REF/ 2015/0287

PROPERTY CHAMBER, LAND REGISTRATION
FIRST-TIER TRIBUNAL

LAND Registration act 2002

IN the matter of a reference from hm land registry

BETWEEN
(1)	CUSTODIO SABBAS VICENTE FERNANDES 
(2)	MANUEL PAULO ANDRE FERNANDES 
APPLICANTS

And

CLIVEDEN FINANCE LIMITED 

RESPONDENT

Judge Stephanie Tozer

Property Address: 130 Woodville Road, Thornton Heath, Surrey CR7 8LL 
Title Number: SGL 87910

___________________________________________________________________________

DECISION
___________________________________________________________________________

KEYWORDS 

 Rectification – fraud - Exceptional circumstances 

CASES CITED: 

Black-Clawson v Papierwerke Waldhof-Aschaffenburg [1975] AC 591
In re H (Minors) [1996] AC 563
Al-Sabah v Ali [1999] EG 11
EPI Environmental Technologies Inc and Another v Symphony Plastic Technologies Plc and Another (Practice Note) [2004] EWHC 2945 (Ch)
Paton v Todd [2012] 2 EGLR 19
Murdoch v Amesbury UT/2014/0022
BPP v Holdings v Revenue and Customs Commissioners [2016] EWCA Civ 121 

The Background 

1.	The Applicants are brothers.  The First Applicant, who I shall call Custodio, was born on 5 December 1958.   The Second Applicant, who I shall call Paul (although his first name is Manuel), was born on 30 November 1957.  
 
2.	The Applicants purchased a property at 130 Woodville Road, Thornton Heath CR7 8LL (“the Property”) with the assistance of a mortgage from the Halifax BS on 13 November 1984.   Their purchase was registered.  Custodio’s address for service was given at Land Registry as 22 East Paddock Court, Lings, Northampton NN3 4LF (“the Northampton address”); Paul’s was the Property.  

3.	They lived at the Property with their father and mother thereafter.  In 1990, Paul moved out.  In 1994, the father died.  In 1997, Custodio moved out.  That left their mother living there alone, until her death in March 2013.  

4.	In November 2006, the mortgage was redeemed.   Custodio received a letter and office copies from the Land Registry about this, because it was sent to the Property.   

5.	The Property was empty after their mother’s death, until October 2013, when the Applicants let it to a family named Chamorro (who remain there to this day).  

6.	It is relevant to understand what happened in relation to the council tax for the Property.  It seems that on 15 April 2013, the mother’s account was closed, and a new account was opened for “the executors”.  But on 2 May 2013, the Council opened a yet further account, in the name of Custodio and Manuel Fernandes.  Custodio told me that this was a result of him calling up to say that he was the owner of the Property, and giving his correct address, 38 Ridgemount Avenue, Shirley, Croydon CR0 8TQ (“Custodio’s Croydon address”).  Demands were thereafter addressed to him there, and he paid those.   However, a witness statement from a police officer, DC Casey, adduced by the Applicants as I describe below, suggested that the council conducted searches in order to find the addresses for Custodio and Manuel Fernandes; that they found the correct address for Custodio, but identified a Manuel Fernandes at 4 Longcourt House, 46 Bushey Road, London E13 9EN (“Longcourt House”), and sent copy demands to him there too.  Mr Lees, Counsel who appeared on behalf of the Respondent, submitted that I should not accept Custodio’s account about this, on the basis that it was unlikely that the Council would search for proprietors if, as he said, he was already in correspondence with them and had agreed to be liable for the bills.  I agree with Mr Lees that, in this respect, Custodio was seeking to paint himself in the best light, and that it is more likely that it was the Council that traced him and asked him to pay rather than vice versa.  Mr Lees also submitted that I should reject DC Casey’s evidence about the Council as hearsay, but Mr Lees cannot have his cake and eat it.  There is no reason to suppose that DC Casey’s evidence in this respect is not accurate.  

7.	Paul told me that he has no connection whatsoever with Longcourt House, and I accept that.  It seems that another man with the name Manuel Fernandes (who I shall call Manuel) lived at that address.  

