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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Angel Solicitors (a firm) v Jenkins O'Dowd & Barth (a firm) [2009] EWHC 46 (Ch) (19 January 2009) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2009/46.html Cite as: [2009] 4 EG 116, [2009] 1 EGLR 71, [2009] NPC 9, [2009] 14 EG 88, [2009] WLR 1220, [2009] 1 WLR 1220, [2009] EWHC 46 (Ch), [2009] PNLR 19

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 3SR
		19th January 2009

His Honour Judge Hodge QC:

1. This case concerns the enforcement of solicitors' undertakings given in the course of acting on separate sales of three residential properties. It demonstrates both the folly of giving the usual solicitors' undertaking to redeem or discharge existing mortgages and charges over the property which is being sold without having first obtained a redemption statement and the mortgagee's agreement to release the properties from all relevant charges upon payment of an ascertained sum, and also the dangers of any delay in paying over the moneys required to redeem such charges following the completion of the sale.
2. The Claimants and the Defendants are firms of solicitors who acted for the purchaser and the seller respectively in the course of three residential property transactions as follows: (1) The sale of Flat 2, 56 Croham Road, Croydon CR2 7BB ("Croham Road") by Westmede Estates Ltd ("Westmede"), a company now in administration, to Betty Chipalo. Completion took place on 23^rd February 2007 at a price of £235,000. The property was mortgaged to Barclays Bank Plc ("Barclays"), the 1^st Respondent, and the relevant undertaking was given on 15^th February 2007. (2) The sale of 29A Woodville Road, Thornton Heath, Surrey CR7 8LH ("Woodville Road") by Ellenwell Properties Ltd ("Ellenwell"), the 3^rd Respondent, to Mrs O'Brien-Coker. Completion took place on 23^rd March 2007 at a price of £185,000. The property was mortgaged to Close Brothers Limited ("Close"), the 2^nd Respondent, and the relevant undertaking was given on 12^th March 2007. (3) The sale of 2^nd Floor Flat, 70 Burrage Place, London SE18 7BE ("Burrage Place") by Cloudburst Limited ("Cloudburst"), a company now in administration, to Mrs Ibiene Henry. Completion took place on 25^th April 2007 at a price of £175,000. The property was mortgaged to Barclays, and the relevant undertaking was given on 2^nd April 2007. In the case of each of the three flats, it was charged to the relevant financial institution by way of an "all-moneys" charge as part security for a loan facility considerably in excess of the value of the individual property.
3. Westmede, Ellenwell and Cloudburst were all companies owned and controlled by a Mr Grahame Ralph. In the course of acting in each transaction, the Defendants, in their capacity as the seller's solicitors, replied affirmatively to standard form requisitions on title, thereby undertaking to redeem or discharge the existing mortgages and charges, and to send the relevant form of discharge as soon as it was received from the mortgagee. It is common ground that it is implicit in the first part of the undertaking that it was to be performed within a reasonable time. In reply to another requisition, the Defendants confirmed that they were the duly authorised agent of the proprietor of every mortgage or charge on the property which they had undertaken to redeem or discharge. The relevant section of the requisitions on title was headed "Undertakings" and contained an express warning (in bold type) that the reply to those requisitions was to be treated as an undertaking and that "great care must be taken when answering this requisition". There was a further warning (also in bold type) that these replies should be signed only by a person with authority to give undertakings on behalf of the firm. Despite all of this, there is no evidence before the court that, before giving any of the undertakings, or even completing the relevant sale, the Defendants had approached the relevant mortgagee to obtain any of (1) a statement of the sum which it would be prepared to accept for the release of that property from its security, or (2) its consent to such release on completion of the relevant sale, or, notwithstanding the reply to the later of the above-stated requisitions, (3) its authority to act for the mortgagee on the release of the relevant charge. (Indeed, in the case of Barclays, there is evidence (in the form of an exchange of emails on 7^th and 8^th November 2006 at page 302 of the application bundle) that, in relation to an earlier sale of a property charged to it, the relevant fee-earner at the Defendants had simply remitted sale proceeds to the wrong bank account without having first sought a redemption figure, and the relevant relationship manager at the bank had implored the Defendants not to do so again.) There is also no evidence before the court that any part of the sale proceeds from any of the three properties was ever paid over to Barclays or to Close. The Defendants' relevant sale files are either incomplete or cannot be located; but the earliest documented reference to a request for redemption figures is a letter from the Defendants to Barclays dated 7^th August 2007 (at page 51 of the application bundle) complaining that the Defendants were still awaiting redemption figures for "the outstanding properties", and asserting that the delay in procuring these was causing the writer (who said that he had funds on client account to meet the outstanding discharges) "acute difficulties".
