Myles v Prospect Properties Ltd

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Kerr and Henry, JJ.A.)
• Judgment Date: 11 December 1990
• Court: Court of Appeal (Cayman Islands)
• Date: 11 December 1990

Court of Appeal

(Zacca, P., Kerr and Henry, JJ.A.)

MYLES and WINTON

and

PROSPECT PROPERTIES LIMITED and WOOLF

N.W. Hill, Q.C. and Ms. C.J. Bridges for the appellant;

T.B. Shea for the respondents.

Cases cited:

(1) Banning v. Wright, [1972] 1 W.L.R. 972; [1972] 2 All E.R. 987.

(2) Frazer v. Walker, [1967] 1 A.C. 569; [1967] 1 All E.R. 649, dicta of Lord Wilberforce applied.

(3) Great W. Perm. Loan Co. v. Friesen, [1925] A.C. 208.

(4) Kai Sun Invs. Ltd. v. Dah Sing Bank Ltd., [1986] HKLR 850, dicta of Mantell J. applied.

(5) Midland Bank Trust Co. Ltd. v. Green, [1981] A.C. 513; [1981] 1 All E.R. 153.

(6) Wicks v. BennettUNK(1921), 30 C.L.R. 80, dicta of Higgins J. applied.

Legislation construed:

Registered Land Law (Revised) (Law 21 of 1971, revised 1976), s.2: The relevant terms of this section are set out at page 7, lines 44–45 and page 23, lines 10–12.

s.3: The relevant terms of this section are set out at page 16, line 45 – page 17, line 7.

s.23: The relevant terms of this section are set out at page 7, lines 26–42 and page 16, lines 18–31.

s.27: The relevant terms of this section are set out at page 17, lines 29–35.

s.30: The relevant terms of this section are set out at page 8, lines 24–26 and page 17, lines 37–39.

s.38: The relevant terms of this section are set out at page 9, lines 5–19 and page 17, line 41 – page 18, line 9.

s.41: The relevant terms of this section are set out at page 8, line 29 – page 9, line 3 and page 18, lines 11–25.

s.64(4): The relevant terms of this sub-section are set out at page 16, lines 36–37.

s.65: The relevant terms of this section are set out at page 18, lines 27–32.

s.121(3): The relevant terms of this sub-section are set out at page 10, lines 5–12 and page 18, lines 34–41.

s.127: The relevant terms of this section are set out at page 5, lines 21–43 and page 14, lines 38–43.

s.128: The relevant terms of this section are set out at page 9, lines 34–36 and page 20, lines 26–30.

s.129(3): The relevant terms of this sub-section are set out at page 20, lines 33–37.

s.164: The relevant terms of this section are set out at page 13, line 44–page 14, line 2 and page 17, lines 15–18.

Land Law-registration-equitable interests-no priority for earlier unregistered equitable interest over registered interest by virtue of equitable doctrine of notice-doctrine excluded by Registered Land Law (Revised) since Law establishes complete system for regulating priority of land interests-under ss. 38 and 121(3), purchaser for value deemed to have notice only of registered interests

Land Law-registration-equitable interests-priority for earlier unregistered interest by Registered Land Law (Revised), s.27 if registered legal interest acquired without valuable consideration-in certain circumstances, considerations of equity and good conscience, imported by s.164, can dictate priority

Land Law-registration-indefeasibility of title-proprietor of charge may not claim indefeasibility of title under Registered Land Law (Revised), s.23-by s.64(4) chargee only person entitled to security and not to be treated as proprietor with absolute title

The respondents sought orders in the Grand Court for specific performance of contracts for the sale of land or, alternatively, damages for the breach of such contracts.

The respondents had contracted with Prospect Properties to purchase certain lots of land of which it was the registered proprietor. Although one respondent had paid the full purchase price and the other was ready and willing to complete payment, no transfers took place and neither respondent registered his interest or lodged a caution under the Registered Land Law (Revised).

The appellant was a director of Prospect Properties and directly involved in its management. It was not in dispute that he had actual knowledge of the respondents” interests at the time he entered into agreements with Prospect Properties, pursuant to which charges were registered in his favour over certain lots of land of which Prospect Properties was the registered proprietor. However, because there had at that time been no subdivision the charge was registered over the whole parcel of Prospect Properties” land including the respondents” lots. When subdivision took place, the appellant maintained his charges over all the land, including the respondents” lots, although there was no written

agreement to suggest that valuable consideration had been given in respect of the charges.

