Mortgage – Registration – Cancellation – Mistake – Respondent bank obtaining charge securing mortgage advance plus further loan through “all moneys” provision – Register entries for charge removed on application of respondent on repayment of first loan – Other lending remaining outstanding – Appellant appointed as trustee in bankruptcy of borrower and seeking to sell property – Whether respondent entitled to re-registration of charge to correct a mistake – Whether entitled to be subrogated to pre-existing charge paid off with its loan advances – Land Registry adjudicator finding in favour of respondent – Appeal dismissed In 2004, a predecessor of the respondent bank made two mortgage advances to a fraudulent borrower, supposedly to finance his acquisition of leasehold interests in two flats in a property in London SE25. The first advance of £96,725 in June 2004 apparently related to the first-floor flat, while the second advance of £97,701, made in July 2004, apparently related to the ground-floor flat and garage. In fact, no such leasehold interests existed and the borrower already owned the freehold of the entire property, having acquired it in 2003 with the aid of a mortgage from another lender, secured by a registered legal charge over the property. In July 2004, the borrower executed an all-moneys charge in favour of the respondent. The charge contained certain disparities in that it defined the relevant property as the first-floor flat but referred to the transaction number of the loan for the ground-floor flat and gave the title number for the freehold interest in the entire property. Some of the loan funds from the 2004 advances were used to redeem the pre-existing mortgage in the sum of £134,049. The respondent’s charge was later registered against the title number for the freehold. In March 2009, the borrower granted a 99-year lease of the ground-floor flat, excluding the garage, in breach of the mortgage conditions in the respondent’s charge. Subsequently, the borrower paid just under £91,118 to the respondent, indicating that the payment was made in redemption of the 2004 charge. The sum paid was sufficient to repay the loan for the first-floor flat but the loan for the ground-floor flat remained outstanding. Unaware of that matter, the respondent made an electronic application, on form e-DS1, to cancel the register entries relating to the charge. The lease of the first-floor flat was then registered. The borrower subsequently went bankrupt. The appellant, as his trustee in bankruptcy, proposed to sell various interests in the property as a key asset of the bankruptcy. The respondent applied to lodge a unilateral notice against the title to the property, claiming that the cancellation of its charge had been a mistake that should be corrected by reinstatement on the register. It contended that it still held an equitable charge over the freehold for the outstanding loan moneys or was entitled to such a charge by subrogation to the extent that its funds had been used to redeem the other lender’s pre-existing charge. The respondent opposed that application and the dispute was referred to a Land Registry adjudicator under section 73(7) of the Land Registration Act 2002. The adjudicator found in favour of the appellant save that he considered the relevant charge to be over the leasehold interest. On the appellant’s appeal against that decision, issues arose as to, inter alia, the property against which the respondent’s 2004 charge had been secured, the nature of any equitable entitlement of the respondent and whether the adjudicator had jurisdiction to determine the respondent’s equitable rights. Held: The appeal was dismissed. (1) Prior to its registration, the respondent’s 2004 charge had taken effect as an equitable charge of the property identified within it. The advance secured by that charge had to be identified from the terms of the charge, properly construed, by reference to its internal definition of the mortgage debt. In addition to the debt so identified, the remainder of the money advanced by the respondent were also secured by the charge by reason of the “all moneys” provision. The adjudicator had erred in holding that the 2004 charge affected a leasehold interest since no such interest had existed in any part of the property, or had been defined, and the respondent could not have taken possession of or sold any such interest to enforce its security. The borrower must have charge whatever estate he had, namely the freehold interest. On its proper construction, the charge was over the freehold of the first-floor flat to secure the June 2004 loan in respect of that flat. The charge defined the relevant advance by reference to the loan made on the property subject to the charge, not by reference to the transaction number. The specified mortgage debt was in the sum of the loan on the first-floor flat; a reasonable person reading the charge would understand that a mistake had been made in noting the administrative reference but that the mortgage was intended to be of the first-floor flat to secure the moneys advanced for the purpose of acquiring an interest in that flat. (2) Although originally granted over the freehold of the first-floor flat, on registration the charge affected the freehold to the entire property. Where a particular interest or estate did not affect the whole of the land in a registered title, the relevant part of the register would normally indicate the part affected. On registration of the 2004 charge, the first-floor flat was not identified by any such marking on the title as good practice would require. Moreover, all parties had behaved as if they understood the 2004 charge to affect all the land in the title. Therefore, whatever the charge was intended to achieve, it had in fact achieved a charge registered against the whole of the freehold. (3) The registration of the charge in that way precluded any entitlement of the respondent to be subrogated to the pre-existing charge that had been redeemed with its loan advances. An equitable charge by subrogation could arise only if, as a result of a mistake that gave rise to a claim for unjust enrichment, a lender had failed to obtain the intended security. The respondent had received adequate security for its advances since the 2004 charge, as registered, was enlarged in its effect such that the whole of the respondent’s advance was secured, under the “all moneys” provision, over