Clark & Anor v Lucas Solicitors Llp

This is an application for summary judgment pursuant to CPR Part 24 in respect of a claim for specific performance of an undertaking given by the Defendant, Lucas Solicitors LLP, (“Lucas”) in the ordinary course of a conveyancing transaction. The Claimants, Mr and Mrs Clark, (“the Clarks”), seek to invoke the inherent supervisory jurisdiction of the Court over solicitors.

The claim was commenced by Part 8 claim form with Particulars of Claim attached. The Clarks seek specific performance of Lucas’ undertakings to which I shall refer, by “provision of a DS3 in favour of Michael Kenny.” The Defendants do not dispute the breach of the undertaking but contend that an inquiry as to loss and compensation is the appropriate remedy.

At the beginning of the hearing, I gave permission to amend the title to the proceedings in order to reflect the proper spelling of the Clarks’ name.

On 28 March 2007, the Clarks contracted to purchase Plot 3, The Mount, Hereford Road, Monmouthshire, (“Plot 3”), from Gainsborough Homes Limited, (“Gainsborough”) at a price of £560,000. Gainsborough owned the entirety of the property known as The Mount, (“the Site”) and was in the course of developing it. Plot 3 was one of five newly built properties. The Clarks had paid an initial deposit of £1,000 and a further deposit of £27,000 on exchange of contracts.

Two charges were secured on the entirety of the Site, both being all monies charges. The first was in favour of NatWest Bank plc, dated 30 September 2005 and the second in favour of Mr Kenny and dated 3 October 2005. NatWest Bank plc’s charge had priority over that of Mr Kenny. It was an express term of Nat West Bank plc’s legal charge that it could set off the whole or any part of Gainsborough’s indebtedness from time to time, against any credit balance on any account Gainsborough might have with the bank.

As is the usual course, the Clarks and their solicitors were unaware of the existence of the charges until receipt of the Replies to the Requisitions on Title to which I refer below. Furthermore, as is usual, they had no knowledge of the terms of the charges or the existence of any deed of priority until this dispute arose.

On 29 March 2007, Eversheds LLP, (“Eversheds”), the Clarks’ solicitors sent Requisitions on Title in the Law Society standard form (second edition), to Lucas, who were the solicitors acting for Gainsborough in relation to the sale.

On 17 April 2007, Lucas returned signed Replies to the Requisitions on Title. The Replies included undertakings and the relevant parts of the Requisitions and Replies are set out in tabulated form below:

“

	Requisition	Reply
	Warning: “Replies to Requisitions 4.2 and 6.2 are treated as a solicitor’s undertaking”
4.2	“If we wish to complete through the post, please confirm that (a) you undertake to adopt the current Law Society’s Code for Completion by Post; and (b) the mortgages and charges listed in reply to 6.1 are those specified for the purposes of paragraph 3 of the Code.”	“Confirmed”
6	Warning “A reply to this requisition is treated as an undertaking. Great care must be taken when answering this requisition.”
6.1	“Please list the mortgages or charges secured on the property which you undertake to redeem or discharge to the extent that they relate to the property on or before completion . . .”	“National Westminster Bank plc charge dated 8/11/05 and Michael Kenny charge dated 3/10/05”
6.2	“Do you undertake to redeem or discharge the mortgages and charges listed in reply to 6.1 on completion and to send us Form DS1, DS3, the receipted charge(s) or confirmation that notice of release or discharge in electronic form has been given to the Land Registry as soon as you have received them.”	“Yes”
6.3	“If you agree to adopt the current Law Society’s Code for Completion by Post, please confirm that you are the duly authorised agent of the proprietor of every mortgage or charge on the property which you have undertaken, in reply to 6.2, to redeem or discharge.”	“Confirmed”

On 1 May 2008, completion took place, Eversheds remitting the balance of the purchase price, being £532,076 to Lucas’ client account. The same day, pursuant to instructions received from Gainsborough on 30 April 2008 and what was described in the Defence as “previous practice”, Lucas remitted the net proceeds of £520,854.62 to Gainsborough’s account at NatWest Bank plc.

