LORD JUSTICE NICHOLLS: This is another case concerned with the operation of section 70(1)(g) of the Land Registration Act 1925 in the context of a claim by a wife that she has a beneficial interest in a house registered in the sole name of her husband and that her interest has priority over the rights of a bank under a legal charge executed without her knowledge. The case raises a point of importance in the law of registered conveyancing. Shortly stated, the point is whether, to have the protection afforded to overriding interests in respect of registered land, the wife needs to be in actual occupation of the house when the legal charge is executed as distinct from being in actual occupation by the later date on which the bank's charge is registered in the land registry.
The case also raises the question of what is meant by actual occupation within section 70(1)(g) in the case of a semi-derelict house which is in the course of being renovated, and a further question as to the order of priority between a wife who has a beneficial interest in a house and a bank which takes a legal charge simultaneously with completion of the purchase of the house. A point also arises on the necessary ingredients of a common intention before a constructive trust can arise.
THE PRINCIPAL FACTS
With that brief introduction I must outline the facts. The defendants, Mr. Gerard Rosset and Mrs. Diana Rosset, to whom I shall refer as "the husband" and "the wife", were married on 15th August 1972. After living in temporary accommodation, in 1976 they moved into an extension built on to a bungalow, 61 Salisbury Avenue, Broadstairs, Kent, owned by the wife's parents, Mr. and Mrs. Gardner. The written agreement between the four of them provided that the Rossets could leave on giving notice, in which event they were to be entitled to be paid £3,850 by Mr. and Mrs. Gardner. It was the common intention of the husband and the wife that the wife should have an interest in the extension, although the funds for the construction of the extension were provided by the husband from his family in Switzerland (he is Swiss).
In 1981 and 1982 the husband and the wife looked for a more permanent home for themselves and their children, of whom there were two: Natasha, who was nine years old, and a baby boy, Simeon, who was born in August 1981. They decided to buy the property with which this action is concerned: Vincent Farmhouse, Manston Road, Manston, Kent. This was a few miles away from their home in Broadstairs. Vincent Farmhouse was semi-derelict. It had not been lived in for several years and was not in a fit state for living in. On 23rd November 1982 the husband exchanged contracts with the vendors for the purchase of the property for £57,500.
Meanwhile, on 2nd November the husband paid £59,200 into an account which he had recently opened at the Broadstairs branch of the plaintiff, Lloyds Bank. That money had been sent to him from a family trust in Switzerland. The trustees insisted that the property should be purchased in his name alone, otherwise the money would not be forthcoming. For this reason the purchase proceeded in the sole name of the husband. Nevertheless, as the judge found, it was the common intention of the husband and the wife that the renovation of the house should be a joint venture after which it was to become a family home to be shared by them and their children. The judge was satisfied that there was a common intention that the wife should have a beneficial interest in the property under a constructive trust and that, before completion of the purchase on 17th December, she acted to her detriment on the faith of that common intention.
What happened was this. A surveyor's report, prepared in September 1982, estimated the cost of the necessary works of refurbishment, modernisation and so forth at £25,000. On 14th December the husband sought a short term loan of £15,000 from the bank to help to meet the cost of these works. He signed a standard form legal charge. The branch manager asked the husband whether the property was to be purchased in joint names and was told by him and his solicitors that it would be in the husband's name alone. The reason given by the husband was that the wife and the children were away, living with her parents. The manager accepted this and did not pursue the matter further. Three days later, on 17th December, the purchase was completed, and the charge to the bank was dated accordingly. Of the purchase price, the sum of £2,267 was provided by the bank by way of overdraft on the husband's bank account. The wife provided no part of the purchase price. The property is registered land. The transfer and the charge were not lodged at the land registry for registration until 7th February 1983.
Meanwhile, in advance of completion, renovation work had been going ahead at the property. The vendors had given permission for this. Indeed, work had begun even before contracts were exchanged. The Rossets had hoped to move in before Christmas. A builder, Mr. Griffin, and his men started work on 7th November. He or his men stayed there until 17th January 1983. Throughout this period one of the men, a carpenter, slept in the farmhouse on most nights. The wife, for her part, spent almost every day at the property from the beginning of November. She arrived there at about 10.00 a.m., after taking Natasha to school. She stayed there until shortly after 4 p.m., when she left to take Natasha home from school. Simeon was looked after by his grandmother, Mrs. Gardner. The wife did her best to urge on the builders, get necessary materials and generally assist and keep things moving. She was an enthusiastic and skilful decorator and she wallpapered some of the rooms. In November electricity and calor gas supplies were connected and provided and a telephone was installed. Before Christmas she slept in the property on two nights.
After completion the wife was responsible for the design and installation of some special pens for horses in the outbuildings, and for coping with choosing and ordering the furnishings needed for their home: carpets, linoleum, beds and so on.
The husband was not able to spend so much time at the property. He was a courier, accompanying coach parties abroad. He was away in Switzerland for ten days in November and December, and he was away again over Christmas and also for some days from 28th January 1983. It was while he was away in February that the children moved in. That was by the middle of the month. The precise date was not established by the evidence. After Christmas, and before the children had moved in, the wife herself slept at the property to a far greater extent than before completion on 17th December.
Unhappily, in the following year there were matrimonial problems. The husband left the property in May 1984 and matrimonial proceedings are now pending. The wife is still living in the property with the children.
THE ACTION
On 22nd February 1984 the bank formally demanded repayment. By then the amount outstanding, including interest, had grown to nearly £23,000. Payment was not made, and so the bank started this action, claiming possession and an order for sale. The husband was not in a position to resist the bank's claims. The wife counterclaimed that she had a beneficial interest in the property, that this was an overriding interest, and that, accordingly, the bank's charge took effect subject to her interest. So the bank was not entitled to evict her from the farmhouse. The husband denied that the wife was entitled to any beneficial interest in the property.
The action was tried by His Honour Judge Scarlett sitting at Canterbury. In a thorough and careful judgment, given on 22nd Hay 1987, he held, first, that the relevant date at which the wife needed to be in actual occupation for any interest she had in the farmhouse to gain the protection afforded to overriding interests was the date of the charge (17th December 1982) and, secondly, that at that date the wife was not in actual occupation of the property. Accordingly, the bank's claim for possession succeeded.
The judge made two further findings. He held that the wife was in actual occupation when the charge was registered on 7th February 1983- And he held that she did have a beneficial interest in the property. The exact quantum of that interest was not an issue which had been raised in the proceedings. Accordingly, the judge made a declaration to the effect that the husband held the property upon trust for himself and the wife as beneficial tenants in common in such proportions as the court might thereafter determine. He adjourned the question of what directions should be given for the determination of that issue.
From that decision the wife appealed. There was no appeal by the husband in respect of the declaration, and he did not appear and was not represented on the hearing of the wife's appeal.
The property is now worth about £150,000. The bank's debt has now risen to about £47,000, and interest continues to accrue.
ACTUAL OCCUPATION : THE RELEVANT DATE
The first question arising on this appeal can be identified as follows. Section 18 of the Land Registration Act 1925 confers powers of disposition on the proprietor of a freehold estate. His powers include power to transfer the fee simple and to charge and mortgage the land. Section 19 provides that such dispositions "shall be completed" by the registrar entering on the register the transferee as proprietor of the estate or interest transferred or created but "until such entry is made the transferor shall be deemed to remain proprietor of the registered estate". Section 20(1), which is one of the two key. provisions on the first point arising on this appeal, provides for the effect of registration of dispositions of freeholds. The material parts read:
"In the case of a freehold estate registered with an absolute title, a disposition of the registered land or of a legal estate therein, ... for valuable consideration shall, when registered, confer on the transferee or grantee an estate in fee simple ... or other legal estate expressed to be created in the land dealt with, together with all rights, privileges, and appurtenances belonging or appurtenant thereto, including (subject to any entry to the contrary in the register) the appropriate rights and interests which would, under the Law of Property Act, 1925, have been transferred if the land had not been registered, subject -
(a) to the incumbrances and other entries, if any, appearing on the register; and
(b) unless the contrary is expressed on the register, to the overriding interests, if any, affecting the estate transferred or created, but free from all other estates and interests whatsoever ..."
'Disposition" includes a charge or mortgage (section 18(5)). Comparable provisions regarding leasehold interests appear in sections 21 to 23. "Overriding interests" are defined in section 3(xvi) as "all the incumbrances, interests, rights, and powers not entered on the register but subject to which registered dispositions are by this Act to take effect ...". They are set out in section 70(1), in what is aptly described in Ruoff and Roper, Registered Conveyancing, 5th ed., p. 102, as a somewhat inconsequential and jumbled list. Section 70(1) is the other crucial provision on this part of the appeal, and the opening words read:
"All registered land shall, unless under the provisions of this Act the contrary is expressed on the register, be deemed to be subject to such of the following overriding interests as may be for the time being subsisting in reference thereto ... (that is to say):-"
The material paragraph is paragraph (g):
"(g) The rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where enquiry is made of such person and the rights are not disclosed".
Under the Land Registration Rules 1925 (as amended) registration takes effect from the day on which the application for registration was delivered at the land registry (rules 83 to 85). As I have already mentioned, in the present case the judge found that, although the wife was not in actual occupation of the property on the date, 17th December 1982, on which the Husband completed his purchase and executed the charge in favour of the bank, she was in actual occupation on the date, 7th February 1983, on which the bank's application for registration was delivered at the office of the land registry. Hence the wife's submission that the bank's charge took effect subject to her beneficial interest in the property, because on 7th February she was in occupation and her interest was an overriding interest under section 70(1)(g) and on registration the bank's charge took effect subject to that overriding interest by virtue of section 20(1)(b).
The judge rejected this submission. He held that section 20(1)(b) is to be construed as though it read "subject ... (b) ... to the overriding interests, if any, affecting the estate transferred or created at the time it is transferred or created". In agreement with the judge I also am unable to accept the wife's submission on this point. But I have reached that conclusion by a slightly different route.
It was common ground on the appeal that paragraph (a) in section 20(1) is looking at the point of time at which the disposition in question is registered. The disposition, when registered, takes effect subject to the entries then on the register. In the nature of things there will be some interval of time, usually a few days, between the execution of a transfer or mortgage and the lodging of the necessary application for registration at the land registry. A purchaser or a mortgagee can obtain protection in respect of this period by making an official search of the register, under rule 3 of the Land Registration (Official Searches) Rules 1981. Any entry made on the register during the period of 30 days thereafter, called "the priority period", is postponed to a subsequent application by the purchaser or mortgagee to register the transfer or Mortgage (rule 5). So the purchaser or mortgagee is not at risk Under section 20(1)(a)in respect of the hiatus which exists between paying over the purchase price and obtaining the transfer, or lending all or part of the purchase price and taking a mortgage, on the one hand, and lodging the transfer or mortgage for registration on the other hand. All this is very familiar to conveyancers, but I mention it as part of the setting against which section 20(1)(b) has to be interpreted. Equally well-known is the concept of overriding interests. Such interests are not peculiar to registered land although the nomenclature ("overriding interests") is. The register is intended to be a substitute for the title deeds. The register is not intended to record, as a matter of course, interests which would not normally be recorded on the title deeds in unregistered conveyancing. Hence the general description of overriding interests by Cross J. in National Provincial Bank Ltd. v. Hastings Car Mart Ltd. (1964) Ch. 9, 15:
"Overriding interests are, speaking generally, matters which are not usually shown on title deeds or mentioned in abstracts of title and as to which, in consequence, it is not possible to form a trustworthy record on the register. As to such matters, persons dealing with registered land must obtain information outside the register in the same manner and from the same sources as people dealing with unregistered land would obtain it."
