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March 2018

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NRAM Ltd v Steel [2018] UKSC 13 Mortgage - security – discharge – negligent misrepresentation Fortwell Finance Ltd v Halstead [2018] EWCA Civ 676 Mortgage lending – regulated activities – consent order Hyett v Wakefield Council [2018] EWHC 337 (Admin) Receivers - liability for council tax Antoine v Barclays Bank Plc [2018] EWHC 395 (Ch) Land Registration - legal charge – court order – forgery – correction of ‘mistake’ Herron v Bank of Scotland Plc [2018] NICA 11 Securitisation – practice and procedure Crowther v Arbuthnot Latham & Co (Unrep) QBD (Commercial Court) 27 February 2018 Tomlin order – consent to sale of security not to be unreasonably withheld – purpose of provision Lederer v Allsop LLP (Unrep) Ch D 13 March 2018 Receivers - injunction – balance of convenience Publication: HM Land Registry updated Practice Guide 75: transfer under a chargee’s power of sale
Case name Neutral citation Legal points Case summary Facts Held Comment NRAM Ltd v Steel [2018] UKSC 13 Mortgage - security – discharge – negligent misrepresentation It was not reasonable for a commercial lender to rely on a representation from a borrower’s solicitor about the discharge of its security without checking it. Lender L granted borrower B a loan secured on a number of units. B proposed to sell one of the units and agreed with L a release of that unit from the security, subject to a partial repayment. Shortly before completion, B’s solicitor emailed L wrongly stating that the whole loan was to be repaid and asked for execution of deeds of discharge over all the units. L did not check the position and discharged the entire security. B subsequently went into liquidation. L sued B’s solicitors for damages for negligent misrepresentation. The trial judge (the Lord Ordinary) dismissed the claim holding that it was not reasonable for L to have relied on the solicitor’s representations without checking their accuracy, and that it was reasonable for the solicitor not to have foreseen that it would do so. L appealed. The appeal court (Extra Division of the Inner House of the Court of Session) allowed the appeal holding that the solicitor had assumed responsibility for the representations since they fell within her area of expertise and she knew that L was not represented by solicitors, and that it was not necessary to consider whether the lender should have checked their accuracy. B appealed. While the concept of an assumption of responsibility by a representor to a representee was the foundation of liability in tort for negligent misrepresentation, a representor would not be held to have assumed responsibility towards the representee unless (i) it was reasonable for the representee to have relied on what the representor said, and (ii) the representor should reasonably have foreseen that he would do so. A commercial lender, about to implement an agreement with its borrower referable to its security did not act reasonably if it proceeded upon no more than a description of the agreement’s terms put forward by or on behalf of the borrower, since the terms of the agreement were wholly within the lender’s knowledge. The Lord Ordinary had been right to conclude that it had not been reasonable for the lender to rely on the solicitor’s representations without checking their accuracy, and that it has been reasonable for the solicitor not to foresee that it would do so. Appeal allowed. NRAM have had a spell of mistakenly discharging their securities recently. In NRAM Ltd v Evans [2017] EWCA Civ 1013 they managed to restore the position by alteration of the register on account of a ‘mistake’; here they opted to sue for damages. The key point is that they were suing the borrower’s solicitors, for a representation they had made. The Supreme Court said this was no good. It is not reasonable for a lender to rely on a representation from the borrower’s solicitors without checking it, nor could the borrower’s solicitor reasonably forsee that the lender would not do so. This is a decision of the Supreme Court on an appeal from Scotland. The same common law principles apply. The case contains a useful review of the caselaw on negligent misrepresentation.
