United Bank of Kuwait Plc v Sahib

A deposit of title deeds by way of security cannot, after section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, create an equitable mortgage or charge without a compliant written contract. The former doctrine depended on an inferred agreement to mortgage and on part performance. It therefore falls within the statutory formalities requiring a signed document containing the agreed terms.

An estoppel that may be available against the debtor does not, without more, give the creditor a proprietary interest binding an independent charging creditor. The latter's conscience must be affected, or it must otherwise be unconscionable for that creditor to deny the asserted equity.

Société Générale Alsacienne de Banque SA claimed security over Mr Sahib's beneficial interest in a jointly owned property. Its claim rested on solicitors holding the land certificate to its order, following its guarantee and later advances to Mr Sahib.

United Bank of Kuwait plc had obtained a charging order over Mr Sahib's interest. Chadwick J held that the claimed security could not arise by deposit of title deeds after section 2 of the Law of Property (Miscellaneous Provisions) Act 1989: [1995] 2 WLR 94. Sogenal appealed.

The central questions were whether the former equitable-mortgage doctrine survived section 2 and whether an estoppel against Mr Sahib could bind UBK as charging creditor.

1. Appeal dismissed unanimously. Peter Gibson LJ gave the principal judgment. Phillips LJ agreed and added reasons on section 2. Leggatt LJ agreed with the reasons of the judge and his Lords. The court upheld the declaration that Sogenal had no equitable mortgage or charge over Mr Sahib's interest capable of prevailing against UBK.

2. The former rule associated with Russel v Russel did not arise by the mere physical deposit of deeds. Equity treated the deposit as evidence of an agreement to mortgage and as part performance permitting proof and enforcement of that agreement. The arrangement was therefore contractual in foundation.

3. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 applies to a contract to grant a mortgage or charge over land or its proceeds of sale. It requires a signed written document containing the agreed terms. Its purpose is certainty and it abolished the role of part performance in contracts concerning land. No implied exception exists for security created by deposit of title deeds. Earlier statutory references to such deposits concern priorities, registration or earlier rights and cannot displace section 2's effect.

4. Accordingly, because no compliant written agreement existed, the notional deposit of the land certificate could not create a mortgage or charge. The court did not need to hear argument on the remaining issues concerning joint ownership, writing under section 53(1)(c), or priority.

5. Peter Gibson LJ further held that an estoppel potentially available against Mr Sahib personally could not bind UBK. UBK was an independent charging creditor, not a person standing in Mr Sahib's shoes. It had no notice of the asserted security and nothing affected its conscience. In the absence of a valid contract, Sogenal had no proprietary right defeating or taking priority over UBK's charging order.

• Court of Appeal: Dismissed Sogenal's appeal and upheld the declaration in favour of United Bank of Kuwait plc.
• High Court (Chancery Division): Chadwick J held that section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 prevented a security by deposit of title deeds from creating the alleged equitable mortgage or charge: [1995] 2 WLR 94.