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Secured Recoveries update: Professional negligence, title rectification & mortgage fraud

Secured Recoveries update: Professional negligence, title rectification & mortgage fraud
  • United Kingdom
  • Financial institutions - Secured recoveries


Title rectification

How is the question of negligent misrepresentation approached by the Courts?

The case of Chief Land Registrar v Caffrey & Co [2016] EWHC 161 (Ch) provides a useful reminder of the approach taken and emphasises the care that solicitors dealing with applications to discharge lenders’ charges should take, as such applications remain vulnerable to fraud despite the Land Registry having tightened its procedures on the requirements of proof of identity when filing applications since the events in this case.


D was a firm of solicitors instructed in October 2009 to act for Mr and Mrs T in discharging a mortgage registered over the title to their property.  Mr and Mrs T provided D with a DS1 purportedly signed by their lender.  They told D that the lender had instructed another firm of solicitors, but this was not true.  D did not contact the lender or the solicitors in order to verify the DS1 and proceeded to lodge the document with the Land Registry.

The Land Registry raised a requisition requesting evidence that the person who had signed the DS1 was authorised to do so for the lender.  Mr and Mrs T provided D with a power of attorney, but this was also a fabricated document.  D sent a certified copy of the power of attorney to the Land Registry.  The Land Registry then completed the application and removed the lender’s charge.

Mr T then purported to purchase Mrs T’s share of the property raising finance from S.  Mr T was registered as the sole proprietor subject to the charge in favour of S.  In 2011 the lender realised that its charge had been removed and applied to alter the register.  S objected and in 2012 an Adjudicator decided that the charge should be reinstated but would rank second in priority behind S’s charge. 

The lender obtained an indemnity from the Land Registry under the statutory scheme set out in the Land Registration Act 2002.  In order to recover its losses as a result of making the indemnity payment, the Land Registry was entitled to bring any cause of action which the lender could have brought as if the indemnity had not been paid.

The Claim

The Land Registry argued that (i) had no indemnity been paid the lender would have been entitled to bring a claim against D as a result of D’s failure to verify facts where it had assumed a duty to the lender in the discharge of its charge – the negligence claim and (ii) the Land Registry was entitled in its own right to bring a claim against D for misrepresentation in submitting the forged DS1 – the negligent misrepresentation claim.

(i) Negligence

  • The Land Registry argued that in acting for Mr and Mrs T, D owed a duty of care to the lender to take reasonable skill and care to verify the DS1, the power of attorney, and to ensure that the property was no longer charged as security for payment of sums due under the charge.  The Land Registry was subrogated under Land Registration Act 2002 to the claim of the lender against D. 

It was held that D was acting for Mr and Mrs T and owed a duty of care to them and not to the lender.  D was under a duty to present the documents to the Land Registry, it did not have a duty to any third party to take care to verify the validity of the documents/information.  The act which caused the loss was that of the Land Registry in removing the charge, not that of D in supplying the documents.  Master Matthews comments that the system of registered land at the time of these events was not sufficiently secure to avoid this type of fraud and therefore “…it is not fair just or reasonable to make the solicitor in this case responsible to the bank for the risk of fraud within an inherently risky system”.  Accordingly the application for judgment in default based on negligence was refused.

(ii) Negligent Misrepresentation

  • By submitting and/or completing the application to Land Registry and/or certifying the purported power of attorney and/or supplying it to the Land Registry D had expressly or impliedly represented that it had taken sufficient steps or measures and/or knew of sufficient facts to satisfy itself that the discharge had been properly executed, solicitors had been instructed, the power of attorney was valid and that the lender wanted to discharge its charge. 
  • The relationship between the Land Registry and D was such that D knew or ought to have known that the Land Registry would rely on D’s representations and that D therefore owed a duty of care to ensure that the representations were true.
  • The question of whether D owed a duty of care was a question of law.  The Land Registry accepted that liability for a tortious misrepresentation only arises where the representor (D) owes a duty of care in making the representation to the representee (Land Registry).  The Land Registry claimed that D knew or ought to have known that it would rely on the representations in the application when dealing with the discharge.  The Land Registry’s case was that this was sufficient to found the existence of a duty of care.
  • The question of the duty of care under this cause of action is as between the Land Registry and D, rather than in the case of negligence where the Land Registry claimed to be subrogated to the rights of the lender.
  • The case of White v Jones [1995]2 AC 2017, 274F and speech of Lord Browne-Wilkinson was cited, ”The law of England does not impose any general duty of care to avoid negligent misstatements or to avoid causing pure economic loss even if economic damage was foreseeable.  However, such a duty of care will arise if there is a special relationship between the parties…two categories (of special relationship) have been identified (i) where there is a fiduciary relationship and (ii) where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice”.

