England and Wales Land Registry Adjudicator

 

REF/2009/1399

 

The Adjudicator to Her majesty’s Land Registry

LAND Registration act 2002

 

IN the matter of a reference from hm land registry

 

BETWEEN

MARIO PHYSOUNI

APPLICANT

and

 

(1)   RAJA MOHAMMED YASIN

(2)   RAJA IMRAN YASIN

(3)   YASMIN CARLA YASIN

(4)   SOPHIE MARIA YASIN

RESPONDENTS

 

Property Address: 2,4,6,8 and 8a King Cross Street and 5,7 and 8 Hopwood Lane , Halifax HX1 5HW

 

Title Number: WYK132856

 

Before: Mr Rhys Deputy Adjudicator to HM Land Registry

 

Sitting at: Manchester Crown Court, Crown Square, Manchester

 

On: Thursday 5^th May 2011

 

Applicant representation: Mr Moss of Counsel instructed by Shammah Nicholls LLP Solicitors

Respondent representation: Mr Zeb of Guardian Law Solicitors

 

 

D E C I S I O N

 

INTRODUCTION

1.      On 18^th January 1995 the Applicant Mr Physouni obtained a judgment in the Halifax County Court against the First Respondent Mr Yasin in the sum of £8325.26, a sum which included an element of interest. The judgment included an order that the First Respondent should pay the Applicant’s costs “to be taxed if not agreed”. The dispute between them arose out of their relationship as landlord and tenant of commercial premises, the Applicant being the tenant and the First Respondent Mr Yasin the landlord. On 11^th July 1995 the Applicant applied to HM Land Registry to register a caution against dealings in respect of Title number WYK132856, being the property described above and registered in Mr Yasin’s name (“the Property”). The caution against dealings protected a Charging Order absolute made on 7^th July 1995 to secure the judgment debt of £8325.26 together with the costs of the application for the Charging Order. On 24^th April 1996 the Applicant’s costs were taxed in the sum of £3362. On 12^th December 2007 the First Respondent executed a transfer of the Property, for no consideration, in favour of himself and the Second to Fourth Respondents, who are his children. In view of the existence of the Caution, the Land Registry notified the Applicant, who objected to the registration of the transfer by letter dated 10^th January 2008, on the grounds that the debt secured by the Charging Order remained unpaid. The dispute could not be resolved by agreement, and on 9^th November 2009 it was referred to the Adjudicator under section 73(7) of the Land Registration Act 2002.

 

THE PLEADINGS

2.      The Applicant served his Statement of Case on 5^th February 2010. This ran to five paragraphs, of which only paragraphs 3 and 4 are material. These include the following allegations: “3…………Despite extensive enquiries, the Application [sic] has been unable to obtain a copy of the Judgment or Charging Order although his best recollection is that the Judgment was in the region of £14,000. A copy of the Form 63 used to register the Charging Order is attached herewith. 4. The Respondents have contended that the Charging Order should be removed on the basis that the amounts due have been paid. The Respondents have failed to provide any evidence of payments to Mr Physouni or to his representatives in purported discharge of the liability and accordingly therefore the liability remains.”. The Respondents served their Statement of Case on 26^th April 2010. Their case, as set out at paragraph 4, was that the following sums had been paid to the Applicant in satisfaction of the judgment debt, namely (a) £4550 paid out of court pursuant to an order dated 3^rd July 1996, and (b) £3256.89 paid out of the Respondents’ account with Lloyds Bank pursuant to a garnishee order. The Respondents contended, by paragraph 5 of the Statement of Case, that the debt had been settled in full and that the Charging Order should be discharged. A copy of the Order dated 3^rd July 1995, and of a letter from Lloyds Bank dated 29^th September 1995 confirming the Garnishee Order, were exhibited to the pleading.

