The Mortgage Business Plc v Green

The claimant is a mortgage lender known as the Mortgage Business plc, to which I will refer as the Bank, and the first defendant is Mr Lars Green. He was born in 1970 and he is the elder son of the second defendant, Mrs Green. Mrs Green was born in 1943, she is a Danish national but has lived in this country since 1964. It is not suggested that she does not have a good command of English. Mrs Green is now 70 years of age and is not in good health. It may be that she has been in bad health in different ways for some considerable time. She worked for a time as a carer in a nursing home but she has not worked for some time. For the last few months she has been confined to a wheelchair. She gave evidence at the trial but she told me, and I accept, that she could remember very little about the events which are relevant to this case.

This case concerns a mortgage in relation to Mrs Green’s home at 7 Swindon Street, Highworth, Swindon. Mrs Green and her then husband bought that property in around 1985. Mrs Green and her husband had two children, Lars Green, and a younger son, Peter Green. Mrs Green divorced her husband in 1994 and title to the house was transferred to her in 1995 as part of the divorce settlement. At that time the house was subject to a mortgage in favour of the Cheltenham & Gloucester Building Society. Mrs Green thinks that the amount outstanding on the mortgage was then some £15,000. In 1999 the property was transferred into the joint names of herself and her son Lars. At the same time the property was charged to the Bradford & Bingley Building Society to secure borrowings of £40,000 and the Cheltenham & Gloucester charge was redeemed. There is not much reliable evidence as to the circumstances surrounding this transaction in 1999. It seems likely that the remortgage was to provide Lars Green with funds to be used in his business.

Mrs Green had been having difficulty keeping up the payments previously due to the Cheltenham & Gloucester and from around this time, if not before, Lars Green took on the liability to make the payments due under whatever was the relevant mortgage. Later in 1999 there was a second charge over the property in favour of First National Bank Ltd. In 2002 the two outstanding charges were redeemed and the property was remortgaged to Future Mortgages (1) Ltd. In 2003 the property was remortgaged again, this time to Abbey National plc and the earlier charge was redeemed. At this time the borrowings from the Abbey National were in excess of £96,000. Although there was little or no reliable evidence as to this, it seems likely that from 1999 onwards the various remortgaging transactions were for the purpose of providing funds to Lars Green’s business and that he, rather than his mother, was making the payments due under the various mortgages.

In late 2007 Lars Green was in financial difficulties. On 2^nd October 2007 a second charge was granted over the property in favour of Jabac Finances Ltd and the sum secured was £30,000. The interest rate was 24 per cent per annum. In early 2008 Lars Green’s financial difficulties appeared to be serious. He wanted money, he wanted it quickly and so he went to a mortgage broker, N & P Financial Services Ltd. He gave them certain information about himself and his mother. The broker involved a further company described as a mortgage packager. The broker applied for a loan from the claimant bank. In due course on 7^th April 2008 the bank advanced to Mrs Green and to Lars Green the sum of about £146,000 secured by a first charge over the house. About £99,000 was paid to redeem the Abbey National charge and £15,000 was paid to Jabac Finances Ltd in part payment of the sum due to them. Jabac Finances Ltd then postponed its charge to the new charge granted to the Bank. After payment of certain fees there was a balance of the advance in the sum of £30,355 and this was paid to Lars Green. Not long afterwards, in around August 2008, Lars Green asked the Bank for a further advance of £15,000 and this was made available to him. He gave £1000 of that further advance to his mother to pay for renovations on the house.

Lars Green soon fell behind with the instalments due to the Bank and although there was little direct evidence of his circumstances, there was a suggestion that he stopped work to look after his wife who was ill. The result was that the sums due under the mortgage to the Bank mounted up. The Bank brought these proceedings for possession.

The defendants, as I have said, are Lars Green and Mrs Green. Lars Green has taken no part in the proceedings. His mother served him with a witness summons but he did not attend the trial. The amount currently due to the bank is just over £240,000. The current monthly instalment due under the mortgage is just over £1000. The Department for Work & Pensions is paying the bank on account of the sums due under the mortgage the sum of £61.44 every four weeks. Mrs Green has been able to secure public funding to defend the claim. In her defence and counterclaim she contends that her obligations under the mortgage of 7^th April 2008 and her obligations in relation to the further advance of August 2008 were procured by undue influence practised on her by her son Lars. She says that the Bank’s rights under the mortgage are affected by that undue influence and that she is entitled to have the mortgage set aside as against her. She adds that her son Lars has no beneficial interest in the property so even if the charge is not set aside against him, it is not effective to create any equitable charge over any interest in the property.

The case on behalf of Mrs Green originally went further. She originally contended that every mortgage on the property which she entered into since 1999 had been similarly vitiated by the undue influence of Lars Green. She was, therefore, entitled to have them all set aside. These earlier charges have all been redeemed apart from the charge to Jabac Finances Ltd but the relevance of Mrs Green’s case was that the Bank, the claimant in these proceedings, could not claim to be subrogated to any charge entered into in or after 1999. Mrs Green accepted that the original charge to Cheltenham & Gloucester was not vitiated by undue influence and so the Bank was entitled to be subrogated to the rights to the mortgagee under that charge; however, she said that the sum due under that charge was only something of the order of £15,000.

