Category Archives: Mortgagees’ remedies

Mortgages prevented lease surrenders which were basis of guarantor release

The Co-Operative Bank Plc v Hayes Freehold Ltd & Ors [2016] was a preliminary hearing in respect of a striking out/summary dismissal application. Here a head lease was granted out of a freehold which was now mortgaged to The Coop Bank. The mortgage prohibited the mortgagor accepting a surrender of a lease without the Coop Bank’s consent.

An underlease had been granted out of the head lease. The underlease was also mortgaged to The Coop Bank so it could not be surrendered without the Bank having released it from that mortgage.

There was a composite deal in which both the head lease and the underlease were purportedly surrendered without the consent of The Coop Bank.

Clause 6 of the surrender of the underlease purportedly released the undertenant and it’s guarantor from further compliance with the underlease.

The High Court ruled that both surrenders were ineffective as the Bank’s consent had not been obtained.

The court also said that the fundamental assumption behind Clause 6 was that the surrender package would be effective. That assumption being disappointed the underlease guarantor remained bound by the guarantee in the underlease.

The Coop Bank therefore had an arguable case in support of it’s interests that must go to full hearing.

The blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Lender not bound by seller’s right to cancel unconscionable bargain

Section 116 of the Land Registration Act 2002 provides:

“It is hereby declared for the avoidance of doubt that, in relation to registered land, each of the following—

(a) an equity by estoppel, and:
(b) a mere equity,

has effect from the time the equity arises as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority).”

So an equity, which would include a right to set aside an unconscionable bargain, is an interest capable of binding successors in title.

An interest which falls within any of the paragraphs of Schedule 3 of the Land Registration Act 2002 is not postponed to a registrable disposition under Section 29(1). These interests include:

“An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for—

(a) …

(b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so“.

The type of residential sale and leaseback which follows is now heavily regulated by financial conduct legislation. It is prohibited unless strict requirements are met.

In Mortgage Express v Lambert [2016] Ms Lambert had been in desperate financial straits. She contacted Annonna Ltd, which was owned and run by Messrs Sinclair and Clement. They visited her at her flat and told her that the flat was only worth £30,000. They offered to buy her lease of it for that. They also said that she would be able to continue living there indefinitely, rent free during the first year and then for £250 per month. The agreement to sell and the promise that Ms Lambert could stay were part of a single bargain.

In the course of the sale, she completed an “Overriding Interests Questionnaire” which her solicitors had sent her. It said she had to disclose all overriding interests of which she was aware, and then gave examples including “rights of persons in occupation”. The form said “If any of the above ARE applicable please enter details below”. She returned the questionnaire but did not disclose any rights. Her solicitors told her that flats like hers were selling at £115,000 to £120,000. Ms Lambert confirmed to them in writing that she had decided to sell at £30,000 of her own free will and had not been pressured into selling at that price. She later confirmed that she was happy to sell at an undervalue because her chief concern was to pay off her loan. She seems to have told the solicitors something about an arrangement for a tenancy but the solicitors do not appear to have made any inquiry about the nature of the leaseback.

Sinclair and Clement made an online application to Mortgage Express for a secured loan of £102,000. In the application form they said that they were applying for a buy-to-let remortgage and that the value of the flat was £120,000.

Sinclair and Clement changed solicitors causing a delay in obtaining a revised offer of a mortgage from Mortgage Express so they completed the purchase with the aid of a £30,000 bridging loan. Ms Lambert sold with full title guarantee. Clause 6 of the sale contract provided that vacant possession would be given on completion. Another special condition said:

“Any Occupier(s) who sign(s) this Contract gives his/her consent to the sale and agrees that vacant possession will be given on the Completion Date free from any estate rights or interest he/she may have in the Property (if any).”

Her solicitors’ replies to requisitions on title said that vacant possession was to be given on completion.

Mortgage Express later sent a new £102,000 mortgage offer based on a £120,000 valuation which Sinclair and Clement accepted. Their solicitors told Mortgage Express that the purchase price was £30,000 and that they were therefore taking out indemnity insurance against the possibility of the sale being set aside as an undervalue transaction if Ms Lambert became bankrupt.

Sinclair and Clement’s solicitors certified that Mortgage Express would obtain a good and marketable title free from any charges or onerous encumbrances, and that the purchase would be with vacant possession. The mortgage to Mortgage Express was completed and the bridging loan was paid off out of it’s proceeds

On 21 January 2008 Messrs Sinclair and Clement were registered at HM Land Registry as proprietors of the lease, and the mortgage to Mortgage Express was registered.

