Bank of Scotland Plc v Waugh & Ors

Abbreviations

In this judgment I shall adopt the following abbreviations:

Introduction

These proceedings form part of a long running dispute between the Bank and Mr Waugh and other members of his family. The Bank has provided banking facilities to the Trust since 2002. It has provided loans to the Trust pursuant to various facility letters and taken a number of securities.

This action is concerned with the charge granted over Asquorn House in August 2003 and the monies due under a facility letter dated 18 July 2007. There is also a claim against Mr Williams under a limited guarantee but it forms no part of this application.

It will be necessary to set out the facts surrounding the grant of the charge in a little detail later in this judgment. It is however clear that the charge was duly signed by the Trustees and registered in October 2003 under title TY202264.

Although the charge was duly signed by the Trustees it is plain on the face of the charge that the Trustees’ signature was not attested. Accordingly there was no compliance with section 1(3) of the 1989 Act. There is a further error in the charge in that it ascribes to the Trust a registered office at Nelson House Stroud. In fact the Trust is not a registered corporation and the Trustees are individuals.

As a result of these errors the Trustees have made an application to the Registry for cancellation of the charge/rectification of the register. That application is stayed pending the outcome of these proceedings.

In these proceedings the Bank seeks a declaration that the Trustees and/or the Trust are estopped from denying the validity of the charge. As a fall back it seeks a declaration that the charge is effective as an equitable mortgage and/or that it is entitled to perfect the charge pursuant to its standard terms and conditions.

In this application the Bank seeks summary judgment of its claims in relation to Asquorn House. On 11^th June 2014 Mr Waugh presented an application to the Court in which he sought to dismiss the claim summarily. As there is a civil restraint order against Mr Waugh the papers were referred to me to consider whether the application should be issued. I took the view that the application was so closely related to the Bank’s application for summary judgment it should be issued and heard at the same time. Accordingly it was issued on 16^th June 2014.

The facility letter is dated 18^th July 2007. It is addressed to the then Trustees (Mr Waugh, Mrs Waugh and Mr Gray). It offers a working capital facility of £3,000,000 subject to its terms which include reference to security. The letter is not signed on behalf of the Bank but was countersigned by the Trustees.

Mr Gray is not a party to this application. I was told that there was subsequent correspondence under which his liability was limited to the assets of the trust.

In this application the Bank seeks summary judgment against Mr and Mrs Waugh of the sums due under the facility letter. As at 9^th April 2014 these sums amounted to £1,970,791.66. There are no updated figures.

Mr Waugh has submitted a number of possible defences to each of the claims. Due to their wide ranging nature it is convenient to deal with them later in this judgment.

The facts

The Trust was created pursuant to a Deed of Settlement dated 16^th June 2000. The original trustees were Mrs Waugh, Ms Armstrong and Mr Gray. Mr Gray was a solicitor and a partner in Sintons (a Newcastle firm of solicitors). Ms Armstrong died in 2004 and was replaced by Mr Waugh as a trustee on or about 30^th April 2004.

Mr Gray retired as a trustee on 20^th March 2013. Mrs Waugh resigned as a Trustee on 27^th March 2013. According to her Defence she retired on the grounds of ill health as a result of heart problems. She was replaced by Mr Williams.

The principal activity of the Trust was property development.

On 1^st April 2003 Mr McLeod on behalf of the Bank wrote to the Trustees offering a restructuring of the existing working capital facilities and a bridging loan of £165,000 for the purchase of Asquorn House. The outline terms for the bridging loan included the provision of a charge over Asquorn House. The outline terms for the trading account overdraft had a similar provision.

In an undated letter Mr Waugh accepted the offer on behalf of the Trust.

On 9^th April 2003 the Bank instructed Mr Gray to act on its behalf in relation to the granting of security over Asquorn House. The letter made clear that the Bank was using its simple Certificate of Title Scheme. Amongst the instructions given to Mr Gray:

Between 23^rd and 24^th April 2003 there was an exchange of correspondence between Mr Gray and Ward Hadaway as to the extent of their respective roles in the transaction. It was agreed that Mr Gray would be responsible for the investigation of title, making a report to the Bank, and the preparation and registration of the legal charge.

On 30^th July 2003 Mr Gray sent to the Bank the duly completed Certificate of Title and 7 lease reports. There were 10 units; 7 were let; the other 3 were to be let. The Certificate of Title included undertakings by Mr Gray to submit appropriate documents to the Registry to enable registration of the charge within the appropriate priority period.

