Buhr and Others v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | LADY JUSTICE ARDEN,TUCKEY LJ,LORD CHIEF JUSTICE OF ENGLAND AND WALES |
| Judgment Date | 25 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1223 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2000/2220 CHANF |
| Date | 25 July 2001 |
[2001] EWCA Civ 1223
Lord Chief Justice of England & Wales
Lord Justice Tuckey and
Lady Justice Arden
Case No: A3/2000/2220 CHANF
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Bristol District Registry
His Honour Judge Weeks QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Alastair Norris QC (instructed by Messrs Bond Pearce for the Appellant)
Miss Elizabeth Gloster QC and David Wolfson (instructed by Messrs TLT Solicitors for the Respondent)
This is an appeal with permission of the judge against the order of His Honour Judge Weeks QC sitting as an additional judge of the Chancery Division in the Bristol District Registry. By his order it was declared that the respondent ("Barclays") "had a proprietary interest in the proceeds of sale of [Rectory Farm, Cold Aston, Nr. Chippenham, Avon] which were held under a constructive trust." The extent of that proprietary interest is not specified, but it is clear that Barclays' interest was a security interest in respect of the amount secured by a charge executed by the Buhrs in its favour as described below.
The action was commenced on 30 April 1999 by Barclays against Mr and Mrs Buhr, Mrs Buhr's trustee in bankruptcy and Thrings and Long ("Thrings"), a firm of solicitors. It seeks declarations that Barclays had a proprietary interest in the proceeds of sale of Rectory Farm, that the proceeds of sale were held by the Buhrs on a resulting or constructive trust and that the Buhrs were liable to account for such proceeds. As against Thrings, Barclays limits its claim to the monies, now agreed at £27,500, which it says Thrings received and either still have or have wrongly distributed from their client account.
The matter before the judge was a preliminary issue as to whether Barclays could establish that the monies that Thrings received on the completion of the sale of Rectory Farm were held on any sort of trust under which Barclays had a proprietary interest.
Background
By a legal charge dated 10 July 1989 Mr and Mrs Buhr granted a second charge over Rectory Farm to Barclays. This was in Barclays' standard form and it secured all monies owed to Barclays by the Buhrs. It was a charge "by way of legal mortgage", the formula introduced by the 1925 property legislation (see sections 85 and 87 of the Law of Property Act 1925) in substitution for mortgages by the grant of long leases or by a conveyance with a proviso for reconveyance on redemption by a certain date (as to which equity did not treat time as of the essence). The Buhrs had also created a first mortgage in favour of UCB Home Loans Corporation Limited ("UCB") and Barclays duly gave notice of their charge to UCB. Barclays also registered its charge as a puisne mortgage, a Class C1 land charge, in the land charges registry against Mr and Mrs Buhr. However it registered it as a charge arising in respect of "Rectory Farm, Aston, Nr Chippenham, Wiltshire" so that a person who searched against the Buhrs in respect of Rectory Farm in Avon would not receive notice of the charge. Accordingly the registration was of no effect.
On 26 February 1998 the Buhrs instructed Thrings to act for them on the grant of an option to purchase Rectory Farm to a Mr Sanders and a Mr Robinson. The sum of £5,000 was paid for this option and placed in Thrings' client account (and by agreement this sum is treated for the purposes of these proceedings as part of the deposit for Rectory Farm). Later Mr Sanders and Mr Robinson exercised their option and Mr and Mrs Buhr instructed Thrings to act for them on the sale of Rectory Farm pursuant to the option. Thrings obtained the title deeds from UCB on their undertaking to hold the deeds to their order pending completion and on completion to discharge the debt due to UCB.
Mr Buhr told Thrings that he thought there was a charge over the property in favour of Barclays. Mrs Buhr was not sure that there was such a charge. The purchasers' solicitors informed Thrings that there was such a charge but that it was not correctly registered before completion took place.
In February 1998 Mr and Mrs Buhr made a proposal for an individual voluntary arrangement (an "IVA"). Barclays were approached. Barclays understood there would be some repayment to them from the sale of Rectory Farm when it was sold.
