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REF/2014/0618

REC/2014/0033

PROPERTY CHAMBER LAND REGISTRATION

FIRST-TIER TRIBUNAL

LAND REGISTRATION ACT 2002

 

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

AND IN THE MATTER OF AN APPLICATION UNDER SECTION 108(2)

BETWEEN

 

THE GOVERNOR & COMPANY OF THE BANK OF IRELAND

 

APPLICANT

and

 

ANDREW CHRISTOPHER GALLAGHER

SAMANTHA ANN GALLAGHER

RESPONDENTS

 

Property Address: 8 Belgravia Court, Worksop S81 7SX

 

Title Number: NT416923

Before: Judge Owen Rhys

Sitting at:  10 Alfred Place, London

On: 29^th June 2015

Applicant representation: Ms Lena Mattsson of Counsel instructed by TLT Solicitors

Respondent representation: In person

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D E C I S I O N

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INTRODUCTION

1.      The Respondents were the owners of 30 Blackbird Avenue, Gateford, Worksop, Notts S81 8WB (“30 Blackbird Avenue”).  In August 2005 they decided to purchase 8 Belgravia Court, Worksop, Notts S81 7SX (“8 Belgravia Court”) from Westbury Homes (Holdings) Limited.  The purchase was funded by a part exchange of 30 Blackbird Avenue and a loan to be secured by mortgage for the balance.  On 11^th August 2005 the Respondents made an application to Bristol & West PLC (“the Original Mortgagee”) for a loan to be secured by mortgage. Their written application stated that the property to be mortgaged was 8 Belgravia Court, and that their correspondence address was 30 Blackbird Avenue. 

 

2.      On 18^th August the Original Mortgagee made a formal Mortgage Offer (“the Offer”).  The property to be mortgaged was identified as 8 Belgravia Court, the purchase price was stated to be £319,000 and the net amount to be released on completion was £287,566.  On 24^th August 2005 the Respondents signed and returned the Mortgage Offer signifying their acceptance of its terms.  A firm of solicitors, known as Town & Country Property Lawyers (“TCPL”), was engaged to act for the Original Mortgagee.  The firm was also engaged by the Respondents to act on their sale of 30 Blackbird Avenue and their purchase of 8 Belgravia Court.  TCPL arranged for a Mortgage Deed (“the Mortgage”) to be executed by the Respondents.  Completion took place on or about 26^th August 2005, when the Original Mortgagee released the sum of £287,566 to fund the purchase. The Mortgage was dated 26^th August 2005, and charged 30 Blackbird Avenue with repayment to the Original Mortgagee of the mortgage debt.  30 Blackbird Avenue was of course the Respondents’ then current address, which they had agreed to sell. The Mortgage was made subject to the Original Mortgagee’s Residential Mortgage Conditions (“the Conditions”).  On 15^th February 2006 the Respondents were registered in the Proprietorship Register with title to 8 Belgravia Court, and the Mortgage was registered in the Charges Register of that title (despite the reference to 30 Blackbird Avenue in the Mortgage).  On 16^th November 2007 the Applicant was registered in the Charges Register as the statutory successors of the Mortgagee.  For the purposes of this application, the Original Mortgagee and the Applicant may be treated as one.

 

3.      On 30^th June 2009 the Applicants were each declared bankrupt and 8 Belgravia Court vested in the trustee in bankruptcy.  The Applicant, as a secured creditor, did not prove for its debt in the bankruptcy.  Subsequently, 8 Belgravia Court was re-vested in the Respondents on 17^th February 2012 after they were discharged from bankruptcy.  However, they have fallen into substantial mortgage arrears, which now stand at £40,496.11.  The total outstanding balance is in excess of £357,000.  The Applicant notified the Respondents in October 2012 that they were instructing their solicitors to commence possession proceedings.  Their solicitors then noticed that the property address stated in the Mortgage was 30 Blackbird Avenue – not 8 Belgravia Court – even though the Mortgage had been registered in the Charges Register of 8 Belgravia Court.  They eventually asked TCPL – no doubt by way of mitigation of a potential claim – to obtain the Respondents’ consent to the amendment of the Mortgage to insert the correct address of the mortgaged property.  The Respondents did not respond to a series of letters from these solicitors.  On 13^th October 2013 they sent a draft Deed of Rectification to the Respondents, whereby the Mortgage would be rectified inter partes by substituting 8 Belgravia Court for 30 Blackbird Avenue in the definition of the mortgaged property. Again, there was no response to this request.  Eventually the Applicant took matters into its own hands, by executing a Deed of Variation dated 25^th March 2014 (“the Variation”), pursuant to the power of attorney contained in clause 21 of the Conditions.  The Variation is to all intents and purposes in the same form as the draft Deed of Rectification submitted to the Respondents on 13^th October 2013. 

