July/August 2011

For a copy in Word form, click here:

Want to sign up for FREE monthly updates e-mail your request to: update@legalmortgage.co.uk

Case name	Serious Organized Crime Agency v Szepietowski
Neutral citation	[2011] EWCA Civ 856
Legal points	Mortgages - Marshalling - Proceeds of Crime Act 2002
Facts	Mrs S was the registered proprietor of two properties – Ashford House, the matrimonial home, which was subject to a second charge to RBS, and a group of investment properties, which was subject to a first charge to RBS. The charges were in ‘all-monies’ form. The assets of Mrs S and her husband were frozen by interim receiving orders under the Proceeds of Crime Act 2002. Subsequent proceedings were compromised by a consent order and deed of settlement, whereby the investment properties were transferred to the Trustee for Civil Recovery. It was anticipated at the time that the net value of the additional properties, after deducting the sums due to RBS would be sufficient to settle the sums due to SOCA (£5.375M) but it was agreed that if there was a shortfall, Mrs S would grant the Trustee a charge for the amounts paid over to RBS. The investment properties were subsequently sold at a sum sufficient to discharge the sums due to RBS but leaving only £1,324.16 in satisfaction of the sums due to SOCA. SOCA sought to invoke the principle of marshalling on the basis that there was (a) a single debtor (Mrs S); (b) who owed debts to two creditors (RBS and SOCA); (c) RBS was able to enforce its claim against two securities (Ashford House and the investment properties); (d) whereas SOCA was confined to its security over the investment properties. In those circumstances it was argued that SOCA had an equity to require RBS to be treated as having satisfied itself so far as possible out of Ashford House, and by a process akin to subrogation, SOCA should be entitled to enforce RBS’s second charge against Ashford House to the extent of its shortfall. The court had to deal with a preliminary issue of whether the compromise agreement implicitly excluded Ashford House from bearing any part of Mrs S’s liability to RBS and if so whether it precluded the operation of marshalling The judge at first instance [2010] EWHC 2570 (Ch) held that SOCA was entitled to be subrogated to RBS’s charge over Ashford House. Mrs S appealed. There were two issues (1) whether as a matter of construction the deed of settlement precluded SOCA from seeking to rely on the principle of marshalling; and (2) (assuming SOCA was not so precluded) whether the judge properly exercised his discretion to order marshalling.
Held	(1) As a matter of construction, the deed of settlement did not exclude the operation of marshalling. The deed did not limit SOCA to the proceeds of sale of the additional properties, and the value of the charge to be granted and did not address the issue of marshalling. The deed of settlement did not amount to an unconditional release of all possible claims by SOCA against Ashford House. The fact that there had been a significant downturn in property prices meant that the risk lay where it fell, and SOCA was entitled to exercise whatever rights as a secured creditor the law gives it unrestricted by the terms of the deed of settlement. (2) Where a creditor in the position of a bank has realised a security which places the other creditor at a disadvantage, an equity arises to correct the imbalance so far as there is other available security to permit that. The fact that the parties negotiated terms of settlement on an assumption about values which turned out to be incorrect did not make it inequitable to grant the relief sought. Appeal dismissed.
Comment	The first instance decision [2010] EWHC 2570 (Ch) was reviewed in the November 2010 Monthly Update. The case provides a fairly complicated example of marshalling. However, the opening two paragraphs of the judgment of Patten LJ contain a concise summary of how marshalling works. In summary, marshalling is an equitable remedy. It applies where the owner of two properties, X and Y, mortgages them both to lender A, and then mortgages one, say Y, to lender B. When A seeks to recover its debt, B can require that it does so first out of X. B is in effect (although not at law) subrogated to A’s rights under its security to the extent of the debtors secured liabilities to B.

Case name	Da-Rocha Afodu v Mortgage Express
Neutral citation	[2011] EWCA Civ 951
Legal points	Mortgages - Warrant of Possession - Stay of execution - Second appeal - Permission to appeal - Norgan
Facts	This was a renewed application for permission to appeal against an order made by a circuit judge in which he dismissed an appeal from an order of a district judge refusing a stay of execution. It was therefore a second appeal which required permission from the Court of Appeal. Permission would only be granted where the appeal would raise an important point of principle or practice or there is some other compelling reason for the Court of Appeal to hear it (CPR 52.13). The borrower occupied a residential property which he originally acquired as a buy-to-let property with a mortgage from ME. There was a long history of arrears (there appears to be related proceedings at [2007] EWHC 297 (QB)) and at the date of the hearing the arrears stood at over £7,000. The borrower was critical of the district judge’s appraisal of the question of affordability in line with Cheltenham & Gloucester Plc v Norgan [1996] 1 WLR 343 for which the circuit judge granted permission to appeal. However, having addressed the question of affordability, the circuit judge then dismissed the appeal holding that there was no reasonable prospect of the payment schedule being complied with.
Held	Despite raising further issues going to the question of affordability, none of the matters raised a point of principle which would justify permission to make a second appeal. “Matters of this sort are pre-eminently matters which fall within the expertise and experience of the district judges and circuit judges who sit in the County Court and deal with these applications day in, day out. The real gist of the complaint…is that the judge came to the wrong conclusion on the basis of the facts that were before him”. Permission to appeal refused. No stay of execution.
Comment	The Court of Appeal will rarely hear a second appeal concerning the exercise of discretion involving Norgan principles.