In the course of the closing speech of Mr Rogers, counsel for Mrs Green, he accepted, I think very realistically, that he could not say that the charges prior to the charge of 7^th April 2008 in favour of the Bank were ever liable to be set aside for undue influence. There was simply no evidence before the court which would allow the court to find that the mortgagees under any one of those charges had any notice of any kind of the alleged vitiating undue influence. Accordingly, Mr Rogers accepted that if Mrs Green succeeded in setting aside the mortgage of 7^th April 2008 in favour of the Bank, the Bank would be entitled to be subrogated to the immediately preceding charge in favour of the Abbey National. In the light of that concession the Bank pointed out that the sum due and secured by the Abbey National charge to which the Bank would be entitled on subrogation would be a sum in excess of £124,000.

Mr Rogers’ concession in closing submissions puts a somewhat different complexion on what this case is all about. The house is currently worth about £200,000. If the mortgage to the Bank is not set aside, then it seems inescapable that the court will make an order for possession to allow the Bank to exercise its power of sale. The debt to the Bank exceeds the value of the house. Mrs Green is not able to keep up the current instalments and even less able to pay anything off the arrears of instalments. But even if the mortgage to the Bank were set aside by reason of vitiating undue influence, the outlook for Mrs Green would still be very bleak. The house is worth £200,000, subject to a charge securing £124,000 and Mrs Green is not able to keep up the current instalments under the Abbey National mortgage and even less able to pay anything off the arrears of instalments under the Abbey National mortgage. It seems unlikely that in that event Mrs Green would be able to go on living in this house for any lengthy period.

Anyone would feel considerable sympathy for Mrs Green. However, because the outlook for Mrs Green is bleak, whether the mortgage to the bank is set aside as against her or not set aside, a decision in her favour is unlikely to transform her position. It is unlikely to allow her to retain possession of the house. Nonetheless, there is a difference between the result contended for by the Bank and the result now accepted by counsel for Mrs Green. The issues in this case have to be decided.

I referred earlier to the fact that Lars Green has played no part in these proceedings. He has failed to attend court pursuant to a witness summons served on him by his mother. On one view of the matter he has been the cause of his mother’s problems throughout. Since 1999 on one view of the matter the borrowings secured on the property have been exclusively for his benefit. A charge in favour of Cheltenham & Gloucester for perhaps only £15,000 has now been replaced apparently with a charge in favour of the Bank securing £240,000 and there is also the second charge to Jabac Finances Ltd.

As against that, Lars Green would wish to point out that it appears that he has paid the instalments under the various mortgages from 1999 to around 2008. Indeed the court is not fully informed about Lars Green’s personal circumstances. In any case, the dispute in this case has to be decided on the evidence before the court. Mrs Green’s plight and the possible unattractive behaviour of Lars Green cannot of themselves dictate the outcome of the case. The issues must be decided on the evidence and in accordance with legal principle.

What then are the issues which need to be decided? There was some, but not much, dispute about the principles to be applied in this case. The law in relation to undue influence in a case like the present has been comprehensively considered by the House of Lords in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773. The principles there laid down are by now well established and have been applied in a large number of later cases, some of which I have been referred to. It would be inappropriate for me to cite substantial passages from the speeches in that case but instead I will identify the questions which I need to address as there identified.

The first question is whether Mrs Green at the relevant time placed trust and confidence in her son, Lars, in relation to her affairs. If so, a second question arises, was the mortgage transaction with the Bank and/or the further advance such that it called for an explanation which did not involve undue influence? If so, a third question arises, has the mortgage transaction and/or the further advance been explained in a way which did not involve undue influence? If the above three questions are answered in favour of Mrs Green the next question is whether certain advice given to Mrs Green by a solicitor, a Mr Fernandez, removed the effect of the earlier presumed undue influence. If the result of the foregoing questions and answers is that Mrs Green’s obligations under the mortgage and/or the further advance were procured by the undue influence of Lars Green, is the position of the Bank affected by such undue influence?

In the present case, the answer to that question turns on whether the Bank had actual, imputed or constructive notice of the undue influence. If the Bank did not have such notice, then it will not be necessary to investigate whether the Bank did anything to remove such constructive notice in the way laid down for banks to conduct themselves as described in Etridge (No 2). Later in this judgment I will mention other points which were touched on but which either do not arise or do not require any detailed discussion. Finally, I need to mention the position under section 36 of the Administration of Justice Act 1970 and section 8 of the Administration of Justice Act 1973.

Before addressing these questions I will describe the position in relation to the witnesses and the documentary evidence. The documentary evidence in relation to the transaction in 2008 is fairly full. Conversely, there is really no documentary evidence about the mortgages prior to 2008 apart from what is shown at the Land Registry, a copy of the charge to Abbey National and part only of the charge to Jabac Finances Ltd. As to the 2008 transaction, the court has the file of the broker used by Lars Green or, it could be said, used by Lars Green and Mrs Green. The court also has the file of the solicitors used by the Bank and by the Greens. Finally, the court has the Bank’s own file.

Initially, I was inclined to be critical that these files were not amalgamated so that all the documents were in chronological order. However, in view of the need when dealing with some of the issues in this case to focus on what the Bank was told or what the solicitors were told, it was in the end very helpful to have the various files separated. These documents contain a lot of information but they do not contain much of direct help as to the nature of the relationship between Lars Green and his mother and what precisely happened between those two.