Against that background it seems to me that the natural construction of section 20(1) is that paragraph (b), as much as paragraph (a), is referring to the point of time at which the disposition in question is registered. Section 20 is concerned with the effect of registration. The effect of registration is to confer the relevant legal estate on the transferee or grantee subject (a) to any entries on the register and (b) to any interests which may be subsisting but whose protection is not dependent upon their being entered on the register (viz., overriding interests). In both instances section 20(1) is focusing on the position at the time of registration. That construction gives rise to an acute difficulty over paragraph (g). Paragraph (g) is a statutory application to registered land of the well-known principle protecting the rights of persons in actual occupation (see, for example, Lord Wilber- force in National Provincial Bank Ltd. v. Hastings Car Mart Ltd. (1965) AC 1175, 1259). That principle is the one discussed in Hunt v. Luck (1901) 1 Ch 45, 51, on appeal (1902) 1 Ch 428. Vaughan Williams L.J. observed (at page 433):
"It means that, if a purchaser or a mortgagee has notice that the vendor or mortgagor is not in possession of the property, he must make inquiries of the person in possession - of the tenant who is in possession - and find out from him what his rights are, and, if he does not choose to do that, then whatever title he acquires as purchaser or mortgagee will be subject to the title or right of the tenant in possession."
That principle, of course, is concerned with the rights of a person who is in occupation of the land at the time when the purchaser or mortgagee acquires his estate or interest. The purchaser or mortgagee is expected to inspect the property and to make enquiries of the occupant as to his rights. If he fails to do so he is nonetheless affected with notice of the occupant's rights just as much as if he had been told of those rights in response to his enquiries. Conversely, he is not affected by notice of rights which an occupant fails to disclose in answer to enquiry from a purchaser or mortgagee.
The difficulty which exists over paragraph (g) arises because of the interval between execution of a transfer or mortgage and registration. Once the transfer or mortgage has been executed the die has been cast. The purchaser or mortgagee may have done all he should have done. He has searched the register. He has inspected the property and made enquiry of the occupant. He then parted with his money against a duly-executed instrument. Thereafter, within days or maybe hours, someone moves into the property, and he or she is there when the transfer or mortgage is duly presented to the land registry for registration. The official search of the purchaser or mortgagee will not help him, because that only gives him priority over entries made on the register and, as already observed, overriding interests do not need to be entered on the register. If section 20(1)(b) is to be construed as having the effect that in such a case the estate of the purchaser or mortgagee takes effect subject to the interest of the newly-arrived occupant, the result, self-evidently, would be a conveyancing absurdity. I am unable to accept that Parliament can have intended that the Land Registration Act should have that effect.
I shall return to paragraph (g) presently, but first I should state why I feel unable to accept the judge's solution of the difficulty. The construction of section 20(1)(b) adopted by the judge would have the consequence that on registration a transferee or mortgagee would acquire a legal estate subject to the entries on the register, and to any overriding interests affecting the estate transferred or created at the time it was transferred or created, but free from all other estates and interests. On this construction he would, on registration, take free from all overriding interests, whatever their nature, which came into being after the execution of the transfer or mortgage and before registration. I am not persuaded of the correctness of a construction which has that effect. For example, one of the categories of overriding interests (paragraph (i)) is "rights under local land charges unless and until registered or protected on the register in the prescribed manner". I am not persuaded that section 20(1)(b) was intended to have the effect that a purchaser or mortgagee should take free from local land charges coming into being after execution of the transfer or mortgage.
In my view it is not necessary, in order to avoid the absurdity produced by the wife's construction of the legislation, to construe section 20(1)(b) in a manner which would itself give rise to this further problem. For my part, I prefer to give to section 20(1) the meaning I have mentioned above as the natural construction of that subsection. Overriding interests are such of the interests of the defined classes "as may be for the time being subsisting" in reference to the land. If there are any such interests subsisting when the disposition is registered, in my view the title conferred is subject thereto.
But to determine whether or not an interest of one of the defined classes is subsisting at the date of registration one has to look outside the register. When one looks at paragraph (g) one finds a provision intended to protect the rights of those in actual occupation, or in receipt of the rents and profits. Paragraph (g) is designed to protect occupants against estates or interests acquired whilst they are in actual occupation. As Lord Wilberforce said in National Provincial Bank Ltd. y. Hastings Car Mart Ltd. (1965) AC 1175, 1260:
"... all that section 70(1)(g) of the Land Registration Act, 1925, does is to adapt the system of registration, and the modified form of inquiry which is appropriate to that system, to the same kind of right as under the general law would affect a purchaser finding a person in occupation of his land."
Consistently with conveyancing sense and the underlying conveyancing principle which is being carried forward into paragraph (g), it seems to me that paragraph (g) is concerned with persons who are in actual occupation of the land at the time when the estate or interest which is said to be subject to the rights of the occupant was created. For example, on completion of a purchase or a mortgage in the usual way. This is so despite the need for a further step to be taken (registration) before the legal estate will be acquired by the purchaser or mortgagee. In line with this is the exception provided for in paragraph (g). Explicitly, the rights of an occupant are not protected if enquiry is made of him and the rights are not disclosed. That exception, implicitly, contemplates an enquiry by or on behalf of the person whose estate or interest is said to be subject to the rights of the occupant and, again implicitly, an enquiry made before he acquired his estate or interest. Otherwise the provision makes no sort of sense.
If this is right, the pieces of the jigsaw fit together reasonably well. A purchaser or mortgagee inspects and enquires before completion, in the established fashion. Or he fails to do so, at his own risk. He then completes the transaction, taking an executed transfer or mortgage. Whether or not an overriding interest under paragraph (g) subsists so far as his freehold or mortgage is concerned falls to be determined at that moment. If an overriding interest does subsist, then his estate when registered takes subject to that interest. If it does not, then subsequent entry of a person into occupation before the transfer or mortgage has been registered (and "completed" for the purposes of section 19) does not have the consequence of creating an overriding interest under paragraph (g) in relation to that freehold or mortgage.
Somewhat surprisingly, the point seems never to have arisen previously, save in the case of Paddington Building Society v. Mendelsohn (1985) 50 P. & C.R. 244. There Judge McCarraher, sitting in the Bristol County Court, decided that the relevant date for occupation was the date of execution of the building society's charge. On appeal the case was decided on a different point.
Our attention was drawn to several cases in which distinguished judges made observations which were said to support one or other of the views canvassed on this appeal. With one exception I need not refer to these, because in none of them was the point now under consideration material and in none of them were the judges directing their minds at this point. The one exception is the observation of Wilberforce J. (as he then was) in In re Boyle's Claim (1961) 1 W.L.R. 339. That case concerned a claim by Mr. Boyle for compensation in respect of a rectification of the register by removal from his title of land belonging to a neighbour. Since Mr. Boyle's registered title was subject to overriding interests, he would not have been entitled to compensation if the land removed from the title was in the actual occupation of the neighbour. On that Wilberforce J. said (at page 344):
"It seems to me that the relevant date for considering whether there was a person in actual occupation of the land as to which the rectification was ordered must be the date when the person prejudiced by the rectification - that is to say, the claimant - acquired his registered title; ..."
In Wolstenholme and Cherry's Conveyancing Statutes, 13th ed., vol. 6, page 25, that dictum is cited as authority for the proposition that under paragraph (g) the relevant date for occupation is not that of inspection of the property or of completion but of registration. Likewise in Emmet on Title, 19th ed., paragraph 5-197- So also in the Law Commission's Report on Property Law: the implications of Williams & Glyn's Bank Ltd. v. Boland (Law Commission no. 115, paras. 16, 18, 32, 34 and 40). Despite these weighty commentaries I do not think that Wilberforce J. was considering the point now in issue, which was not material in that case.
To the above I add three points. First, Mr. Price sought to minimise the awkward consequences which would flow from his construction of sections 20 and 70 by stressing the speed with which a diligent purchaser or mortgagee can register his disposition. In my view, this does not provide an adequate answer. Documents need to be stamped. The procedure regulated by rule 95 would not apply in ordinary, straightforward cases of transfers on sale and mortgages. Documents have to be sent to the appropriate land registry office. The Act and the regulations which have been made envisage, and the practicalities of conveyancing normally will dictate, that a transfer and a mortgage will not be lodged for registration on the same day as they are executed. A submission which depends for its force on same day registration is unrealistic.
Secondly, for completeness, I mention section 37. The powers of disposition conferred by section 18 are conferred on proprietors. Until registration the transferor is deemed to remain the proprietor. How then did the bank acquire any estate or interest on 17th December 1982? The answer lies in section 37. This empowers a person on whom the right to be registered as proprietor has been conferred by a disposition to dispose of or charge the land before he himself is registered. Subject to some exceptions, a disposition or charge so made has the same effect as if the person making it were registered as the Proprietor. Under rule 81 such an instrument cannot be registered until the person executing the same (the husband, in the present case) has himself been registered as proprietor, or his right to be so registered has been shown to the satisfaction of the registrar.
Thirdly, some reliance was placed by the bank on section 27(3). It is not necessary to pursue this point in this case, having regard to the conclusion I have already expressed on the meaning and effect of section 20 and section 70.
ACTUAL OCCUPATION : A SEMI-DERELICT HOUSE
Having regard to the conclusion I have reached regarding the relevant date it becomes necessary to consider the wife's appeal against the judge's decision that she was not in actual occupation of the property on 17th December 1982.
The judge appears to have accepted, although he did not expressly so find, that at that date the husband, through the builder, was in actual occupation of the property. But he declined to find that the builder was the wife's agent for this purpose or that, apart from the builder, the wife's own presence was sufficient to constitute actual occupation by her. He said:
"What constitutes actual occupation of land and premises must turn on the nature and condition of the premises and land concerned. Clearly residential property, in a habitable condition, can only be actually occupied by being occupied as a residence. Residential property in a semi-derelict condition is capable of being actually occupied, but the nature of the required occupation must be different if the property is uninhabitable. An obvious example of the required occupation in the case of semi-derelict property must be occupation by those engaged in renovating the property to make it habitable. The vital question is, on whose behalf do those renovating a property occupy? As far as Mr. Griffin was concerned, he believed that both Mr. and Mrs. Rosset had contracted with him, and when monies alleged to be due to him were not paid, he pressed his claim against both defendants. On the other hand he agreed that Mr. Rosset had told him that the house was his, that he was providing the money for the contract works and that he was 'the governor'."
He concluded:
"I am not satisfied that (Mrs. Rosset) has established that she was in actual occupation of Vincent Farmhouse prior to the 1?th December 1982 through the builder being her agent to occupy Vincent Farmhouse on her behalf. The matter may be tested by posing the question, if a person had approached the builder after finding his employees at Vincent Farmhouse and asked the question - 'who occupies this building?' he would have received the answer, 'I have a contract with Mr. and Mrs. Rosset but Mr. Rosset is buying the house and he gives the orders and he is paying for my work.' These circumstances fall short of there being actual occupation of Vincent Farmhouse by (Mrs. Rosset) either by herself or through Mr. Griffin the builder as her agent prior to the 17th December 1982."
Lord Wilberforce observed in Williams & Glyn's Bank Ltd. v. Boland (1981) AC 487, 504 that the words "actual occupation" are ordinary words of plain English and that they should be interpreted as such. The bank submitted that in ordinary, everyday speech the wife would not have been regarded as being in occupation of Vincent Farmhouse on 17th December. Residential premises are occupied only by those who live in them.
I agree with this submission to the extent that I accept that in ordinary speech one normally does equate occupation in relation to a house with living there. If a person is intending to move into a house but has not yet done so, he would not normally be regarded as having gone into occupation. That is the normal position, with a house which is fit for living in. But that does not provide the answer in the present case, where the house was semi-derelict. In the first place, I do not think that in everyday speech actual occupation of a house can never exist short of residence. Take Vincent Farmhouse. I do not think that it is as clear as the bank suggests that in everyday speech the wife would not have been regarded as being in occupation on 17th December 1982 when the purchase was completed. Had the Rossets been asked on the day "Are you in occupation?" I am not sure that their answer would have been a simple "no". Their answer might well have been to the effect "We are not living there yet. The farmhouse was semi-derelict when we found it. No-one could have lived there with the house as it was then. But we have the builders in. They have been there for over five weeks now. Diana spends almost every day there. Progress has been slower than we had hoped. We had intended to move in by Christmas but that will not be possible now". Secondly, if the words "actual occupation" are given the rigid, restricted meaning submitted by the bank in relation to residential premises, and that meaning is applied to a house in course of being built or renovated, the result in some cases will be to defeat the purpose intended to be achieved by paragraph (g). If, day after day, workmen are actively building a house on a plot of land, or actively and substantially renovating a semi-derelict house, it would be contrary to the principle underlying paragraph (g) if a would-be purchaser or mortgagee were entitled to treat that site as currently devoid of an occupant for the purpose of the paragraph. If, for example, the owner had granted a tenancy in return for a premium, so that the tenancy did not qualify as an overriding interest under section 70(1)(k), but the tenant himself and workmen employed by him were on site, building or renovating as I have described: why should he not be as much entitled to the protection afforded to occupants by section 70(1)(g) as he would be once the work had been finished and he was living in the house?
