Case: Abbey National Building Society v Cann [1991] 1 AC 56
Outcome: distinguished
submitted that the mortgage was registered simultaneously with the transfer, with the result that the purchaser/mortgagor never obtained unencumbered title enabling the creation of a tenancy (referring to Abbey National Building Society v Cann [1991] 1 AC 56 at 93; Allsop v Marshall (1942) 59 WN (NSW) 159 at 161-162; Austin Construction Co (Australia) Ltd v Becketts Holdings Pty Ltd (1958) 75 WN (NSW) 444 at 447; Sogelease Australia Ltd v Boston Australia Ltd (1991) 26 NSWLR 1 at 5-8). Perpetual relied principally on Abbey to argue that the interest of the retirees as tenants in possession was only created upon registration of the transfer. Because a mortgage was registered at the same time, Perpetual argued, the interest of a tenant in possession is only in the registered proprietor's equity of redemption and any such interest of the retirees is subject to the mortgage. Perpetual submitted that, in Abbey , it was the purchaser's reliance on mortgage funds which demonstrated that the transactions were simultaneous and that, in the present case, the conclusion that the mortgage and purchase were simultaneous arises not from proof that the particular mortgage funds were required for the particular purchase, but from the following facts: (a) the Money for Living entities were in the business of buying and selling properties; (b) during the period between purchase and on-sale, the relevant Money for Living entity was responsible for paying the annuity to the retiree; (c) Money for Living's only source of funding to make the up-front payments and pay the annuities necessary to its ongoing business was sale proceeds generated by MFL and proceeds of mortgage loans granted by MFLPH, paid directly to MFL by way of loan; (d) in most cases, the payment was made by MFL to the relevant retiree on the same day that the payment was made by Perpetual to MFL; (e) funds on settlement were usually paid to the retiree, any existing mortgagee of the retiree's interest, and the retiree's solicitors; and (f) while payments by Perpetual were made to MFL and not MFLPH (the borrower), that occurred because MFLPH had no bank account at the relevant time, and money received by MFLPH was paid straight to MFL and recorded as a loan from MFLPH to MFL. MFL paid MFLPH's expenses (including its liability to make up-front and ongoing payments to retirees). It was submitted that each Perpetual payment, secured by a mortgage, was indissolubly linked to the relevant property purchase by reason of the part that each of those matters played in the business model of Money for Living. Accordingly, it was contended, the Perpetual payments were an indispensable part of the business under which the property purchase was made. As in Abbey , it was contended by Perpetual, the relevant registrations were not only simultaneous, but the transactions which gave rise to those registrations were indissolubly bound together. Perpetual submitted that the cases upon which the retirees rely in an attempt to distinguish Abbey have no application in this case (referring to Koompahtoo Aboriginal Land Council v KLALC Property &amp; Investment Pty Ltd [2006] NSWSC 856 ; Barclay's Bank plc v Zaroovabli [1997] Ch 321; HKCB Finance Limited v Yuen Yi Wan [2004] HKEC 1564). The ratio in Abbey [1991] 1 AC 56 was set out clearly by Lord Oliver at 92-93: ... Of course, as a matter of legal theory, a person cannot charge a legal estate that he does not have, so that there is an attractive legal logic in the ratio in Piskor's case. Nevertheless, I cannot help feeling that it flies in the face of reality. The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together. The acquisition of the legal estate is entirely dependent on the provision of funds which will have been provided before the conveyance can take effect and which are provided only against an agreement that the estate will be charged to secure them. Indeed, in many, if not most, cases, of building society mortgages, there will have been, as there was in this case, a formal offer and acceptance of an advance which will ripen into a specifically enforceable agreement immediately the funds are advanced which will normally be a day or more before completion. In many, if not most, cases the charge itself will have been executed before the execution, let alone the exchange, of the conveyance or transfer of the property. This is given particular point in the case of registered land where the vesting of the estate is made to depend upon registration, for it may well be that the transfer and the charge will be lodged for registration on different days so that the charge, when registered, may actually take effect from a date prior in time to the date from which the registration of the transfer takes effect: see section 27(3) of the Act of 1925 and the Land Registration Rules 1925...Indeed, under rule 81 of the rules of 1925, the registrar is entitled to register the charge even before registration of the transfer to the chargor if he is satisfied that both are entitled to be registered. The reality is that the purchaser of land who relies on a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The "scintilla temporis" is no more than a legal artifice and, for my part, I would adopt the reasoning of the Court of Appeal in In Re Connolly Brothers Ltd (No 2) [1912] 2 Ch 25 and of Harman J in Coventry Permanent Economic Building Society v Jones [1951] 1 All ER 901 and hold that Piskor's case was wrongly decided. It follows, in my judgment, that Mrs Cann can derive no assistance from this line of argument. In my view, Abbey is distinguishable from the facts at hand even if its principles have any application to the TLA or LTA. As Perpetual points out, it was the purchaser's reliance on mortgage funds in Abbey which demonstrated that the transactions were simultaneous. In many instances concerning the purchase of land, the purchase is entirely dependant on the provision of funds by a lender. In those circumstances, the result in Abbey , with respect, makes sense. I do not consider that MFLPH was in that situation. It appears from the facts that, at least in some cases, MFLPH was able to pay out whatever sum was required at settlement without resort to Perpetual. For example, in the case of Smith and Easterbrook and Gray, the mortgage was created and the associated loan of funds occurred many days after the transfer of funds by MFLPH to the retiree. I see nothing unusual about this for the operation of the scheme. Indeed, it would be unusual if there were not sufficient funds in such an operation to fund the purchases of the properties without resort to lenders in each instance. In the case of Gainsford, the loan amount of Perpetual was in fact not paid to MFLPH but to MFL, and whatever arrangements there were between MFLPH and MFL, the loan amount was still not payable to MFLPH for the purposes of concluding the purchase. In my view, everything will depend upon the facts of each case, and Abbey is not setting down any inflexible rule or principle (see eg Koompahtoo Aboriginal Land Council v KLALC Property &amp; Investment Pty Ltd [2006] NSWSC 856 ; HKCB Finance Limited v Yuen Yi Wan [2004] HKEC 1564 at [61]). The nature of the transactions, their sequence, and the Money for Living scheme indicate that the transactions the subject of the registration of the transfer and mortgage were not indissolubly bound together, and the mortgage should be regarded as a separate and distinct transaction from the transfer and grant of lease, which transactions did occur simultaneously, and prior to the creation of the mortgages in the case of each retiree.