Santander UK Plc v Fletcher & Anor

Setting aside a legal mortgage for undue influence does not necessarily defeat an equitable charge over the beneficial interest of another joint owner. Notice that the mortgage transaction may be affected by undue influence does not, without more, establish notice of a defect in an earlier conveyance or declaration of trust. Any mistake in that earlier instrument ordinarily makes it voidable rather than void, requiring rescission, setting aside or rectification. Such relief remains subject to established bars, including the acquisition of rights by a third party without notice. The relevant notice and rescission issues must be analysed by reference to the separate transactions and the evidence properly before the court.

Santander brought a mortgage possession claim after Ashley Fletcher fraudulently induced his mother, Paula Fletcher, to place her home into their joint names and to grant a mortgage securing substantially more borrowing than she understood. The County Court held that the mortgage was affected by undue influence of which Santander had sufficient notice. It therefore could not enforce the legal mortgage against Mrs Fletcher, subject to repayment of the sum she had believed was secured.

The County Court nevertheless held that the declaration of trust in the transfer was conclusive and that Ashley had a 50 per cent beneficial interest, over which Santander had an equitable charge. Mrs Fletcher appealed, advancing a new argument based on mistake, fraud and the bank’s notice.

1. Appeal dismissed. The County Court’s conclusion that Santander could enforce an equitable charge over Ashley Fletcher’s beneficial interest was upheld.
2. Under Law of Property Act 1925, section 63, setting aside a legal mortgage granted over jointly held property does not prevent the lender from acquiring an equitable charge over the other joint owner’s beneficial interest. First National Bank v Achampong [2003] EWCA Civ 487 and Suzanne Edwards v Lloyds TSB [2004] EWHC 1745 (Ch) illustrated that principle.
3. The mortgage and the earlier transfer into joint names were distinct transactions. Santander’s being on inquiry about undue influence affecting the mortgage did not necessarily amount to actual or constructive notice of a mistake or other taint affecting the transfer. The relevant timing, including that the mortgage followed the transfer by less than six months, was insufficient to establish such notice.
4. Even if Mrs Fletcher’s asserted intentions were established, unilateral mistake could make the declaration of trust voidable, not void. The available relief would therefore be rescission, setting aside or rectification, and the absence of a pleaded claim did not remove the need to establish the underlying right. The reasoning in Day v Day [2014] Ch 114 and Pitt v Holt [2013] 2 AC 108 supported that analysis.
5. The County Court had not found that the transfer itself was procured by fraud, as distinct from the mortgage. The issue had not been properly explored at trial, and there was insufficient basis for making such a finding on appeal. It was also unnecessary to decide whether the alleged mistake was sufficiently grave to justify rescission or rectification.

• High Court (Chancery Division): On appeal from the order of Mr Recorder Gardner QC in the County Court at Plymouth dated 6 November 2017, the appeal was dismissed.