Ipswich: 01473 214481
Norwich: 01603 617351
Chelmsford: 01245 215660
Contact us

Bank Of Scotland Plc v Joseph: Unilateral Ambiguity

In the recent decision in Bank of Scotland Plc v Joseph [2014] EWCA Civ 28, the Court of Appeal endorsed further muddying of the waters occupied by the unilateral notice.
Bank Of Scotland Plc v Joseph: Unilateral Ambiguity Royal Bank Of Scotland
The relevant facts were as follows; the Bank made a loan to a leasehold purchaser but, due to the late registration of the purchaser's legal title, attempted to secure the loan by entering a unilateral notice covering an equitable mortgage.  In the interim the leasehold reversion was charged to a separate bank who entered their charge as a legal mortgage.  The second bank then took possession and purported to sell the property.  It was found that the first bank's interest at the time of entering the unilateral notice was not an equitable mortgage but a subrogated unpaid vendor's lien.  The issue before the court was whether the unilateral notice validly protected the lien, so the new purchaser was bound by it, or whether it did not, in which case the interest had only been protected from the moment of substantive registration so the mortgagees in possession had an interest which took priority over it and thus it had been overreached on sale.  It was held unanimously (Lord Justice Patten giving the lead judgment) that the unilateral notice protected any interest arising from the loan and was therefore was effective to preserve the priority of the lien.
 
The unsuccessful Appellant focused its submissions on the importance of clarity and certainty in the land register.  References were made to the case of Franks and another v Bedward and others [2011] EWCA Civ 772 in which Lord Justice Rimer commented that “the register is intended to provide a comprehensive and accurate reflection of the state of the title to registered land at any given time” (para [42]) and Lady Justice Arden highlighted the importance of the certainty provided to potential lenders by official searches of the land register; “that certainty brings confidence on the part of lenders on the security of the land that they will get the security they require.  Lending on the security of land enables businesses to raise money and individuals to buy their homes, and thus makes an important contribution to the national economy and wellbeing” (para [75]).  It appears that these submissions were dismissed largely on the basis that the right to damages arising from s77 Land Registration Act 2002 provides sufficient safety to the purchaser.
 
Whilst this may appear to be a keyhole issue and, therefore, untroubling, it is remarkable how often a unilateral notice creates a problem for a seller or a purchaser.  In two recent cases conducted by members of Chambers (the first a multi-track case in Norwich County Court, the second a case for Suffolk County Council in the Upper Tribunal (Lands Chamber)) this “unilateral ambiguity” caused problems.  The notice created priority confusion in the Norwich County Court case, necessitating detailed submissions from counsel on both sides on the consequences of a sale by the mortgagee in possession.  Throughout proceedings in the Lands Tribunal the Respondent flip-flopped on exactly what interest he asserted by the notice; from a constructive trust interest, through proprietary estoppel, landing (in written submissions) at easement.  These cases seem to support the unsuccessful Appellant's submission that it should not “be necessary to embark on extended correspondence with the person who registers the notice or even litigation in order to decide whether there is any substance to [a] claim.” 
 
The real question is which is the lesser of two evils – the beneficiary losing their interest due to entering an incorrect notice or the purchaser being bound by an interest that had been misrepresented, was unclear and only crystallised after extended correspondence or, even, litigation?  In my view the answer comes from the purpose of the land register itself, clarity. In giving leniency to prospective beneficiaries/easement holders/unpaid vendors, not only are the courts reducing the security to purchasers of the land register but they are also creating ambiguity where it was never intended.  Further this tendency is not limited to unilateral notices – the courts' ambivalence on the constructive trust/proprietary estoppel divide is another compelling example (see previous article entitled 'Constructive Trust or Proprietary Estoppel: To Force the Matter' in the December 2013 Property Group Update). 
 
The comments of Lord Justice Rimer and Lady Justice Arden in Franks should not have been so easily dismissed – the purchaser (or lender) is entitled to know what they are getting and what stands in their way.  The land register was intended to avoid the risk created by “cloak and dagger” interests and there is no reason to resurrect this problem now.  Unless the Bank of Scotland delves once more into it’s pockets and succeeds on a further appeal to the Supreme Court, the pattern of protracted litigation created by “unilateral ambiguity” seems set to continue.