For the homeowners mortgage support scheme (which subsidises lenders to forebear taking possession), a grand total of, wait for it, … 32 households had benefited.  The researchers add, and this is not unreasonable, that the scheme has had wider benefits in leading lenders to develop their own forebearance strategies (which currently account for rather more borrowers, erm 33,000).  I wonder also if the FSA might have had something to do with that development as well (see our note here).  The researchers also uncover other various reasons explaining the low take-up, including problems of design and onerous documentation.  It is a rather sorry tale in how not to implement an important social policy.

For the mortgage rescue scheme, under which the borrower’s property is bought by a PRP in the main and other  gatekeeping-type practices, including money advice, housing options, homelessness prevention strategies – all designed to keep the household in their property – there had been 20,254 approaches to local authorities, most of which had received advice of one sort or another, 682 had been “referred for consideration under homelessness legislation” (that’s roughly 3.4% by my calculation), and 629 had their properties bought from them on a sale-rentback type agreement.

This is good quality research (which I probably have not done sufficient justice), which demonstrates the considerable impacts on households helped through these schemes and included 42 interviews with those households as part of the study; and at least the executive summary is worth a read by practitioners (who might get something out of it when it comes to thinking about their s 204(s) and/or LA gatekeeping strategies – see for example the Raw case).

The researchers go on to demonstrate the schemes’ VFM and here, it must be said, they have also been rather clever in providing two measures of VFM, which have been sufficient to satisfy Grant Schapps to retain the HMS for a limited period: “Because of low administrative costs, the Minister has decided that the Support Scheme will remain as a backstop that maybe needed if interest rates rise. It will close as planned at the end of the financial year” (press release, where Schapps is [oddly] supported by Martin Lewis, who has a money saving website for which he gets extra publicity in the press release).

Somewhat worryingly, in the same press release, the CML forecast is for 53,000 repos this year.  I really don’t know why they always have to use the CML repo forecasts, particularly now when they have commissioned the brainy John Muellbauer to model and forecast mortgage arrears and possessions (published by DCLoG the same day as the press release; fortunately, there is a more digestible summary of the report).  One of the stark, key conclusions from this sophisticated study is the perhaps obvious, unsophisticated:

Modelling of a wide range of economic scenarios suggests that it is likely that possession rates will rise in the next three to four years. Indeed very optimistic assumptions need to be made to avoid this. The combination of higher interest rates and weak growth in house prices in the short term would lead to a sharp rise in possessions.

A brief note on this case, which concerned the enforceability of a credit agreement secured on the Walker’s property. Our report on the Court of Appeal decision is here, and there is little to add in this note, because the Supreme Court in Lord Clarke’s lead judgment, agree completely with the Court of Appeal.

The issue was whether a separate charge – here for broker’s fees – on which interest was charged, should have been included in the total amount of credit specified in the agreement. At first instance, the fact that it wasn’t, had meant that the agreement was declared unenforceable under the Consumer Credit Act 1974. The Court of Appeal held that the brokers fee was a charge for credit, not part of the credit, and that there was nothing in Consumer Credit Act 1974 that meant that interest couldn’t be levied on a charge for credit. The credit agreement held good.

The Supreme Court agrees. Something which is a charge for credit cannot be part of the credit:

But for the provisions of section 9 of the Act, there would be a strong case for saying that, since the total amount advanced was £18,350, that was the amount of credit and, since that sum was not stated in the agreement to be the amount of the credit, it follows that it does not contain a prescribed term and is unenforceable. The problem is that section 9(4) provides that an item entering into ‘the total charge for credit’ shall not be treated as credit. It follows that if an item is part of the total charge for credit, it cannot form part of the amount of credit, even if it would otherwise be regarded as credit.

That conclusion, which, in our judgment, follows from the plain meaning of subsection (4), is supported by the authorities: see in particular Wilson v First County Trust Ltd [2001] QB 407, Watchtower Investments Ltd v Payne [2001] EWCA Civ 1159, [2001] GCCR 3055 and Wilson v Robertsons (London) Ltd [2005] EWHC 1425 (Ch), [2006] 1 WLR 1248.

The charge for credit in this case, even though advanced by the same lender, fell clearly under Wilson v First County Trust Limited.

