Mehra v Mehra and others

Title to land — Beneficial interest — Overriding interest — Land Registration Act 2002 — Sale of house — Father of vendor claiming sole beneficial ownership — Whether beneficial ownership proved — Whether fraud by purchaser so as to render sale void — Whether actual occupation such as to qualify interest of occupant for protection as overriding interest under para 2 of Schedule 3 to 2002 Act The claimant was the first defendant’s father. In 1977, he and his wife had jointly purchased a semi-detached house. In 1987, the property had been transferred into the wife’s sole name after the claimant became an employee of the Indian government, since he was not permitted to own foreign property in that capacity. He later left government employment. In May 1991, his wife transferred the property to the first defendant. In August 2007, the first defendant sold the property to the second and third defendants for £249,950. The claimant brought proceedings in which he claimed to be the sole beneficial owner of the property. He contended that: (i) the sale was void as a fraudulent transaction in which the second and third defendants had colluded; and (ii) his beneficial interest took precedence over the purchase by the second and third defendants, as an overriding interest, pursuant to para 2 of Schedule 3 to the Land Registration Act 2002, by virtue of his occupation of the property at the time of the sale. The claimant alleged that the 1991 transfer to the first defendant had been a mistake and that the intention had been to transfer the property into the joint names of himself and the first defendant, with the claimant being the sole beneficial owner and the first defendant named only in order to assist with managing the property. He claimed that he used the property occasionally when he was in the UK and that it was also used by an employee of his to whom he had granted a shorthold tenancy in October 2006. The second and third defendants counter-claimed for mesne profits. Held: The claim was dismissed. (1) On the balance of probability, the 1991 transfer was a genuine document and had been made with the intention that the property should be held by the claimant and the first defendant on trust for the first defendant beneficially. The claimant had no beneficial interest in the property. (2) Further, even if the claimant had held such an interest, there was no evidence that the second and third defendants had been guilty of any fraud with regard to the 2007 sale. Fraud is a longstop protection in the context of registered land, and nothing short of actual fraud would suffice to prevent a purchaser from acquiring a good title according to the register. It will not be sufficient to show that a purchaser proceeded with the transaction in the knowledge of a claim, still less merely a possible claim, by a third party to have an unprotected interest in the property. (3) The claimant could not have obtained the protection of any interest he might have had under para 2 of Schedule 3 to the 2002 Act. Protection for overriding interests is conferred only upon persons who are in actual occupation of the land, not of the rents and profits thereof. By the date of the 2007 transfer, the claimant had purported to grant away possession of the house to his tenant; in principle, it was the tenant and not the claimant who was in occupation. Moreover, actual occupation means the occupation of someone who is physically present at the property on a continuous basis, according to normal usages, for the purpose of making appropriate use of the property according to its nature. In the instant case, that meant living at the property. It was doubtful whether anyone was in actual occupation at the relevant date. Occupation by the claimant’s employee did not suffice because only the occupation of the person claiming an interest is relevant for para 2 purposes. Even if there had been actual occupation, it did not qualify the claimant for protection since it had been neither obvious nor within the actual knowledge of the second and third defendants as required by para 2. “Actual” knowledge for that purpose means real knowledge of the existence of the interest or a deliberate closing of the eyes against finding facts that the purchaser knows would confirm the truth. Knowledge of the existence of a claim will not suffice, nor will constructive knowledge or notice. (4) Mesne profits representing a market rent of £1,050 per month were payable by the claimant in respect of the period since the 2007 sale, during which he had kept the second and third defendants out of the property. The following cases are referred to in this report. Abbey National Building Society v Cann [1991] 1 AC 56; [1990] 2 WLR 832; [1990] 1 All ER 1085; (1990) 60 P&CR 278; 22 HLR 360, HL Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch. 276; [1969] 2 WLR 427; [1969] 2 All ER 367, CA Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd: The Eurysthenes [1977] QB 49; [1976] 3 WLR 265; [1976] 3 All ER 243; [1976] 2 Lloyd’s Rep 171, CA Greenwood Reversions Ltd v World Environment Foundation Ltd [2008] EWCA Civ 47; [2008] HLR 31 Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] EWCA Civ 151; [2002] Ch 216; [2002] 3 WLR 1 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea); sub nom Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The Star Sea) [1997] 1 Lloyd’s Rep 360, CA This was the hearing of a claim by the claimant, Madhav Mehra, against the defendants, Randiv Mehra, Altan Aras and Semra Aras, for a beneficial interest in property, and a counter-claim by the second and third defendants for mesne profits. James Browne (instructed by Chambers Rutland Crauford) appeared for the claimant; Mark Blackett-Ord (instructed by Parkes Wilshire Johnson) represented the second and third defendants; the first defendant did not appear and was not represented. Giving judgment, HH Judge Hazel Marshall QC said: Introduction [1] This action concerns competing claims to beneficial ownership of a semi-detached house at 101 Park Avenue, Potters Bar. It is registered land, of which the registered proprietor at the material time was and is Mr Randiv Madhav Mehra. [2] The claimant is Dr Madhav (or Madho Lal) Mehra (Dr Mehra), and he claims to be solely beneficially entitled to the property. The first defendant is the son of Dr Mehra and his wife Uma. There is a dispute as to whether he is properly known as “Randiv Mehra” or “Randiv Madhav Mehra”, and so I shall refer to him as “Randiv”. Randiv has previously claimed to be solely entitled to the property. However, he has taken no part in these proceedings and is understood to be in Calcutta. [3] The second and third defendants are Mr Altan Aras and his wife. They believed that they had purchased the property from Randiv on 21 August 2007, with the aid of a mortgage from Woolwich Building Society (which is not a party to the proceedings), but they have subsequently been confronted with the claim made by Dr Mehra that the property is really his, and not Randiv’s. This arises from the following history. [4] The property was originally purchased by Dr Mehra and his wife Uma jointly on 24 May 1977. It was subsequently transferred by them to Mrs Mehra alone in 1987. In May 1991, it was transferred by her to “Randiv Madhav Mehra”. The effect of this transaction is thus central to the case. Dr Mehra says that this was a mistake, and the property was |page:154| meant to be transferred to him and Randiv as joint owners, but in trust for him alone as sole beneficial owner. [5] He then says that the purported sale by Randiv was a transaction that Randiv had entered into opportunistically to defraud him, having discovered the mistake, and he claims that Mr Aras colluded in this fraud in order to obtain the benefit of buying the property at a significant undervalue. This was Dr Mehra’s immediate thought when formulating his case, but by amendment to his claim he has said that, in any event, his beneficial ownership takes precedence over the purchase by Mr and Mrs Aras as an overriding interest, because of his occupation of the property at the time of their purchase, by virtue of para 2 of Schedule 3 to the Land Registration Act 2002 (the LRA 2002). [6] Mr and Mrs Aras deny Dr Mehra’s claim. They do not accept that he was the beneficial owner of the property at the relevant time, but they also say that although the purchase was a private transaction between them and Randiv, if there was any fraud involved it was perpetrated by Randiv alone, and they were not party to it. Mr Aras dealt with the transaction and he says that although he raised a query with regard to Randiv’s name, and was aware of some suggestion that his father was “interfering” in respect of the property, his concerns were allayed by evidence that he was given to prove Randiv’s entitlement to sell the property and, in any event, he instructed a solicitor, who acted also for his mortgagee, and who was entrusted to (and did) protect his and his mortgagee’s interests by satisfying itself that everything was in order. [7] With regard to the claim to occupation, Mr Aras and his witnesses say that the property appeared to be unoccupied whenever it was visited, including immediately after completion. Any such occupation was therefore not obvious, and he and his wife had no knowledge of Dr Mehra’s alleged interest. It is argued on the Arases’ behalf that the occupation that Dr Mehra relies upon was, even on his own case, at best that of a Ms Larisa Zheleznaya to whom, together with a charitable foundation that he runs, Dr Mehra had granted a shorthold tenancy. On the facts of the case, therefore, Dr Mehra does not come within the terms of the statute. Issues [8] There are therefore three issues in this action: (i) Is Dr Mehra the true beneficial owner of 101 Park Avenue? (ii) If so, was the contract for sale of the property made on 7 August 2007 between Randiv and Mr and Mrs Aras void for being a collusive fraudulent transaction? (iii) If not, is Dr Mehra none the less entitled to enforce his interest against Mr and Mrs Aras as an overriding interest, by virtue of para 2 of Schedule 3 to the LRA 2002? Proceedings [9] The proceedings were commenced by Dr Mehra against Randiv alone on 4 September 2007. Dr Mehra immediately applied for an injunction preventing him from disposing of the property, but was too late. Mr and Mrs Aras were then joined in the proceedings as second defendants on 10 September 2007, and the action has continued solely between Dr Mehra and them. [10] The trial took place over five days in September and October 2008. Mr James Browne, of counsel, appeared for Dr Mehra and Mr Mark Blackett-Ord, of counsel, represented Mr and Mrs Aras. [11] Dr Mehra gave evidence himself and