NeutralCitationNumber: [2010] EWHC 2755 (QB)

Appeal Ref: LS0310A, Claim No. 8LS70609
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
LEEDS DISTRICT REGISTRY
ON APPEAL FROM THE LEEDS COUNTY COURT
HIS HONOUR JUDGE LANGAN QC

LEEDS COMBINED COURT CENTRE

Date: 01/11/2010

Before:

THE  HON. MR.JUSTICE RAMSEY
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Between:

	BERNICE THOMAS	
Appellant/ 
2nd Defendant	
	- and -		
	
CLYDESDALE BANK PLC
(t/a YORKSHIRE BANK)	

Respondent/
Claimant	
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Stephen Howd (instructed by Barton Legal ) for the Appellant/Second Defendant
Dominic Crossley (instructed by Addleshaw Goddard LLP) for the Respondent/Claimant

Hearing date: 28 October 2010
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Judgment

The Hon Mr. Justice Ramsey:
Introduction 

1.	This is an appeal from the decision of His Honour Judge Langan QC by which he dismissed the application of the Second Defendant (“Ms Thomas”) under CPR 39.3(3) for the order of His Honour Judge Kaye QC, dated 18 January 2010 to be set aside, Ms Thomas having failed to attend a hearing on 18 January 2010. The order dated 18 January 2010 granted the Claimant (“the Bank”) possession of a property at 8 Park Lane, Roundhay, Leeds (“the Property”) and made an order for costs against Ms Thomas.

2.	In order for a party to succeed on an application under CPR 39.3(3) the applicant must establish the three requirements set out in CPR 39.3(5) at paragraphs (a) to (c). In this case the judge held that Ms Thomas had established that she had acted promptly in making the application and had a good reason for not attending the trial, so that the requirements under CPR 39.3(5)(a) and (b) were satisfied. Those findings are not challenged on this appeal. However, the judge held that the application failed because Ms Thomas had not established that she had a reasonable prospect of success at the trial as required by CPR 39.3(5)(c). It is that aspect which is dealt with by this appeal by way of a review of the judge’s decision. Ms Thomas contends that the decision was wrong under CPR 52.11(3).

Background

3.	In March 2006 the First Defendant (“Mr Burtenshaw”) purchased the Property with a mortgage of £550,000 from the Bank of Scotland. The purchase price was £650,000. By then he had formed a relationship with Ms Thomas. The purchase of the Property proceeded in Mr Burtenshaw’s sole name. Prior to the purchase of the Property Mr Burtenshaw lived with Ms Thomas at Ms Thomas’s house in Montagu View, Leeds. 

4.	The Property needed renovation and in about May 2006 after having purchased the Property Mr Burtenshaw approached the Bank seeking a loan from them. He wanted £550,000 to repay the Bank of Scotland and a further £200,000 for renovation works. The Bank offered a secured bridging loan facility to Mr Burtenshaw in the sum of £750,000 with the intention of this being transferred to a residential mortgage in due course. 

5.	On 27 July 2006 Mr Burtenshaw executed a Deed of Mortgage of the property to secure all the monies owing to the Bank, on demand, including any further advances. The mortgage was subsequently registered at HM Land Registry on 22 August 2006.

6.	Mr Burtenshaw, Ms Thomas and their children moved into the Property on or about 30 September 2006, on completion of the renovation works. The Bank subsequently offered a new loan to cover the existing facility and extra cost overruns in relation to the renovation works. They also decided to transfer the facility to a residential mortgage but did not need any new documentation because the existing mortgage of 22 July 2006 secured all monies owing including further advances.

7.	Towards the end of 2007 Mr Burtenshaw, who had a quantity surveying practice and was involved in property development, fell into financial difficulties and his practice went into administration. The Bank became concerned about the repayment of monies owing and eventually on 27 May 2008 demanded repayment of some £837,269 owing on the mortgage account and also some £9382 on an overdrawn current account. 