To the objection that there was interest charged on the loan of the broker’s fee, Lord Clarke says:

Section 9(4) does not prohibit the charging of interest. If the fee itself was part of the total charge for credit, it seems to us to follow that interest on that fee was also part of the total charge for credit and not therefore to be treated as credit. As the court sees it, both the fee and interest on the fee are ‘other charges’ within regulation 4(b) of the TCC Regulations quoted above and are thus ‘included in the total charge for credit’. Even if, for some reason, the interest were not so included in the charge for credit, we do not see how the interest could itself be credit.

The borrowers’ argument involves saying that, whereas in the case of, say, a loan of £1,000 repayable with interest and a document fee of £50 repayable without interest, the amount of credit is £1,000, nevertheless in the case of such a loan but with a document fee of £50 repayable with interest, the amount of credit is £1,050. That seems to us to be nonsensical. Either the credit is £1,050 in both cases or in neither. For the reasons we have given we conclude that the answer in both cases is £1,000.

Appeal dismissed, but

It is perhaps important to note for the future that section 127(3) of the Act was repealed by sections 15, 70 and Schedule 4 of the Consumer Credit Act 2006 and does not apply to agreements made after 5 April 2007. Further, when the Consumer Credit (Agreements) Regulations 2010 come into force, they will require documentation of the ‘total amount of credit’, which is defined as ‘the credit limit or the total sums made available under a consumer credit agreement’.

So that form of defence to possession proceedings by sub-prime lenders for loans secured on properties has gone up in smoke.

We here at NL often joke that, if any of us were appointed to judicial office then we doubt that anyone would ever get possession orders from us; not only are we able to demonstrate a degree of pedantry that would flummox most claimants* but, frankly, we are (sometimes) attracted to result-focused reasoning.** It is the latter point that – whilst never expressed – I get the distinct impression was what was happening in Annulment Funding Company Ltd v Cowey and Cowlam [2010] EWCA Civ 711. It’s a morally pleasing case and an example of a factual situation that – annecdoally – is becoming quite common.

Mr Cowey and Ms Cowlam were long-standing cohabitees and the joint owners of a property. There was a first charge (presumably the mortgage that they used to purchase the property) in favour of Cheltenham & Gloucester Plc and c.£430,000 of equity. Mr Cowey was made bankrupt in the sum of c.£100,000 (c.£120,000 after costs, expenses etc) by the Inland Revenue and his share of the property vested in his trustee in bankruptcy.

The appellant company specialised in providing finance to people who  - if they weren’t bankrupt – would hold valuable interests in land. The idea is that the money is lent to clear the bankruptcy and then repaid by a re-mortgage of the property. It looks like that this “bridging loan” is secured on the property in the meantime, to be paid off by way of a complete re-mortgage of the property.

In the present case, that didn’t happen. The loan from the appellant remained as a charge on the property (accruing interest at 1.5% per month, albeit that no interest was charged for the first three months) and possession proceedings were issued. Ms Cowlam defended the possession proceedings on the basis that her consent to the charge had been procured by undue influence by Mr Cowey and the company was fixed with notice of that undue influence.

The defence was successful at trial. The judge found that the respondents did not understand that nature of the transaction and, in particular, that it would give rise to a charge over the property. Mr Cowey had – probably inadvertently – misled Ms Cowlam as to the nature of the loan. He had also applied pressure to her to persuade her to agree to the loan. In total, this amounted to actual undue influence or, in the alternative, was such that undue influence should be presumed. He went on to find that the appellant was fixed with notice of the undue influence, such that both the loan and the charge were set aside as against Ms Cowlam.

An appeal to the Court of Appeal was dismissed. The judge had heard the evidence and concluded that there was actual undue influence. His comments about presumptions were an alternative basis for his judgment. Whilst the distinction between actual and presumed undue influence could be confusing, what the appellant was really complaining about was a finding of fact and such an appeal was doomed to fail, particularly where – as here – the appellant did not challenge any of the findings of fact, but merely the weight attributed to them. Whilst it might have been possible to sever the loan from the charge, the judge had been entitled to find that both the loan and charge were equally tainted by undue influence and, in those circumstances, severance was not appropriate.

* or, as we see it, if you want to evict someone, you should get the law and procedure right.

** for the avoidance of doubt, if I – or any other NL writer – am/are ever appointed to any judicial role, I/we will, of course, be perfectly fair at all times.

This was an appeal from a mortgage possession case, centred on the issue of whether Ms Bustard could be said to be in actual occupation of the property such that she had an overriding interest under Land Registration Act 2002 (the 2002 Act) s29, schedule 3, paragraph 2 (Land Registration Act 1925 s70(1)(g) as was), which took priority over Link Lending’s charge.

