Birmingham Midshires Mortgage Services Ltd v Sudesh Sabherwal
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER,MR JUSTICE ALLIOTT |
| Judgment Date | 17 December 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J1217-35 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CCRTF 1999/0734/B3 |
| Date | 17 December 1999 |
[1999] EWCA Civ J1217-35
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(MR RECORDER ISAACS QC)
Royal Courts of Justice
Strand
London WC2
Lord Justice Robert Walker
Mr Justice Alliott
CCRTF 1999/0734/B3
MR M BEAUMONT (Instructed by MD Jethwa & Co, 13 King Street, Southall, Middlesex) appeared on behalf of the Appellant
MR N JONES QC and MR P J KIRBY (Instructed by Eversheds, Fitzalan House, Fitzalan Road, Cardiff) appeared on behalf of the Respondent
Friday 17th December 1999
This appeal raises yet again questions of priority as between a mortgage lender and an individual claiming an equitable interest in the family home. The principal issue before the judge was whether the decision of the House of Lords in City of London Building Society v Flegg [1988] AC 54 has been displaced by the enactment of the Trusts of Land and Appointment of Trustees Act 1996 ("the 1996 Act"). The trial judge, Mr Recorder Isaacs QC, sitting at the Central London County Court, had no hesitation in rejecting that argument. Nevertheless he granted permission to appeal, and in this court new arguments have been put forward for distinguishing Flegg.
The appellant Mrs Sudesh Sabherwal ("Mrs Sabherwal") was born in 1936. She and her late husband, Mr Yash Paul Sabherwal ("Mr Sabherwal") were married in Kenya in 1954. They had two sons, Kanwal (born in 1956) and Sunit (born in 1958). The family came to England in 1967. Kanwal and Sunit ("the sons") were the original defendants in these proceedings brought by Birmingham Midshires Mortgage Services Ltd ("BMMS"). Mrs Sabherwal was later joined as the third defendant, on her own application.
In her written witness statement and her oral evidence, which the judge accepted, Mrs Sabherwal described how she and her husband had worked hard to better their circumstances. Mr Sabherwal worked as a fork-lift driver for Nabisco at Welwyn. Mrs Sabherwal had a part-time job and then, as the sons got older, she also worked full-time for Nabisco. She seems to have been better at saving than her husband, whom she described as enjoying life to the limit.
The couple had a flat at Hatfield from 1972 until it was compulsorily acquired in 1974. There was then an equity of about £3,750 in the flat and they bought a house at Welwyn, registered in their joint names, for £11,500 with a mortgage of £8,000. The Welwyn house was sold in 1980 and produced a net sum of about £24,500. At that stage Mr Sabherwal decided to go into business. He and his wife purchased freehold premises known as Handy Stores at Chalfont St Peter, consisting of a shop and a three-bedroom flat above. They paid £68,500 for the premises and another £11,000 for the stock. The necessary funds were raised from the net proceeds of the Welwyn house, a gift of £10,000 to Mrs Sabherwal from her mother, and a secured loan of £44,000 from Forward Trust.
Mr and Mrs Sabherwal and the sons (who by 1980 had reached the ages of 24 and 22) lived together in the flat and worked together in the shop. Mrs Sabherwal said that the Handy Stores premises were acquired in the joint names of Mr Sabherwal and the sons, but the evidence of Mr Mukesh Radia, a solicitor who prepared a transfer of the premises in 1990, was that she too was a registered proprietor. The judge made no finding about this and it is not of critical importance.
Mrs Sabherwal said that the business was quite successful. That seems to be borne out by the next move, which was the sale in 1984 of the Handy Stores premises and business for a net sum of £98,000 (after paying off the Forward Trust). Mr Sabherwal decided to go into the off-licence business and the family purchased freehold premises called AA Wine and Food at Gerrards Cross. The price was £160,000 plus £20,000 for the stock. £90,000 was paid in cash and £90,000 was provided by a secured loan from National Westminster Bank. The premises were transferred into the joint names of Mr Sabherwal and the sons. In 1985 the family bought a four-bedroomed house at Amersham for £67,500. There was a building society mortgage of £60,000 and the balance came from what was left of the net proceeds of the Handy Stores. The Amersham house was registered in the joint names of the sons.