On 18 June 2008, NatWest Bank plc demanded immediate payment from Gainsborough of the balance of all sums due to it at that time, being £2.7m odd.

On 26 June 2008, Lucas sent notice of discharge in form DS3 in respect of the NatWest charge to Eversheds. However, no notice of discharge has ever been received in relation to Mr Kenny’s charge dated 3 October 2005.

On 17 July 2008, NatWest Bank plc appointed a fixed charge receiver in respect of the Site, but for Plots 1 and 3 and Gainsborough was placed into administration.

Despite having been made aware that Eversheds’ application to register the Clarks’ title to Plot 3 would have to be cancelled if the DS3 in respect of Mr Kenny’s charge was not produced, nothing was forthcoming. As a result, the Clarks have been unable to register the title to their home at Plot 3 and accordingly, are unable to sell it should they wish to do so, or to raise a mortgage on it.

On 25 July 2008, Mr Patrick Fanning of Lucas made enquiries by fax of Mr Kenny’s solicitors who responded by letter of 28 July 2008, that they were not instructed and assumed that negotiations in relation to the release of Mr Kenny’s charge in relation to Plot 3 had been conducted directly by Lucas with Mr Kenny.

Thereafter, in a letter of 14 August 2008 from Lucas to Mr Kenny, there is some suggestion that DS3 forms may have been sent to Mr Kenny by NatWest Bank plc but not received by him. In any event, an attendance note of a telephone conversation with Mr Kenny on 29 August 2008, reveals that he stated that he would not be returning the discharge documents because he had not been paid the sums due to him under the loan agreement which was secured by his charge, to which I shall refer and he had been advised not to return them. Although it was suggested at first that the sum due to Mr Kenny from Gainsborough was £1.5m, in paragraph 11 of his witness statement dated 7 July 2009, Mr Kenny confirmed that the sum outstanding as at 30 June 2009 was £1,089,513.46.

The loan agreement entered into between Gainsborough and Mr Kenny dated 3 September 2005, required Gainsborough to apply up to 20% of the net sale proceeds of each property at the Site, in repayment of the Loan, (which was originally £775,000), and to repay any remaining balance of the Loan from the proceeds of the last property to be sold. Gainsborough agreed to grant a legal charge having second priority over the Site and all the buildings on it in favour of Mr Kenny, ranking immediately after NatWest Bank plc’s first legal charge. The agreement did not oblige Mr Kenny to release his charge over any part of the Site as and when it was sold and in the event of the appointment of a receiver, administrative receiver or manager, entitled Mr Kenny to demand repayment of all sums outstanding under the loan agreement.

Lucas wrote to Eversheds on 2 September 2008, explaining the situation and stating that they were acutely aware of the failure to fulfil an undertaking and the disciplinary action which might result. The letter ended:

“We will advise you shortly of what action we propose to take to enable us to comply with our undertaking.”

A formal letter of claim was sent to Lucas on 18 September 2008 and complaint was made to the Solicitors’ Regulatory Authority in early October. After numerous extensions, Lucas’ solicitors responded to the pre-action protocol letter on 7 November 2008. It was stated that Lucas had already admitted that it was in breach of undertaking to the Clarks but that they had acted in accordance with a practice established on standing instructions from Gainsborough in relation to an earlier development. In accordance with those instructions, the net proceeds of sale had been remitted to NatWest Bank plc who were expected to pay Mr Kenny what was due to him and to obtain the executed DS3s. Unfortunately, on this occasion, the bank retained all the net proceeds of sale received and set it off against the sums which it was owed.

Proceedings were issued on 28 November 2008 and an acknowledgment of service together with a Defence was filed on 16 December 2008. In the Defence, emphasis is placed upon the “previous practice and/or . .contractual arrangements, the details of which have not yet been disclosed to the Defendants in their entirety . .” which purportedly existed between Gainsborough, NatWest Bank plc and possibly Mr Kenny himself. At paragraph 11 of the Defence, it is pleaded that Lucas is unable to perform its undertaking because it remains dependent upon the co-operation of Mr Kenny who declines to execute the requisite Form DS3.

