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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Scott v Southern Pacific Mortgages Ltd & Ors [2014] UKSC 52 (22 October 2014) URL: https://www.bailii.org/uk/cases/UKSC/2014/52.html Cite as: [2014] WLR(D) 447, [2015] 1 AC 385, [2014] UKSC 52, [2015] AC 385, [2015] 1 All ER 277, [2014] 3 WLR 1163, [2014] HLR 48 |
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Michaelmas Term
[2014] UKSC 52
On appeal from: [2012] EWCA Civ 17
Appellant Bryan McGuire QC James Stark (Instructed by Paula Harris, David Gray Solicitors LLP) |
First Respondent Justin Fenwick QC Nicole Sandells Nicholas Broomfield (Instructed by Paul Heeley, TLT LLP) |
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Second Respondent Justin Fenwick QC Nicole Sandells Nicholas Broomfield (Instructed by Ian Drew, Walker Morris LLP) |
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Intervener Lesley Anderson QC Daniel Gatty (Instructed by Richard Pitt, Eversheds LLP) |
LORD COLLINS (with whom Lord Sumption agrees)
Mrs Scott's case
The judgments of Judge Behrens and the Court of Appeal
"With reference to section 29 of the [2002 Act] are any of the interests alleged by the defendants capable of being interests affecting the estates immediately before and/or at the time of the disposition, namely the transfer and/or charge of the property in question, sufficient to be an overriding interest under paragraph 1 and/or 2 of Schedule 3 to the 2002 Act? …"
Land Registration legislation
"In the case of a freehold estate registered with an absolute title, a disposition of the registered land or of a legal estate therein … shall, when registered, confer on the transferee or grantee an estate in fee simple …or other legal estate expressed to be created in the land dealt with … subject …(b) … to the overriding interests, if any, affecting the estate transferred or created ..."
"All registered land shall, unless under the provisions of this Act the contrary is expressed on the register, be deemed to be subject to such of the following overriding interests as may be for the time being subsisting in reference thereto, and such interests shall not be treated as incumbrances within the meaning of this Act, (that is to say) . . .
(g) The rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where inquiry is made of such person and the rights are not disclosed; . . ."
"it is unreasonable to expect all encumbrancers to register their rights, particularly where those rights arise informally, under (say) a constructive trust or by estoppel. The law pragmatically recognises that some rights can be created informally, and to require their registration would defeat the sound policy that underlies their recognition. Furthermore, when people occupy land they are often unlikely to appreciate the need to take the formal step of registering any rights that they have in it. They will probably regard their occupation as the only necessary protection. The retention of this category of overriding interest is justified…because this is a very clear case where protection against purchasers is needed but where it is 'not reasonable to expect or not sensible to require any entry on the register'." (Law Com No 254, para 5.61).
(1) a registered owner has the power to make a disposition of any kind permitted by the general law in relation to an interest of that description: section 23(1)(a);
(2) a person is entitled to exercise owner's powers in relation to a registered estate or charge if he is (a) the registered proprietor, or (b) entitled to be registered as the proprietor: section 24;
(3) by section 27 certain dispositions, including transfers of land and legal mortgages, are required to be registered and do not operate at law until the relevant registration requirements are met;
(4) the basic rule is that the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge: section 28;
(5) section 29 deals with the effect of registered dispositions and provides:
"(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.