the whole of the freehold of the property. Although that was not what the respondent had bargained for it was just as good since it fully secured the full loan. The respondent did not need an equitable remedy to reverse or prevent unjust enrichment. (4) On the cancellation of the register entries for the 2004 charge, that charge had ceased to exist and had not continued as an equitable charge. The removal of the charge was a mistake since, although the respondent knew that it was discharging the charge as security for the June 2004 loan, it did not realise that it was also releasing its only security for the July 2004 loan: Fender (administrator of FG Collier & Sons Ltd) v National Westminster Bank plc [2008] EWHC 2242 (Ch); [2008] 3 EGLR 80; [2008] 48 EG 102 applied. The respondent did not mean to release the only security that it held for that loan but the e-DS1 application in fact had that effect. Although the discharge was a unilateral act by the respondent, it involved a mistake as to the legal effect of the release of sufficient seriousness to invoke the equitable jurisdiction to set aside a voluntary disposition for mistake. It would be unjust for the borrower to retain what had been given to him, namely the unencumbered freehold of the property. The e-DS1 discharge was therefore liable to be rescinded on the grounds of mistake. (5) The adjudicator had the necessary jurisdiction to rescind the discharge. That jurisdiction was derived from the reference made under section 73(7) of the 2002 Act, which required him to decide the underlying substance of the appellant’s objection on its merits. He was therefore required to decide whether the respondent was entitled to have its charge re-registered and he had to decide that issue by reference to the whole of the law. He did not need to rely on the separate jurisdiction to set aside certain types of disposition under section 108(2). (6) The register could be altered to reflect the correction of the mistake. Even if the requirements for “rectification” were not fulfilled where the mistake was that of a party to the transaction not of the registrar, rectification was merely a subset of alteration and it did not follow that a different type of alteration was not available. If the e-DS1 discharge were set aside, as an unintended gift of the respondent’s security interest, then the register would have to be brought up to date under para 5(b) of Schedule 4 to the 2002 Act. There were no exceptional circumstances to justify not exercising the power to bring the register up to date to reflect the respondent’s property rights as now determined. The borrower could not complain of the alteration since he had by his fraud substantially contributed to the mistake. The register should be altered accordingly so as to re-register the respondent’s 2004 charge against the freehold title to the entire property. That registration would not, however, affect the leasehold interest in the ground-floor flat. Tom Weekes (instructed by Carrick Read Insolvency, of Kingston upon Hull) appeared for the appellant; Nicole Sandells (instructed by Cobbetts LLP, of Manchester, and Walker Morris LLP, of Leeds) appeared for the respondent. Sally Dobson, barrister
Mortgage – Registration – Cancellation – Mistake – Respondent bank obtaining charge securing mortgage advance plus further loan through “all moneys” provision – Register entries for charge removed on application of respondent on repayment of first loan – Other lending remaining outstanding – Appellant appointed as trustee in bankruptcy of borrower and seeking to sell property – Whether respondent entitled to re-registration of charge to correct a mistake – Whether entitled to be subrogated to pre-existing charge paid off with its loan advances – Land Registry adjudicator finding in favour of respondent – Appeal dismissed In 2004, a predecessor of the respondent bank made two mortgage advances to a fraudulent borrower, supposedly to finance his acquisition of leasehold interests in two flats in a property in London SE25. The first advance of £96,725 in June 2004 apparently related to the first-floor flat, while the second advance of £97,701, made in July 2004, apparently related to the ground-floor flat and garage. In fact, no such leasehold interests existed and the borrower already owned the freehold of the entire property, having acquired it in 2003 with the aid of a mortgage from another lender, secured by a registered legal charge over the property. In July 2004, the borrower executed an all-moneys charge in favour of the respondent. The charge contained certain disparities in that it defined the relevant property as the first-floor flat but referred to the transaction number of the loan for the ground-floor flat and gave the title number for the freehold interest in the entire property. Some of the loan funds from the 2004 advances were used to redeem the pre-existing mortgage in the sum of £134,049. The respondent’s charge was later registered against the title number for the freehold. In March 2009, the borrower granted a 99-year lease of the ground-floor flat, excluding the garage, in breach of the mortgage conditions in the respondent’s charge. Subsequently, the borrower paid just under £91,118 to the respondent, indicating that the payment was made in redemption of the 2004 charge. The sum paid was sufficient to repay the loan for the first-floor flat but the loan for the ground-floor flat remained outstanding. Unaware of that matter, the respondent made an electronic application, on form e-DS1, to cancel the register entries relating to the charge. The lease of the first-floor flat was then registered. The borrower subsequently went bankrupt. The appellant, as his trustee in bankruptcy, proposed to sell various interests in the property as a key asset of the bankruptcy. The respondent applied to lodge a unilateral notice against the title to the property, claiming that the cancellation of its charge had been a mistake that should be corrected by reinstatement on the register. It contended that it still held an equitable charge over the freehold for the outstanding loan moneys or was entitled to such a charge by subrogation to the extent that its funds had been used to redeem the other lender’s pre-existing charge. The respondent opposed that application and the dispute was referred to a Land Registry adjudicator under section 73(7) of the Land Registration Act 2002. The