| OUTER HOUSE, COURT OF SESSION [2013] CSOH 24 |
| A613/10 | OPINION OF LORD BOYD OF DUNCANSBY in the cause SANTANDER UK PLC Pursuers; against KEEPER OF THE REGISTERS OF SCOTLAND Defender: ________________ |
Pursuers: Hood; Lindsays
Defender: Springham; SGLD
8 February 2013
Introduction
[1] In about March 2007, Miss Samia Anjum purchased a heritable property at Flat 3/18, 145 Albion Street, Glasgow for a purchase price of £235,000. She took out a loan from the Alliance and Leicester Building Society (the building society) and granted a standard security over the subjects to the building society. The title to the subjects and the standard security were registered in the Land Register for Scotland.
[2] Unknown to the building society, in about September 2007, Miss Anjum personally attended at the offices of the Keeper of the Registers of Scotland (the defender) and personally presented an application for registration of a discharge of the standard security which purported to have been granted by the building society in consideration of all sums secured by them having been repaid. In fact, according to the pursuers, the sums have not been repaid and the deed was a forgery.
[3] In accordance with her practice at the time, the defender required an identity check. That check was carried out and having been satisfied as to Miss Anjum's identity, the defender, through her staff, then proceeded to register the discharge on about 13 September 2007.
[4] In about November or December 2007, Miss Anjum obtained a further loan from the Bank of Scotland plc and granted a standard security in their favour over the same subjects. It was registered on about 18 December 2007.
[5] Although various payments were intermittently made to the building society, Miss Anjum fell into arrears. On 18 February 2008, a direct search of the Land Register was carried out by the building society solicitors. This revealed that their security had been discharged. It also showed the standard security granted in favour of the Bank of Scotland plc.
[6] The building society subsequently raised an action for reduction of the pretended discharge and for rectification of the Land Register. That action was disposed of in January 2010 following on those parties who entered the process executing joint minutes of settlement. The discharge of the standard security was reduced. The Land Register was to be rectified by an insertion in the charges section of the title sheet showing the grant of the building society's standard security but only from the date of rectification. The effect was to give the standard security in favour of the Bank of Scotland plc, although granted after the standard security in favour of the building society, prior ranking.
[7] As at 12 May 2008, the redemption amount in respect of the loan to the building society was £242,994.99. Efforts to recover the money have proved fruitless and, according to the pursuers' pleadings, the police have been searching for the borrower.
[8] In about March 2010, the Bank of Scotland plc, in pursuance of their standard security, sold the property for £125,000. The pursuers, who have had transferred to them under the Financial Services and Markets Act 2000, the business of the Alliance and Leicester plc including their assets and liabilities, received none of the money. Had it not been for the prior ranking of the Bank of Scotland standard security, the building society would have proceeded to sell the subjects and would have received an equivalent sum of money. According to the pursuers, they lost the benefit of that security as a result of the registration by the defender of the pretended discharge. The issue in this case is in effect, who is to bear this loss.
[9] The pursuers claim that the loss came about as a result of the fault and negligence of the defender and that she owed a duty of care to the pursuers. The defender denies that any such duty exists.
Legislative Background
[10] The Land Register was established by the Land Registration (Scotland) Act 1979 (the 1979 Act) section 1(1). It is under the management and control of the Keeper of the Registers of Scotland (section 1(2)). Section 2 of the Act deals with registration of interests in land after the commencement of the Act. Section 3 provides that registration shall have the effect of vesting in the person registered as entitled to the registered interest in land, a real right in and to the interest in land, including any right, pertinent or servitude but subject to any interest under section 6 so far as adverse to that interest. Section 6 provides that the Keeper make and maintain a title sheet of an interest in land including the description of the land, the name of the person entitled to the interest of land and amongst other things, any heritable security of the subjects. Section 4(1) provides that subject to exceptions which are not relevant here "an application for registration shall be accepted by the Keeper if it is accompanied by such documents and other evidence as he may require."
[11] This requirement is supplemented by the Land Registration (Scotland) Rules 2006 made under section 27 of the 1979 Act. Rule 9 provides that an application for registration of an interest in land is to be made on one of four forms depending on the nature of the interest and whether or not it is using the ARTL system (automatic registration of title to land). The 2006 Rules replace the Land Registration (Scotland) Rules 1980. It may be of significance that under the 1980 Rules the application for registration of the discharge would have required to be accompanied by the charge certificate. The 2006 Rules removed that requirement.
[12] Section 12 of the Act provides for an indemnity in respect of loss. It is a matter of agreement that the pursuers are not entitled to be indemnified in respect of loss in this case.
Defender's Submissions
[13] For the defender, Miss Springham moved me to sustain the defender's first and second plea-in-law and to dismiss the action. She presented three broad arguments in support of the motion. First she submitted that there were no facts and circumstances averred from which it could be said that the defender ought reasonably to have foreseen seen the circumstances giving rise to the loss such that the defender ought to have taken steps to guard against it. Secondly, she argued that the decision to register the discharge was, in effect, a policy decision and as such was not justiciable. Thirdly, if I found that it was justiciable, no common law duty of care arises applying the test in Caparo Industries plc v Dickman 1992 AC 619.
1. Foreseeability
[14] Miss Springham drew my attention to the averments in article 5 of condescendence and in particular to the averment:
"The defender knew, or ought to have known that lenders, such as the Alliance and Leicester, would not generally give to an individual such as the borrower a deed discharging the lender's standard security, for personal presentation by that borrower to the defender".
