The operation of sections 28 and 29 of the LRA 2002 (extracted in part 2) came under scrutiny in Halifax plc v Curry Popeck [2008] EWHC 1692 (ch) annotated by Dixon (2009) 125 LQR 401. As we have seen, section 28 preserves the application of priority rules provided by the general law except for the significant exception in section 29 for registrable dispositions of a registered estate for valuable consideration. Halifax v Curry Popeck arose from mortgage fraud perpetuated by John and Tracy Whale who were registered proprietors of a plot of land consisting of a bungalow, a garden and garages.The fraud consisted in the following transactions:

1. A mortgage granted to the Halifax which purported to be over the entire plot was in fact registered as a charge over a narrow strip of land and a garage.  However, through estoppel, the Halifax had an equitable charge over the bungalow.

2. A registered disposition of the house to “John Sinclair”. This was in fact John acting under an assumed name. The purpose of the disposition was for John to grant a legal mortgage to Verso to raise money to fund the “purchase”.

3. A subsequent mortgage granted to the Bank of Scotland. This mirrored the first fraud and the Bank of Scotland, believing that they had a registered charge over the entire plot, were in fact registered with a charge over another narrow strip of land and a garage.

The fraud came to light when the mortgages were not repaid. The Bank of Scotland obtained a charging order over the land and, through this, an equitable charge.  The land was sold and the proceeds of sale were used firstly to pay Verso who, as registered proprietors of a charge over the land, had priority over the other lenders.  The remaining proceeds were sufficient to discharge one, but not both, of the equitable charges that subsisted in favour of Halifax and the Bank of Scotland. Therefore the question arose as to the order of priority of these two equitable charges. On the facts, both of the mortgages had been arranged by the same conveyancer who had, however, been employed by different firms of solicitors at the time of each transaction.  Both firms of solicitors were vicariously liable for the actions of the conveyance; which firm would have to bear the liability was dependent on the outcome of the priority question.  One equitable charge would be repaid from the proceeds of sale; the holder of the other charge would enforce liability against the relevant solicitors.

The general rule applicable to competing equitable interests is that priority is determined by the order of creation. If this rule applied, then the Halifax had priority as their equitable charge was the first in time.  However, this was subject to the effect of section 29 of the LRA 2002 if the transfer to John Sinclair was a registered disposition of a registrable estate for valuable consideration.  On the facts it was held that John Sinclair had not provided valuable consideration.  Section 29 did not apply and the Halifax retained priority under the general law. The Halifax would receive the proceeds of sale; the Bank of Scotland would enforce liability against the conveyance’s employees at the time their charge was granted.

As regards the actual decision, Halifax v Curry Popeck is a straightforward illustration of the operation of sections 28 and 29 (albeit arising from a complex set of facts). In particular, it demonstrates the application of the general law of priorities retained by section 28 where a disposition (the fraudulent transfer to John Sinclair) does not benefit from the special priority rule in section 29.  But the real interest in the case lies in understanding what the outcome would have been had section 29 applied.  This is briefly addressed in an obiter discussion by Norris J and is the topic of Dixon’s annotation. We have seen in part 2.2 that under section 29 completion of a registered disposition of a registrable estate for valuable consideration “has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition” which is not entered on the register or protected as an overriding interest. On the facts, Halifax’s equitable charge was not entered on the register (they of course believed that they were proprietors of a legal charge) and was not an overriding interest. Norris J considered that if section 29 applied, then the transfer to John Sinclair would have “wiped the title clean” of Halifax’s charge as a property right, leaving Halifax to pursue personal remedies to recover the debt.  Had this been the case, the Bank of Scotland would have obtained priority and their charge would have been discharged from the proceeds of sale. 

Dixon questions whether this is in fact the effect of section 29.  He explains that this attributes the section with making an unprotected property right “void”. While this would have happened under the equivalent provisions of the LRA 1925, Dixon highlights that section 29 of the LRA 2002 is worded differently. It provides only that the unprotected property right is “postponed”. It remains a property right, but cannot be enforced against any interest “under the disposition”. On Dixons’s view, a property interest which is “postponed” under section 29 will still take priority over a property interest which:

1. is not the interest which took priority under section 29; and;

2. is not derived by a registrable disposition from the interest that took priority under section 29.

On the facts of Halifax v Curry Popeck, the Bank of Scotland’s equitable charge was not the interest that took priority over the Halifax’s charge under section 29 and nor was it derived by a registrable disposition from that interest. Hence, on Dixon’s argument, even if section 29 had applied, then Halifax’s equitable mortgage would still have enjoyed priority over that held by the Bank of Scotland.