Case No: A3/2000/2220 CHANF
Neutral Citation Number: [2001] EWCA Civ 1223
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Bristol District Registry
His Honour Judge Weeks QC
Royal Courts of Justice
Strand, London, WC2A 2LL

Wednesday 25th July 2001 

B e f o r e :

LORD CHIEF JUSTICE OF ENGLAND & WALES
LORD JUSTICE TUCKEY
and 
LADY JUSTICE ARDEN
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	Buhr & Ors	Appellant	
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	Barclays Bank Plc	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Alastair Norris QC (instructed by Messrs Bond Pearce for the Appellant)
Miss Elizabeth Gloster QC and David Wolfson (instructed by Messrs TLT Solicitors for the Respondent)

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Judgment
Lady Justice Arden: 
1.	This is an appeal with permission of the judge against the order of His Honour Judge Weeks QC sitting as an additional judge of the Chancery Division in the Bristol District Registry.  By his order it was declared that the respondent (“Barclays”) “had a proprietary interest in the proceeds of sale of [Rectory Farm, Cold Aston, Nr. Chippenham, Avon] which were held under a constructive trust.”  The extent of that proprietary interest is not specified, but it is clear that Barclays’ interest was a security interest in respect of the amount secured by a charge executed by the Buhrs in its favour as described below.
2.	The action was commenced on 30 April 1999 by Barclays against Mr and Mrs Buhr, Mrs Buhr’s trustee in bankruptcy and Thrings and Long (“Thrings”), a firm of solicitors. It seeks declarations that Barclays had a proprietary interest in the proceeds of sale of Rectory Farm, that the proceeds of sale were held by the Buhrs on a resulting or constructive trust and that the Buhrs were liable to account for such proceeds.  As against Thrings, Barclays limits its claim to the monies, now agreed at £27,500, which it says Thrings received and either still have or have wrongly distributed from their client account.
3.	The matter before the judge was a preliminary issue as to whether Barclays could establish that the monies that Thrings received on the completion of the sale of Rectory Farm were held on any sort of trust under which Barclays had a proprietary interest.
Background
4.	By a legal charge dated 10 July 1989 Mr and Mrs Buhr granted a second charge over Rectory Farm to Barclays.  This was in Barclays’ standard form and it secured all monies owed to Barclays by the Buhrs. It was a charge “by way of legal mortgage”, the formula introduced by the 1925 property legislation (see sections 85 and 87 of the Law of Property Act 1925) in substitution for mortgages by the grant of long leases or by a conveyance with a proviso for reconveyance on redemption by a certain date (as to which equity did not treat time as of the essence). The Buhrs had also created a first mortgage in favour of UCB Home Loans Corporation Limited (“UCB”) and Barclays duly gave notice of their charge to UCB.  Barclays also registered its charge as a puisne mortgage, a Class C1 land charge, in the land charges registry against Mr and Mrs Buhr.  However it registered it as a charge arising in respect of “Rectory Farm, Aston, Nr Chippenham, Wiltshire” so that a person who searched against the Buhrs in respect of Rectory Farm in Avon would not receive notice of the charge.  Accordingly the registration was of no effect.
5.	On 26 February 1998 the Buhrs instructed Thrings to act for them on the grant of an option to purchase Rectory Farm to a Mr Sanders and a Mr Robinson. The sum of £5,000 was paid for this option and placed in Thrings’ client account (and by agreement this sum is treated for the purposes of these proceedings as part of the deposit for Rectory Farm).  Later Mr Sanders and Mr Robinson exercised their option and Mr and Mrs Buhr instructed Thrings to act for them on the sale of Rectory Farm pursuant to the option.  Thrings obtained the title deeds from UCB on their undertaking to hold the deeds to their order pending completion and on completion to discharge the debt due to UCB.  
6.	Mr Buhr told Thrings that he thought there was a charge over the property in favour of Barclays.  Mrs Buhr was not sure that there was such a charge.  The purchasers’ solicitors informed Thrings that there was such a charge but that it was not correctly registered before completion took place.
7.	In February 1998 Mr and Mrs Buhr made a proposal for an individual voluntary arrangement (an “IVA”).  Barclays were approached.  Barclays understood there would be some repayment to them from the sale of Rectory Farm when it was sold.
8.	However, when Rectory Farm was sold on 19 November 1998 the balance of the purchase price was paid into Thrings’ client account.  On the discharge of the sums due to UCB as first mortgagee, there remained or would, but for the payment of certain expenses of the IVA and other unsecured debts of the Buhrs, have remained the sum now agreed at £27,500.  Barclays assert that the surplus proceeds of sale were held on trust for it and that Thrings were not entitled to use it to pay debts of the Buhrs in priority to the claim of Barclays.
