Bishop v Blake

This action arises out of dealings with a property known as The New Inn, Norton Locks, Buckby Wharf, near Daventry in Northamptonshire. I will refer to it as “the Inn”. Immediately prior to 13th March 1998 the Inn belonged to the defendant, Elizabeth Anne Blake. On that date Mrs. Blake contracted to sell it to the claimant, Susan Elizabeth Bishop at the price of £290,000. Of this sum £140,000 was to be left outstanding, secured by a first legal charge over the Inn. The contract was completed on the very same date by instruments which I shall have to examine in some detail, and a first legal charge was duly granted to Mrs. Blake. After completion Mrs. Bishop complained that she had not received a good title to the whole of the land which Mrs. Blake had contracted to convey to her and in 2001, when the major part of the money secured by the first legal charge became payable, Mrs. Bishop declined to pay it. Ultimately, in October 2002, Mrs. Blake purported to exercise her power of sale as mortgagee by selling the Inn to a company named Gillie’s Inns Inns Limited. Mrs. Bishop claims that this sale was improper on a variety of grounds, including an assertion that the sale was at a serious undervalue.

It is convenient to note at this stage that in September 2002, towards the end of the events which I shall have to consider, Mrs. Bishop married Clive Burrows, who himself comes into the story at an earlier stage. However I shall refer to her throughout as “Mrs. Bishop”, which is the name in which she sues.

I must begin by looking back in time to a period before Mrs. Blake became the owner of the Inn. The 1971 Conveyance which I shall describe in a moment indicates that in the 1950’s and 1960’s the Inn belonged to successive brewery companies, culminating in Watney Mann (Midlands) Limited (“Watneys”). In 1971 the Inn was purchased from Watneys by Catherine Joan Twining, who was the mother of Mrs. Blake. It was conveyed to her by a Conveyance dated 5th July 1971 (“the 1971 Conveyance”). In that instrument the land conveyed was described as

“all those premises situate at Norton Locks Buckby Wharf in the Parish of Norton in the County of Northampton known as “The New Inn” as the same are for the purpose of identification only delineated on the plan annexed hereto and thereon edged red”

It will be apparent from this wording that, despite the statement that the plan is for “the purpose of identification only”, that plan constitutes the only significant definition of what was intended to pass under the 1971 Conveyance. Unfortunately the original of the 1971 Conveyance was lost before 1998 and those involved in the 1998 transaction between Mrs. Blake and Mrs. Bishop, and the court in this litigation, have had to work from a photocopy of it. This copy is clear so far as the text is concerned, but woefully inadequate in respect of the plan. In particular the red edge referred to in the text has been drawn in by a broad marker pen and it is difficult to determine where precisely it runs.

After the Inn was purchased by Mrs. Twining she ran it as a public house, with the assistance of Mrs. Blake and her husband, until her death in 1976. Mrs. Blake then became entitled to the Inn and it was duly vested in her by an Assent. Between 1976 and 1978 Mrs. Blake employed a manager of the Inn, but in 1978 Mrs. Blake began to run the business herself, initially in conjunction with her husband, who died in 1979. Mrs. Blake herself lived in the Inn until 1985, when she moved to a house about two miles away where she still lives.

Mrs. Blake remained the licensee of the Inn until she sold it to Mrs. Bishop. In her later years of ownership, however, she found that advancing years made it more difficult for her to do the work and she began to employ managers again. She did not find this satisfactory and she tried to sell the Inn. Initially she tried to sell to breweries or similar operators of public houses but her efforts were unsuccessful.

In July 1997 Clive Burrows, now the husband of Mrs Bishop, became interested in purchasing the Inn. According to Mrs. Blake he paid her £10,000 as a “deposit” and tried to get her to sign a piece of paper which, presumably, would bind her to a sale. Mrs. Blake took the £10,000 but declined to sign the paper. She put the matter in the hands of a solicitor, Mr. Christopher Albion, who practised, with a partner, under the name of Albion & Co. in Rugby. Mr. Burrows for his part instructed Shepherd & Co. of Towcester. Eventually it was agreed, subject to contract, that Mr. Burrows would purchase the Inn at the price of £260,000. That price consisted of the £10,000 already paid to Mrs. Blake plus an additional £250,000.

According to Mrs. Blake she exchanged contracts with Mr. Burrows on 6th February 1998, completion being fixed for 13th February. However completion did not take place. Mrs. Bishop said this was because of matters relating to the title to and boundaries of the Inn (which are of direct relevance to these proceedings and which I will describe in detail in a moment). Mrs. Blake said that the failure to complete was because of Mr. Burrows’ inability to raise the balance of the purchase price. I do not find it necessary to choose between these explanations. The upshot was that early in March 1998 Shepherd & Co informed Albion & Co that Mr. Burrows would no longer proceed with the transaction but that Mrs. Bishop, who was in a relationship with Mr. Burrows, would be prepared to take his place as purchaser.

The matters of title and boundaries which I have referred to arose from the fact that over the years the extent of the land used and occupied as part of the Inn had changed without there being any proper written record of them. Indeed some of these changes date back to the 1960’s or earlier, with the result that in addition to its other deficiencies the plan annexed to the 1971 Conveyance did not show accurately the land then constituting the Inn. In an attempt to deal with the points raised by Shepherd & Co on behalf of Mr. Burrows, Mrs. Blake made a statutory declaration on 10th February 1998. I propose to describe the various areas of dispute or difficulty by reference to the colouring on the plan numbered 2 to this statutory declaration.

Before doing so, however, it is necessary to mention that the Inn is adjacent to the main A5 trunk road where it crosses the Grand Union Canal at Long Buckby. If the road is regarded as passing from south to north and the canal as passing from east to west the Inn lies in the angle formed by the crossing, to the south of the canal and to the west of the road. Originally the road followed a course which brought it close to the main building of the Inn. This is shown on the plan to the 1971 Conveyance, although not with any degree of precision. There must presumably have been a strip of land between the highway and the building and this may have been within the ownership of the Inn. There was some evidence to the effect that such a strip had been paved and roofed over, the roof being subsequently removed. This evidence was, however, vague and it is not possible to say how wide such a strip might have been.

In the 1960’s the main A5 road was re-aligned in the area where it passes the Inn and proceeds to cross the canal. The effect of this re-alignment was to move the carriageway of the road further away from the Inn and to raise it slightly above its former level on a low embankment. Alongside the roadway there is a metalled footpath leading across the canal and to the side of the footpath furthest from the road there is a metal fence, presumably erected in order to prevent pedestrians falling down the embankment. The result of this work was to leave an unoccupied area of land, formerly part of the highway, between the fence and the Inn. This area of land is coloured blue on the statutory declaration plan and I shall refer to it as “the blue land”.

As part of the re-alignment alterations were made to the mode of access to the Inn and to an adjoining property to the west, formerly known as “Ginger’s Stores” but now called “Top Lock Cottage”. It is not clear precisely how this stood before the alterations, but afterwards there was a road or drive leading from the main road to the rear of the Inn to Top Lock Cottage. This left an unoccupied area of land, formerly part of the highway, between the new road or drive and the buildings comprised in the Inn. I shall refer to this area of land as “the green land”, this being how it is coloured on the statutory declaration plan.

It is of some significance that the plan attached to the 1971 Conveyance does not include either the blue or the green land. Hence although there is evidence that these areas were used exclusively as part of the Inn that Conveyance does not purport to confer any title to them.

In her statutory declaration Mrs. Blake dealt first with the blue land. She referred to the re-alignment of the main A5 road and said

“Because of the new alignment the area shaded blue was left unoccupied and, so far as we were concerned at the time, belonged to the pub.”

In referring to “at the time” Mrs. Blake must have meant throughout the period of ownership of first her mother and then herself.

Dealing with the green land, Mrs. Blake described this as “an oddly shaped piece of land consisting of car park which is outside the original curtilage of the New Inn in 1971”. She explained how this area was left over as a result of the re-alignment and went on

“In fact, it is my belief that [the green land] may well be public highway belonging to the Highways Agency as successors to the old Ministry of Transport. We have however during the whole of my mother’s and my ownership and occupation of the New Inn used all of the land now included and edged red on Plan 2 as part of the pub either by way of car park garden or otherwise.”

Unfortunately no land is edged red on the copy of plan 2 which was before the court. There is an area edged red on plan 1, but this clearly does not include the green or the blue land. Nevertheless it seems fairly clear that what Mrs. Blake was trying to convey was that she did not claim to have a documentary title to the green or the blue land but that she and her mother had always treated them as part of the Inn.

