REF/2009/0086 and 1556

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

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

BETWEEN
KAREN LOUISE STEWART

APPLICANT

and

LANCASHIRE MORTGAGE CORPORATION LIMITED

RESPONDENT

Property Address: Unit 19, 17 Blackmoor Road, Ebblake Industrial Estate, Verwood, Dorset BH23 6AX
Title Number: DT165454

Before: Mr David Holland sitting as a Deputy Adjudicator to HM Land Registry
Sitting at: Victory House, 30-34 Kingsway London on 16th August 2010

Applicant Representation: Mr Keenan of AEK Legal and Investigation Services (non-legal representative)
Respondent Representation: Miss Tozer of counsel instructed by Cantor Law Solicitors

___________________________________________________________________________

DECISION
___________________________________________________________________________

KEYWORDS: alteration of the register-fraud-“correcting a mistake”-fraudulent transfer and then charge-Schedule 4 paragraph 5(1)(a) of the Land Registration Act 2002-whether the decision in Barclays Bank v Guy is to be preferred over that in Ajibade v Bank of Scotland
Whether there are “exceptional circumstances” within paragraph 6(3) to Schedule 4.

CITATIONS: 	Ruoff & Roper: The Law and Practice of Registered Conveyancing
Harpum & Bignell: Registered Land (2nd edition)
Law of Property Act 1925 section 63
Law Commission Report No. 271

AUTHORITIES: FNB v Achampong [2003] EWCA Civ 487
		   Barclays Bank v Guy [2008] EWHC 893 (Ch) and [2008] EWCA Civ 452
		   Guy v Pannone [2009] EWCA Civ 30
		   Baxter v Mannion [2010] EWHC 573 Ch
		    Quinto v Castillo [2009] UKPC 15
		    Oduwu v Vastguide [2009] EWHC 3565 Ch
		    Norwich & Peterborough BS V Steed [1993] Ch 116
		    Pinto v Lim [2005] EWHC 630
		    Ajibade v Bank of Scotland (Ref/2006/0163/0174-8/4/08)
		    Derbyshire CC v Fallon [2007] EWHC 1326 Ch
Introduction
1.	I have before me two references which arise from three separate applications made by the Respondent and the Applicant in relation to the above property at Unit 19, 17 Blackmoor Road, Ebblake Industrial Estate, Verwood, Dorset BH23 6AX (“the unit”). The unit is, as the description might imply, an industrial unit and is registered under title number DT165454.

2.	The first two applications in time are those made (on 19th May and 10th June 2008) to the Land Registry by the Respondent to register two legal charges granted to it over the unit and dated 15th May and 6th June 2008. Objection was taken to these applications on behalf of the Applicant on 28th August 2008. The third application is that made by the Applicant in Form AP1 on 1st December 2009 to alter the register by restoring the Applicant as registered title holder. The Applicant’s objection to the first two applications was referred to the Adjudicator on 15th January 2009 whilst the third application (objection to which was taken by the Respondent on 2nd December 2009) was referred to the Adjudicator on 22nd December 2009.

The facts
3.	There were, in the end, few factual disputes between the parties. On behalf of the Applicant I read witness statements from the Applicant and her father (dated 9th and 17th April 2009). Neither of these was called to give live evidence. Both witnesses live abroad. The Applicant, having for some years lived in South Africa and then Botswana, now lives in Dubai. Her father has for many years lived in South Africa. Miss Tozer on behalf of the Respondent rightly points out that, whilst this evidence was admitted as hearsay, it was not agreed. However, it is difficult at the moment to see what major and relevant disputes of fact could arise.

4.	On behalf of the Respondent I read a witness statement of Barry Mathews, and two from Stephen Evans-Jones (dated 26th April 2009, and 27th April 2010). This evidence was agreed.

5.	The unit is (or rather was) industrial premises constructed in the 1970s or 1980s.

6.	The Applicant is the daughter of Brian Choat (“the father”) and was the half sister of the late Paul Dominic Choat (“the brother”). At some time prior to 1996, the brother inherited some money from his grandmother. The evidence suggests that it was in the region of £14,000. He wished to purchase the unit and run a vehicle repair business from it. However he required more funds. The Applicant and the father describe the arrangement which arose as follows.

7.	In a letter to the Land Registry dated September 2008 the father states:
“…the unit was purchased by monies which Paul received from his late mother’s estate and topped up by myself. The unit was purchased in the name of my daughter Karen Louise Choat (now Stewart), basically to ensure that Paul did not have the option of selling the unit without our knowledge or consent. Nor could the unit be considered as part of his business should the business fail.”

8.	In his witness statement the father states:
“At sometime in 1996, I cannot remember the exact date, I entered into a discussion with my son Paul and his sister Karen in relation to the purchasing [of] an industrial unit in which we could set Paul up to establish a vehicle repair business. Paul would own the business and build it up in his own time. The Industrial unit would be owned in total by Karen….Funding for the purchase of the unit would be found from money Paul had been left by his Grandmother, plus a contribution from myself for the shortfall with which to purchase and equip the unit…from recall I can state that I believe that the purchase price of the unit was £24,000.00 and would require further funding of £3,500.00 for a complete re-wire of the building, £3,200.00 for the purchase of an electrical hoist and further £2,000.00 for the purchase of tools and ancillary equipment. Therefore the total cost of setting up the business was approximately £32,700.00 of which Paul’s contribution was £14,000.00. Any monies that were paid over and above this £14,000.00 were paid by me to Paul or were paid directly by me for tools or other equipment to do with the business. I explained to both Paul and Karen that this contribution was as a nest egg for them both. My view was that the unit would appreciate in value over the years and they would both have a valuable asset on which they could rely should the need ever arise. It was agreed that if the unit was ever sold then the proceeds of the sale would be split equally between Paul and Karen. If either were to pre-decease the other, the remaining sibling would inherit sole title to the unit. It was further agreed between us that in the event of a sale of the unit then a gift would be put aside for any grandchildren that were to be born in the future. Further to the above I made one very strict condition in relation to my contribution to the purchase of the unit and setting up of the business and that was, that knowing Paul’s disposition for taking the easiest route, I took the precaution and insisted that Karen would have sole title to the land and building.”