The history is a sorry one and it would be fair to say that Link Lending did not pursue the appeal with an eye to their PR. Ms Bustard was the freeholder and occupant of the property concerned from 2001. She suffered from Korsakoff’s Psychosis, a severe medical condition which affected her understanding, memory, insight, cognitive faculties and judgement. She underwent periods of in-patient treatment.

In 2004, Ms Bustard apparently executed a transfer of the Property to Mrs Noreen Hussain, who was acting as a nominee for her husband, Mr Muhammed Hussain, with a stated consideration of £100,000. The first instance court had found that advantage had been taken of Ms B’s vulnerability and that the Hussains’ were aware that Ms B did not have capacity to enter into the transfer. No payment of £100,000 had been made and Ms B remained in occupation of the property.

Mrs Hussain promptly took out a mortgage for £100,000 with HSBC. In January 2007, Ms B was sectioned and later transferred to a residential unit at the hospital. She was not allowed to return home during this time. In February 2008, Mrs Hussain took out a secured bridging loan of £107,250 from Link Lending. She discharged the HSBC mortgage, but failed to make any payments of interest to Link Lending.

Link brought possession proceedings in June 2008, which Ms B only found out about when briefly visiting the property under supervision. She, via a litigation friend, applied to be joined as a defendant.

At first instance, the Court found that:
i) On the facts of the transfer, Ms B had an equity in the property in the form of a right to have the 2004 transfer set aside.
ii) Link were entitled to judgment against Mrs Hussain for the loan amount and interest.
iii) That although Ms B was not living at the property at the time of the charge:

She genuinely wanted to return home even though prevented from doing so by an order under the Mental Health Act. Her furniture remained there. Arrangements had been made by those who had taken over responsibility for her finances to pay the regular bills such as the community charge from her funds. She was visiting the property, admittedly supervised, but precisely because she still considered it her home [...] while Mrs Bustard was not physically present on the land her occupation was manifested and accompanied by a continuing intention to occupy.

The order was that the transfer be reversed and Link Lending discharge the charge. Mrs Hussain and Link to pay Ms B’s costs.

Link Lending appealed. There was no appeal against the finding on capacity to enter the transfer. Further, Link Lending acknowledged that if the charge stood, Ms B would be left with nothing at all. In addition, Link did not rely on “the exception to an overriding interest available in the case of a person whose occupation would not have been obvious on a reasonably careful inspection of the Property at the relevant date: 2002 Act schedule 3 paragraph 2 (c) (i). The only inspection of the Property by Link prior to taking the charge on it was a “drive-by” inspection by a surveyor, who noted signs of occupation.”

Link Lending’s ground of appeal was that the Judge was wrong in law that Ms B was a person in actual occupation as she was not present in the property on the day of the charge and had not resided there for the previous year. Per Lord Oliver in Abbey National BS v. Cann [1991] 1 AC 56, her occupation had “ceased to have that quality of permanence and continuity required for actual occupation after a year of residence at” the care accommodation. After such an extended period of absence it could not be said that her connection with the Property was any longer one of actual occupation. Or, as per Robert Walker J in Stockholm Finance Ltd v. Garden Holdings Inc [1995] LTL (26 October 1995, the absence had been so prolonged that the notion of her being in occupation became ‘insupportable’. The passage relied upon by the Judge below from Thompson v Foy [2009] EWHC 1076 at 127 on the manifesting of an intention to return was obiter and in any event the concept derived from a Landlord and Tenant case, not a Land Registration case.

Held:

The facts in the case went both ways:

Some of the primary facts point against Ms Bustard’s actual occupation of the Property at the relevant date: she was not personally present in the Property on 29 February 2008; she had been in a residential care home since January 2007; she was incapable of living safely in the Property; and her visits to the Property were brief and supervised.

Some of the primary facts point to Ms Bustard’s continuing actual occupation of the Property: it was her furnished home and the only place to which she genuinely wanted to return; she continued to visit the Property because she still considered it her home; those who had taken responsibility for her finances regularly paid the bills, such as the community charge, from her funds; she was in the process of making an application to the Mental Health Review Tribunal in order to be allowed to return home; and no-one took a final and irrevocable decision that she would not eventually be permitted to return home.