Application for summary judgment was made in the Cardiff County Court on 29 January 2009 and thereafter, the matter was transferred to the Chancery Division of the High Court.

The evidence in support of the application is in the form of two witness statements by Julie Amber Dilcock, a solicitor in the firm of Eversheds LLP who act for the Clarks in this matter, dated 29 January and 8 July 2009 respectively and that of Michael Kenny dated 7 July 2009. The Defendant’s evidence is contained in two witness statements made by Karen Rhona Cargill, a solicitor in the firm of Williams Holden Cooklin Gibbons LLP who act on behalf of Lucas.

Mr Pay on behalf of the Clarks draws attention to the fact that the evidence does not suggest that Lucas sought a redemption figure from Mr Kenny before replying to the Requisitions on Title, contacted him prior to their reply or prior to completion of the transaction or were authorised to act as his agent, in accordance with the undertaking set out at Requisition 6.3. On the contrary, the evidence reveals that Lucas simply remitted the entirety of the monies to Gainsborough’s account at NatWest Bank plc without any contact with Mr Kenny at all.

Mr Kenny’s evidence is that he was only asked to sign a DS3 form after the sale had taken place and that even if he had been approached at the appropriate time, in relation to a discharge of the charge over Plot 3, he would not have agreed to it and would have preferred to put Gainsborough into liquidation. He also states that he did not authorise Lucas to act on his behalf in relation to the undertakings and there was no agreement in place with Nat West in relation to the proceeds of sale of each of the plots at the Site or otherwise with regard to those sales.

In fact, in her witness statement on behalf of Lucas, Ms Karen Cargill refers to the practice of forwarding the monies to NatWest for onward transmission of what sums might be due to Mr Kenny established in relation to an earlier development and comments that it did not occur on this occasion. She refers to a possible contractual relationship between NatWest, Mr Kenny and Gainsborough the terms of which she says remain unclear. However, as I have already mentioned, Mr Kenny himself states that there was no such agreement or additional relationship.

Ms Cargill accepts that her clients are in breach of their undertakings. She states that Lucas would not resist an order that it be required to compensate the Clarks but that performance of the undertaking is impossible and therefore, cannot be ordered.

Mr Pay on behalf of the Clarks submits that the Court routinely enforces solicitors’ undertakings if performance is not impossible and that the efficacy of the English conveyancing system requires this. He says that there is no defence here and therefore, there is no reasonable prospect of successfully defending the claim and no other compelling reason why the matter should be disposed of at trial.

He also submits that there is no suggestion of impossibility. The fact that the amount which would have to be paid in order to discharge Mr Kenny’s charge is approximately twice the value of Plot 3, he says is not at all unusual, especially where a large development is underway.

He also says that in such circumstances, on giving the undertakings, Lucas should have contemplated that it might prove necessary to discharge the entire charge in order to release Plot 3. In this regard, he referred me to rule 10.05 of the Solicitors’ Code of Conduct and paragraph 38 of the Guidance which applies to it, which are in the following form:

“10.05

Undertakings

(1)

You must fulfil an undertaking which is given in circumstances where:

(a)

you give the undertaking in the course of practice; . . .”

and

“38.

An undertaking is binding even if it is to do something outside your control. For example, if you undertake to make a payment out of the proceeds of sale of an asset, unless you clearly state to the contrary, you will be expected to make the payment even if the fund (gross or net) is insufficient.”

Mr Pay also referred me to numerous authorities. The first of which was United Mining and Finance Corporation Ltd v Becher [1910] 2 KB 296, per Hamilton J at 304-307. Mr Phipps on behalf of Lucas accepted that the case establishes that the Court has jurisdiction summarily to enforce solicitors’ undertakings given out of Court, even where there is no suggestion of impropriety.