9.	In her witness statement, the Applicant tells the same story.

10.	The solicitors acting for the family were Messrs Turners, through a then partner, Mr Peck. In a letter dated 23rd September 2008, Turners state as follows:
“…we can tell you that the original acquisition was handled by a Mr Peck, a partner in this Firm but now retired. Our records reveal that the original purchase monies were provided by the late Paul Choat and he and Karen Choat attended our offices when the original purchase instructions were given to Mr Peck. The initial instructions were that although all the purchase monies were being provided by Paul Choat, the registered proprietor was to be shown as Karen Choat who was to hold the property as bare trustee for her brother Paul. There is absolutely no doubt about this and Mr Peck is absolutely clear on the position.”

11.	It is right to say that, in her statement, the Applicant denies that the phrase “bare trustee” was ever used to her.

12.	The only document contemporaneous to this purchase which was produced to me was the Turner’s account ledger. This shows: a sum of £19,000 coming in from the son on 23rd April 1996; the sum of £1900 being paid out as a 10% deposit on 7th May; a payment of the remainder of the £19,000 (£17,100) on 15th May 1996.

13.	Thus the father’s recollection in relation to the price of the unit and the sum paid over by the son may not be correct. However no one asserts that any funds used to purchase or equip the unit came from the Applicant (who was at that time aged 22).

14.	In any even the Applicant was registered as freehold proprietor of the unit on 10th June 1996. From that time until his untimely death, the son occupied the unit and traded as a vehicle repair business.

15.	In the meantime both the father and the Applicant emigrated to South Africa. The Applicant was married to a Mr Stewart in South Africa on 5th March 2005.

16.	On 21st June 2005 the son contacted Mr Peck at Turners again. He asserted that he wished to have the unit transferred into his own name and to raise mortgage finance on it. It is clear from the attendance note of that conversation that he asserted to Mr Peck that the unit was held by the Applicant as bare trustee for him. In a letter dated 22nd June 2005 sent by Turners to the son, Mr Peck records that he had looked at the deeds and asserts (correctly) that the terms of any trust were not recorded in these deeds. There is however nothing in the letter of 22nd June 2005 to contradict the assertion made that the Applicant held the property as bare trustee for the son and indeed it appears from the terms of the letter dated 23rd September 2008 set out above, that this was the view which Mr Peck took.

17.	Mr Peck drafted a form TR1 by which (on its face): the Applicant appointed the son as an additional trustee of the freehold; the Applicant and the son (as joint transferors) transferred the freehold title to the unit into the sole name of the son. Turners apparently gave the draft transfer to the son so that he could obtain the signature of his sister on it. He returned it with what on its face is the signature of “KL Choat” witnessed by one “Amo Lotz” at an address in Pretoria, South Africa. It is asserted by the Applicant, and accepted by the Respondent, that this was not the Applicant’s signature. It was a forgery. The Applicant asserts that she never saw or signed this document. I have seen the evidence of two handwriting experts both of whom state that the signature is highly unlikely to have been that of the Applicant. Enquiries have been made and there is no trace of there ever having been an “Amo Lotz” at the address given.

18.	Almost certainly in ignorance of this forgery, Turners sent the apparently completed TR1 to the Land Registry. The son was registered as the sole freehold proprietor of the unit on 21st November 2005 on which date a charge was also registered in favour of Lloyds TSB PLC to secure repayment of some £18,000.

19.	In 2008 the son sought further loans from the Respondent apparently to purchase another property. On 15th May 2008 he executed a legal charge over the unit in favour of the Respondent to secure repayment of a loan of £57,652. This loan was drawn down on 19th May and £18,222 used to redeem the existing charge to Lloyd TSB. The Respondent applied to the Registry to register this charge on 19th May 2008 and this application was entered on the Day List on that date. The son executed a second legal charge over the unit in favour of the Respondent on 6th June 2008 to secure repayment of further advances.

20.	It is not suggested that the Respondent had any knowledge or means of knowledge of the fact that the 2005 transfer was a forgery.

21.	Tragically the son was killed in a road traffic accident on 7th June 2008. He died intestate. Letters of administration have been granted to the father and to Mr Keenan (who represented the Applicant at this hearing). At the outset of the hearing I quizzed Mr Keenan as to whether there was any conflict of interest between his position as representative of the Applicant and his position as joint Administrator. He tells me (and I have no reason to disbelieve) that there is no conflict as the son’s estate consists almost entirely of large debts to the Respondent and to others. Thus I saw no reason not to proceed with the hearing.

22.	The Respondent applied to register the second charge on 10th June 2008. This application was entered on the Day List on that date.

23.	Due to the fact that Lloyds TSB PLC was late in providing the Respondent with the Notice of Discharge, the Respondent’s applications were not completed. The Land Registry extended the priority period on a number of occasions for that reason.

24.	However, following his son’s death, the father had discovered for the first time that the unit had been registered in the son’s name. He also discovered the then pending applications by the Respondent to register the charges. He objected to these applications on 28th August 2008 and Notice of Objection was served on the Respondent by the Land Registry on 29th August. As set out above, this matter was referred to the Adjudicator under section 73(7) of the Land Registration Act 2002 (“the act”) on 15th January 2009.

25.	In the meantime Mr Keenan informs me that the unit was destroyed by fire on 31st October 2008. There has apparently been no insurance settlement as the Insurer has not accepted that the son had an insurable interest in the unit.