8.	It seems that once alerted by the Council to the fact that there was an unoccupied house registered in the name of Manuel Fernandes, Manuel took an interest in it.  Almost as soon as the Chamorro family moved in, a man claiming to be Manuel Fernandes arrived and told them that he owned the property and it was not allowed to be rented out.  The tenants apparently gave him short shrift.

9.	On 6 December 2013, 2 men visited the Property.  The tenants phoned Custodio who spoke to one of the men.  Custodio then phoned a neighbour, Oscar Carvalho and asked him to go round.  The men left, having promised to return at 3pm to meet Custodio, but they did not return on that day.  

10.	A few days after that, Manuel returned to the Property.  Another neighbour, Abdul Rahman, intervened.  He took a photograph of Manuel with his mobile phone, but Manuel stole his phone.  In due course, Manuel was convicted of the theft of Mr Rahman’s mobile phone on that occasion, so there is no doubt that Manuel had attended at the Property on that date.  

11.	Manuel was also convicted of an unrelated fraud at the same time.  I am told that he pleaded guilty on both counts.  Custodio was told that the fraud was unrelated.  Custodio raised concerns with the police officer, DC Clough, about what he should do, and was told it was an isolated incident.  Custodio was somewhat confused in his evidence about this – he said at one stage that he was told on this occasion that he should not take any steps to investigate how the fraud had happened because it might prejudice the investigation.  Mr Lees quizzed Custodio as to how there could have been an ongoing investigation after Manuel was convicted, but I am not prepared to find that Custodio was lying about this.  Custodio might have been confusing this conversation with later conversations he had with another officer, DC Casey; or there might been an ongoing investigation into whether Manuel had been acting alone.    

12.	Manuel was in prison on remand prior to his conviction on 3 June 2014.  He was released on 3 June 2014, having served his 12 week sentence during the time he was on remand.  

13.	It appears that sometime before 18 June 2014 someone claiming to be Manuel Fernandes instructed Urban Life Estates and Surveyors to market the Property.  Presumably no keys were provided, and presumably Urban Life were told that inspections would not be possible because it was tenanted.  

14.	It seems that Urban Life then contacted Strawberry Park Corporation Limited to see if they were interested in buying the Property, and it appears that by 18 June 2014, Strawberry Park had agreed to buy the Property for £200,000.   Shortly after that, Strawberry Park approached the Respondent, seeking finance for the purchase.   

15.	It seems that the person claiming to be Manuel Fernandes nominated Ewan & Co to act as his solicitor, and gave his address as Longcourt House.  In due course, Ewan & Co obtained copies (albeit poor ones) of passports purporting to be for Manuel Fernandes and Custodio Fernandes.  Manuel’s passport does not record that he has any middle names and gives a date of birth of 25 May 1968.  Custodio’s passport and driving licence record a date of birth of 12 May 1967.  These were not the same documents which were produced to me at the hearing.

16.	Letters were sent by Ewan to Custodio at the Northampton address.  But he had moved out of this address (which was a Council house his sister had rented) in 1984.  Custodio says, and I accept, that he did not receive these letters.   

17.	The documents suggest that on 1 July 2014, an inspection was carried out by a valuer.  The Applicants asserted that this could not have taken place because they had told their tenants not to let anyone in, and the tenants had not informed them that an inspection had taken place.  Custodio confirmed, however, that he had not, to this day, asked his tenants whether there had been any inspection, and the tenants were not called to give evidence.  The explanation for that was that the tenants did not speak good English.  There is also a curiosity in relation to the dates: the letter of instruction in the bundle is dated 9 July 2014; the valuation report suggests that the instructions were received on 3 July 2014 and the inspection occurred on 1 July 2014.  

18.	A written valuation report was produced, enclosing photographs, including photographs which the Applicants agreed were of the interior of the Property and must have been taken sometime after October 2013.  The Applicants suggested that these photographs must have been taken in December 2013, but there was nothing to so indicate on the face of the report.  The report also indicated that the rear of the living room was being used as a sleeping area.  This is a curious thing for a valuer to make up and tends to suggest that he did in fact inspect.  Given the importance which the Respondent placed on this inspection, I am slightly surprised that they did not call the valuer to confirm that he did attend on that day, but despite the fact that this was not done, I am not prepared to conclude that the valuer did not in fact inspect on or about the date he said he did.  