9.	The transfer of Rectory Farm to Mr Sanders and Mr Robinson is not in evidence.  However, this Court has seen the option contract dated 26 February 1998, which was not in evidence before the judge.  Under clause 1 of the option contract, the Buhrs agreed to sell Rectory Farm:
“for an estate in fee simple in possession”
a)	subject to various matters, which are immaterial because they did not include Barclays’ second charge.  Clause 8 of the option contract also provided that
“The Vendor shall sell with full title guarantee”
There is no provision in the Barclays’ charge entitling the Buhrs to sell Rectory Farm free from Barclays’ charge though as a matter of law they were free to sell their equity of redemption.  The second charge does not restrict this.
10.	Mrs Buhr was adjudicated bankrupt on 12 January 1999 after the sale of Rectory Farm had taken place.
Judgment of His Honour Judge Weeks QC
11.	The judge held that there was a trust in favour of Barclays for three reasons:
(i) He accepted as correct statements by Professor Sir Roy Goode in Commercial Law (2 ed) (1995) at pages 667 to 688 and in Legal Problems of Credit & Security (Sweet and Maxwell) (1988) at page 16 that security in an asset extends to the proceeds of sale of an authorised disposition by the debtor and an unauthorised disposition effected on behalf of the creditor rather than for debtor’s own account.  The judge held that it would be anomalous that an unauthorised disposition by the debtor could “by means of a bye-wind under the Land Charges Act result in his property becoming available for unsecured creditors as some sort of windfall.”  I call this “the judge’s proceeds point” and I set out the relevant extracts from Professor Sir Roy Goode’s work below.
(ii) The “all estate” clause implied by section 63 of the Law of Property Act 1925 (“Every conveyance is effectual to pass all the estate, right, title, interest … which the conveying parties … have in the property conveyed …”) was not excluded by the legal charge.  Therefore the Buhrs were charging not only the legal estate in Rectory Farm but also their equitable interests in that property as security for Barclays’ loans.  Those equitable interests, in the judge’s judgment, were necessarily interests in the proceeds of sale of the land which was held upon the statutory trusts.  I call this “the judge’s all estate clause point”.
(iii) The judge held that, where the mortgagee does not consent to the sale, the proceeds of sale are held on constructive trust for the mortgagee by analogy with the trust imposed in equity on the net proceeds of sale which a mortgagee received after exercise of his power of sale.  This trust was imposed in order to prevent subsequent incumbrances and the mortgagor himself from being cheated by the mortgagee who had used his legal estate to realise the property.  The judge relied on Banner v Berridge (1881) Ch.D 254, Charles v Jones [1887] Ch 544 and The Benwell Tower (1895) 72 LT 664.  The judge held that this trust was superseded by the Conveyancing Act 1881 which was in due course replaced by section 105 of the Law of Property Act 1925.  Section 105 provides:
“The money which is received by the mortgagee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject, if any, or after payment into court under this Act of a sum to meet any prior incumbrance, shall be held by him in trust to be applied by him, first, in payment of all costs, charges, and expenses properly incurred by him as incident to the sale or any attempted sale, or otherwise; and secondly, in discharge of the mortgage money, interest, and costs, and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.”
I call this “the judge’s analogy with section 105”.
12.	In Commercial Law, Professor Sir Roy Goode says this:
“(iv) Security in an asset and security in its proceeds
Unless otherwise agreed, security in an identifiable asset carries through to its products and proceeds, in accordance with the equitable principle of tracing.  It is quite possible for the creditor to have rights in the same item of property both as proceeds and as original security, as where he takes a charge over the debtor’s stock in trade and receivables and the debtor then sells items of stock, producing receivables.  The strength and quality of a security interest in an asset is not necessarily the same as in its proceeds.  The debtor who gives a charge over his stock and receivables may be allowed full freedom to dispose of the stock in the ordinary course of business free from the charge without reference to the creditor but be required to hold the proceeds separate from his own monies and pay them to the creditor or to an account which the creditor controls.  Such a charge will be a floating charge as regards the stock but a fixed charge as regards the receivables.  The security interest in proceeds, unless separately created, is not a distinct security interest but is part of a single and continuous security interest which changes its character as it moves from asset to proceeds.  Moreover, a security interest in a debt cannot co-exist with a security interest in its proceeds, for upon collection debt ceases to exist.
	There are dicta which on a superficial reading suggest that an obligation on the debtor to apply the proceeds of his asset towards discharge of the debt, and not for any other purposes, creates an equitable charge not merely over the proceeds but over the asset itself.  But the dicta must be taken in context and are not, it is submitted, intended to lay down any such rule, which would lead to great confusion.  A security interest in an asset carries forward to proceeds: …” (page 667-8).
13.	In Legal Problems of Credit and Security, Professor Sir Roy Goode says this:
“Security in an asset and in its proceeds
	Security in an asset will almost invariably carry through to the proceeds of an unauthorised disposition by the debtor and will also extend to proceeds of an authorised disposition where it is effected on behalf of the creditor rather than for the debtor’s own account.  The relationship between a security interest in an asset and a security interest in its proceeds has not been fully developed in English law.  Three particular issues require examination:
(1) Can the creditor claim a security interest in the asset and its proceeds concurrently?