As to the oral evidence, I heard from three witnesses, a Mr Sewell from the Bank, the solicitor Mr Fernandez and Mrs Green herself. Her younger son, Peter, who has lived at the house at all material times was not called to give evidence. As I have described, Lars Green failed to attend the trial, notwithstanding the fact that he had been served with a witness summons on behalf of Mrs Green.

Mr Sewell from the Bank was not involved in the transaction in 2008. He could not add much, if anything, to what appeared on the Bank’s files although he was able to help in one or two respects as regards the Bank’s systems. Mr Fernandez was an important witness as he had a meeting with Mrs Green on 31^st March 2008. There was a conflict of evidence between his evidence and that of Mrs Green in relation to one aspect of this meeting. I have no doubt that I must prefer the evidence of Mr Fernandez on that matter. The allegation made by Mrs Green was that Lars Green was called in to the meeting and was then aggressive to her in the presence of Mr Fernandez and then Lars effectively forced her to sign the mortgage deal in favour of the Bank while Mr Fernandez stood on and then himself witnessed her signature. Mr Fernandez’s account was quite different. Lars Green was not present at any point during Mr Fernandez’s meeting with Mrs Green. If Mrs Green’s evidence were right, then Mr Fernandez has either forgotten the incident or is not telling the truth. I think it is highly improbable that he would have forgotten the incident if it happened as described by Mrs Green. I have no doubt that Mr Fernandez was telling me the truth. The parts of the evidence as to the meeting on 31^st March 2008, which were not in dispute, show that he was a careful and conscientious solicitor. I consider that it is so improbable as to be almost inconceivable that he acted in the way alleged by Mrs Green.

This finding about Mrs Green’s evidence as to the meeting on 31^st March 2008 may have wider implications. I need to consider the other ways in which her evidence was prepared and presented in order to assess those implications.

First of all, there is her statement of truth on the original defence. That defence was prepared for Mrs Green by the local law centre. It was a clear statement as to her relationship with her son and the influence he brought to bear on her, both when the house was transferred into joint names in 1999 and again in relation to the 2008 transaction. There was then an amended defence and a re-amended defence prepared by counsel. Those pleadings built on the matters pleaded in the original defence. There were three witness statements signed by Mrs Green. The first witness statement essentially said the same things as the original defence. The second witness statement was prepared at a time when Mrs Green had solicitors acting for her. It is somewhat more detailed but it essentially gives the same account of the basic events. The third witness statement gives a further account of the meeting with Mr Fernandez which I have already indicated I am unable to accept.

Mrs Green confirmed her three witness statements in her evidence in chief and was cross-examined. She was taken carefully through the various transactions concerning the house over the years prior to 2008. She said time and time again that she could not remember anything about them. She did not give the evidence which was written in her statements about those earlier transactions. She was vague about the 2008 transaction also except in relation to the meeting with Mr Fernandez when she gave evidence which I am unable to accept. I have to decide what to make of Mrs Green’s evidence. I find this a very difficult question. It is a much more difficult question than the normal range of issues as to the assessment of the reliability of a witness. Mrs Green is the only witness as to her relationship with Lars Green and as to the 2008 transaction. The documents on their own do not reveal much about the relationship or how it was that Mrs Green participated in the 2008 transaction although of course they disclose a great deal as to what the transaction was.

I have considered whether Mrs Green might have been able to remember matters better in the past when she prepared her witness statements and has since forgotten the details. I think that I should also be prepared to make allowances for the fact that this court appearance will have been stressful and upsetting for Mrs Green and that may well have affected her ability to explain matters in her oral evidence whereas it is possible she might have been able to give her account when taken through it by the Law Centre and her solicitors. I have also considered whether Mrs Green’s evidence about Lars being abusive towards her in the presence of Mr Fernandez is true in part although it is also false in part. Is it possible that it is true insofar as it describes the events of that general character but Mrs Green has become confused as to when the events happened and she has wrongly described the events happening in front of Mr Fernandez when they did not? I have also considered whether Mrs Green’s obvious vulnerability when she came to court would have been the case earlier in 2008, for example, and whether I could rely upon her appearance in court in 2013 to show me the type of person she was earlier, to indicate to me the relationship she must have had with her son and to indicate to me the immense scope for the abuse of that relationship by Lars Green.

In the end, I am forced to the conclusion that Mrs Green’s evidence cannot be treated as reliable. I am quite clear that I cannot say that just because certain matters are described in her written witness statements (and there was no evidence from anyone to contradict those witness statements) that the evidence is acceptable. Nonetheless, I am very concerned that this might well be a case where Lars Green did abuse his relationship with his mother to obtain funding for his business. It is entirely possible, and indeed quite likely, that Lars Green was very pressing in trying to persuade his mother to help him release capital from the house for his use. It is also entirely possible, and indeed quite likely, that Mrs Green did not feel able to stand up to her son. It is true that Mrs Green wanted to stay in the house. She may have been very ready to be persuaded to remortgage the house to allow that to happen.