4. Having failed to secure the performance of the Defendants' undertakings to redeem the existing charges without resort to litigation, by a Part 8 claim form, issued on 2^nd October 2008, the Claimants invoke the summary jurisdiction of the court to enforce the Defendants' undertakings pursuant to its inherent supervisory jurisdiction over solicitors. This is the hearing of three applications as follows: (1) the Claimants' application, issued on 7^th October 2008, for summary enforcement of the undertakings given by the Defendants, and summary judgment on the claim pursuant to CPR 24; (2) the Defendants' application, issued on 22^nd December 2008, to add Barclays and Close as parties to the proceedings pursuant to CPR 19.2 (2); and (3) the Defendants' application, also issued on 22^nd December 2008, to add Ellenwell, the only (hopefully) solvent seller, as a third party to the proceedings pursuant to CPR 20.7 and CPR 8.7 so that the court may determine whether it is liable to reimburse the Defendants in respect of any sum that they may be ordered to pay Close in order to obtain the discharge of its security over Woodville Road.
5. The evidence in support of the applications comprises: (1) for the Claimants, the witness statement of Eyo Itam, a solicitor and partner in the Claimant firm, dated 19^th September 2008; (2) for the Defendants, the three witness statements dated 19^th December 2008 and 9^th and 14^th January 2009 of Louise Gehrig, who is qualified as a solicitor in the State of Victoria and is employed by the firm of solicitors retained by the Defendants for the purposes of this litigation (Williams Holden Cooklin Gibbons LLP); (3) for Barclays, the two witness statements dated 13^th and 15^th January 2009 of Karen Marmara, a solicitor with Barclays's solicitors (DLA Piper UK LLP); and (4) for Close, the witness statement of Frank Pennal, a director of Close, dated 14^th January 2009. The application directed to Ellenwell is made without notice, and it has therefore served no evidence and is not represented before me.
6. I heard the three applications last Friday, 16^th January 2009. I heard first from Mr Ryan Clement (of counsel) for the Claimants; and then from Mr Paul Parker (of counsel) for the Defendants, both in opposition to the Claimants' application, and in support of the Defendants' applications. I next heard from Mr Adrian Pay (of counsel) for Barclays; and then from Ms Joanne Wicks (of counsel) for Close. Finally, I heard submissions in reply from Mr Parker and then from Mr Clement. I adjourned over the weekend to 10.30 this morning, Monday 19^th January 2009, for the delivery of judgment.
