Clydesdale Bank Plc (Claimant) John Workman and Others (Formerly Trading as Bpe Solicitors, (A Firm)) (Respondents) Shoosmiths (A Firm)(Appellants)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Kitchin,Lord Justice Longmore,Re |
| Judgment Date | 04 February 2016 |
| Neutral Citation | [2016] EWCA Civ 73 |
| Docket Number | Case No: A3/2014/0892 |
| Court | Court of Appeal (Civil Division) |
| Date | 04 February 2016 |
[2016] EWCA Civ 73
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
His Honour Judge Pelling QC
(sitting as a Judge of the High Court)
HC12C00082
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Lewison
and
Lord Justice Kitchin
Case No: A3/2014/0892
Mr Michael Pooles QC & Mr Jamie Smith QC (instructed by Berrymans Lace Mawer LLP) for the Apellants
Mr Roger Stewart QC & Mr Scott Allen (instructed by Beale and Company Solicitors LLP) for the Respondents
Hearing dates: 26 & 27 January 2016
The main issue on this appeal is whether HHJ Pelling QC was right, on the basis of the facts that he found, to conclude that two solicitors were guilty of dishonest assistance in a breach of trust. The breach of trust in question was a mortgage fraud which resulted in the borrower obtaining all the proceeds of sale of large parts of the mortgaged property in fraud of the lender. The judge's judgment is at [2013] EWHC B38 (Ch), [2014] PNLR 18. First it is necessary to set out the background facts.
Lord Edward Developments (Beechwood) Ltd ("the company") is a development company. It is one of a number of single venture companies under the ultimate control of Mr Tibbetts. Mr Tibbetts had been an accountant before he became involved in property development. The judge found that there was nothing to suggest that Mr Tibbetts was untrustworthy before the events that gave rise to this case. In the middle of 2006 the company was interested in acquiring property known as Beechwood in Stourbridge in the West Midlands. The property consisted of Beechwood itself and three plots of land, referred to as Plots 2, 3 and 4 which had development potential. It is those three plots of land with which this case is concerned. In order to finance the acquisition the company negotiated a facility with Yorkshire Bank ("the Bank"). The facility was for £1.99 million and the company drew down £1.35 million to help with the initial acquisition. The purchase price was £1.75 million. The borrowings were intended to be secured by a charge by way of legal mortgage and a deed to that effect was executed by the company. The Bank's solicitors at the time were BPE, and the partner responsible was Mr Billings. Mr Billings both knew and trusted Mr Tibbetts for whom he had acted in the past. Mr Billings' duties included ensuring that the Bank's charge was properly registered at HM Land Registry. However, although Mr Billings registered the charge at Companies House, he failed to register it at HM Land Registry. This is where everything began to go wrong.
Section 27 (2) of the Land Registration Act 2002 says that the grant of a legal charge over a registered estate is a disposition that is required to be completed by registration. Section 27 (1) says that if a disposition is required to be completed by registration, it does not operate at law until the relevant registration requirements are met. It follows therefore that the Bank's charge did not operate at law. It operated only in equity.
Following completion of the initial acquisition there remained the task of negotiating an easement of drainage. The solicitor acting for the company at that stage was Mr Murphy of Cobbetts, an associate under the supervision of Mr Denslow, a partner. Cobbetts had also acted for the company on the initial acquisition (but not these two particular solicitors). The judge was very unimpressed with the competence of both these men both in terms of their legal knowledge and their commercial awareness. He said of Mr Murphy that he was neither a sophisticated legal thinker or lawyer, nor someone who thought much, if at all, beyond the next step that had to be taken in the transaction with which he was concerned. He also found that Mr Murphy had neither the skills nor the experience to question what he was being told as reflective of anything other than the true position; and that he was regrettably incompetent outside the very narrow confines of the area with which he was familiar, namely bona fide conveyancing transactions. But as he recognised he was not trying a claim for negligence.
In May 2007 the company instructed Cobbetts to act on a sale of plot 3 to a Mr Davies. The plot had not yet been developed; and the structure of the deal was that Mr Davies would pay £525,000 for the plot itself, and a further £750,000 for the assignment of a JCT contract under which the plot was to be developed. Mr Murphy was the solicitor at Cobbetts to whom the work was entrusted.
