Home > Publications > Selected cases— Parliamentary > Selected Cases and Summaries of Completed Investigations: April 2001 to September 2001 > Case No. C.195/01
Selected Cases and Summaries of Completed Investigations
PCA 6th Report – Session 2001-2002
Chapter 1
LEGAL SERVICES COMMISSION
Legal Aid Board: mishandling of title deeds and other related documents
Mrs D complained that the Legal Aid Board (LAB) caused her financial loss as a result of their mishandling of title deeds and other documents that had been sent to them by a building society. The Ombudsman found Mrs D’s complaint justified. He also found shortcomings in the system LAB had in place for accounting for and monitoring those documents. The Chief Executive apologised for those shortcomings and gave assurances that procedures were being reviewed. He offered Mrs D an ex gratia payment of £1,787.50 in recognition of the detriment she had suffered.
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Full text
7.1 Mrs D complained that the Legal Aid Board (LAB) lost the title deeds to her property, as a consequence of which she was unable to proceed with the cash sale on it; and that those actions caused her to suffer financial loss because she was forced to secure a mortgage to buy a new property. LAB were superseded on 1 April 2000 by the Legal Services Commission, but for the sake of simplicity I shall refer to them as LAB throughout this report.
7.2 My investigation began in June 2000 once the Ombudsman had obtained comments from the Chief Executive of LAB. I have not put in this report every detail investigated by the Ombudsman’s staff, but I am satisfied that no matter of significance has been left out.
Statutory and administrative background
7.3 Legal aid is a system of government funding for those persons who cannot otherwise pay for legal advice, assistance and representation. In April 1989 responsibility for the administration of the legal aid scheme transferred from the Law Society to LAB. The actions of the former were not within the Ombudsman’s jurisdiction, while the actions of the latter were. The civil legal aid scheme was administered by LAB through area offices, which were responsible for granting legal aid. Applicants whose financial resources were below specified limits might qualify for legal aid but might be required, depending on their resources, to make a contribution towards their legal costs. Otherwise, such costs were met from the legal aid fund.
7.4 At the time of the Law Society’s charge on Mrs D’s property, section 9(6) of the Legal Aid Act 1974 provided that property recovered or preserved by an assisted person with the help of legal aid must be used to help repay the legal aid fund. That liability is known as the “statutory charge”. The underlying principle of the statutory charge is to put the legally assisted person in the same position, as far as possible, in relation to legal proceedings as an unassisted person whose first responsibility at the end of the proceedings is to pay those of his or her legal costs incurred which are not being paid by his or her opponent.
7.5 The Land Charges Department of LAB’s Debt Recovery Unit dealt with matters concerning the recovery of the statutory charge. It was LAB’s practice to apply to the Land Registry for registration of the property as soon as they became aware that a charge had arisen, so as to minimise the risk of losing their claim to monies that might have been due to the legal aid fund. The Land Registry registered charges from the date of receipt of applications for registration.
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Investigation
7.6 1979 On 30 April 1979 Mrs D was granted legal aid to be represented in a divorce suit for ancillary relief. In the course of those proceedings she succeeded in preserving property, as a result of which a statutory charge applied. The Law Society registered a charge against that property on 6 February 1984.
7.7 1993 In 1993 Mrs D redeemed her mortgage with a building society. The building society wrote to LAB on 10 May telling them that. Accompanying their letter was a completed discharge of registered charge form (form 53), Mrs D’s first charge certificate, mortgage deeds and title deeds. LAB returned the building society’s letter saying that no enclosures had been sent and that they had not been provided with a legal aid reference number. The building society replied saying that all the documents had been sent to LAB by registered post. On 15 June LAB wrote to the building society saying that they had located the deeds that had been sent to them. They said that the deeds were being kept in a secure place and would be released once Mrs D’s liability to the legal aid fund had been cleared.