The replies attached to the Certificate of Title indicated that the purchasers were Mrs Waugh, Ms Armstrong and Mr Gray (as the Trustees of the Trust), that the purchase price was £415,000 and that the loan comprised a term loan of £340,000 and a bridging loan of £165,000.

On 6^th August 2003 the Bank sent to Mr Gray the Charge for execution “by your client”. A copy of the document as sent to Mr Gray is included in the bundle. As already noted it defines the borrower as:

That statement is wrong. The Trust is not incorporated and does not have a company registration number. It provided for execution by the Bank and two of the Trustees and made no provision for the attestation of any of the signatures. The execution clause made it clear that the Deed was not delivered until the date of the Deed.

The charge was signed by all three Trustees and the Bank. None of the signatures was attested. An undated certified copy of the charge as signed was sent by Mr Gray under cover of a letter faxed on 6^th August 2003.

Mr Gray inserted the date of 8^th August 2003 on the legal charge and submitted it to the Registry. On 3^rd November 2003 Mr Gray wrote to the Bank confirming completion of the registration and enclosed the original charge.

On 21^st March 2013 the Trustees made an application to the Registry to rectify the register on the ground that it was not properly attested. On 12^th April 2013 the Bank’s solicitors responded in detail to the application. As a result the First Tier tribunal has stayed the application pending the result in this case.

In the light of the Bank’s fall back arguments it is necessary to set out some of the terms of the charge:

Under clause 2 the Trustees charged Asquorn House as security for the Secured Liabilities.

By clause 3 the charge incorporated the Standard Conditions. Those conditions define the secured liabilities as “all sums of money owed and all liabilities or obligations to be carried out by you as at any time and from time to time …”

Condition s 14 and 15 provide

It is apparent that there have been a number of facility letters between the Trustees and the Bank. It is not, however necessary to mention any before 2007. As already noted the Bank relies on the facility letter dated 18^th July 2007. This letter was addressed to the then trustees. It was countersigned as “Agreed and Accepted on behalf of the Nelson Trust” by Mr and Mrs Waugh and Mr Gray. The letter of offer appears not to be signed on behalf of the Bank.

The following clauses are relevant:

The Trustees are identified as “the Borrower”. The first paragraph provides that if the offer is accepted the letter and the Schedules will form the agreement between the parties for the working capital facility of £3,000,000.

Under clause 1.1 the facility can only be used if the documents referred to in the Schedule have been provided to the Bank. These include a legal charge over a number of properties including Asquorn House.

Under clause 2.5 the facility matured on 30^th December 2007 (“the Maturity Date”) and would be reviewed annually thereafter. It would cease to be available unless an extension was agreed in writing. The amount outstanding under the facility was to be repaid on the Maturity Date. Under clause 4 there was power to demand payment after the repayment date.

Clause 9 deal with payments. Under clause 9.5 any determination by the Bank of any amount of principal, interest, commission is in the absence of manifest error conclusive and binding on the Trustees.

On 2^nd July 2010 the Bank made a formal demand on the Trustees to repay immediately the sum of £2,486,034.69. Shortly thereafter the Bank appointed Receivers under the terms of the charges.

After taking into account realisations under the Receivership the sum of £1,970,791.66 is said by the Bank still to be due.

Action 0NE30032 was brought by Michael Waugh (Mr and Mrs Waugh’s son) on behalf of the Trustees against the Bank and the Receivers. The nature of the claim is contained in paragraph 4 of the skeleton argument of the Defendants in the strike out application:

On 22^nd October 2010 Judge Walton struck out the claim certifying it as totally without merit. An application for permission to appeal was accompanied by written grounds of appeal from Michael Waugh. It is clear from paragraphs 4 - 7 of those grounds that it was to be argued that an unsigned copy of the facility letter which does not incorporate all its terms is not enforceable as a result of section 2 of the 1989 Act.

The application was refused by Lloyd LJ on 9^th February 2011. He certified it as totally without merit but did not make a civil restraint order. His judgment includes:

On 29^th February 2012 Michael Waugh, on behalf of the Trustees applied to set aside what he described as “the void order of Judge Walton”. On 11^th April 2012 Judge Walton refused to re-open the case on the grounds that it was concluded by virtue of the order of Lloyd LJ.

The Trustees then sought to quash the decision of Judge Walton by means of an application for judicial review. Permission was refused on the papers by Judge Langan QC on 22^nd May 2012. On 28^th June 2012, after hearing Mr Waugh in person I dismissed the application to renew and made a limited civil restraint order against Mr Waugh.

Sometime in 2013 the Trustees sought to bring criminal proceedings against the Receivers for what was alleged to be aggravated trespass and fraud by false representation. The prosecution was stayed and the Trustees were ordered to pay costs in the sum of £6,586.

