His Honour Judge Walton :
1. The claimant seeks possession of domestic premises at
2. No Defence to that claim has ever been entered by Mrs Hussein (the first defendant). However the second defendant, Ms Bustard, has been given permission to join the action as a party in order to make a Part 20 claim against Mrs Hussein and to resist the claimant’s claim for possession. Ms Bustard acts by a litigation friend. In her Defence she says that although she transferred title to the property to the first defendant in November 2004, she was at the time under a disability and as a result retains no knowledge of the transaction. She was suffering from Korsakoff’s Psychosis, a severe mental illness for which she has had in-patient hospital treatment. As a result she was unaware of her actions in selling her home to Mrs Hussein until July 2008 when, on visiting the property while on supervised leave from the place at which she was provided with care, she found notices from the claimant addressed to Mrs Hussein indicating an intention to enforce a mortgage.
3. As against the first defendant, the second defendant seeks to set aside the transfer and contract of sale. As against the claimant she seeks a declaration that she has an overriding interest which entitles her to receive the property back free of the claimant’s charge.
4. Hearing. The first defendant attended in person. She had not complied with case management directions and as a result His Honour Judge Behrens made an order in May 2009 providing that, unless the court gave permission, she would be debarred from giving oral evidence at trial or from relying on any witness statements or documents which had not been served or disclosed to the other parties. The first defendant, who was assisted by a family member, made no application to myself to give evidence, or to rely upon any evidence in writing. She did not seek to cross examine the witnesses who were called. She made no submissions. The second defendant was represented by counsel instructed by her litigation friend. Ms Bustard gave evidence. As the report of Professor Turkington indicated, she was able to do so with reasonable clarity, although it was conceded she has no recollection of events at around the time which is important for present purposes. There was little challenge to what she said.
5. An application was made on her behalf to amend her Defence which was opposed. I allowed the amendment which was to set out in greater detail the remedies which were sought on her behalf. There seemed no prejudice in permitting this which could not be met in costs. Mr Tinnion, on behalf of the claimant, did not allege any evidential prejudice. The Defence already made clear that the second defendant was saying that her interest in the property should prevail against the claimant’s charge. The Reply joined issue with that averment.
6. Background and evidence. The second defendant was registered as proprietor of the property on 17th of August 2001. It would appear that on about 8 November 2004, Mr Hussein, the first defendant’s husband, contacted his solicitor, Mr McCarthy of O’ Rourke’s, solicitors, and notified him that he was purchasing the property for the sum of £100,000 with the assistance of a mortgage from HSBC. Mr McCarthy had been instructed by Mr Hussein in relation to property acquisitions before. He said such transactions were usually conducted in Mrs Hussein’s name. On 12th November 2004 he met Mr Hussein, together with someone called Mr Bhakti, (the spelling of whose name varies) and the second defendant, at O’Rourkes’
7. On 15th of November 2004 Mr McCarthy sent the transfer document to the second defendant for her to sign. A few days later at a further meeting at the solicitors’ offices, the transfer, already signed, was handed back to him. He was told that it had been agreed that the balance of £65,000 would not be paid from the HSBC monies but would be paid direct to the second defendant in a number of instalments. The second defendant was to remain in possession of the property for a further 12 months. Again Mr McCarthy says there was nothing in the transaction which appeared at all suspicious to him, although he conceded it had unusual features.
8. On 26 November 2004 the transfer was executed for a consideration of £100,000, the document being witnessed by Mr Bhakti and Mr McCarthy. On the same date Mrs Hussein executed at charge of the property in favour of HSBC. The sum of £100,000 was received by O’Rourkes into their client account. On 15 December 2004 the Land Registry registered the first defendant as proprietor of the property and also registered the HSBC charge.
