Governor & Co Of The Bank Of Scotland v Afzaal Hussain & Mona Qutb (2010)


Although a property owner was not prevented by estoppel or abuse or process from challenging as against the lender the validity of a charge obtained by a third party on her property, she had consented to the charge and so was bound by it despite her overriding interest.


The claimant bank (B) sought an order for possession of a property registered in the name of the second defendant (Q). Q, who had suffered from Alzheimer's disease for a number of years, had sold her home at an undervalue to the first defendant (H). H had funded the purchase by a loan from B, which had obtained a charge on the property. H had paid most of the loan to Q, but had then taken it back. In proceedings begun 2001 a judge ordered that the sale be set aside because it was procured by H's undue influence and was an unconscionable bargain. He found that the charge was binding against Q and ordered that H indemnify Q in respect of the balance due. B began the instant proceedings seeking a possession order under the charge, and Q raised a defence that she had an overriding interest in priority to B's charge because she had been in actual occupation of the property at the time of the charge. B's application to strike out that defence was refused, and the refusal was confirmed on appeal. The issues were whether (i) the decision in the 2001 action meant that Q was prevented from challenging the charge in the instant proceedings; (ii) Q had obtained remedies in the 2001 action on the basis that the charge was valid which precluded her from now advancing a contrary case; (iii) Q was in actual occupation at the relevant time so that she had an overriding interest; (iv) if so, Q was nevertheless bound by the charge by consent or estoppel.


(1) Q was not bound by cause of action or issue estoppel. Although the instant proceedings and the 2001 action were both based on allegations of undue influence and unconscionable bargain, the 2001 action made those allegations against H, not against B. The fact that the remedies now sought resembled those sought against B in the 2001 action was not important. The 2001 judgment against H did not operate to extinguish the claim Q was now seeking to advance against B, as neither her claims against H nor the remedies which the judge granted in respect of those claims necessarily represented an alternative to Q's current challenge to the charge and had not merged with the judgment. The affirmation of the refusal to strike out Q's defence in the possession proceedings barred B from now contending that the defence represented an abuse of process (see paras 57, 69, 73, 79 of judgment). (2) The remedies obtained in the 2001 action did not preclude Q from challenging the charge. There was no question of her abandoning her claims of undue influence and unconscionable bargain again H; on the contrary she obtained an order setting aside the sale on those grounds, First National Bank v Walker (2001) 1 FLR 505 distinguished. Further, while it might have been assumed that the charge was effective when the judge was framing his order, the relief granted was not necessarily inconsistent with a challenge to the charge (see para.86). (3) On balance, considering witness evidence, the condition of the property and the presence of Q's furniture, she had been in actual occupation when the charge was granted (see para.93). (4) Q had known that H would be obtaining a mortgage over the property and had not objected to it, her conveyancing solicitors had represented that the property would be sold with vacant possession and that she would not retain any rights in it. B had relied on those representations by proceeding with the loan to H, and most of the money had accrued to Q's benefit regardless of whether it was then misappropriated by H. Q had authorised the charge and was bound by it, Paddington Building Society v Mendelsohn (1985) 50 P & CR 244 CA (Civ Div) applied. Any lack of Q's capacity was immaterial as B had had no notice of it (see paras 103, 107).

Judgment for claimant