Rectification – Transfer of land – Transferee registered as proprietor – Transferee granting charge in favour of claimant bank to secure indebtedness – Respondent claiming transfer obtained by fraud – Whether charge invalid – Whether rectification available to set aside charge – Summary judgment for claimant
In 2004, property owned by the defendant was transferred to a company, which became registered as proprietor. In 2005, the company executed a first legal charge in favour of the claimant bank to secure indebtedness that later exceeded £100m. The company failed to repay the sums owing and the claimant appointed administrators in respect of the company and proposed to sell the property pursuant to the charge. The defendant maintained that: (i) the company had procured the 2004 transfer by fraud, such that that transfer was void; (ii) the charge in favour of the claimant was ineffective; and (iii) he was entitled to rectification of the title to the land to show that he was the proprietor. He relied upon section 65 of, and para 2 of Schedule 4 to, the Land Registration Act 2002, which permitted alteration of the register to correct a mistake. He further contended that the claimant would have been on notice that the transfer had been procured by fraud had it carried out due diligence into the background of the company and its owner.
The claimant sought a declaration that it was entitled to sell the land and applied for summary judgment against the defendant on that claim. It contended that even if the defendant’s allegations of fraud were correct, the charge granted by the company as registered proprietor was valid, such that any purchaser of the property from the claimant, selling as chargee, would take it free from any interest, right or claim that the defendant might have in respect of the property.
Held: The application was allowed.
The registered proprietor of property was entitled to make a disposition of any kind permitted by the general law, including the grant of a charge at law to secure the payment of money: see sections 23(1) and 24 of the 2002 Act. At the time the property was charged to the claimant, the company was the registered proprietor and the legal estate was deemed to be vested in it. The transfer to the company was voidable, not void. At the date the charge was granted, the voidable transfer had not been set aside and the register had not been rectified as against the company. Unless and until the company’s registered title was voided, that title carried with it all the incidents of registration as the proprietor of the property. It had accordingly been entitled to exercise the owner’s powers to charge the property to the claimant: Norwich & Peterborough Building Society v Steed (No 2) [1993] Ch 116 applied. No subsequent rectification as against the company could affect the claimant’s charge, and the claimant’s registration as chargee had not been erroneous.
Had the defendant registered a unilateral notice against the title as soon as he discovered that the transfer had taken place, the charge, if taken, would have been subject to his right to rectify as against the company. In the absence of such a notice, he was unable to contend that the claimant ought to have known or was on notice that the transfer had been procured by fraud. There was no evidence that the claimant had had actual knowledge of the defendant’s alleged interest in the property at the date when the charge was granted. Irrespective of whether the claimant had carried out due diligence into the background of the company and its owner, it was under no duty to the defendant to lend responsibly, nor was it possible to hold that it had lent irresponsibly. When it came to lend the money and obtain the charge, it had been entitled to look at the proprietorship at the Land Registry and to take it at face value. The purpose of the register was that one did not have to make enquiries and go behind it. Even if the claimant had had actual knowledge that questions arose as to the title of the company, that would not provide an answer to their claim since actual notice of a competing claim did not outweigh the effect of the register.
John McGhee QC appeared (instruced by Linklaters LLP) for the claimant; the defendant appeared in person.
Sally Dobson, barrister