 

THE WITNESS STATEMENTS

3.      Subsequently, both parties filed evidence in support of their case, further to an Order requiring them to do so. The Applicant’s statements were served in August 2010. He himself made a witness statement, as did his solicitor Mr Rubin, and his accountant Mr Crossley. In the course of his statement, Mr Physouni gave the following evidence: (a) Mr Roger Rubin of Shammah Nichols acted as his solicitor in relation to the court proceedings against Mr Yasin in 1995; (b) his understanding of the Caution, as explained by Mr Rubin, was that at some point Mr Yasin would have to meet his debt to him or “we could force a sale”; (c) he handed all his original documentation to Mr Rubin and “As far as I was concerned the “file” and all its documentation was in safe keeping.”; (d) Shammah Nichols have now informed him that the “file” has been destroyed; (e) he can demonstrate from his records that no sums have ever been paid by Mr Yasin, whether directly to him or to his agents; (f) the Order dated 3^rd July 1996 (for payment out of court) “was never handed to us”; (g) the Applicant has never received any sums from Shammah Nichols in respect of Mr Yasin’s debt; (h) he can show from his cheque stubs that he has paid the costs of Shammah Nichols; (i) Mr Yasin owed him the sum of £14,075 as at the date of making the witness statement. Mr Rubin, in his witness statement, confirmed that the file and ledger records had been destroyed in 2000. He says that Mr Yasin “recently produced certain documents which have given the impression that the debt, and indeed costs, may have been paid. I have no recollection of either of these payments being forthcoming. My understanding and recollection was that the Caution remained on the property due to non-payment”. Mr Crossley, the Applicant’s accountant, made a statement in which he said that he “cannot recall Mr Physouni ever receiving large amounts in his business accounts from his former landlord [Mr Yasin].”

 

4.      Although the Respondents were ordered to file and serve witness statements by 15^th September 2010, they did not comply with this deadline, and they filed Mr Yasin’s evidence late. In his (undated) witness statement he confirms that the following payments have been made to the Applicant, namely: (a) £4550 pursuant to the Order for payment out of court dated 3^rd July 1996; (b) £3196.44 pursuant to the Garnishee Order; (c) £1000 – by way of two cheques dated 27^th March (£400) and 11^th April 1996 (£600) – paid to Shammah Nicholls. This last payment had not been referred to in the Statement of Case. However, Mr Yasin claimed that the payments could be proved by means of bank statements. These have been disclosed, but it is not clear to me when this was done, although copies of the bank statements and cheque stubs appear in the Trial Bundle. It will be seen that the total amount alleged to have been paid by Mr Yasin is £8746.44, which exceeds the amount originally secured by the Charging Order (assuming that the costs of the application did not exceed approximately £400), but falls short of the total liability (including assessed costs) to the Applicant, of £11,957 and some pence.

 

THE OPPOSING POSITIONS AS PLEADED

5.      Until the date of the hearing before me, the position adopted by the parties was as follows. The Applicant alleged that no sums whatsoever had been paid by the judgment debtor, that Mr Yasin owed him in excess of £14,000, and that this sum remained charged on the Property. The Respondents contended that Mr Yasin had discharged the entire sum secured on the Property by way of Charging Order. However, there was a development shortly before the hearing. The Respondents disclosed some additional documents. It is not clear to me whether these documents had always been in Mr Yasin’s possession, or whether they have recently become available from his former solicitors. According to the letter sent by his present solicitors “these papers have just been discovered”. At all events, they include some new documents which shed some light on the history. In particular, there is an Affirmation by Mr Rubin dated 23^rd May 1996, made in support of an order for payment out of court of the sum of £4550 – an order which was eventually made on 3^rd July 1996. In this Affirmation, Mr Rubin states that “Since the hearing of the Appeal the Defendant has now made payments towards the Judgment sums. It can also be seen from previous Affirmations that pursuant to the Judgment garnishee proceedings have been undertaken which resulted in payment being made to the Plaintiff in the sum of £3196.44”. He asks for the sum of £4550 to be paid out of court to his client, and concludes as follows: “Once the monies, together with accrued interest has been paid out to the Plaintiff, the Plaintiff will be in a position to calculate what, if any, further sums are still owing to him pursuant to the Judgment and Order for Costs”.

