The Court of Appeal has handed down its judgment in NRAM Ltd v Evans  in which Kitchin LJ said that the appeal raised "interesting issues concerning… the legislative scheme set out in Schedule 4 to the Land Registration Act 2002… and the power [conferred on] the court to make alterations to the register for the purpose of correcting a mistake or bringing the register up to date".
In 2004, Northern Rock (now NRAM Ltd) provided a mortgage to the Evans and a charge was entered on the Charges Register. A year later, in 2005, the Evans consolidated their various borrowings (including an unsecured element) which redeemed the previous loan. No amendment was made to the Land Register as the existing charge was "all monies" and therefore secured the later loan.
In 2014, the Evans instructed solicitors to request NRAM Ltd remove the 2004 charge as the 2004 loan had been redeemed. They made no reference to the other borrowing. An NRAM Ltd employee mistakenly concluded that all the debts relating to the 2004 charge had been redeemed and submitted an electronic discharge (e-DS1). The employee wasn't able to see the subsequent lending, which was only picked up by NRAM Ltd's unsecured loan department after discharge.
NRAM Ltd subsequently applied to court for the discharge to be set aside.
The High Court Judge declared that it would be unconscionable to leave the mistake uncorrected. The Judge then considered alteration of the register but there was ambiguity as to whether his intention was to refer to rectification or alteration of the Title Register. The Court of Appeal provided some clarification on this point.
Alteration vs Rectification:
The starting point for the Appeal Court Judge was to consider the proper classification of the purpose behind the alteration. Was it to:
- bring the register up to date (paragraph 2(1)(b) of Schedule 4 of the Land Registration Act 2002); or
- correct a mistake (paragraph 2(1)(a) of Schedule 4)?
As the meaning of "mistake", is not defined in Schedule 4 Kitchin LJ considered a number of academic authorities. He found that:
- The focus must be on the point in time that an entry or deletion was made.
- If a change is correct at the time it is made, it cannot be a mistake.
- A distinction must be drawn between a void and voidable disposition – a void disposition should not have been made at the time and is therefore classed as a mistake. Conversely, a voidable transaction is correct at the time it is made and therefore not a mistake.
- A voidable disposition is valid until it is rescinded and the entry in the register of such a disposition before it is rescinded cannot properly be characterised as a mistake.
- A disposition made by mistake doesn't necessarily render its entry on the register a mistake – Schedule 4 is concerned with entries only.
- An entry can't become a mistake if it is voided at some future point.
In this case, therefore, as at the date that the Land Registry processed the e-DS1 (August 2014), the disposition was valid and not a mistake for the purpose of Schedule 4. Once the e-DS1 had been rescinded by the High Court Judge, the register could be brought up to date to reflect the rescission. Indeed, paragraph 3(3) Schedule 4 states that the Court must make an order for alteration unless there are exceptional circumstances which justify it not doing so. There weren't any such exceptional circumstances in this case.
This was not a case of rectification, but rather one of alteration. As a result, NRAM Ltd did not require the Evans' consent to re-register its charge. Neither did it need to show that the Evans had, either by fraud or lack of proper care, caused or substantially contributed to the mistake or that it would for any other reason be unjust for the re-registration not to be made.
The Evans argued that if the bank was found to be entitled to rectification, then they would be entitled to an indemnity from the Land Registry (under Schedule 8) for all losses they had suffered or would suffer in consequence. As it was found that there was no rectification or mistake which would require rectification, the Evans' claim for an indemnity fell outside the scope of Schedule 8 and was dismissed.
This is a welcome decision for lenders who find themselves in the unfortunate position of having mistakenly discharged security upon which they still rely. It clarifies the circumstances surrounding the definition of "mistake" for the purposes of Schedule 4 and makes clear that indemnities can only be sought in cases of rectification, not in cases of alteration.
However, lenders should be mindful that, although this clarifies the approach that should be taken in considering what is meant by rectification as opposed to alteration, much will still depend on the individual facts of a case in determining the initial mistake and whether it should be set aside.
Such a mistake must be distinct, of sufficient gravity, and more than just forgetfulness, inadvertence or ignorance. Moreover, it must be unconscionable or unjust to leave the mistake uncorrected. In this case, NRAM Ltd's mistake was induced by the misleading letter received from the Evans' solicitor that made no reference to further borrowings.
Whilst borrowers should set out all loans when requesting discharge, lenders should ensure their systems show further loans secured by "all monies" charges to save the time and cost of the court procedure to rectify any mistake.