Midland Bank Trust Co Ltd v Green (No 1) [1980] UKHL 7

House of Lords

Between

Midland Bank Trust Co LtdAppellant

Green (No 1)Respondent

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 11th day of April 1979 complained of in the said Appeal be, and the same is hereby, Reversed and that the Order of Mr. Justice Oliver of the 21st day of October 1977 be, and the same is hereby, Restored: And it is further Ordered, That the Respondents do pay or cause to be paid to the said Appellants the Costs incurred by them in the Court of Appeal and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments if not agreed between the parties. And it is also further Ordered, That the Cause be, and the same is hereby remitted back to the Chancery Division of the High Court of Justice to do therein as shall be just and consistent with this Judgment.

HOUSE OF LORDS

MIDLAND BANK TRUST COMPANY LIMITED AND ANOTHER

(RESPONDENTS)

GREEN AND ANOTHER (APPELLANTS)

Lord Wilberforce Lord Edmund-Davies Lord Fraser of Tullybelton Lord Russell of Killowen

Lord Wilberforce

My Lords,

This appeal relates to a 300-acre farm in Lincolnshire called " Gravel Hill Farm ". It was owned by Walter Stanley Green (" Walter ") and since 1954, let to his son Thomas Geoffrey Green (" Geoffrey ") who farmed it as tenant. Walter owned another larger farm which he farmed jointly with another son Robert Derek Green (" Robert "), the appellant. In 1960 Walter sold this other farm to Robert at £75 per acre.

On 24th March 1961 Walter granted to Geoffrey an option to purchase Gravel Hill Farm, also at £75 per acre. The option was granted for the consideration of £1, and so was contractually binding upon Walter. It was to remain open for ten years. It seems that the reason why this transaction was entered into, rather than one of sale to Geoffrey, was to save estate duty on Walter's death.

This option was, in legal terms, an estate contract and so a legal charge, class C, within the meaning of the Land Charges Act 1925. The correct and statutory method for protection of such an option is by means of entering it in the Register of Land Charges maintained under the Act. If so registered, the option would have been enforceable, not only (contrac- tually) against Walter, but against any purchaser of the farm.

The option was not registered, a failure which inevitably called in question the responsibility of Geoffrey's solicitor. To anticipate, Geoffrey in fact brought proceedings against his solicitor which have been settled for a considerable sum, payable if the present appeal succeeds.

In 1967 there appears to have been some family disagreement. We do not know the nature of it, nor the merits. I am not prepared to assume, in the absence of any evidence, that either side was in the wrong. All we know is that Walter formed the intention, contrary to what he had planned in 1961, to defeat Geoffrey's option and to make Gravel Hill Farm available for the family. He instructed solicitors to prepare a conveyance of it to his wife Evelyne: this the solicitors did after verifying that the option was not registered as a Land Charge.

On or about 17th August 1967 Walter executed a conveyance of Gravel Hill Farm to Evelyne for a consideration of £500. The judge found that this sum was paid by Evelyne to Walter. It was of course far less than the value of the farm, which was then worth about £40,000. The conveyance was also a breach of contract by Walter for which Walter or his estate was liable to Geoffrey in damages.

Later, Evelyne made a will in which she left the farm, subject to Walter's life interest, to her five children—including Geoffrey. On 5th September 1967 Geoffrey, who had learnt of the conveyance, caused the option to be registered as an estate contract, and on 6th October 1967 gave notice exercising the option. Finally, on 27th January 1970, Geoffrey issued a writ against Walter and Evelyne's executors (she had died in 1968) claiming that the option was still binding, specific performance of the contract arising from its exercise and damages. This was later amended so as to claim damages for conspiracy by Walter and Evelyne.

Most of the principals involved in the above transactions are dead. The place of Geoffrey is taken by the present respondents as his executors; that of Evelyne by the appellant, as her sole surviving executor; the place of Walter was taken by Beryl Rosalie Kemp as his executrix, but her defence was struck out by order dated 7th October 1975. The issue therefore effectively is between the appellant, as representing the estate of Evelyne, and the respondents as representing the estate of Geoffrey.

The trial took place before Oliver J. in 1977. A number of issues arose which are no longer relevant. The learned Judge, in an admirable judg- ment with which I wholly agree, decided:

(i) That the sale and conveyance to Evelyne was not a sham and was a genuine sale by the vendor to a " purchaser", as defined by the Land Charges Act 1925 for money or money's worth, and accordingly that the option was not specifically enforceable.

(ii) That Walter's estate had no answer to a claim for damages, and that an enquiry as to damages must be made.

(iii) That any claim for damages against the estate of Evelyne was statute-barred by virtue of the Law Reform (Miscellaneous Provisions) Act 1934.

