All England Law Reports/1996/Volume 3 /United Bank of Kuwait plc v Sahib and others – [1996] 3 All ER 215
[1996] 3 All ER 215
United Bank of Kuwait plc v Sahib and others
COURT OF APPEAL, CIVIL DIVISION
LEGGATT, PETER GIBSON AND PHILLIPS LJJ
1, 2 FEBRUARY 1996
Equity – Charge – Creation of equitable charge – Husband purporting to charge wife’s interest without her consent or authority to bank – Husband holding land certificate to joint property to order of bank – Whether effective to create equitable charge over husband’s interest in property – Whether charge invalid because not in writing – Whether deposit of title deeds without wife’s consent effective to create equitable charge – Law of Property (Miscellaneous Provisions) Act 1989, s 2.
In September 1991 the plaintiff bank obtained judgment against S for principal and interest in respect of banking facilities which it had granted to him. In October 1992 the plaintiff obtained a charging order nisi over S’s interest in property which he jointly owned with his wife, H, to secure and enforce that judgment. In No-vember 1992 that order was made absolute at a hearing at which H was represented. At that point, H did not know that in 1990 S’s solicitors had written to the defendant bank confirming that the land certificate relating to the same property was being held to the defendant bank’s order as security for funds which it had also advanced to S. The plaintiff brought proceedings against S, his wife and the defendant bank, seeking, inter alia, a declaration that the defendant bank did not hold any equitable mortgage or charge over the joint prop-erty or, if it did, that such mortgage or charge did not take priority over the plaintiff’s charging order absolute. The defendant bank claimed to be entitled to an equitable mortgage over S’s interest in the property by virtue of the deposit of the land certificate ranking in priority to the plaintiff’s charge under the charging order. There was no evidence that the defendant bank gave notice to H of the interest which it claimed until after the pro-ceedings were commenced. The judge found for the plaintiff and the defendant bank appealed. The principal question arose whether the rule that the deposit of title deeds to a property by way of security created an equitable mortgage of the property survived the requirement laid down by s 2a of the Law of Property (Miscel-laneous Provisions) Act 1989 that the disposition of an interest in land had to be in writing.
a Section 2, so far as material, is set out at p 220 f to j, post
Held – The formalities contained in s 2 of the 1989 Act, which required a contract for the sale or other dispo-sition of an interest in land to be in writing in a single document incorporating all its terms and signed by the parties, governed the validity of all dispositions of interests in land and abolished the rule that a mere deposit of title deeds relating to a property by way of security created a mortgage or charge. The deposit of title deeds took effect as a contract to create a mortgage and, as such, it fell within s 2. It followed that, since there was no written document in the instant case, the mere deposit of title deeds by way of security could not create a mortgage or charge. The appeal would accordingly be dismissed (see p 221 a h, p 222 j, p 225 c f, p 226 h and p 227 h, post).
Decision of Chadwick J [1995] 2 All ER 973 affirmed.
[1996] 3 All ER 215 at 216
Notes
For equitable mortgage of land by deposit of deeds, see 32 Halsbury’s Laws (4th edn) paras 419-420, 429, and for cases on the subject, see 35 Digest (Reissue) 42-45, 240-256.
Cases referred to in judgments
Alton Corp, Re [1985] BCLC 27.
Ashburn Anstalt v Arnold [1988] 2 All ER 147, [1989] Ch 1, [1988] 2 WLR 706, CA.
Beetham, Re, ex p Broderick (1886) 18 QBD 380, DC; affd (1887) 18 QBD 766, CA.
Dearle v Hall (1828) 3 Russ 1, [1824-34] All ER Rep 28, 38 ER 475, MR and LC.
Francis v Francis [1952] VLR 321, Vic Full Ct.
Hodgson v Marks [1971] 2 All ER 684, [1971] Ch 892, [1971] 2 WLR 1263.
Ives (E R) Investments Ltd v High [1967] 1 All ER 504, [1967] 2 QB 379, [1967] 2 WLR 789, CA.
Langston, Ex p (1810) 17 Ves 227, [1803-13] All ER Rep 767, 34 ER 88, LC.
Maddison v Alderson (1883) 8 App Cas 467, [1881-5] All ER Rep 742, HL.
Mountford, Ex p (1808) 14 Ves 606, 33 ER 653.
Russel v Russel (1783) 1 Bro CC 269, 28 ER 1121.
Spiro v Glencrown Properties Ltd [1991] 1 All ER 600, [1991] Ch 537, [1991] 2 WLR 931.
Steadman v Steadman [1974] 2 All ER 977, [1976] AC 536, [1974] 3 WLR 56, HL.
Vandervell’s Trusts, Re (No 2), White v Vandervell Trustees Ltd [1974] 3 All ER 205, [1974] Ch 269, [1974] 3 WLR 256, CA.
Wallis & Simmonds (Builders) Ltd, Re [1974] 1 All ER 561, [1974] 1 WLR 391.
Cases also cited or referred to in skeleton arguments
Ablett, Re, ex p Lloyd (1824) 1 Gl & J 389.
Amalgamated Investment and Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1981] 3 All ER 577, [1982] QB 84, CA.
Bank of New South Wales v O’Connor (1889) 14 App Cas 273, PC.
Bank of Scotland plc v Wright [1991] BCLC 244.
