Charges priority - further advances under prior charge - charges on registered estates and permissible tacking

Title to a registered estate (land/property) can be made subject to more than 1 charge (in rem security). Where there is more than 1 charge, one charge will have priority over the other. The charge with the highest priority will be the 1st ranking charge, the next will be the 2nd ranking charge, the next (if there is one) will be the 3rd ranking charge etc. The proceeds of sale of the subject property, will go to satisfy the charges in order of their ranking (i.e. the 1st ranking charge to be satisfied, before the claim of the 2nd ranking charge will be met)

What, though, is the position if the holder of a higher ranking charge (say, the holder of the 1st charge), lends the debtor/charge grantor, a further advance, seemingly under the 1st charge. Will the sum lent, as the further advance, also be secured by the 1st charge, such that those holding lower ranking charges, will now come behind a (1st) charge securing a larger sum of money? Resulting in an increased risk that the whole of the value of the property will be captured by the 1st chargee, to the corresponding detriment of the next chargee, the 2nd chargee (and all subsequent chargees potentially). In this scenario, does the law permit the 1st chargee, to secure any later further advances the 1st chargee may make to the debtor, without restriction and no matter what detriment this causes the lower ranking chargees?

This article will consider this issue, in light of[0]:

(1) Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736 [2013] Ch. 305 ('Cherry Tree'), Court of Appeal (Arden LJ; Longmore LJ; Lewison LJ) on 31.5.12 (very briefly);

(2) Re Black Ant Co Ltd (In Administration), Re Billsop Properties Ltd (In Administration) (also known as Urban Ventures Ltd v Thomas [2014] EWHC 1161 (Ch) ('Black Ant 1161'), High Court (Nicholas Strauss QC sitting as a Deputy High Court Judge on 15.4.14;

(3) Re Black Ant Co Ltd (In Administration), Re Billsop Properties Ltd (In Administration) (also known as Urban Ventures Ltd v Thomas [2016] EWCA Civ 30 ('Black Ant 30'), Court of Appeal (Beatson LJ; Lindblom LJ; David Richards LJ) on 29.1.16;

(4) Land Registration Act 2002 ('2002 Act'), Part 5 - entitled 'Charges', and a group of sections, entitled 'Relative Priority'. That group contains sections 48, 49 and 50[1]:

(a) section 48, entitled 'Registered charges';

(b) section 49, entitled 'Tacking and further advances';

In Black Ant 1161, the Deputy Judge, at paragaph 19, explained s.48:

'Section 48 of the Land Registration Act 2002 provides that, subject to any entry to the contrary on the register, registered charges on the same land as between themselves rank according to the order in which they are entered on the register, and not according to the order in which they are created.'

But it is section 49 that is the key section, and Black Ant 30 is the key authority.

Nomenclature

For ease of reference, this article will adopt the following labels:

(1) the debtor/borrower/granter of the charge (i.e. chargor) (the 'Debtor') - the person/entity that borrowed the money, and now owes money to the lender(s)/creditor(s). Also the person who granted the charge(s) over his title to registered estate (i.e. over his title to land/(real) property);

(2) the lender/creditor/1st chargee ('1st Chargee') - the person/entity that lent money to the Debtor (separately i.e. not jointly with the 2nd Chargee), is now owed money by the Debtor, and was granted a 1st ranking charge over the Debtor's title to land/property;

(3) the lender/creditor/2nd chargee ('2nd Chargee') - the person/entity that lent (separately i.e. not jointly with the 1st Chargee) money to the Debtor, is now owed money by the Debtor, and was granted a 2nd ranking charge over the Debtor's title to land/property;

For simplicity, this article uses 1st Chargee and 2nd Chargee, as the two chargees in dispute. But the dispute could be between any of the chargees (for example, the 3rd Chargee and 4th Chargee, or 4th Chargee and the 5th Chargee etc.). In this sense, this article could have used 'prior chargee' and 'subsequent chargee', as the adopted labels.

Mortgage vs charge

Where what is under consideration is:

(a) charges on registered land - s.49 of the Land Registration Act 2002 applies (i.e the subject of this article); whereas

(b) mortgages of land (and, it seems, other property) - a different section, namely, s.94 of the Law of Property Act 1925 applies.

