REF/2006/1162

The Adjudicator to Her majesty’s Land Registry
LAND Registration act 2002

IN the matter of a reference from hm land registry

BETWEEN

Legal Services Commission

APPLICANT

and

Maureen Linda McPherson

RESPONDENT

Property Address: Woodland Cottage, Vine Grove, Uxbridge, Middlesex, UB10 9LW
Title Number: AGL61592

Before: Mr Rhys sitting as Deputy Adjudicator to HM Land Registry

Sitting at: The Adjudicator to HM Land Registry
On: Thursday 4 October 2007

Applicant Representation:	Mr Michael Rimer, Legal Services Commission
Respondent Representation:	Mr McPherson

DECISION

1.	This reference arises out of an application by the Legal Services Commission (“LSC”), dated 1st March 2006, to register a statutory charge which the Applicant claims has arisen under section 10(7) of the Access to Justice Act 1999 or section 16(6) of the Legal Aid Act 1988.  The application relates to property known as Woodland Cottage, Vine Grove, Hillingdon, Middlesex which is registered at HM Land Registry under Title Number AGL61592 (“the Subject Property”), of which the Respondent is the registered proprietor.  She has objected to the application, and eventually the dispute was referred to the Adjudicator by the Chief Land Registrar on 23rd August 2006.  

2.	The background to the application is as follows.  It appears that the Subject Property was purchased by the Respondent and her husband in approximately 1986.  In 1989 they re-mortgaged the property to the Royal Trust Bank (Jersey) Limited, by means of a foreign currency mortgage.  Subsequently, the Royal Trust Bank (Jersey) Limited was taken over by the Birmingham and Midshires Building Society (“the Lender”).  On 9th December 1997 the Lender issued proceedings in the Uxbridge County Court for possession of the Subject Property, and arrears.  It was stated that the amount required to redeem the mortgage in full was £267,864.35.  The original amount of the loan was apparently 478,040 Swiss francs which, at the date of the loan, equated to £170,000.  On 12th May 1998 the Respondent applied for legal aid to defend the possession proceedings, and on 19th June 1998 a legal aid certificate was issued to the Respondent under reference 01019829758/A/Z/1.  The proceedings continued in the County Court, and it appears that the Respondent had separate legal representation from that of her husband, due to potential conflicts between them.  In the event the Respondent’s certificate was revoked on 27th April 2001, apparently on the basis that she had failed to co-operate with an investigation into her financial circumstances.  I may say that the Respondent, through her husband, who appeared on her behalf at the hearing, vigorously denied the truth of this, and expressed considerable anger at the way in which her certificate had been revoked.  Nevertheless, the fact is that the legal aid certificate was revoked and there has been no successful appeal from that decision.

3.	Eventually, on 18th December 2001, and as a result of default by the Respondent in filing and serving an amended defence as ordered, the Epsom County Court ordered that judgment should be entered against her for an amount to be decided by the Court and costs.  By this stage the possession proceedings had been transferred to the Epsom County Court.  Subsequently, on 30th January 2002, the possession proceedings were compromised on the basis of a consent order.  Under the terms of that order, the Respondent and her husband were obliged to pay a sum of £265,000 to the Lender in satisfaction of all claims.  Clearly, that also disposed of the Lender’s claim for possession of the Subject Property.  Subsequently, in August 2002, the Respondent’s solicitor’s bill of costs was assessed by the court.  The total amount assessed was £16,762.30.  On 10th October 2003 the LSC registered a caution against dealings at HM Land Registry, in relation to the Subject Property, to protect the statutory charge.  It may well be that the LSC’s right to a statutory charge was disputed at this stage.  However, it appears that the Respondent wished to re-mortgage the Subject Property in October 2003.  Accordingly, her then solicitors wrote to the LSC, indicating that they would be prepared to give an undertaking to hold a sum of £15,000 to its order pending resolution of the matter, against the removal of the caution to allow the re-mortgage to take place.  The LSC agreed to this arrangement and in the event the caution was cancelled on 11th November 2003, and it would seem that the re-mortgage proceeded.

4.	On 19th February 2004 the LSC applied to register a statutory charge against the Subject Property, but the Respondent objected.  I do not have details of this earlier application, nor the basis of the objection, and I derive this information from the Case Summary relating to the earlier reference to the Adjudicator namely 2004/0466.  In that file, I have found a copy of a letter dated 16th January 2004 sent by the Respondent’s then solicitors to the LSC.  In this letter, the solicitors write:- “our Client has requested that, pending resolution of the outstanding matters, you now reinstate the caution so that the monies that we are holding on deposit can now be released to her.”  Having regard to the terms of this letter, I am not entirely clear of the basis on which the Respondent objected to the earlier application to register the statutory charge.  Nevertheless, the objection was made, and eventually the matter was referred to the Adjudicator on 1st July 2004.  However, that reference never came to fruition, since the LSC failed to serve a Statement of Case and eventually the application was cancelled.  Although the Respondent objected that the LSC should not be allowed to restore the application which has already been determined in this way, I cannot accede to that submission.  There has been no finding against the LSC on the merits of its application.  Furthermore, there is no order prohibiting the LSC from re-applying to register the statutory charge, although there is power to do this under Rule 42.  This is not of course a criticism of the Respondent for failing to invoke Rule 42, which she may well have been unaware of.  However, the fact is that, in my judgment, the LSC is entitled to make this second application.  The costs of the first application, however, have still to be dealt with.

