PROPERTY CHAMBER
FIRST –TIER TRIBUNAL 
LAND REGISTRATION DIVISION

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

LAND REGISTRATION ACT 2002

REF NO 2013/0171

BETWEEN
AFFIRMATIVE FINANCE LIMITED
Applicant
and

PHILIP MICHAEL PEARSON
JULIE DENISE PEARSON
Respondents

Property address: 15 Park Street, Windsor, Berks SL4 1LU
Title number: BK300848

Before: Judge Hargreaves

9th August 2013
Alfred Place, London WC1

Applicant representation: Tom Putnam instructed by Boote Edgar Esterkin
Respondent representation: Edward Francis instructed by Alan Edwards & Co

___________________________________________________________________________

DECISION

Keywords – whether there was an effective agreement to create a mortgage or a charge between the Applicant and the Respondents’ predecessor in title – equitable mortgage – construction of standard terms and conditions – s32 LRA 2002 – summary judgment

Cases cited
United Bank of Kuwait PLC v Sahib [1997] Ch 107
ICS V West Bromwich BC [1997] UKHL 28
Re Sigma Finance Corporation [2009] UKSC 2
In re Jackson & Bassford Ltd [1906] 2 Ch 467
In re Gregory Love &  Co [1916] 1 Ch 203
Williams v Burlington Investments Ltd (1977) 121 Sol Jo 424 (transcript supplied at tab 12)
In re Charge Card Services Ltd [1987] 1 Ch 150
Swiss Bank v Lloyds Bank [1982] AC 584
Re Clarke (1887) 34 Ch D 348 (CA)
Smith v Bridgend County BC [2001] UKHL 58 
Pritchard v Briggs [1980] 1 Ch 338

Goode on Legal Problems of Credit and Security 4th ed (2008)
Fisher & Lightwood’s Law of Mortgage 13th ed
Gabriel Legal Aspects of Syndicated Loans (1986) p84-90
Gregory Hill: Negative pledge with provision for “automatic security” on breach: a form of floating charge?  (2008) 10 JIBFL 528 
Megarry & Wade Law of Real Property 8th ed
Emmet on Title 2.085-9

1.	For the following reasons I direct the Chief Land Registrar to give effect to the Respondents’ application made on 31st October 2012 in Form UN4 to cancel the entry of a unilateral notice in favour of the Applicant’s UN1 dated 3rd September 2012 lodged for registration on 4th September 2012. That application stated that “The applicant is entitled to register a Notice in their favour in accordance with an agreed contract for mortgage in an offer letter (condition Q) between, and signed by Jason Michael Carey (1) Affirmative Finance Limited (2) dated 9th February 2009.” The entry is dated 4th September 2012.

2.	Affirmative Finance was designated as Applicant. Both parties filed and served statements of case and the Respondent issued what was then an application for summary judgment pursuant to Rule 32A of The Adjudicator to HM Land Registry (Practice and Procedure) Rules 2003 on the grounds that the Applicant has no reasonable prospects of success and there is no other compelling reason why the proceedings should not be disposed of summarily. It was fair to deal with the application on that basis and therefore to disapply the new Tribunal Procedure Rules which otherwise apply from 1st July 2013 to that extent. As the matter is basically one of construction and law, this made little difference to the manner in which the hearing was conducted. I am indebted to counsel for their wide ranging submissions, written and oral. References in this decision are to the trial bundle.

3.	The factual background is as follows so far as the Respondents are concerned. They exchanged contracts with the registered proprietor of the property, Jason Carey on 1st August 2012 to buy the property for over £2m and it was transferred to them on 22nd August 2012 (see p37 and p41). By mid-July the Applicant was concerned about Jason Carey’s outstanding level of indebtedness to the company and decided to protect its interests by registering a unilateral notice as set out above in early September 2012 when, the Applicant understood, a period of receivership ended. The Respondents’ solicitors made an official search with priority on 2nd August 2012. The priority period expired at midnight on 13th September. The Respondents’ solicitors had not applied to register the transfer before the priority period expired and the Applicant’s unilateral notice was registered in the usual way. The parties have arranged matters so that the Respondents were in fact able to be registered as proprietors on 20th September 2012, but subject to the notice in favour of the Applicant.  Jason Carey has an extensive property portfolio and the Applicant has registered similar unilateral notices against eight other properties without (his) objection: p53-85: see Mr Esterkin’s statement at p50. As is clear from his statement and that of Gusta Glover at p31 (a partner in the firm of solicitors acting in this reference, which firm also conducted the Respondents’ conveyancing transaction), there are no issues of fact requiring determination for the purpose of the Rule 32A application, though the question of priority would remain to be determined at a hearing if the Respondents were to be unsuccessful. 