Accordingly, in In re a Solicitor [1966] 1 WLR 604, at 1609F-H, Pennycuick J held that in the absence of evidence that it was difficult or impossible to perform an undertaking, it would be enforced. A solicitor had given an undertaking to hold five leases to the order of a bank. They were not in his possession and one was subject to a prior mortgage. Nevertheless, there was no evidence of impossibility and Pennycuick J proceeded on the basis that the solicitor was able to perform his undertaking by paying off the mortgage on the fifth lease. In this regard, Mr Phipps submits that the issue only arose during a trial for committal and therefore it is not clear that the issue of impossibility was properly argued or that there was sufficient evidence before the court. He also points out that the decision predates Wroth v Tyler to which I shall refer below, and should be distinguished or alternatively, is just wrong.

The question of impossibility in the context of the enforcement of solicitors’ undertakings was considered by the Court of Appeal in Udall v Capri Lighting Limited [1988] 1 QB 907 to which I was referred both by Mr Pay and Mr Phipps on behalf of Lucas. Balcombe LJ considered the nature of the jurisdiction, inter alia, in the following manner at 917F – 918B:

“ . . . .

(2)

Although the jurisdiction is compensatory and not punitive, it still retains a disciplinary slant. . . .

(3)

If the misconduct of the solicitor leads to a person suffering loss, then the court has power to order the solicitor to make good the loss occasioned by his breach of duty . . .. . .

(4)

Failure to implement a solicitor’s undertaking is prima facie to be regarded as misconduct on his part, and this is so even though he has not been guilty of dishonourable conduct: . . . . .

(5)

Neither the fact that the undertaking was that a third party should do an act, nor the fact that the solicitor may have a defence to an action at law . .. precludes the court from exercising its supervisory jurisdiction . . . However, these are factors which the court may take into account in deciding whether or not to exercise its discretion and, if so, in what manner.

(6)

The summary jurisdiction involves a discretion as to the relief to be granted . . . . .In the case of an undertaking, where there is no evidence that it is impossible to perform, the order will usually be to require the solicitor to do that which he had undertaken to do . . . .

(7)

Where it is inappropriate for the court to make an order requiring the solicitor to perform his undertaking, eg. on the grounds of impossibility, the court may exercise the power referred to in paragraph (3) above and order the solicitor to compensate a person who has suffered loss in consequence of his failure to implement his undertaking . . .”

Kerr LJ also noted at 919B that solicitors’ undertakings were normally concerned with matters in their own control and gave the example of discharging a mortgage after completion.

In that case, a solicitor had been ordered to carry out his undertaking that the directors of a defendant company for whom he was acting, provide security for its liabilities to the plaintiff by creating second charges on the directors’ personal properties. Subsequently, it was shown that the directors could not do so, one property having been sold as a result of the bankruptcy of one of the directors and the other director having died. Thus the solicitor’s undertaking could not be performed and was actually impossible. An inquiry as to loss and compensation was ordered. Mr Phipps submits that this case is one of impossibility and relies upon paragraphs (3) and (7) of Balcombe LJ’s formulation in support of his submission that an order for compensation is appropriate.

Mr Phipps also referred me to Wroth v Tyler [1974] 1 Ch 30 at 47-48 a case concerning specific performance of a contract for sale, where Megarry J considered the availability of the remedy where a third party has rights over the property to be sold, by reference to three categories. Mr Pay says that the position of Lucas is the same as Megarry J’s first category, namely that they have a right to put an end to the rights of a third party over land to be sold, in this case, by the payment of a cheque and therefore, there is no bar to the award of specific performance. The example given by Megarry J is of a vendor’s right as mortgagor to pay off the mortgage.

Mr Phipps contends that Lucas’ position falls within Megarry J’s second or third categories. The second is where the vendor has no right to bring an end to the third party’s rights, and can only seek to persuade him to release his rights and the third is where the vendor cannot secure concurrence by the third party but can go to court to secure the release of the right over the land to be sold. The example given of the second category of case is of an easement over the land. In this regard, Megarry J at 48H, held as follows:

“The modern doctrine seems to me to be stated in Fry at p. 466:

“As the consent of a third party is, or may be, a thing impossible to procure, a defendant who has entered into a contract to the performance of which such consent is necessary, will not, in case such consent cannot be procured, be decreed to obtain it, and thus perform an impossibility.””