Mr Gatty on behalf of the Bank has argued very persuasively that the various transactions, and in particular the 2008 transaction, made perfect sense for Mrs Green’s own point of view. He points out that in 2008 Mrs Green was totally financially dependent on her son. The house was jointly owned. It was charged with a debt of about £100,000. She alone could not pay the instalments so Lars Green may well have said that he could not pay the instalments unless he remortgaged and obtained more funds for his business, then he would be able to pay the instalments as he had done at all times from 1999 to 2008. It is submitted that it made very good sense for Mrs Green to go along with Lars Green’s plan. At least that way there was a chance, and perhaps a good chance, that all would be well and she could continue to live in the house. What was the alternative? If she did not agree to remortgage the house, then she and her son would fail to pay the Abbey National and it would repossess the house. It was submitted that Mrs Green had made a choice in a rational way. She might not have liked being made to make the choice, she might have thought that the plan continued to involve risk, but a person acting of her own volition and free from undue influence may well have decided the same.

I acknowledge the force of this submission but I remain very uneasy about it. What Mrs Green really needed in 2008 was advice about her options acting in her own interest. She might initially have resisted a sale of the house and a move to smaller accommodation, but at that point there was equity in the house of £150,000. I acknowledge it is not clear whether Mrs Green was entitled to all of that equity or only half of it but what I think is very clear is that Mrs Green did not ever receive any assistance in thinking through her options from her point of view. In view of Lars Green’s pressing financial problems, it seems likely that he would only have presented one option, the one which he wanted for his own purposes.

If it were necessary to decide the question of undue influence in order to decide the case, I would of course have to do so. However, I would be very hesitant indeed about any decision on that question given the unreliable state of the evidence which I have attempted to describe. As will be seen from the remainder of this judgment, I have reached the conclusion that even if there had been undue influence in this case in relation to the 2008 transaction, the Bank’s position was not adversely affected by that undue influence. I am able to reach that finding with confidence. That finding is based upon the documentary evidence. The documentary evidence is clear and I can properly rely upon it. In these circumstances, even though I had wanted to reach a finding on all of the issues arising, and perhaps as trial judge I should do what I can to reach those findings, I think I have done enough to explain my reaction to the witnesses and my assessment of the evidence. I will not in the end reach a conclusion on the subject of undue influence and I will instead explain in detail my reasons for coming to the view that the position of the Bank is not adversely affected by whatever did happen between Lars Green and his mother in relation to the 2008 transaction.

The law as laid down in Etridge (No 2) makes it clear that the Bank is not adversely affected by the undue influence of Lars Green unless the Bank had actual notice of it or imputed notice of it or constructive notice of it and then in that third case, the Bank failed to take the steps identified in Etridge to remove the effect of such constructive notice. It is not said that the Bank had actual notice of any undue influence. That leaves imputed notice and constructive notice. Indeed it has not been said that the Bank had imputed knowledge of undue influence but, rather, that it had imputed notice of a fact or facts which put it on inquiry and so it thereby had constructive notice of undue influence. Alternatively, it is argued that even without such imputed notice the Bank had in any event constructive notice of undue influence. I consider that the right way to approach these matters is to consider such help as I get from the authorities and then to address the evidence. I will, first, consider the case without the addition of the alleged imputed notice and then, secondly, with the addition of the alleged imputed notice.

For the relevant legal principles I go to the speech of Lord Nicholls in Etridge (No 2). In a passage beginning at paragraph 34, Lord Nicholls discussed the position of a third party such as a bank where a person stands surety for the debts of another and Lord Nicholls described in detail what is meant by ‘constructive notice’ and the concept of a bank being put on enquiry in that context. Then at paragraphs 44 to 49 Lord Nicholls addressed the question as to when and in what circumstances a bank is put on inquiry. He identified two types of case in particular and then discussed them. Both cases arose in a non-commercial or domestic context. The present case is also in a non-commercial or domestic context. The first class of case was where a person stood surety, meaning entering into a guarantee or, more relevantly, charging his or her interest in a property, for the repayment of the debt of another. A typical example of such a case was a wife mortgaging the jointly owned matrimonial home to secure repayment of the separate debts of the husband. This class of case was contrasted with the second class of case in paragraph 48 of Lord Nicholls’ speech which I will read.

“As to the type of transactions where a bank is put

on inquiry, the case where a wife becomes surety

for her husband's debts is, in this context, a straight

forward case. The bank is put on inquiry. On the

other side of the line is the case where money is

being advanced, or has been advanced, to husband

and wife jointly. In such a case the bank is not put

on inquiry, unless the bank is aware the loan is being

made for the husband's purposes, as distinct from

their joint purposes. That was decided in CIBC

Mortgages Plc v Pitt [1994] 1 AC 200.”

Lord Nicholls referred to the earlier decision in Pitt and in that case it was held that the lender was not put on inquiry in relation to what appeared to the lender to be a joint advance secured by a charge on jointly owned property.

I was also referred to the decision of the Court of Appeal in Mortgage Agency Services No 2 Ltd v Chater [2003] EWCA civ 490. That case involved a mother and a son. The case is interesting for the application to the facts of that case of the principles as to constructive notice laid down in Etridge (No 2). I have read and considered what the Court of Appeal had to say on that subject but it is not necessary to set out citations from the judgments in my present judgment.

I was also referred to Abbey National plc v Stringer [2006] EWCA civ 338. This, too, was a case involving a mother and a son. The case involved a number of issues and one was whether the son had practised undue influence on the mother. There was, however, no discussion in that case as to whether the lender in that case was put on inquiry or otherwise had notice of the undue influence. Accordingly, the case is not directly relevant to this present issue as to notice to the lender.

