[note for law students: this is a really important case on land registration in which the principles in Abbey National BS v Cann are considered and applied.  Please note that we do not write essays for you or respond to queries which assist you in writing your essays - we get quite snippy about such enquiries so beware.  As an academic and property law teacher myself, I get quite irate with those enquiries.  However, if you want to engage with us and our writing, we would be really happy and will respond in kind.]

Every generation seems to have its great property law case – think about Nat Prov v Ainsworth, Williams & Glyns v Boland, City of London v Flegg, Abbey National v Cann, and the machinations of the litigation which led to RBS v Etridge.  This litigation, which was formerly known as In re North East Property Buyers Litigation, is shaping up to be the case of this generation. We noted the judgment of HHJ Behrens in these matters  and were very grateful for a transcript of the judgment (as we are for a transcript of this one, although it now appears on baili as well).  The Court of Appeal gave its judgment on 24.01.2012, dismissing the appeal from HHJ Behrens’ straight-bat judgment. I assume that Jonathan Small, James Stark and Daniel Robinson (counsel for the sellers) are sharpening their keyboards for the SC application – the report I’ve seen doesn’t say whether the CA gave permission to appeal, but I’d assume that it should follow given the importance of the matter both in law and quantitatively (given that FSA regulation of this area was a latecomer).

In essence, the underlying question is whether the House of Lords was correct in Abbey National BS v Cann [1991] 1 AC 56 to hold that there was no moment in time (or scintilla temporis) between the transfer of an estate to a buyer and the simultaneous grant of a mortgage by that buyer to a lender.  The transfer and mortgage are, of course, separate documents and, strictly factually, there is such a moment in time between their execution.  However, in Cann, the House of Lords drew attention to the “reality” of the transactions, that they were indissolubly bound together.  As Lord Oliver put it, “The acquisition of the legal estate is entirely dependent upon the provision of funds which will have been provided before the conveyance can take effect and which are provided only against an agreement that the estate will be charged to secure them”.  The scintilla temporis was, therefore, “no more than a legal artifice”.  It may be something of a heresy to say this, but I have always found Lord Oliver’s judgments (in the HL) turgid beyond belief; whether or not you agree with that comment, it is undeniable that both Flegg and Cann are viewed as being lender-friendly (although lenders would say that those cases make lending both possible and cheaper, thus being borrower-friendly as well).

My own view is that Cann was also flawed and the arguments against it are canvassed in these cases.  The facts of these cases for present purposes, because they are largely assumed, are that a number of owner-occupiers entered into an agreement with the North East Property Buyers Ltd (NEPB).  The terms of the agreement were that the company would buy the property and, on sale, would then rent the property back to the sellers.  NEPB’s agents were not particularly well-versed in either property or landlord and tenant law (that seems to be one constant fact in most of the equity release cases).  They promised different terms to each of the buyers and different rent levels, but many were told they could stay in the property for as long as they liked provided they kept to the terms of the tenancy.  NEPB financed each transaction with a buy-to-let mortgage.  Crucially (as we will see), they did not disclose to the lender that the seller/s would remain in the property or the terms of the tenancy agreement.  Exchange of contracts and completion, including the execution of the charge, took place on the same day.  NEPB became insolvent and vanished.  The lenders want possession.

The overarching question is whether the representations and agreements made between NEPB and the sellers created rights which bound the lenders.  This raises full frontal the question whether Cann is distinguishable on the facts.  It is not about actual occupation (yet, at least), as the sellers were clearly in actual occupation at the date of the sale.

In summary, the Court of Appeal (Etherton LJ giving the judgment, with the MR and Rix LJ agreeing) held that Cann was not distinguishable and, indeed, its policy driver was just as relevant to these cases.  There was a secondary argument about the effect of priority searches, which (rightly) was decided in favour of the lenders.  If you’ll forgive me, I will let you read that part of the judgment ([57]-[64]) for yourself if you’re interested.  It seemed to me to be axiomatic.  As a result of those findings of law, possession was ordered as there were no other issues left to be decided.

The argument on which the barristers sharply divided was whether, after exchange of contracts and before completion, there was sufficient equity in NEPB to grant the sort of estoppel/constructive trust/rectification type of interest which the sellers claimed.  HHJ Behrens had held that the sellers’ rights at that stage were purely personal.  Detailed arguments were provided to the CA on these points, but, although attracted by the lenders’ arguments,  Etherton LJ sidestepped them by saying they were too technical (although he was attracted by the lenders’ submissions on the point).  As he put it, the question was whether the commercial and legal nature of the transaction was that there was a sale subject to a reservation or two separate transactions (a sale of the freehold and a separate leaseback on completion).  And “the way the documentation was prepared points firmly in favour of the latter” ([34]).  None of the sale contracts referred to the leaseback arrangement – indeed, they were all sold with vacant possession:

The clear impression created by the contracts, therefore, was that the vendors would be selling without reserving any beneficial interests or other rights in the property. That was how any third party, including mortgagees lending money to fund the purchase, would be entitled to view the matter: comp. Abigail v Lapin [1934] AC 491. The contracts disclosed no basis for a qualified report on title to the respondent lenders by their solicitors which would have alerted the respondent lenders to the possibility that the appellant vendors expected to remain in possession after completion or that the purchasers would obtain anything less than the entire legal and beneficial interest in the properties. ([35])

He went on to say, though, that, even if an equity had arisen in favour of the sellers at that point, the Cann principle applied so that the lenders’ interest.  [I'm not entirely sure I agree with that approach because of the pure priority principle, first in time prevails,but it's neither here nor there at the moment].  The question put to the CA was whether the policy underlying Cann was still relevant and relevant to these particular transactions.  In a nutshell, the sellers argued that “… unlike Cann, where the ‘driver’ of the transaction was to find a new home, the driver in the present cases, without which they could not and would not have proceeded, was the leaseback to the vendor” ([50]), that these cases involved different social and economic factors in which the need/desire of people (of modest means, advancing age as well as limited legal knowledge and experience) to stay in their homes was the uppermost consideration ([51]).  Further, and this is clearly crucial, the lender is in a better position to take the risk of fraud and carelessness in such schemes and should make appropriate enquiries.

Etherton LJ disagreed.  Daisy Cann was in no less an unfortunate position to the sellers here ([55]); in substance and reality, the driver for the sale was the sellers’ need/desire to sell their properties to discharge their mortgage and get some cash, and there was no reason for them to suppose that NEPB would not obtain a mortgage (this seems to me to be an advance on the Henning principle); and finally it was not for the lenders to make direct enquiry of the sellers, which may be inappropriate, but to ensure that the contract of sale contained all the details of the transaction ([54]-[56]).

My suspicion is that the sellers were obviously constrained by precedent but ultimately want to argue (rightly) that Cann was wrongly decided.  The stage is now set for that argument, assuming PTA is granted.

Finally, Etherton LJ concluded with sharp words on the conveyancing practices highlighted in these cases, and there is a clear suggestion that the proper course of action for the sellers is to pursue their conveyancers for not including the terms of the agreement in the contract of sale itself:

I do not know why details of those contractual arrangements were not contained in the contracts for sale, but, if the arrangements were intended to be binding on any third party as well as the purchaser – a matter the appellant vendors’ solicitors would have been bound to investigate and advise upon – their omission seems on the face of it plainly inconsistent with proper conveyancing practice. ([67])

Conveyancing solicitors beware!

At what point in the course of an eviction and securing of a property is the warrant considered to be executed, so that no application for a stay can be made? This is a County Court case, but the Court’s decision is clear and supported.

Mrs Bray’s home was mortgaged to RBS. RBS had obtained a possession order and had obtained, then withdrawn 5 previous warrants. RBS got a further warrant. Before the eviction date Mrs B wrote to RBS offering to clear the arrears at lunchtime on 18 November 2011 as she had sold her car and the funds would have cleared by 18 Nov. She heard nothing in response and went to work on 18 November. She was then called by a neighbour to say they had seen someone in her garden. She went home to find the court bailiff, locksmith and dog handler there. They had gained access though the rear door.

The bailiff told Mrs B to make an emergency application. She rushed to the Court and made an application. The Court officer referred the application to the bailiff’s clerk and the Judge, but the Judge was incorrectly told that the warrant had already been executed and the application was not heard. Mrs B was referred to the CAB, which made an emergency application to set aside the warrant on the ground of oppression, but Mrs B also sought to rely on her original application from that morning, arguing that it had been made before the warrant had been executed, as the bailiff had not at that time given quiet possession to the Claimant.

At the hearing, the bailiff confirmed that he had received a telephone call from the court about Mrs B’s application while he was still at the property and before it had been fully secured and both locks refitted.

The District Judge found that the warrant had not been executed at the time that Mrs B had issued her application. The warrant was suspended on terms of payment of the arrears in full and of mortgage instalments thereafter.

My view is that this has to be right. The warrant be in the course of being executed, but it is not fully executed until the bailiff has finished and the Claimant has quiet possession. (Woodfall, The Law of Landlord and Tenant, supports this view).

Hat tip to the January 2012 Legal Action Housing updates for the case report and to Calderdale CAB for letting us know about the case in the first place.

The claimants appear to have been too excited to wait until then (or, more likely, but less poetically, they wanted to avoid the expense of a trial) and so appealed to the Court of Appeal. On Wednesday Stanley Burnton LJ refused permission.

What is interesting is that he made it quite clear that, even though this was a second appeal, if Bean J had made his decision following the a trial of the claim, the Lord Justice would have given permission regardless of the outcome. The Court of Appeal are as interested in resolving this question as the rest of us.