Bannister v Bannister [1948] 2 All ER 133, CA.
Bruce, Ex p (1813) 1 Rose 374.
Bulteel, Ex p (1790) 2 Cox Eq Cas 243, 30 ER 113, LC.
Burgess v Moxon, Moxon v Burgess (1856) 2 Jur NS 1059.
Carter v Wake (1877) 4 Ch D 605.
Caton v Caton (1866) LR 1 ChApp 137; affd (1867) LR 2 HL 127.
Cedar Holdings Ltd v Green [1979] 3 All ER 117, [1981] Ch 129, CA.
Coming, Ex p (1803) 9 Ves 115, 32 ER 545, LC.
Dixon v Muckleston (1872) LR 8 ChApp 155, LC.
Ede v Knowles (1843) 2 Y & C Ch Cas 76, 63 ER 76.
Edge v Worthington (1786) 1 Cox Eq Cas 211, 29 ER 1133.
Ferris v Mullins (1854) 2 Sm & G 378, 65 ER 444.
Finden, Ex p (1805) 11 Ves 404n, 32 ER 1143, LC.
Haigh, Ex p (1805) 11 Ves 403, 32 ER 1143, LC.
Harman v Glencross [1986] 1 All ER 545, [1986] Fam 81, CA.
Holt v Heatherfield Trust Ltd [1942] 1 All ER 404, [1942] 2 KB 1.
Hooper, Ex p (1815) 2 Rose 328, 34 ER 593, LC.
Jared v Clements [1902] 2 Ch 399.
Kensington, Ex p (1813) 2 Ves & B 79, [1803-13] All ER Rep 398, 35 ER 249, LC.
Lacon v Allen (1856) 3 Drew 579, 61 ER 1024.
Lloyd v Attwood, Attwood v Lloyd (1859) 3 De G & J 614, 44 ER 1405, LJJ.
[1996] 3 All ER 215 at 217
Lloyds Bank Ltd v Pearson [1901] Ch 865.
Matthews v Goodday (1861) 31 LJ Ch 282.
Mestaer v Gillespie (1805) 11 Ves 621, [1803-13] All ER Rep 594, 32 ER 1230, LC.
Molton Finance Ltd, Re [1967] 3 All ER 843, [1968] Ch 325, CA.
Norris v Wilkinson (1805) 12 Ves 192, 33 ER 73.
Oughtred v IRC [1959] 3 All ER 623, [1960] AC 206, HL.
Parker v Housefield (1834) 2 My & K 419, 39 ER 1004.
Paul v Nath Saha [1939] 2 All ER 737, PC.
Pearce and Protheroe, Ex p (1820) Buck 525.
Powell, Ex p (1840) 6 Jur 490.
Pryce v Bury (1853) 2 Drew 41, 61 ER 622; affd (1854) LR 16 Eq 153n, LC and LJJ.
Rainbow v Moorgate Properties Ltd [1975] 2 All ER 821, [1975] 1 WLR 788, CA.
Scott v Lord Hastings (1858) 4 K & J 633, 70 ER 263.
Shaw v Foster (1872) LR 5 HL 321.
Tailly v Official Receiver (1888) 13 App Cas 523, [1886-90] All ER Rep 486.
Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd, Old & Campbell Ltd v Liverpool Victoria Trus-tees Co Ltd [1981] 1 All ER 897, [1982] QB 133.
Taylor v Wheeler (1766) 2 Vern 564, 23 ER 968.
Thames Guaranty Ltd v Campbell [1984] 2 All ER 585, [1985] QB 210, CA.
Thomas v Dering (1837) 1 Keen 729, [1835-42] All ER Rep 711, 48 ER 448.
Tidey v Mollett (1864) 16 CBNS 298, 143 ER 1143.
Wetherell, Ex p (1805) 11 Ves 398, 32 ER 1141.
Whitbread, Ex p (1812) 19 Ves 209, 34 ER 496, LC.
Williams & Glyn’s Bank Ltd v Boland [1980] 2 All ER 408, [1981] AC 487, HL.
Wright, Ex p (1812) 19 Ves, 34 ER 513.
Appeal
By notice dated 26 July 1994 the third defendant, Société Générale Alsacienne de Banque SA (Sogenal), a French body corporate, appealed from that part of the order of Chadwick J (1995 2 All ER 973, [1995] 2 WLR 94) made on 24 June 1994 whereby it was declared that as between Sogenal and the plaintiff, the United Bank of Kuwait plc (UBK), Sogenal did not hold any equitable mortgage or charge arising by way of the notional deposit of title deeds over the undivided share of the first defendant, Hadi Haji Sahib, in the proceeds of sale of 37c Fitzjohn’s Avenue, London NW3, which the latter owned jointly with the second defendant, Raja Saad Hashim (his wife). The facts are set out in the judgment of Peter Gibson LJ.
Christopher Pymont (instructed by Radcliffes Crossman Block) for Sogenal.
James Munby QC (instructed by Clyde & Co) for UBK.
The first and second defendants did not appear.
