Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.HHJ WORSTER:
1. This is an action for possession of 23, Ferndale Road, Shrewsbury (“the property”).The claim is brought against 3 Defendants pursuant to the rights of the Claimant under a Mortgage Deed (“the Mortgage”) made between the 1st Defendant and Beacon Homeloans Limited (“Beacon”) in October 2005. The Claimant is entitled to enforce Beacon’s rights under the Mortgage. As the matter was opened, the case had 6 issues . Two of those issues fell away during the course of the trial, and I deal with them at the outset.
2. At trial I heard evidence from Miss Chard and Miss Venn who were called by the Claimant, and from the 2nd and 3rd Defendants (“Mr and Mrs Jackson”). I read the witness statements filed on behalf of the Claimant of Mr Scragg, Mr Chadwick (ignoring his submissions as to the legal position) Mr Smith and Mr Brand which were agreed. I apply the civil standard of proof.
3. I had skeleton arguments from Mr Rosenthal for the Claimant and Mr Walker for the
References to letters and numbers in square brackets are to the bundle letter and page number of the trial bundles.
4. The first issue – the Possession Order against the 1st Defendant.
The 1st Defendant (“Miss Welch”) did not appear at trial and was not represented. The Claimant had obtained a possession order against her on 14 May 2007 [A/I90]. However, at the material times Miss Welch was trading as a partnership with Richard Dewsbury, and it is plain that they bought and mortgaged the property during the course of the partnership’s business. That partnership went into liquidation on 11 May 2007. The order for possession was obtained without the permission of the Court or the consent of the administrator as required by Article 7 and Schedule 3 Part 1 of the Insolvent Partnerships Order 1994. The Claimant accepts that I am bound by the decision in Re
5. During the course of the trial, the Claimant obtained an Order from HHJ
6. Judge Purle QC also gave permission to add Miss Welch (in her capacity as a partner of the insolvent partnership) as a party to the Counterclaim brought by the 2nd and 3rd Defendants, and dispensed with the service of a new claim form upon her. The purpose is that she should be bound by any declarations made. The real dispute in this case is as between the Claimant and Mr and Mrs Jackson.
7. The Second issue – Mrs Jackson’s beneficial interest in the Property. Mr and Mrs Jackson were married on 16 June 1985. They had a son born the year before. The property was bought in about March 1985 for about £17,000 in Mr Jackson’s sole name. Mr and Mrs Jackson ‘s case was that it had always been their intention that the property be owned jointly between them, and that they were each beneficial owners of50% of the property. After testing the evidence on the point the Claimant conceded Mrs Jackson’s beneficial interest. It was accepted that her interest was subject to the mortgages with the
8. The Third Issue – The nature of the tenancy agreement. This requires setting out some of the factual background. Little is in issue. By 2005 the
9. By August 2005 the
10. Mr and Mrs Jackson saw an advertisement in a local newspaper for “Repossessions Stopped” who offered to buy properties from owners in arrears , payoff the mortgages, grant tenancies to the former owners and so enable them to stay in their homes. This was very attractive to Mr and Mrs Jackson. They had their 18 year old daughter Laura living with them, and they wanted to stay in their family home.
11. They contacted Repossessions Stopped. A Mr Dewsbury came to see them. Mr and Mrs Jackson thought he was very impressive. He offered to buy the property for £63,000. At paragraph 6 of his witness statement [A/170] Mr Jackson says this:
“Our main concern was to stay in the house and take out what would be almost like a permanent rental. Mr Dewsbury told us he foresaw no problems with this at all. Mr Dewsbury told us that provided that we observed the conditions of the tenancy we could stay there the rest of our lives. We were particularly concerned to ensure that the house would remain a home for our children in the event of our deaths. Mr Dewsbury assured us that this would be the case, and with this in mind it was agreed that our daughter Laura would become a joint tenant. Mr Dewsbury also told us that we would be at liberty to buy the house back from his company in the future at a discount of 10% below the market price at the time. While we were renting the company would take care of all the maintenance on the house which would include new windows, repairs to the guttering and annual gas safety checks …. Mr Dewsbury … told us our rent would be about £400 per month. He told us the rental would be on a yearly basis and may go up each year”.
12. In the course of their evidence Mr and Mrs Jackson confirmed this conversation. They accepted that their “permanent rental” was to be subject to them complying with the terms of the rental agreement with Mr Dewsbury’s company. They were asked whether they had considered what might happen if Mr Dewsbury’s company put the rental up by such a substantial amount that they could not pay it. Their evidence was to the effect that they had not really considered that. Mr Dewsbury had given every indication that he was going to be helpful. I believed Mr and Mrs Jackson’s evidence. I find that it was reasonable for them to assume that the rent would go up by a reasonable amount from time to time.
13. Further, I accept the evidence of Mr and Mrs Jackson about the representations made to them by Mr Dewsbury. Their evidence is corroborated by the contents of a letter they subsequently received from Repossessions Stopped dated 20 September 2005 [A/176]. But even if it were not corroborated I would accept what they say. I found them both to be honest and reliable witnesses. The failure to ask more questions looks unwise with hindsight, but these are not the sort of people to quiz apparently impressive men like Mr Dewsbury. They trusted what they were told and relied upon it in agreeing to the various transactions which followed. They were not to know that Mr Dewsbury and Miss Welch were dishonest.
