Kensington Mortgage Company Ltd v Mallon & Ors

A constructive trust or proprietary estoppel must be specifically pleaded. Facts supporting proprietary estoppel do not ordinarily identify a trust case, because the doctrines have different legal bases and remedies.

Where land is transferred as security for a debt, any constructive trust or estoppel equity will not ordinarily arise immediately if that would defeat the arrangement’s purpose. A later equity cannot take priority over an earlier registered mortgage. Registration of an intended transfer is not a mistake merely because the transfer was motivated by security.

The Zamans appealed against possession and related orders made by His Honour Judge Davey QC on 31 May 2018. Kensington Mortgage Company Limited had claimed possession as registered proprietor of a legal charge over the Zamans’ family home.

The Zamans argued that the transfer of the house to Mallon, made as security for a debt, created a trust or mortgage; that registration of Mallon as proprietor was a mistake; and that proprietary estoppel gave them an interest taking priority over Kensington’s mortgage. The issues included pleading, rectification, the timing and effect of any equitable interest, and priority under the Land Registration Act 2002.

1. Appeal dismissed. Permission to appeal was granted on all grounds, including the late proprietary-estoppel ground, but none succeeded.

2. The trust case was not sufficiently pleaded. Constructive trust and proprietary estoppel are distinct doctrines. A trust allegation should identify the trust property, trustee, beneficiary, type and terms of trust, and how and when it arose. The proposed amendment at trial was inadequate and too late.

3. On the assumed merits, the arrangement contemplated that Mallon would retain registered title until the debt was paid. An immediate trust would have been inconsistent with that arrangement. A constructive trust could arise only when the debt had been paid and retention of title became unconscionable. The court was therefore inclined to find a constructive trust akin to a Pallant v Morgan equity, but this view was indicative because the issue had not been pleaded.

4. Any such trust would have arisen after Kensington’s mortgage had been registered. The timing defeated the Zamans’ priority argument under section 29(2)(a)(ii) and paragraph 2 of Schedule 3 to the Land Registration Act 2002. The court also expressed a tentative view that section 26 might protect a disponee’s title where no relevant limitation appeared on the register.

5. There was no registration mistake. The TR1 accurately recorded what the parties intended: transfer of title to Mallon. The security purpose did not convert the transfer into a charge, and section 51 of the Land Registration Act 2002 did not apply.

6. The facts might have supported proprietary estoppel, but any equity could arise only when Mallon’s failure to transfer became unconscionable, at the earliest in 2006. It could not retrospectively take priority over Kensington’s 2004 mortgage. It was unnecessary to decide whether section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 barred the estoppel.

High Court (Chancery Division): appeal from orders for possession and related relief made by His Honour Judge Davey QC on 31 May 2018 following judgment dated 27 April 2018. The appeal was dismissed in its entirety.