Is the creation or cancellation by the Land Registrar of an entry on the Register in reliance upon a voidable disposition mistaken for the purposes of Schedule 4 Land Registration Act 2002 ? No, says the Court of Appeal but, once the transaction has been set aside, the Register can be altered so as to bring it up to date.
It has been apparent for some time now that the relationship between the concepts of: mistake, alteration, rectification and indemnity created by Schedules 4 and 8 to Land Registration Act 2002 is at least complex and very probably the product of at least one or more mistakes. This case represents the Court of Appeal’s latest attempt to bring order to the chaos.
The facts
Northern Rock loaned money to Mr and Mrs Evans most but not all of which was secured by means of a charge over their property. In 2005 Mr and Mrs Evans lost the struggle to keep their heads above water and were declared bankrupt.
In 2014, on the ostensible basis that the unsecured part of the borrowing had been discharged by their bankruptcies, Mr and Mrs Evans solicitor asked NRAM to cancel its charge over their property. Mistakenly, NRAM agreed to do so and submitted an e-DS1 to the Land Registry which processed it. Having realised its mistake NRAM applied to the Court for the following relief:
- An order setting aside or rescinding the e-DS1 on the ground that it was a voluntary disposition as to which there had been a mistake of sufficient gravity as to the legal effect of the disposition or as to an existing fact which was the basis for the transaction, see Pitt v Holt [2013] UKSC 26 and Garwood v Bank of Scotland [2012] EWHC 415 (Ch) para 54ff.
- An order that the Register be ‘rectified and/or brought up to date’ so as to reinstate the charge.
The judge found that the bank had made a mistake in submitting the e-DS1 and made an order setting it aside. He then went on to conclude that there was a mistake on the Register to which Mr and Mrs Evans had contributed by the misleading terms in which their request that the charge should be cancelled and accordingly that, even though they were proprietors in possession of the registered estate and as such entitled to the protection conferred by paragraphs 3 & 6 of Schedule 4, the Register should be rectified against them and the charge reinstated.
Mr and Mrs Evans were given permission to appealinter alia on the grounds that there was no mistake on the Register and/or that they could correctly be said either to have caused or contributed to that error. They also made what can be seen from the tone of the reference to it in the judgment, at para 43, the fatal tactical error of applying to the Court of Appeal for an order that if, contrary to their primary submission, NRAM was entitled to have the Register rectified against them, they should be entitled to an indemnity pursuant to Schedule 8.
The decision
Kitchin LJ giving the judgment of the Court held:
- “The registration of a voidable disposition … before it is rescinded is not a mistake for the purposes of Schedule 4 to the LRA 2002. Such a voidable disposition is valid until it is rescinded and the entry in the register of such a disposition before it is rescinded cannot properly be characterised as a mistake. It may be the case that the disposition was made by mistake but that does not render its entry on the register a mistake, and it is entries on the register with which Schedule 4 is concerned. Nor, so it seems to me, can such an entry become a mistake if the disposition is at some later date avoided.” See para 5.
- Once the voidable disposition has been set aside, the Court or Registrar may (indeed must, see paras 3(3) and 6(3) of Schedule 4) alter the Register to bring it up to date unless there are, “exceptional circumstances which would justify it in not doing so.”
The legal logic of this decision seems, at first glance, to be impeccable. In Norwich & Peterborough Building Society v Steed (No 2)[1993] Ch 116 the Court of Appeal drew the same distinction between instruments which are ‘void ab initio’, for instance by reason of forgery or fundamental mistake, non est factum or defective execution etc. and those which are merely voidable, for instance by reason of misrepresentation (whether fraudulent or innocent), undue influence, lack of capacity or a mistake of the kind found in this case. However, such a narrow construction of what is capable of constituting ‘a mistake’ on the Register does have the potential to give rise to serious practical problems. It is worrying that these are by no means new problems. They have been discussed at length in a number of previous decisions of the Court of Appeal, High Court and the Adjudicator to HM Land Registry: see Barclays Bank plc v Guy [2010] EWCA Civ 1396; Odogwu v Vastguide Ltd [2008] EWHC 3565 (Ch); Knights Construction (March) Ltd v Roberto Mac Ltd[2011] 2 EGLR 123 (a decision of Mr Michael Mark sitting as a deputy Adjudicator the substance of which was referred to with approval by the Court of Appeal in McLeod v Gold Harp Properties Ltd[2014] 3 EGLR 133) and Baxter v Mannion [2011] 1 WLR 1594; of which only Baxter v Mannion is referred to in the decision.
The case of a fraudulent transfer illustrates these problems in an acute form. It is the effect of s. 58(1) LRA 2002 and the decision of the Court of Appeal in Swift First Ltd v Chief Land Registrar [2015] EWCA Civ 330 that even a fraudulent disposition is effective to vest both the legal and the equitable title in the registered estate in the fraudster who may then, quite lawfully and without any apparent mistake being made by the Registrar according to this decision, either convey the registered title to an innocent third party or grant a charge over it to an innocent bank. In the former case the defrauded proprietor, it would appear from this decision, would have no right to rectification against the innocent purchaser and consequently no right to an indemnity either, whereas in the latter, whilst he might have a right to rectification against the fraudster who retained the registered title, he would have no right of rectification against the proprietor of the charge and no right to an indemnity either.
Query also what the effect of this decision might be upon the jurisdiction of the FTT Land Registration Division to deal with an application to alter an entry on the Register arising out of a voidable transaction. In such a case, if the Court were exercising its equitable jurisdiction to rescind a transaction, as it would be in a case of misrepresentation or undue influence for instance, then it would seem, because the relief is discretionary, that an order of the Court (which the Tribunal would have no jurisdiction to make) would be a pre-requisite. The FTT would not therefore have jurisdiction to determine such a case, although, if other matter pertaining to the Land Registration Act 2002 were also in issue, the case could possibly be deemed suitable for the Pilot Scheme being run through the Chancery List at CLCC whereby the permanent judges of the FTT who specialise in Land Registration matters are permitted to sit as judges of the County Court in appropriate cases.