 

THE APPLICANT’S CHANGE OF POSITION

6.      At the hearing before me the Applicant, through his Counsel Mr Moss, changed his position quite radically. Instead of arguing that a sum of at least £14,000 remained due and owing from Mr Yasin, he conceded that he should be credited with the payment of £7,746.44, in respect of the garnishee order and the payment out of court. He argued that this still fell short of the judgment debt, and therefore the Charging Order should still remain on the Property. He further contended that interest would continue to run on the judgment debt ad infinitum, and this would be added to the security, relying on the authority of Ezekiel v Orakpo [1997] 1 WLR 340 (CA). He did not accept, however, that any additional sums had been paid by Mr Yasin, in particular the alleged payment of £1000 by two cheques in March and April 1996. The Applicant recognised, as he was bound to do, that the absence of documentation, and the destruction of Mr Rubin’s file, had made the task of ascertaining the amount of the outstanding debt a far more difficult one.

 

THE ORAL EVIDENCE

7.      I heard oral evidence from Mr Physouni, Mr Rubin and Mr Yasin, all three being cross-examined on their witness statements. Mr Physouni’s evidcnce may be summarised as follows. He confirmed what he had said in the witness statement. He reiterated that he had neither received any monies from Shammah Nicholls in respect of the judgment debt or costs, nor had he been informed that any sums had been received from Mr Yasin by way of the garnishee order or the payment out of court. He did not simply say that he was unable to recollect such payments: he positively recalled that he did not receive any payments, nor any information from his solicitors relating to any payments. It was his position that if Shammah Nicholls had received any monies from or on account of Mr Yasin, they had retained those monies and not informed him of it. He told me that he could recall being told by Mr Rubin that his debt was fully secured, and that he was therefore content to wait indefinitely for payment, in the knowledge that Mr Yasin could not dispose of the Property without paying the debt.

 

8.      Mr Rubin’s evidence was to this effect. He very candidly accepted that he simply had no independent recollection of the litigation against Mr Yasin, or of the debt recovery process, or of anything which could not be independently verified by means of the documents. This is hardly surprising, given that the last recorded event in the litigation (the court order of July 1996) took place almost 15 years ago. He was, however, able to give evidence as to his normal professional practice. Again unsurprisingly, he told me that it was “inconceivable” that he would not have informed Mr Physouni that he had made a recovery or partial recovery of the debt by way of garnishee proceedings, and a payment out of court. It was also inconceivable that he would not at the time have accounted to his client for the sums received from Mr Yasin. It would have been impossible for him to have retained these sums in client account without falling foul of his professional duties and accounting obligations. He was asked about the destruction of the file in 2000. He said that it might have been premature, since normally a file would be retained for at least six years after the last activity on the file – in this case, July 2002. However, he also said that this did not necessarily mean that the debt had been discharged in full by Mr Yasin, since his client had the benefit of a Charging Order, and he may simply not have given any further instructions to recover the debt. He also said that he had dealt with another matter for Mr Physouni, in addition to the claim against Mr Yasin, but again he had no recollection of it and no file existed.

 

9.      Mr Yasin’s evidence was that the debt had been repaid in full. According to him, he had actually attended at court on one occasion – when the case had been moved from Huddersfield to Halifax – and had spoken to Mr Rubin. He said that he had made a deal with him, that if he paid the additional sum of £1000 that would discharge the debt in full. He insisted that the payment of £1000 had been made to Shammah Nicholls and that his bank statements proved it. Mr Moss put to him forcibly that no such payments had been made. He asked him why the original stubs had not been brought to the hearing, and in terms accused him of having forged the annotations on the cheque stubs which referred to Shammah Nicholls. It appears that although these payments had been referred to in Mr Yasin’s witness statement, and copies of the cheque stubs and bank statements provided to the Applicant’s solicitors, there had been no request to see the originals, and no suggestion until the cross-examination commenced that there had been such a forgery.

