Thames Valley Housing Association Ltd & Ors v Elegant Homes (Guernsey) Ltd & Ors

This is an application made by the first two claimants to enforce an undertaking given by the second defendants (“Willmetts”) given in the course of a conveyancing transaction. In these proceedings those two claimants seek to enforce that undertaking and they made an application for summary judgment. That is the application that came before me. At the end of the argument I announced my decision, which was that the undertaking would be enforced and an appropriate order made. Because of other matters that had to be dealt with (including a summary judgment application against the first defendants) it was not convenient to give my reasons at the time and I announced that I would give them later. This judgment contains those reasons.

The first two claimants (“the associations”) are associated companies, and are both housing associations. The third claimants (“Andersons”) are their solicitors. The first defendant (“Elegant”) is a developer and Willmetts were its solicitors. For the purposes of carrying out the development referred to below, Elegant borrowed money from the third defendant (“the Bank”). There is a third party (Mr MacPherson) who is a person who is said to be the owner and/or controller of Elegant. Although he figures in some of the events surrounding those with which I have to deal, I will not need to refer to him again.

In 2007 Elegant was minded to acquire a development site at Windsor Road, Bray, in Berkshire. In order to acquire and develop it it sought finance from the Bank, and the Bank agreed to provide finance for both purposes. It also had other properties and borrowings were required for that other development as well. It was intended to develop the Bray land by dividing it into 30 units and building a house on each of them. An internal Bank document in 2007 records the “Payment Terms” as being “one bullet repayment on sale of finished units”. That particular reference became an important point in the argument of Mr David Halpern QC, who appeared for Willmetts, as will appear below. It appears from that provision that the Bank at least intended that it would be repaid by a series of repayments, made as and when each of the various units, when completed, were sold in their completed state. The contractual and proprietary documentation, however, did not reflect that. The Bank’s facility letter for the Bray project was dated 30^th April 2007 and provided that the facilities (£6.277m) would be repayable on demand at all times, despite the fact that it was described as a “Term Loan”. Elegant was to provide security for the loan as set out in the “Security Documents” set out in schedule 1 to the facility letter. Those documents included:

“1.1

A first and only debenture from the Borrower.

1.2

A first and only legal charge over the [Bray] Property.”

A debenture was already in place. It was dated 20^th May 2005 and was in the familiar form – a fixed charge on all freehold and similar properties and a floating charge on a lot of other assets. I do not need to set out its provisions. A fixed charge was given over the Bray property on 1^st June 2007; it secured all monies due from Elegant to the Bank. I do not need to set out any of the provisions of that document either. The important point to note about both of them is a negative – none of them contained any conceivable reference which would support the notion that the Bank would be obliged to release any particular part of the Bray property on payment of anything less than the whole of the outstanding debts due from Elegant to the Bank. The structure as it appears from those documents, and without prejudging the validity of a submission made by Mr Halpern, was a familiar one. The Bank was prepared to lend (and did lend) the costs of buying the land and a percentage of the development costs. It apparently expected to be paid piecemeal by sales of the plots, and no doubt would be highly likely to accept repayment in that manner because it was hardly likely that it would be repaid in any other way. The borrower would wish to pay in that manner because it was from sales of individual plots that it was going to get its money in respect of the development. In other words, that particular repayment mechanism seems, on the face of the contractual documents, to be a matter of commercial practicality rather than legal entitlement, though the documents do contain provisions which forbid sales of any of the properties without the Bank’s consent. The Bank would be highly likely to consent to proper sales because, as I have observed, it was not going to be repaid in any other way short of full scale security enforcement.

At the beginning of 2008 Elegant agreed to sell six of its plots to the first claimant and three others to the second claimant. For the purposes of this application there is no need to distinguish between those two sets of plots, and I can treat them as being overall one purchase and treat the first two claimants as being one purchaser. Those two claimants instructed Andersons to act in the conveyancing; Elegant instructed Willmetts. The partner acting at Willmetts was a Mr Gilbert. The plots sold were not to have houses built on them at the time of sale, contrary to the basis on which the Bank understood it was providing funding. The Bank documents demonstrate that it was expecting that the plots would only be sold once houses had been constructed on them. In this case the arrangement between Elegant and the associations was that houses were to be constructed by Elegant for the two associations after the sale of the bare plots, pursuant to a JCT contract.

