First defendant acquiring title to property by fraud — First defendant transferring property to second defendant with mortgage from third defendant — Claimant seeking rectification of proprietorship register — Whether court having power to order rectification — Claim dismissed
The claimant was the registered proprietor of a leasehold flat. In 2001, the first defendant, who was in possession of the property, forged a transfer from the claimant to himself so as to become the registered proprietor. When the claimant discovered the fraudulent transfer, he took no action against the first defendant. In 2003, the first defendant executed a transfer to the second defendant, who purported to grant a charge to the third defendant bank by way of mortgage.
The claimant applied for rectification of the land register under section 82 of the Land Registration Act 1925 and issued proceedings seeking, inter alia, a declaration that the 2001 transfer was void. The second and third defendants counterclaimed for declarations that they were entitled to be registered as proprietors of the property and charge respectively. The first defendant took no part in the proceedings.
An issue arose, inter alia, as to whether rectification of the register in the claimant’s favour was precluded by section 82(3) of the 1925 Act, which provides that the register should not be rectified so as to affect the title of the proprietor in possession, unless: (i) he had caused or substantially contributed to the error or omission by fraud or lack of care; or (ii) it would be unjust not to rectify the register against him.
Held: The claim was dismissed and the declarations were granted.
The court was entitled to exercise its power to order rectification since section 82(3) fettered the discretion only of the registrar and not of the court. The title of a registered proprietor in possession was to be disturbed only in exceptional circumstances. A proprietor registered on the basis of a void or voidable transaction might still transfer a valid title, but the court had a discretion to order rectification where it was proper to do so having regard to the balance of equities between the parties: Kingsalton Ltd v Thames Water Developments Ltd [2001] EWCA Civ 20; [2002] 1 P&CR 15 applied.
In the instant case, the second defendant had obtained good title from the first defendant. The transfer to the second defendant had not been fraudulent and the fact that, subject only to the claimant’s title, he was entitled to be registered as the proprietor, together with the fact that he was actually in possession when the claimant made his application for rectification, meant that he was protected by section 82(3) as the proprietor in possession.
The court would not exercise its discretion to order rectification in favour of the claimant, since, having discovered the fraud, he had done nothing to prevent the first defendant from dealing with the property or disposing of it to an innocent third party. Where a party’s loss was caused by its own lack of proper care, it would be perverse to have regard to a statutory provision to relieve it of the consequences of its own actions.
Philip Jones (instructed by Mackrell Turner Garrett) appeared for the claimant; Ian Mason (instructed by Knights Solicitors) appeared for the second defendant; Hugh Jackson (instructed by Eversheds, of Cardiff) appeared for the third defendant; the first defendant did not appear and was not represented.
Eileen O’Grady, barrister