Mortgage — Overriding interest — Tenancy — Proprietary estoppel — Fraud — Land Registration Act 2002 — Agreement for sale and leaseback of property on understanding that purchaser to pay off vendors’ mortgage liabilities and permit them to remain in the property for life so long as terms of lease complied with — Purchaser mortgaging property — Mortgagee seeking possession — Housing Act 1988 — Whether vendors having assured tenancy — Whether vendors’ tenancy and equitable rights against purchaser binding on mortgagee — Whether amounting to overriding interests with priority over mortgagee’s rights
The second defendant and his wife, the third defendant, lived with their 18-year-old daughter in a property held in the second defendant’s sole name but in which the third defendant had a 50% beneficial interest. The property was subject to mortgages with which they had fallen into arrears. The first defendant was a partner in a business that purchased properties from owners who were in arrears, paid off the mortgages and granted tenancies to the former owners to enable them to remain in their homes. The business offered to buy the second and third defendants’ property and promised that, so long as they observed the conditions of the tenancy, they could remain in the property for the rest of their lives, with their daughter entitled to remain there after their deaths, and that they could buy the property back at any time in the future at a discount of 10% of the market price.
The second and third defendants signed a tenancy agreement, on an amended standard form supplied by the business, in which the tenancy was described as a “Short Assured Tenancy”. The first defendant completed the purchase of the property with the aid of a mortgage secured on it; the mortgagee’s rights were transferred to the claimant.
The claimant subsequently brought an action for possession of the property pursuant to its rights under the mortgage deed. The second and third defendants defended the action on the ground that they held overriding interests in the property in the shape of an assured tenancy, rights against the first defendant in proprietary estoppel and a right to set aside the sale for fraud. Issues arose as to: (i) whether the second and third defendants’ tenancy was an assured tenancy or merely an assured shorthold tenancy on a correct application of section 19A of, and Schedule 2A to, the Housing Act 1988; and (ii) priority as between their rights and those of the claimant under the mortgage.
Held: The claim was dismissed; declarations were granted on the counter-claim. (1) The tenancy held by the second and third defendants was an assured tenancy. The tenancy agreement contained a “provision to the effect” that the tenancy was not an assured shorthold tenancy: see para 3 of Schedule 2A to the 1988 Act. The relevant provision was that describing the tenancy as a “Short Assured Tenancy”; that was a deliberate alteration to the standard form made by the landlord and reflected the parties’ agreement. The word “short” qualified the words that followed such that the tenancy was an assured tenancy of short duration. (2) As against the first defendant, the second and third defendants had rights in the nature of an agreement to grant an assured tenancy; a proprietary estoppel preventing the first defendant from denying that they were entitled to live in the property as tenants, with their daughter’s right to succeed and the option to buy back the property; and a right to set aside the sale for fraud. (3) Each of those interests, held by persons in actual occupation at the time of the sale, qualified as overriding interests that took priority over the claimant’s rights under the mortgage. Focusing on the substance and reality of the transaction, the agreement to grant the assured tenancy was an indissoluble part of the second and third defendants’ agreement to sell and the first defendant’s agreement to buy; the agreement by which the couple was to remain in the house was directly connected to the first defendant’s purchase of it. Consequently, the first defendant never had more than a title to the property subject to the second and third defendants’ equitable rights. On registration, those rights were not postponed to the mortgage but were protected: see section 29(2)(a)(ii) of, and para 2 of Schedule 3 to, the Land Registration Act 2002. (4) Moreover, the tenancy was binding on the claimant as a consequence of the “registration gap” following the sale and prior to registration; during that time, the first defendant had validly granted the assured tenancy, which took effect immediately and therefore had priority over the mortgage, which had not become complete until its subsequent registration: see sections 23(1)(a), 24(b), 27(2)(b)(i) and 29 of the 2002 Act. (5) The second and third defendants should benefit from the representations made as to their daughter’s right to succeed and their right to buy at a discount; this was the minimum equity to do justice to them under the proprietary estoppel. (6) Further, should they exercise their acknowledged right to set aside the sale for fraud, this should be done on terms that they accept a charge over the property in favour of the claimant to the extent of the mortgages that had been paid off by the moneys advanced by the claimant to the first defendant, and on similar terms as to repayment.
The following cases are referred to in this report.
Abbey National Building Society v Cann [1991] 1 AC 56; [1990] 2 WLR 832; [1990] 1 All ER 1085; (1990) 60 P&CR 278; 22 HLR 360, HL
Andrews v Cunningham [2007] EWCA Civ 762; [2008] HLR 13
Halpern v Halpern [2007] EWCA Civ 291; [2008] QB 195; [2007] 3 WLR 849; [2007] 3 All ER 478
Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P&CR 8 and 100; [2002] WTLR 367
O’Sullivan v Management Agency & Music Ltd [1985] QB 428
Rogan v Woodfield Building Services Ltd [1995] 1 EGLR 72; [1995] 20 EG 132; (1995) 27 HLR 78, CA
Taylor (a bankrupt), Re [2006] EWHC 3029 (Ch); [2007] Ch 150; [2007] 2 WLR 148; [2007] 3 All ER 638
Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480
This was the hearing of a claim by the claimant, Redstone Mortgages plc, as mortgagee, against the defendants, Lisa Welch, Paul Jackson and Amanda Jackson, for possession of a |page:72| property; and of a counter-claim by the second and third defendants for declarations as to their rights.
Adam Rosenthal (instructed by Halliwells LLP, of Manchester) appeared for the claimant; the first defendant did not appear and was not represented; Andrew PD Walker (instructed by Shelter Legal Services) represented the second and third defendants.
Giving judgment, HH Judge Worster said:
[1] This is an action for possession of 23 Ferndale Road, Shrewsbury (the property). The claim is brought against three defendants pursuant to the rights of the claimant under a mortgage deed (the mortgage) made between the first defendant and Beacon Homeloans Ltd (Beacon) in October 2005. The claimant is entitled to enforce Beacon’s rights under the mortgage. As the matter was opened, the case had six issues. Two of those issues fell away during the course of the trial, and I deal with them at the outset.
[2] At trial, I heard evidence from Ms Chard and Ms Venn who were called by the claimant, and from the second and third defendants (Mr Paul Jackson and Mrs Amanda Jackson). I read the witness statements filed on behalf of the claimant of Mr Scragg, Mr Chadwick (ignoring his submissions as to the legal position), Mr Smith and Mr Brand, which were agreed. I apply the civil standard of proof.
