Chattey & Anor v Farndale Holdings Inc & Ors

A purchaser’s lien for deposits may arise even where the contract is conditional or concerns a lease yet to be granted. It is sufficient that the purchaser has a present, future or conditional right to call for the legal estate. Specific enforceability at the time of payment is unnecessary. The lien attaches to the vendor’s interest out of which the derivative estate is to be created.

The lien arises by operation of law and is modified or excluded only by express agreement or necessary implication. A contractual prohibition on registration affects priority, not the existence of the lien. On first registration, only incumbrances existing at the application date are noted. Notice of prior contracts alone does not impose a constructive trust on a successor without an obligation affecting its conscience.

The appellants contracted with Pointwest Apartments PLC for sub-underleases of flats and paid 20 per cent deposits. The vendor became insolvent, the development was transferred through secured lenders, and Farndale Holdings Inc ultimately acquired the relevant underlease.

The appellants sought repayment of their deposits, relying on purchaser’s liens and a constructive trust. Blackburne J decided the existence of a lien in principle for the appellants but rejected their arguments concerning contractual modification, registration of later contracts, and Farndale’s liability under a constructive trust. The appeal concerned whether conditional contracts and contracts for future leases could generate liens, the effect of a clause prohibiting registration, the operation of the Land Registration Rules and Land Registration Act 1925, and the alleged constructive trust.

Disposition. Mr Chattey’s appeal was allowed and Mr Strebel’s appeal was dismissed. The court declared that Mr Chattey had a lien over the property comprised in his contract, securing repayment of his deposits. The defendants were ordered to pay 75 per cent of the Court of Appeal costs and 50 per cent of the costs below. Leave to appeal was refused.

1. Existence of the lien. A purchaser’s lien is not confined to contracts that are specifically enforceable. It arises where the purchaser has a present, future or conditional right to call for the legal estate. A conditional right may constitute an equitable interest or estate capable of protection by injunction. Rose v Watson (1864) 10 HLC 671 established sufficiency, but not necessity, of beneficial ownership arising from specific enforceability. The wider approach was supported by London and South Western Railway Company v Gomm (1882) 20 Ch.D.562 and Whitbread & Co Ltd v Watt (1902) 1 Ch 835.
2. Derivative interests. Where the contract is for a lease or other derivative interest not yet in existence, the lien attaches to the vendor’s interest out of which that interest is to be created. It is not defeated by the absence of a pre-existing legal estate.
3. Clause 21. The lien was an unqualified equitable right arising by operation of law. Clause 21, which prohibited registration of a caution or other entry, did not expressly or by necessary implication modify the lien. It could affect priority against a later purchaser for value without notice, but did not destroy the substantive right.
4. Registration. Under Rule 40 of the Land Registration Rules, read with Rule 42, the application date was the cut-off for noting incumbrances on first registration. Mr Chattey’s pre-application contract was protected; Mr Strebel’s later contract was not. Section 70(2) of the Land Registration Act 1925 did not alter that conclusion.
5. Constructive trust. Lyus v Prowsa (1982) 1 WLR 1044 was distinguishable because the successor there was bound by a positive contractual stipulation. Following Ashburn Anstalt v Arnold (1989) Ch.1, notice of prior contracts was insufficient without an obligation affecting the successor’s conscience. No such obligation bound Farndale.

1. Court of Appeal (Civil Division) — On 11 October 1996, the court allowed Mr Chattey’s appeal but dismissed Mr Strebel’s claim, with a declaration granting Mr Chattey a purchaser’s lien: [1996] EWCA Civ 696.
2. High Court (Blackburne J) — The claims were dismissed on 21 May 1996. The judge accepted the existence of a lien in principle but decided the remaining issues in favour of Farndale.