Bank of Scotland Plc v King & Ors

There are three applications before the court. The first is an application dated 31^st May 2007, on behalf of the Claimant, for judgment for the relief sought in its Particulars of Claim, on the ground that the Defence and Counterclaim of the Second and Third Defendants has been struck out by reason of their failure to comply with an earlier order. The second application, dated 17^th July 2007, is made by the Second and Third Defendants for relief from the sanction of striking out pursuant to the earlier order. The third application, dated 26^th September 2007, is made by the Claimant for summary judgment under CPR Part 24 against the Defendants on the grounds that the Defendants have no real prospect of successfully defending the claim and that there is no other compelling reason why the claim should be disposed of at a trial. At the hearing, the Claimant concentrated on its application for summary judgment and I will do the same in this judgment. Accordingly, for the purposes of the summary judgment application, I will take into account all the material before me including the Defence and Counter Claim on behalf of the Second and Third Defendants and the witness statements served on their behalf.

The material before the court does not disclose any real dispute as to the primary facts. In so far as primary facts asserted by one party are not admitted by the other party, there is unchallenged evidence which enables me to make relevant findings on the matters which are not admitted.

At all material times, the Second and Third Defendants were the registered proprietors of the freehold title to the residential property at 6 Broadgates Avenue, Hadley Wood, Hertfordshire which is registered at the Land Registry under title number MX370904 (“the Property”). The Second and Third Defendants say that the Property has, at all material times, been their family home where they live with their four children.

In around June 2004, the Second and Third Defendants were in negotiation with the First Defendant for the First Defendant to purchase the Property from the Second and Third Defendants. The documents show that the First Defendant applied to the Claimant bank for a mortgage advance to enable him to buy the Property. On the 23^rd June 2004, the Claimant wrote to the First Defendant offering the First Defendant an advance of £1.2 million to be secured by a mortgage on the Property. The solicitors acting for the First Defendant was the firm of Walm Lane of London NW2 and, in due course, that firm was instructed to act as the solicitors for the Claimant, in relation to the charge to be granted by the First Defendant to the Claimant.

In connection with the proposed sale by the Second and Third Defendants to the First Defendant, the Second and Third Defendants instructed the firm of solicitors, Alberts, of Wardour Street, London W1. The headed note paper of Alberts in June 2004 identified a Mr Preedy as the sole partner. The notepaper also identified the Second Defendant as a consultant and his qualifications were stated to include that of being a barrister. The notepaper also referred to a Mr David Arivo as an associate of the firm.

On 24^th June 2004, Walm Lane on behalf of the First Defendant wrote to Alberts on behalf of the Second and Third Defendants returning a draft contract approved as amended by Walm Lane. The letter also included a draft transfer in duplicate and requisitions on title.

On 24^th June 2004, Alberts wrote to Walm Lane stating that they had been told that the First Defendant had received his mortgage offer the previous day. That was indeed the position and this statement shows that the solicitors for the Second and Third Defendants appreciated that the First Defendant was borrowing a part of the purchase price, with repayment to be secured by the grant of a mortgage to the lender. Alberts’ letter of 24^th June 2004 sought confirmation that Walm Lane were in a position to exchange contracts and stated that the parties had agreed to complete during the course of the following week.

On 28^th June 2004 Alberts wrote to Walm Lane returning the draft transfer approved as drafted by Walm Lane together with replies to requisitions on title. Alberts stated that they had amended the draft contract to reflect a revised sale price. They sought confirmation from Walm Lane that the First Defendant could exchange contracts with completion on 30^th June 2004. The draft transfer enclosed with that letter stated that the transferee’s intended address, for entry on the register, was to be at the Property. That indicates that the First Defendant was intending to move into the Property following its purchase. The draft transfer stated the consideration for the transfer was £1.5 million. Paragraph 12 of the draft transfer under the words “additional provisions” provided as follows:

“The buyer hereby covenants with the sellers to abide (sic) the schedule of restrictive covenants as contained in the property register.”

Copies of the Land Registry entries have not been provided to me but it seems clear from paragraph 12 of the draft transfer that there were some restrictive covenants registered against the title and the First Defendant was to covenant (in effect by way of indemnity) to abide by those covenants. Paragraph 13 of the draft transfer provides for the transfer to be executed by the Second and Third Defendants and also by the First Defendant, no doubt, because of the provisions of paragraph 12 of the draft transfer.

The replies to requisitions on title which had been provided by Alberts contained a number of relevant statements. Paragraph 4 of the requisitions asked Alberts to specify the mortgages or charges which would be discharged on or before completion. The replies listed six mortgages or charges in favour of (1) Finsbury Park Mortgages Funding Limited, (2) Lombard Central Plc, (3) Barry David Lewis, (4) Barry David Lewis, (5) Mortgages 4 Limited and (6) Jackson Rowe Associates. Paragraph 4(B) of the requisition, in effect, asked for the steps that would be taken on completion in relation to the mortgages or charges. The answer “yes” was given to the question although it is not clear whether Alberts were saying that the charges would be discharged and appropriate evidence handed over on completion or, failing discharge, Alberts would undertake on completion to hand over an appropriate discharge later. My reading of the replies is that Alberts were not promising more than an undertaking to provide for the discharge after completion. Alberts went on to say that if an undertaking was what was given, the undertaking would be in the Law Society standard form.

Paragraph 5 of the requisitions dealt with possession and asked whether vacant possession of the whole of the Property was to be given on completion. For some reason that question received the reply “N/A” i.e. “not applicable”. Paragraph 7 of the requisitions dealt with completion arrangements. The only part of paragraph 7 which had been raised as a requisition by Walm Lane was that Walm Lane sought confirmation that Alberts would comply with the Law Society’s Code for Completion by Post (1998 Edition) and that confirmation was given. However, Alberts also answered other questions under paragraph 7 that had not been specifically raised and stated that completion would take place at Alberts’ offices and gave the details of the bank account to which completion monies should be directly remitted.