With Mortgage Express’s permission, Sinclair and Clement transferred the lease into Sinclair’s sole name but he failed to keep up his repayments so Mortgage Express appointed receivers. Ms Lambert also fell into arrears with her rent, and the receivers began possession proceedings against her.

The Court of Appeal said that the sale was an unconscionable bargain and that Ms Lambert’s right to have the sale to Sinclair and Clements set aside, for that reason, was capable of being an overriding interest and so it was a right that was proprietary in character.

The mortgage to Mortgage Express was made by Sinclair and Clement. Since they were joint registered proprietors, by sections 34 and 35 of the Law of Property Act 1925 they held the legal estate, and entered into the mortgage, as trustees of land so the capital monies from the mortgage were paid to them. As trustees Section 6(1) of the Trusts of Land and Appointment of Trustees Act 1996 gave them all the powers of an absolute owner.

Section 26 of the Land Registration Act 2002 provides:

“(1) Subject to subsection (2), a person’s right to exercise owner’s powers in relation to a registered estate or charge is to be taken to be free from any limitation affecting the validity of a disposition.

(2) Subsection (1) does not apply to a limitation—

(a) reflected by an entry in the register, or

(b) imposed by, or under, this Act.

(3) This section has effect only for the purpose of preventing the title of a disponee being questioned (and so does not affect the lawfulness of a disposition).”

There was no limitation in the register at the time of the mortgage; nor was there a limitation on the validity of the disposition imposed by the Act itself.

Section 26(3) made it clear that Section 26 aimed only to prevent the disponee’s title from being called into question. Section 26 would defeat any right which was an overriding interest to the extent that that right was a right to impugn the title acquired by the disponee.

If there were an overriding interest that interest would not affect the validity of the disposition consisting of the grant of the mortgage. The mortgage would have taken effect subject to it.

The effect of the mortgage being entered into by two (or more) trustees was governed by section 2 of the Law of Property Act 1925 which provides, inter alia, that:

“(1) A conveyance [which would include a mortgage] to a purchaser of a legal estate in land [which would include a mortgagee] shall overreach any equitable interest or power affecting that estate, whether or not he has notice thereof, if—

(ii) the conveyance is made by trustees of land and the equitable interest or power is at the date of the conveyance capable of being overreached by such trustees under the provisions of sub-section (2) of this section or independently of that sub-section, and the requirements of section 27 of this Act respecting the payment of capital money arising on such a conveyance are complied with…”

The bold words state that notice or otherwise of an interest is irrelevant to the question of overreaching.

What would amount to an overriding interest claim in the case of a sale by one trustee is shifted from the land to the sale or mortgage proceeds if the sale or mortgage was made by two trustees and the capital monies raised by the mortgage were paid to both of them. All this being the case here the only remaining question was whether Ms Lambert’s interest was “capable of being overreached”.

In Birmingham Midshires Mortgage Services Ltd v Sabherwal [2000] Robert Walker LJ said:

“The essential distinction is, as the authors of Megarry and Wade note, between commercial and family interests. An equitable easement or an equitable right of entry cannot sensibly shift from the land affected by it to the proceeds of sale. An equitable interest as a tenant in common can do so, even if accompanied by the promise of a home for life, since the proceeds of sale can be used to acquire another home.”

In the same way, Ms Lambert’s claim against Sinclair and Clement could shift to the proceeds of the mortgage which she could use to buy herself another home. It was different in character from an equitable easement which was one of the rights which made no sense unless it was attached to the land (see observations of Robert Walker LJ above).

So if Ms Lambert did have an interest that was an overriding interest, it was overreached by the grant of the mortgage by two trustees to Mortgage Express and her claim was transferred away from the property to the proceeds of that mortgage to buy herself a new home.

Had it been necessary to decide whether Ms Lambert’s right to have the bargain set aside fell within Schedule 3 paragraph 2 of the Land Registration Act 2002, the court would have said inquiry had been made of Ms Lambert before the disposition (that is to say the grant of the mortgage to Mortgage Express) and that she did not disclose the right that she now asserted. She could not reasonably have been expected to have labelled the right she now claimed as arising from an “unconscionable bargain” but it would have been reasonable for her to have at least disclosed that she was not in fact giving vacant possession and that when transferred to the purchasers the lease would be encumbered by the tenancy that she had agreed to take.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Mortgages: later facility letters not caught by restrictions on tacking

Section 48 of the Land Registration Act 2002 provides that charges over registered land rank in the order of their registration. That is subject to the restrictions on tacking contained in sections 49 and 50.