[3] I had skeleton arguments from Mr Adam Rosenthal, for the claimant, and Mr Andrew PD Walker, for the Jacksons, written summaries of some of the additional submissions Mr Walker was to make and short additional written submissions from both Mr Rosenthal and Mr Walker as to the effect of the land transaction return at [B1/405]. I am grateful to counsel for their assistance. The trial bundle ran to five lever arch bundles.
References to letters and numbers in square brackets are to the bundle letter and page number of the trial bundles.
[4] First issue: Possession order against first defendant
The first defendant (Ms Lisa Welch) did not appear at trial and was not represented. The claimant had obtained a possession order against her on 14 May 2007 [A/I90]. However, at the material times, Ms Welch was trading as a partnership with Mr Richard Dewsbury, and it is plain that they bought and mortgaged the property during the course of the partnership’s business. That partnership went into liquidation on 11 May 2007. The order for possession was obtained without the permission of the court or the consent of the administrator, as required by article 7 of, and Schedule 3 to, Part 1 of the Insolvent Partnerships Order 1994. The claimant accepts that I am bound by the decision in Re Taylor (a bankrupt) [2006] EWHC 3029 (Ch); [2007] Ch 150. The consequence is that the order of 14 May 2007 was a nullity.
[5] During the course of the trial, the claimant obtained an order from HH Judge Purle QC, sitting as a judge of the High Court in the Chancery Division of Birmingham District Registry. That would be “the court” from which permission is required to pursue the matter against Ms Welch. The partnership’s administrators (or liquidators as they had become) did not object to that course and, on 13 January 2009, Judge Purle gave permission to bring an application for a possession order. For reasons that will become obvious in the course of this judgment, it is appropriate to make an order for possession effective against Ms Welch, and I do so.
[6] Judge Purle also gave permission to add Ms Welch (in her capacity as a partner of the insolvent partnership) as a party to the counter-claim brought by the second and third defendants, and dispensed with the service of a new claim form upon her. The purpose is that she should be bound by any declarations made. The real dispute in this case is as between the claimant and Mr and Mrs Jackson.
[7] Second issue: Mrs Jackson’s beneficial interest in the property
Mr and Mrs Jackson were married on 16 June 1985. They had a son born the year before. The property was bought in around March 1985 for approximately £17,000 in Mr Jackson’s sole name. Mr and Mrs Jackson’s case was that it had always been their intention that the property be owned jointly between them, and that they were each beneficial owners of 50% of the property. After testing the evidence on the point, the claimant conceded Mrs Jackson’s beneficial interest. It was accepted that her interest was subject to the mortgages with Cheltenham & Gloucester Building Society and Welcome Finance that are referred to below.
[8] Third issue: Nature of tenancy agreement
This requires setting out some of the factual background. Little is in issue. By 2005, the Jacksons were in some financial difficulty. Mr Jackson had lost his job as a senior care worker. The property was mortgaged to Cheltenham & Gloucester Building Society for around £44,000 and there was a second mortgage to Welcome Finance for around £18,000. The total indebtedness secured on the property was approximately £62,000.
[9] By August 2005, the Jacksons say that they were four months in arrears with the first mortgage and were receiving letters from the mortgagees concerning arrears. They thought that the property was worth in the region of £85,000. In fact, the evidence is that an independent valuation carried out in October 2005 put the value of the property at £100,000.
[10] Mr and Mrs Jackson saw an advertisement in a local newspaper for “Repossessions Stopped”, which offered to buy properties from owners in arrears, pay off the mortgages, grant tenancies to the former owners and so enable them to stay in their homes. This was very attractive to Mr and Mrs Jackson. They had their 18-year-old daughter, Laura, living with them and they wanted to stay in their family home.
[11] They contacted Repossessions Stopped. A Mr Dewsbury came to see them. Mr and Mrs Jackson thought that he was very impressive. He offered to buy the property for £63,000. In para 6 of his witness statement [A/170], Mr Jackson said:
Our main concern was to stay in the house and take out what would be almost like a permanent rental. Mr Dewsbury told us he foresaw no problems with this at all. Mr Dewsbury told us that provided that we observed the conditions of the tenancy we could stay there the rest of our lives. We were particularly concerned to ensure that the house would remain a home for our children in the event of our deaths. Mr Dewsbury assured us that this would be the case, and with this in mind it was agreed that our daughter Laura would become a joint tenant. Mr Dewsbury also told us that we would be at liberty to buy the house back from his company in the future at a discount of 10% below the market price at the time. While we were renting the company would take care of all the maintenance on the house which would include new windows, repairs to the guttering and annual gas safety checks… Mr Dewsbury… told us our rent would be about £400 per month. He told us the rental would be on a yearly basis and may go up each year.
[12] In the course of their evidence, Mr and Mrs Jackson confirmed this conversation. They accepted that their “permanent rental” was to be subject to them complying with the terms of the rental agreement with Mr Dewsbury’s company. They were asked whether they had considered what might happen if Mr Dewsbury’s company put up the rental by such a substantial amount that they could not pay it. Their evidence was to the effect that they had not really considered that. Mr Dewsbury had given every indication that he was going to be helpful. I believed Mr and Mrs Jackson’s evidence. I find that it was reasonable for them to assume that the rent would go up by a reasonable amount from time to time.
[13] Further, I accept the evidence of Mr and Mrs Jackson concerning the representations made to them by Mr Dewsbury. Their evidence is corroborated by the contents of a letter that they subsequently received from Repossessions Stopped dated 20 September 2005 [A/176]. However, even if it were not corroborated, I would accept what they say. I found them both to be honest and reliable witnesses. The failure to ask more questions looks unwise with hindsight, but these are not the sort of people to quiz apparently impressive men like Mr Dewsbury. They trusted what they were told and relied on it in agreeing to the various transactions that followed. They were not to know that Mr Dewsbury and Ms Welch were dishonest.
[14] Mr Dewsbury visited again, probably on 20 September 2005. He brought the documents at [A/176-178] and a draft tenancy agreement: |page:73| see para 8 of Mr Jackson’s witness statement [A/171]. The letter at [A/176] is of some importance.
[15] The tenancy agreement was signed. The copy we have is undated [A/90]. Mr Jackson’s evidence is to the effect that it was signed during Mr Dewbury’s visit: see para 8 of his witness statement [A/171]. Mr Dewsbury took away the signed agreement. There is an issue between the claimant and the Jacksons as to whether this agreement was an assured tenancy (AT) or an assured shorthold tenancy (AST). The Jacksons say that it was an AT. The claimant’s case is that it was an AST, which is a type of AT. The AST provides the Jacksons with far less security.
[16] Section 19A of the Housing Act 1988 (the 1988 Act) provides that:
An assured tenancy which
(a) is entered into on or after [28 February 1997]…
is an assured shorthold tenancy unless it falls within any paragraph in Schedule 2A to this Act.