However proprietary estoppel is fact sensitive stuff. The Lord Justice noted that the claim has a trial window in April/May 2012. There was therefore nothing to be gained by having the Court of Appeal resolve the point before then. It might be that the defendant failed to establish the factual basis of her claim, in which case there would be no need for an appeal – and we would all remain in the dark. It would also be better for any prospective appeal to be dealt with on the basis of facts found at trial rather than on pleadings.

We will keep you posted.

The point about section 2 is obvious; axiomatic indeed.  The loans in this case had been executed by a deed which was defective in its terms (but properly capable of rectification or, as decided at first instance, effective by reference to an oral agreement).  The point taken by Mr Helden, however, was that you couldn’t fill in the gaps in the deed by reference to an oral agreement which was in breach of section 2, LP(MP)A.   Lord Neuberger MR dealt with this really quite sweetly (and swiftly) in the following terms:

Mr Helden’s case on section 2 is hopeless. It proceeds on a fundamental misunderstanding of the reach and purpose of that section, a misunderstanding, it is fair to say, which appears to be not uncommon. Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents which actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future, or a contract for a mortgage in the future, are all within the reach of the section, provided of course the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all.

This is properly a footnote as it seems just blindingly obvious and Mr Helden’s position unarguable.

On costs, the judge at first instance granted costs on the indemnity basis to Strathmore because that is the usual way in which lender’s costs are dealt with where there is express provision for costs.  Lord Neuberger regarded that analysis as “fundamentally flawed” because the relevant charge in this case had no such express contractual provision.  He said that “… it seems to me that it would be wrong in principle for the court to proceed on the basis that there is such a provision, simply because the majority of agreements of the type in question do contain such a provision. If anything, one would presume that the parties intentionally departed from the norm” (at [58]).

Costs were, therefore ordered on the standard basis (and 60:40 on the basis that Strathmore had to rely on the court’s discretion and their argument on the FSMA failed).  Note to self: check that mortgage costs recovery provision.  [by the way, on that subject, there is also an excellent article on the potential use of the UTCCR 1999 to challenge the mortgagee's express term anyway in the Journal of Housing Law (2005) 13(1) pp 31-2 (Bates, "Costs in mortgage possession proceedings: An unfair contract term?"), which is worth a read if you're not familiar with that argument].

A short – and important – point on mortgage possession proceedings. It appears that Mr Jayashankar had a mortgage over his property in favour of Lloyds TSB. He fell into arrears (about £14K at the time of the hearing), a possession order was made and, in due course, Lloyds issued a warrant. Mr Jayashankar applied to suspend the warrant (see ss 36 and 8, Administration of Justice Act 1970 and 1973), but the DDJ dismissed the application on the basis that he was not satisfied that Mr Jayashankar could pay the arrears within a reasonable period of time.

The warrant was executed and, after execution, Mr Jayashankar applied for permission to appeal on the basis that he now had additional evidence which, he said, showed he could pay the arrears within a reasonable period.

HHJ Platt noted that Cheltenham & Gloucester BS v Obi (1996) 28 HLR 22 was authority for the proposition that no power existed to stay or suspend under ss.36 and 8 once the warrant had been executed. On the face of it, this is a significant hurdle. However, Mr Jayashankar had a cunning argument to get around this. CPR 52.10 provides that the appeal court has all the powers of the lower court. So, since the lower court could have suspended the warrant, it must follow that the appeal court could.

HHJ Platt was not persuaded. Legal certainty favoured following the approach in Obi. In any event, CPR 52.10 was expressed to be subject to any other enactment (CPR 52.1). Sections 36 and 8 were such enactments. Permission to appeal granted, but appeal dismissed.

The Judge noted that this was not an entirely straight-foward question and (politely) suggested that the Court of Appeal might want to have a look at it at some stage. He also left open whether he might have come to a different view if the appeal had been lodged before the warrant was executed.

*as the Rolling Stones didn’t say.

In short, as you all know, the combined effect of ss.36 and 8, Administration of Justice Acts 1970 and 1973 is to allow a court hearing a claim for possession based on mortgage arrears, to, amongst other things, make suspended possession orders. The usual form of order is usually expressed as “CMI plus £x per month”, so as to ensure that the current monthly installments are paid, together with a sum to pay off the arrears over time.

The actual form of order is an N31. That provides that the order is suspended so long as the occupier pays £X off the arrears (e.g. £10 pcm) “in addition” to any future instalments under the mortgage. In Zinda, an SPO had been made in 2005, and provided, in the usual way, for the arrears to be paid off by instalments over a 9.5 year period, together with the CMI. In 2008, the bank capitalised the arrears which, in practical terms, had the effect of wiping them out (since, obviously, if they’ve been consolidated into the main debt, they’re not arrears any more). Sadly, however, in due course, Mr Zinda then failed to make other payments due under the mortgage (i.e. missed his CMI) and the bank issued a warrant.

