04 Sep 2013

Case Update: Santander UK plc -v- Keeper of the Registers of Scotland

Case Update: Santander UK plc -v- Keeper of the Registers of Scotland

Rob Aberdein, Partner, discusses the case of Santander UK plc -v- Keeper of the Registers of Scotland which considered whether the Keeper owes a duty of care to secured creditors.

Rob Aberdein, Partner, discusses the case of Santander UK plc -v- Keeper of the Registers of Scotland which considered whether the Keeper owes a duty of care to secured creditors.

A duty of care

In the case of Santander UK PLC -v- Keeper of the Registers of Scotland, Santander sued for losses incurred after the Keeper accepted the registration of a forged discharge of a standard security which had been personally presented by the borrower. The question that fell to be determined by the court was: Did the Keeper owe a duty of care to Santander in such circumstances? 

Background

In March 2007, Miss Anjum purchased a property in Glasgow for £235,000.In order to finance the purchase, she obtained a loan which was to be secured against the property. Both Miss Anjum’s title to the property, and the standard security granted by her, were registered in the Land Register of Scotland.

In September 2007, Miss Anjum personally attended at the offices of the Keeper of the Registers of Scotland and presented an application for registration of a discharge of the standard security which purported to have been granted by the original lender. After an identity check was carried out, the discharge was accepted for registration by the Keeper. In fact, the loan had not been repaid and the deed was a forgery.

In December 2007, Miss Anjum obtained a further loan from the Bank of Scotland plc and granted a standard security in their favour over the property. 

Miss Anjum fell into arrears with Santander and following a search at the Land Register, they ascertained that not only had their security been discharged, but that a new security had been granted in favour of the Bank of Scotland plc. Santander successfully raised an action for reduction of the fraudulent discharge and for rectification of the Land Register. The Land Register was rectified to show Santander’s security once again, however, the security took effect from the date of rectification and as such, Santander’s security was postponed to that of the Bank of Scotland.

Miss Anjum then defaulted on her loan with the Bank of Scotland who repossessed and sold the subjects. With Santander only having a second ranking security, insufficient funds were raised from the sale to satisfy the debt due to them by Miss Anjum. 

Santander argued that their loss came about as a result of the fault and negligence of the Keeper and that the Keeper owed a duty of care to them. 

Decision 

It is well accepted that a duty of care will only arise if the three grounds set out in the case of Caparo Industries plc -v- Dickman are met (otherwise know as ‘the Caparo test’). This 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.

In this case, the judge held that the first two tests were satisfied, however, Santander failed on the third. In arriving at his decision, Lord Boyd of Duncansby stated that:

“The defenders 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...The risks were assumed not by her but by the lender. 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 of care exists then it is the public purse that will bear the loss and not the commercial enterprise that initially assumed the risk.........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 those criminal acts”.

Conclusions

The fact that Santander are a commercial entity clearly played a significant part in the court’s reluctance to impose a duty of care. It must, however, be remembered that not all parties to whom standard securities are granted are commercial entities. For example, parents quite often provide their children with deposits to assist with the purchase of their first property and it is not uncommon for the parents to take security for the debt.

Would the court have arrived at the same decision had Miss Anjum’s parents provided the loan? Given the emphasis that the court placed on the commercial nature of this transaction, arguably not. If a duty of care were to be established in relation to non commercial holders of standard securities, it would seem somewhat unjust if no such duty were owed to commercial entities. 

It is understood that, as a result of this case, where a personal presentation for a discharge of a standard security is made, the Keeper will now make contact with the lender to ensure that the discharge has been validly granted before accepting the application for registration.


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