With that guidance, I turn to consider the evidence which is essentially all documentary evidence as to how the matter appeared to the Bank in 2008. Mr Rogers has taken me in detail through the lengthy file maintained by the Bank in relation to this transaction. He asked me to note a number of matters as follows; (1) the file recorded that there are two applicants and that correspondence was to go to one of them, Lars Green; (2) the file as printed out at the present time showed Lars Green’s address as 19 Sherrards Way, Barnet, Herts, EN5 2BW; (3) the file as printed out shows Lars Green’s telephone number as 020 8449 1395 which would be recognised as an outer London telephone number; (4) there were no contact details for Mrs Green; (5) the file said that the advance was by way of remortgage and for debt consolidation and in another place or places the file said that no part of the advance was for debt consolidation; (6) the file had information about the electoral roll for the property and showed that Lars Green’s name was on the electoral roll from 1989 to 2001 but not thereafter. Mrs Green and Peter Green were shown as being on the electoral roll at the relevant time.

Mr Rogers gave no weight, however, to the fact that the Bank’s file stated that the applicants currently lived at the property and had lived there for at least the preceding twelve months. Similarly, he gave no weight to the fact that the credit check on Lars Green and Mrs Green showed no current commitment for Lars Green apart from the earlier mortgage to the Abbey National and a small commitment for Mrs Green in addition to the earlier mortgage to the Abbey National. Mr Rogers also gave no weight to the fact that out of the advance of £146,000 the sum of about £99,000 was being advanced to redeem a joint indebtedness to the Abbey National.

Apart from the matters referred to above, the Bank’s files showed that they wrote to Lars Green and Mrs Green at 7 Swindon Street and only at that address. Further, when the Bank instructed solicitors, Zeckler & Co of Beaconsfield, they sent the solicitors the CML Lender’s handbook. That handbook contained a statement at paragraph 8 in these terms, “Separate representation; (8) unless we otherwise state (see part 2) you must not advise 8.1.1 any borrower who does not personally benefit from the loan or 8.1.2 any guarantor or 8.1.3 anyone intending to occupy the property, who is to execute a consent to the mortgage, you must arrange for them to seek independent legal advice.” The paragraph goes on to deal with the possibility that the bank will, nonetheless, give express permission for such advice to be given but that is not material in the present case. Finally, the mortgage deed was returned to the Bank showing that Mrs Green’s signature had been witnessed by a solicitor different from Zeckler & Co.

Do the above facts indicate something to the Bank which put it on inquiry that Mrs Green was in effect acting as a surety for an advance being made for the benefit of Lars Green or even, and this may not be the right test, for an advance being made which was more for the benefit of Lars Green than Mrs Green? I need to consider, first, the specific points made by Mr Rogers. I do not regard it as significant that the file said that there were joint applicants and the correspondence was to go to Lars Green. In any case, I am not wholly persuaded that that is what the file does show. The box for correspondence as printed only has room for one name. It seems to me quite likely that if one opened the full dropdown box that both applicants’ names would appear. This is consistent with what happened. All of the correspondence was addressed to them jointly. However, nobody mentioned this possibility so I do not, therefore, place weight upon it.

Next, I consider the submission that the file as printed shows the address of Lars Green as an address in Barnet. Mr Sewell explained that the file as printed had been updated after 2008. The file, therefore, does not necessarily show the position in 2008. This is obvious if one looks at the age given for Lars Green. He was shown as having a date of birth as 2^nd September 1970 and having an age of 41. He was not 41 in 2008. The age of 41 must have been placed there when the file was reviewed in 2011 or 2012. Returning to the address given for Mr Lars Green, he did not live in Barnet at the time of the mortgage application. It was clear where he lived and it was not Barnet. So it is unlikely that the Bank was told in 2008 at the time of the mortgage application that he lived in Barnet. So what address did originally appear on the application? There are a number of clues. It seems clear from the broker’s file that Lars Green was making a point of giving his address for the purposes of the application as 7 Swindon Street. Further, later in the application he said in terms that he lived at 7 Swindon Street. I, therefore, find as a fact that Lars Green’s address as it appeared on the application in 2008 was 7 Swindon Street.

I next consider the outer London telephone number. I will assume that this number was on the original application although that is far from clear. Even so, in view of the fact that the application gave, as I find, Lars Green’s address as 7 Swindon Street and further expressly stated that he lived at 7 Swindon Street, I do not think that a London telephone number as a home number is incompatible with that. It is entirely possible for Lars to have been in London in the week and in Swindon the rest of the time. I do not see that there is any real significance in the present context to be attached to the fact that the contact details are for Lars Green alone. I would not consider it unusual for one of two joint borrowers to take on the principal burden of communicating with the Bank, particularly when Lars Green was 37 at the time and his mother was 65 at the time. As to the two different statements as to debt consolidation, the fact is they are inconsistent. I think that a fair reading of the application form would give more weight to the specific statement that there was debt consolidation rather than the more general statement or statements the other way but in any case the application did not identify a debt being consolidated which was Lars Green’s debt alone or a debt which was more the debt of Lars Green than a joint debt. As to the electoral roll, Lars Green’s name came off the electoral roll in 2001. On its own that tends to suggest that Lars Green did not live in the property after 2001 but I find that he gave the property as his address and he stated that he lived there.

