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August 2010

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Aug 10 Update
Case name English v English, Hodge Jones & Allen and Swift Advances Plc
Neutral citation [2010] EWHC 2058 (Ch)
Legal points Mortgages - fraud - scope of solicitor’s retainer - forgery - ratification/estoppel
Facts Mrs E, a 75-year old widow was the sole owner of a bungalow in which she resided, free of mortgage. She was looking to assist one of her sons, M, to raise £40,000 by way of unsecured loan to purchase his flat. Another of her sons, C, offered to assist and persuaded her to attend at his solicitors’ office in connection with the loan. Unbeknown to Mrs E, C and his wife had applied to Swift for an initial loan of £50,000 in their joint names, offering Mrs E’s property as security and forging her signature on the loan agreement and legal charge. HJA had been nominated as the applicants’ solicitors and Swift sent them a form of ‘solicitors verification certificate’ which in terms required them to see Mrs E alone; explain the contents and effect of the Loan Agreement and Legal Charge, being affectively in ‘all-monies form’; satisfy themselves that there was no evidence of undue influence; and witness Mrs E’s signature to both documents. There was a dispute of fact about what was said and done at HJA’s offices, but it was common ground that the form of solicitors verification certificate had been amended in manuscript (most likely by C) prior to attendance at the meeting, so as to delete the requirement for HJA to explain the contents and effect of the Loan Agreement and Legal Charge, and for the solicitor to certify that he had witnessed Mrs E’s signature on those documents. Neither the Loan Agreement nor the Legal Charge were produced at the meeting. The solicitor signed the certificate in its amended form without making further enquiry and it was subsequently returned to Swift who advanced £50,000 for the benefit of C and his wife. Some time later, again unbeknown to Mrs E, C forged her signature on an application for a further advance on the security of the Legal Charge, taking the total borrowing to £106,000. The solicitors were not involved. In default of repayment, Swift commenced possession proceedings and notice of the proceedings were served on Mrs E at the property. She had already decided to put the property on the market for sale and without taking legal advice, discharged the total indebtedness due to Swift out of the proceeds of sale. Having done so, C committed a further fraud by withdrawing the balance of the proceeds of sale from Mrs E’s bank account leaving her penniless. She was subsequently persuaded by family members to report the matter to the Police and to take legal advice on her position. Mrs E commenced proceedings against (1) C and his wife based on their deceit, (2) HJA for negligence in failing to adequately advise her and protect her interests; and (3) Swift for repayment of the total amount she had paid to them. C and his wife did not defend the claim and Mrs E obtained a default judgment against them. The trial proceeded against HJA and Swift.
Held HJA were not liable to Mrs E. The original form of the solicitors verification certificate sent by Swift did not define the scope of HJA’s duty of care and they were entitled to limit the scope of their retainer to Mrs E in the terms of the amended certificate. Although the solicitor had no recollection of the meeting and was unable to produce any attendance note, the court accepted the amended form of solicitors verification certificate as a reliable contemporaneous note of what was said and done at the meeting, in preference to Mrs E’s evidence. Accordingly the court was persuaded that the solicitor had seen Mrs E alone; that she was not being put under any pressure and that he had given a sufficient explanation about the effect of an all-monies charge without actually seeing the Loan Agreement or Legal Charge. Swift was not liable to repay any monies either. Although the court found as a fact that Mrs E’s signature on the Loan Agreements and Legal Charge had been forged, so that Mrs E would have been entitled to have the documents declared void, and have the Charges Register rectified, the circumstances in which she repaid the total balance outstanding out of the proceeds of sale of her property, without challenging the validity of the Charge amounted to ratification by her of the validity of the Legal Charge – Greenwood v Martins Bank Ltd [1933] AC 51 applied. Alternatively, the same acts would amount to an estoppel by representation. The court found as a fact that Mrs E acted as she did in order that the existence of the forgeries would not become apparent and C would not get into trouble with the Police. Swift had incurred a detriment because having discharged the Charge, it was unable to seek an indemnity from the Land Registry in consequence of the forgery.
Comment This is a fairly harsh decision but one which turns on its own particular facts. There are two outcomes: (1) The extent of the solicitor’s retainer: Although ordinarily the extent of a solicitor’s retainer instructed by a lender to provide independent legal advice is set by the terms of the certificate required to be signed by the lender, it is open to the solicitor to cut down his duty of care and in so doing to limit the nature and extent of the advice and protection he could offer the client. It is a matter for the lender whether it wishes to proceed with the transaction based on any such limitations. On the facts of the present case, it was not open to the client to complain. (2) Ratification/estoppel: A victim of fraud (in this case an elderly parent, but in a typical Barclays Bank v O’Brien case, a wife) who would otherwise have a cast iron cause of action to avoid or set aside a mortgage transaction is effectively put to election once they become aware of the fraud but before the mortgage is redeemed – either to challenge the transaction or else risk ratifying it (or become estopped from denying the validity of the transaction).
Item Council of Mortgage Lenders reports decline in arrears and repossessions
Details On 12th August 2010 the Council of Mortgage Lenders produced their second quarter statistics for 2010 and revised their forecast for arrears and repossessions in 2010 and as a whole. The number of properties taken into possession by first charge mortgage lenders continued to fall to 9,400 (down from 9,800 in the first quarter of 2010). The number of mortgagors behind with payments also fell to 178,200 loans in arrears as at the end of June – 5% lower than the end of March. The CML now forecasts a total of 39,000 repossessions for 2010 as a whole compared with the previous forecast of 53,000, and expects 175,000 mortgages to end the year 2.5% or more in arrears compared with the previous forecast of 205,000. Note that CML statistics cover approximately 94% of all residential mortgage lending in the UK. See also the more extensive statistics and regional analysis of mortgage possession activity published by the Ministry of Justice: in Q2 2010 17,774 mortgage possession claims were issued; 13,389 mortgage possession claims led to orders being made; and 46% of orders were suspended. Regional statistics show that the local authority areas with the highest number of mortgage claims per 1,000 households were – Thurrock (1.77 per 1000 households), Corby (1.74) and Barking and Dagenham (1.62), whereas the lowest numbers were Cambridge (0.22), Winchester (0.22) and Hammersmith and Fulham (0.26).