[17] The Jacksons rely on paras 1 and 3 of Schedule 2A, and say that their tenancy falls within one or both of those paragraphs. Paragraph 1 covers the situation where a notice:
(a) is served before the assured tenancy is entered into,
(b) is served by the person who is to be the landlord under the assured tenancy on the person who is to be the tenant under the tenancy, and
(c) states that the assured tenancy to which it relates is not to be an assured shorthold tenancy.
Paragraph 2 provides for the situation where such a notice is served after the assured tenancy has been entered into, and does not arise on the facts. Paragraph 3 does not require any notice. It provides that:
3. An assured tenancy which contains a provision to the effect that the tenancy is not an assured shorthold tenancy.
[18] Does para 1 apply? Both parties focus on the terms of the tenancy at [A/90] and upon the Court of Appeal’s decision in Andrews v Cunningham [2007] EWCA Civ 762*. Paragraph 1 applies where a notice is served before the tenancy is entered into. Andrews decides that the notice must be written: see Lawrence Collins LJ in [40] and Wilson LJ in [51]. In particular, the requirement of “service” indicates that the notice must be written. The Jacksons rely on the draft unsigned agreement as such a “notice”. The claimant submits that, on the facts, the draft agreement is not such a “notice”.
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* Editor’s note: Reported at [2008] HLR 13
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[19] Mr Walker referred to Rogan v Woodfield Building Services Ltd [1995] 1 EGLR 72. There, it was held that the requirements of section 48(1) of the Landlord and Tenant Act 1987 (the 1987 Act) that the landlord “shall by notice furnish the tenant with an address…” for service were met by the inclusion of the landlord’s address in the tenancy agreement. There are differences in the structure and operation of the provisions of the 1987 Act and the 1988 Act that make the analogy less than perfect, but I accept that, for example, a suitably worded draft agreement or a covering letter served before the tenancy agreement was made would be capable of fulfilling the requirements of para 1. The purpose of the written notice is to give the statutory information with certainty. No special document is required.
[20] What happened here was that Mr Dewsbury brought the unsigned tenancy agreement [A/90] and the covering letter [A/176] to the Jacksons on around 20 September 2005. The tenancy agreement was one of the documents brought for the Jacksons to sign: see para 8 of Mr Jackson’s witness statement [A/171]. It was taken away after the meeting. The witness statement does not suggest that Mr Jackson was given the unsigned agreement to read through before he signed it. When cross-examined about the covering letter he said that: “I seem to remember seeing this one.” The covering letter refers expressly to the unsigned agreement, but there is no evidence that it was “served” on Mr and Mrs Jackson before they signed it. It would be unreal to construe a provision that required written notice to be given before an agreement was entered into as met by the handing over of the agreement for signature. That is part of entering into the agreement. It is not to be seen as the “service” of a notice before the agreement is entered into. I accept the claimant’s submission on para 1(a) in respect of the unsigned agreement.
[21] The covering letter might be a notice served “before” entering into the agreement. There is evidence from Mr Jackson to support that finding. The requirements of para 1(b) are also met. Does the covering letter meet the requirements of para 1(c)? For that to be so, the “notice” must state that the assured tenancy to which it relates is not to be an AST.
[22] The third para of the letter at [A/176] says:
I have drawn the agreement for an initial twelve month period, after this time you may continue renting from us on a revolving 12 month agreement, subject to the tenancy being conducted in a satisfactory manner… Laura Louise Jackson will also be on the tenancy. Should anything happen to Mr or Mrs Jackson or both, then first refusal on the tenancy will be given to any or all of the children…
[23] Mr Rosenthal submitted that this letter does not state that the tenancy is not to be an AST. Mr Walker pointed to the description of the tenancy in the letter. He referred to the potential for it being a long-term arrangement and thus inconsistent with being an AST.
[24] This letter does not read as a notice that “states” that the agreement to be entered into is not to be an AST. First, there is a substantial degree of analysis necessary before that might appear. Second, the requirement is for a statement. There is a significant difference in the drafting of paras 1 and 3. The former requires that the notice “states”. The latter requires that the agreement “contains a provision to the effect”. The requirement for a statement is consistent with the need for clarity, which is one of the substantial purposes of such a notice procedure. What Mr Walker is really arguing is that the letter is “to the effect” that the tenancy is not to be an AST. Paragraph 1 requires more than that. I find that the letter does not satisfy the requirements of para 1(c).
[25] Does para 3 apply? Mr Walker submitted that I am entitled to look not only at the written agreement at [A/90] but also at what was orally agreed between Mr and Mrs Jackson and Mr Dewsbury prior to the signing of the written agreement: see paras 19 to 25 of his skeleton. The question of whether the court is entitled to look at oral provisions that the tenancy is not an AST was left open in Andrews. I return to that issue below.
[26] The agreement at [A/90] starts with these words:
Rental Agreement England & Wales
(For an Unfurnished House or Flat on a Short Assured Tenancy)
THIS RENTAL AGREEMENT comprises the particulars detailed below and the terms and conditions printed overleaf whereby the Property is hereby let by the Landlord and taken by the Tenant for the Term at the Rent as a Short Assured Tenancy.
Halfway down the page are these words:
The TERM 12 Calendar Months beginning on
The tenancy will then continue, still subject to the terms and conditions set out in this Agreement from month to month from the end of this fixed period unless or until the Tenant gives notice that he wishes to end this Agreement as set out in clause 4 overleaf, or the Landlord serves on the Tenant a notice under Section 21 of the Housing Act 1988, or a new form of Agreement is entered into, or this Agreement is ended by consent or a court order.
At the foot of the page are “IMPORTANT NOTICES”. They refer to ASTs, to the notice provisions applicable to landlords and to protections given to tenants who occupy under an AT.
[27] Does the agreement contain a provision to the effect that it is not an AST? Mr Walker’s principal submission on the effect of the document is that the tenancy is said to be a “Short Assured Tenancy”. That makes sense only if it is seen as a short “Assured Tenancy” in other words, not an AST. The description appears at the top of the document, and defines it. Further, Mr Walker asked me to construe those provisions in the context of (what might be seen as) the factual background against which this agreement was made. I am not entitled |page:74| to look at negotiations, but I am entitled to look at the nature and object of the contractual venture.