19.	It may be that the inspection did take place with the tenant’s consent, and that they were not alarmed at the time by it and did not mention it to the Applicants.  It may even be that they did try to get hold of Custodio, but were not able to do so because he was away in Rio.  I am not therefore persuaded that the inspection did not occur – but equally, I am not persuaded that this tells me much about whether the Applicants were aware of and involved in the transaction.   

20.	On 11 July 2014, 2 men purporting to be the Applicants attended Ewan & Co to sign the contract and transfer.  The attendance note does not record what time this occurred, but from emails passing on that day, it seems likely that this occurred sometime between 12.43 and 3.31pm.  The documents were witnessed by a solicitor: Charles Ewan.  I did not hear from Mr Ewan.  

21.	Contracts were exchanged and completion occurred on 15 July 2015.  It seems that the proceeds were distributed over the following weeks as follows: 

(a)	£40,000 was sent to J R Webb;
(b)	Urban Life and Ewan’s fees were paid ;
(c)	£35,000 was sent to Miss P Houssein; 
(d)	M Fernandes was sent £20,000;
(e)	A Noel  L Metcalfe was sent £80,000; 
(f)	The balance was sent, on 15 August 2014, to ITL Global Consulting Ltd.

22.	On 25 July 2014, a Benjamin Miller attended at the Property.  I heard evidence about this from the neighbours living on either side of the Property (who had been called by the Applicants), as well as Custodio.   There was some confusion as to what he said he was attending for, and who he represented, but whatever he said to the tenants or neighbours prompted Custodio to come to the Property and talk to him.  He asserted that someone (either Mr Manuel Fernandes or Strawberry Park) owned the Property.  Custodio called the police.  
 
23.	This incident prompted Custodio to visit Land Registry on 1 August 2014.  It was then that he ascertained that a transaction had occurred and Strawberry Park were the registered proprietors.

24.	On 8 August 2014, the Applicants applied by letter to Land Registry for alteration of the register based on fraud.  Apparently, Land Registry required them to complete an AP1.  The copy I have seen is dated 18 July 2014, but this is a typographical error.  It was in fact completed on 18 August 2014.  There is a further typographical error on the covering letter.  This is dated 1/09/2014, but in fact it seems to have been sent on 19/8/2014, along with identity verification forms which had been completed by the Applicants and verified by a Karen Nicola Davies of McMillan Williams.  

25.	On the same day, 8 August 2004, the police notified Urban Life and Strawberry Park of the allegation of fraud.  

The Issues

26.	The issues which I have to decide are: 

(1)	Did the Applicants sign the Contract and Transfer? 
(2)	If not, are there exceptional circumstances which justify not making an alteration of the register so as to restore the Applicants as proprietors and remove the Respondent’s charge? 

The hearing

27.	The applicants appeared before me in person at the hearing on 1 and 2 March 2016.  As I have already indicated, they both gave evidence to me, and they called 2 neighbours, Oscar Carvalho and Abdul Rahman to corroborate their account in relation to specific incidents at the Property.    

28.	The Applicants have acted in person throughout.  Despite the directions of the Tribunal dated 20 November 2015  - which provided that the parties “must, by 9 January 2015” (which should plainly have read 2016) file and serve “the witness statements of any witness of fact upon whose evidence they propose to rely” and indicated that “that parties may not call any witness other than those in respect of whom a statement has been served without the prior permission of the Tribunal” -  the Applicants claim that they did not appreciate that they had to produce witness statements from all of their witnesses by the appointed date.  They served a witness statement from DC Casey the week before the hearing.  The Respondents objected, so the Applicants made an application for permission to rely on this evidence.  