26.	As I have already stated, on 1st December 2009 the Applicant made an application to alter the register by removing the son as registered proprietor and by restoring the Applicant as such. This matter was referred for Adjudication on 22nd December 2009.

27.	The sums owed by the son’s estate to the Respondent (and potentially secured by the charges) exceed £155,000.

The issues
28.	In her most helpful written and oral submissions, Miss Tozer for the Respondent submits that I should:
(i)	Deal first with the applications made by the Respondent to register the charges; and
(ii)	Direct the Registrar to accede to the applications and register the charges; and
(iii)	Then deal with the Applicant’s application to alter the register; and
(iv)	Direct that the register be altered by removing the son as registered proprietor and restoring the Applicant as registered proprietor (because she concedes that the transfer to the son was a forgery); but
(v)	Dismiss the (deemed) application to rectify the register to remove the Respondent’s charges from it.
In relation to the last point she asserts that the registration of the charges cannot involve the correction of a mistake within paragraphs 1 and 5 to Schedule 4 to the act and thus there is no power for the Registrar to remove these entries. In the alternative she asserts that there are “exceptional circumstances” within paragraph 6 (3) which would justify the Registrar in not making the alteration.

29.	In his written and oral submission Mr Keenan (who, despite his lack of legal qualifications, has put forward the Applicants case with both care and an economy which did not disguise its cogency) opposes each of these submissions save, of course, for point (iv).

The relevant terms of the act
30.	I first need to set out the relevant terms of the act. These were helpfully outlined by Miss Tozer.

31.	By section 23 (1) it is provided that:
“(1) Owner's powers in relation to a registered estate consist of—
(a) power to make a disposition of any kind permitted by the general law in relation to an interest of that description, other than a mortgage by demise or sub-demise…”

      By sections 27(2) and 132 a “disposition” includes the grant of a legal charge.

32.	By section 24 it is provided that:
“A person is entitled to exercise owner's powers in relation to a registered estate or charge if he is—
(a) the registered proprietor”

33.	Section 26 provides:
(1) Subject to subsection (2), a person's right to exercise owner's powers in relation to a registered estate or charge is to be taken to be free from any limitation affecting the validity of a disposition.
(2) Subsection (1) does not apply to a limitation—
(a) reflected by an entry in the register, or
(b) imposed by, or under, this Act.”

34.	Section 29 sets out the effect of registered dispositions such as the grant of legal charges. It provides: 
“(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.
(2) For the purposes of subsection (1), the priority of an interest is protected—
(a) in any case, if the interest—
(i) is a registered charge or the subject of a notice in the register,
(ii) falls within any of the paragraphs of Schedule 3, or
(iii) appears from the register to be excepted from the effect of registration”

35.	However, perhaps the most significant provision is section 58 (1). This provides as follows:
“If, on the entry of a person in the register as the proprietor of a legal estate, the legal estate would not otherwise be vested in him, it shall be deemed to be vested in him as a result of the registration.”
This is a fundamental principle of the act (see e.g. HARPUM & BIGNELL: REGISTERED LAND 2ND edition and paragraph 15.1). Thus the legal estate will vest in a person even though he is registered as a result of fraud.

36.	This is reinforced in a way by section 132 by which the term “registered” means simply “entered on the register”.

37.	The effect of these provisions is as follows. By reason of section 58, even if someone is registered as the freehold proprietor of a legal estate as a result of a forged transfer or some other fraud, he is nevertheless deemed to be the registered proprietor and has the legal estate vested in him. As the registered proprietor he has the “owner’s powers” which include the power to grant a legal charge over the freehold title. Once any such disposition made by the person who is deemed to be the registered proprietor has been completed by registration, then it will take priority over those interests which have to be registered but are not. This would include the interest of a person such as the Applicant who had an equity of rectification of the register. Such an interest could have been protected by the entry of a Notice but was not. The Applicant’s right could not be and was not protected as an overriding interest pursuant to Schedule 3 to the act. In particular it was not and could not have been protected as the interest of someone in actual occupation within paragraph 2 to Schedule 3 as: she was not in actual occupation; the exception in paragraph 2 (c) (i) would almost certainly have applied.

38.	It is next necessary to set out the provisions of the act relating to alteration of the register. These are contained in Schedule 4. Paragraph 1 provides:
“In this Schedule, references to rectification, in relation to alteration of the register, are to alteration which—
(a) involves the correction of a mistake, and
(b) prejudicially affects the title of a registered proprietor”

Paragraph 5 sets out the power of the Registrar to alter the register. It provides:
“The registrar may alter the register for the purpose of—
(a) correcting a mistake,
(b) bringing the register up to date,
(c) giving effect to any estate, right or interest excepted from the effect of registration, or
(d) removing a superfluous entry.”

As Miss Tozer points out, the only power that is relevant in this case is that set out in paragraph 5 (a): that of “correcting a mistake”. There is no doubt that (on the assumption that the Respondent’s charges are registered) the alteration sought by the Applicant would prejudicially affect the Respondents rights by expunging the registered charges. The real question is whether there has been a “mistake” within the statutory definition.

39.	Paragraph 6 makes further provision for the exercise of the powers in paragraph 5. The relevant parts provide:
“(2) No alteration affecting the title of the proprietor of a registered estate in land may be made under paragraph 5 without the proprietor's consent in relation to land in his possession unless—
(a) he has by fraud or lack of proper care caused or substantially contributed to the mistake, or
(b) it would for any other reason be unjust for the alteration not to be made.
(3) If on an application for alteration under paragraph 5 the registrar has power to make the alteration, the application must be approved, unless there are exceptional circumstances which justify not making the alteration.”

As Miss Tozer concedes, despite the terms of section 131(2)(b), she cannot rely on paragraph 5 (2) as her client is not in possession and is not the proprietor of “a registered estate” in land (see section 132).