7. Both in their written skeleton arguments and in oral submissions, Barclays and Close each made common cause with the Claimants in support of their application for summary judgment, and in opposition to the Defendants' application for the joinder to these proceedings of Barclays and of Close. Put shortly, it is their case that the relevant undertakings were indisputably given by the Defendants, and they have simply failed to carry them out. The Defendants have no real prospect of successfully defending the claim; and there is no other reason, still less any compelling reason, why the case should be disposed of at a trial. Even if there were a live dispute between the Defendants and either, or both, of Barclays and Close as to the amount required in order to discharge their respective charges, that is of no concern to the Claimants because the redemption sum is not in issue in these proceedings, which are concerned with the summary enforcement of undisputed undertakings to pay whatever sum is required to effect the redemption and release of the relevant charges. But, in fact, there is no real dispute as to the sums required to redeem the relevant charges. All three charges were "all-moneys" charges; and it is not in issue that they all secure sums considerably in excess of the sale proceeds of each of the three properties. Notwithstanding their strict legal rights, however, both Barclays and Close have indicated the bases upon which they would be prepared to consent to the release and discharge of their respective securities. In the case of Barclays, its position was made clear in a letter from its solicitors (DLA Piper UK LLP) dated 22^nd October 2008 (and thus written long before the present application) which is included within Exhibit KAM2, at pages 316-7 of the application bundle, and is reiterated at sub-paragraph 7.3 of Mr Pay's skeleton argument: Barclays was, and remains, prepared to seal a form of discharge upon receipt of the full sale proceeds of the two properties, less selling costs and legal fees. (The relevant sums are £230,900 in the case of Croham Road and £170,900 in the case of Burrage Place.) Close's position is set out at paragraph 13 of Mr Pennal's witness statement, and is reiterated at paragraph 15 of Ms Wicks's skeleton argument: Close was, and remains, prepared to release Woodville Road from its charge upon receipt of the entire sale proceeds (£185,000), plus the additional costs it has incurred as a consequence of the Defendants' failure to obtain a timeous release at the end of March 2007. It is emphasised that, in contrast to the position in relation to Ellenwell, no substantive cause of action is alleged against either Barclays or Close.
8. For the Defendants, Mr Parker accepts (despite initial reservations as to whether any undertaking was ever given in relation to Burrage Place) that appropriate undertakings were given; and he does not shy away from the likelihood that, ultimately, the Defendants will have to perform their undertakings (or make payments in lieu). However, he submits that there is evidence that, had the Defendants sought to redeem the relevant charges at, or within a reasonable time after, the undertakings were given, both Barclays and Close would have accepted a lesser sum than they are now seeking to recover. In the case of Barclays, Mr Parker points, in particular, to a letter from Barclays dated 16^th July 2007 (at page 117 of the application bundle), referring to the severance of its financial relationship with Mr Ralph and his several companies, as indicating that, until this point in time, Barclays was content to accept by way of redemption a sum less than the full sale proceeds of any particular property. In the case of Close, Mr Parker relies, in particular, upon a letter from its present solicitors (Fladgate LLP) dated 31^st July 2008 (at page 119 of the application bundle) and upon paragraph 12 of Mr Pennal's witness statement as indicating that, in the spring of 2007, and before the current "credit crunch", Close's practice was to accept, by way of redemption, only 70% of the sale proceeds of any particular property.
9. Mr Parker submits that the correct approach is for the court to examine what would have happened had the Defendants sought to perform their undertakings at the time that they were given, or within a reasonable time thereafter. The court should ask the question: What would Barclays and Close have taken at that time if they had been asked to release their respective charges? This is particularly so since the present case is not straightforward, and the parties' positions have changed in the meantime. It is said that the practical implications of any order to perform the undertakings must be carefully considered. Mr Parker contends that the court has to consider: (1) a question of law, as to whether the redemption figures payable in order for the undertakings to be performed, or by way of compensation, "should be seen through 2007 spectacles, current spectacles, or somewhere in between"; (2) a question of fact as to what those figures should be; and (3) the mixed question of fact and of law as to whether Barclays and Close should now, in 2009, be entitled to insist on being placed in a better position than they would have occupied had the undertakings been complied with in the first half of 2007. Since an inquiry is necessary to see precisely what would have been required in order to comply with the undertakings at the time they were given, it would not be appropriate to make a summary order for enforcement in advance of the results of such inquiry. In support of his submissions, Mr Parker took me to the following authorities: (1) Udall v Capri Lighting Ltd [1988] QB 907 at 916G-918B and 918E-H per Balcombe LJ and at 920H per Kerr LJ (Neill LJ agreed with both judgments.); (2) Silver (Geoffrey) & Drake v Baines [1971] 1 QB 396 at 405D per Megaw LJ; and (3) Fox (John) v Bannister, King & Rigbeys [1988] QB 925 at 929F-930D per Nicholls LJ. Mr Parker placed particular reliance on this last case as authority for the proposition that, in an appropriate case, the court was required to conduct an inquiry looking at the matter through the spectacles of the time when the undertakings had been given and breached; and to ask itself: what would have happened, at that time, if the undertakings had been performed. He submitted that Barclays and Close should not be placed in any better position now than at that earlier time when the redemption of the charges should have taken place.
