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Conveyancer and Property Lawyer

2010

Case Comment
Editor's notebook (January/February)
Martin J. Dixon
Subject: Real property. Other related subjects: Banking and finance
Keywords: Constructive trusts; Mortgagees; Overriding interests; Possession
Case: HSBC Bank Plc v Dyche [2009] EWHC 2954 (Ch); [2010] B.P.I.R. 138 (Ch D (Birmingham))
*CONVPL 1 This first issue of the new year sees a change in the editorial team of The Conveyancer.
We are delighted to welcome Paul Clark, consultant with Cripps Harries Hall LLP, as the new
Conveyancing Editor. Paul has a wealth of expertise in practical conveyancing and was sometime
Chairman of the City of London Solicitors Company Land Law Subcommittee and a member of
HMRC working parties on Stamp Duty Land Tax. He writes extensively on commercial and residential
property matters and regularly conducts CPD seminars. His contributions, in a new section of the
journal, will focus on matters of concern to the practising property lawyer. Like all of The Conveyancer
's Editors, he is happy to receive submissions for consideration for publication.

****
The need for certainty in conveyancing transactions is axiomatic and is a theme explored many times
in The Conveyancer. This is particularly true where land is used as security for capital finance, for a
mortgagee with a priority proprietary claim is almost unstoppable should it wish to realise its security,
whereas a mortgagee who fails to secure priority can be left with nothing but a personal debt against
a bankrupt. Compare, for example, the fate of the lender in Abbey National Building Society v Cann 1
with their re-incarnation in Abbey National Bank Plc v Stringer. 2 It is surprising, therefore, how often
lenders fail to take even the most basic steps to secure such priority. Perhaps the high volume,
process-driven world of institutional lending means that the cost of losing the odd mortgage is less
than the cost of taking widespread but simple precautions, for example securing the advised consent
of persons in occupation of the property. However, whatever the reason,3 when a lender is faced with
the prospect of a worthless security because of some inattention on *CONVPL 2 its own part
(possibly further complicated by the behaviour of the mortgagor, or one of them), the courts often find
themselves having to deal with complex factual and legal issues not canvassed in previous cases or
not covered directly by the applicable legislation. In turn, this can generate an uncomfortable
precedent whose impact may reach beyond the confines of the particular case. Decisions ripple
sometimes in unforeseeable ways. The recent decision in HSBC Bank Plc v Dyche 4 is one such, and
while the result may well be correct, the reasoning has the potential to undermine the security of
mortgages and presents a direct challenge to a fundamental precept of the Land Registration Act
2002--the power of a registered proprietor to deal with their land.
Mr and Mrs Collelldevall were the joint registered proprietors of their home, but Mr Collelldevall's
bankruptcy in 1988 had had the effect of severing their equitable joint tenancy. Subsequently, as part
of a plan to rescue the couple's finances, the house was sold to Mr and Mrs Dyche, the Collelldevalls'
daughter and son-in-law. The sale was agreed by Mr Collelldevall's trustee in bankruptcy and was for
a sum far less than the property was worth.5 The purchase price (a mere 25,000) was raised by Mr
and Mrs Dyche partly through a mortgage with Lloyds Bank and partly through a private loan. The
idea seems to have been to raise just enough money to meet the Collelldevalls' immediate financial
needs, with Mr and Mrs Dyche promising to re-convey the house when Mr and Mrs Collelldevall had
repaid the Lloyds mortgage and the other debts incurred by Mr and Mrs Dyche. Mr and Mrs
Collelldevall continued to live in the property--the Dyches never did--and Mr Collelldevall paid the
agreed amounts,6 continuing to do so after Mrs Collelldevall's death. There were two further
significant events. First, as part of a divorce settlement, Mr and Mrs Dyche appear to have sold the
property to Mrs Dyche as sole proprietor for just 5,000; secondly, this sale was financed by Mrs
Dyche taking a much larger mortgage with HSBC which she used to pay her ex-husband the 5,000