Plan 2 shows two other areas of land coloured respectively brown and orange. As to these Mrs. Blake explained that in 1980 or 1981 she had, with the agreement of the owner of the adjoining property (Ginger’s Stores or Top Lock Cottage) realigned the fence to the west and south-west of the Inn so as to achieve a more satisfactory boundary between the Inn and the adjoining property and between the Inn and the drive or road giving access to the back of the Inn and Top Lock Cottage. This involved the surrender by her of the orange land, which had been conveyed by the 1971 Conveyance, and the acquisition by her of the brown land, which belonged to the owner of Top Lock Cottage. Mrs Blake said that shortly after she re-aligned the fence Top Lock Cottage changed hands and the new owner objected to what had been done. She said that there was an attempt to take “some form of High Court action” against her and that “the matter trundled on for about seven years before petering out completely”.

I was shown at the trial some aerial photographs the date of which is uncertain. These show clearly what appears to be a fairly well established hedge along the new boundary on the south-west side of the Inn. It seems fairly clear from all the available material that Mrs. Blake had no paper title to the brown land, but that this land has been occupied as part of the curtilage of the Inn for many years, probably since 1980 or 1981 as Mrs. Blake claimed.

I need not trouble with the orange land, which is land to which Mrs. Blake had a good paper title but which she had agreed to transfer to the owner of Top Lock Cottage. It seems that it never has been transferred, but Mrs. Bishop lays no claim to it.

Finally there is an area coloured yellow on Plan 2 to the statutory declaration. As to this Mrs. Blake said

“There is an area shaded yellow on Plan 2 which belongs so far as I am aware to British Waterways and the first few feet of which from the canal certainly belong as towpath to the canal. It has, over a number of years, been our habit to utilise the area shaded yellow as a sort of pub garden and distributing on it tables and chairs (which are semi-permanent) for the use of the customers at the public house. That was certainly happening when my mother bought the pub in 1971 and has happened continuously ever since.”

Mrs. Blake omitted to mention that at some time during her or her mother’s ownership a projection, described as a bay window, was added to the Inn building on the side facing the canal. This is thought to stand on part of the yellow land, although it seems to me that if a better copy of the plan on the 1971 Conveyance was available it might be possible to claim that it stands on land comprised in the 1971 Conveyance. At all events it seems clear that the bay window projection has been occupied exclusively as part of the Inn since it was built.

It is convenient to add at this point that after Mrs. Bishop had become the owner of the Inn she was able to negotiate with British Waterways an arrangement, described as a way-leave, entitling her to continue to use the yellow land as before subject to the payment of a few hundred pounds a year.

Early in March 1998, as I have already mentioned, Albion & Co were informed by Shepherd & Co that Mr. Burrows was not prepared to proceed with the purchase but that Mrs. Bishop was willing to do so. In circumstances which remain obscure it was agreed that Mrs. Bishop would pay a total of £290,000, although Mr. Burrows had agreed to pay only £250,000. Mrs. Bishop retained Mr. Shepherd as her solicitor, as Mr. Burrows had done. It does not appear that Mr. Shepherd undertook any further investigation of Mrs. Blake’s title beyond what he had already undertaken on behalf of Mr. Burrows. Contracts were exchanged on 13th March 1998, that is to say within a few days after Mrs. Bishop came into the matter, and the sale was completed on the same day. I must now summarise the relevant parts of the contract and of the instruments brought into existence for the purpose of completion.

The terms of the contract which are material may be summarised as follows:

Completion was effected by two instruments, the first being a Transfer in the form appropriate to registered land and the second being a Conveyance. Both have some peculiar features.

By the Transfer Mrs. Blake expressed herself to transfer to Mrs. Bishop, in consideration of £50,000, land described as

“the land and property delineated on a plan attached hereto and thereon edged red all which property is more particularly delineated in [the 1971 Conveyance] Together also with what title she has (if any) to the land shaded pink on the land shaded pink on the plan.”

The transfer was expressed to be made with full title guarantee

The land shaded pink on the Transfer plan is the brown land described in the statutory declaration. The land edged red includes all the land edged red on the plan annexed to the 1971 Conveyance, apart from the orange land referred to in the statutory declaration (which presumably was regarded as having passed to the owner of Top Lock Cottage). But the land edged red includes also the blue, green and yellow land, which were not included in the plan annexed to the 1971 Conveyance. There is thus a conflict between the Transfer plan and the assertion that this is the same land as was described in the 1971 Conveyance plan.

The Conveyance which, like the contract and the transfer, is dated 13th March 1998, begins with a recital that Mrs Blake

“has been in undisturbed and uninterrupted possession of the property described in the Schedule .. as to the land shaded pink on the attached plan since 1977 and as to the land shaded blue on the attached plan since 1980 without acknowledging the title of any other person to all or any part of it ...”

There is then a further recital that Mrs Blake has agreed to sell “the Property” for such estate as she has in it for the sum of £1. In the operative part of the conveyance Mrs. Blake, in consideration of £1, “with limited title guarantee as trustee” conveyed to Mrs. Bishop “ALL THAT the Property”. There is no definition of what is meant by “the Property”, but the land described in the Schedule is “All that piece or parcel of land edged red as shown on the accompanying plan”. On the plan annexed to the conveyance the area edged red includes the very same land as is edged red on the transfer plan, except that the brown land appears to be within the red edging on the conveyance plan and outside it on the transfer land. The conveyance plan unequivocally includes within the red edging the blue, green and yellow land referred to in the statutory declaration.

It is difficult to know what to make of the transfer and the conveyance. On any view they represent a thoroughly sloppy piece of conveyancing of which the solicitors concerned should be ashamed. I shall have to return to this matter when I have explained more of how the dispute between the parties has developed.

Also in 13th April 1998 Mrs. Bishop executed the Legal Charge required by the contract. This Legal Charge is in the Land Registry prescribed form, although the title number was, of course, left blank. In it “the property” was defined as

“the land comprised in the title above referred to including any buildings on the land”

This was a pretty useless description when the title had not been registered, but it seems clear that it was intended to include the whole of the land which had been transferred or conveyed to Mrs. Bishop on the same day.

By the Legal Charge Mrs. Bishop (“the Borrower”), with full title guarantee, charged “the land comprised in the title above referred to” (the defined term “the Property” was not used) with the payment to Mrs. Blake (“the Lender”) of the sum of £240,000

“with interest as hereinafter set out payable monthly on the sixteenth day of each month together with a final payment of all outstanding moneys due under this Charge on or before the 16th April 2001”

The following points call for mention in relation to the Legal Charge:

After completion it was left to Albion & Co to deal with the registration of Mrs. Bishop’s title to the Inn and Mrs. Blake’s Legal Charge in accordance with clause 12.3 of the contract. No registration was effected for a very long time. It is a mystery to know what, if anything, was done. Such of Mr. Albion’s files as have been produced for inspection reveal nothing apart from the meagre exchange of correspondence which I shall mention. Mr. Albion gave evidence on behalf of Mrs. Blake but was unable to cast any light on the matter even though he was the solicitor responsible for making progress. I must say that I find this thoroughly unacceptable. I pass over it only because whatever idleness or incompetence there was on the part of Mr. Albion, or for that matter on behalf of Shepherd & Co who appear to have stood by complacently except for the letters I am about to mention, cannot affect Mrs. Bishop’s rights against Mrs. Blake or vice versa.

The only glimpses of what was happening which can be obtained from the files come in the form of two letters written by Mr. Shepherd to Mr. Albion. The first is dated 7th April 1999, nearly a year after completion. In it Mr. Shepherd referred to his concern about registration. He said that he was prepared to deal direct with the requisitions raise by the Land Registry, which suggests that an application had duly been made, but was unable to do so because Mr. Albion had all the deeds and other papers. The second letter is dated 13th June 2000, more than two years after completion. Mr. Shepherd enclosed a copy of his letter of 7th April 1999 and asked Mr. Albion to make urgent arrangements to register the title, failing which he would have little choice but to refer the matter to the Office of Supervision of Solicitors.

Whether as a result of this letter or for some other reason there was some limited progress. The Land Registry arranged for a survey to be carried out. It summarised the difficulties in a letter dated 13th October and indicated its requirements. These appear to me to have been very much what one would expect, having regard to the contents of Mrs. Blake’s statutory declaration. Still there was little progress until, on 13th February 2001, the Land Registry was asked to register Mrs. Bishop’s title to that part of the Inn concerning which there was no difficulty, leaving aside the blue, green, brown and yellow land for further consideration. It is difficult to understand why this simple, and to my mind rather obvious, proposal was not put forward until two years and nine months after completion.

Once this proposal was put forward it was accepted and acted upon by the Land Registry within a very short time. Mrs. Bishop was registered with title absolute to the core land constituting the Inn, including all the Inn buildings, under title number HN11318. Mrs. Blake’s Legal Charge was registered over the same land and a charge certificate was issued to Mrs. Blake. The date of registration was stated to be 11th July 2000, which I assume to be the date on which the application for registration had been lodged. If there had been an earlier application it must have been cancelled.

