REF/2008/0975

 

 

 

ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

LAND REGISTRATION ACT 2002

 

 

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

 

 

BETWEEN

NATIONAL WESTMINSTER BANK PLC

 

APPLICANT

 

and

 

DEREK ANTHONY TAYLOR

 

RESPONDENT

 

Property Address: 1 Trinity Crescent Folkestone

Title Number: K110208

Before: Mr. Michael Mark sitting as Deputy Adjudicator to HM Land Registry

 

Sitting at: Victory House

On: 19 and 20 October 2009

 

Applicant Representation: Counsel

Respondent Representation: In person

___________________________________________________________________________­

 

 

A general consent by the proprietor for the time being of a registered charge to the creation of leases of flats in a building being converted into flats is not a consent to the future grant of a particular lease to a particular person for a particular premium and thus is not sufficient for the purposes of a restriction that no disposition of a registered estate is to be registered without a written consent signed by the proprietor for the time being of the charge

1. For the reasons given below, I shall direct the Chief Land Registrar to give effect to the application of the Applicant received on 26 November 2007 to modify their existing restriction.

 

2. The Applicant (“NatWest”) was represented at the hearing by Mr. Jonathan Arkush of counsel. The Respondent, Mr. Taylor, appeared in person but had been represented up to about a week before the hearing by a firm of solicitors, ABA Law (“ABA”) who had ceased to represent him upon advice from their insurers who considered that there was a conflict of interest between them and Mr. Taylor. Despite this, they prepared and submitted Mr. Taylor’s skeleton argument, and prepared notes for Mr. Taylor which he used in the course of his cross-examination of NatWest’s witnesses. In addition, both partners in the firm gave evidence for Mr. Taylor and Mr. Richard Walker, one of the partners, sat behind Mr. Taylor for the whole of the hearing, and a the end of the first day went and prepared a supplemental witness statement answering evidence that had been given on behalf of NatWest during the hearing. At the end of his case, Mr. Taylor declined to make any oral final submissions but instead submitted typed submissions. I am unclear whether those submissions originated from Mr. Walker or not, but they had plainly been prepared before either Mr. Walker or his partner, Mr. Brearley had been cross-examined.

 

3. The Respondent, Mr. Taylor, has been in business for about 30 years and has had a number of business interests over the years. Playplus Limited (“P”) is a company of which he was majority shareholder and, until it went into administration in January 2008, he was its managing director and controlling force. Mr. Taylor himself was declared bankrupt on 20 March 2008, and, although he has since been discharged from bankruptcy, he makes no claim to have any financial interest in the outcome of the reference, but claimed that his honour and conduct were being impugned by NatWest and he was objecting to NatWest’s application for that reason. As was pointed out, under section 73(1) of the Land Registration Act 2002, subject to certain exceptions that do not apply here, anybody may object to an application to the Chief Land Registrar.

 

4. Although Mr. Brearley stated in cross-examination that there was an agreement between him and Mr. Taylor for Mr. Taylor at some point to pay a fee for his firm’s services, an arrangement of which Mr. Walker when giving evidence appeared to have been totally unaware, it appears to me that the real reason why ABA were acting as they did was their concern that their own conduct in relation to the events in issue was being impugned, as it was, by NatWest and that they may themselves in due course face claims arising from what occurred. In the course of their cross-examination, Mr. Arkush did indeed make allegations that both partners had acted dishonestly. As I made plain at the hearing, I find it unnecessary to decide any such issue.

