lender on any other account…".
The principal element of "the mortgage debt" was "the… amount outstanding ….under the loan….". That was "the amount…. set out in the offer letter": and by that term was meant "the written offer by the Lender to lend money to the borrower which is to be secured by a mortgage on the property". By the term "property" was meant the property specified in the mortgage viz the legal charge that was executed. This was "Flat B 173 Portland Road".
"Re Flat 1 173 Portland Road……….
Account Number 20002810891"
and which referred to "the redemption of your charge in the above matter" and requested alteration of the register of title. The reference to "Flat 1" was a reference to Flat A (on the ground floor) in respect of which the 2009 Lease had been granted. The reference to the transaction number ending "891" was a reference to the June 2004 Loan which BoS thought had been used to buy Flat B (on the first floor) and in respect of which no separate legal charge was registered. The only charge on the register (and which needed removing) was the 2004 Charge which was apparently tied into transaction "181" but did indeed affect the freehold.
"We have been advised that an erroneous discharge dated the 27 November 2009 was submitted by [BoS] upon submission of an application for first registration of a new leasehold interest on behalf of [Akeem] now registered under title number SGL712468. [BoS] has confirmed that their loan is still outstanding and further investigations are needed in order to obtain sufficient documentation to submit an application for re-registration of [BoS's] legal charge dated 16 July 2004".
"There is in existence an executed mortgage deed dated 16 July 2004 between the Borrower and [BoS] over this title that has been erroneously removed from the title".
It asserted that:-
"The Borrower has agreed to grant [BoS] a legal charge over the property and has agreed to the registration of the same".
It then explained that the money was outstanding and that BoS required urgent protection "for their equitable and legal interest in the property" until such time as an application for re-registration could be submitted.
"I am unable to accept that this was a freehold interest as it seems to me from the paperwork that the applications were for flats and that they were to be leasehold. I take this view as being consistent with business common sense…"
It is not clear what bearing this determination had on the ultimate outcome of the case in the light of the way the Adjudicator decided it.
"…simply required to consider whether a unilateral notice can be on the title to the disputed property"';
and on the evidence he took the view that it could.
"I am persuaded that the removal of the charge in relation to [the July 2004 Loan] was indeed a mistake and one that should be corrected by an application for re-registration of the charge. I am satisfied that [BoS] must be entitled to claim an equitable interest as a result of the monies advanced in 2004… it was the case that at the time of the mistaken discharge that monies were outstanding and so [the 2004 Charge] should really have remained on the register. [BoS] must therefore be in the position of an equitable lender so far as [the July 2004 Loan] is concerned (because there is no subsisting registration protecting the loan)…".
"I am also persuaded of the argument in relation to subrogation. [BoS] should be entitled to call for the substitution of one claim for another, especially the transfer of the right to receive payment of the debt in regards to the original mortgage with Mortgage Express which was redeemed with the money advanced by [BoS]… therefore I am of the view that the Respondent (and the estate of the bankrupt) would unquestionably be unjustly enriched at the expense of [BoS] if there was not subrogation… I see this argument of unjust enrichment as being the strongest one in support of [BoS] and the retention of the unilateral notice".
a) The cancellation of the 2004 Charge was a mistake that should be corrected by reinstatement on the register:
b) That BoS has an equitable charge as a result of the monies advanced in 2004:
c) That BoS has a charge by way of subrogation: and
d) That the 2004 Charge is (properly interpreted) over the leasehold interest.
a) That the legal reasoning needs to be more fully expressed.
b) That the legal conclusion is not sufficiently clear: is BoS entitled to re-register the 2004 Charge? Or is BoS instead entitled to re-register the Mortgage Express charge? If there is to be a re-registration of the 2004 Charge, how is that to be effected if the charge is against a leasehold interest that does not exist?
I must therefore consider the Grounds of Appeal.
a) The Borrower had promised to grant a charge over a leasehold interest in Flat B in return for the June 2004 Loan of £96,725 made under reference "891".
b) The Borrower had also promised to grant a charge over a leasehold interest in Flat A in return for the July 2004 Loan of £97,701 made under reference "181".
c) The June 2004 Loan had been advanced, but not used and no security had been granted:
d) The July 2004 Loan had been advanced, but not used;
e) At about the time when the July 2004 Loan was advanced the Borrower signed the 2004 Charge:
f) The face of that Charge bore a reference to transaction "181" completed in handwriting:
g) The Charge defined "the property" as "Flat B" (which was typed on to the standard form):
h) The title number referred to the freehold title SGL55301:
i) There is a contradiction between the transaction reference and the property charged:
The context is not illuminating: although the timing might hint at a connection with the July 2004 Loan, there was outstanding the obligation to give security for the June 2004 Loan (and the 2004 Charge might be a late performance of that obligation).
a) One can rule out as a matter of construction a charge over the freehold of No.173 to secure the aggregate of the June 2004 Loan and the July 2004 Loan since such an arrangement had never been bargained for: the objective observer would know that two separate deals had been negotiated.
b) The Borrower sought and BoS advanced two separate loans on two separate securities (albeit that each charge would contain an "all monies" clause).