She referred me then to what was supposed to be the factual basis for this in article 4:
"Explained and averred that whilst a loan was outstanding, title deeds in respect of the heritable property over which the loan was secured were generally held by Alliance and Leicester or their solicitors. In particular, the charge certificate in respect of such a standard security was held by Alliance and Leicester or their solicitor. This is the general practice of lenders operating in this jurisdiction, and continues to be the general practice of the pursuers. Furthermore, Alliance and Leicester only ever released a discharge of the standard security which had been granted in their favour to a solicitor and did not release such a document to a borrower. It is the general practice of lenders operating in this jurisdiction to release a discharge of a standard security to a solicitor, and not to the individual borrower. It would be unusual for a borrower to request that a solicitor release to the borrower the discharge of a standard security, and the borrower then personally present this to the defender. As at April 2008 the defender considered the personal presentment to the defender of any application for registration of a standard security to be rare. The defender is called upon to state on record the (approximate) number of applications that were made to her in the year 2007 for registration of a discharge of a standard security, and the (approximate) number of those said applications which are made by way of a personal presentment."
[15] The pleadings do not answer that last call but Miss Springham informed me that in 2007 there were 251,003 applications for discharge of a standard security of which 56 were personally presented. She submitted however that the numbers did not make a real difference. How, she asked, could the pursuers at proof demonstrate that the defender knew of the matter specified in article 4? There were no facts and circumstances averred from which that knowledge could be attributed to her.
[16] Miss Springham then referred me to further averments in article 5.
"The defender knew, or ought to have known, that accepting personally from an individual borrower without appropriate inquiry on investigation, (as to whether the borrower in question had the authority to make, and was properly making, the aftermentioned application) an application for registration in respect of a discharge purportedly granted by a lender such as Alliance and Leicester, and then proceeding to amend the Land Register on that basis, would allow for a lender's security right to be improperly and fraudulently destroyed."
[17] Again Miss Springham submitted that no factual basis was set out for such averments. Indeed the pursuers' own pleadings were to the effect:
"There have not before been any instances of a borrower presenting for registration a forged pretended discharge of an Alliance and Leicester standard security."
There were no averments of a similar nature that the defender ought to have been aware of the risk; on the contrary, it had never happened before. The problem having occurred, the defender changed procedure and took steps to minimise the chances of this happening again. Now, upon an application for registration of such a discharge being presented personally by a borrower at the defender's offices, the defender will contact the lender, ie the holder of the standard security, to ascertain that all sums due under the secured loan have been repaid
[18] Miss Springham submitted that foreseeability falls to be determined by facts and circumstances. If no facts and circumstances are averred then foreseeability cannot be established. She referred me to Robb v Dundee District Council 1980 SLT (Notes) 91 and Nisbet v Chief Constable of Strathclyde Police 2003 SC 324 and in particular to the passages at paragraphs 11 and 12. For these reasons she submitted the defenders were entitled to dismissal.
[19] However, she went on to submit that the pursuers had also failed to properly aver a causal link. She referred to article 5:
"In particular, it was the defender's duty, in the exercise of reasonable care either to contact Alliance and Leicester in order to confirm that the standard security was indeed to be discharged or to demand from the individual borrower production of documentation (such a charge certificate held by the lender) which only the lender could have provided to the borrower before proceeding to process any such application."
She submitted that the averments regarding the charge certificate ought not to be permitted to probation. There were no averments as to what might have happened had the defender's staff asked to see the charge certificate. The charge certificate was held by the pursuer. It might be suggested that by implication Miss Anjum could not have produced it for that reason. It was however not enough to proceed by implication. One had to aver what would have happened if the defender's staff asked to see the charge certificate. The pursuer's pleadings, she submitted did not answer this point.
2. Justiciability
[20] Turning to the issue of justiciability, Miss Springham submitted that section 4 of the 1979 Act, while imposing a duty on the Keeper to accept a registration allowed her to decide what documents or other information may be required to accompany the application. A policy decision required to be made. The policy which she had adopted for personal presentation was to have an identity check and require a completion of the relevant forms. Provided these forms were completed and the identification check was satisfactory, the defender had a duty to accept the registration.
[21] After these events the Keeper had changed her policy. Where a personal presentation for discharge of a standard security was made, the Keeper would make contact with the lender to ensure that the discharge had been validly granted before accepting the application for its registration.
[22] Miss Springham submitted that it was the policy that the defender operated that was being attacked. This, she submitted, was an area of policy that the courts were ill-equipped to adjudicate upon. It would necessarily involve the court in a consideration as to how a complex statutory scheme was to be implemented and involved questions as to the allocation of resources. This was a non-justiciable policy matter. While she conceded that the number of personal presentations of discharges was low, any decision of the court which imposed a duty on the defender in respect of the personal presentation of discharges of standard security might well impact on the personal presentation of other deeds and accordingly have further resource implications. She referred me to the speech of Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council 1995 2 AC 633 at page 730 and 735 et seq. She also referred me to Barnett v Enfield London Borough Council 2001 2AC 550 and founded on a passage in the speech of Lord Slynn of Hadley at page 571B to C where he said:
"On this basis if an authority acts wholly within its discretion - ie it is doing what Parliament has said it can do, even if it has to choose between several alternatives open to it, then there can be no liability in negligence."
A similar case was Phelps v Hillingdon London Borough Council 2001 2 AC 619. These cases were examined by the Court of Appeal in Connor v Surrey County Council 2001 QB 429. She took me in particular to the opinion of Laws J at paragraph 103 which she submitted brought together and summarised the law in this area.
"These following states of affairs may be decerned in the succession of authority.
(1) Where it is sought to impugn, as the cause of the injury, a pure choice of policy under a statute which provides for such a choice to be made, the court will not ascribe a duty of care to the policy maker. So much is owed to the authority of Parliament and in that sense to the rule of law.
(2) If a decision, albeit a choice of policy, is so unreasonable that it cannot be said to have been taken under the statute, it will (for the purpose for the law of negligence) lose the protection of the statute. While this must, I think, point to the same kind of case as does the Wednesbury Rule 1948 1 KB 223 (since only a Wednesbury perverse decision will be outwith the statute), Wednesbury is not made a touchstone of liability for negligence in such cases: the immunity arising in (1) is lost, but the claimant must still show a self-standing case for the imposition of a duty of care along Caparo lines and he may be unable to do so.
