#6652 - Halifax Building Society V. Thomas - Commercial Remedies BCL

Halifax Building Society v. Thomas

Facts

Mr. Thomas obtained a 100 per cent. mortgage advance from the society to finance the purchase of a flat, 86, Lenton Manor, Nottingham. The purchase was completed on 17 February 1986 at a price of 23,950. To obtain that advance, Mr. Thomas made fraudulent misrepresentations to the society as to his identity (he called himself George Robb, the name of an acquaintance) and as to his creditworthiness (he gave Mr. Robb's earnings as his own). In the course of 1986 Mr. Thomas made some payments of interest under the mortgage, but then defaulted. The society commenced proceedings against him in his assumed name and on 2 September 1987 obtained an order for possession. On 18 November 1988 the society learnt from the police the true identity of the mortgagor. Nevertheless, it proceeded with the sale of the mortgaged property. On 6 March 1989 an offer to purchase the flat was made. That offer was accepted and on 12 April 1989 the society as mortgagee sold the flat and recouped what was due to it under the mortgage. It placed the surplus, 10,504.90, into a suspense account.

On 31 May 1990 the society commenced these proceedings, seeking a declaration that it was entitled to retain the surplus for its own use and benefit. In criminal proceedings against Mr. Thomas, he was charged with, and pleaded guilty to, conspiracy to obtain mortgage advances by deception from lending institutions, for which on 2 August 1991 he was sentenced in the Crown Court at Nottingham to 21 months' imprisonment. A confiscation order was made in respect of, inter alia, the suspense account and accrued interest, the moneys in the account, including interest, then being 12,101.11. On 15 October 1993 the C.P.S. obtained from Auld J. a charging order nisi in respect of Mr. Thomas's interest in the sum of 12,101.11 and further interest held in the suspense account.

On 28 October 1993 the judge dismissed the action. He said that the C.P.S. stood in the shoes of Mr. Thomas and if Mr. Thomas could not have recovered the surplus from the society there was no beneficial interest of his to which the charging order could attach. He held that if the society had a valid claim to take the surplus it was not an objection to that claim that the society had enforced its rights as mortgagee.

Question

Where there has been a mortgage fraud, can the mortgagee, misled by fraudulent misrepresentations into making a mortgage advance, not only enforce its rights as a secured creditor to sell the mortgaged property and recover what it is owed but also, having recovered in full, take any surplus on the sale after the discharge of the mortgage?

Holding

Mr. Waters accepts, as he must, that the surplus does not represent property which the society has lost. Accordingly it cannot rely on the principle of subtractive unjust enrichment, to use the language of Professor Peter Birks Q.C. in his influential work, An Introduction to the Law of Restitution (1985). Instead it relies on the broad principle of restitution for wrongs: Mr. Thomas has been enriched at the society's expense in the sense that he has gained by committing a wrong against the society. Thereby the society seeks a remedy enabling it "to obtain restitution of a benefit gained by the tortfeasor from a tortious act in circumstances where he has suffered little or no loss:" Goff & Jones, The Law of Restitution, 4th ed. (1993), p. 715.

Institutional Harm Type Reasoning

But in any event is the claim for an account in the circumstances of the present case a valid one? Mr. Waters frankly acknowledges that there is no English authority that goes so far. Indeed he accepts that there is no English authority to support the proposition that a wrongdoing defendant will be required to account for a profit which is not based on the use of the property of the wronged plaintiff. Cases where a fiduciary is required to account for a profit are plainly distinguishable from the facts of the present case. So too is the one authority cited by Mr. Waters of an action for an account which was not based on the use of the property of the plaintiff.

Not “...