Skelwith (Leisure) Ltd & Anor v Armstrong & Ors

The court dismissed the claim against the purchaser (the seventh defendant, Flaxby Park) and struck out paragraph 31 of the particulars of claim. Key legal principles decided were: the absence of physical possession does not of itself invalidate a mortgagee’s power of sale; the distinction between legal and equitable ownership remains relevant following the Land Registration Act 2002; and a person entitled to be registered as proprietor of a registered charge may exercise "owner's powers" under sections 23 and 24 of the LRA 2002, but those powers are subject to the limits of the general law where the person is only an equitable owner. The court held that Polar, as equitable assignee of the debt and charge, was entitled for the purposes of section 106 of the Law of Property Act 1925 to receive and give a discharge for the mortgage money and therefore could exercise the statutory power of sale. The court also ruled that the powers of attorney contained in the Charge did not validate the sale in the form executed, but that was unnecessary given the conclusion under section 106.

This is a first-instance Chancery Division decision concerning the validity of contracts entered into by Polar Holdings Limited for the purchase of land charged to secure sums due under a deed of charge. The claimants (registered proprietor and two individuals connected with it) challenged the assignment, transfer and subsequent sale agreements on several grounds and sought summary disposal. Flaxby Park (the purchaser) applied for summary judgment and/or strike out in its favour; the claimants applied for strike out of defences and summary judgment in their favour.

Nature of the applications:

• The claimants sought to impugn Polar's transactions (assignment of debt and charge, sale agreements) and to strike out defences or obtain summary judgment.
• Flaxby Park sought strike out/summary judgment to dismiss the claim against it.

Issues framed by the court:

• Appropriate approach to summary disposal.
• Significance of possession to the right to exercise a power of sale.
• Whether an equitable mortgagee or an unregistered assignee can exercise powers of sale.
• Construction and effect of sections 23 and 24 of the Land Registration Act 2002 on "owner's powers".
• Whether Polar was "entitled to receive and give a discharge for the mortgage money" under section 106 of the Law of Property Act 1925 and the effect of section 136(1) LPA on notice of assignment.
• Whether powers of attorney in the Charge could validate the sale in the form executed.

Reasoning and conclusions:

• The judge accepted that possession is not a precondition to exercise of the statutory power of sale, but paragraph 31(iii) (complaint about lack of possession) was not a viable ground to impugn the sale.
• Authorities about equitable mortgages (e.g. In re White Rose Cottage, Swift 1st) do not directly determine the present case because the Charge here had been registered and was effective at law; the real question was whether Polar (beneficial owner but not registered proprietor) could exercise the power of sale.
• Sections 23 and 24 LRA 2002 confer "owner's powers" on registered proprietors and persons entitled to be registered, and those powers can include powers exercisable in relation to the charged land; however, where a person is only an equitable owner the general-law limitation that one cannot grant a greater interest than one possesses (nemo dat quod non habet) remains relevant, as explained in Mortgage Business plc v O’Shaughnessy. Thus being "entitled to be registered" does not automatically confer all powers of a registered proprietor where the person lacks legal title.
• Section 106 LPA permits any person "for the time being entitled to receive and give a discharge for the mortgage money" to exercise the power of sale. The court accepted that an equitable assignee can have the substantive right to sue for the debt and, in modern authorities (including Kapoor), can be regarded as entitled to receive and give a discharge. On that basis Polar was able to exercise the section 101 power of sale even if registration of the transfer had not been completed or notice imperfect.
• The powers of attorney contained in the Charge did not validate the Sale Agreements as executed (they were not signed in Skelwith’s name and the statutory/drafting provisions relied upon did not apply to the form of execution), but that point was academic because the court concluded Polar had authority to sell under section 106 as equitable assignee.
• Because the pleaded paragraph 31 did not establish a viable basis to impugn the sales to Flaxby Park, and because the particulars of claim did not properly plead complicity or knowledge against Flaxby Park, the court struck out paragraph 31 and dismissed the claim against Flaxby Park. The claimants were permitted to bring a fresh application to amend pleaded allegations, but absent that the claim was dismissed as against the purchaser.

The judgment applies and reconciles provisions of the LRA 2002 with established equitable principles and confirms limitations on summary relief where pleadings do not adequately particularise complicity.

This was a first-instance decision. The court struck out paragraph 31 of the particulars of claim and dismissed the claim against the seventh defendant, Flaxby Park Limited. The judge concluded that Polar, as equitable assignee, was entitled for the purposes of section 106 of the Law of Property Act 1925 to receive and give a discharge for the mortgage money and therefore could exercise the statutory power of sale; the challenge based on lack of registration or possession was not a good basis to impugn the sale. Powers of attorney in the Charge did not validate the sale as executed, but that was unnecessary to the result. The claim against Flaxby Park was dismissed unless and until the claimants obtained permission to amend their pleadings to plead complicity with requisite particularity.