The recent case of Harrington v Gulland Property Finance Limited and Stephen Tennant1 addresses the effect of non-registration of a deed of transfer of security on the contractual rights of the transferee derived from the security. In this application for interlocutory relief, Ms Justice Baker held that a transferee of security had not acquired "any interest" in such security pending registration of the transferee as owner of the security in the Land Registry. This briefing explains the reasoning and its implications.

Introduction

The plaintiffs had sought an application for an interlocutory injunction restraining the receiver appointed by the first named defendant ("Gulland") from acting as receiver of certain commercial units over which the plaintiffs were registered owners. The units had been charged in favour of the original chargee and the charges had been registered as burdens on the relevant folios. As part of a sale of the relevant loan facilities, the interest in the charges had subsequently been transferred to Gulland by deed of transfer.

The Arguments

The plaintiffs asserted that, as the deed of transfer had not been registered nor lodged for registration with the Land Registry, no interest in the charge had become vested in Gulland and so it did not have the power, whether contractual or statutory, to effect the appointment of the receiver. In support of this assertion the plaintiffs relied on section 64(2) of the Registration of Title Act 1964 which states that: "...until the transferee is registered as owner of the charge, that instrument shall not confer on the transferee any interest in the charge".

Gulland submitted that the power to appoint a receiver is derived from the contractual terms of the charge rather than the exercise of any statutory power and therefore its appointment of the receiver was valid. In this respect Gulland relied on the decisions of the Supreme Court in Freeman v Bank of Scotland Plc2 and Kavanagh v McLaughlin3 which held that the nonregistration of the relevant bank as the registered owner of the charge would not invalidate the appointment of the receiver. Both of these cases related to the transfer of securities between Bank of Scotland (Ireland) Ltd and Bank of Scotland plc which had been effected by operation of law by virtue of the operation of the European Communities (Cross-Border Mergers) Regulations 2008 and the Companies (Cross-Border Mergers) Regulations 2007.

Decision

The judge distinguished the present case from the Supreme Court decisions relied on by Gulland on the basis that the latter involved the transfer of security interests effected by operation of law. She noted that in the present case the transfer of the security interest had been made by an instrument in the statutory form provided by the Land Registry Rules for the transfer of an interest in a charge and that "[T]he provisions of section 64(2) are unambiguous... the instrument of transfer does not confer on the transferee any interest in the charge until the transferee is registered as owner of the charge". On this basis the judge held that the plaintiffs had made out an arguable case that Gulland could not rely on a contractual power in the charge to appoint a receiver as the deed of transfer had not been registered.

Comment

It is important to note that the judge's analysis was given in the context of her decision to grant an interlocutory injunction where only an arguable case had to be made that the power to appoint a receiver had not vested in Gulland and so this does not amount to a determination on that matter. It is not evident to us that the restrictions in section 64(2) could extend beyond the statutory rights of a transferee and suspend the private contractual rights of the transferee under the transfer deed. However the suggestion that the purchaser of a registered charge, pending registration of the transfer, has no interest in the charge and may not rely on its contractual rights pursuant to the charge will raise concerns for loan portfolio purchasers and other transferees of security. A determination on this issue clarifying the legal position would be welcome.