	Suppose that C has taken a specific mortgage of D’s motor car and wrongfully sells the car to E.  In the absence of any applicable exception to the nemo dat rule C can recover his vehicle from E.  Alternatively he can adopt the wrongful sale and treat his security interest as attaching to the proceeds received by D.  But can he claim security in both the car and the proceeds at the same time?  No, because the remedies are inconsistent.  C’s equitable tracing claim to the proceeds rests on his implied adoption of the wrongful sale.  He cannot have his cake and eat it.  He must elect which right to pursue.” (page 16).
The appellants’ submissions
14.	Mr Alastair Norris QC, for Thrings, rejects each of the grounds on which the judge found for Barclays and submits that:
(i) Barclays did not automatically obtain a proprietary interest in the proceeds of sale by virtue of its unregistered charge over the property. 
(ii) Barclays did not obtain a beneficial interest in the proceeds of sale by virtue of its having an equitable charge over the proceeds of sale.
(iii) Barclays did not have an interest in the proceeds of sale under a constructive trust arising on the sale of the property.
The judge’s proceeds point
15.	As to his first submission, Mr Norris distinguishes the statements by Professor Sir Roy Goode relied on by the judge as having been written in the context of charges on chattels and choses in action.  He submits that charges over book debts and chattel mortgages continue to be created today as they were before 1925, that is in the case of book debts by an absolute conveyance coupled with a proviso for reconveyance.
16.	Mr Norris submits that there is a well-established distinction between property and the proceeds of sale: see Agnew v The Commissioner of Inland Revenue, Privy Council, 5 June 2001.  Lord Millett, giving the advice of the Privy Council, states that “Property and its proceeds are clearly different assets.  On a sale of goods, the seller exchanges one asset for another” (para 43).  Moreover, unlike fixed securities over tangibles or intangibles, the Barclays charge did not prevent Mr and Mrs Buhr from selling the Rectory Farm.  Barclays cannot adopt the sale by them of Barclays’ interest in Rectory Farm because all the Buhrs could sell and accordingly all that they sold was their own interest in Rectory Farm.  The mortgage would continue until discharged (Samuel Keller Ltd v Martins Bank [1971] 1 WLR 43, 47H).  The reason why Barclays lost its proprietary interest was its own failure to register its charge.  The fact that after 1925 the mortgagor can sell the mortgaged property makes a critical difference: before 1925 only the mortgagee could convey the legal title.  Since 1925 the legal estate has remained vested in the mortgagor so clearly he can now pass the legal estate.  It is significant that there is no parallel provision to section 105 of the Law of Property Act 1925 dealing with proceeds of sale received by a mortgagor.  Mr Norris further submits that the fact that a mortgagee’s interest (if duly registered) is preserved as against purchasers and that he is given the protection of holding the title deeds shows that there is no automatic interest in the proceeds of sale.  He further submits that the beneficial interest in the proceeds of sale is in any event fundamentally different from an interest by way of security.
17.	Professor Sir Roy Goode expresses the view that the creditor with security has an equitable right to trace into the proceeds of sale of a security.  However, for this to be correct there would have to be a fiduciary duty.  There was no fiduciary relationship between the Buhrs and Barclays.  Accordingly no right to trace can exist: Agip (Africa) Ltd v Jackson [1991] Ch.547, 566h.
The judge’s all estate clause point
18.	The judge held was that section 63 of the Law of Property 1925 operated to confer a charge over the Buhrs’ equitable interest in Rectory Farm, which was “of necessity” a charge over the proceeds of sale on the statutory trusts.  Mr Norris submits that there is no authority for the proposition that the all estate clause can be used to support partial performance where the intended bargain was in fact fully performed (cf First National Securities v Hegerty [1985] QB 850).  The fact that Barclays failed to obtain a fully enforceable charge was Barclays’ fault for failing to register its charge properly.
19.	Mr Norris submits that it is wrong in principle to introduce by implication equitable charges of equitable interests simultaneously with undoubtedly effective legal charges of legal interests.  Once the entire legal interest intended to be conveyed is conveyed (the charge by way of legal mortgage) so that there is no separation of legal and beneficial ownership (but only the division of legal interest in accordance with the Law of Property Act 1925) it is unnecessary to analyse the transaction in equity.  Indeed a merger of the lower in the higher security occurs (see Fisher & Lightwood Law of Mortgage (10 ed) (1988) page 618-9).
20.	In any event an equitable charge does not result in a change of ownership either at law or in equity: see for example Megarry & Wade, Law of Real Property (6th ed) (2000) paras. 19-005,19-040.  Accordingly the existence of an equitable charge could not support a declaration that Barclays had a proprietary interest by way of constructive trust.