In my view, the test of residence propounded by the bank is too narrow. As the judge observed, what constitutes occupation will depend upon the nature and state of the property in question. I can see no reason, in principle or in practice, why a semi-derelict house such as Vincent Farmhouse should not be capable of actual occupation whilst the works proceed and before anyone has started to live in the building.
The bank further submitted that the presence of the builder and his men in the property could not constitute actual occupation by the Rossets. I am unable to agree. I can detect nothing in the context in which the expression "actual occupation" is used in paragraph (g) to suggest that the physical presence of an employee or agent cannot be regarded as the presence of the employer or principal when determining whether the employer or principal is in actual occupation. Whether the presence of an employee or agent is to be so regarded will depend on the function which the employee or agent is discharging in the premises in the particular case. I am fortified in this approach by noting that it accords with the view, espoused in passing by Ormrod L.J. in the Boland case in the Court of Appeal, that a person may be in occupation through another (see (1979) Ch. 312, 38S), and with the views expressed in Strand Securities Limited v. Caswell (1965) Ch 958, 981, 984. In the latter case both Lord Denning M.R. and Russell L.J. accepted that, if a tenant puts a resident caretaker into a residential flat to look after it, that would be actual occupation by the tenant. Russell L.J. observed that the caretaker, by her occupation for which she was employed, would be the representative of the tenant and her occupation might therefore be regarded as his. Likewise, in my view, the presence of a builder engaged by a householder to do work for him in a house is to be regarded as the presence of the owner when considering whether or not the owner is in actual occupation.
In the Boland case Lord Wilberforce (at page 505) explained the significance of the word "actual" in the phrase "actual occupation" as merely emphasising that what is required is physical presence, not some entitlement in law. He referred to the origin of the phrase "actual possession", and commented that in the judgment of the Privy Council in Bamhart v. Greenshields (1853) 9 Moo. P.C.C. 18, 34, the expression was used to distinguish the case of a person who was in some kind of legal possession, as by receipt of the rents and profits, from that of a person actually in occupation as tenant. I can see nothing in that exposition inconsistent with the views expressed in Strand Securities Ltd. v. Caswell or with those I have sought to state.
I turn to the facts of the present case, which I have already summarised. The vendors had ceased to be in actual occupation long before 17th December. The house was empty and semi-derelict. They permitted the husband to go on to the property before completion. From 7th November until after Christmas the builder and his men were there every working day. One of them slept in the property on most nights. The wife spent almost every weekday at the property, from 10 a.m. to 4 p.m. Thus there was physical presence on the property throughout the period leading up to completion on 17th December, and that physical presence was to the extent that one would expect of an occupier, having regard to the then state of the property.
Thus far I am in agreement with the judge. Where I feel obliged to part company from him is his conclusion that, although (as I read his judgment) the husband, through the presence of the builder and his men, was in actual occupation of the property on 17th December, the wife was not. As appears from the second extract from his judgment that I have quoted above, in reaching that conclusion the judge attached importance to the answer which Mr. Griffin would have given to the question "Who occupies the building?" With all respect to the judge, I do not think that was the right question to pose. What mattered was not the builder's views on who occupied the building, but on whose behalf the builder was in the building. The judge himself had observed earlier that that was the vital question. As to that, the facts seem reasonably clear. Mr. Griffin regarded himself as being employed by both the husband and the wife. There was no clear evidence that in this he was mistaken. Mr. Griffin addressed his invoices to both Mr. and Mrs. Rosset. He looked to both of them for payment. In those circumstances, even though the husband alone was the contracting purchaser of the property, it seems to me that the presence of the builder and his men on the property was as much on behalf of the wife as it was on behalf of the husband. Mr. Griffin was working there under a contract made with both of them, renovating the property for both of them. He was there on behalf of both of them. There was no sound basis for distinguishing between the two of them. If the builder's presence was sufficient to constitute occupation by the husband, it was equally sufficient to constitute occupation by the wife. This was so even after the incident mentioned by the judge. A stage was reached when the workmen complained that both the husband and the wife were giving them instructions. The husband then "laid it down" that the workmen should take their instructions from him alone.
So the position was that the builder and his men were in the building, carrying out a contract made with the husband and the wife. Additionally, the wife herself was there almost every weekday. In my view, those facts amounted to actual occupation of the property by the wife on 17th December 1982. There was, I repeat, physical presence on the property by the wife and her agent of the nature, and to the extent, that one would expect of an occupier having regard to the then state of the property: namely, the presence involved in actively carrying out the renovation necessary to make the house fit for residential use.
In my view, therefore, the judge erred in the inference he drew from the primary facts which he found. The reality was that before completion the husband and the wife had already taken over this semi-derelict house, under a revocable licence granted to the husband by the vendors. By 17th December renovation was well under way. Completion took place on 17th December, but no physical change then took place in their use of the property, save that the wife slept there more frequently. Eventually in February the family began to live there.
This conclusion has the attraction that it gives effect to the purpose of paragraph (g). Had a representative of the bank inspected the property before 17th December to check if anyone was in actual occupation, he would have seen that, indeed, someone was there. Builders were working there, day after day, plainly on behalf of someone. Had he gone up to the door, he would probably have found the wife in the house. In such circumstances the bank really has only itself to blame if it lends money without looking into the position further. In particular, I find it surprising that the bank, knowing that this was to be the matrimonial home, did not seek the wife's written consent to the grant of the charge. This was in December 1982. The Boland case was decided by the House of Lords over two years earlier, in June 1980.
THE WIFE'S BENEFICIAL INTEREST
I turn next to consider whether the wife did have any beneficial interest in the property on 17th December. The bank's submissions on this were threefold. First, it was submitted that the evidence before the judge did not sufficiently show a common intention on the part of the husband and the wife that the wife was to have an interest in the property. The judge rejected the wife's pleaded case that before contracts to buy the property were exchanged on 23rd November 1982 the parties had agreed, or there was a common intention, that the property should be owned jointly. There was no sufficient evidence that nevertheless there was such a common intention by completion on 17th December. I cannot accept this. This question was, par excellence, a question for the fact-finding tribunal. The husband and the wife both gave evidence. Having read and re-read the judge's notes of evidence, I am in no doubt there was evidence on which the judge was entitled to reach his ultimate conclusion. I mention some passages from the wife's evidence:
"As soon as we heard he was likely to get the money. We looked round - looked for suitable home for us and children.
I always understood we were going to share whatever we had, big or little. We always discussed it as being ours. The only discussion was in very general terms. We needed a house - we would go out and look for one we could own as a couple for a family. When we found Vincent Farmhouse, he said he was glad he would be able to provide a proper home - a place which would be secure. I understood it would be jointly ours. He'd always indicated it was a joint venture. Everything we did in past had been jointly done.
If you live with someone, you don't 'dissect' it. It was an accepted thing ... I understood going into husband's name was to appease the Swiss. If that had not been done we could not have got the money."
On this evidence, and although the husband's evidence was to the contrary effect, the judge was justified in concluding, as he did, first, that both parties intended that the purchase should be in the sole name of the husband because of the requirements of the Swiss trustees and, secondly, that, in addition, there was a common intention regarding the beneficial interests.
As to the latter, I am in no doubt that, contrary to the bank's submission, the judge did make a finding that there was a common intention that the wife was to have a beneficial interest in the property. The judge carefully applied the approach expounded by Nourse L.J. in Grant v. Edwards (1986) Ch 638, 646 to 648. He considered, first, whether it was the common intention of the parties that the wife should have a beneficial interest in Vincent Farmhouse and, secondly, whether she acted to her detriment on the faith of such a common intention. On page 24 of his judgment the judge found that it was the parties' common intention "that the renovation of the house should be a joint venture, after which the house was to become a family home shared by (them) and their children". Read by itself that passage may not be altogether free from ambiguity. But his conclusion, two pages later, leaves no room for doubt: "There was a common intention between (the husband and the wife) that she should have a beneficial interest in the property under a constructive trust". There is no justification for reading that explicit finding otherwise than at its face value.
The bank's second submission was that in order to transfer an interest in land under a constructive trust it is necessary for there to be an agreement involving reciprocal obligations. Here there was no evidence, and the judge did not find, that it was agreed between the husband and the wife that, if she acted in a particular way, she would have an interest in the property. I am unable to accept the first limb of this submission. I can see no reason in principle why, if the parties' common intention is that the wife should have a beneficial interest in the property, and if thereafter to the knowledge of the husband she acts to her detriment in reliance on that common intention, the wife should not be able to assert an equitable interest against the husband just as much as she could in a case where the common intention was that, by acting in a certain way, she would acquire a beneficial interest. In each case the question is whether, having regard to what has occurred, it would be inequitable to permit the party in whom the legal estate is vested to deny the existence of the beneficial interest which they both intended should exist. We were referred to various passages in Gissing v. Gissing (1971) AC 886, 904, 905, 909- 910, Eves v. Eves (1975) 1 WLR 1338, 1345, and Midland Bank Ltd. v. Dobson (1986) 1 F.L.R. 171, 175-176. Suffice to say I do not read any of these passages as negativing this view. I refer to only one authority, in which this point was directly addressed: Grant v. Edwards (1986) Ch 638. The first judgment was given by Nourse L.J. He, indeed, did not directly deal with this point, but his observations (at pages 646-7) seem to me to support, rather than negative, the view I have expressed. Mustill L.J. (at page 653) expressed no opinion on this point. Sir Nicolas Browne-Wilkinson V.-C. said (at page 657):
"As at present advised, once it has been shown that there was a common intention that the claimant should have an interest in the house, any act done by her to her detriment relating to the joint lives of the parties is, in my judgment, sufficient detriment to qualify. The acts do not have to be inherently referable to the house: see Jones (A.E.) v. Jones (F.W.) (1977) 1 W.L.R. 438 and Pascoe y. Turner (1979) 1 W.L.R. 43I. The holding out to the claimant that she had a beneficial interest in the house is an act of such a nature as to be part of the inducement to her to do the acts relied on. Accordingly, in the absence of evidence to the contrary, the right inference is that the claimant acted in reliance on such holding out and the burden lies on the legal owner to show that she did not do so: see Greasley v. Cooke (1980) 1 W.L.R. 1306."
The first sentence in that passage supports the view I have expressed above.
The bank's third submission was that the evidence did not justify a finding that the wife acted to her detriment. It was submitted that all the activities carried out by the wife were equally referable to her moving into a new house requiring renovation prior to use as the family home. On this all I will say is that I do not see why, if a wife acts as did the wife in the present case, attending the property and busying herself about the property day after day for weeks before completion, with the background of a common intention that she should share beneficially in the house, that activity is not capable of making it inequitable for the husband subsequently to deny the existence of her beneficial interest.
COMPLETION : COMPETING EQUITIES
I come now to the fourth point raised by the appeal. So far I have concluded that at the material date (17th December 1982) the wife was in actual occupation of the property. This being so, the bank's legal charge took effect subject to the rights of the wife then subsisting. But in this case there is the complication that there was no distinct interval of time between completion of the purchase of the property by the husband, through whom the wife claims, on the one hand, and the creation of the bank's legal charge on the other hand. The bank's legal charge was created as part of one transaction with the completion of the purchase on 17th December, in that payment of the price, handing over of the executed transfer by the vendor and delivery to the bank of the executed charge all took place, in the usual way, as simultaneously as the practicalities permitted. This gives rise to the questions (a) whether prior to completion the wife had in the property any interest which the bank's legal charge ranked behind when it was created and, if not, (b) whether the interest the wife acquired on completion ranks ahead of or behind the bank's legal charge which also was created on completion.