4.	At the heart of the dispute is the document headed “Offer letter dated 9th February 2009”, p48, signed by both Jason Carey as the borrower, and by the Applicant. It is addressed to Mr Carey. The agreement recites that the Applicant agreed to lend Mr Carey a sum in excess of £300,000 and he would grant the Applicant a “legal charge”. It states that the charge was attached to the letter but this was never produced if it ever existed as a separate document as opposed to the words outlined in a black square on the front page. The properties to be charged to provide the security were already charged to the Applicant: see clause 2; they are specifically identified in clause 1. The Respondents accept that there might have been an equitable mortgage in respect of those two properties but I am not concerned with either. Mr Carey signed the letter underneath a section headed “Acceptance by Borrower” which included the sentence “I hereby accept the Offer of Loan as detailed above and the conditions overleaf, the terms of which I have read carefully and understand”.

5.	The terms and conditions overleaf include the following. In clause B “your Mortgage” is defined as “this agreement, the security mentioned overleaf and all of the terms and conditions incorporated in these documents.” Clauses D and E set out the repayment obligations of the borrower. Clause H contains provisions as to enforcement at any time, and K provides for an extension of the term of the loan. These clauses are under various sub-headings such as “Meanings” “What and when you must pay us” “When we can call in the loan, enforcement” and “Extension of the term”. 

6.	Clauses M-R are grouped under the sub-heading “Data Protection and Information about you”. Pursuant to clause M the Applicant has the right to make inquiries as to “your ownership of any other property, including a search of the index of proprietors’ names at HMLR”. Some of this is repeated in clause Q, which provides as follows under this heading:-

“Once this agreement is signed by us you give us permission (which you cannot later withdraw) to register a legal charge or notice at HMLR or the Land Charges Department … and to make any search on any property you may have an interest in now or in the future. This term applies if the full amount you owe us (including any costs and payments) is not paid at the time that the property is sold or at any time when we think it necessary in order to protect our security and/or interests and/or position in relation to the amount which you owe us in respect of your Loan account.”

7.	Affirmative’s statement of case (p1) does not plead the detail of its case as argued by Mr Putnam at the hearing, ie that clause Q creates an equitable mortgage because it is a contract by Mr Carey to grant a mortgage. The Respondents’ statement of case (p8) denies that the loan agreement creates such an interest or that the Applicant otherwise has any interest capable of protection by unilateral notice as required by s32 LRA 2002 on the basis that the notice is not “an entry in the register in respect of an interest affecting a registered estate or charge”. The thrust of the Respondents’ defence for the purposes of this decision is that the loan agreement did not oblige Mr Carey to grant a legal charge over the property to secure his obligations, whether immediately, or on the occurrence of any future contingency. Affirmative accepts that there was no immediate obligation on Mr Carey to do so, and that his obligation to create a charge was at all times subject to the contingency in clause Q, but submits that that does not mean that the it has no proprietary interest capable of protection by notice under s32, pending the contingency. The Respondents contend in the alternative (skeleton argument paragraph 9(b)) that even if clause Q could give rise to any proprietary interest, it had not crystallised before 1st August 2012 so as to have priority over the Respondent’s equitable interest under the contract of sale. The priority argument does not arise for determination on the application for summary judgment. 