5.	This is the background to the application which comes before me.  I shall now outline the statutory provisions upon which the LSC relies.  The statutory charge is based upon section 16 of the Legal Aid Act 1988, as applied by the Civil Legal Aid (General) Regulations 1989.  Sections 16(6) and (7) of the 1988 Act are in these terms:-

“(6)	Except so far as regulations otherwise provide - 

	(a)	any sums remaining unpaid on account of a person’s contribution in respect of the sums payable by the Board in respect of any proceedings; and

(b)	a sum equal to any deficiency by reason of his total contribution being less than the net liability of the Board on his account, 

shall be a first charge for the benefit of the Board on any property which is recovered or preserved for him in the proceedings.

	(7)	For the purposes of subsection (6) above it is immaterial what the nature of the property is and where it is situated and the property within the charge includes the rights of a person under any compromise or settlement arrived at to avoid the proceedings or bring them to an end and any sums recovered by virtue of an order for costs made in his favour in the proceedings (not being sums payable to the Board under subsection 5 above).”

6.	The Regulations are in the following form:-

“Operation of Statutory Charge

85 – (1) Where any certificate has been revoked or discharged, section 16(6) of the Act (which provides for a charge upon property recovered or preserved for an assisted person) shall apply to any property recovered or preserved as a result of the person whose certificate has been revoked or discharged continuing to take, defend or be party to the proceedings to which the certificate related…”

7.	The issue in this case is, as a matter of law, straightforward.  The question is whether the Respondent has “recovered or preserved” property in the original possession proceedings to which I have referred.  Since it is clear that the Respondent had the benefit of a legal aid certificate, albeit a discharged certificate, and since it is clear that there is a liability on that legal aid certificate from the LSC to the Respondent’s solicitors, there is a liability which is capable of being protected by the statutory charge.  The question therefore is whether the Respondent can be said to have “recovered or preserved” the Subject Property in the original proceedings, notwithstanding that there was a compromise.  

8.	In my judgment it is quite clear that the Respondent did preserve the Subject Property by virtue of the proceedings.  The Lender’s claim was for possession of the Subject Property.  In the event, a compromise was reached whereby the Lender abandoned its claim for possession, against payment of a sum of £265,000 by the Respondent and her husband.  There is nothing in the wording of section 16(6) of the 1988 Act to limit the meaning of the expression, and I therefore find that, all other things being equal, the statutory charge applies to the Subject Property.  The Respondent relies on the fact that, at an earlier stage, it appeared that the LSC was abandoning any claim to a statutory charge.  In essence the Respondent relies on two letters, dated 6th June and 13th June 2003 and written by a LSC Case Worker to a firm of accountants acting for the Respondent’s husband in connection with an Individual Voluntary Arrangement.  This correspondence, it may be noted, does not relate to the Respondent’s legal aid certificate at all, but to that of her husband, they being separately represented.  The first of these letters includes the following paragraph:-

“After speaking with Mr Clive Lucas of T C Cryan and Co, I can confirm that Mr McPherson has no liability under this certificate as he did not recover or preserve anything in the proceedings.  If he had done so, then the statutory charge liability would have been raised by our Regional Office.”

In the second of these letters the same Case Worker wrote:-

“There is no claim in the arrangement under this certificate and I cannot find any reference to any other liability on our records.”

9.	I am unable to spell out of this correspondence any unequivocal assertion on the part of the LSC that the Respondent was not liable for the statutory charge.  It is not clear to me why the Case Worker took the view that the Respondent’s husband had not recovered or preserved any property in the proceedings.  The letter is brief in the extreme and does not give any explanation.  However, for the reasons which I have given I consider that the Respondent did preserve the Subject Property in the proceedings.  If and to the extent that the letter from the LSC appears to state something different, it is simply wrong.  I do not think that a statutory body such as the LSC can be estopped from pursuing the statutory charge, even if the circumstances were such that the claim of estoppel was appropriate.  There may, I suppose, be some question of “legitimate expectation” if unequivocal assurances had been made to the Respondent that the LSC would not seek to assert its statutory charge.  However, there is nothing in the evidence to support such a claim.  In any event, within a matter of months from the date of this correspondence in June 2003 the LSC had successfully obtained a caution against dealings in respect of the Subject Property, to protect its interests.  That caution was lifted at the request of the Respondent, against a solicitor’s undertaking.  It seems to me that the Respondent cannot have been operating under any misapprehension as to the position of the LSC at least as from October 2003 onwards.  I therefore reject any suggestion that this correspondence prevents the LSC from pursuing the statutory charge.