(3) There will be a mix of cases involving policy and practice or operations where the court's conclusions as to duty of care will be sensitive to the particular facts: 'The greater the element of policy involved the wider the area of discretion accorded' the more likely it is the matter is not justiciable so that no action of negligence can be brought: per Lord Slynn in Barrett's case in 2001 2 AC 550, 571. This is likely to be a large number of instances. (4) There will be purely operational cases, like those of the bus driver on the school trip, where liability for negligence is likely to attach without controversy."
[23] In Miss Springham's submission, the decision of the defenders to what documents to require from an individual personally presenting a discharge of a standard security with an application for registration in the Land Register was a matter of policy and therefore no duty of care arose.
3. The Caparo test
[24] If the issue is justiciable then a duty of care will only arise if the test established in Caparo Industries plc v Dickman is met (the Caparo test) see Lord Bridge of Harwich page 617H to 618A. There were three elements to the test - foreseeability of damage; proximity; and that it was fair, just and reasonable that the laws should impose such a duty of care.
[25] So far as foreseeability was concerned, Miss Springham pointed to the submissions she had already made on relevancy and submitted that this test was not met. Counsel for the defender was prepared to accept for the purposes of this discussion that there is a relationship of proximity and accordingly for these purposes, this part of the test was met. The final part of the test was whether or not the imposition of a duty of care was fair, just and reasonable. Miss Springham submitted that there were a number of factors which pointed to no duty of care arising in this case.
[26] First, where Parliament has conferred a discretion, no duty of care arises unless the person purporting to exercise his discretion has acted in abuse or excess of his power ie he has exercised his discretion so carelessly or unreasonably that he acts outwith the power conferred upon him; X (Minors) v Bedfordshire County Council per Lord Browne-Wilkinson page 736B to E citing Lord Reid in Dorset Yacht Co Ltd v The Home Office 1978 AC 1004, 1031. The defender Miss Springham submitted was acting within her powers conferred on her by Parliament.
[27] Secondly, liability does not generally arise when the harm has been caused by the criminal acts of a third party; Mitchell v Glasgow City Council 2009 SC HL 21 per Baroness Hale paragraph 76, Lord Brown paragraph 81. In this case the harm has been caused by the criminal act of Miss Anjum. Accordingly it would not be fair, just, unreasonable to hold the defender liable for her criminal act.
[28] Thirdly, the law does not generally recognise liability for mere omissions to act. There must be some additional feature which imposes a duty to take positive steps to prevent harm; Mitchell v Glasgow City Council Lord Scott paragraphs 39-40. The alleged failure in this case was the failure to change the policy and a failure to contact the lender before registering the discharge. However, on this authority, no duty of care would arise.
[29] Fourth, the law will more readily recognise the existence of a duty of care in cases of physical loss or injury and in the infliction of physical harm; Caparo Industries v Dickman per Lord Bridge of Harwich page 618E to 619A, Gibson v Orr 1999 SC 420 per Lord Hamilton at 431 and 432.
[30] Fifth, in claims for economic loss, the absence of any real voluntary aspect to the involvement of the alleged wrongdoer points away from the existence of a duty of care, Customs & Excise Commissioners v Barclays Bank plc 2007 1 AC 181 per Lord Mance at paragraph 109.
[31] Sixth, in claims for economic loss, the indeterminate nature of liability can be a factor militating against recognition of a duty of care; Customs & Excise Commissioners v Barclays Bank per Lord Mance paragraph 100. If the court were to recognise a duty of care in the circumstances of this case, it would potentially expose the defender to claims from an indeterminate number of persons. Where, Miss Springham asked, would this duty end?
[32] Seventh, the existence of the duty must not be inconsistent with the statutory scheme; X (Minors) v Bedfordshire CC Lord Browne-Wilkinson page 739D, Mitchell v Glasgow Corporation per Lord Rodger of Earlsferry at paragraph 63. In this case section 12 of the Land Register (Scotland) Act 1979 provided for a scheme of indemnity. The recognition of a duty of care in this case would provide a further route for the payment for compensation and would, Miss Springham submitted, be inconsistent with the statutory scheme.
[33] Finally, in deciding whether to develop novel categories of negligence, the court should proceed incrementally and by analogy with decided cases; Lord Browne-Wilkinson in X (Minors) at page 751B to C referring to Caparo, Lord Slynn in Barrett at page 564F to H and Lord Bingham paragraphs 19 to 20, Lord Mance at paragraph 84 in Customs & Excise Commissioners.
[34] Miss Springham recognised that there were two cases which were sufficiently similar to the present situation that she should deal with them. The first was the Ministry of Housing v Sharp 1970 2 QB 223. There the owners of a plot of land applied to the local authority for permission to develop the land. The application was refused. The owner then applied to the Minister for Housing and Local Government for compensation under the provisions of section 27 of the Town and Country Planning Act 1954. He was awarded compensation amounting to £1,828.11s.5d.
[35] The minister caused a compensation order to be deposited with the local authority, Hemel Hempstead Rural District Council, who then registered the compensation notice as they were obliged to do under section 28(5) of the 1954 Act in the Register of Local Land Charges.
[36] Subsequently the landowner reapplied for permission to develop the land. This time it was granted. The landowner intended to sell the land to a builder who was then going to carry out residential development on it. The solicitors acting for the builder sent the local authority a requisition for a search of the Register of Local Land Charges. That search failed to reveal the compensation notice.
[37] The compensation awarded to the landowner following the refusal of planning permission fell to be repaid on the subsequent grant of permission. The minister sought repayment from the builder who refused to pay relying on the clear certificate that they had received. Eventually the minister accepted that he could not force the builders to repay the compensation.