“Tacking” describes the method by which a creditor, with a mortgage securing an original advance, can use that mortgage to secure a further “advance” and so obtain priority for the further advance over sums secured by any second or later mortgage.

As this may prejudice second and later mortgagees, tacking is only allowed in limited cases.

For these purposes an advance is money paid to someone on terms that they will repay it, in other words a loan.

The issue in Urban Ventures Ltd v Thomas & ors [2016] was whether any further advances had been made by the holder of first mortgages on various properties.

Only if further advances had been made, would the restrictions on tacking apply.

The Court of Appeal said the borrowers had entered into a series of further facility letters but essentially all that had happened was that the lender required the borrower to sign up to date versions of their standard terms, and added unpaid interest and fees in respect of the original advances to the account.

No new advances were made.

The facility letter dated 26 March 2009 may have replaced, rather than varied, the previous facility letter as amended, but its purpose was to set out the terms, largely the same as previously applying, to the existing advance.

That facility letter and the subsequent facility letters were restatements, with relatively minor variations, of the original facility letter, rather than the complete extinction of the original facility letter and its replacement with a new contract.

It followed that this was not a case in which tacking arose, and the lender retained its priority as first mortgagee in respect of the advance originally made by it in October 2006.

The unpaid interest was added to the account and capitalised in successive facility letters. In the absence of an express arrangement between the parties to that effect, unpaid interest could hardly be treated as a new or further advance so as to be caught by the restrictions on tracking.

Insofar as fees were payable under the terms of the original facility letter the same would apply to them. However further fees payable on each renewal of the facility, were not payable under the terms of the original facility letter. This was academic because of the substantial shortfall on the sale of the properties. Had it mattered to the outcome of this appeal, it would have been necessary to consider carefully whether, and in what ways, section 49 of the Land Registration Act 2002, and section 94 of the Law of Property Act 1925, applied to the creation of new liabilities which fall within the charging provisions of the first mortgage or charge.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Solicitor should have disclosed price discrepancy to lender

In the Court of Appeal case of Mortgage Express Ltd v Bowerman & Partners [1996] Millett LJ said;

“…..A solicitor who acts for [buyer and lender in] a transaction owes a duty of confidentiality to each client, but the existence of this duty does not affect his duty to act in the best interests of the other client. All information supplied by a client to his solicitor is confidential and may be disclosed only with the consent, express or implied, of his client. There is, therefore, an obvious potentiality for conflict between the solicitor’s duty of confidentiality to the buyer and his duty to act in the best interests of the mortgage lender.”

No such conflict was found by the court to exist:

“It is the duty of a solicitor acting for a purchaser to investigate the vendor’s title on his behalf and to deduce it to the [lender’s] solicitor. He has the implied authority of his client to communicate all documents of title to the [lender’s] solicitor. In the present case, the information in question appeared on the face of the vendor’s title, which consisted of his agreement, subject to contract, to purchase the flat for £150,000. Had the [lender] instructed other solicitors, [the borrower’s solicitor] would have had to provide them with a copy of that agreement. It would then have been for those solicitors to consider whether they ought to inform their client of the price which [the borrower] was paying for the flat. In the present case [the borrower’s solicitor] was instructed to act both for the buyer and the [lender] and it was his duty to investigate the vendor’s title on behalf of each of his clients. He must, therefore, be taken to have been in possession of the documents of title, including [the vendor’s] purchase agreement, not only as solicitor for [the borrower] but also, with [the borrower’s] implied authority, as solicitor for the [lender]. He then came under a duty to the [lender] to consider whether he ought to disclose the information which that documentation contained to them.”

In the Court of Appeal case of Goldsmith Williams Solicitors v E.Surv Ltd [2015] the court said that the question whether the Solicitors were under the Bowerman duty in the present case depended on whether that duty was excluded by, or was inconsistent with, the terms of the solicitors’ engagement, as contained in the Council of Mortgage Lender’s (CML’s) Handbook.

