Wishart v Credit & Mercantile Plc

Actual occupation does not enlarge the occupier’s underlying equitable rights. An interest overrides a registered disposition only if the occupier has a right which, apart from the question of occupation, is capable of binding the disponee.

Under the Brocklesby principle, an owner may be precluded from asserting an equitable interest against an innocent lender where the owner authorises another to deal with the asset, provides that person with the means of appearing fully entitled to deal with it, and fails to communicate any limit on that authority. The owner then bears the risk of the authorised person’s fraud.

A mortgage securing expenses connected with enforcing, preserving or realising the security may cover the mortgagee’s costs of defeating third-party proprietary claims to the secured property or its proceeds.

Mr Wishart claimed the proceeds from the sale of Dalhanna, a registered property acquired through arrangements entrusted to his friend, Sami Muduroglu. Kaymuu Limited held the legal title. Sami caused Kaymuu to grant Credit & Mercantile Plc (“C&M”) a registered mortgage without Mr Wishart’s authority. Mr Wishart was then in actual occupation.

A deputy High Court judge held that Mr Wishart was Dalhanna’s beneficial owner but that the Brocklesby principle prevented his interest from overriding C&M’s charge under section 29 and Schedule 3 paragraph 2 of the Land Registration Act 2002. The judge also held that the mortgage secured only C&M’s initial possession costs, rather than its costs of defending the competing proprietary claims: [2014] EWHC 1746 (Ch).

Mr Wishart appealed on priority. C&M challenged the finding of beneficial ownership by respondent’s notice and cross-appealed concerning the scope of the secured costs.

1. Mr Wishart’s appeal was dismissed. Actual occupation under section 29 and Schedule 3 paragraph 2 of the Land Registration Act 2002 does not convert an occupier’s existing rights into greater rights. Before applying the statutory occupation test, the court must determine whether the occupier has an equitable right capable of binding the disponee. The Brocklesby principle may prevent such a right from arising against an innocent purchaser or lender.

2. The Brocklesby principle applies where an asset owner gives another person actual authority to deal with the asset in some way, furnishes that person with the means of appearing to own it or to possess unrestricted authority, and fails to notify the third party of the limits on that authority. Fairness then places on the owner the risk that the person set in motion will fraudulently exceed the authority. The principle also applies where legal title has been vested in a trustee who appears to be the absolute owner.

3. Mr Wishart left the acquisition entirely to Sami and gave him free rein over its mechanics, subject only to an undisclosed requirement that the house be acquired mortgage-free for Mr Wishart. He neither supervised the transaction nor communicated his interest or Sami’s limited authority. He thereby enabled Sami, acting through Kaymuu, to appear to C&M as the beneficial purchaser with full authority. Mr Wishart was consequently precluded from asserting an interest with priority over C&M’s mortgage.

4. The Court of Appeal’s reasoning in Abbey National Building Society v Cann formed its ratio and remained binding because it was not disapproved in the House of Lords. The House of Lords had also expressly endorsed that reasoning, albeit obiter. It therefore supported application of the Brocklesby principle in an equivalent case.

5. The court reserved its opinion on whether Mr Wishart acquired a beneficial interest under the equity recognised in Pallant v Morgan. That question was unnecessary once the interest was held subordinate to C&M’s charge.

6. C&M’s cross-appeal was allowed. On their natural construction, clauses 3.13.2.2 and 3.13.2.3 secured expenses incurred in defending the competing claims to Dalhanna and its proceeds. Those expenses were connected with enforcing the mortgage and preserving or advantageously realising the security. C&M could therefore retain the main sum and recoup from the surplus its costs of defending the claims made by Mr Wishart and the trustee.

1. Court of Appeal (Civil Division): Mr Wishart’s appeal on the priority of his alleged beneficial interest was dismissed. C&M’s cross-appeal concerning secured legal costs was allowed. The issue raised by C&M’s respondent’s notice concerning beneficial ownership was left undecided: [2015] EWCA Civ 655.
2. High Court, Chancery Division: A deputy High Court judge held that Mr Wishart was the beneficial owner but that his interest did not override C&M’s charge. The judge confined the secured legal costs to the initial possession proceedings: [2014] EWHC 1746 (Ch).