Borrowers purchasing plots of land with assistance of mortgages provided by claimant – Road to be built over part of land to provide access to plots – Road to be adopted as public highway on completion – Preliminary issue – Whether borrowers having right to enter land to construct road to adoption standard – Judge finding borrowers not having right – Appeal allowed
In March 1990 10 separate mortgage applications were made to the claimant building society by purchasers (the borrowers), who each intended to buy the freehold interest in one of 10 building plots. The borrowers formed a company (the company) to hold a piece of the land (the road land) over which an estate road leading to the plots was to be built. It was intended that once the estate road was built it would be adopted as a public highway.
In April 1990 the claimant retained the defendant firm of solicitors to act for it in relation to the proposed advances. Together, the borrowers and the company also retained the defendant, which duly drafted transfers by which, inter alia, the company completed the purchase of the road land (the road transfer) and the borrowers completed their subpurchases of the plots (the building plot transfers). The claimant duly made mortgage advances to the borrowers.
By July 1991 all the borrowers had defaulted on their loans and the company had gone into insolvent liquidation. The estate road was only partly built and was never formally adopted. The claimant took possession of the 10 plots with a view to selling them. However, because of what it perceived to be the difficulties over its rights in respect of the estate road, it obtained only £555,000 from the sale.
In July 1994 the claimant commenced proceedings against the defendant, claiming that the security it had obtained upon completion of the purchase of the plots by the borrowers was defective. This, it maintained, was because: (i) the security did not include the road land; (ii) it did not allow the claimant any right of way over the road land; and (iii) it prevented the construction of the estate road and, therefore, the road’s adoption by the highway authority. A hearing of a preliminary issue was ordered to establish the rights and obligations of the claimant in relation to the construction of the estate road and its adoption by the highway authority.
The defendant contended that by reason of the claimant’s right (as contained in the mortgage conditions) to perform any obligation that the borrowers had failed to perform, the claimant could undertake to perform the company’s covenant to build the road. The judge concluded, inter alia, that the borrowers had only a right to enter onto the road land to achieve an effective carriageway, and did not have the right to complete the construction of the road to adoption standard. He held that since the claimant had no greater rights than the borrowers, it was not entitled to enter onto the road land to construct the estate road to adoption standard. The defendant appealed.
Held: The appeal was allowed.
1. The correct starting point was to consider what right of way was granted by the building plot transfers, construed against the background of the transaction as a whole. The effect of the grant had to be taken as an immediate grant of a right of way over the road land because: (i) the roads, footpaths and accesses over which the right of way was granted had been described as “constructed or to be constructed”, thereby suggesting that even before construction these were to be the subject of the right of way; and (ii) it made little commercial sense for the borrowers to purchase plots to which they had no right of access until some time in the future, when the road might eventually be constructed by the company or the vendor.
2. The extent of an ancillary right had to be determined in the light of the particular circumstances of the right of way. In the instant case, the parties had specified what the standard of the road should be. The grant of the right of way itself had expressly stated that it was a provisional measure until the roads, footpaths and accesses were taken over by the local authority. The parties had clearly envisaged that the construction of the roads, footpaths and accesses could not be considered as completed until the construction had been carried out to adoption standard. There was no good reason why an ancillary right to construct the road should be limited to a standard lower than that which the completed road was intended to meet. Accordingly, since the borrowers had a right, if necessary, to enter onto the road land to construct roads, footpaths and accesses to adoption standard, the claimant, upon taking possession of the plots, would have a similar right: Mills v Silver [1991] Ch 271 and Newcomen v Coulson (1877) LR 5 ChD 133 considered.
Caroline Hutton (instructed by Howes Percival, of Milton Keynes) appeared for the claimant; David Hodge QC (instructed by Pinsent Curtis, of Birmingham) appeared for the defendant.
Thomas Elliott, barrister
