UTLC LC-2022-000705 - [2023] UKUT 141 (LC)

A Disposal, that is to say a “disposal” as referred to in Clause 3.2, is not defined in the Payment Agreement. Ms Lyne contended that its meaning was limited to legal disposals, which I take to mean disposals of the legal title to the Property. If this is correct, the grant of the Charge, which was not completed by registration and only took effect as a charge in equity, was not a Disposal, and the grant of the Charge did not trigger the payment obligation in Clause 3.2.

I do not accept this contention. As I construe the Payment Agreement, a Disposal was intended to catch, and did catch any dealing with the Property, whether at law or in equity. I say this for the following reasons.

I start with the general position. The word “disposal”, in the context of real property, is a word capable of wide meaning. As a general rule one would not expect its meaning to be limited to disposals involving only the legal title to a property, in the absence of an express provision to this effect. In this context, I note that the Judge made reference to Section 205(1)(ii) of the Law of Property Act 1925, which contains the following definitions:

“(ii)

“Conveyance” includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will; “convey” has a corresponding meaning; and “disposition” includes a conveyance and also a devise, bequest, or an appointment of property contained in a will; and “dispose of” has a corresponding meaning;”

There is no definition of the actual word “disposal” in Section 205, but I think that the paragraph of Section 205(1) cited by the Judge is of some relevance because it seems to me to support the point that, as a general rule, the word “disposal” in the context of real property, is capable of having a wide meaning, in much the same way as “conveyance” and “disposition” in paragraph (ii) of Section 205(1). Beyond this, paragraph (ii) confirms that the words “dispose of” have a similarly wide meaning. While the definitions in paragraph (ii) are for the purposes of the Law of Property Act 1925, they seem to me to be relevant in relation to the general meaning of the word “disposal” in the context of real property.

It is next necessary to consider the Payment Agreement itself, in order to see what guidance it provides as to the meaning of a Disposal. As I have said, a Disposal is not defined in the Payment Agreement. Looking however at the Payment Agreement as a whole, it seems to me that there is some useful guidance to be found as to the intended extent of a Disposal.

First, there is the definition of a Permitted Disposal. This was defined in the Payment Agreement. A Permitted Disposal was confined to what I will call inter-group disposals of the registered title to the Property and the grant of rack rented leases for terms not exceeding ten years from the date of the Payment Agreement. There are two relevant points to make in relation to this definition. First, one might reasonably expect a Disposal to mean any kind of disposal not qualifying as a Permitted Disposal. If there was intended to be a category of disposals which were not Permitted Disposals, but which were also outside the meaning of a Disposal, one might have expected the Payment Agreement to spell this out. Second, the definition of a Permitted Disposal is a narrow one, and appears to have been intended to catch disposals which would not necessarily affect or compromise the value of the Property. As such, it would be odd if disposals taking effect in equity only, which would be quite capable of compromising the value of the Property, were not within the scope of a Disposal.

Second, it seems to me that it is a useful exercise to consider the overall scheme of the Payment Agreement.

Although Clause 3.2 conferred the right to receive the Payment upon GPS or the Respondent, at the direction of the Respondent, it is convenient to discuss the Payment Agreement on the basis of the Respondent’s rights under the Payment Agreement.

The obligation to make the Payment, in Clause 3.2, was simply a contractual obligation, once triggered. If the Payment was triggered, the Payment Agreement did not confer any direct interest in the Property upon the Respondent. In order to enforce payment of the Payment against the Property, it would have been necessary for the Respondent to obtain a judgment against the Appellant, pursuant to his contractual right to the Payment under Clause 3.2, and then to seek to enforce that judgment by obtaining a charging order over the Property. Such a charging order would have had the status of an equitable charge, and would have required protection by registration against the Property.

This created an obvious problem, in terms of securing payment of the Payment, if the obligation to make the Payment was triggered. The obvious asset against which the right to the Payment could be enforced, if the Appellant did not make the Payment, was the Property. Prior to the obligation being triggered, or after the obligation had been triggered but before enforcement of the right to Payment, the Respondent was exposed to the risk that a disposal might take place which would remove or reduce the value in the Property against which the Respondent could enforce his right to the Payment. An obvious example of such a disposal would be the creation of a charge over the Property by the Appellant.

It seems to me that this problem was addressed in two ways in the Payment Agreement. First, there was the ban on dealings with the Registered Title, save by way of Permitted Disposal, in Clause 6.1. This ban was reinforced by the provision for the entry of a restriction on the Registered Title pursuant to Clause 6.2. These provisions only prevented however dealings with the Registered Title. They did not affect dealings in equity. Such dealings in equity were capable of prejudicing the position of the Respondent because, as I have already noted, the provisions of the Payment Agreement gave the Respondent no direct interest in the Property by way of security for the Payment. In these circumstances it seems to me reasonable to assume that the second way in which the problem with enforcing payment of the Payment against the Property was addressed was to provide that a disposal of the Property, other than a Permitted Disposal, would itself trigger the obligation to make the Payment, even if a Satisfactory Planning Permission had not been obtained. While this did not directly solve the problem of enforcement against the Property because, on this hypothesis, the relevant disposal would already have taken place, it seems reasonable to assume that the triggering of the obligation to make the Payment by such a disposal would have operated as a disincentive to make the relevant disposal.

