Watson v Counsell & Anor

A beneficial interest arising on a purchase funded by a secured loan cannot take priority over the mortgage where acquisition of the legal estate and grant of the charge form one indivisible transaction. There is no intervening period in which the purchaser holds the legal estate free from the charge. A person who knew that the purchase required secured borrowing may also be estopped from asserting priority. Late attempts to reopen concluded county-court appeals are subject to the applicable procedural rules and may constitute an abuse of process. Permission to appeal requires a real prospect of success. A limited appeal may nevertheless be permitted where an account by a mortgagee acting as trustee has not established the return properly due on retained sale proceeds.

The appellant sought permission to appeal three county-court orders. The first dismissed an application to stay possession proceedings brought by the mortgagee. The second determined, as between the appellant and the first respondent, entitlement to the net proceeds of sale of the mortgaged property. The third determined the account of those proceeds and ordered a further payment to the appellant.

The appellant argued that his occupation, alleged tenancy and beneficial interest constituted an overriding interest taking priority over the mortgage. He also relied on alleged new evidence, fraud, human-rights arguments and objections to the account. The central issues were whether the proposed appeals had a real prospect of success, whether the overriding-interest point could be raised late, and whether the mortgagee had properly accounted for the return on retained proceeds.

1. Permission and jurisdiction. The refusal of permission to appeal from the district judge’s possession order ended that matter. Under CPR 52.17, there was no general power to reopen the county-court appeal. The application relating to the order of HH Judge Weeks was also substantially out of time and had no real prospect of success.
2. Priority of the mortgage. Applying Abbey National Building Society v Cann [1991] 56, where completion depends on a building-society or mortgage loan and there is an agreement to grant a charge over the acquired legal estate, acquisition and charging are one indivisible transaction. The purchaser acquires only an equity of redemption. No beneficial interest arising from the purchase can therefore take priority over the mortgage. The appellant’s former tenancy had ended, and the fact of occupation did not alter the result. In any event, his knowledge that the balance of the price required secured borrowing prevented him from asserting priority.
3. Late and abusive arguments. The overriding-interest point was not pursued when the mortgagee’s security was in issue, and the later proceedings proceeded on the basis that the mortgage would be discharged from the sale proceeds. Applying the factors in CPR 3.9, it would be an abuse of process to permit the point to be raised at that stage, even if it had had merit.
4. New evidence and alleged fraud. The mortgage application was not genuinely new evidence, since it had been exhibited earlier and could have been obtained through the court. Even if the application contained a fraudulent misrepresentation, that would not invalidate the mortgage security. The alleged knowledge of an agent also did not establish actual knowledge by the mortgagee or defeat its right to possession.
5. Account. The mortgagee was treated as trustee of the net proceeds retained before payment into court. The district judge had awarded simple interest without determining how the money had actually been used or invested. That issue had a real prospect of success and justified limited permission to appeal, subject to any prior refusal of permission by David Richards J.

Permission to appeal was refused in relation to the orders of DJ Frenkel and HH Judge Weeks. Permission to appeal from DJ Watson’s order was refused except on the limited issue of the return for which the mortgagee had to account.

• Bristol County Court: Orders were made by DJ Frenkel, HH Judge Weeks and DJ Watson concerning possession, entitlement to net sale proceeds and the subsequent account.
• High Court (Chancery Division): Permission to appeal was refused in relation to the possession and entitlement orders. Limited permission was granted in relation to the return on retained sale proceeds, subject to any prior refusal by David Richards J.