8.	These proceedings were commenced by the Bank against Mr Burtenshaw on 18 June 2008. Subsequently Ms Thomas asserted an interest in the Property and she was joined in the proceedings as a Second Defendant on 12 December 2008. The action came on for trial on 17 November 2009 but at the request of the Defendants was adjourned and finally came on for trial on 18 January 2010. By that time Mr Burtenshaw had been adjudged bankrupt and therefore had no personal interest in the outcome of these proceedings because any surplus vested in his Trustee in Bankruptcy. Ms Thomas did not attend the hearing on 18 January 2010 but sought an adjournment based upon a note from her doctor which said that she was suffering from a depressive illness and was unfit to attend court. There was no supporting documentation and His Honour Judge Kaye QC proceeded with the hearing but had in mind the provisions of CPR 39.3(3). He accordingly considered the evidence and submissions and granted the Bank possession of the property.

9.	On 8 March 2010 Ms Thomas filed an Appellant’s Notice in which she sought to appeal against the Order of His Honour Judge Kaye QC dated 18 January 2010. That Appellant’s Notice was ordered to be treated as an application to set aside the judgment under CPR 39.3(3). The Application was heard by His Honour Judge Langan QC on 8 June 2010 and was refused. Ms Thomas applied for permission to appeal which was granted by David Richards J on 16 July 2010. This is therefore the substantive appeal against the decision of His Honour Judge Langan QC.

The provisions of the Land Registration Act 2002

10.	Ms Thomas contends that she had a beneficial equitable interest in the Property which arose from a common intention constructive trust prior to 27 July 2006, when the Deed of Mortgage was executed in favour of the Bank. On this application the Bank do not challenge that contention but reserve the right to do so should this appeal be allowed. Ms Thomas contends that her unregistered interest in the Property overrides the registered disposition to the Bank. She therefore contends that under sections 29(1) and 29(2) of the Land Registration Act 2002 (“the 2002 Act”), the Bank’s charge by way of mortgage does not have priority over her interest which is protected because it falls within paragraph 2 of Schedule 3 to the 2002 Act and does not come, as the Bank contends, within the exception under Paragraph 2(c) of Schedule 3 to the 2002 Act.

11.	The relevant provisions of the 2002 Act are as follows:

(1)	By section 29 it is provided:

“(1) If a registrable disposition of a registered estate is made for valuable consideration, completion to the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.

(2) For the purposes of subsection (1), the priority of an interest is protected -
(a) in any case, if the interest 
…
(ii) falls within any of the paragraphs in Schedule 3, or...”

(2)	In Schedule 3 it is provided that : 

“Unregistered Interests which override Registered Dispositions
  ...
  Interests of persons in actual occupation

2 An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for –
...
(c)	an interest -
 (i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and
(ii) of which the person to whom the disposition is made does not have actual knowledge at the time;...”

The issues on this appeal

12.	The contentions of the parties can be summarised by reference to three issues which arise under paragraph 2 of Schedule 3 of the 2002 Act, as follows:

(1)	Ms Thomas contends that “at the time of the disposition” on 27 July 2006 her interest in the property was the interest of “a person in actual occupation”. The Bank contends that she was not in “actual occupation”.

(2)	The Bank contends that under paragraph 2(c)(i) of Schedule 3 Ms Thomas’s interest belonged to “a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition”, whereas Ms Thomas contends that her occupation of the property would have been obvious on a reasonably careful inspection of the property on 27 July 2006.

(3)	The Bank contends that Ms Thomas’s interest was one of which the Bank, being a “person to whom the disposition is made” did not have “actual knowledge” at 27 July 2006. Ms Thomas contends that they did have the requisite actual knowledge. 

