Swift 1st Ltd v The Chief Land Registrar
| Jurisdiction | England & Wales |
| Judge | Richard Sheldon QC |
| Judgment Date | 31 January 2014 |
| Neutral Citation | [2014] EWHC 4866 (Ch) |
| Docket Number | Claim No: HC12A03910 |
| Court | Chancery Division |
| Date | 31 January 2014 |
2014 EWHC 4866 (CH)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Richard Sheldon QC
(sitting as a Deputy Judge of the High Court)
Claim No: HC12A03910
Josephine Hayes (instructed by the Swift Group's Legal Department) for the Claimant
Timothy Morshead QC (instructed by the Treasury Solicitor) for the Fourth and Fifth Defendants
Hearing dates: 9–10 December 2013
Richard Sheldon QC (sitting as a Deputy Judge of the High Court):
Introduction
In these proceedings, the Claimant, Swift 1 st Limited ("Swift") applies under paragraph 7 of Schedule 8 of the Land Registration Act 2002(" LRA 2002") for determination of whether Swift is entitled to an indemnity, and if so in what amount, from the Defendant, the Chief Land Registrar ("the Registrar") arising out of the cancellation of Swift's registered charge over 15 Elmstead Road, Ilford, Essex ("the Property").
The question of whether Swift is entitled to an indemnity raises legal issues of some complexity. In this judgment I deal with this question first. By the time of the trial which took place before me, the background facts relevant to this question were no longer in dispute and, so far as relevant, are summarised below.
If Swift is entitled to an indemnity, the amount which should be awarded raises separate questions of fact which I consider after I have dealt with the first question.
Is Swift entitled to an indemnity?
The facts
On 13 September 1983, Bimla Rani Sunsoay ("Mrs Rani") was registered at the Land Registry as sole proprietor of the Property under title number EGL131757. She has resided at the Property at all relevant times.
On 11 April 2006, a legal charge of the Property purporting to bear the signature of Mrs Rani was executed in favour of GE Money Home Lending Ltd ("GE Money") to secure a loan of £32,000. On the following day this charge was registered in the charges register for the Property.
In May 2006, Swift received a mortgage application form dated 22 May 2006 from Greenhill Finance, brokers, purportedly signed by Mrs Rani, for a loan of £64,500 said to be for the purpose of "home improvements" and stating that the house would be sold when the work was done.
On 31 May 2006, a legal charge of the Property was purportedly executed in the name of Mrs Rani in favour of Swift ("the Charge"). Despite having reservations about the circumstances, the Registrar has accepted that the Charge was a fraud committed by persons unknown on both Swift and Mrs Rani.
Also on 31 May 2006, Swift advanced funds totalling £66,750 of which £34,403 was paid to GE Money to redeem its prior registered charge and £30,057 paid by cheque, initially in the name of Mrs Sunsoay, but shortly thereafter reissued at the request of Greenhill Finance in the name of Mrs Rani. Mrs Rani has claimed, and it is now accepted by the Registrar, that she never received those funds.
On 2 June 2006, Swift's charge was registered in the charges register for the Property and the entry in favour of GE Money removed.
From late June 2006 onwards there were defaults in repayment of Swift's loan. In about May 2007, Swift issued proceedings for possession in the Ilford County Court (later transferred to the Central London County Court). These were defended by Mrs Rani on the grounds that the Charge and the earlier charge in favour of GE Money had been forged. By her counterclaim she sought an order that the Charge be "set aside" and that the register be amended accordingly,
The trial of the possession proceedings was due to take place on 20 January 2009. In the light of the evidence, including evidence from a handwriting expert, Swift accepted that Mrs Rani had been the victim of a fraud. By an order of HH Judge Hazel Marshall QC made by consent on that date, upon Swift discontinuing the claim, it was ordered that the Charge be "set aside" and that "HM Land Registry shall amend the title to [the Property] by deleting any and all interest of [Swift] therein."
On about 7 August 2009 the entry for the Charge on the register for the Property was cancelled.
Swift wrote to the Registrar claiming an indemnity. The Registrar pointed out that the court's order "setting aside" the Charge disclosed no basis for treating the register as having been "rectified" as opposed to bringing the register "up to date". To meet this point, on 6 September 2011, the order was amended by consent so as to read that the Charge "be agreed to be void".