[28] Mr Rosenthal made three points. First, the word “short” would not have been used if the intention was to grant an AT. He submitted that para 3 requires a statement that the tenancy “is not to be an [AST]”. My reading of the requirement is that a statement is not necessarily required. A provision to that effect will suffice. Here, what is granted is said to be a “Short Assured Tenancy”. That is not an “Assured Shorthold Tenancy”. The word short may be without effect, but it is not the word “shorthold”, nor does it appear between the words “assured” and “tenancy”, which it would if this were an AST. Mr Walker submitted that, if necessary, I can look at para 3 of the letter at [A/176] to explain the use of the word “short” in the context of this tenancy agreement. I accept that submission. Indeed, even if I limited myself to the document at [A/90] the position of the word “short” would indicate that it is there to qualify the words that follow it. The better construction is that this is a short “Assured Tenancy”.
[29] Mr Rosenthal’s second point is that the words in the middle of the page, which refer to section 21 of the 1988 Act, make sense only if this is an AST. His third point is to a similar effect. The “IMPORTANT NOTICES” at the foot of the page make sense only if this is an AST. This appears to be a standard form that has been altered. The clauses that he refers to would be standard in an AST.
[30] Read as a whole, there are inconsistent provisions. However, the standard form appears to have been deliberately altered by the landlord, who has described the tenancy, and expressly provided at the head of the document that it is “taken by the tenant… as a Short Assured Tenancy”. That is what the parties are agreeing. I conclude that the tenancy agreement is governed by that express description and agreement, which is a provision to the effect that the tenancy is not an AST. Mr Walker’s argument is that the inclusion of an inappropriate term should not change the essential nature of what is being agreed. I agree. Notwithstanding Mr Rosenthal’s second and third points, as a matter of construction I find that the requirements of para 3 are met. The consequence is that the Jacksons were granted an AT.
[31] I turn to the effect of oral agreements made with Mr Dewsbury. It is not necessary to my decision to deal with the point. However, counsel argued it, and (for what it is worth) I formed a view. Lawrence Collins LJ said in [44] of Andrews:
Paragraph 3 is plainly directed primarily to written agreements with a provision that, or to the effect that, the tenancy is not an assured shorthold tenancy.
In [45] and [46], he identified his reasons. First, an effective oral agreement that the tenancy should not be an AST would be contrary to the whole regime of ASTs. Second, the structure of Schedule 2A and the place of para 3 in that structure supported the conclusion that para 3 required a document.
[32] In [52], Wilson LJ came to a different view. He was not convinced of the need for a written agreement. That construction involved implying the words “in writing” into para 3. Further, he was concerned about the position of a tenant under an oral agreement for an assured tenancy that contained a provision to the effect that the tenancy was not shorthold should lose security of tenure because of the implication of a requirement for writing.
[33] The starting point must be the words of para 3. They require that the “provision” to be relied on is to be “contained” in the tenancy. In other words, the court is to identify the agreement and then look for a term to the effect required.
(1) That excludes precontractual representations.
(2) It leaves open the question of whether the agreement might be written, oral or partly oral.
(3) The court is left to identify the terms of the tenancy in the particular case.
[34] I would be inclined to the view that where the agreement is written, that written agreement must contain the term to be relied on. If, on the other hand, there were an oral agreement (or a partly written and partly oral agreement) that “contained” a provision to the effect that it was not an AST, that would be effective. It seems to me that the words of the paragraph do not require writing in all cases (whatever the desirability of that), and to read in that requirement is not necessary to meet the purpose of the provision or to make it work. It is a question of what is “contained” within the agreement.
[35] What are the terms of the tenancy in this case? On the facts of this case, the terms of the tenancy are those set out on the document at [A/90] and overleaf. There were discussions made prior to the tenancy and representations made by Mr Dewsbury as to its effect. However, the written agreement at [A/90] was signed by both parties and was intended to set out their agreement. If that is the case, then, although the oral agreements might inform the construction of the terms of the written agreement if they are within the admissible background, and although they are the basis for the Jacksons’ claims in estoppel and/or misrepresentation, they are not provisions “contained” within the agreement and thus are not within the ambit of para 3.
[36] Fourth and fifth issues
I accepted the Jacksons’ evidence of the representations made by Mr Dewsbury on behalf of himself and Ms Welch. The claimant does not dispute that the Jacksons have a proprietary estoppel claim against Ms Welch. It raises two matters as to this fourth issue:
(i) How should the court give effect to that estoppel?
(ii) Does it bind Beacon (and thus the claimant)?
[37] Similarly, the claimant accepts that the Jacksons have the right to set aside the transactions that they entered into with Ms Welch because of the fraudulent misrepresentations made. The allegation of unconscionable bargain adds nothing in practical terms and was not argued. The claimant raises similar issues on this fifth issue:
(i) Is the right to set aside exercisable against Beacon/the claimant?
(ii) If so, what “counter restitutionary order” should be made?
[38] Priority
Both these issues and my findings as to the agreement for the grant of the AT raise difficult questions concerning the extent to which the Jacksons’ rights against Ms Welch bind Beacon. Both are innocent victims of the fraud of Mr Dewsbury and Ms Welch. In simple terms, both have lost as a result of that fraud. I deal first with the factual issues.
[39] The first factual “transaction” in time was the agreement for the AT. I find that the agreement was entered into by the Jacksons and Mr Dewsbury on or around 17 October 2005. A letter from Mr Dewsbury’s company dated 7 November 2005 says that the tenancy started, or was treated by Ms Welch as starting, on 27 October 2007: see para 18.2 of the defence [A/33]. Whichever, as a factual event it occurred prior to exchange and completion of the sale of the property to Ms Welch.
[40] The second factual “transaction” in time was the sale and purchase. Mr Dewsbury offered to pay for a firm of solicitors to undertake the conveyancing for the Jacksons. They agreed to that course, and a Mr Sedgwick of the firm Addison O’Hare called to see them, probably on 26 September 2005. Mr Sedgwick was careful to record in correspondence that he was not advising the Jacksons as to the wisdom of the sale and was undertaking only the conveyancing: see the letter of 20 September 2005 [C/1653-4] and the confirmation of instructions [C/1650]. I have not heard evidence from Mr Sedgwick, but on the basis of the evidence that I have heard and seen I can conclude only that he knew of the true nature of the arrangement being made between the Jacksons and Mr Dewsbury/Ms Welch.
[41] On 3 October 2005, Mr Sedgwick wrote to the Jacksons [C/1677]. The contract Mr Sedgwick put to the Jacksons to sign provided for vacant possession on completion at special condition 5. That was not what the Jacksons had agreed. It was not pointed out to them by Mr Sedgwick in his letter or otherwise. Nor did the document that they signed include a statement of the price. The relevant part of the agreement is left blank: [B1/412]. The Jacksons were never told what the “sale price” would be in monetary terms. They accepted that there had to be something in it for Mr Dewsbury.