Construction of clause Q: Respondents’ primary case

8.	The Respondents’ primary submission is that clause Q does not create any specifically enforceable obligation to grant a charge over the property and therefore does not create any interest capable of protection under s32. He submitted that there is a mere contract between the parties, as emphasised, for example in the United Bank of Kuwait Plc case. Where monies have already been advanced, as in this case, the question is whether as a matter of construction Mr Carey agreed to grant a charge over other properties on the occurrence of the events set down in the second sentence of clause Q (“This term applies if the full amount you owe us … is not paid at the time that the property is sold or at any time when we think it necessary …”), whether that obligation is specifically enforceable and if so whether Affirmative has the benefit of  a proprietary interest. 

9.	Mr Francis submits that on a literal construction the clause contains no obligation on Mr Carey to grant a charge over any property in the future. It contrasts with the words on page 1 which state “You will give us a legal charge” over the properties on p1 ie all that Q does is provide for Affirmative to register a charge or notice. Anticipating Mr Putnam’s reliance on Lord Hoffmann’s approach to construction of legal documents in the ICS case at p912-3, ie that unless clause Q is construed as creating a contract to grant security, it is meaningless, Mr Francis argued as follows. Given the construction of the offer letter as a whole, it would be surprising if a clause tucked away on the back page of the document under a heading relating to a different obligation amounted to a specifically enforceable agreement to grant a charge. (He did not, however, run any argument based on any statutory regulations such as the relevant version of the Unfair Terms in Consumer Credit Regulations 1999, for example, possibly constrained by the fact that he acts for the Respondents not Mr Carey.) Clause Q lacks the clarity required to achieve this: for example, what is the difference between the permission granted to register a charge and the permission granted to register a notice? One possible answer is that the first part of the clause (“Once this agreement is signed by us you give us permission … to register a legal charge or notice …”) only relates to the properties referred to on page 1 of the offer letter. The words “any property” relate to the permission granted to Affirmative to “make any search”. That is certainly consistent with the heading under which Q appears (Data Protection and Information About You). The first sentence in my judgment creates two obligations by the borrower: (i) to permit Affirmative to register a charge or notice “once the agreement is signed” and then (ii) to permit Affirmative to make any search on any property (etc).  It stretches the construction to conclude that the ability to make any search includes an obligation by the borrower to allow Affirmative to register any charge or notice against any other property disclosed by such a search, as Mr Putnam argues. In my judgment the opening words of clause Q “Once this agreement is signed you give us permissions to register a legal charge or notice ..” can only sensibly relate to registering a charge or notice in respect of the properties referred to in clauses 1 and 2 of the agreement on the first page. Mr Francis argued that if the clause had been phrased as follows (his inserted words in bold) “Once this agreement is signed by us you give us permission to register a legal charge or notice against [any property] and to make any search on any property …” then there might be an equitable mortgage. But I agree with his basic point on construction that there is no link between the two parts of the first sentence which creates the contract to grant a mortgage over any property. It is not necessary to construe clause Q as Affirmative does to give it some meaning: the first sentence in my judgment contains two obligations on the part of the borrower, and the second sentence explains when the search can be made. In other words, it is not meaningless; rather, it does not achieve what Affirmative says it does.

10.	It is notable that in Affirmative’s letter to HMLR dated 29th November 2012 (attached to the Applicant’s statement of case as originally served at AF25) the equitable mortgage is stated to arise on the basis of clause Q pursuant to which Mr Carey gave Affirmative permission “(which you cannot later withdraw) to register a legal charge or notice at HM Land Registry …. on any property you may have an interest in now or in the future. This term applies …. at any time when we think it necessary to protect our security and/or interests and/or position in relation to the amount which you owe us in respect of your Loan Account”. This is in broad terms what Affirmative’s case is as submitted by Mr Putnam but to get there involves omitting (i) the word “and” in the first sentence and (ii) the fact that there are two separate sentences in Q. In other words, this re-writes the clause.

