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Swift 1st Ltd v The Chief Land Registrar [2015] EWCA Civ 330 (01 April 2015)
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The issue on this appeal is whether the proprietor of a registered charge which turns out to have been a forged disposition is entitled to payment by way of indemnity under Schedule 8 to the Land Registration Act 2002 ("LRA 2002") in circumstances where the registered proprietor and rightful owner of the property was in actual occupation at the date of the disposition. For reasons which I will come to, it also raises the question whether the much-debated decision of this court in Malory Enterprises Ltd. v Cheshire Homes (UK) Ltd. & Ors [2002] EWCA Civ 151; [2002] 3 WLR 1; [2002] Ch 216 ("Malory") was decided per incuriam insofar as the court held that the innocent victim of a forged disposition acquired only the legal estate and not the beneficial ownership of the property.
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The facts are unusual. The registered proprietor of the Property is and was a Mrs Rani who has occupied it as her home throughout the relevant period. In April 2006 an unknown third party fraudulently executed a legal charge over the Property in favour of GE Money Lending Limited ("GE Money") which purported to secure a loan to Mrs Rani of £32,000. The charge was registered in the charges register for the Property.
In May 2006 a second charge, again fraudulent, was executed in favour of Swift as security for a loan to Mrs Rani of £64,500. Swift advanced £34,403 of the loan to GE Money to redeem the prior registered charge and paid the balance by cheque to Mrs Rani who (the judge accepted) never received the funds and had not made the application for the loan. The charge in favour of Swift was duly registered on 2 June 2006 and the entry in favour of GE Money removed.
The instalments of interest due under the Swift loan were not paid and in May 2007 proceedings were issued seeking possession of the Property. Mrs Rani defended the proceedings on the basis that both the Swift charge and the GE Money charge were forgeries so that Swift had no enforceable security against the Property for its loan either under its own charge or by way of subrogation under the GE Money charge. Swift accepted this and on 20 January 2009 a consent order was made which required the Land Registry to amend the registered title to the Property by deleting the entry in the charges register in favour of Swift.
Swift then issued proceedings against the Registrar seeking an indemnity under Schedule 8 in respect of the loss of its charge. It pleaded that the register had been rectified to its prejudice by the deletion of the entry in respect of its charge and that it was entitled to be indemnified for its loss pursuant to paragraph 1(1)(a) or (b) and paragraph 1(2)(b) of Schedule 8 LRA 2002. The Registrar in his defence pleaded that the cancellation of the entry in the charges register did not amount to rectification of the register within the meaning of Schedules 4 and 8 LRA 2002 but was simply an alteration of the register made in order to bring it up to date rather than to correct a mistake. It was not prejudicial to Swift because Mrs Rani as registered proprietor retained beneficial ownership of the Property and a right to have the forged disposition set aside which took effect as an overriding interest on the basis of her actual occupation of the Property at the time the registered disposition was created. Swift's charge therefore took effect subject to her rights and was always liable to be defeated by any application she made to have the charge set aside as a forgery.
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In the end, however, like the judge, I have reached the conclusion that the history of s.83(4) and now of paragraph 1(2)(b) is not sufficient in itself to enable one to treat those provisions as of no application where the overriding interest enforced against the registered title consists of a right to seek rectification (now alteration) of the register on the ground that the disposition was forged. That a right to seek rectification in these circumstances is capable of subsisting as an overriding interest does not alter the fact that the registered proprietor seeking the indemnity is claiming in good faith under a forged disposition and is to be regarded as having suffered loss by reason of the rectification of the register as if the disposition had not been forged. The application of Chowood in the present case would lead to the conclusion that there has been no loss; which is directly contrary to the statutory presumption under paragraph 1(2)(b). The Chowood principle is based on the overriding interest always having been enforceable against the registered estate or charge. But in cases of forgery the fact that the right to have the forged disposition set aside exists as an overriding interest adds nothing. The circumstances in which the overriding interest is enforced are precisely those contemplated by what is now paragraph 1(2)(b). If the 2002 or the 1925 Act intended the deemed loss provisions to provide a limited exception for cases involving the enforcement of an overriding interest, some much clearer indication would, I think, be necessary in the language of the statute and I would have expected to see the point flagged up in the Law Commission report. As it is, the reference in the footnote to paragraph 10.31(2) to s.69 of the 1925 Act strongly suggests that the Law Commission considered paragraph 1(2)(b) to be consistent with the principle that registration confers substantive rights on the proprietor even under the forged disposition and that its loss is to be regarded as prejudicial to the title notwithstanding that the transfer or charge was void.