Before discussing these questions I must mention three authorities, two of the Court of Appeal and one of the Judicial Committee of the Privy Council. First is the decision of the Court of Appeal in In re Connolly Brothers Limited (No. 2) (1912) 2 Ch 25. This was prayed in aid by the bank in a way I shall explain. In Re Connolly a company issued a series of debentures which created a floating charge over all its property, both present and future. The company was not entitled to create any charge ranking equally with or in priority to the debentures. Thereafter the company bought a property with the assistance of a loan from Mrs. O'Reilly. On completion the title deeds were retained on her behalf by the solicitor who acted for all parties. He did not know of the existence of the debentures. The court held that Mrs. O'Reilly's charge had priority over the debenture holders' charge. At first instance Warrington J. said (at p. 28):
"... these debentures and the trust deed, so far as this after-acquired property is concerned, amount to nothing more than a contract by the company to give to the debenture-holders a security upon this particular item of property by its description as appearing in the conveyance, but only on such interest as the company may in fact acquire in that and their other after-acquired property. Now, in my judgment, the company on the facts of this case never acquired as against Mrs. O'Reilly any interest in this property at all, except subject to the obligation of giving to her a charge for the amount of the purchase-money which she so advanced."
In dismissing an appeal Vaughan Williams L.J. said (at p. 3*1):
"Did the company as between themselves and Mrs. O'Reilly ever become the absolute owners of the property? Or was not the bargain that Mrs. O'Reilly was to have a first charge, and the company was only to get the property subject thereto? In my opinion we should be shutting our eyes to the real transaction if we were to hold that the unincumbered fee simple in the property was ever in the company so that it became subject to the charge of the debenture-holders".
Buckley L.J. agreed. He held that on completion the company did not acquire an unincumbered fee simple in the property. It obtained the property subject to a contractual obligation to give a first charge on it to Mrs. O'Reilly, and the debenture holders could get no more. Thus the court there declined to dissect completion of the purchase and the grant of the charge into two notionally separate and successive stages, with the company acquiring, at stage one, a property unincumbered by Mrs. O'Reilly' charge. I pause to observe that, if completion on 1?th December 1982 in the present case were to be analysed in the same way as was done in Re Connolly, the bank would rank ahead of the wife. On this analysis the husband, through whom the wife claimed, never acquired more than an equity of redemption.
Re Connolly was followed by the Privy Council in Security Trust Co. v. Royal Bank of Canada (1976) AC 503. There the essential facts were closely comparable to those in Re Connolly save that the mortgage with which completion was partly financed was in favour of the vendor. The opinion of the Board was delivered by Lord Cross of Chelsea. He observed (at p. 518) that the debenture holder's charge was a charge on the company's interest under the company's purchase contract and that it could give the debenture holder no greater interest than the company had. The company could not obtain a conveyance of the property free from the obligation to grant back the mortgage to the vendor, and the charge on its interest gave the debenture holder rights which were subject to the prior rights of the vendor.
By way of contrast is the third decision in this trilogy: Church of England Building Society v. Piskor (1954) Ch. 553. There a purchaser, let into possession before completion, granted weekly tenancies to Captain Hamilton and others. The plaintiff building society loaned the sum of £1,600 to assist the purchaser with completion, the money being paid over on completion in return for a legal charge. The Court of Appeal held that the tenants had priority over the building society. Lord Evershed M.R. observed that, although the transaction might fairly be said to be one in substance, it could not be said to be one and indivisible in the eyes of the law. He said (at p. 561):
"... It is no doubt true to say that in one sense the transaction was one transaction; but it is equally true to say that it consists necessarily of certain defined steps which must take place in a certain defined order, if the result intended is eventually to be achieved. That seems to me not an artificiality, but a necessary result of the law and of the conveyancing practice which was involved."
Romer L.J. (at page 564) expressed the same view:
"The theory that a purchase, which is completed by payment of money which has been provided in part by a third party, and a mortgage by the purchaser of the property sold to secure the payment of that money to the lender, constitutes only one transaction, if the instruments are executed at more or less the same time, is a conception which has a prima facie appeal, but it does not, on analysis, in my opinion, truly reflect the legal effect of what takes place. The mortgage of the purchased property cannot have any operation in law (whatever rights it may give rise to in equity or by estoppel) unless and until the purchaser is in a position to vest a legal term in the property, as security, in the mortgagee, and he is not and cannot be in a position to do this until he himself has acquired from the vendor the legal estate out of which the mortgage term is capable of being created. From this it follows that the execution and delivery of the conveyance (if the property is freehold) or of the assignment (in the case of a leasehold) by the vendor to the purchaser must of necessity constitute an essential preliminary to the vesting in the mortgagee of a subsidiary interest in the property."
He added (at page 566):
"I find myself unable to treat as one what were, in law, two palpably distinct transactions merely for the purpose of enabling the society to evict persons, who were already in occupation but whose existence or rights the society had never troubled to inquire about at all."
Thus in that case the court adopted a "successive steps" analysis of completion. On that analysis, any beneficial interest of the wife in the property, at any rate if it existed before completion, would rank ahead of the bank's legal charge which came into being after the husband had become owner of the property on completion, even though the bank had to some extent funded completion of the purchase.
In the Piskor case Lord Bvershed (at page 563) distinguished Re Connolly as a case in which the question was one of equitable priorities. Fastening on to this, Mr. Crystal submitted that in the present case also there was a question of equitable priorities and that, accordingly, on completion the husband should be regarded as having acquired only an equity of redemption (as in Re Connolly) rather than having acquired the property followed, momentarily later, by the grant of a legal charge to the lender (as in the Piskor case). His submission on what were the competing equitable interests, and on when they arose, was to the following effect. As to the wife, the only rights she has to prevent the bank from obtaining possession are the rights of an equitable co-owner of the property, and those rights came into existence on completion and not before. Until then the vendors were entitled to possession and to the rents and profits. Until then neither the husband nor the wife had a beneficial interest in the property. As to the bank, it financed completion to the extent of £2,267. It did so pursuant to a loan arrangement made before completion. On completion it acquired an immediate equitable charge by reason of the agreement by the husband to execute a legal charge. As between these two competing equitable interests, both of which arose on completion, the bank has priority because (a) the husband could not have obtained a transfer of the property free from the specifically-enforceable obligation to grant the legal mortgage to the bank and (b) the wife's equitable interest is an interest derived through and under the husband.
I cannot accept this submission. In the first place, I do not think that the bank is assisted either by Re Connolly or by Security Trust. In Re Connolly effect was given to the intention of the parties to the contract created by the debentures by recognising that, on completion of the purchase of the after-acquired property, the company's interest therein was subject to and ranked behind Mrs. O'Reilly's contract. For the purposes of that contract that, and that alone, was the interest which the company obtained in that after-acquired property. It was that interest alone, therefore, which was subject to the debenture holders' charge. In the present case, to accord the bank priority would not be to give effect to any intention, actual or imputed, of the wife. On the contrary, she thought Vincent Farmhouse was being purchased without the aid of any loan. In Security Trust the mortgagee's claim to have priority was, if anything, even stronger than in Re Connolly, because in Security Trust the company was not entitled to an unincumbered fee simple as against the vendor even on completion. There one of the terms of the contract of purchase was for the vendor to have a mortgage over the property to secure the balance of the price.
I turn, therefore, from those two authorities to consider whether, applying established principles, this is a case in which, quite apart from the bank's claim as legal chargee, there is competition between two equitable interests with, as the bank claims, its equitable interest having priority.
THE WIFE'S EQUITABLE INTEREST BEFORE COMPLETION
I am unable to accept that the wife had no beneficial interest in the property before completion. Prior to completion, the husband had the benefit of a specifically enforceable contract to purchase the property, whereunder, subject to payment of the balance of the price, the property as between him and the vendors was his. Accordingly, prior to completion the husband had an equitable interest in the property, although this interest was defeasible and would not blossom into absolute ownership until the balance of the price was paid on completion.
As to the wife's interest prior to completion, it is a little unfortunate that the judge's findings are not complete in that, for the reason I have stated, the judge made no finding on the extent of the wife's beneficial interest. This is unfortunate, because the route followed by him in quantifying her interest would have been of assistance in identifying more clearly the point in time at which she first acquired any beneficial interest. Despite this, on the facts found there was a common intention that the wife should have a beneficial interest in the property, and before completion the wife did acts which would have made it inequitable for the husband to have denied that beneficial interest. On those facts I think that the wife had some equitable interest in the property before completion, carved out of the husband's interest just described. Moreover, she was in occupation with the husband and as against the husband was entitled to remain so, even though neither of them had any right to remain in occupation before completion as against the vendors. It was that subsisting but defeasible equitable interest of the wife which automatically swelled into an indefeasible equitable interest in the property on completion when the balance of the price was paid to the vendors and the transfer was handed over by the vendors.
THE BANK'S EQUITABLE INTEREST BEFORE COMPLETION
The conclusion I have just stated regarding the wife having an equitable interest prior to completion suffices to dispose of the bank's claim insofar as its claim is that immediately on completion it acquired an equitable charge. Being first in time, the wife's equitable interest has priority over the equitable interest which (rightly or wrongly) the bank claims to have acquired on completion. But I must mention a further argument which, although somewhat tortuous, might be thought to arise if it is correct that the wife had some equitable interest prior to completion. The argument would be that, in the same way as the wife had an equitable interest prior to completion carved out of the husband's equitable interest, so did the bank insofar as it had loaned money to the husband against his agreement to create a legal charge on completion. On that I need say only that on the facts such an argument would not assist the bank here because the first borrowing was not until 15th December. It was on that date that the money required for completion was debited to the husband's bank account, which thereupon went into overdraft to the extent of £2,267. That does not ante-date the wife's acquisition of some beneficial interest in the property.
Having regard to these conclusions regarding the parties' equitable interests prior to completion it is not necessary to decide what would be the position between the bank and the wife if the wife had acquired no interest in the property until completion. Nor, for the same reason, does anything turn in this case on the "competing equities" point on distinctions between registered and unregistered land.
THE JUSTICE OF THE CASE
I turn to the final point in this appeal. Underlying these submissions by the bank was, expressly, an appeal to the broad justice of the case. The wife is claiming an equitable interest in the property, and she is claiming this in priority to the bank whose money was used in part to enable the purchase of the property to be completed. Without the use of the bank's money the wife's rights in the property would not have come into existence. The bank submitted that it would be unjust and inequitable for her to be able to claim priority in reliance on a "successive steps" analysis of what occurred on completion on 17th December.
It may be that in this area the law is, or should be, moving towards adopting a more flexible response to particular circumstances, so that the end result of a dispute between a wife and a bank which has provided part of the price would not depend on notions as technical as the "successive steps" analysis of completion. The way ahead here may be the analogy with proprietary estoppel suggested by the Vice-Chancellor in Grant v. Edwards (1986) Ch 638, 656, 657. The protection which equity gives in cases where such an estoppel is found to exist depends on all the circumstances: see the authorities collected in Snell's Equity, 28th ed., page 562. However, as in Grant v. Edwards, so also in this case, the relationship of implied, resulting or constructive trusts and equitable estoppel was only touched upon in passing in the course of the arguments. This is not the case, therefore, in which it would be desirable to express any views on this point, because I have come to the conclusion that, even if the court has a jurisdiction to make whatever order it considers just as between the wife and the bank, on the facts here it would not be just, as matters now stand, to make an order for possession. It is to be borne in mind, as I have observed, that in the present case the wife did not know that any part of the purchase price was being provided by way of loan. So far as she was concerned the whole price was being made available to the husband by his family trust in Switzerland. In the court below the bank abandoned its plea that the wife knew or intended that the bank should have a first charge on the property. Had the facts been otherwise, as in many cases they will be, where a wife or other occupant claiming a beneficial interest knows that part of the price is being obtained by a mortgage loan, the bank's position would have been very different. In such a case the court will impute to the parties the intention that the rights of the wife or other occupant are to be subject to the rights of the bank or building society (see Browne-Wilkinson L.J. in Paddington Building Society v. Mendelsohn (1985) P. & C.R. 244 at 247, 248, and also Bristol & West Building Society v. Henning (1985) 50 P. & C.R. 237, 241, 242).
