The decision of Ms Justice Baker restraining a receiver from taking possession of a registered property continues to cause difficulties for lenders and receivers alike. In the case of Harrington v Gulland Property Finance Limited, the Defendant sought to appoint a receiver after acquiring the Plaintiffs’ loan and security from IBRC Limited, formerly Anglo Irish Bank. It transpired that, while a Form 56 (the Land Registry form recording the transfer of a charge) had been executed, it had not been filed with the Land Registry at any time in those 12 months, and the recorded owner of the charges on the Plaintiffs’ Land Registry folios remained Anglo, rather than the Defendant.
It was held that Section 64(2) of the Registration of Title Act 1964 should be interpreted to mean that until a Form 56 is registered with the Land Registry, the transferee of a charge has no interest in the charge and no contractual rights arising under that charge are conferred on the transferee, and therefore it was arguable that a lending institution could not appoint a receiver until the registration completed. This is a much broader interpretation of Section 64(2) than was previously thought to apply and a departure from the decision in the two recent Supreme Court cases, Kavanagh v McLoughlin and Freeman v Bank of Scotland Plc and Others. The position following these cases was understood to be that a lending institution could appoint a receiver if the necessary power was contained in the mortgage document, but could not convey good title to a purchaser until the transfer of the charge had been registered.
It must be remembered that the decision was made in the context of an interlocutory injunction application which meant that the Judge only had to be satisfied that the Plaintiffs had made an arguable case that the appointment of the receiver was not effective and that, as a result, the receiver must be seen as a trespasser. A full hearing of the substantive issues in the case may well have found to the contrary. It is understood that the Defendant opted to then register the Form 56 so as to perfect its security (thus avoiding a full hearing).
The decision of Ms Justice Baker is a persuasive authority only (due to it being made at an interlocutory stage), rather than a binding precedent. But this has not stopped it from causing headaches for lenders and receivers alike.
In most loan book sales, an omnibus Form 56 will be executed as part of the transfer process. This omnibus Form 56 can include anything from one to thousands of folios. Even if the Form 56 is immediately lodged for registration in the Land Registry, it can take a considerable amount of time for the transfer of ownership of a charge to be registered on each individual folio. In practical terms, none of the publicly available folios will show that a transfer has occurred while the application is being processed.
In light of the decision, lenders should ensure they take all steps to register transfers of ownership as quickly as possible and prior to the appointment of a receiver. In the meantime, clarification on the legal position from the Courts will be greatly welcomed by lending institutions and receivers alike.