Cherry Tree Investments Ltd v Landmain Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Lewison,Lord Justice Longmore |
| Judgment Date | 31 May 2012 |
| Neutral Citation | [2012] EWCA Civ 33,[2012] EWCA Civ 736 |
| Docket Number | Case No: A3/2011/1907 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 May 2012 |
[2012] EWCA Civ 736
Lady Justice Arden
Lord Justice Longmore
and
Lord Justice Lewison
Case No: A3/2011/1907
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
MANCHESTER DISTRICT REGISTRY
HIS HONOUR JUDGE PELLING QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Edward Francis (instructed by Edwin Coe LLP) for the Appellant
Mr James Pickering (instructed by Turner Parkinson LLP) for the Respondent
Hearing date : 23 February 2012
The appellant ("Landmain") is the registered proprietor of 2, Battersea Rise, London SW11 1ED ("the Property"). It is in dispute with the respondent ("Cherry Tree") over the validity of the transfer to it of the Property by Dancastle Associates Ltd ("Dancastle"). Dancastle sold the Property to Cherry Tree in exercise of the power of sale granted by a registered charge dated 30 July 2010 ("the charge") read with a facility agreement of the same date ("the facility agreement"). The charge, but not the facility agreement, was registered at HM Land Registry. Landmain executed both documents. Landmain contends that no sum secured by the charge had become due under the terms agreed for repayment before the sale to Cherry Tree. That is not, however, the dispute which the court had to determine on the application which is now the subject of this appeal. That application sought to by-pass that dispute.
It is critical to the validity of the sale to Cherry Tree that the provisions of the facility agreement varied or extended the statutory power of sale. If they did so, it was unnecessary to show that any sums had become due at all. Landmain, however, contends that the statutory power of sale applied without any variation because it had not been varied or extended by the charge itself. Before I formulate in more detail the issues to be determined on this appeal, I need to explain the nature of the statutory power of sale and how it can be varied or extended.
The statutory power of sale
The statutory power of sale is one of the statutory powers conferred on mortgagees by section 101 of the Law of Property Act 1925 ("the 1925 Act"). It applies to a mortgage created by a deed, and a mortgage is defined by the 1925 Act to include a legal charge. Section 101 of the 1925 Act provides that in the case of such a mortgage or charge the mortgagee has certain powers by implication of law. They need not be set out in the mortgage itself. These powers include a power of sale. This power of sale is exercisable only once the mortgage monies have become due in accordance with the terms agreed for repayment.
Section 101(3) of the 1925 Act provides that the mortgage deed may vary or extend the statutory power of sale. It may also exclude the whole or part of section 101 (section 101(4)). It is section 101(3) which is relevant for our purposes:
"(3) The provisions of this Act relating to the foregoing powers, comprised either in this section, or in any other section regulating the exercise of those powers, may be varied or extended by the mortgage deed, and, as so varied or extended, shall, as far as may be, operate in the like manner and with all the like incidents, effects, and consequences, as if such variations or extensions were contained in this Act."
Accordingly, any variation or extension of the statutory power of sale must be effected by the mortgage deed or charge itself and not by some separate agreement between the parties. In the present case, clause 12.3 of the facility agreement provided as follows:
"The security constituted by the Legal Charge of the Property shall be immediately enforceable and the power of sale and other powers given by section 101 of the Law of Property Act 1925 (as varied or extended by the Legal Charge) shall, as between the [Dancastle] and [Landmain] arise on the execution of the Legal Charge and be exercisable at any time after that execution, but [Dancastle] shall not exercise the power of sale until the security constituted by the Legal Charge has become enforceable as above."
So, if Cherry Tree can show that the statutory power of sale was effectively varied by clause 12.3, notwithstanding that it does not physically appear in the charge as executed, the statutory power of sale became exercisable immediately on execution of the charge. It was not necessary to wait until there had been a default by Landmain. Such a clause would be unusual in a term loan. However, when it is used, it is effective in law. Furthermore, by virtue of section 104(2) of the 1925 Act, Cherry Tree, as a purchaser from a chargee selling under the statutory power of sale, would also be free from any obligation to see whether the statutory power of sale had been properly exercised.
