Garwood v Bank of Scotland Plc

A Land Registry adjudicator considering an objection to a unilateral notice must determine the underlying merits of the claim, not merely whether the notice should remain temporarily. A charge is construed objectively, having regard to the instrument and its background. Where the stated leasehold security does not exist, the charge may operate over the freehold interest actually owned, if that is the proper construction. A lender that already has full security has no need for subrogation. An erroneous discharge caused by a serious mistake may be set aside, and the register may then be altered to reflect the lender’s rights.

The trustee in bankruptcy of a borrower appealed against a decision of a Deputy Adjudicator to HM Land Registry refusing to cancel a unilateral notice entered by Bank of Scotland Plc against the freehold title to 173 Portland Road.

The borrower had obtained two advances on the intended security of separate flats. The conveyancing transactions were defective, the charge referred to one flat but was registered against the whole freehold title, and the bank later discharged it after receiving payment of only one loan. The borrower subsequently became bankrupt, leaving the bank unsecured on the unpaid loan.

The central issues were the construction and effect of the 2004 charge, whether the bank was subrogated to a redeemed prior charge, whether the later discharge was voidable for mistake, and whether the register could be altered to restore the bank’s security.

1. The appeal was dismissed. The reference under section 73(7) of the Land Registration Act 2002 required the adjudicator to determine the underlying merits of the claim which had prompted the application, as explained in Silkstone v Tatnall [2011] EWCA Civ 801.

2. The 2004 charge could not affect a leasehold interest because no such interest existed or had been defined. Applying objective construction, the charge operated as an equitable charge, capable of registration, over the freehold of Flat B to secure the June 2004 loan. The transaction reference was administrative, whereas the description of the property formed part of the operative deed. The charge did not secure both loans over the whole freehold merely because it contained an all-monies clause.

3. When registered, however, the charge affected the whole of the freehold title. The register contained no plan or other indication limiting the charge to Flat B, and the parties had acted on the basis that the charge affected the whole title. The all-monies provision therefore secured the July 2004 loan as well.

4. There was no need for subrogation to the redeemed Mortgage Express charge. The bank had obtained security over the whole property which fully secured the unpaid loan and prevented unjust enrichment. The knowledge of the conveyancer was not attributable to the bank because the underlying transaction was fraudulent: Cave v Cave (1880) 15 Ch.D 639. The reasoning in Cheltenham & Gloucester Plc v Appleyard [2004] EWCA Civ 291 supported that conclusion.

5. The electronic discharge was both evidence of discharge and an application to alter the register. It released the charge in law and equity. The bank made a serious mistake: it intended to discharge the redeemed June loan but did not intend to release its only security for the outstanding July loan. The mistake justified rescission of the discharge under the principles stated in Pitt v Holt [2011] EWCA Civ 197.

6. The adjudicator had jurisdiction to determine the matter by reference to the whole law. Once the discharge was set aside, the register could be brought up to date under paragraph 5(b) of Schedule 4 to the Land Registration Act 2002. The register was to be altered so that the 2004 charge was re-registered against the freehold title. This did not affect the registered title to the 2009 lease.

The judgment records an appeal from a decision of Professor Robert Abbey, Deputy Adjudicator to HM Land Registry, on a reference under section 73(7) of the Land Registration Act 2002. The High Court determined the underlying merits and dismissed the appeal.