REF/2006/0170

 

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

LAND REGISTRATION ACT 2002

 

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

 

BETWEEN

DHAMWANTI TIRATH KSHATRIYA

 

APPLICANT

 

and

 

CHOITHRAM INTERNATIONAL SA

 

RESPONDENT

 

Property Address: 20 Winchmore Hill Road, Southgate

 

Title Number: MX106532

 

Heard by: Mr Owen Rhys, Deputy Adjudicator to HM Land Registry

 

At: Procession House 110 New Bridge Street London EC4

 

On: 18^th December 2007 and 19^th April 2008

 

Applicant representation: Mr Gul Kapur (the Applicant’s son)

 

Respondent representation: Mr Jason Radley-Gardner of Counsel instructed by Irvings

 

___________________________________________________________________________­

 

D E C I S I O N

___________________________________________________________________________

 

KEYWORDS: Registered Charge – collateral security – contribution between co-sureties – transfer of charge – limitation –

 

CASES REFERRED TO: Lloyds Bank v Margolis [1954] 1 All ER 734

National Westminster Bank PLC v Ashe [2008] EWCA Civ 55

 

 

 

 

1. This reference to the Adjudicator from the Chief Land Registrar was made on 27^th January 2006, and arises out of an application dated 26^th September 2005 by Mrs Kshatriya relating to her home, namely 20 Winchmore Hill Road, London N14 (registered at HM Land Registry under Title No MX106532 and referred to hereafter as “the Property”) of which she is the registered proprietor. The application is to cancel a charge entered in the Charges Register of the Property. The Respondent was represented by Mr Jason Radley-Gardner of Counsel. The Applicant was represented by her son, Mr Gul Kapur, who is not legally qualified. He was also a witness, and gave evidence as to the history of the charge, and of the events which took place in 1982 which are central to the issues in this case. Indeed, Mr Kapur was the only witness who was able to give evidence as to these historical events, since the directors of Choithram International SA (“Choithram”) who had dealings in relation to the disputed charge are either dead, or for other reasons were not called by either side to give evidence. Mr L T Pagarani, who is currently a director, did attend to give evidence, but he had no direct knowledge of any material events occurring prior to 2002.

 

2. The history of this charge, in outline, is as follows. In 1973 a company known as G.T.K (Southgate) Limited (“the Company”) was a customer of Standard Chartered Bank (“Standard Chartered”). The Company was in the clothing business. One of the directors was Mr Tirath Kisharam Kshatriya ("Mr Kshatriya"), who was also, I believe, a shareholder. On 30th October 1973 he and his wife (the Applicant), who were the registered proprietors of the Property, executed a second charge ("the Charge") in favour of Standard Chartered to secure “payment to the Bank on demand of all money and liabilities whether certain or contingent now or hereafter owing or incurred to it from or by [the Company] on any current or other account or in any manner whatsoever whether as principal or surety or whether alone or jointly with any other person or persons and in whatsoever name style or firm…". This was therefore a charge to secure the liabilities of a third party, namely the Company.

 