All this is background but it brings out some general points which seem not to have been fully reflected in the judgment under appeal. Mrs Sabherwal was plainly an important source of the family's growing prosperity, although after the sons were grown up she seems to have deferred to her husband in not insisting that she should be one of the proprietors in whose names any property was acquired. She said in her witness statement that she read very little English, and the judge accepted this, but she does not seem to have been lacking in intelligence or initiative; it was she who first opened a savings account in her own name when her husband was disinclined to save. Moreover, Mrs Sabherwal's contribution to the family's prosperity was reflected not only in the matrimonial home; it was also reflected in the off-licence business. That might have been material in relation to the issue of "manifest disadvantage" if it had received closer investigation.
In March 1987 Mr Sabherwal died. Shortly afterwards came the purchase which is of most immediate relevance. The Amersham house was sold for £98,000, leaving £38,000 net, and there was purchased for £185,000 a substantial five-bedroomed house, 5 Moreland Drive, Gerrards Cross. There was a mortgage loan of £136,000 from Barclays Bank and the balance came from the net proceeds of the Amersham house and from savings. The new house was acquired in the joint names of the sons, with the usual restriction on a disposition by the survivor of them. By this time both sons were married and the new house was occupied by Mrs Sabherwal, the sons, their wives, and some grandchildren. Mrs Sabherwal's evidence was that the sons promised her, just before her husband's death, that she would always have a roof over her head and her pleadings relied on estoppel (among other things). But on any view Mrs Sabherwal must have had a significant equitable interest in the new house, and that was not in dispute at the trial.
Mr Sabherwal died shortly before the surge in property prices at the end of the 1980s and the sons seem to have expanded into a variety of new enterprises, using a company called Sabherwal Enterprises Ltd ("Enterprises"). According to the witness statement of Mr Radia (a Harrow solicitor with no long-standing knowledge of the family) Enterprises had by 1990 borrowed from National Westminster Bank no less than £760,000 on the security of the Fernlea Retirement Home at Woodhall Spa and the AA Wine and Food premises at Gerrards Cross. Mr Radia says that he arranged for the transfer of the latter premises to Enterprises in 1990.
In April 1990 the sons applied to BMMS (under its then name of Mortgage Services Funding) for a loan of £255,000 for the stated purpose of "capital raising for improvement and stock purchases for existing businesses". It is not clear whether that vague description prompted any closer inquiries. The application form disclosed an existing mortgage of £171,500 outstanding to Barclays Direct Mortgage. (This reflected a further advance of £36,000 obtained by the sons in 1989 for the extension of the house at Gerrards Cross). So the loan of £255,000 (made in two tranches on 24th and 26th July 1990) paid off the Barclays loan with a surplus of about £83,000. However, a completion statement produced by Mr Radia shows a combined refinancing operation which raised £780,000 from Mercantile Credit and £255,000 from BMMS, paid off mortgages and fees to a total of about £989,000, and left a balance of about £46,000. Mrs Sabherwal's evidence was that she did not know how the money was spent, and did not enquire about it.
Mr Radia was instructed to act for BMMS in connection with the secured loan of £255,000. His written standing instructions stated (paragraph 5):
"It is your responsibility to ensure that no one has or will obtain rights of occupation or any interest whatsoever in the proposed security in priority to or otherwise preventing the free exercise of the Company's rights as mortgagee of the property. A Form of Consent must be obtained from all adult occupiers of the property (other than the borrowers) and placed with the Title Deeds."
Paragraph 16 stated:
"Before the documentation is executed the contents should be explained and wherever possible, signatures should be witnessed by a solicitor."
Mrs Sabherwal and the sons' wives (Mrs Jatinder Sabherwal and Mrs Bandna Sabherwal) did all sign two forms of consent (dated 24th and 25th July 1990) identifying the house and stating:
"NOW I/We the undersigned being a person(s) who is/are in or may go into actual occupation of the Property hereby consent to the creation of a mortgage or charge over the Property to secure the advance (and such further advances) and undertake to the Company that such rights if any as I/we may have by way of overriding interest or otherwise in or over the Property shall be postponed and made subject to the rights and interests of the Company under its mortgage or charge.
I/We confirm that the effect of this form has been explained and that I/we have been advised of my/our right to have independent legal advice on its effect."
This was a standard printed form and was in no sense tailor-made for this particular situation. 'The...
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