[38] The minister then sought damages against first, the clerk of the local authority who had imposed upon him a statutory duty of keeping the Register of Local Land Charges. In respect of him, the minister alleged a breach of statutory duty. Secondly, the minister claimed against the local authority vicariously as the employer of the searcher who had negligently carried out the search of the register in response to the requisition by the solicitors for the builders. At first instance, Fisher J held that the first defendant was in breach of his statutory duty. He also held that the searcher owed a duty of care to the pursuer and the second defendants as his employers were liable for damages for his negligence. However, Fisher J also held that on the wording of the statute, the minister did not suffer damage by reason of the breach of statutory duty or negligence.
[39] The Court of Appeal allowed the appeal but only in so far as it was directed against the second defendants in respect of their employee's negligence.
[40] Miss Springham submitted that this case could be distinguished from the present circumstances. She noted that the statutory duty was imposed on the clerk to the local authority but he was found not to be liable for breach of statutory duty. In contrast Miss Springham noted that the defender in this case was indeed under a statutory duty. Lord Browne-Wilkinson had dealt with the point in X (Minors)v Bedfordshire County Council at page 762C to E where he found that the case was in no way analogous to the one then before their Lordships. She also referred me to the comments of Lord Mance in Customs & Excise Commissioners v Barclays Bank plc at paragraph 110 where he observed that the case was not analogous to the facts of that particular case.
[41] The second case which might be thought to be relevant was Braes v The Keeper of the Registers of Scotland 2010 SLT 689 a decision of M G Thomson QC sitting as a temporary judge. The temporary judge could see no reason in principle why a common law duty of care should not exist when loss was caused by negligence on the part of the defender. However, Miss Springham submitted that the remarks there were obiter. In paragraph 86 he said that in any event the establishment of a duty of care would be subject to the Caparo test.
[42] She further submitted that the facts of the case were not analogous. In Braes the Keeper was carrying out an intimate statutory function and had allegedly done so negligently. In this case the allegation was that the Keeper should have been doing something different.
Submissions for the pursuers
[43] For the pursuers Miss Hood moved for a proof before answer on the entirety of the pursuers' pleadings and for the defenders preliminary plea-in-law to be repelled. As a fall back she moved for a proof before answer with all pleas standing.
1. Justiciability
[44] Miss Hood submitted that in determining whether or not the exercise of the discretion vested in a public authority by Parliament is justiciable or not, it was not sufficient to categorize the Act as a matter of policy. The question was whether or not it is unsuitable for judicial resolution. In determining this issue one had to look to see whether the issues involved the balancing of different public interests, the allocation of scarce resources or the distribution of risks. Was this an issue where it could be said that Parliament could not have intended that the courts would substitute their own views for that of ministers or officials? She referred me to Barrett v Enfield London Borough Council and in particular to the speech of Lord Slynn of Hadley pages 571, 572 and 580. A duty of care could be imposed on the public authority in respect of an operational decision but not where there is a policy decision. Although the distinction between the two may not be sharp no duty will arise in relation to decisions where there are financial, economic, social or political factors as constraints. Lord Hutton in Barrett v Enfield London Borough Council page 583B to 584B quoting with approval Mason J in the High Court of Australia in Sutherland Shire Council v Heyman 157 CLR 424 at 468-469.
[45] This case, Miss Hood submitted, was not in this league. What was at issue was the processing of one application for a registration of discharge personally presented. The document was forged. All that the pursuers were saying was that the defender owed a duty of care in the processing of that application. The pursuer suggested that the duty would have been fulfilled had a member of her staff telephoned the lenders. It would also have been satisfied had Miss Anjum been asked for the charge certificate. Miss Hood accepted that there would come a point where nothing would stop a fraudster but these steps would have placed another hurdle in the way and that was as far as the defender had to go. She submitted that the processing of the application by a member of staff was a matter of operation. There were no significant budgetary issues. There was no requirement to weigh up priorities or resources. This was not a high level policy decision. This was not a complex scheme to administer. The question of what the exercise of a duty of reasonable care would demand of the defender was one for the courts to decide.
[46] She emphasised that there is a difference between personal presentation of a deed and one presented by a solicitor. So far as dealing with the solicitor is concerned the defender can rely on the honour and credit of the solicitor. The pursuers accepted that there were indeed some issues of policy which were not justiciable. This however was not one of them.
2. The Caparo test
[47] Miss Hood then turned to the application of the Caparo test. So far as foreseeability is concerned she submitted that the pursuer has had averred sufficient facts and circumstances to show that the loss was foreseeable by the defender. She submitted that the Keeper was well acquainted with the system of land registration and that the Land Register had a special role to play. Title flows from registration. "The Keeper has the midas touch" quoting Professors Gretton and Reid. It was only when a right was entered on the Register that it has effect. The defender must know that. The key averment is, she submitted, to be found at page 6 C-D in the Closed Record. "The defender has considerable experience of dealing with applications for registration in respect of the sale and purchase of heritable property utilising loan monies from a bank or building society and of dealing with applications for registration in respect of the grant of standard securities in favour of, and discharge by such lenders". It was surprising she submitted that there was no response in the answers to this averment. Although she did not go so far as to suggest that this should be taken as an implied admission the pursuers' averments were, she said, sufficient. Miss Hood submitted that the number of personal presentations to the defenders was low. The defenders knew that it was very rare for personal presentation of a discharge of a standard security. There were the averments as to the practice of lenders as to whom lenders will release a discharge of a standard security. The defender knows that the vast majority of discharges are presented by solicitors. She must therefore know of the practice in the industry that lenders will only release discharges of standard securities to solicitors. The defender sees every transaction. If the lenders practice is to release discharges in the vast majority of cases to solicitors and not individuals then the defender must know that this is the general practice.