Mr Zinda sought to stay the warrant on the basis that, in effect, by capitalising the arrears (and wiping them out) the original possession order had somehow become unenforceable. His argument failed before the DJ and on appeal to the CJ, both of whom pointed out that, for the suspension to remain in force, he had to pay both the arrears AND the CMI. The failure to pay the latter meant that, even though the former was now irrelevant, the suspension had lapsed.

Undeterred, Mr Zinda appealed to the Court of Appeal, who dismissed his appeal, essentially for the same reasons that the county court judges had given. A form N31 order requires both the CMI and the arrears instalments to be paid, otherwise the suspension ceased.

The reference to exquisite irony? See para. 39. Mr Zinda argued that the effect of this judgment was to re-write his mortgage and interfere with his freedom of contract, which is the cornerstone of free market libertarianism. His authority for this proposition was Lochner v New York (1905) 198 US 45 (a rather controversial, and largely now superseded, US Supreme Court decision in which it was held that a law regulating the working hours of bakers was unconstitional as an unnecessary interference with freedom of contract: see here. For those who are really keen, buy and read this book). Of course, as Munby LJ pointed out, applying such an approach, the Administration of Justice Acts would be unconstitutional and Mr Zinda would have no right to remain in occupation at all.

This is a rather odd one. Although the case involves fraudulent sale and rent back agreements, mortgage possession and a rescinded sale and transfer of title, that isn’t why we’re writing it up. The reason this Court of Appeal case is worth attention is that it deals with, and gives guidance on, the routes available to someone seeking to overturn an order at trial that they did not attend, and specifically the interrelation of an application to set aside under CPR 39.3 and an appeal of the original order.

The background was that Mr and Mrs Pain owned their home. They were short of money to fund litigation they were engaged in on behalf of the family firm.  They met a Mr James:

who said that he could arrange for them to sell the Property, on terms that they could continue to live there rent free for the rest of their lives. In order to induce them to do this, he told them that, if they did so, a company he controlled, Styllpoint Ltd, which had £11 million of assets under its control, would provide them with access to funds of £250,000 to assist them with the legal costs of the litigation in which they were involved.

Mr James agreed with, or persuaded, Ms Pereira, who was in a relationship with Mr James at the time, to be the contracting purchaser of the Property, and that was accepted by the Pains. The purchase price was recorded in the paperwork as being £276,000. To enable Ms Pereira to purchase the Property, the Bank agreed to advance her £238,000, which was to be secured by way of a first legal charge over the Property. On 23 January 2004, the purchase was completed, and the Pains transferred the Property to Ms Pereira in return for £238,000, the balance of the recorded purchase price of £276,000 being pure fiction. Shortly thereafter, Ms Pereira was registered as the proprietor at the Land Registry, and the Bank’s charge was registered against the title.

The £238,000 was paid to Styllpoint rather than the Pains, who received no benefit from that money, save to the extent of £10,109.96 which was used to discharge an existing registered charge over the Property. Furthermore, the Pains never got access to the alleged £250,000 funds, promised by Mr James: this was unsurprising, as the funds plainly never existed.

Styllpoint made a few mortgage payments, then stopped. In 2006, the bank brought possession proceedings against the Pains as occupiers and against Ms Pereira as registered title holder. The Pains defended and counterclaimed against Mr James (now in prison) and Ms Pereira for rescission of the transfer and, by a late amendment, for damages. Ms Pereira did not defend the claim or counterclaim. Trial was listed for 21 June 2007. On 12 June 2007 Ms Pereira wrote to the Court asking for an adjournment and on 20 June 2007 Ms Pereira apparently faxed the court to say she wouldn’t be there (she later claimed this was a forgery). The hearing went ahead, Ms Pereira not attending.

Judge Milligan ordered

• The Bank recover possession of the Property;
• Ms Pereira pay the Bank £298,183.60, being the sum loaned plus interest and costs;
• The sale and transfer of the Property be rescinded, and the title be rectified accordingly; and
• Ms Pereira pay damages to the Pains, such damages to be assessed following completion of the sale of the Property, and to include the Pains’ costs of the proceedings

A letter, apparently from Ms Pereira was sent on 5 July 2007, asking for an extension of time to appeal. Ms Pereira later claimed this was forged.

In July 2009, over 2 years later, Ms Pereira applied under CPR 39.3 to set aside the part of the order dealing with rescission and damages. This was rejected by Judge Ellis on the basis that Ms Pereira knew of the hearing and had no good reason for not attending. Further, she had known the result of the hearing shortly afterwards. Time for acting promptly therefore ran from early July 2007 and she was way out of time. Even on her own case that she first knew of the judgment in February 2009, the 7 month delay was not ‘acting promptly’, regardless of her argument that her then solicitors had caused the delay.

Ms Pereira then i) appealed the decision of Judge Ellis not to set aside to the High Court and ii) appealed the original order of Judge Milligan to the Court of Appeal, seeking permission to appeal out of time. Both applications were joined in the present hearing.