PETER GIBSON LJ
(delivering the first judgment at the invitation of Leggatt LJ). Since 1783 a deposit of title deeds relating to a property by way of security has been taken to create an equitable mortgage of that property without any writ-ing, notwithstanding s 4 of the Statute of Frauds (1677) and its successor, s 40 of the Law of Property Act 1925. The main question that arises on this appeal is whether this much-criticised but well-established rule has survived the coming into force of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
This is an appeal by the third defendant, Société Générale Alsacienne de Banque SA (Sogenal), from part of the order of Chadwick J (1995 2 All ER 973, [1995] 2 WLR 94) on 24 June 1994, whereby he declared that as between Sogenal and the plaintiff, United Bank of Kuwait plc (UBK), Sogenal does not have any equitable
[1996] 3 All ER 215 at 218
mortgage or charge over the undivided share of the first defendant, Hadi Haji Sahib, in the proceeds of sale of 37c Fitzjohn’s Avenue, Hampstead, London NW3. The judge’s judgment contains a full and careful state-ment of the facts. It is therefore unnecessary for me to do more than recount the salient facts to make the issues in this appeal intelligible.
Mr Sahib is the husband of the second defendant, Raja Saad Hashim. Mr Sahib and Mrs Hashim are the legal and beneficial owners of No 37c. On 30 June 1987 Sogenal, at Mr Sahib’s request, guaranteed to Na-tional Bank of Abu Dhabi (NBAD) repayment by Mr Sahib to NBAD of all moneys outstanding under banking facilities granted to him by NBAD up to £325,000. The amount of the guarantee was increased on 7 October 1987 to £400,000, and by payments on 15 August and 19 September 1990 £400,000 was paid under the guarantee by Sogenal to NBAD. It is not in dispute that Mr Sahib impliedly agreed to indemnify Sogenal against any payments which it made under the guarantee. Sogenal initially took no security from Mr Sahib for the guarantee, but on 25 November 1988, Mr Sahib’s solicitors wrote to Sogenal confirming that he had in-structed them to hold the land certificate of another property owned by Mr Sahib alone to Sogenal’s order to cover the guarantee. On 3 August 1990 the solicitors wrote again to Sogenal, saying that they understood that Mr Sahib was prepared for the land certificate to No 37c to be held as additional security to the order of Sogenal pending a possible sale or refinancing of that property. In a fax to the solicitors on 14 August 1990, Sogenal referred to its understanding that the solicitors would hold as additional security on Sogenal’s behalf the land certificate to No 37c. On 10 September 1990 the solicitors wrote to Sogenal confirming that they would in future hold that land certificate to the order of Sogenal.
Part of the moneys for which Mr Sahib was liable to Sogenal under his implied indemnity in respect of the guarantee was repaid by Mr Sahib and immediately after 19 September 1990, when £240,000 was paid by Sogenal to NBAD under the guarantee, that net liability was £103,872•4361. The position was covered by an advance of £130,000 made by Sogenal to Mr Sahib on 21 September 1990. The advance was treated by Sogenal as a time deposit made by Sogenal with Mr Sahib. The deposit matured on 21 December 1990, and was renewed successively throughout 1991, interest being debited to his account on each renewal. Time deposits were thereafter renewed in differing amounts; by June 1993 the time deposit had increased to £144,000. On 10 June 1993 with the addition of interest the amount owed by Mr Sahib to Sogenal was £151,266.
At no time did Mrs Hashim authorise Mr Sahib’s solicitors to hold the land certificate in respect of No 37c to the order of Sogenal. Consequently, Sogenal did not have security over the freehold interest in No 37c, as Sogenal became aware in 1991. Mr Sahib’s solicitors were asked to act for Sogenal ‘in connection with regu-larising the security arrangements in respect of 37c’ and they requested Mr Sahib and Mrs Hashim to exe-cute a legal mortgage to secure Mr Sahib’s indebtedness to Sogenal. But no mortgage was executed, though correspondence in August 1992 contained a clear indication by Mr Sahib that by then Sogenal was secured in respect of the amount due on the current time deposit and on the balance of Mr Sahib’s account with Sogenal.
On 20 September 1991 UBK obtained judgment in the Queen’s Bench Division of the High Court against Mr Sahib in the sum of £229,815•4317, being principal and interest in respect of banking facilities granted to Mr Sahib by UBK. On 12 October 1992 a charging order nisi on Mr Sahib’s interest in No 37c was granted to UBK to secure and enforce that judgment debt together with costs and statutory interest
[1996] 3 All ER 215 at 219
from the date of judgment. There is nothing to indicate that UBK had any knowledge of Sogenal’s dealings with Mr Sahib in relation to security over No 37c. On 19 October 1992 UBK gave notice to Mrs Hashim as well as Mr Sahib of the charging order nisi. On 25 November 1992 that order was made absolute at a hear-ing at which Mrs Hashim was represented. It is common ground that the order left Mrs Hashim’s beneficial interest in No 37c unaffected, nor did it charge the freehold of No 37c.
On 27 November 1992 UBK commenced proceedings against Mr Sahib and Mrs Hashim by originating summons to enforce the charging order. UBK sought payment of the amounts claimed under the charging order, possession of, inter alia, No 37c and directions for sale. On 16 July 1993 Sogenal was joined as the third defendant and UBK amended the originating summons to claim a declaration that Sogenal did not hold any equitable mortgage or charge over No 37c or, if it did, that such mortgage or charge did not take priority over UBK’s charging order absolute. Neither Mr Sahib nor Mrs Hashim appeared or was represented at the hearing before the judge. The issue contested before the judge was the declaration claimed by UBK against Sogenal.
