Warnborough 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 the equity of redemption’.
Held: The appeal was allowed with the result that the issue as to the character of the transaction had to be determined at a subsequent trial.
Jonathan Parker LJ referred to the need to assess the real nature and substance of the transaction. The Court had to look at the ‘substance’ of the transaction and to enquire as to the true nature of the bargain which the parties had made. To do that, the Court examined all the circumstances, with the assistance of oral evidence if necessary. Where the alleged ‘clog’ was entered into against the background of a sale of the property, by the grantee of the option as owner of the property to the grantor, for a price left outstanding on mortgage there must be ‘a very strong likelihood’ that on an examination of all the circumstances the court would conclude that the substance of the transaction was one of sale and of purchase and not one of mortgage. The transaction undoubtedly involved a genuine and enforceable mortgage. The court’s approach did not involve a finding that the mortgage was ineffective or had some other character but rather that the part of the transaction which involved a mortgage was not to be regarded as the dominant part of the transaction, which identified the character of the transaction. The transaction was a composite of its parts and although one part of the transaction involved a mortgage, the legal character of the composite transaction was a transaction of sale and purchase. The court rejected the argument that the sale was ‘incidental to the loan’ as turning the transaction ‘on its head’.


Lord Justice Simon Brown Lord Justice Judge Lord Justice Jonathon Parker


[2003] EWCA Civ1544




England and Wales


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 . .

Cited by:

CitedBrighton 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 . .
Lists of cited by and citing cases may be incomplete.

Land, Equity

Updated: 06 August 2022; Ref: scu.187543