 

4.      On 27^th March 2014 the Applicant applied to the Land Registry to register the Variation, but the Respondents objected.  The dispute could not be resolved by agreement, and on 14^th August 2014 the matter was referred to the Tribunal for decision.  On 25^th September 2014 the Applicant made an application for rectification of the Mortgage, pursuant to section 108(2) of the Land Registration Act 2002 (“the 2002 Act”), on the grounds that the document contains a mistake, namely the description of the mortgaged property as 30 Blackbird Avenue.  Both the reference and the application under section 108 came on for hearing on 15^th June 2015.  Ms Lena Mattsson of Counsel appeared for the Applicant, and the Respondents represented themselves.

 

5.      The legal issues are as follows.  First, did the Variation validly effect a variation of the Mortgage?  This involves a consideration of the scope of clause 21 of the Conditions, whereby the Borrowers appointed the Original Mortgagee as their attorney to carry out certain specified acts.  The acts authorised under clause 21(a) include the following: “execute any document which is needed to perfect our title to the mortgage deed or your title to the property”, and “take any other steps which may be required to protect or preserve our security, or to enable our rights and powers, and those of the receiver, to be effectively exercised”.  The Variation purports to vary the Mortgage by substituting 8 Belgravia Court for 30 Blackbird Avenue in the description of the mortgaged property.  The question for the Tribunal is whether the Applicant had power to do this under the provisions that I have described.

 

6.      The second string to the Applicant’s bow is the law of equitable rectification.  Under section 108(2) of the 2002 Act the Tribunal has the same jurisdiction to rectify documents as the High Court.  The doctrine of rectification is described as follows in Snell’s Equity (33^rd ed.) at para. 16-001: “Where the terms of a written instrument do not accord with the true agreement between the parties, equity has the power to reform, or rectify, that instrument so as to make it accord with the true agreement.”  Although there may be a number of variables in a claim for rectification, this accurately states the fundamental basis of the court’s power to rectify.  Although in some circumstances a unilateral mistake may be sufficient, the usual situation is a common mistake – that is, a mistake made by both parties to the transaction.

 

7.      I heard evidence from Ms Tara Davies, the Applicant’s solicitor, and from Mr Gallagher, one of the Respondents.  Ms Davies knew nothing about the circumstances of the Mortgage, other than what she could glean from the documents in her client’s possession.  Although she was cross-examined robustly by Mr Gallagher, unsurprisingly she did not have anything useful to add to the documents themselves.  As to Mr Gallagher, he accepted that the description of the mortgaged property in the Mortgage – 30 Blackbird Avenue – was a mistake, and should have referred to 8 Belgravia Court.  Although this was a welcome concession, there could never have been any doubt that a mistake had been made.  30 Blackbird Avenue was the property that the Respondents were selling in order to fund their purchase of 8 Belgravia Court.  If the point had not been conceded, I would have found that there had been a mistake in the Mortgage, which manifestly did not represent the true agreement between the parties, as embodied in the Offer of Loan dated 18^th August 2005, signed by the Respondents.  This was a common mistake, since both parties agreed and intended that the property to be mortgaged was 8 Belgravia Court. 

