Brighton and Hove City Council v Audus: ChD 26 Feb 2009

The claimant was the proprietor of a fourth legal charge on a title. It sought a declaration that a second charge in favour of the defendant was void as a clog on the proprietor’s equity of redemption. An advance secured by a first charge, also in favour of the defendant had been used to purchase the lease. The second charge was intended to secure that the proprietor could continue to live in the property without further payment for their lives, but that it would then revert to the defendant, their nephew. It did so by charging any future increase in value of the property.
Held: The council’s claim failed. The transaction at issue went beyond a security transaction: ‘It was in substance a transaction whereby Mr Audus would buy the flat and have ownership of the flat but his rights were to be postponed to the rights of Mr and Mrs Bull to live in the flat for their lives.’
‘It is inherent in the concept of a mortgage or security interest that the borrower of money should be able to discharge the security interest, that is, to redeem the mortgage by paying the money and in that way performing the obligation performance of which is secured. At common law it was possible to include in a mortgage a contractual term which had the effect that the mortgagor would lose the right to redeem if he failed to repay the monies due by a specified date. Equity regarded such a term as liable to work injustice and hardship and equity granted relief against the operation of such a contractual term by recognising an equitable right to redeem, notwithstanding non-compliance with the contractual term . . The relevant rules are threefold. The first is that a condition which is repugnant to the contractual right to redeem and the equitable right to redeem is void. The second rule is that a condition which imposes a penalty in respect of the exercise of the equitable right to redeem, following a failure to exercise a contractual right to redeem, is void in equity. The third rule is that a provision which regulates or controls the right to redeem is invalid, if it is unconscionable.’

Morgan J
[2009] EWHC 340 (Ch), [2009] 9 EG 192, [2010] 1 All ER (Comm) 343, [2009] NPC 31
England and Wales
CitedSantley v Wilde CA 1899
Classic Definition of a Mortgage
Lord Lindley considered the nature of a mortgage and said: ‘The principle is this: a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt, or the discharge of some other obligation for which it is . .
CitedG and C Kreglinger v The New Patagonian Meat and Cold Storage Company HL 20-Nov-1913
Mortgagor’s collateral dvantage is not a clog
The appellant woolbrokers had lent the respondent andpound;10,000 with a floating charge over its undertaking. The loan agreement provided that, for five years, the appellants would have first refusal over all sheepskins sold by the company. The . .
CitedCityland and Property (Holdings) Ltd v Dabrah 1968
The mortgage secured a debt of pounds 2,900 owing by the mortgagor to the mortgagee. The mortgagor covenanted to pay the mortgagee pounds 4,553 by monthly instalments over a six year period. The return to the mortgagee was in the form of a premium . .
CitedMultiservice Bookbinding Ltd v Marden ChD 1978
To have a transaction set aside as a harsh and unconscionable bargain, a party would have to show not only that the terms of the transaction were harsh or oppressive, but also moral unfairness. Browne-Wilkinson J said: ‘In my judgment a bargain . .
CitedKnightsbridge Estates Trust Ltd v Byrne CA 1939
The company mortgaged properties in London to secure an advance from a Friendly Society. A clause of the mortgage provided for repayment by eighty half-yearly instalments. The mortgage further provided that if the mortgagor paid the instalments on . .
CitedMehrban Khan v Makhna 1930
It is open to a later encumbrancer of land who has a right to redeem a prior charge, to come to court and establish that a term in that prior charge relating to the right to redeem is an unconscionable term and if that is established the term will . .
CitedWelsh Development Agency v Export Finance Co Ltd CA 1992
The court was asked whether a transaction relating to goods between an exporter and the defendant, as a financier, associated with sales by the exporter to third-party purchasers, amounted to a true sale by the exporter to the defendant or was . .
CitedLavin v Johnson CA 31-Jul-2002
A landowner sought repossession of land from his agricultural tenant for failure to pay his rent. The tenant alleged that a charge was an extortionate credit bargain. The landlord appealed.
Held: The Court must have regard to the evidence and . .
CitedWarnborough Ltd v Garmite Ltd CA 5-Nov-2003
Warnborough (W) sold real property to Garmite (G), leaving the purchase price outstanding but secured by a mortgage in favour of W. G also granted W an option to repurchase the property. The issue was whether the option to repurchase was ‘a clog on . .
CitedDutton and Another v Davis and Another CA 4-May-2006
The appellant had transferred his property with the intention that it should be subject to a right on his part to repurchase it. He now said the sale was in practice merely a charge.
Held: The appeal failed. The legal nature of the transaction . .
CitedNewcomb v Bonham 1681
A mortgage is made reemable during the life of the mortgagor only, yet his heirs shall redeem – And in this case the mortgagor may be foreclosed in his own lifetime. But where his decree was reversed on a hearing de integro and reversal affirmed in . .
CitedHoward v Harris 1861
Proviso in a mortgage that the mortgagor or the heirs male of his body might redeem. Decree: The assignee might redeem. . .
CitedSalt v The Marquess of Northampton 1892
. .
CitedGossip v Wright HL 1869
The House considered the right to redeem a mortgage. Kindersley VC said: ‘There is no doubt that the broad rule is this: that the Court will not allow the right of redemption in any way ‘to be hampered or crippled in that which the parties intended . .
CitedWestminster City Council v Haymarket Publishing Limited CA 1981
The court was asked whether a statutory charge on the property under the General Rate Act wou ld have priority over a legal mortgage on the property existing when the charge came into being. It was argued that the charge would be only on the . .
CitedYeoman’s Row Management Ltd and Another v Cobbe HL 30-Jul-2008
The parties agreed in principle for the sale of land with potential development value. Considerable sums were spent, and permission achieved, but the owner then sought to renegotiate the deal.
Held: The appeal succeeded in part. The finding . .

Lists of cited by and citing cases may be incomplete.

Land, Equity

Updated: 10 November 2021; Ref: scu.304535