Section 94(4) of the Law of Property Act 1925 says:

'This section applies to mortgages of land made before or after the commencement of this Act, but not to charges on registered land' [1aa]

And s.49(1) of 2002 Act commences 'The proprietor of a registered charge...'

But, when reading some passages from Black Ant 1161/Black Ant 30, one can read 'charge' and 'mortgage' interchangably (and so 'chargee' and mortgagee'; 'chargor' and 'mortgagor', interchangably).

Tacking

In Black Ant 30, David Richards LJ (with whom Beatson LJ and Lindblom LJ agreed) said, at paragraph 1:

'“Tacking” describes the means by which a creditor, with a charge securing an original advance, is able to use the charge to secure a further advance and so obtain priority for the further advance over sums secured by any second or subsequent charge.' [1a]

For completeness, it is recorded that there are other types of 'tacking'[1b].

Further advances

Tacking therefore involves the 1st Chargee providing an initial round of secured lending, and then, the 1st Chargee lending the debtor 'further advances'. In Black Ant 1161 and Black Ant 30, the issue was, had a 'further advance' been given, when subsequent facility letters were entered into by the debtor and 1st Chargee, after the 2nd Chargee had registered, at HMLR, its (two) charges.

On what 'further advance'' meant, in Black Ant 1161, the Deputy Judge noted, at paragraph 24, that there was no directly relevant authority on the meaning of “further advances" (see Black Ant 30, paragraph 18). The Deputy Judge said:

'In the absence of any directly relevant authority on the meaning of “further advances”, one must start with the language of the statutory provisions, and with their purpose. As regards the language, the ordinary meaning of a “further advance” is obviously an advance of further or additional funds. As regards the purpose, it is in my view to ensure that priority is not obtained for an advance which a second mortgagee who had received truthful replies to normal enquiries would not know that the first chargee had made or was under an obligation to make.'

Speaking of the Deputy Judge's judgment, David Richards LJ in Black Ant 30, said, at paragraph 18

'As he correctly remarked, the court must therefore start with the language and purpose of the relevant statutory provisions.'

Later, David Richards LJ in Black Ant 30 gave a definition of 'advance' - in 'further advance'. David Richards LJ said, at paragraph 22:

'So far as relevant for present purposes, an advance is a payment of money on terms that it will be repaid, in other words a loan.'

Points

A few points can be gleaned from Black Ant 30/Black Ant 1161:

(a) a variation of an existing contract (i.e. a subsequent contract, which took effect as a variation to the existing contract (e.g. existing facility letter)), without more, will not equate to a 'further advance'. David Richards LJ, in Black Ant 30, at paragaph 21, said:

'It is, of course true, that if it were only a variation, it would follow that there was no new or further advance,'

(b) a new contract (e.g. a new facility letter) which replaces the existing contract, does not necessarily result in/amount to, a 'further advance'. It is possible for there to be a new contract, in respect to the existing advance. In Black Ant 1161, the Deputy Judge said, at paragraph 33:

'...I do not accept ... that the intention of the parties in this case was to enter into a new contract but, even if that had been intended, it does not follow that such a new contract would mean that there was a new advance. On the contrary, it would simply mean that there was a new contract relating to the existing advance.'

As to this, David Richards LJ in Black Ant 30, said, at paragraph 21:

'The judge was, in my view, right when he said at [33] that a new contract would not mean that there was a new advance. It could well, as he said, take effect as a new contract relating to the existing advance.'

(c) counsel for the 1st Chargee was willing to recognise that '...there may be some circumstances, for example a revolving credit, in which there may be a repayment and a further advance without any actual new money, and he accepts that this may give rise to a “further advance” within the meaning of these provisions; if so, the first mortgagee's right of priority would depend on there being a duly registered obligation in the terms of the revolving credit to make the “further advance”.' This was not judicially approved, or rejected (Black Ant 1161, paragraph 25) so caution should be exercised around this counsel position.

While fact specific, it is noted that, on the facts in Black Ant 30/Black Ant 1161, it was held that there had been no 'further advances', so there had not been any 'tacking' in the first place (and so there was no question of whether or not, tacking had been permissible/possible)[2].