It is convenient at this stage to go to the Law Society’s Code for Completion by Post (1998 Edition). The preamble to the Code states that it provides a procedure for postal completion and that before adopting the Code, a solicitor must be satisfied that doing so will not be contrary to the interests of the client, including any mortgagee client. Paragraph 1 of the Code refers to the parties’ solicitors agreeing to use the Code. Paragraph 2 states that on completion the seller’s solicitor acts as the buyer’s solicitor’s agent without any fee or disbursements. Paragraph 3 refers to the seller’s solicitor specifying before completion the mortgages or charges secured on the property which will be redeemed or discharged. By paragraph 4, the seller’s solicitor undertakes to have the seller’s authority to receive the purchase money on completion and, again on completion, to have the authority of the mortgagee or chargee (in relation to a mortgage or charge secured on the property) to receive the sum intended to repay it. Paragraph 6 of the Code provides:

“The buyer’s solicitor will remit to the seller’s solicitor the sum required to complete, as notified in writing on the seller’s solicitor’s completion statement or otherwise, or in default of notification, as shown by the contract. If the funds are remitted by transfer between banks, the seller’s solicitor will instruct the receiving bank to telephone to report immediately the funds have been received. Pending completion, the seller’s solicitor will hold the funds to the buyer’s solicitor’s order.”

By paragraph 8 of the Code, the seller’s solicitor agrees to complete forthwith on receiving the sum specified in paragraph 6. By paragraph 9, when completing the transaction, the seller’s solicitor undertakes to redeem or obtain a discharge in respect of mortgages and charges on the property. By paragraph 10 (ii), the seller’s solicitor undertakes as soon as possible after completion, and in any event on the same day, to confirm to the buyer’s solicitor by telephone or fax that completion has taken place.

Note 2 to the Code states that the object of the Code is to provide solicitors with a convenient means for completion on an agency basis when a representative of the buyer’s solicitor is not attending at the office of the seller’s solicitor.

On the 29^th June 2004, Walm Lane wrote to Alberts stating that Walm Lane had remitted the sum of £1,137,645.50 to the bank account identified in Alberts’ replies to the requisitions on title. The Bank’s evidence is that it had advanced a sum of the order of £1.2 million, in accordance with its mortgage offer, to Walm Lane acting as solicitors for the Bank. I infer from all the evidence that the sum of £1,137,645.50 referred to in the letter of 29^th June 2004 was paid out of the advance made by the Bank. Because the monies were paid to the seller’s solicitors’ bank account prior to exchange of contracts and completion, the monies were held by the seller’s solicitors to the order of the buyer’s solicitors, in accordance with paragraph 6 of the Law Society’s Code. The difference between £1,137,645.50 and the £1.2 million advanced by the Bank to the First Defendant is likely to be explained by various charges and disbursements having been taken from the advance of £1.2 million. Because the consideration was expressed in the draft transfer to be £1.5 million, the sums remitted to the seller’s solicitors on the 29^th June 2004 left outstanding a balance payable of £362,354.50. Walm Lane’s letter of 29^th June 2004 asked Alberts to telephone in order to have a formal exchange of contracts and to confirm completion. The letter does not give any indication of what was intended in relation to the balance of £362,354.50.

At 3.00pm on 29^th June 2004, Mr Arivo of Alberts and the relevant person acting at Walm Lane effected a telephone exchange of contracts, in accordance with formula B. The contract stated that the completion date was 29^th June 2004 and the purchase price was £1.5 million. The form of the contract as appears in the documents before me is the part signed by Alberts on behalf of the Second and Third Defendants. The special conditions to the contract state that the contract incorporated the Third Edition of the Standard Conditions of Sale. Condition 6 states that the sale is subject to “a tenancy agreement between the seller and the buyer dated” and the date is left blank. This provision has not been explained in the evidence before me. Condition 8 stated that the buyer was to give a covenant of indemnity in the transfer of the Property in relation to certain restrictive covenants. It will be remembered that the draft transfer also provided for this covenant by the First Defendant. On 29^th June 2004, Walm Lane sent a memorandum to Alberts confirming the telephone exchange. The heading to the letter refers to a property with a different address but that appears simply to be a mistake.

The documents include a form of transfer in accordance with Land Registry form TR1, dated 29^th June 2004. The transfer is in accordance with the draft transfer to which I earlier referred. The First Defendant’s intended address is again given as the Property and the consideration is stated as £1.5 million. Paragraph 13 of the transfer has been completed to show that the transfer was signed as a deed by the Second and Third Defendant in the presence of Mr Arivo of Alberts. The transfer is not shown as executed by the First Defendant.

On the 29^th June 2004, the First Defendant executed a mortgage deed in favour of the Claimant. The First Defendant charged the property by way of legal mortgage with the payment of all money payable by him to the Claimant under the relevant mortgage condition and gave the Claimant a full title guarantee.

On 30^th June 2004, Alberts wrote to Walm Lane in the following terms:

“Further to the above matter we hereby acknowledge safe receipt of the sum of £1,137,645.50.

We now enclose the following documents: -

1)

Our client’s part of the contract.

2)

Transfer Deed dated 29^th June 2004

3)

Form WCT in respect of Barry David Lewis

4)

Form WCT in respect of Barry Davis Lewis

5)

Form WCT in respect of Jackson Rowe Associates

6)

Form WCT in respect of Jackson Rowe Associates.

We can confirm that we have discharged the Charge in favour (sic) Finsbury Park Mortgage Funding Limited along with the remaining Cautions. We should therefore be obliged if you could accept this as our Undertaking to provide a duly signed END1 and form WCT as soon as received.”

