Assignee of charge
Assignee claiming possession
Assignment of debt
 EWHC 563 (Ch)
In a possession and money claim brought by the registered assignee of a legal charge, the Appeal Judge found that the Claimant was entitled to possession as the registered title holder of a legal charge, despite his allowing the Defendant’s appeal and holding that the Claimant had not proved that a valid assignment of the debt had occurred at trial.
The Defendants were the owners of a property in Cornwall that was mortgaged to the Clydesdale Bank. The Bank purported to assign the debt and the benefit of its legal charge to the group of companies of which the Claimant formed part. The Claimant was registered as the legal owner of the charge at the Land Registry. The Claimant had begun possession proceedings using a standard form claim form and particulars of claim and had made a claim for the debt outstanding as well as for possession of the property on the basis of the legal charge.
For some reason (possibly because they could not be located), the Claimant did not disclose the Deed of Assignment or the sale and purchase agreement between itself and Clydesdale before trial. The Defendants however, despite being in possession of a redacted deed of assignment that referred to the sale and purchase agreement, did not make any application for specific disclosure but took the point at trial that the Claimant could not prove its case on the evidence before the court. The Trial Judge accepted into evidence a redacted version of the charge deed and held that he was satisfied on the basis of the evidence before him that the debt and charge had been assigned to the Claimant by the deed of assignment. He therefore granted possession on that basis, relying upon the redacted deed of assignment.
Mr Justice Marcus Smith, in an appeal judgment reported at  EWHC 104 (Ch), held that the Judge had been wrong to admit into evidence the redacted deed of assignment rather than requesting disclosure of the unredacted deed and the sale and purchase agreement. Without the court considering these crucial documents (that plainly were in existence) the Judge’s conclusion on the evidence before him was unsafe. One of the issues was that the redacted deed of assignment suggested that there had been a direct transfer from Clydesdale Bank to the Claimant when correspondence in evidence suggested a chain of assignment between the Bank and the Claimant involving other companies in the group. The Appeal Judge considered that the Trial Judge had failed to have due regard to the evidence that was not before the court and proceeding and finding for the Claimant on the basis of a redacted deed of assignment was obviously flawed.
The issues being dealt with under this case number were, essentially, what the implications were of the Appeal Judge’s conclusions in his earlier judgment. Should the Claimant still be entitled to possession? The Defendants argued that the Claimant should not be. They argued that:
- On the pleadings, the claim had been brought by the Claimant’s as assignee only and not as the registered proprietor of the legal charge,
- Without proof of an effective assignment, Clydesdale and not the Claimant remained the only party with title and the right to possession pursuant to the legal charge, despite the Claimant being the registered proprietor.
The decision at first instance, which turned on the evidence, is outlined above. Because the Trial Judge had been satisfied by the deed of assignment, he had not considered the precise basis upon which the claim was brought or the implications if the assignment was not properly proven.
Decision on appeal
The Appeal Judge found that the Claimant was entitled to possession as the registered legal charge-holder, notwithstanding the fact that he had set the Judge’s decision on assignment aside. The basis for this was three-fold:
- Firstly, the Claimant’s, by their standard form particulars of claim, had clearly brought their claim both as the assignee of the bank and the registered charge-holder. The proceedings referred to the charge in detail as well as the deed of assignment. There was no question that they were relying on their status as registered charge-holder to support their claim to possession.
- Secondly, the proprietary rights conferred by a legal charge, including the security for the non-payment of the debt, were distinct from the right to sue on the debt, and therefore the failure to establish that there had been a valid assignment of the debt did not mean that the Claimant was not entitled to possession as the holder of an estate in land (i.e. the legal charge) and the right to take possession of the property given by the same.
- Thirdly, the Defendants’/Appellants’ had not at any stage until the disposal of the appeal sought to argue that the whole transaction should be null and void due to the Claimant’s failure to prove the assignment of the debt. The register of title was definitive, save for the limited circumstances in which it might be altered, and, as the registered legal charge-holder, the Claimant enjoyed the right to take possession of the property in line with the terms of the mortgage.
This is a particularly useful explanation of the different facets of the mortgagor/mortgagee relationship, and what happens conceptually when a mortgagee assigns its interest.
First of all, as outlined by the Appeal Judge in his judgment, there are two distinct facets to a mortgage – a contract to repay a debt, and a proprietary right to take possession of a property defeasible by the repayment of the debt. These two elements are distinct and may exist independently from each other (the Judge gave the twin examples of when possession has been obtained and the property sold and the mortgagee is still able to sue for the outstanding shortfall as a debt, and the right to enforce the proprietary security surviving the bankruptcy of the mortgagor).
Secondly, when the mortgagee assigns his interest, the right to possession will only pass to the assignee on the registration of the legal charge, as the Land Registration Act 2002 requires registration in order to effect the transfer of a legal title. However, it is also possible for the rights as legal charge-holder to be transferred independently of the right to sue on the debt. The failure of the Claimant to prove a valid assignment of the debt was academic in this case because the Claimant, as registered proprietor of the legal charge, had a legal right to possession.
From a practical perspective, the standard form Particulars of Claim were sufficient for a Claimant to bring a claim both as the assignee of a debt and the registered proprietor of a legal charge at the same time, without expressly stated that the claim was pursued on both bases.
The first appeal decision in the case, under neutral citation number  EWHC 104 (Ch) is also useful reading given the analysis of the trial judges’ approach to the evidence and, in particular, whether it was appropriate for the judge to rely on the ‘best evidence available’ principal when it was clear that a very relevant document was not before the court. Also, in the Appellate Judge’s view, the Defendant’s tactical approach in not making an application for specific disclosure despite being aware of the Claimant’s obvious failure to disclose essential documents was a grave misstep. Despite the initial failure to disclose being the Claimant’s, the Appeal Judge indicated that he would have either (a) required the Claimant to immediately disclose the documents and given the Defendant’s counsel only a matter of hours to formulate his position on them or (b) adjourned the trial with the Defendants to pay the Claimant’s costs thrown away. A litigator should rely on a clear gap in the other side’s disclosure at their peril, it seems. Obviously, different cases and circumstances will require different approaches, but this case, played out to its conclusion, provides a useful practical example.