[42] Mr Jackson’s evidence was that he thought that the market value of the property at the time was in the region of £85,000: see |page:75| para 5 of his witness statement [A/170]. The indebtedness to the mortgagees was £62,757. It is apparent that he and his wife were willing for Mr Dewsbury to benefit to that sort of extent. They never really asked for any detail because for them the real “price” was Mr Dewsbury’s agreement that their liabilities to their two mortgagees would be met and that they would be able to remain living in their home as tenants, paying rent and abiding by the terms of the tenancy; “almost like a permanent rental”: see para 6 of Mr Jackson’s witness statement [A/170]. It is necessary to separate out the various legal steps that involved, but it is important not to lose sight of the fact that so far as the Jacksons and Ms Welch and Mr Dewsbury were concerned, the various legal transactions were interlinked.
[43] On 14 October 2005, B Legal was instructed to act on behalf of Beacon in respect of an advance to be made to Ms Welch for the purposes of the purchase. The advance was to be secured over the property: see para 4 of the witness statement of Ms Ruth Chard [A/72]. The mortgage offer was for £84,957 (85% of the valuation) plus fees and, at [B1/278], provided that:
You are not bound by the terms of this offer document until you have signed the Mortgage Deed and your solicitors release the funds for your loan to you or on your behalf
The terms of the mortgage offer included a special condition that the property was to be let only on an AST: see [B2/911].
[44] On 17 October 2005, Mr Sedgwick sent the TR1 (already signed in escrow by Ms Welch) to Mr Jackson to sign and return. That was done. On 18 October 2005, Ms Welch’s solicitor (Edmunds & Co) wrote to B Legal. Enclosed were the completed requisitions [B1/316-323] and a copy of the proposed contract for sale at a price of £99,950. Special condition 5 provided for a sale “with vacant possession on completion”: [C/1702].
[45] Completion was fixed for 28 October 2005. I have not heard evidence from either of the solicitors involved. The documents I have are as follows:
[A/117] A bank statement showing Redstone (for Beacon) transferring £84,857 to Edmunds & Co in respect of the loan on 27 October 2005.
[C/1702] The contract signed by Ms Welch, dated 28 October 2005, with the following annotation:
3.15pm Formula B
R Sedgwick
S Kaliar
[Bl/568] The mortgage signed by Ms Welch dated 28 October 2005.
[Bl/405] A land transaction return for the sale of the property completed by Edmunds & Co giving the date of contract as 28 October 2005 and the effective date of transaction as 28 October 2005.
[C/1701] A letter from Edmunds & Co to Addison O’Hare dated 31 October 2005, giving the date of exchange as 28 October 2005 at 3.15pm, Law Society formula B, with a completion date of 28 October 2005 and enclosing the contract at [C/1702].
[C/1704] A letter from Edmunds & Co to Addison O’Hare dated 31 October 2005 that reads:
We confirm that we have today credited your account with the amount required to complete. We await hearing from you with the transfer signed by your clients… .
[Bl/570] The TRI signed by both parties dated 31 October 2005. The probability is that that date would have been applied by Addison O’Hare, which physically held the signed TRI.
[C/1715] Addison O’Hare’s accounts ledger with an entry:
31-0ct-05 TT COMPLETION MONIES £99,950
EDMUNDS AND CO
[C/1706] A series of documents from Addison O’Hare’s file indicating that cheques were sent to Welcome and Cheltenham & Gloucester on 31 October 2005 to discharge the balances owed on the mortgages against the property (confirmed by entries on the accounts ledger).
[A/12] The proprietorship register showing registration of the transfer and mortgage on 30 November 2005 and including:
2. The price stated to have been paid on 31 October 2005 was £99,950
[46] On the basis of that evidence, I find that exchange took place over the telephone at 3.15pm on Friday 28 October 2005. The claimant’s case was that exchange and completion were effected at around the same time. On the balance of probabilities, I find that completion took place on 31 October 2005 (the following Monday).
[47] Ms Chard gave some relevant evidence in respect of the time of completion. In para 10 of her witness statement [A/75], she said that, on 28 October 2005, Edmunds & Co was telephoned and it “confirmed that completion was effected on 28 October 2005 and the mortgage deed and TRJ transferring the loan over the property from Beacon to the claimant was completed on that date”. In her oral evidence, she said that she spoke to the secretary at Edmunds & Co and was told that completion had been effected on that day “as simple as that”. In his supplemental submission, Mr Rosenthal made the point that the dating of the Inland Revenue land transaction return also indicates that this is what Edmunds & Co believed.
[48] Ms Chard was also able to assist with the practice of banks. She told me that the latest point in the day for same day receipt of the telegraphic transfer of funds was 4.30pm without a guarantee. The latest time with a guarantee for Barclays and NatWest was 3.30pm. It seems that Edmunds & Co believed that the sale had been completed on 28 October 2005 . However, it is apparent that from the letter Edmunds & Co sent to Addison O’Hare on 31 October 2005 and from the accounts ledger at [C/1715] the completion moneys were not actually transferred (or at least received) until the following Monday. That might be because there was no time for Edmunds & Co to do it on the Friday afternoon or because it was done but the bank did not have time to process the transfer. I find that there was a gap between exchange and completion.
[49] I turn now to the issues of priority. These lie at the heart of the case. On the evidence I have heard, I find that the Jacksons have established as against Ms Welch:
(i) an agreement to grant an AT;
(ii) a proprietary estoppel founded on the representations made by Mr Dewsbury that would prevent Ms Welch from denying that on the sale, the Jacksons were entitled to live in the property as tenants, subject to paying the rent. In effect, on the terms of the AT with the right for their daughter to succeed and the option to buy back set out in the covering letter at [A/176];
(iii) a right to set aside the sale for fraud.
[50] Overriding interest argument
The Jacksons’ case is that all those rights are sufficient to found an overriding interest in the property pursuant to paras 1 and 2 of Schedule 3 to the Land Registration Act 2002 (the LRA) and thus avoid being postponed to Beacon’s rights under the mortgage: see section 29(1) and (2)(a)(ii).
[51] Paragraph 1 of Schedule 3 relates to “Leasehold estates in land”. The Jacksons rely on the AT. The paragraph refers to:
A leasehold estate in land granted for a term not exceeding seven years from the date of the grant, except for
(a) a lease the grant of which falls within section 4(l)(d), (e) or (f);
(b) a lease the grant of which constitutes a registrable disposition.
[52] Paragraph 2 of Schedule 3 relates to “Interests of persons in actual occupation” as follows:
An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation…
None of the exceptions apply. The rights in estoppel (and/or to set aside) would qualify as “interests”: see section 116 of the LRA.
