The High Court decision in Thomas v Clydesdale Bank [2010] EWHC 2755 (QB) revisits a conveyancing questions addressed in many of well-known authorities which I might put crudely as: who gets the house, the bank or the wife?

Mr Burtenshaw was the sole legal owner of a home. He intended to move into it with his partner Ms Thomas and their children, but their new home needed renovation. Contractors were hired and work started on the property. Ms Thomas visited the property to supervise work “almost every day” and “at last every other day”.

The plan was to raise further funds for renovation by a bridging loan which would turn into a normal residential mortgage in due course from Clydesdale Bank. The loan would pay off the existing mortgage on the property and leave cash to fund the work.

The Deed of Mortgage was then signed and, subsequently, the mortgage was registered.

Alas, all was not well. Mr Burtenshaw’s business failed and he was unable to keep up payments on the mortgage (he later leaves the story as a bankrupt). The bank sought possession. Ms Thomas did not attend the hearing. She asked for an adjournment on the basis of her health. The judge refused this, considered the evidence and found for the bank. She appealed, though this appeal was treated as an application to set aside the judge’s decision under CPR 39.3(3). At first instance the application to set aside was refused, but she obtained permission to appeal that refusal to the High Court.

The court was therefore concerned not with the substantive case, but whether Ms Thomas had a reasonable prospect of success. Her case was that, although Mr Burtenshaw was the registered proprietor of the property, she had an interest (described as being under a common intention constructive trust). For the purposes of the appeal that was conceded by the bank.

Now the bank had registered the mortgage. By section 29 of the Land Registration Act 2002, the mortgage therefore takes priority over any unregistered interest (the unregistered interested would be “postponed” to the mortgage as the act puts it). Ms Thomas’s interest was not of course registered.

But section 29 does not apply in certain circumstances, one of which, relied on by Ms Thomas, is where the unregistered interest overrides the registered disposition under schedule 3 of the act. Ms Thomas relied on paragraph 2:

2 An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for –

…

(c) an interest –

(i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and

(ii) of which the person to whom the disposition is made does not have actual knowledge at the time;…”

Ms Thomas claimed that her supervisory visits meant she was in actual occupation and that that occupation would have been obvious on a reasonably careful inspection of the property and also (belt and braces) the bank had actual knowledge of her interest.

The court found that Ms Thomas did have a reasonable prospect of demonstrating that she was in actual occupation. Unsurprisingly, in my view, in the light of Lord Justice Nichols famous dictum in Lloyds Bank Plc v Rosset [1989] 1 Ch 350 (a case with many similar features):

“There was, I repeat, physical presence on the property by the wife and her agent of the nature, and to the extent, that one would expect of an occupier having regard to the then state of the property: namely, the presence involved in actually carrying out the renovation necessary to make the house fit for residential use.”

Rossett concerned the provisions in the Land Registration Act 1925 that preceded the 2002 act, but the phrase “actual occupation” is clearly intended to be the same in the latter.

On “actual knowledge”, the court found that the bank did know that Mr Burtenshaw intended to move into the property with Ms Thomas and that, prior to that occupation, the property needed renovation. The court’s view was that the bank needed to have actual knowledge of the factual basis for Ms Thomas’s interest, rather than (as the bank argued) actual knowledge of the interest. If the latter view was correct, a bank with a mistaken view of the law would not have actual knowledge which the court thought could not be right.

On paragraph 2(c)(i) the court found that what was needed was that a reasonable inspection would discover the occupation. The inspection need not discover the extent or degree of the occupation (and thus realise that it was “actual occupation”), but on the other hand, there was no requirement that a reasonable enquiry be carried out.

As I read it — and the decision is a little obscure on this point — this means that a situation such as that in Kingsnorth Finance v Tizard [1986] 1 WLR 783 (unregistered conveyancing case where the husband went to great efforts to hide the fact that his wife lived at the property so that it was not apparent on an inspection, but the court held that the bank had been put on enquiry because it knew that the husband was married but had not enquired as to where she lived) would be decided differently today. If anyone has any views on this I would be interested to hear them.