07 Feb 2018

In NRAM Ltd v Evans and another [2017] EWCA Civ 1013, the Court of Appeal was asked to consider how the register should be amended to reflect that an e-DS1 granted by a lender had been set aside. Two borrowers took a loan to acquire a property in 2004 which was supported by a legal charge. In 2005 they re-mortgaged, using the proceeds of the new loan to redeem the 2004 loan. The original legal charge taken in 2004 remained on the register with the intention that it would secure the 2005 loan. 

In 2014, the borrowers' solicitor wrote to the lender requesting discharge of the 2004 charge and quoting the mortgage account number of the 2004 loan (but not the 2005 loan). The lender checked its system which showed that the 2004 loan had been repaid but made no mention of the 2005 loan, so the lender provided an e-DS1 to discharge the 2004 charge. The lender later realised the mistake and registered a unilateral notice of its interest against the property. The borrowers issued proceedings seeking an order for sale of the property and to have the unilateral notice removed.

In the High Court it was held that the e-DS1 should be set aside for mistake and the register rectified by re-registration of the charge. Where alteration of the register amounts to a rectification, the consent of the proprietor(s) (in this case the borrowers) is required unless either through fraud or lack of care the proprietor has caused or substantially contributed to the mistake, or it would be unjust for any other reason for the alteration not to be made. The High Court said that the borrowers had contributed to the mistake by virtue of the letter from their solicitors which failed to mention the 2005 loan. The borrowers appealed, arguing that the bank was wholly responsible for the error. 

The Court of Appeal dismissed the borrowers' appeal but found that the High Court had been wrong to order rectification of the register. Rectification entails the correction of a mistake, but here the e-DS1 was a voidable (as opposed to void) disposition which at the time of removal of the charge had not yet been set aside, meaning there had been no mistake at the relevant time. Instead, the register now needed alteration to bring it up to date.

The case highlights the need for banks to ensure their systems are kept fully up to date with all relevant loans secured by a charge recorded against that charge, to ensure that the charge is not discharged where some but not all of the loans are repaid. In this case, the bank realised its mistake in time and registered a unilateral notice preventing a sale of the property, but if this had not been done the property could have been sold without the bank's consent. 

Key points

  • Banks' systems need to be set up to ensure that where there are multiple loans secured against the same property, all such loans are redeemed before the charge is released
  • The registration of an e-DS1 before it was rescinded was not a "mistake" requiring rectification, rather the register simply needed alteration to bring it up to date 
  • This meant that the bank did not need to show that the borrower had caused or substantially contributed to the mistake for the court to order alteration of the register.