The initial and main issue was the interrelation of making an application under CPR 39.3 to set aside and applying for permission to appeal that same judgment.

On CPR 39.3, the 3 part rule was clear and strict, however:

the rigour of the rule is modified by three factors. First, what constitutes promptness and what constitutes a good reason for not attending is, in each case, very fact-sensitive, and the court should, at least in many cases, not be very rigorous when considering the applicant’s conduct; similarly, the court should not pre-judge the applicant’s case, particularly where there is an issue of fact, when considering the third hurdle. Secondly, like all other rules, CPR 39.3 is subject to the overriding objective, and must be applied in that light. Thirdly, the fact that an application under CPR 39.3 to set aside an order fails does not prevent the applicant seeking permission to appeal the order. It is not very convenient, but an applicant may be well advised to issue both a CPR 39.3 application and an application for permission to appeal at the same time, or to get agreement from the other party for an extension of time for the application for permission to appeal.

On such concurrent applications, in Tennero Ltd v Arnold [2006] EWHC 1530 (QB), an application to appeal an order following the rejection of an application to set it aside under CPR 39.3, was dismissed as an abuse of process. Jack J had held that to pursue both routes was an abuse, that the applicant did not have a choice and that CPR 39.3 provided the appropriate route. Tennero was distinguished by the Court of Appeal in Attorney General of Zambia v Meer Care & Desai [2008] EWCA Civ 754, on the basis that the appellant in that case had fresh evidence and other grounds of appeal. However, “where there was no basis for a separate appeal, and where the appellant had taken the proper course, applying under CPR 39.3″, Jack J’s reasoning was agreed with.

The Court of Appeal in the present case sought to clarify the position. Lord Neuberger set out six points of guidance which would apply ‘in the great majority of cases’.

1. “Where the defendant is seeking a new trial on the ground that she did not attend the trial, then, even though she may have other possible grounds of appeal, she should normally proceed under CPR 39.3, provided she reasonably believes that she can satisfy the three requirements of CPR 39.3. The fact that she wishes to raise other arguments for attacking the trial judge’s decision should not preclude her proceeding under CPR 39.3, because that is the specific provision which applies if she did not appear at the trial (and gives her a potential right to a new trial) as Jack J pointed out. Further, if she has a retrial, the other arguments which she wishes to raise could be raised at the retrial (and they may be considered by the judge who hears her CPR 39.3 application).” If no CPR 39.3 application was made, this does not rule out an appeal, but that would normally require unusual facts.

2. “If the defendant concludes that she cannot establish that she had a good reason for not attending the trial and/or that she made her CPR 39.3 application promptly, it would obviously be silly for her to make a CPR 39.3 application. In such a case, she can nonetheless seek to appeal against the trial judge’s decision in the same way as any other defendant.” Simply because the judgment was made in the appellant’s absence did not remove their appeal rights in principle, if the decision or a decision in the course of the hearing was appealable. However, this is ‘in principle’ and the appellant would likely face greater difficulties, not least because the appeal would almost inevitably be made out of time and the appellant would be more likely to have to persuade the appellate court to let them adduce evidence or raise arguments of law not adduced or raised at trial. See 5. below.

3. “Where a defendant makes an application under CPR 39.3 and that application fails on the ground that she had no good reason for not attending the trial and/or that she did not make her CPR 39.3 application promptly, it seems to me that her right to appeal the trial judge’s order should, in principle, be no different from what it would have been if she had not made the CPR 39.3 application. Unless she appeals against the dismissal of her CPR 39.3 application, she would not be able to argue on any attempt to appeal the trial judge’s order that the judgment should be set aside simply because it was given in her absence”. However, if the appellant had made written application for an adjournment and been refused, that would be open to appeal, even if the CPR 39.3 application had been rejected. Further, “where a defendant seeks to appeal against the trial judge’s order after making a failed CPR 39.3 application, I do not consider that, in the light of the discrete and interlocutory nature of a CPR 39.3 application, strict issue estoppel would apply on any question of fact so far as the appellate court is concerned. However, the appellate court considering an appeal or an application to appeal should take a great deal of persuading before departing from a conclusion expressed by the judge who heard the application to set aside”.

4. “Where the defendant has made a CPR 39.3 application which failed on the ground that her arguments on the substantive issues would have no prospect of succeeding at any retrial, she should not normally be entitled to raise the same arguments through the medium of an appeal against the trial judge’s decision. The proper course would usually be to challenge the refusal of the CPR 39.3 application on this ground. However, there will be exceptional cases. For instance, where the CPR 39.3 application was also refused on the grounds that there was no good excuse for not appearing at the trial and/or that there was a lack of promptness in making the CPR 39.3 application, it may well be pointless to appeal the refusal, as it would be upheld on those grounds. In such a case, at least as at present advised, I think it would be wrong if the defendant were precluded from seeking permission to appeal the trial judge’s decision, simply because she was seeking to say that he was wrong for reasons which had been rejected in her CPR 39.3 application.”