10. Despite the attractive way in which Mr Parker has advanced his submissions, in my judgment they cannot withstand proper analysis; and I reject them. Whilst it is undoubtedly desirable for the court, when compelling solicitors to perform their undertakings, to indicate precisely what it is that they are required to do by way of compliance, and thus to specify a redemption figure if it is open to the court to do so on the evidence which is before it, I reject the submission that, in the present case, there is any dispute over the appropriate redemption figures which needs to be resolved in the course of these proceedings, and that this can only be done by directing an inquiry. Although anything that I say on this issue will necessarily be obiter, I am prepared to acknowledge that, if a mortgagee were to insist upon its entitlement to receive, by way of redemption, a payment considerably in excess both of any sum that could reasonably have been contemplated at the time when the solicitor's undertaking was given, and also the present unencumbered open market value of the relevant property, then the court might, in accordance with the interests of justice, refuse to order the summary enforcement of the undertaking (or discharge an existing order to do so), and order the payment of compensation for breach of the undertaking instead. (Indeed, the existence of such a possibility might have the salutary effect of causing mortgagees to avoid unreasonable and excessive demands for redemption payments in circumstances similar to those of the present case.) But, in the light of the pragmatic attitudes adopted by the mortgagees in the present case, I am entirely satisfied that this is not a case in which such a course might fall to be considered. Even if this were such a case, however, I can see no warrant, either in law or in equity, for seeking to interfere in any way with the terms, or the extent, of either of the mortgagees' securities.
11. I, too, derive assistance from the authorities cited by Mr Parker; but they lead me in a different direction. The decision, and the observations, in the Bannister, King & Rigbeys case fall to be considered in the light of the actual undertaking in that case. This was not an unconditional undertaking to make a payment to a third party, or to achieve a particular result, but rather an undertaking to retain moneys as a potential source of payment of a disputed liability, which had then been breached by the wrongful release of those moneys to a client who was later adjudged bankrupt. The undertaking was no longer capable of performance, so that the only appropriate course was to direct an inquiry as to what loss (if any) had been suffered by the addressee of the undertaking as the result of its breach. It was against that background that the court, understandably, focused upon the point in time at which the undertaking should have been performed. But the court's focus was upon achieving the purpose of the undertaking. Here the purpose of the relevant undertakings was to secure for the purchasers of the relevant flats the discharge of the existing mortgages over them. That purpose can only be achieved by the payment of a sum or sums to each of Close and Barclays sufficient to secure the release of the necessary forms of discharge. The sums that those lenders might have required in the past had the Defendants performed their undertakings at the due time is irrelevant to the exercise of securing the purpose for which those undertakings were given in circumstances where there has been delay in performing the undertakings. In agreement with the submissions for the Claimants, for Barclays and for Close, I entirely repudiate the existence of any jurisdiction in the court to interfere with the contractual and equitable rights of the mortgagees: there is no basis on which the court can impose upon a mortgagee a redemption figure merely because it would, or might, have been prepared to agree such a (lesser) figure had it been approached to do so at some earlier time. The circumstance that, due to the Defendants' breach of their undertakings, the sum now required for those undertakings to be performed may be greater than if the undertakings had been honoured in due time is unfortunate for the Defendants (or their insurers) but it cannot detrimentally affect either the position of the Claimants or the legal and equitable entitlements of the mortgagees of their clients' properties.