3. Mr Kshatriya had a very good relationship with Choithram, which was incorporated in Panama and traded from premises in Dubai. Choithram was then and is now primarily involved in the food business in a substantial way, but it also conducts a degree of commercial lending. Mr Kshatriya was a lawyer and had advised Choithram on various occasions, and indeed had become a personal friend of its directors, particularly Mr L K Pagarani (not the same Mr Pagarani who gave evidence). Through this connection Choithram had become the Company’s financial backer and had been so over a number of years. On 17th August 1979 Mr Kshatriya died. His son, Mr Gul Kapur, took over as Managing Director. Mr Kapur told me that the Company had secured a potentially very lucrative contract with a Chinese supplier in 1980, but its implementation depended on receiving further financial support from Choithram. In 1980 Mr L K Pagarani – the principal contact between Choithram and the Company – left Choithram, and Mr Kapur’s dealings were then principally with a Mr Kewlani, another director. Unfortunately for the Company, Choithram decided to withdrew its financial support from the Company, which meant that it was unable to progress the contract. There were discussions between Mr Kapur, Standard Chartered and the directors of Choithram, and it was agreed that the Company would have to cease trading. At this time the Company owed Choithram substantial sums of money in the form of unsecured Bills of Exchange. The Company also owed money to three banks – Standard Chartered, Barclays International, and the Bank of Baroda. Choithram had guaranteed the overdraft with Standard Chartered to the extent of £10,000. Choithram and Mrs Kshatriya were, therefore, co-sureties in respect of the Standard Chartered overdraft. Mr L K Pagarani had also given a personal guarantee of the Barclays International overdraft. There were discussions between Mr Kapur and Standard Chartered Bank, and between him and Choithram. Mr Kapur told me that the liabilities to Barclays and the Bank of Baroda were discharged by the Company, and that as far as he could recall the Standard Chartered overdraft was less than £10,000 at that time. He said that Choithram - which was of course already liable to Standard Chartered under its guarantee - agreed to discharge the Company's overdraft (which he believed to be less than £10,000). At the same time, the Company agreed that Choithram could recover possession of all unsold stocks and retain the proceeds of sale for its own benefit. Those stocks were collected by Choithram in March and April 1982, and according to its credit note dated 7^th June 1982 were valued in the sum of £13800 inclusive of VAT. However, Mr Kapur maintained that the goods had a greater value – nearer £30,000. Mr Kapur’s firm recollection was that there was an understanding, to put it at its lowest, between him and Choithram that if he returned the stocks to Choithram, it would settle the Company’s liabilities to Choithram once and for all. He was adamant that, if he had been told that Choithram intended to take a transfer of the Charge, he would have ensured that Standard Chartered was paid off in full directly by the Company (utilising the stocks) thus removing any possibility of the Charge being kept alive and his mother being burdened with a potential liability.

 

4. Unknown to Mr Kapur, Choithram entered into direct negotiations with Standard Chartered, to this effect. Choithram agreed to discharge the Company's entire liability to the Standard Chartered – i.e in excess of its liability under the guarantee - in exchange for a transfer of the Charge. It is not quite clear how this was presented to Standard Chartered. The telex from Standard Chartered to Choithram dated 29^th June 1982 states that “UNDERSTAND FROM CHOITHRAM LONDON THAT IT IS YOUR INTENTION TO GIVE SUPPORT TO GTK AND WILL THEREFORE NOT ONLY REMIT TO US OUR CLAIM UNDER THE GUARANTEE BUT TO ACCOUNT TO US ALL MONIES OUTSTANDING IN OUR BOOKS”. According to Mr Kapur, this was simply untrue – there was no suggestion that Choithram, once it had received the stocks, would provide any further support to the Company. At all events, according the surviving documentation the amount outstanding on the overdraft as at 15th November 1982 was £13,988.34. On that date Standard Chartered wrote to Choithram acknowledging receipt of the total sum of £14,374.19, equal to the entire amount outstanding on the Company's overdraft, together with additional interest, charges and fees. According to the same letter, the Company’s account with Standard Chartered was closed on that day. One month later, on 15th December 1982, a Transfer of Mortgage (“the Transfer”) was executed by Standard Chartered and the benefit of the Charge was transferred to Choithram, and registered in the Charges Register of the Property. According to Mr Kapur, no notice of this was given, and neither he nor his mother (the mortgagor) was aware of this arrangement, nor of the exact sums paid to Standard Chartered. I shall consider the events of 1982 in more detail below.

 