In relation to the third category, Megarry J noted that the court will be slow to order specific performance which would require the vendor to undertake litigation dependant upon difficult questions and disputed facts. Mr Pay responds that if the discharge of a mortgage on completion of a sale were fall into the third category, every solicitor’s undertaking of the type in this case, would be characterised as impossible to perform, a position which cannot be correct.

Similar circumstances to those under consideration in this case were considered more recently by Henderson J in L Morgan & Co v Jenkins O’Dowd & Barth [2008] EWHC 3411(Ch). In that case, an order had been made by Blackburne J for the enforcement of a solicitor’s undertaking given in a conveyancing transaction. The undertakings were in the standard form and were for the discharge of existing mortgages in favour of the Royal Bank of Scotland and the provision of form DS1. At the hearing before Henderson J, orders were sought for a trial of the issue as to what sum was due to the Royal Bank of Scotland to achieve the discharge of the charge and permission was sought to join the bank.

It goes without saying therefore, that the undertakings had never been complied with and in fact, as in this case, there was never any request at the time for redemption figures. The bank, like Mr Kenny, was wholly unaware of the transaction. The bank took the view that it was not prepared to discharge the three mortgages which were the subject of the undertaking simply on being paid the sums lent in relation to the three properties but relied upon its all monies charge, as it was entitled to do. However, the bank made an offer to release the charge on payment of a lesser sum. It was at this stage that the defendants took the view that the bank was being opportunistic in seeking more than it could have hoped for when the transactions took place and it was against that background that they sought directions for the determination of the correct amount due.

Henderson J could see no basis upon which it was possible to argue that the bank should be required to accept a sum which would have been acceptable had the appropriate request been made at the time of the conveyancing transaction. He stated:

“13.

. .. Accordingly, the bank is entitled to deal with the matter as it thinks fit in the light of the situation as it now is. I cannot see as a matter of general principle that there is any possible basis for arguing that the bank should be required to accept the sum which it would have accepted had the appropriate request been made in 2006.

. . . .

16.

. . . the defendant firm is no doubt backed by its indemnity insurers and all that is required is a cheque to be written for the sum in question. There is no impossibility there. The only problem from their point of view is that it now costs rather more to perform the undertakings than they think it would have cost had they dealt with them as they should have done, two years ago. However, that is their misfortune and is not a surprising result of the breach of undertaking in the first place.”

However, at paragraph 21, he added the following rider which was obiter:

“The only rider I would add is that there is a liberty to apply in the order and if the bank were now to change its stance and to require terms which appear wholly unreasonable or to go beyond the scope of anything which could possibly have been contemplated when the undertaking was originally given, there may then, and I say no more than that, there may be a case for applying to the court to discharge the existing order and replace it with an inquiry as to damages suffered by the purchasers.”

Mr Pay says that Henderson J’s reasoning applies here and that all that is necessary is the payment of a cheque. As I have already mentioned, he says that it is not unreasonable to seek the full amount due on the all monies charge and that such a payment was or ought to have been within the contemplation of Lucas when the undertaking was given.

Mr Phipps contends that the circumstances under consideration by Henderson J were different from those in this case because an order for specific performance had already been made, the Royal Bank of Scotland was seeking less than the full amount outstanding, it was already a party and had agreed to surrender its charge on specific terms. He also draws attention to the fact that there was no evidence before the court of impossibility. Therefore, he says that the case is distinguishable and if not, he says that Henderson J was wrong.

Lastly, this matter was considered by Judge Hodge QC sitting as a High Court Judge in Angel Solicitors (a Firm) v Jenkins O’Dowd & Barth (a firm) [2009] 1 WLR 1220, also a case in which the summary jurisdiction of the Court to enforce undertakings pursuant to its inherent supervisory jurisdiction over solicitors was invoked and summary judgment was sought.