The judge’s analogy with section 105
21.	Prior to section 21(3) of the Conveyancing Act 1881 a constructive trust was imposed in equity in the circumstances indicated by the judge simply on the surplus proceeds of sale.  The position was codified by statute.  However, the constructive trust was not imposed as a safety net to protect a mortgagee who had not taken the steps open to him to protect his interest in the property.  The fact that under the Law of Property Act 1925 the mortgagor retains the legal estate and that no statutory trust would be imposed on him selling the estate vested in him means that there would be a requirement to impose a constructive trust only if equity demanded that Barclays’ rights should be preserved notwithstanding that it has failed to protect the charge by registration.  The sale by the Buhrs was not unauthorised.  The effect of the sale was to crystallise their contractual obligation to repay Barclays.  It did not create a charge over the proceeds of sale.  That is why a proprietor of an unregistered puisne mortgage will seek an undertaking that the proceeds of sale be paid to him before agreeing to release the deeds.
Respondent’s submissions
22.	Miss Elizabeth Gloster QC, for Barclays, makes the following preliminary submissions.  First, it is irrelevant that Barclays’ charge was inappropriately registered.  That only affects the mortgagee’s position vis-a-vis a purchaser.  She submits that the disposition was unauthorised.  Second, in contradistinction to Mr Norris she submits that it makes no difference to the legal analysis that the sale was by the chargor with the concurrence of UCB.  The position is exactly the same: section 105 applies.  The appellants’ case is premised on the notion that it is critical to their case that the sale was by the mortgagor and not by the first mortgagee or chargee.  If UCB had sold as first mortgagee, section 105 would have applied and the proceeds would have been held on trust for Barclays as a person entitled even though its charge was unregistered.  Likewise, under the Insolvency Act 1986, the position of first and second mortgagees of a bankrupt is protected.  There is no question of the proceeds of sale becoming available for the bankrupt mortgagor: see Insolvency Rules 6.197 to 6.199.  The problem with which this case is concerned would not have arisen prior to 1881 and probably did not cross the minds of the draftsmen in 1925.  Before the introduction of charges by way of legal mortgage, there was no need for a provision dealing with sale by the mortgagor because the chargee had a proprietary interest in the property and its proceeds and accordingly the exact same reasons would indicate that the mortgagor should hold the proceeds on sale on trust for an unregistered mortgagee.  The principle applies in exactly the same way.  Third she submits that it is irrelevant here that the solicitor received the proceeds of sale as opposed to the mortgagor.  He stands in the same position given his knowledge.  Fourth, the notion that all Mr and Mrs Buhr were doing was selling a limited interested in the property is incorrect.  They sold as beneficial owners free from encumbrances.  Mr Norris submits that they were just selling their equity of redemption i.e. selling what interest they had.  However what they were really selling was the fee simple. 
The judge’s proceeds point
23.	Miss Gloster submits the charge expressed to be by way of mortgage confers a legal interest in land.  She refers to section 1 and section 205(1)(x) and (xvi) of the Law of Property Act 1925,  Halsbury’s Laws of England, Volume 32, para 304 and Megarry and Wade, Law of Real Property (6 ed) (2000), paras 19-019 to 19-026.
24.	Miss Gloster submits further that a chargee has an immediate proprietary interest in the property charged whatever the nature of the property charged.  This is also the case in relation to equitable mortgages. She disputes Mr Norris’ submission that Barclays had no proprietary interest in the property charged.  An equitable chargee has no legal right to possession or legal right of property but can require that the property charged in his favour should be made available to pay the debt due to him: see for example National Provincial and Union Bank of England v Charnely [1924] I KB 431 at 449-450 per Atkin LJ; Re Cosslett (Contractors) Ltd [1998] Ch 495, 508 per Millett LJ
25.	Miss Gloster also submits that a chargee can by virtue of his proprietary interest trace his interest into the proceeds of sale of land to the extent of his security interest.  In support of this she relies on Foskett v McKeown [2000] 2 WLR 1299 at 1304 to 1305.  In the course of this passage Lord Browne-Wilkinson held that “Like any other equitable proprietary interest [the equitable proprietary interests of the purchasers] which originally existed in the monies paid to Mr Deasy now exists in any other property which, in law, now represents the original trust assets.”  Accordingly Barclays has the right to elect to trace its interest in the proceeds of sale.  For this purpose it does not matter if Barclays’ charge is purely equitable.  Barclays had the right to sell the property themselves.  She submits that this right of election would have subsisted whether or not the charge was registered.  However Barclays would have to permit the Buhrs to redeem the charge.  She submits that it would be contrary to commercial sense if Barclays had no right to trace.  For what, she asks, is a mortgage if it is not to obtain repayment out of the proceeds of sale of the mortgaged property?
