Knightsbridge Estates Trust Ltd v. Byrne and Others

[1940] 2 All ER 401

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Between: Knightsbridge Estates Trust Ltd
And: Byrne and Others

Court:

Judges: Viscount Maugham
Lord Atkin
Lord Wright
Lord Romer
Lord Porter

Subject References:
land
Mortgage
Mortgage by company
Principal repayable by instalments over period of 40 years
Postponement of redemption
Reasonableness of postponement
Clog on equity
Rule against perpetuities
Whether mortgage a debenture

Legislative References:
Companies Act 1929 (c 23) - s 74; s 380

Case References:
Levy v Abercorris Slate & Slate & Slab Co - (1887) 37 ChD 260; 7 Digest 31, 156; 57 LJCh 202; 58 LT 218
British India Steam Navigation Co v Inland Revenue Comrs - (1881) 7 QBD 165; 6 Digest 500, 3172; 50 LJQB 517; 44 LT 378
Lemon v Austin Friars Investment Trust Ltd - [1926] Ch 1; Digest Supp; 95 LJCh 97; 133 LT 790
Samuel v Jarrah Timber & Wood Paving Corpn Ltd - [1904] AC 323; 10 Digest 782, 4892; 73 LJCh 526; 90 LT 731; affg [1903] 2 Ch 1
Re Southern Brazilian Rio Grande do Sul Ry Co Ltd - [1905] 2 Ch 78; 10 Digest 733, 4582; 74 LJCh 392; 92 LT 598
Floyer v Lavington - (1714) 1 P Wms 268; 35 Digest 355, 984
Kreglinger v New Patagonia Meat & Cold Storage Co Ltd - [1914] AC 25; 35 Digest 241, 20; 83 LJCh 79; 109 LT 802
Lindsay v Cundy - (1876) 1 QBD 348; 42 Digest 679, 910; 45 LJQB 381; 34 LT 314; on appeal (1878) 3 App Cas 459
Ely (Dean) v Bliss - (1852) 2 De G M & G 459; 42 Digest 679, 908; 20 LTOS 35

Hearing date: 2, 3, 4 April 1940
Judgment date: 22 April 1940

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An estate company borrowed a sum of £310,000 from an insurance company, and as security mortgaged to the lenders property consisting of 75 houses, 8 shops and a block of flats. It was a term of the mortgage that the principal should be repaid by 80 half-yearly instalments spread over a period of 40 years. The mortgagee's remedies became immediately exercisable if the mortgagors should sell the equity of redemption without the consent of the mortgagees. There was no power under which the mortgagors could sell any one of the properties mortgaged free from the mortgage. The mortgagors were restrained from granting leases for more than 3 years without the consent of the mortgagees. The term for repayment was suggested by the mortgagors. The mortgagors claimed that they were entitled to redeem the mortgaged property after the expiration of 6 months' notice upon their paying to the lenders the principal, together with interest and costs. It was contended that a provision that the mortgage should not be redeemed until the expiration of a period of 40 years was void as being a clog on the equity of redemption, and that the mortgage deed infringed the rule against perpetuities. For the respondents, it was contended that any doubt as to the validity of the provisions postponing the right of redemption was removed by the fact that the mortgage was a debenture within the meaning of the Companies Act 1929, s 74, having regard to the definition in s 380 thereof:-

Held-

(i)

the mortgage was a "debenture" within the meaning of the Companies Act 1929, s 74, as defined by s 380 thereof, and accordingly the provisions which postponed the right of redemption were valid in any event.

(ii)

the rule against perpetuities does not apply to mortgages.

(iii)

read in the light of the provisions of s 74 of the Act of 1929, the terms of the mortgage were neither so stringent nor so oppressive as to justify the interference of the court.

Order of Court of Appeal ( [1938] 4 All ER 618 ) affirmed on other grounds.

Notes

The decision of the Court of Appeal in this case that the right of redemption could be so long postponed was generally thought to be contrary to the view expressed by the majority of textbook writers. The consideration of the matter by the House of Lords was, therefore, a matter of no little importance, and there will be some regret that the House have not found it necessary to consider this aspect of the case. In the court of first instance, Luxmoore J, held that the deed here in question was not a debenture. This question the Court of Appeal did not find it necessary to decide, but the House of Lords have taken it first, since, if it was a debenture, clearly the other points do not arise. On this point, the House has decided that this deed, though in form a mortgage, is a debenture within the meaning of the Companies Act 1929. For the purposes of s 74 of that Act, which removes the equitable rule against securities being irredeemable or redeemable only on a remote contingency, the term debenture has the meaning given to it by s 380 of the Act, but their Lordships find it difficult to give any precise definition of the term "debenture."

As to Meaning of Debenture, see Halsbury (Hailsham Edn), Vol 5, pp 474, 475, para 769; and for Cases, see Digest, Vol 10, pp 743, 744, Nos 4637, 4638.

Appeal

Appeal from an order of the Court of Appeal (Sir Wilfrid Greene MR, Scott LJ, and Farwell J), dated 1 December 1938 and reported [1938] 4 All ER 618 , reversing an order of Luxmoore J, dated 13 April 1938 and reported [1938] 2 All ER 444 . The facts and the arguments are fully set out in the opinion of Viscount Maugham.

Appeal dismissed with costs.