It was held that there was no fiduciary relationship between the Land Registry and D.  However D did volunteer information which it would have known or ought to have known that the Land Registry would rely on, and that a loss may be suffered as a result.  D therefore implicitly assumed a legal responsibility towards the Land Registry.

It is clear from the judgment that Master Matthews was concerned as he comments that D “had no particular qualification for making the statements that have been attributed to them” i.e. they had no qualifications or perhaps ability in the course of dealing in order to detect the fraud.  Furthermore the statements that they made were to professionals at the Land Registry, who would have systems for checking applications themselves, and who did in fact raise a requisition on the application.

However, despite his doubts Master Matthews was persuaded, on the particular facts of this case, that there had been a negligent misstatement by D and that it was correct to treat D as having assumed a duty of care to the Land Registry.  D owed a duty to take reasonable care that the representations made in the application were true.  They were however false, and the Land Registry relied on them by competing the application, thus suffering a loss as a result of the subsequent indemnity claim.  Default judgement was awarded to on the second cause of action of negligent misstatement with damages to be assessed. 


One wonders what the outcome would have been had D put in a defence to this claim as it is apparent that Master Matthews was only narrowly persuaded to find in favour of the Land Registry and was not entirely comfortable with the finding.  To a significant degree the decision rests on the fact that the court assumed (it being a default judgment application) that all of the facts pleaded by C were true.  Another defendant might have chosen to challenge the supposed existence of the representations made to C.  As matters stand, however, it is open for the Land Registry to argue that a forged DS1 can give rise to a claim for negligent misrepresentation against a solicitor.  Whether that claim would stand up to more detailed scrutiny at a trial is debateable though.

The lender’s avenue of recovery in this case was as against the Land Registry alone, as it would appear, as a result of the finding on the negligence claim, that it would not have succeeded in a claim against D.  Since the events in this case, the Land Registry have tightened their requirements on the evidence of identity required when lodging applications at the Land Registry.  The errors in this case are unlikely to be repeated, but the system of land registration is vulnerable to fraud.  Professionals need to be wary of this when submitting applications and lenders need to be aware that this is a fraud type that they are vulnerable to. 

Professional negligence

Is there a good reason to use different valuers when lending against a number of properties in a development?

The recent case of Mortgage Express v Countrywide Surveyors Limited [2016] EWHC 224 (Ch) suggests that there is.


Mortgage Express (MEX) sued Countrywide Surveyors Limited (CWS) for damages for fraudulent misrepresentation after it incurred losses in excess of £3.3 million having advanced against a number of valuations provided by a CWS Surveyor, Mr Driver (the Valuer).  The Valuer valued 64 Buy to Let flats (the Properties) at a new marina development in Eastbourne between December 2004 and June 2005. The Valuer gave rental valuations of between £1300 - £1540 pcm for each of the Properties.  Expert evidence later established that the correct rental valuation was between £600- £750 per calendar month and on average 50% less than the rental valuation stated on the original valuations.

The Valuer retired from CWS on 30 June 2005. On 11 July 2005 CWS commenced an internal investigation into the Valuer’s rental valuations. On 17 July 2005 a CWS internal report concluded that the rental valuations for the Properties had been “grossly overstated and should be no more than £700 pcm”. A further CWS internal review concluded on 21 July 2005 that “at best [the Valuer] has been grossly negligent but it seems almost certain he has been fraudulent”. 

Crucially, CWS did not inform MEX of its suspicions of fraud. Instead, on 19 July 2005 CWS emailed MEX to inform it that it was concerned that the Valuer’s valuations may have been ”overstated” and asked to be given the opportunity to review its advice before any lending decisions were made.

On 29 July 2005 a Mr Vaughan of MEX’s Lending Support Team provided CWS with a list of 21 properties (“the Vaughan List”) valued by the Valuer.  MEX asked for the rental valuations to be reassessed. On 4 August 2005 CWS described this exercise to MEX as an “audit programme in progress – standard procedure with a change of Senior Staff”.