However, when Rectory Farm was sold on 19 November 1998 the balance of the purchase price was paid into Thrings' client account. On the discharge of the sums due to UCB as first mortgagee, there remained or would, but for the payment of certain expenses of the IVA and other unsecured debts of the Buhrs, have remained the sum now agreed at £27,500. Barclays assert that the surplus proceeds of sale were held on trust for it and that Thrings were not entitled to use it to pay debts of the Buhrs in priority to the claim of Barclays.
The transfer of Rectory Farm to Mr Sanders and Mr Robinson is not in evidence. However, this Court has seen the option contract dated 26 February 1998, which was not in evidence before the judge. Under clause 1 of the option contract, the Buhrs agreed to sell Rectory Farm:
"for an estate in fee simple in possession"
a) subject to various matters, which are immaterial because they did not include Barclays' second charge. Clause 8 of the option contract also provided that
"The Vendor shall sell with full title guarantee"
There is no provision in the Barclays' charge entitling the Buhrs to sell Rectory Farm free from Barclays' charge though as a matter of law they were free to sell their equity of redemption. The second charge does not restrict this.
Mrs Buhr was adjudicated bankrupt on 12 January 1999 after the sale of Rectory Farm had taken place.
Judgment of His Honour Judge Weeks QC
The judge held that there was a trust in favour of Barclays for three reasons:
(i) He accepted as correct statements by Professor Sir Roy Goode in Commercial Law (2 ed) (1995) at pages 667 to 688 and in Legal Problems of Credit & Security (Sweet and Maxwell) (1988) at page 16 that security in an asset extends to the proceeds of sale of an authorised disposition by the debtor and an unauthorised disposition effected on behalf of the creditor rather than for debtor's own account. The judge held that it would be anomalous that an unauthorised disposition by the debtor could "by means of a bye-wind under the Land Charges Act result in his property becoming available for unsecured creditors as some sort of windfall." I call this "the judge's proceeds point" and I set out the relevant extracts from Professor Sir Roy Goode's work below.
(ii) The "all estate" clause implied by section 63 of the Law of Property Act 1925 ("Every conveyance is effectual to pass all the estate, right, title, interest … which the conveying parties … have in the property conveyed …") was not excluded by the legal charge. Therefore the Buhrs were charging not only the legal estate in Rectory Farm but also their equitable interests in that property as security for Barclays' loans. Those equitable interests, in the judge's judgment, were necessarily interests in the proceeds of sale of the land which was held upon the statutory trusts. I call this "the judge's all estate clause point".
(iii) The judge held that, where the mortgagee does not consent to the sale, the proceeds of sale are held on constructive trust for the mortgagee by analogy with the trust imposed in equity on the net proceeds of sale which a mortgagee received after exercise of his power of sale. This trust was imposed in order to prevent subsequent incumbrances and the mortgagor himself from being cheated by the mortgagee who had used his legal estate to realise the property. The judge relied on Banner v Berridge (1881) Ch.D 254, Charles v Jones [1887] Ch 544 and The Benwell Tower (1895) 72 LT 664. The judge held that this trust was superseded by the Conveyancing Act 1881 which was in due course replaced by section 105 of the Law of Property Act 1925. Section 105 provides:
"The money which is received by the mortgagee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject, if any, or after payment into court under this Act of a sum to meet any prior incumbrance, shall be held by him in trust to be applied by him, first, in payment of all costs, charges, and expenses properly incurred by him as incident to the sale or any attempted sale, or otherwise; and secondly, in discharge of the mortgage money, interest, and costs, and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof."
I call this "the judge's analogy with section 105".
In Commercial Law, Professor Sir Roy Goode says this:
"(iv) Security in an asset and security in its proceeds
Unless otherwise agreed, security in an identifiable asset carries through to its products and proceeds, in accordance with the equitable principle of tracing. It is quite possible for the creditor to have rights in the same item of property both as proceeds and as original security, as where he takes a charge over the debtor's stock in trade and receivables and the debtor then sells items of stock, producing receivables. The strength and quality of a security interest in an asset is not necessarily the same as in its proceeds. The debtor who gives a charge over his stock and receivables may be allowed full freedom to dispose of the stock in the ordinary course of business free from the charge without...
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