Undertakings to redeem or discharge existing all monies charges securing sums considerably in excess of the sale proceeds of the properties in question and to provide the usual discharge forms had been given but not performed. It was argued that had the defendants sought to discharge the mortgages at the time of the undertakings, lesser sums would have been required than the mortgagees were now seeking and that therefore, an inquiry as to damages should be conducted and that it was inappropriate to make a summary order for enforcement of the undertakings in advance of such an enquiry. The defendants also sought to join the banks as parties to the action and a third party. However, summary judgment was granted.

In fact, in this case also, the banks had taken a pragmatic view and did not seek to recover the entirety of the indebtedness due under the all monies charge. Judge Hodge QC noted at 1225 F-H as follows:

“Although anything that I say on this issue will necessarily be obiter, I am prepared to acknowledge that, if a mortgagee were to insist upon its entitlement to receive, by way of redemption, a payment considerably in excess both of any sum that could reasonably have been contemplated at the time when the solicitor’s undertaking was given, and also the present unencumbered open market value of the relevant property, then the court might in accordance with the interests of justice, refuse to order the summary enforcement of the undertaking (or discharge an existing order to do so), and order the payment of compensation for breach of the undertaking instead. . . . . But in the light of the pragmatic attitudes adopted by the mortgagees in the present case, I am entirely satisfied that this is not a case in which such a course might fall to be considered. Even if this were such a case, however, I can see no warrant, either in law or in equity, for seeking to interfere in any way with the terms, or the extent, of either of the mortgagees’ securities.”

As I have already mentioned, Mr Pay submits that it was well within the contemplation of Lucas that discharge of the entirety of the charge and therefore, payment of all monies due to Mr Kenny might be necessary in order to fulfil the undertaking and no one can interfere with Mr Kenny’s right to demand the full sum. In this regard, he relied additionally upon Hall v Heward (1886) 32 ChD 430 which he submitted was authority for the proposition that where the chargeholder has a charge of the whole of a site he cannot be required to release part of his charge only, the right being to redeem the whole.

He says that such a situation is quite normal where properties are being developed and in any event, Lucas had been instructed, by Gainsborough on a previous similar development. Furthermore, he submits that if an order for compensation were routinely made in circumstances such as these, the undertaking given would in reality amount to no more than a warranty limited in value to the value of the property itself. In this regard, he also referred me to the judgment of Robert Walker LJ in Patel v Daybells [2002] PNLR 6 at paragraphs 60-62 where he emphasised that as between the vendor’s solicitor and the purchaser, an undertaking is unqualified and is backed by the summary procedure and the Solicitors’ Indemnity Fund. He noted that if it were otherwise, the purchaser would have to be concerned with the state of account between the vendor and his mortgagees which ought not to be his concern and would add to the expense and create further delay in conveyancing transactions.

Mr Pay says that any alleged unfairness in paying a sum in excess of £1million is mitigated by the fact that Lucas would be subrogated to the whole of Mr Kenny’s security. He says that it is difficult to see why an innocent purchaser should be affected by the attitude taken by the lender as to whether he is willing to accept a lesser sum. He also submits that even if an order for an enquiry as to compensation were made, the full sum of more than £1million would still have to be paid because that is the price of providing the Clarks with an unencumbered title.

In any event, he says that in this case, there is no evidence of a dispute as to the sum payable or of an underlying contractual relationship. Lucas has known at least since 10 March 2009 what the approximate redemption figure is and has taken no steps whether with Mr Kenny or Nat West in order to seek to resolve any issue as to what amount Mr Kenny can properly demand as a condition of sealing a discharge nor have any steps been taken to join third parties. In fact, Lucas has suggested that the Clarks take such steps at Lucas’ expense.

As I have already mentioned Mr Phipps on behalf of Lucas submits that performance of the undertaking is impossible and therefore, cannot be ordered. In any event, he submits that nevertheless, I ought not to exercise the court’s discretion to require Lucas to perform the undertaking because the court cannot have confidence that Mr Kenny has accurately quantified the amount to which he is entitled.

He points out that the figure required by Mr Kenny has changed recently and there is insufficient evidence of the precise sum due. He also submits that the court may not be fully informed of the terms of any agreement between Mr Kenny and Gainsborough.