Affirmative’s case on construction

11.	Mr Putnam met Mr Francis’ arguments by contending that the court has to look at the substance of clause Q. He cited Charge Card Services at p175 E-176D. At p176C Millett J said “Thus the essence of an equitable charge is that, without any conveyances or assignment to the charge, specific property of the charger is expressly or constructively appropriate to, or made answerable for payment of a debt … The availability of equitable remedies has the effect of giving the charge a proprietary interest by way of security in the property charged.” In a sense, that is putting the cart before the horse on the question of construction: there is general agreement as to what is required to create an equitable mortgage, but that does not mean that the words of clause Q meet the relevant criteria. In my judgment none of these requirements are met by clause Q (until the contingency occurs at the earliest) and the clause does not give raise to an equitable mortgage of itself for the reasons given by Mr Francis, whose submissions on construction I prefer. Mr Putnam’s construction might be workable if the clause is edited, as set out above in paragraph 10. 

12.	Mr Putnam contends that clause Q comes within recognised categories of equitable mortgages: he relies on Fisher & Lightwood at 1.20, in particular (c) “a written agreement to create a security in consideration of a debt due or an advance made” and (i) “any written instrument showing the parties’ intention that it should create a security”.  In support of (c) he relies on Buckley LJ in the Court of Appeal in Swiss Bank v Lloyds Bank at p595 C-G, to the effect that if there is a specifically enforceable contract to confer a proprietary interest on the lender, that obligation “will give rise to an equitable charge upon the subject matter by way of mortgage”. Whether a particular transaction gives rise to an equitable charge is a matter of the parties’ intention. Again, there is nothing contentious with that, but the problem with this citation for Affirmative is that it does not deal with a provision like clause Q. Further, it does not deal with the point made by Mr Francis that consideration for any future charge would be required to make good the obligation. If anything, the authority highlights the gap between category (c) and Clause Q. It does not in my judgment give support for Mr Putnam’s proposition that clause Q itself amounts to an equitable mortgage. The same point arises in relation to category (i): I prefer Mr Francis’s submissions above that the clause does not contain any intention that the clause should create an immediate security save over the properties described on the first page. 

13.	Mr Putnam argues that clause Q is a nonsense if the permission to register a legal charge relates to nothing: but that overlooks the fact that on p1 of the document the words “You will give us a legal charge” appear, followed by the properties to be charged as security, followed by the permission given in Q to allow Affirmative to register a charge or notice as the case may be. So I reject the submission that clause Q is meaningless unless it creates an equitable mortgage. I also reject his submission that the second sentence in clause Q evinces an intention to create a security interest. If anything it qualifies the reasons for making the search, now no longer actually required. 

14.	Mr Putnam also argued that the identity of the property to be charged was sufficiently identified, a point which Mr Francis rejected in reply (see below).  

15.	Although Mr Putnam relied on ICS and the more recent authority Sigma Finance Corporation (paragraph 9), they do not assist him on construction. Even if I accept, as I do, that Clause Q is concerned with Affirmative’s desire to enhance its security in the event of the borrower defaulting, or the value of the security diminishing, there is still a gap between that and the creation of an equitable mortgage. The concern is met by the ability to carry out a search to find further security and is limited to that. I would add, finally, that to rely on the Respondents’ pre-action protocol letter which alleges that the UN1 entry is an “encumbrance” does not take Affirmative far at all in terms of construction, and neither do his submissions based on the fact that in this case the Respondents themselves are unlikely to be prejudiced whichever way the application goes.

16.	In reply to Mr Putnam on the construction point Mr Francis stressed that if clause Q gives Affirmative permission to register a charge or notice on the events in the second sentence that is insufficient to amount to a pre-existing obligation by the borrower to grant a mortgage. There is ambiguity in the choice of charge or notice, which begs the question what sort of interest the borrower is liable to or has agreed to create in favour of Affirmative. He also submitted that the scope of the terms of the obligation are insufficiently indentified to be specifically performable, even if the property itself could be identified, which is dubious as it depends on a choice by Affirmative in the future. Neither counsel referred to the fact that s205(xvi) LPA 1925 provides a definition of “mortgage” (legal mortgage means …. or a charge by way of legal mortgage) but even taking that into account, there is some ambiguity about the scope for other terms.

17.	For the above reasons I find that clause Q as a matter of construction does not create an equitable mortgage or any other security or proprietary interest which justifies the registration of the UN1 entry against the property.  If I am wrong about that, I need to deal with the Respondents’ alternative argument.