[53] The Jacksons were in actual occupation of this property at all material times. I find that it was an occupation that would have been obvious on a reasonably careful inspection of the land at the time of disposition, that no or no sufficient inquiry was made by Beacon and |page:76| that there was no failure on the part of the Jacksons to disclose their right when they might reasonably have been expected to do so.
[54] The claimant’s case in respect of the AT (and the other rights in the property) is that where title to property is acquired with the benefit of funds provided under a mortgage, the purchaser’s title is, from inception, bound by the mortgage. So, Ms Welch’s title was always subject to the limitation imposed by the mortgage condition, and she did not have title from which to grant the AT to the Jacksons. Similarly, it is said that no proprietary estoppel or other property right can arise free of the mortgage. For the purposes of the discussion below, I look at the position of the AT.
[55] The claimant’s analysis derives from the speeches of Lords Oliver and Jauncey in Abbey National Building Society v Cann [1991] 1 AC 56. Lord Oliver said, at pp92F-93C:
… Of course, as a matter of legal theory, a person cannot charge a legal estate that he does not have, so that there is an attractive legal logic in the ratio in Piskor’s case. Nevertheless, I cannot help feeling that it flies in the face of reality. The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together. The acquisition of the legal estate is entirely dependent upon the provision of funds which will have been provided before the conveyance can take effect and which are provided only against an agreement that the estate will be charged to secure them. Indeed, in many, if not most, cases of building society mortgages, there will have been, as there was in this case, a formal offer and acceptance of an advance which will ripen into a specifically enforceable agreement immediately the funds are advanced which will normally be a day or more before completion. In many, if not most, cases, the charge itself will have been executed before the execution, let alone the exchange, of the conveyance or transfer of the property. This is given particular point in the case of registered land where the vesting of the estate is made to depend upon registration, for it may well be that the transfer and the charge will be lodged for registration on different days so that the charge, when registered, may actually take effect from a date prior in time to the date from which the registration of the transfer takes effect: see section 27(3) of the Act of 1925 and the Land Registration Rules 1925, rule 83(2). Indeed, under rule 81 of the Rules of 1925, the registrar is entitled to register the charge even before registration of the transfer to the charger if he is satisfied that both are entitled to be registered. The reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The “scintilla temporis” is no more than a legal artifice and, for my part, I would… hold that Piskor’s case was wrongly decided.
[56] Lord Jauncey posed and answered the question in this way, at p101F-102C:
It is of course correct as a matter of strict legal analysis that a purchaser of property cannot grant a mortgage over it until the legal estate has vested in him. The question however is whether having borrowed money in order to complete the purchase against an undertaking to grant security for the loan over the property the purchaser is, for a moment of time, in a position to deal with the legal estate as though the mortgagee had no interest therein. Inre Connolly, Coventry Permanent Economic Building Society v Jones [1951] 1 All ER 901 and the Security Trust Co case say that he is not in such a position recognising, in my view, the realities of the situation. Piskor’s case says that he is, thereby ignoring any interest which the mortgagee may have prior to completion of the purchase. Nevertheless in each of the four cases the purchase was dependent upon the loan and I find it impossible to see any material distinction between the circumstances obtaining in the three former cases and those obtaining in Piskor’s case. In my view a purchaser who can only complete the transaction by borrowing money for the security of which he is contractually bound to grant a mortgage to the lender eo instante with the execution of the conveyance in his favour cannot in reality ever be said to have acquired even for a scintilla temporis the unencumbered fee simple or leasehold interest in land whereby he could grant interests having priority over the mortgage or the estoppel in favour of prior grantees could beefed with similar results. Since no one can grant what he does not have it follows that such a purchaser could never grant an interest which was not subject to the limitations on his own interest. In so far as Piskor decided that such a purchaser could be vested for a moment of time in the unencumbered freehold or leasehold estate with the consequences to which I have just referred, I consider that it was wrongly decided. Conversely I consider that the decision of Harman J in the Coventry Economic Building Society case was correct.
[57] The principles in Abbey were applied by the Court of Appeal in Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480. The facts of Whale were that Viasystems agreed on the exercise of an option to purchase the headlease of a building from its owner for 125 years on terms. Viasystems agreed to grant Grantax an underlease of the building for the term of the headlease less three days. Bank of Scotland provided Grantax with the entirety of the finance needed to purchase the underlease and took a charge over the underlease. The headlease and underlease were executed on the same day the headlease first followed by the underlease. The moneys advanced by the bank to Grantax and used by Grantax to purchase the underlease were used by Viasystems to purchase the headlease.
[58] Chase Manhattan held a pre-existing debenture over Viasystems. Chase did not give consent to the grant of the underlease. So that when it sought to enforce the debenture, Chase said that the debenture took effect in priority to the underlease on the basis that it created an equitable charge over the headlease effective from the moment it was acquired. That, it was argued, was prior in time to the grant of the underlease.
[59] Jonathan Parker LJ (with whom Aldous LJ agreed) said:
[72] In my judgment, in the light of the decision of the House of Lords in Cann it must now be taken as settled law that, in the context of an issue as to priorities as between equitable interests, the court will have regard to the substance, rather than the form, of the transaction or transactions which give rise to the competing interests; and in particular that conveyancing technicalities must give way to considerations of commercial and practical reality. I agree with the judge that this approach is not limited to cases involving the purchase of a property coupled with the grant of a mortgage or charge to secure repayment of the funds which were required to enable completion of the purchase to take place. In my judgment it falls to be adopted generally, in every case where an issue arises as to priority between equitable interests. The case of a purchase of property coupled with the grant of a security is likely to be the paradigm case where the Cann principle applies, but, like the judge, I can see no reason in logic or principle why its application should be limited to such cases. That said, the result of applying the Cann principle will inevitably depend upon the facts of each particular case.
[73] In my judgment the substance and reality of the sequence of dealings in the instant case is that [Viasystems] acquired no more, in terms of property interest, than the nominal three-day reversion on the Underlease. It seems to me that it would be wholly unreal, in the context of the Priority Issue, to regard [Viasystems] as being the owner of an unencumbered 125-year term on the execution of the Headlease, in circumstances where in commercial terms the exercise of the option and the obligation to grant the Underlease to Grantax were directly connected, where completion of the grant of the Headlease and the grant of the Underlease took place together, and where the purchase price for the Headlease was satisfied out of monies paid by Grantax for the Underlease. To adopt the words of Sir Herbert Cozens-Hardy MR in Connolly (which I quoted earlier) we should in my judgment be shutting our eyes to the real transaction if we were to hold that an unencumbered 125-year term was at any point vested in [Viasystems] so that it became subject to the Debenture.