Secondly, he submits that in any event, the sum claimed is wholly disproportionate to the value of Plot 3, making an order for specific performance punitive rather than compensatory. He refers me to propositions (2) and (3) in the judgment of Balcombe LJ in Udall v Capri Lighting Limited, set out above. He says that a sum double the value of Plot 3 cannot be reasonable and could not have been in Lucas’ contemplation when they gave the undertaking.

He also referred me to Fox v Bannister, King & Rigbeys [1988] 1QB 925 in which it was held to be impossible to enforce an undertaking in its original form and an inquiry as to loss was ordered. A solicitor had undertaken to retain a sum in his hands until various matters were sorted out, but in breach of the undertaking had paid it over to his client who had gone bankrupt. The Court of Appeal held that it was no longer possible in any meaningful sense to require to the defendant to honour the undertaking because it would merely put money into the hands of his client’s trustee in bankruptcy rather than achieve the original objective. There was never an undertaking to pay the claimant the sum in question. Nicholls LJ noted that the court will be careful to ensure that the defendant solicitor is not prejudiced and will exercise its discretion with that in mind.

Furthermore, he submits that the fact that a sum in excess of £1million is wholly disproportionate to the loss suffered is further revealed by the application of the principle of subrogation. He says that there are arguments in relation to subrogation upon which the court is not in a position to reach a firm conclusion but which affect the value of Mr Kenny’s charge and therefore, the extent of the loss suffered by the Clarks.

He referred me to the decision of the Court of Appeal in Cheltenham & Gloucester plc v Appleyard [2004] EWCA 291 and Mitchell on Subrogation 2007 edition at 6.58, 6.61 -6.63, 6.73 and 6.80-83. He submits that the law of subrogation is flexible and developing and is primarily concerned with preventing unjust enrichment. He says that if in excess of £1million were paid to Mr Kenny whose charge ranked after NatWest bank plc he would be unjustly enriched.

He submits that subrogation is capable of covering the situation in which purchasers make the mistake of making a payment believing that they will obtain an unencumbered title. He says that they are entitled to be subrogated to NatWest Bank plc’s charge and therefore, in part, would have a charge over their own property. As a result of the subrogation, Mr Kenny would remain a second chargee behind the Clarks and therefore, his charge might be worth much less than at present appears. If Mr Kenny could not be persuaded to give up his charge the Clarks would be entitled to sell Plot 3. Accordingly, he says that there is a real issue as to whether the Clarks are entitled to be subrogated which supports his argument that a remedy which required Lucas to pay in excess of £1million would be disproportionate.

In response, Mr Pay submits that there is no reported case on subrogation in circumstances such as the one with which the court is concerned. In any event, he says there was no mistake of fact or law upon which monies were paid over. In this case, the Clarks purchased Plot 3 from Gainsborough believing that the undertakings given would be honoured. Furthermore, no question of unjust enrichment arises because Mr Kenny is entitled to demand repayment of the entire sum due to him. He also submits that even if Mr Phipps is right and the Clarks are subrogated to the NatWest Bank plc charge, it takes the position no further because it would still be necessary to pay in excess of £1million in order to redeem Mr Kenny’s charge. Lastly, he says that the effect of the subrogation argument is to seek to require the Clarks to commence difficult litigation and even sell their own property in order to mitigate their loss, instead of being able to enforce the undertaking. Such a course he says cannot be correct and would place Lucas in a position as if it had not given the undertaking at all.

It is not in dispute that the nature of the jurisdiction of the court, in relation to the enforcement of solicitors’ undertakings, was accurately described by Balcombe LJ in Udall v Capri Lighting Limited, by which I am guided. Therefore, in the absence of evidence that the undertaking in this case is impossible to perform it would be usual to require performance of the undertaking. However, in accordance with proposition (7) in the Udall case, where there is impossibility or it is otherwise inappropriate to order the undertaking to be performed, the court may exercise its discretion to order the solicitor to compensate for the loss caused by the breach of the undertaking. I also note that at proposition (5), Balcombe LJ stated that the fact that the undertaking was that a third party should do an act does not preclude the court from exercising its supervisory jurisdiction but is a factor to be considered when determining whether or not to exercise the discretion and if so, in what manner.