9. In evidence Mr McCarthy acknowledged that he was under investigation by the Solicitors Regulatory Authority in relation to alleged irregularities in other property transactions. The police had taken a statement from him in relation to the transaction involving Ms Bustard, but there had been no adverse consequence for himself. He made clear that he had limited recollection of the two meetings attended by the second defendant, not unreasonably given that they were so long ago. He accepted that on neither occasion did he speak to the second defendant on her own. He said his memory was that she participated in the conversation although he could not recall what she said. He was unaware at the time that Najma Begum was the wife of Mr Bhakti- that information only surfaced the following January.
10. He said that he thought Mr Hussein said Ms Bustard was to remain in the property for at least 12 months. It was pointed out that this represented something of a change from his statement to the police, but he said he had not himself written that statement, the implication being that the police officer taking it may not have correctly recorded what he was saying. He is recorded in the statement as saying “12 months,” not “at least 12 months.”
11. He accepted that it was unusual for none of the sale proceeds to go the vendor herself. He pointed out that £35,000 was going to her nominee, but accepted that the balance of £65,000 in the client account was used by Mrs Hussein in relation to other transactions.
12. He said that he had told Ms Bustard she needed a solicitor but when he realised that there was no existing charge on her property and the transfer would involve a simple conveyance he could understand why she might not think it necessary to go to that expense. He said he did not see any sign of Ms Bustard being confused, or evidence that she was under the influence of alcohol : she appeared a happy, jolly person.
13. Mr Hussein was called as a witness on behalf of the claimant. It was agreed that he ought to receive a warning that he did not need to answer any question if he felt he might be incriminate himself. He elected not to answer many of the questions put at all. The extent of his non-replies was a little surprising given that he had felt able to provide a witness statement in these proceedings which he declared at the start of his evidence to be true.
14. One of the matters which Mr Hussein felt unable to help with was an agreement executed by Mrs Hussein on 26th July 2007 which purported to let the premises to someone called Susan Walker for a six-month term at a rent of £139 per calendar month. This was still well within the period he had claimed it was agreed the second defendant would live at the property rent free.
15. Mr Hussein apparently wished to raise further money with the property as security. The claimant was contacted and agreed to provide bridging finance.
16. Ms Bustard gave evidence pursuant to her witness statement. She said she had been residing at The Courtyard, the premises responsible for providing her with care, for some 2 ½ years. Nevertheless she had been allowed home visits to check out her property at
17. She had no recollection of the transaction in which she had conveyed the property to Mrs Hussein in November 2004. She had herself always paid the outgoings for the property and renewed the building and contents insurance annually. Her furniture remained within the house. Her bank statements disclosed no receipt of sums which could reflect payments to her by Mr Hussein of the price.
18. Psychiatric Evidence. Professor Turkington, a consultant psychiatrist, was the joint expert. He was not called to give evidence. He recorded that Ms Bustard’s medical notes, confirmed cognitive impairment along with psychotic symptoms for a period of 10 years from 1996. She had difficulties with attention, orientation and short-term memory. Her psychotic symptoms when drinking heavily would include delusions that people were in her house trying to torture her, that refugees had moved into her home and that members of her family that had died were trying to harm her. “She was frequently found outside of her home in a confused and disorientated state. She had no insight into her alcohol problems and was denying drinking despite the fact that this was obviously the case.” She had several admissions into St Luke’s psychiatric hospital in a three-year period leading up to 2006.
19. Professor Turkington said it was clear that in the time leading up to November 2004 Ms Bustard was suffering from severe alcohol dependence syndrome. On 14 August 2004 she was admitted to hospital under section 4 of the Mental Health Act, as an emergency. At that time she had a psychotic delusion that her neighbours had killed her father. In September 2004 she was moved to a crisis bed following admission to St Luke’s Hospital. She was discharged home on 20 September 2004 with a full care package. However the situation deteriorated and the police were contacted as neighbours were concerned about her safety. She had to be admitted back into St Luke’s Hospital.
20. Professor Turkington opined that at the relevant time, Mrs Bustard would have been highly vulnerable within the community as a result of her psychiatric illness, alcohol dependence and severe lack of insight. In the second half of 2004 she would not have had the capacity to make decisions in relation to her property.
21. The medical notes are copious. Of greatest significance in terms of the present case are those which relate to the period around November 2004, when the transfer took place, and the end of February 2008 when the claimant’s charge came into being. A core assessment dated 10 September 2004 refers to Ms Bustard’s Korsakoff’s Psychosis and says she was admitted as an in patient in May 2004 as a result of confusion and paranoia. After her discharge community staff had visited her and found that she was still confused, without income, and in extensive debt. She was vulnerable and had for instance given her washer away, without being able to say to whom. She was at risk of exploitation, was friendly towards anyone who would buy her a drink and would let anyone into the house.
22. She was admitted briefly to St Luke’s in February 2005 after police forced entry to her home. They forced entry again in March 2005 when she was found with extensive injuries after a fall. She is recorded as having complained of pressure to sell her home at an undervalue. She spoke of a builder and two others who were pestering her to buy her property, “which was not for sale”. In fact by then, of course she was no longer owner of the property having conveyed it to the First Defendant. She had further hospital admission in March and July before being discharged from St Luke’s again towards the end of that month.
23. The notes continue but their significance in terms of the issues in the case recedes until November 2006 when she was again admitted to St Luke’s. At this stage an assessment for social care purposes spoke of “clear evidence that a 24-hour care environment can ..attend to Susan’s medical needs, intense community support is unable to meet these needs.” The report spoke of her being unable to maintain her property, the house was very cluttered, the washer was not working and the fridge and freezer were very unhygienic. The cooker was a fire risk, the kitchen was not being used, there was no evidence of food preparation, no evidence of bedrooms being used or the bathroom facilities, and the conclusion was that she was “not managing or functioning at home”. She remained in St Luke’s until 21st December 2006 and was thereafter referred for a period of assessment at The Courtyard. Unfortunately she required readmission, this time under section 3 of the Mental Health Act on 4th January 2007. She was again placed at The Courtyard and has resided there ever since.
24. After this time the notes make regular reference to her wishing to return home to live. She was escorted to her home on a regular basis for, as I understand it, relatively brief visits. The view was expressed that she had unrealistic expectations about returning home. It follows that she was resident at The Courtyard at the end of February 2008. In June 2008 an occupational therapy function report expressed the view that she “would probably struggle if she was to return home due to her lack of insight into her mental health difficulties and denying any problems with alcohol.” She required 24 hours support/supervision due to the risks of drinking, her vulnerability when under the influence of alcohol and to reduce the risk of further cognitive decline.
25. As she was entitled, Ms Bustard applied to a Mental Health Tribunal for her release, so that she could return to her home. A medical report for those purposes spoke in July 2008 of “clear evidence of (the second defendant’s) inability to self care … her supervisory …order needs to stay in place so that she will stay in a safe place and with adequate supervision to assist her to take care of herself, and abstain from alcohol and safeguard her from exploitation.” Fortunately she has made significant strides since her troubles were at their worst. As I understood it her attendance at The Courtyard is no longer on a compulsory basis. Her presentation in court was very different from the picture provided by the medical records for the period between 2004 and 2008.
26. The law. Overriding interests. The grant of a legal charge over a registered estate is a disposition required to be completed by registration: Land Registration Act 2002, section 27 (2) (f). If the grant of a legal charge over a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration: Land Registration Act 2002, section 29 (1). The priority of an interest affecting the estate immediately before the disposition is protected if the interest falls within paragraph 2 of schedule 3 to the Land Registration Act 2002: section 29 (2)(a)(ii). Paragraph 2 of schedule 3 protects an interest belonging at the time of the disposition to a person in “actual occupation” so far as relating to land of which he or she is an actual occupation. The date for determining whether a party is in “actual occupation” is the date of disposition: section 29 (1). In this case, that would be the date the first defendant granted to the claimant a legal charge of the property, that is, 29th February 2008. While paragraph 2 of schedule 3 also contains some exceptions to the “actual occupation” rule Mr Tinnion confirmed they were not in issue here.
27. Actual occupation. There is some case law in relation to the words “actual occupation.” They are ordinary words of plain English and are to be interpreted as such. What is required is physical presence, not mere entitlement to possession at law : see Williams and Glyns Bank v Boland [1987] 1 AC 487 at 504. Whether someone is in “actual occupation” is a question of fact which depends on all the circumstances including the nature of the property.
28. Submissions. The following is a brief summary of extensive submissions made on behalf of the second defendant and the claimant. First, on behalf of the second defendant Miss Ferber pointed out that it was not in issue that the Ms Bustard did not have capacity at the time in November 2004 the transfer and conveyance of
29. Miss Ferber’s submissions on the facts concentrated on the proposition that Mr Hussein and through him, his wife, knew perfectly well of the second defendant’s incapacity. In such a case the disposition was voidable at the second defendant’s election and an equity thereby arose in her favour which had priority over the claimant’s charge, pursuant to the provisions of the Land Registration Act already quoted, provided that she was in actual occupation of the property at the end of February 2008 when the charge came into being. Notwithstanding that she was being cared for at The Courtyard at that time Miss Ferber submitted she remained in actual occupation of her home : her intention was to return ; her furniture and some personal effects remained there ; she was visiting her home periodically ; no-one else was living there ; regular outgoings were being settled from her account through arrangements with social services. The situation was very similar to that in Thompson v Foy [2009] EWHC 1076 (Ch). If she was in actual occupation she had an overriding interest which had priority over the claimant’s charge and the claimant was not entitled to a possession order.
30. Should the court be against the second defendant in relation to the issue of capacity Miss Ferber said she relied upon the alternative route of undue influence. Mr Hussein and Mr Bhakti and through them Mrs Hussein, stood in relation to to her in a position of trust and confidence and undue influence in causing her to enter the transaction should be presumed.
31. On behalf of the claimant Mr Tinnion sought an order lifting the stay on proceedings being taken against the first defendant for a money judgment. He conceded that if it came to the knowledge of Mrs Hussein in November 2004 that the second defendant lacked capacity, the agreement selling the house was voidable, but denied that the second defendant could prove such knowledge on the facts. She herself could give no direct evidence about what had happened and it was not a necessary or proper inference to draw that Mrs Hussein had been aware of her incapacity. He submitted that for similar reasons the second defendant could not take advantage of the doctrine of undue influence. If the transaction was not voidable the claimant’s claim for possession should succeed. It should likewise succeed if an equity in Ms Bustard’s favour did arise but she was not in actual occupation of the property at the time the charge was executed in February 2008. He submitted she was not : she was living at The Courtyard under the terms of an order under the Mental Health Act. Her desire to return home was unrealistic according to her medical advisors. She could not in practical terms maintain herself in her home due to the severity of her condition. Mr Tinnion relied particularly upon Kingsnorth Finance co Ltd. v Tizard [1986] 1 W.L.R. 783 ;
32. He conceded an argument apparent on the face of his skeleton argument as to the nature of the equity and whether it would in fact override the claimant’s charge if actual occupation was established.
33. Discussion. It is on the face of it a surprising proposition that someone should be under such disability that they could transfer their house and later have no recollection of doing it. However no issue was taken that such had happened in this case ; and no issue was taken that Ms Bustard was indeed suffering from a condition at the time of the transfer which deprived her of legal capacity. The first issue is what the other party to the conveyance knew of her disability and in approaching it I am bound to say that a variety of aspects of the transaction by which the property was sold appear to me highly suspect.
34. The first point is that Mr Hussein’s witness statement gives a very misleading impression of his evidence. That statement and the answers he gave Detective Sergeant Butcher suggested that Mr Bhakti had brought Ms Bustard forward as someone wishing to sell their property ; Bhakti had represented himself as a friend of Ms Bustard ; Ms Bustard instructed the payment of £35,000 to Mrs Bhakti ; and he, Mr Hussein, paid the balance of £65,000 by attending the property and paying over cash to Ms Bustard in Bhakti’s presence over a 3-6 month period. As part of the agreement Ms Bustard was to remain in the property for a period of 5 years.
35. In evidence he declined to give further details of his own relationship with Bhakti ; or how the purchase money was paid over to Ms Bustard ; or for what period of time Ms Bustard was to remain in the property rent-free ; or why she was to remain without paying rent if the purchase price was paid to her over 6 months. He would not comment on the intrinsic improbability that he, through his wife, should buy the property for £100,000 then agree to the vendor remaining in the property for five years, rent free and without any agreement drawn up between them. He could not say who Susan Walker was although Mrs Hussein had apparently granted her a tenancy of the property during the period he was saying the claimant was entitled to live there rent free. As Miss Ferber submitted, the tenancy agreement appears to have been an attempt to explain, if someone was interested, why there was still furniture in the property and why someone might still on occasion be seen to be present there.
36. So far as the price was concerned, Mr Hussein said he had never been asked for evidence that the £65,000 had actually been paid to Ms Bustard, notwithstanding that specific disclosure had been ordered in December 2008 of documents relating to the payment of monies by Mrs Hussein to the second defendant. Mrs Hussein was clearly acting as his nominee and any such order addressed to her would I am sure come to his attention. No documents relating to sources of the money allegedly paid over were ever disclosed. There is no record in Ms Bustard’s bank accounts of her ever receiving the sums alleged. Although there are references in the medical notes to her having amounts of cash about her, there is no suggestion of anything like the amount that would be required if she had actually received £65,000 in cash.
37. Finally there is the link with Mr Bhakti. While Mr Hussein appeared to say he had no link at all with Mr Bhakti, Sergeant Butcher discovered that Mr Bhakti lived for a time a premises at which Rupinder Singh, a business associate of Mr Hussein’s, had also lived. Mr Hussein had accepted when speaking to the police officer that Rupinder Singh was a business associate ; he was reluctant to answer questions about him, and Bhakti in giving evidence.
38. In the result while the court has to be aware that in declining to deal with many questions, Mr Hussein was only doing what he thought necessary to avoid incriminating himself, the fact remains that explanation for unusual or improbable features of the agreement with Ms Bustard is absent. I have to say that I am satisfied, on the evidence as a whole, that Mr Hussein was not being straightforward with the court. I cannot accept his statement at face value. I would be slow to accept any part of his evidence without reliable independent corroboration.
39. Mr Tinnion submits that there is in effect independent support for Mr Hussein’s evidence from Mr McCarthy, but I am far from satisfied that is the case. Apart from any other consideration Mr McCarthy frequently stressed the distance in time from these events and his difficulty in recalling them. I think Miss Ferber was right when she submitted that for much of his evidence Mr Mc Carthy was reconstructing what he believes would have happened on the basis of the available documents rather than having any vivid recall. Moreoever there is some force in the point that he was not, at least at the time in question, entirely independent of Mr Hussein. Mr Hussein was a good client who had sought his professional help in relation to a number of property transactions.
40. It does seem to me a matter of concern that Mr McCarthy was content to proceed with the conveyance without any strenuous effort to persuade Ms Bustard to see solicitors for advice. His evidence that he did mention separate representation seemed somewhat lukewarm, particularly since he was inclined to resist suggestions why such representation would have been desirable. It must have been apparent to him that the unrepresented party with whom he was dealing was not, at least as far as he could see, going to receive the purchase price for her home. Part of it was going to Najma Begum for reasons which do not appear to have been explored in any meaningful way ; and he only had his client’s word that a considerable portion of the balance would be paid in cash by unspecified means on unspecified occasions, rather than from the monies raised by the HSBC charge. There are apparently no notes of the two meetings. He seems not to have considered exploring with the second defendant what protection she would have in relation to the agreement to remain in the property for a period of time. I would have thought that quite apart from the question of what was apparent from Ms Bustard’s demeanour and responses, the circumstances were sufficient to put Mr McCarthy on enquiry that strong advice should be given to her to seek independent representation. It seems to me unlikely that he did. The appearance is that Mr McCarthy did not give to this particular transaction the careful thought which the unusual circumstances required.
41. The position on the evidence is therefore not quite as Mr Tinnion submits. While it is correct to say in relation to the issue of capacity the burden rests on the second defendant and she herself cannot give helpful evidence, what is said by those who resist the suggestion that disability was apparent is, for one reason or another, suspect. The appearance from the medical notes is that anyone who came into contact with the second defendant, other than briefly, would become aware of her considerable psychological problems if they took the trouble to speak to her. This was a lady who was at the time effectively an alcoholic. She was confused, forgetful, and paranoid, and spending significant time being treated in psychiatric hospital. I believe her disabilities would have been apparent.
42. For my part it seems a reasonable inference that the reason why Mr Hussein gave such frankly unreliable evidence is because he has something to hide. I believe the likelihood is that neither he or his wife paid Ms Bustard what she was owed for the house. The reason he knew he could get away with that is because he was aware she was in such a state that she would not know from one moment to the next what she had done or what she had received. In all probability Mr Hussein and through him his wife, while not knowing the precise nature of Ms Bustard’s condition, did know that she was not in good mental health and was vulnerable and they did rely on her disability being such that she would not, could not, make a fuss. It seems to me they were likely to have been in possession of facts from which her incapacity in law should have been apparent.
43. I do not say that Mr McCarthy necessarily had the same opportunity as Mr Hussein to form an impression. It may be that others present in the meetings before him did the talking. If anything I believe he did not probe as thoroughly as the circumstances ought to have suggested into whether Ms Bustard knew what she was doing.
44. These findings are, it seems to me, sufficient to make the conveyance of Ms Bustard’s house a voidable transaction. An equity thereby arises in her favour. So far as undue influence is concerned, it would not be usual, as Mr Tinnion points out, for the relationship of vendor and purchaser to be characterised as one of trust and confidence. No authority was advanced for the proposition that knowledge of the vendor’s disability could have that consequence. But it seems to me that particular problem need not be grappled with bearing in mind it would lead to no different result than already given.
45. That leads to the other major issue which is whether the claimant was in actual occupation of the premises in February 2008. I consider she was. She genuinely wanted to return home even though prevented from doing so by an order under The Mental Health Act. Her furniture remained there. Arrangements had been made by those who had taken over responsibility for her finances to pay the regular bills such as the community charge from her funds. She was visiting the property, admittedly supervised, but precisely because she still considered it her home. She was trying to return there when she made her applications to the Mental Health Tribunals. No-one ever, that I can see, took a final and irrevocable decision that she would not eventually be permitted to return there to live. In my judgment she still occupied the house even though she was for the time being resident elsewhere. Of the various cases cited, most of which were examples of the working out of the basic principal in various factual contexts, I find Thompson v Foy the most helpful. I accept, in terms of what is said at [127] of the judgment in that case, that while Mrs Bustard was not physically present on the land her occupation was manifested and acompanied by a continuing intention to occupy.
46. It follows that, as conceded, her equity has priority over the claimant’s charge. As against her the order should be that the claim for possession is dismissed. As against Mrs Hussein I see no reason not to lift the stay to permit the claimant to pursue its remedy for a money judgment.
47. As mentioned in court the case will be listed for handing down of judgment with a relatively short time estimate of 30 minutes on the basis that the parties who are professionally represented will be able to agree a form of order consequent upon the decision. The draft order should be served on Mrs Hussein so that she has enough time to consider it in advance of the hearing. Counsel are released for the handing down hearing if so desired. If matters of substance requiring a ruling in relation to costs or anything else arise and the time estimate will be insufficient, the parties should so inform the diary manager in early course, and he will provide a hearing with a greater allowance of time.