HT-2022-000254 - [2025] EWHC 105 (TCC)

The most significant aspect of the applicants’ case, and the matter that Mr Moraes started with in his submissions, is the priority of VCT’s Charge. If the applicants are right on this case, it, so to speak, trumps any other arguments.

Section 28 of the Land Registration Act 2002 provides:

“(1)

Except as provided by sections 29 and 30, the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge.

(2)

It makes no difference for the purposes of this section whether the interest or disposition is registered.”

Section 30 (Effect of registered dispositions: charges) provides:

“(1)

If a registrable disposition of a registered charge is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under disposition any interest affecting the charge 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 –

(i)

is a registered charge or the subject of a notice on the register,

(ii)

falls within any of the paragraphs of Schedule 3, or

(iii)

appears from the register to be excepted from the effect of registration, and

(b)

in the case of a disposition of a charge which relates to leasehold estate, if the burden of the interest is incident to the estate.

(3)

Subsection (2)(a)(ii) does not apply to an interest which has been the subject of a notice in the register at any time since the coming into force of this section.”

The effect of these sections is that, on the registration of the charge, any interest is postponed in the sense that it is subordinated unless it is protected in one of the ways set out in subsection 30(2). Mr Moraes submitted, therefore, that even if Click St Andrews had any interest in the properties at the time the Charge was registered, it was not protected and the Charge has priority. Any interest would not fall within any of the provisions of subsection 30(2). The only issue could be whether the Charge was for valuable consideration but the applicants say that it clearly was and so no issue arises.

Section 104 of the Law of Property Act 1925 then provides:

“(1)

A mortgagee exercising the power of sale conferred by this Act shall have power, by deed, to convey the property sold, for such estate and interest therein as he is by this Act authorised to sell or convey or may be subject of the mortgage, freed from all estates, interests, and rights to which the mortgage has priority, but subject to all estates, interest, and rights which have priority to the mortgage.

….

The applicants’ case, therefore, is that since the Charge has priority, the Receivers can exercise the powers of sale that they have under the Charge and do so free of any interests which do not have priority over the Charge.

The submission that followed from that was that the disposal of the properties by the Receivers could not be in breach of the freezing injunction since any interest that Click St Andrews might have was subordinated to the Charge. In the alternative, there was an unanswerable reason to vary the injunction because, even if Click St Andrews had any interest, it could not benefit from it – see Capital Cameras Ltd. v Harold Lines Ltd [1991] 1 WLR 54 at 56E – 57F.

In the respondents’ written submissions, they relied on the fact that the VCT Charge is over only the later December 2022 leases which are all later than any transfers between St Andrews and Corben Mews. The nature of the respondents’ case is, or was, that Mews Ltd. received funds from Click St Andrews which may have contributed to the purchase of the properties and, on this basis, that there may be some beneficial interest of Click St Andrews by way of resulting trust or constructive trust. Two payments were identified: (i) £5,000 on 1 October 2020 and (ii) £47,680 paid between July 2021 and July 2022. As I have already said, the larger of these amounts was transferred from Click Above to Mews Ltd. and there is no basis to draw the inference that the source of these funds was Click St Andrews.

The applicants submit that there is no evidence of any intention to create a trust and that the movement of cash between companies is simply a commercial cash-pooling arrangement. All the payments relied upon were made after the purchase of the Airspace Lease and the construction of the properties so that there is even less reason to infer any intention to create a trust giving rise to an interest in the properties. Leaving aside any factual or legal arguments as to whether this scenario could give rise to some form of trust, it is, in my view, inherently improbable that a payment of £5,000 after the purchase and construction could give rise to an interest in the properties.

The respondents make the contrary submission that since the VCT charges post-date these payments, the applicants cannot assert with any confidence – and certainly not with sufficient confidence for the court to accept – that the VCT Charge overreaches any beneficial interest, especially as concerns monies which may have been used to pay down the VCT Charges. The reliance on paying down the VCT Charge was a further or alternative matter relied on as potentially creating some beneficial interest in the properties.

