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Undertakings

Mortgages

Enforcement of undertaking to discharge mortgage on completion

Clark v Lucas Solicitors LLP
[2009] EWHC 1952 (Ch)

Summary

In the exercise of its inherent supervisory jurisdiction, the court will normally require a solicitor to perform an undertaking, but where it would be inappropriate to do so, it will order the solicitor to make good any loss sustained.

Facts

Buyers contracted to purchase Plot 3 - a newly built property on a building site. There were two charges secured on the site – one in favour of Nat West Bank, the other in favour of MK. In answer to requisitions on title, the seller’s solicitors gave an undertaking to redeem or discharge both charges on completion etc.

On completion, the purchase price was paid to the seller’s solicitors who remitted it to Nat West Bank whose charge ranked in priority to that of MK. They subsequently called in all monies due to them and appointed an LPA Receiver in respect of the development (not including plot 3).

The seller’s solicitors were able to remit a DS3 in respect of the Nat West Bank charge, but not the second charge in favour of MK. Without the DS3 in respect of MK’s charge, the buyers were unable to register title to their home and were equally unable to sell it or raise a mortgage on it.

The buyers issued proceedings for specific performance of the undertaking and applied for summary judgment, relying on the inherent supervisory jurisdiction of the court.

Held

The court was guided by the general principles in Udall v Capri Lighting Limited [1988] 1 QB 907 – that in the absence of evidence that performance of the undertaking is impossible, it would be usual to require the undertaking to be performed, but that where it would be inappropriate for the court to order the undertaking to be performed, the court may exercise its power to order the solicitor to make good the loss occasioned by his breach of duty.

This was not a case of impossibility. A standard form undertaking to discharge a charge was normally within a solicitor’s control and could be performed by the payment of a cheque, albeit a large one (L Morgan & Co v Jenkins O’Dowd [2008] EWHC 3411 (Ch) applied).

Should the fact that the amount demanded is much greater than the value of the plot dissuade the court from ordering performance of the undertaking as was suggested in Angel v Jenkins O’Dowd and Barth [2009] 1 WLR 1220?

No – MK was entitled to demand the full sum due to him, even though it exceeded the value of Plot 3. This is something that the seller’s solicitor should be taken to have contemplated. The remedy available should not turn on the attitude of the lender.

The application for summary judgment for specific performance of the undertaking would be allowed.

Comment

Should a solicitor be required to perform an undertaking to discharge the charge or pay compensation instead? Does it make any difference if the price required to discharge the charge exceeds the value of the land?

This case highlights the seriousness of the risk that is inherent in many conveyancing transactions involving the giving of a standard form undertaking to discharge an existing charge, and provides a useful review of the authorities on the court’s approach to the summary enforcement of undertakings under the inherent jurisdiction.

The risk can normally be avoided if the seller’s solicitor seeking a redemption figure and reaching agreement over the application of the sale price and the release of the form of discharge.


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