On the contrary Clause 5.1.2 of Part 1 of the CML Handbook could only be explained on the basis that if:

1. a matter “comes to the attention of the solicitor dealing with the transaction which [the solicitor] should reasonably expect [the Lender] to consider important in deciding whether or not to lend to the borrower” and

2. that matter is not confidential to the borrower

then the solicitor should report it to the lender.

One of the matters then included under Rule 6(3)(c) of the Law Society’s Practice Rules 1990 as being a solicitor’s obligation to the lender was “making appropriate searches relating to the property in public registers … and reporting any results … which the solicitor considers may adversely affect the lender”.

A search of the Land Registry in this case was a search for the purposes of that sub paragraph and had resulted in the information that the property had been purchased recently at a lower price which strongly suggested that the current valuation was excessive. The search in this case had obviously been relevant to the value of the proposed security and the information should have been reported to the lender.

However the solicitors’ appeal was successful. Even if they had provided the information they should have on the purchase price and date of purchase of the property, it had not been proved on the balance of probabilities that the lender would have reacted to the information. This was because on their mortgage application the borrower had provided price history information which was not materially different.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Receivers owed no duty of care directly to bankrupt mortgagor

Where a mortgagor is subject to the appointment by the mortgagee of a receiver over the mortgaged property the receiver owes a duty to the mortgagor to look after the property if and to the extent that the mortgagor retains an interest in what remains of the property after the mortgage debt and the receiver are paid off {the equity of redemption).

Where the mortgagor becomes bankrupt, the mortgagor ceases to have any such interest. The equity of redemption becomes vested in their trustee in bankruptcy. Though the mortgagor retains a legal liability under the mortgage, that is limited in nature and duration. Upon his discharge from bankruptcy it is automatically extinguished. The mortgagor walks free from the mortgage and the benefit of the equity of redemption stays vested in the trustee in bankruptcy for the benefit of the general creditors.

In the event of a surplus in the bankruptcy, then under section 330(5) of the Insolvency Act 1986, the trustee must return that surplus to the bankrupt: But the bankrupt has no right to the mortgaged property as such and his interest in any possible surplus can be and is protected by the duties which both the receivers and the mortgagee will owe the trustee in bankruptcy as to their management of the property and its realisation.

The creditors and the bankrupt mortgagor have a shared interest that the property should be managed and disposed of for the best price reasonably obtainable but that does not mean that they are owed any duty by the receivers.

In the Court of Appeal case of Purewal v Countrywide Residential Lettings Ltd & Anor [2015] all the foregoing factors were in play. The residential property had been subject to water damage but the receivers had failed to take timely action to stop the problem, which the mortgagor had told them about, or to claim the insurance proceeds in time. On getting the property back the mortgagor had spent £16000 fixing it.

The court said no legal precedents suggested the receivers’ duty being owed to a bankrupt mortgagor nor was there any justification for imposing such a duty. The mortgagor has ceased to have any interest in the equity of redemption and his ultimate entitlement under s. 330(5) to any surplus in the bankruptcy did not require the imposition of a duty to anyone beyond the trustee in bankruptcy so the receivers were not liable to him.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Mortgage: Solicitor had failed to give surety necessary advice

In Royal Bank of Scotland v Etridge (No.2) [2001] (“Etridge”) the House of Lords considered the obligations and rights of lenders and sureties where the surety is to provide security for the borrowing of another person where that person might be in a position to exert undue influence over the surety.

The common situation is that of a wife mortgaging her interest in the matrimonial home to secure bank borrowing by her husband.

There the House of Lords was concerned to identify the minimum requirements necessary to protect the surety from granting a charge over property without fully understanding the nature and effect of the proposed transaction, and to ensure that the surety took the decision whether to provide security freely and of their own will.

Where a solicitor is advising someone mortgaging property or giving a guarantee to secure another’s debts, the requirements set by Etridge and their responsibilities are:

1. before acting, to consider whether there is any conflict of duty or interest and what is in the best interests of the surety;

2. to confirm the identity of the surety and explain to the surety the reason for the solicitor’s involvement, which is to counter any later allegation of undue influence or failure to understand the transaction and its implications;

3. to confirm that surety agrees to the solicitor so representing and advising the surety;

4. to explain and advise at a face-to-face meeting, without the borrower being present, and in appropriately non-technical language.