 

5. The simple issue before me is whether, in all the circumstances, a letter dated 23 January 2007 could properly be treated as a consent by NatWest to the grant by P to Mr. Taylor later in 2007 of a long lease of a flat in a property owned by P and charged to NatWest. Title to the flat, so far as it was properly created vested in Mr. Taylor’s trustee in bankruptcy on his appointment, and his trustee in bankruptcy has not sought to object to NatWest’s application although the effect of that application being granted is that the trustee cannot get the flat registered without paying the full purchase price for it to NatWest. The application is likewise not objected to by the administrators, or it may be by now the liquidator, of P. For the reasons which I give, it also, quite plainly, cannot be relied on by Mr. Taylor

 

6. P was registered in 1999 as, and remains, the proprietor with title absolute of 1 Trinity Crescent Folkestone (“the property”). For several years, it operated a care home at the property. Its bankers were HSBC. In 2004 it decided that the care home should be closed and the property should be sub-divided into five residential flats. In stating that P decided anything, I am in effect throughout referring to decisions taken on its behalf by Mr. Taylor. Planning permission appears to have been obtained on 29 December 2004.

 

7. HSBC was not willing to finance the proposed development. Mr. Taylor then approached NatWest, which indicated at the beginning of 2005 that it was willing to provide finance to enable P’s indebtedness to HSBC to be discharged and the property developed. At that stage the total advance envisaged was £650,000. The security required was a first legal charge over the property, a first legal charge over other property belonging to Mr. Taylor personally, a debenture from P and a £250000 guarantee from Mr. Taylor. Drawdown of the development part of the finance was to be against architects’ certificates. The terms were negotiated by Mr. Taylor with Mr. Greg Foster the NatWest manager at its Ashford Commercial Banking Centre.

 

8. Mr. Foster was concerned that the need for borrowing should be kept as low as possible and to that end was encouraging Mr. Taylor to pre-sell flats and obtain and bank deposits for them. Mr. Taylor procured a business associate, Mr. Daniel Blanche, to agree to buy one of the flats for £205,000 subject to contract, as confirmed by Mr. Blanche’s solicitors’ letter of 20 January 2005. Mr. Taylor was also negotiating a sale of a second flat to his brother, and appears in January 2005 to have negotiated that sale at a price of £260,000.

 

9. By letter dated 4 February 2005, NatWest wrote to Mr. Taylor confirming in principle two loans, one of £255,000, described as a land loan, and the other of £400,000 described as a development loan. Various conditions were attached to the loans, including the granting of the securities to which I have already referred, and it was stipulated that sale proceeds were to be placed in reduction of debt. There was also provision for interest and for fees totalling £25,000.

 

10. On 9 February 2005, Mr. Taylor signed two loan agreements on behalf of P. Although their solicitors, ABA, were already engaged in the selling of the two pre-sold flats, they were not consulted in relation to this agreement, or subsequent agreements to which I shall refer which varied or replaced these initial agreements. The agreements both provided for a repayment date of 15 September 2005 and were in virtually identical terms, one relating to the land loan and the other to the development loan. Clause 6.1 of each agreement provided that the loan and interest should be repaid on the repayment date from the sale proceeds at the property, and Clause 8.1 required P’s obligations to be secured by the securities to which I have already referred.

 

11. By letter dated 9 February 2005, NatWest wrote to ABA that P had agreed to provide security and had requested “the enclosed documents be forwarded to you.” The documents were the form of debenture and a resolution in duplicate. The resolution specifically refers to the loan agreements. By a further letter of the same date, NatWest instructed ABA to act for it in the constitution of the proposed “first priority Legal Charge over the Property in our favour.” The letter is headed “First Legal Charge over Tenanted Residential Property Corporate Remortgage”. The details state that the tenant was not known and that the amount for which the security to be relied on was £655,000. There were of course no tenants at that time.

 

12. At this stage and for some considerable time, the partner in ABA acting for P and, in relation to the mortgage and debenture, for NatWest, was Mr. Walker.

 

13. By a report on title from Mr. Walker to NatWest dated 3 March 2005, Mr. Walker confirmed that the legal charge had been signed and delivered by P and that all other requirements for NatWest to be provided with effective security over the property in accordance with its instructions had been fully satisfied. Contracts for the sale of the two flats were exchanged at around the same time.

