National Westminster Bank Plc v Malhan & Ors

An alleged beneficial interest must be established on the balance of probabilities before questions of consent, overriding interests or overreaching arise. Where two registered proprietors charge registered land, Law of Property Act 1925 provisions may overreach an assumed equitable interest, even if the trustees’ internal power to charge is disputed. The phrase “capable of being overreached” concerns the operation of Part I of that Act, not the existence of a particular trustee power. The Human Rights Act 1998 does not retrospectively alter priorities established before it came into force where that would cause unfairness or injustice.

The Bank sought possession of a property charged by Navtej and Anil Malhan to secure liabilities including a partnership overdraft. Puneeta Malhan, Anil’s wife, claimed a beneficial interest arising from alleged contributions to the purchase price and mortgage instalments. She contended that her occupation gave her an overriding interest and that the charge required her consent. Alternatively, she argued that statutory overreaching provisions were incompatible with Articles 8 and 14 of the Convention and Article 1 of the First Protocol.

The counterclaim was transferred from the Reading County Court to the High Court. The issues were whether Puneeta had the claimed equitable interest, whether she consented to the charge, whether any interest was overreached, and whether the statutory provisions were incompatible with Convention rights.

1. Counterclaim dismissed. Puneeta failed to establish, on the balance of probabilities, that she had contributed the claimed £31,000 or was entitled to the beneficial interest asserted. The documentary gaps, absence of evidence from Anil and Navtej, deficiencies in the accounting evidence, and concerns about the credibility of the witnesses prevented the court from accepting her account.
2. Because no equitable interest was established, the issues of consent and overreaching did not arise. The court nevertheless considered the overreaching arguments.
3. If Puneeta had established a resulting-trust interest and had been in occupation, that interest would have been an overriding interest under section 70(1)(g) of the Land Registration Act 1925. The expression “capable of being overreached” in section 2(1)(ii) of the Law of Property Act 1925 refers to the terms and operation of Part I of that Act, rather than to the existence of the necessary trustee power to effect the disposition.
4. The distinction between an unauthorised exercise of an existing power and a disposition made without such a power was rejected in this context. Requiring a purchaser to investigate the trustees’ powers would undermine the curtain principle and the legislative purpose of the 1925 property legislation. Sections 18 and 21 of the Land Registration Act 1925 gave the registered proprietors power to charge the registered estate. Their charge therefore would have overreached the assumed equitable interest, leaving it in the equity of redemption and giving the Bank priority.
5. The Convention argument also failed. The charge and overreaching occurred in September 1994. Applying the Human Rights Act 1998 retrospectively to alter settled priorities would cause substantial injustice and disruption in mortgage lending. The court therefore found it unnecessary to decide the remaining Convention arguments.
6. The counterclaim was dismissed. There was no defence to possession, but the possession order had to be made by the Reading County Court.

First-instance decision. The proceedings had been commenced in the Reading County Court, and the trial of the counterclaim was transferred to the High Court. The matter was to be sent back to the Reading County Court for any possession order.