29.	As I have already indicated, the hearing took place on 1 and 2 March 2016.    This particular application was made on 1 March 2016.  Accordingly, I did not have the benefit of the decision (on the same day) in BPP v Holdings v Revenue and Customs Commissioners [2016] EWCA Civ 121, where the Court of Appeal gave guidance on the approach to applications of this nature in Tribunals.  I did not therefore approach matters in that way (though it may well be that I would have made the same decision if I had).  It seemed to me that it was in accordance with the overriding objective for me to admit this material, because the overriding objective which applies in the Tribunal requires us to seek to avoid unnecessary formality and to ensure, so far as practicable, that the parties are able to participate fully in the proceedings.  Proceeding without admitting the evidence would not, in my view, have allowed the Applicants to participate fully in making out their case.  (Although the Applicants did not mention this at the time this application was being made, they later said that they had not investigated various matters because they were told to leave the investigating to the police, so it seems to me clear that the Applicants would not have been able to advance their case properly without this evidence).  The Respondent had elected not to advance any positive case, so would not have called evidence to rebut any of this evidence whenever it had been produced, and was still able to make any submissions about the weight to be attached to it and/or the costs consequences of its late production, so I could not see that the Respondent was prejudiced by the fact that the witness statement was late, as opposed to the content of it.  The Respondent did not seek an adjournment when I indicated that I was going to admit the evidence.  DC Casey did not attend at the Tribunal for questioning on his statement, but the Respondent indicated that it did not require his attendance for questioning.  Custodio indicated in closing that he would have wanted to ask supplemental questions in chief of DC Casey (since the witness statement had not been produced in conjunction with the Applicants, but by DC Casey alone), but it did not seem to me that the matters that he would have intended to address (assuming in his favour that he were given permission to do so) would have been relevant to the matters which I have to decide.  I am therefore satisfied that neither party was unfairly prejudiced by the decision I made to admit DC Casey’s witness statement, without requiring him to attend the hearing.  

30.	In addition, various documents were produced by the Applicants during or shortly before the hearing, for the first time.  Those documents included documents about council tax, and documents suggesting that the First Applicant was in Rio de Janiero from 22 June 2014 to 11 July 2014 (the date on which the disputed transfer was signed).  They also produced their original passports and driving licenses.  I admitted all this material.  The Respondents did not object to the additional documents being produced.

31.	During the hearing, at my request, the Respondent also produced a complete copy of a valuation report dated 3 July 2014.  It seems that the copy in the bundle had been taken from the files of Ewan & Co, and was incomplete.  It seems that the Respondent had not searched its own documents when giving disclosure.  No explanation for this was given to me.  It is all the more surprising because the Respondent relied heavily on this report as evidence that an inspection had taken place on 1 July 2014, which, so they said, must have come to the Applicant’s attention.  The Applicants complained that they were prejudiced by the late production of this report, because they had not had the opportunity to ask their tenants about it, but since a partial copy was in the Respondents’ documents from the outset, and the Applicants had never requested a full copy, I did not consider that this provided a reason to exclude a complete copy of the document.  

32.	In addition to the Applicants and their witnesses, I heard evidence from Mr David Brown, a director of the Respondent.  

The Execution of the Contract and Transfer 

33.	The correct approach to the standard of proof and the nature of proof required in the case of grave allegations is to be found in the speech of Lord Nicholls of Birkenhead in In re H (Minors) [1996] AC 563 at 586-587:
 
'The balance of probability standard means that the court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A stepfather is usually less likely to have repeatedly raped and had non-consensual oral sex with his underage stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J expressed this neatly in In re Dellow's Will Trusts [1964] 1 WLR 451, 455: "The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it." This substantially accords with the approach adopted in authorities such as the well known judgment of Morris LJ of Hornal v Neuberger Products Ltd [1957] 1 QB 247, 266. This approach also provides a means by which the balance of probabilities standard can accommodate one's instinctive feeling that even in civil proceedings a court should be more sure before finding serious allegations proved than when deciding less serious or trivial matters. No doubt it is this feeling which prompts judicial comment from time to time that grave issues call for proof to a standard higher than the preponderance of probability.' "

34.	It follows that in order to accept the Applicants’ case that they did not sign the transfer, I must be prepared to accept that someone else attended Ewan & Co, pretending to be them, in order to commit a fraud.  That is not something that happens every day, and I accept that the Applicants must persuade me that it did.  However, I do not consider the possibility of a fraud of this type having taken place as far-fetched.  Regretably frauds of this type do happen.

35.	In assessing the Applicant’s credibility, I must also bear in mind the guidance in EPI Environmental Technologies Inc and Another v Symphony Plastic Technologies Plc and Another (Practice Note) [2004] EWHC 2945 (Ch); [2005] 1 W.L.R. 345, at 74: 

“(i) First, it is essential to evaluate a witness's performance in the light of the entirety of his evidence. Witnesses can make mistakes, but those mistakes do not necessarily affect other parts of their evidence. (ii) Second, witnesses can regularly lie. However, lies themselves do not mean necessarily that the entirety of that witness's evidence is rejected. A witness may lie in a stupid attempt to bolster a case, but the actual case nevertheless remains good irrespective of the lie. A witness may lie because the case is a lie.”