Contractual obligation as opposed to equitable mortgage: Respondents’ second main point

18.	Mr Francis submits that even if, contrary to his submissions on construction above, Mr Carey is obliged by clause Q to grant a charge on a future contingency over unidentified properties then it amounts to no more than a contractual arrangement between Affirmative and Mr Carey to which the latter could not object, but which does not qualify as an interest to be protected by a s32 notice. He expanded the submission as follows. Again, if he is correct, it would dispose of the reference.

19.	The agreement to grant Affirmative further security only arises (if at all) “if the full amount you owe us .. is not paid at the time the property is sold or at any time when we think it necessary in order to protect our security ….”. This part of clause Q therefore provides that any agreement by Mr Carey to grant Affirmative further security is subject to a future contingency which he submits, correctly in my judgment, cannot give rise to an equitable mortgage. He relies on various passages in Goode dealing with the “concept of attachment” (see 2-02): “The effect of attachment is that the security interest fastens on the asset so as to give the creditor rights in rem against the debtor himself, though not necessarily against third parties. Attachment of a security interest is thus to be distinguished from perfection of a security interest, the latter usually involving a further step … which constitutes notice of the security interest to third parties and must be taken if they are to be bound.” He then referred to Goode’s “ingredients of attachment” at 2-03 and focused on the first requirement (discussed in greater detail at 2-04) which is that “mere unilateral action by the creditor against the asset does not suffice to give him a security interest. There must be an agreement to create a security interest. … An equitable charge, not being a transfer of ownership, rests in contract … the essential point is that there must be an agreement for security.” (There is an obvious overlap with his submissions on construction.) In the context of an interest in land it is also necessary that the agreement must be valid and enforceable ie comply with s2 LP(MP)A 1989. As Mr Francis pointed out, it is hard to see how anything in clause Q would create an enforceable agreement to create a mortgage in accordance with s2 of the 1989 Act: what are all the agreed terms (ie beyond the basic definition of a legal charge in the LPA)? I cannot see how clause Q creates a specifically enforceable contract within the 1989 Act to charge any property when the terms of such a charge are not identifiable. In my judgment, for reasons already give, clause Q does not meet Goode’s first requirement.

20.	Mr Francis also relied on Goode’s fifth requirement (2-09) which is that “any contractual conditions for attachment must be fulfilled”. This is the point which really underpins his second main argument:   “… where the designated event is a mere contingency – an event which may or may not occur – then unless the contingency is simply the debtor’s acquisition of an interest in the asset the agreement will not by itself be effective to create a security interest, even on the occurrence of the contingency” (my emphasis: see below as to what counsel called Goode’s “second thesis”). He developed the submission by relying on Goode at 2-15: “An agreement for a mortgage or a charge is treated in equity as a security interest only if it is not subject to any contingency other than the debtor’s acquisition of an interest in the asset. An agreement to give security on any other contingency, whether the contingency be a demand by the creditor to do so, default by the debtor or the occurrence of some other uncertain event, is a mere contract not an equitable charge.”  Therefore, Mr Francis argues, (i) where there is an agreement to grant a charge on the occurrence of a future contingency, the agreement does not operate from the date of the agreement to grant a proprietary interest, and (ii) even when the contingency occurs, the security interest cannot attach “because an agreement for security contingent on a future uncertain event is a mere contract” (see above in bold, Goode’s “second thesis” as Mr Francis described it). On the basis of the transaction in question (monies advanced by Affirmative in return for a legal charge over identified properties) there is no relevant consideration to support the creation of an equitable charge over any other property. 

