The Court of Appeal today ruled on a case that centred on the controversial practice of mortgage-based “tacking”.
“Tacking”, according to the ruling written by Richards LJ, is when a creditor, with a charge securing an original advance, is able to use the charge to secure a further advance and therefore obtain priority for the advance over sums secured by any subsequent charge. The practice is restricted by law because of the danger of prejudice to holders of subsequent charges.
Today’s ruling centres on two companies, The Black Ant Company Ltd and Billsop Properties Ltd, which went into insolvency in 2011. Three properties owned by Black Ant and one property owned by Billsop were the subject of first charges to a company called Dunbar Assets plc and second charges to another company called Urban Ventures Ltd.
“The issue on this appeal is whether, in the particular circumstances of the case, any further advances were made by the holder of the first charges on various properties,” Richards LJ said in the ruling. “Only if the proper legal conclusion on the undisputed facts is that further advances were made, will the restrictions on tacking be engaged.”
Lawyers for Urban argued that in a facility letter in March 2009 and in subsequent facility letters, Dunbar made new or further advances to Black Ant, something it was not entitled to do under the relevant statutory provisions on tacking, and had the effect of giving Dunbar’s charge priority over Urban’s charge.
The judges ruled that further advances were not made, and that the rules on tacking were not engaged. This is because “a new contract would not mean a new advance “.
“Continuing or leaving outstanding an existing loan in not the making of a new or further advance,” Richards LJ said.
Urban Ventures Ltd v Administrators of Black Ant Company plc and Billsop Properties Ltd, Dunbar Assets plc. Court of Appeal (Beatson LJ, Lindblom LJ, Richards LJ) 29 January 2015
