In my last blog, I discussed the case of Mortgage Express v Laura Lampert  EWCA Civ 55 in the context of the doctrine of unconscionable bargain. To re-cap, Ms Lampert successfully established that she had been taken advantage of by the purchaser of her property who acquired it at a huge undervalue, had granted her a tenancy, had then obtained a market value mortgage secured against the property, stopped paying it, resulting in Ms Lampert facing repossession. See the full factual description here.
The Court at first instance held that Ms Lampert was entitled to have the transaction set aside against the purchasers, but not against Mortgage Express who had acquired an interest in the property after completion of the sale by Ms Lampert.
The Court of Appeal had to consider the legal character of the right to set aside the transaction on the ground that it was an unconscionable bargain, how that fits into the scheme of land registration, and whether Ms Lampert can assert the right against Mortgage Express.
The Court held that there is no reason why the right to set aside a transaction on the basis of an unconscionable bargain should not be treated as “an equity” or “mere equity” (as in cases of undue influence and misrepresentation). The Court examined section 116 of the Land Registration Act 2002 which provides that, in relation to registered land, a mere equity has the effect from the time the equity arises as an interest capable of binding successors in title (i.e. the mortgagee). I emphasise the two key requirements to bear in mind in asserting the equitable right.
The interest will be elevated to an overriding interest, thereby binding the successor, if the interest belonged at the time of the disposition to a person in actual occupation of the property (Schedule 3 para 2 LRA 2002). The Court held that in principle Ms Lampert’s right to have the sale of her property set aside on the grounds of an unconscionable bargain is capable of being an overriding interest, and it must follow that it is proprietary in nature.
Unfortunately for Ms Lampert, she failed to disclose on her property information questionnaires that she intended to remain living in the property after the sale, and had been promised a tenancy by the purchasers. The contract also stated that she would give vacant possession. She was therefore precluded from relying on her actual occupation to elevate her equitable interest to an overriding interest. The Land Registration rules make clear that you cannot later rely on a right that you fail to assert at the time of the transaction. Ms Lampert’s equitable interest created by the unconscionable bargain was not, therefore, capable of overriding the mortgage and she was only entitled to whatever equity was left after that was paid.
Before coming to that view, though, the Court of Appeal rounded on the key problem for Ms Lampert, which was this. That the purchasers of the property had obtained the Mortgage Express mortgage as two trustees of the property. Therefore, Ms Lampert’s equitable interest in the legal estate was overreached. Pursuant to 2 of the Law of Property Act 1925 a conveyance (which includes the grant of a mortgage) can overreach an equitable interest if made by at least two trustees. Ms Lampert, therefore, was unable to assert her equitable right against the mortgagee.
The case is a useful analysis of the interplay between the equitable principles of unconscionability, and the Land Registration Act regime, which is strict. The conclusion troubles me, though it is clear why the Court ruled as it did. There is a tension between the equitable principles and the statute. On the one hand, the court seeks to protect Ms Lampert against the unscrupulous purchasers by granting her an equitable right in the property that she sold. On the other, it is possible for those same unscrupulous people to have the unilateral ability to defeat that right by acting together to grant a mortgage. On this issue, the law gives with one hand and takes with the other.