Thus this is a case between an occupant and a lender, each of whom was ignorant of the other's interest in the property at the time. But the bank knew the husband was married and that the property was being renovated as a family home. It was put on enquiry. The wife was not. Further, there is no evidence on how much, if any, of the money advanced by the bank to the husband after 17th December 1982 was spent on the property. That leaves only the sum of £2,267 advanced on completion. Against that, whilst (here also) it would have been helpful if the extent of the wife's beneficial interest had been quantified at the hearing before the judge, the facts establish, as I have concluded, that before completion the wife had already acquired some beneficial interest in the property which she was expecting to be bought by her husband without the assistance of a loan. One can speculate on what her attitude would have been on 17th December had she known of the bank borrowing, but, here again, this was not a matter investigated at the trial. She continued to act to her detriment after completion. As matters now stand, she is claiming the right, as a beneficial tenant in common, to remain in occupation, and the bank is seeking to evict her. For its part, the bank has unexhausted remedies against the husband. Having regard to the value of the property and the husband's interest therein (there isno suggestion that the wife's interest would exceed a half share), the bank will be paid the sum of £2,267 with interest, sooner or later. Indeed, sooner or later the bank is likely to be paid all or most of what is owed by the husband. Does "equity" require that the bank should be able to obtain immediate possession of the property? On the whole I think not. The wife is having the use of the property whose purchase was financed, as to £2,267, by the bank. On the other hand, the observations of Romer L.J. in the second extract which I have quoted above from his judgment in the Piskor case are pertinent.
Accordingly, whatever might be the position in other cases, in the present case I do not feel an appeal to what is "right" or "just" assists the bank.
CONCLUSION
For these reasons I would allow the wife's appeal, and set aside the order for possession. Subject to any submissions counsel may wish to make, the appropriate form of order would seem to be for the matter to be remitted to the county court for further hearing on the question of the extent of the wife's beneficial interest.
LORD JUSTICE MUSTILL: Lord Justice Nicholls has already set out the facts and the issues which arise, and I gratefully adopt his exposition. So also with his account of the questions arising under the headings "Actual occupation: the relevant date" and "the wife's beneficial interest". I agree both with the conclusions expressed by my Lord and the reasons given for them, and have nothing to add.
I have, however, been much perplexed by the problems identified as "Actual occupation: a semi-derelict house" and "Completion: competing equities" and must state in a little detail the conclusions which I have eventually reached.
It is convenient to begin with the latter problem which I will approach on the following assumptions: (1) at or from 17th December 1982 the husband had an equitable interest in the property, which was destined to ripen into a legal interest when the transfer was lodged at the Land Registry on 7th February 1983; (2) the wife also had an equitable interest in the property from the moment of completion by the husband, at the latest; (3) the bank also had an equitable interest from the moment when the husband executed the charge. In the first instance, I will approach the problem of the competing interests of the wife and the bank as if we were concerned with unregistered land, since this was the situation in each of the trio of cases round which the argument revolved.
I will first state the facts and decisions in each case, beginning with Re Connolly Brothers (No. 2) (1912) 2 Ch 25. A company created in favour of debenture-holders a charge by way of floating security on the undertaking of the company and its property both present and future. There is nothing in the report to suggest that the description of the property charged was in any way unusual, the debentures had been issued, the company sought to purchase certain premises, but had insufficient money to do so, and therefore applied to a Mrs. O'Reilly for a loan. She agreed to make an advance of £1,000 on terms that she would have a charge on the property. The company thereupon entered into a contract for the purchase of the property for £1,000 and paid a deposit of £150. At the completion, in which Mrs. O'Reilly took part, she drew a cheque for &1,000 in favour of the company, and the company drew a cheque for £950 which was immediately cashed, and the cash was paid over to the vendor. The same solicitor acted for all three parties. He had no knowledge of the debentures and made no search. Equally, there is nothing in the report to suggest that the debenture-holders had any knowledge of this transaction. Subsequently, the company executed a memorandum of deposit of title deeds with intent to create an equitable charge in favour of Mrs. O'Reilly. Defaults being made by the company, there was a contest of priorities between the estate of Mrs. O'Reilly and the debenture-holders. The estate prevailed at first instance and on appeal.
Next, there was Church of England Building Society v. Piskor (1954) Ch. 553. The purchasers of a leasehold interest entered into possession before completion, with the consent of the vendors. They immediately granted weekly tenancies of part of the premises. Later, the purchase was completed and on the same day the purchasers entered into a legal charge, in exchange for an advance paid direct to the vendors, without which the vendors would not have completed the assignment (see the evidence summarised by Evershed H.R. at page 560 of the report). The charge recited that the property was vested in the mortgagors free from encumbrances. In a possession action the sole remaining tenant prevailed at first instance and in the Court of Appeal.
The last of this trio of cases was Security Trust Co. v. Royal Bank of Canada (1976) AC 503. The appellants sold land to Fisher on terms involving a cash deposit, at the same time as Fisher charged the land to them for the balance of the price. The completion date was extended, the documents being retained by the appellants in escrow until payment of the deposit. Fisher then created debentures in favour of the respondents, and the debentures were lodged for registration during July 1970. Four months later, the debenture-holders appointed a receiver. Then, during January 1971, the time for completion of the sale was further extended until a date when the receiver paid the deposit, and the documents were released from escrow. The appellants thereupon registered the mortgage. It was held, first, that when the debenture was created Fisher had no interest in the property and, second, that, although Fisher did later obtain an equitable interest to which the respondents' equitable charge could attach, this interest was merely an equity of redemption, so that the respondents had no rights which could prevail over the appellants' mortgage.
These cases were all decided by equity lawyers of the greatest distinction, and it would be imprudent as well as lacking in respect to express reservations with any but the greatest caution. Yet I must confess to finding it hard to see how the decisions can live together. The Security Trust case is the easiest to understand. The shape of the agreement made between Fisher and the vendor appellants prior to the postponed completion made it clear that Fisher could not fulfil his side of the bargain without what amounted to a loan from the appellants, and that the latter would not grant this loan without a mortgage. Thus, in both a theoretical and a practical sense Fisher never received more from the appellants than an equity of redemption, and therefore could not effectively charge to the respondent debenture holders anything more than an interest which was already encumbered.
Re Connolly Brothers is a different matter. Here the transactions were in the reverse order. The debentures came first, and the mortgage which was held to prevail was not executed until later. The first ground of Warrington J.'s decision was that Mrs. O'Reilly succeeded to the vendor's lien. This had no bearing on the present case. Secondly, that
"the company on the facts of this case never acquired as against Mrs. O'Reilly any interest in this property at all, except subject to the obligation of giving to her a charge for the amount of the purchase-money which she so advanced. ... the security acquired by Mrs. O'Reilly takes priority over the debentures because it takes priority over the interest of the company itself, and that nothing was ever subject to the trust deed except what one may describe as the equity of redemption, subject to the security created in favour of Mrs. O'Reilly."
The judgments on appeal were brief. In essence, the learned judge's interpretation of the facts was upheld, Cozens Hardy M.R. saying:
"In my opinion we should be shutting our eyes to the real transaction if we were to hold that the unincumbered fee simple in the property was ever in the company ..."
On the face of it, this case seems very different from Security Trust v. Royal Bank of Canada; in two respeets. In the Security Trust case the conveyance and the concurrent mortgage took place between the same parties. As regards each of them an unencumbered interest never passed, and the transaction was precisely the same as if the transfer had explicitly conveyed the equity of redemption and no more. This was not so at least in theory, in the Connolly Brothers transaction, where the subject-matter of the conveyance by the vendors to the company was the unencumbered fee simple. Furthermore, in the Security Trust case, the conveyance and re-mortgage were knitted together from the outset, in a complete deal which had already precluded an unencumbered transfer, before the debenture-holders came on the scene: whereas Mrs. O'Reilly's transaction took place after the creation of the debenture. These distinctions might seem to make all the difference, but in Security Trust the two cases were treated as being exactly parallel (see page 518G). The explanation must, I believe, have been that the Board regarded the dealings in Connolly Brothers as having created a triangular relationship which, if spelt out, would have comprised a transfer direct from the vendor to Mrs. O'Reilly of an interest by way of charge, and a simultaneous transfer of the equity of redemption to the company. On this view, the debentures would have attached to nothing more than the company's limited interest. (There are reasons to doubt whether the debenture-holders' interests could be defeated even by an express tripartite agreement to the effect just described, but these raise a different point, not explored in argument before us: see an unsigned article in 101 Sol. J. 439 and Emmett on Title, 19th Edition, §25.037.)
Church of England Building Society v. Piskor was argued against the background of three recent decisions in the same field, including in particular Coventry Permanent Economic Building Society v. Jones & others (1951) 1 All E.R. 901, where on similar facts Harman J. had held that the whole transaction was one in substance, and that the rights of the mortgagees took precedence. Two judgments were delivered in the Court of Appeal. Each assumed, as was evidently taken for granted in argument, that the circumstances in which the tenants entered into possession were such as to estop the purchaser from denying, as against the tenants, that they would have the rights of tenants as and when he acquired a legal interest in the property. The Master of the Rolls began by discussing the Coventry case, saying that Harman J.'s decision in Jones might well have been justified on the facts, on the ground that the tenants knew that the landlord was raising money by falsely representing to the lenders that she had unencumbered title. He then continued with the broader question, whether the transaction in the instant case was in law one and indivisible. In effect, it was held that the estoppel in favour of the tenants was "fed" at the moment when the purchasers argued the legal estate, so as to give the tenants rights which were fully enforceable against the purchasers' interest, and since the mortgagee's own rights derived from that interest of the purchasers, they must be subject to the tenants' newly consummated tenancies. The Master of the Rolls continued:
"It is no doubt true to say that in one sense the transaction was one transaction; but it is equally true to say that it consists necessarily of certain defined steps which must take place in a certain defined order, if the result intended is eventually to be achieved."
The Master of the Rolls concluded by accounting for Re Connolly Brothers as a case on competing equities.
The major part of the judgment of Romer L.J. was concerned with rejecting the proposition that where there is a purchase which in practice is made possible only because a lender is willing to advance the price, and where the loan is secured by a mortgage on the newly-acquired property, the law must treat the conveyance and the mortgage as if they amounted to a single transaction, if the instruments are executed at more or less the same time. As his Lordship said, the mortgage of the purchased property cannot have any operation in law unless and until the purchaser is in a position to vest a legal term in the property, as security, in the mortgagee, so that the execution and delivery of the conveyance by the vendor to the purchaser must of necessity constitute an essential preliminary to the vesting in the mortgagee of a subsidiary interest in the property. His Lordship concluded by indicating his present view - that even if the purchasers had, previously to the sale but after the grant of the tenancies, entered into an immediately binding agreement to give the plaintiffs a charge upon the property, the legal estate which passed to the purchasers, subject to the equity in favour of the plaintiffs would have sufficed to feed the estoppel in favour of the tenants.
Now, it is well possible to explain the differing results of Connolly and Piskor on the ground foreshadowed by Romer L.J. at the end of his judgment: namely that in Piskor even an unencumbered legal interest in the purchaser would suffice to consummate the estoppel and create a legal tenancy which outranked the legal charge in favour of the mortgagees; whereas in Connolly the debenture-holders had derived no legal interest at the time when the purchaser became the owner of the land, and Mrs. O'Reilly's interest attached. But this was not the actual ground of decision, which seems to me undeniably to have been the rejection of the idea that the purchase and mortgage were simultaneous and indivisible transactions. Yet there is nothing in the facts of Piskor as reported to explain why the contrary proposition should have been preferred.