Schedule 8 of LRA 2002
Schedule 8 of the LRA 2002, which is given effect by s 103, provides, so far as is central to the first question, as follows:
1(1) A person is entitled to be indemnified by the registrar if he suffers loss by reason of—
(a) rectification of the register….
(2) For the purposes of sub-paragraph (1)(a)—
(b) the proprietor of a registered estate or charge claiming in good faith under a forged disposition is, where the register is rectified, to be regarded as having suffered loss by reason of such rectification as if the disposition had not been forged….
11 ….
(2) In this Schedule, references to rectification of the register are to alteration of the register which—
(a) involves the correction of a mistake, and
(b) prejudicially affects the title of a registered proprietor.
The arguments: summary
Swift's argument, in summary, is that it is entitled to an indemnity under Schedule 8 because:
a. Swift was the proprietor of a registered charge claiming in good faith under a forged disposition;
b. The register was rectified by cancellation of that forged disposition pursuant to the consent order of the Central London County Court;
c. Such rectification was a rectification under paragraphs 1(1)(a), and 11(2), of Schedule 8, which need to be read together. For the purposes of paragraph11(2), there has been an alteration of the register which involved the correction of a mistake and which prejudicially affected Swift's title. As regards the question of whether Swift's title has been prejudicially affected by the alteration of the register, it is necessary to consider whether there has been a "rectification" under paragraph 1(1)(a). For the purpose of paragraph 1(1)(a), Swift is to be regarded as having suffered loss by reason of such rectification "as if the disposition had not been forged", under paragraph 1(2)(b). That phrase is a statutory deeming provision which requires a hypothetical exercise of assuming that the charge had actually been executed by the purported disponor. On that assumption, for the purpose of Paragraph 1(1)(a), Mrs Rani is to be regarded as have been bound by Swift's charge. She would not have been able to set up any overriding interest against Swift because this this is ruled out by the statutory deeming provision in paragraph 1(2)(b).
The Registrar's argument, in summary, is that paragraph 1(2) of Schedule 8 is only engaged for limited purposes under paragraph 1(1)(a) and has no independent or wider effect. It is a pre-condition to the application of these provisions that there has been a "rectification" within the meaning of paragraph 11(2). In the present case, whilst there has been an alteration of the register which involves the correction of a mistake, it did not "prejudicially" affect Swift's title. Swift's title was affected but not prejudicially so, because it was always subject to Mrs Rani's overriding interest, an interest having priority under s section 29 of the LRA 2002. That interest, it was argued, arose because (a) as victim of the fraud she had the absolute right to the unencumbered freehold interest in the Property as Swift's Charge as against her was a nullity; (b) she was at all material times in actual occupation of the Property; (c) her rights were capable of taking priority over those of Swift as overriding interests under Schedule 3 paragraph 2, the right to rectification itself being capable of being an overriding interest, and none of the exceptions in paragraph 2 applied on the facts of the present case.
This summary does not do justice to the way Mr Morshead developed his argument but I hope that it will become apparent later in this judgment how the materials upon which he relied underscored the various steps summarised above.
Mr Morshead candidly recognised that difficulties in construing the indemnity provisions arose from the Court of Appeal's decision in Malory Enterprises Ltd v. Cheshire Homes (UK) Ltd [2002] EWCA Civ 151; [2002] Ch 216, a decision reached in the context of the Land Registration Act 1925, but held by Mr Justice Newey to apply also to the LRA 2002 in Fitzwilliam v. Richall Holdings Services Ltd [2013] EWHC 86 (Ch); [2013] 1 P&CR 19 (itself followed by the same judge in Park Associated Developments Ltd v. Kinnear [2013] EWHC 3617 (Ch)). I consider these later in this judgment after I have considered the legislative history of the indemnity provisions which was relied upon by Mr Morshead in support of his argument.
The legislative history
Section 83 of the Land Registration Act 1925 (" LRA 1925"), as originally enacted, provided:
83(1) Subject to the provisions of this Act to the contrary, any person suffering loss by reason of any rectification of the register under this Act shall be entitled to be indemnified.
83(2) Where an error or omission has occurred in the register, but the register is not rectified, any person suffering loss by reason of such error or omission, shall, subject to the provisions of this Act, be entitled to be inde mnified….
83(4) Subject as hereinafter provided, a proprietor of any registered land or charge claiming in good faith under a forged instrument shall, where the register is rectified, be deemed to have suffered loss by reason of such rectification and shall be entitled to be...
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