The respondents brought proceedings in the Grand Court (which were consolidated for trial) against Prospect Properties and the appellant. The Grand Court (Schofield, J.) held that the respondents had acquired equitable interests in the lots when they contracted to buy them and these unregistered interests took priority over the appellant”s charges since (a) Prospect Properties and the appellant were trustees for the respondents and had acted in breach of trust when they created the charges; (b) having intentionally created the equity, Prospect Properties could not rely upon s.23 of the Registered Land Law (Revised) to claim indefeasible title as proprietor of the land and the section did not apply to the appellant as proprietor of a charge; and (c) the appellant could not rely upon s.38(2) which prevented a disposition by a trustee, in breach of trust, to a bona fide purchaser for valuable consideration from being defeasible on that basis because (i) he had had notice of the respondents” interests and the equitable doctrine of notice was embodied in the concept of ‘bona fide purchaser’ in that sub-section; and (ii) in any event he had not given valuable consideration for the charges. Equitable interests were accorded recognition by the Law unless by s.3 they were inconsistent with its provisions and since the equitable doctrine of notice had been embodied in s.38(2) it was clearly compatible with the Law and had not been excluded. As a result, orders for the discharge of the charges were granted against the appellant and orders for specific performance were granted against Prospect Properties. The proceedings are reported at 1988–89 CILR 306.

On appeal, the appellant submitted that the court had erred in holding that the respondents” unregistered interests took priority over his registered charges because (a) his actual notice of the unregistered interests was irrelevant since the Registered Land Law (Revised) had established a complete system for regulating the priority of land interests, designed to protect purchasers for value, under which (by ss. 38 and 121(3)) he was deemed only to have notice of registered interests; (b) by failing to register a caution under s.127 the respondents therefore had lost any claim to priority over his registered charges; (c) the indefeasibility of his right to priority by virtue of the charges was protected under s.23 since by virtue of s.72 his power of sale on default under the charges allowed him to be treated as the proprietor of the land; (d) he had given value for his charges and there was no need for a written agreement as evidence of that valuable consideration; and (e) in any event, by not complying with ss. 30 or 127 either in registering their claims or in lodging a caution the respondents had abandoned their right to claim priority and the appellant could plead this abandonment as confession and avoidance.

The respondents submitted in reply that (a) the appellant”s actual notice of their interests remained relevant since the equitable doctrine of notice had not been excluded by the Registered Land Law (Revised) but by virtue of its inherent relationship with the ‘bona fide purchaser’ had been embodied in s.38(2); (b) moreover, since the agreements between Prospect

Properties and the appellant had not contemplated that the respondents” lots formed part of the security, the appellant had not given valuable consideration for the charges over them and therefore by s.27 the respondents” interests took priority over them; (c) s.23 did not apply to the appellant since by s.64(4) a chargee was defined as a person entitled to security not as a proprietor with absolute title; and (d) in all the circumstances of the case, considerations of equity and good conscience (which were relevant by virtue of s.164) dictated that the respondents” interests should have priority.

Held, dismissing the appeal:

(1) It was immaterial that the appellant had actual notice of the respondents” unregistered interests since the equitable doctrine of notice had been excluded by the Registered Land Law (Revised) and had not been incorporated into s.38(2). By ss. 3 and 164, equitable principles only remained applicable to matters not covered by the Law expressly or by inescapable conclusion-and the Law had in fact established a complete system for regulating the priority of land interests based on registration. It was designed to protect purchasers for valuable consideration who, under ss. 38 and 121(3), were deemed to have notice only of registered interests (page 9, line 4 – page 10, line 16; page 16, line 41 – page 21, line 32).

(2) Nevertheless, the respondents were able to claim priority for their interests over the appellant”s charges because (a) he had not given valuable consideration for the charges (page 10, line 23 – page 13, line 40; page 22, line 20 – page 25, line 8), which were by s.27 therefore subordinated to their pre-existing interests (per Kerr, J.A., page 21, lines 36–39); (b) he could not assert indefeasible title under s.23, since a chargee was (by s.64(4)) only a person entitled to security and was not to be treated as a proprietor with absolute title (page 8, lines 1–6;page 16, lines 16–37); and (c) in the light of all the circumstances, considerations of equity and good conscience, which were imported by s.164, dictated that the respondents” interests should have priority (per Zacca, P., page 13, line 42 – page 14, line 6).

(3)...