Hughmans Solicitors v Central Stream Services Limited

 

Hughmans Solicitors v Central Stream Services Limited [2012] EWCA Civ 1720

Where title to land is registered the method of protecting third party interests is by the holder making an entry on the appropriate part of the register. The procedures were reformed and simplified in the Land Registration Act 2002 to consist of notices and restrictions. Restrictions are entered in the proprietorship register and, as their name suggests, they prevent certain future registrations unless specified conditions are complied with. Notices on the other hand, go in the charges register and consist of two types. Agreed notices if the registered proprietor consents to the entry and unilateral if they do not consent.

It is important to understand what the nature of the protection is where a notice of either type has been entered. There are two, perhaps counter intuitive, limitations on the nature of the protection conferred. First, the entry of a notice is by the express words of s.32, not a guarantee by the Registrar that the interest claimed is valid in itself. There may be all kinds of reasons why the claimed interest is not valid depending on what sort of interest is being claimed. So, for instance, a claim for an easement may fail because it does not accommodate the dominant tenement, a claim for an estate contract may fail because it is not signed by both parties or omit an agreed term, or a claim for a restrictive covenant may fail because it imposes a positive obligation. The purpose of the notice is not to validate the claim but to give it priority against a new registered proprietor in the event that it is valid.

Houses for sale
Houses for sale

That leads to the other limitation. The priority conferred is only against a new registered proprietor or charge under a “registered disposition for valuable consideration”, not against earlier, conflicting possibly unprotected third party interests. Section 28 preserves the basic rule of priority as a default position, ie where the equities are equal, the first in time prevails. (See also Halifax Plc v Curry Popeck (A Firm) 2008 EWHC 1692). Sections 29 and 30provide the special rule of priority for registered dispositions and charges respectively, as long as they were made for valuable consideration. The holder of an unprotected interest will lose priority in these circumstances against the new registered proprietor.

 A recent demonstration of exactly this point was made in the Court of Appeal decision in Hughmans Solicitors v Central Stream Services Ltd.  Here D, who was heavily in debt, agreed as part of a compromise agreement, to sell property registered in his name and pay the net proceeds to the claimant. H, who were D’s solicitors and who were to have conduct of the sale, subsequently obtained judgment for £19,000 against D and obtained a charging order against the property which was then protected by notice on the register. The property was sold but there was insufficient of the net funds to satisfy both the claimant and H. H removed its notice in order that the sale could go ahead on the basis that the funds were held pending the outcome of this litigation.

There were two questions for the Court of Appeal. First, whether the compromise agreement created an equitable proprietary interest in favour of the claimant and secondly, whether if it did, this unprotected interest took in priority to the charging order.  

In answer to the first question the Court of Appeal held that the agreement did create an equitable interest. From the date of the agreement D was under an obligation to sell the property and apply the proceeds to the benefit of the claimant. This was not an equitable charge because the agreement was not providing security for a debt owed to the claimant. If it was a charge, then D could in theory repay the debt with other funds and discharge the obligation. The obligation here was more like an estate contract; although the obligation was to sell the property to a third party, not the party to the contract. Nevertheless the court would be prepared to enforce the agreement by an order of specific performance.

The discussion of the second point took less time. Even assuming that the charging order of H was “a registrable disposition”, which in itself is a questionable proposition, it was not made for “valuable consideration” since it is created by the court order. (See United Bank of Kuwait plc v Sahib [1997] Ch 107.) Therefore the special rule in s.30 would not apply. As a result the earlier rights under the compromise agreement took priority under s. 28.

Claire De Than teaches part of the Undergraduate Laws Programmes weekend courses and is a lecturer at City University

Picture sourced CC-BY from http://www.flickr.com/photos/27128437@N07/2535104628

One comment

  1. Hello Claire,
    Thank you for this insightful post. It boggled my mind, but I took me some time to try to understand the principle of of ‘Priority’, i.e. that it is determined by the order in which those equitable interests are created as well as the concept of ‘notices’ on the register.
    If I understand correctly, s. 30 would not apply because Hughmans’ interest was not a registrable disposition of a registrered charge (because this is a charge for valuable consideration)?
    And this decision was also the same as what was decided by Lord Chadwick in United Bank of Kuwait concerning two competing banks?
    Thanks for this very interesting mind-boggling area of law.
    Janet
    PS. Looking forward to another post.

    Like

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