also called Ms Zheleznaya. However, Mrs Mehra was in Delhi. At the start of the trial, Dr Mehra said that she was unable to travel to London because she had just had a cataract operation, and asked for her evidence to be taken by telephone. I refused this application. There was no evidence of why she should have had such an apparently non-urgent operation at the time of a trial that had been known about for several months and, in any event, proper arrangements have to be made for evidence to be taken by video or telephone link, even assuming that the court itself is willing to do so. Court proceedings are not just an informal chat. I was then told that Mrs Mehra might be able to come to England during the trial period after all. [12] However, she did not appear. Following the conclusion of all the evidence, including the defendants’ evidence, Mr Browne applied to adjourn the case for at least two weeks to enable her to attend, because it was said that Dr Mehra had not previously appreciated how critically important her oral evidence was going to be. In the interests of the overriding objective of dealing with cases justly, I agreed to permit such a relatively short adjournment and the trial was therefore concluded over two days on 16 and 17 October 2008. Mrs Mehra attended and gave evidence, in fact on both days. [13] For the defendants, Mr and Mrs Aras both gave oral evidence, and they also called Mr Charles Martin Miller, the solicitor who had acted for them on their purchase, Mr Asim Volkan, their builder, and the next-door neighbour at the property, Mrs Gill Knights. These latter two were called for their evidence concerning occupation of the property. [14] Last, there was expert valuation evidence both as to the true market value of the property and its present letting value from Mr John Allison MRICS, of Randles, chartered surveyor, as single jointly instructed expert. [15] Apart from the general documentation, I have had the benefit of seeing the entire Land Registry file on the property, and the entire file of Mr Miller, the solicitor who had acted for Mr and Mrs Aras. The file of SJ Vickers, who acted for Randiv, had also been obtained. Facts [16] On 24 May 1977, 101 Park Avenue was purchased by Dr Mehra and Mrs Uma Mehra for £16,450. The title was registered in their joint names on 25 July 1977. Dr Mehra has said that they owned it equally. His account of the matter is then as follows. [17] In 1987, he became an employee of the Indian government. He was not therefore permitted to own foreign property. Consequently, he and Mrs Mehra transferred 101 Park Avenue to Mrs Mehra alone. Dr Mehra agreed in evidence that Mrs Mehra became the “complete owner of the property”, but added that although “of course” the ownership of the property went over to her, it was really his as this was only “for the papers”. When it was pointed out to him that his particulars of claim pleaded that Mrs Mehra then held the property for both herself and him jointly, he said that that had been a mistake. [18] By 1991, if not earlier, Dr Mehra had left government employment and was no longer inhibited from owning foreign property. He says that it was then agreed that he and his wife would adjust their interests, in that Dr Mehra would buy a property for Mrs Mehra in India and, in return, she would transfer the entirety of 101 Park Avenue to him. However, since their son Randiv (then around 24 years old) was in England more often than was Dr Mehra, it was further decided that the property should be put in Randiv’s name as well, to enable him to help manage it. Thus, the intention was that Mrs Mehra would transfer the property into the joint names of Dr Mehra and Randiv, to be held on trust for Dr Mehra alone beneficially. [19] However, as both Dr and Mrs Mehra were in India, instructions were given to Dr Mehra’s assistant, a Mr Mark Lyall, to take the necessary steps to effect this transfer. Unfortunately, Mr Lyall misunderstood his instruction to “add Randiv’s name to” that of Dr Mehra, and took this literally. He therefore organised preparation of a transfer by which Mrs Mehra purported to transfer 101 Park Avenue to “Randiv Madhav Mehra” instead of to “Randiv Mehra and Madhav Mehra”. Mr Lyall then proceeded yet further to implement his instructions by inscribing appropriate signatures in all four of the required places on the transfer, that is, as “Uma Mehra” the transferor, as “Randiv Madhav Mehra”, the purported transferee, and as himself as witness to each of their signatures. [20] The transfer was dated 17 May 1991. It was presented for HM Land Registry registration under cover of a letter dated 15 June 1991, also purporting to be signed by Mrs Uma Mehra, in which she asked for the new land certificate to be sent to “Mr RM Mehra”. The Land Registry duly obliged and recorded that the new registered proprietor of 101 Park Avenue was “Randiv Madhav Mehra”. However, no such person existed; Randiv had never, say both of his parents, had a middle name. A copy of an early passport and a driving licence of his have been produced to support this. |page:155| [21] Thus, Dr Mehra’s case is that the name of the registered proprietor is a mistake; it should have been he and Randiv jointly, but holding in trust for him alone. Dr Mehra says that this intention is proved by a handwritten letter so confirming, which he sent to the Land Registry on the same day as the transfer itself was sent for registration, namely 15 June 1991. He has produced a copy of this letter and a recorded delivery proof of postage slip to support it. The letter does not appear on the Land Registry’s file. [22] Shortly after this, Mr Aras first entered the story in a minor way. He is an accountant and an auditor. In the early 1990s, he audited one (or more) of Dr Mehra’s companies, meeting Dr Mehra and Randiv, who was learning the business, which, I am told, has to do with quality control and training managers. Randiv then went with Mr Aras to assist him on a two-week trip to India. [23] They did not meet again until March 2007. Mr Aras tells me that Randiv then contacted him out of the blue, apparently looking for a job. They met up and Mr Aras says that, in the course of conversation, he mentioned that he was looking for a house for his daughter, who was getting married. Randiv said that he was looking to sell the house in Potters Bar. Mr Aras knew of the house. He was interested in the purchase because the suggested price was £275,000, which was just about within the range that he might afford. There was then some haggling, in which the price was agreed at £249,950 (plainly to avoid stamp duty). [24] Either at the time or shortly afterwards, in order to secure the purchase opportunity Mr Aras also agreed to pay £10,000 to Randiv for fixtures and fittings as a side agreement. He had of course been taken to see the house by Randiv and did not regard the odd pieces of furniture that were there, such as an old sofa and some garden tools in the rear extension (but no beds, he said), as being genuinely worth this, but he could convince himself that a wooden carved screen and table in the dining room might be of some value. Randiv had asked for an advance of £1,000 against this sum because he said that he was short of money and had expenses. Mr Aras gave it to him, but was to deduct it from the £10,000 payment when eventually made. [25] Mr Aras had his wits about him. He was not sure who actually owned the house (he said), Randiv or his father, and he also knew that Dr Mehra had apparently been instructing estate agents with regard to a sale. He was wary because he did not understand how anyone who was not the owner could claim to sell a property. However, Randiv assured him that the property was his (Randiv’s) and his father was only interfering, having transferred the property to him in June 1991. Randiv showed Mr Aras the land certificate, and Mr Aras queried the fact that the owner’s name was given as “Randiv Madhav Mehra”. Randiv told him that Madhav was his middle name, that he would provide evidence to prove this and that he was entitled to sell the property. [26] The price having been agreed, Mr Aras instructed a solicitor. He went to Mr Miller, of Miller & Co, and he raised his above concerns in a letter to Mr Miller dated 10 April 2007, saying that if there was the slightest doubt, he would not be interested in purchasing. [27] Mr Miller gave evidence before me, and has produced his entire conveyancing file. Mr Miller is an ex-local authority solicitor. He is remarkably thorough, even, some might say, to a fault. He knows the rules and the Law Society guidance on conveyancing intimately, having, he told me with pride, devised his own additional “enquiries before contract” to take account of overriding interests. These even include an enquiry concerning obligations to pay chancel repairs and the costs of maintaining sea walls as standard. He was also aware that solicitors should sign part II of the standard property information form, thereby endorsing, from their own knowledge and belief, the answers given by their client. Very often, he told me, a vendor’s solicitor would not sign up to this personal endorsement, despite Law Society guidance. If so, Mr Miller always pursued it. [28] He was very conscious too, when acting for a purchaser, that he would also (usually) be acting for a mortgagee. It was his experience that when he sought instructions from a mortgagee concerning anything appearing to require a judgment to be made, the question would simply be returned to him with a request for what he would advise. He was therefore very careful, and he would not proceed in the absence of objectively satisfactory answers to any queries, even if the purchasing client himself would be prepared to “take a view”. [29] It was also apparent that he was accustomed to take little notice of letters written by clients raising points or concerns until he got to the point of having answers to his enquiries and a form of contract from the vendor’s solicitor to consider. Only then would he bring in his client and go through these documents to ensure that their contents were understood and coincided with what the client believed he had agreed. He would expect the client, then, to raise any missing or unsatisfactory matters, even if such points had been made in earlier letters, because such earlier matters could always have changed before the exchange of contracts was due. Although, therefore, Mr Aras had mentioned, in his initial letter of 10 April 2007, the agreement concerning the £10,000 for fixtures and fittings, when this part of the deal was not referred to in either the draft contract or the property information form, Mr Miller did not raise the point with Mr Aras. As far as he was concerned, this