12. I sought, in the course of Mr Parker's argument, to expose the underlying fallacy of his submissions in two ways. First, I posited the situation where, due to holiday commitments, or illness, on the part of the relevant fee earner at the Defendant firm, there had been an explicable delay, after completion, in approaching the mortgagee for a redemption figure, in circumstances where no such approach had been made in advance of completion. If, in such circumstances, further sums had been advanced on the security of the relevant mortgage in the interval, I inquired whether the Defendants should be required to pay the earlier (and lower) or the later (and higher) sum in order to secure the redemption of the relevant charge. Whilst emphasising that that situation was not on a par with that in the present case, Mr Parker's response was that the starting point was the sum that would have been required to redeem if a request for redemption had been made at the time that the undertaking should have been performed; but that the court should then have regard to the balance of prejudice to each party arising from the delay in coming to a conclusion, in the exercise of the court's discretion, as to the appropriate sum to be paid. I unhesitatingly prefer the response of Mr Pay, which was that the undertaking was to discharge the relevant mortgage, and that it should extend to any sums required for that purpose at the time redemption was sought, including the amount of any further advance. I agree with him that any other result, and particularly Mr Parker's suggested result, would tend to drive a coach and horses through the efficacy of the existing conveyancing arrangements for the completion of property sales by way of the giving of solicitors' undertakings. In view of his repeated insistence that he was not seeking to interfere with the legal and equitable rights of mortgagees, I also asked Mr Parker what purpose an inquiry as to the amount that the mortgagee would have accepted at some earlier date would serve if this should produce a figure that was less than the amount to which that mortgagee was presently entitled. I do not consider that I ever received any satisfactory answer to this question.
13. I was referred, in the evidence, skeleton arguments, and oral submissions, to an unreported, and apparently extemporary, decision of Henderson J, delivered on 19^th November 2008, in the case of L Morgan & Co v Jenkins O'Dowd & Barth. There, in circumstances similar to those in the present case, Blackburne J had previously made an order compelling the present Defendants to perform certain undertakings to redeem mortgages over another three residential flats which they had given in the course of acting as solicitors for the sellers of those flats. A dispute had subsequently arisen with the sole mortgagee of all three flats, Royal Bank of Scotland ("the Bank"), as to the amount required to redeem. Ultimately, the Bank's position was that it was prepared to redeem its charges over the three flats in return for the total sale proceeds of all three of them. The Defendants applied for the trial of an issue as to the sums that they should be required to pay in order to secure the release of the charges, and to join the Bank as a party to the proceedings so as to ensure that it was bound by the outcome of the trial of that issue. Henderson J dismissed the application on the footing that it was misconceived. According to the note of Mr Parker (who also appeared for the Defendants on the hearing of that application), Henderson J did so on the footing that the Bank was an entirely innocent third party, with no notice or knowledge of the undertakings given by the Defendants in 2006, and that it was not asked to release its charges until two years later, in 2008. The Bank was entitled to deal with its security as it thought fit; and the judge could not see how the position at the time the undertakings had been given in 2006 was relevant. The Defendants had no cause of action against the Bank, and therefore there was no proper basis for imposing an inquiry upon the Bank, or requiring it to accept any worse terms for redemption. The starting point was said to be Blackburne J's order requiring the undertaking to be performed. The Defendants were in no doubt as to what needed to be done under that order: they must pay the sums required by the Bank to redeem. If the Bank were to change its present stance, and ask for something wholly unreasonable or otherwise not contemplated at the time the undertakings had been given, then (without prejudging the outcome of that application) the Defendants might apply for the discharge of Blackburne J's order and an assessment of damages instead.