If, however, a Disposal was limited to a dealing with the Registered Title, as Ms Lyne submitted, this would have left the Appellant free to make disposals in equity, which were themselves capable of removing or reducing the value in the Property, without triggering the obligation to make the Payment pursuant to Clause 3.2. It is difficult to believe that this was what was intended. If a Disposal was confined to a dealing with the registered title to the Property, this would have left what seems to me to be a substantial hole in the protection provided to the Respondent by the Payment Agreement. One can test this by considering the facts of the present case. The Appellant granted the Charge. While the Charge only took effect in equity, it remained an interest in the Property and, depending upon what sum was secured by the Charge, would have reduced the value of the Property available to any other creditors of the Appellant seeking to enforce debts against the Property. It would seem strange if the Appellant was able to do this without suffering the consequence of triggering the obligation to make the Payment pursuant to Clause 3.2.

There is also another reason why confining the meaning of a Disposal to a dealing with the Registered Title does not make much sense. As the Respondent pointed out in his submissions at the hearing of the Appeal, treating a Disposal as confined to a dealing with the Registered Title seems pointless. Dealings with the Registered Title were prevented by the entry of a restriction on the Registered Title. There was also the ban on dealings with the Registered Title in Clause 6.1. Given these provisions, it is difficult to see what the point was of providing that a Disposal would trigger the obligation to make the Payment, if a Disposal was confined to a dealing with the Registered Title. In what circumstances could such a disposal be expected to occur, given the entry of a restriction against the Registered Title prohibiting any such dealing, and given the contractual ban on such dealings in Clause 6.1?

In conclusion on my consideration of the overall scheme of the Payment Agreement, it seems to me that the overall scheme of the Payment Agreement points strongly to the conclusion that a Disposal was not intended to be confined to dealings with the Registered Title, but was also intended to include dealings with the Property taking effect in equity only.

Ms Lyne relied upon the case of Gentle v Faulkner [1900] 2 QB 267 in support of her argument that a Disposal was confined to dealings with the Registered Title. Gentle v Faulkner is one of a line of authorities which support the well-established principle of landlord and tenant law that a bare covenant against assignment is only breached by an assignment of the legal title to the relevant lease. I refer to a bare covenant because a well-drafted covenant against alienation of the relevant lease will normally be expressed much more widely than a simple covenant against assignment, and may well restrict the ability of the tenant to make an assignment which takes effect in equity only. It remains the position however that, without more, a bare covenant against assignment is not breached by an assignment taking effect in equity only.

I do not regard Gentle v Faulkner or any of the cases in the line of authorities to which it belongs as being relevant to the question in the present case of what was meant by the reference to a Disposal in Clause 3.2.l The context in the present case is completely different. That seems to me to be illustrated by the opening part of the judgment of Romer LJ in Gentle v Faulkner, at 276-277:

“Upon the first point, it seems to me to be clear that a covenant in a lease against assigning the demised premises, in the absence of any context shewing that the covenant is to have an extended meaning, covers only a legal assignment. The covenant against assignment is, therefore, not broken by anything short of a legal assignment. In my opinion such a covenant is not broken by the lessee executing a declaration of trust of the demised premises. With all respect to my brother Ridley, s. 24, sub-s. 4, of the Judicature Act, 1873, has no application to the present case. Before the Judicature Act the Court of Chancery would never have regarded the cestui que trust as a lessee for the purposes of the lease as between the lessor and the lessee, nor would the Court have regarded a declaration of trust by the lessee of the demised premises as a breach of the lessee's covenant against assignment.”

In the context of the relationship of landlord and tenant, it is readily understandable that a covenant against assignment is not broken by an assignment in equity. In the case of such an assignment the legal title to the relevant lease will remain with the assignor tenant, who will hold the same as trustee for the equitable assignee. The landlord however is not concerned with this relationship in equity. The tenant, so far as the landlord is concerned, remains the party holding the legal title to the relevant lease. In these circumstance it is not surprising that the courts have not been prepared to treat assignments in equity as breaching covenants against assignment. This would create problems, in terms of the formal relationship of landlord and tenant. In the present case however the context is completely different, and considerations of this kind do not arise.

Drawing together all of the above discussion, I conclude that Ground 3 fails. I conclude that the Judge was right to decide that the Charge constituted a Disposal, and that the Judge was right to make the consequential decision that the grant of the Charge triggered the obligation of the Appellant to make the Payment, pursuant to the provisions of Clause 3.2.

While I did not understand this to be part of Ms Lyne’s argument in support of Ground 3, I should say that it seems to me to make no difference that, according to the evidence of Mr Calif, the Charge was not subject to any redemption and was removed from the register of charges at Companies House. If the Charge qualified as a Disposal, and I agree with the Judge that it did, it seems to me that the creation of the Charge was what triggered the obligation to make the Payment. What happened thereafter to the Charge seems to me to have been irrelevant. The obligation to make the Payment had already been triggered. Equally, if Mr Calif was unaware of the Payment Agreement at the time when he arranged for the creation of the Charge, this equally makes no difference. If the Appellant is bound by the Payment Agreement, and I agree with the Judge that it is, it seems to me that it is equally bound by the triggering of obligation to make the Payment pursuant to Clause 3.2, regardless of whether it was aware that this was the effect of the creation of the Charge or not.

Accordingly, the Decision stands, so far as the Judge decided that the obligation to make the Payment pursuant to Clause 3.2 was triggered by the creation of the Charge.