36.	The Applicants deny that they executed the documents.  Mr Lees attacked the credibility of the Applicants.  He said that Custodio’s credibility was undermined by his reluctance to admit the photographs on the inspection report were of the Property, the fact that he took no proactive steps to manage the property, and the fact that he gave inconsistent answers to questions about whether he knew that there was a risk of fraud prior to July 2014.  But, it seems to me that these things can all be explained as attempts to gild the lily, and they do not tell me much about the central issue of whether the Applicants signed the contract and transfer. 

37.	The Applicants also rely on the fact that the ID documents presented to the solicitors show people other than themselves, and argue that Mr Ewan must have been satisfied that the people signing were these people.  The Applicants produced their own passports, and the First Applicant produced his driving licence.  The copies of the identity documents in the trial bundle are unclear, but it would, in my view, have been obvious to anyone seeing the Applicants that these could not have been their identity documents, not least because the dates of birth would have put them 10 years younger than they actually were.  Despite the criticisms made of Mr Ewan’s failure to spot other signs that a fraud was afoot, I think it unlikely that Mr Ewan would have allowed the transaction to proceed if he had had the Applicants in front of him and had had these identity documents produced to him as theirs.   

38.	The Applicants also relied on the witness statement of DC Casey, the police officer investigating the alleged fraud.  No doubt because the investigation is ongoing, DC Casey does not set out in detail what has been involved in his investigations.  But he does say that he has concluded that a fraud was committed by a Mr Manuel Fernandes DOB 25 May 1968 and Dwayne Hossain.   Although this is not determinative (unlike a conviction), and it remains a matter for me to decide whether I am satisfied on the balance of probabilities that a fraud has been committed, I am entitled and obliged to take this evidence into account.  Mr Lees points out that no detail is given about the interviews or what Mr Manuel Fernandes has said on being accused of this fraud.  That is true, but all this will have been taken into account when DC Casey formed his opinion.   

39.	The Respondent challenges the Applicants’ assertions and evidence.  It points out that: 

(a)	The First Applicant arrived back from holiday into LHR at 1pm on 11 July 2014, so could have executed the documents that afternoon.  His evidence that he returned home, having been picked up by his wife at the airport, is uncorroborated.   The Second Applicant is a postman and generally finishes work by around 2.30pm, so could also have signed that afternoon.  There was no evidence as to what he did on that particular date, but he said he had to go and pick up his son from school when he finished work so he always went straight home, but there was no evidence as to what time the son finished school, or that he could not also have taken the son to the appointment.
(b)	The hand-writing expert evidence was inconclusive, and suggested that the signatures might have been written by the Applicants attempting to disguise their signatures.  (I record here that I gave the Applicants permission to revert to the hand-writing expert and ask him to review other documents which were apparently signed by the same person as the person who executed the transfer and contract, and which were not available to them when the expert was originally instructed, but having reflected on this after the hearing, they ultimately decided not to do so, and notified the Tribunal of this on 4 March 2016).  
(c)	There was no difficulty with the inspection on 1 July 2014 taking place.  
(d)	The Applicants adduced no evidence from Mr Ewan or Urban Life, and did not make any investigations with the Council. 

40.	I have dealt with the inspection above.  I attach no weight to the criticisms that the Applicants could have produced additional evidence.  Custodio told me that he was discouraged from doing any investigations of his own by DC Casey, on the basis that this might prejudice the police investigation, so I can see why he would not have thought it appropriate to contact these people.  

41.	Neither of the remaining points is sufficient to persuade me that the Applicants are lying and that DC Casey has come to the wrong conclusion.  Furthermore, I also bear in mind that Mr Lees did not suggest to the Applicants (or to me) that there was any link between them and any of the recipients of the proceeds of sale / the mortgage funds.  Unless there was, it is difficult to see what the Applicants gained by being involved in a complicated scheme involving them pretending to be other people pretending to be them, and risking losing their Property.