5. In 2001 Mrs Kshatriya – who had been occupying the Property at all times since 1982 - was thinking of moving house on account of her ill-health, and her solicitors made a search of her title at HM Land Registry. This alerted her, and her son Mr Kapur, to the continuing existence of the Charge. Although there is some dispute as to the exact sequence of events, and as to what exactly was said by Mr Kapur and by Choithram's directors, the following facts are clear. Between late 2002 and Spring 2005 Mr Kapur was given the clear impression that Choithram was willing to release the Charge. Indeed, Mr L K Pagarani, the Director who gave evidence before me, went as far as to sign a letter to the Land Registry requiring it to discharge the Charge, but for obscure reasons the letter was never sent (although an unsigned copy was sent to Mr Kapur). Mr Pagarani admitted, in the witness box, that Choithram had originally agreed to accede to the request to release the Charge, although he claimed that he had been misled as to the true facts by Mr Kapur, which Mr Kapur strenuously denied. However, the attitude of Choithram changed in summer 2005 and it then took up the position that it was not prepared to release the Charge at all, hence this application. I heard evidence both from Mr Kapur and from Mr Pagarani as to the protracted discussions that took place over the years before this application was made. It is quite apparent that the existence of the Charge came as much of a surprise to the directors of Choitram as it did to Mrs Kshatriya. Choitram was unable to produce any documents which indicated that the alleged liability of Mrs Kshatriya was ever shown in the books of the company or that the liability was recorded anywhere. Mr Pagarani candidly admitted that, due to long-running litigation between Choithram and a former director (Mr Kewlani), full records were not kept. However, Choithram’s Counsel was unable to tell me, even on the last day of the hearing, what sum was alleged to be secured under the Charge. I am satisfied on the evidence I have heard that Choithram was completely unaware of the existence of the Charge until Mrs Kshatriya and Mr Kapur drew it to its attention in 2002. It is also my strong impression that Choithram – Mr Pagarani in particular – knew that it had no right to retain the Charge against the Property, and agreed as much with Mr Kapur, but could never quite bring itself to authorise its release. There may also have been an element of hostility, since Mr Kapur and his father seem to have been associated with Mr Kewlani, who was in bitterly-fought litigation with the other Choithram directors over a number of years and in a number of countries.

 

6. As I have said, Mr Kapur represented his mother at the hearing, which took place over two days some months apart. He is not a lawyer. In the circumstances, it was not always easy to tease out from Mr Kapur the legal basis for the application to remove the Charge. I do not say this as a criticism in any way, merely as an explanation for the way in which the legal issues gradually emerged during the course of the hearing. Initially, it appeared to me that there were two particular issues that needed to be addressed. First, whether the Charge is statute barred - bearing in mind that the Transfer was taken in 1982, no money has been paid by reference to it at any time since that date and there has been no acknowledgment. Secondly, whether the arrangements made between the Company and Choithram in 1982 - as outlined above - amount to an estoppel such as to prevent Choithram from relying on the Charge. I asked both parties to lodge written submissions on these points - in the event (and perhaps unsurprisingly) only Mr Radley-Gardner (for Choithram) did so. After the hearing was completed, I also became aware of a very recent Court of Appeal decision - National Westminster Bank PLC v Ashe [2008] EWCA Civ 55 – which provides very helpful guidance with regard to adverse possession and mortgages. I asked the parties to make further submissions on the issue, and again Mr Radley-Gardner did so, for which I am very grateful.

 