26.	The appellants’ assertion that a constructive trust is needed only if a mortgagee has failed to protect his interest by registration is on Ms Gloster’s submission erroneous because a registration only affects the mortgagee’s position as against third parties.  Some interests cannot be protected by registration.  If the mortgagee mistakenly handed over the title deeds to the mortgagor who sold the property to a bona fide purchaser for value, it cannot be right that the mortgagee has only a personal claim as against the mortgagor.  The appellants’ case amounted to a submission that the claim of a mortgagee against a mortgagor would be a personal claim both with respect to a deficiency in the proceeds of sale and in respect of improper retention of the proceeds of sale.  On the respondent’s case, the mortgagee has a proprietary interest in the proceeds of sale.
The judge’s all estate clause point 
27.	Miss Gloster submits that the mortgagors have charged their equitable interests.  Under the Trusts of Land and Appointment of Trustees Act 1996, their interests in land are equitable interests and accordingly by virtue of section 63 of the Law of Property Act 1925 Barclays has a charge over equitable interests as well and the Hegarty  case is authority for the proposition where the chargee is able to rely on a charge of equitable interests.
28.	Miss Gloster also submits that the doctrine of merger does not apply.  This is a situation in which Barclays contends that a legal charge of an equitable interest subsists alongside a legal charge over a legal interest.
29.	Miss Gloster also submits that Mr Norris’s submission that reliance on section 63 introduces the risk of liability being imposed through notice is incorrect.  Barclays is simply trying to establish who is entitled to the proceeds. 
The judge’s analogy with section 105
30.	Miss Gloster submits that the Buhrs were selling assets in which Barclays has a legal proprietary interest and accordingly they stand in a fiduciary relationship to Barclays with respect to the proceeds of sale.  This she submits is how equity gives effect to the existing proprietary interest.  The Buhrs hold the proceeds on constructive trust for the chargee.  They are not free to deal with the proceeds without giving effect to the proprietary or security interest of Barclays.  This is an exact mirror of section 105.  There is no case law authority for this.  It is self evident.  These submissions are supported by the extracts from Professor Sir Roy Goode’s work set out above.
31.	With respect to Agnew case, Miss Gloster rejects Mr Norris’ submission that this case contradicts unity of ownership: see para. 28 of the report.  So far as book debts are concerned it is possible to have either an assignment by way of charge or simply a charge.
32.	Miss Gloster’s submission is that even if there is a separate charge over the assets and proceeds, the same principle as is manifest in section 105 dictates that where property is sold by the mortgagor, the proceeds of sale should be held on trust in order give effect to the proprietary interest of the second mortgagee.  Section 105 merely codified the law.  The same principles inform the present situation.  Otherwise the unsecured creditors receive a windfall.  Such a trust should now be imposed on the mortgagor because, as the judge pointed out, the 1925 legislation had altered the balance of power between a mortgagor and mortgagee in that the mortgagor retains the legal estate.  The appellants’ argument would lead to anomalous results where the statutory trust on insolvency intervenes.
33.	Miss Gloster submits that in an insolvency creditors with charges over land are protected even if their charges were not registered under the Land Charges Act 1972.  If the court ordered the land to be sold, the net proceeds of sale would be applied in repayment of the monies owed to the mortgagees.
General
34.	Miss Gloster accepts that an alternative approach might be that when the mortgaged property was sold without the consent of Barclays, Barclays could ratify that sale and thus claim a security interest in the proceeds.
35.	In conclusion Miss Gloster submits that “any sensible system of property law” must avoid the result for which the appellants contend.
Conclusions
Consequences of non-registration
36.	The starting point is section 4(5) of the Land Charges Act 1972 (re-enacting sections 14(2) of the Land Charges Act 1925):
“(5) … a land charge of class C … shall be void against a purchaser of the land charged with it, or any interest in such land, unless the land charge is registered in the appropriate register before the completion of the purchase.”
An unregistered land charge is thus void only against a purchaser.  This makes it clear that the position as between the parties to the charge is unaffected by non-registration if the mortgaged property is sold and completion takes place.  The charge remains valid between the parties.  Their bargain is not affected.  On Mr Norris’s submission, under section 4(5), on completion of the sale the charge continues to exist as a legal estate, even though it is unenforceable.  On his submission unenforceability flows from non-registration and is to be presumed to be Parliament’s intention.  In my judgment neither submission is correct.  An estate is an interest in land, and thus cannot subsist without the property to which it attaches.  It cannot subsist in that property because it is ousted by the absolute interest which the purchaser acquires.  The authority relied on by Mr Norris (Samuel Keller Ltd v Martins Bank, above) is distinguishable because there was no disposition of the mortgaged property in that case and thus the question of what happened to the legal estate in that situation did not arise.  Mr Norris’ argument that all the Buhrs conveyed was their equity of redemption thus cannot successfully meet the point that the conveyance destroyed Barclays’ unregistered proprietary interest in Rectory Farm.
