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Rectification of the Register: Court of Appeal ruling on the meaning of ‘mistake’

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

11-02-2019

Antoine v Barclays Bank UK Plc v Anor [2018] EWCA Civ 2846

Summary:

Under Schedule 4 of the Land Registration Act 2002 (‘LRA’), one of the grounds on which the court may make an order for rectification of the Register is to correct a ‘mistake’.

In a welcome decision for lenders the Court of Appeal has held that neither: (1) the registration of a party as registered proprietor pursuant to a vesting order which was valid and effective at that time of registration nor (2) the subsequent registration of a legal charge entered into by that party when the vesting order was still valid and effective, were  ‘mistakes’ or consequences of ‘mistakes’  for the purposes of Schedule 4 of LRA, which would give rise to the right for an order for rectification - even though the documentation on which the vesting order was based, were later found to be forged.

Background:

A was the administrator of the estate of J. In 2006, T issued proceedings against the estate in connection with a loan of £11,000 allegedly made to J in 1987. T claimed that the loan was secured against a property owned by J and this was evidenced by three documents. T’s case was that J had defaulted on the loan and, under the terms of the agreement, he was entitled to have the property transferred to him or alternatively, repayment of the £11,000.  A was living abroad and unaware of the proceedings so did not respond. Consequently, in July 2007, a vesting order  (“the 2007 Order”) was made in T’s favour and subsequently, in September 2007, T was registered as the proprietor of the property.

In February 2008, T obtained a loan of £80,000 from a subsidiary of Barclays Bank (“Barclays”), which was secured on the property and registered against the title. Later on in 2008, A successfully obtained an order setting aside the 2007 Order (albeit without prejudice to Barclays’ rights and the legal charge), on the basis that the loan documents were forgeries and, consequently, the 2007 Order had been procured by fraud. A was registered as proprietor in place of T, but the legal charge remained on the title. T died in 2013 and payments ceased.

In 2016, A issued proceedings against Barclays and the Chief Land Registrar (“Registrar”) seeking a declaration that the loan documents purportedly signed by J were null and void and for an order that the register be rectified and the legal charge removed. A argued that the 2007 Order was not valid and registration on the basis of the 2007 Order was therefore a ‘mistake’. Barclays and the Registrar did not dispute that the documents were forgeries, but maintained that no ‘mistake’ had been made in the registration.  

First instance

At first instance, it was held that whilst the underlying documents were indeed forgeries,  registration of T as proprietor and registration of the subsequent legal charge did not, amount to a ‘mistake’ for the purposes of Sch 4 of LRA. The Judge commented that the 2007 Order conferred title to the property independently of the forged documents; at the time the 2007 Order was made, it was valid and effective, albeit susceptible to being set aside and; when determining whether a mistake has been made, it was clear from NRAM v Evans & Anr [1]that one can only have regard to the point in time the entry on the Register was made.

The Appeal

The issue on appeal was whether the court was wrong to hold that the 2007 Order was not void for the purposes of the LRA despite holding that the documents on which the 2007 Order was obtained were null and void, having been held to be forgeries.  

The Court of Appeal emphasised that authority to register T as registered proprietor came from the 2007 Order and not from the underlying documents. In those circumstances, the Judge was right to conclude that registration on the basis of a valid court order is “akin” to the position in relation to a voidable transaction, and the fact that a voidable transaction is subsequently rescinded does not make the entry on the Register made before the rescission a ‘mistake’ nor was it a ‘mistake’ to register the legal charge entered into whilst exercising ‘owner’s powers’ in relation to the registered estate at the time the 2007 Order was still in place. Consequently, an order for rectification was not made.

In these circumstances, because the Registrar cannot not look beyond a vesting order, which on the face of it appeared valid, the registration was not a ‘mistake’ nor was the subsequent registration of the legal charge made whilst the vesting order was still in place.

Comment

In determining if a ‘mistake’ has taken place, focus must be on the state of the Register. The time for judging whether registration is a ‘mistake’ is at the time the registration takes place.

If the change in the register is correct at the time it is made, it cannot later become a ‘mistake’ unless based on a void disposition which in law means that it never took place and hence it was a ‘mistake’ to enter it on the Register.  A vesting order that is based on forged documents is not ‘void’  and must be obeyed until it is set aside and therefore there is no ‘mistake’ at the point of registration.

The facts of the case were fairly unusual (and therefore will not be encountered often in practice) because registration was based on a vesting order which confers title independently of the underlying disposition.  In the majority of cases, registration is based not on a vesting order but instead on underlying documents and in those circumstances if they are found to be void (such as a forged transfer) and therefore of no effect, registration is likely to be a ‘mistake’.

This is a welcome decision for lenders who generally benefit from judgments which support the principle that the register is a guarantee of title and therefore make it more difficult for charges to be rectified off the register.  Whilst rectification will usually entitle the lender to pursue a claim for an indemnity that is rarely a complete remedy.


[1] [2018] 1 WLR 639

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