7. Before analysing the effect of the Transfer, and Choithram’s rights if any over the Applicant’s property, I must consider in more detail the evidence I heard in relation to the dealings between the parties between 1980 and 1982. Mr Kapur, although not himself the mortgagor, is her son, and was the Managing Director of the Company. When he was negotiating with the interested parties in 1982, he clearly had the interests of his family uppermost in his mind. As I have said, the withdrawal of Choithram’s financial support caused the Company very serious problems. Mr L K Pagarani had guaranteed the Company’s overdraft with Barclays International to the extent of £10,000, Choithram itself had guaranteed £10,000 of the Company’s overdraft with Standard Chartered, and members of Mr Kapur’s family had guaranteed another overdraft, with the Bank of Baroda. Choithram was also owed other sums – Mr Kapur estimated these at around £75,000 – which were unsecured. Mr Kapur told me that his priority, after he knew that the Company could not continue to trade, was to repay in full the Bank of Baroda debt, and to reduce the Standard Chartered and Barclays International overdrafts to below the amount respectively guaranteed by Mr Pagarani and Choithram. Mr Kapur was keeping Choithram fully in the picture as to what was happening, and he had discussions with the Company’s bankers as well. He referred to at least one specific meeting with Mr Neil Harvey, the Manager of Standard Chartered with responsibility for the Company’s account. In this discussion he told Mr Harvey that the Company still had stock which could be used to discharge the Company’s liability to the bank, but it would take time to realise the assets and pay off the overdraft. Mr Harvey suggested that the bank should call in Choithram’s guarantee, Choithram would pay off the liability immediately, and it was then up to the Company and Mr Kapur what arrangement it reached with Choithram. Mr Kapur then discussed this suggestion with Choithram and explained Mr Harvey’s proposal. In the course of and in the context of that and other discussions he agreed with Choithram that it could take all the stock held by the Company. Mr Kapur was adamant that the stock was worth at least £30,000 – that was the valuation that he had placed on it at the time and he continued to support this figure in the witness box. However, Choithram’s credit note dated 7^th June 1982 – actually issued by Choithram’s UK registered associate T.Choithram & Sons (London) Ltd - only gives credit for £12,000 plus VAT. Mr Kapur said that he did not challenge the value placed on the stock at the time, since it was of no concern to him or the Company. However, he did not accept the figure and thought that it might have been designed for Choithram’s own financial purposes. All that mattered to him at the time was that there was a re-arrangement of assets: Choithram would pay off the Bank, and the Company would pay off Choithram through the stock. Although there had been some discussion between Mr Kapur and Choithram as to Choithram agreeing to continue its support for the Company if Mrs Kshatriya was prepared to give security for the indebtedness, on her behalf Mr Kapur had rejected this suggestion out of hand. Mr Kapur was clear in his recollection that there was no discussion either with Standard Chartered or with Choithram that Choithram would be entitled to retain the Charge over the Property, once the arrangement had been carried out. It may well be that Mr Kapur had simply forgotten about the Charge. However, he was adamant that he would not have sanctioned the arrangement whereby Choithram received the remaining stock if it had been made clear that, if the overdraft was settled in the indirect manner that was agreed – i.e with the Company’s assets being transferred to Choithram rather than being realised and the proceeds paid directly to the Bank - Choithram would continue to have security over the Property (exposing his mother to liability). Although he frankly accepted that the Company owed Choithram money on Bills of Exchange and other instruments, all parties were well aware that these were unsecured, and the Company could not have been compelled to transfer the stock in the manner agreed.

 

8. Insofar as the events of 1982 are relevant to the issues to be decided by me, I must make findings of fact in relation to these events. In approaching this task, I recognise the difficulties. First, the only witness able to give direct evidence was Mr Kapur, who is of course representing his mother in this adjudication and is not impartial. Secondly, the documentation is by no means complete. Mr Kapur told me that he had kept all the relevant documentation until 2000, when he cleared up the loft at the Property and disposed of it, some 2 years before this dispute arose. He also strongly criticised the disclosure given by Choithram, and it is perfectly true that there are some serious and unexplained gaps in the documentation. However, Mr Pagarani, a current director of the company, assured me that there were no further documents to disclose, and I accept that. Standard Chartered has not retained any records. This lack of full documentation does not assist me. Thirdly, the events are now some 26 years old, which obviously makes it difficult for the witness (Mr Kapur) to recall all the details. Notwithstanding these difficulties, however, I am able to make certain findings. I was assisted in this endeavour because I found Mr Kapur to be a reliable and truthful witness, who had a surprisingly good recollection of the material events. He was cross-examined thoroughly by Counsel, but his recollection was not shaken and his evidence remained consistent in its main points throughout. I am therefore able to accept his recollection of the discussions and arrangements made in 1982 and before without qualification. I find that there was an arrangement made between the Company and Choithram whereby Choithram discharged the Company’s liability to the Bank in consideration of the Company allowing Choithram to take all the Company’s remaining unsold stock and to retain the proceeds of sale for its own benefit. Although Mrs Kshatriya was not directly concerned in these discussions – it appears that she does not speak sufficient English in any event – it is clear that Mr Kapur was looking out for her interests – hence his rejection of the proposal that she should give security to Choithram. It does not seem that the Charge was expressly mentioned in the course of the discussions. However, taking an overall view of the evidence, and subjecting it to the scrutiny of the notional objective bystander, I have no hesitation in finding that the arrangement described above was intended by all parties to put an end to all liability whatsoever and howsoever arising out of the Company’s dealings with the Bank and Choithram. It was a clean break. This must necessarily have included disposal of the Charge itself. Although I refer to it as an arrangement, it is in fact an agreement, binding on all parties. To the extent that it might be regarded as a contract affecting an interest in land – i.e the Charge – and therefore falling within section 40 of the Law of Property Act 1925, it seems to me that there is sufficient part performance (by delivering the goods) to render it enforceable. Since Mrs Kshatriya was a surety of the Company’s debt, and would have been entitled to an indemnity out of the Company’s assets to the extent of her liability, she (and her representative Mr Kapur) would obviously have been in a position to object to the arrangement if it was not regarded as protecting her interests. I consider that she was as much a part of the arrangement as the other parties, albeit that her interests were being represented by her son.