Other principles

1. The bank instructs the solicitor but the solicitor should be chosen by the surety. Cost and the fact a solicitor/client relationship pre-exists are important factors so the same solicitor may act for the borrower, the surety and the bank. BUT, the legal and professional duties that the solicitor assumes when accepting instructions to advise the surety, are owed to the surety alone and the solicitor must be satisfied that he can give the surety the necessary advice fully, carefully and conscientiously. If the provision of that service may be inhibited, the solicitor must cease acting for the surety and so inform the bank; and,

2. the core minimum advice to be given and involvement of the solicitor is:

(a) to explain the nature of the documents and the practical consequences for the surety if (s)he signs them (mainly loss of the property made available as security and/or, where a guarantee is being provided, being bankrupted);

(b) to explain the seriousness of the risk involved entailing:

(i) an explanation of the purpose, amount and principal terms of the new facility,

(ii) an explanation that the bank may increase the facility or change its terms or grant a new facility without referring back to the surety,

(iii) an explanation of the surety’s liability under any guarantee,

(iv) discussion of the surety’s means, the value of any property being mortgaged, and whether (s)he or the borrower have other assets with which to make repayment if the transaction fails). So routinely, the bank must provide the solicitor with financial information about the borrower so that the financial risks to be assumed by the surety may be properly explained to the surety. The relevant information will vary but as a minimum should be the borrower’s current indebtedness, the limit of any current facility, and the limit and terms of any proposed facility;

(c) to explain that the surety has a choice and that the choice is the surety’s alone. This will be informed by the borrower’s and the surety’s present financial circumstances, including their present indebtedness and financial facilities available to them discussed at 2(b)(iv) above;

(d) to ascertain whether the surety wishes to negotiate with the bank (eg to re-prioritise the order in which the bank may call upon securities and/or to fix the upper limit of the surety’s exposure at a lower level) and, if so, whether (s)he wishes to do so directly with the bank or with the bank through the solicitor; and

(e) to verify whether the surety wishes to proceed and, if so, to get the surety’s authority to write to the bank to confirm the explanation the solicitor gave the surety.

Before advising the surety, the solicitor should get any information needed from the bank (if missing from the bank’s instructions).

If the above requirements, are complied with, the bank can accept, rely upon and, if need be, enforce the surety’s security and/or guarantee.

Where the solicitor has been properly retained, the bank can assume that the solicitor has done the job properly.

If the solicitor’s advice is poor that is a matter between the surety and the solicitor.

However, if the bank ought to have realised from facts known to it that the surety has not received the appropriate advice, Etridge says any bank, proceding with the security, would do so at its own risk.

A lender might lose the benefit of security obtained in good faith, if the lender ought to have known that the surety’s concurrence to it had been got by a third party’s misconduct (more often than not the borrower’s).

A bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts as (1) the transaction may well not be to the wife’s financial advantage and (2) such transactions carry a substantial risk of the husband has committing a legal or equitable wrong in getting the wife to stand surety, which may entitle the wife to set aside the transaction.

More generally, a bank is put on inquiry where (1) the transaction is not on its face to the surety’s financial advantage and (2) the relationship between the borrower and the surety causes a substantial risk that the borrower could and did exert undue influence in getting the surety to provide a guarantee or security.

The surety must therefore inform the bank of the chosen solicitor’s identity. There has to be a balance between independence on the one hand and practicality and avoidance of unnecessary financial outlay on the other.

In the High Court case of HSBC Bank Plc v Brown [2015] the court looked behind the solicitor’s certificate and found that he had failed to take any of the steps and to give the core minimum advice specified in Etridge. So the bank’s claim for possession was dismissed and the mortgage was declared unenforceable.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Lenders had priority over Vendors in “sale and lease back” deals

Homeowners have agreed sale-and-leasebacks deals with investors to overcome debts.

In Scott-v-Southern Pacific Mortgages Ltd (2014), properties were sold to buy to let investors on the understanding the homeowners could remain as the tenants after the sales were completed.

However the sale contracts made no reference to the lease-backs to the sellers.

Some of those landlords had mortgages and failed to maintain mortgage payments.

The lenders were not told about the lease-backs to the sellers. They were informed that the properties were being bought with vacant possession. So they had not consented to the lease-backs.

Did those mortgages take priority over the agreements between the buyers and sellers or were the lenders bound by the agreed lease-back arrangements?

The sellers said they had overriding interests in the houses based on the promised lease-backs which were protected by them being in actual occupation when the sales were completed.

The Supreme Court said the rule that a buyer becomes the equitable owner of the property sold on exchange of contracts “applies only as between the parties to the contract and cannot be extended so as to affect the interests of others” i.e the lenders.

