Darren Stuart Yarnold & Ors v Senada Ziga & Ors

A contractual term will be implied only where it is necessary, either to give the agreement business efficacy or because it is so obvious that it goes without saying. The question is objective and must be answered when the contract was made, without hindsight.

Where an agreement promises that an investment will be secured by a registered legal charge before a sale, a term preventing disposition before that security is in place may be necessary. The availability of an equitable charge or a unilateral notice does not displace that implication. A disposition in breach of such a term is unlawful for the purpose of section 42(1)(a) of the Land Registration Act 2002, and may justify a restriction.

The respondents advanced money to the registered proprietor under agreements described as joint venture agreements. The agreements promised that the investments would be secured by first legal charges over development plots. No charges were registered before the proprietor granted long leases of three plots to the appellant purchasers.

The respondents applied for a restriction requiring their consent to a disposition. The First-tier Tribunal directed the Chief Land Registrar to give effect to that application. It held that the agreements contained an implied term preventing a disposition before registration of the legal charges without the lenders’ consent.

The appellants appealed, contending that the implied term was unnecessary because the respondents had equitable charges which could have been protected by unilateral notices. The central issue was whether the implied term was properly implied and, if so, whether a restriction could prevent the resulting contractual unlawfulness.

1. Appeal dismissed. The First-tier Tribunal was entitled to find that the agreements included implied terms preventing the proprietor from disposing of each plot before the respondents’ legal charges had been registered.
2. The applicable test for implication is necessity, assessed objectively at the date of contracting. Necessity may arise through business efficacy or obviousness; the tests are alternative, although normally their outcomes coincide. A court must not rewrite an agreement because a proposed term is reasonable, fair, or preferable, and must avoid hindsight.
3. On the proper reading of these agreements, the promised legal charge was not a collateral or optional protection to an otherwise complete money-repayment agreement. It was the stated mechanism by which the respondents’ investments would be secured, and the documents contemplated that it would be in place before any sale. The agreement would lack business efficacy if the proprietor could defeat that promised security merely by selling before registration.
4. The possibility that the respondents acquired equitable charges, capable of protection by unilateral notices, did not answer the contractual question. The parties had agreed for legal charges to provide the security. They could not objectively be taken to have intended that the respondents’ capital would remain exposed pending registration, or that the respondents would have to discover and deploy an alternative protective remedy during that period.
5. The grants of leases to the appellants therefore breached the implied terms. They were unlawful dispositions within section 42(1)(a) of the Land Registration Act 2002. A restriction was necessary or desirable to prevent that unlawfulness. The Chief Land Registrar was directed to give effect to the respondents’ restriction application and the appellants’ applications to register their leases were cancelled.

• Upper Tribunal (Lands Chamber): dismissed the appeal and upheld the direction that the restriction be entered: [2023] UKUT 284 (LC).
• First-tier Tribunal (Property Chamber): on 17 February 2023 directed the Chief Land Registrar to give effect to the respondents’ restriction application after overruling the appellants’ objections.
• High Court (Administrative Court): earlier judicial review proceedings concerning the Registrar’s handling of the application resulted in remittal and later confirmed that the objections were not groundless, leaving their merits for the First-tier Tribunal: R (Sensar Ltd and Azdar Ltd) v The Chief Land Registrar [2018] EWHC 888 (Admin); R (Sensar Ltd and Azdar Ltd) v The Chief Land Registrar [2021] EWHC 13 (Admin).