Mortgage Express v Lambert

The Court of Appeal dismissed the appeal. It held that the equitable right to have an unconscionable bargain set aside is a "mere equity" which, by section 116 of the Land Registration Act 2002, can amount to an interest capable of binding successors in title. However, where the registered legal estate was conveyed by two trustees and capital monies were paid to them, that equitable right was capable of being overreached under section 2 of the Law of Property Act 1925 and thereby shifted to the sale or mortgage proceeds. The grant of the mortgage by the joint purchasers/trustees therefore overreached Ms Lambert's right and the mortgagee's title could not be called into question.

The court also held that Schedule 3 paragraph 2 of the Land Registration Act 2002 (rights of persons in actual occupation) does not create new rights and that an occupier who, after inquiry, fails to disclose an interest cannot rely on it as an overriding interest. Notice is irrelevant under the registration scheme, so the mortgagee's possession of information about the low purchase price did not prevent the mortgagee from relying on the vendor's failure to disclose.

Background and procedural posture

• Ms Lambert sold her Maidstone flat in October 2007 to purchasers associated with Annonna Ltd (Mr Sinclair and Mr Clement) for £30,000, despite the market value being about £120,000. The purchasers promised she could remain in occupation and a tenancy/leaseback arrangement at a rent of £250 per month was part of the transaction.
• Messrs Sinclair and Clement remortgaged the property to Mortgage Express. Mortgage Express completed registration of a charge after receiving a certificate of title and, in due course, appointed receivers when repayments were not kept up.
• At first instance HH Judge Simpkiss set aside the sale as against Mr Sinclair on the ground the bargain was unconscionable but declared that that entitlement was not binding on Mortgage Express; he dismissed Ms Lambert's counterclaim against Mortgage Express and made an order for possession in favour of Mortgage Express.
• Ms Lambert appealed to the Court of Appeal against the judge's order that her entitlement was not binding on Mortgage Express.

Relief sought and issues for decision

• Ms Lambert sought to impugn the mortgagee's title or to obtain a declaration that the mortgage charge was liable to be set aside; alternatively she had pleaded that she had a leasehold interest.
• The Court of Appeal framed the issues as: (i) the legal character and timing of the equity to set aside an unconscionable bargain; (ii) whether that equity was proprietary in character and capable of amounting to an overriding interest under Schedule 3 paragraph 2 of the Land Registration Act 2002; and (iii) whether the right was overreached by the grant of a mortgage by two trustees or otherwise excluded from binding the mortgagee.

Court’s reasoning

• The court concluded the right to set aside the unconscionable bargain existed from exchange of contracts and is the kind of "mere equity" referred to in authorities. Section 116 of the Land Registration Act 2002 confirms that such equities may operate as interests capable of binding successors in title.
• However, the purchasers were joint registered proprietors and, by reason of sections 34 and 35 of the Law of Property Act 1925 and the trustees' powers, the mortgage executed by them was a disposition by trustees. Where capital monies were paid to two trustees and the statutory requirements were complied with, any equitable interest affecting the estate was capable of being overreached under section 2 of the Law of Property Act 1925 and related provisions. The court held that Ms Lambert's equitable right was of the kind that could shift to the proceeds and thus was overreached.
• Even if the Court had to consider Schedule 3 paragraph 2 (actual occupation), Ms Lambert failed the exception to overriding interests because inquiry had been made and she did not disclose her interest. Under the registration regime, notice is irrelevant so Mortgage Express’s knowledge of the undervalue did not prevent it relying on her failure to disclose.

Conclusion

The Court dismissed the appeal: Ms Lambert's right was overreached and did not bind Mortgage Express.

Appeal dismissed. The Court held that the right to set aside an unconscionable bargain is a mere equity which, while capable of being an interest under section 116 of the Land Registration Act 2002, was overreached by the grant of a mortgage by the joint purchasers/trustees under section 2 of the Law of Property Act 1925. In addition, because the occupier had been asked and failed to disclose her interest, Schedule 3 paragraph 2 did not operate to create an overriding interest binding the mortgagee. Accordingly Mortgage Express's title could not be impugned.

Appeal to the Court of Appeal (Civil Division) from the County Court at Maidstone (His Honour Judge Simpkiss, case 1PA06205). Judgment given by the Court of Appeal: [2016] EWCA Civ 555.