42.	I therefore find that the Applicants did not sign the contract or the transfer.  It seems to me more likely on the evidence that I have seen that these documents were signed by Mr Manuel Fernandes and an associate (probably Dwayne Hossain).  I do not need to comment further about the fraud, but I think it worth noting for the record that it seems to me that there is a possibility that a further man, Jason Webb, was involved.  Mr Webb is a former employee of Strawberry Park.   His name was on the instructions to valuers as the person to contact for access to the property, so was clearly involved in this deal.  He also received a payment of £40,000 out of the proceeds of sale.  As I understand it, the Respondent has made attempts to contact Mr Webb, without success, so it seems that he too may have gone to ground.  

Rectification 

43.	I am therefore satisfied that the registration of both Strawberry Park and the Respondent was a mistake, and that if it were corrected, this would prejudicially affect their titles.  Since Strawberry Park are not in possession of the Property, I must give effect to the application for rectification unless there are exceptional circumstances which justify not making the alteration: paragraph 6(3) of Schedule 4 of the Land Registration Act 2002.   

Exceptional circumstances 

44.	Guidance as to the meaning of “exceptional circumstances” is given in Paton v Todd [2012] 2 EGLR 19, at paragraph 66 onwards: 

“… the court must ask itself two questions: (1) are there exceptional circumstances in this case? And (2) do those exceptional circumstances justify not making the alteration?...................
…”Exceptional” is an ordinary, familiar English adjective.  It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual or special, or uncommon; to be exceptional a circumstance need not be unique or unprecedented, or very rare, but it cannot be on that is regularly or routinely or normally encountered….. Further the search is not for exceptional circumstances in the abstract but those which have a bearing on the ultimate question whether such circumstances justify not rectifying the register…….”    
 
45.	Although there have been decisions in this Tribunal where exceptional circumstances have been found to exist, the limited number of such cases does of course reinforce that a case must be wholly out of the ordinary before any discretion to refuse rectification arises.  
 
46.	Mr Lees suggested that there were 3 exceptional circumstances here: 

(a)	The fact that the Applicants were on notice of a risk of fraud by reason of the events in Autumn 2013 and took no steps to prevent it. 
They knew that there was another man called Manuel Fernandes who was aware of the Property and had committed fraud on a previous occasion.  That does, in my view, take this case out of the norm.  I therefore consider this to be exceptional circumstances.  

(b)	Custodio’s address on the register was 22 years out of date.  
I do not consider this to be out of the ordinary at all.  Regrettably, my experience is that all too frequently, people do not keep their addresses up to date at Land Registry.  This is not an exceptional circumstance. 

(c)	Mr Lees asserts that the Applicant must have known that there had been an unauthorised inspection on 1 July 2014.  
	As I have already indicated, I am not prepared to accept that the Applicant knew of it.  In any event, taking this in isolation, I do not consider that this would suffice to amount to an exceptional circumstance.    In most mortgage frauds an inspection takes place somehow or another, so I do not consider that this is sufficiently unusual to qualify as exceptional.  

47.	But, the fact that I have found that the first head does amount to exceptional circumstances means that I must now consider whether this exceptional circumstances justifies refusing rectification, in all the circumstances.    

Discretion 

The Applicants’ position 

48.	Mr Lees suggested that the Applicants were careless because they failed to keep their address up to date on the register and failed to take any steps to protect the Property from fraud after being tipped off about the risk of Mr Manuel Fernandes seeking to take the property.   That involves 2 propositions: first, that the Applicants should have been aware that there was a risk of fraud; and secondly, that the Applicants ought to have known what to do about it, if they appreciated that risk. 

49.	As regards the first, I accept that the Applicants did realise that there was a risk that Mr Manuel Fernandes would attempt to commit a further fraud involving their property.  They knew he had letters relating to the Property and they knew that he had committed an unrelated fraud.  Custodio told me that he asked the policeman at the end of the fraud trial what he should do – so it seems clear to me that they did appreciate that there was a risk, despite the Applicants’ denials in their oral evidence.  