14. Mr Dewsbury visited again, probably on the zo” of September 2005. He brought the documents at [A/176-178] and a draft tenancy agreement; see paragraph 8 of Mr Jackson’s witness statement [A/171]. The letter at [A/176] is of some importance.
15. The tenancy agreement was signed. The copy we have is undated [A/90]. Mr Jackson’s evidence is to the effect that it was signed during Mr Dewbury’s visit; see paragraph 8 of his witness statement [A/171]. Mr Dewsbury took away the signed agreement. There is an issue between the Claimant and the Jacksons as to whether this agreement was an Assured Tenancy (“AT”) or an Assured Shorthold Tenancy (“AST”). The
16. Section 19A of the Housing Act 1988 provides that:
An assured tenancy which – (a) is entered into on or after [28 February 1997]. ..
is an assured shorthold tenancy unless it falls within any paragraph of Schedule 2A to this Act.
17. The
(a) is served before the assured tenancy is entered into, (b) is served by the person who is to be the landlord under the assured tenancy on the person who is to be the tenant under the tenancy; and
(c) states that the assured tenancy to which it relates is not to be an assured shorthold tenancy.
Paragraph 2 provides for the situation where such a notice is served after the assured tenancy has been entered into, and does not arise on the facts. Paragraph 3 does not require any notice. It provides that:
3. An assured tenancy which contains a provision to the effect that the
tenancy is not an assured shorthold tenancy.
18. Does paragraph 1 apply? Both parties focus on the terms of the tenancy at [Al90] and upon the Court of Appeal’s decision in Andrews and ors v Cunningham [2007] EWCA Civ 762. Paragraph 1 applies where a notice is served before the tenancy is entered into. Andrews v Cunningham decides that the notice must be written; see Lawrence Collins LJ at paragraph [40] and Wilson LJ at paragraph [51]. In particular the requirement of “service” indicates that the notice must be written. The
19. Mr Walker referred to Rogan v Woodfield Building Services Limited [1995] 1 EGLR 72 CA. There it was held that the requirements of section 48(1) of the Landlord and Tenant Act 1987 that the landlord ” … shall by notice furnish the tenant with an address … “for service were met by the inclusion of the landlord’s address in the tenancy agreement itself. There are differences in the structure and operation of the provisions of the Landlord and Tenant Act and the Housing Act which make the analogy less than perfect, but I accept that for example a suitably worded draft agreement or a covering letter served before the tenancy agreement was made would be capable of fulfilling the requirements of paragraph 1. The purpose of the written notice is to give the statutory information with certainty. No special document is required.
20. What happened here was that Mr Dewsbury brought the unsigned tenancy agreement [Al90] and the covering letter [Al176] to the Jacksons on about 20 September 2005. The tenancy agreement was one of the documents brought for the
21. The covering letter might be a notice served “before” entering into the agreement. There is evidence from Mr Jackson to support that finding. The requirements of Paragraph 1 sub paragraph (b) are also met. Does the covering letter meet the requirements of Paragraph 1 sub paragraph (c)? For that to be so the “notice” must state that the assured tenancy to which it relates is not to be an assured shorthold tenancy .
22. The 3rd paragraph of the letter at [A/176] says this:
“I have drawn the agreement for an initial twelve month period, after this time you may continue renting from us on a revolving 12 month agreement, subject to the tenancy being conducted in a satisfactory manner…. Laura Louise Jackson will also be on the tenancy. Should anything happen to Mr or Mrs Jackson or both, then first refusal on the tenancy will be given to any or all of the children.. .. “
23. Mr Rosenthal submits that this letter does not state that the tenancy is not to be an assured shorthold tenancy . Mr Walker points to the description of the tenancy in the letter. He refers to the potential for it being a long term arrangement and thus inconsistent with being an assured shorthold tenancy.
24. This letter does not read as a notice which “states” that the agreement to be entered into is not to be an assured shorthold tenancy. Firstly there is a substantial degree of analysis necessary before that might appear. Secondly the requirement is for a statement. There is a significant difference in the drafting of Paragraphs 1 and 3. The former requires that the notice “states”. The latter requires that the agreement “contains a prov ision to the effect”. The requirement for a statement is consistent with the need for clarity, which is one of the substantial purposes of such a notice procedure. What Mr Walker is really arguing is that the letter is “to the effect” that the tenancy is not to be an assured shorthold tenancy. Paragraph 1 requires more than that. I find that the letter does not satisfy the requirements of paragraph 1(c).
25. Does Paragraph 3 apply? Mr Walker submits that I am entitled to look not only at the written agreement at [A/90] but also at what was orally agreed between Mr and Mrs Walker and Mr Dewsbury prior to the signing of the written agreement (see paragraphs 19-25 of his skeleton). The question of whether the Court is entitled to look at oral provisions that the tenancy is not an AST was left open in Andrews v Cunningham. I return to that issue below.