I now return to the time immediately after completion. Mrs. Bishop took possession of the Inn and began to carry on her own business of a public house, assisted by Mr. Burrows. She said in her evidence that they refurbished the entire property and renewed most, if not all, of the equipment in the Inn. New refrigerators were supplied by one of the suppliers to the Inn, apparently in appreciation of her good custom. Mrs. Bishop said that she became increasingly concerned at the failure to register her title. She approached the Land Registry direct and also spoke to Mrs. Blake, whom she visited at her home. She paid the £2500 per month due under the terms of the Legal Charge, but she explained to Mrs. Blake that, unless and until her title was registered, she would be unable to raise money to pay the balance of the principal sum, amounting to £150,000, which would become due on 16th April 2001.

Mrs. Bishop said that in about November 2000 she, in agreement with Mr. Burrows, decided to consider leasing the Inn to a third party. They instructed Messrs. Pinders, who specialise in the valuation, letting and sale of licensed premises, to report on the Inn. Pinders’ representative inspected the Inn on 30th January 2001 and the firm reported in writing shortly thereafter. They gave a valuation of the Inn on alternative bases as follows:

Mrs. Bishop then sought a tenant for the Inn through Christie & Co., a company associated with Pinders. Mrs. Bishop said that the Inn was advertised on the basis that a lease was offered at a premium of £75,000 and an annual rent of £36,000. There was a good deal of interest including a number of offers of a rent in excess of that asked. Eventually after interviewing a number of prospective tenants Mrs Bishop accepted the offer of a Mr. and Mrs. Brind, who were to pay a premium of £75,000 and an annual rent of £48,000, to be reviewed upwards only each year in line with the retail price index for a 25 year lease. An agreement for the grant of such a Lease was entered into with the Brinds on 23rd March 2001. I do not propose to go into the terms of this agreement except to note that it contained (in Clause 19) a somewhat half-baked provision as to what was to happen if the consent of Mrs. Blake as mortgagee to the grant of the lease had not been obtained when completion of the grant of the Lease took place.

Mrs. Bishop claimed that Mrs. Blake was well aware of her intention to grant a Lease of the Inn. She said that Mr. Burrows mentioned this to Mrs. Blake on two specific occasions and that Mrs. Blake was concerned to ensure the return of some pickled egg jars which belonged to her but were at the Inn. She also asked about the accommodation of an employee at the Inn who had lived on the premises but would be required to move. I received evidence from a number of other witnesses, customers of the Inn, to the effect that Mrs. Blake, who was also a customer, knew that Mrs. Bishop and Mr. Burrows were leaving the Inn and, by implication, that a tenancy was to be granted to a new licensee.

So far as a more formal notification is concerned, Mrs. Bishop’s new solicitors, Messrs Wright Hassall of Leamington Spa, wrote to Albion & Co on 28th February 2001 stating that Mrs. Bishop was proposing to let the Inn on a 25 year Lease and asking for Mrs. Blake’s consent to that Lease. Albion & Co replied on 7th March asking for a draft of the proposed Lease. They added

“Clearly, any conditional consent at this stage will be based on the exact terms of the lease and your clients’ proposals for clearing their indebtedness to our client by the date specified in the mortgage”.

No draft Lease or proposals were forthcoming, although Mrs. Bishop and the Brinds entered into the Agreement for Lease on 23rd March, as I have already mentioned.

On 27th March Albion & Co again wrote to Wright Hassall referring to Mrs. Blake’s understanding that the new tenant was to go into occupation on 1st April and asking again for a draft Lease for approval and other things. Albion & Co wrote two further letters on 29th March, in one of which it was stated that Mrs. Blake had telephoned the Inn to try to speak to Mrs. Bishop and had been told that she no longer ran the pub and no-one knew where she was.

On 29th March Wright Hassall wrote in reply to Albion & Co’s letters of 7th and 27th March asking for a copy of the Legal Charge (which Albion & Co had referred to in the letter of 27th March) and enclosing a copy of the draft Lease to the Brinds. Albion & Co acknowledged this letter on the same day, but pointed out that there were no proposals for clearing the mortgage debt and raising another matter. This brought forth a comment from Wright Hassall on 30th March that

“under the Mortgage dated the 13th March 1998 the final payment of outstanding monies is due on 16th April 2001; the issue of this repayment is, therefore, irrelevant to your client’s consent to the Lease.”

The Lease was completed shortly afterwards and is dated 2nd April 2001. Mrs. Bishop said that she and Mr. Burrows moved out of the Inn on 3rd April.

By the Lease Mrs. Bishop demised the Inn (defined so as to include only the land comprised in the registered title number HN11318 and also, as it seems, the brown land) to Mr. and Mrs. Brind for the term of 25 years from the 2nd April 2001. The following matters contained in the Lease call for mention:

I find that Mrs. Blake knew of Mrs. Bishop’s intention to grant the Lease to the Brinds and the proposed terms of the Lease not later than the 29th March 2001, when Albion & Co received a copy of the draft Lease. She was never informed by Wright Hassall or by Mrs. Bishop herself that the Lease had actually been granted, nor was she sent a copy of the completed Lease by anyone on behalf of Mrs. Bishop. She only received such a copy when it was sent to Albion & Co by Howes Percival, the solicitors for the Brinds on 22nd May 2002. She must have known in April 2001 that Mrs. Bishop had left the Inn and that the Brinds had taken over. From this she must have concluded that the Lease had been granted and Wright Hassall referred to this fact in a somewhat cursory way in a letter dated 1st May 2001. She did not, however, consent in writing to the Lease until October 2002, when she did so in circumstances which I shall explain in due course.

During the course of the negotiations for the Lease Mrs. Bishop became aware that the Brinds had a financial backer in the form of a Ms. Gilly McDonald or her company Gillie’s Inns Inns Limited (“Gillie’s Inns Inns “). In her witness statement Mrs. Bishop went so far as to say that Ms. McDonald stood as personal guarantor for the Lease. There are other statements in the case papers to the effect that the tenants’ obligations under the Lease were guaranteed by Ms. McDonald or Gillie’s Inns. However the Lease itself contains no such guarantee and no separate guarantee has been produced. I conclude that there never was a guarantee. It appears, however that from the time that the Brinds went into possession the trading entity which operated the Inn was Gillie's Inns and that the Brinds were acting on its behalf.

On 6th April 2001 Wright Hassall sent Albion & Co a letter which the latter described, in my view with some justification, as an aggressive one. The burden of the letter was that Mrs. Blake was in breach of contract by failing to convey to Mrs. Bishop all the land which she had contracted to convey. Wright Hassall claimed that, in these circumstances, Mrs. Blake could not enforce what they claimed to be part of the same contract, namely the obligation to pay £150,000 on 16th April. Mrs. Bishop, who had paid all the monthly instalments of £2500 which were due before that date, failed and refused to pay any part of the remaining £150,000. The correspondence between Wright Hassall and Albion & Co and with the Land Registry continued for some time, but without any useful result.

Certain events in the latter part of 2001 call for mention. First Mrs. Bishop sought a facility of some kind from the Bank of Ireland, which instructed Taylors Business Surveyors and Valuers Ltd (“Taylors”) to inspect and value the Inn. The inspection took place on the 17th September 2001 and Taylors’ valuation was made as at that date. Taylors’ valuation of the freehold interest, seemingly with vacant possession was £400,000. They reduced this to £320,000 on the footing that a restricted realisation (in respect of time available and access to accounts and records) had to be effected. The value given for the freehold investment interest in the Inn, subject to and with the benefit of the existing Lease, was £350,000.

Nothing seems to have become of the application to the Bank of Ireland. On the 28th November, however, Mrs. Bishop sent an e-mail to the Brinds saying

“I have received an offer from a third party for the purchase of the freehold of the New Inn and in line with the lease requirements I am offering the freehold of the pub to yourselves in the first instance.

The purchase price is £750,00 which is broken down as a payment to myself for £600,000 which will convey the public house and the land registered into your names, and the debt to Mrs. E.A.Blake of £150,000 taken over and to be payable to her as and when the query with the boundaries and land to be registered are resolved to both parties satisfaction.”

This proposal was repeated in a letter dated 10th December 2001 from Wright Hassall to Mr. Geoff Gilbert of Howes Percival, the Brinds’ solicitor. No reply was forthcoming to either the e-mail or the letter until 15th January 2002 when Mr. Gilbert informed Wright Hassall that he had no instructions whether the Brinds wished to purchase the freehold. There was no evidence before me concerning any such third party offer as Mrs. Bishop claimed to have received.

On 8th January 2002, a few days before Mr. Gilbert’s reply to Wright Hassall, Mr. Albion had written to Mr. Gilbert referring to unsuccessful attempts to speak to him on the telephone at Mrs. Blake’s insistence. He said that he understood that the Brinds might have some proposals to discuss. Arrangements were made for a meeting to take place at the Inn on 16th January. The meeting duly took place, but there is no record of what was said at it. However on the 22nd January Mr. Gilbert wrote to Mr. Albion asking for a calculation of the amount owed to Mrs. Blake and a copy of the contract between Mrs. Blake and Mrs. Bishop. This letter crossed with a letter from Mr. Albion to Mr. Gilbert enclosing a copy of the contract.

