National Home Loans Corporation plc v Yaxley and another

Defendants owning property – Defendants being advised by broker to remortgage property to raise money to invest – Broker submitting application to plaintiff containing fraudulent claims – Plaintiff granting loan – Broker retaining funds and not making mortgage repayments – Plaintiff issuing proceedings for possession – Whether mortgage should be set aside for undue influence or fraud – Judgment for plaintiff The first defendant was the owner of a property worth £130,000, which he had built with the help of a loan of £15,000 from a bank secured by a charge on the property. He occupied it with his wife, the second defendant. R suggested to the defendants that they should consider remortgaging the property with a view to raising money to invest. R was a mortgage broker from whom the plaintiff, National Home Loans Corporation plc (NHL), whose principal business was lending money on the security of residential property, would accept direct applications. Brokers such as R were known by NHL as direct submitting brokers and were not paid by NHL. It supplied the brokers with the appropriate paperwork for applications and required them to obtain a valuation report on the relevant property from an approved valuer. The defendants agreed to go ahead with the scheme. However, on the application form for a loan of £93,750 the first defendant’s income was grossly overstated, and he falsely claimed that he was the only occupier of the property. R knew that the claims were untrue. The loan was granted and was paid to R who paid £15,136.39 to the bank in redemption of the prior charge on the property and retained the rest for investment purposes as arranged. However, R misappropriated the funds and no repayments under the mortgage were made. NHL commenced proceedings for repossession. The defendants made a counterclaim and contended that the mortgage should be set aside either on the ground of undue influence or on the ground of fraud. They further contended that NHL was liable to pay damages for negligent breach of duty in causing or allowing them to rely on R’s fraudulent advice. An issue arose as to whether the court had jurisdiction to hear the matter or whether it was a matter for the county court by virtue of section 21(3) of the County Courts Act 1984. Held Judgment was given for the plaintiff. 1. The county court had been entitled to transfer the action, which was otherwise in its exclusive jurisdiction, under section 21(3) of the 1984 Act, to the High Court by virtue of section 42(2) of the act. Accordingly, the High Court had the jurisdiction to hear the matter. 2. R’s appointment as a direct submitting broker did no more than authorise him to forward applications for loans direct to NHL. The fact that R was authorised to complete and submit applications and obtain valuation reports, and that the defendants had received a document from NHL which contained the words “If you need advice . . . contact the person who arranged your mortgage” did not amount to representations that the broker had any authority to give financial advice on behalf of NHL. Therefore R had not been acting as agent for NHL and the mortgage was not to be set aside on the ground of undue influence or fraud. 3. R had no authority to give advice on behalf of NHL and therefore NHL had not owed the defendants a duty to prevent R giving fraudulent advice to them. Accordingly there were no grounds for setting aside the mortgage. 4. The second defendant had consented to the mortgage of the property by her husband to NHL and therefore in so far as she had any equitable interest in the property, the mortgage granted was binding on her and took effect in priority to any interest she might have had: see Abbey National Building Society v Cann [1991] 1 AC 56. Simon Burrell (instructed by Penningtons, of Godalming) appeared for the plaintiff, National Home Loans Corporation plc; Simon Goldblatt QC and Claire Miskin (instructed by Emmett & Tacon, of Norwich) appeared for the defendants, Mr & Mrs Yaxley.