Swift 1st Ltd v Colin & Ors

The claimant is a lender who provided an advance of £348,148, secured by a charge dated 16^th November 2007 against a property known as The Ford House, Pershore, Worcestershire, of which the registered freehold proprietors were a Mr and Mrs Riley.

There are two titles making up Ford House. There was a prior mortgage provider which had a restriction on one of the titles. That mortgage provider did not consent timeously to the claimant’s charge being substantively registered, even though its own charge had been redeemed. In the result, the claimant’s charge was not substantively registered, but it was noted on the register.

There was a subsequent charge to the third defendant, Intervo Dis Ticaret Ve Mumessillik Ltd STI, a Turkish ceramics importer with whom the Rileys had commercial dealings. That was a registered charge. Whilst Mr and Mrs Riley were still registered proprietors of the property, an interim charging order was made against them by the fourth defendant, Capex Securities Limited, in respect of a judgment debt of something under £7,000.

The first two defendants are Mr and Mrs Colin, who have purchased the property from the claimant acting under its power of sale. A Form TR2 was executed in that respect, but the Land Registry have declined to register Mr and Mrs Colin as registered proprietors because of the non-registration of the claimant’s charge. There are apparently many other cases (a figure of 1,733 was mentioned) within the claimant’s portfolio of secured loans which encountered similar problems with registration and where the charge is merely noted on the register.

The application before me is to require registration of Mr and Mrs Colin as registered proprietors, and is not opposed by either of the defendants. Nor is the application actively opposed by the Land Registry, who have been invited to intervene but who have declined to do so. The Land Registry have however explained their reasons for declining to register Mr and Mrs Colin as freehold proprietors. So far as the Rileys are concerned, they seem to have disappeared from under the radar, but as, on the evidence before me, their indebtedness substantially exceeded the sale price of the property, their interest is academic only.

The mortgage was by deed and was in standard form. It was expressed to be a legal charge, though Condition 18 provided that, if the legal charge could not act as a legal charge of the property, then it would act as an equitable charge. Condition 1 of the same conditions stated as follows:

“You charge the property to us by way of legal mortgage with full title guarantee. This means that we have a legal right if you do not keep to any of the terms of this legal charge and the agreement to apply to a court for an order that we could repossess and sell the property. This also means that we have an interest in any of the proceeds from selling the property.”

Section 85 of the Law of Property Act 1925 provides that one of the only two ways in which a mortgage can now be created is by the use of a “deed expressed to be by way of legal mortgage”. This is such a deed.

Section 101 of the Law of Property Act 1925 confers upon a mortgagee (that is to say, the claimant in this case), where the mortgage is made by deed, various powers, including a power of sale, “to the like extent as if they had been in terms conferred by the mortgage deed, but not further”. I need not consider the circumstance in which the power of sale becomes exercisable under the Act because there is no doubt that the power arose in this case.

As the Rileys werethe registered proprietors of the freehold estate, they had power to confer upon the mortgagee full power to sell that freehold. The effect of the exercise of the power of sale is set out in section 104 of the same Act. In subsection (1) it is provided as follows:

“A mortgagee exercising the power of sale conferred by this Act shall have power, by deed, to convey the property sold, for such estate and interest therein as he is by this Act authorised to sell or convey or may be the subject of the mortgage, freed from all estates, interests, and rights to which the mortgage has priority, but subject to all estates, interests, and rights which have priority to the mortgage.”

The TR2 which was executed in this case transferring the property to Mr and Mrs Colin was executed by the claimant in exercise of its power of sale. It is evident that, as the mortgage was by deed, section 104 is engaged, the claimant’s authority to sell deriving from section 101. It seems to me, therefore, that the claimant had full power to sell and that the effect of that sale was to override all subsequent interests and the claimant’s own interest. This follows also from section 88 of the Law of Property Act, which is effectively incorporated by reference by section 101(6), which provides as follows:

“The power of sale conferred by this section includes such power of selling the estate in fee simple or any leasehold reversion as is conferred by the provisions of this Act relating to the realisation of mortgages.”

Section 88 relates to the realisation of freehold mortgages and provides in subsection (1):

“(1)

Where an estate in fee simple has been mortgaged by … a charge by way of legal mortgage and the mortgagee sells under his statutory or express power of sale—

(a)

the conveyance by him shall operate to vest in the purchaser the fee simple in the land conveyed subject to any legal mortgage having priority to the mortgage in right of which the sale is made and to any money thereby secured, and thereupon;

(b)

the mortgage term or the charge by way of legal mortgage and any subsequent mortgage term or charges shall merge or be extinguished as respects the land conveyed;

and such conveyance may, as respects the fee simple, be made in the name of the estate owner in whom it is vested.”

I need not read any other part of the section, but plainly section 101(6) brings that into play.