Case name	Swift 1st Limited v Colin
Case Report	[2011] All ER (D) 271 (Jul)
Legal points	Mortgages - Power of Sale - Extent of statutory powers- ss 101-104 Law of Property Act 1925
Facts	Swift provided a mortgage advance to Mr & Mrs R secured on their freehold property. Swift subsequently consented to a second charge in favour of D3. Following default in repayment, Swift repossessed the property and sold it to D 1 and 2, with Swift executing a TR2 on sale. HM Land Registry refused to register the transfer, leaving Mr & Mrs R as registered proprietors. D4 subsequently obtained an interim charging order on the property in respect of a debt due from Mr & Mrs R. Swift applied to enforce the registration of the property to D 1 and 2. The issue was whether Swift’s disposition by transfer conferred a registrable legal estate on D 1 and 2. Swift submitted that since its mortgage was made by deed, it had the powers conferred by s 101 Law of Property Act 1925 including the power of sale. Section 104 governed the exercise of the power of sale.
Held	Application allowed. The reference to the mortgaged property in s 101(1)(i) Law of Property Act 1925 meant the property over which the mortgage deed purported to extend and operate and was not limited to an equitable interest in the property. As the mortgage was by deed, ss 101-104 LPA applied. Swift had a power of sale which overrode all subsequent interests. Swift was entitled to a declaration that the TR2 was effective to transfer the legal title to D1 and 2, and overreached the interest of the other Defendants.
Comment	It is not clear why HMLR refused to register the transfer on sale (or why the point was so important to Swift), but the case emphasises the statutory powers available to a legal mortgagee exercising a power of sale.

Case Summary	Barnes v Black Horse Limited
Neutral Citation	[2011] EWHC 1416 (QB)
Legal Points	Consumer Credit Act 2006 – Transitional Provisions - Extortionate Credit Bargain – Unfair Relationship
	This is a judgment given on an application for permission to re-amend Particulars of Claim to plead (amongst other things) a claim by Mr & Mrs B against BH for a declaration in respect of an unfair relationship arising out of the misselling of payment protection insurance policies. The facts are unusual. BH sold Mr & Mrs B a succession of PPI policies in respect of a series of loans. When they defaulted, BH sought to enforce against Mr B alone. Mr & Mrs B then brought their own proceedings against BH in which, by amendment, they sought to allege an unfair relationship. The court had to consider the application of the ‘exclusionary rule’ in the transitional provisions of paras 14 and 15, Schedule 3 to the Consumer Credit Act 2006. It was held that it was not open to a debtor to make a separate unfair relationship claim where he had the opportunity to make such a claim in proceedings brought by the lender to enforce the loan prior to the end of the transitional period. Since the initial enforcement proceedings had been brought against Mr B alone, he was precluded from claiming an unfair relationship in separate proceedings, but Mrs B was not.
Comment	Both the extortionate credit bargain and unfair relationship provisions apply to all credit agreements, whether regulated or not. The transitional provisions can be summarised as follows: • In respect of agreements made before 6 April 2007: o If the agreement is completed before 6 April 2008, the debtor has to apply to reopen under s 137-140 CCA 1974 (extortionate credit bargain) o If the agreement is not completed before 6 April 2008, the debtor can apply to reopen under s 137-140 CCA 1974 but only if the debtor’s application or the creditor’s proceedings are commenced before 6 April 2008 o The debtor can only apply to reopen under s 140A-140E CCA 1974 (unfair relationship) if the agreement is not completed before 6 April 2008 and the debtor’s application or the creditor’s proceedings are commenced after 6 April 2008 • In respect of agreements made after 6 April 2007 o Applications to reopen can only be made under s 140A-140E CCA 1974 (unfair relationship) Under Para 1(2), Sched 3, CCA 2006 an agreement is ‘completed’ once (a) there is no sum payable under the agreement; and (b) there is no sum which will or may become so payable.

Case Summary	Sarwar v Royal Bank of Scotland Plc
Neutral Citation	[2011] EWHC 2233 (Ch)
Legal Points	Account information - mistake - cause of action/issue estoppel - abuse of process
	S, who was indebted to RBS for over £166,000 sued RBS for (amongst other things) a declaration as to the amount of interest debited to his accounts. The matter came on for trial in 2000. In response to a question from the judge, RBS said it had not charged default interest at 25% and that the rate charged had never been more than 4% over base, which the judge accepted. He dismissed S’s claim with costs. The Court of Appeal refused permission to appeal. For some reason RBS did not proceed to an assessment of its costs. In 2007, S sought an account of all sums charged by RBS. During the course of the proceedings, it became clear that RBS had in fact charged interest at 25% and despite the fact that this had a significant compounding effect, the Master held that S could not re-open the account. Permission to appeal was given on the issue of res judicata and estoppel. The case concerns a useful review of the authorities on cause of action and issue estoppel and the broader concepts of abuse of process. On the facts it was held that there was no cause of action or issue estoppel and no abuse of process. Appeal allowed.

Publication

Mortgage Verification Scheme

HM Revenue & Customs, the Council of Mortgage Lenders and the Building Societies Association launch the Mortgage Verification Scheme with effect from 1 September 2011. The Scheme, which is designed to prevent fraud, enables mortgage lenders to send relevant details of mortgage applications where they have inadequate evidence of declared income and suspect fraud using a secure electronic platform to HMRC which will then check income details against information provided in income tax and employment returns. HMRC will then advise lenders, which will inform lending decisions.