I infer from these events that Mr. Albion informed the Brinds at some time in the latter part of 2001 that Mrs. Blake might have to seek a possession order against them in order to sell as mortgagee. If they were not expressly told this the Brinds may well have been advised of this possibility by Mr. Gilbert. The possibility of possession proceedings coupled with Mrs. Bishop’s offer to sell at what may have seemed a very high price is likely to have put into the Brinds’ minds that the solution might be for them to purchase the Inn from Mrs. Blake. I think that this was the essence of the proposal which they wished to discuss with Mrs. Blake.

Having said this it is right to add that the only persons present at the meeting on 16th January to give evidence before me were Mrs. Blake and Mr. Albion. Mrs. Blake said she had no recollection of what had been said. I found Mr. Albion a no more satisfactory witness. He said he thought he and Mrs. Blake were going to be made some kind of offer to prevent Mrs. Blake re-possessing the Inn, but he could not say what offer they were in fact made. He said that “presumably” he made Mr. Gilbert aware of the amount needed to pay off the mortgage but that he could not recall that they were lining up a sale. None of this makes me doubtful of the inference I have drawn as mentioned above.

In the middle of February 2002 Mr. Albion spoke on the telephone to Mr. Paul Newby, a director of Fleurets in Birmingham who, like Pinders who I have already referred to, are specialists in the valuation of licensed properties. He asked Mr. Newby for advice as to the value of the Inn. Mr. Newby replied on 1st March 2002 referring to a “variety of scenarios”. These included (i) an initial informal report to provide guidance to Mr. Albion’s client for a fee of £500 and (ii) a full detailed report and valuation the fee for which would be in the region of £1000 to £1500. Mr. Albion replied on 11th March saying

“I ... believe that it would be more advisable for an initial valuation to be made as referred to in point number (i) of your letter of 1st March. I strongly believe that at this stage the Clients need guidance as to what the property is worth as there is potential for selling the property to the Tenants, or even perhaps putting it on the open market, as it may well be attractive to Investors.”

After referring to the Lease, without any suggestion that it was not binding on Mrs. Blake, Mr. Albion continued

“From my perusal of the file I see that there is one sticking point and this relates to boundaries. The title is still subject to registration procedures at H.M. Land Registry as there has been much debate over the boundaries to part of the property. Unfortunately, I cannot let you have details of the Title at this juncture as everything is with the Land Registry. However I can confirm that the Title is Freehold and I am sure the situation can be resolved with regard to the boundary and title.”

I find this a most extraordinary paragraph. Mr. Albion knew perfectly well what were the details of the problems concerning boundaries because he himself, or at any rate his firm, had dealt with the Land Registry concerning them. More significantly he knew very well that the title to what has been described as the core of the Inn had been registered for over a year, the charge certificate having been sent to his firm and being presumably still held by it on behalf of Mrs. Blake. The matter does not appear to have had an impact on Mr. Newby’s valuation, but it illustrates an extraordinary degree of inattention to detail on the part of Mr. Albion.

Mr. Newby inspected the Inn on 11th March, having made arrangements with the Brinds to whom he spoke during the course of the inspection. On 25th March Mr. Newby asked Mr. Albion for certain information including a copy of the Lease to the Brinds. Mr. Albion had already received this from Howes Percival in May 2001 but he seems to have forgotten this and he obtained a further copy from Howes Percival to enable him to pass it on to Mr. Newby.

Mr. Newby’s report is dated 26th April 2002. In the early paragraphs of this report Mr. Newby said

“I understand that you require some initial informal advice as to the likely value/recommended sale price for the freehold interest subject to the existing Lease, together with comments/advice as to the saleability of this interest.

For the avoidance of doubt I must stress that this initial informal advice does not constitute a formal report and valuation.”

Later in his report Mr. Newby mentioned a number of repair problems which he described briefly. He also mentioned his discussion with the Brinds as a result of which he concluded that the Inn had a fair maintainable trade (“FMT”)in the hands of a competent and efficient operator of £250,000 per annum from all sources net of VAT. I interpose the observation that it was common ground between Mr. Newby and Mr. Coulter (the valuer who gave evidence on behalf of Mrs. Bishop) that the level of FMT is an important factor in the valuation of public houses. Mr. Newby expressed the view that the Brinds had substantially overpaid for the Lease. He estimated that a fair market rent would be £35,000 per annum. He noted some of the problems concerning the blue, green, brown and yellow land. He had evidently ascertained, perhaps from the Brinds, that the unbuilt upon part of the yellow land was used pursuant to a Wayleave granted by British Waterways at a cost in the region of £300/400 per annum. He discussed a range of potential purchasers, mentioning that the Brinds were possible purchasers.

Mr. Newby stated his conclusions as follows:

“Taking all of these matters into account I do not believe that at present the prospects of the sale of the freehold basis, subject to the existing Lease, are good. I would recommend that early consideration be given to addressing and resolving the various issues I have identified. Without this course of action an early sale may not be possible at all, or at least may only be achieved at a substantial discount.

On the assumption that the repair and legal issues can be satisfactorily resolved I am of the view that if the freehold interest were offered for sale in the very near future, subject to the existing Lease, then the asking price should be a figure in the region of £250,000. If these issues cannot be resolved then it may be necessary to consider any reasonable offers for the freehold interest, possibly at a substantially lower level.”

It is clear from the evidence of Mrs. Blake that she now has little or no recollection of what was said or done on her behalf in 2002 and that she left everything to Mr. Albion, although he discussed matters with her from time to time. For his part Mr. Albion does not appear to have done anything to resolve “the issues” mentioned by Mr. Newby. This was probably because he intended to resume contact with Howes Percival, acting for the Brinds or, as was soon made clear, for Gillie’s Inns. On 10th May Mr. Albion informed Howes Percival that he had a report from Fleurets and that, after taking instructions, he would be in touch again.

On 9th July 2002 Gillie’s Inns passed a board resolution stating that in the event of the freehold of the New Inn becoming available for purchase Gillie’s Inns would make an offer to purchase it. Shortly afterwards, on 11th July, Mr. Albion and Mr. Gilbert met at the Inn. Precisely what was discussed at that meeting was not made clear by Mr. Albion in his evidence, but notes made by him which must date from this time indicate that Mr. Gilbert, on behalf of Gillie’s Inns, offered £225,000 for the Inn. Amongst the other matters discussed were that Mrs. Blake must formally consent to the Lease before the sale, that a formal demand for payment must be made (it seems to have been supposed that it would only be necessary to allow seven days to elapse thereafter) and that Gillie’s Inns must give Mrs. Blake an indemnity in respect of any amount by which the amount paid by it fell short of the sum due from Mrs. Bishop to Mrs. Blake and the costs incurred by Mrs. Blake.

This reading of the content and timing of Mr. Albion’s notes is consistent with his oral evidence, such as it was, and with Heads of Terms which were drafted by Mr. Gilbert on 18th July 2002, that date being ascertained from a reference on a later version of these Heads of Terms. In these Heads of Terms Mrs. Blake is referred to as “the Mortgagee” and Mr. and Mrs. Brind are described as “the Purchaser”. The mortgage by Mrs. Bishop is recited and it is asserted that the power of sale under it has arisen and is exercisable by Mrs. Blake.

The draft Heads of Terms contain the following remarkable provisions:

“3.

Power of Sale

3.1

The Mortgagee will take all steps reasonably necessary to exercise the power of sale contained in the Mortgage as soon as reasonably practicable (“the Objective”)

3.2

The Mortgagee will not take any steps in pursuit of the Objective without the prior consent in writing of the Purchaser ...

3.3

In pursuit of the Objective the Mortgagee shall (subject to the provisions of paragraph 3.2:

3.3.1

issue to the Mortgagor a formal demand for repayment of the monies due and payable under the provisions of the Mortgage within five working days; and

3.3.2

if requested in writing by the Purchaser so to do commence proceedings against the Mortgagor for possession of the Property (subject to the rights of the Purchaser as tenant pursuant to the Lease); and

3.3.3

advertise the Property for sale in the open market subject to the Lease

3.5

...

3.6

The Mortgagee will keep the Purchaser fully informed of all progress in achieving the Objective

3.7

The Mortgagee will not send any correspondence or enter into any agreement with the Mortgagee [clearly a reference to the Mortgagor is intended] without the prior consent in writing of the Purchaser

3.8

The Mortgagee will send copies of any correspondence received from or sent to the Mortgagor within 3 working days of having received or sent the correspondence

4.

Proceedings

...

5.

Lease

The Mortgagee shall within five days

5.1

consent to the grant of the Lease and such consent shall be delivered to the Purchaser; and

5.2

procure that the Charge Certificate of title HN11318 is placed on deposit at H.M. Land Registry and that the Purchaser is notified of the deposit number within three working days of the Mortgagee receiving notification thereof

6.