50.	But, it seems to me that it is more difficult to say that the Applicants should have known what to do about the risk.  Had the Applicants been property lawyers, the criticisms made by Mr Lees about their failure to act would undoubtedly have been well-founded.  But they are not.  The Applicants would not have known that there was anything else they could or needed to register at Land Registry in the circumstances.  Custodio said that he had no idea that the Property could taken from under his feet.  They trusted to the system.  He had no reason to be concerned about his address being out of date, because his brother’s address was listed as the Property address so he would see any relevant documents if they were sent there – as he had with the documents sent in 2006 when the mortgage was redeemed.  Custodio also said that when he asked the police at the end of the fraud trial in June 2014 what he should do, he was advised that this was an isolated incident.  He was clearly left with the impression that he didn’t need to do anything else.  In the circumstances, I do not consider that the Applicants should be criticised or penalised for not doing more to protect themselves against fraud.    

51.	I must consider the effect on the Applicants if rectification is refused.  Mr Lees suggested that the Applicants might have alternative routes of recovery – against the fraudsters and against Ewan & Co in negligence.  I do not regard a potential claim against the fraudsters as of any commercial value.  As regards a potential claim against Ewan & Co, Mr Lees was not able to point me to any authority indicating that a duty of care might be owed by the solicitor in that situation, and it seems to me that such a claim would not be straight-forward (although some support for such a claim derives from the case of Al-Sabah v Ali [1999] EG 11).  I do not therefore attach much weight to these alternative avenues of recourse.  Subject to the question of an indemnity from Land Registry (which I consider below), if rectification is refused, the Applicants will probably be left, at best, with the Property subject to a charge which now secures a debt far in excess of the value of the Property.      

52.	Mr Lees also pointed out that the Property was not the Applicants’ home.  They do both have homes elsewhere, but this was the family home for many years, and it is clear that they retain ties with the neighbours.  I do not accept that the Applicants’ interest in the Property is purely financial.   

Cliveden’s position 

53.	Cliveden is a limited company, registered at Companies House.  As I understand it, its directors (and I think its shareholders) are Mr David Brown and Mr Neil Burgess.  
 
54.	Mr Lees stressed that there was no suggestion that Cliveden had acted other than in good faith.  I accept that.  But, his criticisms of the Applicants were that they were careless, and it seems to me that I must consider whether the Respondent too was careless.

55.	The payment to Mr Webb means that the true price received on the sale was only £160,000 (£200,000 less the £40,000 paid to Mr Webb).  On its face, this is a surprisingly low figure against a valuation of £295,000.  Mr Brown told me that he did query the discrepancy between the £200,000 (as he understood it) and £295,000 with the solicitor, Aaron Burgess at HCLS (who acted for Strawberry Park and the Respondent), and was told that this was the price at which Strawberry Park were able to buy it.  He was apparently satisfied with that explanation, although it does seem to me that this ought to have been an indicator of a potential fraud, and he ought not to have been satisfied with that explanation.   

56.	Mr Brown also told me that he was unaware of the fraud until he received a letter dated 9 September 2014 from Land Registry, giving Cliveden notice that the Applicants had applied to remove the charge.  I accept his evidence in relation to that.  He appears to have assumed that his co-director, Neil Burgess, would not have known anything prior to that either, and I infer that at no stage did Neil Burgess tell him anything to the contrary.  However, Neil’s son, Aaron Burgess was the solicitor at HCLS and was aware of the allegation that a fraud had been committed on 8 August 2014 (DC Casey said so, and the email of 8 August 2014 in the bundle at 2/245 certainly suggests that he was; moreover, there is an attendance note in the bundle of a call on that date from Aaron Burgess to Mr Ewan’s office which suggests that Aaron Burgess had been told “by his client” that fraud was being committed on this property).  I did not hear from Neil or Aaron Burgess, but I find it more likely than not that Neil Burgess would have been told by his son on or about 8 August 2014 of the allegation of fraud.   I therefore proceed on the basis that Cliveden were aware on or about 8 August 2014.  The Applicants contended that I should attach weight to the fact that Cliveden did nothing, on learning of the fraud, to ensure that any monies which had not already been paid away were protected, and to alert the police.  Had they taken appropriate action promptly, the final payment of £18,633 might not have been released.        

57.	I must also consider the position that the Respondent will be in if rectification is ordered and their charge is removed from the register.  Prima facie, they will have lost their security, and they will be left with a monetary claim against Manuel under the mortgage covenants.  I doubt that this has any commercial value.  But, the Respondents might have claims against Ewan & Co for breach of warranty of authority and negligent misrepresentation that the money laundering checks had been carried out, and HCLS for negligence.  Letters before action have been written to these firms on behalf of the Respondent.    