Enclosed with the letter of 30^th June 2004 were four WCT forms. Two had been executed on the 5^th April 2004 on behalf of Barry David Lewis and related to cautions registered against the title on 23^rd September 2002 and 10^th October 2002. The remaining two forms WCT were dated the 30^th June 2004 and related to cautions in favour of Jackson Rowe Associates both of the 22^nd January 2003.

On 9^th July 2004, Alberts wrote to Walm Lane enclosing forms WCT in respect of cautions in favour of Lombard North Central Plc and Mortgages 4 Limited. The letter stated that Alberts would revert shortly with a duly signed form END1. Form WCT relating to Mortgages 4 Limited is dated 1^st July 2004 and relates to a caution of 15^th November 2002. Form WCT dated 8^th July 2004 relates to a caution in favour of Lombard North Central Plc.

On the 27^th July 2004, Alberts wrote to Walm Lane enclosing a charge certificate and a notification of electronic discharge and sought confirmation that Alberts were now released from their undertaking given in respect of the same.

I will refer to the procedural history in more detail later in this judgment but it is useful to refer at this stage to an order made by the Master on 5^th March 2007 which required the Second and Third Defendants to serve a witness statement setting out how the sum of £1,137,645.50 received by Alberts had been spent or applied by the Second and Third Defendants. Following that order, the Second Defendant served his witness statement dated 19^th March 2007 and in paragraph 5 of it he referred to five different sums of money going to various recipients. Three of the recipients appear to be the solicitors for Jackson Rowe Associates, Lombard North Central Plc and Mortgages 4 Limited. The fourth recipient is described as Kensington Mortgages. It is not obvious who this recipient was. It was stated that Kensington Mortgages received nearly £700,000 out of the monies paid to Alberts. The fifth recipients are the Second and Third Defendants themselves who received nearly £300,000. The Second Defendant’s witness statement says that those monies were remitted to the Second and Third Defendants “for discharging other obligations” although later correspondence on behalf of the Second and Third Defendants states that this statement was made in error and that the money was remitted to the Second and Third Defendants for their own use and benefit

Nothing appears to have happened for some time after July 2004. On 6^th May 2005, the Second and Third Defendants wrote to the First Defendant in the following terms:

“We refer to the above and our many meetings and conversations since this proposed sale of the above property should have taken place during last year.

As you are aware the terms of the proposed sale has (sic) not been complied with and we are not prepared to continue suffering the uncertainty any longer. We have therefore decided to rescind the contract and cancel the transaction.

You acknowledged and accepted this fact during our last conversation and we now invite you to confirm the same by signing, dating and returning a copy of this letter.”

A copy of the letter has been signed by Mr King and dated 11^th May 2005.

On the 5^th August 2005, Capstone, solicitors acting for the Second and Third Defendants, gave to Mr King a notice to complete pursuant to condition 6.8.1 of the Third Edition of the Standard Conditions of Sale.

In June 2005, the Claimant applied to register its charge over the property. There has obviously been considerable communication with the Land Registry and I have not been provided with the details. I have however been told that on 21^st March 2006, the Claimant’s application for registration of its charge was referred to the Land Registry Adjudicator and on the 21^st June 2006 the Adjudicator directed the Claimant to commence court proceedings to determine the validity and priority of the Claimant’s charge. This direction was said to be made under Section 110(1) of the Land Registration Act 2002.

This action has had a lengthy procedural history. In view of the fact that the various applications before me can be disposed of pursuant to the Claimant’s application for summary judgment, I am able to state the procedural history more briefly than might otherwise have been necessary.

On 19^th July 2006, the Claimant commenced the present proceedings claiming a declaration that the contract for the sale and purchase of the Property made on 29^th June 2004 had been completed on 29^th June 2004, a declaration that the Property was charged at the Bank by way of legal mortgage with repayment to the Bank in the sum of £1.2 million together with interest, costs, expenses and other monies, a declaration that any right or interest of the Second or Third Defendants in the Property by way of unpaid vendor’s lien or otherwise was subject to and postponed to the Claimant’s charge and an order that the Claimant’s charge be registered in the charges register of the title to the Property. The Claimant’s Particulars of Claim set out the various steps in the transaction and gave more detail as to the communications with the Land Registry.

The First Defendant has not acknowledged service or taken any part in these proceedings at any time. The Second and Third Defendants did not acknowledge service and on the 24^th August 2006, the Claimant applied for judgment by reason of the Defendants’ failure to acknowledge service. Following that application, the Second and Third Defendants served a 17 page Defence and Counterclaim. Whether or not that Defence and Counterclaim has been struck out pursuant to later orders which were made, I ought to refer to it as it is potentially relevant to the Claimant’s application for summary judgment.

The Defence and Counterclaim is signed by Capstone, solicitors, but also bears the name of the Second Defendant personally. The Second Defendant who appeared in person before me, on behalf of himself and his wife, told me that he was a barrister with a current practising certificate. The Second and Third Defendants’ pleading states that Mr King never did pay the balance of £362,354.50 and that the Second and Third Defendants never gave up possession of the Property to the First Defendant. It is also stated that the First Defendant never asserted that the contract of sale had been completed and never sought possession of the Property. The pleading states that the Second and Third Defendants have effectively terminated the contract of sale with the First Defendant and recognise that they are liable to repay monies to the First Defendant. However, they do not accept that they are liable to pay the First Defendant the sum of £1,137,645.50, as they wish to deduct a deposit of £150,000 to be forfeited by them, together with interest on the unpaid balance of some £67,000, leading to a total deduction of some £217,000. It was stated that the First Defendant accepted this proposal. The Second and Third Defendant’s defence was essentially that because the First Defendant did not pay the full purchase price, the contract had not been completed and had later been terminated and that any arrangements the First Defendant might have made with the Claimant were of no concern of, and certainly not binding on, the Second and Third Defendants. The Second and Third Defendants also counterclaim on the basis that the Claimant’s attempt to register the charge at the Land Registry had caused loss and damage to the Second and Third Defendants. What is significant for present purposes is, notwithstanding the detail of the matters in the Defence and Counterclaim, there is no suggestion from the Second and Third Defendants that there was any statement, oral or written, from anyone on behalf of the Second and Third Defendants to anyone on behalf of the First Defendant, at the time of the execution of the TR1, dealing with the fact that the balance of the purchase price was unpaid as at 30^th June 2004.