Case name Neutral citation Legal points Case summary Facts Held Comment Fortwell Finance Ltd v Halstead [2018] EWCA Civ 676 Mortgage lending – regulated activities – consent order A consent order in mortgage possession proceedings compromised any issue that the mortgage was unenforceable as being entered into in contravention of the general prohibition in s 19 FSMA 2000, nor was the consent order itself a regulated activity which had been entered into in breach of the general prohibition. On 19 Aug 2013 FF granted H a 12-month loan of £2.36M secured by a first legal charge on residential property which comprised three flats in the course of conversion to a single residence. On the loan application form, H gave an address in Italy. FF was not an ‘authorised person’ and regarded this as an unregulated loan for the purposes of the FSMA 2000 (Regulated Activities) Order 2001. A special condition of the loan was that the borrower shall not occupy the property as a dwelling. Following default in repayment after 12 months, FF appointed receivers, and subsequently issued proceedings for possession which were initially compromised by a consent order for possession in 28 days. Following further default, FF obtained a warrant for possession. H applied to set aside the consent order and to suspend the warrant. A deputy district judge initially refused the stay, and an appeal against his decision was refused by a circuit judge. FF contracted to sell the property. The court subsequently listed the application to set aside the consent order, and refused that too, and the circuit judge refused permission to appeal. An appeal to the high court judge was also refused. H was subsequently granted permission to appeal (following a renewed application before Gloster LJ). In the meantime, FF completed the sale of the property. The main issue on appeal was that the loan agreement was unenforceable as having been made by an unauthorised person in contravention of the general prohibition in s 19 FSMA 2000. This largely turned on whether it involved a regulated activity, in particular whether it involved entering into a regulated mortgage contract as defined in Art 61 of the Regulated Activities Order 2001 (at least 40% used as or in connection with a dwelling by the borrower). The high court judge had concluded that since the property comprised flats, only one of which was being occupied by H as a dwelling, it did not exceed the 40% requirement. The judge also attached weight to the special condition in which H agreed he would not occupy the property as a dwelling which he accepted operated as an estoppel. Further the judge concluded that there were no grounds to set aside the consent order on the ground of mistake. On appeal H took a new point, that the consent order itself infringes the ‘general prohibition’ in s 19 FSMA. This assumed that the loan agreement and legal charge themselves amounted to a regulated mortgage contract, and depended on whether the consent order involved ‘administering’ a mortgage contract, which included “taking any necessary steps for the purposes of collecting or recovering payments due under the contract from the borrower”. It was not suggested that the consent order was not a true settlement of the proceedings. Even assuming that the mortgage transaction itself amounted to a regulated mortgage contract, the consent order did not involve ‘administering’ a regulated mortgage contract. The making of a compromise of proceedings did not amount to a ‘necessary step’. It is never necessary to compromise proceedings – a litigant can always proceed to trial. Further, the taking of legal proceedings is expressly taken out of the ambit of Art 61(3)(b)(ii) by the words “a person is not to be treated as administering a regulated mortgage contract merely because he…exercises a right to take action for the purposes of enforcing the contract…”. Apart from the obvious public interest in enabling the compromise of legal proceedings, it seems unlikely that Parliament intended such a compromise to be a criminal offence under s 23 FSMA. If H’s arguments were correct, it would in some cases be effectively impossible for parties to compromise a bona fide dispute, in a way which would make the agreement enforceable by the lender and without the lender committing an offence. Following Dickinson v UK Acorn Finance Ltd [2015] EWCA Civ 1194, the FSMA 2000 was not a trump card and could not dictate the conclusion as to the exercise of the court’s discretion in the present case. The present point had not been taken in the courts below. It cannot therefore have been wrong for either judge to refuse to set aside the consent order. H’s case had the additional unattractive feature that it depended on his representations at the time of the transaction as to his intention having been knowingly untrue. The suggestion that FF knew the representations were false was tenuous in the extreme. The court also declined to direct a trial of the issue whether the entry into the mortgage or the consent order were regulated activities caught by FSMA 2000. Appeal dismissed. This is an important decision which will come as a relief to unregulated mortgage lenders who rely on special conditions or declarations to avoid entering into regulated mortgage contracts. It also confirms that taking enforcement proceedings, and compromising those proceedings, does not involve administering a mortgage contract which would otherwise be a regulated activity.