On 26^th July 2013 Norris J made an extended civil restraint order against the Trustees.

Claim under the Facility letter.

On the face of it there would appear to be little prospect of a successful defence. As Lloyd LJ has pointed out all that the Bank have to do is to establish the loan, the demand, the failure to repay and the amount of the debt.

Mr Waugh has however suggested that there are a number of defences:

He points out that his wife has not been personally served with these proceedings. In so far as documents were posted to her he has removed them so as to ensure she did not receive them. Mrs Waugh has made a limited response to these proceedings. On 24^th December 2013 she wrote to the Court. The only points she took were that she had not received any papers and that it would be oppressive for any judgment to be entered against her as a result of her ill health.

In fact Mrs Waugh has been validly served with the claim form and the application for summary judgment. Service was by first class post addressed to the correct residential address of Mrs Waugh. Appropriate certificates of service were filed. This is a permitted method of service under CPR 6.3. It is plain from CPR 6.14 and 6.26 that service is deemed to have been effective.

Mr Waugh repeated the point that had been rejected both by Judge Walton and Lloyd LJ. For the reasons given by Lloyd LJ it is totally without merit. It is, in addition, res judicata.

As is well-known the Bank got into severe financial difficulties and had to be bailed out by the government. During his oral submissions Mr Waugh took me to a number of web sites critical of the Bank, its senior management relating to the collapse. He submitted that the agreement between the Trust and the Bank was a contract “uberrimae fidei” with the result that the Bank was bound to disclose its financial difficulties to him. He was accordingly entitled to rescind the contract. He asserted (though his calculation was not explained in detail) that he had repaid the bank in full.

In my view this too is a hopeless argument. The contract is not a contract “uberrimae fidei”. There was no duty to disclose the bank’s financial position. Once the £3 million was lent the relevant financial position was that of the Trust as it was under the obligation to repay.

Although Mr Waugh asserted that he had paid the Bank what was due he had in my view failed to establish any realistic argument that there is a manifest error in the figures put forward by the Bank.

On 7^th January 2011 the Bank’s solicitors wrote a letter to Mr Gray which included the following sentence:

Mr Wilson described this as Mr Waugh’s best point. However he also pointed out that the letter post dates the facility letter, the demand and at least some of the proceedings. He points out that there is no consideration for the release of the trustees and no basis for any estoppel.

There is nothing in any witness statement or other evidence which suggests that the Trustees altered their position on the statement in the letter.

In his oral submissions Mr Waugh said that he made decisions based upon it but he did not explain what those decisions were.

I agree with Mr Wilson that the statement in the letter did not, as a matter of law, release the Trustees from any liability under the facility letter. I also agree that there is no realistic basis for an estoppel. In those circumstances I agree that the sentence in the letter does not afford a defence to the claim under the facility letter.

Mr Waugh took me through his personal history. He told me that he was originally an insurance broker but that through no fault of his own he was adjudged bankrupt in 1983. After his discharge he raised about £160,000 to pay off most of his creditors even though there was no legal obligation to do so. He showed me a letter dated 16^th April 1989 from Dickinson Dees confirming these facts. The letter does indeed confirm that he paid off some of his creditors after his discharge. It also makes the point that one of the creditors unpaid was HM Inland Revenue and that the costs of the bankruptcy which exceeded £80,000 were unpaid.

It is unnecessary for me to comment on any of these matters as they are not in my view relevant to the claims of the Bank in these proceedings.

In the result I do not think that there is any realistic defence to the claim under the facility letter and there will be judgment in the sums claimed by the Bank.

Claims under the charge of Asquorn House

Before considering the estoppel argument it is convenient to set out a number of points of law which in my view are incontrovertible.

Under this section all conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.

It will be noted that the section does not provide that the conveyance is void for all purposes. It is simply void “for the purpose of conveying or creating a legal estate”.

In so far as Mr Waugh asserts that the defects in this case made the charge void for all purposes he is, with respect, wrong.

This section is concerned with the execution of Deeds by individuals. Under this section:

It is not in dispute that the Trustees were individuals and that the Charge was not attested in accordance with the section. The lack of attestation appears on the face of the charge itself.

It follows that the Charge was not validly executed as a Deed. It also follows that it was void for the purpose of conveying or creating a legal estate.