40.	It is also worthwhile setting out certain of the provisions in the overall statutory scheme contained in the act which relate to indemnity. This is because in certain circumstances those affected by alterations to the register are entitled to compensation and these provisions have been preyed in aid to interpret those of Schedule 4. These provisions are in Schedule 8. Paragraph 1 to Schedule 8 provides:
“(1) A person is entitled to be indemnified by the registrar if he suffers loss by reason of—
(a) rectification of the register,
(b) a mistake whose correction would involve rectification of the register…”

(3) No indemnity under sub-paragraph (1)(b) is payable until a decision has been made about whether to alter the register for the purpose of correcting the mistake; and the loss suffered by reason of the mistake is to be determined in the light of that decision.”

41.	Finally, I will set out those provisions of the Land Registration Rules 2003 which deal with the priority of applications made to the Registrar.

42.	By rule 15 it is provided that:
“(1) An application received on a business day is to be taken as made at the earlier of–
(a) the time of the day that notice of it is entered in the day list, or
(b)
(i) midnight marking the end of the day it was received if the application was received before 12 noon, or
(ii) midnight marking the end of the next business day after the day it was received if the application was received at or after 12 noon….
      (3) In this rule an application is received when it is delivered–
(a) to the designated proper office in accordance with an order under section 100(3) of the Act, or
(b) to the registrar in accordance with a written arrangement as to delivery made between the registrar and the applicant or between the registrar and the applicant's conveyancer, or
(c) to the registrar under the provisions of any relevant notice given under Schedule 2
      
      Rule 12 provides that:
(1) The registrar must keep a record (known as the day list) showing the date and time at which every pending application under the Act or these rules was made and of every application for an official search with priority under rule 147.
(2) The entry of notice of an application for an official search with priority must remain on the day list until the priority period conferred by the entry has ceased to have effect.

      By rule 20 it is provided that:
“(1) Any entry in, removal of an entry from or alteration of the register pursuant to an application under the Act or these rules has effect from the time of the making of the application.”

The son’s interest in the unit
43.	As set out above, Miss Tozer’s secondary submission is that, even if the Applicant’s application involves the correction of a mistake, nevertheless I should not accede to it because there are “exceptional circumstances” within paragraph 6 (3) to Schedule 4 to the act. She says that whatever the position at law, the son always had a beneficial interest in the unit and the effect of the fraudulent transfer and the subsequent mortgages was thus to charge his beneficial interest first to Lloyds TSB and then to the Respondent. Thus, she asserts, the Respondent, at the very least, has an equitable charge over the son’s beneficial interest which it is entitled to protect by the registration of a Unilateral Notice (for which the Respondent has already applied). If this is the case, then there would inevitably be further litigation to establish the extent of the son’s interest.

44.	As the point has been argued before me, I will give my conclusions on the nature of the son’s interest in the unit. I have considered all the evidence relating to the arrangement made in 1996 (by which I mean not only the statements of the Applicant and the father, but also the letters referred to and the Turner’s ledger).

45.	It is clear beyond peradventure that the son at all material times had and was intended to have a beneficial interest in the unit. He provided a substantial portion of the funds for its purchase. The unit was intended for his occupation. The Applicant provided no funds personally. The father regarded the funds which he provided, in effect, as a gift to his children. On any sale the proceeds were to be divided equally between the son and the Applicant. The property was put into the sole name of the Applicant in order to prevent the son disposing of it without the consent of the Applicant and the father. It was not put into the Applicant’s name in order to deprive him of any interest in it. Thus, at all material times the Applicant held the unit on trust for the son.

46.	There must be some doubt on the evidence which I have seen as to whether or not the Applicant was a bare trustee; in other words whether or not she herself had a beneficial interest in the unit. The burden of the evidence before me was that she was intended to have a beneficial interest. However I do not have to decide the extent of the son’s beneficial interest in the unit and I do not. My only finding is that he had a substantial beneficial interest.

47.	Mr Keenan, for the Applicant, points to that part of the evidence in which the father and the Applicant set out what was to happen if either half sibling predeceased the other. He asks me to give effect to this and hold that, on the sons death, any beneficial interest which he might have had passed to his sister. I reject that submission. Firstly, I think that overall, if she was not a bare trustee, the original arrangement in 1996 resulted in the Applicant holding the unit on trust for herself and the son as beneficial tenants in common. In any event, even if the unit was originally held by her for herself and the son as beneficial joint tenants (such that the right of survivorship might originally have applied) the act of the son in forging the transfer and then charging the property had the effect of severing the joint tenancy as well as charging his beneficial interest-see section 63 of the Law of Property Act 1925 and FNB V ACHAMPONG [2003] EWCA Civ 487 (at paragraph 54).

Should I give effect to the Respondent’s applications?
48.	I am in no doubt that I should, at least notionally, give effect to the Respondent’s applications to register the charges. The effect of sections 58, 23, 24 and 132 of the act is that the son, as the person entered on the register as the registered freehold proprietor of the unit, could charge the freehold interest. By section 26 the Respondent was not concerned to go behind the validity of any disposition. It made two proper applications to register its charges which were entered in the day book and remain in it. The applications have not been disposed of. They have not been completed because of the objection made by the Applicant. If they are granted then they will take effect from the date they were entered in the daybook. Indeed, were it not for the delay by Lloyds TSB in providing the discharge form, the charges would have been registered weeks before the Applicant came to object. Given the statutory provisions, I cannot see that the Applicant has any valid grounds for objecting to the registration of the charges per se.

49.	Therefore despite the submission made by Mr Keenan to the effect that I should look at all the applications in the round, I will (notionally) allow the Respondent’s applications. The effect of this is, of course, that the Applicant, in order to remove the charges from the register, has the burden of bringing herself within the terms of Schedule 4 to the act.