An appeal was brought to the Court of Appeal which, by a majority, reversed the judge's decision on point (i), and declared the option specifically enforceable. The ground of this decision appears to have been that the sale in 1967 was not for " money or money's worth ", within the meaning of section 13 of the Land Charges Act 1925. In addition the Master of the Rolls was prepared to hold that the protection of the Act was not available in a case of fraud meaning thereby " any dishonest dealing done so as to deprive unwary innocents of their rightful dues" The respondents, however, did not seek to support this except to the extent that they relied upon lack of good faith on the part of Evelyne.

My Lords,

section 13(2) of the Land Charges Act 1925 reads as follows:

" (2) A land charge of class B, class C or class D, created or arising " after the commencement of this Act, shall (except as hereinafter " provided be void as against a purchaser of the land charged therewith "... unless the land charge is registered in the appropriate register " before the completion of the purchase:

" Provided that, as respects a land charge of class D and an estate " contract created or entered into after the commencement of this act, " this subsection only applies in favour of a purchaser of a legal estate " for money or money's worth ".

As regards the word " purchaser " section 20(8) of the same Act reads:

" ' Purchaser ' means any person . . . who, for valuable considera- " tion, takes any interest in land ..."

Thus the case appears to be a plain one. The " estate contract", which by definition (section 11) includes an option of purchase, was entered into after 1st January 1926; Evelyne took an interest (in fee simple) in the land " for valuable consideration "—so was a "purchaser ": she was a purchaser for money—namely £500: the option was not registered before the completion of the purchase. It is therefore void as against her.

In my opinion this appearance is also the reality. The case is plain: the Act is clear and definite. Intended as it was to provide a simple and understandable system for the protection of title to land, it should not be read down or glossed: to do so would destroy the usefulness of the Act. Any temptation to remould the Act to meet the facts of the present case, on the supposition that it is a hard one and that justice requires it, is, for me at least, removed by the consideration that the Act itself provides a simple and effective protection for persons hi Geoffrey's position—viz.— by registration.

The respondents submitted two arguments as to the interpretation of section 13(2): the one sought to introduce into it a requirement that the purchaser should be " in good faith "; the other related to the words " in " money or money's worth ".

The argument as to good faith fell into three parts: first, that "good " faith " was something required of a " purchaser " before 1926; secondly, that this requirement was preserved by the 1925 legislation and in particular by section 13(2) of the Land Charges Act 1925. If these points could be made good, it would then have to be decided whether the purchaser (Evelyne) was in " good faith " on the facts of the case.

My Lords,

the character in the law known as the bona fide (good faith) purchaser for value without notice was the creation of equity. In order to affect a purchaser for value of a legal estate with some equity or equitable interest, equity fastened upon his conscience and the composite expression was used to epitomise the circumstances in which equity would or rather would not do so. I think that it would generally be true to say that the words " in good faith " related to the existence of notice. Equity, in other words, required not only absence of notice, but genuine and honest absence of notice. As the law developed, this requirement became crystallised in the doctrine of constructive notice which assumed a statutory form in the Conveyancing Act 1882, section 3. But, and so far I would be willing to accompany the respondents, it would be a mistake to suppose that the requirement of good faith extended only to the matter of notice, or that when notice came to be regulated by statute, the requirement of good faith became obsolete. Equity still retained its interest in and power over the purchaser's conscience. The classic judgment of James L.J. in Pilcher v. Rawlins (1872) L.R. 7 Ch. 259, 269 is clear authority that it did not: good faith there is stated as a separate test which may have to be passed even though absence of notice is proved. And there are references in cases subsequent to 1882 which confirm the proposition that honesty or bona fides remained something which might be enquired into (see Berwick & Co. v. Price

[1905] 1 Ch 632

, 639; Taylor v. London and County Banking Co.

[1901] 2 Ch 231

, 256; Oliver v. Hinton

[1899] 2 Ch 264

, 273).

But did this requirement, or test, pass into the property legislation of 1925?

My Lords,

I do not think it safe to seek the answer to this question by means of a general assertion that the property legislation of 1922-25 was not intended to alter the law, or not intended to alter it in a particular field, such as that relating to purchases of legal estates. All the Acts of 1925, and their precursors, were drafted with the utmost care, and their wording, certainly where this is apparently clear, has to be accorded firm respect. As was pointed out in Grey v. Inland Revenue Commissioners

[1960] AC 1

, the Acts of 1922-4 effected massive changes in the law affecting property and the House, in consequence, was persuaded to give to a plain word (" disposition ") its plain meaning, and not to narrow it by reference to its antecedents. Certainly that case should firmly discourage us from muddying clear waters. I accept that there is merit in looking at the corpus as a whole in order to produce if possible a consistent scheme. But there are limits to the possibilities of this process: for example it cannot eliminate the difference between registered and unregistered land, or the respective charges on them.