There is no evidence that Sogenal gave notice to Mrs Hashim of the interest which it claims until after the present proceedings were commenced. The first question dealt with by the judge was whether, if Sogenal had an interest as mortgagee or chargee of Mr Sahib’s undivided share in the proceeds of sale of No 37c, the rule in Dearle v Hall (1828) 3 Russ 1, [1824-34] All ER Rep 28 applies. If it does, then UBK, by reason of the prior notice given to Mr Sahib and Mrs Hashim, will have priority over Sogenal. The judge held that the rule in Dearle v Hall had no application on the facts of the present case, and that if Sogenal became entitled to a mortgage or charge over Mr Sahib’s beneficial interest in No 37c before the charging order nisi was made, that mortgage or charge had priority over UBK’s charge created by the charging order.
The judge then turned to whether Sogenal did have such a mortgage or charge before 12 October 1992. He made the assumption that Mr Sahib would have been estopped from denying an agreement between Sogenal and him that No 37c should stand as security for the advance on 21 September 1990 of £130,000 and interest. He expressed the view that an agreement to charge what Mr Sahib could not charge, namely both the legal title and beneficial interest in No 37c, in the absence of some statutory prohibition would be treated as effective to create an equitable charge over Mr Sahib’s undivided share. But he held that there was such statutory prohibition in s 2 of the Law of Property (Miscellaneous Provisions) Act 1989, and that the rule that the deposit of title deeds by way of security created an equitable mortgage of the property had not survived the coming into force of the section on 27 September 1989.
In case he was wrong on that, the judge gave two further reasons why no charge over Mr Sahib’s interest could have been created in favour of Sogenal by the holding of the land certificate to Sogenal’s order. The first was that a deposit of title deeds could not operate as an equitable charge unless the deposit was effec-tive, and the deposit by one joint tenant without the consent of the other was ineffective because the creditor had no right to retain custody of the title deeds against the other joint tenant. The second was that if the de-posit was otherwise effective, it would have been a disposition of a subsisting equitable interest within s 53(1)(c) of the Law of Property Act 1925, and as such it would be void because the dispositive act was not in writing.
Sogenal now appeals. UBK by a respondent’s notice challenges the judge’s decision on the applicability of the rule in Dearle v Hall, and further challenges the
[1996] 3 All ER 215 at 220
correctness of the assumption that Mr Sahib was estopped from denying that No 37c should be security for the advance of £130,000 and interest. Mr Pymont for Sogenal has helpfully identified five issues from the notice of appeal and respondent’s notice. (1) Can a deposit of title deeds operate as a mortgage or charge over an interest in land since s 2 of the 1989 Act came into force (the s 2 point)? (2) Subject to (3) below, was the deposit on behalf of Mr Sahib, being one of two joint tenants of the title to the property, effective to mortgage or charge his beneficial interest in the proceeds of sale of the property? (3) To the extent that a mortgage or charge over that interest would otherwise have been created by the deposit, is that mortgage or charge invalid or ineffective for want of writing under s 53(1)(c)? (4) If the deposit did not succeed in creating any mortgage or charge, was Mr Sahib nevertheless estopped from denying the mortgage or charge by rea-son of the dealings between him and Sogenal? (5) If Sogenal had the benefit of a mortgage or charge, should that interest take priority over the interest of UBK? That fourth issue was developed by Mr Pymont before us in a way not argued before the judge nor foreshadowed in the notice of appeal, nor, as appears from the wording of issue (4), even adumbrated in his skeleton argument. Mr Pymont submitted that, not only was Mr Sahib estopped, but UBK as the successor in title to Mr Sahib was also estopped by reason of the estoppel against Mr Sahib. I shall call this enlarged issue ‘the estoppel point’.
The s 2 point
Section 2 of the 1989 Act was enacted to give effect to the substance of that part of the Law Commission’s Report, Transfer of Land: Formalities for Contracts for Sale etc of Land (1987) (Law Com No 164), which recommended the repeal of s 40 of the Law of Property Act 1925 and the abolition of the doctrine of part per-formance and proposed new requirements for the making of a contract for the sale or other disposition of an interest in land. The material parts of s 2 are:
‘(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporat-ing all the terms which the parties have expressly agreed in one document or, where the contracts are exchanged, in each.
(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract …
(5) … nothing in this section affects the creation or operation of resulting, implied or constructive trusts.
(6) In this section—“disposition” has the same meaning as in the Law of Property Act 1925; “interest in land” means any estate, interest or charge in or over land or in or over the proceeds of sale of land …
(8) Section 40 of the Law of Property Act 1925 (which is superseded by this section) shall cease to have effect.’
‘Disposition’ in s 205(1)(ii) of the 1925 Act includes a conveyance, and ‘conveyance’ includes a mortgage or charge. Section 40, which replaced s 4 of the Statute of Frauds (1677), contained provisions less stringent than the 1989 Act governing formalities relating to contracts for the sale or other disposition of land or any interest in land, and by sub-s (2) had preserved the law relating to part performance.