It is quite clear in the present context as regards constructive notice of undue influence that it is not necessary for the Bank to play detective and to follow up any clue, however slight, which might indicate to them that the information provided was not scrupulously accurate. From its own point of view, a bank can be as prudent as it likes. It can be as prudent as it likes to protect its own interests and to avoid taking on a borrower who may not be able to repay the indebtedness but in the present context where one is dealing with constructive notice of undue influence, there is no requirement that it adopts a high level of prudence and scepticism. The test laid down by Lord Nicholls involves the bank being put on inquiry where “it is aware” that the advance is for the purposes of one borrower so that the other borrower is effectively only a surety.

Taking all of the points made by Mr Rogers, as evaluated by me above, together with the other points arising from the Bank’s file, I consider that there is nothing there to make the Bank “aware” that Mrs Green was wholly or even substantially a surety. The Bank was not put on inquiry as to undue influence by anything that came to their attention.

I now consider the case as to imputed notice. The submission as to imputed notice is based on information which Zeckler & Co are said to have had which, it is argued, is to be imputed to the Bank. It should be noted that it is not said that Zeckler & Co knew there had been undue influence. What is said is that Zeckler & Co knew a fact or facts which, if they had been communicated to the Bank so that the Bank then knew them and if the Bank had added them to other information it had, the result would then have been that the Bank would have been “aware” that Mrs Green was wholly or substantially a surety. Mr Gatty argues that it is not permissible to find that the Bank was aware of something unless they had actual knowledge of that thing; an imputed knowledge of that thing will not suffice.

I need to start with the position of Zeckler & Co and then consider the information they had from Lars Green and Mrs Green. Zeckler & Co were first instructed by Mr Green on or about 29^th February 2008. He signed the firm’s client care letter on 7^th March 2008. He seems to have been away on business around that time. Zeckler & Co sent a client care letter to Mrs Green on 20^th March 2008 and she signed it on 24^th March 2008. The Bank instructed Zeckler & Co on 12^th March 2008 and then again on 14^th March 2008. Mr Rogers relies on a number of matters which he alleges appear from the solicitor’s file as follows; (1) when he first instructed solicitors Lars Green gave his address to the solicitors as 55 Blake Apartments, New River Avenue, London, N8 7QF; (2) the solicitors knew about the charge to Jabac Finances Ltd; (3) the solicitors did not want to witness Mrs Green’s signature on the mortgage, and, (4) when the advance was made and the monies were used to redeem the earlier charges and make payments, there was a balance remaining of about £30,355 which was paid to Lars Green’s bank account.

I will first make my findings of fact in relation to these matters and then consider the legal significance of them. As to Lars Green’s address the solicitor’s file also contains an electricity bill from British Gas which purports to show that Lars Green paid the electricity bill for 7 Swindon Street and the bill was addressed to him there. If the information about Lars Green’s address in London N8 had been actually passed on to the Bank what should the Bank have made of it? They would have had information that Lars Green had a London address and also that he had given them his address as 7 Swindon Street and he currently stated that he lived at Swindon Street. In my judgment, the Bank would have been entitled to think that Lars Green had two addresses, one in London where he probably worked and the other at 7 Swindon Street.

As to the solicitor’s information that there was a charge in favour of Jabac Finances, as a matter of fact they did pass on that information to the Bank and the Bank actually knew about that. That information was that the jointly owned property was subject to a charge binding both joint owners and that part of the advance would be used to pay part of the joint debt. As I understand it, that is the way Mr Rogers put the case by reference to Jabac Finances Ltd. Nonetheless, for the avoidance of doubt and to leave no stone unturned, I considered whether Mr Rogers might have made more of the information which the solicitors had in relation to Jabac Finances Ltd. He might have said that the solicitors knew more than the mere fact that there was a charge to Jabac Finances Ltd. After all, Lars Green on 28^th March 2008 sent to the solicitor certain emails he had exchanged with Jabac Finances Ltd which showed that the loan from Jabac related to Lars Green’s business. The solicitors received a further email from Newman & Partners acting for Jabac Finances on 7^th April 2008. Those emails suggested that what was left out of the further advance after making payments would be used by Lars Green in his business. The solicitors did not pass that information on to the Bank. What the solicitors did was to tell the Bank on 1^st April 2008 of the second charge and of the agreement about a payment of £15,000 to the second chargee and a deed of postponement of the second charge. The letter is dated 1^st March 2008 but I think it was misdated because it was sent on 1^st April 2008. There was a conversation between a Christine Jackson at the Bank and the solicitors on 2^nd April 2008 but there was no evidence as to what was said in that conversation. Christine Jackson wrote on 2^nd April 2008 to the solicitors to confirm that the Bank was happy to proceed with the deed of postponement as proposed. I will return to these facts when I consider the legal significance of this matter.

It is not right that the solicitors were concerned about the transaction and for that reason did not want to witness Mrs Green’s signature. There was no sign that the solicitors were in any way concerned about the transaction. The solicitors recommended that Mrs Green should go to a solicitor local to her to have her signature witnessed. The recommendation was based on the fact that Zeckler & Co were not local to Mrs Green and was not based on anything else. Then there is the fact that the balance of the account was paid into the bank account of Lars Green and not into a joint account, nor was it split into equal parts so that payments of 50 per cent each could be paid to the two borrowers.

