Mortgage – Registration – Cancellation – Mistake – Claimant’s predecessor making loan to defendants secured by legal charge over property – Mortgage conditions providing for charge to cover further advances – Claimant registering charge at land registry – Original loan being redeemed – Registered charge being cancelled – Claimant making further loan to defendants – Bank submitting form to Land Registry and charge being discharged from property – Whether claimant mistakenly submitting form e-DS1 to cancel charge – Whether appropriate case for rectifying mistake – Whether claimant entitled to be re-registered as proprietor of charge – Claim allowed
The defendants had fallen into arrears with payments in respect of a loan made by the claimant’s predecessor bank. A dispute arose as to whether or not the loan was secured by a charge on the defendants’ property at 22 Parc Penscynnor, Cilfrew Neath, South Glamorgan. The claimant argued that it was so secured by virtue of a mortgage deed signed by the defendants in relation to an earlier loan which had been redeemed. Further, a cancellation of the registered charge in respect of that deed (known as an e-DS1), in which the claimant acknowledged that the property was no longer charged as security for sums due under the charge, had been made as a result of a mistake by the bank.
The claimant contended that the mistake had been made inadvertently in large part following receipt of a letter from the defendants’ solicitor, stating that the mortgage secured on the property had been discharged and requesting the removal of the entry by submission of e-DS1, but referring to the original loan account number and not the later one. The defendants, who had been subsequently made bankrupt, contended that the deed only applied to a loan advanced at that time and not to further advances. Therefore, the e-DS1 had been submitted correctly.
Under clause 1.2 of the mortgage conditions, which applied to the charge, “mortgage debt” was defined as: “(a) all of the money you owe us from time to time under any offer, including any unpaid interest, costs and fees…”. Clause 3 provided: “This mortgage secures further advances.”
The claimant applied for rectification of the register. The issues for the court were: (i) whether the charge, on its terms, was effective to secure the later loan; and (ii) whether the charge had been cancelled by mistake.
Held: The claim was allowed.
(1) In all the circumstances, the court was satisfied that the charge was effective to secure the loan on the property. The charge said so on its face. Moreover, in the mortgage conditions, which were incorporated into the charge, it was specified that the charge was to secure the mortgage debt which was defined to include all of the money which the defendants owed to the bank from time to time under “any offer”. That was sufficiently wide and clear to include the offer under which the further loan had been made. On the defendants’ bankruptcy, their estates vested in the Official Receiver as trustee, pursuant to section 306(1) of the Insolvency Act 1986 but, by reason of section 283(5), subject to the bank’s charge.
(2) To invoke the equitable jurisdiction to set aside a voluntary disposition for mistake, there had to be a mistake of sufficient gravity either as to the legal effect of the disposition or as to an existing fact which was basic to the transaction. Forgetfulness, inadvertence or ignorance was not, as such, a mistake, but it could lead to a false belief or assumption which the law would recognise as a mistake. It did not matter if the mistake was due to carelessness on the part of the person making a voluntary disposition, unless the circumstances were such as to show that he deliberately ran the risk of being wrong. Nor need the mistake be known to, still less induced by, the person taking a benefit under the disposition: Pitt v Holt [2011] EWCA Civ 132 and Futter v Commissioners of Revenue and Customs [2013] UKSC 26 applied. Garwood v Bank of Scotland [2013] EWHC 415 (Ch); [2013] PLSCS 71 distinguished.
(3) In the present case, the claimant, in issuing the e-DS1 to the Land Registry, had made a distinct mistake. It had thought in so doing that it had been obliged to do so because the original loan had been redeemed and there was nothing more to secure. It had not been mere inadvertence. The mistake had been induced because of the terms of the solicitors’ letter which referred to the original loan account number and not the later loan account number, which was secured on the property. Had the bank realised that the later loan was still secured on the property it would not have issued the e-DS1. The consequences of so doing were serious. The claimant would lose its security for the later loan. The defendants, having taken that loan thinking it would be secured on their property and, having dealt with it as such in their respective bankruptcies, would be left with an unencumbered property. In those circumstances, it would be unconscionable to leave the mistake uncorrected. It followed that the claimant was entitled to be re-registered as proprietor of the charge which secured the later loan: see section 65 of and Schedule 4 to the Land Registration Act 2002. As the defendants were in possession as registered proprietors, rectification of the register could only take place if they had contributed to the error by lack of proper care. By referring only to the original loan in their solicitor’s letter, they had so contributed.
Nicole Sandells (instructed by Walker Morris LLP, of Leeds) appeared for the claimant; The defendants appeared in person.
Eileen O’Grady, barrister
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