Obviously, the associations required that their plots be free of any charge, and in order to achieve that Willmetts gave undertakings to procure the discharge of the charges in the usual way. The undertakings were given by the replies to requisitions and by the application of the Law Society’s Code for Completion by Post and were to the following effect:

(a)

Willmetts were asked (in requisition 6.1): ‘Please list the mortgage 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…’. In response, Willmetts stated ‘We undertake only in respect of the charge in favour of Bank of Scotland plc dated 1 June 2007 and registered on 16 January 2008…’

(b)

Willmetts were asked (in requisition 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 receive them’. Willmetts gave this undertaking by responding ‘Confirmed’.

(c)

The following undertaking was given pursuant to the Code: ‘[Willmetts] undertake (i) to have the seller’s authority to receive the purchase money on completion; and (ii) on completion to have the authority of the proprietor of each mortgage or charge specified under paragraph 3 [which included the Bank’s charge] to receive the sum intended to repay it.’

(d)

They also gave this undertaking, via the Code: ‘Willmetts undertake….(ii) to redeem or obtain discharge for every mortgage or charge so far as it relates to the property specified under paragraph 3 which has not already been redeemed or discharged’.

Willmetts accepts that these undertakings were given.

Exchange of contracts and completion took place on the same date, namely 11^th April 2008. The contracts and transfers were executed by Mr Gilbert and another member of Willmetts’ staff pursuant to a power of attorney. On that date, the two associations sent Willmetts the aggregate purchase price for the two plots, namely £675,000.

Unfortunately, despite their undertakings, Willmetts did not procure the discharge of the Bank’s charge over the nine plots; nor did it send the purchase price to the Bank. About two weeks after completion, Mr Gilbert procured that the sale proceeds less about £7,000 were sent to Elegant, and paid into a separate account that it had at Barclays Bank. The Bank of Scotland knew nothing about the sale at the time. It did not consent to it.

Over the following months Andersons chased Willmetts for the promised release of the Bank’s security. By and large they were fobbed off. Andersons began to rely on the undertaking, and by the end of 2008 the senior partner of Willmetts became involved. I do not need to set out the detail of these contacts. At the beginning of March 2009 Mr Gilbert sent his partners an email in which he apologised for the mess he had left them in in relation to various matters and summarily resigned. Since then he has not been available to Willmetts to explain what happened in this transaction and why it happened.

On 24^th October 2008 Andersons had sent a pre-action protocol letter to Willmetts. On 7^th November 2008 Willmetts, via solicitors now separately instructed by them, asked for some time before the issue of proceedings. A little time was given and there was more debate in correspondence about that. However, nothing came of the delay, and on 12^th December 2008 the present proceedings were issued, and particulars of claim were served on the same date. The proceedings claim enforcement of Willmetts’ undertaking, and specific performance of Elegant’s obligations. On 16^th February 2009 the claimants issued an application for summary judgment against Willmetts, and on 13^th March 2009 issued a similar application against Elegant. I should add that Andersons are third claimants in these proceedings in case a point was taken as to precisely who the recipient of the undertaking was, but in the event nothing turned on that point.

Thus two summary judgment applications arrived before this court for hearing on 7^th October 2009. I heard the application against Willmetts first.

Since the Bank has not received any part of the proceeds of sale, it has refused to provide a discharge of its charge or charges over the land. There have been various dealings between Willmetts (or their solicitors) and the Bank (and its solicitors) in order to find out what sum the Bank requires in order to provide that discharge. The Bank’s position is that technically the Bank has a security over the nine plots (and over about six unsold plots) which secures all the liabilities of Elegant to the Bank, which include the Bray facility but also extends to all other liabilities. The aggregate of those liabilities is several million pounds, but the Bank has indicated that it would discharge the charge over the nine plots for a sum which is the amount that the Bank would have expected to receive from the nine plots less some deductions; the sum is some £1.35m odd. That is probably most of the outstanding Bray facility. It does not insist on receiving the entirety of Elegant’s outstanding liability. There is no evidence of the value of the nine plots, but there is evidence that the amount paid by the associations to Elegant under the JCT contract was approximately £975,000.

The case of the associations is very simple. They say that Willmetts gave an undertaking and the associations were clearly intended to be the beneficiaries of that undertaking. The undertaking was to secure their position as purchasers and make sure that they did not pay money for land caught by a charge which the solicitors knew about or ought to have known about. The solicitors should have found out about the charge and either procured its discharge or made sure that completion did not take place so that the associations did not lose their money. This is a plain case. The system of conveyancing relies heavily on undertakings by solicitors and their enforceability. So far as Willmetts say that judgment should not be given to them until it has been ascertained how much the Bank is entitled to ask in order to allow redemption of the charge over the land, the associations say first there is no material dispute and, second, even if there is some sort of dispute, then in the circumstances the associations should not have to wait until it is resolved.

