Upper Tribunal rules on implied term preventing sale of property under investment scheme

Citation: [2023] UKUT 284 (LC)
Judgment on

Introduction

In the case of Darren Stuart Yarnold & Ors v Senada Ziga & Ors [2023] UKUT 284 (LC), the Upper Tribunal (Lands Chamber) dealt with an appeal concerning the entry of a restriction in land registration to prevent the sale of property that was subject to an apparent investment scheme. The appeal stemmed from the First-tier Tribunal’s decision, which allowed for a restriction to be placed on the property titles, holding that an implied term in the joint venture agreements prevented sale without the investors’ consent prior to the registration of a legal charge.

Key Facts

The respondents, victims of a fraud, had entered joint venture agreements with Newbury Venture Capital Ltd (NVC) for property investment, expecting their investments to be secured by legal charges. However, NVC sold parts of the property to the appellants before registering such charges. The respondents then sought to enter a restriction under section 42(1)(a) of the Land Registration Act 2002 to prevent further disposition of the property.

The Upper Tribunal’s task was to determine whether the joint venture agreements implied a term that prevented NVC from selling the property before registering the legal charges, and thus whether the restriction was registerable to avert breach of this implied term.

The legal principles underpinning this case involve the implication of terms into contracts and the scope of restrictions under the Land Registration Act 2002:

  1. Implication of Terms:

    • According to Marks & Spencer plc v BNP Paribas Securities Trust Co (Jersey) Ltd [2015] UKSC 72, for a term to be implied, it must be necessary for business efficacy or so obvious as to go without saying.
    • Yoo Design Services Ltd. v Iliv Realty Pte Ltd [2021] EWCA Civ 560 clarified that the terms must not contradict express provisions and must be capable of clear expression.
  2. Restriction in Land Registration:

    • Under Land Registration Act 2002, section 42(1)(a), a restriction is registerable to prevent invalidity or unlawfulness related to dispositions of a registered estate or charge. However, straightforward breaches of contract do not typically reach the threshold of ‘unlawfulness’ for the purposes of this section.

In this case, the followings considerations were central to the Tribunal’s reasoning:

  • Intention of the parties within the JV agreements.
  • The timing and sequence of the various events envisaged by the agreements, notably the registration of a legal charge prior to any sale.
  • Business efficacy of the contract.

Outcomes

The Upper Tribunal dismissed the appeal, affirming the decision of the First-tier Tribunal to permit the entry of the restriction. The key finding was that an implied term did exist that the land was not to be sold before the investment was secured by a legal charge, thus satisfying the conditions under section 42(1)(a) of the Land Registration Act 2002. This affirmed the necessary restriction to prevent unlawfulness in relation to the disposition of the registered estates under the fictitious joint venture schemes.

Conclusion

The case of Darren Stuart Yarnold & Ors v Senada Ziga & Ors demonstrates the complex nature of contractual implications and the protective measures available within land registration law. It reinforces the principle that an implied term may be found where there is a genuine necessity for business efficacy, which can subsequently affect the legality of property dispositions. Furthermore, this case illustrates how the Upper Tribunal interprets ‘unlawfulness’ under section 42(1)(a) of the Land Registration Act 2002 in the context of preventive restrictions on property sales.

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