First Mortgage Securities (No 9) Ltd v Smith & Ors

A final court order should generally be challenged by appeal and should not be reopened years after the appeal period has expired. The recognised exception is where the order was obtained by the fraud of the successful party; mere computational error, incompetence or inaccurate evidence does not establish that exception.

A mortgagee’s sale under a statutory power of sale is protected from challenge by the purchaser on grounds concerning the authorisation or regularity of the sale. The affected mortgagor’s remedy is damages against the mortgagee. A later purchaser who acquires registered title for valuable consideration takes free from unregistered interests, subject to entries on the register and applicable overriding interests.

FMS had taken possession of the Smiths’ mortgaged house pursuant to County Court orders made in 1992 and 1995. FMS later sold the property to Mr Russell, who sold it to Mr and Mrs Bedford in 2002. Mr Smith subsequently sought to challenge the possession orders and recover possession from the Bedfords, alleging that FMS’s mortgage-account calculations had been wrong.

Mr and Mrs Bedford applied for summary judgment dismissing Mr Smith’s claim. Mr Smith also sought summary judgment or judgment in default against FMS, including orders setting aside the earlier possession orders and damages. The central issues were whether the possession orders could be reopened for fraud and whether, even if they could, Mr Smith could assert a right to possession against the later registered proprietors.

1. Applications against FMS. Mr Smith’s application for damages and his application for judgment in default concerning the possession orders were refused. The absence of a response from FMS did not justify judgment where Mr Smith sought to use the order principally as a step in his separate claim against the Bedfords. The counterclaim against FMS was not dismissed.
2. Reopening the possession orders. The ordinary rule is that a party challenging an adverse decision must appeal, and matters should not generally be reopened after the time for appeal has long expired. The exception recognised in Odyssey Re (London) Ltd v OIC Run-Off Ltd is an order obtained by the fraud of the successful party, including deliberately perjured evidence. Prentice v Hereward Housing Association was noted as involving a different procedural context.
3. Even assuming that FMS’s mortgage-account calculations were wrong, the expert evidence indicated misunderstanding of the mortgage terms, inadequate systems and arithmetical error. It did not support a seriously maintainable case that FMS knowingly presented false evidence. The possession orders therefore could not realistically be set aside on the alleged fraud ground.
4. Effect of the mortgage sale. The mortgages were validly created and contained powers of sale. Under sections 104(2) and 104(3) of the Law of Property Act 1925, the sale to Mr Russell was deemed to have been made under the statutory power of sale. His title was not impeachable for absence of an authorising case, lack of notice or other improper or irregular exercise of the power. Any remedy arising from such an exercise was damages against FMS.
5. Effect of registration. The sale to Mr Russell occurred while the possession order remained in force, and he became registered proprietor. On the subsequent disposition for valuable consideration, sections 20, 21 and 70 of the Land Registration Act operated so that the Bedfords acquired the registered freehold subject only to relevant entries and overriding interests. The former occupiers had not been in actual occupation since 1995, so no overriding interest assisted Mr Smith. Summary judgment was accordingly entered for the Bedfords, with costs of £20,000.

Not an appeal. The judgment records earlier County Court possession orders and interlocutory proceedings before Mr Justice Neuberger, but no appeal to this court.