Following receipt of the Defence and Counterclaim, the Claimant’s application for judgment against the First Defendant was adjourned and the application for judgment against the Second and Third Defendants was withdrawn.

On 13^th September 2006 the Claimant served a Reply and Defence to Counterclaim. Paragraph 9 of the Reply stated that the Claimant’s instructions to Walm Lane were to obtain a first legal charge over the property as security for its advance of £1.2 million to the First Defendant. The Reply is supported by a statement of truth signed by the solicitor for the Claimant.

On 21^st September 2006, the Claimant filed its allocation questionnaire in which the time estimate for the trial was given as five days. None of the Defendants served an allocation questionnaire and on the 5^th October 2006, the Master ordered them to do so within three days of the order. On 10^th November 2006, the Master ordered that the action be listed before the Master by reason of the Defendants’ failure to file an allocation questionnaire. On 4^th December 2006, the Master gave detailed directions for the trial of the action. On that occasion, the Second and Third Defendants were represented by counsel. Paragraph (2) of the order dealt with disclosure and it was specifically stated that the documents to be disclosed should include documents held electronically. The matter was to be tried between 1^st October 2007 and 31^st December 2007 with a time estimate of five days. Paragraph (11) of the order provided for the Second and Third Defendants to pay a sum by way of costs, on the indemnity basis, in default of which the Defence and Counterclaim was to be struck out without further order.

The Second and Third Defendants did not pay in accordance with the order of 4^th December 2006 and on the 10^th January 2007 the Claimant made a further application to the Master. On the 1^st March 2007, the Second and Third Defendants applied for relief from the sanction of striking out. At the hearing before the Master on the 5^th March 2007, the Second Defendant appeared in person on behalf of himself and the Third Defendant. The Second and Third Defendants were relieved from the striking out sanction in the order of 4^th December 2006 on the condition that, amongst other things, the Second and Third Defendants should serve a witness statement setting out what had happened to the sum of £1,137,645.50 received by Alberts on 29^th June 2004. By paragraph 2 of the order of 5^th March 2007, the Second and Third Defendants were ordered to comply with the order for disclosure made on the 4^th December 2006, failing which the Defence and Counterclaim should again stand struck out.

On the 19^th March 2007, the Second Defendant served his witness statement purportedly in compliance with the order of 5^th March 2007. Paragraph 5 of that witness statement identifies five recipients of the monies received by Alberts in June 2004. The Claimant has criticised the witness statement as failing to comply with the order of 5^th March 2007 but I need not set out the detailed criticisms made.

On 23^rd March 2007, the Second and Third Defendants served a list of documents purportedly in compliance with the order of 4^th December 2006 and the unless order of 5^th March 2007. Although the order of 4^th December 2006 had expressly stated that electronic documents should be disclosed, the list of documents stated that the Second and Third Defendants had not searched for electronic documents. The Claimant has directed other criticisms to the list of documents served but it is not necessary to describe the detailed criticisms.

On 31^st May 2007, the Claimant applied for judgment in accordance with his claim on the grounds that the Defence and Counterclaim for the Second and Third Defendants stood struck out automatically, due to their failure to comply with the order of 5^th March 2007. The Claimant intended to rely in particular on failure to comply with the order as to the service of a witness statement and failure to give disclosure as ordered.

In response to the Claimant’s application of 31^st May 2007, the Second and Third Defendants served a witness statement from a Mr Comer of Capstone, solicitors. Mr Comer asserted that the Second and Third Defendants had complied with the previous orders. He then went on to propose that the dispute be settled on terms that the Second and Third Defendants return the sum of £1,137,645.50 but less a deposit of £150,000 plus interest and on terms that the Claimant pay the costs of the Second and Third Defendants. That proposal was not acceptable to the Claimant.

On the 11^th July 2007, the Master ordered that the application of 31^st May 2007 be referred to a judge. On 17^th July 2007, the Second and Third Defendants applied for relief from the sanctions imposed by the order of 5^th March 2007.

On the 26^th September 2007 the Claimant applied for summary judgment against the Defendant. That application was supported by a witness statement of a Miss Duncan signed on 25^th September 2007. Miss Duncan’s witness statement set out the conveyancing steps involved in the transaction as I have described them above and exhibited the documents she referred to. In paragraph 10 of her witness statement she said:

“Neither the Transfer itself, nor the contemporaneous correspondence between the sellers’ and the purchaser’s solicitors contains any condition or proviso that completion is not to take place until Mr and Mrs Okoronkwo have received the balance of the purchase price agreed with Mr King.”

The Second and Third Defendants did not serve any evidence in

response to the application for summary judgment.

The various applications were listed to be heard by His Honour Judge Kaye QC sitting as a Judge of the High Court on the 25^th October 2007. At that hearing, counsel who had been instructed on behalf of the Second and Third Defendants appeared to explain that he was no longer so instructed and withdrew. The Second and Third Defendants were then represented by the Second Defendant in person. The Second Defendant applied for an adjournment of the application and the applications were stood over for a short time. The Second and Third Defendants were ordered to pay the sum of £7,500 on account of costs and it was provided that if they did not do so the Claimants had permission to apply to enter judgment “for the full sum claimed with interest and costs”. I am told by Mr Cranfield, Counsel for the Claimant, who appeared before Judge Kaye and before me that the order is wrongly drawn insofar as it refers to “judgment for the full sum” and that what was intended was that the Claimant should be able to apply for judgment for the relief claimed in the Particulars of Claim.