The Judge’s decision on the facts would only be overturned if wrong on statutory construction or as a judgment of fact and degree. The Judge did not misconstrue the statute and precedent cases on what could constitute actual occupation. Nor was his evaluation of the facts unsupportable. The precise circumstances of the precedent cases were not in themselves set conditions. The role of the authorities was to clarify legal principles and each was clearly distinguishable in terms of the facts involved.

In this case the new and special feature is in the psychiatric problems of the person claiming actual occupation. The judge was, in my view, justified in ruling, at the conclusion of a careful and detailed judgment, that Ms Bustard was a person in actual occupation of the Property. His conclusion was supported by evidence of a sufficient degree of continuity and permanence of occupation, of involuntary residence elsewhere, which was satisfactorily explained by objective reasons, and of a persistent intention to return home when possible, as manifested by her regular visits to the Property.

Finally, the summary by Lewison J in Thompson v Foy was an accurate and helpful summary of the law, contra Link Lending’s arguments.

Appeal dismissed.

The press release explains that, where a mortgagor (other than one under a buy-to-let mortgage) has granted a tenancy of the property and fallen into arrears on his mortgage, the court will now have power to postpone any possession order obtained by the mortgage company for up to two months, so as to allow the tenant to make alternative housing arrangements.

Whilst I have no reason to doubt CLG, I’ve not been able to find the final text of the Bill/Act online and so can’t tell you exactly how it does this, or when it comes into force. If anyone knows where I can get a copy of the Act, please do let me know.

We are a little late on this one, which the family law bloggers have already noted, but it is a bit irresistible.

Mrs Hewlett was appealing a possession order obtained by First Plus against her home. First Plus had a mortgage against the property agreed by both Mr and Mrs Hewett. By the time of the possession order, the amount outstanding was £47,372.79.

Mr Hewett had played no part in proceedings. Mrs Hewett appealed the first instance Judge’s rejection of her defence that the mortgage had been procured by undue influence and misrepresentation.

Mr H had something of a bad history of running up un-payable credit card debt. The property – itself bought by sale of Mrs H’s mother’s home –  had been remortgaged in 2002, in part to repay his debts. The property was in joint names and was the home of Mr H, Mrs H, their two children and Mrs H’s mother.

By the end of 2003, Mr H had started an affair, unbeknown to Mrs H. His debts had reached a point that the combined income of the family could not cover them and the mortgage payments. He proposed a re-mortgage to Mrs H. She, the Court found, was by no means unable to take a part in financial decision making and was aware of her husband’s propensity to run up debt. However, told by her husband that it was the only way to keep the family home, and with his promises on future conduct, she decided to agree. The first instance Judge found that this was a ‘horrible choice’ but a choice nonetheless.

First Plus, belatedly, acknowledged that as it was aware that the mortgage was to repay Mr H’s debts, rather than the H’s jointly, it was on notice of the risk of undue influence, but was found to have done nothing thereafter, in breach of the Royal Bank of Scotland v. Etridge [2001] UKHL 44 guidelines.

As an occupier, Mrs H’s mother was also required to sign a mortgage consent. Mr H instead forged her signature.

In May 2004, Mr H’s affair came to light. He left in January 2005 and the Hs were divorced in 2006. Meanwhile Mr H was made bankrupt on his own petition, owing £40,000 plus. Mrs H had been unable to meet mortgage payments and the original loan by First Plus of £38,000 had grown to £59K by October 2008.

On appeal, Mrs H argued that Mr H had already, by January 2004, decided to leave his wife. His misrepresentations to her were i) that the mortgage was the only way to preserve the family hone; ii) that he would pay the mortgage payments thereafter; and iii) his concealment of his affair, a material fact.

The Court of Appeal were not taken with i) or ii). In view of the history, it was far from clear that Mr H had intended to leave the family in January 2004. Mr H had indeed paid the mortgage for the following year.

However, on iii) concealment of the affair did amount to the exercise of undue influence against her, sufficient to vitiate the mortgage transaction.

It is not a requirement that a person’s decision was completely not her own, or her own will overborne. But, “for an obligation of candour and fairness to be owed by the husband, it is necessary to show that the wife reposes trust and confidence in him. Usually that means, trust and confidence in his conduct of the family’s financial affairs”. Following Thompson v. Foy [2009] EWHC 1076 (Ch), this description of trust and confidence is not exhaustive.

In Royal Bank of Scotland plc v. Chandra & anr [2010] EWHC 105 (Ch), it was held that “a deliberate suppression of information because the husband knows that, if disclosed, it will deter the wife from giving the guarantee will involve an abuse by him of her confidence. It would be unconscionable and rightly categorised as unacceptable means”.