THE LEGAL ISSUE

10.  The legal issue in this case is, it seems to me, relatively straightforward. If the sums secured on the Property have been discharged in full, the Charging Order cannot be enforced, and there would be no justification for refusing to register the Transfer to the Respondents. On the other hand, if the Charging Order still secures an outstanding sum, the Applicant is entitled to insist that the sum should be paid before the Property can be registered in the Respondents’ names. At one point I questioned whether delay was a relevant factor. In other words, whether the delay in enforcing the Charging Order might have disentitled the Applicant to an order for sale, which is the sole method of enforcing an equitable charge. It seems to me that this is not the correct approach. Whether or not the Applicant could have obtained an order for sale if he had applied to the court, the fact is that the equitable charge imposed by the Charging Order must be discharged before any disposition of the Property can be completed. If the charge is still enforceable, enforcement is effected indirectly by requiring its discharge, not directly by means of an order for sale. It is common ground that the Limitation Act 1980 does not in any way affect the Charging Order, albeit that the judgment debt and order for costs cannot be enforced by action. I should point out that I gave permission to the Respondent to lodge written submissions on the Ezekiel v Orakpo issue, which resulted in written submissions by the Respondents’ representative lodged on 13^th May 2011. These were not served on the Applicant. The Respondents concede that by virtue of Ezekiel v Orakpo the Charging Order is not limited to securing only 6 years’ interest on the judgment debt. However, they also seek to persuade me that the case of Lowsley v Forbes [1998] UKHL 34 is authority for the proposition that “recovery of interest on a judgment debt were barred after the expiry of the 6 year limitation period……”- in effect that this latter House of Lords authority trumps Ezekiel v Orakpo. As was made clear in the subsequent decision in Yorkshire Bank Finance Ltd v Mulhall [2008] EWCA Civ 1156, however, that case has no application to the enforcement of a charging order. Accordingly, I do not think that delay or laches is a relevant consideration at this stage. The simple question of fact, therefore, is whether the debt secured by the Charging Order has been discharged. Strictly, it is right to say that the burden of proving this rests with the Respondents.

 

 

 

THE EVIDENCE - CONCLUSIONS

11.  The Applicant’s case is that sums remain outstanding from Mr Yasin. In considering the reliability of the Applicant as a witness, the following points are material. First, despite the fact that the Respondents had produced documentary evidence to support the payment of £7746 in 1995 and 1996, he consistently refused to acknowledge these payments up until the day of the hearing. Furthermore, in his oral evidence, he continued to insist that he had neither received any part of these monies, nor indeed that he had even been informed by his solicitors that these monies had been received by them. He said, in terms, that he could recall that he had not been informed by Mr Rubin of the payment out of court, or the garnishee order. Mr Rubin’s evidence was that both situations would have been inconceivable, and that he would have both informed Mr Physouni of the payments, and accounted to him for them. It seems to me that this evidence must be right. That leads to two possible conclusions. It is possible that Mr Physouni is being untruthful and does in fact recall receiving the money. Alternatively, he simply has no recollection of the material events, but does not wish to acknowledge this in case it damages his case. It seems to me that the latter explanation is the more probable. I believe that he has absolutely no material recollection of these events, which are now 15 and 16 years in the past. Mr Rubin was candid, and realistic, enough to accept this – unfortunately Mr Physouni would not. In the event, therefore, I can have no confidence in the reliability of his evidence, save where it is directly corroborated by the documents. It must be borne in mind that until the day of the hearing he was insisting that Mr Yasin still owed him £14,000, which is a gross exaggeration, even after interest and costs are taken into account. I have to say that I am a little surprised by the tenor of Mr Rubin’s witness statement. As he freely admitted from the witness box, he had no recollection whatsoever of the claim against Mr Yasin, or the recovery process. No hint of that is to be found in the statement. Indeed, he states affirmatively that “my understanding and recollection was that the Caution remained on the property due to non-payment”. A statement of truth was attached. I cannot see how Mr Rubin could have said this, given his admission that he cannot recall anything about the case.

