There have been a number of attempts by those facing repossession and worse at the hands of mortgage lenders to dispute the validity of the claims against them on the basis of a failure to comply with the necessary legal formalities. Mortgage lenders typically send a mortgage offer letter that they invite their borrower to sign. Often the mortgage lender does not formally sign the offer letter. At the time of an advance there is usually a mortgage deed which is often signed by the borrower not the lender.
In Bank of Scotland PLC v Waugh & others  EWHC 2117, a borrower sought to avoid a claim based on a mortgage where only the borrower had signed the offer letter, the signature on the mortgage deed had not been witnessed/attested and the borrower was wrongly identified. The borrower was a trust which was not incorporated. The trustees were individuals. Mr Waugh was one of the trustees who dealt with the matter on behalf of the trust as a litigant in person.
The formalities imposed on property transactions are variously contained in the Law of Property Act 1925, the Law of Property (Miscellaneous Provisions) Act 1989 and the Land Registration Act 2002. There is a distinction between the formalities required for contracts disposing of land (s2 of the 1989 Act) and those which effect the actual disposition of land or equitable interest in land (ss52-3 of the 1925 and s1 of the 1989 Act). The 2002 Act provides that a legal charge depends on registration and by s51 it is made clear that registration of a charge against a person’s title makes it a binding legal charge even if it would not be without registration.
Until 1994 and United Bank of Kuwait plc v Sahib  2 WLR 94 it was believed by the banking industry that equitable charges would always provide an answer where the formalities were not adhered to. At that time it was common practice for lenders to retain the title deeds to any mortgaged property in part because it was believed that the depositing of the title deeds to a property would, by the principle of part performance, create an equitable charge if the parties failed to create a legal charge.
In the Bank of Scotland case, Mr Waugh argued there was no binding contract arising from the relevant facility/offer letter and the preceding deed which purported to create an all monies charge was ineffective.
The facilities letter was addressed to and signed by the individual trustees but not signed by Bank of Scotland. It follows that that document could not be said to give rise to an enforceable contract for the securing of the advance referred to by legal charge. The borrower identified in the mortgage deed, which had been entered into some years before in connection with earlier lending, was a non-existent trust company of the same name. The deed was signed by the bank and the individual trustees but none of the signatures were witnessed/attested as required by s1(3) of the 1989 Act. That deed had nevertheless been registered as a charge against the Trusts interest in the property it related to. Mr Waugh arguing the deed was invalid had applied to rectify the register by the removal of the registered charge.
The bank applied for summary judgment. The court concluded the bank’s money claim on the basis of the facility letter was unaffected by the failure to comply with s2 of the 1989 Act. That claim was unrelated to the disposition of an interest in land it simply focused on the loan agreement for which no writing was required.
The court accepted that, although the deed was not validly executed and therefore did not itself create a legal mortgage, by virtue of s51 of the 2002 Act the trust’s interest was subject to a binding legal charge in accordance with the deed (pending rectification of the register). Accepting that rectification operated to change the position for the future the Court stated that since the register had not yet been rectified both parties remained entitled to rely on it.
The bank argued that the trust was estopped from relying on the failure to comply with s1(3) of the 1989 Act because all parties had proceeded as if it were valid. The court considered Shah v Shah  EWCA Civ 527 and Briggs v Gleeds  EWHC (Ch) 1178. The court endorsed the distinction made in the Gleeds case between failures to comply in which the document appears compliant and failures to comply which are clear on the face of the document. As a result the court concluded there was no estoppel operating against the trustees because the fact that execution of deed was defective was apparent on its face.
Ultimately the Court concluded
- There was no defence to the money claim.
- The deed had not taken effect as a legal charge but it did give rise to an equitable charge.
- Nevertheless pending the determination of the application to rectify the register at law the property was currently subject to a registered legal charge.