• Home
• Articles
• When Transactional Risk Strikes

When Transactional Risk Strikes

November 2010

The decision in the recent case of Northern Bank Limited v John Joseph Rush and Nicole Davidson [2009] NICh 6 illustrates the severity of minor transactional defects in a current conveyancing climate characterised by scarce resources, heightened accountability and increasingly litigious parties.  Moreover, the case highlights the inevitable implications of negligence and fraud latent in conveyancing files safely tucked away in solicitors' and lenders' archives.

The Facts

Mr Rush (the first defendant) granted a second charge over his property in favour of Northern Bank Limited (the plaintiff). The Mortgage Deed was dated 1st February 2006 and registered by the plaintiff's in-house legal department in the Registry of Deeds on 16 February 2006.  Mr Rush's surname was incorrectly spelt as "Rusk" on the Memorial for registration which meant that a search against his surname would not have revealed the plaintiff's second charge.

In early 2007, Mr Rush sold his property to a Ms Davidson (the second defendant). At the time of this transaction, searches conducted on behalf of the second defendant would have only revealed a first charge in favour of Nationwide plc which was redeemed as part of the transaction. Interestingly, Mr Rush who it transpires sold his property to satisfy his mounting debts did not disclose to his solicitors the existence of the second charge. In June 2007, the first solicitor's agents became aware of the charge and notified the bank and the second defendant's agents.  The second defendant's Assignment had not been registered despite the five months that had passed since the purchase completed.  In the interim, the Plaintiff had  registered an amended mortgage in the correct name of the first defendant on 11th July 2007. The plaintiff thereafter commenced proceedings against the first defendant and second defendant on foot of the mortgage document of 1 February 2006 and sought to obtain possession of the property.

The Issues

The plaintiff accepted that in terms of the Registration of Deeds Regulations (N.I.) 1997 and the decision in Pen Finance Limited v Leona Laird and Others [2008] NICh 15, the original charge granted in its favour was not validly registered.  The issues which were placed before the Court for consideration were as follows:

1. Whether the plaintiff having been negligent firstly in the preparation of the erroneous Memorial and secondly in delaying to rectify the error [given that it would  be reasonably foreseeable that their interest would not have been disclosed in a search obtained by a purchaser  in good faith for value] should be denied the remedy which it was seeking; and
2. Whether a five month delay by the second defendant's agents in the registration of her interest in the property meant that the second defendant could not rely on the plaintiff's negligence to avoid the plaintiff's claim for possession of the property.  Had the second defendant's agents registered her interest timeously this would have pre-empted the plaintiff's claim that their charge was validly registered and therefore had priority over the subsequently registered Assignment to the second defendant, making her position "impregnable."

The Rationale

The second defendant's agents sought to deny the plaintiffs remedy on grounds of  the plaintiff's gross negligence caused by the drafting error and the subsequent failure to correct the error timeously. The plaintiff in reply drew a distinction between cases involving two unregistered deeds where the concept of gross negligence and principles of equity would  apply and this case in which there is a registered charge to which Section 4 of the Registration of Deeds Act (N.I.) 1970 applies.  Deeny, J concluded that he was required to adhere to the principles of law and not of equity and therefore could not endorse the postponement of a prior legal estate to a subsequent equitable estate. In providing the rationale for his decision he cited Lord Walker of Gestingthorpe in Yeoman's Row Management Limited and Another V Cobb 2008 4 All ER 713 to the effect  that " equitable estoppel is a flexible doctrine which the Court can use in appropriate circumstances, to prevent injustice caused by the vagaries and inconstancy of human nature. But it is not that sort of wild card to be used whenever the Court disapproves of the conduct of a litigant who seems to have the law on his side."   Deeny J also stated  obiter dicta that although in  the circumstances he was not required to make a final ruling on the issue of whether there was gross negligence, were he  required to do so then even on a balancing of equities he  would have had to consider the maxim " where equities are equal the law shall prevail" . He concluded that in the circumstances  he could not resolve that it would have been equitable to disregard the priority given to the registration of the mortgage on 1st February 2006.

The Implications

This judgment not only highlights the grave financial implications for those ultimately prejudiced by errors, delay and the potentially  negligent actions of their agents but also focuses attention on how easily fiduciary relationships between parties involved in property transactions can be undermined.  In the aftermath of the judgment it could be argued that when faced with the legal bills and the knowledge that all parties involved contributed to an innocent purchaser being made to suffer loss, that there was no clear ceremonial winner in this case or  for that matter the property profession.

First Title Home Owners Protection Policies ( HOPPs) and  First Title Home Lender Protection Policies (HLPPs) can provide peace of mind to purchasers and lenders respectively that any unknown title risks which could prejudice their interests in a property including errors in drafting deeds, failure to register deeds, loss of priority of an Insured Mortgage, forgery, fraud, duress, incompetency, incapacity or impersonation will be transferred to the title insurer. Known title defects also identified during title investigations such as obvious errors in deeds can be added as supplemental cover on our policies.  For further information on these policies or on any of our products please contact the underwriting team on 0141 248 9090 or email to scotinfo@firsttitle.eu.

• > Back