[1996] 3 All ER 215 at 221
The effect of s 2 is, therefore, that a contract for a mortgage of or charge on any interest in land or in the pro-ceeds of sale of land can only be made in writing and only if the written document incorporates all the terms which the parties have expressly agreed and is signed by or on behalf of each party. In the present case it is not suggested that there is any such written document.
Mr Pymont argued before the judge and before us that it was unnecessary for Sogenal to rely on any con-tract. He submitted, no doubt rightly, that the confirmation given by Mr Sahib’s solicitors in their letter of 10 September 1990 to Sogenal, that they would hold the land certificate to the order of Sogenal, was to be treated as a notional deposit of that title deed with Sogenal just as much as if there had been actual delivery to Sogenal. He relied on the rule which has operated since Russel v Russel (1783) 1 Bro CC 269, 28 ER 1121 to which I referred at the beginning of this judgment. He did not dispute that the basis of the rule, as expounded in the authorities, is that the court infers an agreement to mortgage in the absence of contrary evidence.
On this part of the case the judge expressed his conclusion in a way which is in my opinion entirely correct (1995 2 All ER 973 at 989, [1995] 2 WLR 94 at 110):
‘Whether or not the enforcement of the agreement which is to be inferred or presumed from the deposit of the title deeds was properly to be regarded as an example of the operation of the doctrine of part performance, as Lord Sel-borne LC suggested in Maddison v Alderson (1882) 8 App Cas 467 at 480, [1881-5] All ER Rep 742 at 750 or as a sui generis exception to the Statute of Frauds, which was outside the proper scope of that doctrine in that the act of part performance relied upon was not the act of the mortgagee who was seeking to enforce the agreement, there can, in my view, be no doubt that the courts have, consistently, treated the rule that a deposit of title deeds for the purpose of securing a debt operates, without more, as an equitable mortgage or charge as contract-based, and have regarded the deposit as a fact which enabled the contract to be enforced notwithstanding the absence of evidence sufficient to satisfy the Statute of Frauds. It is im-possible to distinguish those cases, of which Ex p Langston (1810) 17 Ves 227, [1803-13] All ER Rep 767 is an exam-ple, in which the court, having inferred from the fact of the deposit an intention to create security, let in oral evidence to identify the scope of the obligation which was to be secured from cases in which there was no evidence beyond the fact of the deposit. In all those cases, the court was concerned to establish, by presumption, inference or evidence, what the parties intended, and then to enforce their common intention as an agreement.’
I would emphasise the essential contractual foundation of the rule as demonstrated in the authorities. The deposit by way of security is treated both as prima facie evidence of a contract to mortgage, and as part per-formance of that contract. It is sufficient to refer briefly to the more recent of the multitude of authorities. In Re Wallis & Simmonds (Builders) Ltd [1974] 1 All ER 561, [1974] 1 WLR 391 Templeman J held that the equitable charge resulting from a deposit of title deeds was contractual in nature and specifically rejected an argument that the charge arose by operation of law. In Re Alton Corp [1985] BCLC 27 at 33 Megarry V-C said, in relation to a loan accompanied by the deposit of title deeds:
‘… I have to remember that the basis of an equitable mortgage is the making of an agreement to create a mortgage, with the deposit of the land certificate and, since Steadman v Steadman [1974] 2 All ER 977, [1976] AC 536,
[1996] 3 All ER 215 at 222
probably the paying of the money as well, ranking as sufficient acts of part performance to support even the purely oral transaction. But some contract there must be.’
Mr Pymont made seven submissions as to why s 2 did not apply to a deposit of title deeds.
(1) He submitted that there is nothing in the 1989 Act which expressly or by necessary implication repeals the provisions of the 1925 Act and later legislation recognising and extending the scope of a security by de-posit of title deeds. He relied on four statutory provisions to the following effect: (a) s 13 of the 1925 Act, which provides that that Act is not to affect prejudicially the right or interest of any person arising out of or consequent on the possession by him of any document relating to a legal estate in land; (b) s 97 of that Act relating to unregistered land, which excepts from the operation of the section (governing the priority of legal and equitable mortgages) a mortgage protected by the deposit of documents relating to the legal estate af-fected; © s 66 of the Land Registration Act 1925, which allows the proprietor of any registered land to create a lien on the registered land by deposit of the land certificate, such lien to be equivalent to a lien created in the case of unregistered land by the deposit by a legal and beneficial owner of the registered estate of the documents of title; and (d) s 2(4) of the Land Charges Act 1972, which excepts from general equitable charges requiring registration under class C(iii) any equitable charge secured by a deposit of documents re-lating to the legal estate affected.
Mr Pymont submitted that it was significant that none of those provisions was referred to in the 1989 Act as having been repealed or otherwise affected by s 2. He drew attention to the fact that some commentators have concluded from this that s 2 was not intended to repeal the rule relating to the creation of security by deposit of title deeds: see Snell’s Equity (29th edn, 1990) pp 444-445, Cheshire and Burn’s Modern Law of Real Property (15th edn, 1994) p 670 and Bently and Coughlan ‘Informal dealings with land after section 2’ (1990) 10 LS 325 at 341.