[60] Ms Welch’s purchase was dependent on the loan from Beacon. We do not know for sure, but it is very likely that she executed the mortgage deed in advance of the sale. Mr Walker pointed out a potential difference between this case and Abbey. In this case, the terms of the mortgage offer mean that Ms Welch was not contractually bound by the terms of the mortgage offer until she signed the mortgage deed and her solicitor released the funds for the loan to her or on her behalf. The probability is that the release of funds did not occur until the Monday after the Friday of exchange. The argument is that upon exchange on 28 October 2005, Ms Welch acquired an equitable interest in the property sufficient to grant a tenancy but that the mortgage did not bite until 31 October 2005. There is, therefore, more than a moment in time. There is a real gap of a few days, which is time enough for the AT to take priority.
[61] Mr Rosenthal accepted that, because of the mortgage conditions, there is no prior equitable title in Beacon arising from a pre-existing contract. However, he said that is not the basis of the decision in Abbey. |page:77| It was not the fact of the prior contract (here absent) that was decisive but (to paraphrase Lord Oliver) the reality that the acquisition of the legal estate and the charge were indissolubly bound together.
[62] In Whale, at first instance, the deputy High Court judge (Mr Michael Briggs QC) said:
The nearest one can come to a general test which will answer the question, “When does the Cann principle apply? “ is by asking whether the purchaser is, at the time of the purchase, bound in contract, in conscience or by necessity to confer an immediate interest on the chargee.
The passage is set out in Jonathan Parker LJ’s judgment in [49(3)], without apparent criticism. The requirement for a binding contract is inconsistent with the approach in Abbey and Whale, which focuses on the substance and reality of the case. I accept Mr Rosenthal’s submission on this point.
[63] However, this is not simply a case where there is a limitation to the title of the purchaser arising from the application of Abbey principles to the rights of Beacon under the mortgage. In this case, it is argued that as part of the same sale and purchase transaction there is a limitation on the title that was passed from Mr Jackson to Ms Welch. The argument is that her title was always subject to the Jacksons’ equitable right to the grant of the AT. So that all Ms Welch could acquire, and thus all she could charge, was a title encumbered by that interest.
[64] Mr Rosenthal submitted that the Whale analysis does not apply on the facts of this case because:
(i) the interest Ms Welch acquired was not acquired with funds provided by the Jacksons; and
(ii) the agreement that they could stay in the property was the reason for the transaction rather than being the transaction itself.
[65] Mr Rosenthal’s first point limits the application of the principle to a party that provides money. In most cases, the provision of the money will be the key element in the reality and substance of the transaction. Looking at this transaction from the purchaser/mortgagees’ end, that is indeed the case. However, the argument put by Mr Walker looks at the other end of the transaction. It is that the agreement to sell and purchase as between Ms Welch and Mr Jackson is indissolubly bound up with the agreement to grant the AT. The one is dependent on the other. The fact that (in addition) the indebtedness to Mr Jackson’s original mortgagees is to be paid off is one part of the picture. However, the agreement to grant the AT cannot be separated out. I prefer Mr Walker’s submissions on this point.
[66] As to the second point, although I see the potential for a distinction between a reason for a transaction and the transaction itself, here the reality is that it is all one. There is an agreement for a secure tenancy that is indissolubly bound up with the transaction.
[67] It is the substance and reality of the transaction that the court is to focus on. On the facts, I find that the agreement to grant the AT was an indissoluble part of the Jacksons’ agreement to sell and Ms Welch’s agreement to buy. It was never intended that Ms Welch should have more than a title encumbered by the Jacksons’ rights to a secure tenancy. That lay at the very heart of what was agreed. To ignore that would be shutting my eyes to the real transaction. I accept that there is a significant distinction between the factual situation the court was dealing with in Abbey and Whale and the facts of this case, for there the reality was that the provision of the money secured by the mortgage fed the whole series of transactions. However, Whale applies the principle more generally. On the peculiar facts of this case, the agreement by which the Jacksons were to stay in their house as tenants is directly connected to Ms Welch’s purchase of it. It is unreal to separate it out.
[68] I find, therefore, that Ms Welch never had more than a title to the property subject to the Jacksons’ equitable rights. Those rights have priority over Beacon’s equitable rights under the mortgage. They arise prior to registration and are protected by the Jacksons’ actual occupation. The consequence is that on registration those rights are not postponed to the mortgage because they are protected by the operation of section 29(2)(a)(ii) of, and para 2 of Schedule 3 to, the LRA.
[69] “Registration Gap” argument
As an alternative, Mr Walker argued that if the mortgage took effect ahead of the charge, the AT would still trump it. His submissions are set out in writing in paras 21 to 35 of his additional submissions and were developed orally. They are, he submitted, an inevitable and acceptable consequence of the registration gap. The steps in the argument are as follows:
(i) Prior to registration, Ms Welch was entitled to exercise owner’s powers because she was entitled to be registered as a proprietor: see section 24(b) of the LRA; Ruof & Roper: Registered Conveyancing, in para 13.004.04.
(ii) Those powers include the power to make a disposition of any kind permitted by the general law in respect of an interest of that description: see section 23(1)(a) of the LRA.
(iii) Section 29(4) of the LRA provides that:
Where the grant of a leasehold estate in land out of a registered estate does not involve a registrable disposition, this section has effect as if
(a) the grant involved such a disposition, and
(b) the disposition were registered at the time of the grant.
The AT was for a term of seven years or less and took effect immediately. Thus, it did not require registration to be complete: see section 27(2)(b)(i)
and (ii) of the LRA.
(iv) So, for the purposes of section 29, the AT is to be treated as a registrable disposition of the freehold estate and as though it were registered at the time of the grant. The AT therefore took effect in law rather than just in equity.
(v) The mortgage required registration to be complete and was not registered at the time of the grant of the AT, and the AT therefore takes priority over the mortgage.
[70] Mr Rosenthal submitted that this is a surprising result and that I should construe legislation to avoid such an unlikely result. I agree with him, but I am unable to see any flaw in the chain of Mr Walker’s argument. Mr Rosenthal submitted that the general principle is that you cannot grant what you do not have. Again I agree but, on their face, the terms of section 24 are clear. It is not disputed that Ms Welch was entitled to be registered as the proprietor of the freehold interest. Further, the purpose behind section 24 was to remove the practical difficulty of the owner who had to wait to be registered before it could sell or charge the property that it had bought. The intention is to give Ms Welch power to do what Mr Walker submitted she did. Many such dispositions would require registration to be complete, but not the AT.
[71] The result is a curious one. Whereas the protection given by the LRA to equitable interests where the owner of that interest is in actual occupation gives (in this case) the mortgagee a real chance of discovering the true position, the effect of Mr Walker’s submissions is a less readily understandable consequence given the policy underlying the LRA. With some hesitation, I accept Mr Walker’s submissions and find that if the charge took effect in equity before the AT, the AT is to be treated as a tenancy in law, and by operation of the LRA is also to have priority over the mortgage upon registration.