 

14. The debenture is dated 18 March 2005 and created a fixed and floating charge over the whole of P’s freehold and leasehold property as security for all P’s liabilities to NatWest. It also charges by way of fixed charge “all book debts and other debts of [P] present and future and the proceeds of payment or realisation of each of them until the receipt of the proceeds from time to time into an account in accordance with Clause 4.2”.

 

15. Clause 2.1 of the debenture provided that P would not without the previous written consent of [NatWest], inter alia, dispose of any property charged by the Legal Charge (2.1.2) or grant any lease of or part with or share possession or occupation of its freehold and leasehold property or any part of it (2.1.5).

 

16. Clause 2.3 provided that P agreed that NatWest could apply for a restriction to be entered on the Register of any Registered Land that no disposition of the Registered estate by the proprietor of that estate or of any registered charge was to be registered without a written consent signed by the proprietor for the time being of the Legal Charge.

 

17. A legal charge was also entered into, but had to be re-executed as set out below.

 

18. By letter dated 16 May 2005, Mr. Walker confirmed to NatWest that the matter had been completed by registration at HM Land Registry and enclosed confirmation of this together with both charges for NatWest’s records. In fact registration was only completed, and the restriction noted, with effect from 22 July 2005, because NatWest spotted that Mr. Walker had failed to register the charge at Companies House and it had therefore to be re-executed on 5 July 2005 before registration, but nothing turns on this. What is of more importance for present purposes is that Mr. Walker confirmed in evidence that he probably retained a copy of the Legal Charge in his records. I am satisfied that, having acted for both parties in relation to the Legal Charge, he would have retained, and did retain, at least one copy of that charge.

 

19. The legal charge is expressed in Clause 1.1 to be “By way of legal mortgage of all legal interests and otherwise by way of fixed charge the Property (to the full extent of the Mortgagor’s interest in the Property or its proceeds of sale). Clause 3.1 provided that P should not without NatWest’s written consent grant any lease of the property, and Clause 3.3 contains a similar provision for the entry of a restriction on the register. Clause 12.1 defines the property as including any part of it and as including all covenants and rights affecting or concerning the same.

 

20. The restriction on the register reads, so far as relevant “No disposition of the registered estate by the proprietor of the registered estate… is to be registered without a written consent signed by the proprietor for the time being of the Charge…”.

 

21. Contracts were in due course exchanged for the purchase of two of the flats by Mr. Blanche and by Mr. Taylor’s brother. However, there were major problems with the development, including the collapse of the main staircase in the property, with serious consequential damage to a flank wall, damp problems, problems with alleged breaches of covenants by an estate claiming to be entitled to the benefit of them, and later, the serious illness of Mr. Taylor. As a result of the first two problems, the development was not completed by September 2005 and as a result of all the problems, it was not in fact completed until the middle of 2007.

 

22. An internal report by Mr. Foster dated 19 August 2005 refers to the staircase collapse and the damp problem and describes the overrun as being about £150,000, making the project “very tight, despite the two presales”. Following a discussion with Mr. Taylor, ABA wrote to Mr. Foster by letter dated 15 September 2005 that Mr. Taylor was to receive funds from a property sale in Portugal and that they undertook that if they received those proceeds they would remit them to NatWest.

 

23. At this stage the initial loan agreements were replaced by new loan agreements dated 19 September 2005 with the same terms except that the repayment date became 31 January 2006 and the total loaned had risen from the original £655,000 to £843,500.

 

24. A further internal progress report by Mr. Foster dated 1 December 2005 states that the project “is nearly there now”. He was looking for a further repayment of £50,000 which he expected from the sale of a nightclub within the next 3 weeks. The Portuguese sale had not yet been completed. By letter dated 5 December 2005, a solicitor’s undertaking had been given by Mr. Walker in respect of the £50,000.

 

25. Two further brief supplemental agreements dated 9 February 2006 extended the repayment date to 30 April 2006 and the amounts of the loans by a further £27,500, and provided that all other terms and conditions of the agreements dated 19 September 2005 remained unaltered and continued in full force and effect.

