Kensington Mortgage Company Ltd v Carr & Anor

A mortgagee owes an equitable duty to obtain the best price reasonably obtainable when selling mortgaged property. An alleged undervalue gives rise to a separate claim for loss and cannot be set off against the lender’s recovery claim in existing proceedings without pleading and proving the breach. Where loan funds discharge the borrower’s existing debts, the resulting relief from those liabilities may support recovery of the corresponding sums and interest. A judge may correct transcription, grammar and style in an oral judgment transcript, but may not change its substance or outcome. A possible undisclosed communication between a trial judge and one party’s solicitors may justify adjourning a permission application so that explanations can be obtained.

The claimant lender had obtained possession of a property under a mortgage signed in the defendant’s wife’s forged name. The defendant was found to be the sole legal and beneficial owner and was not personally liable under the purported mortgage or for the secured loan. The lender nevertheless recovered sums representing liabilities discharged from its advance, including mortgage redemptions, with interest.

District Judge George ordered payment of nearly £71,000 and permitted sale of the property. On appeal, HHJ Purle removed two items and substituted £7,500 for money allegedly paid to solicitors on a divorce. The defendant sought further permission to appeal on several grounds, including the sale price, interest, costs, transcript corrections and a possible communication between the trial judge and the lender’s solicitors.

Application adjourned. Permission to appeal had already been granted on the £7,500 issue, supported by evidence that the defendant had received public funding and had not paid the solicitors. No additional permission was granted at this hearing, but final disposal was deferred because of a possible procedural concern.

1. A mortgagee owes an equitable duty to sell mortgaged property at the best price reasonably obtainable. An alleged breach, with a claim for the difference between the actual and proper net proceeds, would require a separate claim in which the breach was pleaded and proved. The alleged loss could not be set off against the sums recoverable in these proceedings.
2. The defendant remained liable for the benefit obtained when loan funds were traced, directly or indirectly, to the discharge of his mortgage liabilities. Since those payments relieved him of continuing interest obligations, there was no basis for excluding interest from the corresponding recovery.
3. The lender’s alleged failure to comply with its internal mortgage-approval procedures did not provide a ground for altering the order made below. The costs orders were discretionary, and HHJ Purle’s order was within the permissible scope of that discretion.
4. Where an oral judgment is transcribed, the judge may correct transcription errors and revise grammar, style and wording. The judge may not alter the substance of the reasoning or the outcome. The changes to District Judge George’s transcript fell within that permitted scope.
5. A solicitors’ chronology appeared to record a discussion with the trial judge before the second day of trial. Although there might be an innocent explanation, the solicitors and judge had not been given an opportunity to explain it. The permission application was therefore adjourned for about six weeks and relisted not before 4 April, with the possibility of reconsideration after the matter had been investigated.

• Court of Appeal (Civil Division): In [2011] EWCA Civ 221, the application for further permission to appeal was adjourned and ordered to be relisted after investigation of the possible communication with the trial judge.
• HHJ Purle, sitting as a deputy High Court judge: On 8 April 2010, allowed the appeal in part, deleting sums of £6,108 and £21,681 and substituting £7,500, reducing the total order to £47,099.56 including interest.
• District Judge George: Ordered payment of nearly £71,000 including interest and costs, permitted sale of the property, and directed the distribution of the sale proceeds.