 

12.  Mr Yasin’s evidence is that he has paid the entirety of the debt. The documents he has produced demonstrate, beyond doubt, that by a combination of the garnishee order, and the payment out of court, a total sum of £7,746 was paid to the Applicant or to his agent, Shammah Nicholls. Although from the date of their Statement of Case the Respondents had produced a copy of the order of July 1996, and correspondence and a supporting bank statement relating to the garnishee order, the Applicant refused to accept that these sums had been paid. Mr Rubin’s Affirmation of May 1996 has made that position untenable, and, as I have said, Mr Moss on behalf of the Applicant now accepts that these sums were paid. There is, however, a dispute as to the additional payment of £1000. Mr Yasin has stated, on oath, that he paid these sums, and has produced documentation in support. It is true that the original cheque stubs were not produced. However, I do not accept that these have been fabricated, as Mr Moss suggested in cross-examination. The payments are consistent with the entries on the bank statements. If the Applicant seriously wished to pursue the allegation of forgery, he ought to have flagged this up prior to the hearing, not least by asking for a sight of the original stubs. Furthermore, Mr Rubin is in no position to refute the payment, since he has no records available, and no independent memory. For the reasons I have explained, I do not consider that Mr Physouni has any memory of the matter either. In any event, the payments were said to have been made to Shammah Nicholls on his behalf. Consistently with Mr Yasin’s evidence, I draw attention to the historic evidence of Mr Rubin, as contained in his Affirmation of May 1996, contemporaneous with the material payments. He stated, in terms, that “…the Defendant has now made payments towards the Judgment sums.” These payments clearly do not relate to the sum recovered from Lloyds Bank by garnishee, since he goes on to refer separately to the garnishee order. Nor, obviously, can it refer to the payment out of court. By the same token, his evidence is that “Once the monies, together with accrued interest, has been paid out to the Plaintiff, the Plaintiff will be in a position to calculate what, if any, further sums are still owing to him…” (emphasis added). To my mind, this clearly suggests the possibility that the sum of £4550, together with accrued interest, might in fact discharge Mr Yasin’s entire liability. Having regard to all the material that I have seen and heard, I conclude that the payments of £1000, by two cheques drawn in March and April 1996, were made by Mr Yasin in or towards satisfaction of his liability to Mr Physouni.

 

13.  In fact, Mr Yasin’s evidence was that the payment of £1000 was agreed to be in full and final satisfaction of the outstanding liability, both in respect of costs and the judgment debt. Naturally, I approach this evidence with a considerable degree of scepticism, particularly since the alleged agreement was not mentioned in his witness statement or Statement of Case – indeed, the payment itself was not mentioned in the Statement of Case. On the other hand, it might provide an explanation for these payments, which preceded the taxation of costs, completed on 24^th April 1996. Neither the Applicant nor Mr Rubin are in any position to gainsay this evidence, for the reasons explained above. One might speculate that there were good practical, commercial reasons to reach some sort of final agreement with Mr Yasin. As Mr Moss pointed out, it had been necessary to obtain a garnishee order in 1995, since no voluntary payment had been made by Mr Yasin. The Applicant and his advisers may have thought that a bird in the hand was worth two in the bush. They might prefer to accept a payment of £1000 immediately, rather than have to take further enforcement proceedings, or accept an extended repayment period. It is certainly not unknown that a party will accept a lesser sum than the full debt, by way of compromise, in order to achieve certainty and finality. In all the circumstances, therefore, I accept Mr Yasin’s evidence, and find that no further payments were due to the Applicant once the payment out of court was made in July 1996.

 

14.  There is another factor, which in my judgment supports the finding that the debt was treated as extinguished. I refer to the complete absence of any attempt by the Applicant to recover the alleged outstanding amounts from Mr Yasin. Despite the existence of the Charging Order, Mr Physouni has done absolutely nothing to enforce the charge. Had it not been for the Transfer to Mr Yasin’s children, the matter would doubtless still be dormant. Indeed, the matter lapsed to the extent that his solicitors simply destroyed the file in 2000. Mr Rubin gave evidence that the fact that the file had been destroyed did not necessarily mean that the debt had been paid. Personally, I find it quite surprising that a file would have been destroyed some four years after the last activity, without the solicitor first having checked that the debt recovery process was complete. If it was not, I cannot understand why the file would have been destroyed with any documents being extracted which might permit the client to enforce the Charging Order. In the present case, Mr Physouni has no documents whatsoever. Mr Physouni told me that he was happy to let matters rest, since he had security over the Property. I am afraid that I am quite unable to accept this. The Charging Order was obtained in July 1995. The garnishee order in October 1995. Application was made for payment out of court in May 1996. To my mind, this indicates that the Applicant was taking active, and expensive, steps to recover the debt through his solicitors. If he had simply been content to rely on the Charging Order why would he apply for a garnishee order some three months later? In my view, the absence of any attempt to enforce the security or obtain further payment from Mr Yasin, after the summer of 1995, is entirely consistent with Mr Yasin’s claim of a compromise, and entirely inconsistent with a belief that there was still some part of the debt outstanding from Mr Yasin. Despite Mr Rubin’s evidence as to his usual practice, I also consider that the destruction of the file is consistent with this. It would otherwise seem to be verging on the negligent to have destroyed the file without retaining copies of the relevant documents without which – as this case demonstrates – the enforcement of the Charging Order becomes very problematic.