 

26. A further internal report by Mr. Foster dated 23 March 2006 shows the total exposure as £908,331. The report anticipates completion of the two pre-sales producing £425,000 over the next 3 weeks and notes that an offer of £210,000 had been accepted for the ground floor flat “which would reduce our position to c.£276k against two flats worth £450k.” I observe that it is plain from this report that at that stage Mr. Foster expected to receive the full proceeds of sale of all the flats.

 

27. Contrary to Mr. Foster’s expressed understanding, the whole of the proceeds of sale were not received by NatWest when the first two leases appear to have completed in July 2006. The total receipts by NatWest were only in the region of £370,000, the rest of the proceeds, after payment of the costs of the sale, being used to pay various pressing creditors of P. There were also some small deductions from the purchase price of at least one of the flats. Mr. Foster confirmed that he was aware of this and took a commercial decision to accept that those payments would be made.

 

28. Surprisingly, I note that although no written consent had been given by NatWest to either lease, and although an independent solicitor was acting for one of the purchasers (Mr. Brearley acted for Mr. Taylor’s brother), the lack of that consent does not appear to have inhibited either purchaser from completing and parting with the purchase price. Mr. Taylor had to lend Mr. Blanche £29,500 to enable him to complete.

 

29. Exactly what happened in relation to the leases is unclear, but it was only in January 2007 that it transpired that the purchasers were unable to register them at the Land Registry because there was no written consent from NatWest. By letter dated 9 January 2007, the solicitors for Mr. Blanche wrote to ABA referring to a telephone conversation that day and stating

 

“we urgently need to supply the Land Registry with the consent of National Westminster Bank Plc to the registration of the Lease dated the 27^th July 2006 (in accordance with the terms of the restriction in the proprietorship register.

 

Please could you arrange for this to be forwarded to us as soon as possible. The Land Registry have already given us a cancellation date which they have only agreed to extend for a further 10 working days.”

 

30. By letter dated 12 January 2007, ABA then wrote to NatWest –

 

“We have been asked by the solicitor acting for a buyer of one of the newly created flat leases to supply written consent to the creation of the leases at this property from You. We had passed them details of your agreement to the charge over Tenanted residential Property, but this was not sufficient.

 

We would be grateful therefore if you could send us your written consent to the creation of the leases for the 5 new flats in the building as soon as possible.”

 

31. I note that ABA does not accurately record what they had been asked for, as is apparent from a comparison of the two letters. The request for a written consent to the creation of the leases to the 5 new flats is not what was sought by Mr. Blanche’s solicitor and appears to be an attempt to obtain unconditional consent for three leases which had not even yet been drafted on whatever terms were put in them. Indeed it was Mr. Taylor’s claim at the hearing, vigorously supported by Mr. Walker, that that was precisely what P was entitled to demand.

 

32. The letter appears to have been received by the credit documentation department of NatWest in Manchester, having been addressed to a lady in that department, and on 15 January 2007 that department forwarded the letter to Mr. Foster with a letter stating “If you wish to consent to the leases please obtain full details and forward a related task form.”

 

33. By letter dated 17 January 2007, Mr. Foster then wrote to ABA –

 

“I write with reference to your letter dated 12 January 2007 and would confirm that the Bank is happy to consent to the creation of the leases for the 5 new flats.

 

The Bank will however require the following information in order to produce the individual Consents to Lease:-

 

Full names of Lessee

Term of Lease

Start Date

Amount of initial rent per annum

Flat details

Is a premium (representing the full market value of the property to be leased) to be received by the Bank in respect of each Lease

 

I look forward to hearing from you shortly.”