 

9. I therefore conclude that the Charge cannot be relied upon by Choithram since it has agreed to a final settling of accounts between itself and the Company from which it cannot now resile. Since it accepted that the Company and Mrs Kshatriya would not r be its debtor after the events of 1982, it follows that it is not entitled to retain any security over the property by way of collateral security for a non-existent debt. The payment made by it to Standard Chartered was in effect funded out of the Company’s own assets, namely the stock. Although I raised the possibility of an estoppel, and Mr Radley-Gardner was good enough to make written submissions with regard to the issue, on reflection I do not think that the doctrine is applicable. On the basis of the evidence, it seems to me that there was an express agreement, for which consideration was given, and it is not necessary to invoke the doctrine of estoppel.

 

10. If I am wrong about the effect of the discussions in 1982, and there was no agreement reached in the terms I have mentioned, nevertheless I consider that the Charge is no longer effective and should be removed from the title. My reasoning is as follows.

10.1 The only liability owed by the Company to the Bank and secured on the Charge was the overdraft on the Company’s account, together with interest and the associated bank charges. This is plain from the terms of the Charge itself. The correspondence in 1982 identifies the total amounts secured.

10.2 The overdraft was called in by the Bank prior to 18^th June 1982 – this appears from the letter written by the Bank to Choithram on that date. The total amount outstanding from the Company was £13,311.10 as at 25^th June 1982 as the telex dated 29^th June 1982 states. On 15^th November 1982 the Company’s debt to the Bank (£14,374.19) was discharged by a payment from Choithram and the account was closed. From that moment onwards, there was no liability to the Bank and accordingly nothing was secured by the Charge.

10.3 When the Charge was transferred to Choithram in December 1982, it did not secure any debt owed to the Bank. The mortgagor would at that moment have been entitled to apply to the Bank to discharge the security without any further payment. In the absence of any debt owed to the Bank, the only right transferred by the Transfer, under Section 114 of the Law of Property Act 1925, was the Bank’s interest in the Property, such as it was. The debt had been repaid, the Company’s account closed, and there was nothing to be assigned. For the reasons I have given, by that date the Charge was liable to be discharged upon the application of the mortgagor.

10.4 However, both Mrs Kshatriya and Choithram were sureties for the same principal debt – namely, the Company’s overdraft. Choithram’s liability was capped at £10,000 plus interest: Mrs Kshatriya could theoretically have been called upon to make payment of the Company’s full liability (in excess of £14,000). It is trite law that a surety may be entitled to a contribution from a co-surety where he has paid more than his share of the common liability: see Halsbury’s Laws Vol 20(1) at para 253. In the present case, the total liability paid by Choithram was in excess of £14,000. Arguably, it should only have been liable for one-half of that amount, as between it and Mrs Kshatriya. This might entitle Choithram to a contribution from Mrs Kshatriya of some £7000. It is not in every case that a contribution is payable by one surety to another, but for the purposes of this Decision I shall assume that Choithram was so entitled.

10.5 A surety who has paid more than his due proportion of a common liability is also entitled to a transfer of the principal creditor’s security over a co-surety’s assets: see Halsbury’s Laws Vol 20(1) at para 265. However, this is only for the purpose of securing the right to contribution as between the co-sureties: under normal circumstances (such as the present) it cannot secure the full amount of the original debt, which has already been discharged.