As to the requirement of " good faith " we are faced with a situation of some perplexity.

The expression " good faith ", appears in the Law of Property Act 1925 definition of "purchaser" ['a purchaser in good faith for valuable con- sideration']—section 205(l)(xxi); in the Settled Land Act 1925—section 117(l)(xxi) [ditto]; in the Administration of Estates Act 1925 section 55(l)(xviii) [" ' purchaser ' means a lessee, mortgagee or other person who in " good faith acquires an interest in property for valuable consideration "] and in the Land Registration Act 1925, section 3 (xxi) which does not however, as the other Acts do, include a reference to nominal consideration.

So there is certainly some indication of an intention to carry the concept of "good faith " into much of the 1925 code. What then do we find in the Land Charges Act 1925? We were taken along a scholarly peregrina- tion through the numerous Acts antecedent to the final codification and consolidation in 1925—the Land Charges Registration and Searches Act, 1888, the Law of Property Act 1922, particularly Schedule 7, the Law of Property (Amendment) Act 1924 as well as the Yorkshire and Middlesex Deeds Registration Acts. But I think, with genuine respect for an interesting argument, that such solution as there is of the problem under consideration must be sought in the terms of the various Acts of 1925 themselves. So far as concerns the Land Charges Act 1925, the definition of " purchaser " quoted above does not mention " good faith " at all. " Good faith " did not appear in the original Act of 1888, nor in the extension made to that Act by the Act of 1922 Schedule 7, nor in the Act of 1924 Schedule 6. It should be a secure assumption that the definition of " purchaser for " value " which is found in section 4 of the Act of 1888 (. . . " person " who for valuable consideration takes any interest in land") together with the limitation which is now the proviso to section 13(2) of the Act of 1925, introduced in 1922, was intended to be carried forward into the Act of 1925. The expression " good faith " appears nowhere in the antece- dents. To write the word in, from the examples of contemporaneous Acts, would be bold. It becomes impossible when it is seen that the words appear in section 3(1) and in section 7(1), in each case in a proviso very similar, in structure, to the relevant proviso in section 13(2). If canons of constructions have any validity at all, they must lead to the conclusion that the omission in section 13(2) was deliberate.

My Lords,

I recognise that the enquiring mind may put the question: why should there be an omission of the requirement of good faith in this particular context? I do not think there should be much doubt about the answer. Addition of a requirement that the purchaser should be in good faith would bring with it the necessity of enquiring into the purchaser's motives and state of mind. The present case is a good example of the difficulties which would exist. If the position was simply that the purchaser had notice of the option, and decided nevertheless to buy the land, relying on the absence of notification, nobody could contend that she would be lacking in good faith. She would merely be taking advantage of a situation, which the law has provided, and the addition of a profit motive could not create an absence of good faith. But suppose, and this is the respondents' argument, the purchaser's motive is to defeat the option, does this make any difference? Any advantage to oneself seems necessarily to involve a disadvantage for another: to make the validity of the purchase depend upon which aspect of the transaction was prevalent in the purchaser's mind seems to create distinctions equally difficult to analyse in law as to establish in fact: avarice and malice may be distinct sins, but in human conduct they are liable to be intertwined. The problem becomes even more acute if one supposes a mixture of motives. Suppose—and this may not be far from the truth—that the purchaser's motives were in part to take the farm from Geoffrey, and in part to distribute it between Geoffrey and his brothers and sisters, but not at all to obtain any benefit for herself, is this acting in "good faith" or not? Should family feeling be denied a protection afforded to simple greed? To eliminate the necessity for enquiries of this kind may well have been part of the legislative intention. Certainly there is here no argument for departing—violently—from the wording of the Act.

Before leaving this part of the case, I must comment on the case of In re Monolithic Building Co.

[1915] 1 Ch. 643

, which was discussed in the Court of Appeal. That was a case arising under section 93 of the Companies (Consolidation) Act 1908 which made an unregistered mortgage void against any creditor of the company. The defendant Jenkins was a managing director of the company, and clearly had notice of the first unregistered mortgage: he himself subsequently took and registered a mortgage debenture and claimed priority over the unregistered mortgage.

