Mortgage Agency Services Number Four Ltd v Alomo Solicitors (A Firm)
| Jurisdiction | England & Wales |
| Judge | Judge Simon Brown |
| Judgment Date | 25 October 2011 |
| Neutral Citation | [2011] EWHC B22 (Mercantile) |
| Docket Number | Case No: OBM40030/OBM40019 |
| Court | Mercantile Court |
| Date | 25 October 2011 |
[2011] EWHC B22 (Mercantile)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
MERCANTILE COURT
Priory Courts
33 Bull Street
Birmingham
West Midlands
B4 6DS
His Honour Judge Simon Brown QC
Case No: OBM40030/OBM40019
Mr Hugh Sims (instructed by Bevan Brittan LLP) appeared on behalf of the Claimant Mr Alan Tunkel (instructed by Kennedys) appeared on behalf of the Defendant
Approved Judgment
No of Folios-24
No of words-1,742
Judge Simon Brown QC:
This has been the trial of two consolidated actions (0BM40030 and 0BM40019) arising out of four mortgage advances (for flats 180 and 189 of £263,359 and for flats 180 and 189 of £262,564) made by GMAC-RFC Limited ("GMAC") on or about 10 June 2005 to enable the borrower, Mr Bernard Edwards ("the Borrower"), to buy for let (leasehold interests in) four apartments (No.s 180, 187, 188 and 189) in a new building known as Building 50, Argyll Road London SE18 6PL (collectively referred to as "the Properties") on 13 June 2005. Each Apartment was ostensibly to be bought by the Borrower from the developer Berkeley Homes (West London) Limited ("Berkeley Homes") for £309,000, though it has subsequently transpired that the purchases were not arms length purchases from Berkeley Homes. Each loan was secured by a first charge over each of the Properties. The Claimant acquired its interest by way of assignment from GMAC on 30 September 2005. In each case the Borrower was unable to maintain the mortgage payments beyond a few months, and following a period of default, the Claimants repossessed the Properties on or about 28 August 2008 and then sold them. The price realised on the sales (£200,000) fell far short of what was needed to discharge the borrowing. The losses alleged by the Claimants were stated to be £351,065.27 (£177,769.26 and £173,296.01).
All of the transactions exhibited one or more of the following unusual features that the Claimants have alleged were classic warning signs of mortgage fraud:
i. The existence of a back to back or sub-sale arrangement under which the sale (or sub-sale) to the Borrower was on the same day as the grant of the lease to the intermediate vendor;
ii. The sale to the Borrower was at a price (£309,000) which was very substantially in excess of the price by which the property had just changed hands (£215,000 for no.s 180, 188 and 189 and £223,750 for no. 187; an inflation of 43% or 38%);
iii. The interposition of an intermediate vendor, namely Ellison Carter Limited ("ECL"), a company in the 50% ownership of the Borrower (and Dennis Edwards, possibly another family member;
iv. The effect of the price inflation and ownership structure of ECL was that the mortgage advance (£262,494 plus fees) exceeded the price paid by ECL to the developer, Berkeley Homes, such that in economic terms no deposit had to be found for the purchase. Instead substantial cheap finance (in the sum of approximately £188,000) was obtained;
v. The purchases formed part of a series of similar transactions for 15 properties involving the Borrower (in relation to 8 of the transactions) and, possibly, two family members, which involved them purchasing several properties using the same solicitors, the Defendant, from the same person, ECL, which used the same solicitors ("First Solicitors");
vi. On at least two of the purchase files there is evidence of the Borrower being paid cash backs by ECL (Apartments 187 and 189 —£47,000 each);
vii. The Defendant was not provided with sufficient funds to cover SDLT, such that there were long delays in registration, which did not occur for many months.