For these reasons, I would dismiss the Registrar's appeal.
The issue on this appeal is whether the proprietor of a registered charge which turns out to have been a forged disposition is entitled to payment by way of indemnity under Schedule 8 to the Land Registration Act 2002 ("LRA 2002") in circumstances where the registered proprietor and rightful owner of the property was in actual occupation at the date of the disposition. For reasons which I will come to, it also raises the question whether the much-debated decision of this court in Malory Enterprises Ltd. v Cheshire Homes (UK) Ltd. & Ors [2002] EWCA Civ 151; [2002] 3 WLR 1; [2002] Ch 216 ("Malory") was decided per incuriam insofar as the court held that the innocent victim of a forged disposition acquired only the legal estate and not the beneficial ownership of the property.
........
The facts are unusual. The registered proprietor of the Property is and was a Mrs Rani who has occupied it as her home throughout the relevant period. In April 2006 an unknown third party fraudulently executed a legal charge over the Property in favour of GE Money Lending Limited ("GE Money") which purported to secure a loan to Mrs Rani of £32,000. The charge was registered in the charges register for the Property.
In May 2006 a second charge, again fraudulent, was executed in favour of Swift as security for a loan to Mrs Rani of £64,500. Swift advanced £34,403 of the loan to GE Money to redeem the prior registered charge and paid the balance by cheque to Mrs Rani who (the judge accepted) never received the funds and had not made the application for the loan. The charge in favour of Swift was duly registered on 2 June 2006 and the entry in favour of GE Money removed.
The instalments of interest due under the Swift loan were not paid and in May 2007 proceedings were issued seeking possession of the Property. Mrs Rani defended the proceedings on the basis that both the Swift charge and the GE Money charge were forgeries so that Swift had no enforceable security against the Property for its loan either under its own charge or by way of subrogation under the GE Money charge. Swift accepted this and on 20 January 2009 a consent order was made which required the Land Registry to amend the registered title to the Property by deleting the entry in the charges register in favour of Swift.
Swift then issued proceedings against the Registrar seeking an indemnity under Schedule 8 in respect of the loss of its charge. It pleaded that the register had been rectified to its prejudice by the deletion of the entry in respect of its charge and that it was entitled to be indemnified for its loss pursuant to paragraph 1(1)(a) or (b) and paragraph 1(2)(b) of Schedule 8 LRA 2002. The Registrar in his defence pleaded that the cancellation of the entry in the charges register did not amount to rectification of the register within the meaning of Schedules 4 and 8 LRA 2002 but was simply an alteration of the register made in order to bring it up to date rather than to correct a mistake. It was not prejudicial to Swift because Mrs Rani as registered proprietor retained beneficial ownership of the Property and a right to have the forged disposition set aside which took effect as an overriding interest on the basis of her actual occupation of the Property at the time the registered disposition was created. Swift's charge therefore took effect subject to her rights and was always liable to be defeated by any application she made to have the charge set aside as a forgery.
...........
In the end, however, like the judge, I have reached the conclusion that the history of s.83(4) and now of paragraph 1(2)(b) is not sufficient in itself to enable one to treat those provisions as of no application where the overriding interest enforced against the registered title consists of a right to seek rectification (now alteration) of the register on the ground that the disposition was forged. That a right to seek rectification in these circumstances is capable of subsisting as an overriding interest does not alter the fact that the registered proprietor seeking the indemnity is claiming in good faith under a forged disposition and is to be regarded as having suffered loss by reason of the rectification of the register as if the disposition had not been forged. The application of Chowood in the present case would lead to the conclusion that there has been no loss; which is directly contrary to the statutory presumption under paragraph 1(2)(b). The Chowood principle is based on the overriding interest always having been enforceable against the registered estate or charge. But in cases of forgery the fact that the right to have the forged disposition set aside exists as an overriding interest adds nothing. The circumstances in which the overriding interest is enforced are precisely those contemplated by what is now paragraph 1(2)(b). If the 2002 or the 1925 Act intended the deemed loss provisions to provide a limited exception for cases involving the enforcement of an overriding interest, some much clearer indication would, I think, be necessary in the language of the statute and I would have expected to see the point flagged up in the Law Commission report. As it is, the reference in the footnote to paragraph 10.31(2) to s.69 of the 1925 Act strongly suggests that the Law Commission considered paragraph 1(2)(b) to be consistent with the principle that registration confers substantive rights on the proprietor even under the forged disposition and that its loss is to be regarded as prejudicial to the title notwithstanding that the transfer or charge was void.
For these reasons, I would dismiss the Registrar's appeal.