 

34. This letter did not satisfy Mr. Walker, who instructed an assistant, Anne Francis, to speak to NatWest and remind them of the purpose of the loan and contend that the additional information was not required. She spoke to Mr. Mark Carey of NatWest on the telephone on 23 January 2007 and appears to have asked for the letter of 17 January to be re-faxed omitting the request for further information. Her note states that she reminded him of the purpose of the loan and he was going to investigate whether the additional information was required. Mr. Carey’s evidence was that this was not a matter that he was familiar with and he would have to refer the matter to Mr. Foster. His further note at p.401 of the trial bundle indicated to him that as at 26 January, following a discussion with Mr. Foster, his understanding was that the further information would be required before NatWest could issue Consents to Lease.

 

35. Mr. Foster’s evidence was that he had a discussion about the letter with Mr. Taylor and was persuaded to re-send the letter as asked while making it clear to Mr. Taylor that the information would still be required before any formal consent could be given to any lease. Mr. Taylor denied that he was ever told that this information would still be required.

 

36. By letter dated 23 January 2007, Mr. Foster then wrote to ABA –

 

“I write with reference to your letter dated 12 January 2007 and would confirm that the Bank is happy to consent to the creation of the leases for the 5 new flats.”

 

37. By letter of the same date, ABA then wrote to Mr. Blanche’s solicitors enclosing “the written consent of National Westminster Bank in relation to the said lease.” The letter then appears to have been used by those solicitors to obtain the registration of Mr. Blanche’s lease at the Land Registry.

 

38. Mr. Foster has stated that he wrote the letter in response to a request from a solicitor for a buyer to indicate that NatWest was agreeable in principle to the creation of the leases of the five flats, as indeed it was. It did not occur to him, he stated, that the letter could be, or would be misused so as to effect registration of a lease at the Land Registry.

 

39. I have no hesitation in accepting Mr. Foster’s account in this respect. The letter of 12 January to which he was responding gives no indication that the letter was required for that purpose, or that it related to a lease that had already been granted. It is plainly no more than an indication in principle that the creation of the leases was agreed and I am very surprised that it should have been treated as a consent sufficient for the purposes of the restriction on the Register. It is plainly not a consent to a particular disposition. None of the details that one would normally expect were provided.

 

40. I accept that he would have explained this to Mr. Taylor. He had no authority to waive the requirements sought by the credit documentation department, and no reason to wish to do so. For reasons which I give below, I do not find Mr. Taylor to have been a credible witness, and if Mr. Walker did believe, as he stated in evidence, that NatWest was obliged to consent to any lease of any flat on any terms to any person because of the terms of the security documentation, then I find that that belief was so wildly irrational that nobody could have suspected him of holding it or of interpreting the letter in that way. The fact that it had been pointed out in the conversation with Mr. Carey that NatWest should be able to give the consent sought without the additional information because of the purpose of the loan would only confirm to Mr. Foster that all that was required was a consent in principle.

 

41. I suspect that the Land Registry may have been persuaded to accept the letter as sufficient because (although Mr. Foster had not been told this) the lease which it was sought to register had been granted several months earlier, and it may therefore have concluded that NatWest was giving retrospective consent to the lease. It would be wise in future to ensure that any consent received in those circumstances is to a specific transaction and if there is room for doubt it should resolve that doubt with the mortgagee before accepting the supposed consent.

 

42. While it is may be that Mr. Foster ought to have wondered about the absence of any application for consent some months earlier when the purchasers of the first two flats, to his knowledge, paid all or substantially all of the purchase prices for those flats, what is even more remarkable is that neither Mr. Blanche’s solicitors nor ABA, acting for Mr. Taylor’s brother, sought any written consent of any sort at that stage before parting with their clients’ money.

 

43. Mr. Foster moved to another job in around January 2007 and ceased to be formally involved with this project, although he continued to keep in touch with Mr. Taylor. Also in the first part of 2007, Mr. Brearley started to act for P in place of Mr. Walker. The last of several formal extensions to the loan agreements was also signed by Mr. Taylor on behalf of P in early March 2007. The agreement was in similar terms to the previous agreements except that the amount of the loans had been consolidated into a single figure of £622,265 and the new repayment date was 31 March 2007.