simply meant that, after all, fixtures and fittings were included in the sale price. Mr Aras did not raise it either. [30] Mr Miller had had to press Farringdons, which was acting for Randiv, to sign part II of the property information form. In the interests, in particular, of Woolwich Building Society (Woolwich), he had also sought an express assurance from it that it had satisfied itself that its client was indeed Randiv Madhav Mehra, the owner of the property. He eventually got those assurances and evidence in the shape of a passport issued by the Indian High Commission in that name on 22 May 2008, a bank statement in that name covering a period until July 2008 and a copy of a credit card in that name. Farringdons also signed part II of the form, although making it clear that this was in good faith and without carrying out any searches. Mr Miller (and presumably the Woolwich) was apparently happy with this, even though, it has to be said, none of this evidence clearly predated the making of the enquiry as to Randiv’s true identity. [31] Shortly after this, in June 2007, Mr Aras relayed to Mr Miller that because Randiv was dissatisfied with Farringdons, he was changing solicitor, but had asked that his new solicitor should not be informed that it had had a predecessor. Acting also for the proposed mortgagee, Mr Miller refused to join in with this, and SJ Vickers was informed that it had been second in line. Mr Miller was pleased to be working with SJ Vickers, which he thought a better firm than Farringdons. [32] With questions answered, and forms of contract largely agreed, Mr Miller carried out a Land Registry search — and then discovered that there was an adverse entry on the register, preventing him from gaining priority. In fact, this was an application to register a unilateral notice made by Dr Mehra on 20 June 2007 (although that form of application turned out to be inappropriate). Taking the matter up with SJ Vickers, Mr Miller considered, at this stage, that the prospective sale was, as he put it, “dead in the water” and he took no more steps. [33] However, he then received a letter from SJ Vickers dated 2 August 2007, informing him that the adverse entry had been withdrawn and inviting him to verify this by making his own search. He did so, and found that the title was clear. At around the same time, on 7 August, he received a phone call from Mr Aras asking whether he could come in to finalise the contract. Mr Miller was able to see Mr Aras that day, and contracts were exchanged on 7 August, with completion scheduled for 21 August 2007. [34] During the negotiating period, Mr Aras had visited the property on three or four occasions with Randiv. These were for an initial inspection (at least on one occasion with his wife) while the mortgagee’s surveyor inspected, and with his own builder, Mr Volkan, to consider generally what works needed to be undertaken. His evidence was that there was never any difficulty accessing the property, and that it was always in the apparently unoccupied and neglected state mentioned above. [35] On 21 August 2007, Mr Aras was informed that completion had taken place, and the keys were dropped through his door, apparently by Randiv. However, because he was in Wales that day, it was only on the |page:156| following day that he went to inspect. They went late in the afternoon or early evening. He said in evidence that he took both Mrs Aras and Mr Volkan on this occasion because he wanted to instruct Mr Volkan over some immediate works that would be carried out the following day by a Bulgarian decorator. [36] His evidence as to what then happened differs from his account in a contemporaneous letter to Mr Miller, but, in essence, he learnt either from the decorator or from Randiv and then the decorator that the decorator was unable to gain access because the locks had been changed, apparently on the evening of 22 August 2007. [37] It was at this point that he was fully confronted with Dr Mehra’s claim to be the owner and occupier of the property. He had previously been reassured that Dr Mehra accepted the position by Randiv’s giving him a copy of a letter, written by Dr Mehra on 15 July 2007 to Randiv, in which Dr Mehra said that he gave to Randiv all his interest in the property and advised him how to manage it. This had been backed up by a further note enclosing the keys to the property, also given by Dr Mehra to Randiv. The matter had become confused again when, subsequently, Mr Aras had learnt that a claim that Randiv had made for an order for possession of the property against Dr Mehra had not been successful. However, this had been followed by the news that the adverse entry on the register had been removed. [38] Finding now that the position had not been resolved after all, Mr Aras contacted Randiv and tried to stop payment of the purchase moneys, but he was too late as to the latter. He did, however, manage to stop the second instalment (£5,000) of the payment for fixtures and fittings. Randiv, who by now had left the country, complained about this, but otherwise simply disappeared to Calcutta. Since the matter had now become litigious, Mr Aras instructed a more specialist firm of solicitors. [39] Returning to Dr Mehra’s account, Dr Mehra says that the property had been tenanted up until around 2000, but was then not in good condition. Subsequently, therefore, works were carried out to it, arranged by his secretary, Ms Zheleznaya, over the years. Dr Mehra says that he has spent £45,000 on the property between 1991 and the present day, including, even, some works being undertaken in early 2007. He has sometimes used the house when he comes to the UK, although there are other addresses at which he is able to stay. Ms Zheleznaya also used it. Latterly though, she wanted some security concerning her residence, and so that she could occupy the house with this degree of assurance he therefore gave her a tenancy agreement in October 2006, jointly with the World Environment Foundation Ltd, which is one of the several prestigious charities with which, together with business interests, he now occupies his time. [40] Dr Mehra says that he discovered from Ms Zheleznaya that Randiv had broken into the house, removed some of her things (clothes and cosmetics), changed the locks (which Ms Zheleznaya then changed back) and was trying to sell the property. It was only then that he discovered the mistake that had been made in the 1991 transfer, and that Randiv had apparently taken advantage of it by changing his name to Randiv Madhav Mehra. Although he, Dr Mehra, tried to take steps to protect his interest at the Land Registry, he was in fact unable to prevent the sale transaction from proceeding. He then started these proceedings to restrain Randiv from purporting to sell the property, his property, as already mentioned, but found that this had already happened. [41] Dr Mehra submitted an application to register a unilateral notice against the property on 20 June 2007, but his documents did not support making any change in the register. In correspondence and telephone calls with Mr Ansell of the Land Registry (whose patience and clarity of expression in explaining technical points to a layman are commendable), Dr Mehra was given advice on how to proceed, namely either to obtain rectification of the register or to make an appropriate application to register a restriction. It seems that, at around that time, he decided either to have, or to attempt, a reconciliation with Randiv. He wrote the letter of 15 July 2007 to which I have referred and gave him the keys to 101 Park Avenue. He also withdrew his application to register a unilateral notice against the property on around 12 July 2007. Although it is not exactly clear what he did when, he appears to have drafted or made further applications to the Land Registry during this time or sent applications apparently made by Mrs Mehra. However, he did not manage to make an application that the Land Registry found to be both appropriate and in proper form. [42] On 31 July 2007, though, Dr Mehra suddenly received notice of an application being heard that day in this court for possession of the property, made against him by Randiv. He was livid. He attended the hearing and objected. Given that he had previously expressed his willingness to give the property to Randiv, it might seem surprising that he did so, but Dr Mehra is a proud man, and this apparent lack of respect from his son plainly infuriated him. Even if he had previously been willing to let Randiv have 101 Park Avenue, he seems to have thought better of it. [43] The application was in the court’s short possession list. I have seen a transcript of the judgment and District Judge Taylor decided — unsurprisingly, with Dr Mehra making his complaints — that this was not a clear case and raised disputes that would have to be investigated at a trial. Rather than simply adjourn with directions, he thought that a more practical course was to dismiss the claim and let Randiv bring a fully pleaded one, if appropriate. [44] It was not until 22 August 2007 that an application (in the name of Mrs Mehra) for rectification of the register, which might have been valid in form, was received by the Land Registry. However, in the interim, Mr Miller’s priority search in respect of the Arases’ purchase, made on 14 August 2008, had been lodged, and so this was rejected. These proceedings then ensued. [45] With that outline of the facts, I turn to the first issue in the case. Is Dr Mehra the true beneficial owner of 101 Park Avenue? [46] Plainly, establishing this is fundamental to Dr Mehra’s case, and it depends upon the true effect of the 17 May 1991 transfer. I have set out Dr Mehra’s case on this above. It is essentially that he was intended to be the true beneficial owner, albeit with Randiv and himself registered as proprietors. [47] He supports his claim from the documents and his explanation of them, and by his own evidence and that of his wife. Since Mrs Mehra was the indisputable legal title owner before the transfer, it is her true intention that is really in issue. [48] I did not find either Dr Mehra or Mrs Mehra to be a satisfactory and reliable witness, but for different reasons. [49] Dr Mehra gave evidence with charm and fluency. He was very keen that I should be aware of his credentials. After a career as a quality control expert and then turning his hand to management training in this field, he had founded the Indian Institute of Directors, adopting a logo similar to that of the English organisation out of his respect for it. He had then founded certain visionary charities, such as the World Council for Corporate Governance and the World Environment Foundation, and others, on which he now spent his time. His