Re Black Ant Company Ltd (in administration) and another company; Urban Ventures Ltd v Thomas and others

Legal charge – Priority – Sections 48-50 of the Land Registration Act 2002 – First defendant joint administrators dealing with properties owned by companies in administration –Second defendant and claimant holding respectively first and second legal charges over properties – Claimant applying for declaration that its charge took priority in administration – Whether second defendant making further advances after registration of second charge – Claim dismissed   The claimant and the second defendant were the holders of, respectively, a second and first legal charge over various properties owned by companies in administration, of which the first defendants were the joint administrators. An issue arose as to which of holders had first claim to the proceeds of sale of the properties charged to them. The claimant applied for declarations that its second charge had priority and other consequential relief.   Section 48 of the Land Registration Act 2002 provided that charges ranked in accordance with the order in which they were registered. However, that was subject to sections 49 and 50, which contained anti-tacking provisions, the effect of which was to limit the priority afforded to the earlier registered charge to advances made by the time of the charge and “further advances” which the holder of the charge was obliged by its terms to make. This case raised two issues as to what was a “further advance” within section 49(3).   The first issue arose because the second defendant decided, after the claimant’s second charge had been registered, to ask the companies to sign new facility letters, replacing the original facility letters which had been extended several times. No new money was lent, the companies did not actually repay the loans, and there were no accounting entries of any kind showing a notional repayment of the original advances and the making of further advances. The claimant nevertheless contended that the effect of the facility letters, on their proper interpretation, was to deem the original advances repaid and further advances made; therefore the effect of the second defendant substituting new facility letters for the old ones, largely on the same terms, was to deprive it of its priority.   The second issue arose because, notwithstanding that the terms of the facility letters required the companies to pay interest and certain fees, they had failed to do so, and the unpaid interest and fees were added to the accounts. The claimant contended that the debiting of the unpaid interest and fees to the accounts represented “further advances” in respect of which, since the second defendant had no obligation under the facility letters or the terms of charge to allow them to remain unpaid, it could not claim priority.   Held: The claim was dismissed.   (1) In the absence of any directly relevant authority on the meaning of “further advances”, it was necessary to start with the language of the statutory provisions and their purpose. The ordinary meaning of a further advance was obviously an advance of further or additional funds. The purpose was to ensure that priority was not obtained for an advance which a second mortgagee who had received truthful replies to normal enquiries would not know that the first chargee had made or was under an obligation to make. In the present case, there was no evidence to support the argument that the parties had intended, by the introduction of the new facility letters, to enter into a new contract. Whether or not there had been a new contract, neither the parties, nor any reasonable reader of the facility letters with knowledge of the facts, would have said that a new advance had been made. Accordingly, the claimant’s main argument was artificial and wrong: Morris v Baron & Company [1918] AC 1 distinguished; Williams v Moss Empires Ltd [1915] 3 KB 242 considered.   (2) In relation to interest and fees, the amount of the original facility was £2,470,000, but the indebtedness was defined to include “all monies from time to time due … in connection with the Facility” From the outset, interest and renewal fees were either debited to the account or, on two occasions, shown as “paid” followed by a debit for “increase monies” (sic) on the same day. To roll up the unpaid interest and fees as submitted could not sensibly be regarded as the making of a further advance. The unpaid interest and fees were just amounts secured by the terms of the charge, which were contractually due in respect of the original advance and, by the express terms of the facility letter, they formed part of the indebtedness. Neither the parties nor any outside party with knowledge of the facts would have regarded the second defendant as having made further advances: Hopkinson v Rolt (1861) 9 HLC 514, Deeley v Lloyd’s Bank [1912] AC 756 distinguished.   Gary Cowen (instructed by Moon Beever) appeared for the claimant; Marcia Shekerdermian (instructed by DLA Piper UK LLP) appeared for the first for the first defendants; Ben Valentin (instructed by Freshfields Bruckhaus Deringer) appeared for the second defendant.       Eileen O’Grady, barrister