Restrictions on Tacking - general

As indicated from the part above about 'further advances', 'tacking' is permissible/possible in some circumstances, while in other circumstances, it is not. Turning then to the restrictions, David Richards LJ in Black Ant 30 explained: (a) the reason for the restrictions, and (b) the source of the restrictions. He said, at paragraph 1 of Black Ant 30:

'Because of the potential prejudice to the interests of the holders of second or subsequent charges, first equity and then statute have severely restricted the circumstances in which tacking will be permitted.'

Formerly then, the restrictions were in Equity (Hopkinson v. Rolt (1861) 9 H.L.C. 514[2a]). Now they are contained in statute.

Restrictions on Tacking - Statute

Turning then to the statutory restrictions on tacking, the relevant statute is the Land Registration Act 2002 (as stated above) - particularly section 49 (along with sections 48 and 50).

Explaining the sections, in Black Ant 30, David Richards LJ said, at paragraph 2:

'Section 48 of the Land Registration Act 2002 provides that charges over registered land rank in the order of their registration. That is subject to the restrictions on tacking contained in sections 49 and 50. Section 49(1)-(5) provides the circumstances in which a further advance may be secured by the higher-ranking charge. Section 49(6) provides that “Except as provided by this section, tacking in relation to a charge over registered land is only possible with the agreement of the subsequent chargee.” ... The statutory position as regards other property is similar, but more shortly stated: see section 94(1) of the Law of Property Act 1925.'[3]

This is similar to what the Deputy Judge said, in Black Ant 1161, at paragraph 3:

'Section 48 of the Land Registration Act 2002 provides that charges rank in accordance with the order in which they are registered. However, that is subject to sections 49 and 50, which contain what can broadly be described as anti-tacking provisions, the effect of which is to limit the priority afforded to the earlier registered charge to advances made by the time of the charge and “further advances” which the holder of the charge was obliged by its terms to make.'

Section 49 Land Registration Act 2002 - Tacking and further advances

Turning then to section 49 itself, which, as stated earlier, is entitled 'Tacking and further advances'. This reads:

'(1) The proprietor of a registered charge may make a further advance on the security of the charge ranking in priority to a subsequent charge if he has not received from the subsequent chargee notice of the creation of the subsequent charge.

(2) Notice given for the purposes of subsection (1) shall be treated as received at the time when, in accordance with rules, it ought to have been received.

(3) The proprietor of a registered charge may also make a further advance on the security of the charge ranking in priority to a subsequent charge if-

(a) the advance is made in pursuance of an obligation, and

(b) at the time of the creation of the subsequent charge the obligation was entered in the register in accordance with rules.

(4) The proprietor of a registered charge may also make a further advance on the security of the charge ranking in priority to a subsequent charge if-

(a) the parties to the prior charge have agreed a maximum amount for which the charge is security, and

(b) at the time of the creation of the subsequent charge the agreement was entered in the register in accordance with rules.

(5) Rules may-

(a) disapply subsection (4) in relation to charges of a description specified in the rules, or

(b) provide for the application of that subsection to be subject, in the case of charges of a description so specified, to compliance with such conditions as may be so specified.

(6) Except as provided by this section, tacking in relation to a charge over registered land is only possible with the agreement of the subsequent chargee.'

Explanation

In Black Ant 1161, the Deputy Judge said, at paragraph 20:

'Section 49 codifies the previous law, as laid down by the House of Lords in Hopkinson v. Rolt (1861) 9 H.L.C. 514, and provides for four cases in which a further advance takes priority over a subsequent charge:-

(a) If the first mortgagee does not have notice of the second mortgagee's charge.

(b) If the further advance is made pursuant to an obligation which was entered in the register in accordance with the rules at the time of the creation of the subsequent charge.

(c) If the parties agree a maximum amount to be secured by the charge and that agreement is noted on the register.

(d) By agreement.'

Some points can be made about s.49:

(1) There are 4 circumstances where (this type of) tacking is permissible, as listed above. Paragraph 49(6) provides the fourth category of circumstances, where tacking is permissible - namely where there is agreement - agreement that is, from the subsequent chargee. Paragraph 49(6) also closes off, the categories of circumstances where tacking is permissible, to where (as stated) there is such an agreement, or where one of the other circumstances, listed in s.49, arises.