Case name Neutral citation Legal points Case summary Facts Held Comment Hyett v Wakefield Council [2018] EWHC 337 (Admin) Receivers - liability for council tax A borrower remains liable to pay council tax on an empty buy to let property notwithstanding the appointment of receivers by the lender. H owned a portfolio of buy to let properties, charged to a lender. Following default in payment the lender called in the loan and in 2008 appointed receivers. An issue arose in respect of one of the properties in which the Council claimed council tax of £136.34 from H. H accepted that if the receivership was valid, he would be liable to pay (since the receivers would have been his agents) but disputed the claim on the basis that the receivership was a sham; that it was designed solely to generate fees for the lender; and that the receivers had effectively handed the property back to the lender. There was a separate issue about when the tenancy expired, and the tenant ceased to be personally liable for the council tax. She moved out on 6th January 2016 and handed in her keys but without giving formal notice. The Council contended that was the date on which the tenancy had been surrendered and H’s liability as landlord accrued. Finally, H also complained that the Council had given him notice to install smoke alarms, but that he had been kept out of possession since the receivers had been appointed. The Valuation Tribunal found against H and determined his liability to pay. H appealed. The court had to deal with a number of issues: The lender initially appointed a company R (surveyors and valuers) as receivers, which was not permitted. The lender then appointed two individuals as receivers, who in turn appointed R to act as their agents. Although the close relationship raised suspicion, there was nothing wrong with it. Businesses often use corporate structures and related companies to conduct their business. Of course, the lender could have appointed an ‘authentic receivership company’ such as GVA Grimley, but they did not have to. Although the receivership had lasted for over nine years and had generated fees, on the face of it there is nothing unlawful about creating a business model designed to maximise profit. Indeed, businesses are in business to make a profit and can be expected to conduct their business in a way to maximise their profit. Overall, the Council, and the Valuation Tribunal were bound to accept that the receivership was valid. Further, any issue as to sham was a matter between H and the lender, and not between the Council and the lender. Appeal dismissed. As to when the tenancy expired, there was no evidence of any formal notice given by the tenant or that H had accepted a surrender. However, H accepted that by handing in her keys, this impliedly amounted to 28 days’ notice, so that his liability pay accrued on 4th February 2016. In relation to access to install smoke alarms, the receivers are his agents. He could have insisted on access for the purpose of complying with the relevant regulations. This was an expensive case to pursue over £136.34. It addresses a not uncommon issue about the allocation of responsibility for payment of council tax as between a lender, borrower, receiver and tenant. Overall, this decision is probably most helpful to all those involved in receiverships who are batting off complaints by borrowers, especially unparticularised complaints that the receivers are simply hanging on to rack up fees – the judge took a particularly commercial view of the business of receiverships! Note the last point that in certain circumstances, a buy to let borrower landlord can insist on access during a receivership.
