14th February 2014
On 23 January 2014 the Court of Appeal accepted the arguments of Walker Morris’ client, Bank of Scotland plc (Bank), in the first reported case to analyse the proper content of and protection provided by a unilateral notice registered in the Charges Register to a property.
On 10 March 2005 Mr S bought a flat (Property) on a long lease from a development company. On the same day Mr S assigned the lease to Ms J, but her title was not registered until much later. She purchased the Property with the benefit of a mortgage provided by the Bank which took a charge over the Property, also dated 10 March. Mr S used the mortgage monies to pay for his purchase of the Property from the development company. The Bank was, therefore, subrogated to the developer’s unpaid vendor’s lien. On the same day, Mr S purportedly granted a company, Wingfield Financial Heritage Limited (Wingfield) another charge over the Property intended to secure a personal guarantee for another individual.
The completion solicitors failed to register Ms J as proprietor or the Bank’s mortgage at the Land Registry. Accordingly, on 4 July 2006 the Bank registered a unilateral notice against the Charges Register to the Property. It read, “in respect of a mortgage dated 10 March 2005 in favour of Bank of Scotland.” The Bank was, however, able to register its charge in February 2011 when Ms J was registered as proprietor of the Property. Prior to that, however, in April 2010, Wingfield registered its charge against the Property.
In April 2011, and unbeknown to the Bank, Wingfield gained possession of the Property and sold it as mortgagee to Mr L (who was also a director of Wingfield). Later that year, the Bank brought possession proceedings against Ms J for mortgage arrears. She defended those proceedings, denying that she had executed the Bank’s mortgage or any contract to purchase the Property. She did not, however, dispute the Bank’s claim to possession. Mr L was joined as a defendant to those proceedings. His defence was that Wingfield’s legal charge took priority as it had been registered before the Bank’s legal charge. He argued that prior to its registration, the Bank’s unilateral notice amounted to an equitable interest only, which could not take priority. He therefore had taken a clear title when he bought the Property and the Bank’s loan was unsecured.
The Court dismissed Mr L’s arguments and ruled in favour of the Bank at first instance and on appeal. It held that the unilateral notice was effective to secure the priority of its subrogated right to rely on the unpaid vendor’s lien. The unilateral notice operated to put Mr L on notice that the Bank had or claimed to have a prior interest in the Property. Public policy dictated that such notice should be given a wide construction, particularly as all the Bank’s rights derived in any event from the mortgage deed.
Mr L issued a second appeal. He argued that the unilateral notice placed on the register in 2006 was to protect the Bank’s equitable charge under the mortgage to Ms J, and did not protect a different type of interest, that of the unpaid vendor’s lien. The Title Register should be a complete and accurate reflection of the state of the title of the land at any given time and so, in accordance with section 29(1) of the Land Registration Act 2002 (Act), Wingfield registered its charge which postponed the Bank’s interest because its priority was not protected at the time of registration.
The Bank argued that section 35(2) of the Act sets out the requirements of a unilateral notice. It does not require the notice to give any details of the interest to be protected, but is simply to indicate that it is a notice and identify who is the beneficiary. In addition, Rule 84(5) of the Land Registration Rules 2003 simply requires a unilateral notice to contain the details the registrar considers appropriate. There was no evidence in this case that the registrar thought the terms of the notice to be inadequate before registering it.
The issue the Court of Appeal had to decide was whether the unilateral notice was sufficient to protect the Bank’s claim under an unpaid vendor’s lien and preserve its priority over Wingfield’s later legal charge.
The appeal was dismissed. The registrar had accepted and registered the Bank’s unilateral notice without requiring any further detail. Other than section 77 of the Act which requires that a person applying for the entry of a notice to do so with reasonable cause (breach of which would lead to a duty to any person who suffers damage as a consequence), there is no obligation or requirement to specify the details of the interest to be registered. If Ms J, Wingfield or Mr L had required cancellation of the notice, they could have applied to do so in accordance with section 36 of the Act, but, no one had taken steps to challenge the notice.
The Court decided, therefore, that it would be wrong to require that the Bank’s unilateral notice spelt out all the interests which the Bank’s charge purported to protect. A failure to accurately identify the interest did not mean that such a notice was ineffective to preserve priority. As there had been no challenge to the unilateral notice, Wingfield should not now be able to contend that the notice had failed to protect the priority of the Bank in respect of any interest which the Bank derived, having provided funds under the Bank’s charge.
This case is likely to be of reassurance to all lenders. Registration of a proprietor can be delayed and lenders may need to act promptly to protect their interest and register a unilateral notice. While one should provide “as much accuracy as the person responsible for the notice can provide” it would be unreasonable to expect certain specifics within the detail of that notice and for that notice to be protection for those specifics only. At that point a lender will have no reason to be aware of possible defects in its security and it may be many years later (particularly in cases of fraud or forgery) when they come to light. This case is reassurance that, on registration, a unilateral notice is sufficient to ensure protection of all the interests of a mortgagee which may arise from the deed of mortgage.