c) One can rule out a charge over Flat B to secure the July 2004 Loan. This arrangement was not bargained for and had never been suggested. Although the document might on its face literally suggest this, it is obvious that there has been a mistake either in the identification of the property ("Flat B") or in relation to the associated transaction ("181").
d) The choice lies between reading the 2004 Charge as securing transaction 181 (the July 2004 Loan) on Flat A or as securing transaction 891 (the June 2004 Loan) on Flat B.
e) The choice cannot be informed by how the money was actually used, for neither advance was separately used in July 2004.
f) The reference to "Flat B" forms part of the operative part of the deed itself, whereas the reference to the transaction number is clearly for administrative purposes only (the transaction number not being referred to in any of the operative provisions of the deed). So the parties intended the reference to the property to have legal effect, but not the reference to the transaction.
g) The system of definitions used in the mortgage conditions (which are incorporated by reference into the 2004 Charge) identifies the relevant advance by reference to the loan made on the property subject to the charge (not by reference to the transaction number). The mortgage debt is the sum offered in the offer letter referring to Flat B.
h) The reasonable person (informed as to the circumstances to the same extent as the parties themselves) would understand that a mistake had been made by the person who was noting the administrative reference and that the mortgagor understood that this was a mortgage of Flat B to secure the monies advanced for the purpose of acquiring an interest in Flat B.
"… on a … charge of part of the registered estate in a registered title the following entries must be made in the individual register of that registered title: (a) an entry in the property register referring to the removal of the estate comprised in the … charge: (b) entries relating to any… matters created by the … charge which the registrar considers affect the… uncharged registered estate".
One would therefore expect something on the register to that effect: but LRR 72(4) provides
"This rule only applies to a charge of part of a registered estate in a registered title if the registrar decides that the charged part will be comprised in a separate registered title from the uncharged part".
So Counsel for the trustee is right to submit that the form of the registration does not necessarily preclude registration of the 2004 Charge only against part of the land included in No.173.
a) There was no "mistake" on the register which accorded exactly with what BoS had asked the registrar to do:
b) The discharge was a unilateral act and BoS had to demonstrate that it made a "mistake" such type was to justify the setting aside of a unilateral transaction (as recently considered in Pitt v Holt [2011] EWCA Civ 197);
c) That an Adjudicator did not have jurisdiction to set aside a discharge brought about by a qualifying mistake because section 108 of the Land Registration Act 2002 relates only to "a qualifying disposition of a registered estate or charge" which a discharge was not;
d) There is no reason why this sort of mistake should engage the compensation provisions in Schedule 8 to the 2002 Act.
It is necessary, in addressing these arguments, to start with a consideration of what may be done to the register. Under paragraph 5 of schedule 4 to the Land Registration Act 2002 the registrar may alter the register "for the purpose of…(a) correcting a mistake [or] (b) bringing the register up to date…". An alteration which consists of the correction of a mistake and which prejudicially affects the title of a registered proprietor is a particular category of alteration labelled "rectification".
"What the bank, through its employees, thought it was doing was giving effect to the discharge of the company's liabilities when, unbeknown to them, a substantial liability remained. The bank did not intend to make a gift of its interest in the property as mortgagee. It proceeded on the basis that it no longer had any interest because nothing remained due following the discharge of the [guaranteed indebtedness]. In this, the relevant bank employees were mistaken".
"(2) … the adjudicator may, on application, make any order which the High Court could make for the rectification or setting aside of a document which
(a) effects a qualifying disposition of a registered estate or charge…
(3) For the purposes of subsection (2)(a) a qualifying disposition is
(a) a registrable disposition, or
(b) a disposition which creates an interest which may be the subject of a notice in the register"
The short submission of the trustee originally was that an e-DS1 does not appear to fall within any of the categories of documents there set out: so the Adjudicator lacked jurisdiction.
"… it is suggested that there will be a "mistake" whenever the Registrar (i) makes an entry in the register that he would not have made: (ii) makes an entry in the register that would not have been made in the form in which it was made; or (iii) deletes an entry which he would not have deleted; had he known the true state of affairs at the time of the entry or deletion. The mistake may consist of a mistaken entry in the register or the mistaken omission of an entry which should have been made. Whether an entry in the register is mistaken depends upon its effect at the time of registration. So the entry of an estate or interest purportedly arising under a void disposition is a mistake. The entry made in the register does not reflect the true effect of the purported disposition when the entry was made. However the entry of a person as having acquired an estate or interest under what proves to be a voidable disposition is not a mistake. Unless it had been rescinded at the time of registration, the disposition would be valid and it would not be a mistake to enter the disponee as the proprietor of the estate or interest under it. An entry cannot retroactively become a mistake. It cannot be argued therefore that the rescission of a voidable transaction retroactively makes the entry which recorded the disposition – at the time whilst it was still effective – a mistake".
In Baxter v Mannion [2011] EWCA Civ 120 this passage fell for consideration in the context of an argument about adverse possession. Giving the judgment of the court Jacob LJ said that he would reserve his position as to whether the authors were right in drawing a distinction between void and voidable transactions because
"It is difficult to see why… a transaction induced by a fraudulent misrepresentation (which would only be voidable) could not be corrected once the victim had elected to treat it as void".