Does the Registrar have power to remove the charges: has there been a “mistake”?
50.	As I have already indicated, because she accepts that the transfer of the freehold in 2005 was a forgery, Miss Tozer does not oppose that limb of the Applicant’s application to alter the register by restoring her as the sole registered proprietor. However she opposes the application to alter the register by removing the Respondent’s charges.

51.	Miss Tozer’s principle submission is that, by paragraph 5 to Schedule 4 to the act, the Registrar only has (relevantly) power to alter the register to correct a “mistake”. The registration of the Respondent’s charges was not a mistake therefore the entries cannot be removed. She submits that the effect of the provisions of the act set out above, particularly section 58, is to vest in the son both the title and the power to create a valid charge. He was the registered proprietor at the date the charges were created. He remained and remains the registered proprietor until a successful application is made to alter the register. Thus at the date they were created and (at least notionally) registered the charges were lawfully created. Indeed the Registrar could not have refused to register them. Thus, she submits, the effect of the act is that, even though the registration of the son as freehold proprietor could be said to be a mistake, any subsequent dispositions by him are deemed to be lawful and the registration of them cannot be a mistake.

52.	Her submissions derive support from academic writings. She drew my attention to paragraphs 46.028, 46.029 and 46.030 of Ruoff & Roper: The Law and Practice of Registered Conveyancing in which the learned editors set out an example of a situation to all intents and purposes identical to the facts of this case and assert that the Registrar will not rectify the register to remove the charges as there has been no mistake. She also made reference to Chapter 15 of Harpum & Bignell.

53.	More importantly this view derives support from the decision of Mr Terence Mowschenson QC sitting as a Deputy Judge of the Chancery Division in BARCLAYS BANK V GUY [2008] EWHC 893 (Ch). The relevant facts of that case are very similar to those of this case save that it was alleged that the transfer which resulted in the registration of the person who then charged the freehold was said to have been procured by some form of fraudulent misrepresentation or undue influence such that it was at law voidable rather than void (the latter of which is the effect at law of a forged transfer such as one has in this case).

54.	The learned Judge upheld a submission that, even if the transfer was fraudulently procured, this could not affect the right of the subsequent chargee to be registered and did not provide a ground for alteration of the register. The nub of his reasoning is contained in the following passages:
“17 The starting point is that at the date of the charge and its registration against the property Ten Acre was the registered proprietor of the property. It was entitled to exercise its power to charge the property. By sections 23 sub-section 1 and section 24 of the 2002 Act the registered proprietor of a registered estate is entitled to make a disposition of any kind permitted by the general law, subject to various exceptions. This includes under section 23 (1) (b) a power to charge the estate at law with the payment of money, Section 58 sub-section 1 of the 2002 provides under the heading “Conclusiveness”: “If on the entry of a person on the register as the proprietor of a legal estate the legal estate would not otherwise be vested in him, it shall be deemed to have been vested in him as a result of the registration.” 
18 It follows that at the time the property was charged to the claimant Ten Acre was the registered proprietor. The legal estate was deemed to be vested in it, and it was entitled to exercise its owner's powers to charge the property. It follows that there can be no mistake in the claimant's registration as chargee. I refer to the decision of Scott LJ in Norwich Building Society v Steed [1993] Ch 116 at page 135 between letters A to H… 
…The entry in the charges register of the building society's legal charge was not an error and was not made under a mistake. The legal charge was executed by the Hammonds, who were at the time transferees under a transfer executed by Mrs. Steed as attorney for the registered proprietor. The voidable transfer had not been set aside…
19 Until the chargor's title is avoided, his title as the person on the register is a real registration carrying with it all the incidents of the proprietor of the property which registration carries with it….
20…It matters not whether the transfer is ultimately found to be fraudulently procured or whether the transfer is void or voidable…”

The learned Judge then cited and relied upon the passages from Ruoff & Roper and Harpum & Bignell to which I have referred above.

55.	This is clear support (albeit at first instance) for the submission made by the Respondent.

56.	Having lost, Mr Guy applied for permission to appeal. His application came before Carnwath and Lloyd LJJ in the Court of Appeal ([2008] EWCA Civ 452). Permission to appeal was refused. In the course of his judgment Lloyd LJ said (at paragraph 23):
“…it seems to me that it is necessary to grasp the nettle of what is meant by "mistake". In that respect, while the scope of the phrase "correcting a mistake" is no doubt something that requires to be explored and discussed and developed in the course of future litigation, which will be decided upon the facts and upon the merits of each case, I cannot see that it is arguable that the registration of the charge can be said to have been a mistake, or the result of a mistake, unless at the least Mr Guy can go so far as to show that the bank, the mortgagee, had either actual notice, or what amounts to the same, what is referred to as "Nelsonian" or "blind eye notice", of the defect in the title of the mortgagor, Ten Acre Limited in the present case. I simply cannot see how it could be argued that if the purchaser or chargee knows nothing of the problem underlying the intermediate owner's title, that the registration of the charge or sale to the ultimate purchaser or chargee can be said to be a mistake. That seems to me inconsistent with the structure and terms of the 2002 Act.”

57.	However it is right to point out that, in a subsequent appeal (again involving Mr Guy) GUY V PANNONE [2009] EWCA Civ 30, in which the above passage was cited to him, Lloyd LJ did make the following comments (at paragraphs 27 and 28):
“That passage is not authority for the proposition that, if at the date of a legal charge a chargee does have actual notice that the chargor did not have a good title to the property charged, or has turned a blind eye to matters that it knew, which would, if it addressed them properly, have shown this, then rectification is available as against the chargee. Apart from anything else, Barclays was not represented at that hearing. That is why the judgment cannot be cited, under the Practice Direction (CA: Citation of Authorities) [2001] 1 W.L.R. 1001 . It is relevant in this case only as part of the factual history of the case, not as authority.”

