NRAM Plc v Evans and another [2015] EWHC 1543 (Ch)

This very recently decided case involved a claim by the lender NRAM Plc (the Bank) that it was entitled to rectification of the register to re-instate a charge removed in error by e-DS1. The claim was defended by the borrowers who alleged that there was no mistake and the e-DS1 was correctly lodged. The Court considered whether the Bank could rely on the equitable doctrine of mistake in seeking the alteration of the register following the removal of the 2004 charge.

Background

Mr and Mrs Evans applied for an advance of £197,000 from the Bank in 2004 in order to purchase the property. An additional loan of £21,400 was made under the Consumer Credit Act 1974. The entire 2004 loan (the 2004 loan) was given one mortgage account number.

The purchase transaction completed. Mr and Mrs Evans were registered as the proprietors of the property and the 2004 loan was secured by means of a registered legal charge in favour of the Bank dated 26 November 2004 (the 2004 charge).

In September 2005 Mr and Mrs Evans contacted the Bank to enquire whether the four accounts they had with the Bank (including the 2004 secured and unsecured elements) could be consolidated. The Bank issued an offer and on 15 December 2005 the advance was made (the 2005 loan). The 2004 loan was redeemed with the 2005 loan sums, and a new account number was issued. No application was made to the Land Registry as it was the intention of the Bank to rely on the 2004 charge as its security. 

In the years following the making of the 2005 loan, correspondence referred to showed that the borrowers both treated the 2005 loan as being a secured mortgage. The Bank obtained a judgment against Mrs Evans in 2007 in relation to the unsecured part of the 2005 loan and final charging orders which were protected by Restrictions registered against the title to the property.

In 2014, solicitors instructed to act for Mr and Mrs Evans wrote to the Bank stating that the 2004 loan had been redeemed and the 2004 charge should be removed from the registered title. The letter did not refer to the 2005 loan. As a result of this letter the Bank removed its charge by submitting an e-DS1 to the Land Registry. It was explained in evidence that that the Bank’s process on receipt of the letter would have been to check the system for the 2004 loan. The system would have shown that the account had been redeemed in 2005, and would not have shown any other accounts.

The mistake came to light as a result of the letter being passed to the Bank’s unsecured department, who then noted the Restrictions registered in 2007 and the 2005 loan. The Bank informed Mr and Mrs Evans’ of the mistake in removing the 2004 charge and applied to register a Unilateral Notice against the title to the property.

Held

The Court found in favour of the Bank. In reaching its decision the Court considered the following:

(i) Did the 2004 Charge secure the 2005 loan?

It was held that the 2004 charge did have the effect of securing the 2005 loan. The Bank’s Mortgage Terms and Conditions stipulated that the mortgage secured further advances. The Terms and Conditions also provided that “mortgage debt” means “all of the money you owe us from time to time under any offer…”.

The Judge held that the definition in the Terms and Conditions was sufficiently wide and clear to include the offer under which the 2005 loan had been made.

(ii) Could the Bank rely on the equitable doctrine of mistake?

Once it had been concluded that the 2004 charge secured the sums borrowed under the 2005 loan, the Court had to consider the effect of the Bank submitting an e-DS1 to the Land Registry, and whether the Bank could rely on the equitable doctrine of mistake in order to achieve the rectification of the register.

The case of Garwood v Bank of Scotland [2013] EWHC 415 (Ch) (Garwood) was referred to and it was concluded that the nature of the mistake on the part of the Bank in this case was similar to the mistake made in Garwood. The Court considered two other cases which dealt with whether a voluntary disposition would be set aside for reasons of a mistake, beingFutter & Anor v Revenue and Customs [2013] UKSC 26 and Pitt v Holt [2011] EWCA Civ 132.

In Garwood Mr Justice Norris concluded that “…the mistake …was of such a serious character as to render it unjust on the part of the Borrower to retain what has been given to him i.e. the unencumbered freehold of [the property]”.

It was held that the Bank had made a distinct mistake in lodging the e-DS1. The Bank had believed that it was obliged to do so as the 2004 loan had been redeemed. The mistake arose as a direct result of the correspondence received from Mr and Mrs Evans’ solicitors. If the Bank had realised that the 2005 loan was secured and outstanding it would not have released the 2004 charge. The consequences of having released the 2004 charge were serious for the Bank in that it lost its security for the 2005 loan. The result of this, if rectification did not take place, would be that Mr and Mrs Evans, who had serviced the 2005 loan as if it were a secured loan, would be left with an unencumbered property.

It was held that the Bank was entitled to be re-registered as the proprietor of the charge. However, as Mr and Mrs Evans were registered proprietors in possession of the property, the court determined that rectification of the register could only take place if they had contributed to the error by lack of proper care. It was found that they had contributed as a result of the failure to refer to the 2005 loan in their solicitors’ letter.

What this means for you

Arguably, it was not necessary to show lack of proper care on the part of the borrowers because schedule 4 Land Registration Act 2002 states that no order for alteration of the register may be made unless the registered proprietor of the estate has by fraud or lack of proper care, caused or substantially contributed to the mistake or it would for any other reason be unjust for the alteration not to be made.

Mistakes happen from time to time and this case gives some reassurance to lenders that where a charge is removed as a result of a ‘serious’ mistake, the lender will be entitled to have their charge re-registered, where it would otherwise be unjust not to do so. However, lenders would be wise to thoroughly cross check their systems and the different borrowing held by customers before releasing their security.