(2) a couple of observations can be extracted as to subsections 49(3) and/or 49(4):

(a) in Cherry Tree, Lewison LJ quoted subsections 49(3) and 49(4) and commented:

'It is to be noted in particular that these matters must be entered on the register if they are to affect third parties.' (paragraph 115)

(b) in Black Ant 1161, the Deputy Judge, at paragraph 23, noted before him, that:

'..it is ... common ground that, in order to secure protection under section 49(3) the further advance must have been made under an actual obligation to make it...'

(3) one can add to this, the observation, in Black Ant 1161, by Deputy Judge, at paragraphs 21 and 22, wherein, he said:

'Rule 108 of the Land Registration Rules 2003 provides that a person applying to be registered, who is under an obligation to make further advances, may apply to the registrar for such obligation to be entered in the register...'

Where a charge is entered on the register, all that is registered is the fact of the charge; the amount that is secured is not entered on the register. Similarly, where an obligation to make further advances is noted on the register, the extent of the obligation and the circumstances in which it arises are not specified. Therefore, in practice a person who is considering making an advance secured by a second charge usually needs to ascertain, from the holder of the first charge or from the borrower, what advances have been made and what obligations exist as regards further advances. Otherwise, he will not know what, if any, equity is left in the property.'

(4) but save for the above, there is a paucity of reported cases on the exact nature and operation of these subsections. There are only the few scattered comments, to set out above;

BARRISTER

33 BEDFORD ROW

Simon Hill practices in the following areas: insolvency, company and business law, with some tax and property law.

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[0] One other cases touch on this area: Folgender Holdings Ltd v Letraz Properties Ltd [2019] EWHC 2131 (Ch) ('Folgender'), High Court (Chief Master Marsh) on 6.8.19, see paragraph 53;

[1] Land Registration Act 2002, Part 5 is entitled 'Charges', wherein, there is a group of sections, entitled 'Relative Priority'. That group contains sections 48, 49 and 50. Taking those in turn:

(1) section 48 is entitled 'Registered charges' and reads:

'(1) Registered charges on the same registered estate, or on the same registered charge, are to be taken to rank as between themselves in the order shown in the register.

(2) Rules may make provision about-

(a) how the priority of registered charges as between themselves is to be shown in the register, and

(b) applications for registration of the priority of registered charges as between themselves.'

(2) section 49 is entitled 'Tacking and further advances' and the section is set out in the main body of the article.

(3) section 50 is entitled 'Overriding statutory charges: duty of notification' and reads:

'If the registrar enters a person in the register as the proprietor of a charge which-

(a) is created by or under an enactment, and

(b) has effect to postpone a charge which at the time of registration of the statutory charge is-

(i) entered in the register, or

(ii) the basis for an entry in the register,

he must in accordance with rules give notice of the creation of the statutory charge to such person as rules may provide.'

[1aa] Immediately prior to the introduction of the Land Registration Act 2002 (particularly, Schedule 11 - namely, 13.10.03), s.94 used to read:

'(1) After the commencement of this Act, a prior mortgagee shall have a right to make further advances to rank in priority to subsequent mortgages (whether legal or equitable)—

(a) if an arrangement has been made to that effect with the subsequent mortgagees; or

(b) if he had no notice of such subsequent mortgages at the time when the further advance was made by him; or

(c) whether or not he had such notice as aforesaid, where the mortgage imposes an obligation on him to make such further advances.

This subsection applies whether or not the prior mortgage was made expressly for securing further advances.

(2) In relation to the making of further advances after the commencement of this Act a mortgagee shall not be deemed to have notice of a mortgage merely by reason that it was registered as a land charge, if it was not so registered at the time when the original mortgage was created or when the last search (if any) by or on behalf of the mortgagee was made, whichever last happened. This subsection only applies where the prior mortgage was made expressly for securing a current account or other further advances.

(3) Save in regard to the making of further advances as aforesaid, the right to tack is hereby abolished:

Provided that nothing in this Act shall affect any priority acquired before the commencement of this Act by tacking, or in respect of further advances made without notice of a subsequent incumbrance or by arrangement with the subsequent incumbrancer.

(4) This section applies to mortgages of land made before or after the commencement of this Act, but not to charges registered under the Land Registration Act, 1925, or any enactment replaced by that Act.' [bold added]

Words substituted by Land Registration Act 2002 c. 9 Sch.11 para.2(9), which said:

'In section 94(4), for the words from “registered” to the end there is substituted “on registered land”.'

