Click Above Corben Mews Limited & Anor v 381 Southwark Park Road RTM Company Limited & Ors

A registered legal charge created for valuable consideration takes priority over an earlier unprotected interest affecting the charged estate or charge. The priority depends on the proprietary interest charged, identified by the relevant registered title, rather than merely on the physical building situated on that land. A mortgagee or receiver exercising a power of sale may therefore dispose of the property free from interests subordinate to the mortgage. A freezing injunction should not be discharged merely because a third party cannot presently establish that the restrained defendant owns an interest in the property. Where the injunction would confer no practical benefit because a prior charge takes priority, variation may be appropriate to permit the sale.

The fixed charge receivers of Click Above Corben Mews Ltd. sought relief concerning two leasehold flats over which Victoria Capital Trust held security. The respondents were parties to a freezing injunction made in earlier proceedings concerning Click St Andrews Ltd., a company within the same corporate group. They contended that funds transferred from Click St Andrews might have generated a beneficial interest in the flats, bringing them within the injunction.

The applicants sought a declaration that the flats were outside the injunction. Alternatively, they sought discharge or variation of the injunction, together with relief concerning an undertaking in damages. The central issues were whether any interest of Click St Andrews was established, whether the VCT charge had priority, and what relief was appropriate.

1. Priority. Under Land Registration Act 2002, sections 28 and 30, registration of a registrable disposition of a charge for valuable consideration postpones any unprotected interest affecting the charge. The VCT charge was a legal charge for valuable consideration. The relevant proprietary interest was identified by the title to the airspace lease and, after substitution, by the separate registered leasehold titles to flats 17 and 18.
2. The deeds of substituted security released the charge over the airspace lease and substituted the leasehold interests in the flats. Those interests were distinct proprietary interests. The fact that the flats had already been constructed did not mean that the original charge covered the later leasehold estates. The respondents’ contention that the substitution supplied no valuable consideration therefore failed.
3. Under section 104 of the Law of Property Act 1925, the receivers could exercise the power of sale free from estates, interests and rights subordinate to the mortgage. Any possible beneficial interest of Click St Andrews would consequently provide no benefit to the respondents. The evidence of a £5,000 transfer, made after acquisition and construction, made such an interest improbable in any event.
4. The court declined to make the declaration sought. It was unnecessary to determine conclusively whether Click St Andrews had an interest, and the question remained affected by unresolved disclosure issues. The court also declined to discharge the injunction in its entirety. A third party was not the appropriate applicant for that relief, particularly where the injunction had remained in force after liquidation.
5. The court rejected the argument that the injunction lacked sufficient clarity. It also held that no retrospective cross-undertaking in damages should be imposed. A prospective undertaking could have been considered if the result had otherwise been different. The injunction was varied to clarify that the receivers could deal with and dispose of the flats.