Cherry Tree Investments Ltd v Landmain Ltd

Factual and Procedural Background

The Appellant ("Landmain") is the registered proprietor of a property located at 2, Battersea Rise, London SW11 1ED ("the Property"). The dispute concerns the validity of the transfer of the Property to the Respondent ("Cherry Tree") by Dancastle Associates Ltd ("Dancastle"), who sold the Property exercising a power of sale under a registered charge dated 30 July 2010 ("the charge") and a contemporaneous facility agreement ("the facility agreement"). The charge was registered at HM Land Registry, but the facility agreement was not. Landmain contended that no sums secured by the charge had become due before the sale. However, the court was asked to bypass that dispute by considering whether the facility agreement effectively varied the statutory power of sale, making it exercisable immediately upon execution of the charge.

Dancastle served notice that the monies secured had become immediately due, which Landmain disputed. Nonetheless, Dancastle sold the Property to Cherry Tree, who took transfer but could not register title due to Landmain's objection. Cherry Tree sought summary judgment for registration of the transfer, contending that the statutory power of sale had been varied by clause 12.3 of the facility agreement, making the power exercisable immediately. The trial judge granted summary judgment in Cherry Tree's favor, and Landmain appealed.

Legal Issues Presented

1. Whether the charge and the facility agreement can be interpreted together despite only the charge being registered at the Land Registry under the Land Registration Act 2002.
2. Whether the court can correct by interpretation a mistake made by the parties in not varying the statutory power of sale in the charge itself.
3. Whether the charge and facility agreement constitute in law a single document for the purposes of varying the statutory power of sale under section 101(3) of the Law of Property Act 1925.

Arguments of the Parties

Appellant's Arguments

• The Appellant argued that extrinsic evidence such as the facility agreement should not be admissible to interpret the charge because the charge alone is registered and the register is open to public inspection, thus the charge must stand on its own.
• They contended that there was no qualifying mistake in the charge to justify corrective interpretation, as the parties only misunderstood the legal requirements but did not err in the expression of the charge itself.
• The Appellant rejected the argument that the charge and facility agreement form a single document in law.

Respondent's Arguments

• The Respondent submitted that the statutory power of sale was varied by the facility agreement clause 12.3, making the power exercisable immediately on execution of the charge.
• They contended that the charge and facility agreement, although separate documents, were part of the same transaction and the facility agreement was admissible as background to interpret the charge.
• The Respondent argued that the court was entitled to correct the parties' mistake by interpretation to give effect to the parties' true agreement.
• Alternatively, the Respondent argued that the charge and facility agreement constituted a single document for the purposes of section 101(3) of the 1925 Act.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by explaining the statutory power of sale under section 101 of the Law of Property Act 1925, which is exercisable only when mortgage monies have become due, but which may be varied or extended by the mortgage deed itself under section 101(3). The critical question was whether the facility agreement, which was not registered, could be used to vary the statutory power of sale implied in the charge, which alone was registered.

Addressing the first issue, the court held that registration of the charge does not preclude the use of extrinsic evidence, including unregistered contemporaneous documents like the facility agreement, as an aid to interpretation, provided that no third party rights are prejudicially affected. The court reasoned that the charge is not addressed to third parties merely because it is registered and inspectable; rather, only subsequent dispositions that might be prejudicially affected require protection. Since there were no such prejudicial third party interests here, the facility agreement could be admitted as background.

On the second issue, the court applied the fifth ICS principle allowing corrective interpretation where the parties made a mistake in the language of the document. It found that the parties mistakenly believed the statutory power of sale had been varied in the charge, but the charge as executed did not contain the necessary words. The court concluded that the charge should be interpreted as if it contained the variation expressed in the facility agreement, correcting the parties' mistake without rewriting the contract. The mistake was one of expression, not merely misunderstanding of the law, and the charge was incomplete (e.g., the secured sums box was left blank), supporting the conclusion that "something must have gone wrong with the language."

Regarding the third issue, the court rejected the argument that the charge and facility agreement constitute a single document in law for the purpose of varying the statutory power of sale. It held that the principle of construing contemporaneous documents together is subsumed within the ICS principles as admissible background, but does not merge separate documents into one legal instrument. Treating them as one document would subvert the policy of section 101(3) that variations must appear in the charge itself.

The court summarized that the facility agreement forms admissible background for interpreting the charge, that corrective interpretation is justified to give effect to the parties' true agreement, and that the documents do not merge into a single legal document. It therefore dismissed the appeal.

Holding and Implications

The court DISMISSED the appeal.

The direct effect of this decision is that the statutory power of sale was effectively varied by the facility agreement through corrective interpretation, making the power exercisable immediately upon execution of the charge. Consequently, the sale of the Property to Cherry Tree was valid and effective, and Cherry Tree is entitled to registration as proprietor.

No new precedent was established altering the fundamental principles of land registration or contractual interpretation. The decision reinforces that extrinsic evidence may be admitted as background to interpret registered charges if no third party rights are prejudicially affected, and that corrective interpretation may be employed to rectify express mistakes in contractual documents without merging separate documents into one legal instrument.