Was rectification available after a fraud, and where did the loss fall?

Unravelling fraud is never easy. Dhillon v Barclays Bank plc [2019] EWHC 475 (Ch); [2019] PLSCS 51 concerned a transfer that was void because the proprietor’s signature was forged. The company to whom the land was transferred had charged the property to the bank, before being struck off the companies’ register. Could the charge be removed from the charges register and who should suffer the loss caused by the fraud? The property had belonged to Hackney LBC and was let to a secure tenant, who was in arrears with her rent but, nonetheless, sought to exercise her right to buy. The claimant’s accounts of what happened next were contradictory. After considering the evidence, the judge decided that the claimant’s husband had hijacked her right-to-buy application, without her knowledge, and had purchased the property in her name for £167,000, before transferring it to the company for £250,000, which had then charged the house as security for a loan in the sum of £337,500. The claimant and her husband then went to Pakistan. While they were away, their possessions were removed from the property, which the claimant discovered when she returned. Her husband was convicted of fraud. And, when the company was struck off the register, title to the property vested in the Crown, which disclaimed it. The claimant then applied for, and obtained, an order vesting the property in herself. But the title remained subject to a legal charge to the bank, unless the claimant could have it removed from the title. A forged transfer is a void disposition, which, if accepted for registration by the Land Registry, is registered by mistake. And the court’s power to correct mistakes is wide enough to enable it to correct the consequences flowing from a mistake.  So the court did have the power to delete the bank’s charge from the register: Barclays Bank plc v Guy [2010] EWCA Civ 1396 [2011] and Macleod v Gold Harp Properties Ltd [2014] EWCA Civ 1084. Furthermore, the Land Registration Act 2002 provides that, if the proprietor (in this case, the bank) is not in possession and the court has the power to make an order to correct the register, it must do so unless exceptional circumstances justify a decision to let the register stand. The judge decided that the circumstances were exceptional. Deleting the charge from the register would confer a windfall on the claimant. She would have an unencumbered property (which was now worth more than £1m), even though she had not paid for it and could not have afforded to buy the freehold without a loan. Whereas the retention of the charge would leave the claimant exactly where she would have been, had she had to borrow in order to exercise her right-to-buy. Would the Land Registry have had to indemnify the bank if the legal charge had been struck from the register? The Chief Land Registrar argued that the claimant had had an overriding interest, because she was in actual occupation of the property at the time. So the deletion of the charge would have “altered” the register to give effect to her rights, without prejudicing the bank. But the judge disagreed, citing Swift 1st Ltd v Chief Land Registrar [2015] EWCA Civ 330; [2015] PLSCS 112. He considered that the bank would have suffered prejudice by the deletion of the charge from the register, but did not have to decide whether it would have qualified to be indemnified as a result.   Allyson Colby, property law consultant