5. “Where the defendant’s CPR 39.3 application fails, she will normally be in severe difficulties in seeking to contend, by way of appeal against the trial judge’s order, that she should be entitled to rely on evidence which was not before the trial Judge, or that she should have a retrial. In such cases, the appellate court’s approach must depend to some extent on the facts. In general, the appellate court will bear in mind not only the requirements of CPR 39.3, but also the post-CPR application of the Ladd v Marshall principles”. If the new evidence would not have been reasonably have been available at trial even if the appellant had attended, then the usual Ladd v Marshall principles would apply, as that ground of appeal would not be related to non-attendance. However, if the appeal was based solely on evidence that would have been presented at trial and thus on non-attendance, “if she has already failed in her CPR 39.3 application, it seems to me that to allow her to appeal against the trial judge’s order on such a ground would involve letting her in through the back door after having firmly locked the front door”. This would be wrong in principle and against the policy of CPR 39.3.

6. “If the defendant makes no CPR 39.3 application, but appeals the trial judge’s decision and seeks to put in new evidence or an order for a retrial, very similar considerations seem to me to apply. However, as it will not have been determined whether the three requirements of CPR 39.3.5 have been satisfied, the appellate court may have to make that decision for itself (unless it decides that the defendant should first have applied under CPR 39.3 to set aside the trial judge’s order (in which case the appellate court may nonetheless decide the issue itself, remit the issue to the court below as a CPR 39.3 application, or make some other appropriate order)”.

On Ms Pereira’s appeals:

There was no basis for challenging the refusal of the application under CPR 39.3. Judge Ellis’ finding that she had not acted promptly and did not have good reason for not attending trial was fatal for her.

The appeal from the original judgment of Judge Milligan was also dismissed. While Ms Pereira’s evidence that she was nothing more than the agent or appointee for Mr James/Styllpoint would have an arguable prospect of success against the damages order, although not the rescission order, this was not new evidence. It was evidence that would have been reasonably available at trial had she attended. It therefore fell under guideline 5 above. The appeal was dismissed.

Comment
The guidelines are useful, making it clear that a CPR 39.3 application and an appeal are not mutually exclusive, but also setting out the circumstances in which a failed CPR 39.3 application (or the failure to make one) would be likely to doom any attempt to appeal the trial judgment.

Entirely unrelated to the judgment or the guidelines, there is one more passage that I have to quote, including Lloyd LJ’s dry and restrained comment, because behaviour of this kind by a solicitor should not pass without note:

At first the Pains were represented in relation to the transaction by Buchanan & Llewellyn as their solicitors. That firm asked pertinent questions of Soorii Ayoola & Okri, the solicitors acting for Ms Pereira, about the relationship between Ms Pereira and Styllpoint and as to the fate of the proceeds of sale. If these points had been persisted in, the Pains would probably have been saved from entering into the transaction. No doubt because these properly raised queries did put the transaction in jeopardy, and no doubt at the instance of Mr James, on 12 January 2004 the Pains instructed a different firm, Winman Okri, as their solicitors. They confirmed to those solicitors that they expected to receive no money from the transaction other than the benefit of the payment of debts, including the discharge of the prior mortgage, and that the balance of the purchase money would be paid by the purchaser’s solicitor directly to Styllpoint, represented as being a creditor. The new solicitors were content to proceed on those instructions, possibly helped by the fact that Mr Okri was not only practising alone under the style Winman Okri but was also the senior partner of the firm of Soorii Ayoola & Okri.

With thanks to the Legal Action Recent Developments in Housing Law – report in the January 2011 edition.

This was a case on the operation of the Mortgage Repossessions (Protection of Tenants etc) Act 2010, s.1(4), providing for the tenant of a mortgagor to apply for a two month stay of the execution of a warrant of possession by the mortgagor.

Ms Jones had a mortgage from GMAC (everyone’s favourite sub-prime lender). ON the basis of arrears of mortgage payments GMAC obtained a possession order. In June 2009, after the possession order, Ms Jones granted a 12 month fixed term AST to Mr Elegishu, without getting GMAC’s consent to the tenancy. After the end of the fixed term, Mr E remained in occupation paying rent of £900 per month.

In October 2010 GMAC sent notices to the property, addressed to Ms Jones and ‘any other other Occupier’, as did another mortgagee also entitled to possession.

Mr E’s solicitors requested that no further action be taken for two months. The other mortgagee agreed. GMAC didn’t. Mr E applied to be joined as second Defendant and for an order that the execution of the warrant be postponed for two months under s.1(4) of the Mortgage Repossessions Act.