 

44. Matters moved slowly. Mr. Foster appears to have suggested that Mr. Taylor might wish to buy a flat himself and he appears to have been trying to raise the finance to buy one for £200,000. New prospective purchasers also emerged for the garden flat, but nothing had been concluded when by letter dated 25 May 2007 the new manager of the Commercial Banking at Ashford made formal demand for the repayment of the loan, confirming that NatWest was unable to continue facilities. The letter was acknowledged by Mr. Taylor on 1 June 2007. The total demanded was just under £700,000.

 

45. By a further letter to P dated 15 June 2007 from Mrs. Sheila Bush of the Royal Bank of Scotland’s offices in Bishopsgate, London, it was stated that P’s outstanding liabilities had been transferred to her department for the purpose of recovery of P’s debt to NatWest (which is of course a subsidiary of the Royal Bank of Scotland). A further revised demand was enclosed from NatWest demanding immediate payment of the sum of £697,903.90. The letter from Mrs. Bush includes the following statement –

 

“We understand there are three flats at Trinity Crescent, Folkestone remaining to be sold and that there are offers on all three as detailed below.”

 

In fact the letter then goes on to refer to sales of the basement flat at £200,000, of the ground floor flat to Mr. Taylor for £200,000 and to the marketing of the penthouse flat at £245,000. It then continues:

 

“It is clear that the sales of these properties will be insufficient to fully repay the outstanding indebtedness and we request that the company provides us with its realistic proposals for repayment within 14 days of the date of this letter. These proposals should be supported by evidence that sales are in progress and marketing details where appropriate.”

 

46. Mr. Taylor had previously given instructions to Mr. Walker, and continued giving them to Mr. Brearley, initially by letter dated 19 June 2007, to undertake to pay pressing creditors of P (and perhaps also of himself) out of the proceeds of sales of the flats. He then replied to Mrs. Bush by letter dated 22 June 2007 stating that the sale of the basement and ground floor flats should go through any day, and continued:

 

“It is my intention to auction the land over which the bank has a charge. This should realise not less than £90,000 which will more than make up any shortfall between the monies realised from the sale of the flats and that owed by Playplus to the bank. I am informed by the estate agents that an offer for the Penthouse Flat is immanent.”

 

47. This letter clearly indicates that the net proceeds of sale from the flats were to go to NatWest. Yet at the same time Mr. Taylor was giving his solicitors instructions to pay a substantial part of the net proceeds to other pressing creditors, and he has asserted in evidence that this was pursuant to an oral agreement he had reached with Mr. Foster by which he had injected around £200,000 into P in return for an assurance that he could recoup that sum out of P ahead of NatWest.

 

48. It is clear that the letter to NatWest was a thoroughly dishonest letter. Mr. Taylor had no intention of using most of the proceeds of sale in reduction of the NatWest debt and in those circumstances there was no way, as Mr. Taylor must have realised, that the £90,000 from the sale of his own charged land could have made up any shortfall.

 

49. He asserted in evidence at the hearing not only the alleged oral agreement with Mr. Foster, but also that it was contemplated that the shortfall would be made up as a result of other business dealings financed by NatWest. Not only is that not what he stated in his letter of 22 June 2007, but neither this nor the alleged agreement with Mr. Foster are referred to at any time in any witness statement or correspondence. Although Mr. Taylor was hoping to do other business with help from NatWest and had discussed this with Mr. Foster, there was nothing from which funds would be immediately available, and no reference to such funds in any correspondence with NatWest.

 

50. ABA received a similar letter dated 21 June 2007 from the Royal Bank of Scotland explaining that the Bishopsgate office was now dealing with P’s liabilities and asking for an update as to progress in sales. Mr. Brearley replied by letter dated 25 June confirming that two sales were in progress with the sale of the basement flat due to complete within 14 days and the other, of the ground floor flat expected to complete in mid-July. Meanwhile, Mr. Brearley continued, on instructions from Mr. Taylor, to confirm to other creditors that they would be paid out of the proceeds of the sale of the next flat. By letter dated 25 June 2007 to Mr. Taylor, Mr. Brearley identified debts of over £40,000 that he understood that he was to pay from the proceeds of sale.

