Credit & Mercantile Plc v Kaymuu Ltd & Ors

A Pallant v Morgan equity may arise in a commercial as well as a domestic transaction. It requires a pre-acquisition arrangement or understanding, contemplated acquisition by one party for the benefit of another, and reliance causing advantage or detriment making retention of the property unconscionable. A person who leaves the entire acquisition in another’s hands may nevertheless be bound by a mortgage where that conduct clothes the other with authority to represent himself as beneficial owner. Separately, an interest of a person in actual occupation may override a registered charge under Schedule 3 to the Land Registration Act 2002. A mortgagee cannot ordinarily recover from the security costs of defending a third party’s title claim, and a trustee who actively contests the beneficiary’s title will only exceptionally obtain an equitable allowance from the fund.

The claimant mortgagee held a registered charge over Dalhanna, a residential property legally owned by Kaymuu Limited. Kevin Wishart claimed that the property had been acquired for him as his share of informal profits from a property development venture, and that his beneficial interest had priority over the claimant’s charge. The trustee in bankruptcy of Sami Muduroglu also claimed the surplus sale proceeds.

The court considered whether Mr Wishart acquired a beneficial interest on completion, whether that interest bound the mortgagee, whether it would have overridden the charge under the Land Registration Act 2002, and whether the claimant and trustee could recover their costs or remuneration from the surplus.

1. Beneficial ownership. Mr Wishart became the beneficial owner of Dalhanna on completion. The informal understanding that each business partner would receive approximately £1.1 million, with Mr Wishart’s share taking the form of a mortgage-free home, was sufficient. Applying the five propositions in Banner Homes, the arrangement need not be contractually enforceable or relate specifically to the purchase monies. Mr Wishart relied on Sami to acquire the property and refrained from securing its purchase in his own name. It was unconscionable for Sami and Kaymuu to appropriate the property.
2. Effect of the charge. Despite acquiring the beneficial interest, Mr Wishart could not assert it against C&M’s charge. By leaving all mechanics of the acquisition to Sami, he gave Sami the means to represent himself, directly or through Kaymuu, as beneficial owner with full authority to deal with third parties. The principle identified in Rimmer v Webster therefore applied.
3. Actual occupation. The court addressed the alternative statutory issue. Mr Wishart was in actual occupation when the charge was executed and registered. A reasonably careful inspection would have made the occupation obvious. If the beneficial interest had otherwise had priority, it would have fallen within paragraph 2 of Schedule 3 to the Land Registration Act 2002 and would not have been postponed by registration.
4. Costs. C&M could retain the secured debt and its initial possession costs, but could not recover from the surplus the costs of defending Mr Wishart’s claim to the property. The mortgage deed did not contain sufficiently clear words to exclude the third-category exception in Parker-Tweedale.
5. Trustee’s allowance. The Berkeley Applegate jurisdiction is discretionary and sparingly exercised. The trustee had actively opposed Mr Wishart’s beneficial claim. His work was undertaken in his own or the creditors’ interests and did not justify an allowance from the fund. C&M retained £694,072.75; Mr Wishart was entitled to the surplus; neither C&M’s High Court costs nor the trustee’s remuneration, costs and expenses were payable from it.