GMAC strongly opposed the application, arguing that:
i) the tenancy was not valid
ii) possession had already been postponed, as the order had been obtained a considerable time ago and not executed
iii) the tenant was in default, as he had not paid rent to Ms J after learning of the possession orders, instead setting it aside
iv) there was little evidence as to the steps the tenant had taken to find alternative accommodation.

The DJ (DJ Zimmels for anyone who shares my obsession with Lambeth County Court) held:

• The tenancy agreement was valid and not binding on the mortgagee
• The two months period started at the date of the hearing
• Except for the recent setting aside of rent, the tenant was not in default. It was reasonable for him to set aside rent in the circumstances as the tenant was at risk of losing his home and may have a claim against his landlord

Two months relief ordered – warrant not to be executed till 15 January 2011. GMAC to pay Mr E’s costs of the application.

Comment – It is surprising to see GMAC opposing a two month delay where they had failed to seek a warrant for over 18 months after the possession order themselves (and indeed opposing it on the basis of their own delay). One can only presume that they wished to establish something of a precedent for the County Court dealing with tenant’s applications under the Act. If so, it backfired.

We noted this case was forthcoming a month ago. Judgement was given on 19 November. Thanks to James Stark, we’ve got a transcript. Thanks to being very busy, we’re late reporting it.

This is a rolled up hearing of 10 different claims, with some 90 others stayed awaiting the outcome. In each case, albeit under varying arrangements, a sale and rent back company, North East Property Buyers, had bought the former home owners’ property with, so the former owners’ claimed, an agreement that they would be granted an assured shorthold tenancy and (in most cases) that there would be a further payment from the lump sum after 10 years if they remained in occupation and paid the rent. In each case NEPB, or subsiduary, took out a mortgage to purchase the property. The exchange of contracts and completion took place on the same day, in each case. The contracts did not mention the tenancies.

The levels of rent and fixed terms of the tenancies asserted to have be agreed varied, from no rent to market rent and from 6 months to ‘the life of the tenant’. Before housing lawyers start snorting, it should be noted that any issues about the validity of the tenancies were expressly put off to a later stage, this being a hearing on a preliminary issue.

The claims were for possession by the mortgage lenders, NEBL having defaulted on payments. The Defendants were the occupant ‘tenants’.

This preliminary issues were:
i) Could the alleged interests of the tenants be capable of affecting the estates immediately before or at the time of disposition (being the transfer and/or charge of the property) by reference to S.29 Land Registration Act 2002, such that it could be an overriding interest under paragraph 2 and/or 3 Schedule 3 of the 2002 Act.
ii) Could the alleged tenancy agreements have priority over the Claimants’ charges under s.29(4) of the 2002 Act if the Claimants did not have the benefit of a priority search, or even if they did.
iii) Could the Claimants’ priority be affected by notice of promises made and the circumstances of the transaction by virtue of their agents knowledge if passed on, or if not passed on to the Claimant mortgagee.

The first issue predominated discussion.

The Defendants argued that Redstone v Welch and Jackson [2009] EG 98 (our report here) should be followed in interpreting Abbey National v Cann [1991] AC 56 and Whale v Via Systems [2002] EWCA Civ 480. The Court should look at the reality of the situation. Here it was a sale and lease back to the occupiers, based upon promises by NEPB to the occupiers. In the circumstances NEPB’s title was always subject to the occupiers equitable rights, and this was all that was charged to the mortgagees.

While Redstone was a County Court decision and not binding, it was a considered case following full argument and had been approved in Delaney v Chen [2010] EWHC 6 (Ch) (our report here).

The mortgagees variously argued that NEPB did not have an interest in the land prior to completion sufficient to create a proprietary estoppel that would hold against the claimants. Secondly there was no time interval between contract and completion in these cases. Contract and completion were part of the same transaction, Nationwide v Ahmed [1995]  70 P&CR 381. Thirdly, Law of Property Act 1925 Section 63 meant that it was implied that the whole estate passed in the transactions notwithstanding any alleged equitable interests.

Redstone, they argued, was both unorthodox and wrong, and inconsistent with Cann. Chen did not decide issues of priority and so the approval of Redstone in that case was not to the point.

On the other issues:

On ii), which only applied for leases of less of 7 years granted prior to the date of the registration of the charge, the Defendants argued that the effect of s.29(4) with s.23 and s.24 of Land Registration Act 2002 was that the interest of the lessee has priority over that of the mortgagee, and this was argued to also be the case even where the mortgagees have carried out a priority search and applied for registration of the charge within the priority period, as the priority protection of s.72 of the Act does not apply to a deemed registration under s.29(4).

The Claimants argued that this would create an anomaly that Parliament could not have intended. S. 23 should be read as meaning that while a person entitled to be registered had the power to exercise the owner’s powers pending registration, this only gave rise to an equitable interest pending registration. Prior to registration the interest was only equitable and the owner of the equitable interest could not create a legal interest. For this reason NEPB’s promises prior to registration of their title could not create a legal interest for the tenants prior to the registration of the mortgagees’ charges.