 

APPROPRIATION OF THE PAYMENTS

15.  Even if there had not been a compromise as Mr Yasin claims, I find as a fact that he has paid a sum which exceeds the sum secured by the Charging Order. It will be recalled that the judgment debt and costs of obtaining the Charging Order were secured on the Property. The judgment debt was £8325.26, the costs of obtaining it are unknown but will have been limited to fixed costs, currently £110, and doubtless substantially less in 1995. Even if interest is added to the judgment debt until payment, it is likely that the total payment of £8746, together with any interest added to the monies paid out of court, would extinguish the charged amount. Mr Moss seeks to meet this point by inviting me to infer that the payments made by Mr Yasin will have been “allocated”, in the hands of the Applicant, first to the assessed costs, and secondly to the judgment debt itself. He is of course unable to provide evidence of any actual allocation of this kind. The result would be that part of the judgment debt would remain outstanding, thus keeping alive the Charging Order. This issue was not raised by the Applicant in the Statement of Case, since until the day of the hearing he did not accept that any sums had been paid towards the judgment debt. It is clearly an argument which has been raised at the eleventh hour in order to meet the new circumstances that have presented themselves, namely the fact that Mr Yasin has been able to prove that he has repaid a sum exceeding the secured amount. It is not necessarily any the worse for that, save for the fact that the Applicant was not in a position to direct me to any authority in relation to “allocation”, which might have guided me as the appropriate inferences (if any) to draw.

 

16.  Some guidance may be obtained from the general law regarding the appropriation of payments by a debtor and creditor. This is set out in Halsbury’s Laws 4^th Ed. Vol 9(1) at paras 956 and 957. It appears that the debtor has the first right of appropriation, which may either be express, or inferred from the surrounding circumstances. If the right to appropriate is not exercised, the right passes to the creditor. Again, appropriation may be express, or inferred from the circumstances. It seems that the creditor is not bound to exercise his election immediately. The payments by, or in relation to the rental payments, on behalf of Mr Yasin, were made more than fifteen years ago. The Applicant and his solicitor cannot actually recall receiving them. In the circumstances, I do not think that I am justified on the evidence in finding (a) that Mr Yasin himself did not exercise his right of appropriation and (b) even if he failed to do so, that the Applicant has exercised his right. Although it was not argued on this basis, I would have found that it is now too late for the Applicant to do so.

 

CONCLUSIONS

17.  I am not therefore in a position to hold that the payments by the Respondent, which exceeded the amount due under the judgment debt secured by the Charging Order, did not extinguish that debt. On the contrary, I find that that the payments did extinguish the secured debt. It follows, therefore, that the Charging Order can no longer be enforced, and I shall direct the Chief Land Registrar to give effect to the Respondents’ application to be registered dated 17^th December 2007 as if no objection had been made. It also follows that the Caution should be removed from the title, but this would doubtless have to be the subject of a separate application. I am also minded to award the Respondents their costs of this reference. Before doing so, however, I shall give the Applicant the opportunity of making written submissions on the point. I therefore direct the Respondents to file and serve a Costs Schedule by 5 pm on 2^nd June 2011, and the Applicant may respond both as to the incidence of costs, and the quantum, by 5pm on 10^th June 2011.

 

Dated this 25^th day of May 2011

 

 

By Order of The Adjudicator to HM Land Registry