I have some difficulty with the concept of, in effect, ignoring a clear and considered judgment of the Court of Appeal such as the passage from the judgment of Lloyd LJ in the Guy case set out above particularly in an area of law such as this where there are few other authorities. That is so even if the point was not one which was fully argued. The Court of Appeal clearly held that the arguments raised by Mr Guy did not justify even granting permission to appeal. It is also right that I point out that it was I who drew it to the attention of Miss Tozer and Mr Keenan. Miss Tozer was aware of the judgment but had not intended to cite it to me because of the Practice Direction. Be that as it may, and despite the clear terms of the passage from Lloyd LJ in the Guy case, I must proceed on the basis that there is no appellate authority on this point. The most that can be said is that there is nothing in either judgment of Lloyd LJ which would indicate that he thought that the approach and conclusions of the learned Deputy Judge were incorrect.

58.	I was also taken to the more recent case of BAXTER V MANNION [2010] EWHC 573 Ch in which Henderson J (at paragraph 39) had to consider the ambit of the word “mistake” in paragraph 5 to Schedule 4. However the facts of that case were very different from those in this case and there is nothing in that judgment which sheds light on the point I have to decide (save for the obvious point made at paragraph 52 that the burden is on the applicant to show that there has been a mistake).

59.	Nor do I consider that the Privy Council case of QUINTO V CASTILLO [2009] UKPC 15 is relevant as it concerned the materially different provisions of the land registration statute in Belize.

60.	After the hearing, as I told the parties at the time I would, I looked at the case of ODUGWU V VASTGUIDE [2009] EWHC 3565 Ch. In that case a fraudster forged the signature of the registered freehold proprietor of a substantial property on a charge and obtained a sum of £750,000. The charge was registered and in due course the chargee appointed a receiver who exercised the power of sale to a third party who was then registered as the proprietor, having paid off the sum due to the chargee whose charge was then deleted from the register. The former freeholder then applied to rectify the register by restoring himself as registered proprietor. During the proceedings one of the points raised by the new freeholder was that the registration of it as freehold proprietor was not a mistake within Schedule 4 to the act. However the trial judge held that, in a consent order entered into during the proceedings, the new freeholder had conceded that it was or could be a mistake and thus it was estopped from raising that argument. Thus (save for one brief passage to which I shall refer below) this case is not relevant one way or the other. As such I did not invite either party to make further submissions on it.

61.	However Miss Tozer did rely on, and seek to draw some support from, two cases concerning the provisions in section 82 of the Land Registration Act 1925. This, so far as is relevant, provided that:
“(1) The register may be rectified pursuant to an order of the court or by the Registrar, subject to an appeal to the court, in any of the following cases, but subject to the provisions of this section:
…
(d) Where the court or the registrar is satisfied that any entry in the register has been obtained by fraud;
…
(g) Where a legal estate has been registered in the name of a person who if the land had not been registered would not have been the estate owner; and
(h) In any other case where, by reason of any error or omission in the register, or by reason of any entry made under a mistake, it may be deemed just to rectify the register.”

62.	It is to be noted that the ground in section 82(1)(h) bears a similarity to that in paragraph 5(a) to Schedule 4 of the act. However, there is no equivalent in the act to the ground in section 82(1)(g). Thus, under the 1925 act, it was important to establish whether the title that had been registered by fraudulent means had been acquired as a result of a transaction that was void or one that was merely voidable. If the transaction was void (such as a forged transfer) then the ground in section 82(1)(g) would apply even if none of the other grounds did. As Miss Tozer (in my view rightly) points out, section 58 of the act applies whether the entry of the person on the register was as a result of a void or a voidable transaction. Thus under the act, it is now an irrelevant consideration.

63.	In NORWICH & PETERBOROUGH BS V STEED [1993] Ch 116, the Court of Appeal had to consider a situation in which a transfer of property had been effected by the fraudulent use of a power of attorney granted by the registered proprietor. The transfer was held to have been voidable but not void. Following the transfer the fraudulent transferees had charged the property to a Building Society to secure repayment of a substantial loan which charge was registered. When the Building society sought possession on the ground of arrears the original freeholder sought, inter alia, rectification of the register to remove the charge from it. This was refused. In relation to the ground at section 82(1)(h) Scott LJ stated (at page 135B):
“Paragraph (h) is relied on by [counsel]. But in order for the paragraph to be applicable some "error or omission in the register" or some "entry made under a mistake" must be shown. The entry in the charges register of the building society's legal charge was not an error and was not made under a mistake. The legal charge was executed by the Hammonds, who were at the time transferees under a transfer executed by Mrs. Steed as attorney for the registered proprietor. The voidable transfer had not been set aside. The registration of the Hammonds as proprietors took place at the same time as the registration of the legal charge. Neither registration was an error. Neither entry was made under a mistake. So the case for rectification cannot be brought under paragraph (h).”

64.	In PINTO V LIM [2005] EWHC 630 a former wife had, by a transfer on which she had forged her former husband’s signature, managed to have herself registered as sole legal proprietor. She had then transferred the property to a third party who had purchased for value and in good faith. The former husband then sought rectification as against the third party. In relation to the ground in section 82(1)(h) Blackburne J said (at paragraph 83):
“The registration of the second defendant was not as a result of any error or omission or of any entry made under a mistake. The entry was properly made following the disposition for valuable consideration of the property by the then sole registered proprietor, Ms Lim.”

65.	Thus both of these cases support the view that a narrow interpretation equivalent to that favoured by the Respondent was placed on the equivalent provision in the 1925 legislation. One must of course be very wary of relying on cases on the 1925 act when seeking to interpret the new legislative scheme embodied in the act. However, it seems to me that Miss Tozer is correct when she points out that the intention of the legislature when enacting the act in 2002 was to restrict or, at the very least, not increase the number of situations in which alteration of the register was possible (see for example the Law Commission Report: Land Registration for the Twenty-First Century-Law Com No. 271 of July 2001 at paragraphs 1.5, 2.38 and 10.6).