I differ with reluctance from such distinguished property lawyers, but I am not persuaded that their views on this point are correct. The presence of s 13 in the 1925 Act, as Mr Munby for UBK submitted, would appear to indicate that, without it, the Act, with its requirements of formalities for dispositions of interests in land, might have affected prejudicially the right or interest of a person with whom title deeds had been deposited. Significantly the 1989 Act, with its new and stricter requirements, contains no corresponding provision. Sec-tion 97 relates not to the requirements governing the validity of a mortgage but to priorities between mort-gagees. Section 66 of the Land Registration Act 1925 begs the question what lien is created by the deposit by a legal and beneficial owner of the documents of title to unregistered land. Section 2(4) of the 1972 Act relates not to the validity of a charge, but to the way in which the deposit of the title deeds operates as a substitute for registration. In the scheme of the legislation, all mortgages must be registered unless protected by deposit of title deeds.
In any event, earlier legislative references to rights or interests created by the deposit of title deeds must now be read in the light of the 1989 Act. The new formalities required by s 2 govern the validity of all dispositions of interests in land. I cannot see that the references relied on by Mr Pymont in the earlier legislation can dis-place what otherwise is the plain meaning and effect of s 2 on contracts in whatever form to mortgage land.
(2) Mr Pymont pointed to the fact that there is nothing in the Law Commission’s report which initiated the re-forms effected by the 1989 Act to
[1996] 3 All ER 215 at 223
suggest that security by deposit of title deeds was intended to be affected or was even considered.
I accept that there is nothing in the report that expressly refers to the deposit of title deeds by way of security, or suggests that it created a problem that needed attention. But the intention of the Law Commission to in-clude in its proposals contracts to grant mortgages was made plain (see para 4.3), and as a deposit of title deeds by way of security takes effect as an agreement to mortgage, in logic there is no reason why the crea-tion of security by deposit of title deeds should have been excepted from the proposals. This is all the more likely when one considers the part played by the doctrine of part performance in the recognition by equity judges of the Russel v Russel doctrine (see further (5) below). In any event, if the wording of s 2 is clear, as I think it is, the absence from the Law Commission’s report of a reference to security by deposit of title deeds cannot alter the section’s effect.
(3) Mr Pymont then reverted to s 2(4) of the 1972 Act excepting equitable charges not secured by a deposit of documents from the requirement of registration. He said that if a deposit of title deeds prima facie takes effect as a contract to create a mortgage, such a security would be registrable as a class C(iv) land charge, notwithstanding the exception from the requirement of registration as a class C(iii) land charge, and that cannot be right.
The wording of s 2(4) is to my mind a clear indication that, for the purposes of that Act, a deposit of title deeds gave rise to a general equitable charge which would have been registrable as a class C(iii) land charge, but for being excepted. I accept that it was plainly not envisaged in that Act that it might also come within class C(iv). As I have already said, it was part of the scheme of the legislation that all mortgages should be registered unless protected by deposit. It would be inconsistent with that scheme that a deposit of title deeds by way of security should be an estate contract registrable as a Class C(iv) land charge. It may be that, as Mr Munby submitted, the contract to grant a mortgage inherent in the deposit of title deeds by way of security was not considered to be a mere estate contract. But whether or not that is right, I do not see that this statutory provision can affect the meaning of s 2 of the 1989 Act.
(4) Mr Pymont then said that the rule that a deposit of title deeds by way of security creates a mortgage is not dependent on any actual contract between the parties, though, if there is one, that contract will govern the parties’ rights; if there is an actual contract, it must comply with s 2; but that does not affect the legal pre-sumptions or inferences which arise when there is a mere deposit.
I accept that there need not be an express contract between the depositor of the title deeds and the person with whom they are deposited for an equitable mortgage to arise (subject to s 2). But I have already stated why it is clear from the authorities that the deposit is treated as rebuttable evidence of a contract to mort-gage. Oral evidence is admissible to establish whether or not a deposit was intended to create a mortgage security, whether or not the original deposit was intended at the outset to be security for further advances, whether or not it was agreed subsequently that that deposit should be security for further advances and whether or not any memorandum of agreement accurately stated the terms of the contract or was complete. To allow inquiries of this sort after the 1989 Act in order to determine whether an equitable mortgage has been created and on what terms seems to me to be wholly inconsistent with the philosophy of s 2, requiring as it does that the contract be made by a single document containing all the terms of the agreement if it is to be valid.
(5) Mr Pymont then submitted that it is well established that an act of part performance could only be relied upon if it were an act done by the person seeking
[1996] 3 All ER 215 at 224
to enforce the contract. He said that that requirement is not fulfilled if a plaintiff, with whom the title deeds are deposited, seeks to rely on the defendant’s act of depositing the title deeds.
It is clear that the rule relating to the creation of an equitable mortgage by deposit proceeded on the footing that the act of deposit constituted a sufficient act of part performance of the presumed agreement to mort-gage. I accept that that is contrary to the normal rule that an act of part performance can only be relied upon if done by the plaintiff and not the defendant. But in Maddison v Alderson (1878) 8 App Cas 467 at 480, [1881-5] All ER Rep 742 at 750 Lord Selborne LC said that the law of equitable mortgage by deposit of title deeds depended upon the same principles as the cases of part performance to which he had been referring, and in each of which a valid contract was an essential feature. In Re Beetham, ex p Broderick (1886) 18 QBD 380 the Divisional Court considered whether certain facts were sufficient to establish an equitable mortgage by deposit of title deeds. Cave J (with whom Wills J agreed) said (at 382-383):
‘The law on the subject … forms a branch of the equitable doctrine of the specific performance of oral contracts relating to land based on part performance. It has been held that there is an inference from the mere deposit of title deeds that it was intended to give an interest in the land, and in that way there is something more than a mere oral contract, some-thing in the nature of part performance, so as to take the case out of the Statute of Frauds.’