In my judgment, this is not a case of impossibility. The undertaking given was in standard form and was to pay off charges on completion. In Udall v Capri Lighting Limited, Kerr LJ considered such a step to be within a solicitor’s control. The situation could have been avoided if a redemption figure had been obtained and agreement reached before the undertaking was given. As Henderson J noted in L Morgan & Co v Jenkins O’Dowd & Barth, the undertaking can be performed by the payment of cheque, albeit a larger one than might have been payable had enquiries been made and agreement reached at the appropriate time. This is not a case of the kind considered by the Court of Appeal in Udall v Capri Lighting Limited where the undertakings given could no longer be performed at all or in Fox v Bannister, King & Rigbeys [1988] 1QB 925 where performance of the undertaking was otiose.

Nor, in my judgment, does this case fall, by analogy, into the second or third categories set out by Megarry J in Wroth v Tyler. Mr Kenny’s rights cannot be equated with those of a person entitled to an easement who would need to be persuaded to relinquish his right and could quite legitimately choose not to do so. There is no question but that Mr Kenny will release his charge which affects Plot 3, if he is paid the sum which he is entitled to demand under the charge and relevant loan agreement. Nor, is this a case, which in my judgment, should be characterised as falling within Megarry J’s third category. Lucas would not be required to undertake difficult litigation. I refer separately to the issue of subrogation below.

Nevertheless, I must consider whether given the fact that the performance of the undertaking is dependent in part upon Mr Kenny, the fact that the amount demanded is much greater than the value of Plot 3 and that Mr Phipps contends that there is uncertainty as to the amount due, should dissuade me from ordering performance of the undertaking and render it appropriate to order that Lucas compensate the Clarks.

As to lack of certainty as to the sum due, although clarification was only obtained recently, there is no evidence of a real dispute as to the sum put forward. Reliance is also placed upon what may have been the details of an arrangement as to sums due to Mr Kenny. However, Mr Kenny himself says in his witness statement that there was no agreement or arrangement with NatWest Bank plc and/or Gainsborough which might be of relevance.

I also take account of the riders in the judgments of Henderson J in L Morgan & Co v Jenkins O’Dowd & Barth and Judge Hodge QC in Angel Solicitors (a Firm) v Jenkins O’Dowd & Barth which I have set out at paragraphs 38 and 43 above and both of which were obiter. In both cases, the lender was willing to accept less than the full amount due which amount far exceeded the value of the property in question. Despite the fact that the amount demanded here is approximately double the value of Plot 3, I accept Mr Pay’s submissions in this regard. Mr Kenny is entitled to demand the full sum due and Lucas should be taken to have contemplated that that might well be the case, especially in the light of the fact that their client was developing the Site as a whole. In this regard, I also take into account the extract from the Solicitors’ Code of Conduct and the Guidance to it, to which I was referred. Such a demand is not therefore, something which can be categorised as wholly unreasonable or outside Lucas’ contemplation. In addition, in my judgment, the remedy available should not turn upon the attitude taken by the lender where the circumstances, (as in this case), are such that the solicitor giving the undertaking should have had in his contemplation that the entire sum due might be demanded in order to obtain the required discharge.

I also accept Mr Pay’s submissions in relation to Mr Phipps’ argument based upon subrogation for which there appears to be no direct authority covering the circumstances with which the court is concerned. I do not consider that there is a real prospect of defending the claim on this basis and do not consider it a factor which ought to prevent the court from making an order for the enforcement of the undertaking. I agree with Mr Pay that the effect of the argument were it successful, would be to require the Clarks to commence lengthy and difficult litigation culminating in the possibility that they might have to sell their own property if Mr Kenny were not persuaded to accept less than all the monies due to him which should be contrasted with their entitlement to rely upon the undertaking given.

Accordingly, I allow the Clarks’ application to enforce the undertaking and grant summary judgment against Lucas. I will hear further submissions as to the precise form of the order and costs.