work was supported by several dignitaries in India and elsewhere. [50] I am more concerned, though, with more direct evidence as to whether Dr Mehra’s word can be relied upon, and I am simply not satisfied of this. His evidence contained many inconsistencies. In each case, when this was pointed out, the earlier statement that was inconveniently at odds with his case was simply dismissed as having been a mistake. [51] I have already referred to his original pleading that he was merely the 50% owner of 101 Park Avenue, now said to have been an error. There were several other examples, such as that although he was now claiming in this case that Mr Lyall had signed the form 19 transfer of 17 May 1991, as stated above, in a letter to the Land Registry explaining his position on 27 June 2007, Dr Mehra had claimed that it was he who had signed it “on behalf of Randiv & Madhav Mehra”. This was claimed to be another “error”. On any basis, that statement cannot have been true. [52] Perhaps the most egregious “error”, though, was a statement that he made in support of his application to register a unilateral notice on 20 June 2007. In this, Dr Mehra expressly declared that his interest |page:157| in the property was a 50% beneficial interest. Once again, when it was put to him that this was entirely inconsistent with his current assertion that he owns the entire property, he brushed this off as a “mistake”. This statement, however, was contained in a formal statutory declaration, and was immediately above the required affirmation that the declarant “solemnly and sincerely believ[es] the same to be true”. At best, this suggests that Dr Mehra has little regard for accuracy and, at worst, has little concern for the truth. On either basis, his word is not reliable, and I am inclined to think that, regrettably, it is more the latter than the former. [53] Another “error” was not his, but that of Thomas LJ, who, in proceedings with regard to forfeiture of another property held in the joint names of Dr Mehra and the World Environment Foundation (see [2008] EWCA Civ 47*), had noted, in 2008, that at the trial of the case in December 2006 (that is, before these proceedings were conceived), Dr Mehra had given evidence that 101 Park Avenue was a property “registered in the name of Dr Mehra’s son but at which Dr Mehra lived whilst in England”. Dr Mehra claimed that he had never said this; the report was a mistake. No transcripts were available to examine this, but of more significance is that Dr Mehra told me that this judgment was under appeal to the House of Lords, one ground being this very point. On further probing, he admitted that no petition of appeal had yet been issued, since he was seeking public funding for its preparation. Moreover, when the length of time that had elapsed since the Court of Appeal judgment was queried, he admitted that a petition for appeal had previously been lodged and dismissed, but said that this was because counsel had not raised the point that he was now wishing to argue by the intended second attempt to obtain permission to appeal. Thus, the true position was a very long way from Dr Mehra’s original assertion, and whether or not he had made the admission noted by Thomas LJ it again shows that Dr Mehra’s evidence cannot be taken at face value. ————————————————————————— * Editor’s note: Greenwood Reversions Ltd v World Environment Foundation Ltd [2008] HLR 31 ————————————————————————— [54] I was able to form a view of Dr Mehra, and I find that although intelligent and charming he is also self-orientated, vain and manipulative. His view of property rights is that they are what he wishes them to be at the time. This applies not only to his own rights but to those of his family members. As head of the family, he views himself as entitled to control and direct these as he sees fit, bestowing them magnanimously but also being entitled to withdraw or redirect them if he chooses. He is astute to try to arrange property rights with maximum flexibility so as to be able to derive benefit from them himself, while at the same time being able to distance himself from them if it is more convenient for some purposes. This often involves setting up interests in properties jointly between himself and one of his “charities”, which seems to enable him to benefit from occupying or using the property for which the charity pays all the costs. [55] I have already referred to his attitude to the 1987 transfer to his wife as having been that the property was “really” held on trust for him. The point of this transfer, however, was to divest Dr Mehra of ownership of foreign property that he could not legitimately retain because of his employment. It would therefore have been questionable conduct for him to retain such property covertly, but Dr Mehra did not see this at all and merely saw the ownership as a formality with no substance. [56] I do not accept Dr Mehra’s interpretation of that transaction. First, on any basis, Mrs Mehra retained her own half-share beneficially. Apart from that, the presumptive position is that beneficial interests follow the legal ones and, in my judgment, the true nature of that transaction was exactly what it purported to be. After the 1987 transfer, Mrs Mehra owned the entire property beneficially. If Dr Mehra subsequently became free to own foreign property again, it might be very probable that she would be willing to reverse the gift to her. However, this could be no more than a confident expectation, and was not the same as ownership as Dr Mehra would have it — apart from going only to one half-share of the property in any event. [57] One then comes, therefore, to the central issue, which is the effect of the 1991 transfer. I have recounted Dr Mehra’s somewhat unusual case of how this document is allegedly inaccurate as to its true intentions because of “mistakes” in the process of its creation. Since Mrs Mehra was the legal owner of the property at the time, it is her intention that is paramount. I would not be disposed to accept Dr Mehra’s evidence as to this but, in the end, I did have the benefit of Mrs Mehra’s own evidence. [58] Mrs Mehra had given a witness statement that supported Dr Mehra’s account. However, her oral evidence was somewhat different, and I find it necessary to approach her evidence with caution as well. She is a motherly lady, but with the confidence of manner that suggests that she is used to directing staff. When it comes to business or formal matters, though, she readily volunteered that she kept a low profile and left things to her husband, in particular. Either through natural inclination or cultural influence, she is a lady who is uncritically loyal and supportive of her husband, and automatically endorses his wishes and assertions. She is actually (and justifiably) proud of her loyalty to her marriage, despite it having had “ups and downs”. However, possibly because she has become used to her own views counting for little, she does not seem to have clear or considered thoughts. Her evidence was vague, muddled and inconsistent, both between oral answers and with her written statement. She volunteered that this latter had been prepared by her and her husband together. [59] The most remarkable evidence illustrating her attitude was with regard to signatures. She found it perfectly normal and unremarkable that her signature should be placed on letters and formal documents by other people, particularly her husband or a member of staff, and without her authority. For her, this was a commonplace and a fact of life. Indeed, she even thought that her witness statement in the case had been signed for her in this way. The result of this and of her general vagueness was that she was almost completely uncertain which of her apparent signatures were hers and which were not. [60] I do not accept Dr Mehra’s account, nor Mrs Mehra’s dutiful endorsement of it, that the 1991 transfer document was constructed by a single employee forging the entire thing, and doing so erroneously. Mr Blackett-Ord made several evidential points concerning how this account must be fanciful, and I find these to be well founded. [61] Since the ultimate question is “what was the intention of it with regard to the beneficial ownership of the property?”, it probably does not matter directly, but I find that, on the balance of probabilities, this document was genuine, as Mr Blackett-Ord submitted. The three signatures are each completely different in style, and it would have been quite extraordinary for one person innocently to produce two truly “fake” signatures in styles contrasting so totally with each other and with his own. This is especially so because the “fake” Randiv Madhav Mehra signature is completely illegible, and Mrs Mehra’s signature does not look to me like other obviously fake ones. Moreover, the signature of Randiv Madhav Mehra is not only apparently identical to the further signature of the “new proprietor” on the form A4 that had to be completed when the 1991 transfer was submitted to the Land Registry a month later (which would have extended Mark Lyall’s forging activity still further), but it has a fairly clear stylistic resemblance to Randiv’s acknowledged signature on his driving licence, although perhaps with more loops in the centre of the scribble and also, although at a different angle, to his most recent sample signature in his passport and signatures on the some letters from him. [62] I am satisfied that Dr Mehra will have had a hand in the preparation of the transfer. It would have been entirely out of character for him not to. Whether or not he was in India in May 1991, he was admittedly in England at the time the transfer was sent to the Land Registry. The use of a composite name “Randiv Madhav Mehra” may even have been one of his own ingenious ideas as a means of maintaining some degree of control, or the kind of flexibility of property rights, that he liked. It is not, in any event, inconsistent with the signatures at the time being the signatures of the actual participants. |page:158| I also consider it entirely unbelievable that Dr Mehra, being the kind of person he is, should have allowed any “mistaken” documentation of this transfer to be sent for formal registration without himself checking it and discovering the “mistake” at the time. He claims not to have discovered it for a period of 16 years. [63] The paperwork surrounding this transfer is, prima facie, far too elaborate not to have been genuine, and how it fits in to the “mistaken” construction of the transfer is simply not explained. In oral evidence, Mrs Mehra thought that she had in fact signed the 15 June 1991 letter to the Land Registry, which firmly endorses the conveyance of the property to “Mr RM Mehra”, and is thus opposed