In NRAM Plc v Evans and another, the High Court held that an e-DS1 was to be set aside for mistake and the register rectified to reinstate a charge that had been erroneously removed.
The Background
Mr and Mrs Evans (the Borrowers) had taken a loan from NRAM Plc (the Bank) to finance the purchase of their property in 2004 (the 2004 loan). The loan was secured over their property by way of a registered legal charge (the Charge).
The Borrowers later asked to consolidate the four accounts that they held with the Bank. The Bank accepted, advanced the debt consolidation loan in 2005 (the 2005 loan) and issued a new mortgage account number. The 2005 loan repaid the 2004 loan in full. The Bank intended to rely on the Charge as security for the 2005 loan and so no further security was put in place.
In 2014 the Borrowers’ solicitor wrote to the Bank to ask for the Charge to be removed from the register on the basis that the 2004 loan had been repaid. The solicitor’s letter made no reference to the 2005 loan.
The Bank checked its system for the mortgage account number of the 2004 loan as provided by the Borrower’s solicitor, which confirmed that the 2004 loan had been repaid. The system did not, however, reveal the existence of the 2005 loan.
The Bank submitted the e-DS1 to the Land Registry, redeeming the Charge. The Bank subsequently realised that the Charge was also intended to be security for the 2005 Loan. A dispute arose as to whether the 2005 loan was secured by the Charge and, if so, whether the e-DS1 should be set aside for mistake and the register rectified to reinstate the Charge.
The Decision
The Court found the following:
1. The Charge did secure the 2005 loan. From the Bank’s Mortgage Terms and Conditions, it was apparent that the Charge was an all monies charge.
2. The e-DS1 should be set aside for mistake. The seriousness and effect of a mistake should be considered in deciding whether an e-DS1 should be set aside. In this instance, the effects of issuing the e-DS1 were serious; the Bank would lose its security for the 2005 Loan and the Borrowers would be left with the unencumbered freehold of the property.
3. The Charge should be reinstated. Although the Borrowers (as registered proprietors of the property) objected to the reinstatement of the Charge, the Court found that the failure to refer to the 2005 loan in the Borrowers’ solicitor’s letter constituted a lack of proper care contributing to the error. The Charge could therefore be re-registered.
Commentary
This decision is reassuring for lenders as it demonstrates the willingness of the Court to use its discretion to set aside an erroneous e-DS1 and reinstate a wrongly removed charge when a serious mistake has been made.
However, such disputes are costly and time consuming and highlight just how important it is for lenders to ensure that their internal systems are accurate and effective when it comes to cross-checking the different borrowings of their clients prior to releasing their security.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
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