13.	It is convenient to deal with each of those three issues in turn.

Actual Occupation

14.	In his judgment the judge held that Ms Thomas did not have a realistic prospect of succeeding in establishing that she was in “actual occupation” of the Property at 27 July 2006. He referred to paragraph 6 and 7 of Ms Thomas’s witness statement signed on 27 April 2009 in which she said this: 

“Upon completion we began renovation works at the property and I was involved in the planning of those works and dealing with various contractors etc. I believe that I was in attendance at the property at least every other day. 
…
Whilst the renovation works were undertaken Mr Burtenshaw and I continued to live with our children at the property that I owned at 8 Montagu View, Leeds LS8 2RH. Even though we had not physically moved into the property and I in fact did not do so until on or around 30th September 2006 I was at the property almost every day organising renovations etc and I had the right to exclude individuals from the property if I chose to do so.”

15.	At Paragraph 13 of his judgment he said :

“I doubt whether attendance at the property every other day, or slightly more frequently, can properly be regarded as being in actual occupation of the property.”

16.	On this appeal Mr Stephen Howd, who appears on behalf of Ms Thomas, contends that the judge was wrong in coming to that conclusion. He submits that on the evidence, including new evidence to which the Bank has consented and for which I have given permission, Ms Thomas has a realistic prospect of succeeding in showing that she was in actual occupation of the property. He submits that on 27 July 2006 the evidence shows that there were builders and an interior designer/project manager, Uffizzi Interiors Limited (“Uffizzi”), working in the property on behalf of Ms Thomas and Mr Burtenshaw and that this together with Ms Thomas’ attendance at the property at least every other day when considered with her intention to reside at the property was sufficient in law to provide a reasonable prospect of success on this aspect, as required under CPR 39.3(5). 

17.	I was referred to the decision of the Court of Appeal in Lloyds Bank Plc v Rosset [1989] 1 Ch 350; Abbey National Building Society v Cann [1991] 1 AC 56 and Link Lending Limited v Susan Bustard [2010] EWCA Civ 424. He submitted that the test to be applied for whether there was “actual occupation” was that set out by Nicholls LJ in Lloyds Bank v Rosset at 379 C where he found that there was actual occupation on this basis: 

“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 actually carrying out the renovation necessary to make the house fit for residential use.”

18.	He also relied on what Mummery LJ had said in Link Lending at [27]:

“The trend of the cases shows that the courts are reluctant to lay down, or even suggest, a single test for determining whether a person is in actual occupation. The decisions on statutory construction identify the factors that have to be weighed by the judge on this issue. The degree of permanence and continuity of the person concerned, the intentions and wishes of that person, the length of absence from the property and the reason for it and the nature of the property and personal circumstances of the person are among the relevant factors.” 

19.	On behalf of the Bank Mr Dominic Crossley submits that the presence of the builders was not, on the evidence, occupation by Ms Thomas because she was not the person who employed the builders or Uffizzi and that when she visited the site she did so as the agent of Mr Burtenshaw not in her own role as an occupier. He submitted that the intention of Ms Thomas to reside in the property could not be a factor in determining whether she was in actual occupation. He submitted that there was not the necessary permanence and continuity to her occupation and there was nothing which related to her by way of belongings or items in the property which would suggest that she was in occupation.

20.	The judge was not referred to either the decision in Lloyds Bank v Rosset or the decision in Link Lending. Further, what has been relied on by way of evidence has been expanded by the further evidence for which I gave permission. 

21.	The following facts are now contained in the witness statements of Ms Thomas and Mr Burtenshaw. Mr Burtenshaw employed the builders carrying out structural works, Batty Builders. Uffizzi were engaged as interior designers/project managers by Mr Burtenshaw and Ms Thomas and wrote generally to both Mr Burtenshaw and Ms Thomas. Ms Thomas was involved in discussing matters with Stephanie Hill of Uffizzi, approving proposals for work to be carried out by sub-contractors, planning those works and dealing with various contractors. Ms Thomas was at the property at least every other day or almost every day. The intention was that Ms Thomas and Mr Burtenshaw should reside at the Property with their children when the renovation was complete.  