37.	The position of unregistered charges under the Land Charges Act 1972 can be compared with that of charges required to be but not duly registered under the Companies Act 1985.  Registrable, charges executed by companies but not registered at Companies House are void as against a liquidator and any creditor, but not as against the company itself (see Companies Act 1985, section 395(1)).  Accordingly if the property subject to a charge is not so registered and the property remains after all the costs of the winding up and debts payable in the liquidation have been paid the property will continue to be encumbered even though the charge was not registered at Companies House: see Independent Automatic Sales Ltd v Knowles & Foster [1962] 1 WLR 974 per Buckley J.
38.	Moreover if Mr Norris’s submission is a complete statement of the lender’s position the lender has lost any effective proprietary right.  There is nothing in the Land Charges Act 1972 which indicates that this is to be the result of non-registration.  Since Parliament has not expressly taken away any proprietary right of the unregistered chargee, it must be assumed that he retains any proprietary right conferred on him by the general law.
The general principle: the mortgagee has a right to accretions to and substitutions for the mortgaged property
39.	In my judgment the judge reached the right conclusion.  He relied on the passages from the work of Professor Sir Roy Goode.  Although Professor Sir Roy Goode does not cite authority for his statements about the proceeds of sale of an unauthorised disposition, his conclusions are in my judgment supported by principle and authority.  
40.	So far as principle is concerned, equity has for a long time taken the view that the mortgagee is entitled to a security interest in the fruits of the mortgaged property.  Thus if (for example) a mortgagor grants security over a lease and he then surrenders the lease and takes a new lease, the mortgagee has a security interest in the new lease (Hughes v Howard (1858) 25 Beav. 575).  Where a mortgagor renews a lease the mortgagee obtains a security interest in the new lease without express mention in the mortgage deed (Leigh v Burnett (1885) 29 Ch.D 231). Mr Norris submits that these cases are distinguishable because this case is concerned with proceeds of sale, rather than the renewal or grant of a lease.  In my judgment this is not a valid distinction.  In all these cases, the mortgagee is entitled to the fruits of the mortgaged property: see generally Fisher & Lightwood’s Law of Mortgage, (10 ed) (1988) at pages 55 to 57.
41.	Likewise a mortgagee has been held entitled to a security interest in compensation monies received on a compulsory acquisition of part of the mortgaged property without express mention in the deed (Law Guarantee and Trust Co Ltd v Mitcham and Cheam Brewery Co Ltd [1906] 2 Ch 98).  That particular set of facts is in my judgment only distinguishable from the present case by virtue of the fact that the sale was compulsory.  Mr Norris submits that the cases which illustrate the principle described above were cases where the mortgage was by way of assignment.  If he is right, the authorities are not founded on any common or consistent principle.  In my judgment that is not correct.  They are founded on the simple and eminently fair proposition that the mortgagee should be entitled to accretions to the mortgaged property or property received in substitution for it, as on a renewal or further grant of a lease.  That principle is reflected in legislation dealing with leasehold enfranchisement (see the Leasehold Reform Act sections 8 to 13); on compulsory acquisition and compensation for blight (see for example Town and Country Planning Act 1990 ss 117(3), 162, 250); and on disclaimer in the insolvency of the mortgagor (Insolvency Act 1986, ss 181 and 320).
42.	We are not concerned in this case with a charge over book debts.  Mr Norris has however drawn support from the authorities on this subject.  The law has had a chequered history, the weight of authority in this court being that a company can create a fixed charge over book debts and a separate floating charge over its proceeds (see Re New Bullas Trading [1994] 1 BCLC 485).  However the Privy Council in the Agnew case came to the contrary conclusion:
“46. While a debt and its proceeds are two separate assets, however, the latter are merely the traceable proceeds of the former and represent its entire value.  A debt is a receivable; it is merely a right to receive payment from the debtor.  Such a right cannot be enjoyed in specie; its value can be exploited only by exercising the right or by assigning it for value to a third party.  An assignment or charge of a receivable which does not carry with it the right to the receipt has no value.  It is worthless as a security.  Any attempt in the present context to separate the ownership of the debts from the ownership of their proceeds (even if conceptually possible) makes no commercial sense.”
43.	The Privy Council concluded that New Bullas was wrongly decided (report, para 50).  It also held that property and its proceeds are to be treated as separate assets (see report, para 43 cited above).  However I do not agree with Mr Norris that the Agnew case therefore supports his submissions.  None of the observations of the Privy Council are expressed in the context of a mortgagee’s right to accretions to, and substitutions for, the mortgaged property.  In that situation, the law treats the mortgagee as entitled to the property which represents the mortgaged property.  That conclusion does not depend on the indivisibility of property from its proceeds, but rather on the derivation of the proceeds of sale.  The authorities on book debts therefore neither assist in this case or undermine the principle which I have stated.