It was held by the Court of Appeal, first that this was not a case of fraud: " it is not fraud to take advantage of legal rights, the existence of which " may be taken to be known to both parties" (per Lord Cozens-Hardy M.R. p.663). Secondly that section 93 of the Act was clear in its terms, should be applied according to its plain meaning, and should not be weakened by infusion of equitable doctrines applied by the courts during the 19th century. The judgment of the Master of the Rolls contains a valuable critique of the well known cases of Le Neve v. Le Neve 3 Atk. 646 and Greaves v. Tofield 14 Ch. D.563 which arising under the Middlesex Registry Act and other enactments, had led the judges to import equitable doctrines into cases of priority arising under those Acts, and establishes that the principles of those cases should not be applied to modern Acts of Parliament.

My Lords,

I fail to see how this authority can be invoked in support of the respondents' argument, or of the judgments of the majority of the Court of Appeal. So far from supporting them, it is strongly the other way. It disposes, for the future, of the old arguments based, ultimately, upon Le Neve v. Le Neve for reading equitable doctrines (as to notice, etc.) into modern Acts of Parliament: it makes it clear that it is not " fraud " to rely on legal rights conferred by Act of Parliament: it confirms the validity of interpreting clear enactments as to registration and priority according to their tenor.

The judgment of Phillimore LJ. does indeed contain a passage which appears to favour application of the principle of Le Neve v. Le Neve, and to make a distinction between a transaction designed to obtain an advantage, and one designed to defeat a prior (unregistered) interest. But, as I have explained, this distinction is unreal and unworkable, this whole passage is impossible to reconcile with the views of the other members of the Court of Appeal in the case and I respectfully consider that it is not good law.

My Lords,

I can deal more shortly with the respondents' second argument. It relates to the consideration for the purchase. The argument is that the protection of section 13(2) of the Land Charges Act 1925 does not extend to a purchaser who has provided only a nominal consideration and that £500 is nominal. A variation of this was the argument accepted by the Court of Appeal that the consideration must be " adequate "—an expression of transparent difficulty. The answer to both contentions lies in the language of the subsection. The word " purchaser ", by definition (section 20(8)), means one who provides valuable consideration—a term of art which precludes any enquiry as to adequacy. This definition is, of course, subject to the context. Section 13(2), proviso, requires money or money's worth to be provided: the purpose of this being to exclude the consideration of marriage. There is nothing here which suggests, or admits of, the introduction of a further requirement that the money must not be nominal.

The argument for this requirement is based upon the Law of Property Act 1925 which, in section 205(l)(xxi) defining "purchaser" provides that " valuable consideration" includes marriage but does not include a " nominal consideration in money ". The Land Charges Act 1925 contains no definition of " valuable consideration ", so it is said to be necessary to have resort to the Law of Property Act definition: thus " nominal consideration in money " is excluded. An indication that this is intended is said to be provided by section 199(l)(i). I cannot accept this. The fallacy lies in supposing that the Acts—either of them—set out to define " valuable consideration "; they do not: they define " purchaser ", and they define the word differently (see the first part of the argument). " Valuable consideration" requires no definition: it is an expression denoting an advantage conferred or detriment suffered. What each Act does is, for its own purposes, to exclude some things from this general expression: the Law of Property Act includes marriage but not a nominal sum in money; the Land Charges Act excludes marriage but allows " money " or money's worth ". There is no coincidence between these two; no link

by reference or necessary logic between them. Section 199(l)(i) by referring to the Land Charges Act 1925, necessarily incorporates—for the purposes of this provision—the definition of " purchaser " in the latter Act—for it is only against such a " purchaser " that an instrument is void under that Act. It cannot be read as incorporating the Law of Property Act definition into the Land Charges Act. As I have pointed out the Land Charges legislation has contained its own definition since 1888, carried through, with the addition of the reference to " money or money's " worth " into 1925. To exclude a nominal sum of money from section 13(2) of the Land Charges Act would be to rewrite the section.

This conclusion makes it unnecessary to determine whether £500 is a nominal sum of money or not. But I must say that for my part I should have great difficulty in so holding. " Nominal consideration" and a " nominal sum " in the law appear to me, as terms of art, to refer to a sum or consideration which can be mentioned as consideration but is not necessarily paid. To equate " nominal " with " inadequate " or even " grossly inadequate" would embark the law upon enquiries which I cannot think were contemplated by Parliament.

I would allow the appeal.

Lord Edmund-Davies

My Lords,

For the reasons indicated in the speech of my noble and learned friend. Lord Wilberforce, which I have had the advantage of reading in draft, I would allow this appeal.

Lord Fraser of Tullybelton

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Wilberforce. I agree with it, and for the reasons that he gives, I too would allow this appeal.

Lord Russell of Killowen

My Lords,

I entirely concur in the reasoning of my noble and learned friend, Lord Wilberforce, and cannot usefully add to it. Accordingly I agree that this appeal must be allowed.

Lord Bridge of Harwich

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Wilberforce. I agree with it and for the reasons he gives I too would allow the appeal.

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