Edwards v Lloyds TSB Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Park |
| Judgment Date | 19 July 2004 |
| Neutral Citation | [2004] EWHC 1745 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC03CO3611 |
| Date | 19 July 2004 |
[2004] EWHC 1745 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Park
Case No: HC03CO3611
Steven Woolf (instructed by Ashley Bean & Co) for the claimant
Neil Levy (instructed by CMS Cameron McKenna) for the defendant
Hearing dates : 23 June 2004
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Park
Overview
1. In this judgment I refer to the claimant as 'Mrs Edwards', to her former husband as 'the husband', to the defendant (and counter-claimant), Lloyds TSB, as 'the bank', and to the underlying subject matter of the case as 'the house'.
2. The house is 40 Meads Lane, Seven Kings, Ilford, Essex. It is a small terrace house where Mrs Edwards lives with her two children. There is a claim and a counterclaim. The issue on the claim is whether the bank has an equitable charge over a 50% undivided share in the house as security for a debt which is undoubtedly owed to it by the husband. He is not a party to this action, and indeed neither Mrs Edwards nor the bank knows where he is. On behalf of Mrs Edwards it is submitted by Mr Woolf that the bank does not have an equitable charge, but in my judgment it does.
3. The issue on the counterclaim is whether I should make an order for the sale of the house so that the bank can satisfy, out of 50% of the net proceeds of sale, the debt which is owed to it by the husband. My decision is that I should make an order for sale, but that I should postpone the operation of the order for a basic period of five years, and subject to certain detailed provisions which I shall describe later at the end of this judgment.
The facts
4. Mrs Edwards and the husband were married in 1987. They bought the house in 1988. They were registered as joint proprietors at the Land Registry, and although there have been changes since then as regards the beneficial interests in the house, the Land Registry still shows them as the joint proprietors of the legal estate. They appear to have borrowed �60,000 from a building society. I do not have full details of the history of that, but I do know that now the legal estate is mortgaged to the Alliance & Leicester Building Society to secure a debt of �60,000.
5. Mrs Edwards and the husband separated in March of 1996. The husband moved out of the house, and Mrs Edwards has had no contact with him for some time. They were divorced, on Mrs Edwards's petition, in December 2000. They had two children, a son now aged 15 and a daughter now aged 13. Both children are in full time education. They live with their mother in the house.
6. It appears from documents (there being no live evidence from anyone who has any personal knowledge) that in about May of 1996, shortly after the husband had left the house, he approached the bank about an overdraft facility for a company which he owned, called Elderbeny Promotions Ltd. The company was already overdrawn by about �4,000, and I assume that the husband wished to have a larger facility. I have not seen a formal letter from the bank granting an increased facility, but the bank certainly allowed the overdraft to rise. However, the bank must have insisted that the husband should give a personal guarantee of the company's overdraft. He signed a standard form of guarantee on 23 May 1996. His liability was limited to �15,000 plus interest and costs incurred by the bank in attempted enforcement. And, critically for the present case, the husband purported also to grant to the bank a second mortgage of the house (the first mortgage being the pre-existing one to the Alliance & Leicester) to secure his personal guarantee. I can only surmise, as did counsel for both parties in the case, that the husband had falsely represented to the bank that he was the sole owner of the house. There is a depressingly large number of reported cases in which separated husbands have done that sort of thing.
7. The bank appears to have provided a standard form of mortgage deed for the husband to complete and execute. The first page of the deed, as completed by or on behalf of the husband, says that the mortgage is given by the husband, and his address is given as the house. The deed is stated to be a mortgage of 'the freehold/leasehold property known as 40 Meads Lane', etc. The first page is consistent with the husband giving a legal mortgage of the entire interest in a property of which he was the sole owner, subject only to any prior mortgages. In fact the husband was not the sole owner of the house, either as respects the legal title or as respects the beneficial interest, because Mrs Edwards was a joint holder of the legal title and was also a beneficial joint tenant or tenant in common. The case has proceeded on the basis that the husband dishonestly concealed that true state of affairs from the bank, and also on the basis that Mrs Edwards had no idea of what he was doing.