Accordingly the court were unanimous that exchange of contracts had not prior to completion empowered the buyers to confer equitable proprietary rights on the sellers capable of taking priority over the lenders.

So all the sellers had were personal claims against the buyers.

The acquisition of the houses may have been a vital precursor to a mortgage but where a property buyer needs a loan to finance a purchase, the purchase and mortgage form a seamless whole because the buyer would never have got the property without the loan.

The sellers’ claims against the buyers changed from being purely personal claims to being proprietary claims against the properties, capable of binding third parties, when the buyers completed their purchases from them and acquired the legal estates in the houses, but by then it was too late for the sellers to get priority over the mortgages taken by the lenders as an integral part of the house purchase completions.

The decision has important implications for other property transactions where the priority of derivative interests depends on the person granting them already having the legal estate in the property at the key time. The transactions potentially affected include commercial sales and lease-backs.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Borrower estopped from challenging mortgage witnessing and Mortgagee’s right to dispose of goods

In the High Court case of Campbell v Redstone Mortgages Ltd [2014] the claimant (“Miss Campbell”) had executed a mortgage over her property, Milkup Bank Farm, Willington, Crook, County Durham, DL15 0RN (“the Property”). Her signature on the mortgage was apparently witnessed. Following recent cases on the point Miss Campbell now said that the witness was not present when she signed the mortgage.

The respondents (“Redstone”) were now the lender under the mortgage.

Clauses G6.1 and 6.2 of the mortgage conditions said:

“6.1 If we [ie Redstone] or a receiver take possession of the Property, you [ie Miss Campbell] must, on Notice, remove all of your furniture and belongings. If you have not done so within 7 days of the Notice, we may as your agent remove, store or sell any items left behind.

6.2 Neither we nor the receiver will be responsible for any resulting loss or damage to your possessions. You must reimburse us for all the expenses of dealing with your furniture and goods. If we sell any of them we will pay you what’s left after deducting those expenses. …”

The main issues were:

1. Was Miss Campbell entitled to have the mortgage set aside because the witness was not in fact present when she signed the mortgage meaning that the mortgage did not comply with s.1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 (“the mortgage issue”)?

The High Court said Miss Campbell’s claim on the mortgage issue was hopeless. It was far too late now to be challenging the mortgage. There was the undisputed fact that she had been lent £500,000. There had been extensive proceedings since then. There had been an action for possession. Whatever fresh evidence Miss Campbell might have wished to rely upon could have been obtained with reasonable diligence before the Possession Order was made. In fact possession had been granted.

Miss Campbell would in any event be estopped from asserting that the mortgage was not properly executed as a deed because Redstone had throughout the original possession proceedings accepted mortgage arrears from Miss Campbell, resulting in the dismissal or suspension of many warrants of possession.

The case was easily distinguishable from the recent cases Miss Campbell now tried to rely on as saying she could not be estopped and that the mortgage had to be set aside.

Briggs v Gleeds [2014] and Bank of Scotland Plc v Waugh & others [2014] were cases where the deeds were not even superficially properly executed as deeds.

This case was similar to the Court of Appeal case of Shah v Shah [2002], in that it at least appeared that Miss Campbell’s signature was attested by a witness. In Shah the signatories had also been estopped from denying the validity of deeds even though the relevant witness had not been in the room when they signed.

2. Was Redstone liable to pay Miss Campbell damages as a result of the steps it took when it was involuntary bailee of her chattels (“the damages issue”)?

When Redstone repossessed the Property, and became mortgagee in possession of the Property, it became an involuntary bailee of those chattels left at the Property.

As involuntary bailee, Redstone had to do what was right and reasonable in the circumstances of the case.

In disposing of the chattels was what Redstone did right and reasonable in all the circumstances of the case including:

– the relevant mortgage conditions; and
– warnings given by Redstone that it intended to dispose of the chattels and three successive additional time orders made by the court)?

On 12 February 2014, 28 February 2014 and 14 March 2014 the court had ordered Redstone to afford access to Miss Campbell and others to remove their goods from the Property.

On the occasion of the third order the Judge told Miss Campbell it would be the last chance for her and others to collect their goods. Nevertheless they did not remove their chattels from the Property.

At no time had Redstone or its agents interfered with or hindered their rights to collect their chattels. In fact Redstone made every attempt to facilitate the removal of those chattels.