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purchase price, to redeem the Lloyds mortgage and to finance her business ventures. Although
HSBC knew that Mr Collelldevall was living in the property, they were happy to accept that he was
merely a tenant and were shown a tenancy agreement which bore his signature, subsequently
revealed to be a forgery. HSBC considered seeking *CONVPL 3 his formal consent, but apparently
chose not to pursue this rather safer path. On HSBC's application for a possession order following
mortgage default, Mr Collelldevall alleged that Mr and Mrs Dyche had held the property on trust for
himself and his wife (and now him alone as sole survivor) and that this interest overrode HSBC's
mortgage under what was then s.70(1)(g) of the Land Registration Act 1925 (the 1925 Act) and is
now para.2 of Sch.3 to the Land Registration Act 2002 (the 2002 Act)--the interest of a person in
actual occupation.
The trial judge--H.H. Judge Purle QC sitting as a High Court Judge--had little difficulty in finding that
the Dyches originally held the land on trust for the Collelldevalls. The fact that the Dyches had paid
such a small sum, with the purchase price effectively being treated as a loan from them to the
Collelldevalls which had to be repaid, following which title would be reconveyed, was sufficient to
establish a straightforward common intention constructive trust.7 Indeed, this is hardly contentious
and although His Honour relied on the general authority of Lyus v Prowsa Developments Ltd, 8 safer
authority is found in both Hodgson v Marks 9 and Collings v Lee 10 whose facts are comparable.11
There was, of course, no question of the Collelldevalls' interest having priority over the Lloyds Bank
mortgage that was used to finance the Dyches' purchase--the Collelldevalls must be taken to have
consented to it (Abbey National v Cann ) and, in any event, the sale by the Collelldevalls overreached
their own equitable interests as being made by two trustees of land (s.2 of the Law of Property Act
1925 (the 1925 Act), City of London Building Society v Flegg ).12 In fact, the trial judge took the view
that the Collelldevalls' original equitable interests in the property were completely destroyed by their
sale to the Dyches and that, in reality, a new equitable interest arose in their favour after such sale
had been completed.13 It is not clear that this is entirely correct,14 *CONVPL 4 but it does have the
singular advantage of allowing Judge Purle to decide that Mr and Mrs Collelldevall were joint-tenants
of this new equitable interest, rather than being tenants in common of the old interest following Mr
Collelldevall's bankruptcy. Thus, Mr Collelldevall could succeed by survivorship to the whole of the
new equitable interest when Mrs Collelldevall died.15
However, the more challenging aspect of the case, and the one that could have a significant impact
on registered conveyancing arose when HSBC asserted priority over Mr Collelldevall. In HSBC's
view, when Mr and Mrs Dyche (who were holding on trust for Mr Collelldevall) sold the property to Mrs
Dyche, this had the effect of overreaching Mr Collelldevall's equitable interest under s.2 of the 1925
Act such that Mrs Dyche took free of the interest. She was, in their view, a purchaser from two
trustees of land within s.2 of the 1925 Act. Consequently, it would follow that the mortgage to HSBC
was unencumbered by Mr Collelldevall's interest.16 However, Judge Purle did not agree with HSBC
and he held that the sale by Mr and Mrs Dyche to Mrs Dyche did not overreach Mr Collelldevall's
interest, despite the authority of Flegg. In his view, the sale by the Dyches to Mrs Dyche was a breach
of trust, not authorised by Mr Collelldevall and, in consequence, the conveyance could not overreach.
In simple terms,Mrs Dyche was not a purchaser in good faith as required by s.2 of the 1925 Act
when read with the definition of a purchaser found in s.205(1)(xxi) of the 1925 Act. While one can
see the inherent fairness in this result, there are two important concerns with this analysis.
First and foremost, the power of a registered proprietor (the Dyches) to deal with their land is
absolute, even if they are trustees, unless the contrary is expressed on the register--see now s.23 of
the 2002 Act. Thus the sale by the Dyches to Mrs Dyche was one they were competent to make as a
matter of registered conveyancing.17 It may well have amounted to a breach of trust, but that does not
affect the validity of the conveyance.18 This is *CONVPL 5 the essence of Flegg itself, as in many
cases the trustees of land will have conveyed or dealt with the title contrary to the terms of the trust
and contrary to the wishes of the beneficiaries. Likewise, whether or not the beneficiary of a trust of
land authorised the transaction by the registered proprietors is irrelevant. Such authorisation may
provide a defence to a personal action against the trustee for breach of trust, but it is immaterial in
terms of the validity of the conveyance. Thus, it is imperative that the decision in this case is not taken
as introducing unregistered land concepts in to registered conveyancing and is not seen as
compromising the overreaching machinery. The raison d'etre of the trust of land under the Trusts of
Land and Appointment of Trustees Act 1996 and the 2002 Act is that the trustees as registered
proprietors may deal with the title unless the contrary is on the register and that the purchasers
(especially lenders) can be certain of the efficacy of overreaching. Secondly, the reference to the
need for a purchaser to be in good faith before overreaching can occur echoes the discredited
decision in Peffer v Rigg. 19 Such a concept has no place in our modern system of registered

