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The editor of this section of the site is Nigel Clayton of Kings Chambers, Leeds and Manchester. Nigel also maintains the specialist website dealing with mortgages at www.legalmortgage.co.uk

Overriding interest

Priority - mortgagee costs

Credit and Mercantile Plc v Kaymuu Ltd
[2014] EWHC 1746 (Ch)


A person who claims a beneficial interest in property will be prevented by estoppel or agency from claiming priority over a mortgage which was obtained to purchase the property where he had left the acquisition of the property to another, and had not brought his interest to the attention of the lender. Under the general law (and having regard to the particular covenants) the lender was not entitled to recover its costs of defending the beneficial interest claim out of the security.


K Ltd as legal owner, charged a residential property to a lender (L) as security for a loan. The property was subsequently repossessed and sold for £1.1M. L sought to retain approximately £700,000 from the net proceeds to discharge the balance due. W claimed to be beneficially interested in the property in priority to L and therefore claimed the balance. The surplus was paid into court. K Ltd was controlled by S, a bankrupt. His trustee in bankruptcy, and W, each claimed the surplus. Both L and the trustee also claimed their legal costs out of the surplus.

After a lengthy review of the evidence, and applying Pallant v Morgan [1953] Ch 43 and Banner Homes Holdings Ltd v Luff Developments Ltd [2000] Ch 372, the court determined that the property was held on a common intention constructive trust for W.


The main issues for the Court were:
  • Whether W was bound by L’s charge; and

  • Whether L was entitled to its costs out of the surplus.

  • Decision

    The Court found that L had priority over W’s claim, but held that L was not entitled to all of its costs from the surplus.

    As to the question of priority the Court held that whether or not W was aware of the charge to L, he had been content to leave all aspects of the acquisition of the property to S and had therefore clo ... THIS IS AN EXTRACT OF THE FULL TEXT. TO GET THE FULL TEXT, SEE BELOW

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