This being so, if the line of authority had ceased with Piskor, I would have been impelled to hold that there was a conflict of authority; and, faced with a choice, would have preferred the reasoning in Piskor. In fact, however, the Opinion of the Board in Security Trust (where the judgment under appeal had adopted a similar analysis of the reported cases to the one just suggested) shows that this approach must be wrong, since it was there held that Connolly and Piskor were clearly distinguishable, primarily on the ground that
"... in cases such as (Connolly) and this case the charge under the debenture only bites on property which is already fettered by the agreement to give the other charge, whereas on the facts of (Piskor) the tenancy was created out of an interest which was then unfettered by any such agreement."
This passage from the Opinion seemed at first sight to point the way to a solution of the present problem. Continuing for the moment to treat the appeal as if it concerned unregistered land, the analysis would proceed as follows. It is clear law and indeed obvious that an encumbrance cannot obtain rights over the property charged if someone has already taken a slice of the cake, a subsequent mortgagee has no more than a charge over the cake less the slice. The explanation of Piskor given by Lord Cross shows that this principle applies even where the first person has not actually cut the slice from the cake, but has already acquired in advance a right to take the slice at the moment the cake comes into the mortgagor's hands. Here, so the analysis would run, the wife had a right (through the combination of the common intent with her acts done in reliance thereon) to have a slice of the husband's interest in the farm, at and from the instant when he obtained his own legal interest upon completion, and the bank's mortgage never attached to anything more than the "cake" as thus depleted.
Unfortunately, it now seems to me that this analysis is unsound, because it fails to take account of the fact that the wife's interest was never at any stage more than equitable. Even if the bank had never come into the picture, the wife would not (continuing the metaphor) actually have subtracted the slice from the cake, which the husband would have retained throughout, with however an enforceable obligation to hold it, or any proceeds of sale, for the benefit of the wife to the extent of her equitable interest. Thus, the bank would have an entire interest in the subject-matter charged, and would take free of the wife's rights unless (and this is the crucial point) it had notice of those rights and the time when it acquired its own. Thus, the case would come down to notice. If the bank had notice of the wife's rights, the wife would have priority. If not, the bank would have priority.
If this is right, then it must follow that, at least in the case of unregistered land, the perplexing trio of cases to which such careful attention was given in argument have in truth no bearing on the problem, which can be approached simply as a traditional conflict between a prior equitable right and a legal interest acquired by a subsequent purchaser for value.
What then is the solution as regards registered land? Here, the position differs in that the wife's equitable interest did co-exist with an equitable interest on the part of the bank, after completion, since all the interests remained equitable until the instruments were lodged for registration. But this does not take the case back into Piskor since (as Nicholls L.J. has explained) the test of actual occupation, which for registered land takes the place of notice, is to be answered as at the date of completion. It seems to me that for this purpose alone the bank must be regarded as if it had acquired a full legal interest on that date, and that the question of actual occupation must be decisive. If the wife was then in actual occupation of the property, her equitable interest prevails over the legal interest of the bank. If not, her interest is subordinate to that of the bank.
Accordingly, I must now turn to the question whether the learned judge was right to hold that on 17th December 1982 the wife was not in "actual occupation" of Vincent Farmhouse within the meaning of section 70(1)(g) of the Land Registration Act 1925. This expression is nowhere defined and its meaning must therefore be ascertained by considering the ordinary meaning of the words (if in fact they have one); the context in which they are used; and the judicial history of this aspect of land law.
As to the word "occupation" all are agreed that no conclusive guidance can be obtained from reported cases in other branches of the law, since it has different meanings in different contexts. The addition of the epithet "actual" does, however, provide a clue. It must have been included for a purpose. That purpose must, as it seems to me, have been to distinguish the person who is in fact there, occupying the property, from someone who is not in fact occupying it, but who stands in such a relation to the property that for the purpose of exercising certain rights or being subjected to certain duties, he is treated in law as if he were the occupier.
The context in which the words appear also yields some guidance. In the first place, the miscellaneous interests listed in section 70(1) have this in common, that they are all interests which bind persons with a legal interest in land, even though they are not entered in the register, and even if the proprietor is a bona fide purchaser without notice. (I omit for the moment the special situation contemplated by the concluding words of section 70(1)(g).) These rights can bear harshly on the purchaser, if they are given too wide a scope, and the words under consideration must be construed on the assumption that, when Parliament decided in 1925 to add paragraph (g) to the list of overriding interests in registered land already created by the Land Transfer Act 1875 and the amending Act of 1897, it intended to produce a result which did reasonable justice to the bona fide purchaser.
Second, the reference to "every person" in paragraph (g) shows that the notion of actual occupation is wide enough to embrace a situation where more than one person is in occupation at the same time.
Third, the inclusion in the list of overriding interests of a specific reference to a person in receipt of the rents and profits of the land, an amendment which brought about a change in the law (see post), demonstrates that the occupation of land pursuant to a contract by one person does not by itself suffice to put the other party in actual occupation.
Fourth, the concept of actual occupation as an ingredient in an overriding interest seems, to my mind at least, to involve some notion of continuity. The interest can hardly override the legal estate intermittently, according to momentary changes in the proprietor's degree of actual physical connection with the land.
Fifth, paragraph (g) cannot be read as if Parliament had simply enacted the section with some other formula, such as "in residence at" in place of "in actual occupation of": for the paragraph applies to all types of land, and the acts which constitute actual occupation of a dwelling house, a garage or woodland cannot all be the same.
Finally, although the paragraph does not actually say that the acts constituting actual occupation must be such that a purchaser who went to the land and investigated would discover the fact of occupation and thereby be put on enquiry, the closing words of the paragraph are at least a hint that this is what Parliament principally had in mind.
Note may also be taken of section 14 of the Law of Property Act 1925, which preserves the interest of "any person in possession or in actual occupation" of land to which he may be entitled in right of such possession or occupation. It is legitimate to assume that, when the list of overriding interests was extended by the other Act of 1925, actual occupation was not intended to be synonymous with the kind of constructive occupation denoted by the concept of possession.
These fragments of guidance must be set against the judicial history of the legislation. As Lord Wilberforce observed in Williams & Glyn's Bank v. Boland (1981) AC 487, the word "actual" in conjunction with "possession" appears in the judgment of Lord Loughborough in Taylor v. Stibbert (1794) 2 Ves. Jun. 437, 439-440, one of the earliest in a line of cases which determined that notice of the presence of a person on the land is notice of his interests, but not of the interests of another person from whom that occupation is derived: so that, in particular, notice of the presence of a tenant on the land is not notice of the landlord's rights. These cases were rehearsed in Bamhart v. Greenshields (1853) 9 Moo. P.C.C. 18, where the appellant's land was managed for him by his father, who for a time put in tenants and received rents, and then went into occupation himself. It was held that a mortgagee who acquired his interest at a time when a tenant was on the land did so free of the appellant's rights. Delivering the opinion of the Board, Mr. Leigh-Pemberton (afterwards Lord Kingsdown) said:
"With respect to the effect of possession merely, we take the law to be, that if there be a tenant in possession of the land, a purchaser is bound by all the equities which the tenant could enforce against the vendor ... the principle being ... that the possession of the tenant is notice that he has some interest in the land, and that a purchaser having notice of that fact, is bound, according to the ordinary rule, either to enquire what that interest is, or to give effect to it, whatever it may be."
There was then citation of the line of cases of which Taylor v. Stibbert (supra) formed part, and the Opinion continued:
"In all cases to which we have referred, it will be observed that the possession relied on was the actual occupation of the land; and that the equity sought to be enforced, was on behalf of the party so in possession."
Then, in the course of a discussion of the facts, Mr. Leigh-Pemberton said:
"There is not the least pretence for saying that the Appellant was ever in the actual possession of the land ... It is sufficient to say, that on any view of the case there was no possession of the land, which could in any manner affect the Respondent with notice of the Appellant's rights."
Next, there was Hunt v. Luck (1901) 1 Ch 45. The contest was between the personal representatives of a Dr. Hunt and the mortgagees of a group of houses let on weekly tenancies. The rents of these houses had for a substantial time been collected by an agent named Woodrow and remitted by them to Dr. Hunt. A document subsequently came to light purporting to be a conveyance of the properties for value by Hunt to one Gilbert, who subsequently raised a loan using a deposit of the title deeds as security. The case is not easy to follow, because the prime issue of fact at the trial was whether the conveyance was invalid, as being either a forgery or procured dishonestly by Gilbert at a time when Dr. Hunt was incapable. The judge found that fraud and incapacity were not established, and one might have thought this to be the end of the case. There was, however, argument both before Farwell J. and the Court of Appeal on the question whether the mortgagees had constructive notice of the alleged defects in Gilbert's title, because they knew that the tenants were paying their rents to Woodrow, a stranger to the paper title. The argument for the personal representatives was to the following effect:
"It is clear that a purchaser has constructive notice of the rights of the tenant: Holmes v. Powell; and this rule is not limited to the terre-tenant, who is in the actual occupation, but it extends also to the person who is known to receive the rents from the occupier of the land."
At first instance, Farwell J. rejected this contention, holding that a tenant's occupation is notice of all that tenant's rights, but not of his lessor's tenants or rights. This view was endorsed by Vaughan Williams L.J. delivering the leading judgment in the Court of Appeal, and was explained as meaning that:
"if a purchaser or a mortgagee has notice that the vendor or mortgagor is not in possession of the property, he must make inquiries of the person in possession - of the tenant who is in possession - and find out from him what his rights are, and, if he does not choose to do that, then whatever title he acquires as purchaser or mortgagee will be subject to the title or right of the tenant in possession."
His Lordship continued:
"I do not think that there is, for the purpose of ascertaining the title of the vendor, any obligation on the purchaser to make enquiries of the tenant in reference to anything but protection against the rights of the tenant."
These decisions formed the background to the addition by the 1925 Act of paragraph (g) to the existing list of overriding interests. A person coming to the legislation without the benefit of subsequent authority might, I believe, have been justified in arriving at the following tentative conclusions:
(1) The reversal of the previous law brought about by the addition of the lessor's rights to the list of overriding interests shows that the question is no longer one of a reasonable opportunity to make enquiry, as it had been under Hunt v. Luck.
(2) Equally, the fact that the overriding character of the occupier's rights is taken away only if the purchaser actually makes fruitless enquiry of the occupier, and not where he does not even try to enquire, shows that we are no longer in the realm of constructive notice.
(3) At the same time, the reference to the person in receipt of rents shows (as previously suggested) that the physical presence of one person on the land pursuant to a contract with another does not give the latter's rights an overriding character, for otherwise the reference would be unnecessary.
(4) The choice of the expression "actual occupation", appearing as it had done in the earlier cases, was not accidental, and this consideration, taken together with the retention of a reference to enquiry, which would be meaningless if actual occupier embraced those whose existence it would be impractical to detect, and in respect of whom attempts at enquiry would be fruitless, supports the view that, even if constructive notice no longer applies in this field, the old law still gives.a flavour to the new words of the section.
(5) If the words are not given this flavour, there will be a marked, and it may be said unacceptable, contrast with the manlike solution arrived at for unregistered land in cases such as Caunce v. Caunce (1969) 1 W.L.R. 286. (On this aspect, see the discussion by Mr. Ian Learning at 35 Conv. (N.S.) 255, and also the brief comments in Brickdale & Stewart Wallace, The Land Registration Act 1925, 3rd edn.p.235).
(6) For want of a better synonym, the person in occupation could be identified as the person who is "there" on the property: although what this entails will be dependent on the nature of the property, and the circumstances of the individual case.
We must now see how this interpretation will fit with the subsequent cases. Certainly it accords well enough with dicta in Strand Securities v. Caswell (1965) Ch. 979, 980 (per Lord Denning M.R.) and National Provincial Bank v. Hastings Car Mart (1964) Ch. 665, 689 (per Lord Denning M.R.) and (1965) AC 1175, 1259, 1261 (per Lord Wilberforce), where section 70(1)(g) is treated as applying to registered land the same rule as already applied to unregistered land. But these dicta cannot be pressed too far, since the present question was not in issue.
So also with the decision in Strand Securities, which was that where a relative was permitted to live in the flat of an unregistered sub-lessor rent free, the latter was not in actual occupation for the purposes of section 70(1)(g).