Accordingly, Redstone had been entirely justified in commencing to clear the Property and dispose of the goods on 1 April 2014.

Furthermore given the amount and different nature of goods left at the Property, the fact that they appeared to have no intrinsic value, and that the deficit on the mortgage account was over £730,000, the most sensible appropriate and cost effective way for Redstone to deal with the goods had been to dispose of them as opposed to putting them into storage or selling them.

What Redstone did with the goods left at the Property when it took possession was right and reasonable, in the circumstances. So Redstone had no liability to pay Miss Campbell, or other owners of chattels left on the Property, damages.

This blog has been posted as matter of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Salaried partner not liable to property clients

Section 14 of the Partnership Act 1890 provides for a person to be liable as a partner where:

First, the person in question has been held out as a partner in a firm; and,

Secondly, two further sub-elements have been complied with:

A the claimant must have “given credit” to the firm; and,

B such “credit” must have been “given” in reliance upon (“upon the faith of”) the representation that the defendant was a partner.

In Nationwide Building Society v Lewis [1998] the Court of Appeal said ‘given credit’ was not to be construed restrictively and could apply to ‘any transaction of the firm’.

There is no presumption of reliance in favour of a claimant. The claimant must prove, in every case, that in entering into the contract for legal services with the relevant firm, they had, in some way, relied upon the fact that the headed paper, or other representation, held the employee out as a partner of the firm.

As the High Court said in Sangster v Biddulph [2005] the claimant must satisfy the court that, on the balance of probabilities, the holding out or representation had a material influence on the claimant’s decision to proceed with the proposed transaction through those solicitors.

The holding out or reliance does not need to have had a decisive effect but it must have been a contributing causative factor in the claimant’s decision to use the firm.

In Walsh & Ors v Needleman Treon (A Firm) & Ors [2014] the claimants claimed against Mr N and Mr T, the equity partners of the firm, under an agreement whereby the firm was to act for the claimants in short term bridging finance transactions protected by legal charges over properties.

Thc claimants sought to establish liability, also, against a Mr Prior who resisted this on the basis that, as a “salaried partner”, he was an employee of the firm, albeit also the head of the firm’s property department and held out a “partner” on the firm’s letterhead.

The High Court said the claim did not begin to make out a case of material reliance by the claimants on any holding out of Mr Prior as a partner.

There had been nothing to suggest that any of the claimants would, or might, have done anything differently had Mr Prior not been held out as a partner.

Even when one of the claimants began to become concerned about the prospects of repayment, the most that could be said was that that claimant had felt reassured because of Mr Prior’s specialist skills and seniority- nothing necessarily to do with his status, or otherwise, as a partner.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Mortgagee could enforce mortgage just to pressurise

If a lender is enforcing a mortgage it should do so to recover it’s debt. Usually this will be by selling or letting the property.

It cannot do so for a collateral purpose.

Most mortgages entitle a lender to recover, also, the costs it incurs in enforcing the mortgage.

In The Co-Operative Bank Plc v Phillips (2014) the bank had a legal charge which stood second to Barclays Bank’s first mortgages over the properties.

The Co-Operative Bank Plc (“Coop”) had no realistic chance, or therefore intention, of recovering the borrower’s indebtedness by selling or leasing the properties.

It withdrew the enforcement proceedings.

Mr Phillips claimed the bank had merely brought the proceedings to frighten family members into paying. Indeed his daughter had raised £50,000 to pay to the bank. He said this was an invalid collateral purpose entitling him to recoup his costs from the bank on the much more generous “indemnity basis”.

The High Court took a broader view. Whilst there was no prospect, or intention, of the bank recouping itself by a sale or letting of the properties, it was quite entitled to take proceedings to bring pressure on the family to pay money to the bank. The bank was merely seeking to get its money back, which was the whole purpose of mortgages. So Mr Phillips’ claim to indemnity costs failed.

Nevertheless, as there was no realistic prospect of a sale or letting, the legal costs the bank had caused to be incurred by enforcing the charge were not “properly incurred” as the legal charge’s cost recoupment clause had stipulated. This may seem strange to some, given the court’s earlier ruling that the proceedings were a legitimate tactic to enforce the legal charge’s purpose of getting the money back.

As such the bank was neither entitled to recoup it’s own legal outlay through the legal charge, nor was it entitled to recoup, through the legal charge, the legal costs the court had awarded Mr Phillips against the bank when the bank withdrew its proceedings against him.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.