On iii) was barely argued. It was pretty much agreed that priority was governed by the 2002 Act and that knowledge was irrelevant.

The Court set out one example case as a typical one of a class. There was a ‘buy to let’ mortgage application, indicating there would be a 6 month AST let. The mortgagee offered £95,750 on a valuation of £115,000. Of the £95,750, all but £41,029 discharged the previous mortgage, £3,029 was paid to the vendors (the new tenants) and NEPB received £38,000.

The transaction, contract and completion was completed in a day. There was nothing in the contract to suggest a lease in favour of the vendors or anything other than vacant possession.

Both the vendors/tenants and the mortgagees assert they are victims of mortgage fraud.

The Court held:

On i) – the most significant issue. Cann and Whale both held that any gap in time between transfer and registration of a charge was illusory, given that the agreement for a mortgage had been entered into before (and was the reason why) the purchase could take place.

Ahmed held that an agreement to occupy did not take precedence over a charge.

So the decision in Cann means that contractual proprietary rights are excluded where contract, conveyance and charge took place on the same day, with Ahmed supporting the view that this also applied to a vendor apparently reserving to himself a proprietary right of occupation in the contract for sale.

Hardy v Fowle [2007] EWHC 2423 (Ch) considered – here it was held that a grant of a lease which was a condition of a contract for sale did not take priority over the mortgagee’s charge, despite the completion having taken place some time after exchange of contracts. The purchase entirely depended on the mortgage (and charge) in a way that it did not depend on the grant of lease, and for that reason in any apparent simultaneous grant of competing and incompatible interests in the property, the more vital to the transaction would take priority. The mortgagees were not bound by the lease. Cann approved and relied upon. The Court noted that to distinguish the present cases would mean a vendor with an equitable right to a leaseback from the purchaser would be in a different, better, position to a third party to whom a purchaser is contractually bound to grant a lease.

Redstone was to all relevant purposes factually indistinguishable from the present cases. In Redstone the finding was that the agreement to grant an AST to the vendor was a vital reason for the transaction to take place. On that basis, the purchaser never had more than title subject to the ‘tenants’ equitable rights and it was this burdened interest that was subject to the charge. In Chen, in the High Court, a sale was held to be subject to a lease for the vendors, Redstone agreed with.

However, the mortgagees’ rights held to have priority over any equitable rights the occupiers may have had against NEPB as a result of representations. Redstone not followed and Chen, if the point was on priority rather than the facts of the transaction, respectfully disagreed with.

Redstone went beyond Cann and Whale. Too heavy a reliance was placed on whether a transaction was indissoluble. As per Fowle, where two incompatible interests in land are created simultaneously, one must take priority, and the Cann line of precedent was that the mortgagee’s interest took precedence. Those cases show that a person claiming an equitable interest cannot normally get priority.

On the contract argument, on the present cases this failed because there was no ‘gap in time’ between exchange and completion. In any event, the TR1s signed by the vendors transferred any such legal interest they might have in the property as there was nothing in the contracts or TR1s to indicate otherwise, s.63 Land Registration Act 2002.

On the second issue, most of the tenancies in these cases were below 7 years and not registrable. In almost all cases, the mortgagees’ charge had been registered within the priority search period. On the argument that s.23 and 24 allow people entitled to be registered as owners to deal with the property as if they are the registered owner, such that s.29(4) has the meaning that the grant of a lease has effect as if the disposition were registered at the time of grant, it was noted in Redstone that this was a curious effect. But contrary to Redstone, the section should be read as only having effect as grant of a legal (rather than equitable) lease once the purchaser acquires legal title, or alternatively, s.29(4) applies to a grant out of a registered estate. On either alternative, Redstone is disagreed with. The question of priority searches does not arise on this view.

On the third issue, this did not arise. Priority was governed by the 2002 Act,with no question of knowledge actual or constructive arising, outside of the overriding interests under s.70 of the Act.

So, on the preliminary issues, the Defendant occupiers lost on all counts.

Comment
This is a lengthy and detailed decision. but on the crucial issue – whether an equitable interest in the form of the agreement for a lease or tenancy can take priority over a legal mortgage charge – and on the ‘disagreement’ with Redstone, the argument is rather slimmer. In short it boils down to a view that an agreement for a tenancy, despite being a condition precedent for the sale, cannot normally take priority where there are ‘simultaneous competing interests in the property’ being granted, without ‘something more’ and the grant of a tenancy by a purchaser who does not yet have a legal interest in the land is not ‘something’ more. But this is solely on the basis that precedent in the form of Cann, Whale and Fowle indicate that the mortgagee takes priority. Quite what might constitute the ‘something more’ upon which the whole transaction may depend, such that the equitable interest would take priority does not take up much consideration, and the view on in Redstone just disagreed with.

One would expect this issue to now got the Court of Appeal, and based on the differing views in the High Court, there is clear merit in it doing so.