The agreement at [A/90] starts with these words:
Rental Agreement –
(For an Unfurnished House or Flat on a Short Assured Tenancy)
THIS RENTAL AGREEMENT comprises the particulars detailed below and the terms and conditions printed overleaf whereby the Property is hereby let by the Landlord and taken by the Tenant for the Term at the Rent as a Short Assured Tenancy.
Halfway down the page are these words
The TERM 12 Calendar Months beginning on
The tenancy will then continue, still subject to the terms and conditions set out in this Agreement from month to month from the end of this fixed period unless or until the Tenant gives notice that he wishes to end this Agreement as set out in clause 4 overleaf, or the Landlord serves on the Tenant a notice under Section 21 of the Housing Act 1988, or a new form of Agreement is entered into, or this Agreement is ended by consent or a court order.
At the foot of the page are “IMPORTANT NOTICES”, They refer to AST’s, to the notice provisions applicable to Landlords and to protections given to tenants who occupy under an AT,
27. Does the agreement contain a provision to the effect that it is not an assured shorthold tenancy? Mr Walker’s principal submission on the effect of the document is that the tenancy is said to be a “Short Assured Tenancy”. That only makes sense if it is seen as a short “Assured Tenancy” – in other words not an Assured Shorthold Tenancy. The description appears at the top of the document, and defines it. Further, Mr Walker asks me to construe those provisions in the context of (what might be seen as) the factual background against which this agreement was made. I am not entitled to look at negotiations, but I am entitled to look at the nature and object of the contractual venture.
28. Mr Rosenthal makes three points. Firstly that the word “short” would not have been used if the intention was to grant an Assured Tenancy. He submits that Paragraph 3 requires a statement that the tenancy “is not to be an [AST]”. My reading of the requirement is that a statement is not necessarily required. A provision to that effect will suffice. Here what is granted is said to be a “Short Assured Tenancy”. That is not an “Assured Shorthold Tenancy”. The word short may be without effect, but it is not the word “Shorthold” nor does it appear between the words “Assured” and “Tenancy”, which it would if this were an AST. Mr Walker submits that if necessary I can look at paragraph 3 of the letter at [A/176] to explain the use of the word “short” in the context of this tenancy agreement. I accept that submission. Indeed even if I limited myself to the document at [A/90] the position of the word “short” would indicate that it is there to qualify the words which follow it. The better construction is that this is a short “Assured Tenancy”.
29. Mr Rosenthal’s second point is that the words in the middle of the page, which refer to section 21 of the Housing Act 1988, only make sense if this is an AST. His third point is to a similar effect. The IMPORTANT NOTICES at the foot of the page only make sense if this is an AST. This appears to be a standard form which has been altered. The clauses he refers to would be standard in an AST.
30. Read as a whole there are inconsistent provisions. But the standard form appears to have been deliberately altered by the Landlord, who has described the tenancy, and expressly provided at the head of the document that it is” …taken by the tenant …as a Short Assured Tenancy”. That is what the parties are agreeing. I conclude that the tenancy agreement is governed by that express description and agreement, which is a provision to the effect that the tenancy is not an Assured Shorthold Tenancy. Mr Walker’s argument is that the inclusion of an inappropriate term should not change the essential nature of what is being agreed. I agree. Notwithstanding Mr Rosenthal’s second and third points, as a matter of construction I find that the requirements of Paragraph 3 are met. The consequence is that the
31. I turn to the effect of oral agreements made with Mr Dewsbury. It is not necessary to my decision to deal with the point. But Counsel argued it, and (for what it is worth) I formed a view. Lawrence Collins LJ said this at paragraph [44] in Andrews v Cunningham:
Paragraph 3 is plainly directed primarily to written agreements with a provision that, or to the effect that, the tenancy is not an assured shorthold tenancy.
In paragraphs [45] and [46] he identified his reasons. Firstly, an effective oral agreement that the tenancy should not be an AST would be contrary to the whole regime of ASTs. Secondly, that the structure of Schedule 2A and the place of paragraph 3 in that structure supported the conclusion that paragraph 3 required a document.
32. At paragraph [52] Wilson LJ came to a different view. He was not convinced of the need for a written agreement. That construction involved implying the words “in writing” into Paragraph 3. Further he was concerned about the position of a tenant under an oral agreement for an assured tenancy which contained a provision to the effect that the tenancy was not shorthold should lose security of tenure because of the implication of a requirement for writing.
33. The starting point must be the words of Paragraph 3. They require that the “provision” to be relied upon is to be “contained” in the tenancy. In other words the court is to identify the agreement and then look for a term to the effect required.
(1) That excludes pre contractual representations.
(2) It leaves open the question of whether the agreement might be written, oral or partly oral;
(3) The Court is left to identify the terms of the tenancy in the particular case.
34. I would be inclined to the view that where the agreement is written, that written agreement must contain the term to be relied upon. If, on the other hand, there were an oral agreement (or a partly written and partly oral agreement) which “contained” a provision to the effect that it was not an AST, then that would be effective. It seems to me that the words of the Paragraph do not require writing in all cases (whatever the desirability of that), and to read in that requirement is not necessary to meet the purpose of the provision or to make it work. It is a question of what is “contained” within the agreement.