Case name Neutral citation Legal points Case summary Facts Held Comment Antoine v Barclays Bank Plc [2018] EWHC 395 (Ch) Land Registration - legal charge – court order – forgery – correction of ‘mistake’ The registration of a legal charge, entered into by a registered proprietor, who obtained title pursuant to a court order which had been based on forged documents, was not a ‘mistake’ for the purposes of Sched 4, para 2(1)(a). In 2006, T’s personal representative sued A’s personal representative for relief in respect of a mortgage, relying on certain contested documents. T obtained an order in A’s absence for the vesting of the property. T was duly registered as proprietor at HM Land Registry and subsequently charged the property to Barclays Bank. The order was subsequently set aside, without prejudice to Barclays’ charge. Much later, A’s personal representatives issued separate proceedings against Barclays and the Chief Land Registrar, to set aside the charge on the basis that the contested documents were forgeries, and for an order for alteration of the register to remove the charge. Barclays and the Chief Land Registrar did not dispute the forgery claim but disputed the entitlement to alteration on the ground of ‘mistake’. The court directed itself on the correct approach to be taken to an allegation of forgery. An allegation of forgery is an allegation of fraud. Relying on the observations of John Martin QC, sitting as a Deputy High Court Judge in Pittas v Christou [2014] EWHC 79 (Ch) (a case involving an allegation of forgery in relation to a will) the court should first assess the lay evidence and then see whether or not the handwriting evidence supports the view the court has reached on the lay evidence. Further, relying on the observations of Lord Nicholls in Re H [1996] AC 536, an allegation of fraud is serious and requires a higher standard of proof. Weighing both the lay evidence and the expert evidence, there was strong evidence that the contested documents were forgeries. In respect of the registration requirements, the conclusiveness of the register under s 58(1) Land Registration Act 2002 is subject to the powers of alteration in Schedule 4. ‘Mistake’ was not defined, but had been considered recently by the Court of Appeal in NRAM Ltd v Evans [2018] 1 WLR 639. Although there is a distinction between a voidable transaction which did not give rise to a mistake on the register, and a void transaction which did, this did not cover the case where the court had made a vesting order but the order had been induced by fraud (by reliance on forged documents). As to this, the contested documents had no dispositive effect; that was achieved by the order which conferred title irrespective of the documents. Thus, at the time the order was made, it was valid and effective, albeit susceptible to being set aside. Whether or not it is right to refer to an order as ‘voidable’, it was akin to a voidable transaction. The Registrar was only concerned with the effect of the order, not the contested documents. As a matter of public policy, if the registration of title pursuant to a court order could be impugned as a mistake, it would undermine the conclusiveness of the register. It followed that the registration of the charge, at a time when the order had not yet been set aside, could not possibly have been a mistake. T was therefore entitled to exercise owner’s powers including the power to charge the property under s 23(1)(b). Claim dismissed. This is another in the recent run of cases on the scope of the alteration provisions in Schedule 4, Land Registration Act 2002. An alteration which involves the correction of a ‘mistake’ and which prejudicially affects the title of a registered proprietor amounts to rectification and engages the additional requirements of paragraph 3, as well as the indemnity provisions in Schedule 8. Although the court took a structured approach to weighing the evidence of forgery, in practice the court usually adopts a holistic approach – weighing all the evidence in the round, including (1) evidence from the parties themselves, (2) evidence from any attesting witnesses, (3) contemporaneous evidence about the circumstances in which the document was allegedly signed, as well as (4) forensic handwriting evidence. Many of these issues are now routinely dealt with on contested applications before the First Tier Tribunal, Property Chamber, Land Registration Division.
Case name Neutral citation Legal points Case summary Comment Herron v Bank of Scotland Plc [2018] NICA 11 Securitisation – practice and procedure This was an appeal to the Court of Appeal in Northern Ireland from a decision of a High Court Judge who dismissed an appeal from an order of a Deputy Master granting the bank an order for possession. Quite a bit of the judgment is taken up with procedural issues, and issues about unfair contract terms, but the main issue concerned securitisation and the way in which the bank had dealt with this in evidence. The judgment contains a review of the court’s approach to dealing with securitisation issues following Swift First Limited v McCourt [2012] NICh 33 and Santander (UK) Plc v Carlin and Hughes [2013] NICh 14 – the main issue being whether the claimant had (sufficient) ownership of the mortgage to enable it to sue for possession, and whether it can claim to have suffered any loss in consequence of the default in payment of principal and interest – a point