REF/2009/0623

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY
LAND REGISTRATION ACT 2002

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

BETWEEN
PIPER TRUST LIMITED

APPLICANT

and

CARUSO (UK) LIMITED

RESPONDENT

Property Address:  Walcroft, Upper Basildon, Reading RG8 8SU

Title Number: BK198965

Before: Mr Michael Michell  Deputy Adjudicator to HM Land Registry

Sitting at: Victory House, Kingsway, London
On: 6th January 2010

Applicant Representation: Amanda Eilledge, counsel, instructed by Battens 
Respondent Representation: Jamal Demachkie, counsel, instructed by Tolhurst Fisher LLP

___________________________________________________________________________

DECISION
___________________________________________________________________________

FORGERY – ALTERATION OF THE REGISTER – CHARGE REGISTERED AFTER EARLIER CHARGE REMOVED FROM REGISTER CONSEQUENT ON A FORGED DS1 – WHETHER REGISTRAR HAS POWER TO ALTER PRIORITIES   

Cases referred to
Freer v Unwins [1976] 1 Ch. 288
Supermarkets Ltd. v. Olympia Homes Ltd. and Others [2005] EWHC 1235 (Ch)
Ajibade v. Bank of Scotland and Another
Quinto v. Satiago Castillo Limited PC Appeal No. 27 of 2008.

1.	The Applicant, Piper Trust Limited, applied to alter the register of title BK198965 being a property known as Walcroft, Upper Baslidon, Reading (“the Property”).  The Applicant sought the restoration to the register of the entries for a legal charge dated 3 February 2006 in favour of the applicant with priority over the entries relating to a charge dated 29 February 2008 in favour of the Respondent, Caruso (UK) Limited.  The Respondent objected to the application and the matter was referred to the Adjudicator to HM Land Registry for determination.

Facts
2.	William Andrew Bonnell was registered as proprietor of the Property on 31 January 2006.  The Property was subject to a first legal charge dated 22 November 2005.  A second legal charge in favour of the Applicant was registered on 28 June 2006.  This charge was security for a loan of £750,000 made by the Applicant to a company, Ropetrick Limited, in which Mr Bonnell had an interest.

3.	The Respondent agreed in February 2008 to give Mr Bonnell a loan facility of £800,000 to be secured by a second charge on the Property.  The facility was to enable Mr Bonnell to purchase a share in a business from Mr David Coffer. The terms of the loan were set out in a facility letter dated 27 February 2008.  Mr Oliver Holmes of Tolhurst Fisher LLP was the solicitor instructed by the Respondent to act for it in connection with the grant of the loan facility.  On 28 February 2008 the Respondent sent the sum of £600,000 to Mr Coffer’s solicitors to be held by them on their undertaking not to release the monies to Mr Coffer until authorised to do so by Tolhurst Fisher.  During the afternoon of 29 February 2008 Mr Holmes received by facsimile a letter from Mr Bonnell’s solicitors enclosing a copy of the form DS1. That form purported to have been executed as a deed by the Applicant, acting by a director Mr Crispin Tweddell and secretary, Mr Christopher Curry.  Mr Holmes then wrote that same afternoon to Mr Caruso’s solicitors confirming that the funds were released unconditionally.  Mr Holmes subsequently received the hard copy of the letter from Mr Bonnell’s solicitors together with the form DS1.  On 11 March 2008 Mr Holmes completed a Land Registry form AP1 applying for discharge of the charge in favour of the Applicant and the registration of a charge in favour of the Respondent.  He enclosed with the form the original DS1 together with a certified copy and the original charge together with a certified copy.    

4.	HM Land Registry received and completed the application lodged on behalf of the Respondent to discharge the charge in favour of the Applicant and to register the charge in favour of the Respondent on 12 March 2008.  Mr Bonnell subsequently defaulted on the terms of the loan from the Respondent.  The Respondent then obtained an order for possession of the Property and put it on the market for sale.  The Applicant learned in December 2008 that its charge had been removed from the register and that the charge in favour of the Respondent had been registered.  The Applicant claims that the form DS1 was not executed by it whether acting by the persons whose names appear on the form or otherwise.                  