[48] Miss Hood submitted that against the background that the defender had the ability through registration of a deed to create or remove a real right, that she was aware of the possibility of fraud and that she was happy to accept the very rare occurrence for personal presentation of a discharge of a standard security, alarm bells ought to have rung when an individual turns up and seeks to personally present a discharge of a standard security against a large commercial lender. It was entirely foreseeable that if the defender permitted a lay person to come off the street and apply to register a discharge of a standard security, thus destroying someone else's right, that person would suffer loss if the defender did not take reasonable care to ascertain that the individual had the authority to make that application.
[49] Turning to the issue of whether it was fair, just and reasonable to impose a duty of care she sought to make submissions and answer to the points made by Miss Springham on behalf of the defender.
[50] The first point made by Miss Springham had been that no duty of care arose in a case where Parliament had conferred a discretion when the person purporting to exercise his discretion in abuse or excess of his power. This, Miss Hood submitted, was an issue to do with justiciability and not whether or not it was fair, just and reasonable to impose such a duty. If a discretion was exercised in such a way as to take it out of the policy sphere then, she submitted, it was suitable for judicial intervention.
[51] Secondly it was submitted that liability does not generally arise where the harm was caused by the criminal act of a third party. However Miss Hood submitted that the authority Mitchell v Glasgow County Council cited in support of this proposition fell to be distinguished. In Mitchell the court was concerned with a local authority which had taken certain action. Subsequently a third party had inflicted harm and the issue was whether or not the local authority could be held liable for harm subsequently inflicted by a third party, see Mitchell per Lord Rodger of Earlsferry at page 41 paragraph 58.
[52] This case was different because of the role of the Land Register in guaranteeing title and the statutory duties of the defender. In this case there was a prior criminal act. The pursuers as lenders were, in effect the victims but it was the actions of the defender in registering the title which perfected their loss. Accordingly Miss Hood submitted that it was fair to impose a duty of care on the defender as she was in the position to prevent the loss from the pursuers.
[53] Thirdly it had been submitted that the law did not generally recognise liability for a mere omission to act. There had to be some additional feature which imposed a duty to take positive steps to prevent harm. Miss Hood submitted however that this was not a case of pure omission. The defender took a positive act. By recording the discharge the defender removed a real right in security. In this regard the defender's special position as Keeper of the Register was important.
[54] Fourthly it is contended that the law would more readily recognise a duty of care in cases of physical loss or injury, than in the infliction of financial harm. However that was not an absolute rule; Gibson v Orr 1999 SC 420 per Lord Hamilton at 432B.
[55] Fifthly Miss Springham had submitted that in claims for economic loss the absence of any real voluntary aspect to the involvement of the alleged wrongdoer pointed away from the existence of a duty of care. But Miss Hood answered if it was being suggested that the defender had an impassive, voluntary role that was not the case. Her role was an important and powerful one in conferring a real right.
[56] Sixthly it had been submitted that in claims for economic loss the indeterminate nature of liability can be a factor in mitigating against the recognition of a duty of care. This Miss Hood submitted was the floodgates argument. However the court was only considering the case before it and was not to determine or speculate what other claims might arise. The court has control mechanisms at every turn. This case should be looked at on its merits. On the facts there are only a small number of personal presentations of discharges of standard security.
[57] Seventh was the issue of whether or not the recognition of a duty of care would be consistent with the statutory liability under section 12 of the Land Registration (Scotland) Act 1979. Miss Hood's submission was that the indemnity scheme was not about the defenders liability. It arose out of the guarantee of title that went with registration. The imposition of a duty of care in the circumstances of this case was not inconsistent with the statutory scheme of indemnification.
[58] Finally in deciding whether or not to develop novel categories of negligence the court should proceed incrementally and by analogy with decided cases. Here Miss Hood took me to Ministry of Housing and Local Government v Sharp. She submitted that the facts were quite comparable to the present case. She referred me to the opinion of Lord Denning at page 265G where he said:
"Suppose now that a clerk in the Registry makes a mistake. He omits to enter a charge; or wrongly gives a clear certificate: with a result that the encumbrancer loses the benefit of it. Who is to suffer for the mistake? Is the encumbrancer to bear the loss without any recourse against anyone? Surely not. The very object of the registration system is not secure him against loss. The system breaks down utterly if he is left to bear the loss himself".
The relevance of Sharp was Miss Hood submitted that we were dealing with a registry function. The case had been cited with approval by Lord Mance in Customs and Excise Commissioners v Barclays Bank Plc at page 222 E-F:
"The result reached was eminently fair, just and reasonable. The role of the Land Register was established as a public service to keep accurate records and provide reliable information. The information was to enable buyers to be secure in the property rights they acquired but concomitantly to override other property interests in the public interest in order to achieve this, even though such security and overriding occurred through negligence of the register or a clerk fulfilling his function. It would be unjust if no compensation could be obtained for the adverse consequences on property rights of negligence of an official performing such a service in the public interest."
[59] In Braes v The Keeper of the Registers of Scotland Temporary Judge MG Thompson QC could see no reason in principle why a common law duty of care should not exist when loss was caused by negligence on behalf of the defender.
[60] Accordingly Miss Hood submitted the court could proceed in this instance incrementally and by analogy. Cases such as Sharp and Braes were ones involving error or negligence in the processing of an application resulting in a right being destroyed or otherwise a loss.
[61] The key question she had submitted was who should bear the loss if the Keeper was negligent. In her submission it should be the Keeper. The pursuers were entitled to assume that the Keeper would take reasonable care. The pursuers did not take on the risk of the Keeper being negligent.
[62] On the issue of the causal link between the pursuer's loss and the averment that the charge certificate was at all times held by the Alliance and Leicester. Miss Hood accepted that there was no averment that Miss Anjum could not produce the certificate. However the key averment was to be found at page 21D-E of the Closed Record. If, as was averred, the charge certificate was held by the Alliance and Leicester then the necessary implication was that Miss Anjum could not have produced it had she been asked to do so.