35. What are the terms of the tenancy in this case? On the facts of this case, the terms of the tenancy are those set out on the document at [A/90] and overleaf. There were discussions made prior to the tenancy and representations made by Mr Dewsbury as to its effect. But the written agreement at [A/90] was signed by both parties and was intended to set out their agreement. If that is the case, then whilst the oral agreements might inform the construction ofthe terms of the written agreement if they are within the admissible background, and whilst they are the basis for the
36. The Fourth and Fifth Issues
I accepted the
(i) How should the court give effect to that estoppel?
(ii) Does it bind Beacon (and thus the Claimant)?
37. Similarly the Claimant accepts that the
(i) Is the right to set aside exercisable against Beacon/the Claimant?
(ii) If so, what “counter restitutionary order” should be made?
38. Priority
Both these issues and my findings as to the agreement for the grant of the AT raise difficult questions about the extent to which the
39. The first factual “transaction” in time was the agreement for the AT. I find that the agreement was entered into by the
40. The second factual “transaction” in time was the sale and purchase. Mr Dewsbury offered to pay for a firm of solicitors to undertake the conveyancing for the
41. On 3 October 2005 Mr Sedgwick wrote to the
42. Mr Jackson ‘s evidence was that he thought the market value of the property at the time was in the region of £85,000; see paragraph 5 of his witness statement [Al170]. The indebtedness to the mortgagees was £62,757. It is apparent that he and his wife were willing for Mr Dewsbury to benefit to that sort of extent. They never really asked for any detail because for them the real “price” was Mr Dewsbury’s agreement that their liabilities to their two mortgagees would be met and that they would be able to remain living in their home as tenants , paying rent and abiding by the terms of the tenancy; ” … almost like a permanent rental”; see paragraph 6 of Mr Jackson’s witness statement [Al170] . It is necessary to separate out the various legal steps that involved, but it is important not to lose sight of the fact that so far as the Jacksons and Miss Welchl Mr Dewsbury were concerned, the various legal transactions were interlinked.
43. On 14 October 2005 B Legal were instructed to act on behalf of Beacon in relation to an advance to be made to Miss Welch for the purposes of the purchase. The advance was to be secured over the Property; see paragraph 4 of the witness statement of Ruth Chard [Al72]. The Mortgage Offer was for £84,957 (85% of the valuation) plus fees and at [B1/278] provided that
“You are not bound by the terms of this offer document until you have signed the Mortgage Deed and your solicitors release the funds for your loan to you or on your behalf’
The terms of the Mortgage offer included a special condition that the Property was only to be let on an AST; see [B2/911].
44. On 17 October 2005 Mr Sedgwick sent the TR1 (already signed in escrow by Miss Welch) to Mr Jackson to sign and return. That was done. On 18 October 2005 Miss Welch’s solicitors (Edmunds and Co) wrote to B Legal. Enclosed were the completed Requisitions [B1/316-323] and a copy of the proposed contract for sale at a price of £99,950. Special Condition 5 provided for a sale ” … with vacant possession on completion” [C/1702].
45. Completion was fixed for 28 October 2005. I have not heard evidence from either of the solicitors involved . The documents I have are as follows:
[All 17] a Bank statement showing Redstone (for Beacon) transferring £84,857 to Edmunds and Co in respect of the loan on 27 October 2005
[C/1702] The contract signed by Miss Welch, dated 28 October 2005, with the following annotation
[Bl/568] The Mortgage signed by Miss Welch dated 28 October2005.
[Bl/405] a Land Transaction Return for the sale of the property completed by Edmunds and Co giving the date of contract as 28 10 2005 and the effective date of transaction as 28 102005.
[C/1701] A letter from Edmunds and Co to Addison O’Hare dated 31 October 2005 giving the date of exchange as 28 October 2005 at 3.15pm, Law Society Formula B, with a completion date of 28/10/05 and enclosing the contract at [C/1702]
[C/1704] A letter from Edmunds and Co to Addison O’Hare dated 31 October 2005 which reads:
We confirm that we have today credited your account with the amount required to complete. We await hearing from you with the transfer signed by your clients ….
[Bl/570] The TRI signed by both parties dated 31 October 2005. The probability is that date would have been applied by Addison O’Hare, who physically held the signed TRI.
[C/1715] Addison O’Hare’s accounts ledger with an entry
31-0ct-05 TTCOMPLETION MONIES
EDMUNDS AND CO
£99,950
[C/1706] A series of documents from Addison O’Hare’s file indicating that cheques were sent to Welcome and C and G on 31 October 2005 to discharge the balances owed on the mortgages against the property (confirmed by entries on the Accounts Ledger)
[A/12] The Proprietorship Register showing registration of the Transfer and Mortgage on 30 November 2005 and including this:
2. The price stated to have been paid on 31 October 2005 was £99,950
46. On the basis of that evidence I find that exchange took place over the telephone at 3.15 on Friday 28 October 2005. The Claimant’s case was that exchange and completion were effected at about the same time. On the balance of probabilities I find that completion took place on 31 October 2005 (the following Monday).