7.8 1998 On 25 February 1998 LAB received a letter from Mrs D asking them to release the title deeds to her property; she also sent a cheque for £2,303.59 in respect of the statutory charge. On 17 March LAB sent Mrs D a standard reply form thanking her for her cheque, which they confirmed had satisfied their charge. They confirmed that arrangements were being made for the land charge entry to be discharged. On the same day LAB wrote to the District Land Registry asking them to vacate the charge on Mrs D’s property. On 30 March the Land Registry wrote to LAB confirming that their application to discharge in respect of the property had been completed.
7.9 On 3 April Mrs D wrote to LAB again asking for the title deeds to her property, as they were needed urgently. She followed up that request with a telephone call on 6 April. On the same date the building society also telephoned LAB about Mrs D’s deeds. They confirmed that Mrs D’s mortgage had been satisfied and that the deeds and charging documents had been sent to LAB in 1993. Mrs D’s solicitors also wrote to LAB on 6 April asking for the deeds and documents as a matter of urgency.
7.10 LAB replied to Mrs D on 7 April saying that, subsequent to payment sufficient to satisfy the statutory charge, all documents held by them had been sent to the Land Registry. They suggested that she contact the District Land Registry direct.
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7.11 On 18 May, following an exchange of correspondence with Mrs D’s solicitors about action to obtain a duplicate form 53 and how quickly the sale might proceed, the solicitors for the prospective cash purchaser withdrew from the purchase of the property. On 8 July Mrs D secured a £50,000 mortgage with the building society in order to buy a new house. The mortgage was for 25 years; but she was able to redeem it on 10 December 1998.
7.12 1999 The building society wrote to LAB again about Mrs D’s title deeds on 8 February. They sought LAB’s help in locating the deeds and said that their records showed that they had been sent to LAB on 10 May 1993 following redemption of the building society’s mortgage. As LAB held the second charge, the building society had sent them by registered post. The building society noted that LAB’s letter of 7 April 1998 seemed to indicate that the charge certificate had been sent to the Land Registry. They asked LAB to confirm in writing whether or not they had received the deeds in May 1993.
7.13 LAB replied to the building society on 20 February confirming that they had received the deeds to Mrs D’s property on 16 June 1993. They repeated the explanation given in their letter of 7 April 1998 that the deeds would have been sent with their charge certificate to the Land Registry.
7.14 On 2 March Mrs D wrote to LAB asking them for proof that the deeds to her property had been passed to the Land Registry after she had satisfied the statutory charge. She said that when she had phoned them she had been told that the records did not go as far back as 1993 and that they had not received the deeds. LAB replied on the same date. They referred Mrs D to their previous letters of 7 April 1998 and 20 February 1999 and said that they could not add to what had been said in those letters.
7.15 Mrs D wrote to LAB on 18 May claiming £1,687.50 in compensation. She complained that LAB’s actions had caused her to lose a cash buyer for her property; that as a result of that she had been forced to arrange a mortgage of £50,000 on that property to purchase a new house; and that it had been six months before she could repay the mortgage. When LAB did not reply, Mrs D sent them a copy of her letter on 30 September.
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7.16 LAB replied to Mrs D’s letter on 11 October. They asked her to explain how their maladministration had resulted in her inability to repay her mortgage and for documentary evidence setting out the details of her mortgage instalments. LAB received Mrs D’s reply on 15 October. She explained that her problem was not her inability to pay but that she had been forced, by LAB’s actions, to secure a £50,000 mortgage for six months when she should have been able to complete the purchase of the new property on a cash basis. The £1,687.50, she said, represented the interest over five months on that mortgage. She also provided them with the details of the mortgage instalments they had asked for.
7.17 On 13 December LAB asked Mrs D for evidence to support her claim that the building society’s mortgage had been redeemed; for an explanation as to why a charge in favour of the building society was still registered over her property in March 1998; for evidence that the intended purchasers had withdrawn from the conveyance because of her inability to produce the deeds; and for clarification of the amount of compensation she wished to claim. Mrs D replied on 21 December. She produced a letter from the building society showing that her mortgage with them had been redeemed and a letter from the intended purchasers which she said showed that they had withdrawn from the sale because of the missing deeds. She explained that there was an outstanding charge in favour of the building society because the deeds had been lost and the charge had never been removed. She further explained that the bridging mortgage for £50,000 had been taken out on 8 July 1998 for 25 years; that she had been able to redeem that mortgage on 10 December 1998; and that the interest paid in that period (less insurance) was £1,687.50.