21.	Mr Francis relied on the following authorities to support the propositions set out above, as per Goode 2-15. First, in Jackson & Bassford Ltd, which concerned the requirement to register charges given by limited companies under the Companies Act 1900, Buckley J stated that “An agreement to give security may be either one of two things. It may be so expressed as to create a present equitable right to a security [in which case it must be registered to be protected]. Or it may be so expressed as to be merely an agreement that in some future circumstances a security shall in the future be created”. Mr Francis submitted that this supports his submission that clause Q falls into the latter category and does not therefore attract the protection of a s32 interest (Goode’s fifth proposition; but it does not deal with what happens when the contingency occurs ie it does not demonstrate the second thesis). The case of Gregory Love which he cited does not add much to Jackson & Bassford, concerning an agreement which “contains no present charge, but merely a right to the [plaintiff] to have a charge of a certain kind on the occurrence of either of two events”, which did not create a proprietary interest at the date of the original agreement. A more recent case (and possibly more relevant from a factual point of view though based on entirely different facts and statutory regime,) is Williams v Burlington Investments Ltd. It concerned special condition 15 in a contract for the sale of land, described by the House of Lords as a “contract by the purchaser to create in future on request by the vendors a legal charge on so much of the defined land as should not at the time of the request have been sold” the charge being to secure an overage payment due in the event of the purchaser obtaining planning permission. The real issue at trial concerned priorities. There was general agreement that the contract did not create a present equitable right to a security but was only an agreement that in some future circumstances a security should in future be created, applying the analysis in Jackson & Bassford. Beyond that, the particular nature of the facts of the case make it difficult to extract any principle of general application which directly helps here, because the clause in question is markedly different to clause Q.

22.	As to whether an equitable charge arises on the occurrence of the contingency, Mr Francis argues that at most Professor Goode treats an agreement to grant security on a future contingency as a contract which is not specifically performable because of the lack of relevant consideration, a contention which Mr Francis adopts for his purposes. On that basis he was not prepared to concede that there is a real prospect of Affirmative succeeding on the (second) argument that an equitable interest arose on the contingency, or might do so.

Affirmative’s submissions on the Respondents’ alternative point

23.	Mr Putnam prepared a supplemental skeleton argument in which he accepted that  (alternatively to his primary construction argument) Mr Carey’s obligation to create a charge is subject to the contingency in the second sentence of clause Q. But he argues that the submissions made in paragraphs 17-19 above are wrong; none of those submissions or authorities deal with what happens on the occurrence of the contingency, and for the purpose of his summary judgment application Mr Francis would have to show that no equitable mortgage could be created even on the occurrence of the contingency, it being Affirmative’s case that the contingency anticipated by clause Q had in fact occurred. So I turn next to the competing submissions on the “second thesis” point.   Mr Putnam’s position is based on the views of authors who contend that Goode’s second thesis is wrong.

24.	Mr Putnam’s first point is that none of the authorities cited by Mr Francis in paragraph 19 directly support the second thesis, as Mr Francis acknowledged. He said it was obvious that the equitable interest arose when the contingency occurred which is why the UN1 was registered. However s32(3) specifically provides that the mere fact of registration does not necessarily mean the interest protected is valid. 

25.	Mr Putnam adopted the reasoning in Gabriel at p87-88 which concludes that Jackson & Bassford is authority against Goode’s second thesis because Buckley LJ suggests at p479 that were it not for the fact that there was a fraudulent preference, “the court on the basis that there is value could enforce the promise on the part of the company. This amounts to saying that upon the happening of the specified event the promise could be enforced”. Gabriel concludes for the same reason that Gregory Love does not support Goode’s second thesis either. Mr Putnam limited his submissions at the hearing to asserting that neither Gregory Love nor Williams v Burlington Investment amount to authority for the proposition that no equitable interest arises on the occurrence of the contingency. But on any view those authorities deal with different agreements which raise different construction arguments, and predate the s2 LP(MP)A 1989 which begs the question already addressed about specific performance in this case. The citation from Gabriel also predates the 1989 Act (see eg his definition of an equitable mortgage on p93, now incorrect in parts). 

