REF/2006/1672

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

PENELOPE FRANCES PUGH

RESPONDENT

Property Address:  Apartment Four, Trehill House, Kenn, Exeter EX6 7XJ
Title Numbers:  DN251522

Made by: Mr. Michael Mark sitting as Deputy Adjudicator to HM Land Registry

Sitting at:  Exeter Employment Tribunal
On: 13 December 2007

Applicant Representation:  Ms V. Williams, Legal Assistant
Respondent Representation: Mr. B.A. Pugh

___________________________________________________________________________

DECISION

 Claimant with legal aid obtains a partial right of way to her property in settlement of a dispute as to her rights of access.  Legal Services Commission not entitled to charge over her property under section 10(7) of the Access to Justice Act 1999. 

1.	For the reasons set out below, I shall direct the Chief Land Registrar to cancel the application of the Applicant to register a purported charge declared by it pursuant to section 10(7) of the Access to Justice Act 1999.

The facts

2.	The Respondent, Mrs. Pugh, is the registered proprietor of a leasehold property, Apartment Four, Trehill House, Kenn, near Exeter (“the Property”), having completed its purchase on 4 May 2000.  The Property consists of an apartment in Trehill House, which is a listed building in its own grounds, together with a garage erected in the grounds.  The lease is for 999 years from 1 January 1986.  It included a right of way, the original accessway, from the public highway to the flat and garage comprising the Property along a roadway marked on a plan attached to the lease.

3.	Trehill House has been converted into eleven apartments and there are also three freehold cottages in the grounds that have been sold off by the freehold owner of Trehill House.

4.	Subsequently to the grant of the lease, and before it was acquired by Mrs. Pugh, part of the original accessway was blocked off by the then freehold owner of Trehill House, and two parking spaces were created across it which were let to other leaseholders.  The blocking off of the accessway affected the rights of access of other leaseholders and freeholders as well as the leaseholder of the Property at the time.

5.	By the time Mrs. Pugh acquired her lease, anybody wanting access to any apartment or cottage had to obtain that access by an alternative route which was in part across land owned by the freeholder, by then Trehill Limited, and in part across land owned by another company, Laira Properties Limited (Laira).

6.	When Mrs. Pugh acquired the Property, nobody acting for her noticed the problem with the original right of way or the facts that (1) there was no legal right of way over the new accessway, and (2) that part of the new accessway was not even owned by Trehill Limited. 

7.	In practice, there is no suggestion that anybody was physically prevented from obtaining access along this new route.  However, by letter dated 1 December 2000, the freeholder wrote to the various leaseholders and the freeholders of the cottages, pointing out that the rights of way were unclear, and that they may need to be clarified by a court ruling.  At a meeting the following month, the chairman of the freehold owner explained the problems, including the fact that part of the new accessway was owned by Laira.  It appeared that different leaseholders had been granted different rights of way, and that Mrs. Pugh’s garage partially obstructed the rights apparently granted to some of them.

8.	Eventually, on 1 July 2002, the land owned by Laira was transferred to Mrs. Pugh at a total cost, including legal expenses, of about £6000.  The purchase price and expenses were paid by two other leaseholders, Mr. Verity and Mr. Bechener and by a Deed of Trust of the same date, prepared by her solicitors, Mrs. Pugh declared herself to hold the land in trust for Mr. Verity and Mr. Bechener and at their request and cost to transfer the land or deal with it as they directed.  Mrs. Pugh explained in evidence, and I accept, that Mr. Verity and Mr. Bechener did not want to be identified by Trehill Limited as the owners of the land because of the problems they were experiencing at the time with that company.

9.	It appears to have been the intention of Mr. Verity and Mr. Bechener at the time that all 11 leaseholders and 3 freeholders affected by the right of way problem should have the opportunity to acquire rights over the Laira land, and by letter dated 6 August 2002, Mrs. Pugh wrote to each of the other owners asking for a one-fourteenth share of the purchase costs of that land as a short term measure until an amicable agreement could be reached with Trehill Limited.

10.	Unfortunately, there was no amicable arrangement with Trehill Limited forthcoming, and in January 2003, Mrs. Pugh, having already commenced proceedings in person in the county court against Trehill Limited, applied for funding from the Legal Services Commission to enable her to have legal representation in those proceedings.  The application form was completed by her solicitors.  In explaining the position, the application stated that the Laira problem was no longer there as Mrs. Pugh and other lessees had purchased the Laira land, and that she wanted public funding to continue her action to seek a declaration that she had a legal right of way over the remainder of the new accessway owned by Trehill Limited.  The application stated that whilst the problem was unsolved, her property was “unsaleable and valueless”.

11.	A declaration signed by Mrs. Pugh at the end of the application form noted that she had been advised by her solicitors “whether there is a risk that at the end of my case, I will have to accept an interest-bearing charge on my home”.  She also stated that “As far as I know, all the information I have given is true and I have not withheld any relevant information”.