(2) For the purposes of subsection (1), the priority of an interest is protected -
(a) in any case, if the interest -
(i) is a registered charge or the subject of a notice in the register,
(ii) falls within any of the paragraphs of Schedule 3 …";
(6) Schedule 3 is headed "UNREGISTERED INTERESTS WHICH OVERRIDE REGISTERED DISPOSITIONS," and paragraph 2 includes:
"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 -
(b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so;
(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 that time ...";
(7) section 72 grants priority protection to those who apply for an entry in the register during the priority period;
(8) section 116 is headed "Proprietary estoppel and mere equities" and provides:
"It is hereby declared for the avoidance of doubt that, in relation to registered land, each of the following -
(a) an equity by estoppel, and
(b) a mere equity,
has effect from the time the equity arises as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority)";
(9) section 132 is an interpretation section and provides (i) in section 132(1) that (a) "legal estate" has the same meaning as in the Law of Property Act 1925 and (b) "registered estate" means "a legal estate the title to which is entered in the register, other than a registered charge"; and (ii) in section 132(3)(b) that "references to an interest affecting an estate or charge are to an adverse right affecting the title to the estate or charge …";
(10) the effect of section 1 of the Law of Property Act 1925 for present purposes is:
(a) that "legal estates" means "[t]he estates … and charges which under this section are authorised to subsist or to be conveyed or created at law … (when subsisting or conveyed or created at law)" (section 1(4));
(b) "The only estates in land which are capable of subsisting or of being conveyed or created at law are – (a) An estate in fee simple absolute in possession; (b) A term of years absolute" (section 1(1));
(c) "The only …charges in or over land which are capable of subsisting or of being conveyed or created at law are ….(c) A charge by way of legal mortgage …" (section 1(2));
(d) "All other estates, interests, and charges in or over land take effect as equitable interests" (section 1(3)).
Abbey National Building Society v Cann [1991] 1 AC 56
The facts
The decision
"The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together. 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. Indeed, in many, if not most, cases of building society mortgages, there will have been, as there was in this case, a formal offer and acceptance of an advance which will ripen into a specifically enforceable agreement immediately the funds are advanced which will normally be a day or more before completion. In many, if not most, cases, the charge itself will have been executed before the execution, let alone the exchange, of the conveyance or transfer of the property. This is given particular point in the case of registered land where the vesting of the estate is made to depend upon registration, for it may well be that the transfer and the charge will be lodged for registration on different days so that the charge, when registered, may actually take effect from a date prior in time to the date from which the registration of the transfer takes effect …The reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The 'scintilla temporis' is no more than a legal artifice …"
"It is of course correct as a matter of strict legal analysis that a purchaser of property cannot grant a mortgage over it until the legal estate has vested in him. The question however is whether having borrowed money in order to complete the purchase against an undertaking to grant security for the loan over the property the purchaser is, for a moment of time, in a position to deal with the legal estate as though the mortgagee had no interest therein. …In my view a purchaser who can only complete the transaction by borrowing money for the security of which he is contractually bound to grant a mortgage to the lender eo instante with the execution of the conveyance in his favour cannot in reality ever be said to have acquired even for a scintilla temporis the unencumbered fee simple or leasehold interest in land whereby he could grant interests having priority over the mortgage or the estoppel in favour of prior grantees could be fed with similar results. Since no one can grant what he does not have it follows that such a purchaser could never grant an interest which was not subject to the limitations on his own interest. …
In the present case George Cann borrowed money from the society in order to complete the purchase of 7 Hillview and in return granted to them a mortgage. The mortgage was executed by George Cann prior to 13 August 1984 when the purchase was completed. It follows that as a matter of reality George Cann was never vested in the unencumbered leasehold and was therefore never in a position to grant to Mrs Cann an interest in 7 Hillview which prevailed over that of the society. The interests that Mrs Cann took in 7 Hillview could only be carved out of George Cann's equity of redemption. In reaching this conclusion it is unnecessary to consider whether or not Mrs Cann was aware that George Cann would require to borrow money in order to finance the purchase of 7 Hillview."
Contract/conveyance
Effect of contract
"There are some points in the law relating to estoppels which seem clear. First, when a lessor without any legal estate or title demises to another, the parties themselves are estopped from disputing the validity of the lease on that ground; in other words a tenant cannot deny his landlord's title, nor can the lessor dispute the validity of the lease. Secondly, where a lessor by deed grants a lease without title and subsequently acquires one, the estoppel is said to be fed, and the lease and reversion then take effect in interest and not by estoppel . . ."