26.	As for Gregory Hill’s article, on which Mr Putnam relies at p3, I bear in mind that his article concerns the concepts referred to in the title ie and more particularly, a “negative pledge” clause of the type set out at the top of p2 of the article. The type of agreement he is considering is (in brief) an obligation by a borrower not to create or permit the creation of further securities over his assets: if he does then the lender’s loan to the borrower is automatically secured on the assets subject to that security. It is somewhat removed from clause Q, the article being based on a specific example from the Encyclopaedia of Banking Law. In relation to that clause Gregory Hill discusses “whether and with what consequences an automatic security clause can be made, under English law, to create a proprietary interest binding on a third party”. Mr Hill disagrees with both Goode’s second thesis that the lender only has contractual rights, and Gabriel’s view that the lender obtains security on the happening of the contingency, so far as the clause he has set out is concerned, which he concludes is “immediately effective to create a contingent right to security over the whole of the borrower’s present and future assets”. However, as Mr Putnam himself accepted at the hearing, he had some difficulties accepting the full extent of Gregory Hill’s analysis and contented himself with Gregory Hill’s expressed preference for Gabriel over Goode. That seems to me to verge on a pick and mix approach to his article. However, so far as any of these commentators draw a line anywhere (and far be it for me to throw my hat into a ring of such distinguished authors) I come back to clause Q and its limited remit. I am far from convinced that this debate really deals with clause Q. What all the commentators emphasise is the need for a specifically enforceable agreement and that is lacking in this case.

27.	Indeed, in reply Mr Francis argued that whatever the correct analysis between these competing views, the bottom line is that Mr Putnam’s attack on Goode’s second thesis does not extend to undermining the basic requirement that there has to be a specifically performable contract to justify the protection of a s32 notice in this case. I agree. That is where, furthermore, Mr Francis submits that consideration is relevant: on Goode’s analysis, he does not contend that the original consideration (ie the advance) is irrelevant, but that it is insufficient to make an agreement for security which is contingent on a future uncertain event more than a mere contract which requires either a completed mortgage to make it effective or a new security agreement accompanied by payment of money. 

28.	That this is a challenging area is underlined by considering Mr Putnam’s further submissions: he submitted a further skeleton argument in reply to Mr Francis’s skeleton argument (which contains the two main points outlined above) arguing that in addition to the submission that a negative pledge can create an immediate proprietary interest (which suggests that he considers that clause Q creates such, which is not the case in my judgment), Affirmative relies on Pritchard v Briggs as authority for the submission that even in the case of a right of pre-emption an equitable interest arose on the occurrence of the relevant contingency, citing Emmet paras 2.084-9 and Megarry & Wade at para 15-063 in support. The point taken by Mr Putnam is that there is no difference between a right of pre-emption where the contingency event obliges the vendor to sell the land to the beneficiary of the right, and any other contingent right which obliges the grantor to grant an interest in land.  Whilst this might appear to be a superficially attractive submission, I do not see how a generalised submission based on an entirely different contractual/property right which has given rise to enormous difficulties (see footnote 13 for the statutory response) can assist Affirmative. It throws the debate right back to the question of construction, and that is flawed. I agree with Mr Francis that resorting to an analysis of Pritchard v Briggs is unhelpful to Affirmative. 

Conclusions

29.	In order to give rise to a s32 interest Affirmative would have to demonstrate the clause Q created an interest in the property ie in this case, an equitable mortgage. For the reasons outlined above I conclude that (i) as a matter of construction it did not create at the time the letter was signed any specifically enforceable obligation to grant a charge over the property and (ii) it did not create any specifically enforceable obligation by the borrower to grant a charge on the occurrence of a future contingency which may or may not have taken place in this case. In each case I prefer the submissions of Mr Francis to those of Affirmative. In the alternative, if those conclusions are wrong, I have concluded that any contract on which Affirmative relies cannot meet the requirements of the 1989 Act, and that would also justify giving effect to the Respondents’ applications. 

Costs

30.	In accordance with general practice the likely order I will make is that Affirmative must pay the Respondents’ costs. The Respondents have served a schedule of costs but need to confirm that it relates only to the costs of the reference (ie from 4th March 2013). Subject to any changes they wish to make to this schedule (by 4pm 23rd September) Affirmative should file and serve submissions on this schedule by 4pm 30th September 2013 and I will deal with the question of liability for costs and quantum as soon as possible after that. 

BY ORDER OF THE TRIBUNAL

Dated  16th September 2013