to Dr Mehra’s story that the intention was really to convey to two individuals. [64] On the morning following both her evidence and Mr Blackett-Ord’s closing submissions on behalf of the Arases, Mr Browne applied to recall Mrs Mehra to give further evidence to correct some evidence that she had given on the previous day. Unsurprisingly, Mr Blackett-Ord objected to this. Mr Browne told me that Mrs Mehra felt a great weight on her conscience through having given inaccurate evidence after the oath she had taken by the Bhagavad-Gita. Not wishing to compel any witness to carry such a burden, I permitted Mrs Mehra to be recalled. She then produced a written statement purporting to say, inter alia, that the signature on this letter really could not have been hers. When cross-examined, however, not only did she once again say she was not sure, but it became perfectly apparent that this statement was the product of discussion with Dr Mehra after she had completed her evidence and after hearing the various points made in Mr Blackett-Ord’s closing submission. [65] I can generally place no confident reliance upon Mrs Mehra’s evidence, which has obviously been thoroughly influenced by her husband, except in one respect. When asked about the intention behind the 1991 transfer, she volunteered that “the in-laws” (by which I assume she will have meant her husband’s family) had wanted it to be given to Randiv because they were very attached to him. However, Randiv was “a minor” (by which, since Randiv was then 24, she explained that she meant “an immature young man”), so it was instead decided that the name of her husband would be added and Randiv not given the sole proprietorship of the property. She said that she was “very happy” about this and explained that he was at least getting a joint ownership “so that some time he will get it all” (by which she was not, I am satisfied, referring to a right of survivorship.) She explained that her understanding was that the property was being conveyed to a “new entity”, somehow comprising Randiv and Madhav together, thus protecting the position while Randiv was still “immature”. [66] I believe this evidence, first because it was entirely spontaneous in the witness box and appeared to owe nothing to any previous statements made and, second, because it shows such a lack of understanding of legal concepts as to give it the complete ring of truth. Its importance relates to what it in fact shows about Mrs Mehra’s wishes, intentions and understanding. She appears, and I so find, to have wished and viewed the property as really being intended to be Randiv’s, but with the proviso that, for a time at any rate, her husband was to be able to exercise some degree of control to prevent Randiv dealing with it irresponsibly. The “jointness” of the ownership was to further that objective. What it definitely does not show, and indeed contradicts, is that Mrs Mehra intended the property to be solely Dr Mehra’s beneficially. [67] Dr Mehra therefore fails to satisfy me that he is the true beneficial owner of 101 Park Avenue. That is probably enough for present purposes, since that is all Dr Mehra had pleaded. However, in his closing submissions, Mr Browne seemed to enlarge this first issue into the issue of whether Dr Mehra had “any” beneficial interest in the property and “if so what?”. [68] In so far as it is necessary to make a finding as to ownership, my finding is that the true intention behind the transfer of 15 May 1991 was that the property should be held by Randiv Mehra and Madhav Mehra on trust for Randiv beneficially. [69] There are a few other aspects of the evidence in this case that I should mention. On the first day of the trial, Dr Mehra sought to introduce a witness statement from Mr Lyall, who was said to be in Delhi, and which would no doubt have supported his account of the execution of the 1991 transfer and the supposed intention of it. However, a previous order of HH Judge Dight had given Dr Mehra permission to call the oral evidence of Mr Lyall at the trial only provided that he served a witness statement of that evidence by a particular date. The statement had been served one day late, and it was not being proposed to tender Mr Lyall for cross-examination. I therefore refused to admit the witness statement because it was not in compliance with the order. In the event, I have little doubt that this statement also will have owed much of its content to Dr Mehra. [70] Second, there is the letter of 15 June 1991 that Dr Mehra claims to have sent to the Land Registry by recorded delivery, demonstrating his understanding of his own beneficial ownership of the property at that time. This is not, of course, any real evidence in favour of Dr Mehra even if it could be taken at face value, since it is totally self-serving. I am satisfied, though, that it cannot. First, this letter does not appear on the Land Registry’s file, despite being allegedly sent by recorded delivery. Second, the letter bears the same date as the letter that undoubtedly was sent and received by the Land Registry, enclosing the submission of the 17 May 1991 transfer for registration. Quite apart from the oddity of Dr Mehra sending a separate letter on the same day, I think it more likely that the recorded delivery slip was used in respect of posting the very important formal transfer document. I am satisfied that this alleged separate letter was never sent. [71] Third, it is said that there is evidence showing that Randiv was aware that he did not own the property, being a letter dated 26 January 1993 that Randiv sent to Dr Mehra. He enclosed a letter from the Department of Transport regarding compensation with regard to the property (it is conjectured, in respect of the widening of the M25 motorway behind it), which they had refused to deal with because Randiv was not the named owner of the property. He asked for a letter confirming that he was dealing with the matter on behalf of his mother. [72] I do not find this assists Dr Mehra. First, it is no support for Dr Mehra owning the property. Second, it is quite unclear when this claim related to, but since the department thought that Mrs Mehra was the owner, yet this was long after the registration of the transfer out of her ownership, the explanation is probably that the event for which compensation was payable had occurred while she had been the owner. I do not find, therefore, that this letter makes me question my conclusion above. [73] Mr Blackett-Ord submitted that the result to which I have come could be achieved only if Dr Mehra could show that, had he brought proceedings to rectify the transfer dated 17 May 1991 to give effect to his claim immediately before the sale to the Arases, such a claim would have succeeded. He submitted that it would not have because such a claim would have had to be supported by clear evidence and Dr Mehra simply failed to produce this. I accept this proposition, although my reasoning above takes the matter slightly further than simply finding that Dr Mehra would not have succeeded in proving such a case. [74] Although that is enough to dispose of the action, in case I am wrong, and since the remaining two issues were fully argued, I will give my findings on these. Was the contract for sale of the property made on 7 August 2007 between Randiv and Mr and Mrs Aras void for being a collusive fraudulent transaction? [75] Mr Browne submitted that a contract the purpose of which is to effect a fraud upon a third party is void. He referred to Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] EWCA Civ 151; [2002] Ch 216, and relied also upon Gray’s Elements of Land Law, in paras 12.105 to 12.128. He pointed out that the LRA 2002 does not exclude the concept of good faith so that unconscionable behaviour may prevent a disponee from taking title free of unprotected claims. Although accepting that something in the nature of personal dishonesty or moral turpitude (I am not quite sure what the difference would be) was required, so that constructive fraud (for example, undue influence) |page:159| would not suffice, he suggested that it was not clear whether merely taking advantage of the failure of the owner of a right to protect it could never constitute such a fraud if it were unconscionable, that a deliberate ploy to defeat unprotected rights could amount to such fraud and that a taint of bad faith could well infect transactions carried out in haste or at an undervalue. [76] Mr Blackett-Ord accepted that actual fraud by a disponee can vitiate the title of the disponee as registered proprietor. He submitted, however, that there must be something in the nature of actual fraud in the sense of “being deliberately out to do down” the third-party victim. Mere constructive notice of another’s interest liable to be prejudiced would not be sufficient to fix a person with fraud. Neither would simply taking advantage of a failure to register an interest so as to obtain thereby a title free of that interest. That right is, after all, the basic point of a land registration system. Whatever the test, however, he submitted that the evidence did not support the alleged facts relied upon by Mr Browne (whether or not his pleading technically permitted him to do so) and that, in any event, they did not go so far as constituting fraud but amounted to no more than a plea of constructive notice or knowledge. [77] I accept Mr Blackett-Ord’s argument. In my judgment, fraud is a longstop protection in the context of registered land and nothing short of actual fraud will suffice. The whole rationale of the registration system is that a person should be able to rely upon the register at face value and not be concerned at second-guessing it. If it were otherwise, no purchaser could safely rely upon a priority search in a situation in which he had been aware that there had been attempts previously to make some adverse registration without checking why any such attempt might have failed. [78] To prevent a purchaser from acquiring a good title according to the register, there must therefore, in my judgment, be something significantly more than merely proceeding with the transaction with knowledge of a claim by a third party, still less a merely possible claim, to an interest that is not protected according to the system for registration. I also remind myself that the burden of proving fraud is a high one, in the sense that the weight of evidence required to demonstrate fraud on the balance of probabilities is significant. [79] Turning to the evidence, the only evidence of Randiv’s intention is contained in letters that he wrote both to the Land Registry and to his solicitor just after the transfer, in which he makes it plain that he regards the property as his and his father’s claims as