66.	However, there is another first instance decision in which a different view was taken after detailed argument. This is the decision of Mr Owen Rhys, sitting as Deputy Adjudicator to HM Land Registry in the case of AJIBADE V BANK OF SCOTLAND (Ref/2006/0163/0174-8/4/08). In that case a transfer was executed pursuant to a forged power of attorney into the name of the fraudster’s husband. The property was then charged twice which charges were registered against the freehold title. The original registered proprietor then applied to alter the register by: restoring her as the registered proprietor; removing the charges from the Charges register. The second chargee contested the application on the grounds that the registration of its charge was not a mistake. Following full argument, the learned Deputy Adjudicator rejected this and held that there was a mistake and ordered that the register be rectified accordingly.

67.	The decision of the learned Deputy Adjudicator has a number of strands to its reasoning. However the nub of the decision is in paragraph 12 where he says:
“…it is manifest, and not disputed, that there was an operative mistake when the Land Registry registered Mr Abiola as proprietor of the Property.  The real question, it seems to me, is to decide how far the registrar can go in “correcting” that mistake.   It is accepted that Mr Abiola should be removed from the register and the Applicant replaced as proprietor in the Proprietorship Register.   It is also accepted that Halifax Plc should be removed from the Charges Register. Would these steps entirely correct the original mistake?  The Property would still remain subject to the second charge created by the fraudulently-registered Mr Abiola, and the Applicant would regain her title but encumbered by this charge. It does not seem to me that, in such circumstances, the mistake has been fully corrected.  Certainly, all the consequences of the mistake would not have been corrected, even though it would be open to the registrar to so by rectifying the Charges Register by removing Endeavour’s charge.  In my judgment, there is no basis for construing the expression “correcting a mistake” in such a restrictive way.  It seems to me that this formulation is intended to give the registrar wide scope to exercise the discretion to rectify in a fair and just way.  It would have been possible to have imposed express limitations on the power in the sense contended for by Endeavour if this had been the intention. – as indeed limitations have been imposed in regard to proprietors in possession (see Schedule 4 Paragraph 6).   It seems to me that it would be perverse to limit the registrar’s power to rectify the register to the correction of only one consequence of the mistake, leaving uncorrected the other direct consequences of the original mistake.  Protection for parties in the position of Endeavour is to be found both in the undoubted requirement that the registrar should exercise his power in a fair and just way, and in the existence of an indemnity from the Land Registry.”  

68.	On the way to arriving at this conclusion, the learned Deputy Adjudicator held (in paragraph 10) that, if he did not alter the register, then the innocent former freeholder would not have a right to indemnity under Schedule 8. He interpreted paragraph 1(1)(b) to that Schedule as reading “a mistake whose correction would involve rectification of the register but no rectification takes place”. He in effect limited the reference to “a mistake” in that sub-paragraph to the relevant mistake which the Registrar had refused to rectify.

69.	For what its worth, he also adopted a narrow interpretation of section 26, holding (in paragraph 5) that it does not cover “a situation where the owner has been registered as a result of a mistake, because "limitations affecting the validity of a disposition" more naturally refers to express or implied limitations which fetter an owner's powers - typically, the requirement to obtain the consent of a beneficiary or other person to a trustees' sale.”

70.	As I have stated, this was a decision reached after full argument by an experienced first instance tribunal. It is entitled to as much respect as the first instance decision in the Guy case. Mr Keenan on behalf of the Applicant urges me to adopt its reasoning and conclusions.

71.	Miss Tozer however urges me not to follow this decision. She makes the following points. Firstly, although it was decided some two months before the hearing of the Abijade case, it does not appear that the first instance decision in Guy was cited to the learned Deputy Adjudicator. Nor does it appear that either the Norwich & Peterborough v Steed or Quinto v Santiago cases were cited to him. Thirdly, she argues that the learned Deputy Adjudicator’s interpretation of paragraph 1(1)(b) to Schedule 8 is wrong. The paragraph refers to a person “suffering loss by reason of…a mistake whose correction would involve rectification” (emphasis added). This is wide enough to include a situation such as this where, although there is no mistake which can be corrected in the registration of the charge, there is a mistake in the original registration under the fraudulent transfer. It is the mistake which is the original registration of the fraudster which has caused the loss. Thus this paragraph is wide enough to allow an indemnity to an innocent former proprietor against whose property the fraudster has subsequently registered a charge which has not been removed. She also points to the words of paragraph 1 (3) would seem to indicate that paragraph 1(1)(b) can apply whether or not the relevant mistake is rectified and thus it should not be interpreted by adding the words added by the learned Deputy in paragraph 10 of his decision.

72.	I thus have two conflicting first instance decisions and I have to decide which one to follow. At the end of the day (and not without some reluctance) I have come to the conclusion that Miss Tozer’s submissions are to be preferred and that I should follow Guy and decline to follow Ajibade. My reasons are as follows.

73.	It seems clear to me that the effect of sections 58, 23, 24 and 132 of the act is that the son, as the person entered on the register as the registered freehold proprietor of the unit, could lawfully charge the freehold interest. The clear intention of Parliament was to give owner’s powers to the person who happened to be registered as freehold proprietor even if this registration was as a result of fraud. The son remained the registered proprietor until a successful application was made to alter the register. Thus at the date they were created and (at least notionally) registered the charges were lawfully created. Indeed the Registrar could not have refused to register them. As such it is difficult to see how the registration of the charges could be described as a “mistake”. They were lawfully created and lawfully registered. As is clear from paragraph 1.5 of the Law Commission report (cited above), the fundamental objective of the act was that the register should be a complete and accurate reflection of the state of the title to land at any given time. This was intended to facilitate the move to electronic conveyancing. It was intended to allow investigation of title on line “with the absolute minimum of additional enquiries and inspections”. To allow ex post facto removal of entries which were at the time lawfully made to reflect lawful dispositions would, it seems to me, undermine this intention. Section 58 reflects a balance struck by Parliament which preferred certainty of title over the property rights of those who had been the victims of fraud. They are to have their remedy by way of indemnity under Schedule 8.

