NRAM Ltd v. Evans  EWCA Civ 1013 is an interesting case in which a bank discharged a mortgage in error. While the bank was successful in getting its charge reinstated at the Land Registry, it was not put back into exactly the same position as it would have been in had it not accidentally discharged the mortgage in the first place.
This case highlights the significant practical consequences that flow from the distinction between altering the Land Register to bring it up to date (which is what happened here) and altering it by way of rectification. It also illustrates the importance of having robust processes in place to ensure that similar errors do not occur when additional lending is secured by way of an existing charge.
In 2004 Mr and Mrs Evans took out two loans from Northern Rock (as NRAM was then known) (the first borrowing). The first of these loans was secured by a mortgage on their property. In 2005, they took out further loans from Northern Rock which they used to repay the first borrowing (the second borrowing). All the parties treated the second borrowing as being secured by the original mortgage, which remained secured on the property.
In 2014 Mr and Mrs Evans instructed their solicitor to write to NRAM requesting the discharge and removal of the mortgage from title to the property. The letter explained that, as confirmed in writing by NRAM at the time, the first borrowing had been discharged in 2005. The letter however made no reference to the second borrowing.
Unfortunately NRAM failed to spot the second borrowing and went on to discharge the mortgage. When NRAM realised its mistake, it put a unilateral notice on title to the property to protect its interest and sought to have the discharge set aside for mistake and the mortgage reinstated against title to the property.
Alterations amounting to rectification and those to bring the register up to date
On appeal, one of the key issues was whether the alteration of the register to reinstate the mortgage amounted to:
- rectification of the register – being an alteration to correct a mistake in the register the effect of which would be to prejudicially affect the title of a registered proprietor (i.e. Mr and Mrs Evans); or
- just an alteration to bring the register up to date.
This is not just an academic distinction – the categorisation of the alteration has significant practical consequences. Where an alteration amounts to rectification:
- the registered proprietor may be entitled to be indemnified by the Land Registrar against any loss suffered as a result of the correction;
- where the registered proprietor is in possession of the relevant property (which Mr and Mrs Evans were), the alteration can only be made with the registered proprietor's consent unless it can be shown that:
- the registered proprietor 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; and
- the court has a limited power pursuant to paragraph 8 of Schedule 4 to the Land Registration Act 2002 to change for the future the priority of any interest affecting the registered estate or charge concerned.
By contrast, an alteration to bring the register up to date does not:
- give rise to an indemnity claim;
- require the consent of the registered proprietor to amend the register; or
- bestow on the court any power to change the priority of any interests affecting the property.
The Court of Appeal held that the alteration to the title register to reinstate the mortgage was being made to bring it up to date. While NRAM had erred in issuing the discharge there had been no mistake on the Land Registry's part in registering it.
At the time the discharge was registered that discharge was voidable (because NRAM had issued it in error) but had not been avoided (because at that time NRAM had taken no steps to rescind it) and as such it could not be said that it was a mistake for the registrar to have registered it. As explained by Lord Justice Kitchin: "the registration of a voidable disposition such as that with which we are concerned before it is rescinded is not a mistake. … Such a voidable disposition is valid until it is rescinded and the entry in the register of such a disposition before it is rescinded cannot be properly characterised as a mistake. … Nor, so it seems to me, can such an entry become a mistake if the disposition is at some later date avoided."
The position would have been different therefore if, for example, it had been a fraudulent discharge as that would have been a void disposition and its registration would have amounted to a mistake in the register.
Accordingly NRAM in this case was entitled to have the register updated by entry of a note of the mortgage.
Reinstatement without retrospective effect
While NRAM was successful in having the discharge set aside and getting its mortgage re-registered, it was not put back into exactly the same position as it would have been in had it not issued the discharge in the first place.
This is because the court could not order the re-registration of the mortgage with retrospective effect. Without the ability to backdate the registration or to alter the priority of interests, the priority of the re-registered mortgage could, potentially, be subordinated to any interests created during the intervening period of non-registration. For example, had NRAM not placed a unilateral notice on title and Mr and Mrs Evans granted another charge on the property to a third party during that period, NRAM could have found itself with a second rather than first ranking legal charge. This is in contrast to cases where the register is altered by way of rectification as in those circumstances the court does have a limited power to change the priorities of competing interests for the future.
Consequently, while in this case there was a positive outcome for NRAM, parties would be well advised to try to avoid errors in the first place as reliance on the alterations provisions of the Land Registration Act 2002 can produce unwelcome results.
The case illustrates the importance to lenders of having sound processes in place to ensure that errors do not occur when additional lending is to be secured by an existing charge.
Funders should always consider carefully whether it is appropriate to rely on an existing mortgage to secure additional lending in the first place. For example, has the legal mortgage been drafted on an "all monies" basis or does it simply secure lending of up to a particular amount or pursuant to a particular facility agreement? Has a note of an obligation to make further advances been registered against the title to the property? It should also be considered whether there are any other factors which might mean that taking fresh security is advisable, such as the involvement of a guarantor whose liability may be affected by a change in the lending arrangements.
Funders would also be well advised to have a robust protocol for checking that their charges do not secure additional lending as part of their discharge procedure.