44.	In most cases where a mortgagor wishes to sell the mortgaged property the problem in this case will not arise.  The mortgagor will be anxious to discharge the charge over the property being sold.  However, that did not happen in this case.  Likewise the proprietary interest of Barclays in the proceeds could have been lost if the proceeds of sale had reached the hands of creditors who did not know of the interest of Barclays.  That is not an issue which needs to be explored in this case because, whatever happened to the monies, Thrings certainly facilitated their payment out of their client account with knowledge of the material facts.  Thrings accepts that it is liable as constructive trustee if Barclays establishes a proprietary interest in the proceeds of sale.
The judge’s proceeds point
45.	I agree with the judge’s conclusion that, if, as here, the mortgagor makes a disposition of the mortgaged property in a manner which destroys the mortgagee’s estate in the mortgaged property, a security interest in the property which represents the mortgaged property automatically and as a matter of law comes into existence as from the moment that the mortgagor becomes entitled to that property.  To that extent I also agree with Professor Roy Goode.  In my judgment, the disposition by the Buhrs was not authorised: their authority from Barclays to sell the mortgaged property could not extend to selling Rectory Farm in a manner which destroyed Barclay’s security.  
46.	Miss Gloster’s proposition that a mortgagee has a right in every case to claim the proceeds of sale and could elect as to a security interest in the property or the proceeds of sale is wider than that accepted by the judge.  Nor is it accepted by Professor Sir Roy Goode (see the second passage cited above).  It is not necessary to resolve that point in this case, but I do not consider that Miss Gloster’s proposition is correct.  If with the consent of all parties the property is sold subject to the mortgage the mortgagee cannot in my view elect to have a charge over the proceeds of sale.
47.	Mr Norris submits that the mortgagor does not owe a fiduciary duty to the mortgagee.  In general terms this is correct.  For instance the mortgagor has no general duty to act in the interests of the mortgagee.  But in the specific matter of accretions to or substitution of the mortgaged property equity has undoubtedly treated the mortgagor as a fiduciary (see Re Biss [1903] 2 Ch 40).  There is no difficulty in law with a person being a fiduciary towards another in respect of some aspects only of that person’s duty to that other (New Zealand Netherlands Society”Oranje” Inc  v Kuys [1973] 1 WLR 1126).  I reject Mr Norris’ submission that in some way an equitable charge is insufficient to give an interest in land.  I agree that no change of legal or equitable ownership takes place when an equitable charge is created.  Even so, the equitable chargee obtains a proprietary interest in the property (see for example Bland v Ingrams Estate [2001] 1 WLR 1638 at 1645 G per Nourse LJ).  This is sufficient to give the mortgagee a proprietary interest in property which represents the property originally mortgaged following completion of an unauthorised disposition by the mortgagor.
48.	For my own part, I do not consider that Professor Sir Roy Goode’s statements can be limited to chattel mortgages or charges over book debts.  Chattel mortgages are very different from mortgages of immovable or intangible property for a number of reasons.  These reasons include the fact that it is not possible in law to have a legal estate in a chattel.  So far as book debts are concerned, it has always been possible to create an equitable or floating charge over them: see, as to the former, section 136 of the Law of Property Act 1925 and the authorities decided thereunder such as Tancred v Delagoa Bay and East African Railway (1889) 23 QB 39 and Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190, which distinguish absolute assignments of debts with a proviso for reconveyance, and charges on book debts; and as to floating charges, see for example Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578.  I do not therefore accept as correct Mr Norris’ submission that charges over book debts have to be effected in one of the ways in which mortgages of land could be created prior to 1925.
49.	The same result as the judge reached could in my judgment be achieved by an alternative route.  The Buhrs’ disposition was unauthorised.  They purported to sell with full title guarantee and thus free from Barclays’ charge.  Barclays (if indeed it has already done so by commencing these proceedings) could adopt this transaction and thus retrospectively make the Buhrs its agent.  In the context of this transaction, the Buhrs would in my judgment then be bound to keep the proceeds of sale separate from their other assets and would hold them (subject to prior charges) on trust for Barclays and so would be bound to account to Barclays for the amount secured by its charge.
50.	Professor Sir Roy Goode’s basic proposition – that security in an asset carries through to its proceeds - is also supported by common sense.  If the judge’s conclusion is wrong there is a significant lacuna in the law of mortgages.  If the charge had been registered, or the Buhrs had been insolvent and Rectory Farm had been sold by their trustees in bankruptcy, or if UCB had sold Rectory Farm, Barclays would have had a proprietary interest in the proceeds.  This would be so in the latter two cases, even though its charge was unregistered.  Both counsel correctly recognised that as between the mortgagor and the mortgagee the fact that the charge is unregistered matters not because the Land Charges Act 1972 invalidated the unregistered charge only as against a purchaser of the land charged or an interest therein.  In the circumstances it would be extraordinary if Barclays had no proprietary interest in the proceeds of sale in this case when their charge was unregistered but the sale was effected by the mortgagors.