which the court noted was being increasingly raised, particularly by litigants in person. Once the point had been raised, the practice which had developed required disclosure and inspection of relevant documents, together with specific affidavit evidence (that being the practice in Northern Ireland) by a deponent on behalf of the financial institution, dealing with the claimant’s title to sue for possession. In the present case, the bank had failed properly to comply with its disclosure obligations and none of the affidavits complied with the Swift First requirements – something which drew stinging criticism from the court. The judgment also deals with the way in which the securitisation issue was dealt with at trial. In particular, the court noted: “‘Securitisation’ is a term of art in the financial world. The Court takes judicial notice that it denotes a financial practice whereby various types of contractual debt – residential mortgages and others – are pooled and their related cash flows are sold to third party investors as interest-bearing securities. In this way the security holder secures the financial benefit from the payment of interest and principal by the debtor, while the financial institution concerned raises finance… We take particular note of how the Appellant formulates his case on this discrete issue. In espousing this ground of appeal he seeks to further his contention that the Bank failed to demonstrate that any loss had been sustained by it in consequence of his default in repaying principal and interest. Neither the Appellant’s contentions on this issue nor the economist’s theory on which he relies engages with the inescapable reality that the currency of every loan arrangement is that of pounds and pence. In the specific context of mortgages and charges on land – this case – the debtor obtains the benefit of a loan, and in consideration of doing so, provides to the financial entity in question an asset which, in the event of the debtor defaulting in the payment of principal and interest, is liable to be forfeited by him. While McBride J was clearly of the view that the Appellant’s ‘no loss’ contention was without substance, she made unequivocally clear that the issue for the Court was whether the Bank had discharged the onus of establishing an entitlement to an order for possession of the secured asset. Issues of financial loss and the calculation thereof were not material. We consider that the Judge was incontestably correct in this… In summary, the main hallmarks of this ground of appeal are bare assertion, mere suspicion and rank speculation…this ground of appeal has no arguable merit.” The courts in Northern Ireland have had to grapple with more securitisation issues than in England and Wales, and they have developed a specific practice of requiring disclosure and evidence. That aside, what this decision appears to do is scotch the economic theory behind the securitisation argument, that a lender does not lend real money and does not suffer any loss. Remember that in practice, all that a lender needs to demonstrate is that it retains a registered title to the security – see Paragon Finance Plc v Pender [2005] EWCA Civ 760 per Jonathan Parker LJ at para 109 etc (the title to sue issue).
Case name Neutral citation Legal points Case summary Crowther v Arbuthnot Latham & Co (Unrep) QBD (Commercial Court) 27 February 2018 Tomlin order – consent to sale of security not to be unreasonably withheld – purpose of provision C brought proceedings against a bank which were compromised by a Tomlin Order. The bank was owed about €5.9 million and held security over property worth about €4 million. The Tomlin Order provided “If, with the prior approval of the bank (such approval not to be unreasonably withheld or delayed) the property is sold, you shall immediately repay to the bank the net proceeds of sale. C received an offer of €4 million but the bank refused consent to the sale in the absence of proposals to secure the remaining indebtedness. C sought a declaration that the bank had unreasonably withheld consent and that it was entitled to sell the property without providing further security. Held: Declarations accordingly. The bank was in breach of the requirement not to withhold consent unreasonably – the test to be applied being one of objective reasonableness. The purpose of the provision was to preserve the bank’s contractual rights, not to enhance them. The bank’s desire for further security was collateral to the purpose of the provision.
Case name Neutral citation Legal points Case summary Lederer v Allsop LLP (Unrep) Ch D (13 March 2018) Receivers - injunction – balance of convenience The court refused to continue an interim injunction to restrain receivers appointed by a lender from selling a property principally having regard to the balance of convenience. Although the claimant had raised a serious issue to be tried about the validity of the appointment and conduct of the receivers (1) the claimants had no other assets to repay the debt, (2) if the receivers were restrained from selling they would continue to incur costs of insuring a vacant, half-developed and deteriorating property, (3) the claimants could not refinance easily, (4) if the value of the property fell, the claimants were unlikely to be good for their cross-undertaking in damages.
Publication On 16 March 2018 HM Land Registry updated Practice Guide 75: transfer under a chargee’s power of sale.