A mortgage on unregistered land would presumably be caught by s.94.

[1a] In Megarry & Wade: The Law of Real Property 10th Ed., in paragraph 6-103, under the heading 'Tacking and further advances.', the learned authors state (footnote removed):

'Tacking is the process by which a mortgagee who makes a further secured advance to the borrower may obtain priority over an intervening charge. The Land Registration Act 2002 recast the law on tacking further advances, both by codifying the existing practice of lenders and by introducing a new method of tacking. The proprietor of a registered charge may make a further advance on the security of a charge that will rank in priority to a subsequent charge if:

(i) the proprietor has not received from the subsequent chargee notice of the creation of that subsequent charge;

(ii) the further advance is made in pursuance of an obligation and that obligation was entered in the register at the time of the creation of the subsequent charge; or

(iii) the parties to the prior charge have agreed a maximum amount for which the charge is security and at the time of the subsequent charge the agreement was entered in the register; or

(iv) the subsequent chargee agrees.

Of these methods, (ii) codified the practice of lenders, and (iii) was completely new.'

[1b] There is a form of 'tacking' where an equitable interest holder, obtains a legal interest, and 'tacks'. In Macmillan Inc v Bishopsgate Investment Trust Plc (No.3) [1995] 1 W.L.R. 978 ('Macmillan'), Millet J, page 1002(B), explained what this was (first in respect to land), initialy with a concise extract from Snell's Equity, 29th ed. (1990), p. 50, and then Millet J's own explanation.

(a) From Snell's Equity, 29th ed. (1990), p. 50, Millet J quoted

'A purchaser without notice who at the time of the purchase fails to obtain either a legal estate or the better right to one will nevertheless prevail over a prior equity if, without being party to a breach of trust, he subsequently gets in a legal estate, even if he then has notice of the equity'

(b) Millet J then said:

'In a contest between two equitable mortgagees of land before 1926, it was sometimes possible for the later mortgagee to gain priority over the ealier by acquiring a legal mortgage what had priority to both. This was known as "tacking" and more particularly as the "tabula in naufragio" (or "plank in a shipwreck"). If, for example, an owner mortgages his land by a first legal mortgage to A to secure an advance of £1,000, and then by successive second and third equitable mortgages to B and C to secure advances of £2,000 each, the land being worth only £3,000 ("shipwreck"), and afterwards C acquired A's legal mortgage ("the plank") by redeeming it and obtaining a transfer of the legal estate, he could "tack" his own advance of £2,000 to the £1,000 secured by the legal mortgage and enforce his security for the full £3,000. The result might be to squeeze out B altogether. The only requirement was that C must have had no notice of B's equitable mortgage at the time when he advanced his money; if he had notice he could not tack. But, if he had no notice hwen he advanced his money, it was immaterial that he had notice before he redeemed A and acquired the legal estate. The doctrine was a harsh one and was much criticised. In relation to mortgages it was abolished by section 94(3) of the Law of Property Act 1925.' [words in bold appear in italics in original]

'...the doctrine was really one of consolidation of advances rather than of consolidation of estates, and accordingly it might be thought to be confined to the priority of mortgages. In Pilcher v. Rawlins, L.R. 7 Ch.App. 259, 268 James L.J. confessed that its extension involved a principle which he had never been able to understand. In Bailey v. Barnes [1894] 1 Ch. 25, 37, however, Lindley L.J. expressly denied that the doctrine was confined to mortgages, and a similar view had been expressed obiter in the previous year by Wright J. in Powell v. London and Provincial Bank [1893] | Ch. 610, 615. Moreover, the rule had been stated in quite general terms by the Privy Council in Blackwood v. London Chartered Bank of Australia (1874) L.R. 5 P.C. 92, 111, where Lord Selborne L.C. said:

"There is nothing more familiar than the doctrine of equity that a man, who has bona fide paid money without notice of any other title though at the time of payment he, as purchaser, gets nothing but an equitable title, may afterwards get in a legal title, if he can, and hold it; though during the interval between the payment and the getting in the legal title he may have had notice of some prior dealing inconsistent with the good faith of the dealing with himself."