7.18 2000 On 11 January LAB sought confirmation from Mrs D that the Land Registry office copy entries of 18 March 1998 referred to by the prospective buyer’s solicitors showed that her property was subject to charges in favour of both the building society and LAB, even though both charges had been redeemed in full. They said that it appeared that the building society had sent the deeds to Mrs D’s property to LAB without having first removed their charge. Mrs D was also asked to confirm what action she had taken against the building society. In her reply to LAB of 19 January Mrs D said that there were two charges on her property which should have never existed as all debt on the property had been paid in full; that the sale of her property had not proceeded with the prospective purchaser in May 1998 because the building society had sent the deeds to LAB where they were subsequently lost; and that the Building Societies Ombudsman had decided that the building society were not liable for the lost deeds.
7.19 LAB’s substantive reply to Mrs D’s claim for compensation was sent to her on 1 February 2000. They refused her claim on the grounds that the financial losses claimed were not the result of LAB’s maladministration.
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Chief Executive’s reply
7.20 The Chief Executive said that upon receipt of Mrs D’s cheque to satisfy the statutory charge all steps had been taken by LAB’s land charge department to vacate that charge promptly. He noted that when the District Land Registry acknowledged completion of the transaction no documents had been returned to the land charge department. While appropriate steps had been taken by the land charge department, it appeared that the complainant’s building society had failed to send the documents to the Land Registry for their charge to be removed from the Charges Register, although the building society’s charge had been redeemed in 1993. He said that there was no evidence on the file to show that there had been maladministration by LAB as suggested by Mrs D. He said that he accepted that the delay in acknowledging Mrs D’s claim for compensation amounted to maladministration, but that had not caused the loss claimed. Further, Mrs D would have been unable to complete the transaction with her cash buyer because her building society still needed to vacate their charge so that a Land Certificate could be issued. Any delay had not been the result of any failure by LAB.
Later developments
7.21 In the course of my investigation I asked LAB for details of their guidelines in place at the time of the events of Mrs D’s complaint for handling title deeds, charge certificates and other related documents. LAB said that their land charge department’s policy at that time had been to mark individual paper files to show that the title deeds were in their possession. The deeds were then kept separately in a fireproof cabinet. The following extract from a LAB internal memorandum further clarifies that process:
We (LAB) do not normally send the deeds to the Land Registry where as in this case there is no outstanding mortgage. We do a search at the Land Registry to see if there are any pending applications if a nil search is returned then we send the title deeds to the registered proprietor.
That same memorandum went on to say:
The Department has no record of what really happened to the title deeds. On the information before me it would appear that only the charge certificate was sent and not the title deed. [We] only are able to surmise what we would have done with the deeds but we have no record of what we actually did with them. We have no proof whatsoever that they were sent outside the department. In my view the deeds were actually lost or misplaced within the department… On the other hand if the deeds were actually sent to the Land Registry it is more likely than not that the Land Registry would have received them because they would have been attached to our charge certificate.
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7.22 I also asked LAB for details of their arrangements for recording and storing title deeds. LAB replied that there were no formal instructions setting out the procedures for recording and storing title deeds. When such documents were received, they were treated as a priority and dealt with the next day. Their Land Charges Department would acknowledge receipt and if the land was unregistered (pre-registration documents were often sent) they would immediately update the Land Registry to obtain first charge. All those actions I understand are recorded on LAB’s computer system so that there is a record of all the title deeds held.