[63] Miss Hood turned then to criticise the averments for the defender at answers 4 to 5. The defender averred that the pursuers had a duty to take reasonable care to prevent an individual borrower from fraudulently discharging a standard security. This duty could be implemented for example by instituting a policy of not releasing a discharge to a standard security to an individual and to communicate this policy to the defenders. However Miss Hood submitted that there were no averments as to what the defender would do in relation to such a policy if it were communicated to her.
[64] Miss Hood submitted that the pursuers were perfectly entitled to put their trust in others. She referred to Grant v Sun Shipping Company Limited 1948 Session Cases, House of Lords 73 per Lord Porter at pages 89-90 and Lord Du Parcq at pages 97-98. She conceded however that this was a personal injury case and the facts were very different to this case.
Defender's Reply
[65] In reply Miss Springham emphasised that in relation to the defenders knowledge of the practice of the lenders such as Alliance and Leicester not to release a discharge of a standard security to a borrower but only to a solicitor the defender could not be expected to know this. Solicitors were not always required and so far as the defender was concerned there was no obvious reason why a borrower might not act for themselves as they were entitled to do.
[66] Finally, Miss Springham submitted that if I was not with her in relation to her primary motion, there should be a proof before answer with all pleas standing.
Decision
1. Justiciability
[67] The courts have long acknowledged that where Parliament has conferred a statutory discretion on a public authority it is for that authority and not for the courts to exercise that discretion: Lord Browne-Wilkinson in X (Minors) at page 738G. It is only when the decision of the public authority is outwith the ambit of that discretion that a common law duty of care may arise. However such a duty will not arise if it involves the court in an assessment of "policy" issues. The defender submits that for the courts to impose a duty of care on her in this case would involve the court in an assessment of policy issues which it is ill equipped to judge; Lord Browne-Wilkinson in X (Minors) at 737G: Lord Hutton in Barrett v Enfield London Borough Council [2001] 2 AC 550 at 580H to 581A.
[68] Not all decisions by public authorities involve questions of policy and the courts have evolved a distinction between "operational" decisions on the one hand and "policy" decisions on the other. The courts generally will not impose a duty of care in respect of policy decisions but will do so in respect of operational decisions. The drawing of the boundary between the two will sometimes be difficult. In general terms the greater the element of policy involved the wider the area of discretion accorded by the courts to the public authority and the more likely it is that the matter is not justiciable: Lord Slynn of Hadley in Barrett at page 571G.
[69] In drawing the line it is however important to understand the rationale for the court's self restraint in respect of policy decisions. As Lord Hutton summarised the position in Barrett (at page 583C):
"It is only where the decision involves the weighing of competing public interests or is dictated by considerations which the courts are not fitted to assess that the courts will hold that the issue is non justiciable on the ground that the decision was made in exercise of a statutory discretion."
[70] Lord Hutton then goes on to quote with approval the judgment of Mason J. in Sutherland Shire Council at page 468 to 469:
"The distinction between policy and operational factors is not easy to formulate but the dividing line between them will be observed if we recognise that the public authority is under no duty of care in relation to decisions which involve or are dictated by financial, economic, social or political factors or restraints."
[71] Non-justiciable decisions are thus policy decisions which involve the balancing of competing policy interests were typically financial, economic, social or political considerations are to the fore. While it is important for the courts to recognise these non-justiciable policy decisions exercised by public authorities, it is equally important not to extend these considerations into areas of the decision making process where such considerations are not present. Lord Browne-Wilkinson in X (Minors) agreed with Sir Thomas Bingham MR, as he then was, in the Court of Appeal when he said that the public policy consideration that has first claim on the loyalty of the law is that wrongs should be remedied.
[72] The issue in this case is whether or not the decision by the defender to accept a personal presentation of a discharge of a standard security and register it in the Land Register falls into the category of a non-justiciable policy decision. I have little hesitation in holding that it does not. Miss Springham attempted to elevate the issue into an attack by the pursuers on the defender's policy of which documents or other information should accompany the application of a registration. I do not accept that line of argument.
[73] It is of course true that operational decisions will involve considerations of policy. The decision maker may well set for him or herself a policy matrix within which operational decisions may be taken. But the mere setting of such a policy does not mean that the operational decision is thereby rendered non-justiciable.
[74] At one point Miss Springham sought to equate the decision by the defender in this case to the issue of whether or not a child could be taken into care. In X (Minors) such a decision, which might on the face of it be termed operational, was found not to be justiciable. In my opinion such a comparison is ill founded. Lord Browne-Wilkinson in X (Minors) sets out in some detail the reasons why the court would not impose a duty of care in such a situation. These included the fact that the decision involved was taken in an inter-disciplinary system, the delicate nature of the decision, the concern that local authorities might become more risk averse and the nature of the relationship between the social worker and the parents. Not only are none of these considerations present in this case but the lack of equivalent factors in comparison points sharply to the justiciability of the defender's decision in this case.
[75] Accordingly I reject the suggestion that the defender's decision involves policy decisions which the courts are ill-judged to adjudicate upon. The decision which the subject of this action was a straight forward operational decision taken by the defender in exercise of her statutory obligations. The financial considerations are modest, if not minimal. There are no competing public interests to be balanced.
[76] In summary I hold that the decision by the defender to accept the application to register the discharge of the standard security to be justiciable.
2. The Caparo test
[77] Whether or not a duty of care arises in this particular case depends on whether or not the Caparo test is met. There are three ingredients. The first is that there is a foreseeability of damage. Secondly, there should be a relationship between the parties characterised as proximity or neighbourhood. Thirdly, the situation should be one in which the court considers it fair, just and reasonable to impose a duty of care: Lord Bridge of Harwich in Caparo, page 617H to 618A.