Sale

6.1

The Mortgagee shall exercise her power of sale and shall sell and the Purchaser shall purchase the Property for TWO HUNDRED AND TWENTY FIVE THOUSAND POUNDS (£225,000) (“the Price”)

6.2

In the event that the Price is not the best price reasonably obtainable for the Property subject to the Lease the Mortgagee shall give to the Purchaser a reasonable opportunity to make a further offer to purchase the freehold of the Property

7.

Costs

7.1

In the event that the proceeds of sale of the Property are insufficient to discharge the Principal Sum (as defined in the Mortgage) together with all other monies due and payable by the Mortgagor to the Mortgagee pursuant to the provisions of the Mortgage together with all costs and expenses incurred by the Mortgagee in enforcing security contained in the Mortgage the Purchaser shall pay the reasonable and proper costs and expenses incurred by the Mortgagee in pursuit of the Objective or the balance thereof (as the case may be)

7.2

...

7.3

...

8.

Confidentiality

Save to the extent that the same is necessary to achieve the Objective or as is required under the general law the Mortgagee and the Purchaser will not disclose these heads of terms”

Although, as I have said, Mr. Gilbert drafted these Heads of Terms on 18th July he did not send them to Mr. Albion until considerably later, as I shall explain. But it is clear that they were drafted after discussion with Mr. Albion, which must be the discussion which had taken place on 11th July. In his evidence Mr. Albion agreed that Clause 7, relating to costs, is something which he had insisted upon. Mr. Albion said that he knew Mr. Gilbert was going to draft Heads of Terms. He said that £225,000 was the Brinds’ offer. He could not remember whether it was the first offer or whether there had been an earlier lower offer. Nor could he explain why no attempt had been made to get the offer improved. He must have agreed, in general terms at least, the strategy which Mr. Gilbert described as “the Objective” including the unusual provisions which gave to the purchaser a high degree of control over the exercise of the power of sale by Mrs. Blake as mortgagee. I have the impression from his own evidence and from the correspondence that Mr. Albion was not familiar with the requirements concerning the exercise of the power of sale by a mortgagee and that he sought the advice of Mr. Gilbert on this.

Although the transaction with the Brinds had thus reached a fairly advanced stage of discussion by mid-July 2002 and, if the Heads of Terms are correct, it was envisaged that steps of some kind would have to be taken to ascertain whether £225,000 was the best price reasonably obtainable, Mr. Albion did very little for two months. Mr. Albion offered no explanation for this, but in the light of the documentation produced at trial it is not difficult to see what the explanation was. Mr. Albion had in substance ceded control over events to Mr. Gilbert and his clients and they wanted to delay matters while they put in place their financial arrangements. The last thing they wanted was for the Inn to be marketed in a way which might lead to other purchasers becoming interested. Moreover neither they nor Mr. Albion himself wanted Mrs. Bishop to be alerted. Mr. Albion said that he regarded Wright Hassall as an aggressive firm of solicitors and he feared that if they or Mrs. Bishop got to know what was proposed they would create trouble which might prevent Mrs. Blake recovering what was due to her. No doubt he passed this view on to Mr. Gilbert.

There is a note made by someone in Albion & Co’s office recording a telephoned request from Mr. Gilbert asking that Mr. Albion would delay writing to Mrs. Bishop until he and Mr. Gilbert had spoken. The note is undated, but it must have been written in about mid-July. On 23rd July Mr. Gilbert wrote saying that his clients had instructed him that they would prefer to delay a meeting planned for the Thursday of that week. Nothing then seems to have happened between Mr. Albion and Mr. Gilbert except a mild inquiry about how matters were progressing which Mr. Albion made in a letter dated 23rd August. Mr. Gilbert replied that he had sent the draft Heads of Terms to one of his litigation partners to check and that thereafter he hoped to submit them to Mr. Albion. In fact the next communication from Mr. Gilbert to be received by Mr. Albion was not until 24th September 2002.

Documents disclosed in these proceedings by Gillie’s Inns (which was originally joined as a defendant as I shall explain) show that in the middle of July 2002 Gillie’s Inns had approached HSBC for finance in connection with a possible purchase of the freehold of the Inn. On 16th August Mr. Gilbert wrote to HSBC confirming that he had been instructed to act by the Brinds “who I believe will be purchasing the property jointly with Gillian Macdonald”. On 13th September HSBC offered Gillie’s Inns a loan for the purpose of assisting with the purchase of the Inn. The offer was subject to a satisfactory professional valuation addressed to HSBC for a minimum of £325,000. HSBC had already instructed Chestertons to value the Inn and their valuation is dated 19th September 2002. Chestertons valuation of the freehold of the Inn as a fully equipped operational entity with the benefit of vacant possession was £330,000. Of course Mr. Albion was unaware of this valuation, which was addressed solely to HSBC, and Mr. Gilbert may well have been unaware of it too.

It must have been the receipt of HSBC’s offer by Gillie’s Inns that stirred Mr. Gilbert into action once more. On 24th September 2002 he wrote to Mr. Albion saying

“I apologise profusely for the delay in coming back to you which has been due to a variety of circumstances over the holiday period. I enclose draft Heads of Terms for your approval ... You will note that the purchaser is in fact Gillies Inns Limited. Can you please confirm that the Heads of Terms are approved and I will arrange for them to be signed on behalf of my client.

You will need to issue a formal demand to the borrower before your client exercises her rights under her legal charge. My client will be letting me have a note of Mrs. Bishop’s last known address. My client also suggests that notice is served on Wright Hassall. According to my research you will just need to serve a formal demand for payment of the monies. You do not need to specify a sum payable.

Would you like me to draft the demand please? If you are drafting the demand yourself can you please let me have one for approval before serving it.”

The version of the Heads of Terms which accompanied the letter of 24th September is similar to Mr. Gilbert’s original draft save for the change of purchaser and the omission of clause 5 relating to Mrs. Blake consenting to the Lease. This last matter was dealt with by a second letter dated 24th September in which Mr. Gilbert asked Mr. Albion for Mrs. Blake’s consent to the Lease.

On 14th October Mr. Gilbert sent Mr. Albion a draft of the demand to be served on Mrs. Bishop. A demand in these terms was sent by Albion & Co to Mrs. Bishop at an address provided by Howes Percival on 15th October 2002. The demand was that Mrs. Bishop should pay immediately the principal money owing under the Legal Charge “with the interest owing in respect of it on the date of payment”. A copy of the demand was sent to Wright Hassall.

At about this time Mrs. Blake signed the Heads of Terms in the form of the draft submitted by Mr. Gilbert on 24th September

In the issue of The Publican which was published on Monday 21st October 2002 there appeared, at the instance of Mr. Albion an advertisement in a panel measuring about 7 cm by 4 cm stating

“Midlands Rural

Destination Freehouse

Confidential sale subject to lease

All enquiries to:

Albion & Co

16th Floor, Kennedy Tower,

St. Chads, Queensway,

Birmingham, B4 6JN”

It will be noted that the advertisement gave no telephone or fax numbers or e-mail address.

On 22nd October Mr. Gilbert wrote to Mr. Albion saying his client would like to exchange contracts the next day and asking for a draft contract. Mr. Albion sent him the draft by e-mail the next day, 23rd October, and Mr. Gilbert returned the signed contract, with a cheque for the deposit of £22,500, later that same day. There is not much that I need to say about the terms of the contract. The purchaser was Gillie’s Inns, the property sold was limited to that comprised in the registered title HN 11318, the price was £225,000 and the property was expressed to be sold subject to the terms of the Lease.

On 24th October Wright Hassall acknowledged receipt of the demand for payment, although they did not accept service of it on behalf of Mrs. Bishop. They raised questions about the outstanding points on registration and queried how, if these remained outstanding, Mrs. Blake could claim to enforce the Legal Charge.

In a letter which is dated 15th October but which must have been written on 28th or 29th October Albion & Co confirmed exchange of contracts with completion scheduled for 31st October. Completion actually took place on 1st November. Ironically on 31st October a Mr. Brian Anthony wrote to Albion & Co referring to the advertisement in The Publican and asking for details of the Inn. He was, of course, too late and appears to have been sent no reply.

On 4th November, by when Wright Hassall had heard of the sale, albeit not from Mr. Albion, that firm wrote a letter of protest to Albion & Co. who supplied a copy of the contract with Gillie’s Inns.

I need not go into the subsequent correspondence. It is worth noting, however, that in its accounts for the year ended 31st March 2002 Gillie’s Inns referred to having entered into a 25 year lease of its premises and to its purchase of the freehold interest in the property for £225,000 in October 2002. In its accounts for the year ended 31st March 2004 Gillie’s Inns revalued the Inn at £330,000 on the basis of Chestertons valuation made on behalf of HSBC in September 2002.