The possibility of imputing notice to the Bank of what was known by the solicitors who were acting for Lars Green, Mrs Green and the Bank requires a consideration of section 199 of the Law of Property Act 1925. The heading to section 199 is “Restrictions on constructive notice” although it may be that the section is not confined to constructive notice in the sense in which I have been using it in this judgment. The relevant part of the section for present purposes reads as follows at subsection 1:

“A purchaser shall not be prejudicially affected

by notice of ... (ii) any other instrument or matter or

any fact or thing unless (a) it is within his own

knowledge, or would have come to his knowledge

if such inquiries and inspections had been made as

ought reasonably to have been made by him;

(b)

in the same transaction with respect to which a

question of notice to the purchaser arises, it has come

to the knowledge of his counsel, as such, or of his

solicitor or other agent, as such, or would have come

to the knowledge of his solicitor or other agent, as such,

if such inquiries and inspections had been made as

ought reasonably to have been made by the solicitor

or other agent.”

It is accepted that the Bank as mortgagee is a “purchaser” within this section. The key wording of the section for present purposes is the use of the phrase “as such” which I have referred to.

The operation of section 199(1)(ii) in particular has been considered by the Court of Appeal in Halifax Mortgage Services v Skepsky [1996] Ch 207 and by the House of Lords in Etridge (No 2), see in particular the discussion and the application of the subsection in the speech of Lord Scott at paragraphs 176 to 179 and 260 to 264. In the present case, the question is whether the matters of which the Bank is said to have had imputed notice came to its solicitor “as such” as distinct from coming to the notice of the solicitor in her capacity as solicitor for Lars Green and Mrs Green.

I consider that the information which came from Lars Green to the solicitors about the dealings with Jabac Finances Ltd came to the attention of the solicitors in their capacity as solicitors for Lars Green and Mrs Green and not in their capacity as solicitors for the Bank. The information was for the purposes of negotiating a deed of postponement with Jabac Finances Ltd and paying £15,000 to them. The solicitors were acting in their capacity as solicitors for the Bank when they did something different which is that they told the Bank there was a second charge which would be postponed and they sought instructions as to whether the Bank would agree to that arrangement.

Further, in relation to the other fact relied upon by Mr Rogers, the payment of the balance of the advance to Lars Green, was conduct by the solicitors or dealing by the solicitors in their capacity as solicitors for Lars Green and Mrs Green and not in their capacity as solicitors for the Bank. In their capacity as solicitors for the Bank the arrangement as to payment was that the Bank would pay into the client account of the solicitors. What happened after that causing the money to leave the client account and go to one client was a matter between the solicitors and Lars Green and Mrs Green and not a matter which concerned the Bank. When acting for the Bank the solicitors did not need in any way to give information to the Bank about what was to happen to the balance of the advance when it left the client account.

Furthermore, so far as necessary, applying section 199 to this case, it is right to point out that the information which Lars Green gave to his solicitors about his London address was information which he gave right at the beginning of the instruction to solicitors before the Bank instructed the solicitors and on the authority of Stepsky, that information was not received by the solicitors acting for the Bank or acting for the Bank as such.

In these circumstances I do not consider that any information which is to be imputed to the Bank by reason of that information being available to their solicitors changes in any way the information which the Bank had, or is to be treated as having had, when one goes on to consider the question of whether the Bank was put on inquiry as to the possibility of undue influence in this case. It follows that I do not need to consider Mr Gatty’s submission that imputed notice will not suffice to make the Bank “aware” that this was wholly or partly a surety case for the purposes of the test laid down in Etridge. A discussion of that point might involve an examination of the possible difference in law between knowledge and notice. I did not receive any submissions in relation to that matter and no authority was cited and so I will say no more about it.

Mr Rogers also submitted that the brokers or the mortgage packagers should be considered to be the agents of the Bank and that information which the brokers and the packagers had should be attributed to the Bank. I regard that as a hopeless submission. Those bodies were plainly the agents of Lars Green and Mrs Green; they were not the agents of the Bank.

Thus far I have focused on the principal mortgage transaction which completed on 7^th April 2008. I have separately considered the position in relation to the further advance of £15,000 which was made on or about 15^th August 2008. The arrangements in relation to the further advance were a little different to the application for the principal advance. Lars Green did not use a broker. As far as one can tell he contacted the Bank direct and the Bank filled in its own electronic application form. The borrowers were said to be Lars Green and Mrs Green. Mrs Green in due course signed the request for the further advance. The application stated that the purpose of the advance was for home improvements. Lars Green told the Bank that the home improvements consisted of work to the windows, slate roof and flooring/carpets. The Bank knew that the property was jointly owned. The Bank made the advance on that basis. It is clear that the Bank knew that the further advance was being paid into the bank account in the name of Lars Green alone. However, I do not consider that that last fact on its own changes the substance of the matter.

Having considered the information provided to the Bank about the further advance, and taking into account all the information which the Bank had in relation to the principal advance, I do not see that the Bank was put on inquiry in relation to the further advance. The Bank was not aware in relation to the further advance that Mrs Green was acting wholly or substantially as surety for a debt incurred by her son alone.

These conclusions mean that the Bank is not affected by any undue influence which there may have been in this case. It is not necessary to consider whether the Bank complied with the requirements in Etridge if the case had been one where the Bank was put on inquiry. The short answer would be that they did not comply but I have found that they did not need to do so. Mr Gatty argued that if Mrs Green would have been entitled to ask the court to set aside the mortgage as against her, she had lost that right by affirmation. I would not have accepted that submission. On the sparse evidence on this point, at the time when Mrs Green is to be taken to have known of her legal right to seek to set aside the mortgage, she effectively applied for that remedy.

