Stoffel & Company v Ms Maria Grondona

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLady Justice Gloster,Lord Justice Flaux
Judgment Date13 September 2018
Neutral Citation[2018] EWCA Civ 2031
Docket NumberCase No: B2/2016/1768

[2018] EWCA Civ 2031

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE COUNTY COURT

AT CENTRAL LONDON

HHJ WALDEN-SMITH

Claim No: A10CL170

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lady Justice Gloster

Vice President of the Court of Appeal, Civil Division

and

Lord Justice Flaux

Case No: B2/2016/1768

Between:
Stoffel & Co
Appellant/Cross-respondent
and
Ms Maria Grondona
Respondent/Cross-appellant

Mr Dan Stacey (instructed by Levi Solicitors LLP) for the Appellant/Cross-respondent

Mr Maurice Rifat (instructed by Ms Maria Grondona) for the Respondent/Cross-appellant

Hearing dates 14 March 2018 – 15 March 2018

Judgment Approved

Lady Justice Gloster

Introduction

1

This is an appeal by the defendant, Stoffel & Co, solicitors (“Stoffel” or “the defendant”), to a Part 20 Claim brought by Ms Maria Grondona (“the claimant”) against the order of HHJ Walden-Smith (“the judge”) dated 11 April 2016 (“the order”) in which, after a 4-day trial, the judge found in favour of the claimant in her claim for damages against the defendant for negligence and/or breach of retainer in failing to register in her favour a Land Registry transfer document form (“the TR1”), a legal charge and a Land Registry cancellation of entries for lenders form (“the DS1”) in relation to a leasehold property at 73b Beulah Road, Thornton Heath, Surrey CR7 8JG (“the property”), which the claimant was purporting to purchase from a Mr Cephas Mitchell (“Mr Mitchell”).

2

The claimant cross-appeals against the same order in which the judge determined that she was entitled to damages of £78,000, plus interest from 30 November 2009 at 3% over the Bank of England base rate in a total sum of £17,591.76 as at 11 May 2016. She contends that the judge should have awarded her damages calculated by reference to the amount of her continuing indebtedness to the chargee of the property, Bank of Scotland plc, as successor to Birmingham Midshires (“Birmingham Midshires”) (as a result of the former's merger with the Halifax Building Society), rather than, as the judge decided, by reference to the loss in value of the property at the time the negligence/breach of duty was apprehended.

3

The issue on the appeal is whether the fact that, as the judge found, the claimant was a participant in an illegal mortgage fraud designed to obtain monies for Mr Mitchell, precludes the claimant from recovering against the defendant on the basis of the illegality principle. The issue on the cross-appeal is the method of the calculation of the quantum of damage.

Factual background

4

The relevant facts as found by the judge may be summarised as follows.

5

The claimant had had a business connection with Mr Mitchell. She had first known him when he had become her landlord some 15 years earlier. The judge held that in 2000 the claimant signed a document (“the 2000 document”) bearing the date 1 March 2000 which referred to four properties: 73b Beulah Road; 362 High Road, “Tottingham” (sic); and 12 and 12A Cator Road; and provided as follows:

“I Maria Grondona agree to have in my name mortgage loans in the above mentioned properties with the understanding and agreement that Mr CJ Mitchell of Flat 2, Silverdale, London SE264SZ will carry out the following tasks:

1. To pay all monthly mortgages on each of the properties as and when they become due

2. Receives from the tenants in these properties the due rents

3. Carry out all repair work on the properties

4. Deals with all financial matters on these properties

5. Decides when to sell all or any of these properties

6. Mr Mitchell to pay to me 50% of the net profit when any of the above properties are sold

This is a binding agreement enforceable by law between Mr Mitchell and myself”; see judgment at [42].

6

The freehold of 73 Beulah Road was purchased by a Ms Loretta Headley on 27 November 2001 for £82,000 with the assistance of finance from BM Samuels Finance Group plc (“BM Samuels”) which apparently obtained a registered charge in its favour. There was apparently also a subsidiary restriction in favour of Moneypenny Investments Ltd and Gemforce Investments Ltd: see judgment at [19].

7

In or about July 2002 Mr Mitchell paid the sum of £30,000 to Ms Hedley, the freehold owner of 73 Beulah Road, for the grant of a 125 year lease of the property, which comprised a rear ground floor flat. The commencement date for the lease was 24 June 1990. On 26 July 2002 Mr Mitchell entered into a loan facility of £45,000 for a period of 6 months secured by a legal charge over the property with BM Samuels to enable him to purchase it (“the BM Samuels charge”). On the same date a leasehold interest in the property was registered in the name of Mr Mitchell at the Land Registry under title number SGL 638702. The BM Samuels charge was also duly registered at the land registry.

8

In October 2002 the claimant purported to purchase the leasehold interest in the property from Mr Mitchell for the sum of £90,000 — i.e. three times the price paid when the leasehold had been created a few months before. She did so with the assistance of an advance from Birmingham Midshires in the sum of £76,500 and the plan was that the advance was to be secured by a charge over the property entered into by the claimant on 31 October 2002 (“the Birmingham Midshires charge”); see judgment at [14]. The defendant acted for the claimant, the chargee, Birmingham Midshires, and the vendor, Mr Mitchell, in connection with the transaction.