Counsel also drew my attention to section 9 of the Law of Property Act 1925, which she said was another section relating to the realisation of a mortgage, in the sense that it confers on the maker of every conveyance made under any power reserved or conferred by the Act (which, as she pointed out, must include the power of sale) the power to convey as if the conveyance had been executed by the estate owner of the legal estate to which the conveyance relates. I agree with her that section 9 is potentially relevant in that regard, but am not sure that it helps her as much as she would like, as a conveyance “executed by the estate owner of the legal estate” would not without more release or override the mortgage. That result is however achieved by section 104(1), as well as by section 88(1), and section 9 adds nothing of significance in the present case.

Accordingly, it seems to me that the claimant had full power of sale over the freehold, notwithstanding that its charge was not substantively registered and that it did not become the registered proprietor of any charge. The power of sale derives not from the niceties of the Land Registration legislation, but from the Law of Property Act 1925, and all that is required is a mortgage by deed. For section 88 to be engaged, all that is required, so far as relevant to the present case, is a charge by way of legal mortgage. The fact that this charge by way of legal mortgage was in the event unregistered, is, in my judgment, neither here nor there. It is still such a charge within the meaning of the Law of Property Act 1925, and section 88 in particular. In those circumstances it seems to me that the claimant is entitled to succeed on that ground alone.

The Land Registry have taken the point in correspondence that, as the charge was unregistered, it took effect in equity only and that, as an equitable mortgage, albeit made by deed, the power of sale did not arise. This, it seems to me, is erroneous. The power of sale, as I have said, arises under section 101 of the 1925 Act, and that merely requires that a mortgage be made by deed, which this one was.

My attention was drawn to the decision of, firstly, Wilberforce J and then of the Court of Appeal in Re White Rose Cottage [1964] Ch 483. Wilberforce J held - in the case of a mortgage by deposit under seal, a true equitable mortgage - that the expression “the mortgaged property” in section 101 meant the property over which the mortgage deed purported to extend and was not limited to an equitable interest in that property. That seems to me to be correct. As counsel pointed out in the course of argument, a power, including the power of sale, is by its nature an authority to exercise rights over property in which the donee of the power does not necessarily have any proprietary interest, and which therefore enables the donee of the power to dispose of property which that donee does not own. Given that that is so, there is no good reason why the extent of the power of sale should be limited by reference to the limited extent of the interest to which it may be annexed, such as, on this analysis, an equitable mortgage.

The White Rose Cottage case on appeal turned on a different point, namely that the transfer properly construed was a sale by the mortgagor with the concurrence of the mortgagee, and not a sale by the mortgagee in exercise of the power of sale. However, Lord Denning MR (with whom Salmon LJ agreed) said in terms that he agreed with Wilberforce J, had it been proper to construe the transfer as an exercise of the power of sale. The subject of the mortgage was the property itself – both the legal and equitable estate in it. Lord Denning could see no reason why an equitable mortgagee exercising a power of sale should not be able to convey the legal estate. He also held that the previous decision to the contrary in Re Hodson & Howes’ Contract (1887) 35 Ch 668 was a case on a differently worded section of a predecessor statute, namely, section 21 of the Conveyancing Act 1881, and was of no authority under the 1925 Act.

Harman LJ (with whom Salmon LJ also agreed) held that an equitable mortgagee, acting under a deed in the terms of the memorandum in question, could, by virtue of the power of attorney contained in it, convey to a purchaser the legal estate without first going through the form of calling for the execution by the mortgagor of a legal mortgage, and adopted the reasoning “lucidly stated by the judge”. Again, however, he disagreed with the learned judge on the construction of the particular transfer in question.

There is a similar power of attorney in this case, but it is not necessary for the claimant to rely upon it as section 88 applies here. Section 88 did not apply in the White Rose Cottage case, as the memorandum of deposit was not a “charge by way of legal mortgage”. It seems to me that the reasoning of Wilberforce J and the Court of Appeal on these points is impeccable and, even if I am required to treat the observations of the Court of Appeal as obiter, I find them compelling. It is accordingly not necessary for me to consider the alternative arguments advanced by counsel relying upon the power of attorney, or seeking a vesting order in the alternative.

It seems to me that the claimant is entitled to the primary relief it seeks in the claim form; namely, a declaration that, in particular, the TR2 was effective to transfer the freehold legal estate in the property to the first and second defendants; to overreach the interests of the third and fourth defendants as chargees; and to overreach the beneficial interests behind the statutory trust in land affecting the property. I shall also direct the Land Registrar to register the first and second defendants as proprietors of the legal estate free of the interests of the third and fourth defendants.

I announced my conclusions at the end of the hearing yesterday and invited counsel to bring along a draft order giving effect to what I then stated my conclusions to be. This judgment gives the reasons for those conclusions. I will now hear counsel.