Introduction and Facts
1. The Claimant (“Mr Weir”) seeks summary judgment against the Defendant
(“Area Estates”) under CPR Part 24. Mr Weir’s case is that Area Estates has no
defence in law, and that that is as apparent now as it would be at trial.
2. Mr Weir bid successfully at auction for registered freehold land at
Andrew Street
sale was entered into on 29 January 2008 (“the Contract of Sale”).
3. A leasehold interest had been granted in respect of the Property to a Mr Airey by
lease dated 20 April 2004 for a term of 9 years (“the Lease”). This was shown in a
schedule to the freehold title.
4. On 8 August 2006 a bankruptcy petition was presented against Mr Airey. The
bankruptcy petition was registered as a pending action in the Land Charges
Register and on 11 August 2006 a notice was entered against the leasehold title
under section 86(2) of the Land Registration Act 2002 (“the 2002 Act”) in respect
of that petition.
5. On 31 August 2006 Mr Airey moved out of the Property. He purported to
surrender the Lease, and Area Estates purported to accept that surrender. For the
purpose of this application the purported surrender is to be assumed to have been
for valuable consideration. The bankruptcy petition was however still pending,
and on 11 October 2006 a Bankruptcy Order was made against Mr Airey. The
Bankruptcy Order was registered in the Land Charges Register and on 2
November 2006 a restriction under section 86(4) of the 2002 Act was entered
against the leasehold title in respect of that Order.
6. By the time of the auction, more than a year later hi January 2008, the freehold
title still scheduled the Lease, and the leasehold title still showed the notice and
the restriction related to Mr Airey’s bankruptcy. The Property was knocked down
to Mr Weir for £400,000, of which £40,000 was paid by way of deposit.
7. Although notice to complete was served by Area Estates on 7 March 2008, the
sale did not complete. Rather, Mr Weir claimed to be entitled to rescind the
Contract of
because the surrender was ineffective by reason of the then pending bankruptcy.
On 16 May 2008 Area Estates secured a disclaimer of the Lease from the Trustee
in Bankruptcy of Mr Weir, but that was too late to save the Contract of Sale.
8. In this litigation Mr Weir sues for return of his deposit and interest. Area Estates
has since sold the Property to a third party. It achieved less in this sale than was
payable under the Contract of Sale and wishes to counterclaim for damages
against Mr Weir.
Section 284 of the Insolvency Act 1986
9. Section 284 of the Insolvency Act 1986 (“the 1986 Act”) provides, so far as material,:
“(1) Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court.
…
(3) This section applies to the period beginning with the day of the
presentation of the petition for the bankruptcy order and ending with the
vesting, under Chapter IV of this Part, of the bankrupt’s estate in a trustee.
(4) The preceding provisions of this section do not give a remedy against
any person:
(a) in respect of any property … which he received before the commencement of the bankruptcy in good faith, for value and without notice that the petition had been presented, or
…”
10. Area Estates accepts that a surrender of the Lease is a disposition of property for the purposes of section 284(1) of the 1986 Act (and section 86 of the 2002 Act, below). As to the reference in section 284(4)(a) to the commencement of bankruptcy, under section 278 of the 1986 Act the bankruptcy of an individual against whom a bankruptcy order has been made commences with the date on which the order is made.
11. Applying section 284 of the 1986 Act to the facts of the case
(1) The surrender was within the period to which section 284 applies.
(2) The surrender is void, not having been made with the consent of the Court or
subsequently ratified by the Court.
(3) The above conclusions would not give a remedy against any person “in
respect of any property … which he received before [11 October 2006] in good
faith, for value and without notice that the petition had been presented.”
Section 198 of the Law of Property Act 1925
12. Mr Weir, by Ms Jane Evans-Gordon of Counsel, refers to section 198 of the Law
of Property Act 1925 (“the 1925 Act”). This provides, so far as material,:
“(1) The registration of any instrument or matter in any register kept under the Land Charges Act 1972 or any local land charges register shall be deemed to constitute actual notice of such instrument or matter, and of the fact of such registration, to all persons and for all purposes connected with the land affected, as from the date of registration or other prescribed date and so long as the registration continues in force.
