United Bank of Kuwait Plc v Sahib
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PETER GIBSON,LORD JUSTICE PHILLIPS,LORD JUSTICE LEGGATT |
| Judgment Date | 02 February 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0202-3 |
| Docket Number | CHANF 94/1018/B |
| Court | Court of Appeal (Civil Division) |
| Date | 02 February 1996 |
[1996] EWCA Civ J0202-3
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(Mr Justice Chadwick)
Before: Lord Justice Leggatt Lord Justice Peter Gibson Lord Justice Phillips
CHANF 94/1018/B
MR C PYMONT (Instructed by Messrs Radcliffes Crossman Block, London SW1P 3SJ) appeared on behalf of the Appellant/Third Defendant
MR J MUNBY QC (Instructed by Messrs Clyde & Co, London EC3M 1JP) appeared on behalf of the Respondent Plaintiff
Friday, 2 February 1996
Since 1783 a deposit of title deeds relating to a property by way of security has been taken to create an equitable mortgage of that property without any writing notwithstanding section 4 of the Statute of Frauds 1677 and its successor, section 40 of the Law of Property Act 1925. The main question that arises on this appeal is whether this much criticised but well-established rule has survived the coming into force of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
This is an appeal by the Third Defendant, Société Générale Alsacienne de Banque S.A. ("Sogenal"), from part of the order of Chadwick J on 24 June 1994, whereby he declared that as between Sogenal and the Plaintiff, United Bank of Kuwait plc ("UBK"), Sogenal does not have any equitable mortgage or charge over the undivided share of the First Defendant, Hadi Haji Sahib, in the proceeds of sale of 37c Fitzjohn's Avenue, Hampstead, London NW3 ("37c"). The Judge's judgment is reported at [1995] 2 WLR 94 and contains a full and careful statement of the facts. It is therefore unnecessary for me to do more than recount the salient facts to make the issues in this appeal intelligible.
Mr Sahib is the husband of the Second Defendant, Raja Saad Hashim. Mr Sahib and Mrs Hashim are the legal and beneficial owners of 37c. On 30 June 1987 Sogenal, at Mr Sahib's request, guaranteed to National Bank of Abu Dhabi ("NBAD") repayment by Mr Sahib to NBAD of all moneys outstanding under banking facilities granted to him by NBAD up to £325,000. The amount of the guarantee was increased on 7 October 1987 to £400,000, and by payments on 15 August and 19 September 1990 £400,000 was paid under the guarantee by Sogenal to NBAD. It is not in dispute that Mr Sahib impliedly agreed to indemnify Sogenal against any payments which it made under the guarantee. Sogenal initially took no security from Mr Sahib for the guarantee, but on 25 November 1988, Mr. Sahib's solicitors wrote to Sogenal confirming that he had instructed them to hold the land certificate of another property owned by Mr Sahib alone to Sogenal's order to cover the guarantee. On 3 August 1990 the solicitors wrote again to Sogenal, saying that they understood that Mr Sahib was prepared for the land certificate to 37c to be held as additional security to the order of Sogenal pending a possible sale or refinancing of that property. In a fax to the solicitors on 14 August 1990, Sogenal referred to its understanding that the solicitors would hold as additional security on Sogenal's behalf the land certificate to 37c. On 10 September 1990 the solicitors wrote to Sogenal confirming that they would in future hold that land certificate to the order of Sogenal.
Part of the moneys for which Mr Sahib was liable to Sogenal under his implied indemnity in respect of the guarantee was repaid by Mr Sahib and immediately after 19 September 1990, when £240,000 was paid by Sogenal to NBAD under the guarantee, that net liability was £103,872.61. The position was covered by an advance of £130,000 made by Sogenal to Mr Sahib on 21 September 1990. The advance was treated by Sogenal as a time deposit made by Sogenal with Mr Sahib. The deposit matured on 21 December 1990, and was renewed successively throughout 1991, interest being debited to his account on each renewal. Time deposits were thereafter renewed in differing amounts; by June 1993 the time deposit had increased to £144,000. On 10 June 1993 with the addition of interest the amount owed by Mr Sahib to Sogenal was £151,266.
At no time did Mrs Hashim authorise Mr Sahib's solicitors to hold the land certificate in respect of 37c to the order of Sogenal. Consequently, Sogenal did not have security over the freehold interest in 37c, as Sogenal became aware in 1991. Mr Sahib's solicitors were asked to act for Sogenal "in connection with regularising the security arrangements in respect of 37c" and they requested Mr Sahib and Mrs Hashim to execute a legal mortgage to secure Mr Sahib's indebtedness to Sogenal. But no mortgage was executed, though correspondence in August 1992 contained a clear indication by Mr Sahib that by then Sogenal was secured in respect of the amount due on the current time deposit and on the balance of Mr Sahib's account with Sogenal.