unfounded. For there to have been a fraudulent collusion, clearly these would have had to be disingenuous. I see nothing to make me think that they might have been, and their tone reads more like a vendor trying to assist his purchaser than a letter written as part of their joint deception in a fraudulent plan. [80] Leaving that aside, though, the only direct evidence on this topic that I have is that of Mr Aras. Mrs Aras left dealing with the purchase entirely to her husband. Mr Aras was heavily cross-examined by Mr Browne with regard to his attitude to the purchase and the motive for various things he did or did not do. [81] Having seen Mr Aras give evidence, I am satisfied that he was an honest witness giving me truthful evidence, and that he was not complicit in any kind of fraudulent conspiracy with Randiv. If there was any fraud taking place, as contrasted with a mere family dispute, it was engineered solely by Randiv, who took advantage of Mr Aras’s interest in the property. [82] I have noted the one obvious inconsistency in Mr Aras’s evidence between his two accounts of what happened when his builder or decorator first could not gain access to the property, but that does not go to any question of fraudulent conspiracy, and it does not cause me to doubt either his general honesty or his basic general reliability. Many of his answers in cross-examination were not entirely favourable to his position, despite the fact that he obviously realised that Mr Browne was seeking to undermine his evidence. [83] Mr Aras has the skills and education of an accountant and auditor, and consequently has a businesslike approach to his own serious personal affairs. However, he is not, and recognises that he is not, a lawyer. His approach to this transaction was to employ a solicitor, to tell that solicitor of his concerns, to leave it to his solicitor to achieve the transaction that was the subject of his instructions and to follow the solicitor’s subsequent advice, largely without question. I can see no evidence of Mr Aras deliberately seeking to manipulate or influence Mr Miller (who was not a man to be diverted from his normal procedures in any event) or deviously concealing things from him. [84] Mr Browne listed 12 main features of the transaction that he submitted led to the inference that Mr Aras knew that this was a suspicious transaction, in that he knew that Dr Mehra was claiming an interest in the property, and that there was a question concerning Randiv’s right to sell under the name “Randiv Madhav Mehra”, but that he actively participated in the transaction to assist Randiv to do so. However, some of these alleged “facts” are really rolled-up submissions as to conclusions that he invites me to draw from evidence, and that I find are not justified. Others do not, in my judgment, bear the sinister weight that he seeks to attach to them. Overall, I do not find that they provide sufficient support for his invitation to me to infer that Mr Aras was collusively involved in a fraudulent transaction. Mr Aras did not owe Dr Mehra a duty to look out for his interests, but simply a duty not to join in cheating him (as Mr Blackett-Ord submitted). I find nothing in his conduct to suggest that he had crossed this line. [85] First, it is said that the transaction was “not at arm’s length”, but this is merely a suggestive way of describing the fact that it was a private sale agreed without going through an estate agent. How it came about has been explained, and I find nothing sinister in that. [86] Next is a point on which Mr Browne laid great store, namely that the consideration for the transaction was approximately £55,000 below the “true” market value according to the evidence of Mr Allison, who valued it at £315,000 at the relevant date. It was put to Mr Aras that the price that was negotiated was suspiciously low and he knew this, at least by the time he saw the building society survey valuation in early May 2007 at £295,000, yet he carried on with the transaction, therefore, in effect, knowing that it must be fraudulent. To this, Mr Aras responded that he did not know about the value of the property, but was concerned only to negotiate the best bargain he could and that it should be within his means. He accepted that he could see that he was getting a bargain when the valuation report came, but asked: “What’s wrong with that?” I agree. Mr Aras was entitled to negotiate the best deal he could with the apparent owner of the property. Many people want the certainty of a quick sale for no underhand reason even if it means giving a bargain. I cannot see that the circumstances known to Mr Aras, either then or up to the exchange of contracts, actually do suggest a price so suspicious as to indicate that Randiv was not the true owner of the property, and still less can I see this as being so obvious that I should infer that Mr Aras must have thought it. That, though, in my judgment, would have had to be Mr Aras’s state of mind before it would be possible to find that he had participated in a deliberate fraud. [87] The alleged facts suggesting such knowledge are said to be that Mr Aras “knew” that: (i) Dr Mehra was asserting an interest in the property before exchange of contracts; (ii) Randiv’s name on his passport was only “Randiv Mehra”; and (iii) Randiv was going to the Indian High Commission to have the name on his passport altered. I find that Mr Aras knew what he was told by Randiv, namely that Dr Mehra had been “interfering” over the property having previously owned it but transferred it to Randiv, and had apparently previously given sales instructions. This does not amount to knowing that Dr Mehra might have anything more than a subjectively perceived claim on the property, and Mr Aras’s attitude in openly bringing this to Mr Miller’s attention in his letter of 10 April 2007 is not indicative of his trying to defeat a known interest. Mr Aras’s concern that Randiv’s passport apparently did not show the name that he claimed, or the name of the registered proprietor, is also not in itself suspicious. Any normal purchaser faced with that knowledge would act exactly as Mr Aras had, and draw his concerns to his solicitor’s attention, while no doubt hoping that the problem could be resolved satisfactorily by the vendor. [88] Although Mr Aras was aware that Randiv was going to the Indian High Commission to get his passport amended in order to prove |page:160| his identity, he says that he was told that this was to show Randiv’s correct name. I have no reason to disbelieve him and I do not see why Mr Aras should have thought anything of it. In the situation where he had a solicitor who was also acting for his mortgagee, and would assure himself of the adequacy of the evidence of Randiv’s identity as the registered proprietor of the property, I do not find it suspicious that Mr Aras should not concern himself further about this, or start asking questions about how easy it might be to obtain a passport with a changed name to which one was not entitled. In fact, I have no evidence about the evidence that the Indian High Commission would require to issue a new passport anyway. [89] Mr Browne suggested that Randiv’s change of solicitor was suspicious, and the fact that Mr Aras passed on Randiv’s request that Mr Miller should not inform his new solicitor of the change also shows that Mr Aras knew that there was something improper gong on. I do not accept that. I find that Mr Aras took at face value Randiv’s statement that he was changing solicitor because Faringdons had not acted sufficiently quickly, and there was no reason for him to question this. I find that his passing on the request not to tell the new solicitor of the change was entirely innocent, and this is borne out by the fact that he accepted Mr Miller’s refusal to do so without any apparent protest or concern. [90] Mr Browne submitted that it was suspicious that Mr Aras was “particularly interested” in Mr Miller’s insurance cover. I do not think it fair to characterise his enquiry in that way. Having seen Mr Aras give evidence, I do not think that there was anything unnatural about his enquiry; it was part of being businesslike in an important transaction. I do not agree that Mr Aras was “helping Randiv to prove his identity as Randiv Madhav Mehra”, and so there was no reason why he should tell Mr Miller he was doing so. All Mr Aras did was allow Randiv the opportunity to provide satisfactory evidence. I find that Mr Aras probably did not show Mr Miller the letter from Dr Mehra dated 15 July 2007 that Randiv had produced, and in which Dr Mehra said that he was giving him his half-share in the property. Mr Aras thought that he probably had done, but the very careful Mr Miller did not think that he had seen it and there was no copy on his file. However, I do not find that either the failure to show Mr Miller the letter or Mr Aras’s evidence that he thought he had done is any cause for suspicion; it is entirely neutral. The letter was obviously shown to Mr Aras to reassure him but, once again, Mr Aras would reasonably have assumed that such matters were being covered by his solicitor in any event. [91] Last, I find that there was no “sudden speeding up” of the transaction on 7 August 2007 when SJ Vickers informed Mr Miller that the title to the property was clear. The fact that this apparently coincided with a call initiated by Mr Aras to Mr Miller enquiring about progress on the sale I do not find to be suspicious; he had probably been advised of this by Randiv, having heard it from SJ Vickers. Mr Aras’s wish to secure the sale by exchanging contracts quickly was quite understandable, and it is not right to characterise this as a “sudden speeding up” of the transaction, as contrasted with merely getting on with it. [92] Neither do I find it to be any evidence of a fraudulent intent that Mr Aras should not have given his litigation solicitor details of Randiv’s bank account, which he had when he became embroiled in Dr Mehra’s application to freeze the proceeds of sale. Once again, this is trying to endow ordinary acts or omissions with a significance that they do not bear. [93] Mr Aras was plainly aware that there were difficulties with Dr Mehra, and that he might cause trouble later, although of course he was hearing only Randiv’s side of the story. The evidence shows that he was concerned about this and wanted some protection. He commented in one letter to Mr Miller that he would go ahead so long as Dr Mehra could not come back to “haunt” him. I have asked myself if this is really evidence of an intention to defraud and defeat a legitimate claim by Dr Mehra to an interest, but I do not think that the evidence supports that conclusion, as opposed to the natural concern of someone who perceives that