Birmingham Midshires Mortgage Services Ltd v Sabherwal

Equitable interests in a family home arising under a resulting trust, constructive trust or proprietary estoppel may be overreached by a disposition or mortgage executed by trustees for sale under the statutory scheme. The distinction is between family interests, which can sensibly attach to sale proceeds, and unusual commercial equities connected with the land itself, which cannot. The City of London Building Society v Flegg principle was not displaced by the Trusts of Land and Appointment of Trustees Act 1996. Article 8 of the European Convention on Human Rights did not affect the result because the Human Rights Act 1998 was not in force and the mortgagee was not a public authority.

Mrs Sabherwal occupied the family home at Gerrards Cross and claimed an equitable interest arising from her substantial financial contributions and, alternatively, promises made by her sons. The property was registered in the sons’ names and was mortgaged to Birmingham Midshires Mortgage Services Ltd, whose charge was executed after adult occupiers signed standard consent forms.

The sons defaulted. The mortgagee brought possession proceedings in the Central London County Court. The recorder held that the charge overreached Mrs Sabherwal’s equitable interest, although he would have decided against the mortgagee on informed consent and subrogation. Mrs Sabherwal appealed on the overreaching issue. The mortgagee served a respondent’s notice concerning the alternative issues. The central question was whether City of London Building Society v Flegg remained applicable after the 1996 Act and whether the interest could be distinguished as proprietary estoppel or protected by Article 8.

1. Appeal dismissed. The charge executed in July 1990 overreached Mrs Sabherwal’s equitable interest. The subsequent commencement of the Trusts of Land and Appointment of Trustees Act 1996 could not retrospectively remove that effect.
2. The essential statutory overreaching provision in section 2(1)(ii) of the Law of Property Act 1925 remained in force. The 1996 Act amended the provision to reflect the new terminology and thereby confirmed its substance. The abolition of conversion was irrelevant to the result.
3. The principle in City of London Building Society v Flegg applied equally where the equitable interest was characterised as arising from proprietary estoppel. A person who had made no financial contribution but had relied detrimentally on promises might acquire proprietary rights, but those rights would ordinarily be overreachable when held in the family-home context.
4. The court distinguished unusual commercial equities, such as an equitable right of way or equitable right of entry, which attach to the land and cannot sensibly shift to sale proceeds. An equitable interest as tenant in common, including one accompanied by a promise of a home for life, can attach to proceeds and is therefore capable of overreaching.
5. In the family-home context, resulting trusts, constructive trusts and proprietary estoppel interests were treated as substantially interchangeable for this purpose. The observations in Grant v Edwards were not confined to interests arising from estoppel.
6. Article 8 supplied no assistance. The Human Rights Act 1998 was not yet in force, BMMS was not a public authority, and the possession order was made in accordance with law for the protection of the secured lender’s rights.
7. The court made no final determination on subrogation or subordination because the issue had not been fully argued. It indicated that the developing authorities, particularly Banque Financiere de la Cite v Parc (Battersea) Ltd, treated subrogation as a restitutionary remedy to prevent unjust enrichment.

Appeal dismissed with costs. The stay on possession was lifted. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal from the Central London County Court dismissed. The recorder’s conclusion on statutory overreaching was upheld; the respondent’s notice issues were not finally determined.