In response to my enquiries about her complaint to the Building Societies Ombudsman (paragraph 7.18), Mrs D provided a copy of the Building Societies Ombudsman’s preliminary conclusions which had been sent to her for comment on 30 June 1999. In her submission to the Building Societies Ombudsman she had argued that the building society should not have simply sent off her title deeds to LAB and forgotten about them; and that the building society’s actions had caused a buyer to back out of the purchase of her property, as a result of which she had to take a mortgage in order to be in a position to continue with her purchase. The Building Societies Ombudsman noted that the building society had refunded Mrs D the £249.00 legal fees she had paid for the mortgage transaction (£100.00 for the mortgage itself and £149.00 for the abortive sale), £29.00 for postage etc, £4.00 for copy entries, £48.65 for VAT and £149.81 for the Local Authority search fee. The building society had also paid Mrs D a further £232.67, comprising £82.86 for six months’ building insurance premium and (in error) a second refund of the £149.81 search fee. The Building Societies Ombudsman observed that the building society had not only reimbursed Mrs D the agreed costs in connection with the mortgage transaction and the abortive sale (for which they were not strictly liable) but also the search fee of £149.81 twice. He concluded that whilst there might have been minor maladministration of Mrs D’s mortgage account in connection with the mortgage of her existing property, he had not found any other element of maladministration, and no further award would therefore be appropriate in view of the compensation (and double element of compensation) that she had already received from the building society.
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Findings
7.24 LAB’s response to this complaint failed to address in any detail Mrs D’s main grievance, which was that they lost her title deeds to her property, thus preventing her from selling her property to a cash buyer and obviating the need to take out a mortgage on a new property. Rather, their reply focused on the action they had taken in discharging their charge on Mrs D’s property and the apparent failure of the building society to ensure that their own charge was vacated. Those matters, while of some relevance to this complaint, are of only limited value in assisting me in determining what happened to Mrs D’s title deeds and what loss was suffered as a result. I turn to that matter first.
7.25 There was initially some confusion as to whether the building society had in fact sent the title deeds and other documents (form 53, charge certificates and mortgage deeds) to LAB with their letter of 10 May 1993 (paragraph 7.7). However LAB later confirmed in their letter to the building society of 15 June 1993 that they had located the deeds. Furthermore, the building society say that they sent the documents by registered post and when I examined the files I found the original sealed form 53 that had accompanied the building society’s letter. I am therefore satisfied that LAB did receive Mrs D’s title deeds and other documents which were sent to them by the building society.
7.26 What happened to those title deeds (and indeed all the other documents) and why were LAB unable to produce them when asked to do so by Mrs D and her solicitors? The building society sent the title deeds and other documents to LAB in the expectation that the relevant documents (form 53 and charge certificate) would be forwarded to the Land Registry to register the discharge of the building society’s charge; and that as the one remaining chargee LAB would retain the title deeds until their own charge had been satisfied, after which they could be returned to Mrs D. That was not unreasonable, as prior to Mrs D redeeming her mortgage, the building society had held the first charge on her property. After Mrs D had redeemed her mortgage with the building society, LAB as second chargee would have become first chargee. It seems to me therefore that administratively it made good sense for the building society to send Mrs D’s documents to LAB who should have then forwarded relevant ones to the Land Registry for them to update the appropriate register entries. When LAB received the building society’s letter of 10 May 1993 containing Mrs D’s title deeds and other documents it appears that, rather than sending the relevant papers to the Land Registry to cancel the building society’s charge and register themselves as first chargee, they did nothing. According to LAB’s own procedures (paragraph 7.21) what they should have done was to have retained them securely and then, after their charge had been discharged, returned them to Mrs D. That did not happen. I criticise LAB for that.
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7.27 When Mrs D asked for her title deeds to be released in February 1998 (paragraph 7.8) as a matter of urgency LAB, rather than attempting to locate them and explaining to her that they could be released when they had completed the process to remove the charge on her property, appear to have made no attempt to check their papers to ascertain whether or not they held Mrs D’s documents. Following telephone calls and a further letter from Mrs D, and letters from her solicitors and the building society (paragraph 7.9), LAB wrote to Mrs D on 7 April 1998 saying that all the documents held by them had been sent to the Land Registry (paragraph 7.10). I can find no evidence to support that claim. In any event there was no reason for them to have sent the deeds to the Land Registry. Indeed, if they had done so, that would itself have been maladministrative as it would have been contrary to LAB’s own procedures and there was no need to do so.
