Bank of Scotland v Hussain and another

Sale of property – Mortgage – Overriding interest – Undue influence – First defendant purchasing property from second defendant with aid of mortgage from claimant secured on property – Court setting aside sale on ground of undue influence but charge remaining in place – Claimant mortgagee applying for possession – Second defendant claiming overriding interest within section 7(1)(g) of Land Registration Act 1925 – Whether second defendant in actual occupation for purposes of 1925 Act – Whether second defendant bound by charge by reason of consent or estoppel — Application grantedIn 2001, the second defendant sold her property to the first defendant at an undervalue. The first defendant took out a mortgage with the claimant bank secured by a charge on the property. The court subsequently determined that the contract for sale and the transfer had been procured by undue influence and were unconscionable bargains (the 2001 action). It ordered that the property should be re-registered in the second defendant’s name but subject to the claimant’s charge.The claimant sought an order for possession of the property and applied for summary judgment. However, the second defendant contended, under section 70(1)(g) of the Land Registration Act 1925, that she held an overriding interest in the property as a person in actual occupation at the time of the transfer to the first defendant. The claimant’s application to strike out that defence was dismissed by a master but summary judgment was granted. The High Court allowed the second defendant’s appeal against that decision but dismissed the claimant’s appeal: [2008] EWHC 1669 (Ch); [2009] PLSCS 14.The claimant then pursued its order for possession. The court had to consider whether: (i) the decision in the 2001 action meant that the second defendant was not entitled to challenge the charge in the instant proceedings; (ii) the remedies obtained in 2001 were contrary to the case now being advanced so that she was precluded from advancing that case; (iii) she was in actual occupation of the property at the relevant time within the meaning of section 70(1)(g) of the 1925 Act; and (iv) she was bound by reason of consent or estoppel.Held: The application was granted.(1) The court’s affirmation of the master’s refusal to strike out the defence and counterclaim barred the claimant from contending that they represented an abuse of process. That was the same issue as was raised by the strike-out application and the court had expressed its conclusions on the point in unqualified terms. There was nothing to indicate that the judge was expressing only a provisional view and the court’s decision represented a final determination on the question of abuse of process, with the result that the res judicata principle applied: Mullen v Conoco Ltd [1998] QB 382 distinguished. (2) The remedies that the second defendant obtained in the 2001 action did not preclude her from challenging the charge. She had been granted an order setting aside the sale of the property on grounds of undue influence and unconscionable bargain, and, although all concerned might have assumed that the charge was effective when the court’s order was being framed in 2001, the relief it granted was not necessarily inconsistent with a challenge to the charge. The order merely provided for the first defendant to indemnify the second defendant against the charge and would simply become a dead letter if the court were to conclude that she was not bound by the charge; it would not produce double recovery: First National Bank plc v Walker [2001] 1 FLR 505 distinguished.(3) The second defendant had been in actual occupation of the property when the charge was granted: Strand Securities Ltd v Caswell [1965] Ch 958; Hoggett v Hoggett (1980) 39 P&CR 121; Williams & Glyn’s Bank v Boland [1981] AC 487; and Abbey National Building Society v Cann [1991] 1 AC 56 applied. (4) However, a person with an overriding interest might be taken to have authorised a mortgage and so to be bound by it. Where an owner was found to have given the vendor or borrower the means of representing itself as the beneficial owner, the case formed one of actual authority equivalent to absolute ownership. The beneficial owner would have the right to deal with the property as owner, and any limitations on that generality had to be proved to have been brought to the knowledge of the purchaser or mortgagee: Paddington Building Society v Mendelsohn (1985) 50 P&CR 244, Abbey National Building Society v Cann [1991] 1 AC 56, Skipton Building Society v Clayton (1993) 66 P&CR 223 and Thompson v Foy [2009] EWHC 1076 (Ch); [2009] 22 EG 119 (CS) applied. The second defendant and the claimant had a shared assumption that the property would be vacant on completion of the sale to the first defendant and that the second defendant would be bound by the charge or, alternatively, that the claimant had made such an assumption. Once the imputed intention that the second defendant’s rights were to be subject to the mortgage was established, there was nothing in section 70 of the 1925 Act that enlarged those rights; section 70(1)(g) preserved rights rather than created them. In some cases, the party claiming not to be bound by a mortgage could fairly be taken to have given the legal owner actual authority to enter into or to ratify it. Where that was so, the mortgage might be binding on ordinary agency principles. In other cases, the principle might be best explained as a species of or akin to proprietary estoppel. Accordingly the claimant’s application succeeded and a possession order would be made in its favour.Thomas Grant and Laurie Scher (instructed by Underwood Solicitors LLP) appeared for the claimant; the first defendant appeared in person; Azam Qutb appeared for the second defendant as her litigation friend.Eileen O’Grady, barrister