Mortgage – Power of sale – Construction – Validity of sale agreements – Assignee of charge purporting to sell golf club to seventh defendant – Claimants challenging validity of sale agreements – Seventh defendant applying to strike out proceedings – Claimants applying to strike out defence – Whether deed of assignments being valid, effective or taking effect in law – Claimants application dismissed
The first to fifth defendants (the partnership) contracted to sell a golf club to the first claimant, whose shareholders and directors were the second and third claimants. The price was given as £7m, but completion was not to take place immediately. By a deed of variation, it was agreed that completion should happen at once, without the first claimant having paid the full purchase price. The outstanding balance was to be paid by instalments. The payments were to be secured both by a debenture and by a charge over the club. Completion took place that same day. The club was transferred to the first claimant but charged by way of legal mortgage to the first defendant, as security agent, for the first claimant’s obligations to the secured parties, who were the members of the partnership.
The first claimant was registered at the Land Registry as the proprietor of the club and the first defendant was registered as the proprietor of the charge. When the first claimant failed to fulfil payment obligations under the charge, the first defendant formally demanded £4,010,037 from the first claimant pursuant to clause 7 of the charge. A deed of assignment was subsequently executed in favour of the sixth defendant. A transfer form was also executed providing for the transfer of the charge by the first to the sixth defendant but the transfer was not registered at the Land Registry.
The sixth defendant subsequently agreed to dispose of the club to the seventh defendant for £3.7 million. The sale agreements had not proceeded to completion when the claimants applied without notice for, and were granted, an injunction restraining the members of the partnership and the sixth defendant from disposing of the club. Once the claimants had been told of the sale agreements, the seventh defendant was added as a party to the proceedings.
The seventh defendant applied for an order for the claim against it to be struck out and/or summary judgment in its favour. The claimants applied for an order that the defences of each of the defendants be struck out and/or that the claimants be awarded summary judgment. The seventh defendant argued that the sixth defendant was entitled to enter into the sale agreements both under the power of sale given to mortgagees by the Law of Property Act 1925 and under the terms of the charge. The claimants argued that, since the sixth defendant had not been registered as the proprietor of the charge, it had no relevant power of sale.
Held: The claimants’ application was dismissed.
(1) The fact that the sixth defendant had not been in possession of the property as mortgagee or otherwise could not afford a ground for impugning the sale to the seventh defendant. It had not been suggested that possession was a pre-requisite to a mortgagee’s ability to exercise the statutory power of sale under section 101 of the Law of Property Act 1925: Horsham Properties Group Ltd v Clark [2008] EWHC 2327 (Ch), [2008] 3 EGLR 75 applied.
(2) In the present case, the charge having been registered at the Land Registry, there was no doubt but that it was effective at law. It was, accordingly, accepted by the claimants that the first defendant would have been entitled to take possession of the club, or to sell it under the statutory power of sale provided by section 101(1)(i) of the Law of Property Act 1925. The question was whether that right was exercisable by the sixth defendant, as the beneficial owner of the charge. On the basis that the sixth defendant had not been registered as the proprietor of the charge, the assignment to it of the charge could not operate at law: Swift 1st Ltd v Colin [2011] EWHC 2410 (Ch), [2011] PLSCS 201 and In re White Rose Cottage [1964] Ch 483 distinguished.
(3) The ”owner’s powers” of the registered proprietor (who would be entitled to exercise such powers pursuant to section 24(a) of the Land Registration Act 2002) had to be capable of extending to powers to deal with the charged property. It was not enough for a person entitled to be registered as a charge’s proprietor and with equitable ownership of it to demonstrate that he could have exercised a power had he been registered as the proprietor. He had to also show that the power was exercisable by an equitable owner under the general law. The sixth defendant would not have been able to exercise the power of sale conferred by section 101 of the 2002 Act (or indeed the express powers contained in the charge) merely because it had been entitled to be registered as the proprietor of the charge and, hence, section 24(b) would be applicable. The sixth defendant would have had no power to sell the club to the seventh defendant unless enabled to do so by section 106 of the 2002 Act and/or the powers of attorney granted by the charge: Cook v The Mortgage Business plc [2012] 1 EGLR 89 applied, Bank of Scotland plc v King [2008] 1 EGLR 65 considered.
(4) It was nowadays the equitable assignee who was considered to have the substantive legal right to sue for the assigned debt. Therefore, the sixth defendant was to be recognised as having been entitled to receive and give a discharge for the mortgage money by the date of the sale agreements, regardless of whether the notice had yet been served or satisfied the requirements of s136(1) of the 2002 Act. It followed that any deficiencies in the notice would not have affected the validity of the sale agreements. By the time it entered into the sale agreements, the mortgage debt had been assigned to the sixth defendant in equity if not at law. That meant that it had been entitled to receive and give a good discharge for the mortgage money within the meaning of section 106(1) of the 2002 Act so that it could exercise the power of sale conferred by section 101: Durham Bros v Robertson [1898] 1 QB 765, Brandts (William) Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 and Kapoor v National Westminster Bank [2012] 1 All ER 1201 considered.
(5) In all the circumstances, the powers of attorney granted by the charge could not validate the sale agreements. However, the sixth defendant had been entitled to enter into those agreement on a different basis. The sale agreements could not be impugned on any of the grounds set out in the particulars of claim. Accordingly, the claimants’ application. Moreover, unless the claimants made and succeeded in the proposed application to amend their particulars of claim, the proceedings against the seventh defendant would be dismissed.
Brie Stevens-Hoare QC and Thomas Bell (instructed by Lewis Silkin LLP) appeared for the claimants; Mark Warwick QC (instructed by PCB Litigation LLP) appeared for the first, second and fourth to sixth defendants; Thomas Fletcher (instructed by Newtons Solicitors Limited, Knaresborough) appeared for the third defendant; Thomas Grant QC and Duncan McCombe (instructed by Barker Gillette LLP) appeared for the seventh defendant.
Eileen O’Grady, barrister
Click here to read transcript: Skelwith (Leisure) Ltd and others v Armstrong and others