 

8.      Dealing first with the Variation, I shall begin by summarising the Respondents’ arguments.  First, they say that the Applicant cannot rely on the Offer – which correctly refers to 8 Belgravia Court – as a deed, having regard to  section 52(1) of the Law of Property Act 1925 and section 1(2) of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”).  Secondly, they argue that the Offer cannot be regarded as a valid contract to create a charge over 8 Belgravia Court in view of the requirements of section 2 of the 1989 Act and the absence of any signature by the Original Mortgagee on the document.  Thirdly, they argue that they are not in any event bound by the Offer, and the Conditions, since they have never signed a valid form of charge.  This is on the basis that the Mortgage refers to 30 Blackbird Avenue, the “wrong” property.  Fourthly, they argue that the Applicant cannot rely on the power of attorney in clause 21 of the Conditions since these refer to “the property”, which is defined in the Mortgage as 30 Blackbird Avenue.  They argue that the  Conditions cannot give the Applicant the power to create a new security – over 8 Belgravia Court – as opposed to perfecting the existing security (over 30 Blackbird Avenue).  Taking all these points together, the Respondents submit that the Variation is of no effect.

 

9.      Despite these sophisticated arguments, I have concluded that the Applicant did have power under the Conditions to vary the Mortgage so as to substitute 8 Belgravia Court for 30 Blackbird Avenue as the mortgaged property.  The Offer, the Mortgage and the Conditions must all be read together.  It is provided in clause 2 (c) of the Conditions that in the event of any conflict in their terms, the Offer “prevails” over the Mortgage and the Conditions, and the Mortgage prevails over the Conditions.  The Offer, as signed by the Respondents, specifies that the following property is to be mortgaged: “Freehold 4 bedroomed Detached House with Double Garage 8 Belgravia Court, Worksop, Nottinghamshire S81 7SX”.  The wrong property was identified in the Mortgage.  Accordingly, through an error the Mortgage does not create the security for the loan that all parties intended.  It seems to me that the purpose and effect of the Variation falls fairly and squarely within the power to “take any other steps which may be required to protect or preserve our security, or to enable our rights and powers, and those of the receiver, to be effectively exercised”.  Although of course the Applicant does have a registered charge over 8 Belgravia Court, it is vulnerable to an application to alter the register on the grounds of mistake, since the Mortgage itself charges a different property.  Further, it is unlikely that the Applicant could enforce its security in possession proceedings, as matters now stand, since it would have to produce the Mortgage which of course refers to 30 Blackbird Avenue.  Indeed, it was this difficulty which inspired the Applicant to begin the process of varying the Mortgage.  It seems to me that the power under clause 21 is designed to operate in precisely this type of situation, where the borrowers have accepted and used the loan  but for some reason the mortgagee’s security is defective. Accordingly, I hold that the Applicant is entitled to register the Variation, despite the Respondents’ objection, and I shall direct the Chief Land Registrar accordingly.

 

10.  If I should be wrong in my conclusion on this point, it is right that I should also deal with the claim for rectification.  On the face of it, I would be prepared to order rectification of the Mortgage.  I have found that the document does not accurately reflect the true agreement and intentions of the parties, as effectively accepted by the Respondents, since it charges the wrong property – 30 Blackbird Avenue rather than 8 Belgravia Court.  There was a mutual mistake and rectification would normally follow.  However, the Respondents rely on the delay, or rather laches, of the Applicant in failing to correct the mistake until 2014, some 9 years after the execution of the Mortgage.  Since rectification is an equitable remedy, the statute of limitations does not apply.  However, if a party has delayed in seeking relief, and the other party has suffered detriment as a result, this may provide a reason for refusing rectification. The key is unconscionability – would it be unconscionable for the Applicant to obtain rectification of the Mortgage in the circumstances of this case?  I think the following is a fair summary of his Skeleton Argument and oral submissions made at the hearing.

 

11.  First, the Respondents point to the fact that the Original Mortgagee failed to notice that the wrong address had been entered in the Mortgage.  There is an exchange of letters between the Original Mortgagee and their solicitors around 22^nd February 2006, from which it appears that it had not received the original of the Mortgage.  However, the document must have been received at some time before 27^th November 2012, when the Applicant wrote to TCPL pointing out the error in the document.  Ms Davies was asked about this by Mr Gallagher.  She said that the lender’s concern would be to have the Mortgage registered in the Charges Register, which did of course occur in this case.  It would not have any particular cause to check the mortgage document until the matter became litigious – as indeed happened in November 2012.  There is certainly no evidence that the Applicant, or the Original Mortgagee, was aware of the mistake until November 2012.