12.	Mrs. Pugh confirmed in evidence, and I accept, that as far as she knew the information she gave was correct.  

13.	In a further document setting out her means, the claimant gave the value of the property as approximately £80,000, “but due to dispute cannot be sold”.  She also stated, again in describing her capital and other assets that the Laira land had been purchased for £5000 and her contribution was £427.  The Laira land was described as 20 feet x 40 feet and as forming part of the access to her apartment.  She declared on this form that she had given correct and complete information on the form and on any other accompanying form.

14.	Mrs. Pugh’s solicitors appear totally to have ignored the potential conflict of interest that arose with them acting in this case until it was drawn to their attention by counsel whom they instructed.  At that stage, Mrs. Pugh was advised to change solicitors and she did so, instructing Ashfords in their place.  In the course of the proceedings, expenditure up to a maximum of £20,000 was authorised by the Legal Services Commission.  There appears to have been a counterclaim by Trehill Limited against her, although none of the pleadings have been produced in these proceedings.

15.	Subsequently, in 2005, as a result of a small increase in Mrs. Pugh’s income, she ceased to be entitled to public funding and her entitlement was terminated.  She could not afford to continue the county proceedings without funding, and a settlement was negotiated with Trehill Limited, which was embodied in an order of the Exeter County Court dated 24 June 2005.  Under the consent order, Trehill Limited undertook, if asked, to grant rights of way to any of the flats and cottages (other than two which I was told were owned by the director who gave the undertaking on behalf of Trehill Limited) over the part of the new accessway owned by Trehill Limited where there was no existing right of way in their favour subject to Trehill Limited’s reasonable costs in preparing a deed of grant being paid by the donees of the grant.

16.	On that basis, a Mr. Michael Oliver was added as a Defendant to give effect to a grant in favour of Mrs. Pugh, and the proceedings were stayed, with both parties bearing their own costs apart from the costs of one application which had been awarded to Mrs. Pugh, on the terms set out in the Schedule to the Order.

17.	That Schedule provided for the execution of a Deed of Grant in favour of Mrs. Pugh, in a form set out in the Order, within 14 days of the Order.  Under the Deed of Grant (which so far as the evidence goes has never been implemented) Trehill Limited granted Mrs. Pugh a right of way over the remainder of the new accessway owned by it for the benefit both of her apartment and garage and the Laira land, in return for her agreement to contribute to the upkeep of that part of the accessway.

18.	With goodwill, that ought to have been sufficient to ensure that everybody who needed it would obtain a right access to their properties along the new accessway.  Unfortunately, that goodwill appears to have been lacking.  Trehill Limited instead threatened to re-open the old accessway, with the assistance of some of the apartment leaseholders and cottage freeholders, overriding the parking rights that obstructed them.  Those involved are now evenly split as to what course to follow.  Substantial additional costs have been incurred by Mr. Verity and Mr. Bechener, and they are no longer willing to grant access rights to Mrs. Pugh for only £427.  What entitlement she may have to insist on such a grant is unclear bearing in mind that her understanding of the position is not reflected in the Declaration of Trust which she entered into.

19.	Why all these problems have recurred, and what the ultimate outcome will be is not something that I am in a position to express any view on.  What is clear, however, is that although Mrs. Pugh appears to be in a position to insist on a grant pursuant to the consent order in the Exeter County Court, she may have to go back to court to get it, and her access rights over the Laira land remain unclear.

The issues

20.	The Legal Services Commission has now sought to declare a charge over the Property to secure the sums expended by it in funding the services of her solicitors, and to register that charge in the Charges Register at HM Land Registry.  It claims to be entitled to a charge to the extent that the value of the Property has been enhanced as a result of the compromise order.  Mrs. Pugh disputes that the Legal Services Commission has any power to impose a charge on the Property and contends that the value of the Property has not been enhanced by the compromise order.

The power to declare the charge

21.	Section 10(7) of the Access to Justice Act 1999 provides as follows:

“Except so far as regulations otherwise provide, where services have been funded by the Commission for an individual as part of the Community Legal Service –

(a)	sums expended by the Commission in funding the services (except to the extent that they are recovered under section 11), and 
(b)	other sums payable by the individual by virtue of regulations under this section,

shall constitute a first charge on any property recovered or preserved by him (whether for himself or any other person) in any proceedings or in any compromise or settlement of any dispute in connection with which the services were provided.”

22.	The Legal Services Commission contends that the “property recovered or preserved” includes the whole of the Property to the extent to which its value was enhanced by the right of way which Trehill Limited agreed to grant.  It has been unable to point to any authority which establishes this, but has drawn my attention to Patel v Legal Services Commission [2004] EWHC 743 (Ch), where the point is said to have been conceded.