Further, as Smith J pointed out in Francis v Francis [1952] VLR 321 at 339-340, although Lord Eldon LC re-peatedly criticised the way in which the doctrine of part performance had been applied in the case of mort-gages created by deposits of title deeds, this criticism was based, not on the view that in such cases there is no act on the part of the mortgagee, but on the equivocal significance of the act of deposit. But even as early as Lord Eldon LC’s time, the recognition by the courts of an equitable mortgage created by the mere deposit of title deeds was too settled to be challenged.
To the extent that part performance is an essential part of the rationale of the creation of an equitable mort-gage by the deposit of title deeds, that too is inconsistent with the new philosophy of the 1989 Act. As the Law Commission said in its report (para 4.13):
‘Inherent in the recommendation that contracts should be made in writing is the consequence that part performance would no longer have a role to play in contracts concerning land.’
(6) Mr Pymont then submitted that in other situations equity treats void dispositions (eg void leases and void mortgages) as agreements to dispose of what the disponor can dispose. He said that there was nothing in the Law Commission’s report or in the problems there addressed to suggest that s 2 was intended to affect such agreements.
I have already referred to the express reference in the Law Commission’s report to the intention to include in its proposals contracts to grant mortgages. In the same paragraph (para 4.3) it was made clear that contracts to grant leases were also to be included. In my judgment, for the like reasons to those given in (2) above, the absence from the report of express mention of the effect of void dispositions as agreements to dispose can-not alter the effect of s 2.
(7) Mr Pymont submitted that although equity will presume to infer an agreement from the deposit of title deeds, it does not follow that for all purposes the parties’ rights are to be treated as if they lie in contract.
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He sought to derive support for this proposition from the remarks of Hoffmann J in Spiro v Glencrown Proper-ties Ltd [1991] 1 All ER 600 at 606, [1991] Ch 537 at 544. There that judge was considering how, for the purposes of the 1989 Act, an option to buy land should be characterised. He pointed out that an option was neither an offer nor a conditional contract, not having all the incidents of the standard form of either of those concepts, and said that each analogy is in the proper context a valid way of characterising the situation created by an option. He continued:
‘The question in this case is not whether one analogy is true and the other false, but which is appropriate to be used in the construction of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989.’
He concluded, not that the option fell outside the scope of s 2, but that it came within it. In the present case, for the reasons already given, it seems to me clear that the deposit of title deeds takes effect as a contract to mortgage and as such falls within s 2.
The judge said (1995 2 All ER 973 at 990, [1995] 2 WLR 94 at 111):
‘The recommendation [of the Law Commission] that contracts relating to land should be incorporated in a signed document which contains all the terms was, clearly, intended to promote certainty. There is no reason why certainty should be any less desirable in relation to arrangements for security over land than in relation to any other arrange-ments in respect of land. The present case itself illustrates the need to be able to identify the obligation which is to be secured. I do not find it surprising that Parliament decided to enact legislation which would be likely to have the effect of avoiding disputes on oral evidence as to the obligation which the parties intended to secure.’
I agree. Indeed, it seems to me that the whole of the judge’s reasoning, to which I would pay tribute, on the s 2 point cannot be faulted. Like him, I am fortified by the support for the same conclusion given in Emmet on Title para 25.116. I therefore conclude that by reason of s 2, the mere deposit of title deeds by way of secu-rity cannot any longer create a mortgage or charge.
The estoppel point
In the light of the foregoing conclusion on the s 2 point, it is appropriate to consider the estoppel point next. It is Mr Pymont’s submission that in the circumstances in which the notional deposit of the land certificate on 10 September 1990 was made in substitution for an earlier charge, and the acknowledgment by Mr Sahib of the efficacy of the security in the correspondence in August 1992, Mr Sahib was estopped against Sogenal from denying that he agreed with Sogenal that No 37c, or Mr Sahib’s interest therein, should stand as secu-rity. That estoppel, he said, is available as a defence to any reliance by Mr Sahib on s 53(1)(c) of the 1925 Act, requiring the disposition of a subsisting equitable interest to be in writing.
He further submitted that the estoppel was equally available where there has been an absence of compli-ance with s 2, and pointed to Pt V of the Law Commission’s report. This expressly contemplates that equita-ble remedies, such as promissory estoppel and proprietary estoppel, might be available to do justice in cases where there has been a failure to comply with the recommended formalities. Thus far I can follow the argu-ment, based as it is on equitable rights asserted by Sogenal against Mr Sahib personally.