 

51. Even when the solicitors for the purchasers of the basement flat wrote to ABA by letter of 26 June 2007 that they assumed that NatWest would require ABA to forward to it the net proceeds of sale of that flat by way of partial repayment of the borrowing, that does not appear to have triggered any alarm bells or encouraged Mr. Brearley to check the terms of the mortgage or debenture. I also note that these solicitors for the purchasers also do not appear to have appreciated that the “consent” was not a consent to the disposition to them or to its registration.

 

52. Contracts for the exchange of the basement flat were exchanged on 29 June 2007 at a price of £199,000, and completion took place the same day. Mr. Brearley then produced a completion statement for the benefit of P showing how the net proceeds were to be allocated. After deductions (including both expenses of sale and payment of creditors) the statement as originally drafted showed deductions of nearly £88,000 and net sale proceeds of a little over £111,000 of which over £62,000 was to be paid to somebody whose name has been blacked out in the trial bundle and £49,000 to P. After the figures had been checked with Mr. Taylor the amount to be paid to the unknown recipient was increased to over £81,000 and the amount to go to P was reduced to £30,000. In fact the £81,000 appears from ABA’s transactions report that the £81,000 was paid to Mr. Taylor.

 

53. As a result, it was only the £30,000 that was paid into the NatWest account in reduction of the indebtedness.

 

54. NatWest appears to have become aware of this almost immediately, and by letter dated 6 July 2007 Mrs. Bush wrote to ABA stating that the sale proceeds had been sent direct to P rather than to NatWest, and continuing:

 

“As you are no doubt aware the Bank holds a Legal Mortgage over the property and the sale proceeds should have been remitted direct to the Bank in reduction of the outstanding liabilities. We are therefore not in a position to provide a release of the Bank’s charge over the property and are at a loss as to how the purchaser’s solicitors allowed the transaction to complete without an undertaking that the Bank’s charge would be released.

 

The matter is now being referred to our solicitors who will no doubt be in contact with you.

 

In the meantime we must put you on notice that the Bank expects to receive the net sale proceeds of the remaining two properties.”

 

55. On the same day, Mrs. Bush also wrote to Mr. Taylor in his personal capacity in respect of his guarantee making a formal demand for payment and asking for realistic repayment proposals. She also wrote a further letter to Mr. Taylor as director of P referring to her understanding that only £30,000 of the purchase price had been paid to NatWest and pointing out that it was not in a position to release its mortgage over the property. She also repeated her astonishment at the purchaser’s solicitors completing without an undertaking that the charge would be released and referred to Mr. Taylor’s having advised NatWest that it would get full repayment from the proceeds of sale of the remaining two flats and recourse to himself as a guarantor. The letter asked for confirmation by return that the total net proceeds of the remaining two properties would be remitted to NatWest. Following receipt of the £30,000, the amount due to NatWest was stated to stand at £672,101.85 plus future interest and fees.

 

56. NatWest took no step to prevent registration of the lease (possibly believing, wrongly, that as there was no consent so far as it was concerned, the Land Registry would refuse to register it). It was in due course registered by the Land Registry, apparently on the basis of a certified copy of the letter of 23 January 2007. I am unclear why the Land Registry regarded that as a consent to a lease entered into months later.

 

57. Neither ABA nor Mr. Taylor troubled to reply to Mrs. Bush. Mr. Brearley took the view, as he stated in evidence, that his job was simply to comply with his client’s instructions and ignored, or turned a blind eye to, the inconvenient fact that those instructions were contrary to the terms of the mortgage and debenture of which his firm retained copies. He claims to have relied on what Mr. Taylor told him that Mr. Taylor had spoken to Mr. Foster and there was no problem in what was being done, but did not see fit to communicate that fact to Mrs. Bush.