22.	The facts of Lloyds Bank v Rosset were that a husband and wife arranged to purchase a property in a semi-derelict condition. The vendors granted them permission to enter the property with builders to undertake renovation work before exchange of contracts. Builders began work and the wife herself carried out decorating work almost daily; obtained materials and generally urged on the builders. The property was purchased in the name of the husband alone. Contracts were exchanged and at completion a legal charge was entered into in favour of the bank. The question arose as to whether the wife had an overriding interest under section 70(1)(g) of the Land Registration Act 1925. The relevant provisions covered “the rights of every person in actual occupation of the land”. By a majority (Mustill LJ dissenting) the Court of Appeal held that the wife was in actual occupation of the property. 

23.	Nicholls LJ said at 377F:

“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 proceeded and before anyone has started to live in the building.
…
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.”

24.	He referred to the decision in Williams & Glyn’s Bank Limited v Boland [1981] AC 487 where Lord Wilberforce at page 505 had explained the significance of the word “actual” in the phrase actual occupation as merely emphasising that what was required was physical presence not some entitlement in law. He held that the presence of the builder there every day with one of his men sleeping there most nights and the wife spending almost every week-day at the property during the day was sufficient physical presence and “that physical presence was to the extent that one would expect of an occupier having regard to the then state of the property.” He found that while the building contract was with the husband alone, the builder regarded himself as being employed by both the husband and wife and addressed his invoices to both of them. He looked to them both for payment. 

25.	Nicholls LJ concluded at 378:

“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. There was no sound basis for distinguish 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.”

26.	Purchas LJ said this at 405 F to H:

“Applying the principles in the Strand Securities 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 inquiring 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.”
	
27.	Mustill LJ considered that the presence of the wife and the builders was only sufficient to show that she was going to go into occupation when it was ready, not that she was in occupation. 

28.	In Abbey National Building Society v Cann [1991] 1 AC 56 a loan was applied for to the bank by a person who intended the property should be occupied not by himself, but by his mother and a man who she subsequently married. An issue was whether or not the mother and the man were in occupation. The mother had been on holiday but on the day of completion the son and the man had, with the vendors’ consent, been permitted to have their carpet layers attend at the property to lay the mother’s carpets and her furniture began to be unloaded and taken in. 

29.	Lord Oliver, at 93F held that the finding of fact that “no more than the taking of preparatory steps leading to the assumption of actual residential occupation on or after completion was amply justified by the evidence before the judge.” He continued as follows:

“It is, perhaps, dangerous to suggest any test for what is essentially a question of fact, for “occupation” is a concept which may have different connotations according to the nature and purpose of the property which is claimed to be occupied. It does not necessarily, I think, involve the personal presence of the person claiming to occupy. A caretaker or the representative of a company can occupy, I should have thought, on behalf of the employer. On the other hand, it does in my judgment, involve some degree of permanence and continuity which would rule out mere fleeting presence”

30.	In Link Lending v Bustard the question was whether or not a person who had once resided at a property but had been taken into psychiatric care was still in occupation. Mummery LJ said this at [27]

“Whether Ms Bustard was in “actual occupation” of the Property at the relevant date was an issue on which the trial judge had to make an evaluation based on his findings of primary fact. As for the law he considered the relevant authorities on the concept of a “person in actual occupation” of land in the earlier land registration legislation and now found in the 2002 Act. The construction of the earlier provisions by the House of Lords is binding on this court.”

31.	On the law as cited above and the facts now disclosed in the evidence I have come to the conclusion that the judge was wrong in concluding that Ms Thomas did not have reasonable prospects of establishing that she was in actual occupation of the Property. 

32.	The degree of occupation must take into account the fact that the house was not being used as a residence on 27 July 2006. Like the farmhouse in Lloyd’s Bank v Rosset, that affects the question of what is required for occupation. The evidence shows that the builders were there and Uffizzi were carrying out interior design and managing the project and I consider that there are reasonable prospects of establishing that their occupation of the premises was occupation on behalf of both Mr Burtenshaw and Ms Thomas. The evidence also shows that Ms Thomas was present at the property on a regular, almost daily basis. In addition, the intention and wishes of Mr Burtenshaw and Ms Thomas were that she should reside at the Property, as she did, after 30 September 2006 when the renovation was complete.