"the juristic basis and the legal effect of the estoppel doctrine were authoritatively expounded in the Court of Exchequer by Martin B in Cuthbertson v Irving … in terms applicable to this case. … The result is also consistent with the legal effect of the satellite doctrine of 'feeding the estoppel' … which applies when an interest in the land is acquired by the person deficient in title at the time of the grant from which the ?estoppel arose: 'so that, as Hale put it, 'by purchase of the land, that is turned into a lease in interest, which before was purely an ?estoppel'': see Holdsworth's History of English Law, vol VII, p 246."
An indivisible transaction?
"the charges, the agreement and the transfer were all signed on the same day … Thus, [B's] right to occupation under clause 6, did not accrue prior to the creation of [Nationwide's] charge. In Abbey National Building Society v Cann the House of Lords … concluded that when a purchaser relied on a building society, such as [Nationwide], to enable completion, the transactions involved were one indivisible transaction and, therefore, there was no scintilla temporis during which the right to occupation vested free of [the] charge. The same reasoning is applicable to the facts of this case. On June 1, the contract, the transfer and the legal charges were completed. They formed an indivisible transaction and there was no scintilla temporis during which any right to occupation under clause 6 of the agreement vested in [B] which was free of [Nationwide's] charge. Thus, the right given by clause 6 did not provide an overriding interest under section 70(1)(g) of the 1925 Act, even if the right was a proprietary right. [Counsel for B] submitted that that conclusion ignored the reality of the position and that at all times [B] was in occupation. However that submission ignores the reality of the legal position. [B] gave up his right to occupy as an unpaid vendor by signing the agreement and thereby obtained permission to occupy, which permission did not take effect prior to [Nationwide's] charge."
Possession order
LADY HALE
Overriding interests: some preliminary remarks
"If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration."
Section 29(2)(a)(ii) provides that among the interests protected for the purpose of subsection (1) is an interest which "falls within any of the paragraphs of Schedule 3". Falling within paragraph 2 of Schedule 3 is "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". This is subject to a number of exceptions; the only relevant one for our purpose is "(b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so".
Can a prospective purchaser grant proprietary rights before completion?
"an old doctrine (none the worse for being old) that if A purports to create a lease in B's favour, A having no estate sufficient to support the lease, then, if A afterwards acquires a sufficient estate, he will be bound not to deny that he always had a good right to create the tenancy and the lease is said to take effect by estoppel."
This is the doctrine described as among the "clear" points about estoppel at first instance in Cuthbertson v Irving (1859) 4 Hurl & N 742, 157 ER 1034 (affirmed on appeal at (1860) 6 Hurl & N 135, 158 ER 56): neither the lessee nor the lessor can dispute one another's title and if the lessor without a legal estate later acquires one, the estoppel is "fed".
"Of course, as a matter of legal theory, a person cannot charge a legal estate that he does not have, so that there is an attractive legal logic in the ratio in Piskor's case. Nevertheless, I cannot help feeling that it flies in the face of reality. The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together. 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."
In Cooke, the mortgage was the day after the conveyance and there was no evidence that they were one and the same transaction, or that the advance had been handed over to the vendor rather than the purchase being initially funded in some other way, although the mortgage was applied for before completion. It may be that the conveyance and the mortgage were in fact indivisible. It may be that they were not. Cooke was not cited to their Lordships in Cann, but it must have been known to them, because it features prominently in Piskor, and it was not overruled or even mentioned in their opinions.
"The only estates in land which are capable of subsisting or of being conveyed or created at law are – (a) An estate in fee simple absolute in possession; (b) A term of years absolute."
The interest of the purchaser before completion, however it may be characterised, is not a legal estate. Hence the nominee purchaser could not create an interest which was capable of being a protected interest for the purpose of the 2002 Act until she had acquired the legal estate. This is entirely consistent with and confirms the provisional conclusion reached earlier.
Are contract, transfer and mortgage indivisible?
Conclusion
LORD WILSON AND LORD REED