 

58. As I have indicated, I am satisfied that there was no such agreement with Mr. Foster and I consider that, in the absence of any attendance note to the contrary, the absence of any communication to Mrs. Bush of this fact, and the failure to refer to any such agreement in any pleading, witness statement or letter, although ABA continued to act throughout for Mr. Taylor until a week or so before the hearing, that Mr. Foster did not report any such agreement to Mr. Brearley as now alleged.

 

59. What next occurred was that an agreement dated 2 August 2007 was entered into between P and Mr. Taylor for the sale by P to Mr. Taylor of another flat, described as flat 4, for £200,000. The agreement appears to have been completed on 8 August 2007, with the assistance of a mortgage from another source for £159,925. None of that purchase price was paid into the NatWest account, and no step appears to have been taken to inform NatWest of the sale.

 

60. Paragraph 24 of the Respondent’s Statement of Case states that “The only reason the Applicant decided to purchase flat 4 with the aid of a mortgage was because Mr. Foster asked him to do so, in order to assist Mr. Foster with the difficulties he was having with his superiors.” This would make sense if the proceeds of sale were to be paid in reduction of P’s debt, but it makes no sense when the effect of the sale was substantially to reduce the value of NatWest’s security. It had also been made plain both to Mr. Taylor and to ABA that the proceeds of sale had to be paid into P’s account if the sale was to proceed and the sale then proceeded with the proceeds being used to pay off other creditors and without any response to the letters from Mrs. Bush.

 

61. NatWest appears then to have taken possession proceedings to protect what was left of its security over the property. In the course of this it discovered that the new lease of the basement flat had been registered and by letter dated 21 November 2007 its solicitors wrote to the Land Registry asking for a copy of NatWest’s written agreement to this. By letter dated 22 November, the Land Registry sent a copy of the certified copy of the letter of 23 January 2007, which it stated had been lodged with the purchaser’s solicitors’ application on 24 August 2007.

 

62. Unsurprisingly in the circumstances, NatWest’s solicitors immediately made the present application to modify the restriction to ensure that the letter could no longer be used. Fortunately for it, ABA had failed to register Mr. Taylor’s lease before this application was made. ABA objected to the application on behalf of both P and Mr. Taylor. P went into administration on 23 January 2008 and Mr. Taylor was declared bankrupt on 20 March 2008, and although he has since been discharged, the lease remains vested in his trustee in bankruptcy. Neither P nor the trustee in bankruptcy pursued their objections, but Mr. Taylor, with the assistance of ABA, continued with his although he accepts that he no longer had any financial interest in the outcome. He has claimed that his honour and integrity are at stake and that he wished to defend them.

 

63. It is abundantly plain from the terms of the mortgage and debenture that NatWest had a charge over both the property and the proceeds of sale. The fact that it was prepared to waive strict compliance with the charge over the proceeds of sale of the first two flats for what it considered good commercial reasons does not mean that it waived any compliance at all in future. Mr. Walker’s contention that the letter of 23 January 2007 was a consent to the grant of any lease to any purchaser for any consideration however applied on receipt by P has only to be stated to be seen to be absurd. It should never have been used as it was, particularly in respect of the lease to Mr. Taylor when everybody knew the position of NatWest as a result of the unanswered letters to which I have referred, and there was a deliberate attempt to pre-empt NatWest by the way in which the proceeds of sale of flat 4 were secretly applied entirely to reduce the value of the mortgage for the benefit of the other creditors and perhaps also Mr. Taylor.

 

64. In his closing submissions, Mr. Arkush contended that ABA were either grossly incompetent or dishonest. I am satisfied that they were at best grossly incompetent and that Mr. Brearley’s recollection of what he was told by Mr. Taylor, following the formal demands made by NatWest, is seriously defective. I also note that objections as to the form of the application were expressly abandoned by Mr. Taylor.

 

Dated this 27^th day of October 2009

 

 

By Order of The Adjudicator to HM Land Registry