47. Miss Chard gave some relevant evidence in relation to the time of completion. At paragraph 10 of her witness statement [Al75] she said that on 28 October 2005 Edmunds and Co were telephoned and they ” ….confirmed that completion was effected on the 28 October 2005 and the Mortgage Deed and TRJ transferring the loan over the property from Beacon to the Claimant was completed on that date”. In her oral evidence she said that she spoke to the secretary at Edmunds and Co and was told that completion had been effected on that day – “as simple as that”. In his supplemental submission Mr Rosenthal makes the point that the dating of the Inland Revenue Land Transaction Return also indicates that this is what Edmunds and Co believed.
48. Miss Chard was also able to assist with the practice of Banks. She told me that the latest point in the day for same day receipt of the telegraphic transfer of funds was 4.30 pm without a guarantee. The latest time with a guarantee for Barclays and Natwest was 3.30pm. It seems that Edmunds and Co believed that the sale had been completed on 28 October 2005 . However, it is apparent that from the letter Edmunds and Co sent to Addison O’Hare on 31 October 2005, and from the Accounts Ledger at [C/1715] that the completion monies were not actually transferred (or at least received) until the following Monday. That might be because there was not time for Edmunds and Co to do it on the Friday afternoon, or because it was done but the Bank did not have time to process the transfer. I find that there was a gap between exchange and completion.
49. I tum now to the issues of priority. These lie at the heart of the case. On the evidence I have heard I find that the
(i) An agreement to grant an AT;
(ii) A proprietary estoppel founded on the representations made by Mr Dewsbury which would prevent Miss Welch from denying that upon the sale the Jacksons were entitled to live in the property as tenants, subject to paying the rent. In effect, on the terms of the AT with the right of their daughter to succeed and the option to buy back set out in the covering letter at [Al176];
(iii) A right to set aside the sale for fraud.
50. The Overriding Interest Argument
The Jacksons case is that all those rights are sufficient to found an overriding interest in the property pursuant to Schedule 3 paragraphs 1 and 2 of the Land Registration Act 2002 (“the LRA”) and thus avoid being postponed to Beacon’s rights under the Mortgage; see section 29(1) and (2)(a)(ii).
51. Paragraph 1 of Schedule 3 relates to “Leasehold estates in land”. The
A leasehold estate in land granted for a term not exceeding seven years from
the date of the grant, except for
12
(a) a lease the grant of which falls within section 4(l)(d),(e) or (f);
(b) a lease the grant of which constitutes a registrable disposition.
52. Paragraph 3 of Schedule 3 relates to “Interests of persons in actual occupation” as follows:
An interest belonging at the time of the disposition to a person in actual occupation so far as relating to land of which he is in actual occupation.
None of the exceptions apply. The rights in estoppel (and/or to set aside) would qualify as “interests”; see section 116 LRA.
53. The
54. The Claimant’s case in relation to the AT (and the other rights in the property) is that where title to property is acquired with the benefit of funds provided under a mortgage, the purchaser’s title is, from inception, bound by the mortgage. So Miss Welch’s title was always subject to the limitation imposed by the Mortgage condition, and she did not have title from which to grant the AT to the
55. The Claimant’s analysis derives from the speeches of Lords Oliver and Jauncey in Abbey National Building Society v Cann [1991] AC 56. Lord Oliver said this @ 92F to 93C:
… Of course, as a matter of legal theory, a person cannot charge a legal estate that he does not have, so that there is an attractive legal logic in the ratio in Piskor’s case. Nevertheless, I cannot help feeling that it flies in the face of reality. The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together. The acquisition of the legal estate is entirely dependent upon the provision of funds which will have been provided before the conveyance can take effect and which are provided only against an agreement that the estate will be charged to secure them. Indeed, in many ,if not most, cases of building society mortgages, there will have been, as there was in this case, a formal offer and acceptance of an advance which will ripen into a specifically enforceable agreement immediately the funds are advanced which will normally be a day or more before completion. In many if not most, cases, the charge itself will have been executed before the execution, let alone the exchange, of the conveyance or transfer of the property. This is given particular point in the case of registered land where the vesting of the estate is made to depend upon registration, for it may well be that the transfer and the charge will be lodged for registration on different days so that the charge, when registered, may actually take effect from a date prior in time to the date from which the registration of the transfer takes effect: see section 27(3) of the Act of1925 and the Land Registration Rules 1925, rule 83(2). Indeed, under rule 81 of the Rules of1925, the registrar is entitled to register the charge even before registration of the transfer to the charger if he is satisfied that both are entitled to be registered. The reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The ‘scintilla temporis’ is no more than a legal artifice and, for my part, I would…… hold that Piskor’s case was wrongly decided..