Following these principles, Mrs H did place a sufficient degree of trust and confidence in Mr H so as to give rise to the obligation of duty and candour. She regarded Mr H as being in charge of the family finances, and she had to take on trust his promise to make the mortgage repayments.

The affair was just such a thing that the obligation would require him to disclose. First Plus had argued that it wasn’t a material fact, but it clearly was, as it went to the commitment to the marriage and home that Mrs H clearly took to be concomitant with her own.

There was no evidence that Mrs H would not have entered the mortgage if Mr H had disclosed the affair, but this went to nothing:

It has never been part of the proof of undue influence that, but for the relevant abuse of trust, the impugned transaction would not have been entered into. The right to set aside the transaction arises not because, on a but for causation analysis, it would otherwise have been avoided, but because of the equitable wrong constituted by the abuse of confidence was part of the process by which the victim’s consent to it was obtained. In the present case that wrong is constituted by Mr Hewett’s breach of his duty of fairness and candour to his wife, when persuading her to agree to the re-mortgage.

The proper test is objective:

The issue may be best addressed by asking whether a solicitor, consulted by Mrs Hewett for advice about the wisdom of the transaction, would have thought it relevant to know that her husband was, while asking for her unqualified trust, at the same time conducting a clandestine affair. There can in my view only be an affirmative answer to that question.

Appeal allowed and mortgage set aside. However:

It is however common ground that Mr Hewett’s execution of the mortgage to First Plus operated as an equitable charge of his beneficial interest in the Property, and that Mrs Hewett acquired that interest from her husband’s trustee in bankruptcy subject to that equitable charge. The Judge recognised, at paragraphs 3 and 4 of his Judgment, that if the mortgage was to be set aside, it would be necessary to hear argument about the question whether, and if so when, First Plus should be entitled to enforce that equitable charge by obtaining an order for sale of the Property by an application under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. Counsel are agreed that in the event that Mrs Hewett succeeds in this appeal, that question should be remitted to the Judge, if a consensual solution to it cannot be arrived at between the parties.

What I love here is the vision of a conveyancing solicitor’s reaction to news of the husband’s affair as a hypothetical benchmark for the material relevance of the lack of disclosure. It also suggests that there may be some interesting new questions on re-mortgaging application forms…

[Apologies for the Diana reference. I remember watching that interview and thinking that she was the Rasputin of the British Royal family, but obviously we didn't get the February and October revolutions.]

Mr Ashcroft purchased a property with the aid of a mortgage from Bradford & Bingley in 1990. He failed to make a single payment and an SPO was obtained in April 1991. He breached the terms of the suspension and the property was subsequently sold by the building society in 1992. The proceeds of sale left a shortfall of c.£30,000.

In 1995 (i.e. 3 years later), the society wrote to Mr Ashcroft to ask how he proposed to pay the shortfall. Mr Ashcroft responded with “indignation at the time it had taken the building society to make the demand” but – in Oct 2000 -  and at the suggestion of the society, agreed to make payments of £10 pcm. These stopped in 2004.

In 2008, the society issued proceedings. Mr Ashcroft contended that they were statute barred. He argued that, by s.20, Limitation Act 1980, the society had 12 years to recover the mortgage loan. On any view, the claim was issued more than 12 years after the right to recover the monies arose. However (argued the society), by s.29(5), time starts to run again from the date when the debtor acknowledges the claim.

The Recorder held that the claim was not statute barred, but granted permission to appeal. The appeal was dismissed. The problem for Mr Ashcroft was that he had made the £10 payments, the effect of which was to bring him within the scope of s.29(5), 1980 Act, and start time running all over again.

I’m not sure if the suggestion by the society that Mr Ashcroft pay £10 pcm was a stroke of genius or not. On the one hand, by acknowledging the debt, it got them out of a potentially tricky limitation period. On the other (as Sedley LJ points out in his judgment), they were potentially giving rise to a binding compromise that would leave Mr Ashcroft paying the debt until 2402 (!) but with a defence to any proceedings (such as the present) so long as he made his payments.

This is being touted as bringing to an end the Horsham Properties v Clark & Beech [2008] EWHC 2327 (Ch) (our report here) exception to the Adminsitration of Justice 1970 (and 1973) loophole. See, for example the Inside Housing report or the report in yesterday’s (29/12/09) Guardian – not online. However, the proposals only apply to residential properties with residential mortgages.