The issues on this appeal
The issues to be decided on this appeal can now be formulated in more detail. There are three questions.
The first is the novel question whether the charge and the facility agreement can be interpreted together for any purpose having regard to the fact that the charge alone is registered at the Land Registry pursuant to the Land Registration Act 2002 ("the 2002 Act"). The register is open to inspection by members of the public, and the public may inspect documents filed at the land registry. The courts have not previously considered that question. So far as the charge is concerned, the facility agreement is "extrinsic" evidence because it is not incorporated into the charge by some suitable wording.
The second question is whether, if the answer to the first question is yes, the court can correct by interpretation the mistake made by the parties in not varying the statutory power of sale in the charge itself.
The third question is whether, if the answer to the first and/or second question is no, the charge and facility agreement constitute in law a single document so as to meet the requirement for any variation of the statutory power of sale to be contained in the charge.
Before I develop the parties' cases on these questions, I need to explain the form of the security arrangements in this case in a little more detail.
The security arrangements in this case
The facility agreement was entered into on 30 July 2010 to secure a bridging facility of £635,000, to be drawn down in full on 30 July 2010 and repayable on 30 January 2011. Clause 12.3 of the facility agreement, set out in paragraph 5 above, provided that the monies secured by the charge should become immediately due on execution of the facility agreement. Clause 12.3 therefore differed from the statutory power of sale, which was exercisable only if the monies secured by the charge had become due. Landmain indeed accepts that point.
The charge was in Land Registry form CH1. This form contains a box for completion with details of the amounts secured by the charge and dates when they became repayable. Unfortunately, the parties failed to complete this box so on the face of the charge nothing is secured by it. Nonetheless the charge was registered at the Land Registry. The register is divided into three parts: the property register, which provides a description of the land in the title, the proprietorship register, which states the name and address of the legal owner and the nature of his title, and the charges register, which contains details of charges and other rights and interests which affect the property, such as leases. In the present case it is not clear whether the original charge or a copy of it was filed with the application for registration. The charge appears in the charges register for the Property with the following entry:
"2. (17.09.2010) Registered Charge dated 20 July 2010.
3. (17.09.2010) Proprietor: Dancastle Associates Limited (Co Regn. No. 01487107) of 1, Dancastle Court, Arcadia Avenue, London N3 2 JU."
Dancastle applied for a restriction to be inserted in the proprietorship register for the Property, which was duly made. This provides that the prior written consent of the proprietor of the charge is required for any disposition of the registered estate in the Property. So anyone inspecting the charges register would learn that there was a charge in favour of Dancastle. He could inspect the filed document, which may have been an original or a copy. The effect of the registration of the restriction was that Dancastle was protected against the risk of subsequent disposition by Landmain of legal interests in the Property without its consent. The problem, however, that has arisen is on a disposition by Dancastle itself.
Enforcement of the charge by Dancastle
In December 2010 Dancastle served notice on Landmain that the monies secured by the facility agreement had become immediately due and payable. Landmain disputed this notice on the grounds that under the facility agreement Dancastle was not in a position to serve such a notice unless an event of default had occurred, which it contended had not happened. Nonetheless, Dancastle went ahead and sold the Property at auction to Cherry Tree with full title guarantee. That meant that Dancastle warranted that it had the right to dispose of the Property (Law of Property (Miscellaneous Provisions) Act 1994, section 2(1)(a)). Cherry Tree did not know of the dispute between Dancastle and Landmain at the time the Property was sold to it.
Cherry Tree took a transfer of the Property on 6 January 2011, but when it applied to the Land Registry to register this transfer, it was unable to obtain registration due to the objections of Landmain. Accordingly Cherry Tree...
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