56. Lord Jauncey posed and answered the question in this way @ 101F:
It is of course correct as a matter of strict legal analysis that a purchaser of property cannot grant a mortgage over it until the legal estate has vested in him. The question however is whether having borrowed money in order to complete the purchase against an undertaking to grant security for the loan over the property the purchaser is, for a moment of time, in a position to deal with the legal estate as though the mortgagee had no interest therein. In re Connolly. Coventry Permanent Economic Building Society v Jones [l951] 1 AER 901 and the Security Trust case say that he is not in such a position recognising, in my view, the realities of the situation. Piskor’s case says that he is, thereby ignoring any interest which the mortgagee may have prior to completion of the purchase. Nevertheless in each of the four cases the purchase was dependent upon the loan and I find it impossible to see any material distinction between the circumstances obtaining in the three former cases and those obtaining in Piskor’s case. In my view a purchaser who can only complete the transaction by borrowing money for the security of which he is contractually bound to grant a mortgage to the lender eo instante with the execution of the conveyance in his favour cannot in reality ever be said to have acquired even for a scintilla temporis the unencumbered fee simple or leasehold interest in land whereby he could grant interests having priority over the mortgage or the estoppel in favour of prior grantees could beefed with similar results. Since no one can grant what he does not have it follows that such a purchaser could never grant an interest which was not subject to the limitations on his own interest. In so far as Piskor decided that such a purchaser could be vested for a moment of time in the unencumbered freehold or leasehold estate with the consequences to which I have just referred, I consider that it was wrongly decided. Conversely I consider that the decision Of Harman 1. in the
57. The principles in Cann were applied by the Court of Appeal in Whale v Viasystems Technograph Limited [2002] EWCA Civ 480. The facts of Whale were that Viasystems agreed on the exercise of an Option to purchase the Headlease of a building from its owner for 125 years on terms. Viasystems agreed to grant Grantax an Underlease ofthe building for the term of the Headlease less 3 days. The Bank of Scotland provided Grantax with the entirety of the finance needed to purchase the Underlease and took a charge over the Underlease. The Headlease and Underlease were executed on the same day – the Head Lease first followed by the Underlease. The monies advanced by the Bank to Grantax, and used by Grantax to purchase the Underlease, were used by Viasystems to purchase the Headlease.
58. Chase Manhattan held a pre existing debenture over Viasystems. Chase did not give consent to the grant of the Underlease. So that when they sought to enforce the debenture Chase said that the debenture took effect in priority to the Underlease, on the basis that it created an equitable charge over the Headlease effective from the moment it was acquired. That, it was argued, was prior in time to the grant of the Underlease.
59. Lord Justice Jonathan Parker (with whom Lord Justice Aldous agreed) said this:
[72] In my judgment, in the light of the decision of the House of Lords in Cann it must now be taken as settled law that, in the context of an issue as to priorities as between equitable interests , the court will have regard to the substance, rather than the form, of the transaction or transactions which give rise to the competing interests; and in particular that conveyancing technicalities must give way to considerations of commercial and practical reality. I agree with the judge that this approach is not limited to cases involving the purchase of a property coupled with the grant of a mortgage or charge to secure repayment of the funds which were required to enable completion of the purchase to take place. In my judgment it falls to be adopted generally, in every case where an issue arises as to priority between equitable interests. The case of a purchase of property coupled with the grant Of a security is likely to be the paradigm case where the Cann principle applies, but, like the judge, I can see no reason in logic or principle why its application should be limited to such cases. That said, the result of applying the Cann principle will inevitably depend upon the facts of each particular case.
[73] In my judgment the substance and reality of the sequence of dealings in the instant case is that the [Viasystems] acquired no more, in terms of property interest, than the nominal three-day reversion on the Underlease. It seems to me that it would be wholly unreal, in the context of the Priority Issue, to regard [Viasystems] as being the owner of an unencumbered 125 year term on the execution ofthe Headlease, in circumstances where in commercial terms the exercise of the option and the obligation to grant the Underlease to Grantax were directly connected, where completion of the grant of the Headlease and the grant of the Underlease took place together, and where the purchase price for the Headlease was satisfied out of monies paid by Grantax for the Underlease. To adopt the words of Sir Herbert Cozens-Hardy MR in Connolly (which I quoted earlier) we should in my judgment be shutting our eyes to the real transaction if we were to hold that an unencumbered 125year term was at any point vested in [Viasystems] so that it became subject of the Debenture.
60. Miss Welch’s purchase was dependent upon the loan from Beacon. We do not know for sure, but it is very likely that she executed the Mortgage Deed in advance of the sale. Mr Walker points out a potential difference between this case and Cann. In this case the terms of the Mortgage offer mean that Miss Welch was not contractually bound by the terms of the mortgage offer until she had signed the Mortgage Deed and her solicitors released the funds for the loan to her or on her behalf. The probability is that the release of funds did not occur until the Monday after the Friday of exchange. The argument is that upon exchange on 28 October 2005 Miss Welch acquired an equitable interest in the property sufficient to grant a tenancy but that the Mortgage did not bite until 31 October 2005. There is, therefore, more than a moment in time. There is a real gap of a few days, which is time enough for the AT to take priority.