There are, however, dicta in Strand Securities upon which the wife relies. Both Lord Denning M.R. and Russell L.J. dealt with the hypothetical case of a person who has installed a paid caretaker in the premises, and each expressed the view that the employer, as well as the caretaker, would be in actual occupation, the reason being that "his agent would have actual occupation on his behalf" (page 981B) and that the caretaker "by her occupation for which she was employed, was the representative of the (employer) and her occupation may therefore be regarded as his". These observations are not technically binding on this court, but I unhesitatingly adopt them as deciding that someone may be in occupation through another; although I would add this gloss, that the other must be someone who is specifically employed for a purpose which entails their being in occupation.
At length, we arrive at the present case. The judge has held that the wife was not in actual occupation. We must ask whether he has directed himself correctly in law, and whether on the evidence his conclusion was sustainable.
As to the law, the judge advanced two propositions. First, that "residential property in a semi-derelict condition is capable of being actually occupied, but the nature of the required occupation must be different if the property is uninhabitable"; second, that "... before there can be actual occupation by an agent on behalf of the principal, there must be, in the relationship of principal and agent, a requirement that the agent shall occupy the premises on behalf of the principal". To my mind, these propositions are unexceptionable. I would add my own impressions, previously described, about the flavour of the words in the statute.
As to the facts, I will begin with the position of the builders, in deference to the arguments addressed to us, which took the question of occupation by the builders as the starting point for analysing the occupation of the wife. Whilst I understand this, I do not agree, since it seems to me that the activities of persons on the property may form an element in occupation by the persons who have caused them to be there, irrespective of whether they themselves are to be regarded as being occupiers themselves. Furthermore, I do not really appreciate the utility of asking whether the builders were in actual occupation, since these words are directed to the position of persons having a potentially overriding interest, which of course the builders in the present case did not possess. Assuming, however, that the enquiry is capable of being fruitful, I would for my part hold that the builders were not in actual occupation of Vincent Farm. Certainly, they were present there on a regular basis. But were they there in a way which made their own status relevant when assessing the rights of a bona fide purchaser for value? I would think not. Nobody who arrived on the site to make enquiries about possible interests adverse to those of the person with paper title - and this is surely what section 70 (1)(g) is really about - would imagine that masons and plasterers working on the fabric, with vans parked outside bearing names which were obviously those of tradesmen rather than people who might have adverse claims to the property, could be in occupation of the site, in any relevant sense, rather than coming and going to work upon it. This is not, of course, to say that the presence of the builders is entirely irrelevant, since this might add an element of continuity to a presence by someone else (be it the husband or the wife) which was otherwise too intermittent to amount to occupation. It is, however, only one element in the equation. At the end of the day one must ask this. Acknowledging that the test for actual occupation for a derelict building is not the same as for a habitable house, did the wife have sufficient continuity of presence through herself and the builders whom she and her husband had installed, to mean that she, in distinction from her husband, was "there" on the land, in the sense which I would ascribe to section 70(1)(g)? In company with the trial judge I think not. Her presence there would seem to me to indicate no more than that she and the builders were getting on with the job of putting the farm in order with a view to her going into occupation when it was ready; and that her daily presence did not, any more than that of the builders, disclose anything about the possibility of interests adverse to the holder of the paper title. Even if the statute had referred to no more than "occupation", and even if the various clues to the meaning of paragraph (g) to which I have previously referred had not been available, I would still have held that the wife was preparing the home for occupation, but was not in occupation on the relevant date; and with these further considerations added, I conclude with less hesitation (although acknowledging the difficulty of the issue) that the wife did not have an overriding interest within the meaning of section 70(1).
Accordingly, in the light of the views previously expressed concerning the relationship between the equitable interest of the wife, and the defeasible interest of the bank, to be judged as at the date of completion, I would conclude that the interest of the bank should prevail, and would accordingly dismiss the appeal.
LORD JUSTICE PURCHAS: The history and statutory background to this appeal have already been detailed in the judgment of Nicholls L.J. and, save for the purposes of ease of reference, heed not be repeated here. The appeal raises a number of points of importance in the law relating to registered land, one at least of which has never been directly decided notwithstanding the passage of more than sixty years since the passing of the Land Registration Act 1925 ("the Act"). In order, however, to consider these issues in their proper context, it is important to bear in mind the not entirely usual history as found by the learned judge.
The penultimate matrimonial home was an extension to a bungalow owned by the wife's parents at 61 Salisbury Avenue, Broadstairs. The extension was paid for by the husband's family, who were Swiss. Under an agreement between the husband and wife and the latter's parents, upon notice being given after 31st December 1980 and upon the parties giving up possession of the extension, both the husband and the wife were entitled to a sum of £3,850 to be paid by the wife's parents. It was the common intention of the parties that the wife should have an interest in the extension.
In 1981 the husband and wife were looking for a permanent home away from her parents. At that stage it was the intention of both parties that any property which was acquired "should be a permanent home for the family as a whole" but that the question whether it should formally be held in their joint names or in the sole name of the husband was not specifically discussed. The wife was aware that the husband's grandmother had died in Switzerland leaving a substantial sum of money in a trust of which the husband's uncle and an accountant and legal adviser were trustees. The wife found what was to be the final matrimonial home before the breakdown of the marriage, Vincent Farmhouse, Manston, Kent ("the property"). The asking price was £57,500. The house was in a derelict condition. It was uninhabitable and had not been lived in for some seven or eight years. Both parties wished to purchase the property. They made an offer in the amount of the asking price before the end of July 1982. This was accepted. The wife paid a preliminary deposit of £100, the money for which was provided by the husband.
It was recognised by both the husband and the wife that in order to obtain the consent of the trustees for the purchase money from Switzerland to be made available to the husband the house had to be transferred into his name alone. A large amount of work was necessary to the house before it would be fit for occupation. The amount transferred was, therefore, well in excess of the asking price, namely £70-200 of which the judge traced an amount of £59,200 paid into the account in the husband's name with the appellant bank at Broadstairs on 2nd November 1982. The judge found as a fact, which was not challenged on appeal:
"She (the wife) genuinely believed that the first defendant would hold the property in his name as something which was a joint venture to be shared between them as the family home and the reason for it being held by the first defendant alone was to ensure that the first defendant's uncle would sanction the export of trust funds from Switzerland to England 'for the purchase'."
In my judgment there was, therefore, an unassailable finding that a common intention existed between the parties before the purchase of the house that the wife should have a beneficial interest in whatever property might eventually become the matrimonial home. Various dates are of significance:
(a) the preliminary deposit of &100 was paid to the vendor's agents on 3rd August 1982;
(b) the surveyor's report dated 14th September 1982 showed that the anticipated cost of works was £25,000. This was sent by the wife to the husband for his approval;
(c) on 26th September there was an estimate for the works to the property from a builder, Mr. Griffin, in the sum of £13,000;
(d) on 4th November Griffin entered the site and started work on 7th November;
(e) contracts were exchanged on 23rd November 1982;
(f) the vendors had given permission for Griffin and the husband and wife to enter upon the site and start work prior to the exchange of contracts;
(g) during August and September the wife resided at the matrimonial home in the extension to her parents' bungalow. She began negotiations with the vendors for changes in the boundaries of the property so as to provide for livery stables and paddocks. These negotiations were not successful;
(h) between November and completion on 17th December 1982 the wife engaged on a number of activities which contributed to the joint venture of establishing the new home. These are listed in eight paragraphs in the judgment in respect of which the learned judge made this finding:
"Of these works some would be carried out by a person with no particular skill, in the ordinary course of moving house, namely Items 6, 7 and 8. To Items 1 to 5 the second defendant brought skills which were particular to her, namely her skill and enthusiasm for painting and decorating. The defendants no doubt never paused to think of the special contribution made by the second defendant and to distinguish it in this fashion. They regarded the renovation of a semi-derelict property as a challenge and hoped to achieve it by Christmas 1982, although in the end that objective had to be postponed."
(j) on 14th September 1982 the husband, unbeknown to the wife, approached the bank manager, Mr. Darling, for a loan of £15,000 "for works of renovation to the house". This was granted and in support the husband executed a charge in favour of the bank on the same date. The manager, Mr. Darling, had enquired of the husband whether the house was to be in his sole name and was assured that it was, and received confirmation from the husband's solicitor to that effect;
(k) the charge was dated 17th December 1982. Under an arrangement made between the bank and the husband's solicitors the registration of the charge was left to the latter who did not in fact achieve this until 7th February 1983.
The questions which arise on this appeal, therefore, are:
(a) What interest if any had the wife acquired in the property (i) by 17th December 1982; (ii) by 7th February 1983?
(b) Did that interest receive protection under section 70(1)(g) of the Act?
(c) What was the effective date of the interest created by the bank's charge on the property for the purposes of section 70(1)(g) of the Act?
THE EFFECTIVE DATE OF THE LAND CHARGE FOR THE PURPOSES OF SECTION 7Q(1)(K)
Mr. Price mounted an impressive argument to the effect that a charge was not effective for the purposes of the Land Registration Act which included section 70(1)(g) until it was registered. He submitted that in the case of registered land the basic concept was "the paramountcy" of registration and pointed especially to the fact that the title in the registered land remained with the vendor until the date of registration. The transfer of title, therefore, was not complete until that date although the vendor's title prior to that date was subject to an equitable interest in the purchaser just as the purchaser acquires an equitable interest at and from the exchange of contracts and if the circumstances justify it even prior to an exchange of contracts such as may have occurred in this case by the payment of an initial deposit on the 10th August.
Persuasive as Mr. Price's argument based on paramountcy of registration is as a general approach to the Act, it cannot, in my judgment, be used as a determinative canon of construction in every case if other circumstances in the context and purpose of the provision give a contrary indication. For the purposes of this appeal it is necessary only to consider the provisions of section 70(1) of the Land Registration Act 1925. This section provides a catalogue of "overriding interests". These do not require to be registered but yet if they are in existence at the material time any interest acquired by the purchaser or mortgagee is subject to them. Whilst it would be constructively tidy to treat the various interests listed in the sub-paragraphs (a) to (h) of section 70 in the same way there are obviously inconsistent and unreliable results if this is done. As Nicholls L.J. has pointed out in his judgment, although for many of the categories of interest listed the date of registration would be the obvious and logical date from which the overriding interest should be effective to defeat the interest to be registered, (e.g. a local land charge under subsection (i)), this does not apply to subsection (g). To allow an overriding interest to arise after the completion of a sale or the creation of a legal charge upon registered land which does not itself have to be registered and of which the purchaser has no notice would be a conveyancing absurdity.
One is, therefore, driven to the conclusion that for the various purposes disclosed in the subsections of section 70 the effective date upon which to consider the existence of the overriding interest may differ. The historical background of section 70(1)(g) was to prevent in the case of persons living in the property transferred or charged whose presence was obvious and should put an intending purchaser or chargee on notice from having their interests prejudiced by the registration of a subsequent charge or transfer. If the effective date at which the presence of the overriding interest for the purposes of section 70(1)(g) is taken as the date of registration then the underlying purpose of protecting the interest of an occupant in being at the time when the purchaser is making his decision to buy is frustrated. I agree, with respect, with Nicholls L.J. that, unless for the purposes solely of section 70(1)(g) the effective date is taken to be the date at which the interest to be registered is created, then the subsection has little value or effect. I agree also that Mr. Price's argument to mitigate this effect on the basis that it is easy to make an expeditious registration of the charge after its completion is no real answer to the difficulty.
