One of the requirements of the Law of Property Act 1925 is that conveyances – which include mortgages, charges and leases for terms of more than three years – must be made by deeds. Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 sets out the rules that apply where an instrument needs to be made in the form of a deed.
Section 1(3) of the 1989 Act provides that an instrument is validly executed as a deed by an individual if, and only if, it is signed by him in the presence of a witness who attests his signature. Bank of Scotland plc v Waugh [2014] EWHC 21117 (Ch); [2014] PLSCS 266 concerns a charge that was signed by trustees, but was never witnessed. Consequently, the charge was not validly executed as a deed and was void for the purpose of conveying or creating a legal estate. The lender sought a declaration that the trustees were estopped from denying the validity of the charge, or that the charge took effect as an equitable charge.
The lender’s claim that the trustees were bound by an estoppel was framed by reference to the decision in Shah v Shah [2001] EWCA Civ 527. However, the judge distinguished the case on the ground that the document appeared to have been properly signed and witnessed in Shah. It had subsequently emerged that the witness had not been present when the document was signed – and that he had added his signature afterwards. However, the fact that the instrument had appeared valid enabled the court to decide that the delivery of the document was to be treated as a representation that it had been properly witnessed and validly executed as a deed.
By contrast, it was plain on the face of the charge in this case that the trustees’ signatures had not been attested – and it would be wrong to apply the decision in Shah in such circumstances. To do so would deprive the 1989 Act of its force in a case where it was clear on the face of the document that it had not been properly executed.
One of the reasons for enacting section 1 of the 1989 Act was to achieve certainty. It could, however, have the opposite consequence if the doctrine of estoppel were to be available in circumstances such as these, since the status of a “deed” that had not, on the face of it, been validly executed would be uncertain. Consequently, the trustees were not estopped from denying the validity of the charge, and were entitled to challenge its legality on the ground that it had not been validly executed as a deed.
However, a document that is otherwise valid, but which suffers from some defect in form that prevents it from taking effect as a legal charge, may take effect in equity – and this was the case here. The document was signed by the parties and contained all the terms that had been agreed. Consequently, the court held that it took effect as an equitable charge.
The bank will be relieved by the decision. Nonetheless, it reminds us of the need for strict compliance with the formalities and of the importance of proper due diligence when dealing with documents that are legally required, or intended, to be executed as deeds.
Alison Colby is a property law consultant
