Mortgage Express v Lambert

A right to set aside a transaction as an unconscionable bargain arises when the bargain is made, on exchange of contracts, rather than only on completion. It is a mere equity and, under section 116 of the Land Registration Act 2002, an interest capable of binding successors, subject to the priority rules.

Where registered land is mortgaged by two trustees and the capital money is paid to them, the right is capable of being overreached and shifts to the proceeds. Independently, an occupier who was asked about her rights and failed to disclose the arrangement cannot rely on Schedule 3 paragraph 2. The mortgagee’s notice of the undervalue is irrelevant. The mortgagee’s title therefore cannot be challenged.

Ms Lambert sold her leasehold flat at a substantial undervalue to Mr Sinclair and Mr Clement, on the understanding that she could remain in occupation under a long-term tenancy. The lower court held the transaction to be an unconscionable bargain and declared that the sale could be set aside against Mr Sinclair, but not against Mortgage Express, which had later taken a registered charge.

The court also found that Ms Lambert had a 90-year lease under section 149(6) of the Law of Property Act 1925, but she accepted on appeal that she could not maintain that alternative claim if the bargain was set aside. The appeal concerned the legal character and priority of her right to set aside, overreaching, the effect of registered land legislation, and her failure to disclose the arrangement.

Appeal dismissed. The court upheld the order that Ms Lambert’s right to set aside the sale was not binding on Mortgage Express and that Mortgage Express was entitled to possession.

1. Ms Lambert had to elect between inconsistent remedies. Following Tang v Capacious Investments Ltd [1996] AC 514, election was required when judgment was entered and orders were sought. By pursuing the setting aside route, she could no longer rely on the alternative lease claim founded on the continuing bargain.
2. The right to set aside an unconscionable bargain arose on exchange of contracts. It was a mere equity, analogous to the rights considered in Bristol and West BS v Mothew [1998] Ch 1, Bainbrigge v Browne (1881) 18 Ch D 188 and Abigail v Lapin [1934] AC 491. Under section 116 of the Land Registration Act 2002, it was an interest capable of binding successors, although that did not determine whether it actually bound Mortgage Express.
3. The statutory scheme made notice irrelevant. Schedule 3 paragraph 2 preserved existing proprietary rights of persons in actual occupation; it did not create rights. The actual-occupation rule was subject to its exceptions. The court corrected the lower court’s view that the absence of actual knowledge was independently sufficient under paragraph 2(c).
4. The mortgage was granted by two trustees of land and the capital money was paid to them. Under sections 2 and 27 of the Law of Property Act 1925, the right was capable of being overreached. It could shift from the land to the mortgage proceeds. City of London Building Society v Flegg [1988] AC 54 and Birmingham Midshires Mortgage Services Ltd v Sabherwal (2000) 80 P & CR 256 supported that conclusion.
5. In any event, section 26 of the Land Registration Act 2002 protected the validity of the mortgagee’s title. Even if an overriding interest existed, the mortgage could not be challenged on that basis. The court left open whether a separate rule akin to estoppel would independently prevent Ms Lambert from asserting the right.

• Court of Appeal (Civil Division) [2016] EWCA Civ 555: dismissed the appeal and upheld the order that Ms Lambert’s right to set aside the sale was not binding on Mortgage Express.
• County Court at Maidstone: held the sale liable to be set aside against Mr Sinclair on the ground of unconscionable bargain, dismissed Ms Lambert’s counterclaim against Mortgage Express, and made a possession order in Mortgage Express’s favour.