That submission appears to proceed on the basis that if funds passed from Click St Andrews to Mews Ltd. creating in some way a beneficial interest in the properties, and the Charge was registered later, the putative interest would have priority. That could only be the case if the charge were equitable and not legal. In any case, the only sum to which that argument could apply is £5,000. That amount was transferred after the acquisition of the Airspace Lease and the construction of the flats, and approximately 9 months before the VCT Charge. It is possible but improbable that that small sum was transferred and held to pay down that Charge.

In relation to the probability of the transfer of funds having created a beneficial interest, Mr Levenstein placed some reliance on the decision of O’Farrell J in Nicholas James Care Homes Ltd. v Liberty Homes (Kent) Ltd. [2022] EWHC 1203 (TCC). The matter before O’Farrell J was the continuation of a freezing injunction and particularly submissions that had been made as to the risk of dissipation of assets. The judge recited a number of transfers of real property which appeared to have been made for no consideration and were said by the defendant to have been made as dividends in specie. At [42], she said that if the transfers were for no consideration or not valid dividends, Liberty Homes would retain a beneficial interest in these properties or be entitled to unwind the transactions pursuant to section 423 of the Insolvency Act 1986. Mr Levenstein submitted that the judge was, therefore, giving the claimant in that case the benefit of the assumption that an unexplained asset transfer for no consideration gave rise to a beneficial interest. The judge was, of course, concerned with the transfer of title to real property for no consideration so that the interests transferred were the legal and beneficial interests in that property. There is little or no similarity between that position and the present case where there has been no transfer of property owned by Click St Andrews but some small transfer of funds from Click St Andrews to Mews Ltd. It is a wholly different proposition to say that the provision of funds creates a beneficial interest in property acquired, constructed or financed by those funds. No other authority was cited to the court for that far reaching proposition.

Even if I am wrong about Click St Andrews’ beneficial interest, the answer, on the applicants’ case, is that the VCT Charge is a legal charge for valuable consideration which takes priority. In argument before me, that became the primary battle ground between the parties. Mr Levenstein developed a submission that the Charge did not fall within these statutory provisions because it had not been effected by a registrable disposition of a registrable charge “made for valuable consideration” so that it was only an equitable charge and did not take priority. The basis for that submission was the terms of the deeds of substituted security.

Each of the deeds recited that it was supplemental to a mortgage dated 28 June 2021 between the Borrower (Mews Ltd.) and the Lender (VCT) by which property described in the First Schedule to the deed (“the Released Property”) was charged by way of legal mortgage (“the Principal Deed”) to secure payment to the lender.

Each deed then provided:

“1.

In consideration of the legal charge created by this Deed the Lender as mortgagee releases to the Borrower the Released Property free from the principle (sic) money and interest secured by and from all claims under or in relation to the Principal Deed.

2.

In consideration of the release contained above the Borrower with full title guarantee hereby charges by way of legal mortgage ALL THAT the property described in the Second Schedule to this Deed (“the Substituted Property”) with payment of all monies and liabilities set out therein.

3.

The Borrower declares that except insofar as varied by the substitution of the Substituted Property for the Released Property the Principal Deed shall remain in full force and effect between the parties to this Deed and shall in future be read and construed as if the Substituted Property had been the property included in the Principal Deed.”

The First Schedule identified that Released Property as the leasehold property registered under title number TGL494495 known as airspace and parking spaces at Corben Mews demised under a 999 year lease dated 9 February 2018 between Reydene Ltd. and Mews Ltd. The Second Schedule identified the Substituted Property in the respective deeds as flat 17 and flat 18. This was identified as leasehold property demised under a 125 year lease dated 22 December 2022 between Assethold Ltd. and Mews Ltd.

Mr Levenstein argued that there was no valuable consideration because there was simply a swap of the flats 17 and 18 for what was previously the subject of a charge which was also flats 17 and 18. It is fair to say that there was some shift in each party’s position on this issue. Mr Hitchcock in his first statement referred to the security for the CPF One Charge being the flats. Mr Levenstein in his skeleton argument submitted that the security for the CPF One Charge and the Deed of Substituted Security was different and that the first mention of VCT’s Charge over flat 17 was not until 22 December 2022. These shifts are at best indicative that there are competing arguments and the true position has to be considered by reference to the secured proprietary interests.