Willmetts accept they gave the undertaking, and they accept its effect in that at the end of the day they are going to have to procure the removal of the charge (at least while the Bank is asking for sums of the order which it was asking for). However, they said that the Bank was not necessarily entitled to ask for the full amount that it was asking for (£1.35m) and there should be an inquiry as to its entitlement in this respect. The reason that it was not necessarily entitled to the full amount was that it plainly anticipated receipt of less than the full amount charged on the whole of the land on the occasion of the sale of each plot, as one could see from the reference to bullet repayments in the Bank’s internal documents. That was evidence of some form of agreement between the Bank and the associations to the effect that the associations would be entitled to redeem on paying less than the full amount owing, on the sale of each plot. What was needed was an inquiry as to whether there was some sort of arrangement, and then what that arrangement was. The expression “bullet repayments” was not defined, and the inquiry would deal with that as well. Mr Halpern put forward two candidates for what it might mean – see below. Until that inquiry was carried out it would be wrong to order the solicitors to perform the undertaking, and in the circumstances summary judgment should not be given. Directions could and should be given for the conduct of such an inquiry. It must be remembered that Willmetts do not have a lot of information about what happened when the completion took place, since they do not have the assistance of Mr Gilbert. Furthermore, they have even less information about the possible circumstances of the alleged agreement between Elegant and the Bank. Mr Halpern did not go so far as to say that there could in no circumstances be enforcement of an undertaking such as these when the amount was uncertain, but he said that uncertainty in the amount necessary to procure the discharge of the charges was a circumstance that the Court could take into account in its discretion. He accepted that, notwithstanding uncertainty as to the Bank’s strict entitlement, this Court has jurisdiction to enforce the undertaking by ordering the solicitors to procure the discharge even if that would lead to their paying an amount demanded by the Bank which might be thought to be less than wholly clear.

I turn therefore to the determination of those issues. Since there is no dispute about the terms of the undertakings, or their effect, and since it is accepted that the solicitors could procure the discharge of the charge by paying the amount required by the Bank, and since the solicitors do not run any defence in the nature of a hardship defence, the real questions become whether or not Mr Halpern has raised a serious question mark over the entitlement of the Bank, and if so whether that, and the other circumstances, are sufficient to require the associations to wait for enforcement of the charge until an issue as to the Bank’s strict entitlement has been determined.

Mr Halpern’s case on the excessiveness of the Bank’s demands relies on only two pieces of evidence. First is the internal Bank documents to which I have referred. It refers to bullet repayments. He adds to this part of a statement by Mr David Squire, a former relationship matter at the Bank, who dealt with Elegant. In paragraph 4 of his statement he says:

“4.

Quite simply it was standard practice for all BOS advances for construction/development sites to require bullet repayments – i.e. as and when a property on the site was sold, the net proceeds of that sale would be immediately utilised in the direct reduction of the outstanding liability. As can be seen from the documents contained in Exhibit DS1 and annexed to this statement, BOS’ standard terms and conditions provide for bullet repayments.”

Exhibit DS1 is in fact the internal Bank document to which I have already referred. It does not contain standard Bank conditions. It refers to “standard conditions precedent to draw down of the land loan” and merely sets out what the Bank commonly requires, but it does not amount to standard conditions in documents operating as between the Bank and its customer. What it does indicate, not surprisingly, is that the Bank would expect to be repaid from those bullet repayments.

That material, which is all that Mr Halpern has, does not amount to evidence of any agreement at all operating between the Bank on the one hand and its customer on the other. Mr Halpern has no other evidence. Nor is there any reason to suppose that, given some time and more investigations, he would be able to obtain any. It is not clear whether his client would have access to Elegant personnel in order to see if they would support an allegation of an agreement, but his client has had the benefit of an early disclosure order against the Bank, and I infer that the absence of any further material shows that, at least on the Bank’s side, there is no evidence of an agreement of the kind that he seeks to allege.

Furthermore, Mr Halpern’s argument faces more difficulties than that. First, the relationship between the Bank and the customer was, as one would expect, actually documented. I have referred to the documentation above. It is completely inconsistent with any agreement of the kind that he alleges. It makes it fundamentally unlikely that there was any binding agreement departing from those. Any agreement would have to be a collateral contract. In law such a contract could exist, but it would require strong evidence. Not only is there no strong evidence; there is no real evidence at all.

