Cherry Tree Investments Ltd v Landmain Ltd

A registered legal charge is a public document on which third parties may rely. Although a collateral agreement may be admissible as background, it cannot be used to give a clear charge a different meaning or to insert a wholly omitted term.

Corrective interpretation discovers the meaning of language used in the instrument. It does not cure an oversight by adding a clause which the parties agreed but failed to include. That requires rectification, which must be pleaded and proved and is subject to the land-registration priority rules.

A variation of the statutory power of sale under Law of Property Act 1925 must be found in the charge itself. Documents forming one transaction are not thereby one document in law.

Landmain Ltd, the registered proprietor of a property, granted Dancastle Associates Ltd a legal charge and entered into a facility agreement on the same day. The facility agreement purported to make the mortgagee’s power of sale exercisable immediately, but the registered charge neither referred to that agreement nor contained such a term.

Dancastle sold the property to Cherry Tree Investments Ltd. Cherry Tree sought registration of the transfer. HHJ Pelling QC granted summary judgment, holding that the charge could be interpreted as including the extended power of sale. Landmain appealed.

The central issue was whether the court could use the unregistered facility agreement to interpret the registered charge so as to include an omitted variation of the statutory power of sale.

1. Appeal allowed by a majority. Lewison LJ, with whom Longmore LJ agreed, held that the registered charge could not be interpreted as containing the extension of the power of sale found only in the facility agreement. The judge’s order was set aside.

2. A charge intended for registration is a public document. A reasonable reader knows that third parties may inspect and rely on it. The land-registration scheme therefore gives a substantially limited role to party-specific collateral material when construing the charge. The facility agreement could be acknowledged as part of the factual setting, but it could not alter the meaning of the publicly registered instrument.

3. The charge made sense without the omitted clause. It carried the statutory power of sale under Law of Property Act 1925, section 101. Adding a term that made the power exercisable immediately on execution was not correction of language used in the charge. It was the insertion of a separate clause which the parties had omitted.

4. That omission was a matter for rectification, not construction. Rectification remained a distinct remedy after Chartbrook Ltd v Persimmon Homes Ltd. It had to be pleaded and proved, and its effect was governed by the priority protections of the Land Registration Act 2002. No such claim had been made.

5. The court also agreed that the charge and facility agreement were not one document in law. Reading contemporaneous documents together for interpretation did not satisfy section 101(3), which requires a variation of the statutory power to be contained in the mortgage deed or charge.

6. Arden LJ dissented. She would have treated the facility agreement as admissible background where no third-party interest was prejudiced and would have upheld the corrective interpretation. The claim was dismissed, unless Cherry Tree sought permission to amend to claim rectification.

• Court of Appeal (Civil Division): By a majority, allowed Landmain’s appeal, set aside the summary judgment, and dismissed the claim unless it was amended to seek rectification: [2012] EWCA Civ 736 .
• High Court of Justice, Chancery Division, Manchester District Registry: HHJ Pelling QC granted Cherry Tree summary judgment, holding that the registered charge could be interpreted to include the extended power of sale stated in the facility agreement.