It was, however, of the essence of the doctrine of tacking properly so called that the legal estate which the subsequent incumbrancer acquired was paramount, that is to say that it was one which ranked in priority to the incumbrance which was to be postponed. By no process of legal reasoning could an incumbrancer gain priority over an earlier incumbrance by acquiring a legal estate which was subject to it. This essential requirement appears to have been overlooked in Bailey v. Barnes [1894] 1 Ch. 25 and the authority of that decision in circumstances where the legal estate is not paramount may be questionable. It is for this reason that the rule is stated but its existence doubted in relation to land in Megarry & Wade on The Law of Real Property, Sth ed. (1984), p. 147.'

(d) There is an exception to the doctrine. Millet J explained:

'Be that as it may, the doctrine had never been applied where the owner of the later equitable interest acquires the legal estate from a person who commits a breach of trust in conveying it to him. In Harpham v. Shacklock D (1881) 19 Ch.D. 207, 214 Sir George Jessel M.R. said:

"Then, as regards the legal estate, nothing is better settled than lat you cannot make use of the doctrine of tabula in naufragio b etting in a legal estate from a bare trustee after vou have receiver notice of a prior equitable claim. If [the legal owner] knew of the claim, it was a wilful breach of trust in him to surrender [the security] to the bankers; if he did not know of it, the bankers did, and knew that they were inducing him to commit a breach of trust by getting him to hand over the legal estate."

Bailey v. Barnes [1894] 1 Ch. 25, itself did not fall within this exception, because the legal estate was obtained from a legal mortgagee who was paid off and who was legally bound to convey the legal estate to the person who redeemed him. In cases concerning land, therefore, even it the doctrine is not confined to mortgages, the limitation would appear to confine its operation in practice to cases where the legal estate is obtained from a prior legal mortgagee on redemption, since as Megarry & Wade, Sth ed., p. 147 observes:

"if the legal estate is subject to a prior equity inconsistent with the purchaser's title, it will necessarily be a breach of trust to convey it to him, whether or not the facts are known to the person conveying it."

Millet J then dealt with the situation where the property, subject to the security, is shares (Macmillan, at 1003(g))

[2] In Black Ant 30:

(1) the original 1st Chargee facility letter, was dated 28.9.06. There was then a facility letter dated 26.3.09, there were then subsequent facility letters.

(2) David Richards LJ said:

'I consider that the judge was right to conclude that there was no new advance pursuant to the facility letter dated 26 March 2009 or any of the subsequent facility letters.' (paragraph 22)

'In this case, as is common ground, no monies were repaid by [the Debtor] to [1st Chargee] and no monies were paid by [1st Chargee] to [the Debtor] pursuant to the facility letter dated 26 March 2009. Nor did the parties agree that [the Debtor] should be treated as repaying the existing loan, with [1st Chargee] immediately re-lending that amount to [the Debtor]. There is nothing in the facility letter dated 26 March 2009 to that effect. Continuing or leaving outstanding an existing loan is not the making of a new or further advance.' (paragraph 22)

'In my judgment there was no new or further advance in or following March 2009 nor anything which the law would deem to be a new or further advance, nor any agreement between the parties that [1st Chargee] should be treated as making a new advance. Even if the effect of the facility letter dated 26 March 2009 was to replace, rather than vary, the previous facility letter as amended, its purpose was to set out the terms, admittedly in large part the same as previously applying, to the existing advance. In any event, I agree with the judge that that facility letter and the subsequent facility letters were restatements, with relatively minor variations, of the original facility letter, rather than the complete extinction of the original facility letter and its replacement with a new contract.

It follows that this is not a case in which tacking arises, and [1st Chargee] retains its priority as first chargee in respect of the advance made by it in October 2006.' (paragraphs 23 and 24).