The Particulars of Claim dated 19 th March (and 17 th May 2010) in each case consisted of 35 concise clear paragraphs over just over 7 pages. The claim against the Defendant was that, in essence, this was a sub-sale (or back to back) mortgage borrower fraud, which was facilitated or enabled by the Defendant's dishonesty and/or breach of fiduciary and other duties, and which hid a fraudulent uplift in price. The claim was, quite simply, that the Defendant:
i. Hid, or failed to disclose, the sub-sale;
ii. Hid, or failed to disclose, the price uplift/differential;
iii. Hid, or failed to disclose, the cash backs; and/or
iv. Failed more generally to discharge its well known duties of care under the CML Handbook, and the Law Society 'Green Card' warning on property fraud.
The Defences dated 16 th June 2010 in each case consisted of 75 lengthy convoluted paragraphs (and sub-paragraphs) over 68 pages. By direction of the court at a telephone CMC on 22 nd November 2010, these were reduced to a Summary of Defences dated 29 th November 2010 consisting of 12 paragraphs over 5 pages, albeit closely typed and with numerous sub-paragraphs.
None of the summarised facts in paragraph 2 (i) – (vii) were apparently in dispute by in the Defences (or the Summary or the skeleton argument subsequently exchanged and filed).
On 13 th December 2010, pursuant to court order, the parties filed an agreed List of 8 Issues. These were helpfully identified and dealt with in Outline Opening submissions of the Claimant as follows:
i. Duties owed to GMAC
ii. The assignment issue
iii. Breaches and/or misrepresentations
iv. Causation
v. The Valuer (Jack Goulde) issue
vi. Contributory negligence
vii. Mitigation
viii. The settlement issue.
Costs Budgets of £175,000 and £120, 000 were eventually approved by the court under the Costs Management Pilot Scheme and the matter proceeded to a 4 day trial commencing Monday 24 th October 2011.
The Claimants case and the Defendants evidence was heard over Monday 24 th and Tuesday 25 th October. At the conclusion of the Defendant's evidence and after a short adjournment, the parties informed the court that the Defendant had come to an agreement following a Part 36 offer, which was made on 11 th August 2011 by the Claimants, on a without prejudice basis save as to costs. The letter is a comprehensive letter where they explain their offer and their contention that their claims were undefendable on the undisputable bases summarised in paragraph 3 (i) – (iv) above.
The Part 36 offer was stated to be open for 28 days and subject to payment of 'standard costs'. However, if accepted after that the expiry date, the Claimant reserved the right to seek indemnity costs. The letter also deals with the situation under CPR 36.14 where the matter goes to trial and judgment is secured: indemnity costs from the date of offer expiry together with 10% interest on damages and those indemnity costs.
The only remaining issue unresolved between the partiers to be decided by the court is whether the Defendants should pay the costs on an indemnity basis and, if so, from what date: throughout or from the date of expiry of the Part 36 offer.
Mr Tunkel for the Defendant submits that this is a case where the standard basis is appropriate pursuant to CPR 36.10 but accepts that indemnity costs ought to be awarded after the expiry date because that is the tenor of CPR 36.14, albeit it is only applicable to issues of Part 36 offers (unlike here) post judgment.
Mr Sims for the Claimant submits that this is not a 'post judgment' situation and the offer letter clearly states " Should you accept this offer outside of the relevant period, our client will draw this to the attention of the Court when the issue of costs is to be decided and we will seek our client's offer on an indemnity basis". He relies upon CPR 44.3 and refers the court to the 'conduct' of the Defence and to the court's discretion to award indemnity costs throughout on the basis of the Defendant 'conduct' of the case:
a. CPR 44.3 (5) (b) 'whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue'; and
b. CPR 44 (5) (c) 'the manner in which a party has pursued or defended his case or a particular allegation or issue.'
As to (b) above, Mr Sims identifies two particular pleaded allegations, referred to in the Part 36 offer letter, that were undeniable and needed to be pleaded to: First, Paragraph 20 of the Particulars of Claim:
"The prices paid by Ellison Carter were substantially lower than the £309,000 which had been stated in the mortgage application forms in that Apartments 180 and 188 were sold for £215,000.'
Secondly, Paragraph 21:
"Ellison Carter is or was a company of which the Borrower was a 50% shareholder …"
The Defendant, as he conceded in the witness box, knew of these important facts but did not...
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