The recent Court of Appeal decision in Swift 1st Limited v The Chief Land Registrar  EWCA Civ 330 will be welcomed by banks and lenders looking to make recoveries in mortgage fraud cases.
In May 2006, Swift advanced around £67,000 to be secured by a first legal charge over 15 Elmstead Road, Ilford (the Property). The charge was purportedly executed by Mrs Rani (the Borrower), as registered proprietor. In subsequent possession proceedings, Swift accepted that the Borrower had been the victim of fraud. HMLR removed Swift's charge from the Property’s title. Swift applied to HMLR, and subsequently to the Court, for an indemnity from HMLR arising out of the removal of its charge, under Schedule 8 to the Land Registration Act 2002 (the LRA).
HMLR argued, in short, that 'rectification' had not occurred. Although a mistake had been corrected, it did not prejudice Swift's title – Swift’s title was always subject to the Borrower's overriding interest arising from the right to rectification itself. The trial judge nonetheless found it was clear that an exception should be made for a claim in good faith under a forged disposition. On that basis, rectification had occurred and Swift was entitled to an indemnity.
The CoA considered Chowood's Registered Land, Re  Ch. 574 in this case and found that its application would lead to a conclusion of Swift having suffered no loss. This is contrary to the specific presumption in the LRA. Had the LRA intended to provide an exception to this 'deemed loss' position in cases involving enforcement of an overriding interest, then much clearer provision would have been necessary. The CoA therefore upheld the trial judge's decision that Swift was entitled to an indemnity.
This case will be most relevant to matters where the charge has in fact been registered and since removed ie it can be argued that ‘rectification’ has occurred. Of course, sometimes HMLR notices or is notified of an issue before the charge is actually registered.
This is an interesting distinction as, in any given handful of similar cases, sometimes you will be able to seek an indemnity on the above grounds and in other cases you will not. This will depend almost entirely on when the fraud came to light.
Submitting an indemnity claim
Leaving that to one side, assuming the charge has been registered and subsequently removed by way of 'rectification' due to a finding of fraud, on the face it you will have a potential claim for an indemnity. It would then almost invariably be worth sending an initial letter to that effect to HMLR.
Beyond that, it would be advisable to follow up with a more detailed letter to HMLR setting out the application. This should include the factual background and any other steps you may have taken to try to mitigate your position. You will still be expected to take reasonable steps in this regard before turning to the indemnity claim (hence the value in sending a notification first).
If you have the opportunity to object to an application to remove your charge at the outset, this should be seriously considered and in almost all circumstances taken up, unless to do so would clearly be meritless and/or would expose you to some material costs risk.
For example, it may not be entirely clear at the outset whether the disposition has been forged or not. If it has, there is a potential claim against the completing solicitors. If this is notified to their insurers they will most likely, understandably, insist on you opposing the application. It would be worth seeking an indemnity from the insurers for the costs of doing so.
It’s important to remember that, even if granting an indemnity, HMLR has the discretion to reduce the amount payable on account of contributory negligence, in much the same way as in a negligence claim against the completing solicitors.
The difference of course is that HMLR would not only be making the allegations of contributory negligence but also taking the decision as to the appropriate percentage deduction. The allegations can relate to your own actions and/or those of your agents, including the completing solicitors.
It obviously remains to be seen how much success banks/lenders will now have with these claims in the longer term and indeed, more immediately, whether HMLR will have the appetite to appeal the CoA decision. At TLT we have already seen a turnaround in one particular case where HMLR has confirmed that, subject to any contributory negligence arguments, it will pay an indemnity to our bank client.
In the meantime, it is clear that prospective claimants are in a stronger position than previously. This is certainly a plausible avenue of recovery in circumstances where it can be difficult otherwise to make out a strong claim against other parties.
Contributor: Claire Kershaw
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com