When the application came before me, the Second Defendant produced a detailed skeleton argument to which was attached a copy of a cheque for £7,500 and documents showing that that cheque had been sent to the Claimant’s solicitors. The claimant stated that it had not received the cheque in accordance with Judge Kaye’s order but would make enquiries. I was not subsequently told the result of those enquiries.

For the reasons given earlier, I will deal first in this judgment with the application for summary judgment.

On the application for summary judgment, Mr Cranfield for the Claimant submitted that the execution and delivery of the TR1 amounted to an effective transfer by the Second and Third Defendants to the First Defendant. In particular, that transfer was not in escrow and the effect of the transfer was not conditional upon the First Defendant paying the balance of the purchase price. In support of this submission, he pointed out that the Second and Third Defendants knew that the First Defendant was buying the property with the aid of a mortgage. The Second and Third Defendants must have known that the Claimant’s solicitors would not release the mortgage monies except against a first legal charge over the property which required the First Defendant to have taken an effective transfer of the property. In that knowledge, the Second and Third Defendants completed the transaction in the ordinary way by the delivery of an executed transfer to the First Defendant. The Second and Third Defendants’ solicitors made no reservation as to the effect of the transfer and imposed no condition on the transfer. Had the Second and Third Defendants purported to do so then the Claimant’s solicitors could not have released the mortgage monies as the effectiveness of the charge to the Claimant would be conditional upon the First Defendant paying the balance of the purchase price, a matter which would be outside the control of the Claimant. Mr Cranfield also relied upon the Law Society’s Code for Completion by Post and the conduct of the Second and Third Defendant’s solicitors in using the monies advanced to them to redeem earlier mortgages and charges. Mr Cranfield also relied upon Section 1(5) of the Law of Property (Miscellaneous Provisions) Act 1989.

The Second Defendant submitted a detailed skeleton argument containing his submissions. He analysed the relevant events. He submitted that the court should ask itself whether it was lawful and equitable that a third party (the Claimant) who was not a party to the contract of sale could claim that the contract was completed, contrary to the agreement of the parties to the contract to rescind that contract. He submitted that the question was whether it was lawful and equitable that the First Defendant who had never claimed that the purchase had been completed should be registered as the proprietor of the property for the purpose of registering the Claimant’s charge. He questioned whether the transfer should be regarded as completed, if the seller’s solicitor delivered the transfer in the honest belief that the balance of the purchase price would be forthcoming. He questioned why the Claimant had delayed in seeking registration of its charge. He submitted that if the contract of sale had been completed then the Second and Third Defendants had a legal, alternatively an equitable, lien which had priority over the Claimant’s charge. He referred to the serious consequences for the Second and Third Defendants if the Claimant succeeded in these proceedings. He submitted that the Claimant’s conduct over the proceedings had been aggressive and unfair to the Second and Third Defendants.

As I indicated earlier, in so far as the primary facts are not common ground, one party puts the other to proof of the facts relied upon. I have set out above my findings as to the relevant primary facts. There is no difficulty in making these findings on an application for summary judgment.

The real issue between the parties is as to the legal consequences of the primary facts set out above. In my judgment, the principal issue in this case is whether the TR1 signed on the 29^th June 2004 and sent to the First Defendant’s solicitors on the 30^th June 2004 was an unconditional transfer of the Second and Third Defendants’ title or was a transfer executed in escrow on condition that the First Defendant paid the balance of purchase price and, because the First Defendant never did pay the balance of the purchase price, the transfer never became effective.

A transfer of a registered estate in the present circumstances must be in form TR1: see Land Registration Rules 2003, Rule 58 and Schedule 1. A TR1 must be executed as a deed: see Ruoff & Roper, Registered Conveyancing, para 13.009.02. The TR1 in the present case appears on its face to be executed as a deed by the Second and Third Defendants.

The law as to instruments delivered in escrow can conveniently be taken from paragraphs 37 to 39 of Halsbury’s Laws of England, 4^th Edition, 2007 Reissue Volume 13: Deeds and Other Instruments. An intended deed may, after due completion of the formalities required for execution as a deed, be delivered as an escrow (or scroll), that is as a simple writing which is not to become the deed of the party expressed to be bound by it until some condition has been performed. Thus a conveyance on sale may be delivered in escrow so as to be binding on the grantor only if the grantee pays the consideration money or only if the grantee executes a counterpart or some other deed or document as agreed with the grantor. Like delivery as a deed, delivery as an escrow may be made in words or by conduct although it need not be made in any special form or accompanied with any particular word, the essential thing in the case of the delivery of escrow being that the party should expressly or impliedly declare his intention to be bound by the provisions inscribed, not immediately, but only in the case of and upon performance of some condition then stated or ascertained. In the absence of direct evidence whether or not a deed of conveyance was delivered as an escrow, the fact that only part of the purchase price has been paid at the time of delivery justifies the inference that the deed was delivered as an escrow pending payment of the balance.

For a deed to be executed as an escrow, it need not be actually delivered into the custody of a stranger to the deed to keep until performance of the condition, and then to deliver it over to the party intended to benefit. A deed may well be delivered as an escrow though the party to be bound retains it in its own possession. Paragraph 38 of Halsbury’s Laws states:

“It may be delivered as an escrow to an attorney acting for all parties thereto, and even to the solicitor acting for the party to benefit under the deed, provided it is handed to him as the agent of all parties for the purpose of such delivery.”

Halsbury then continues in the same paragraph to discuss delivery of a deed to the party intended to benefit under it and whether there can be such delivery as an escrow and whether all stipulations as to the conditions of the escrow will or will not be repugnant to such delivery.