8. Moving from the first page of the deed to the last page, that is the page which requires to be signed by the grantor or grantors of the mortgage. Consistently with what had appeared on the front page one might have expected the last page to be signed solely by the husband. It is signed by him, but it also bears a forged signature which purports to be the signature of 'Suzanne Edwards (Wife)'. Both signatures are witnessed by a solicitor. Mrs Edwards says that she did not sign the document, and that is accepted by the bank. The inference has to be that the husband and an unknown woman, pretending to be Mrs Edwards, went to the solicitor's office and signed the document. The deed is not dated, but it must have come into the possession of the bank, with the true signature of the husband and the forged signature of Mrs Edwards, in the later part of May 1996. Mrs Edwards knew nothing about any of this.
9. The unexpected appearance of a signature for Mrs Edwards on the last page might have caused the bank to make enquiries, but it appears that no enquiries were made. The husband's company was allowed to run up the overdraft. The company's bank statements are included in the documents before me. The account was quite active over the months of May, June and July 1996, no doubt reflecting trading, but unsuccessful trading, by the company. By mid-July the overdraft had risen to over �15,000. Trading seems to have tailed off around then. The company obviously failed, and the bank is still owed money. I assume that there has never been any prospect of recovering anything from the company itself. The husband is liable on his personal guarantee (subject to the limit of �15,000 plus interest and costs), but he cannot be traced and any claim against him based on his personal covenant is presumed to be worthless. That leaves the bank with whatever rights against the house which it may have under the mortgage deed. This case is in essence brought in order to ascertain what those rights are.
10. The bank never attempted to register its mortgage in the Charges Register section of the Land Registry entries for the house. However, on 6 November 1997 it sought to protect itself to an extent by placing a caution on the Register.
11. I have already recorded that Mrs Edwards was divorced from the husband in December 2000. The decree absolute was made in Ilford County Court on the 15th of the month. Some three months later there was another order in the divorce proceedings. It was made by the District Judge at Ilford. It ordered the husband to transfer to Mrs Edwards 'all his legal estate and beneficial interests in [the house] subject to the mortgage secured thereon in favour of the Alliance & Leicester'. The order also provided that, in default of the signing of a transfer deed by the husband, a District Judge of Ilford County Court should sign a transfer in his place. The husband has not signed a transfer deed. Nor, so I was told, has a District Judge signed a deed in his place. The result is that the legal title to the house is still registered in the joint names of the husband and Mrs Edwards. However, it is clear that the husband no longer has any beneficial interest in the house. Mrs Edwards is the sole beneficial owner, but subject to mortgages and charges. Undoubtedly her ownership is subject to the mortgage in favour of the Alliance & Leicester. The question in the present case is: to what extent, if any, is it also subject to a mortgage or charge in favour of the bank?
12. The house is a two bedroom terrace house in a residential part of Ilford. Mrs Edwards has said in her witness statement that the house, free from all mortgages and with vacant possession, would in her broad estimate be worth around �200,000. That is in no sense a professional valuation, but the bank does not question that Mrs Edwards has put the figure forward in good faith. The discussion in the case has proceeded on the basis that the value of the house should be assumed to be around �200,000, which means that, after allowing for the mortgage debt of �60,000 to the Alliance & Leicester, the equity value of the entirety would be �140,000, and the equity value of a 50% undivided share (ignoring any discount for the limited marketability of an undivided share valued by itself) would be �70,000. If market values rise or fall the equity values would rise correspondingly. As I understand it Mrs Edwards is able to service the Alliance & Leicester mortgage, so that remains a constant liability of �60,000.
13. Although Mrs Edwards is able to service the Alliance & Leicester mortgage, it should not be supposed that she is in a comfortable...
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