9

The defendant paid the sum of £76,500 received by way of loan from Birmingham Midshires to BM Samuels as the existing chargee of the property, in order for the BM Samuels charge to be discharged. BM Samuels duly provided a DS1 releasing the BM Samuels charge. However, the defendant failed to register at the Land Registry either the TR1 transferring the property from Mr Mitchell to the claimant, or the DS1 releasing the BM Samuels charge or the Birmingham Midshires charge granted by the claimant. According to the judge's finding, that was because the TR1 submitted by the defendant had not been impressed with stamp duty and the procedural stamp and it was therefore returned by Croydon District Land Registry on 28 November 2002. Croydon District Land Registry apparently wrote again on 7 and 13 April 2003 and on 14 April 2003 to the defendant to notify it that the application for registration had been cancelled. A further application for registration was rejected on 2 July 2003 due to errors on the transfer and that application was cancelled on 5 August 2003.

10

As a result of the defendant's admitted negligence and breach of duty in failing to register the relevant forms, Mr Mitchell remained the registered proprietor of the property and BM Samuels remained the registered proprietor of the BM Samuels charge. On the basis of that charge, further advances were made to Mr Mitchell following the transactions in 2002; see [25] of the judgment.

11

The claimant defaulted on payments under the Birmingham Midshires charge and Birmingham Midshires brought proceedings against her in order to obtain a money judgment. The claimant (i.e. Ms Grondona) defended the claim and brought proceedings against the defendant (i.e. Stoffel & Co) by means of a CPR Part 20 claim for an indemnity and/or a contribution and/or damages for breach of duty and/or breach of contract.

12

The defendant defended the Part 20 claim on the basis that, while, by the date of trial, it admitted that the failure to register the TR1, the DS1 and the Birmingham Midshires charge constituted negligence or breach of duty, it contended that there were no damages recoverable by Ms Grondona because the purpose of the transaction to put the property into her name and to obtain a mortgage from Birmingham Midshires was illegal, in that it was a conspiracy to obtain finance for Mr Mitchell by misrepresentation and, accordingly, the principle of ex turpi causa non oritur actio applied. Alternatively, the defendant raised quantum defences.

13

Birmingham Midshires amended its claim in order to claim directly against Stoffel & Co, BM Samuels, the prior chargee and Mr Mitchell. The claims brought by Birmingham Midshires against BM Samuels and against Stoffel & Co were settled. Summary judgment was obtained by Birmingham Midshires against Ms Grondona in May 2014. That judgment was for £70,000 with the balance to be subject to an account.

14

At the trial of the Part 20 claim there was some confusion as to whether the claimant had purchased the leasehold interest or the freehold and the leasehold interest in 73b Beulah Road; see [19] and [20] of the judgment. However, the judge appears to have accepted the claimant's evidence that, in fact, all she had purchased was the leasehold interest in the property for £90,000 and the judge proceeded on that basis. For the purposes of the appeal and the cross-appeal on quantum, this court was not concerned with any issues relating to the freehold reversion of the property or whether it had been bought by the claimant.

15

By the time of the trial it appeared that Mr Mitchell had died, although the judge had not seen any documentary evidence to that effect [26]. On 22 April 2014, the leasehold interest in 73b Beulah Hill was sold by BM Samuels for £110,000 in order to satisfy the sum owed by Mr Mitchell under the BM Samuels charge.

The judgment

16

The judge held that the claimant had, together with Mr Mitchell, been a participant in a mortgage fraud to deceive Birmingham Midshires into making the advance to the claimant to purchase the property. She held that the following dishonest misrepresentations had been made by the claimant in the mortgage application form:

i) that the sale from Mr Mitchell to the claimant was not a private sale, when in fact it was a private sale;

ii) the deposit monies were from her own resources, when in fact they...

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2 cases
  • Stoffel & Company v Ms Maria Grondona
    • United Kingdom
    • Supreme Court
    • 30 October 2020
    ...[2020] UKSC 42 Supreme Court Michaelmas Term On appeal from: [2018] EWCA Civ 2031 Lord Reed, President Lord Hodge, Deputy President Lady Black Lord Lloyd-Jones Lady Arden Stoffel & Co (Appellant) and Grondona (Respondent) Appellant Michael Pooles QC Dan Stacey (Instructed by Levi Solici......
  • Day v Womble Bond Dickinson (UK) LLP
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 26 March 2020
    ...81 I also agree. 1 In a similar commercial context, the Court of Appeal adopted the same approach in Stoffel & Co v Grondona [2018] EWCA Civ 2031, where a claim for professional negligence in respect of conveyancing was upheld, despite the fact that the underlying transaction was taint......
3 firm's commentaries
  • Why Is The "illegality" Defence Back In The Spotlight?
    • United Kingdom
    • Mondaq UK
    • 30 July 2020
    ...This week (on 5 May 2020), the Supreme Court is hearing the appeal from the Court of Appeal's decision in Stoffel & Co v Grondona [2018] EWCA Civ 2031. The appeal also focuses on whether the Court of Appeal erred in its application of the Patel v Mirza In Stoffel, the claimant Ms Grondo......
  • Solicitors Found Negligent When Failing To Register A Property Transfer That Facilitated Fraud
    • United Kingdom
    • Mondaq UK
    • 14 January 2019
    ...that a fraudulent transaction is not carried out as intended, are the solicitors still liable? Stoffel & Co v Maria Grondona [2018] EWCA Civ 2031 In a recent case it was found they could be, but by reaching that view the court was able to supply the defrauded lender with a remedy. It se......
  • Negligent Solicitors Firm Cannot Rely On Illegality Defence Despite Mortgage Fraud By The Claimant
    • United Kingdom
    • Mondaq UK
    • 19 October 2018
    ...case despite the client instructing the solicitors as part of a plan to commit mortgage fraud. Ms Maria Grondona v Stoffel & Co [2018] EWCA Civ 2031 Background The defendant solicitors, Stoffel & Co, admitted failure to register the relevant forms (a transfer of the property, cancel......

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