As readers will recall, Horsham concerned possession of a property occupied by the owners but where the mortgage was buy to let and the occupation was in breach of the mortgage conditions. The proposals wouldn’t affect that situation.

I don’t know if there have been comparable cases involving residential properties, but we haven’t heard of any and neither have the MoJ. So the proposals appear to be to stop something that isn’t happening in response to a case that the proposals wouldn’t stop happening again anyway.

Still, the certainty would be a good thing for residential mortgagors. The consultation closes on 28 March 2010.

I’ll take a slightly different approach to the court and discuss each issue as it arises in the chronology.

the Constructive Trust

In 1976 Mr and Mrs Collelldeval (the C’s) moved into the property, which they held on trust for themselves as joint beneficial tenants. In 1988 Mr C was declared bankrupt (severing the joint beneficial tenancy). Some efforts were made to reclaim the property from the C’s by the trustee in bankruptcy and the Coventry Building Society (who held a charge over the property) but neither succeeded.

At this time (unsurprisingly) the C’s were unable to obtain a mortgage on the property to (for example) discharge the Coventry Building Society mortgage or otherwise deal with their indebtedness. Shortly before his discharge from bankruptcy Mr C appears to have come to the following agreement with those involved.

• the property would be sold to the C’s’ daughter Amanda-Jane Dyche (the first defendant) and her husband (the D’s) for £25,000 (a price that did not represent the value of the house)
• the proceeds of sale would be used to discharge the Coventry Building Society’s mortgage, leaving £18,000 to be paid to the trustee (and thus for the benefit of Mr C’s general creditors) and a small surplus for other purposes
• the D’s would borrow £17,000 from Lloyds’ Bank secured by a mortgage on the property (and borrow a further £8,000 from a friend
• the C’s would continue to live in the property and pay the D’s instalments to be used to reduce the mortgage indebtedness
• when the Lloyds’ mortgage was discharged, the property would be re-conveyed to the C’s

The judge believed Mr C’s evidence that this was the deal because he (and his late wife) had continued to beneficially occupy the property. They had made payments to the D’s and some contemporaneous documentation also appeared to support his contention.

His analysis was that the arrangement created a common intention constructive trust with the D’s as trustees and the C’s as beneficiaries. Mr C has (of course) no interest in the property so could not convey it to the D’s but that, thought the judge, was really irrelevant because a constructive trust could be imposed from the moment of conveyance.

What kind of beneficial interest?

Mr C suffered more misfortune because in August 1994 Mrs C died. Mrs D argued that Mr C must have held the property as a beneficial tenant in common, as a result Mrs C’s interest would have fallen into her estate (and one presumes some of it might have come to Mrs D). The judge found no reason to accept that. The C’s had held the property as joint beneficial tenants until 1988 and would have continued to do so but for the bankruptcy.

Overreaching

The D’s divorced some 9 years later. In the divorce it was agreed that Mr D would sell his interest in the property to Mrs D for £5,000. At the same date, Mrs D obtained a mortgage from HSBC. In order to convince them that Mr C had no interest in the property she gave them a copy of an assured shorthold tenancy showing Mr C as a tenant and with a forged version (as the judge found) of his signature.

Mr C got wind of the transfer of the property into Mrs D’s sole name. She told him that she would transfer the property to him once the transfer to her had completed. The judge called this a deception (the transfer had already happened). The HSBC mortgage was used (amongst other things) for Mrs D’s own benefit, although some money was paid to discharge a debt to Lloyds (more on this later).

It was argued by HSBC that Mr C’s interest had been overreached by the sale and mortgage. I cannot see how such an argument can hope to have succeeded since (as any student knows) for a statutory overreaching to be effective the proceeds of sale (or mortgage) must be paid to 2 or more trustees. In this case they were not.

There was some discussion as to whether there were two transactions (transfer to Mrs D, then mortgage) or one (on the principle of Abbey National Building Society v Cann [1991] 1 AC 56, but of course either transaction taken individually or both taken together involved one and one only recipient of the purchase money.

This was not the first basis for the court’s decision. The judge held that in the transfer to Mrs D she was not a good faith purchaser (a requirement of statutory overreaching) since she was acting in breach of trust. As a result that transfer could not overreach Mr C’s interest.