When an instrument is delivered as an escrow, it cannot take effect as a deed pending the performance of the condition subject to which it was so delivered, and if that condition is not performed the writing remains entirely inoperative. If an instrument delivered as an escrow comes, pending the performance of the condition and without the consent, fault, or negligence of the party who so delivered it, into the possession of the party intended to benefit, it has no effect either in his hands or in the hands of any purchaser from him; for until fulfilment of the condition it is not the deed of the party who so delivered it. When an instrument has been delivered as an escrow to await the performance of some condition, it takes effect as a deed (without any further delivery) immediately the condition is fulfilled, and the rule is that its delivery as a deed will relate back to the time of its delivery as an escrow but only for such purposes as are necessary to give efficacy to the transaction. When a deed has been delivered to a third party as an escrow, possession of the deed by the grantee is prima facie evidence of the performance of the condition.

The question of delivery as an escrow was considered in Thompson v McCullough [1947] 1 KB 447 per Morton LJ who said at pages 452 to 453:

“The question of whether a document is delivered as an escrow or as a deed is in general one of fact, and I think that the following passage from Norton on Deeds (2^nd Edition), at page 20 accurately states the law: “Whether the document was delivered as an escrow or as a deed is a question of what the parties intended, and that intention may appear either from their statements or the circumstances.” The learned author then quotes the following observation of Parke B. in Bowker v Burdekin (1843) 11 M&W 128 at 147: “you are to look at all the facts attending the execution, to all that took place at the time, and to the result of the transaction; and therefore, though it is in form an absolute delivery, if it can reasonably be inferred that it was delivered not to take effect as a deed till a certain condition was performed, it will nevertheless operate as an escrow.” The author goes on: “thus the delivery of a transfer of mortgage was held to be in escrow until the mortgage money had been paid ….. and of a conveyance until the purchase money has been paid….. The circumstances relied upon to show delivery as an escrow must be prior to or contemporaneous with, not subsequent to, the delivery….. Evidence is, of course, admissible as to what were the circumstances attending the delivery….. and the question is in general one of fact for the jury.”

The above passage from Thompson v McCullough makes clear when considering whether a document is delivered as an escrow or as a deed, one has regard to all the facts and circumstances attending the delivery. It is a very natural inference in relation to a purchase transaction, that a deed of conveyance or transfer is delivered as an escrow rather than as a deed if at the time of the delivery the purchase money has not been paid. That inference can be made even though the nature of the delivery as an escrow is not communicated by the transferor to the transferee. Further, in a case where the transferee is intended to execute the transfer, it is also a natural inference that the delivery of a transfer by the transferor is delivery as an escrow, rather than as a deed, with the effect that the instrument is conditional upon due execution by the transferee. Although these are natural inferences to be drawn, and they may be drawn even without any oral or written communication to that effect, they are inferences that may be rebutted by other circumstances attending the delivery.

One fact which deserves attention in the present case is that when the transfer was executed by the Second and Third Defendants, it was given by them to their solicitors, Alberts, and Alberts then sent the transfer to the solicitors for the First Defendant, Walm Lane, under cover of a letter of 30^th June 2004 which stated that Alberts enclosed the “Transfer Deed dated 29^th June 2004.”

In this way, the transfer was given to the solicitors for the party who was to benefit under it. In Watkins v Nash (1875) LR 20 Eq 262, reference is made to Sheppard’s Touchstone at pages 58 and 59 where it is stated that it is essential, in order for an instrument to remain an escrow, that it is delivered to “one that is a stranger to it, and not to the party himself to whom it is made”. In London Freehold and Leasehold Property Company v Suffield [1897] 2Ch 608, reference is made to Coke upon Littleton, para 36a, to the effect that if an instrument is delivered to the party who is to benefit under the instrument, any oral statement that the delivery is not an absolute delivery of the deed is of no effect. However, these apparently unqualified statements in Sheppard’s Touchstone and Coke upon Littleton have been qualified by the two decisions I have referred to.

In Watkins v Nash, even though the instrument was delivered to the solicitor acting for the party intended to benefit under it, the court held on the detailed facts of that case that the delivery was not intended to be a delivery to the grantee, but was to the solicitor who was to hold the deed in an incomplete state for the benefit of all the parties to the transaction. Thus the instrument was not delivered as a deed but was in escrow only.

In London Freehold and Leasehold Property Company Limited v Suffield, it was held that where several persons are parties to a deed as grantees and one of them is also the solicitor of the other grantees and of the grantor, and the deed is delivered to him, evidence is admissible to prove that the instrument was delivered to him not as a grantee but in his capacity of solicitor to the grantor and as an escrow. In that case, the Court of Appeal considered the detailed circumstances and held that there was unconditional delivery as a deed.

Mr Cranfield referred me to William Cory and Son Limited v Inland Revenue Commissioners [1964] 3 All ER 66 and in particular to a passage in the judgment of Lord Denning MR at 71e to c where he said:

“When an instrument is delivered in escrow, that only means that it is delivered on condition (which may be expressed or implied by conduct) that it is not to be operative until some condition is performed: see Norton on Deeds 2^nd Edition page 18. A good instance is where, on a proposed sale of land, only part of the purchase price has been paid, but the vendor lets the purchaser into possession and delivers the deed to the purchaser’s solicitor, and tells him to hold it until the balance is paid. The deed is clearly delivered on condition that it is not to be operative until the price is paid. Whilst the condition remains unperformed, the sale is not complete and the purchaser does not get the legal title (see Watkins v Nash in 1875 and Thompson v McCullough in 1947); but as soon as the money is paid, the sale is complete. The instrument there may precede any binding contract. But when the sale is complete it is clearly a conveyance on sale and is liable to stamp duty.”