[78] In this case, and for the purposes of this debate, Miss Springham conceded that the second of these tests was met, namely that the relationship between the parties was one of proximity. Accordingly the issue is whether or not the damage was foreseeable and whether it would be fair, just and reasonable to impose a duty of care on the defender in these circumstances.
2.1 Foreseeability
[79] Miss Springham mounted a determined attack on the pursuers' averments on the forseeability of loss. However in my judgement there are sufficient averments in the pursuers' pleadings to support the pursuers' contentions that the loss was foreseeable.
[80] The background is important. The defender is the Keeper of the Register. As such in the exercise of her statutory obligations her role is a special one. Registration in the Land Register confers a real right. Whether or not it is properly characterised as "the midas touch" the effect of registration or non-registration of a title is the difference between a real and a personal right. The integrity of the Land Register is of crucial importance. Accordingly there is a high responsibility on the defender to ensure that the Register is properly maintained. To my mind that must include guarding against the possibility of fraud.
[81] The pursuers aver that the defender asserts, in information on her internet website pages, that there are safeguards in place to prevent fraudsters and hackers accessing and abusing the ARTL system. While the transaction in this case did not involve the ARTL system it would be astonishing if the possibility of fraud was not apparent to the defender in respect of the traditional method of presentation for registration.
[82] The pursuers also make averments in relation to the system of land registration in England. On the pursuers averments these include safeguards of the sort that the pursuers argue ought to have been in place in Scotland. The pursuers aver that as at May 2008 the defender shared information and experiences with other land registers in the United Kingdom and the Irish Land Registry. The defender in answer says that the practices of the English land registry are not known and not admitted. Curiously, however, she is able to make detailed averments about the practice of the Property Registration Authority in Ireland. These practices, however, appear to be more supportive of the defender's position.
[83] The pursuers also make averments regarding the general practice of lenders in this jurisdiction with regard to title deeds. These are held by the lenders while the loan is outstanding. The industry practice is that once the loans have been repaid, discharges of standard securities will only be released to solicitors and not an individual borrower.
[84] I was somewhat surprised that the defender makes no admission, explanation or averments in response to the detailed averments on industry practice. However there may well be good reason why the defender is not conversant with such practice and it is not for the court to speculate on such matters.
[85] However, while she makes no admission in relation to such practice, she is, of course, aware of documents being registered. She knows the overall number. She is aware of the break-down in terms of types of interests being registered and the method of presentation. She knows that personal presentation of a discharge of a standard security is rare.
[86] It is, I think, also arguable that if an individual wished to perpetrate a fraud on the Register, they are more likely to attempt to do so by personal presentation than through a solicitor. The Keeper, too, is more likely to be able to rely on a solicitor, particularly one who is a regular presenter of deeds for registration, than an individual.
[87] Pulling these strands together - the nature of the Register conferring a real right and the concomitant responsibility thus imposed on the defender; her general awareness of the risk of fraud; her knowledge of practice elsewhere, albeit in Ireland; the pursuers averments of industry practice in respect of retention of title deeds while the loan is outstanding and the release of discharges of standard securities only to solicitors; the fact that personal presentation of discharge is rare; the likelihood that if fraud is to be perpetrated it will by an individual than a solicitor - there are in my opinion sufficient averments of foreseeability of damage.
[88] Accordingly had I found for the pursuers on the issue of whether it was fair, just and reasonable to impose a duty of care in this instance, I would have allowed a proof before answer on the averments of foreseeability of damage.
Fair just and reasonable
[89] It is to be noted that the Caparo test does not in itself necessarily provide a straight forward answer to the question of whether or not in a particular situation a party owes a duty of care. The point was made by Lord Bingham of Cornhill in Customs & Excise Commissioners v Barclays Bank plc [2007] 1 AC 181 at page 191. He notes in particular the speeches of Lord Bridge and Lord Roskill in Caparo at pages 618 and 228 respectively. Lord Roskill observes:
"Phrases such as 'foreseeability', 'proximity', 'neighbourhood', 'just and reasonable', 'fairness', 'voluntary acceptance of risk' or 'voluntary assumption of responsibility' will be found used from time to time in different cases. But as your Lordships have said such phrases are not precise definitions. At best they are but labels or phrases descriptive of the very different factual situations which can exist in particular cases and which must be carefully examined in each case before it can be pragmatically determined whether a duty of care exists and, if so, what is the scope and extent of that duty."
[90] Lord Bingham also notes that in most of the leading cases the outcome is sensible and just irrespective of the test applied to achieve that outcome (page 192, paragraph 8). Accordingly even when one had identified all the factors that may assist in determining whether the imposition of a duty of care is fair, just and reasonable in the circumstances of the particular case, and ascribed such weight to them as may seem appropriate, it is still necessary to ensure that the result is a just one. It is the outcome that is important, not the process.
[91] The courts have held that in deciding whether or not to develop new categories of negligence the court should proceed incrementally and by analogy with decided categories (see Lord Browne-Wilkinson in X (Minors), page 751 citing Caparo). Lord Bingham in Customs & Excise Commissioners at paragraph 7 noted however that the incremental test is only helpful when used in combination with a test or principle which identifies the legally significant features of a situation:
"The closer the facts of the case in issue to those of a case in which a duty of care has been held to exist, the readier a court will be ... to find that there has been an assumption of responsibility or that the proximity and policy considerations of the threefold test are satisfied."
[92] Two cases have been cited as supporting the proposition that a duty of care was owed to the pursuers on the facts of this case. The first is Minister of Housing v Sharp. In Customs & Excise Commissioners Lord Mance said that the decision in Sharp was eminently fair, just and reasonable. He noted that it would be unjust if no compensation could be obtained for the adverse consequence on property rights of negligence of an official (page 222, paragraph 110).