 

12.  Secondly, Mr Gallagher complains that the Applicant did not take any steps to correct the mistake despite the Respondents’ bankruptcy in 2009.  8 Belgravia Court was shown in the statement of affairs as having a negative value – i.e the secured debt exceeded the valuation of the property.  It is not clear where the figures derived from: quite possibly from the Respondents themselves.  However, it is clear that the Applicant did not prove for its debt in the bankruptcy.  On 23^rd May 2012 it wrote to the Official Receiver stating that “we are a secured creditor and as such we will not be making a claim in the [bankruptcy] as we are currently relying on our security.”  Presumably on the basis that the property was in negative equity, the Official Receiver re-vested it in the Respondents in 2012.  It was only after they were discharged from the bankruptcy that the Applicant took steps to enforce its security.  As I understand it, Mr Gallagher submits that this has prejudiced him and his wife, in that the “shortfall” – the difference between the value of 8 Belgravia Court and the debt secured on it – remains outstanding and recoverable by the Applicant.  He suggests that if the Applicant had checked the documentation at any time prior to the bankruptcy, it would have realised that it did not have a valid security and would have been bound to prove in the bankruptcy. The Applicant is therefore trying to put itself into a better position by means of rectification than it is entitled to. 

 

13.  I do not entirely understand this argument insofar as it relates to the claim to rectification. This is not a case where the Applicant has delayed seeking a remedy after becoming aware of the mistake.  It only became aware of the mistake in November 2012 and has moved swiftly to rectify it, initially by means of the Deed of Variation.  Since the Mortgage quite plainly contains an error it was always liable to be rectified.  The Respondents are in no worse position now than they would have been if the Mortgage had been rectified before their bankruptcy.  The Respondents could never have been in a position to take the benefit of the mortgage loan and yet also hold 8 Belgravia Court free from the mortgage.  It is simply fortuitous that the error was not corrected until after the Respondents became discharged from bankruptcy. In my judgment, therefore, there is nothing unconscionable about the Applicant’s claim for rectification.  It is the Respondents who are seeking to take advantage of an admitted mistake, where they have had the benefit of the substantial advance from the Original Mortgagee which allowed them to purchase 8 Belgravia Court in the first place.  There is no reason in my judgment to deprive the Applicant of an order for rectification, should the Variation otherwise be invalid.

 

14.  I shall therefore direct the Chief Land Registrar to give effect to the Applicant’s application in form AP1 dated 27^th March 2014, to register the Variation.  That will dispose of REF/2014/0618 and will result in an entry being made in the register.  I shall also make the Order sought in REC/2014/0033, being the separate application under section 108(2) of the 2002 Act.  This order will take effect to rectify the Mortgage in equity, but will not necessarily be reflected on the register.  Despite the error in the Mortgage, the Applicant already has the benefit of a registered charge. The Applicant will not need to rely on the order for rectification once the AP1 application has been given effect to.

 

15.  I did hear some argument on costs.  Ms Mattsson sought to persuade me that the Respondents ought to pay costs assessed on the indemnity basis.  She submitted that they had no legitimate defence to the claims and had conducted this litigation in an unreasonable manner.  They did not formally concede the existence of the mistake in the Mortgage until just before the hearing, and therefore put the Applicant to great expense in obtaining evidence regarding the original sale and purchase arrangements in 2005.  I have some sympathy for the argument, but on consideration I have decided that the Respondents have not crossed the line into the sort of exceptional conduct that should be marked by an award of indemnity costs.  I am therefore proposing to make an order that the Respondents should pay the Applicant’s costs on the standard basis, to be subject to detailed assessment.  Before making the order I shall allow the Respondent the opportunity of lodging written submissions on costs, within 14 days of the date of this Decision.

Dated this 21^st day of July 2015

 

 

BY ORDER OF THE TRIBUNAL