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conveyancing where the proprietary effects of dispositions of land are concerned. In fact, Judge Purle
notes that the definition of a purchaser as one who has to be in good faith only applies unless the
context otherwise requires (s.205 of the 1925 Act), and it is submitted that the context of an
overreaching transaction by two trustees definitely so requires. Otherwise, every purchaser who
knows, or ought to have known, about the existence of an equitable owner who did not agree with the
proposed transaction by the trustees could find that the overreaching machinery did not protect them.
Good faithmay have been the mainstay of unregistered conveyancing, but it has no significant role
in respect of land of registered title. Admittedly, in this case, Mrs Dyche is not a disinterested third
party purchaser who merely knows aboutMr Collelldevall: she is both vendor and purchaser and is
probably dishonest, likely having forged her father's signature on the purported tenancy agreement.20
It is, however, unfortunate that this is used as a reason to doubt the efficacy of the overreaching
machinery through a discredited definition of a purchaser, rather than to attack the transaction on
other grounds.
The issue is then, not so much that HSBC did not have priority over Mr Collelldevall, but rather that
this was achieved by *CONVPL 6 casting doubt on the efficacy of the overreaching machinery as it
applies to land of registered title. In this case, it may not matter--on which see below--but it would be
very unfortunate if arguments about authorisation and good faith were to infect an otherwise stable
conveyancing procedure. That said, and given that the transfer to Mrs Dyche was made by or at the
direction of two trustees of land within s.2 of the 1925 Act, on what grounds might Mrs Dyche not be
held to have priority over her father, so as to prevent HSBC gaining priority? First, a simple solution is
that adopted in Halifax Plc v Curry Popeck 21 where in respect of a similar issue of priority under s.29
of the 2002 Act, Norris J. held that a transfer from H & W to H alone was not in fact a transfer for
value--it was not a true sale. Hence, the alleged purchaser was not protected by s.29 of the 2002 Act
and the matter fell to be decided under s.28 of the 2002 Act instead. Granted, it appears in our case
that the 5,000 was indeed paid to Mr Dyche, but there was no record of a court order requiring
this--as alleged by Mrs Dyche--and the transaction looks more like an informal compromise between
divorcing spouses than a sale, per se. Secondly, it is possible to take the view that the alleged
overreaching transaction should have been nullified on the general ground that equity will not permit a
statute--here s.2 of the 1925 Act--to be an instrument of fraud,22 Mrs Dyche's fraud being the
purchase of the house for a mere 5,000 with an immediate mortgage thereafter to raise money
which she knew was not going to be used for the benefit of the equitable owners.23 Of course, such
an analysis could be pleaded in many cases by a disappointed beneficiary under a trust of land, but if
we limit the nullifying effect of this principle to cases of fraud properly so called (e.g. where the trustee
is both vendor and purchaser at an undervalue),24 instances of apparently valid overreaching being
undone under Rochefoucauld v Boustead (No.1) 25 will be rare. Thirdly, there is no doubt that Mrs
Dyche (and probably Mr Dyche) was personally liable for breach of trust, and while this normally does
not affect the position of a third party purchaser,26 in our case the third party is the dishonest trustee.
Surely she cannot escape from the consequences of her own wrong by *CONVPL 7 pleading the
efficacy of the overreaching transaction. On this simple ground, Mrs Dyche is not a true third party
within the meaning of the overreaching machinery.
Of course, in all of these three variants, the essence of the matter is that the conduct of the transferee
(Mrs Dyche) prevents her personally from benefiting from the proprietary priority offered by the
overreaching machinery. Thus, in a formalistic but critical way, the overreaching machinery is not
internally compromised by requirements of good faith and the like, but rather this particular
transferee is prevented by the application of established equitable principles from relying on the
otherwise absolute nature of the conveyancing provisions of the 1925 Act and the 2002 Act. Such
cases will be rare and unusual. Of course, the difficulty with this is that HSBC could not have known
that the personal behaviour of their mortgagor had compromised her ability to grant them an
unencumbered mortgage and in its turn HSBC (on our facts) is not personally tainted by Mrs Dyche's
unconscionable behaviour. Thus, HSBC is not personally prevented from asserting priority. However,
given that Mrs Dyche as sole trustee was bound to give effect to the equitable interest of Mr
Collelldevall, then her mortgage to HSBC falls to be judged by the normal principles of registered
conveyancing. It was a mortgage by a sole legal owner in respect of which there was an equitable
owner in actual occupation such as to generate an overriding interest against the lender--Williams &
Glyn's Bank Ltd v Boland. 27
Finally, in case there is concern about HSBC's position and the loss of its security, two final points
can be made. First, we need to remember that HSBC should have been alerted to the possibility of
not having priority by the acknowledged (and discoverable) occupation of Mr Collelldevall. They had
every opportunity to deal with this risk by seeking his informed consent. Secondly, while HSBC