23.	That was a case in which the Legal Services Commission provided funding to Mr. Patel to enable to bring proceedings in the county court over a boundary dispute involving 1.5 inches of land in the front garden of his home and about 7 inches of land in the back garden on part of which his neighbour had erected a shed.  His own expert evidence was that the land in dispute in no way affected the value of his home.  The judge in the county court had found in his favour and awarded £10 damages to him respect of the area that had been built on, but refused an order for the shed to be removed.  Other damages had also been awarded to Mr. Patel, totalling £2990, for assault, distress and inconvenience.  The costs incurred on behalf of Mr. Patel had amounted to over £45,000.  

24.	The costs were clearly a first charge on the damages recovered, but it was contended that the whole of Mr. Patel’s home was property recovered or preserved for him.  Mr. Patel sought a declaration that the Legal Services Commission was not entitled to such a charge.  It appears from paragraph 18 of the judgment that it was common ground that the statutory charge would bite on the enhanced value of the property as a result of the recovery or preservation of the small strips of land.  The judge, Richard Sheldon QC observed that “This might have occurred if, for example, the strip carried with it a right of way to the Property or if it had a ransom value which would enhance the value of the Property.”  Unsurprisingly, however, in view of the expert evidence, he found that the disputed strip had no effect whatsoever on the value of the property.

25.	Given the evidence as to value, it is hardly surprising that the concession reported by the judge was made.  It could have no effect on the outcome of the case.  However, whether that is so or not, I am not bound by a concession of that kind, and I turn to the case law to see if it was correctly made as a matter of law as well as being a sensible time saving concession to make in the circumstances.

26.	The leading authority is the decision of the House of Lords in Hanlon v The Law Society, [1981] AC 124, which concerned the meaning of a similar provision in section 9 of the Legal Aid Act 1974.  This also provided for a charge in respect of legal aid costs on property recovered or preserved in the proceedings.  The proceedings in that case had been matrimonial proceedings in which ownership of the matrimonial home had been in issue.  The home was owned in equal shares by both spouses, and each had sought the transfer to him or her of the share of the other of them.  Both parties had been legally aided.  The wife had been successful in obtaining an order for the transfer of the husband’s half to her, so that she became owner of the whole house.  The House of Lords upheld the decision of the lower courts that the Law Society had a charge over the whole house for the legal aid costs on the basis that the wife’s share had been preserved and the husband’s share had been acquired, both shares having been in issue in the proceedings.

27.	The leading judgment was delivered by Lord Simon of Glaisdale.  At p.176H to 177A, he considered the words “property recovered or preserved” by reference to decisions in relation to similar words in the Solicitors Acts giving solicitors charges over such property.  He stated – 

“The words in the Solicitors Acts have been liberally construed, consonantly with the obvious Parliamentary intention of promoting the interest of a solicitor whose activity has resulted in a proprietary benefit to his client.  But the same liberal approach to construction is not appropriate in a measure imposing a charge for a social service: the word should certainly not be extended beyond the ordinary sense which is appropriate in the circumstances.”

28.	At p.180G-181C, Lord Simon continued –

“In other words property has been recovered or preserved if it has been in issue in the proceedings – recovered by the claimant if it has been the subject of a successful claim, preserved by the respondent if the claim fails.  In either case it is a question of fact, not of theoretical “risk”.  In property adjustment proceedings, in my view, it is only property the ownership or transfer of which has been in issue which has been “recovered or preserved” so as to be the subject of a legal charge.  I can see no reason for extending the words to items of property the ownership or possession of which has never been questioned.

I think this interpretation also accords with the structure of the legal aid scheme.  Items of property the ownership of which is not questioned and which are not the subject of dispute fall (subject to disregards) to be taken into account for the initial contribution from the legally aided litigant.  It would seem to be contrary to the general scheme to take them into account again for the purpose of the legal aid charge.

Although no doubt the subject matter in part determined the change of wording of regulation 18(10)(c) in 1976, that change also marginally supports the construction which I venture to favour.  The 1971 regulation referred to “any property affected by an order.  These are the very words used by counsel for the respondent as one of the tests for “property recovered or preserved.  But in the 1976 amendment these words disappear.”

29.	I note that at p.187G, Lord Scarman said, in a passage cited by the judge in Patel, that “A person recovers or preserves in legal proceedings only what is in issue between the parties: and one discovers what is in issue by looking at the pleadings and the evidence.”

30.	In Curling v. The Law Society, [1985] 1 WLR 470, the Court of Appeal was considering the position of a wife who had an undisputed interest in the matrimonial home but her husband insisted on remaining in possession of it, thereby preventing her from obtaining benefit from it.  The Court of Appeal held that if you have to take proceedings to obtain possession or enjoyment of your undisputed property that property was recovered (i.e., got into your hands) which would not have been in your hands but for the proceedings.

31.	The effect of the decision of the House of Lords in Hanlon is that if the only issue in the matrimonial proceedings had been whether the husband’s share of the matrimonial home should be transferred to the wife, and there had been no issue but that she should retain her own half share, the charge would only have attached to the husband’s half share, although, inevitably, the market value of the wife’s half share would have been enhanced as a result.

32.	It appears to me that the present case is not one where Mrs. Pugh’s interest in the Property was in issue.  Nor was it one where she was being kept out of the Property and needed to recover it.  She has lived there throughout from the time when she bought it.  The only property which, in the ordinary use of the English language, she recovered or preserved was the right of way which was to be granted to her.  That was all that was in issue in the proceedings and all that any charge can attach to, if indeed it is possible to have a charge over a right of way, which was not argued before me, and which I do not need to decide.

33.	In Patel, the judge referred to land which was acquired or preserved which carried a right of way or was a ransom strip.  If land carried a right of way or was a ransom strip, then it had value and a charge would attach to it.  It does not appear to me to be right to say that the charge should attach not only to that land, but also to other land benefited by the right of way or ransom strip.  That land would, as Lord Simon pointed out, have been taken into account, subject to disregards, in assessing the claimant’s entitlement to public funding.  It would be affected by the acquisition or loss of the right of way or ransom strip to use the words of the repealed 1971 regulation to which Lord Simon referred.  But in my judgment it would be an abuse of language, and not in accordance with the principles of construction put forward by Lord Simon, to describe it as acquired or preserved by the proceedings.

34.	My view on this is fortified by considering two additional matters.  First, in the case of a ransom strip, its acquisition would, on ordinary valuation principles, enhance the value of a property which benefited from it by more than the price one would expect to see paid for, or which a judge would value it at, applying Stokes v Cambridge principles.  The ransom strip may not be, even arguably, part of the same title as the enhanced property.  I do not consider it likely that Parliament intended that whether one looked to the entire property or only the ransom strip for the Legal Services Commission’s charge should depend on the accident of whether the ransom strip was or was not part of the same title as the other land over which it is sought to impose the charge.

35.	Secondly, where what is in dispute is a share in a property, it is established that the charge attaches only to that share.  If the contentions of the Legal Services Commission were correct, the charge should also attach to increase in value of the undisputed share as a result of the acquisition of the new share.

36.	I therefore conclude that the Legal Services Commission is not entitled to the charge over the Property which it has sought to register.

The value of the partial right of way

37.	In any event, it appears to me that there is no evidence that the Property increased in value as a result of the consent order, nor would it have been had the right of way been formally granted by Trehill Limited.  It is apparent from the events which followed, and from the terms of the Declaration of Trust drafted by her then solicitors, that the claimant still does not have a clear legal right of way over the whole of any access route to her property, except no doubt that she is still, as she has always been, entitled to access it by foot over the old access route included in the lease insofar as it has not been obstructed and has not been abandoned by the consent order.  Indeed, depending upon what rights she gave up in agreeing to the consent order, she may be worse off than before.

Estoppel
38.	In its skeleton argument and at the hearing, the Legal Services Commission contended that Mrs. Pugh was estopped from contending that the value of the Property was not increased by the consent order because of the representations that she made, as set out in paragraphs 10-13 above.  It is not clear to me that this estoppel was ever pleaded, and no evidence was adduced by the Legal Services Commission to support it.  I am not satisfied that any estoppel has been made out.  The representations made as to the Laira land were stated simply to be true to the best of Mrs. Pugh’s knowledge and belief, and in my judgment that was a true statement.  Unfortunately she proved to be wrong and is not to be criticised for her error.  Her statements as to the land being valueless were plainly an exaggeration, in that there is no reason to suppose that the property could not have been sold at a discounted price, but there is no reason to suppose that the person dealing with the matter at the Legal Services Commission took the statements literally, and there is also no reason to suppose that the discount would be any less as a result of the events that have happened.

39.	Further, there is no evidence that any of the statements in the means assessment form were relied on for any purpose other than assessing Mrs. Pugh’s means.

40.	In the circumstances, the estoppel is not made out, and would in any event be irrelevant, even if established, since I have found that the charge does not attach to the Property.

Costs

41.	Subject to any representations that may be made on behalf of the Legal Aid Commission by 8 January 2008, it appears to me that Mrs. Pugh is entitled to her costs from the date of the reference, although these must be limited to her expenses and outgoings in pursuing her claim.  If she wishes to claim these, she should submit a list of the sums claimed to the Legal Services Commission and the Adjudicator by 22 January 2008, and the Legal Services Commission will have until 5 February 2008 to respond in writing to the Adjudicator and to Mrs. Pugh.
 
Dated this 21st day of December 2007

By Order of The Adjudicator to HM Land Registry