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October 2018

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Santander UK Plc v Fletcher [2018] EWHC 2778 (Ch) Mortgage fraud – transfer into joint names – mortgage against one set aside – entitlement to equitable charge Publication: FCA Consultation Paper CP18/31 Increasing the jurisdiction and powers of the Financial Ombudsman Service
Case name Neutral citation Legal points Case summary Facts Held Comment Santander UK Plc v Fletcher [2018] EWHC 2778 (Ch) Mortgage fraud – transfer into joint names – mortgage against one set aside – entitlement to equitable charge Following a transfer into joint names, a joint mortgage was set aside for undue influence, but the lender was able to enforce an equitable charge over the fraudster’s beneficial interest D1 (son) procured a TR1 transfer of D2’s (mother’s) home into their joint names with a tick-box express declaration of trust that they held the property as beneficial joint tenants. Shortly after, D1 procured a mortgage in their joint names from S for £120,000 after telling D2 it was only for £31,250. Following default in repayment, S claimed possession. At trial, the judge held that the mortgage should be set aside for undue influence, and that provide D2 paid back £31,250 S could not enforce the mortgage against her. S claimed that it also had an equitable charge over D1’s beneficial interest which it was entitled to enforce with an order for sale. D2 appealed and (with permission) argued a new point, that she should be entitled to set aside the TR1, and that in consequence, S had no equitable charge. The judge did not make any findings about whether the TR1 had been procured by fraud. He concluded that the express declaration of trust was conclusive. There was no claim to set aside the declaration of trust. It is well established that in cases in which a legal mortgage is over jointly held property by two parties, and the legal mortgage is set aside on the application of one party, the result of the application of s 63 Law of Property Act 1925 is that the lender may still have an equitable charge over the beneficial interest of the other party (eg. First National Bank v Achampong [2003] EWCA Civ 487; Edwards v Lloyds TSB Bank Plc [2004] EWHC 1745 (Ch)). As to D2’s argument that the declaration of trust could still be set aside as not reflecting D2’s subjective intentions, this could only render the declaration voidable, not void, and would be barred by third party rights, such as S acquired in this case. The fact that S was put on constructive notice in relation to undue influence affecting its mortgage does not mean it was put on notice about the TR1. The burden was not on S to establish a right to bar rescission. Overall, it was not unconscionable for S to enforce its equitable charge over D1’s beneficial interest. Appeal dismissed. The victim of a mortgage fraud – particularly one involving both a transfer and mortgage - needs to think very carefully about what points to take, and what the outcomes are likely to be. On the basis that D2 had a cause of action to set aside the TR1 and declaration of trust, she should have taken it, but since this transaction was separate from the mortgage, she would still have had to establish that the bank took its mortgage subject to her equity to set the transaction aside – something which, in practice, may be difficult to do. Subject to that, ordinarily where a bank takes a joint mortgage from joint owners it may be difficult to set the mortgage aside for undue influence since there is often nothing to put the bank on constructive notice (CIBC Mortgages Plc v Pitt [1994] 1 AC 200) although in this case the trial judge was able to make what appears to have been a conditional order setting the mortgage aside, presumably on the basis that the bank was put on constructive notice of undue influence, at least to the extent of any borrowing over £31,250.
Publication On 18th October 2018 the Financial Conduct Authority published a Consultation Paper CP 18/31 which proposes to increase the Financial Ombudsman Service’s award limit from £150,000 to £350,000 from 1st April 2019. Consultation responses are invited by 21st December 2018. The Ombudsman Scheme is set out in Part XVI Financial Services and Markets Act 2000. Under s 228, a complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case. When the ombudsman has determined a complaint, and it is accepted by the complainant, it is final and binding (s 228 (5) FSMA 2000). Acceptance of a determination gives rise to a res judicata which precludes a complainant from bringing separate legal proceedings on the same facts (Clark v In Focus Asset Management and Tax Solutions Ltd [2014] 1 WLR 2502). In practice therefore, the Ombudsman Scheme offers a take it or leave it service. A determination can include either a money award which, if registered, can be enforced in the civil courts, or some other direction, which can be enforced by an injunction (s 229; Sched 17, para 16). The proposed new award limit will apply to acts or omissions after 1st April 2019 and will automatically adjust in line with inflation in each subsequent year. For acts or omissions prior to 1st April 2019, the limit will increase to £160,000. The Consultation Paper also proposes to expand the jurisdiction of the Ombudsman Scheme to include complaints from small businesses and guarantors (it is currently limited to individual consumers, charities, trusts and ‘micro-enterprises’.