THE WIFE'S INTEREST
The effective date at which the wife's interest, if any, is to be considered is, therefore, 17th December 1982. From the facts found by the judge, to which I have already referred in this judgment, there was clearly a common intention that whatever might be the position as regards the name in which the property was bought that it should become the family home and the creation both materially and otherwise of the joint efforts of the husband and wife. This intention is, in my judgment, a sufficient basis upon which the law should hold that the first element necessary to create an equitable interest is satisfied, see Grant v. Edwards (1986) Ch 638 at 646. In the case of husband and wife, before equity will intervene to protect the wife, her contribution must exceed that normally expected of a wife carrying out her normal matrimonial role and to this distinction the learned trial judge clearly directed his attention and found that that additional element was established. As Nicholls L.J. has pointed out, it is somewhat unfortunate that on his approach it was not necessary to analyse the material contribution made by the wife in relation to the critical date of 17th December 1982. However, I agree with Nicholls L.J. that there is ample evidence of the wife acting to her detriment in the pursuance of the common intention to build from the semi-derelict house their family home by way of reconstruction, design and decoration and that substantial proportions of this effort took place prior to 17th December 1982. There was, therefore, an equitable interest enjoyed by the wife prior to the completion of the purchase. If the question is asked "an equitable interest in what?" the answer lies in the concept that her equitable interest rests in the equitable interest enjoyed by the husband prior to completion.
WAS THE WIFE IN "ACTUAL OCCUPATION"?
The application of the words "in actual occupation" in section 70(1)(g) is the aspect of this appeal that has given me the most concern. The provisions of the section clearly were intended to import into the law relating to registered land the equitable concept of constructive notice. Thus, a purchaser or a chargee acquiring the title to or an interest in the land where the vendor was not in actual possession in order to protect his interest had to make appropriate enquiries if he found someone else in occupation of the property. Thus, a tenant in occupation was protected under the old rules as being an owner of an overriding interest and his presence put the purchaser on enquiry, Woolwich Equitable Building Society v. Marshall (1952) 1 Ch. 1 at page 9, and see the passage cited in the judgment of Nicholls L.J. from Vaughan Williams L.J. in Hunt v. Luck (1902) 1 Ch 428 at page 433:-
"It means that, if a purchaser or a mortgagee has notice that the vendor or mortgagor is not in possession of the property, he must make inquiries of the person in possession - of the tenant who is in possession - and find out from him what his rights are, and, if he does not choose to do that, then whatever title he acquires as purchaser or mortgagee will be subject to the title or right of the tenant in possession."
and per Lord Wilberforce in National Provincial Bank Ltd. v. Hastings Car Mart Ltd. (1965) AC 1175 at page 1260 again as cited by Nicholls L.J.:
"... all that section 70(1)(g) of the Land Registration Act, 1925, does is to adapt the system of registration, and the modified form of inquiry which is appropriate to that system, to the same kind of right as under the general law would affect a purchaser finding a person in occupation of his land."
In more recent decisions the position of a purchaser or mortgagee where the vendor or mortgagor is not in possession has been made more vulnerable by the approach of the House of Lords to the position of a person buying from a husband who is known to have a wife living who may well have acquired an interest in the property involved, see per Lord Wilberforce in Boland's case (1981) AC 487 at page 508:
"I would only add, in conclusion, on the appeal as it concerns the wives a brief observation on the conveyancing consequences of dismissing the appeal. These were alarming to Templeman J., and I can agree with him to the extent that whereas the object of a land registration system is to reduce the risks to purchasers from anything not on the register, to extend (if it be an extension; the area of risk so as to include possible interests of spouses, and indeed, in theory, of other members of the family or even outside it, may add to the burdens of purchasers, and involve them in enquiries which in some cases may be troublesome.
But conceded, as it must be, that the Act, following established practice, gives protection to occupation, the extension of the risk area follows necessarily from the extension, beyond the paterfamilias, of rights of ownership, itself following from the diffusion of property and earning capacity. What is involved is a departure from an easy-going practice of dispensing with enquiries as to occupation beyond that of the vendor and accepting the risks of doing so. To . substitute for this a practice of more careful enquiry as to the fact of occupation, and if necessary, as to the rights of occupiers can not, in my view of the matter, be considered as unacceptable except at the price of overlooking the widespread development of shared interests of ownership. In the light of section 70 of the Act, I cannot believe that Parliament intended this, though it may be true that in 1925 it did not foresee the full extent of this development."
The evidence given by Mr. Downing, the Bank Manager, on this aspect of the case as appears from the note of the judge is:
"He had purchase money, needed help for £25,000 to be paid on renovations.
He asked for £15,000 I took view I did not know all that much about Mr. Rossett. I asked, is property being purchased in your sole name? Unusual for property not to be in joint names. He said it was to be in his sole name - reason Mrs. Rossett and the children were away living with her parents. I did not know then when property would be purchased - did not know if contracts had been exchanged. We still had funds for purchase in Bank. Contracts might have been exchanged.
At time of purchase I believe funds for purchases were coming from Switzerland. It did not seem possible Mrs. Rossett had an interest. After signing of charge I telephoned Rogers he confirmed Mr. Rossett purchasing in his own name."
From the notes of evidence two features appear. The reason given by the husband for having the property in his own name was not entirely frank and certainly was not a basis upon which it could be said that the wife was not to have an interest in the property or be concerned with the renovations. Secondly, that the bank manager was content merely to enquire of the husband in whose name the property was to be registered and to confirm this by a telephone call to the husband's solicitors. And thirdly, that, although he understood that the money was really meant for the renovations, he assumed that they had not already been put in hand and made no enquiry as to what part the husband and the wife were respectively to play in this matter.
In order for the wife's interest in the property to qualify as an overriding interest under section 70(1)(g) two things must be established:
(a) Was she in actual occupation? and
(b) Would approprJateenquiries made by the bank have elicited the fact of her interest?
I have found neither of these questions easy to answer. The fact that the bank chose merely to rely on the word of the husband to the effect that the property was to be transferred solely into his name is not, in my judgment, a sufficient answer to the requirements of section 70(1)(g) applying by analysis the extract from the speech of Lord Wilberforce in Bolland's case already cited in this judgment. If a representative of the bank had visited the site in accordance with the hypothetical approach both under the old conveyancing law as to constructive notice and under the provisions under section 70(1)(g) what would he have seen to put him on enquiry? In the case of an inhabitable house which clearly is not occupied by a tenant licencee or anyone else the answer to the problem is simple but does not assist in the particular circumstances of this case. The question must be posed against the facts established in this case, namely a semi-derelict and clearly uninhabitable house upon which daily work of an extensive nature is being carried out as anticipated in the discussions between the husband and the bank manager. During normal days he would have found the wife present in person upon the scene presumably busily engaged upon the work being carried out and also he would have found Griffin's workmen professionally engaged upon the renovations and evidence that at least one of those workmen slept there frequently at night during the working week. Neither the husband nor the wife could be said to be physically living as a tenant or licencee in the property in circumstances which would in the traditional conveyancing concept put a purchaser on notice that there might be a tenant or other person with an interest in the property but is this an answer to the problem? In order to constitute "occupation" there must be occupation in person or by someone occupying as an agent for the purposes of the proprietor and not merely as his bare licensee. This position is clear from the judgments in Strand Securities Ltd. v. Caswell (1965) Ch 958 at pages 981 and 984, thus occupation may be enjoyed through a resident caretaker put in the property by a tenant to look after it for him but occupation by a friend for her own purposes with the leave and licence of the tenant is no "actual occupation".
Applying the principles in the Strand Securities Ltd. case I see no reason why the physical presence of the builders in connection with the uninhabitable, semi-derelict state of the house on the one part as being in occupation on behalf of both the husband and the wife for they were the joint paymasters and employers of the builder to whom he looked jointly for payment. In addition the occupation by the physical presence of the wife during such times in view of the state of the premises it was reasonable for her visibly to be seen to be concerned in the renovation of those premises would qualify for "actual occupation" within section 70(1)(g). It is a fine point of distinction when set against the concept of an enquiring and prudent purchaser seeing these activities going on and in particular noticing the presence of the wife to decide whether there was evidence of occupation both by the husband and the wife on the premises. An enquiry of the wife when found on the premises would most likely disclose her interest in the creation of the family home. On the findings of the judge, I think that there was evidence of actual occupation by the wife.
It is now necessary to turn to the second aspect of the problem, namely what answer would be given to reasonable enquiries made by the observant and prudent bank about to create a charge? This problem has been considered in detail in the judgment of Nicholls L.J. and with respect I agree with his approach. Bearing in mind the warning of Lord Wilberforce in Bolland's case of which Downing in fact admitted knowledge in his cross-examination and knowing that he was dealing with a husband and wife notwithstanding the information that the property was to be held solely in the husband's name he ought to have been aware of possible interests on the part of the wife. His remedy easily obtained was to ensure that the wife was joined with the husband in the charge. On the facts of this case the wife not only was ignorant of the husband's activities in relation to the charge but was entitled to assume that a charge would not be taken out on the property since, so far as she knew, all the necessary money was being made available from Switzerland. It was after all for this purpose that she consented to the house not being in joint names. Therefore, reasonable enquiries from the wife would have immediately elicited that she knew nothing about the proposed charge and that the house and its renovations was a joint enterprise. Even enquiries on the more limited front of those physically upon the site if it happened to be on one of the occasions when the wife was not there would have elicited that it was a joint effort by the husband and the wife and that the builder was carrying out works on their behalf.
As I have already commented, Mr. Darling might well say that he was put off by the somewhat less than frank remarks made by the husband. Such a comment must merit a degree of sympathy. Unfortunately, however, less than honest husbands when relating to financial matters involved with the family are not unknown and ought to be within the general experience of prudent men of finance. A somewhat analogous situation arose in the case of Kemmis v. Kemmis and other cases which have been concerned with setting dispositions aside under section 37 of the Matrimonial Causes Act 1973. However, this is not a true analogy for the purposes of the present case since misleading or deceptive husbands will exist in financial matters quite apart from the breakdown of a marriage and should, therefore, be within the contemplation in any event of bank managers and others in a like position. The wife on her side equally merits sympathy since she was entitled to act in good faith upon the representations of the husband and to assume that he would do nothing behind her back to prejudice the interest which she was to acquire in the property under the common agreement.
Perhaps the most satisfactory method of resolving the conflict between the equitable interests of two innocent people is to consider the question of timing. On the facts found in this case the wife was in course of acquiring an equitable interest albeit indirectly in the property by virtue of conduct which in equity it would be wrong to ignore. The bank's interest really materialised at 17th December at a time when the wife must be taken to have acquired an interest albeit a minor interest in the property. As Nicholls L.J. has pointed out, unfortunately owing to the absence of findings by the learned judge the extent of the interest is not ascertainable on the evidence at the moment. This, however, should not prejudice the wife's interest as. a question of priority, qua the bank's interest. This interest is an undivided interest in the property in which the wife is in possession and would, in my judgment, be a ground for preventing a possession order being made against her in favour of the bank.
COMPETING EQUITABLE INTERESTS
This brings me to the submissions made on behalf of the bank in relation to a trinity of cases, namely In re Connolly Brothers Ltd. (No. 2) (1912) 2 Ch 25, Security Trust Co. v. Royal Bank of Canada (1976) AC 503 and Church of England Building Society v. Piskor (1954-) Ch. 553. These three cases have been fully analysed in the judgment of Nicholls L.J., an analysis which I gratefully adopt. In the event, as a result of that analysis I agree with Nicholls L.J. that the cases of Connolly Brothers Ltd. and Security Trust Co. are distinguishable from the facts of this case. The bank's participation in creating the charge was to secure an overdraft the money from which was essentially to be used for the purposes of renovation and not for the acquisition of the property. In fact, an analysis of the bank statement involved shows that at the moment of paying the moneys for completion the account went into overdraft by a little over £2,000 and no more. If any interest was thereby created as a condition precedent to the transfer of the property to the husband it can only be to the extent of this limited amount. I do not, however, think that the bank's interest in securing the overdraft can in any way be said to be equivalent to the interest obtained by Mrs. O'Reilly in the Connolly case or the debenture holder's charge in the Security Trust Co. case. In my judgment, the effect of the completion of the purchase of the property was to transfer an entire interest in the property subject to registration. In these circumstances this court is bound by the decision in Church of England v. Piskor and to that extent that decision supports the analysis which I have ventured to make in agreeing with the views expressed by Nicholls L.J. For these reasons I agree that the wife's appeal should be allowed and the order for possession set aside.
Order: Appeal allowed with costs here and below, without prejudice to the rights of the Bank as against Mr. Rosset. Leave to appeal to the House of Lords refused.
