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Case name Neutral citation Legal points Case summary Facts Held Comment Armstrong v Onyearu [2017] EWCA Civ 268 Equity of exoneration – whether indirect benefit capable of displacing equity For a benefit to a co-owner/surety to displace the equity of exoneration, it must be direct or closely connected to the secured indebtedness, and must be capable of carrying a financial value. Mr O held the matrimonial home on trust for himself and Mrs O in equal shares. He had previously charged the property to a bank and on an application for an order for sale by his trustee in bankruptcy, it was held that Mrs O was entitled to an equity of exoneration, the effect of which was that the charge exhausted Mr O’s share, so the court refused to make an order for sale. Mr O’s trustee in bankruptcy appealed, contending that the equity of exoneration did not apply because although the charge was for Mr O’s direct benefit only, in enabling him to discharge his business debts, Mrs O had obtained an indirect benefit because the borrowings had enabled Mr O to continue in business and service the original mortgage loan, secured on the property. The appeal was dismissed. The trustee in bankruptcy sought permission for a second appeal on the basis that the case raised an important and novel point of law as to the application of the equity of exoneration where the joint owner has received an indirect, as opposed to a direct, benefit. Following a detailed review of the caselaw, the court concluded that English law has not regarded an indirect benefit to be itself sufficient to deny a right of exoneration to the surety. The benefit must be direct or closely connected to the secured indebtedness. In the present case, an indirect benefit was far from certain to accrue, particularly when viewed as at the date of the transaction. In general, the benefits must be capable of carrying a financial value. Appeal dismissed. This case may now be regarded as the leading authority on the application of the equity of exoneration. Lord Justice David Richards began his judgment with a useful summary: “Where property jointly owned by A and B is charged to secure the debts of B only, A is or may be entitled to a charge over B’s share of the property to the extent that B’s debts are paid out of A’s share. This is known as the equity of exoneration…The authorities establish that the availability of the equity is a matter of the actual or presumed intention of the parties. If the actual intention is that the equity is to apply, or conversely is not to apply, this determines the issue. In many cases, however, there is no evidence of actual intention, and the law will arrive at the parties’ presumed intention from an examination of all the relevant circumstances.”
Case name Neutral citation Legal points Case summary Facts Held Comment Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269 Receivers - whether agency relationship between borrower and solicitors appointed by receivers - costs A borrower has no direct cause of action to challenge the level of fees rendered by solicitors appointed by receivers of the mortgaged property. However, before the court could make an order for costs on the small claims track against the borrower for unreasonable behaviour, it should have taken into account the unusual agency relationship. D defaulted on his legal mortgage to a bank, who appointed receivers to sell the property, and who in turn appointed LB solicitors to act for them. Following the sale of the property LB rendered a bill of costs to the receivers which was paid and formed part of the mortgage debt. In a separate small claim, D sought to challenge LB’s fees which, since they had been paid, was effectively for a refund. At first instance, a Deputy District Judge dismissed the claim with no order as to costs on the ground that D had no standing to make the claim since there was no contract of retainer between LB and D. D’s appeal to the Circuit Judge was dismissed with costs on the basis that (in a small claims case under CPR 27.14(2)(g)) D had behaved unreasonably in pursuing the appeal and rejecting a sensible offer. D was granted permission for a second appeal. There was considerable force in D’s point that the precise nature of the relationship between himself and the receivers was not clear. Although the mortgage deed describes the receivers as ‘agents for the mortgagor’, in relation to instructions to solicitors on the sale of the property, this does not mean what it appears to say. The instructions come from the receivers who are the contracting party with the solicitors. However, the position remained a curious one. D obtained permission to appeal from the DDJ and the CJ himself took 12 paragraphs of his judgment to explain the legal position. The CJ should have taken this into account when assessing whether D’s behaviour was unreasonable. Appeal allowed. In re-determining the costs order, the court had regard to the dictum of Sir Thomas Bingham MR in Ridehalgh v Horsefield [1994] Ch 205 in which he said that conduct cannot be described as unreasonable simply because it leads to an unsuccessful result…the acid test is whether it permits of a reasonable explanation. D’s behaviour had not been unreasonable. Although he had rejected an offer of £1,000 in settlement, which might be supportive of a finding of unreasonableness, that, on its own, was incapable of satisfying the test in CPR 27.14(2)(g). Accordingly, LB’s application for costs must be dismissed. This case raises yet again (this time in the context of orders for costs) the ‘special’ agency relationship of receivers appointed by mortgage lenders. This case makes clear that although receivers are (usually expressly, under the terms of the mortgage deed) appointed as agents of the borrower, there is no contractual or agency relationship between the borrower and any solicitors appointed by the receivers.
Case name Neutral citation Legal points Case summary Facts Held Comment Farooq v Kensington Mortgage Company Ltd [2017] UKFTT 230 (PC) Registered charge - alteration of register – forgery – res judicata – exceptional circumstances The First-Tier Tribunal gave effect to an application to alter the register by removing a mortgage which had been obtained by forgery Mr & Mrs F were the joint registered proprietors of a property. In 2006, a mortgage was secured on the property, which was subsequently assigned to KMC. Mr & Mrs F claimed to know nothing of KMC’s mortgage until bailiffs attended to execute a warrant pursuant to an order for possession that was made in their absence. They subsequently applied to alter the register by removing the mortgage on the ground that they did not sign the loan agreement or mortgage. The Tribunal reviewed various documents, together with expert handwriting evidence (which was largely inconclusive) and directed itself in accordance with Para 5, Sched 4 Land Registration Act 2002 (power to alter register to correct a mistake). On the evidence, the Tribunal made a finding of fact that Mr & Mrs F did not sign the mortgage, so that there was a mistake on the register and that under Para 6(3) there were no exceptional circumstances which justified not making the alteration. Accordingly, the Tribunal ordered the Chief Land Registrar to give effect to Mr & Mrs F’s application, and made an order for costs in their favour against KMC. Many disputes involving registered land are resolved by the First-Tier Tribunal, including applications for alteration of the register as a result of a mistake. This case had a fairly predictable outcome, as a result of the finding of forgery, although there were one or two spirited arguments raised by KMC, including (1) whether KMC’s title was ‘res judicata’ as a result of the order for possession it had obtained (no), and (2) whether there were exceptional circumstances which justified not making the alteration on the ground that Mr & Mrs F were grossly negligent and had ‘abdicated’ responsibility for their property and finances to others (no).