Summary

Borrowers who had not repaid a loan on time and had not properly complied with the terms of an offer of settlement made by the lender were not entitled to possession of two Land Registry "Form DS1s" which would cancel entries on the Land Register relating to charges in favour of the lender. The forms were held by the borrowers' former solicitor to the order of the lender and nothing in the correspondence between the parties released the solicitors from their obligation to hold them.

Facts

A firm of solicitors brought a stakeholder application under CPR r.86.2 seeking directions in respect of two Land Registry "Form DS1s" which it held to the order of the defendant lender.

The solicitors had acted on behalf of the claimant borrowers, who had obtained loans from the lender to finance two property purchases. The solicitors gave a number of undertakings to the lender in relation to the loans, and charges were registered in favour of the lender. The lender sent the DS1s, which cancelled the entries on the register relating to the charges, to the solicitors on terms that they were to hold them to its order. That prevented the DS1s from being delivered as deeds until release. When borrowers did not repay the loans on time, the lender made a Pt 36 offer indicating that it would accept £600,000 either by way of lump sum (payable by 11 September 2015) or in two instalments (the first due on 31 August 2015). Time was expressed to be of the essence. On 3 September the borrowers paid the first instalment to the lender and sought delivery of the DS1s as deeds. Whether they were entitled to possession of the DS1s turned on the proper construction of correspondence between the parties, in particular: an email of 21 August in which solicitors told the lender that they would release funds from their client account to facilitate a settlement upon confirmation that "any obligations" they had to the lender would be discharged; the lender's reply confirming that if it received funds in accordance with the terms of offers, the solicitors would be discharged from any obligations they owed it; and an email of 3 September from the lender indicating that if it received the first instalment that day, it would release the solicitors from "the undertakings detailed below".

The borrowers submitted that (1) the lender's 3 September email released the solicitors from their obligation to hold the DS1s; (2) their acceptance of the offer gave rise to a contract which the lender had affirmed; (3) the lender had either waived the requirement that they should pay the first instalment by 31 August or was estopped from relying on their failure to pay by that date.

Held

(1) The lender's 3 September email had to be construed in the same manner as a written contract. The court had to look at it objectively and ascertain the meaning it would convey to a reasonable person having all the background knowledge reasonably available to the parties. The words "I will release [the solicitors] from the undertakings detailed below" would not be understood by a reasonable person to mean "I will release the solicitors from any obligations owed to the lender, including, but not limited to, any obligations in relation to the undertakings". The word "obligations" did not include the release of the DS1s upon the late payment of the first instalment. The solicitors held the DS1s as gratuitous bailees and had not given any undertakings in respect of them. The lender had made it clear that if the borrowers complied with the terms of the offers, the solicitors would be released from their obligations. By 3 September the borrowers had failed to pay the first instalment on time, and the lender's email of that date was not referring to the release of the DS1s, which had always been distinct from their undertakings (see paras 184-198 of judgment).

(2) The borrowers' acceptance of the Pt 36 offer did not give rise to an enforceable contract. There was no compromise of a bona fide dispute. The offer was simply an offer to accept part-payment in settlement of a debt, and a creditor was not bound by such an offer. Even if a contract had been created, it would have been unenforceable by virtue of the Law of Property (Miscellaneous Provisions) Act 1989 s.2(1) as a contract for the disposition of an interest in land, namely the discharge of the charges. The DS1s would only take effect when released, whereupon the charges would cease to exist in equity,Garwood v Bank of Scotland Plc [2013] EWHC 415 (Ch), [2013] B.P.I.R. 450 applied. The requirement for a DS1 was not purely evidential. Although the registrar could act on other evidence of discharge of a registered charge, the primary instrument specified by the Land Registration Rules 2003 r.114 for effecting discharge was a DS1 (paras 199-214). The offer stipulated that time was of the essence, which meant that a failure to pay on time amounted to a repudiation capable of acceptance by the innocent party. The borrowers had not clearly and unequivocally elected to pay in one way or another, and once the date for paying the first instalment had passed, the payment in full option was all that remained open to them (paras 215-220). Even if there had been a contract and the borrowers had elected to pay in instalments, the lender had not affirmed it. It had made it clear that it would accept payment notwithstanding the discharge of the contracts (paras 221-222).

(3) There was no evidence that the lender had either waived the time limit for payment of the first instalment or was estopped from relying on the borrowers' failure to pay on time (paras 223-228).

(4) The borrowers were not entitled to delivery of the DS1s as deeds (para.229).

Judgment accordingly