[93] While there are of course some analogies with the present case there are crucial differences. In the first place the harm to the plaintiff in Sharp did not flow from an inaccurate register but from the negligence of the clerk who carried out a search of the register. Secondly, the harm was not brought about by a criminal act but in the mere carelessness of the clerk.
[94] The second case is Braes v The Keeper of the Registers of Scotland. Like the temporary judge in that case I can accept that in appropriate cases a common law duty of care may be imposed upon the Keeper. I also note however that the temporary judge goes on to say that for such a duty to exist the three limbs of the Caparo test would require to be met. In that case the comments are obiter and no common law duty was established.
[95] Accordingly I do not find either case of any particular assistance.
[96] The courts will be slower to develop new categories of negligence into areas of pure economic loss than in cases of direct infliction of physical loss or injury through carelessness. Lord Bridge of Harwich in Caparo at 618E to 619A and Lord Hamilton in Gibson v Orr 1999 SC 420 at page 432.
[97] However it is clear that this factor is not in itself a barrier to the recognition of a duty of care in appropriate circumstances. Minister of Housing v Sharp is an example of a case where a duty of care was imposed where there was a pure economic loss. Nevertheless, where the primary reason for the damage is the action of a third party and the issue who should bear the loss, the fact that the loss is purely economic is in my opinion a factor against extending the categories of negligence.
[98] In determining whether or not a duty of care ought to arise in this case it is important to start with the act, or rather acts for there are two, of Miss Anjum. The first was her forgery of the discharge of the standard security. The second was the presentation of the application for the registration of the discharge in the Land Register. That second act was fraudulent because in so doing Miss Anjum represented to the defender that the document was a valid document granted by the Alliance & Leicester. Both the pursuers and the defender are the victims of these criminal acts by Miss Anjum. It may be said that of course the financial loss fell on the pursuers but the defender has also been damaged. The integrity of the Land Register has been compromised and it, and perhaps the defender's reputation, damaged as a result.
[99] The question as Miss Hood rightly observed is who is to bear the financial loss.
[100] The pursuers, like the Alliance and Leicester, are a large commercial banking enterprise. Part of their business is commercial lending to home buyers. In the course of that business Alliance & Leicester lent money, no doubt at commercial rates, to Miss Anjum to enable her to purchase the property at Flat 3/18, 145 Albion Street, Glasgow.
[101] Miss Anjum was the Alliance & Leicester's customer. It was they who decided to lend money to Miss Anjum. It was they who required her to execute a standard security and it was their solicitors who presented it to the defender along with the title for registration.
[102] In deciding to lend money to Miss Anjum the pursuers accepted certain risks. The first one was that Miss Anjum would be able to repay the loan in such instalments and within such a period of time as the pursuers had specified in their offer of loan. It must, I think, have been implicit in the building society's dealings with Miss Anjum that they accepted, or were satisfied, as to her honesty.
[103] The pursuers also accepted the risk that the value of the property was sufficient to cover Miss Anjum's indebtedness should the pursuers require to call in the standard security. The purchase price of the property was £235,000. The pleadings are silent as to the original sum lent to Miss Anjum but by 12 May 2008 the redemption sum was over £240,000. The subjects were sold in March 2010 for £125,000, nearly half the purchase price. Accordingly even if the discharge of the standard security had not been registered and the pursuers had exercised their powers under the standard security to sell the property they would have lost a sizeable sum of money.
[104] This of course does not mean that the pursuers should necessarily bear the loss. It does however demonstrate that in deciding to lend money to Miss Anjum the pursuers necessarily bear certain risks.
[105] It would of course be wrong to suggest that there was no relationship between Miss Anjum and the defender. The title to the property owned by her was registered in the Land Register as was the standard security granted by her in favour of the Alliance & Leicester.
[106] The defender however in dealing with Miss Anjum has made no assessment of her creditworthiness, or honesty or whether the value of the property will fully secure the loan. These risks were not evaluated by her but by the Alliance & Leicester. The risks were assumed not by her but the lender.
[107] In those circumstances the question is whether it is fair, just and reasonable to impose a duty of care on the defender. If such a duty exists then it is the public purse that will bear the loss and not the commercial enterprise that initially assumed the risk.
[108] Miss Hood's answer to this is that in assuming risk the building society was entitled to rely on the integrity of the register and the competence of the defender. If she is negligent in her duties then why should the pursuers suffer the loss?
[109] The answer in my view is that the loss has been caused by the criminal acts of the pursuers' customer and it is not fair, just and reasonable that the defender should be liable for these criminal acts.
[110] As Lord Brown of Eaton-under-Heywood noted in Mitchell v Glasgow Corporation generally speaking people are not liable for the crimes of others (paragraph 81, page 47). There are of course situations when the law will impose a duty of care even where it involves a criminal act (see Lord Brown paragraph 82 and Lord Rodger of Earlsferry at paragraph 57). However, as Lord Rodger noted in Mitchell, in such situations it was the defender's act which provided the opportunity for the third party to injure the claimant. See for example the Attorney General of the British Virgin Islands v Hartwell 2004 UKPC 12 where the police authority owed a duty of care not to entrust a gun to a probationer officer whose family circumstances might make him volatile and unstable. The authority was liable to someone whom the officer shot in the course of an incident when he was intent on using the gun to maim his former partner and her boyfriend.
[111] Generally in cases such as this and Dorset Yacht Company v Home Office a duty of care has been found to exist where the defendant has created the condition in which harm could be caused to the plaintiff.
[112] That is not the case here. The conditions in which the pursuers suffered loss were created by their customer's forgery of the discharge of the standard security and her subsequent fraudulent inducement on the defender to register that document.
[113] Accordingly I consider it would not be fair, just and reasonable in the circumstances of this case to impose a duty of care on the defender.
[114] I therefore sustain the first and second pleas-in-law for the defender and dismiss the action.