Sale of land – Unconscionable bargain – Defendant obtaining finance by selling property at undervalue with limited right to buy-back within eight weeks – Defendant unable to proceed with buy-back – Claimants purchasing property and bringing claim for possession – Whether sale and buy-back voidable as unconscionable bargain – Whether right to set aside transaction binding on claimants as overriding interest – Section 116 of Land Registration Act 2002 – Claim dismissed
The claimant sisters became the registered proprietors of a residential property after their father purchased it for them at auction from a company, UKPTL. The defendant and her children occupied the property. The defendant had previously owned the property in her sole name, free from any mortgage. However, in 2008, she had been the subject of a fraud by which she was induced to make various payments of “administrative charges” exceeding £180,000 to the fraudsters in the promise of receiving a large lottery win, which did not materialise. Having exhausted her savings and taken out various loans to find the requested funds, and having been refused a mortgage, she had obtained a final sum of £70,000 by means of a “sale and buy back” transaction with UKPTL. Although her property was worth more than £200,000, she had agreed to sell it to UKPTL for £70,000 with a right to repurchase it for £92,000 in eight weeks, in the expectation of receiving her “winnings” in time to proceed with the buy-back. The defendant did not inform UKPTL of the true reason for the transaction. Although a solicitor selected by UKPTL had advised her on the nature of the transaction and the risks involved, all advice was given in the presence of an UKPTL officer.
When the defendant proved unable to proceed with the repurchase of her property, UKPTL sold it at auction. The claimants, as the new owners, brought possession proceedings against the defendant. The defendant contended that: (i) the purported sale of the property to UKPTL was in substance an equitable mortgage or that if it was not, it was an unconscionable bargain, and (ii) she therefore retained a beneficial interest in the property, which was binding on the claimants as an overriding interest. The claimants submitted that they were not bound by the defendant’s interest since they had had no notice of it when they purchased the property.
Held: The claim was dismissed.
(1) The contract, properly construed, did not create an equitable mortgage but was an outright sale of all the defendant’s estate and interest in the property. The common intention of both parties was to effect an outright sale with the right to repurchase within a strictly limited period. The defendant had known precisely what the transaction legally entailed, even though her intention and expectation was that she would be able to proceed with the buy-back.
(2) The requirements for showing a prima facie unconscionable bargain were that: (i) it was a purchase from a poor and ignorant or weak-minded person; (ii) it was at a considerable undervalue; and (iii) the vendor had no independent advice. The defendant, who was naïve and in need of money, fell into the category of “poor and ignorant” and needed protection. The transaction was an unconscionable bargain since the defendant had not received independent advice. Although the solicitor had covered the essential ground, and the defendant had understood the nature and implications of the transaction, it remained a transaction that should have caused any competent solicitor anxiety. The solicitor, who usually acted for UKPTL, was familiar with the fact that desperate and vulnerable persons resorted to that type of high-risk transaction as a last resort, when they were unable to raise finance from conventional sources. He had faced a conflict of interests between UKPTL and the defendant and should have declined to act. The conflict could not have been accommodated by disclosing to the defendant that he was also acting for UKPTL. The position was exacerbated by the solicitor not advising the defendant alone but under the eye of an officer of UKPTL and he had felt constrained to do only the minimum of what was required of him. In the circumstances, UKPTL had deprived the defendant of the exercise of her right to have fully independent advice from a competent solicitor. Advantage had been taken of her in a reprehensible manner. The transaction was an unconscionable bargain and should be set aside as between the defendant and UKPTL.
(3) The right of a party to set aside a transaction relating to land as an unconscionable bargain fell within the category of a “mere equity” that could bind successors in title, within the meaning of section 116(b) of the Land Registration Act 2002. The defendant had been entitled to assert that right against UKPTL before the claimants purchased the property. The combined effect of the defendant’s rights against UKPTL and her occupation of the property constituted an overriding interest in her favour within section 116. That overriding interest was binding on the claimants. The defendant’s equity, and her right to assert it against UKPTL, were unaffected by whether the claimants had had notice of the impropriety that surrounded the previous transaction and rendered it voidable. It was not possible to graft onto section 116 a notice requirement that was irrelevant to the claim that the defendant had at all times been able to assert against UKPTL: Williams & Glyn’s Ban Ltd v Boland [1980] 2 All ER 408 applied; Thompson v Foy [2009] EWHC Civ 1076 (Ch); [2010] 1 P&CR 16 and Qutb v Hussain [2005] EWHC 157 (Ch) distinguished. The defendant’s interest affected the claimants accordingly.
Edward Hewitt (instructed by PGA Solicitors LLP) appeared for the claimants; David Parry appeared for the defendant.
Sally Dobson, barrister