In the Governor and Company of the Bank of Scotland v Hussain and another, the second defendant (who was suffering from Alzheimer's disease) sold her home to the first defendant at an undervalue. The first defendant secured a charge over the property in favour of the claimant. The second defendant brought proceedings to set aside the sale on the basis that it had been procured by undue influence of the first defendant, was an unconscionable bargain and the charge was invalid (the 2001 action). The court set aside the sale but held that the charge was valid on the basis that the bank had no notice of the second defendant's incapacity, the undue influence or unconscionable bargain. The claimant brought possession proceedings. The second defendant defended these proceedings on the basis that her actual occupation of the property when the charge was granted gave her an overriding interest under s70 Land Registration Act 1925 (s70 LRA). The claimant sought to strike the defence out on the basis of abuse of process, as this issue had not been raised in the 2001 action. The court declined to strike out the defence.

The claimant continued its possession action. The court held that the second defendant was not precluded from challenging the charge in the possession proceedings as the cause of action being asserted against the claimant in relation to the charge was not the same as she had raised in the 2001 action against the first defendant. She was not estopped from raising the defence. The court also found on the evidence that the second defendant was in actual occupation at the time of the charge. As to the existence of the charge, the court held that the second defendant was aware that it was to be entered into at the time of the sale. She had met with a mortgage broker along with the first defendant and almost all the money advanced by the claimant had been paid into her bank account, albeit it had later been misappropriated by the first defendant. She had also represented that the property would be sold with vacant possession and that she would not retain any rights in it. On the facts of the case, the court found that there had been a shared assumption that the property would be bound by the charge or that the claimant had made such an assumption and the second defendant had acquiesced in it. The second defendant remained bound by the charge and a possession order was granted to the claimant.

Things to consider

It is established law that once the imputed intention is that the occupier's rights are subject to the mortgage, those rights cannot be enlarged by anything in s70 LRA. This principle will apply even where there is no direct relationship between the person asserting the rights and the mortgagee.