5.	Both Mr Tweddell and Mr Curry gave evidence that they had not signed the DS1.  Mr Tweddell said that a substantial sum was still due from Ropetrick Limited for which the charge granted to the Applicant was security.  The purported signatures of Mr Tweddell and Mr Curry were examined by the forensic document examiner, Dr Audrey Giles.  Dr Giles prepared a report dated 8th October 2009 in which she expressed her conclusions
(1)  that there is more support for the view that the signature on the copy Form DS1 examined by her is a simulation of Mr Tweddell’s signature than there is support for the view that he signed this document; and
(2) that there is very strong support for the view that Mr Curry did not sign the form DS1 and that the signature on the document was an attempt to simulate his genuine signature.
On 16 November 2009 the Respondent’s solicitors wrote to the Applicant’s solicitors stating that the Respondent was prepared to concede that the DS1 was, without the Respondent’s knowledge or participation, forged by Mr Bonnell.

6.	Having heard the evidence of Mr Tweddell and Mr Curry and seen the report of Dr Giles, I am satisfied that the form DS1 was not executed by or on behalf of the Applicant.  It follows that the removal on 12 March 2008 from the register of the Property of the entries relating to the Applicant’s charge was a mistake.  Under paragraph 5 of Schedule 4 to the Land Registration Act 2002 the registrar has power to alter the register for the purpose of correcting a mistake and by paragraph 6(3) the registrar is required to approve an application for alteration under paragraph 5 where he has power to do so, unless there are exceptional circumstances which justify not making the alteration.  There are no exceptional circumstances in this case to justify not making the alteration.  The registrar must therefore approve the Applicant’s application to alter the register.

7.	The dispute between the parties before me was as to how the register should be altered.  The Applicant submits that the register should be altered to reinstate the Applicant’s charge with priority to the Respondent’s charge.  The Respondent submits that the register cannot be altered so as to give the Applicant’s charge priority over the Respondent’s charge.  I am told that priority is of utmost importance in this case as the net proceeds of sale of the Property after discharge of the first charge are insufficient to pay the sums due to both the Applicant and the Respondent in full.  

8.	The charge granted to the Respondent did not have effect in law until it was registered.  Section 27 (2) (a) of the 2002 Act provides that the grant of a legal charge is a disposition required to be completed by registration and section 27(1) provides that a disposition required to be completed by registration does not operate at law until the relevant registration requirements are met.  The relevant registration requirements in respect of the Respondent’s charge were met on 12 March 2008.  At the time of registration of the Respondent’s charge the Applicant’s charge had been removed from the register.

9.	Section 29 of the 2002 Act provides as follows
“(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration”
Thus when the registrable disposition, which was the creation of the Respondent’s charge, was completed by registration, the Respondent’s charge took priority over the Applicant’s charge because at that time, the Applicant’s charge was not protected by registration or by notice on the register.   

10.	The priority of charges as between themselves is shown on the register by the order in which the charges appear.  Section 48 of the 2002 Act provides
“(1) Registered charges on the same registered estate, …, are to be taken to rank as between themselves in the order shown in the register.
         	 (2) Rules may make provision about –
		(a) how the priority of registered charges as between themselves is to be shown 		     in the register, and
(b) applications for registration of the priority of registered charges as between          themselves”.
Rule 101 of the Land Registration Rules 2003 provides as follows
“Subject to any entry in the individual register to the contrary, for the purpose of section 48(1) of the Act the order in which registered charges are entered in an individual register shows the order in which the registered charges rank as between themselves”. 	
Counsel for the Applicant submitted that the register should be altered so as to enter the Applicant’s charge on the register before the Respondent’s charge or alternatively, by entering the Applicant’s charge on the register together with a note that it had priority over the Respondent’s charge.  
 