As I have set out, the Charge dated 28 June 2021 referred to the Property as 17 and 18 Corben Mews and the Charge was over the Real Property as defined. The respondents, therefore, now submit that the Charge was one over the flats which had by that time been built. However, the Charge clearly refers to the Property as 17 and 18 Corben Mews registered with title no. TGL495495. That is the title number of the Airspace Lease. The fact that the flats are built in the airspace does not change that. The relevant property remains that lease.

That point is not answered by the definition of Real Property in the Charge extending at sub-paragraph (b) to “any buildings, fixtures, fitting fixed plant or machinery from time to time situated on or forming part of” any freehold or leasehold properties specified in the Particulars. The wording is apt to capture a building built on freehold land (in respect of which there is no distinct legal interest such as a leasehold) but not a building built in an airspace. Nor does the building form part of the airspace. That that is the case and that the Charge is not to be construed otherwise is demonstrated by the fact that, if this definition had the effect of extending the Charge to the flats, there would be a charge over the property of Assethold Ltd. who in due course granted leasehold interests in the flats to Mews Ltd. But Assethold Ltd. were not party to and had nothing to do with the Charge.

The form TR4 which records the transfer of the CPF One Ltd. Charge to VCT describes the property charged in a slightly different manner from the Charge itself and in a manner that Mr Levenstein submits supports his case. That description is “Airspace and parking spaces Corben Mews, London SW8 4TA otherwise known as 17 &18 Corben Mews, London SW8 4TA”. However the title number is still that of the Airspace Lease.

Mr Levenstein’s alternative submission was that the June 2021 charge dealt with everything within the Airspace Lease which necessarily included the flats and that a charge over the flats changed and/or added nothing.

As I have said, the respondents’ case was than that the substituted deed did not confer any valuable consideration and amounted only to an equitable charge. The respondents relied on Hughmans Solicitors v Central Stream Services Ltd. [2012] EWHC 1222 (Ch). The Hughmans case concerned a claim for payment out of proceeds of sale of a property over which the claimants had the benefit of a charging order protected by notice on the register. Central Stream Services Ltd (in liquidation) and its liquidator claimed a prior secured right by virtue of the terms of the schedule to a Tomlin Order. Briggs J concluded that the schedule conferred a beneficial interest by way of a trust. At [20] he said:

“The common feature of Sections 29 and 30 [of the Land Registration Act 2002], (which are identified as the only exceptions to the basic rule in Section 28(1)), is that priority for a later interest over an earlier interest is conferred by registration (including by way of notice) if, but only if, the later interest is a disposition made for valuable consideration. If it is, then the earlier interest loses its priority if not protected on the register. If it is not, then the priority of the two competing interests continues to be governed by the order of their creation.”

That is entirely consistent with the submissions made to me.

The judge then agreed with the analysis in United Bank of Kuwait plc v Sahib [1997] Ch 107 that a debtor to a charging order received no consideration from the judgment creditor so that the charge took effect as an equitable charge. As I understand it, the respondents draw an analogy between the present case and the position in which a judgment debt is due to the creditor and the charging order provides a means of obtaining payment of the debt but there is no further consideration for it beyond the debt already due. The respondents submit that here the substituted security is the leasehold interest in the flats which is no different from or adds nothing to the security over the flats within the airspace demised by the Airspace Lease.

All these arguments advanced by the respondents, in my judgment, cannot succeed because the property charged is clearly identified by the title numbers and the titles to the Airspace Lease and the titles to the flats are not the same proprietary interest. As Mr Moraes put it, what is charged is the proprietary interest and not the building. The flats existed at the time of the original security but the proprietary interest conferred by leases of the flats did not. The Deeds of Substituted Security released the Charge over the Airspace Lease and substituted the security of the leases of the flats with their discrete registrations and title numbers.