These proceedings were commenced later in the year 2002. Originally there were four defendants, Gillie’s Inns and the Brinds being sued as well as Mrs. Blake. The relief included

The proceedings against Gillie’s Inns and the Brinds were compromised by an order made on 13th February 2004 under which

Accordingly I now confine myself to Mrs. Bishop’s claim against Mrs. Blake. This is made under two heads, namely (1) damages for breach of contract (including any breach of Mrs. Blake’s obligations as vendor who has given a title guarantee) and (2) damages for the wrongful exercise of Mrs. Blake’s power of sale as mortgagee.

The claim for damages for breach of contract is pleaded as an allegation that Mrs. Blake is in breach by reason of her failure to procure the registration of Mrs. Bishop as proprietor of the blue, green, brown and yellow land. Put in this way the claim is without foundation, as Mrs. Blake never contracted to procure such registration. The task of registration was merely assumed by Albion & Co as a matter of convenience. But Mrs. Blake would be liable to Mrs. Bishop if she has failed to convey to Mrs. Bishop all the land which she contracted to convey. The argument for Mrs. Bishop which was presented to me was that she has so failed.

It was not disputed that if Mrs. Blake was in breach of her obligations under her contract with Mrs. Bishop that breach remained actionable by Mrs. Bishop notwithstanding completion of the contract (see Condition 7.4 of the Standard Conditions of Sale, 3rd edition, which were incorporated in the contract). The issue is whether the blue, green, brown and yellow land was within that which Mrs. Blake contracted to sell.

This is essentially a question of the meaning of the first schedule to the contract in which the land being sold was described as

“First ALL THAT freehold land situate and known as The New Inn Norton Locks ... as the same is more particularly described in the Conveyance and Secondly ALL THAT land coloured brown referred to in the attached statutory declaration”

As I mentioned earlier “the Conveyance” means the 1971 Conveyance, in which the land being sold was described by reference to a plan whose adequacy I have criticised. But whatever the deficiencies of this plan it is clear that it does not include the blue or green land, which were then included in the highway, or the yellow land which belonged to British Waterways. The brown land stands on a different footing. It was clearly included in the sale by virtue of the express wording which I have quoted.

On behalf of Mrs. Bishop Mr. Jackson contended that the description of the land in the first schedule to the contract was not conclusive. He referred to clause 9 of the contract, under which

“The Property is sold subject to and where appropriate with the benefit of

9.1

matters disclosed in replies if any to Enquiries before Contract raised by the Buyer’s Solicitors”

Mr. Jackson sought to rely on the replies to Additional General Enquiries before Contract which were signed by Albion & Co, on behalf of Mrs. Blake, on 3rd September 1997. At that time, of course, the Enquiries were submitted on behalf of Mr. Burrows who was then the prospective purchaser, but I do not think that this fact would prevent Mrs. Bishop from relying on the replies for what they are worth. In my judgment, however, they do not assist Mrs. Bishop. I do not propose to go into them in any detail, largely because it is difficult to follow them with any degree of confidence having regard to their reference to inadequate plans. In any event, so far as they can be understood, they appear to give a reasonably accurate account of the position regarding the blue green and yellow land in that Mrs. Blake did not purport to have a paper title to these parcels. As to the brown land it appears to be confirmed that it is included in the sale, but this adds nothing to the express wording of the contract.

Notwithstanding clause 9.1 of the contract I have grave doubt whether the replies to enquiries before contract can be relied upon to add to, still less to contradict, the description of the land being sold which is contained in the contract. But I need not resolve this doubt because I do not find in the answers relied upon anything which is capable of having the effect contended for by Mr. Jackson.

In respect of the blue, green and yellow land Mr. Jackson put his case in an alternative way. He pointed out that these parcels of land are within the area edged red on the plan to the Transfer dated 13th March 1998. Mrs. Blake had therefore expressed herself to transfer to Mrs. Bishop these parcels (and, of course, other land) with full title guarantee. The effect of the words “with full title guarantee” is that Mrs. Blake warranted, inter alia, that she had the right to dispose of the property in the manner purported. Mr. Jackson argued that, as Mrs. Blake had shown no documentary title to the blue green and yellow land, she was in breach of this warranty.

If the Transfer stood alone this argument might have some substance. But in my judgment the Transfer must be looked at in conjunction with the statutory declaration and the Conveyance. The blue green and yellow land was expressed to be conveyed to Mrs. Bishop not only by the Transfer but also by the Conveyance. The main difference between the two documents is that the Conveyance begins with two recitals. The first of these indicates clearly that Mrs. Blake’s title was possessory only. The second refers to the agreement between the parties as being one for the sale to Mrs. Bishop of the blue green and yellow land “for such estate and interest as [Mrs. Blake] has in it”. In the Conveyance Mrs. Blake expressed herself to convey with limited title guarantee. These words import the same warranty in respect of Mrs. Blake’s right to convey as if she had expressed herself to convey with full title guarantee, but it is not an unqualified warranty. It is a warranty that Mrs. Blake had the right “to dispose of the property as [she] purports to”. What Mrs. Blake purported to do by the Conveyance is clear from the recitals. In respect of the blue green and yellow land she did not purport to do more than convey such estate and interest as she had and the Conveyance undoubtedly achieved this. So far as the Conveyance is concerned therefore there is no breach of any relevant covenant for title.

The Conveyance is thus in conflict with the Transfer in this respect. It is evident that something has gone wrong with the drafting of the documents. The statutory declaration had made it reasonably clear that Mrs. Blake had no documentary title to a number of parcels of land, including the blue green and yellow land. In these circumstances I do not find it difficult to see what has gone wrong. The blue green and yellow land was intended to pass under the Conveyance, not under the Transfer. In my judgment the two documents should be construed as giving effect to this intention. The result is that Mrs. Bishop cannot rely on the warranty referred to.

For the sake of completeness I note that Mrs. Bishop has no complaint in respect of any want of title in respect of the brown land and Mr. Jackson did not suggest that she had. The reason is that by the Transfer Mrs. Blake expressed herself to transfer only “what title she has (if any)” to the brown land. This wording is, of course, inconsistent with the giving of any such warranty as is relied on in the case of the blue green and yellow land. The brown land is also expressed to be conveyed by the Conveyance, but this adds nothing to Mrs. Blake’s obligations in respect of it because she gave only the limited title guarantee that I have already mentioned.

I therefore reject the claim that Mrs. Blake was in breach of contract or in breach of her warranties in respect of title.

I now turn to the claim that Mrs. Blake acted wrongly in selling the Inn as mortgagee for £230,000. There are two main aspects of this claim. The first is that Mrs. Blake was not entitled to exercise her power of sale at all. The second is that even if the power of sale was exercisable Mrs. Blake was in breach of her duties as mortgagee in exercising it as she did.

It is, of course, elementary that before a mortgagee can sell the mortgaged property the power of sale must (i) have arisen and (ii) have become exercisable. There is no problem about the first requirement in this case because clause 5.1 of the Legal Charge provided that the principal Sum should be deemed to have become due for all the purposes of statutory and other powers on 1st May 1998. The second requirement is governed by Section 103 of the Law of Property Act 1925, which provides:

“A mortgagee shall not exercise the power of sale conferred by this Act unless and until-

(i)

Notice requiring payment of the mortgage money has been served on the mortgagor … and default has been made in payment of the mortgage money, or part thereof, for three months after such service; or

(ii)

Some interest under the mortgage is in arrear and unpaid for two months after becoming due; or

(iii)

There has been a breach of some provision contained in the mortgage deed or in this Act … and on the part of the mortgagor .. to be observed or performed, other than and besides a covenant for payment of the mortgage money or interest thereon”

On behalf of Mrs. Blake it was not argued that paragraph (i) was satisfied, but it was claimed that both paragraph (ii) and paragraph (iii) were satisfied.

The problem in respect of paragraph (ii) is that, as noted earlier, the Legal Charge does not expressly stipulate for the payment of interest except in the event, which has not happened, of failure by Mrs. Bishop to insure the Inn. Indeed clause 5.1 of the Legal Charge provides that on payment of the monthly sums of £2500 Mrs. Blake will “forgive and allow all interest to date”. On behalf of Mrs. Blake it was argued that this provision does not protect Mrs. Bishop in respect of interest falling due after 16th April 1991, when the last of the monthly payments of £2500 was duly made, and that there was an implied obligation to pay interest after that date. Mr. Clarke relied on Mendl v Smith (1943) LJ Ch 279 where Simonds J said (at page 280)

“It is now, as it always has been, the rule of this Court that in taking an account upon a mortgage interest is allowed, even though it is not expressly mentioned, unless there is some contractual right or some equity excluding it.”