(2) This section … applies only to instruments and matters required or authorized to be registered in any such register.”
13. If section 198 of the 1925 Act were applicable to the facts of the case the
registration of the bankruptcy petition in the Land Charges Register would be
deemed to constitute actual notice of that matter, and of the fact of that
registration, to all persons and for all purposes connected with the land affected,
as from 11 August 2006.
14. However Mr Mark Loveday of Counsel for Area Estates argues that section 198
of the 1925 Act is not relevant. This is because, he submits, section 86 of the 2002
Act is “a comprehensive code for dealing with the registration of bankruptcy
petitions and bankruptcy orders in relation to registered land”, and subsection (7)
of section 86 indicates that a person to whom a registrable disposition is made is
not required to make any search under the Land Charges Act 1972. In light of this
submission I turn to section 86 of the 2002 Act in order to see whether it produces
an outcome that makes a material difference on the facts of the present case.
Section 86 of the 2002 Act
15. Section 86 of the 2002 Act provides, so far as material,:
“(1) In this Act, references to an interest affecting an estate or charge do not include a petition in bankruptcy or bankruptcy order.
(2) As soon as practicable after registration of a petition in bankruptcy as a
pending action under the Land Charges Act 1972, the registrar must enter
in the register in relation to any registered estate or charge which appears
to him to be affected a notice in respect of the pending action.
(3) Unless cancelled by the registrar in such manner as rules may provide,
a notice entered under subsection (2) continues in force until:
(a) a restriction is entered in the register under subsection (4), or
(b) the trustee in bankruptcy is registered as proprietor.
(4) As soon as practicable after registration of a bankruptcy order under
the Land Charges Act 1972, the registrar must, in relation to any registered
estate or charge which appears to him to be affected by the order, enter in
the register a restriction reflecting the effect of the Insolvency Act 1986.
(5) Where the proprietor of a registered estate or charge is adjudged
bankrupt, the title of his trustee in bankruptcy is void as against a person
to whom a registrable disposition of the estate or charge is made if:
(a) the disposition is made for valuable consideration,
(b) the person to whom the disposition is made acts in good faith, and
(c) at the time of the disposition:
(i) no notice or restriction is entered under this section in relation to the registered estate or charge, and
(ii) the person to whom the disposition is made has no notice of the bankruptcy petition or the adjudication.
(6) Subsection (5) only applies if the relevant registration requirements are
met in relation to the disposition, but, when they are met, has effect as
from the date of the disposition.
(7) Nothing in this section requires a person to whom a registrable disposition is made to make any search under the Land Charges Act 1972.”
16. Applying section 86 to the facts of the case:
(1) The notice of the bankruptcy petition entered on the Land Register hi respect
of the Property continued hi force from 11 August 2006 until 2 November 2006,
when the restriction was entered after the making of the Bankruptcy Order.
(2) As from 31 August 2006 the title of Mr Airey’s trustee in bankruptcy would
have been void as against Area Estates if (the registration requirements were met
in relation to the surrender and) at 31 August no notice or restriction was entered
under section 86 in relation to the registered estate or charge, and Area Estates
had no notice of the bankruptcy petition or the adjudication.
(3) In fact at 31 August 2006 a notice was entered on the Land Registry under
section 86, with the consequence that the title of Mr Airey’s trustee in bankruptcy
was not void as against Area Estates.
(4) This is the position without requiring Area Estates to make a search under the
1972 Act.
17. In oral argument at times the submissions were distilled into asking whether
subsection (7) of section 86 “trumps” subsection (5)(c)(i). In my judgment it is
not a question of one provision “trumping” the other. Subsection (7) is addressing
the question whether a search needs to be made under the Land Charges Act
1972. Subsection (5)(c)(i) concerns instead the Land Register and specifically
what has, pursuant to subsections (2) and (4), been entered in that Register by the
registrar after there has been registration of a petition in bankruptcy as a pending
action, and of a bankruptcy order, under the Land Charges Act 1972.
18. This scheme appears to be reflected in the narrative description given by the Law
Commission in its 2001 paper (LC 271). Paragraphs 11.40 and 11.41 are in these
terms (the italics are in the original):
“11.40 When a petition in bankruptcy is filed against a debtor, the relevant court official must apply to register the petition as a land charge in the register of pending actions. Where the debtor is the registered proprietor of any land or charge, this can have no direct effect, because registration of a land charge does not affect registered land. However, this registration serves to trigger a procedure for ensuring that an appropriate entry is made on the register of title. The Chief Land Registrar maintains both the land charges register and the register of title. Using the index of proprietor’s names, he will attempt to ascertain whether the debtor is the registered proprietor of any land or charge on the register. If he thinks that he is, he must then register a creditor’s notice against the title of any land or charge that appears to him to be affected. Clause 86(2) of the Bill replicates this procedure. The registrar must enter a notice of the pending action. That entry must remain in the register until either a restriction is entered in the manner explained below in paragraph 11.41, or the trustee in bankruptcy is registered as proprietor.
11.41 A similar procedure applies when a person is adjudicated bankrupt and a bankruptcy order is made against him or her….”
There are further helpful explanations of the scheme in Ruoff & Roper Law and Practice of Registered Conveyancing at 13.005.03,20.021, 34.003, 34.005, 34.011 and 34.012 and in Muir Hunter Personal Insolvency at 3-700.3.
19. Mr Loveday further submits that the presence of subsection (7) of section 86 indicates that constructive notice is not sufficient notice for the purpose of section 284 of the 1986 Act. Again, in my judgment all that subsection (7) does is to deal in the case of registered land with the question whether a search needs to be made under the Land Charges Act 1972, and thus whether a person is affected by entries on the Land Charges Register. In the present case it is the entries on the Land Register that suffice to answer the question of notice against Area Estates.
Conditions under the Contract of
20. The Contract of
Condition 4.3(a) in these terms:
“Unless otherwise stated in the special conditions the seller sells with full title guarantee except that:
(a) all matters recorded in registers open to public inspection are to be treated as within the actual knowledge of the buyer …”
21. In addition the Contract of Sale was subject to Special Conditions, including
Special Conditions 1 and 7 in these terms:
“1. Vacant possession will be given on completion….
…
7. The Lease dated 28 April 2004 and referred to on Title Number HD431124 determined by operation of law on 31 August 2006. The Buyer shall accept the position and shall not be entitled to require any further proof of the determination or raise any objection or requisition with regards thereto.”
22. In my judgment:
(1) On its true construction Special Condition 7 required Mr Weir to accept as
factually accurate the proposition that the Lease had determined by operation of
law on 31 August 2006.
(2) This requirement was not an exception to the “full title guarantee” basis of the
sale, under General Condition 4.3(a). Rather, it was an affirmation of it in this
particular.
(3) Consistently with the requirement, Special Condition 7 ruled out Mr Weir’s
being entitled to require any further proof of the determination, or to raise any
objection or requisition with regards to it.
(4) Although the Land Register and the Land Charges Register (both registers
under General Condition 4.3(a)) revealed the Lease and the bankruptcy petition,
and did not mention any determination of the Lease, the position remained that
Mr Weir was contractually required to accept that there had been a determination.
It transpired that there had not.
23. Area Estates urges that during the sale process it “was quite open that the [L]ease
was still registered against the freehold title”. Indeed Mr Weir could see the
registration for himself, and it is expressly referred to in the first sentence of
Special Condition 7. However what is involved is not simply an entry on the Land
Register; the full position was that in law and in fact there was a subsisting Lease
until disclaimed by Mr Airey’s trustee in bankruptcy, however easy it might be to
persuade the trustee in bankruptcy to disclaim. Special Condition 7 said that the
Lease had been determined by operation of law on 31 August 2006 but in law and
fact it had not.
24. Mr Loveday submits that Mr Weir was as much fixed with notice of the
bankruptcy petition as was Area Estates, and therefore as well able to work out
the true position. Whether that is correct or not (I do not see how Mr Weir would
know whether the trustee had disclaimed, for example, and Special Condition 7
would stand in the way of his inquiry in that regard) I do not see that it helps Area
Estates on the question whether they were able to convey at completion the
unencumbered title they had contracted to convey.
A “technical conveyancing defect”?
25. Area Estates submit that the defect in title constituted by the subsisting Lease is a
technical defect insufficient to allow Mr Weir to rescind the Contract of Sale.
26.In my judgment this submission is unsustainable. Either a successful application
to the Court seeking ratification of the surrender would be required, or a successful request to Mr Airey’s trustee in bankruptcy to disclaim. The outcome of neither can have been a foregone conclusion at the time. Neither was in Area Estates’ sole power, control or grant. Area Estates had no right that would enable it is insist on ratification or disclaimer.
27. Indeed it is hard to see why the Court would have ratified a surrender by Mr Airey
when a bankruptcy petition was pending. As for disclaimer, the outcome of the
request would depend on the trustee’s assessment at the time whether, in one form
or another, there was value to be had for the bankrupt estate from the Lease.
28. Of course a trustee’s assessment will vary from case to case. Even if it is
impossible that an assessment by the trustee in the present case would have
concluded that there was value, the Property was still subject to a lease and Area
Estates had no right to remove it. I cannot treat the presence of a subsisting lease
encumbering freehold property sold with vacant possession as a “technical
conveyancing defect”.
29. The present case cannot be characterized, as it was at points in the argument for
Area Estates, as equivalent to a failure to remove from the face of the registered
title a redundant entry. As at the date for completion there was a subsisting
leasehold interest vested in the trustee in bankruptcy of Mr Airey.
30. In the course of argument Ms Evans-Gordon for Mr Weir withdrew, for the
purposes of this application for summary judgment, an argument that had the
purported surrender been valid Area Estates was still unable to give good title
because the entries on the Land Register did not reflect a surrender of the lease.
Mr Loveday urged that the argument that remained, based on an invalid surrender,
was just a gloss on the argument that had been withdrawn. It will be clear from
what I have said above that, whatever may be the position on the argument that
Ms Evans-Gordon withdrew, I regard the combination of a void surrender and an
undisclaimed lease as quite different.
31. Understandably Mr Loveday for Area Estates submitted that one should stand
back and look at the facts (assuming these in his favour for the purpose of the
application). More than a year before completion there had been the purported
surrender. The premises were standing empty; no rent had been paid; the first time
the trustee was approached to disclaim (in May 2008) he agreed. There is no
evidence, urges Mr Loveday, that anyone was going to assert that the Lease
continued.
32. These points paint a powerful picture, and perhaps a commercially persuasive
one. But the answer to them lies in remembering that had anyone asserted that the
Lease continued they would have been correct, subject perhaps to arguments
about waiver or abandonment. That is not a risk that Mr Weir agreed to take.
33. The underlying principle was laid down by the House of Lords in MEPC Ltd v
Christian-Edwards and Others [1981] AC 205 in these terms (per Lord Russell of
Killowen at 220C-D, with whom the rest of the House agreed):
“[I]f the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance, the court should declare in favour of a good title shown.”
34. There is no prospect in the present case of such a conclusion being appropriate.
For all the argument about degree of risk, on which views will differ, Area Estates
simply cannot show that as at the date for completion there was no risk of the
trustee in bankruptcy asserting successfully that the Lease subsisted. The present
case is a far cry from that before the House of Lords, where it was concluded that
there was no risk of a claim for specific performance being upheld on the basis of
a contract some 70 years old which had been abandoned some 50 years before.
35. The authorities contain other illustrations of the effect of the presence of the risk
of a claim being made that, if successful, would adversely affect title: see, for
example, Darvell v Basildon Development Corporation (1969) 211 EG 33 (“mere
conjecture of an attack by what would be idle litigation”, per Megarry J at 38) and
Re Heavsman’s and Tweedy’s Contract (1893) 69 LT 89 (“a claim [that] would
now be ridiculous; he would be laughed out of court”, per Lindley LJ at 91). The
distinction is that in the present case the adverse claim was good. The trustee hi
bankruptcy was a lessee, and Area Estates’ own later action in approaching the
trustee for a disclaimer is consistent with that.
Conclusion
36. In the circumstances, I am satisfied that the Claimant must succeed. He was entitled to rescind the Contract for
37.1 will hear further argument as necessary as to the rate of interest.