adjudicator found in favour of the appellant save that he considered the relevant charge to be over the leasehold interest. On the appellant’s appeal against that decision, issues arose as to, inter alia, the property against which the respondent’s 2004 charge had been secured, the nature of any equitable entitlement of the respondent and whether the adjudicator had jurisdiction to determine the respondent’s equitable rights. Held: The appeal was dismissed. (1) Prior to its registration, the respondent’s 2004 charge had taken effect as an equitable charge of the property identified within it. The advance secured by that charge had to be identified from the terms of the charge, properly construed, by reference to its internal definition of the mortgage debt. In addition to the debt so identified, the remainder of the money advanced by the respondent were also secured by the charge by reason of the “all moneys” provision. The adjudicator had erred in holding that the 2004 charge affected a leasehold interest since no such interest had existed in any part of the property, or had been defined, and the respondent could not have taken possession of or sold any such interest to enforce its security. The borrower must have charge whatever estate he had, namely the freehold interest. On its proper construction, the charge was over the freehold of the first-floor flat to secure the June 2004 loan in respect of that flat. The charge defined the relevant advance by reference to the loan made on the property subject to the charge, not by reference to the transaction number. The specified mortgage debt was in the sum of the loan on the first-floor flat; a reasonable person reading the charge would understand that a mistake had been made in noting the administrative reference but that the mortgage was intended to be of the first-floor flat to secure the moneys advanced for the purpose of acquiring an interest in that flat. (2) Although originally granted over the freehold of the first-floor flat, on registration the charge affected the freehold to the entire property. Where a particular interest or estate did not affect the whole of the land in a registered title, the relevant part of the register would normally indicate the part affected. On registration of the 2004 charge, the first-floor flat was not identified by any such marking on the title as good practice would require. Moreover, all parties had behaved as if they understood the 2004 charge to affect all the land in the title. Therefore, whatever the charge was intended to achieve, it had in fact achieved a charge registered against the whole of the freehold. (3) The registration of the charge in that way precluded any entitlement of the respondent to be subrogated to the pre-existing charge that had been redeemed with its loan advances. An equitable charge by subrogation could arise only if, as a result of a mistake that gave rise to a claim for unjust enrichment, a lender had failed to obtain the intended security. The respondent had received adequate security for its advances since the 2004 charge, as registered, was enlarged in its effect such that the whole of the respondent’s advance was secured, under the “all moneys” provision, over the whole of the freehold of the property. Although that was not what the respondent had bargained for it was just as good since it fully secured the full loan. The respondent did not need an equitable remedy to reverse or prevent unjust enrichment. (4) On the cancellation of the register entries for the 2004 charge, that charge had ceased to exist and had not continued as an equitable charge. The removal of the charge was a mistake since, although the respondent knew that it was discharging the charge as security for the June 2004 loan, it did not realise that it was also releasing its only security for the July 2004 loan: Fender (administrator of FG Collier & Sons Ltd) v National Westminster Bank plc [2008] EWHC 2242 (Ch); [2008] 3 EGLR 80; [2008] 48 EG 102 applied. The respondent did not mean to release the only security that it held for that loan but the e-DS1 application in fact had that effect. Although the discharge was a unilateral act by the respondent, it involved a mistake as to the legal effect of the release of sufficient seriousness to invoke the equitable jurisdiction to set aside a voluntary disposition for mistake. It would be unjust for the borrower to retain what had been given to him, namely the unencumbered freehold of the property. The e-DS1 discharge was therefore liable to be rescinded on the grounds of mistake. (5) The adjudicator had the necessary jurisdiction to rescind the discharge. That jurisdiction was derived from the reference made under section 73(7) of the 2002 Act, which required him to decide the underlying substance of the appellant’s objection on its merits. He was therefore required to decide whether the respondent was entitled to have its charge re-registered and he had to decide that issue by reference to the whole of the law. He did not need to rely on the separate jurisdiction to set aside certain types of disposition under section 108(2). (6) The register could be altered to reflect the correction of the mistake. Even if the requirements for “rectification” were not fulfilled where the mistake was that of a party to the transaction not of the registrar, rectification was merely a subset of alteration and it did not follow that a different type of alteration was not available. If the e-DS1 discharge were set aside, as an unintended gift of the respondent’s security interest, then the register would have to be brought up to date under para 5(b) of Schedule 4 to the 2002 Act. There were no exceptional circumstances to justify not exercising the power to bring the register up to date to reflect the respondent’s property rights as now determined. The borrower could not complain of the alteration since he had by his fraud substantially contributed to the mistake. The register should be altered accordingly so as to re-register the respondent’s 2004 charge against the freehold title to the entire property. That registration would not, however, affect the leasehold interest in the ground-floor flat. Tom Weekes (instructed by Carrick Read Insolvency, of Kingston upon Hull) appeared for the appellant; Nicole Sandells (instructed by Cobbetts LLP, of Manchester, and Walker Morris LLP, of Leeds) appeared for the respondent. Sally Dobson, barrister