61. Mr Rosenthal accepts that because of the Mortgage Conditions there is no prior equitable title in Beacon arising from a pre existing contract. But he says that is not the basis of the decision in Cann. It was not the fact of the prior contract (here absent) which was decisive, but (to paraphrase Lord Oliver) the reality that the acquisition of the legal estate and the charge were indissolubly bound together.
62. In Whale at first instance, the Deputy High Court Judge (Michael Briggs QC) said this:
The nearest one can come to a general test which will answer the question, “When does the Cann principle apply? ” is by asking whether the purchaser is, at the time of the purchase, bound in contract, in conscience or by necessity to confer an immediate interest on the chargee.
The passage is set out in Lord Justice Jonathan Parker’s judgment at para [49](3), without apparent criticism. The requirement for a binding contract is inconsistent with the approach in Cann and Whale, which focus on the substance and reality of the case. I accept Mr Rosenthal’s submission on this point.
63. However, this is not simply a case where there is a limitation to the title of the purchaser arising from the application of Cann principles to the rights of Beacon under the mortgage. In this case it is argued, that as part of the same sale and purchase transaction, there is a limitation on the title which was passed from Mr Jackson to Miss Welch. The argument is that her title was always subject to the
64. Mr Rosenthal submits that the Whale analysis does not apply on the facts of this case because:
(i) the interest Miss Welch acquired was not acquired with funds provided by the
(ii) the agreement that they could stay in the property was the reason for the transaction rather than being the transaction itself.
65. Mr Rosenthal’s first point limits the application of the principle to a party who provides money. In most cases the provision of the money will be the key element in the reality and substance of the transaction. Looking at this transaction from the purchaser/mortgagees end, that is indeed the case . But the argument put by Mr Walker looks at the other end of the transaction. It is that the agreement to sell and purchase as between Miss Welch and Mr Jackson is indissolubly bound up with the agreement to grant the AT. The one is dependent upon the other. The fact that (in addition) the indebtedness to Mr Jackson ‘s original mortgagees is to be paid off is one part of the picture. But the agreement to grant the AT cannot be separated out. I prefer Mr Walker’s submissions on this point.
66. As to the second point, whilst I see the potential for a distinction between a reason for a transaction and the transaction itself, here the reality is that it is all one. There is an agreement for a secure tenancy which is indissolubly bound up with the transaction.
67. It is the substance and reality of the transact ion which the Court is to focus upon. On the facts I find that the agreement to grant the AT was an indissoluble part of the
68. I find therefore, that Miss Welch never had more than a title to the property subject to the
69. The “Registration Gap” Argument
As an alternative, Mr Walker argued that if the mortgage took effect ahead of the charge, the AT would still trump it. His submissions are set out in writing at paragraphs 21-35 of his additional submissions and were developed orally . They are, he submits, an inevitable and acceptable consequence of the registration gap. The steps in the argument are as follows:
(i) Prior to registration, Miss Welch was entitled to exercise owner’s powers because she was entitled to be registered as a proprietor; see section 24(b) LRA; Ruoff and Roper paragraph 13.004.04…
(ii) Those powers include the power to make a disposition of any kind permitted by the general law in relation to an interest of that description; see LRA section 23(1)(a) LRA.
(iii) Section 29(4) LRA provides that:
Where the grant of a leasehold estate in land out of a registered estate does not involve a registrable disposition, this section has effect as if –
(a) the grant involved such a disposition , and
(b) the disposition were registered at the time of the grant.
The AT was for a term of7 years or less and took effect immediately. Thus it did not require registration to be complete; see section 27(2)(b)(i)(ii) LRA.
(iv) So, for the purposes of section 29, the AT is to be treated as a registrable disposition of the freehold estate and as if it were registered at the time of the grant. The AT therefore took effect in law rather than just in equity.
(v) The Mortgage required registration to be complete, and was not registered at the time of the grant of the AT, and the AT therefore takes priority over the Mortgage.
70. Mr Rosenthal submits that this is a surprising result and that I should construe legislation to avoid such an unlikely result. I agree with him, but I am unable to see any flaw in the chain of Mr Walker’s argument. Mr Rosenthal submits that the general principle is that you can’t grant what you don’t have. Again I agree, but on their face the terms of section 24 are clear. It is not disputed that Miss Welch was entitled to be registered as the proprietor of the freehold interest. Further the purpose behind section 24 was to remove the practical difficulty of the owner who had to wait to be registered before he could sell or charge the property he had bought. The intention is to give Miss Welch power to do what Mr Walker submits she did. Many such dispositions would require registration to be complete, but not the AT.
71. The result is a curious one. Whereas the protection given by the LRA to equitable interests where the owner of that interest is in actual occupation gives (in this case) the Mortgagee a real chance of discovering the true position, the effect of Mr Walker’s submissions is a less readily understandable consequence given the policy underlying the LRA. With some hesitation, I accept Mr Walker’s submissions and find that if the charge took effect in equity before the AT, the AT is to be treated as a tenancy in law, and by operation of the LRA is also to have priority over the Mortgage upon registration.
72. I return at this point to the
The value of that equity will depend upon all the circumstances of the case including the expectation and the detriment. The task of the court is to do justice. The most essential requirement is that there must be proportionality between the expectation and the detriment.