11.	I do not accept the register should be altered in either of the ways suggested by counsel for the Applicant.  In my judgment, the registrar does not have power to alter the register in either of the ways suggested.  The Applicant seeks the exercise by the registrar of his power to alter the register to correct a mistake and where the correction of the mistake would prejudicially affect the title of the registered proprietor.  Such an alteration would be a rectification within the meaning set out in paragraph 1 of Schedule 4 to the 2002 Act.  What the registrar (or indeed the court) can do by way of rectifying the register is subject to a limitation set out in paragraph 8 of Schedule 4.  That paragraph provides as follows
“The powers under this Schedule to alter the register, so far as relating to rectification, extend to changing for the future the priority of any interest affecting the registered estate or charge concerned”.
Thus if the register is altered by reinstating the Applicant’s charge, that charge will acquire priority over interests whose priority is not protected at the time of the alteration.  Its priority may therefore be changed in that it will acquire priority over unregistered interests to which it was subject prior to the alteration.  It is implicit in paragraph 8 that the powers under Schedule 4 to rectify the register do not extend to changing retrospectively the priority of an interest affecting the registered estate. By stating that the powers extend to changing for the future the priority of any interest affecting the registered estate, Parliament was stating that the powers do not extend to changing the priority of an interest retrospectively. In this case, the priorities as between the Applicant’s charge and the Respondent’s charge were determined when the Respondent’s charge was registered.  Under section 29, the Applicant’s charge was postponed to the Respondent’s charge at the date of the registration of the Respondent’s charge.  To change the priorities as between those charges now would be to do so retrospectively and would thus be beyond the limitation on the registrar’s powers imposed by paragraph 8 of Schedule 4.

12.	Support for the view that the register cannot be altered in the way sought by the Applicant can be found in the leading textbooks.  In Megarry and Wade: The Law of Real Property 7th ed., at 7-136 the learned editors, after repeating paragraph 8, continue as follows
“Because the effect of rectification is therefore prospective from the date of the order, where the court orders rectification of the register:
(i)	It affects the proprietor of the registered estate or charge from the time that rectification is ordered.
(ii)	It affects the priority of any interest affecting the registered estate or charge concerned that is created or arises after rectification is ordered.
(iii)	It does not affect the priority of derivative estates and interests that were created between the time of the mistake and the order for rectification”.            
That passage is concerned with the court’s power to rectify the register but in my view, with the minor alteration that rectification by the registrar takes effect from the date of the application to him for rectification, the passage applies equally to rectification by the registrar.

13.	In Ruoff and Roper : The Law and Practice of Registered Conveyancing at paragraphs 46.017 to 46.018 the learned editors state as follows:
“When the register is rectified, the change takes effect for the future only. 	 Rectification does not operate retrospectively from the time of the original error.  The priority of interests affecting the registered estate or charge in the period between the original error and the order for rectification is unchanged.  In this, the Land Registration Act 2002 continues the generally held view of rectification under the 1925 Act.   
The rule that rectification operates prospectively is consistent with the policy of the 2002 Act that the register should be as complete and accurate a reflection of the registered proprietor’s title as possible.  The interests of third persons who relied on the state of the register would be prejudiced if a retrospective rectification of the register were to change the priority of their interests.  Similarly, the effect of retrospective rectification would be that official searches of the register might later become inaccurate, even though they were in fact correct at the time they were issued.
	As a result, a third party who acquires an interest in the registered estate before the register is rectified by recording some mistakenly omitted right against that estate cannot be bound by the new right.  His interest takes priority over the newly recorded right according to the usual rules of priority in the 2002 Act”.      
Applying the latter part of that passage here, the Respondent, having acquired a registered charge on 12th March 2008 at a time when the Applicant’s charge was not registered and before the register is rectified to record the Applicant’s charge, cannot be bound by the Applicant’s charge.

14.	I should add here that the editors of Emmet and Farrand on Title at paragraph 9.029, describe Schedule 4 paragraph 8 as appearing “cryptic as to retrospectivity as opposed to prospective operation on priorities”.  The editors do not themselves state how the cryptic puzzle they identify is to be solved.  I prefer the view expressed in Megarry and Wade and in Ruoff and Roper that rectification has prospective effect only.
    
