negligence

Borrowers purchasing plots of land with assistance of mortgages provided by claimant road to be built over part of land to provide access to plots...Borrowers purchasing plots of land with assistance of mortgages provided by claimant road to be built over part of land to provide access to plots road to be adopted as public highway on completion preliminary issue whether borrowers having right to construct road to adoption standard judge finding borrowers not having right appeal allowedNationwide Building Society v James Beauchamp: Court of Appeal: Gibson LJ, Mummery LJ, Rix J: 2 March 2001In March 1990, ten separate mortgage applications were made to the claimant building society by purchasers who each intended to buy the freehold interest in one of ten building plots.

The borrowers formed a company to hold a piece of the land over which a road leading to the plots was to be built.

It was intended that once the road was built it would be adopted as a public highway.In April 1990, the claimant retained the defendant firm of solicitors to act for it in relation to the proposed advances.

Together, the borrowers and the company also retained the defendant, which duly drafted transfers by which, inter alia, the company completed the purchase of the road land and the borrowers completed their sub-purchases of the plots.

The claimant duly made mortgage advances to the borrowers.By July 1991, all of the borrowers had defaulted on their loans and the company went into insolvent liquidation.

The estate road was only partly built and was never formally adopted.

The claimant took possession of the ten plots with a view to selling them.

However, because of what it perceived to be the difficulties over its rights in respect of the estate road, it only obtained 555,000 from the sale.

In July 1994, the claimant commenced proceedings against the defendant, claiming that the security that it had obtained on completion of the purchase of the plots by the borrowers was defective.

This, it maintained, was because: (i) the security did not include the road land; (ii) it did not allow the claimant any right of way over the road land; and (iii) it prevented the construction of the estate road and, therefore, the roads adoption by the highway authority.

A hearing of a preliminary issue was ordered to establish the rights and obligations of the claimant in relation to the construction of the estate road and its adoption by the highway authority.

The defendant contended that by reason of the claimants right (as contained in the mortgage conditions) to perform any obligation that the borrowers had failed to perform, the claimant could undertake to perform the companys covenant to build the road.

The judge concluded, inter alia, that the borrowers only had a right to enter on to the road land to achieve an effective carriageway and did not have the right to complete the construction of the road to adoption standard.

He held that since the claimant had no greater rights than the borrowers, it was not entitled to enter on to the land to construct the estate road to adoption standard.

The defendant appealed.Held: The appeal was allowed.

1.

The correct starting point was to consider what right of way was granted by the building plot transfers, construed against the background of the transaction as a whole.

The effect of the grant had to be taken as an immediate grant of a right of way over the road land because: (i) the roads, footpaths and accesses over which the right of way was granted had been described as constructed or to be constructed, thereby suggesting that even before construction these were to be the subject of the right of way; and (ii) it made little commercial sense for the borrowers to purchase plots to which they had no right of access until some time in the future when the road might eventually be constructed by the company or the vendor.2.

The extent of an ancillary right had to be determined in the light of the particular circumstances of the right of way.

In the instant case, the parties had specified what the standard of the road should be.

The grant of the right of way itself had expressly stated that it was a provisional measure until the roads, footpaths and accesses were taken over by the local authority.

The parties had clearly envisaged that the construction of the roads, footpaths and accesses could not be considered as completed until the construction had been carried out to adoption standard.

Accordingly, since the borrowers had a right, if necessary, to enter onto the road land to construct roads, footpaths and accesses to adoption standard, the claimant on taking possession of the plots would have a similar right: Mills v Silver [1991] Ch 271 and Newcomen v Coulson (1877) 5 ChD 133 considered.Caroline Hutton (instructed by Howes Percival, of Milton Keynes) appeared for the claimant; David Hodge QC (instructed by Pinsent Curtis, of Birmingham) appeared for the defendant.