Sale of land – Legal charge – Registration – Lender selling property to respondent under power of sale – Appellant proprietor resisting registration of freehold – Charge but not facility agreement registered at Land Registry – Whether court properly taking account of power of sale contained in facility agreement alone – Appeal allowed by a majority (Arden LJ dissenting)
The appellant was the registered proprietor of a property charged to a finance company (D) in return for a loan of £635,000. The charge, but not the facility agreement to be read with it, was registered at HM Land Registry. A dispute arose about repayment, D alleging and the appellant denying that there had been a default. The facility agreement provided that D’s power of sale arose on execution of the charge and was exercisable at any time after such execution. Pursuant to that power, D sold the property to the respondent who wished to be registered as the freehold proprietor.
The appellant contended that it was still the proprietor since the registered charge made no reference to the facility agreement or its provisions about power of sale. The power of sale implied into any charge pursuant to section 101(1)(i) of the Law of Property Act 1925 was only a power to sell when the mortgage money became due. Therefore, on the face of the charge as registered, there had been a potentially wrongful sale and the appellant said that it had to remain as the registered proprietor.
The respondent’s application for summary judgment was allowed by the High Court. The judge accepted its argument that there had been a mistake in the charge which, as a matter of construction, had to be read as if it contained a power of sale arising immediately on execution because that was what the parties to it must have intended.
The appellant’s appeal against that decision gave rise to the novel question whether the charge and the facility agreement could be interpreted together for any purpose having regard to the fact that the charge alone was registered at the Land Registry pursuant to the Land Registration Act 2002.
Held: The appeal was allowed by a majority (Arden LJ dissenting).
Registration of a freehold estate could only occur if the Land Registrar was of the opinion that a person’s title was such as a willing buyer could properly be advised by a competent professional adviser to accept. All that the registrar had to go on for the purpose of registering a new title after a sale by a mortgagee was the terms of the charge.
Since the decision of the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 3 EGLR 119, it had become fashionable to say that, if it could be seen from the background of the contract embodied in a document, that the parties had made a mistake in the language in which they had expressed their agreement, that mistake could be corrected as a matter of construction of the document rather than by rectification of the document.
Even though the parties had been aware of the background to the charge which indicated that the power of sale might be exercised at any time after execution, the legal charge in the present case was not just an agreement made by two parties to the transaction who were themselves alone affected. It was a public document on a public register open to inspection and potentially to be relied on by third parties.
In the case of a standard form contract, a negotiable contract or a public document, evidence of background to an individual contract had a more limited part to play. Public and negotiable documents were different from ordinary contracts which could be assigned but were not generally negotiable like a bill of lading. Therefore, the public nature of the charge which fell to be construed in the present case militated against the respondent’s construction: Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 considered.
In the particular context of a charge intended to be completed by registration at HM Land Registry, the insertion of the missing clause ought to have been effected, if at all, by way of a properly pleaded and proved claim for rectification. There had been no such claim pleaded in the present case and no attempt to prove one. The case should not have been decided summarily as a pure question of interpretation of the charge. To treat the registered charge as including the extended power of sale that was included in the facility letter alone was a step too far.
Per Arden LJ dissenting: The judge had been right to treat the facility agreement as part of the admissible background against which the charge was to be interpreted, notwithstanding that the charge, but not the facility agreement, had been registered. The exclusion of background material from the process of contractual interpretation was to be the exception rather than the rule. The principle that the courts should, when interpreting a contract, have regard to the background against which it was made was an integral part of the approach to contractual interpretation in the ICS case. It was also consistent with the general approach of English law which was to enable parties to make such contracts as they chose.
Edward Francis (instructed by Edwin Coe LLP) appeared for the appellant; James Pickering (instructed by Turner Parkinson LLP, of Manchester) appeared for the respondent.
Eileen O’Grady, barrister