15.	I was referred to the case of Freer v Unwins [1976] 1 Ch. 288.  That case concerned the effect of a rectification of the register under section 82 of the Land Registration Act 1925.    The Plaintiff had taken a conveyance of a shop together with the benefit of a covenant restricting the user of other shops in the same parade.  When the other shops were registered, the burden of the covenant was not shown on the register.  The Defendants took an assignment of a lease of one of the other shops.  It then started a business in the shop which was contrary to the restrictions on user contained in the covenant.  The register of the Defendant’s shop was then rectified by the Chief Land Registrar on the application of the Plaintiff to show the restrictive covenant.  The Plaintiff then sought an injunction against the Defendant.  The issue before Walton J. was whether the Defendant was bound by the covenant.  His Lordship held that it was not because the earliest date to which rectification by entry of the restrictive covenant could relate back was the date given for the entry of the covenant on the register.  Since that date was after the date of the lease, the Defendant took free from the covenant.   Freer v Unwins  was considered by Mann J. in Sainsbury’s Supermarkets Ltd. v. Olympia Homes Ltd. and Others [2005] EWHC 1235 (Ch).  His Lordship said at paragraph 96
“What Freer v Unwins  decides is that where A gets registered as proprietor, then makes a registered disposition to B, and A’s title is then rectified to reflect some third party interest, the rectification does not bind B because B took from a registered proprietor at a time when the third party interest was not protected.  It does not purport to deal (or deal fully) with how the interest affects A and A’s estate”.       
The statement was made in the context of an argument as to whether the registered proprietor was bound by the rectification of the register under the 2002 Act so as to record rights under an estate contract.  It was submitted that Freer v Unwins set out the law under the 1925 Act and Schedule 4 paragraph 8 of the 2002 Act codified it.  Mann J. did not himself consider expressly whether the submission was correct because even if it was Freer v Unwins did not support the argument of counsel for the registered proprietor.  The Land Registration Act 2002 contains provisions differing in a number of respects from the 1925 Act.  Those include the provisions for alteration or rectification of the register.  For that reason, I do not place much reliance on Freer v Unwins in considering the extent of the registrar’s powers under Schedule 4 to the 2002 Act.  However, to the extent that the law under the 2002 Act as to the effect of rectification is the same as under the 1925 Act then Freer v Unwins supports my view that the register cannot be rectified in the way sought by the Applicant.    

16.	The Applicant sought to rely on Ajibade v. Bank of Scotland and Another a decision of Mr Owen Rhys sitting as a Deputy Adjudicator to HM Land Registry given on 10th March 2008.  In that case, the Deputy Adjudicator directed not only the alteration of the register to substitute the applicant as the registered proprietor for the person who had obtained registration as proprietor using a forged transfer but also directed the rectification of the charges register to remove a charge that had been granted by the fraudulently-registered proprietor.  The Deputy Adjudicator considered that he could direct the removal of the charge because the registrar had power to alter the register for the purpose of “correcting a mistake” and the removal of the charge was necessary to “correct” the mistake.  He considered that correcting a mistake included correcting the consequences of a mistake. It was submitted that I should similarly give here a wider construction to the phrase “correcting a mistake” and that in order to correct the consequences of the mistaken removal of the register entries relating to the Applicant’s charge, I should direct that the Applicant’s charge should have priority to the Respondent’s charge.  

17.	I do not consider the decision in Ajibade v. Bank of Scotland and Another to be of assistance in this case.  In this case, there is a statutory limitation on what can be done to correct the mistake and that limitation is Schedule 4 paragraph 8.  The Deputy Adjudicator in Ajibade v. Bank of Scotland and Another did not have to consider the effect of Schedule 4 paragraph 8 and his decision provides no assistance in the interpretation of that provision.

18.	I was also referred to Quinto v. Satiago Castillo Limited PC Appeal No. 27 of 2008, a decision of the Privy Council on appeal from the Court of Appeal of Belize.  Unfortunately, it is a decision which turns on the interpretation of the Land Registration Act 1974 of Belize.  It  does not assist with the interpretation of the Land Registration Act 2002.

Conclusions
19.	I shall direct the Chief Land Registrar to alter the register by entering in the Charges Register of the Property the Applicant’s charge but I shall not direct that the entry is made ahead of the entry of the Respondent’s charge or that it is noted on the register that the Applicant’s charge has priority to the Respondent’s charge.  In my view, it does not.

Costs
20.	My preliminary view is that the Respondent should pay the costs of obtaining the report of Dr Audrey Giles but subject to that, the Applicant should pay the costs of the proceedings before the Adjudicator to be assessed on the standard basis, if not agreed.  I consider that the real issue between the parties was always the issue of priority as between the Applicant’s charge and the Respondent’s charge.  On that issue, the Respondent has succeeded. As I have not heard any argument on costs, I will allow any party who wishes to submit that some different order be made as to costs to the one suggested in this paragraph, a period of 14 days within which to serve written submissions on the Adjudicator and on the other party.

By Order of the Adjudicator

Dated 25 February 2010