On 25 August 2005, CWS sent MEX revised desktop audits of the 21 properties contained in the Vaughan List. The information was sent in a schedule containing revised capital and rental values for the Properties.  The majority of the rental valuations were £675 to £725 pcm. Whilst there was sufficient information for MEX to cross reference the revised figures with the original valuations, there was no other warning. The email did not say that the original valuations should not be relied upon and nor did it mention CWS’ suspicions of fraud. 

CWS denied that it had caused MEX loss and CWS argued that MEX did not/could not rely on the Valuer’s valuations after 19 July 2005 as this was the date when MEX was first notified that the valuations may have been overstated. MEX claimed that CWS did not inform it of its suspicions of fraud and if it had, it would not have relied on any of the valuations.


It was decided that the claim should be tried by way of sample; 10 claims out of a possible 41 were selected as a sample. The sample cases were divided into the following categories with a minimum of two claims from each category:

  • Category A loans which completed before 19 July 2005
  • Category B loans which completed between 19 July 2005 but before 25 August 2005
  • Category C loans which completed after 25 August 2005 and where the Property was on the Vaughan List
  • Category D where the loan completed after 25 August 2005 but the Property was not on the Vaughan List. (This was the biggest category of claims and worth over £2.6 million)

The Court readily found the Valuer to have been deceitful in his valuations.  It is no defence to a claim in deceit that the lender could have, with reasonable diligence, discovered that the valuations were untrue.  The crucial issue before the Court therefore became one of reliance.  In other words, did the communications between 19 July 2005 and 25 August 2005 break the chain of causation and mean that MEX’s claims should fail on the basis that MEX did not and/or was not entitled to rely on the original valuations? The Court had to decide whether the Parties’ communications between 19 July 2005 to 25 August 2005 “had the effect of modifying or withdrawing the representations made by [the Valuer] so that they did not inure at completion”.

The Judge applied an objective test to consider the meaning that was reasonably conveyed to MEX by the communications from CWS. The Judge also stated that the burden of establishing a correction or withdrawal falls upon the person who made it, and that the correction or withdrawal must be sufficiently clear.  The Judge also took into account the factual matrix of the overall transaction, including the person to whom the documents and information was conveyed.

The Judge was critical of CWS and stated that it was “perfectly obvious” that CWS could have revealed more than it did to MEX and that the email of 4 August 2005 was untrue.

The Judge found that the 19 July 2005 email from CWS to MEX was not a “sufficiently clear correction or modification” of the Valuer’s valuations.

The Judge was also critical of the time it took CWS to respond to the Vaughan List of 29 July 2005 and found that a reasonable deadline for the response would have been 12 August 2005. He considered it was unreasonable for CWS to have expected MEX to delay its lending procedures for longer in circumstances which had been described by CWS as a “standard procedure with a change of senior staff”. 

Turning to the email of 25 August 2005 the Judge found that this email only referred to the Vaughan List valuations and did not comment on the remaining valuations or warn against reliance on these. 

The Judge held that the Category A, B and D claims succeeded. The Category C cases where advances were made in respect of two cases on the Vaughan List and after the email of 25 August 2005 had been received failed because MEX had sufficient information not to rely on those valuations. The Judge found that CWS could have warned MEX in clearer terms in order to prevent reliance on the valuations of the 32 remaining Properties not included on the Vaughan List and that it could have mentioned its suspicions of fraud but instead chose to provide information in a very limited way.


This case raises a number of interesting issues.  Foremost, it is clear that valuers are obliged to be explicit and clear when notifying clients of any inaccuracies in their valuations.  That said it was perhaps fortunate for the lender in this case that the claim in deceit was so clear cut thus depriving the valuer of the argument that the lender could, with reasonable diligence, have discovered the information for themselves.  Therefore, whilst valuers need to be clear in bringing to a lender’s attention any changes or inaccuracies in their valuations, lenders for their part need to ensure they have procedures in place to ensure they respond swiftly and appropriately to any such notification.    

Finally, this case also serves as a reminder for lenders to limit their exposure in developments and to not simply rely on one panel valuer to provide all the valuations. The outcome could have been different if the 64 valuations had been shared between a number of different panel valuer firms.