There was discussion as to whether I should decide whether Lars Green has a beneficial interest in the property and, if so, the extent of that beneficial interest. On my findings so far, it is not necessary for that point to be decided. It might be relevant if I had set aside the mortgage as against Mrs Green and an issue arose as to whether there was an effective charge on any equitable interest which Lars Green might have had. As it is not necessary for me to decide this question I will not express any view upon it. The evidence that one would need to reach a conclusion simply has not been provided and it would not be safe to discuss it in those circumstances.

In these circumstances the Bank seeks an order for possession of the property. It is clear that the court which has jurisdiction to make that order is the county court and not the high court. I need not describe the various orders made in this case in the past. This case commenced in the Swindon County Court and has now proceeded in the high court. Counsel are agreed, and I also agree, that following the decision of the Court of Appeal in Yorkshire Bank plc v Hall [1999] 1 WLR 173 as to the effect of section 21(3) and sections 41 and 44 of the County Courts Act 1984, the right thing for me to do is to transfer the case back to the appropriate county court. I suggest that it be Bristol rather than Swindon County Court for me to consider making an order for possession. I will hear submissions in due course as to the appropriate county court.

When the case is transferred back to a county court I will sit as a judge authorised to sit in a county court pursuant to section 5(3) of the County Courts Act 1984. There has been a difference of view in the past as to whether a high court judge needs express authorisation under that subsection to sit in a county court. My own view in the past has been that it is not necessary for there to be express authorisation for that purpose. A high court judge has, by reason of his office, authority to act in the county court but any question of that kind has recently been removed by the authorisation of the Lord Chief Justice after a consultation with the Lord Chancellor earlier this year when the Lord Chief Justice wrote to every high court judge stating that until further direction, every high court judge can sit in any county court and is expressly authorised to do so under section 5(3) of the County Court’s Act 1984.

Finally, I need to consider the possible application of section 36 of the Administration of Justice Act 1970 and section 9 of the Administration of Justice Act 1973. Mr Rogers on behalf of Mrs Green did not feel able to rely on these provisions until I raised with him for the sake of completeness whether Mrs Green did seek to rely on those provisions. At that point Mr Rogers suggested that the court should, pursuant to those provisions, suspend any order for possession. On the assumption, which is now the fact, that the mortgage in favour of the Bank is binding on Mrs Green, Mr Rogers asked for a period of time to allow Mrs Green to conduct an orderly sale of the property. He suggested that she be given a period of two years; alternatively, he suggested that she be given a period of one year. It was not suggested that Mrs Green (or Lars Green for that matter) would keep up the current instalments or reduce the arrears. It may be that the Department for Work & Pensions will continue to pay a sum every four weeks.

On the evidence the house is worth about £200,000 and the debt is about £240,000; that is, the equity in the house is negative. In addition, Mrs Green is an elderly lady who does not enjoy good health and, based on my observations of her in court, she is unlikely to be able herself to handle a sale of the property in a business-like way, even with the assistance of an estate agent. I also bear in mind the passage in Fisher & Lightwood’s Law on Mortgages, the 13^th edition, at paragraph 29.45, where it said:

“There may be circumstances where the mortgagor

is only likely to be able to repay the whole of the

mortgage monies if he can sell the property. The

court can exercise its powers under section 36 to

suspend or adjourn a possession claim in such

circumstances if the prospects of a sale or a sale at

a higher price would be more favourable with the

mortgagor in occupation than if the house were

repossessed. The court should consider the likelihood

of a sale being achieved within a reasonable period.

In contrast to the position where the arrears are to be

discharged by periodical payments, the outstanding

term of the mortgage should not be taken as the

starting point for determining reasonableness. Rather

the question of what constitutes a reasonable period

depends on all the circumstances. There should be

evidence as to the prospects and likely timescales

of a sale before the court. When considering whether

to exercise its powers, the court should take into

account the value of the security compared to the size

of the debt and whether any delay pending the sale

would reduce the extent to which the debt remained

secured. If the sale proceeds would not discharge

the whole of the mortgage monies, the court should

not exercise its powers under section 36 unless

other monies were available to repay the balance.”

The footnote to that last sentence in Fisher & Lightwood refers to two cases, Cheltenham & Gloucester Building Society v Krausz [1997] 1 WLR 1558 and Toor v State Bank of India [2010] EWHC 1097 (Ch).

The passage in the text book continues:

“If the court is satisfied that the proceeds of sale

will discharge the debt and the necessary period

for sale is reasonable, it should, if it decides to

suspend the order for possession, identify the

period in its order.”

The paragraph continues with another matter which is not relevant to refer to and that is the end of the paragraph.

Given the value of the property and the amount of the debt and applying the directions from the cases summarised in that paragraph, it seems to me that it would be inappropriate for me to do anything other than make an order for possession. The date when the order will take effect is a matter for discussion with counsel following this judgment.

The result is that accordingly I will make appropriate orders in relation to the counterclaim in the high court proceedings. I will then transfer the claim to an appropriate county court and I will make an order for possession of the property. I will hear counsel, as I have indicated, as to the appropriate county court and as to the date for possession.