7.28 Also, as I noted in paragraph 7.25, when I examined LAB’s file I found the original form 53 that the building society had sent to them in 1993. Had all the documents gone to the Land Registry, that document would not still be on their file. LAB’s letter of 7 April 1998 to Mrs D was therefore incorrect and misleading, for which I criticise them.
7.29 Given the sequence of events I have described above it is clear to me that Mrs D’s title deeds and other documents sent to LAB by the building society in 1993 were either misplaced or lost. My conclusion is supported by the second extract from the internal memorandum quoted in paragraph 7.21. Accordingly I strongly criticise LAB for losing or misplacing Mrs D’s title deeds and the other documents sent to them by the building society.
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7.30 LAB were also maladministrative in their handling of Mrs D’s request for the title deeds to her property. There was an initial failure to give the matter the urgency it deserved. Their handling of her telephone calls and correspondence showed a lack of appreciation of the urgency of the matter. Mrs D’s query about her title deeds was first received by LAB on 25 February 1998 (paragraph 7.8); but it was not until 20 February 1999 – nearly a year later and only after the intervention of the building society – that they were able to confirm that they had received them (paragraphs 7.12 and 7.13). When they were asked, on several occasions, about the title deeds LAB failed to take adequate steps to determine whether or not they held them. If they had checked their files at the outset they would have found the original form 53, which the building society had sent to them in March 1993, and correspondence that had passed between them and the building society. It would have become immediately clear that the building society had sent them all the documents relating to the discharge of Mrs D’s mortgage in 1993, and that the building society’s original form 53 had not been forwarded to the Land Registry. Had they promptly made Mrs D’s solicitors aware of the position it is likely that the solicitors would have had more time to replace the missing documents and, having done so, would have been in a stronger position to complete the cash sale of Mrs D’s property.
7.31 LAB’s handling of Mrs D’s title deeds suggests a lack of effective procedures for accounting for and monitoring such documents, so I asked the Chief Executive of LAB whether in the light of my concerns he would consider introducing formal instructions for staff. In reply, he said that LAB’s Land Charges Department were currently preparing revised filing and destruction policies that would shortly be documented in the form of procedures. In addition to that, a Land Charges Guidance Manual has been proposed that would cover, among other matters, the procedure for the registration of the discharge of prior charges.
7.32 Mrs D says that when she first asked about the title deeds she was told by LAB that their records did not go back as far as 1993. That was clearly not the case, as I have had access to those papers. I criticise LAB both for failing to recognise sooner that the deeds were lost and thereby delaying any remedial action that might have been taken to ensure that Mrs D’s sale of her property to a cash purchaser was able to proceed; and for, apparently, misleading Mrs D into believing that their papers had been destroyed.
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7.33 What effect did LAB’s actions have on the sale of Mrs D’s property? Mrs D says that LAB’s maladministration caused her to lose a cash purchaser for her house, as a result of which she had to mortgage her existing property in order to buy a new house. LAB for their part argue that the title deeds were not necessary for the sale of Mrs D’s property and that her loss could be traced to the building society’s failure to discharge their charge on her property. In paragraph 7.26 I said that I considered that the building society were not unreasonable in sending documents to LAB, as that was administratively the sensible thing to do in the circumstances. On receipt of title deeds and other documents LAB should have taken the necessary action to discharge the first charge and register themselves as first chargees, but from the papers I have seen, and their response to this complaint, it appears that they were not aware of that. At the time, they simply acknowledged receipt of the title deeds and took no further action. Nor, crucially, did they seek clarification or advice from the building society on the matter. It should have been clear to LAB that the building society’s letter required them to take some form of action. If, as the papers I have seen suggest, they were unsure about what to do, then they should have asked. It was maladministrative of LAB not to do so and for that I again criticise them.
