Bank of Scotland PLC v Greville Development Company (Midlands) Ltd and others

Land register – Charge – Rectification – Claimant bank lending money to defendants secured by charges over property – Charges over part of property being registered at land registry – Charges purportedly being discharged from property – Claimant alleging forgery – Claimant seeking declarations that deed charged whole of property with repayment of loan – Whether parties having common intention that loan secured against first fixed legal charge over whole of property – Declarations granted The first defendant was a company controlled by the third defendant who also controlled the second defendant company. The first defendant purchased all the shares in the second defendant which owned a property in Kenilworth registered at the land registry under two title numbers (818 and 916). The first defendant sought to acquire the property through a share purchase and the third defendant negotiated a loan from the claimant bank to enable it to do so. The loan was secured by a debenture over the first defendant’s assets, a first legal charge over the property and a guarantee from the second defendant, supported by a debenture over its assets. A deed was executed on behalf of the claimant and the second defendant, securing the loan by a first legal charge in respect of the 818 title only, allegedly due to an error by the draftsman of the deed. The claimant applied to register the deed as a charge against both title numbers. The deed was altered to refer to both title numbers under powers conferred by rule 130 of the Land Registration Rules 2003. A form was later submitted to the land registry purportedly discharging the charges which were subsequently removed from the two titles. The claimant contended that the form had been a forgery by, or procured by the third defendant. Freezing orders were granted and continued against the defendants. The claimant applied to the court seeking declarations that the effect of the deed was to charge the whole of the property with repayment of the loan to the first defendant and, to the extent necessary, either rectification of the deed to reflect that or a declaration that the deed had been validly altered. In addition, the claimant sought money judgments against the first and second defendants. It was common ground that in excess of £1.7m remained due and owing to the claimant from the first defendant as primary debtor and, as the claimant argued, from the second defendant under its guarantee. The claimant sought judgment against each of those entities on that basis. It also brought damages claims against the third defendant for various alleged torts on the basis that any loss suffered by the claimant that it was unable to recover from the other defendants has been caused by the alleged conduct of the third defendant in procuring the release of its charges over the property. Held: The declarations were granted.(1) The legal burden rested throughout on the claimant to prove its case on the balance of probabilities, but if, and to the extent that, a positive case was advanced by the defendants, the evidential burden of proving that positive case on the balance of probabilities rested on them. Further, while the standard of proof in a civil case such as the present was always the balance of probabilities, the more serious the allegation, or the more serious the consequences of such an allegation being true, the more cogent the evidence had to be if the civil standard of proof was to be discharged. Moreover, it did not necessarily follow from the fact that a witness had been shown to be dishonest in one respect that his evidence in all other respects had to be rejected. Experience suggested that people might tell lies for a variety of reasons including an entirely misplaced wish to strengthen a true case that was perceived to be evidentially weak as opposed to a desire to advance a dishonestly conceived case in a dishonest manner: Re H (minors) (sexual abuse: standard of proof) [1996] AC 563 applied. (2) The rule established in Pigot’s Case (1614) 11 Co Rep 26b was that material alterations to a deed after execution with the consent of the plaintiff but without the consent of the other party would render it void. However the rule was anachronistic and had to be confined to cases falling strictly within its ambit. It applied only where the person seeking to avoid the instrument under challenge could show that the alteration was one which, assuming the parties had acted in accordance with the other terms of the contract, was potentially prejudicial to his legal rights and obligations under the instrument. The rule remained a salutary one aimed at preventing fraud and founded upon inference of fraudulent or improper motive at the time of alteration. Absent any element of potential prejudice, no inference of fraud or improper motive was appropriate. For the rule to apply the alteration had to be material. It would not apply where the alteration of a deed was immaterial because it was one that rendered express, what the law would otherwise provide: Lombard Finance Ltd v Brookplan Trading Ltd [1991] 1 WLR 271, Raiffeisen Zentralbank Osterreich AG v Crosseas Shipping Ltd [2000] 1 WLR 1135 and Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560 [2002] 2 EGLR 71 considered. (3) On the facts of the present case, there had been a common continuing intention that the proposed loan would be secured against a first fixed legal charge against the whole of the property. The material, taken as a whole, was plainly reflective of the true mutual understanding between the parties’ solicitors that was that the loan advanced to the first defendant was to be secured amongst other methods by a fixed legal charge over both titles which were regarded as together constituting a single property. In the circumstances, the claimant had established that, on the balance of probabilities, it would have been entitled to seek rectification of the deed at all times from its execution down to the date when it was altered by the registry. Accordingly, the rule in Pigot’s case did not apply to the alteration of the deed because it was immaterial, being one that rendered express, what the law would otherwise provide. The rule ought not to apply because the alteration was not one that was potentially prejudicial to the legal rights and obligations under the instrument of the second defendant. (4) On the evidence, the court was satisfied that the reference to the 916 title had been omitted from the deed as a result of an error by the solicitor responsible for drafting the deed and, in the particular circumstances of the case, the error was one which fell within rule 130(2)(a) of the 2003 Rules. Jonathan Allcock (instructed by Walker Morris, of Leeds) appeared for the claimant; The first and second defendants appeared by their representative; The third defendant appeared in person. Eileen O’Grady, barrister