[72] I return at this point to the Jacksons’ equitable interests arising from the estoppel. It follows from my findings above that there is a proprietary estoppel that binds Beacon and the claimant. To give effect to that estoppel, the court is to consider the minimum equity to do justice. The position is summarised by Aldous LJ in Jennings v Rice [2002] EWCA Civ 159*, in [36]:
The value of that equity will depend upon all the circumstances of the case including the expectation and the detriment. The task of the court is to do justice. The most essential requirement is that there must be proportionality between the expectation and the detriment.
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* Editor’s note: reported at [2003] 1 P&CR 8 and 100
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[73] I have in mind that Beacon (and the claimant) is an innocent party. |page:78|
[74] The claimant argues first that the appropriate relief would be a payment to the Jacksons to compensate them for the detriment that they have suffered. That is put at the difference between the market value of the property and the amount paid to Mr Jackson to discharge his mortgage debts of some £62,757: see Mr Rosenthal’s skeleton argument, in para 25(1).
[75] To deprive Mr and Mrs Jackson of the right to a tenancy of the property would fall well below the minimum necessary to do justice in this case. Their reasonable expectations were that they would have a secure tenancy for life on the payment of the rent from time to time, that their daughter would succeed to the tenancy and that they would have an option to buy back at 10% less than market value. A sum of money now, whether based on the actual value of the property in 2005 (£100,000) or the value that Mr Jackson believed that it had (£85,000) is of little, if any, use to them because it will not provide them with a home. I reject that approach to the matter.
[76] Alternatively, Mr Rosenthal submitted that there should be an AT without restriction on the ground of possession. In all the circumstances, I can see nothing uncertain or extravagant concerning the expectations of Mr and Mrs Jackson to be able to enjoy more than a simple AT. The detriment that they have suffered as a result of this transaction is the loss of the ownership of their home.
[77] That detriment is to be seen in the context of the fact that Mr Jackson was in arrears on the mortgages on the property and, in his mind at least, there was a risk of losing the property on repossession. Mr Walker submitted that Mr Jackson had exaggerated that risk. I agree. First, it is apparent from the evidence that the property had a lot more equity in it than Mr Jackson thought. Second, the arrears were only of four months or so in the context of a history of a long-term first mortgage. If there were any arrears on the shorter-term second mortgage, they were minimal. The likelihood is that the mortgagees would not have pressed for possession, but would have been agreeable to some form of refinancing or extension of the repayment period to take account of these and future arrears. It is a great pity that Mr and Mrs Jackson did not take some impartial advice concerning the matter in 2005.
[78] I find that the minimum equity to do justice requires that the Jacksons should benefit from the representations made by Mr Dewsbury as to their daughter’s right to succeed and their right to buy at a discount. Counsel indicated that on receipt of this judgment, they would formulate the precise terms of the necessary provisions.
[79] Sixth issue
Finally, the Jacksons’ right to set aside the transaction. The right in principle is conceded and binds the claimant. The issue is as to the terms of “counter-restitution” should the Jacksons elect to exercise their right.
[80] The court is bound to recognise the practicalities of the situation. In Halpern v Halpern [2007] EWCA Civ 291; [2007] 3 All ER 478, Carnwath LJ (with whom Waller and Sedley LJJ agreed) said, in [61]:
Before the deputy judge the argument turned specifically on the requirements of rescission for duress at common law. This was contrasted, on the one hand, with common law rescission for fraud, for which counter-restitution was a well-established requirement… and, on the other, with equitable rescission for undue influence, for which again a form of counter-restitution was required, albeit subject to a more flexible criterion of “practical justice”. The classic statement of the latter approach is in Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1278-1279, [1874-80] All ER Rep 271 at 286 per Lord Blackburn:
“a Court of Equity could not give damages and unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowances for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract”
In more modern times, the same approach was adopted and applied by this court in 0’Sullivan v Management Agency and Music Ltd… [1985] QB 428 at 458 per Dunn LJ.
(Emphasis supplied.)
[81] Dunn LJ, in O’Sullivan v Management Agency & Music Ltd*, recognised that the approach extended to cases of misrepresentation and undue influence; see at 466E and H. Carnwath LJ, in Halpern, in [75], recognised that:
for the purposes of “practical justice “, the primary objective may not always need to be to restore both parties to their previous positions. As Professor Trietel has said (in the context of rescission for misrepresentation):
“… The essential point is that the representee should not be unjustly enriched at the representor’s expense; that the representor should not be prejudiced is a secondary consideration…”
[82] So, I must look at what is practically just in this case if the Jacksons elect to set aside the transaction for fraud with an eye to ensuring that they are not unjustly enriched. The position now is not as it was in 2005. Regardless of the changes in property prices, Mr Jackson has lost his job, and with it the means by which he might pay more in the way of monthly repayments or fund a new advance.
[83] If the sale is set aside, Mr Jackson cannot now raise the funds to pay over the sum Beacon advanced. He concedes that he would have to accept a charge over the property in favour of the claimant to the extent of the mortgages paid off by Ms Welch on the purchase. To do otherwise would lead to a windfall. The terms of that charge would reflect the terms of the charges paid off by the moneys advanced by Beacon to Ms Welch. The claimant has a degree of security and a regular repayment. That might be done by subrogation or by a new charge. I do not know what the monthly repayments on those charges (or a composite charge to the total value of the indebtedness) would be now. It may very well be less than it was in 2005. It may be less than the rent that Mr Jackson agreed with Ms Welch. It may be that there is an element of enrichment (unintended on Mr Jackson’s part), but that is not such as to be unjust.
[84] If the sale of the property is to be set aside and the ownership of this property is to be restored to Mr Jackson, it is practically just that:
(i) he make “repayments” from the date on which this order comes into effect (or such other date as the parties may agree) at the level that he would have been paying had the transaction never taken place;
(ii) he pays the arrears of rent on the AT. Mr Jackson has not made payments direct to Ms Welch (for good reasons) but has saved the equivalent sums in an account. On setting aside, the arrears on the AT should be paid to the claimant.
I invite counsel to consider the terms of an order or agreement to give effect to that. A similar provision in respect of the arrears will apply were the Jacksons to opt to continue their occupation of the property on the basis of the AT enhanced by the rights pursuant to the estoppel.
[85] It follows from the above that I dismiss the claim for possession against the second and third defendants. The counter-claim brought by the second and third defendants seeks a series of declarations. I will hear from counsel as to the form of the appropriate orders.
The claim was dismissed; declarations were granted on the counter-claim.