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‘Exceptional circumstances’ defeated removal of charge

  • United Kingdom
  • Financial services disputes and investigations

24-04-2019

Simer Kaur Dhillon v (1) Barclays Bank PlC (2) Chief Land Registrar[1]

Summary

The High Court has decided that a claim by the registered proprietor for rectification and/or alteration of the register to remove a legal charge that had been registered only as a consequence of a fraudulent transfer, was defeated due to ‘exceptional circumstances’ in the context of Schedule 4 paragraph 3 of the Land Registration Act 2002 (LRA).

Background

The Claimant (C) was the tenant of a Local Authority property to which she had secured the Right to Buy in 1999 under Section 118 of the Housing Act 1985. According to C, an application to acquire the property was made to the Local Authority but as far as she was aware no reply was received. 

In September 2002 the Local Authority executed the transfer of the property to C (Transfer 1). C alleged that she had not signed Transfer 1.  Around two weeks after Transfer 1, C supposedly transferred the property to CEL (Transfer 2). CEL had obtained mortgage finance from the First Defendant, Barclays Bank PLC (‘the Bank’) and a legal charge in favour of the Bank was registered. C alleged that she knew nothing about this transaction and had not executed Transfer 2. C alleged that she was the victim of fraud committed by her then husband. The consideration paid by CEL was supposedly £83,000 more than the Local Authority had been paid for Transfer 1. 

Transfer 1, Transfer 2 and the Bank’s charge were registered by the same application to HM Land Registry. As a consequence at no point was C registered as proprietor of the property. Proceedings were brought in 2010 by C, the outcome of which was that C became registered as the proprietor of the property, but subject to the Bank’s legal charge.

C subsequently brought a claim pursuant to Schedule 4 paragraph 2 of the LRA to rectify, and/or alter the register to remove the Bank’s legal charge on the title register which, she claimed, had been registered only as a consequence of Transfer 2, which was a fraudulent transfer.

Both the Bank and Second Defendant (The Chief Land Registrar) alleged that there were ‘exceptional circumstances’ that justified that the register should not to be altered so as to remove the Bank’s legal charge. Particularly, C would be unjustly enriched in that she would become the registered proprietor of the property having not had to fund the purchase of it from the Local Authority, such purchase having been in reality been funded at least in part by the Bank’s mortgage advance.

To defeat a claim by the Bank for an indemnity, The Chief Land Registrar further argued that removal of the charge would not cause prejudice because C had an overriding interest due to her occupation at the time of the transfer and the alteration sought would simply give effect to a right which the Bank’s charge was ‘… all along subject…’.   In consequence, removal of the charge would not be rectification which would give rise to an indemnity. The Bank argued that if this was found to be the case, the fact that no indemnity could be claimed, would in itself, give rise to an ‘exceptional circumstance’.

Decision              

His Honour Judge Pelling QC sitting in the High Court, concluded that C was entitled (in principle) to alteration of the register by removing the Bank’s charge pursuant to the notion of ‘mistake’ referred to in Schedule 4 paragraphs 1(a) and paragraph (2)(1)(a) of LRA, resulting from the fraudulently executed Transfer 2.

Furthermore, he rejected the Chief Land Registrar’s argument on prejudice because ‘I do not consider it realistically arguable that the alteration… would not be a rectification by reference to the overriding interest point’ stating that the decision in Swift 1st Ltd  v Chief Land Registrar[2] (Swift) which related to a claim under Schedule 8 of LRA would equally apply to a claim under Schedule 4 of LRA.

However, the Court agreed with the Defendants that there were ‘exceptional circumstances’ that justified not making the order for alteration of the register and he dismissed the claim brought by C.  The Court confirmed that to be ‘exceptional’ the fact or matter relied upon had to be ‘…. out of the ordinary course, or unusual or special, or uncommon… it cannot be that is regularly or routinely or normally encountered…’.[3] The removal of the charge from the register would have placed C in a better position than had the fraudulent activity never taken place. Furthermore, the alteration of the register would have resulted in C being the proprietor of an unencumbered property, for which there was no evidence that C had sufficient funds to exercise the Right to Buy in the first place.                                        

Comment

The Court’s acceptance that that there were exceptional circumstances in this case is a decision that will be welcomed by secured lenders as it offers them some protection in cases where they too have been the victim of fraudulent activity - albeit each case will be assessed on its own circumstances.   This decision also provides guidance that Swift applies equally to claims under Schedule 4 of LRA.



[1] [2019] EWHC 475 (Ch)

[2] [2015] EWCA Civ 330          

[3] Paton V Todd [2012] EGLR 19             

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