I accept the accuracy of this statement of the principle but, in my judgment, it does not enable Mrs. Blake to rely on paragraph (ii). The argument presented on her behalf ignores the words “in taking the account” in Simonds J’s statement of the law. Paragraph (ii) is not directly concerned with what sum will be payable on the taking of an account as between mortgagor and mortgagee. In my view it is directed to the non-payment of specific sums at specific times before the mortgagee’s power of sale is exercised. It would be highly unjust if Mrs. Blake were now able to rely on non-payment of interest in order to bring herself within paragraph (ii) when she has never, until this hearing, asserted an implied obligation to pay interest and even now has not specified what rate of interest is payable and on what dates it ought to have been paid. When an account has to be taken of what is due under the Legal Charge Mrs. Blake will be credited with interest at such rate as the court may determine. In my judgment she is not entitled to say that, at the time when she purported to sell as mortgagee, interest under the Legal Charge was in arrear and unpaid for two months after becoming due.

In respect of paragraph (iii) the provision of the Legal Charge which is said to have been broken is that which provides that

“No statutory or other powers of leasing … shall be exercisable by [Mrs. Bishop] without the consent in writing of [Mrs. Blake]”

Two issues arise in respect of this provision. The first is whether Mrs. Bishop complied with it. The second is whether non-compliance amounts to a breach of a provision in the Legal Charge.

As to the first issue, it is undoubtedly the case that Mrs. Blake did not consent in writing to the grant of the Lease to the Brinds before that Lease was executed and took effect. I find that there was no written consent to the Lease until the contract for the sale of the Inn by Mrs. Blake to Gillie’s Inns. The main argument on this issue was that Mrs. Blake knew of the Lease and impliedly consented to it, with the result that she has waived any right to complain that her written consent was not obtained. I am satisfied that Mrs. Blake knew that the Brinds had taken over the Inn and that she was told, through Albion & Co, that a Lease was to be granted to them and, later on, that it had actually been granted. But I reject the claim that she consented to the Lease. She was asked for her consent through her solicitors and Albion & Co’s letters of 7th, 27th and 29th March 2001 made it quite clear that she was not prepared to give it until certain matters, which I find to have been raised quite reasonably, were dealt with. Notwithstanding this it was not until 29th March that Mrs. Bishop’s solicitors provided a copy of the draft lease which had been agreed with the Brinds a week previously. Further, without hearing anything more from Albion & Co, Mrs. Bishop granted the Lease on 2nd April. Mrs. Bishop’s non-compliance with the provision of the Legal Charge which is relied on was then complete. Although it is true that Mrs. Blake did not carry out her threat to take proceedings for possession and generally stood by without further complaint for over a year, Mrs. Bishop did nothing in reliance on this inaction. I therefore find nothing in Mrs. Blake’s conduct which amounts to waiver of the non-compliance.

On the second issue the argument for Mrs. Bishop was that failure to observe the provision of the Legal Charge prohibiting the exercise of statutory or other powers of leasing without written consent did not amount to a breach of a provision in the Legal Charge. The only result, it was said, was that the Lease was not binding on Mrs. Blake unless and until she chose to adopt it. I was referred to Iron Trades Employers’ Insurance Association v Union of House and Land Investors Ltd [1937] 1 All ER 481 where borrowers agreed not, without the previous written consent of the lender, to exercise the statutory power of leasing. The borrowers entered into a tenancy agreement without such consent and the lenders took proceedings on the basis that this was a breach of the covenant contained in the mortgage. Their claim was rejected on the ground that the borrowers had two powers of leasing, the first being the statutory power which, if duly exercised with the lender’s consent, would result in a lease binding on the lenders and the second being a common law power which, when exercised, would result in a lease binding only as between the borrowers and their tenant. Farwell J held that the provision relied on by the lenders restrained only the exercise of the first power and that the tenancy should be regarded as granted in exercise of the second, with the result that there was no breach of covenant.

The Iron Trades case is clearly distinguishable in one highly material respect. There the prohibition applied only to the exercise of the statutory power. Here the prohibition applies to “statutory or other powers” (emphasis added). Mr. Jackson claimed that the principle of the Iron Trades case is that the only consequence of failure to observe the requirement for consent is that the lease is not binding on the lender. He submitted that it cannot be maintained that the grant of the Lease to the Brinds in the present case amounted to a breach of “some provision contained in the mortgage deed”.

I confess that this submission appeared to me to have some attraction and that I thought at one stage that references in the Iron Trades case to there being a breach of covenant might be explicable on the basis of the wording of the obligation in that particular case. However after re-reading the report of the Iron Trades case I am satisfied that the ground of the decision was that, the tenancy was to be treated as granted in exercise of the common law power of leasing, with the result that there was no contravention of any provision in the mortgage. Further I remind myself that paragraph (iii) refers generally to “breach of some provision contained in the mortgage”, not to “breach of some covenant on the part of the mortgagor contained in the mortgage”. I reject Mr. Jackson’s submission and find that there was a breach of a provision in the Legal Charge in the form of the grant of the Lease to the Brinds without the consent of Mrs. Blake.

Accordingly I find that Mrs. Blake’s power of sale as mortgagee became exercisable, by virtue of Section 103 (iii) of the Law of Property Act 1925, on the grant of the lease to the Brinds on 2nd April 2001.

I turn, therefore to the argument that, although the power of sale had become exercisable, Mrs. Blake was in breach of her duty as mortgagee in exercising it in the way that she did. I must start by considering the scope of her duty. The leading case in modern times is the decision of the Court of Appeal in Cuckmere Brick Co. Ltd v Mutual Finance Ltd [1971] Ch 949. I do not, however, find it necessary to cite from that judgment. The more convenient course, in my view, is to refer to the later decision of the Court of Appeal in Silven Properties v Royal Bank of Scotland [2004] 1 WLR 997. In that case Lightman J, giving the judgment of the court, set out the relevant principles of law in paragraphs 13 to 20. For the purposes of the present case it will suffice to set out paragraph 19, which, so far as material, reads as follows:

“When and if the mortgagee does exercise the power of sale, he comes under a duty in equity (and not tort) to the mortgagor (and all others interested in the equity of redemption) to take reasonable precautions to obtain “the fair” or “the true market” value of or “the proper price” for the mortgaged property at the date of the sale, and not (as the claimants submitted) at the date of the decision to sell. … The mortgagee is not entitled to act in a way which unfairly prejudices the mortgagor by selling hastily at a knock down price sufficient to pay off his debt … . He must take proper care whether by fairly and properly exposing the property to the market or otherwise to obtain the best price reasonably obtainable at the date of sale. The remedy for breach of this equitable duty is not common law damages, but an order that the mortgagee account to the mortgagor and all others interested in the equity of redemption, not just for what he actually received but for what he should have received.”

It was an essential part of Mrs. Bishop’s case that, as a result of what is said to have been Mrs. Blake’s breach of duty, the Inn was sold at an undervalue. It is tempting, therefore, to begin by assessing to what extent, if at all, this is the case. But there was criticism of such an approach in Michael v Miller [2004] EWCA Civ 282 at paragraph 141. This criticism was muted where, as is the case here, the mortgagee accepts the first offer that he receives. Nevertheless I propose to proceed, as counselled by the Court of Appeal, by considering the steps that Mrs. Blake took and assessing whether, in all the circumstances, Mrs. Blake acted reasonably in accepting Gillie’s Inns offer and contracting to sell the Inn at that price.

In my judgment the following features of the case are material to the issue which I have to consider:

I should add in relation to the marketing of the Inn that the parties’ expert witnesses, whose evidence I shall mention in more detail later on, were agreed that no marketing had been undertaken. On behalf of Mrs. Bishop Mr. Hodges, a director of Christie & Co who specialise in the valuation sale and appraisal of businesses and properties, considered this to be of significance. He considered that the Inn should have been exposed to the market in order to obtain the best price. Had this been done there could have been a competitive bidding situation between various bidders, including Gillie’s Inns. Mr. Newby on behalf of Mrs. Blake considered that such exposure would have been irrelevant because the price paid by Gillie’s Inns was the best obtainable. Of these two views I greatly prefer that of Mr. Hodges. Without proper exposure to the market one simply does not know whether or not rival purchasers would have been forthcoming or, if they were, what might have been the outcome of a competitive bidding situation.

Having set out what I consider to be the relevant features I do not find it necessary to comment further on them except to say that in my judgment they establish that Mrs. Blake, by her agent Mr. Albion, has failed to take care to obtain the proper market price for the Inn at the date of the sale to Gillie’s Inns. She is therefore liable to account to Mrs. Bishop for the proceeds of sale on the footing that she is to be treated as having received not the price actually paid by Gillie’s Inns but the proper market price.

On the question what was that price I heard evidence from Mr. Newby on behalf of Mrs. Blake and from Mr. Coulter on behalf of Mrs. Bishop. Both these experts have considerable experience in the valuation of public houses, although I think it is fair to say that their experience is mainly in relation to sales as a going concern rather than sales of the freehold subject to existing leases. Nevertheless I am fully satisfied that they were both well qualified to value public houses on this basis.