Indemnity

58.	The final matter which I must consider is whether, in the event that each party lost, they/it would be entitled to an indemnity.   Mr Lees invited me to determine the losing party’s entitlement to an indemnity from Land Registry.   I indicated to Mr Lees that I would not determine that question without giving Land Registry an opportunity to be heard, so, if the Respondent wishes to press its application for me to decide whether an indemnity is payable, a further hearing will be required.  However, I should say that, having read Mr Lees’ written submissions on this point, my preliminary view is that I cannot determine that question, notwithstanding the textbooks cited by Mr Lees which suggest that the FTT does have this jurisdiction (Harpum & Bignell: Registered Land at 23.19-23.20; Megarry & Wade : The Law of Real Property at 7-140).  I note that Charles Harpum who was responsible for drafting the Land Registration Act 2002 is the editor/author of both these publications, and that the Law Commission Report (at paragraph 10.49 of Law Com 271) expresses a similar opinion.  But, I bear in mind that Law Commission reports can only be admitted to assist in ascertaining (a) the state of the law before an Act was passed; and (b) the “mischief” which the Act was intended to remedy: Black-Clawson v Papierwerke Waldhof-Aschaffenburg [1975] AC 591. The Law Commission’s comments as to the meaning of the draft Bill are not admissible.  Further, the subjective intentions of the person responsible for drafting the report and/or the Act cannot be admissible at all, in my view.   

59.	Further, in Murdoch v Amesbury UT/2014/0022, the Upper Tribunal confirmed that the First Tier Tribunal has jurisdiction only to determine the matter referred to it under s 73(7) – ie the application and the objection made by the Respondent.  Whether or not an indemnity is payable by Land Registry seems to me to be a wholly different matter (not least because it is a dispute between one of the parties and a third party – the Land Registry), and therefore outside the scope of the First Tier Tribunal’s jurisdiction.  Indeed, once I have made an order directing the Chief Land Registrar how to deal with that application (as I now do, having determined in this decision how it should be dealt with), it seems to me that the FTT is “functus officio” (ie its mandate has come to an end) save in relation to questions of costs. 

60.	In addition, I would hesitate before concluding that Parliament must have intended that the First Tier Tribunal(Property Chamber)(Land Registration) should determine whether an indemnity is payable, because this sub-chamber is funded (as the Adjudicator was) by Land Registry.  Although the Tribunal is independent of Land Registry, there would be a risk of the appearance of bias if it were to exercise a jurisdiction to determine whether an indemnity were payable by Land Registry, and if so, in what amount.  

61.	I stress that, since I have not heard Mr Lees orally on this point (or Land Registry), this is only my preliminary view.  As I have said, if the Respondent wishes to press the point, a further hearing will be convened on notice to Land Registry.  

62.	However, I proceed for present purposes on the basis that all that I can do (and all that I am going to do now) is reach a preliminary view as to whether an indemnity would be payable in the event of either granting or refusing rectification, for the purpose of taking this into account when exercising my discretion as to whether to order rectification.  I stress that in expressing this preliminary view I do not seek to bind whoever ultimately decides the question of whether an indemnity is payable, and Mr Lees accepted that any comments I made about this at this stage would not influence any subsequent indemnity claim.  

63.	Mr Lees submitted that if I ordered rectification, his clients would have a prima facie right to an indemnity, and if I refused rectification, the Applicants would have a prima facie right to an indemnity.  That seems to me to be correct.  Of course, Land Registry might argue that either or both of them had not exercised proper care and that the indemnity payable might be reduced to take account of that, but I do not consider that I should take that into account in deciding whether to rectify or not.  

64.	In the circumstances, it seems to me that this factor is neutral.  

Conclusions about rectification

65.	The start point under the statutory scheme is that rectification should be ordered.  Having considered the various arguments, I see no reason not to order the registrar to give effect to the application as if the Respondent’s objection had not been made, and I will so order.  This means that (subject to any other objections) the Applicants’ names will be restored as registered proprietors, and the Respondent’s charge will be removed from the register.  

 

Dated this 24th day of March 2016

By Order of The Tribunal