10.	However that is not necessarily the end of the matter.  There is a further issue raised in the reference.  This relates to the value of the property at the date when the property was “preserved”.  It has been the policy of the LSC not to pursue a statutory charge if and to the extent that a home has “negative equity” in the lay expression.  In other words, if in possession proceedings the legally aided parties succeed in preserving the property against the possession order, even if the LSC incurs liabilities to costs it will not pursue the statutory charge if the value of the property is less than the amount secured upon it.  The basis for this concession seems to be Regulation 99(6) of the 1989 Regulations, which had been interpreted by the LSC as limiting the scope of the charge.  On this interpretation, if the value of the property was less than the amount owing to the LSC, the charge did not bite.  There does not seem to be any case law which concludes the issue, and Mr Rimer, who is a Senior Officer at the LSC, helpfully provided some written material after the hearing which indicated that the issue has been the subject of considerable debate within the LSC itself, and legal advice has been obtained in relation to it.  It is quite obviously a decent and humane approach to adopt.  However, Mr Rimer submitted to me that the burden was on the legally aided party to satisfy the LSC that there was negative equity: it was not for the LSC to disprove it.  

11.	In this case, it is alleged by the Respondent that, as at 30th January 2002 when the compromise of the possession proceedings was made, the Subject Property was worth less than £265,000.  This was the sum paid to the Lender as the price for its abandoning the possession proceedings.  The issue of the value of the Subject Property as at 2002 was not dealt with very satisfactorily.  It would have been open to either party to apply for directions as to expert valuation evidence, but no such directions were sought.  The LSC did obtain a “drive by” valuation from a local estate agent who ventured a suggestion as to the value of the property at the relevant date.  On the other side the Respondent attempted to demonstrate, by reference to various house price indices, that the value attributed by the LSC was grossly optimistic.  At the end of the day, however, the evidence as to value was not very convincing one way or the other.  However, I think I am entitled to take into account the inherent probabilities of the situation.  Given that the Subject Property was considered to be a suitable security for a loan of £170,000 in 1989, it seems very unlikely indeed that it would not have increased in value substantially beyond the figure of £265,000 paid in 2002 – and the additional funds were raised for the purpose of carrying out extensive improvements to the property.  Furthermore, it seems unlikely that there would have been any commercial point for the Respondent to have paid the Lender a sum of £265,000 in order to preserve the Subject Property, if it were worth no more than that figure.  The Subject Property was not, it would seem, occupied by the Respondent and her family at this stage but was tenanted.  Furthermore, the figure of £265,000 paid to the Lender under the compromise was in fact the figure claimed, more or less, in the original Possession proceedings, although with interest that figure would have been greatly increased by January 2002.  Furthermore, when the Respondent’s solicitor returned the statutory charge questionnaire to the LSC there was no indication that the charge did not apply.  Nor indeed does the point seem to have been taken when the LSC obtained its original caution.  If I had to decide the value of the equity in the property at January 2002, and having regard to the totality of the evidence before me, I would have decided that the equity comfortably exceeded £265,000.  

12.	However, I do not consider that I must make such a finding.  In my judgment, the terms of section 16 of the Legal Aid Act 1988 are not limited in any way by reference to the “equity” in the recovered or preserved property.  The property is, as far as I can see, the legal or beneficial interest held by the legally aided party.  In this case, the Respondent appears to have been both legally and beneficially entitled to the Subject Property.  She was and is a registered proprietor.  Since she has preserved that property, I cannot see any reason why the statutory charge should not apply.  Even if I am wrong about the meaning of Section 16, and the LSC is right to interpret section 16 in such a way as to protect legally aided parties who are in “negative equity”.  I consider that the burden is fairly and squarely on the assisted party to establish the fact.  In reality, the LSC will rarely be in a position to put forward direct evidence of value.  In this case the LSC essentially invited the Respondent to prove that she was in negative equity at the relevant date and therefore that the sums owed to the LSC exceeded its value.  The Respondent has signally failed to take advantage of this offer.  She has not chosen to put forward any direct evidence whatsoever as to the value of the property in January 2002.  Nor has she chosen to obtain evidence from the solicitor who is mentioned in the correspondence in June 2003, who is said to have been aware that the property was worth less than £265,000.  All that the Respondent has done is to attempt to undermine the evidence obtained from the “drive by” valuation  by means of some unconvincing extrapolations from a House Prices Index.  In my judgment this is quite insufficient and strongly suggests to me that the value of the equity in 2002 was substantially higher than the Respondent is prepared to admit.  Accordingly, I find that the LSC is entitled to register a notice to protect the statutory charge over the Subject Property and I shall direct the Chief Land Registrar to give effect to its application.

Dated this 12th day of November 2007

By Order of The Adjudicator to HM Land Registry