The judge’s all estate clause point
51.	Next, as to the all estate clause, this was probably the judge’s solution to the point made by Mr Norris in this court and no doubt by counsel (Ms Tracy Angus) appearing for Thrings before the judge.  The argument runs thus.  All the Buhrs could do was sell their equity of redemption and accordingly they did not sell Barclays’ interest in Rectory Farm.  That interest continues but is void against the purchasers of Rectory Farm.  The response is the all estate clause argument: the Buhrs also had a beneficial interest in the proceeds of sale and so they must have charged that too and so Barclays is fully secured over those proceeds even though its charge continues over the property.
52.	In my judgment the argument that the all estate clause was designed to meet proves too much.  The Buhrs did not purport to sell their equity of redemption.  They purported to sell with full title guarantee.  Even if they could not sell the interest of Barclays in Rectory Farm they entered into a transaction to the end that Barclays’ interest in the property should be destroyed and with that effect.  If they had sold simply their equity of redemption the purchasers would only have bought that equity and it is arguable that the interest of the mortgagee is not invalidated in this event so that Barclays could now register the charge and obtain a security interest in Rectory Farm.  But Barclays have not chosen that route and in my judgment it would be unreasonable for the law to require Barclays to test that proposition first by pursuing what is at most at this stage only a possible course against the purchasers.  After all there is no doubt that the purchasers would resist since they contracted to receive an estate in fee simple and paid a price appropriate to that transaction.  But Barclays is entitled in effect to give its sanction to the sale and claim the consequences of the transaction as I have found it to be, namely that they have a security interest in the proceeds of sale.  It is not necessary to take the all estate clause route which the judge took.  For my own part, I would construe the charge over the property as inconsistent with a (contemporaneous) covenant for a charge over the proceeds of sale.  Such a charge would under section 63 have been present from the inception of the charge.  It would be odd if the result in this type of case depended on whether there was more than one mortgagor.  The situation in which Barclays has a security interest in the proceeds of sale in my view does not arise unless property is substituted for the mortgaged property and that property is represented by proceeds of sale.
The judge’s analogy with section 105
53.	The rule of equity that imposed a trust on the surplus proceeds of sale in the hands of a mortgagee exercising his power of sale is in some respects an analogous situation.  However, as Mr Norris points out, in this case the trusts of surplus proceeds in favour of a mortgagor is a trust for the mortgagor absolutely whereas the interest of a mortgagee can only ever be a security interest and subject to redemption by the mortgagor.  In my view it is not necessary to rely on the analogy with section 105 because the principle of substitutions described above applies.  There is therefore no need to find an explanation for the fact that the Law of Property Act 1925, section 105 makes provision for the trust of the proceeds of sale when received by the mortgagee but not a trust of the proceeds of sale held by the mortgagor.  The rationale for the proprietary interest of the mortgagee in the proceeds of sale in the hands of the mortgagor (not required for the discharge of prior encumbrancers) in this case has a different origin (see above).
General considerations
54.	Miss Gloster concluded with the general submission the “any sensible system of property law” must avoid the conclusion for which the appellants contend in this case.
55.	It is important to recall that our real property law is not simply a collection of rules inherited from the Middle Ages liable to be out of touch with modern social and economic needs.  Much valuable work has been done for instance by the Law Commission and HM Land Registry to keep property law up to date: see in particular Land Registration for the Twenty-First Century A Conveyancing Revolution (Law Com. No.271) (July 2001). It is of course the case that the complexities and language of our property law reflect the length of our social history down the ages from the time of the baronial courts.  But the modern approach is to concentrate not on its historical role but to see its social and economic importance, to examine any proposition in issue in that light and to continue the task of ensuring that the law meets changing social and economic needs.  Mortgages, despite their roots in twelfth and thirteenth centuries, are still an important means of raising money and using assets for this purpose.  Mr and Mrs Buhr like many other small entrepreneurs used their home as security for their business interests.  This is a very important function of mortgages of every kind and I would have been loathe to reach a conclusion which would have exposed a significant technical gap in the protection given to mortgagees.  It would in my view be contrary to expectation and common sense.  That conclusion would have been liable to cause mortgagees to decline to permit sales by mortgagors without their consent.  That would hamper the freedom of mortgagors or dissuade mortgagees from lending money on the security of mortgages at all.  It matters that there should be appropriate incentives and protections in the law for mortgagees as well as mortgagors.
Disposition
56.	For all these reasons, despite the persuasive and skilled manner in which Mr Norris has put Thrings’ case, the appeal should in my judgment by dismissed.
Tuckey LJ:
57.	I agree.
Lord Chief Justice of England and Wales:
58.	I also agree.
ORDER: Appeal dismissed. The respondent to pay the appellant £27,500 together with the Claimant’s costs of the action below, to be subject to detailed assessment.
(Order does not form part of approved Judgment)