This passage from William Cory and Son Limited v IRC makes it clear that a court can find that an instrument is delivered as an escrow, either where the condition is expressed or where the condition (not being expressed) is to be inferred from conduct. Lord Denning’s example of the delivery of an apparent conveyance, where part of the purchase price has been left outstanding, is an example of a typical case where the court would infer delivery as an escrow, on condition that the balance of the price be paid. Lord Denning’s example then introduces the ingredient that the apparent conveyance is actually handed over to the purchaser’s solicitor. In a case where the vendor tells the purchaser’s solicitor that he is to hold it until the balance is paid, Lord Denning was clearly of the view that the instrument would remain an escrow even though it was in the hands of the solicitor for the party to take the benefit under it. That view is clearly consistent with Watkins v Nash to which Lord Denning refers. Lord Denning does not say, in terms, that the conditional nature of the delivery is dependant exclusively upon the vendor telling the purchaser’s solicitor that the delivery is as an escrow or conditional upon payment.

The question as to the effect of the absence of any communication of a condition, when a conveyance or transfer is handed over to the purchaser’s solicitor, is taken a little further by Bentray Investments Limited v Venner Time Switches Limited [1985] 1 EGLR 39. In that case, Stuart-Smith J

said at 43:

“……the passages to which I have referred seem to establish that the intention of the maker must be made clear, at least where the deed is physically handed to the other party. Commonsense supports that view. But even if this is not so, the court is entitled to judge the maker’s true intention in the light of what he did and said at the time, and would be unlikely to hold that he had an intention to deliver a deed in escrow when all his words and actions pointed to the contrary conclusion. [Counsel] submits that where, as here, a signed and sealed deed is handed first to the defendant’s solicitors and then by him to the plaintiff’s solicitors, the onus is upon the defendant to establish that it was a delivery in escrow. In my judgment, this is correct, but I do not propose to decide this case on the onus of proof.”

It is also relevant to consider the principles relating to the vendor’s lien. The law is conveniently summarised in paragraphs 14.1 to 14.3 and paragraph 37.9 of Fisher and Lightwood’s Law of Mortgage, 12^th Edition. An equitable lien is an equitable right to a charge independent of contract and possession, which arises automatically by operation of law. An unpaid vendor’s lien operates as a form of equitable charge implied by law giving the vendor full security and equity for full payment of the agreed purchase price. It confers a right to enforce the lien through the declaration of a charge and a court order for sale enabling the vendor to recover the unpaid monies out of the sale proceeds. An equitable lien is subject to all the usual conditions affecting equitable rights. Generally, a vendor has a lien in equity for unpaid purchase money in respect of the sale of freehold land (amongst other things). The lien extends to the unpaid price and also to interest on it from the time the lien comes into existence. The lien arises whether the whole or part of the purchase money is unpaid and though a receipt may have been given for it. At paragraph 37.9, Fisher & Lightwood states that the vendor has a lien on the property for the purchase money and a right to remain in possession of the property until the money is paid, from the time that a binding contract for the sale of land is entered into. The lien arises on exchange of contracts rather than on completion. It is discharged on completion to the extent that the purchase money is paid. The possibility of a vendor’s lien after completion of a transfer shows that it is perfectly possible in law for a vendor to complete a transfer unconditionally, even where part of the purchase price has not been paid.

I will now apply the above legal principles to the primary facts I have found. If this had been a case where the only facts found were that the Second and Third Defendants had executed the TR1 and had given the executed form to a third party at a time when the First Defendant had not paid some £362,000, a substantial part of the purchase price of £1.5 million, then even in the absence of any express statement as to the nature of the transfer, I would have little hesitation in holding that the transfer was delivered as an escrow rather than as a deed. Further, the fact that the transfer as drafted contemplated that the First Defendant as transferee would give a covenant of indemnity in relation to pre-existing restrictive covenants would also, in the absence of anything further, justify the inference that the execution of the transfer by the Second and Third Defendants was conditional upon the covenant being given and the transfer being executed by the First Defendant.

However, in my judgment, there is very much more in the present case than the bald statement of facts referred to in the last paragraph. First, the transfer was given to the First Defendant’s solicitor under cover of a letter which appeared to suggest that the transfer was effective and certainly did not contain any hint of any conditionality in relation to the transfer. Secondly, the Second and Third Defendants and their solicitors knew that the First Defendant was borrowing from the Claimant Bank for the purpose of funding his purchase and that the loan was to be secured by a mortgage on the property. The Second and Third Defendants are to be taken to have known that the Claimant Bank would not release the mortgage advance until it had the benefit of a charge duly executed by the First Defendant and such a charge would not be duly executed until the First Defendant had an unconditional transfer of the property to him. Thirdly, when the monies were remitted by the First Defendant’s solicitor to the solicitors for the Second and Third Defendants, the monies were not held to the order of the First Defendant’s solicitor but were regarded as being irrevocably released to the Second and Third Defendants. The Second and Third Defendants then used the monies to discharge earlier mortgages and charges and retain a balance approaching £300,000 for their own purposes. Fourthly, the Second and Third Defendant’s solicitor informed the First Defendant’s solicitors that the monies which had been remitted to the Second and Third Defendant’s solicitors were being used to discharge earlier mortgages and charges. Fifthly, the parties’ solicitors had agreed that completion would take place in accordance with the Law Society’s Code for Completion by Post and the events referred to above, in particular the use of the monies remitted to the Second and Third Defendants’ solicitors, were consistent only with the transaction being completed on the 29^th or 30^th June 2004. Finally, although the draft transfer contemplated that the First Defendant would execute the transfer and the First Defendant did not execute the transfer, the use by the Second and Third Defendants of the monies remitted by the First Defendant’s solicitors must be regarded as a waiver by the Second and Third Defendants of that requirement or, at least, a waiver of any condition that the First Defendant execute the transfer before the transfer took effect.

In these circumstances, I conclude that the application of the above principles to the primary facts I have found produces the result that the transfer in the present case was delivered as a deed and not as an escrow.

Mr Cranfield relied on Section 1(5) of the Law of Property (Miscellaneous Provisions) Act 1989 which provides:

“Where a solicitor, duly certificated notary public or licensed conveyancer, or an agent or employee of a solicitor, duly certificated notary public or licensed conveyancer, in the course of or in connection with a transaction involving the disposition or creation of an interest in land, purports to deliver an instrument as a deed on behalf of a party to the instrument, it shall be conclusively presumed in favour of a purchaser that he is authorised so to deliver the instrument.”