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cannot rely on Abbey National v Cann to give them priority over Mr Collelldevall,28 the lender should
have been able to rely on principles of subrogation to give them partial priority. It was established that
some of the funds provided by HSBC were used to discharge Lloyd Bank's mortgage and the Lloyds
*CONVPL 8 Bank mortgage did have priority over Mr Collelldevall.29 There is much case law in
HSBC's favour in this respect, Castle Phillips Finance Co Ltd v Piddington 30 and Equity & Law Home
Loans Ltd v Prestridge 31 being just two of the many examples where a second lender who has no
priority of their own has stepped in to the shoes of a lender with priority because the new funds were
used to discharge the first mortgage. Unfortunately, this could not be pursued before Judge Purle in
this case as no evidence was adduced to establish the extent to which HSBC's mortgage had in fact
been used to discharge Lloyds Bank's mortgage. This seems an opportunity missed.
Conv. 2010, 1, 1-8

1.

Abbey National Building Society v Cann [1991] 1 A.C. 56; [1990] 2 W.L.R. 832, HL.

2.

Abbey National Bank Plc v Stringer [2006] EWCA Civ 338; [2006] 2 P. & C.R. DG15.

3.

In this respect, we could regard the recent failure of the wholesale money market as having the positive side-effect of
encouraging more responsible lending--but I amnot holding my breath.

4.

HSBC Bank Plc v Dyche [2009] EWHC 2954 (Ch).

5.

The trustee had secured an order for sale, but it was never enforced and it is not clear why the trustee was content to
accept such a small amount for Mr Collelldevall's creditors.

6.

He was in arrears at some points, but the position was always rectified.

7.

He also held that the interest was not contingent on such repayment, but rather that as trustees the Dyches would have
a right of retention if the debt was not repaid.

8.

Lyus v Prowsa Developments Ltd [1982] 1 W.L.R. 1044; [1982] 2 All E.R. 953, Ch D.

9.

Hodgson v Marks [1971] Ch. 892; [1971] 2 W.L.R. 1263, CA (Civ Div).

10.