he might just be buying trouble because there is a troublemaker, rather than because that person has a legitimate claim on the property. In fact, the “haunting” reference rings more of the wry remark of an innocent man. Had there been a fraudulent intent, knowing that Dr Mehra had a good reason to “haunt”, it would not have been recorded. [94] For the above reasons, Dr Mehra fails to satisfy me that Mr Aras was guilty of any fraud in going through this transaction with Randiv. The fact that Dr Mehra’s first reaction was to pursue a claim in fraud against Mr Aras says more about Dr Mehra’s personality than the facts of the case. Is Dr Mehra none the less entitled to enforce his interest against Mr and Mrs Aras as an overriding interest, by virtue of para 2 of Schedule 3 to the LRA 2002? [95] I again deal with the final issue that has been argued only on the basis that I am wrong about Dr Mehra’s having no beneficial interest in the property in the first place. [96] By the material parts of section 29 of the LRA 2002: (1) If a registrable disposition of 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. (2) For the purposes of subsection (1), the priority of an interest is protected — (a) in any case, if the interest — (i) is a registered charge or the subject of a notice in the register, (ii) falls within any of the paragraphs of Schedule 3… [97] Dr Mehra’s assumed interest was not the subject of a notice on the register; it is argued that his interest was protected by being within section (2)(a)(ii) of and Schedule 3 to the Act (unregistered interests that override registered dispositions), by virtue of its protection of the interests of persons in actual occupation of the property. [98] Paragraph 2 is the relevant paragraph of Schedule 3 and it reads: Interests of persons in actual occupation An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for — (a) …; (b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so; (c) an interest — (i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and (ii) of which the person to whom the disposition is made does not have actual knowledge at that time;… [99] It is to be noted that, in contrast to the previous protection for overriding interests under section 70 of the Land Registration Act 1925: (i) the new protection is conferred only on persons in actual occupation of the land, and not of the rents and profits of the land; (ii) the purchaser does not lose protection by failing to make enquiries of a person in actual occupation that would have revealed his interest (although if he does make such enquiries, he takes subject to any interest then disclosed (see subpara (b)); and (iii) the protection is more limited than under the previous rules, by the requirement that the actual occupation be “obvious” unless the purchaser has “actual” knowledge of the interest of the person who is in non-obvious occupation. [100] All these changes show the intention of the new legislation to strengthen the conclusivity of the register except in cases where the existence of the adverse interest really cannot be said to be reasonably ignored, nothwithstanding that it is not protected by registration. [101] It is common ground that the relevant date for the enquiry as to whether para 2 of Schedule 3 applies is the date of transfer: see, by |page:161| analogy, Abbey National Building Society v Cann [1990] 2 WLR 832. Therefore, the essential questions are: (i) was Dr Mehra in “actual occupation” of the house at the time of the transfer (namely 21 August 2007)?; and, if so (ii) was Dr Mehra’s occupation “obvious”?; or (iii) did Mr and Mrs Aras have “actual knowledge” of his interest? Thus, physical occupation of the property is a necessary but not sufficient condition for protection. The claimant must show either that he was in obvious physical occupation of the property or that he was in non-obvious occupation but the defendant had actual knowledge of his interest. [102] The evidence concerning occupation comes from Dr Mehra and Ms Zheleznaya, on Dr Mehra’s side, and from Mr and Mrs Aras, Mr Volkan and Mrs Knights, on the other, and there is a clear dispute. [103] It is agreed by everyone that the property was tenanted until 2000. After that, Dr Mehra and Ms Zheleznaya say that it was left unoccupied because it was in a poor state of repair, while works were done to it over the years, but that Ms Zheleznaya, and he himself when in England, would stay at the property, and that from 7 October 2006, he granted a year’s tenancy of it to Ms Zheleznaya and the World Environment Foundation, enabling her to occupy it. Both of them say that this tenancy was genuine, and the utility bills at the property were in Ms Zheleznaya’s name (although as “Lora Janis”, a name she used in England for simplicity). It is apparent from all the papers, though, that Dr Mehra himself was accustomed to give an address at 43 Clarence Terrace, Maida Vale, as his address. [104] Ms Zheleznaya endorsed Dr Mehra’s account of the history, and said that the house was occupied by her during the time I am concerned with, which is the period leading up to 21 August 2007. She said that the property was fully furnished, with beds, and that her clothes and cosmetics were there, as were some of Dr Mehra’s clothes. There was some food (although she did not like cooking). She said she stayed there overnight, although she was a workaholic for Dr Mehra and would more often than not sleep over at the premises that were used as his office. She denied that the house was in a dirty condition as though it were unoccupied, although when asked about the toilet being clean, she said: “It depends what you mean by clean.” [105] Ms Zheleznaya also gave evidence of the continual pattern of the changing of locks since 19 March 2007, when she said that she first came back to find that the locks had been changed (by Randiv) and some of her things were missing. She had changed the locks back and reported the incident to the police. Thereafter, there were, I think, a further nine incidents of locks being changed. She said that she had left the property, after visiting it with Dr Mehra, on 17 August 2007. He had returned to India. On 22 August 2007, in the late afternoon, she had returned alone and found the locks changed once again, and had called in the locksmith. It seems clear that it was this incident that resulted in Mr Aras’s builder/decorator being unable to gain access the next day. I find that the locks were changed by her shortly after Mr Aras and his wife and Mr Volkan paid their visit. [106] Mr and Mrs Aras both gave evidence of the visits to the property that they had made. Randiv was able to give them admission. As described above, both said that the property was not really furnished; there were no beds and only odd bits of poor furniture. The property was in a bad state, dirty and uncared for. Mrs Aras said that she had looked in cupboards, and there was no food, no clothes and no cosmetics, in fact, no signs of occupation. She said that the toilet was very dirty and consistent only with the house not being occupied. [107] Mr Volkan had attended the property twice with Mr Aras; once during the period before exchange, to see what work needed doing and once on the day after transfer, to arrange for a decorator to come and do immediate works in the following day or so. He confirmed the Arases’ evidence of the state of the property. Mrs Knights gave evidence that the property had been unoccupied from 2000 as far as she could see. Occasionally, Dr Mehra and Ms Zheleznaya might visit (although, strangely, they used to park down the road and walk to the house) but they did not appear to stay, and she had seen Ms Zheleznaya attending the property in the early mornings apparently to pick up post. [108] Faced with this obvious inconsistency, I have to decide whose evidence I prefer, and I prefer that of Mr and Mrs Aras and their witnesses. I have already given my views of Dr Mehra, and although I acquit Ms Zheleznaya of any deliberate dishonesty in her evidence, I did not find her a reliable witness. She is a young woman who works for Dr Mehra, is plainly either besotted with him or totally dependent upon him for her living, and she is in a very close, possibly intimate, relationship with him. I have no doubt that her evidence has been influenced by a wish to please and support him and his case, and I am satisfied that she has in fact distorted and rationalised her evidence, where this was not inconsistent with her conscience, in order to assist him. I therefore view her evidence with caution. [109] I accept the evidence of Mr Aras, and, in her quiet and somewhat halting way, Mrs Aras was also an impressive witness. I accept that she was telling me the truth, carefully and objectively as she saw it, although I think that she was mistaken about how late her visit to the property on 22 August 2007 was. Mr Volkan was also a reasonably independent witness, whose evidence I feel confident in accepting. In cross-examination, Mr Browne urged on him that he could not be sure of the times of his visits, and they really must have been well before the time of the transfer. Mr Volkan’s willingness to accept that he could not be perfectly sure was, to my mind, the sign of a candid witness. In fact, I am satisfied, on the balance of probabilities, that his visits were some weeks before completion, but also on the day after, and what he tells me he observed on the second visit in particular I find very helpful. He supports Mr and Mrs Aras. [110] The evidence of Mrs Knights is consistent with the Arases’ case, although since she never went into the house it is less helpful. She was cross-examined on the basis that her evidence was not true, and she was taking the opportunity to get back at Dr Mehra because they did not get on as neighbours and she would be only too pleased to see him go. She agreed that she had found Dr Mehra objectionable and officious, but she also maintained that what she was telling me was true. Mrs Knights gave evidence with an emphatic air that betrayed her personal hostility to Dr Mehra, (which I found understandable, having seen some of his correspondence with her), but she also plainly appreciated this for herself. I am satisfied that she was honest and, conscious of her oath, was trying hard to be objective. I accept her evidence. As an immediate neighbour, she would have had a reasonably good idea as to whether the house was occupied, but of course she was not home all the time, nor looking out of the windows all the time when she was. She none the less provides support for Mr and Mrs Aras, rather than for Dr Mehra or Ms Zheleznaya. [111] Against that background, I turn to consider the three pertinent questions. Dr Mehra must succeed on point (1) and