The facility letter 26.3.09 provided for c.£250,000 of additional facility, compared to the 29.9.06 facility letter. This was argued to be a further advance. But it was said that this was just capitalising: (a) interest accrued; and (b) fees accrued, under the facility letter dated 29.9.06. On this, David Richards LJ said:

'A further part of [the 2nd Chargee's] case before the judge was that unpaid interest, which was added to the account and capitalised in successive facility letters, represented further advances which [the 1st Chargee] was not entitled to tack to its first charge in priority to [the 2nd Chargee] charges. In view of the shortfall in the recovery of principal on [the 1st Chargee's] loans following the realisation of the charged properties, this issue is academic. The judge rejected this submission and, in my judgment, he was right to do so. Even when added to the principal amount stated in the facility letters, the unpaid interest remained just that - interest which had not been paid. From the start, the Indebtedness secured by the first legal charge included interest accruing under the facility letter. I am unable to see how, in the absence of an express arrangement between the parties to that effect, unpaid interest can be or be treated as a new or further advance.' (paragraph 26)

'The judge reached the same conclusion in relation to fees. Insofar as the fees in question were payable under the terms of the original facility letter, his conclusion must be right. Further fees, in small amounts, were payable on each renewal of the facility. Those fees were not payable under the terms of the original facility letter and were negotiated as part of the terms for each renewal. Since the judge confined himself to fees which were “contractually due in respect of the original advance and by the express terms of the facility letter”, it does not appear that he dealt directly with these further fees. Because of the substantial shortfall arising on the sale of the properties, this too is an academic issue. If it had mattered to the practical outcome of this appeal, it would have been necessary to consider carefully whether, and in what ways, section 49 of the Land Registration Act 2002, and by a parity of reasoning section 94 of the Law of Property Act 1925, apply to the creation of new liabilities which fall within the terms of the charging provision of the first mortgage or charge. So far as I am aware, this is a novel point on which we did not hear argument and, as it is not a practical issue in this case, I say no more about it.' (paragraph 27)

Similarly, at first instance, the Deputy Judge, in Black Ant 1161, at paragraph 5, had said:

'...the unpaid interest and fees are just sums due in respect of the original advance which the borrowers ought to have paid but have failed to pay, is correct. I do not think that to debit these amounts to the accounts, and then to include them in the amount payable under the new facility letters, can sensibly be regarded as the making of “further advances”.'

The Deputy Judge, putting it shortly, said, paragraph 6 (note: there were in fact 2 debtor companies):

'Essentially all that has happened in this case is that [the 1st Chargee] required [the Debtor] and [other Debtor] to sign up to date versions of their standard terms, and added unpaid interest and fees due in respect of the original advances to the account. No new advances were made.'

[2a] As a complete aside, not relevant to the article, is the following. Hopkinson v. Rolt (1861) 9 H.L.C. 514 was ultimately determined in the House of Lords. There were 3 stages to the case:

(1) the 1st instance - determined by the Master of the Rolls

(2) the 1st appeal - determined by Lord Chelmsford, the (then) Lord Chancellor;

(3) the 2nd appeal - determined by the House of Lords (Appellate Committee). The Appellate Committee consisted of:

(a) Lord Campbell (now Lord Chancellor);

(b) Lord Cranworth; and

It is very surprising to see an appeal panel, consisting of a judge who determined the case in the court below. It would not be permitted now.

Perhaps unsurprisingly, Lord Chelmsford in the House of Lords said 'My Lords, I adhere to the judgment which I pronounced upon this case in the Court below.' (549)

[3] Law of Property Act 1925, Part III is entitled 'Mortgages, Rentcharges, and powers of attorney'. Within Part III, is a group of sections (s.85 to s.120), under the heading 'Mortgages'. Within this group, is section 94, which is entitled 'Tacking and further advances.' That section reads:

'(1) After the commencement of this Act, a prior mortgagee shall have a right to make further advances to rank in priority to subsequent mortgages (whether legal or equitable)-

(a) if an arrangement has been made to that effect with the subsequent mortgagees; or

(b) if he had no notice of such subsequent mortgages at the time when the further advance was made by him; or

(c) whether or not he had such notice as aforesaid, where the mortgage imposes an obligation on him to make such further advances.

This subsection applies whether or not the prior mortgage was made expressly for securing further advances.

(3) Save in regard to the making of further advances as aforesaid, the right to tack is hereby abolished:

(4) This section applies to mortgages of land made before or after the commencement of this Act, but not to charges [on registered land] 3'

Footnote 3: 'Words substituted by Land Registration Act 2002 c. 9 Sch.11 para.2(9) (October 13, 2003)

Section 94(3) abolished a different type of 'tacking' that used to (prior to 1926) exist, in respect to mortgages. In Macmillan Inc v Bishopsgate Investment Trust Plc (No.3) [1995] 1 W.L.R. 978, Millet J, page 1002(B), explained what this was: