Land registration – Overriding interest – Respondent holding charge over property granted by legal owner – Appellant claiming entitlement to proceeds of sale of property in priority to respondent as beneficial owner with overriding interest based on actual occupation at date of registration of charge – Whether precluded by principle in Brocklesby v Temperance Permanent Building Society [1895] AC 173 from asserting priority – Whether providing owner of company with means to hold himself out as legal and beneficial owner for property for purpose of granting charge – Appeal dismissed
In May 2010, a residential property was purchased in the name of a company owned and controlled by S, a friend and business associate of the appellant. The appellant and S had previously undertaken a number of property development projects together and the understanding was that S would arrange the purchase of the property as a family home for the appellant using the proceeds of sale of one such project. S was in fact in fact a fraudster, acting contrary to the appellant’s interests. He had the property transferred into the name of a company wholly owned and controlled by himself and then caused the company to take out a loan of £500,000 with the respondent lender, secured by a registered charge over the property. He took the loan money for himself and disappeared.
The company defaulted on the loan and the respondent, exercising its rights as mortgagee, brought proceedings for possession of the property and sold it for £1.1m. It sought to retain £694,072.75 of the sale proceeds to realise its security. However, the appellant claimed to be entitled to the proceeds of sale on the grounds that he was the beneficial owner of the property with an overriding interest, under section 29 of and para 2 of Schedule 3 to the Land Registration Act 2002, which took priority over the respondent’s charge reason of his actual occupation of the property at the date when the charge was registered.
Dismissing the claim, the deputy judge held that, while the appellant was the beneficial owner and was in actual occupation at the date of registration of the charge, his interest did not qualify as an overriding interest because of the operation of the principle in Brocklesby v Temperance Permanent Building Society [1895] AC 173. He held that, on the application of the Brocklesby principle, the appellant could not challenge the priority of the respondent’s charge since, by refraining from any involvement in the mechanics of the purchase of the property, he had given S the means of representing himself as the beneficial owner with full authority to deal with third parties as owner: see [2014] EWHC 1746 (Ch). The appellant appealed.
Held: The appeal was dismissed.
Although actual occupation evident on reasonably careful inspection was the principal mechanism under the 2002 Act to test whether an innocent third party acquiring legal title should be protected, an occupier could not establish an overriding interest unless he could show that he had relevant rights capable of binding the purchaser of the legal title in equity. There was scope for the operation of any rule of law which prevented the occupier from having a relevant right as against the purchaser, before the application of the actual occupation test, so as to prevent a finding that there was an overriding interest under the statute.
The beneficial owner of property might be prevented, by a principle akin to an estoppel, from asserting his rights in priority to those of a mortgagee in circumstances where he had authorised another person as agent to deal with an asset in some way on his behalf, had furnished the agent with the means of holding himself out to a purchaser or lender as the owner of the asset or as having the full authority of the owner to deal with it, and had omitted to bring to the attention of a person dealing with the agent any limitation that existed to the agent’s actual authority. That combination of factors created a situation in which it was fair, as between the owner of the asset and the innocent purchaser or lender, that the owner should bear the risk of fraud on the part of the agent whom he had set in motion and to whom he had, albeit unwittingly, provided the means of perpetrating the fraud. The same principle applied where the dishonest vendor or mortgagor of the asset, who by the sale or mortgage raised money from an innocent third party, had been vested with the legal title as a trustee: Brocklesby, Rimmer v Webster [1902] 2 Ch 163, Thompson v Foy [2009] EWHC 1076 (Ch); [2010] 1 P&CR 16; [2009] PLSCS 166 and Abbey National Building Society v Cann (1989) 57 P&CR 381 (CA); [1989] EGCS 34 applied.
Although the House of Lords in Cann had based its decision on different reasoning, namely that the appellant was not in fact in actual occupation at the relevant date, it had not disapproved the Court of Appeal’s reasoning and had expressly endorsed it. It followed that the Court of Appeal’s reasoning should be followed in an equivalent case: Cann [1991] 1 AC 56 (HL) considered.
The facts of the instant case were analogous to those in Cann. The appellant had left the acquisition of the property completely in the hands of S, to whom he had given authority to make whatever arrangement he saw fit to acquire the property, so long as it produced the net result that the appellant had the beneficial ownership of it free from any mortgage. Although S had acted outside the limits of his authority by arranging for the grant of the mortgage over the property to the respondent, the respondent was not on notice of any such restriction on his authority. The appellant had exercised no supervisory function whatsoever in relation to what S might do to effect the transaction to acquire the property. He did not ask to inspect or countersign the contract of purchase. He did not contact the vendor to explain his interest in the acquisition, or seek to enter any note of his interest on the register at the time of the acquisition, or arrange to have it explained that the money used to complete the purchase was to be regarded as the appellant’s money. In that way he had, in practical terms, furnished S with the means to hold himself out as the true beneficial purchaser of the property, and hence as the legal and beneficial owner of the property for the purposes of borrowing money from the respondent secured by a charge it its favour.
In those circumstances, the appellant was precluded by operation of the Brocklesby principle from maintaining that he had a beneficial interest in relation to the property with potential to have priority over the security interest of the respondent. Consequently, the appellant could not claim to have an overriding interest as against the respondent and any beneficial interest which he enjoyed in relation to the property had to be treated as subordinate to the respondent’s charge.
Romie Tager QC and Neil Mendoza (instructed by Haynes Orme) appeared for the appellant; Philip Rainey QC and Tim Polli (instructed by Glovers Solicitors LLP appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Wishart v Credit & Mercantile plc