10.6 A co-surety’s right to contribution is a simple contract debt. If there is an express agreement between the co-sureties as to contribution, the terms of the debt and the accrual of the cause of action will depend on the terms of the agreement itself. In the absence of any express agreement – which is the situation in the present case – the cause of action for contribution arises as soon as the overpayment is made, namely 15^th November 1982 – see Halsbury’s Laws Vol 20(1) at para 276. The applicable limitation period is, as I have indicated, six years.

10.7 Accordingly, Choithram’s right to contribution from Mrs Kshatriya, if any, will have expired on 15^th November 1988, being six years after Choitram’s payment to the Bank in excess of its due proportion of the liability.

10.8 Accordingly, the Charge neither secures the original stated liability to the Bank – which was paid in full - nor any subsisting claim for contribution, which is statute-barred. In the circumstances Mrs Kshatriya is entitled to a discharge of the Charge without any further payment.

 

11. It does not seem to me that subrogation applies in this case, since Choithram has taken an express transfer of the Charge and need not rely on any implied transfer by way of subrogation. In any event, I am not at all sure that subrogation would be applicable here, since I would first have to be satisfied that Mrs Kshatriya had been unjustly enriched as a result of the payment to the Bank. Given that Choithram had an express right of contribution against Mrs Kshatriya, which it could have exercised (if my findings of fact as to the agreement are incorrect) at any time within the relevant limitation period, there was no unjust enrichment at the expense of Choithram. If Choithram chose not to exercise its remedy, that is not Mrs Kshatriya’s fault. Furthermore, given the delay since 1982, and the equitable nature of subrogation, it is very likely that the right would have become barred by laches, acquiescence or delay.

 

12. As I have said, Counsel for Choithram, at my request, made detailed submissions on the law of limitation. He conceded, I think, that the only available mortgagee’s remedy in this case would be foreclosure, since, as the Ashe case confirms, the right to recover possession of the Property must have become statute barred through Mrs Kshatriya’s adverse possession, since she has been in occupation of the mortgaged property since the 1970s. He cited the case of Lloyds Bank v Margolis [1954] 1 All ER 734 for the proposition that a mortgagee’s right to foreclose (at least in relation to a collateral security such as Mrs Kshatriya’s) does not arise until a demand for payment is made under the mortgage. In this case no demand for payment under the Charge has been made, so he argues. Accordingly, the right to foreclose has not been time-barred. However, it seems to me that this discussion of the remedies that may still be available to the mortgagee puts the cart before the horse. Before considering whether the remedy (of foreclosure) is barred, it is necessary to consider whether there is any sum which can lawfully be demanded from the mortgagor in the first place. If there is no liability secured by the Charge, there is nothing to demand, there can be no default and the mortgagee will never be in a position to foreclose. For the reasons explained in paragraph 10 of this Decision, Mrs Kshatriya does not owe any money either (a) to Standard Chartered as surety because the Company’s debts have been paid in full or (b) to Choithram since the right to a contribution has become statute-barred. The only sum secured by the Charge, once the Company’s debts to Standard Chartered, the original mortgagee, had been discharged, would have been the right to contribution, a liability which is statute-barred. Choithram is unable to demand any sums due under the Charge: no sums are due. Manifestly, therefore, Choithram can never foreclose since the mortgagor Mrs Kshatriya can never be in default. In the absence of the claim to foreclose, the Ashe decision makes the position clear: the Charge itself (and the Chargee’s title thereunder) is statute-barred.

 

13. For the reasons given above, there is no reason for the Charge to remain noted in the Charges Register, since it does not secure any debt and has become statute-barred. I shall therefore direct the Chief Land Registrar to give effect to the Applicant’s application dated 26^th September 2005 to cancel the Charge. Unless the Respondent can persuade me otherwise, I am also minded to order it to pay the Applicant’s costs on the standard basis, costs which are likely to be modest, given that she is a litigant in person. However, before making any order I will give the Respondent the opportunity of lodging written submissions if it wishes to seek some other order. These submissions should be filed and served on or before Tuesday 24^th June, after which time an order will be made.

 

 

Dated this 16^th day of June 2008

 

 

 

 

BY ORDER OF THE ADJUDICATOR TO HM LAND REGISTRY