either point (2) or point (3) as well. I find that he fails on all of them. Was Dr Mehra in occupation of 101 Park Avenue on 21 August 2007? [112] As a preliminary point, Mr Blackett-Ord did not argue that the mere fact that the evidence shows that, on 21 August 2007, it was Randiv who had the keys to the property, and therefore control of it, determines this point. Apart from the possibility that there were in fact different keys to different doors available to different parties, he concedes that occupation is a continuing concept, and must be established as such and not as a mere snapshot. Consequently, the situation over a suitable period prior to the relevant date has to be reviewed. Whether that amounts to occupation is a matter of fact, degree and impression. [113] Mr Blackett-Ord submitted, though, that, regardless of the question of physical occupation, Dr Mehra fails on his own evidence. That evidence establishes that if anyone was in occupation of the property at the time, it could only have been Ms Zheleznaya under the tenancy agreement that he himself had granted in October 2007. [114] I agree with this submission. In law, Dr Mehra had purported to grant away possession of the house to his tenant(s). In principle, therefore, it was the tenant and not he who was in occupation of the house, and Ms Zheleznaya is that embodiment. There is no evidence |page:162| at all of Dr Mehra himself being in occupation of 101 Park Avenue on any basis. Both he and Ms Zheleznaya agreed that they, and he in particular, travelled a lot, and at around this time Dr Mehra visited the property only once a month. I am not satisfied that during the relevant period, going back to around the time Mr Aras began to negotiate for the property with Randiv, he actually stayed over at the property at all. Any occupation of his would have had to be established by events taking place after the creation of the tenancy, and I find that there is simply no evidence of it. I do not accept that any clothes of his, and still less any personal effects, were present at the property. [115] In my judgment, the only occupation that is relevant under para 2 of Schedule 3 to the LRA 2002 is that of the actual claimant, and Dr Mehra could not pray in aid Ms Zheleznaya’s occupation to protect any interest of his. As noted above, it is no longer sufficient to be in occupation of the rents and profits from the relevant property. [116] In fact, I am not satisfied, on the evidence, that anyone was in “actual occupation” of 101 Park Avenue at the relevant time. “Actual occupation” is an emphatic term, plainly intended to convey that there is a form of occupation that is less than actual occupation, but that does not qualify. In my judgment, “actual occupation” means the occupation of someone who is physically present at the property on a continuous basis, according to normal usages, for the purpose of making appropriate use of the property according to its nature. Here, that question boils down to “living” at the property. On the facts, I find that no one was living at the property since at 21 August 2007, and no one was therefore in actual occupation of it. [117] The above is sufficient to dispose of Dr Mehra’s claim to an overriding interest, but, once again, since the further points have been argued I will deal with them. Was the occupation “obvious”? [118] Even if Dr Mehra, or Ms Zheleznaya on his behalf, was able to claim to be in “actual occupation” of the property at the relevant time, I find that such occupation was not “obvious”. I have the evidence of three witnesses who went into the house and a fourth who observed from the outside that the property appeared to be unlived in, and not to have been lived in for a long time, beyond what might be reasonably viewed as the mere temporary absence of an occupant. [119] I do not accept Ms Zheleznaya’s evidence that there were her clothes and cosmetics or any food at the property at this time. I prefer, in particular, Mrs Aras’s evidence of having looked in the cupboards and seen no such things. I accept that Ms Zheleznaya may have had cosmetics and even some clothes at the property before around March 2007 when Randiv first came and changed the locks, but she said that some of her things had been taken at that time, obviously by Randiv (he probably cleared the property), and I am not satisfied that there was, after that, any items that were obviously the personal effects of an occupier on the property. I also accept that there were no beds there, that it could not fairly be described as “furnished” and that the property was in a poor state of repair and maintenance, apparently inconsistent with there being any current occupier. I accept Mrs Aras’s evidence that it was so dirty that you could not imagine that anyone was actually living there. Although the difference between her and Ms Zheleznaya on this aspect may well have arisen from their different housekeeping standards, I find that those of Mrs Aras would be more normal. [120] Dr Mehra therefore fails to satisfy me that his (or any) occupation of the property was, at the relevant time, obvious on any reasonable inspection of the property. Did Mr and Mrs Aras have “actual knowledge” of Dr Mehra’s interest? [121] Again, I emphasise that this would be material only if Dr Mehra had satisfied me, not only that he had an interest to protect but also that he was in actual occupation of the property, albeit this was not obvious on inspection. On that basis, I would none the less come to the conclusion that Mr and Mrs Aras did not have “actual knowledge” of Dr Mehra’s (assumed) interest on the facts of this case. [122] The first question is: what is “actual knowledge” within the meaning of para 2(c)(ii) of Schedule 3 to the LRA 2002? In my judgment, the words are intended to emphasise that “real” knowledge is the test, rather than some form of constructive knowledge or notice. By the same token, it is real knowledge of the interest itself that is the test, and not merely real knowledge of the existence of a claim. On this aspect, Mr Blackett-Ord invited my attention to the distinction drawn between knowledge of a claim and knowledge of a right, albeit in the context of a discussion on the mental element required in the tort of “knowing receipt” of trust moneys, in Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276, at p293. Mr Blackett-Ord submitted that the practical test was whether, if the officious bystander asked the prospective purchaser “Has X got an interest?”, he would receive the answer “yes”. [123] In my judgment, this is a good working test, but I would add one small qualification, namely the words “if given a genuine answer”. This is because I consider that “actual knowledge” would also extend to the kind of “blind eye” knowledge referred to in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [1997] 1 Lloyd’s Rep 360, per Leggatt LJ, explaining Lord Denning in Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd (The Eurysthenes) [1977] QB 49, at p68C: And, when I speak of knowledge, I mean not only positive knowledge, but also the sort of knowledge expressed in the phrase “turning a blind eye.” If a man, suspicious of the truth, turns a blind eye to it, and refrains from inquiry — so that he should not know it for certain — then he is to be regarded as knowing the truth. [124] I would emphasise that such knowledge goes beyond mere suspicion and requires suspicion to the extent, really, of belief, such that a person deliberately closes his eyes to finding out facts that he knows, in his heart of hearts, would confirm the unwelcome truth. It is for that reason that I would formulate Mr Blackett-Ord’s test as: If the officious bystander asked the prospective purchaser “Has X got an interest?” he would, if given a genuine answer, be told “yes”. [125] Posing this test in the present case, I am satisfied, for reasons largely already given in considering the question of whether the sale could be attached as a fraudulent transaction, that Mr and Mrs Aras did not have “actual knowledge” of any “interest” of Dr Mehra, even if Dr Mehra were able to prove the other requirements to enable him to claim protection against them. Dr Mehra never told the Arases before completion that he had an interest, and I find that they did not have “actual knowledge” of this from any other source. I do not find that Mr Aras was deliberately avoiding gaining any such knowledge; he was simply seeking to protect his position in an unclear situation, where he was being assured by Randiv that there was no such interest, and that he would prove that by satisfying his own and Mr Aras’s solicitor that everything was in order for him to sell the property. Mr Aras relied upon his solicitor to secure a clear title and his “knowledge” was that that had been done. [126] I should add that, initially, Dr Mehra had pleaded that he had told Mr Aras’s solicitor, Mr Miller, of his interest in a telephone conversation on 16 August 2007. However, this was never put to Mr Miller in cross-examination and, in fact, Dr Mehra admitted in his own evidence — yet another instance where Dr Mehra’s untested assertion turned out to be self-servingly untrue — that he had been unable to get through to Mr Miller on that day (he was angry that his calls had not been returned), and that he did so only by a telephone call on 23 August 2008. This was after completion. Thus, the difficult question of whether the actual knowledge of an agent could amount to “actual knowledge” within the meaning of this section is a point that I do not have to decide. Conclusion [127] The result is that Dr Mehra’s claim will be dismissed. Dr Mehra has kept Mr and Mrs Aras out of the property now since 23 August 2007, when they were prevented from occupying it, and they have been paying the mortgage in the interim. They have counter-claimed for mesne profits. Mr Allison’s evidence is that the open market rent of the property would be £1,000-1,100 per month; |page:163| the mortgage payments made by the Arases have been slightly higher than this, although they will not have had to pay outgoings, such as council tax, associated with occupation. [128] Mr Blackett-Ord submitted that I should find an appropriate level of mesne profits to be the centre of Mr Allison’s range, that is, £1,050. Mr Browne invited me to have regard to the descriptions of the properties referred to by Mr Allison and to find that this property would in fact command only the lower level of rent. I prefer Mr Blackett-Ord’s approach. Mesne profits will be assessed at £1,050 pcm. [129] I would think it appropriate to award interest on these sums at 2% above base rate, but I will hear argument about the appropriate rate of interest if the parties cannot agree it. Claim dismissed.