In the present case, the Second and Third Defendants have not asserted that their solicitors, Alberts, lacked authority to deliver the transfer as a deed to the First Defendant’s solicitors. If they had asserted a lack of authority, that assertion would have been met by Section 1(5) of the 1989 Act.

Section 1(5) of the 1989 Act only applies where the agent “purports to deliver an instrument as a deed on behalf of a party to the instrument”. If I had held, contrary to my actual findings as set out above, that in all the circumstances of the case, the transfer in the present case was not delivered as a deed but was delivered as an escrow then the result would be that the Second and Third Defendant’s solicitor did not “purport to deliver an instrument as a deed” and Section 1(5) would not have applied. In so far as Mr Cranfield submitted that Section 1 (5) could potentially have the effect that an instrument which would be held to be delivered as an escrow under the general law would by virtue of Section 1(5) be treated as delivery as a deed and not as an escrow, then I do not accept that submission. Mr Cranfield referred me to an article by Professor Barnsley in the 1991 Conveyancer 15 (at pages 27 to 28) which Mr Cranfield suggested supported the view that a document which, under the general law, would have been regarded as delivered as an escrow would now be regarded under Section 1(5) of the 1989 Act as delivered as a deed. I am not clear that Professor Barnsley was so suggesting but, if he was, then I would not accept that that is the effect of the statutory provision which, in my judgment, is dealing only with the question of the agent’s authority.

As I have explained, the application before me is for summary judgment. I have considered whether this is a proper case in which to give summary judgment or whether I should adhere to the earlier directions given by the Master providing for there to be a trial in due course. In some circumstances, the fact that directions for trial had been given and that an application for summary judgment is made at a late stage might lead the court to refuse to consider an application for summary judgment. The present case is, however, different. The directions for trial in this case contemplated a trial in the period October to December 2007. In the absence of a summary judgment, a trial in that period will not take place and a trial will be significantly delayed past the present date. Further, the Claimant has before the court an application for judgment in default of defence on the basis that the defence has been struck out and the Second and Third Defendants have an application for relief from the sanction of striking out. If I decline to consider the application for summary judgment, I would have to consider the other two applications. The application for judgment in default would raise very similar points to those which I have discussed in connection with the application for summary judgment. The court’s decision in relation to the striking out of the defence and the application for relief from sanctions would have to be considered with care. The issue as to whether the transfer in this case was delivered as an escrow or as a deed is not an altogether easy point but, in my judgment, it will not become any easier, if it has to be dealt with at a trial rather than at the present time. In these circumstances, I conclude that I ought to deal with the application for summary judgment and, having regard to the reasoning set out above, to reach the conclusion that the Claimant has established that it is entitled to summary judgment.

The above conclusion leaves one or two matters which now require attention. I have held that the Second and Third Defendants effectively transferred their interest in the property to the First Defendant. The First Defendant thereupon became entitled to be registered as proprietor of the registered title. The First Defendant was then able, under Section 24(b) of the Land Registration Act 2002, to execute a charge in favour of the Claimant so that the Claimant was then entitled, as against whoever happens to be the registered proprietor of the title, to have the charge duly registered against that title. Thus, even if the Second and Third Defendants remain the registered proprietors, the Claimant is entitled to have his charge registered against the title. Although the Second and Third Defendants say that they did not grant any charge to the Claimant, on my findings, they transferred the property to the First Defendant who was able even before he became the registered proprietor to grant an effective charge in favour of the Claimant. The operation of Section 24 of the 2002 Act is explained in Ruoff & Roper, Registered Conveyancing, at para 13.003.04. Thus, in my judgment, the Claimant is now entitled to have its charge registered against the registered title, even if the registered title remains vested in the Second and Third Defendants.

It is not strictly necessary to determine the effect of the arrangements which have been made between the Second and Third Defendants on the one hand and the First Defendant on the other. If it is necessary to determine those matters, I hold that what the First Defendant has done is to transfer his equity of redemption back to the Second and Third Defendants. If so, then any vendor’s lien which the Second and Third Defendants would have had in relation to the unpaid purchase price would seem to be satisfied or to merge in the equity of redemption. In any event, I will go on to consider whether there is a possibility of the Second and Third Defendants having a vendor’s lien which would have priority to the Claimant’s charge. The circumstances in which a vendor’s lien loses priority to the rights of third parties with whom the purchaser from the vendor has had dealings was considered in Barclays Bank Plc v Estates and Commercial Limited [1997] 1 WLR 415. In that case, Millett LJ analysed the earlier decision in Kettlewell v Watson (1884) 26 Ch D 501: see the Barclays Bank case at pages 422 to 424. Millett LJ analysed that case as involving the postponement of the vendor’s lien to the equitable interest of a third party with whom the purchaser from the vendor had had dealings. He said at page 424:

“A party with an equitable charge can be taken to agree to the postponement of his property against any party who was allowed to his knowledge to purchase the land on the faith that it is unencumbered.”

At page 425 f to g, Millett LJ referred to the circumstances in which the

unpaid vendor in that case would be taken to have subordinated his

vendor’s lien to a later mortgage. Applying that approach in the present

case, in my judgment, the Second and Third Defendants are to be taken

to have intended to subordinate their vendor’s lien to the mortgage of

the Claimant, which mortgage they knew that the First Defendant was

granting for the purpose of obtaining the mortgage monies to pay over

to the Second and Third Defendants.

In the light of my conclusion on the application for summary judgment, it is not necessary to deal with the application for judgment in default nor the application by the Second and Third Defendants for relief from sanctions.

I will hear the parties on the precise form of relief to be granted following the handing down of this judgment.