Aldermore Bank Plc v Rana

Completion of a re-mortgage ordinarily requires redemption of existing charges where the new lender is to obtain a first legal charge. A redemption statement and undertaking may authorise release of the advance for that purpose, but they do not necessarily complete the re-mortgage. Where the lender’s instructions provide that the advance is held on trust until completion, the borrower’s solicitors cannot divert it to another purpose. Misappropriation prevents completion and does not make the borrower contractually liable merely because part of the advance was transferred to him. The contractual terms and the solicitors’ instructions determine when completion occurs. Rules applicable to ordinary house purchases, where redemption may follow completion, do not necessarily apply to a re-mortgage.

Aldermore Bank plc appealed from an order of HH Judge Pelling QC, sitting as a High Court judge, dated 16 June 2014. The Bank had advanced money for a re-mortgage of three properties, subject to the existing Clydesdale Bank charges being redeemed and the Bank obtaining a first legal charge.

The borrower’s solicitors received the advance, paid part of it to the borrower, and misappropriated the balance instead of redeeming the Clydesdale charges. The High Court held that the re-mortgage had not been completed, that the advance remained trust money, and that the borrower was liable only for the sum paid to him. The central issue was whether receipt of a redemption statement and undertaking was sufficient for completion, or whether the redemption monies had to be paid.

The Court of Appeal dismissed the appeal. Patten LJ gave the leading judgment, with the Chancellor of the High Court and Christopher Clarke LJ agreeing.

1. Meaning of completion. The mortgage offer required the Bank to obtain a first legal charge. Clause 5.8 of the CML Handbook, requiring existing charges to be redeemed, gave content to completion for the purposes of clause 10.3, although it was not necessarily an absolute condition precedent to every authorised disbursement. Following the approach in AIB Group (UK) plc v Mark Redler & Co [2013] EWCA Civ 45, the Court held that completion of a re-mortgage ordinarily includes actual redemption of the prior charges. Discharge of the existing borrowing is a necessary part of replacing those charges with the new first charge.
2. Trust and authority. The advance was sent to Austin Law as agents for Kuits under instructions requiring it to procure discharge of the Clydesdale charges and then provide the executed DS1 forms. Austin Law therefore held the money on trust for the Bank until completion and had no authority to release it for another purpose. A suitable undertaking from the existing chargee could permit safe release of redemption monies to that chargee, but could not authorise misappropriation.
3. Distinction from ordinary purchase. In an ordinary house purchase, completion may occur against an executed transfer and a suitable undertaking, with redemption following afterwards. A re-mortgage is different because the creation of the new first charge and discharge of the prior charges form the substance of the transaction. The Court relied on the treatment of completion and undertakings in Lloyds TSB plc v Markandan and Uddin [2012] EWCA Civ 65 and Nationwide Building Society v Davisons [2012] EWCA Civ 1626.
4. Disposition. Because the Clydesdale charges were not redeemed and the necessary DS1 forms were not obtained, there was no completion. The advance remained trust money and the borrower was not contractually liable for the unrecovered balance of the mortgage. The High Court order was upheld, including liability for the £78,193.64 paid to the borrower.

1. Court of Appeal (Civil Division) On 26 November 2015, the appeal was dismissed in [2015] EWCA Civ 1210.
2. High Court of Justice, Chancery Division HH Judge Pelling QC dismissed the Bank’s claim except in respect of £78,193.64 by an order dated 16 June 2014. He held that the re-mortgage had not been completed and that the advance remained trust money.