Each valuer has considered valuations on a number of different bases. I can leave on one side all valuations except those of the freehold subject to the 2001 Lease in favour of a tenant who is carrying on the business of a public house on the premises. Mr. Newby has put the value on this basis in October 2002 at £240,000. Mr. Coulter has, in his re-worked calculations which I shall mention, put it at £340,000.

I need not go into all their reasoning because they have helpfully met and set out the matters on which they are agreed and those on which they disagree. In particular they agree that the Inn was over-rented in the Lease and that £35,000 per annum represents a reasonable estimate of the market rent at the time of sale.

Mr. Newby started with the fair market rent of £35,000 and applied a multiplier of 8.33 (equivalent to a 12% yield) producing £291,550. From this he deducted £50,000 in respect of the estimated cost of accrued repairs. This left £241,550 which he rounded down to £240,000.

In his report Mr. Coulter started from an annual market rental value of £35,500. Having regard to his subsequent agreement with Mr. Newby that this figure should be reduced to £35,000 I have re-worked his figures to reflect this fact. From the starting point of £35,000 per annum he applied a multiplier of 10 (equivalent to a 10% yield) to produce £350,000. To this sum he added £13,000 representing the amount of one year’s over-rent (£48,000 - £35,000), giving a total of £363,000. He then deducted assumed purchaser’s costs of 5.75%, equal to £20,872, leaving £342,128 which, I think, he would have rounded off to £340,000.

The two experts thus differ on three matters, namely (i) the yield to be assumed (ii) the allowance (if any) to be made in respect of repairs and (iii) the value (if any) to be attributed to the over-rent. There is also the allowance for purchaser’s costs made by Mr. Coulter but not by Mr. Newby. As this allowance is in favour of the accounting party (Mrs. Blake) I assume it is correct to make it.

As to yield, the experts were agreed that the range of yields applicable to this type of investment property was 6-10% for prime yields; 8-10% for secondary yields; and 10-14% for tertiary yields. Mr. Newby has thus taken a yield in the middle of the tertiary yield band. Mr. Coulter has taken a rate at the higher end of the secondary yield band.

In justifying his yield of 12% Mr. Newby started by saying that he considered a 10% yield would be appropriate for a property such as the Inn let to “a private individual covenant with a proven track record” on modern commercial terms at a market rent and providing a secure income stream with no significant management problems or breaches of covenant. He expressed the view that the Inn did not match this description and he added an extra 1% yield to represent the lack of security and a proven income stream and a further 1% for what he described as “the unusual lease terms”.

As regards the lack of security and proven income stream there was nothing to suggest that the full rent of £48,000 had not been duly paid since the (admittedly fairly recent) commencement of the Lease. Nor was there any evidence of inability to pay on the part of Gillie’s Inns. The adjustment made by Mr. Newby was attributable entirely to the fact that the Lease reserved a rent substantially in excess of the market rent. But this factor had already been taken into account by basing the valuation on an annual rent of £35,000 rather than the reserved rent of £48,000. I am wholly unpersuaded that a further adjustment is required. If it was then the Inn would be less valuable if let at £48,000 per annum than if let at £35,000

The unusual lease terms referred to by Mr. Newby were first the tenant’s right of first refusal and secondly the absence of a provision enabling the rent to be revised to the market rent at appropriate intervals. While it may be correct to describe the right of first refusal as an unusual term I cannot see that it is particularly onerous from the point of view of the freeholder. It represents at most a minor irritation, requiring the freeholder to go through a particular formality before selling, but not impeding the freeholder’s ability to obtain the market value of the Inn from one party or another in the event of a sale. As to the absence of a market rent review provision, it has to be remembered that the Lease contains a provision for annual upward only revision of the rent in line with the resale prices index. No doubt Mr. Newby was correct in saying that a freeholder would like to have the benefit of both types of rent review, but I would have thought that this represents a luxury rather than an ordinary incident. Moreover in circumstances where the reserved rent is already well above the level of the market rent, the absence of a provision for increasing the rent to the market level is of little immediate significance and seems unlikely to be of significance for some time to come.

Mr. Coulter did not accept the yield adjustments made by Mr. Newby which, he pointed out, would put the Inn into the category of tertiary yields which Mr. Coulter would reserve for what he described as “wet sales boozers in danger of losing their licence”. He produced details of a number of comparables consisting of public houses sold in 2002 subject to existing leases at prices reflecting yields of between 6.7% and 9.9%. The most apt of these comparables appears to be a public house in Norwich let for a term of 25 years from December 2001 at an initial rent of £35,000. This was sold in February 2002 for £352,000, representing a yield of 9.9%. Mr. Clarke pointed out that there was a bank guarantee in respect of the rent, but this appears to have been very limited, being in respect of the current tenant only and assuring payment of 12 months rent in the event of default in the first four years of the term. It is difficult to believe that this provision had much effect on the price. In any event the Norwich public house produced the highest yield of Mr. Coulter’s comparables.

I find Mr. Newby’s suggested yield to be unreasonably high. Mr. Coulter’s reasoning, supported by his comparables, appears to me to be correct and I accept it.

As to the repairs, neither of the experts is a building surveyor and no schedule of dilapidations had been served. Any want of repair is therefore a matter of impression rather than detailed assessment. Mr. Newby had the advantage of inspecting the Inn in March 2002, when he met the Brinds. Mr. Coulter visited the Inn in August 2003, but he had to do so in the guise of a customer. His comments on the condition of the buildings, in paragraphs 9.2 and 9.3 of his report suggest that, at the time of his visit the buildings had been the subject of an ongoing process of repair and maintenance and were in a serviceable condition having regard to their age.

Mr. Newby took a somewhat different view. In his appraisal dated 26th April 2002 he said

“I have not carried out a structural survey of the premises, however from a superficial inspection, and discussion with the Lessees, it appears that the premises are currently suffering from a number of repair problems”

He then described “the more serious issues” which included leaking in the main tiled roof, the poor condition of the flat roof areas, internal damp problems which might be attributable to the condition of the roofs, old electrical installations “which are apparently dangerous” and the operation of the drainage system, which he described as “suspect”. He concluded

“The present condition of the premises is a cause for concern. The Tenant is most likely in breach of the full repairing covenant, and a formal Schedule of Dilapidations is likely to reveal quite substantial and costly works required. Given the related financial background I am not sure that in the short term the Tenant has the means to fund the costs involved (other than with outside assistance). All other things being equal this aspect will require careful consideration and management.”

In his advice of 26th April 2002 Mr. Newby did not put a figure on the cost of remedying the perceived disrepair but he returned to the matter in his report made for the purpose of these proceedings. There he set out the substance of his previous advice and the conflicting view of Mr. Newby and referred to the report of Taylors which confirmed that there were problems with the roof and damp and recommended that a formal building survey be undertaken. He also mentioned Chestertons report for HSBC which stated that the Inn was “in a good state of repair and condition considering its age and type of construction”. Mr. Newby concluded

“In my opinion the repair problems that existed would be likely to have had a significant remedial cost. In my notes at the time” which seems to mean March 2002 “I wrote down that this remedial cost could be of the order of at least £50,000 assuming a survey confirmed the existence of the defects to which I have referred.”

Mr. Newby’s report was received by Mrs. Bishop’s solicitors only at a late stage before the commencement of the trial, a matter on which I commented when I ruled, against the objection of Mr. Clarke, that a supplemental report by Mr. Coulter was receivable in evidence. In that supplemental report Mr. Coulter made reference to a number of matters on which he had received instructions from Mrs. Bishop. I largely discount these as evidence, but the evidence of Mr. Newby about the existence of the defects and the cost of remedying them if they existed seems to me to be very tentative.

Apart from these considerations I cannot accept that the supposed cost of remedying the defects ought to be deducted in ascertaining the value of the Inn. All the suggested defects appear to be the liability of the tenant under the Lease. Mr. Newby recognised this in his advice of 26th April 2002 but asserted that he was not sure that “in the short term” the Brinds had the means to fund the costs involved without outside assistance. This amounts to tendentious supposition. No material taking the matter further has been produced on behalf of Mrs. Blake. In my judgment the argument on her behalf that something which is the tenant’s liability should be treated as an outgoing which the landlord will have to meet would require cogent evidence in order to make it good. I find no such evidence and hence no sufficient justification for deducting £50,000, or any other sum, from what would otherwise be the value of the Inn.

Lastly I deal with Mr. Coulter’s inclusion in his valuation of the sum of £13,000 in respect of the over-rental. Having regard to the fact that, at the time of the sale, the freeholder would be entitled to receive this sum (over and above the market rent of £35,000) in every one of the remaining 23 years that the Lease had left to run, I find Mr. Coulter’s assessment that it would actually be paid in just one of those years to be an extremely modest one. I consider that this sum ought to be included in the valuation.

Hence I accept Mr. Coulter’s evidence that the market value of the Inn at the date of the sale was £340,000. In the light of my earlier finding that Mrs. Blake was in breach of her duties as mortgagee I shall order that she must account to Mrs. Bishop as if she had received £340,000 on her sale of the Inn.