Collings v Lee [2001] 2 All E.R. 332; (2001) 82 P. & C.R. 3, CA (Civ Div).

11.

One view of Lyus is that the transferor becomes personally liable under a constructive trust as an aspect of unjust
enrichment rather than holding the land on such a trust. See also Binions v Evans [1972] Ch. 359; [1972] 2 W.L.R. 729,
CA (Civ Div).

12.

City of London Building Society v Flegg [1988] A.C. 54; [1987] 2 W.L.R. 1266, HL.

13.

Again, this could not have had priority over Lloyds Bank as it would not, on the judge's reasoning, exist when the
mortgage was executed.

14.

If the sale to Dyches was not to them as absolute owners because of their undertaking to re-convey, is it not the case
that the Collelldevalls never were divested of their equitable interests, even though they did not take priority over Lloyds
Bank?

15.

Mrs Collelldevall died intestate, and is likely that Mr Collelldevall would in any event have succeeded to her interest
under intestacy rules.

16.

Similar reasoning is found in Halifax Plc v Curry Popeck (A Firm) (2008) 152(37) S.J.L.B 31; [2009] 1 P. & C.R. DG3,
Ch D.

17.

See also Halifax v Popeck (2008) 152(37) S.J.L.B 31; [2009] 1 P. & C.R. DG3, Ch D.

18.

For a discussion of this issue, which is not uncontentious, see G. Battersby and G. Ferris, The impact of the Trusts of
Land and Appointment of Trustees Act 1996 on purchasers of registered land [1998] 62 Conv. 168; G. Battersby and
G. Ferris Overreaching and the Trusts of Land and Appointment of Trustees Act 1996--a reply to Mr Dixon [2001] 65
Conv. 221; G. Battersby and G. Ferris, The general principles of overreaching and the modern legislative reforms,
1996-2002 [2003] 119 L.Q.R. 94; M. Dixon Overreaching and the Trusts of Land and Appointment of Trustees Act
1996 [2000] 64 Conv. 267; and N. Jackson Overreaching and unauthorised disposition of registered land [2007] 71
Conv. 120.

19.

Peffer v Rigg [1977] 1 W.L.R. 285; [1978] 3 All E.R. 745, Ch D; see Williams & Glyn's Bank Ltd v Boland [1981] A.C.
487; [1980] 3 W.L.R. 138, HL.

20.

Flegg [1988] A.C. 54; [1987] 2 W.L.R. 1266, HL at [36].

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21.

Halifax v Popeck (2008) 152(37) S.J.L.B 31; [2009] 1 P. & C.R. DG3, Ch D.

22.

Rochefoucauld v Boustead (No.1) [1897] 1 Ch. 196, CA.

23.

And there is also the forgery of her father's signature on the purported tenancy agreement.

24.

There is also, of course, the prospect that the transaction be voided under the self-dealing rule--Keech v Sandford 25
E.R. 223; (1726) Sel. Cas. Ch. 61.

25.

Rochefoucauld v Boustead (No.1) [1897] 1 Ch. 196, CA.

26.

Absent the mens rea sufficient to make them liable as strangers to the trust.

27.

Boland [1981] A.C. 487; [1980] 3 W.L.R. 138, HL.

28.

This was canvassed in argument, but HSBC cannot rely on the fact that Mrs Dyche's purchase and their mortgage were
one indivisible transaction undertaken by two trustees of land (so that HSBC enjoyed the benefit of overreaching even if
Mrs Dyche did not because they were not personally estopped from relying on it) because that analysis works only
where neither mortgagor nor equitable owner had any pre-existing interest in the property now alleged to be subject to
the mortgage.

29.

Flegg [1988] A.C. 54; [1987] 2 W.L.R. 1266, HL.

30.

Castle Phillips Finance Co Ltd v Piddington (1995) 70 P. & C.R. 592; [1994] N.P.C. 155.

31.

Equity & Law Home Loans Ltd v Prestridge [1992] 1 All E.R. 909; [1992] 1 F.L.R. 485, CA (Civ Div).

2013 Sweet & Maxwell and its Contributors