Land registration – Alteration of register – Rectification for mistake – Land Registration Act 2002 – Appellant registering legal charge over property in favour of respondent – Appellant later altering register by cancellation of charge as forged disposition – Whether respondent entitled to indemnity – Whether alteration of register amounting to rectification – Whether respondent prejudicially affected – Appeal dismissed
In June 2006, the respondent obtained a registered legal charge over a house, purportedly to secure a loan of £32,000 to the registered proprietor of that property. Part of the funds were used to redeem a prior registered charge in favour of another lender. In fact, both the earlier charge and the respondent’s charge were fraudulently executed by an unknown third party; the registered proprietor had not made the loan application and never received any of the funds.
The instalments due under the respondent’s loan went unpaid and, in 2007, the respondent brought a claim for possession of the property. By her defence, the owner of the property relied on the fraud and contended that the respondent had no enforceable security against the property either under its own charge or by way of subrogation under the earlier charge. The respondent accepted that position and, in January 2009, a consent order was made in terms that required the Land Registry to amend the registered title to the property by deleting the respondent’s charge from the charges register.
The respondent then claimed an indemnity from the appellant under Schedule 8 to the Land Registration Act 2002. The appellant contended that the cancellation of the entry in the charges register did not amount to “rectification” of the register within the meaning of Schedules 4 and 8 to the 2002 Act, since it was not prejudicial to the respondent; it submitted that the respondent’s charge had always been liable to be defeated by an application of the homeowner to have the forged disposition set aside, since her rights took effect as an overriding interest by virtue of her actual occupation of the property when the registered disposition was created.
The respondent’s claim was allowed in the court below and an indemnity was granted. The deputy judge held that the wording of para 1(2)(b) of Schedule 8, by which the proprietor of a registered charge claiming in good faith under a forged disposition was assumed to suffer loss on rectification “as if the disposition had not been forged”, meant that the overriding interests of the purported disponor could not be set up to reduce or defeat the claim: see [2014] PLSCS 40. The appellant appealed.
Held: The appeal was dismissed.
Schedule 4 to the 2002 Act drew a distinction between the alteration of the register to correct a mistake and a case where that process of correction prejudicially affected the title of the registered proprietor of the relevant interest. Rectification of the register was now restricted as a term to alterations which satisfied both those conditions, as set out in para 1(a) and (b) of Schedule 4 respectively. The right to an indemnity was limited to cases of “rectification” so defined. Accordingly, entitlement under Schedule 8 to substantial compensation for loss due to the correction depended on the registered proprietor of the interest in question being able to establish that its title had been prejudicially affected by the change.
As a matter of general principle, the alteration of the register in order to give effect to an overriding interest would not amount to loss for the purpose of the indemnity provisions: Re Chowood’s Registered Land [1933] 1 Ch 574 applied. A registered title which was defeated by the enforcement of an overriding interest was not “prejudicially affected” for the purposes under the 2002 Act.
However, para 1(2)(b) made an exception to that general principle. The purpose of para 1(2)(b) was to reproduce section 83(4) of the Land Registration Act 1925, which had been enacted to meet a possible objection to indemnification flowing from the decision Attorney-General v Odell [1906] 2 Ch 47; para 1(2)(b) therefore excluded the argument that rectification of the register to remove a forged, and therefore invalid, disposition caused no loss to the registered proprietor because he derived no title from a void disposition. Instead, the registered proprietor under a forged disposition would, if he acted in good faith, be treated as having suffered a loss from the rectification of the register even though he took his interest under a forged disposition.
The application of para 1(2)(b) was not excluded where the person entitled to seek rectification had an overriding interest by virtue of their actual occupation of the property at the time when the charge was entered into. Even if the right of the homeowner to set aside the respondent’s charge as a forgery subsisted as an overriding interest, it still led to the alteration of the register in respect of a forged disposition and those were the conditions which engaged the operation of para 1(2)(b). The fact that a right to seek rectification was capable of subsisting as an overriding interest did not alter the fact that the registered proprietor seeking the indemnity was claiming in good faith under a forged disposition and was to be regarded as having suffered loss by reason of the rectification of the register “as if the disposition had not been forged”. The circumstances in which the overriding interest was enforced were precisely those contemplated by para 1(2)(b).
Para 1(2)(b) was consistent with the principle that registration conferred substantive rights on the proprietor even under the forged disposition and that its loss was to be regarded as prejudicial to the title notwithstanding that the transfer or charge was void: Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] EWCA Civ 151; [2002] 3 WLR 1; [2002] PLSCS 46 decided per incuriam and not followed.
Timothy Morshead QC (instructed by the Treasury Solicitor) appeared for the appellant; Josephine Hayes (instructed by the legal department of Swift Group) appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Swift 1st Ltd v Chief Land Registrar
