Mortgage – Borrower claiming that deed delivered on implied condition that advances be made in strict compliance with terms of facility letter – Whether deed delivered in escrow – Whether lender departed from terms of letter – Borrower’s claim rejected
On 6 April 1998 the first defendant (the borrower) obtained a facility letter from the claimant (the bank) offering an advance of £700,000 for the purpose of applying up to £400,000 to the redemption of a mortgage held by the Bank of Ireland, and applying £300,000 to provide “equity injection” into the borrower’s associated company, R Ltd. The advance was to be secured, inter alia, on a property in Camden Street, London NW1 (the property).
On or about 30 April 1998 the borrower’s solicitors returned the mortgage documentation, duly executed, to the bank’s solicitors. In May 1998 the bank, having ascertained the amount actually outstanding on the Bank of Ireland loan, remitted £378,162 to the borrower’s solicitors, who duly arranged for the discharge of that loan. On the same day, the bank, acting without further instruction, arranged for £300,000 to be paid from the borrower’s loan account to an account held by R Ltd at National Westminster Bank. The balance of the £700,000 was received by the borrower’s solicitors for the borrower’s account.
On the bank seeking to enforce its security, the borrower claimed that the property was not bound by the mortgage. It was contended that the mortgage deed had impliedly been delivered, in escrow, on terms that the entire £700,000 had to be advanced in the manner prescribed in the facility letter, and that this had not occurred.
Held: The property was bound by the mortgage.
It was rare, under English conveyancing practice, for a mortgage to be delivered in escrow: see Fisher and Lightwood’s Law of Mortgage (10th ed) at p62. This was readily understandable. It was highly unlikely that the bank would run the risk of being unsecured, for example, in the event of a winding-up petition being presented after the payment to R Ltd, but before the payment to the Bank of Ireland. It followed that, on normal principles of implication of terms, the defendant had failed to establish that the mortgage was executed subject to the condition contended for, it being strongly arguable that the £700,000 figure was a ceiling up to which the bank was prepared to make advances to achieve the two desired purposes. Moreover, the court was satisfied, on the evidence, that the payment to R Ltd was made with the authority of the borrower and pursuant to the facility letter.
John Jarvis QC and David Wolfson (instructed by Kennedys) appeared for the claimant; Anthony Mann QC (instructed by Dewar Hogan) appeared for the first defendant.
Alan Cooklin, barrister