33.	In terms of the test set out by Nicholls LJ in Lloyd’s Bank v Rosset, Ms Thomas has reasonable prospects of establishing that her physical presence on the property and the presence of the builders and Uffizzi was of the nature, and to the extent, that one would expect of an occupier having regard to the then state of the property in the state of renovation for residential use. In terms of what Mummery LJ said in Link Lending, Ms Thomas has reasonable prospects of establishing that there was a degree of permanence and continuity in her presence; that her intention and wish was that she should reside permanently at the property and that her presence was sufficient for the nature of the property in the course of renovation. 

Obvious on a reasonably careful inspection

34.	Mr Howd submits that Ms Thomas’s occupation would have been obvious on a reasonably careful inspection of the property on 27 July 2006. Mr Crossley submits that it would not have been. 

35.	In his judgment the judge said:

“I do not see that occupation, if it is occupation, which takes the form of visits to a property to supervise works three or four times a week, can be occupation which would have been obvious on a reasonably careful inspection of the land at the time of the disposition, that is to say on the day when the mortgage was granted.”

36.	So far as counsel’s researches have been able to ascertain, the provisions of paragraph 2(c)(i) of Schedule 3 to the 2002 Act 2002 have not been the subject of any previous reported court decision. The question raised in this case is what amounts to a “reasonably careful inspection”. Mr Howd submits that the reasonably careful inspection would have to be carried out by somebody who had the knowledge which the Bank had in this case. Mr Crossley submits that the wording is clear and that all that is required is what is set out in the section an objectively judged reasonably careful inspection.

37.	In the present case the judge was dealing with the question of occupation on what I have found to be a wrong basis. He similarly applied that basis to this question. The question is whether Ms Thomas has reasonable prospects of establishing that the degree of occupation which I have found would have been obvious on a reasonably careful inspection of the Property.

38.	On the basis set out above, I consider that Ms Thomas would have reasonable prospects of establishing that the person inspecting would have been aware that there were builders working at the premises, that Uffizzi were carrying out interior design work and project managing the project and that Ms Thomas was visiting the property. In my judgment the concept of inspection strongly suggests that what has to be obvious is the relevant visible signs of occupation upon which a person who asserts an interest by actual occupation relies. It is clear from what is said above that, in order to determine whether somebody is in actual occupation it is necessary to determine not only matters which would be obvious on inspection but matters which would require enquiry to ascertain them. That includes such things as the permanence and continuity of the presence of the person concerned, the intentions and wishes of that person and the personal circumstances of the person concerned. 

39.	An inspection which only required something to be visible might show that somebody was staying at the property but without enquiry it would not be known whether they were there for an hour, a day, a month, or had some more permanent continuous presence to give rise to the required occupation.

40.	I find it difficult to read into the objective phrase “reasonably careful inspection” a requirement that the person inspecting would have any particular knowledge or that, in the absence of any express provision, the term “inspection” would also require the person inspecting to make reasonable enquiries. On that basis, it is the visible signs of occupation which have to be obvious on inspection. 

41.	In the present case I consider that Ms Thomas has reasonable prospects of successfully establishing that, on a reasonably careful inspection, the facts set out above on which the claim for occupation are based would have been obvious. 

Actual Knowledge of the Interest

42.	Mr Howd submits that what is necessary is for the bank to have actual knowledge of the facts which, on a proper application of the law, amount to the equitable beneficial interests which Ms Thomas seeks to establish.  Mr Crossley submits that what is necessary is for the bank to have actual knowledge that Ms Thomas has the interest alleged. 