But Mr Pymont then went on to say that the estoppel also operated against UBK. He referred us to a number of authorities: see E R Ives Investments Ltd v High [1967] 1 All ER 504, [1967] 2 QB 379, Re Vandervell’s Trusts (No 2), White v Vandervell
[1996] 3 All ER 215 at 226
Trustees Ltd [1974] 3 All ER 205, [1974] Ch 269, Hodgson v Marks [1971] 2 All ER 684, [1971] Ch 892 and Ashburn Anstalt v Arnold [1988] 2 All ER 147, [1989] Ch 1. I intend no discourtesy to Mr Pymont when I say that none of these authorities seems to me to come anywhere near establishing any principle upon which a third party like UBK could be estopped in circumstances of a case such as the present, or have a proprietary interest established against it. The only estoppel case among those authorities was the Ives case, and that was a case of the joint application of the principles of benefit and burden and of proprietary estoppel. I do not see that either of these principles is applicable to give Sogenal an interest binding on UBK.
As I understood him, Mr Pymont was submitting that an estoppel or a constructive trust arose against UBK as a successor in title of Mr Sahib. But unlike, for example, the personal representatives of the settlor in the Vandervell case, who did stand in the shoes of the settlor, UBK, as assignee, was an independent third party and there is nothing in the facts of the present case to point to UBK’s conscience being affected or to UBK acting unconscionably by taking the stance that it does. Mr Pymont further suggested that by the time UBK obtained its charging order Mr Sahib had already lost the ability to charge his interest in No 37c because of the equity that had arisen in favour of Sogenal and he said that the same reason that led the judge to hold that the rule in Dearle v Hall did not apply governed the present point and supported Sogenal’s claim. Thus, although that reasoning depended on the assumption of a valid equitable mortgage arising out of a valid con-tract between Mr Sahib and Sogenal, the same consequences, if he is right, would flow, notwithstanding that there was no valid contract. It would appear to follow that in every case of a deposit which is invalid as an equitable mortgage by reason of s 2, an effective security would nevertheless arise by reason of estoppel or constructive trust.
I cannot agree with these submissions, which seem to me to be contrary to principle. In the absence of a valid contract to mortgage, Sogenal had and has no proprietary right in Mr Sahib’s interest in No 37c, unless and until the court declares what right Sogenal has. At the time of the charging order, Sogenal had not even asserted any claim in any proceedings. As UBK’s conscience was in no way affected by the actions of Mr Sahib, it seems to me impossible to say that it was estopped in equity or that otherwise some property right has by way of a constructive trust arisen to defeat or take priority over its charging order.
Conclusion
These conclusions are sufficient to dispose of this appeal. It was unnecessary to hear and we have not heard any argument on the other issues.
For these reasons, which owe much to the cogent arguments of Mr Munby, I would dismiss this appeal.
PHILLIPS LJ.
I agree that this appeal should be dismissed and would simply add a few words on the s 2 point.
Mr Munby has referred us to a lengthy line of authorities spanning the period from 1783 to 1985. In these cases, the court consistently recognised that the basis of the equitable mortgage that was created by the deposit of title deeds, was a contract. Indeed, to state that the deposit created the mortgage is an oversimpli-fication. The mere deposit of title deeds was never of itself an act which created a mortgage. It was an act which led the court, despite the Statute of Frauds (1677), to receive parole evidence to prove that it had been agreed that the deeds should be deposited by way of security for a loan. The agreement was no legal fiction.
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It is true that in the most extreme case the court would infer the agreement when the evidence showed no more than that the deeds had been deposited with a creditor, who had advanced a loan to the depositor. In most cases, however, evidence was adduced of a specific agreement reached before, or at the time that the deeds were deposited, or of a variation of it thereafter. Often, the issue was as to the precise terms of that agreement.
Mr Pymont sought to persuade us that while in some cases the agreement in question had all the elements of a contract, this was not necessarily so, and that the court did not adopt the approach of identifying the necessary elements of a contract: offer, acceptance, consideration and certainty. No doubt, the court did not. That is not an approach that the court adopts in a dispute about a contract, save where an issue is raised as to the existence of one or more of those elements. I have found nothing in the cases which supports the submission that the agreement to which the court looked was something other than a contract.
In my judgment, the cases fully support the following clear and succinct statement of the law in 32 Halsbury’s Laws (4th edn) para 429:
‘A deposit of title deeds does not in itself create a charge, and the mere possession of deeds without evidence of the contract under which possession was obtained, or of the manner in which the possession originated so that a contract may be inferred, will not create an equitable security. The deposit is a fact which admits evidence of an intention to create a charge which would otherwise be inadmissible …’
That passage states the law as it was before 1989.
In Ex p Mountford (1808) 14 Ves 606 at 607, 33 ER 653 at 654, where the extent of the debt secured by a deposit of deeds was in issue, Lord Eldon LC complained:
‘The mischief of all these cases is, that, we are deciding upon parole evidence with regard to an interest in land within the Statute of Frauds. The evidence is quite contradictory.’
That was a frequent complaint of Lord Eldon LC in such cases. It was a complaint which could properly have been made in many of the equitable mortgage cases over the last 200 years. The clear intent of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 is to introduce certainty in relation to contracts for the disposition of interests in land where uncertainty existed before. Section 2(5) contains a list of contracts ex-pressly excluded from the operation of the section. I can see no basis for implying a further exclusion in re-spect of contracts for the grant of a mortgage which are secured by a deposit of title deeds.
LEGGATT LJ.
I agree that, for the reasons given by the judge as well as by Peter Gibson and Phillips LJJ, this appeal fails.
Appeal dismissed. Leave to appeal to the House of Lords refused.
Mary Rose Plummer Barrister.
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