7.34 I am prepared to accept that there might be some merit in LAB’s argument that the title deeds were not necessary to the sale of Mrs D’s property, but the same cannot be said for the charge certificate. Charge certificates are important documents. Their loss is likely to delay any conveyancing process as searches have to made for them, and if those prove fruitless a statutory declaration has to be sworn as to their loss. LAB misplaced or lost not only the title deeds but also the building society’s charging certificate, form 53 and mortgage deeds. All those documents must be taken into account in considering whether LAB’s actions resulted in any loss to Mrs D.
7.35 From the correspondence that passed between the solicitors who acted for Mrs D and the prospective purchaser in the abortive sale (paragraph 7.11), it is clear to me that the missing documents were certainly a contributory factor in the prospective buyer’s decision to withdraw from the transaction when they did. The actual extent of the effect of the missing documents on the decision to withdraw from the purchase is less clear, but the documents I have seen show that the buyer’s solicitors were certainly concerned that the Land Registry office entries still disclosed a first charge in favour of the building society, and that Mrs D’s solicitors did not seem to be in a position to produce the charge certificates. Despite Mrs D’s solicitors’ assurances that the building society had produced a duplicate form 53 and that they had asked the Land Registry to issue a new Land Certificate, the prospective purchaser’s solicitors felt that they could not go ahead with the transaction. From what I have seen in the papers it seems that the prospect of delay – which is inevitably associated with replacing missing documents – deterred the prospective buyer’s solicitors from proceeding with the purchase of Mrs D’s property.
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7.36 It is clear to me for the reasons given in the preceding paragraphs that LAB’s failings contributed to Mrs D’s additional costs, and that they should be held responsible for those costs. I have found that LAB were maladministrative in losing or misplacing Mrs D’s title deeds and other documents; by failing to forward documents that had been sent to them by the building society to the Land Registry (or seeking clarification on why the documents had been sent to them); and by mishandling her request for those documents. I have concluded that their maladministration was primarily responsible for the loss of a cash purchaser for her property. In the absence of LAB’s mishandling, it is unlikely that Mrs D would have had to mortgage her existing house in order to complete the purchase of the property she was in the process of buying. In order to restore Mrs D to the position she would have enjoyed had it not been for their maladministration, LAB should be responsible for bearing the additional costs incurred as a result of their actions. I therefore asked the Chief Executive to give further consideration to compensating Mrs D for the interest she incurred on her mortgage and for the unnecessary time and effort she had expended in pursuing this complaint. I also asked the Chief Executive if he would apologise to Mrs D for losing or misplacing the documents the building society had sent to LAB in 1993.
7.37 In reply the Chief Executive said that it was now clear to him that when LAB’s Land Charges Department received Mrs D’s charge certificate from the first mortgagee in June 1993 the correct procedure for redeeming a prior charge had not been followed. He said that he fully accepted that more effort should have been made by the Land Charges Department to ascertain what had gone wrong and why; and that it had taken LAB far too long to realise that they had had the documents to redeem the first charge since June 1993, but had failed to do so. By way of clarification, the Chief Executive explained that the words “title deeds” often refer to pre-registration documents and miscellaneous papers and not to the current documentation relating to the property. He apologised to Mrs D for LAB’s failure to confirm whether they had mislaid the documentation relating to her property, or had sent it to the Land Registry when applying for the vacation of the charge. I welcome that apology, which I pass on to Mrs D through this report.
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7.38 The Chief Executive said that, as well as his apologies, he would recommend to the Lord Chancellor’s Department (who are required to give their authority to pay compensation awards in excess of £1,000) that Mrs D receive compensation in the sum of £1,687.50 to cover the interest payments she had incurred on the short-term mortgage, together with the sum of £100 for the time and effort she had expended in pursuing her complaint.
Conclusion
7.39 Mrs D’s complaint was fully justified. LAB have apologised for their failings and agreed to recommend that she receive £1,787.50 in compensation. I regard that as a satisfactory outcome.
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