43.	In his judgment the judge said this:

“I am not convinced from my reading of the papers in this case that it could possibly be established that an interest of Ms Thomas’ in the property was made known to the bank. True it is that there are references in some e-mails to the fact that the property was to be used as a family home and that money from Ms. Thomas’s own property was going into the house, but those references do not stand alone. Mr [Wyrill], who is an officer of the bank, says that he knew nothing about any beneficial interest to be obtained by Ms Thomas. Certainly no express mention of such an interest appears in any of the correspondence and indeed in his application for the loan on mortgage Mr Burtenshaw chose in the box relating to his family status to tick the box marked “Single” rather than the box marked “With partner”. It does seem to me on the papers to have been brought home to the bank that this was Mr Burtenshaw’s property”

44.	Again counsel have been unable to find any reported decisions on paragraph 2(c)(ii) of Schedule 3 to the 2002 Act. 

45.	Mr Howd submits that the judge was wrong to adopt the approach he did on this aspect. He says first that the question for the judge was whether Ms Thomas, on the evidence before him, had reasonable prospects of success in establishing that the bank had actual knowledge of the interest. Instead, he submits the judge gave undue weight to what Mr Wyrill, the Bank’s representative says he knew about the beneficial interest of Ms Thomas. Secondly he says that the application for the loan referred to by the judge was, as is apparent from the document, information provided on 26 June 2007, about a year after the charge and at a time when the loan was being converted by the Bank into a residential mortgage. 

46.	Instead Mr Howd relies upon the credit memorandum submitted in June 2006 in which it was stated that Mr Burtenshaw was “separated from wife with whom he has 3 children” and “Now settled again with a new partner”. It also stated that “customer’s partner has a house which is in process of being sold and will release £100k towards reducing this debt, but at this stage are unable put any timescale on this.” In addition it noted that he was “divorced with 3 children, all of age. Now settled with new partner and seeking new family home.” Mr Howd submits that this is sufficient because it sets out the facts upon which the interest is based and it is actual knowledge of those facts which is of importance. 

47.	Mr Crossley, on the other hand, submits that there would have to be, for instance, a deed setting out the interest of Ms Thomas which had been submitted to the Bank for the Bank to have actual knowledge of her interest. 

48.	I consider that the question of actual knowledge under paragraph 2(c)(ii) has to be construed in the context of the type of interest which is being dealt with. Where an interest belongs to somebody in actual occupation, very often the scope and extent of that interest will depend on the legal analysis of a number of facts and will rarely be ascertainable from a legal document. In any event, as Mr Howd submits, even a legal document may be construed by lawyers for the Bank as not giving rise to an interest when in fact it does. In such circumstances it could be said that the Bank did not have actual knowledge of the interest. That would be contrary to common sense. 

49.	In my judgment, as Mr Howd submits, the Bank has to have actual knowledge of the facts which give rise to the alleged interest. In this case the Bank were aware that Mr Burtenshaw had a new partner, that she was intending to contribute £100,000 to the Property and that the Property was intended to become the family home for Mr Burtenshaw and his partner. It is those matters upon which Ms Thomas’ interest depends and I consider that Ms Thomas has reasonable prospects of succeeding in showing that the Bank had actual knowledge of those facts.

50.	I consider that the judge was wrong not to take the credit memorandum into account but to rely on the loan agreement information provided a year after July 2006. In addition, I accept Mr Howd’s contention that the information in the credit memorandum would form material which could be used to challenge Mr Wyrill’s knowledge. For the reasons explained I consider that actual knowledge of the facts giving rise to the interest is sufficient under paragraph 2(c)(ii) of Schedule 3 of the 2002 Act. 

Conclusion

51.	For the reasons set out above I consider that the judge was wrong to conclude that Ms Thomas did not have a reasonable prospect of establishing that her interest overrode the Bank’s interest on the basis that she was in “actual occupation”; that her occupation would be obvious on a “reasonably careful inspection” and that the Bank had the requisite “actual knowledge” of her interest.

52.	On that basis, I allow the appeal.