The Result

The end result was that Mr C remained a beneficiary under a trust of the property. Since he was in actual occupation his interest overrode that of HSBC. He won, they lost. As the judge pointed out: they could have made more enquiries but they did not. A textbook example of the operation of overriding interests and one that should not have surprised the bank once the constructive trust point was found in Mr C’s favour.

What about the Lloyds’ mortgage? You remember there was an original loan secured on the property which Mr C was supposed to pay off. There was also another loan, some of which was paid off by the HSBC mortgage. What about subrogation I hear my readers ask? No-one was able to – or had thought to – produce sufficient evidence to make that argument a runner. The court was not able to tell even if the second loan had been secured on the property (in which case the subrogation argument might have been good) or not and it appears that the first loan was paid off before the HSBC mortgage.

An interesting case. I would be interested to know what readers think about the “not a purchaser in good faith” point.

Miller-Foulds v Secretary of State for Constitutional Affairs [2008] EWHC 3443 (Ch); [2009] EWCA Civ 1132

You’d be forgiven for not having noticed any of this (long running) litigation over the last 3 years (if only because you need both Casetrack and Lawtel in order to find all four judgments, none of which seem to be on Bailii). On one view, this is just another mortgage possession case but – at least to me – there is quite a bit more in here.

Mrs Miller-Foulds was (and may still be for all I know) the freehold owner of a residential property in Middlesex. She purchased the same in 1986 with the benefit of a mortgage from Abbey National. By 1991 it appears that she had fallen into arrears on her mortgage. In November 1991, the bank obtained an SPO and – apparently – it recorded that the arrears were just over £7,000. I say “apparently” because Mrs Miller-Foulds disputed that such a sum was ever recorded as being the arrears. The original possession order had been lost/destroyed due to the passage of time. All that remained was a record-card of the hearing.

The bank applied – unsuccessfully – to lift the suspension on the possession order in 1995, 2002 and 2003. It sought to rely on the arrears figure allegedly stated on the 1991 order. Mrs Miller-Foulds denied that any such figure had been stated (so far as we can tell, it appears that both parties argued that the other was estopped from asserting/denying [delete as appropriate] the existence and level of the arrears).

In December 2005, HHJ Edwards sought to resolve this conundrum and declared that the arrears were c.£13,000. Mrs Miller-Foulds appealed to Langley J where she raised a new argument to the effect that the record card retained by the county court was insufficient to prove that a possession order had been made and that any arrears figure had been specified in that it did not meet the requirements of  s.12, County Courts Act 1984 and the SI made thereunder. These impose an obligation on the DJ to inter alia keep a minute of the order made.

Rix LJ ([2006] EWCA Civ 1520) granted permission to bring a second appeal on whether the record card complied with the requirements of s.12 and, if it did not, what effect that had on the ability of the bank to prove the 1991 order.

The Court of Appeal dismissed the appeal ([2007] EWCA Civ 138). The parties had proceeded for some 16 years on the basis that an order had been made and it was only in the appeal to Langley J that any argument to the contrary had been raised. It was far too late to raise such matters now.

Mrs Miller-Foulds then issued proceedings against the Secretary of State for Constitutional Affairs ([2008] EWHC 3443 (Ch)). She sought various declarations to the effect that the 1991 order could not be proved to exist or have any effect. The Secretary of State was said to be at fault for not ensuring that proper records were kept.

HHJ Pelling QC was not impressed by these proceedings. He was surprised (to put it mildly) that Abbey National were not named as a party to the proceedings, since that would have been the only way of ensuring that any declaration was binding on them. The Judge heard evidence about the practice in Brentford county court as to the practice in 1991 and concluded that there had been no breach of s.12, County Courts Act 1984. Even if that were wrong, there was no reason in law why the existence and terms of of an order could not be proved by secondary evidence if, as here, the original order had been lost.

Mrs Miller-Foulds sought permission to appeal to the Court of Appeal ([2009] EWCA Civ 1132). Permission was refused on the papers by Rimer LJ and an oral application was refused by Lloyd LJ. The proceedings were misconceived. At the least, the bank needed to have been named as a defendant and the failure to do so made it difficult to see the purpose of the proceedings. In any event, HHJ Pelling QC had been correct in his earlier judgment.

Phew. And thus ends this case. It isn’t uncommon in possession cases for orders to have been made many years ago and for the original order to have been lost / destroyed. Although the facts and history are odd, there is some useful material in HHJ Pelling QC’s judgment which may be of wider relevance in such cases.