In October and November 2007 the Bank wrote to Cobbetts, asking for relevant documents. Although Cobbetts were slow to respond, Mr Murphy contacted the Bank in December. The judge accepted the accuracy of Mr Murphy's attendance note of his conversation with Mr Ellis of the Bank. He told the Bank that "not only was there no registered mortgage on the registered title but [he] had no information about it." Mr Murphy's note went on to record that the letters had been intended for BPE rather than Cobbetts who had acted for the Bank on the acquisition. Cobbetts had no copy of the Bank's charge. Following his conversation with Mr Ellis, Mr Murphy wrote to Mr Stapleton, a director of the company, on 6 December 2007. His letter said:
" Beechwood, Ounty John Lane, Pedmore.
I have received a letter from Yorkshire Bank asking for the deeds of this property.
I cannot see that there has been any previous correspondence by Cobbetts with Yorkshire Bank and when I phoned them it emerged that the letter should have been addressed to BPE who they said acted in respect of the mortgage on the title. There is no mortgage registered against the title."
Mr Murphy e-mailed a copy of this letter to Mr Billings. On 11 December, unknown at the time to Mr Murphy or Mr Denslow, the company executed a first charge over the property in favour of Mr Hayward ("the Hayward charge") purporting to secure a loan of £600,000. The charge was registered at HM Land Registry on 15 December 2007. However, it was not registered, as it should have been, at Companies House. Something seems to have gone wrong with the process of registration at HM Land Registry at this stage, because where a chargee under a charge granted by a company applies to register it at HM Land Registry, rule 111 of the Land Registration Rules 2003 requires production of the certificate of registration under the Companies Act. If it is not produced rule 111 (2) requires the Registrar to make a note on the register to that effect. No such note was made in the present case. Neither Mr Murphy nor Mr Denslow ever saw a copy of the Hayward charge.
Section 29 (1) of the Land Registration Act 2002 provides:
"If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration."
On the face of it, therefore, the registration of the Hayward charge postponed the priority of the Bank's charge. The effect of that was that the chargee under the Hayward charge was entitled to receive any proceeds of sale of the land, up to the limit of what was secured by the Hayward charge, before the Bank was entitled to any part of those proceeds. Section 48 of the Land Registration Act 2002 provides:
"Registered charges on the same registered estate, or on the same registered charge, are to be taken to rank as between themselves in the order shown in the register."
In general applications are entered on the register in the order in which they are received by HM Land Registry. That means that even if the Bank had registered its charge subsequent to the registration of the Hayward charge, the Bank's charge would not have regained priority over the Hayward charge.
In February 2008 Mr Murphy was told that the company proposed to sell plots 2, 3 and 4 to Mr Tibbetts. On 13 February 2008 Mr Murphy received a letter from M. J Darby & Co, solicitors acting on the purchase in the following terms:
"Dear Mr Murphy,
ReRe: sale of land at Ounty John Lane
Your client: Beechwood Properties (Pedmore) Limited.
I understand that you are instructed in the Sale of three plots, Nos 2,3 and 4 at the development by Beechwood Properties (Pedmore) Limited and I confirm that I am to act for the Purchaser.
Would you care to let me have contract documents at this stage with appropriate Land Registry approved scale plan so that I can carry out searches"
In the days that followed Mr Murphy and Mr Denslow were under the impression that there was the prospect of a contract race. This was because of the ongoing correspondence about the sale of plot 3 to Mr Davies. However, Mr Tibbetts told Mr Murphy that he was the buyer of all three plots: at a price of £550,000 for plot 2, and £475,000 each for plots 3 and 4. The judge said that Mr Murphy was thus aware that plot 3 was to be sold to Mr Tibbetts for £475,000 when previously it was to have been sold to Mr Davies for over £1 million. In so saying it seems to have slipped the judge's mind that Mr Davies had agreed to pay £525,000 for the plot itself and the additional £750,000 for the assignment of the JCT contract. Mr Tibbetts was proposing to buy only the plot. Mr Murphy asked Mr Stapleton for an explanation. The explanation was that the transfer to Mr Tibbetts "was merely connected with financing" and that in due course the deal with Mr Davies about plot 3 would still go ahead. Mr Murphy passed on this information to Mr Davies'...
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