This section is concerned with the effect of registration of the charge at the Registry. It provides:

Thus the effect of registration of the Charge was to create a charge by deed by way of legal mortgage. It is, of course, open to the Trustees to apply to the Registry for rectification of the register and they have availed themselves of this right. Rectification is, however, governed by Schedule 4 to the Act. As Mr Wilson pointed out there are a number of matters which need to be determined before the application could succeed. Those matters have, of course, been stayed pending the outcome of this application and very properly Mr Wilson did not address me on them.

Rectification operates for the future. There is no power to rectify retrospectively. See paragraph 8 of Schedule 4 and commentary in paragraph 46.017 of Ruoff and Roper – Registered Conveyancing. It follows that acts (such as the appointment of Receivers) carried out by the Bank under the charge prior to any order for rectification and acts of the Receivers are not void as alleged by Mr Waugh. Both the Bank and the Receivers were entitled to rely on the effect of registration of the charge.

As already noted Mr Wilson asserts that the Trustees are estopped from relying on s 1(3) of the 1989 Act. In his written skeleton he submitted that this case was on all fours with the case of Shah v Shah [2001] EWCA Civ 527. In his oral submissions he conceded that his written submission put his case too high. He drew to my attention the recent decision of Newey J in Briggs v Gleeds [2014] EWHC (Ch) 1178. Newey J’s decision was given on 15^th April 2014 and may well not have been published at the time of the preparation of Mr Wilson’s written skeleton dated 24^th April 2014.

Shah v Shahconcerned the enforceability of a document under the terms of which the defendants were to make a payment of £1.5 million to the claimant. The document was described as a deed and provided for each defendant to sign in the presence of a witness. In the event, although the “witness” signed shortly after the defendants, he did so without having been present when they signed. When, therefore, the claimant brought proceedings against them, the defendants disputed the claim on the basis that the “deed” had not been validly executed. The Court of Appeal, however, concluded that the defendants were estopped from denying that they had signed the document in the witness’s presence. Pill LJ, with whom the other members of the Court agreed, said (at paragraph 33) that “the delivery of the document … involved a clear representation that it had been signed by the … defendants in the presence of the witness and had, accordingly, been validly executed by them as a deed” (Footnote: ¹).

Pill LJ’s reasoning can be seen in paragraphs 29 – 32 of his judgment:

“29

I bear in mind the clarity of the language of section 1(2) and (3) and also that the requirement for attestation is integral to the requirement for signature in that the validity of the signature is stipulated to depend on the presence of the attesting witness. I also accept that attestation has a purpose in that it limits the scope for disputes as to whether the document was signed and the circumstances in which it was signed. The beneficial effect of the requirement for attestation of the signature in the manner specified in the statute is not in question. It gives some, but not complete, protection to other parties to the deed who can have more confidence in the genuineness of the signature by reason of the attestation. It gives some, but not complete, protection to a potential signatory who may be under a disability, either permanent or temporary. A person may aver in opposition to his own deed that he was induced to execute it by fraud, misrepresentation or, as was unsuccessfully alleged in the present case, duress and the attestation requirement is a safeguard.

30

I have, however, come to the conclusion that there was no statutory intention to exclude the operation of an estoppel in all circumstances or in circumstances such as the present. The perceived need for formality in the case of a deed requires a signature and a document cannot be a deed in the absence of a signature. I can detect no social policy which requires the person attesting the signature to be present when the document is signed. The attestation is at one stage removed from the imperative out of which the need for formality arises. It is not fundamental to the public interest, which is in the requirement for a signature. Failure to comply with the additional formality of attestation should not in itself prevent a party into whose possession an apparently valid deed has come from alleging that the signatory should not be permitted to rely on the absence of attestation in his presence. It should not permit a person to escape the consequences of an apparently valid deed he has signed, representing that he has done so in the presence of an attesting witness, merely by claiming that in fact the attesting witness was not present at the time of signature. The fact that the requirements are partly for the protection of the signatory makes it less likely that Parliament intended that the need for them could in all circumstances be used to defeat the claim of another party.

31

Having regard to the purposes for which deeds are used and indeed in some cases required, and the long-term obligations which deeds will often create, there are policy reasons for not permitting a party to escape his obligations under the deed by reason of a defect, however minor, in the way his signature was attested. The possible adverse consequences if a signatory could, months or years later, disclaim liability upon a purported deed, which he had signed and delivered, on the mere ground that his signature had not been attested in his presence, are obvious. The lack of proper attestation will be peculiarly within the knowledge of the signatory and, as Sir Christopher Slade observed in the course of argument, will often not be within the knowledge of the other parties.

32

In this case the document was described as a deed and was signed. A witness, to whom the third and fourth defendants were well known, provided a form of attestation shortly afterwards and the only failure was that he did so without being in the presence of the third and fourth defendants when they signed.”

