Clydesdale Bank plc (t/a Yorkshire Bank) v Thomas

Land registration – Mortgage – Overriding interest – Section 29 of and para 2 of Schedule 3 to Law of Property Act 1925 – Claimant having charge over residential property to secure indebtedness of first defendant – Property in course of renovation at date of charge – Second defendant seeking to set aside possession order granted to claimant in her absence – Assertion of beneficial interest in property protected by actual occupation so as to take priority over claimant’s charge – Whether second defendant having reasonable prospect of showing actual occupation at relevant time notwithstanding that not resident then owing to renovation works – Whether occupation obvious on reasonably careful inspection – Whether claimant having actual knowledge of it – Appeal allowedThe first and second defendants were in a relationship. In 2006, the first defendant purchased a residential property with the aid of a mortgage. He then took out a larger loan facility with the claimant bank to repay the mortgage and to finance renovation works to the property; that loan was secured by a registered all-moneys charge over the property, executed in July 2006. The first defendant engaged a builder to carry out structural works and an interior designer and project manager to supervise the project. The defendants and their children moved into the finished property in late September 2006.The first defendant fell into financial difficulties. In May 2008, the claimant demanded the repayment of more than £846,000 and, when this was not paid, brought possession proceedings. The second defendant contended that she had a beneficial equitable interest in the property, arising under a common intention constructive prior to July 2006, which was protected by her actual occupation at that date so as to take priority over the claimant’s charge by virtue of section 29(1) and (2) of, and para 2 of Schedule 3 to, the Law of Property Act 1925. The claimant disputed her actual occupation and claimed that, in the alternative, it was entitled to rely on the exception in para 2(c) of Schedule 3 since any actual occupation would not have been obvious on a reasonably careful inspection of the land at the time of the charge and it had not been aware of the second defendant’s interest.By the date of the hearing, the first defendant had been made bankrupt and had no personal interest in the action. The second defendant did not attend the hearing and a possession order was made in her absence. Her application to set it aside, under CPR 39.3(3), was refused on the ground that she had no reasonable prospect of success at a trial as required by CPR 39.3(5). The judge found that she had no reasonable prospect of showing actual occupation at the relevant time since her presence at the property every other day to supervise the works could not properly be regarded as actual occupation. He further held that, even if actual occupation were shown, she had no reasonable prospect of establishing that the para 2(c) exception was not made out. The second defendant appealed.Held: The appeal was allowed.(1) The second defendant had a reasonable prospect of establishing that she was in actual occupation of the property at the date on which the claimant’s charge was executed. The required degree of occupation had to take into account the fact that the house was not being used as a residence at the relevant time. There was a reasonable prospect of establishing that the occupation of the premises by the builder and interior designer was on behalf of both defendants. The evidence showed that the second defendant had been present at the property on a regular basis and that she and the first defendant had intended that she would reside at the property, as she did, once the renovation was completed. The second defendant had reasonable prospects of establishing that her physical presence at the property, coupled with the presence of the builders and the interior designer, was of the nature and extent that would be expected of an occupier having regard to the then state of the property as being in renovation for residential use. There was a reasonable prospect of showing that the degree of permanence and continuity in her presence, her intention and desire to live permanently in the property and her presence there were sufficient for the nature of property in the course of renovation: Lloyds Bank plc v Rosset [1989] Ch 350 and Link Lending Ltd v Bustard (by her litigation friend) [2010] EWCA Civ 424; [2010] 28 EG 86 applied.(2) In determining whether occupation would have been obvious on a reasonably careful inspection of the land at the relevant time, the relevant visible signs of occupation on which the person asserting an interest relied should have been obvious. The objective phrase “reasonably careful inspection” did not import a requirement that the person inspecting would have any particular knowledge and, in the absence of any express provision to that effect, the term “inspection” did not require that person to make reasonable enquiries. The visible signs of occupation had to be obvious on inspection. The second defendant had a reasonable prospect of establishing that the facts on which her claim to actual occupation were based would have been obvious on a reasonably careful inspection.(3) The type of “actual knowledge” with which para 2(c) of Schedule 3 to the 1925 Act was concerned should be determined by reference to the type of interest with which that paragraph dealt, namely an interest of someone in actual occupation. Where an interest belonged to someone in actual occupation, the scope and extent of that interest would often depend on the legal analysis of a number of facts and would rarely be ascertainable from a legal document. Accordingly, what was required was actual knowledge of the facts that gave rise to the alleged interest. The second defendant had a reasonable prospect of showing that the claimant had had actual knowledge of the facts on which her interest depended, namely that: (i) the first defendant had a partner; (ii) the second defendant was intending to contribute funds to the property; and (iii) the property was intended to be the couple’s family home.Dominic Crossley (instructed by Addleshaw Goddard LLP, of Leeds) appeared for the claimant; Stephen Howd (instructed by Barton Legal, of Leeds) appeared for the second defendant; the first defendant did not appear and was not represented.Sally Dobson, barrister