74.	I think that it is not correct to read paragraph 5 (a) to the Schedule 4 to the act in the way the learned Deputy Adjudicator did in the Ajibade case. It is clear from paragraph 12 of the decision in that case that the paragraph is being construed as including a reference to correcting the consequences of a mistake. I do not think that the paragraph can be read so widely. It is the mistake, and not necessarily all its consequences, which the Registrar has the power to correct. In this view some support can be gained from the Odugwu case where, in paragraph 58, the judge said this:
“…it does not seem to me obvious that the reference to “correcting a mistake” in paragraph 2(1)(a) of Schedule 4 to the Act can properly be construed as including a reference to correcting the consequences of the mistake, which is the next step in Vastguide's argument. However, counsel for Vastguide relied in this context on a recent decision of a Land Registry Adjudicator in Ajibade v. Bank of Scotland plc in the course of which the Adjudicator seems to have taken the view that the correction of a mistake by rectification of the register could extend beyond the correction of an entry on the register to include the correction of the consequences of such a mistake. As it is not necessary for me to decide this point in this case in the light of my rejection of Vastguide's argument on the ground that the Credit & Mercantile charge has already been deleted from the register (a point that did not arise in the Ajibade case) I do not think it appropriate that I express any conclusion on it.”

Given the qualification expressed by the judge, one cannot draw too much from this. Suffice it to say that the learned Judge in the Odugwu case does not appear wholeheartedly to support the approach taken in the Adibade case.

75.	For what it is worth, I do not agree with the learned Deputy Adjudicator that section 26 is limited in the way he sets out. It is, in my view, apt to include the situation of the Respondent in this case. Thus, in my view, the words “any limitation affecting the validity of a disposition” are wide enough to encompass dispositions by forged transfers as well as those made ultra vires.

76.	Further, and at the very least, the approach adopted by the learned Deputy Judge in the Guy case has not in any way been undermined by the comments of Lloyd LJ in the subsequent Court of Appeal hearings.

77.	The restrictive interpretation adopted in Guy is also consistent with the interpretation adopted by the courts of the similarly worded provision of the 1925 act (section 82(1)(h)). It seems to me valid to point out that the Law Commission appears to have felt that in the act, at the most, it was simply codifying the existing practice. There is nothing to indicate that it intended to expand those situations in which alteration was possible. The failure to enact a replacement to section 82(1)(g) would indicate that the Parliamentary intention was to restrict rather than expand. It might also be said that, had it been the intention of the Law Commission and Parliament to effect a statutory overruling of the Norwich & Peterborough v Steed case, then one might have expected this to be spelled out. It is not.

78.	I agree with Miss Tozer’s criticisms of the interpretation placed on paragraph 1(1)(b) to Schedule 8 of the act by the learned deputy Adjudicator in the Adibade case. I think that the reference to “a” mistake when combined with the terms of paragraph 1(3) indicate that the provision can, in this situation, cover loss caused by the original mistake in the registration of the fraudster even if the subsequent registration of a charge is not a mistake within the statutory definition. 

79.	The interpretation adopted in Guy has the support of the learned editors of Ruoff & Roper and Harpum & Bignell.

80.	As such I will direct the Registrar to register the Respondent’s charges.

Are there “exceptional circumstances”?
81.	Given my ruling on the question of mistake, it is strictly unnecessary for me to rule on Miss Tozer’s secondary point. However as the matter was argued, I will briefly say something on the topic.

82.	As the case of DERBYSHIRE CC V FALLON [2007] EWHC 1326 (Ch) indicates (at paragraph 30-39), the decision as to whether or not there are exceptional circumstances, involves an exercise of judicial discretion. However it seems to me that effect must be given to the words Parliament has used. The presumption expressed by paragraph 6 (3) to Schedule 4 is that ordinarily, once it is found that there has been a mistake and if paragraph 6 (2) does not apply, then the register will be altered. In order to justify a refusal to exercise the power the circumstances have to be “exceptional”. It is not for me to put any form of judicial gloss on the statutory wording but one must reflect on that word used. It thus seems to me that the circumstances must be more than merely “unfortunate” or “unusual”.

83.	With this in mind, and had it been relevant, I would have come to the view that there were not exceptional circumstances in this case. The mere fact that one party may lose a proprietary right and be forced to apply for an indemnity or the fact that further litigation may ensue would not seem to me (either singly or combined) to constitute circumstances exceptional enough to justify a refusal to exercise the power to alter.

Conclusion
84.	I intend to direct HM Land Registry to:
(i)	Allow the Respondents applications and register the two charges; and
(ii)	Allow the Applicant’s application to the extent of altering the proprietorship register to replacing the son as registered proprietor with the Applicant; and
(iii)	Dismiss the Applicant’s application insofar as it seeks to remove the Respondent’s charges from the register.

85.	I invite both parties to make written submissions to me on the form of order and on any consequential matters within 21 days of the receipt of this decision. I hereby inform them pursuant to rule 33 of the Adjudicator to HM Land Registry (Practice and Procedure) Rules 2003 (as amended) that I intend to make a decision on any consequential matters in writing without a hearing

DATED THURSDAY 19TH AUGUST 2010 

BY ORDER OF THE ADJUDICATOR TO HM LAND REGISTRY