There is also a further technical objection. As Mr Halpern accepted, an agreement as to the terms on which a charge would be released, if it is to amount to a binding contract, must be in writing and signed by the parties pursuant to the provisions of the Law of Property (Miscellaneous Provisions) Act 1989. There is no evidence that such a document exists. Mr Halpern pointed out, correctly, that in some circumstances the full rigour of the statute could be avoided by means of mechanisms such as estoppel and constructive trust. That may be true in different circumstances, but it is even harder to see how that can be the case on the evidence that I have got than it is to determine that there is or might have been some form of agreement in the first place.

Mr Halpern also faced considerable difficulty in suggesting how it could now be worked out how much the Bank might be entitled to receive. If one looks at the Bank’s internal document, it indicates that the Bank was expecting to receive monies from the sale of each plot as and when the plots were completed. In other words, houses were to be sold, not merely plots. That did not happen in this case. Nor can it now happen. So in order to ascertain what the Bank should now be taken to be obliged to accept, Mr Halpern contrived two methods. The first involved looking at the amount which the Bank lent and which could be said to be properly attributable to each plot; that sum would then be reduced by receipts from the sale of plots. The second was to look at the amount which the Bank was expecting to receive in respect of the proceeds of sale of each plots; that was then to be reduced by actual receipts from the sale of plots. It is not clear to me how either of those mechanisms is supposed to work; the second is particularly difficult. But the real point is that neither of them has anything much to do with the apparent mechanisms of the transaction in question. One comes back down to the documentation. It provides for all monies to be secured and does not provide in any way for an appropriation of any part of the debt to any part of the land. If the Bank was expecting to receive less than the whole sum from time to time (which it plainly was) then it was the net proceeds of sale of each plot as and when built on and that manifestly has not happened in this case. So the suggestion that there should be an inquiry to see which of Mr Halpern’s methodologies might be applied is an inquiry into something which, in my view, is irrelevant. Mr Halpern sought to support his submissions in this respect by showing how the Bank advanced monies from time to time, and how, according to him, it could be seen that certain sums could definitely be seen as being lent towards the construction of houses on the nine plots. That, he said, helped determine how much the Bank could properly be said to require for a discharge of the mortgage over the land. I am afraid that material does not support this case.

Thus Mr Halpern has not succeeded in demonstrating that there is any serious question as to the amount which the Bank is entitled, as a matter of law, to require for the discharge of its charge over the nine plots. As a matter of law it may well be entitled to require all monies owed to it by Elegant. I do not need to consider the consequences of the Bank’s insisting on that, because it does not do so. It merely requires a sum which is less than the sum which it expected to receive (i.e. net of certain payments) and not exceeding the balance of the Bray facility. Had things gone according to plan, and if there had been an orderly sale of plots with houses on in the manner that the Bank expected, then the Bank would be unlikely to have insisted on a sum calculated in that way. It would have expected (as a matter of commerciality) actual net proceeds. However, things did not go according to that plan. The Bank itself was let down since no consent was sought for the sale of these plots, apparently, and it did not expect to have to give consent to a sale of a plot without a house on it, and then still to have to fund the costs of building on those plots (which, on the facts, it did – since it did not know of the sale of the plots it provided funds for building the houses on them as on the other plots). If further justification for the Bank’s stance is needed (which it is not) then it should be noted that the sum now required by the Bank is less than the aggregate of the price paid by the associations for the land and the amount paid to build the houses on them. There was no formal valuation of the nine plots before me, but Willmetts do not suggest that the amount demanded by the Bank is in excess of a proper valuation of those plots, and the figures just referred to suggest that it is unlikely to be.

There is therefore no evidential case justifying an inquiry as to the amount that the Bank is strictly entitled to require as the price for releasing the charge over the nine plots. The answer is clear, and the Bank’s demand seems to me to be reasonable. Accordingly, there is no justification for postponing judgment against Willmetts based on the need to conduct any such inquiry. That means it is not necessary for me to go into the suggestion, raised by Mr Pay, that Willmetts have had enough time to investigate the matter and have failed to keep the associations properly informed of their discussions with the Bank. Those suggestions, if properly founded, were to be relied on in opposition to the suggestion that Willmetts should have more time to have the position determined. Since there is nothing to have determined, the point does not arise.

That conclusion also makes it unnecessary to spend much time considering the authorities relied on by Mr Halpern, which in any event contained fairly uncontroversial propositions. He took me briefly to In Re A Solicitor [1966] 1 WLR 1604 in which Pennycuick J had to consider the enforcement of conveyancing undertakings given by a solicitor (a Mr Lincoln). He had given undertakings to hold certain leases to the order of the Bank, but did not have them. In relation to one of the leases, Pennycuick J said (at page 1609 F-H):

“Prima facie, it is open to Mr Lincoln to obtain that lease by paying off the first mortgage, in which case he would be entitled to require the first mortgagee to hand over the lease to him and he could then hand over the lease in turn to the Bank. There might, of course, be circumstances in which it would be difficult or impossible for him to achieve that result, but there is no evidence before me to show that any such difficulty or impossibility exists, and in the absence of any evidence it seems to me that I ought to proceed on the basis that Mr Lincoln is able to perform this undertaking.”