14. Naturally, the Claimants, Barclays and Close all rely upon the terms of that judgment, asserting that Henderson J's reasoning is equally applicable to the facts and circumstances of the present case. Mr Parker seeks to distinguish Henderson J's decision upon the basis that there, unlike here, an order had already been made compelling the Defendants to perform their undertakings at the time when the application was made to join the Bank to the proceedings. It is said that the ratio of the case was that there was no justification for joining the Bank once an order to perform the undertakings had already been made. All that Henderson J decided was that it was not appropriate to order an inquiry as to the amount required to redeem on the different facts of the particular case that was before him. His further observations, although persuasive, were therefore said to be obiter.
15. I entertain considerable reservations about the validity of Mr Parker's analysis of Henderson J's decision and the status of his observations: I fail to see why the making of Blackburne J's order should have operated to deprive the court of its competence appropriately to address any practical difficulties that may have later emerged in implementing the terms of that order. But I do not find it necessary to decide whether I am strictly bound by the full range of Henderson J's observations. I have reached my own independent decision after (I suspect) considerably fuller argument, and time for consideration, than was afforded to Henderson J; and I find my decision to be in complete agreement with Henderson J's conclusion, and consistent with his reasoning.
16. Mr Parker also submitted, in reliance on observations of Mummery LJ in Taylor v Ribby Hall Leisure Ltd [1998] 1 WLR 400 at 409H-410B, that delay in bringing an application to enforce a solicitor's undertaking was also relevant to the exercise of the discretion to enforce it summarily; and he relied upon the change in the attitudes of both Barclays and Close, and the change in the financial environment generally, since the spring of 2007. Apart from the fact that the Ribby Hall case also concerned, in addition to an application for the summary enforcement of a solicitor's undertaking by the payment of compensation, an order for his committal for contempt of court (as to which the issue of delay may be of rather more relevance), in my judgment this further submission fails on its facts. I am satisfied that there has been no undue delay on the part of the Claimants in seeking to enforce the relevant undertakings. Indeed, as long ago as 19^th September 2007, the Claimants were in correspondence with the Law Society (at page 52 of the application bundle) with a view to securing the performance of the Defendants' undertakings. The court should be slow to encourage premature resort to litigation before alternative methods of compelling performance of a solicitor's undertaking have been exhausted.
17. For the foregoing reasons, I am entirely satisfied that the Defendants have no real prospect of successfully defending the Claimants' application for summary enforcement of the relevant undertakings, and that there is no other reason why this case should be disposed of at a trial. I am satisfied that there is no relevant matter in dispute or issue between the Defendants and either Barclays or Close, and that it is not desirable to add either of them as a party to the proceedings: neither of the alternative limbs of CPR 19.2 (2) is satisfied.
18. So far as the Defendants' application to join Ellenwell as a third party to the proceedings is concerned, had I rejected the claim for summary judgment I would have acceded to the Defendants' application. But since (subject to any appeal) this claim will come to an end with this judgment, it seems to me that the more convenient, and better, course is to dismiss the application, and to leave the Defendants to pursue any claim they may have against Ellenwell by way of their own discrete proceedings, to be commenced in accordance with CPR Part 7.
19. I therefore (1) allow the Claimants' application, and grant summary judgment against the Defendants; (2) dismiss the Defendants' application to join Barclays and Close as parties to the proceedings; and (3) dismiss the Defendants' application to join Ellenwell as a party to the proceedings. I shall hear submissions as to the terms of the resultant court order and as to costs; but I understand that all parties before me endorse my suggestion that the order for summary enforcement of the solicitors' undertakings should make it clear precisely what the Defendants are required to do by way of compliance, and, to this end, that it should specify precisely what is to be paid to each of Barclays and Close for the purposes of redeeming the relevant charges. In due course, counsel should agree, and lodge, a draft order to give effect to the terms of this judgment. In conclusion, I pay tribute to all four counsel for the quality, clarity and length of their written and oral submissions.