On 20 September 1991 UBK obtained judgment in the Queen's Bench Division against Mr Sahib in the sum of £229,815.17, being principal and interest in respect of banking facilities granted to Mr Sahib by UBK. On 12 October 1992 a charging order nisi on Mr Sahib's interest in 37c was granted to UBK to secure and enforce that judgment debt together with costs and statutory interest from the date of judgment. There is nothing to indicate that UBK had any knowledge of Sogenal's dealings with Mr Sahib in relation to security over 37c. On 19 October 1992 UBK gave notice to Mrs Hashim as well as Mr Sahib of the charging order nisi. On 25 November 1992 that order was made absolute at a hearing at which Mrs Hashim was represented. It is common ground that the order left Mrs Hashim's beneficial interest in 37c unaffected, nor did it charge the freehold of 37c.
On 27 November 1992 UBK commenced proceedings against Mr Sahib and Mrs Hashim by originating summons to enforce the charging order. UBK sought payment of the amounts claimed under the charging order, possession of ( inter alia) 37c and directions for sale. On 16 July 1993 Sogenal was joined as the Third Defendant and UBK amended the originating summons to claim a declaration that Sogenal did not hold any equitable mortgage or charge over 37c or, if it did, that such mortgage or charge did not take priority over UBK's charging order absolute. Neither Mr Sahib nor Mrs Hashim appeared or was represented at the hearing before the Judge. The issue contested before the Judge was the declaration claimed by UBK against Sogenal.
There is no evidence that Sogenal gave notice to Mrs Hashim of the interest which it claims until after the present proceedings were commenced. The first question dealt with by the Judge was whether if Sogenal had an interest as mortgagee or chargee of Mr Sahib's undivided share in the proceeds of sale of 37c, the rule in Dearle v. Hall (1828) 3 Russ. 1 applies. If it does, then UBK, by reason of the prior notice given to Mr Sahib and Mrs Hashim, will have priority over Sogenal. The Judge held that the rule in Dearle v. Hall had no application on the facts of the present case, and that if Sogenal became entitled to a mortgage or charge over Mr Sahib's beneficial interest in 37c before the charging order nisi was made, that mortgage or charge had priority over UBK's charge created by the charging order.
The Judge then turned to whether Sogenal did have such a mortgage or charge before 12 October 1992. He made the assumption that Mr Sahib would have been estopped from denying an agreement between Sogenal and him that 37c should stand as security for the advance on 21 September 1990 of £130,000 and interest. He expressed the view that an agreement to charge what Mr Sahib could not charge, namely both the legal title and beneficial interest in 37c, in the absence of some statutory prohibition would be treated as effective to create an equitable charge over Mr Sahib's undivided share. But he held that there was such statutory prohibition in section 2 Law of Property (Miscellaneous Provisions) Act 1989, and that the rule that the deposit of title deeds by way of security created an equitable mortgage of the property had not survived the coming into force of the section on 27 September 1989.
In case he was wrong on that, the Judge gave two further reasons why no charge over Mr Sahib's interest could have been created in favour of Sogenal by the holding of the land certificate to Sogenal's order. The first was that a deposit of title deeds could not operate as an equitable charge unless the deposit was effective, and the deposit by one joint tenant without the consent of the other was ineffective because the creditor had no right to retain custody of the title deeds against the other joint tenant. The second was that if the deposit was otherwise effective, it would have been a disposition of a subsisting equitable interest within section 53(1)(c) Law of Property Act 1925, and as such it would be void because the dispositive act was not in writing.
Sogenal now appeals. UBK by a Respondent's Notice challenges the Judge's decision on the applicability of the rule in Dearle v. Hall, and further challenges the correctness of the assumption that Mr Sahib was estopped from denying that 37c should be security for the advance of £130,000 and interest. Mr Pymont for Sogenal has helpfully identified five issues from the Notice of Appeal and Respondent's Notice:
(1) Can a deposit of title deeds operate as a mortgage or charge over an interest in land since section 2 of the 1989 Act came into force ("the section 2 point")?
(2) Subject to (3) below, was the deposit on behalf of Mr Sahib, being one of two joint tenants of the...
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