73. I have in mind that Beacon (and the Claimant) are an innocent party.
74. The Claimant argues firstly that the appropriate relief would be a payment to the
75. To deprive Mr and Mrs Jackson of the right to a tenancy of the property would fall well below the minimum necessary to do justice in this case. Their reasonable expectations were that they would have a secure tenancy for life upon payment of the rent from time to time, that their daughter would succeed to the tenancy, and that they would have an option to buy back at 10% less than market value. A sum of money now, whether based upon the actual value of the property in 2005 (£100,000) or the value Mr Jackson believed it had (£85,000) is of little if any use to them because it will not provide them with a home. I reject that approach to the matter.
76. Alternatively Mr Rosenthal submits that there should be an assured tenancy without restriction on the grounds of possession. In all the circumstances I can see nothing uncertain or extravagant about the expectations of Mr and Mrs Jackson to be able to enjoy more than a simple AT. The detriment they have suffered as a result of this transaction is the loss of the ownership of their home.
77. That detriment is to be seen in the context of the fact that Mr Jackson was in arrears on the mortgages on the property, and in his mind at least, there was a risk of losing the property on repossession. Mr Walker submits that Mr Jackson had exaggerated that risk. I agree. Firstly it is apparent from the evidence that the property had a lot more equity in it than Mr Jackson thought. Secondly, the arrears were only of 4 months or so in the context of a history of a long term first mortgage. If there were any arrears on the shorter term second mortgage, they were minimal. The likelihood is that the mortgagees would not have pressed for possession, but would have been agreeable to some form of refinancing or extension of the repayment period to take account of these and future arrears. It is a great pity that Mr and Mrs Jackson did not take some impartial advice about the matter in 2005.
78. I find that the minimum equity to do justice requires that the
79. The Sixth Issue
Finally the
80. The Court is bound to recognise the practicalities of the situation. In Halpern and anor v Halpern and ors (No 2) [2007] EWCA Civ 291; [2007] 3 AER 478, Carnwath LJ (with whom Waller and Sedley LJJ agreed) said this at paragraph [61].
Before the deputy judge the argument turned specifically on the requirements of rescission for duress at common law. This was contrasted on the one hand with common law rescission for fraud, for which counter restitution was a well established requirement ‘” and on the other with equitable rescission for undue influence, for which again a form of counter restitution was required, albeit subject to a more flexible criterion of “practical justice”. The classic statement of the latter approach is in Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218@ 1278-1279, [18 74-80] All ER Rep 271 @286 per Lord Blackburn:
” …. a Court of Equity could not give damages and unless it can rescind the contract, can give no relief And, on the other hand, it can take accounts of profits, and make allowances for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were
in before the contract ” (My emphasis).
In more modern times, the same approach was adopted and applied by this court in 0 ‘Sullivan v Management Agency [1985]1 QB 428@ 458 per Dunn LJ.
81. Dunn LJ in O’Sullivan recognised that the approach extended to cases of misrepresentation and undue influence; see at 466E and H. Camwath LJ in Halpern
@ paragraph [75] recognises that:
…. for the purposes of “practical justice “, the primary objective may not always need to be to restore both parties to their previous positions. As Professor Trietel has said (in the context of rescission for misrepresentation):
a … The essential point is that the representee should not be unjustly enriched at the representor’s expense; that the representor should not be prejudiced is a secondary consideration ….
82. So I must look at what is practically just in this case if the
83. If the sale is set aside, Mr Jackson cannot now raise the funds to pay over the sum Beacon advanced. He concedes that he would have to accept a charge over the property in favour of the Claimant to the extent of the mortgages paid off by Miss Welch on the purchase. To do otherwise would lead to a windfall. The terms of that charge would reflect the terms of the charges paid off by the monies advanced by Beacon to Miss Welch. The Claimant has a degree of security and a regular repayment. That might be done by subrogation or by a new charge. I do not know what the monthly repayments on those charges (or a composite charge to the total value of the indebtedness) would be now. It may very well be less than it was in 2005. It may be less than the rental Mr Jackson agreed with Miss Welch. It may be that there is an element of enrichment (unintended on Mr Jackson’s part), but that is not such as to be unjust.
84. If the sale of the property is to be set aside and the ownership of this property is to be restored to Mr Jackson, it is practically just that:
(i) he make “repayments” from the date upon which this order comes into effect (or such other date as the parties may agree) at the level he would have been paying had the transaction never taken place.
(ii) he pays the arrears of rental on the AT. Mr Jackson has not made payments direct to Miss Welch (for good reasons) but has saved the equivalent sums in an account. On setting aside, the arrears on the AT should be paid to the Claimant.
I invite Counsel to consider the terms of an order or agreement to give effect to that. A similar provision in respect of the arrears will apply were the
85. It follows from the above that I dismiss the claim for possession against the 2nd and 3rd Defendants. The Counterclaim brought by the 2nd and 3rd Defendants seeks a series of Declarations. I will hear from Counsel as to the form of the appropriate orders.
HHJ Worster
22 June 2009