Briggs v Gleeds

As already noted Shah concerned a case where the document purporting to be a deed was regular on its face in that it appeared that the relevant signature had been attested by a witness. In fact the witness was not present when it was signed. Thus the formalities of s 1(3) of the 1989 Act were not complied with.

That situation is different factually from a situation where the document has no attestation clause at all. It is thus not even regular on its face.

Gleeds concerned a situation where some 30 documents in a pension scheme needed to be executed by partners in Gleeds. As they were individuals the signature needed to be witnessed. It was contended that the members of the scheme were estopped from denying that deeds were validly executed. Newey J distinguished the decision in Shah and held that the members could not be estopped.

In paragraph 40 of his judgment he analysed the effect of Pill LJ’s judgment:

In paragraph 43 he held that there was no estoppel on the facts of the case:

Mr Wilson sought to distinguish Briggs. He relied on the letter sent by Mr Gray on 6^th August 2003 in which he said:

He submitted that this was a clear representation that the Legal Charge had been validly executed. He pointed out the triple capacity in which Mr Gray was acting. He was solicitor for the Trustees, solicitor for the Bank and one of the Trustees. It was this triple capacity which founded the estoppel. He pointed out that the Bank had relied on the representation by lending the funds on or about 8^th August 2003.

I cannot accept Mr Wilson’s submission. It seems to me that this case is on all fours with the situation in Briggs. The six reasons given by Newey J seems to me to be powerful reasons for not allowing an estoppel where it is clear on the face of the “deed” that it has not been executed in accordance with the Act. I also agree with Newey J’s analysis in paragraph 40 of his judgment as to the limitations on the decision in Shah. I cannot, for my part, see that the fact that “the deed” is subsequently sent to a third party by a person acting for that third party and the other party to the deed makes any difference. It would substantially diminish the effect of the Act in a case where it was clear on the face of the document that it had not been properly executed.

In my view, therefore, the Trustees are not estopped from relying on the invalidity of Legal Charge.

I am conscious that this is an application for summary judgment by the Bank. However there is also a cross application by Mr Waugh for summary judgment. The point at issue is a short point of law. All of the evidence is before the Court and I have formed a clear view as to the result.

Accordingly I propose to accede to Mr Waugh’s application for summary judgment on this issue and to declare that the Trustees are not estopped from relying on the fact that the Legal Charge was not validly executed as a Deed.

Claim for an equitable charge

It is again necessary to set out a number of points before turning to the facts of the case.

A document, which for some defect of form (but which is otherwise valid) fails to take effect as a legal mortgage will (subject to section 2 of the 1989 Act) be a good equitable mortgage. The basis of this is the court’s power specifically to perform a contract to create a legal interest in land. See Fisher & Lightwood Law of Mortgage 13^th Ed at par 3.6 and the cases cited at footnotes 1 and 2.

In this case the Charge was signed by both the Trustees and on behalf of the Bank. It expressly incorporated the Standard Terms.

It seems to me that the above principles apply directly to the Legal Charge. It was not executed as a Deed and thus did not take effect as a legal charge. However it was signed by the parties and did contain all the terms that had been agreed and thus took effect as an equitable mortgage.

In his oral submissions Mr Wilson suggested that the Bank could rely on clause 15 of the Standard Conditions to enable it to execute any necessary documents pursuant to the Power of Attorney created by that clause. Following the hearing he has written to the court drawing my attention to section 1(1) of the Power of Attorney Act 1971 and a passage from paragraph 15 in Halsbury Laws Vol 1 5^th Ed on Agency to the effect that a power of attorney must be created by deed and that if power is to be given to an agent to execute a deed that power must be given by a deed. Thus he now accepts that the Bank cannot rely on clause 15. He submits that instead the Court should order the Trustees to execute any documents necessary for perfecting the Legal Charge. In the event that the Trustees fail to execute them the Court has inherent power to direct that an officer of the Court execute them on behalf of the Trustees.

I see the force of these submissions. However, as Mr Waugh has not had the opportunity to respond to them I propose to deal with them when the matter is relisted for the handing down of this judgment.

Conclusion

In the result I hold:

that there is no realistically arguable defence to the claim for the sums due under the facility letter and the Bank is entitled to summary judgment in respect of the sums claimed.

that the Trustees are not estopped from relying on the defects in the execution of the Legal Charge and that Mr Waugh is entitled to a declaration to that effect.

that the Legal Charge was, nonetheless, effective as an equitable charge. Whether or not the Bank is entitled to an order compelling the Trustees to execute further documents will be determined at the hearing when the judgment is handed down.