Mr Halpern did not say that it would be impossible for Willmetts to achieve compliance with their own undertaking. Obviously it is not – they can procure the discharge by paying the money required by the Bank. It has not been suggested that they do not have the money. However, he did rely on the use of the word “difficult” as supporting his proposition that there should be a delay while the amount which the Bank is entitled to ask for is determined. He said that that is a similar consideration to “difficulty” because one does not know what the Bank is entitled to require. However, since I have found that there us no basis for such an inquiry, the “difficulty” does not arise.

Next he took me to Udall v Capri Lighting Limited (in liquidation) [1988] 1 QB 907 in which it was pointed out that the jurisdiction to enforce solicitors’ undertakings is essentially compensatory and not punitive, though it does have a disciplinary function as well. I accept those propositions. On the facts as I have found them to be, nothing in them prevents the enforcement by me now of the undertaking given by Willmetts.

The cases of L Morgan & Co v Jenkins O’Dowd & Barth [2008] EWHC 3411 (Ch) and Angel Solicitors v Jenkins O’Dowd & Barth [2009] 1 WLR 1220 were relied on as establishing that the Court has a degree of flexibility in enforcing undertakings, and that the Court might not require a solicitor to comply with undertakings by procuring the discharge of a charge if the amount required was unreasonable and greatly in excess of the market value of the property in question. Remarks to this effect in those cases were obiter. It is not necessary for me to consider their correctness (though I would in no way question it) since on the facts the point does not arise. In the circumstances the amount required by the Bank cannot be labelled as excessive, and it has not been shown to be in excess of, let alone greatly in excess of, the market value of the nine plots.

Last, Mr Halpern took me to Clarke v Lucas LLP [2009] EWHC 1952 (Ch). He pointed out that paragraph 60 of that judgment seemed to support his submission that a lack of certainty as to what was legally required in order to satisfy a charge was a relevant factor. I am sure that is right, and it was not challenged by Mr Pay. However, there is no lack of certainty in the present case, on the facts before me. Paragraph 61 of that judgment, which deals with “proportionality”, operates against Willmetts in this case. It was a case in which a mortgagee was demanding payment of all sums due, which was approximately double the value of the plot in respect of which the undertaking (which was similar to the undertaking in this case) had been given. The deputy high court judge (Miss Sarah Asplin QC) said:

“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 Guide 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.”

That can be said to apply in the present case.

In those circumstances Mr Halpern has not persuaded me that it would be right to postpone any order against Willmetts pending the resolution of some issue (which would have been fought between Willmetts and the Bank) as to what the Bank was strictly entitled to receive.

I also bear firmly in mind the position of solicitors’ undertakings of this nature in the procedures of conveyancing. They are, as I have already observed, an important part of that mechanism, and a valuable part of the protection for purchasers. A purchaser who accepts such an undertaking should be entitled to rely on it and to know that the solicitor giving it will have to comply with it. The vendor’s solicitor is in a much better position to know what has to be done in order to procure the release of charges than is the purchaser, and the purchaser is entitled to believe and assume that the solicitor will do what is necessary. It would undermine the sensible practices and procedures of conveyancing if solicitors were entitled to delay compliance with their undertakings while they sorted out some dispute with the mortgagee, save perhaps in exceptional circumstances. The solicitor should have taken steps to make sure that there could be no such dispute. If he gives an undertaking without having done so, he cannot sensibly complain if the Court requires him to take steps which he would otherwise regard as excessive in order to achieve compliance with the undertaking and to give the purchaser the title which the purchaser was legitimately entitled to expect. Accordingly, even if I had thought that there was some sort of issue of the kind suggested by Mr Halpern, I would almost certainly still have come to the view that the amount demanded by the Bank ought to be paid in order to procure the discharge of the charge. The associations are innocent in this matter. It is Willmetts who are at fault. One does, of course, have sympathy with the other partners in Willmetts who seem, prime facie, to have been let down by Mr Gilbert, but there is no reason why the associations should be saddled with the consequences of that. In saying that, I do not wish to be seen to be disagreeing with the obiter dicta in Morgan and Angel Solicitors which leave open the possibility of modifying enforcement in what might be regarded as extreme cases.

I therefore conclude: