Buyers and others dealing with land need to be able to rely on the registers of title kept by the Land Registry. But it must be possible to correct mistakes that find their way on to the register. How does land registration legislation deal with these conflicting objectives?
Dhillon v Barclays Bank plc [2020] EWCA Civ 619; [2020] PLSCS 91 concerned a house that once belonged to Hackney London Borough Council. It was let to a tenant who sought to exercise her right to buy despite being in arrears with her rent. Unbeknown to her, her husband then took control of the transaction and purchased the house in her name for £167,000, before selling it to a company, which used it to secure a loan.
The claimant’s signatures on the transfer were forged and her husband was eventually convicted of mortgage fraud. The company was struck off the register of companies and title to the property vested in Crown, which disclaimed it. For reasons that are not entirely clear, the claimant managed to obtain an order vesting the property – which was now worth more than £1m – in herself, even though she had paid nothing for it. But the title was subject to the legal charge created by the company, securing a debt that was now in excess of £650,000. Could the register be rectified by the removal of the charge?
Jurisdiction
The bank tried to persuade the court that it did not have jurisdiction to delete the charge because its registration was not a mistake, and that it should not entertain the application for rectification at all because the doctrine of illegality, explained in Patel v Mirza [2016] UKSC 42, applied. The Court of Appeal indicated that these were difficult points and was able to sidestep them, upholding the bank’s objections to the application on another ground.
Altering the register
The provisions in schedule 4 of the Land Registration Act 2002 permit alterations to the register to rectify a mistake. But, if the registered proprietor is in possession of the land, it must first consent (unless it caused or substantially contributed to the mistake through fraud or carelessness, or it would be unjust not to make the correction, in which case the court can dispense with such consent).
The registered proprietor of the charge was not in possession of the property. So it was not in a position to withhold its consent to the removal of the charge. Consequently, it fell back on paragraph 3(3) of schedule 4, which enables the court to refuse to rectify the register if there are “exceptional circumstances which justify its not doing so”.
Exceptional circumstances
According to Paton v Todd [2012] EWHC 1248 (Ch); [2012] 2 EGLR 19, an “exceptional circumstance” is something “out of the ordinary course, or unusual or special, or uncommon; to be exceptional a circumstance need not be unique or unprecedented, or very rare, but it cannot be one that is regularly, or routinely, or normally encountered”. Were the circumstances of this case exceptional? And, if so, did they justify non-rectification? Lord Justice Coulson, who spoke for the court, listed the factors which, on any view, made the circumstances exceptional and justified the decision to let the register stand.
The claimant had not played any part in the mortgage fraud. But the bank’s point about illegality was relevant here. The claimant had been nothing more than a tenant. She had not acquired the title and then lost it as a result of fraud. Instead, she was seeking to pick and choose between two void transfers by winding the clock back to a point in time between them. And it would be contrary to common sense, and any notion of justice, to ignore her indirect attempt to rely on a fraudulent transfer when considering whether the register should be rectified.
The claimant would not have been able to buy the freehold without a loan and, if the charge were to be removed from the register, would have an unencumbered freehold worth more than £1m, without having paid for it. Leaving the charge on the register would put her in the position that she would have been, had she bought the house, because she would have had to borrow to pay for it and then sell to pay off the mortgage. However, the equity of redemption was worth considerably more now. So non-rectification was a just and proportionate outcome.
Indemnity
The claimant tried to persuade the court that the Land Registry would have to indemnify the bank, if her claim were to succeed, which undermined the bank’s arguments and justified her claim for rectification. But the point had not been properly pleaded and the court refused to regard it as a decisive factor that could be used to short-circuit proper consideration of the claim for rectification.
Lord Justice Coulson noted the proposals for legislative change in “Updating the Land Registration Act 2002” (Law Com No 380), focusing on paragraphs 13.105 and 13.113 recommending that mortgagees, registered by mistake, should not be able to oppose rectification because the Land Registry will be liable to indemnify them, if their charge is removed. His Lordship warned that the assumption that the availability of an indemnity will be undisputed was “optimistic”, adding that taxpayers would raise their eyebrows if the Law Commission were to endorse claims for rectification and indemnity, and use of the public purse, in cases such as this.
Key point
- The Court of Appeal provides valuable guidance as to the circumstances that will justify a decision to refuse to rectify a mistake in the registers of title to land
- The court also commented on the Law Commission’s recommendations for changes to the law dealing with the rectification of title to registered land
Allyson Colby is a property law consultant
