Gold Harp Properties Ltd v Macleod & Ors

This is an appeal against a decision of HHJ Gerald, dated 24 May 2013, in the Central London County Court, requiring the alteration of Land Registry titles relating to a property in North Kensington known as 72-74 St. Quintin Avenue, London W10 (“the Property”). Mr Philip Brown appears for the Appellant, and Ms Kerry Bretherton and Mr Robert Bowker for the Respondents. In order to explain the order which the Judge made, and the issues raised by the appeal, I need first to give an outline of the facts.

The Property consists of a three-storey house. Freehold title is registered under number BGL70889. The top floor, which has been referred to in these proceedings as “the roofspace”, has never been converted for occupation.

The Property was acquired in 1988 by a group of teachers – a Mr and Mrs Jessel and the First and Second Claimants, Mr Byrne and Mr Briars (to whom I will refer as “the Claimants”, though in fact their attorneys are also formally parties), with a view to its redevelopment into four flats – one each on the ground and first floors and two in the roofspace – which would provide teaching and accommodation facilities for autistic children. Four 135-year leases were created accordingly, the two Claimants each becoming tenant of half of the roofspace, for which they each paid £29,950.

By a sequence of events into which I need not go, Mr and Mrs Jessel lost the title to the two lower floors, which were in 1999 acquired by a company owned and controlled by a Mr Grahame Ralph, the Fifth Defendant, who is a property developer. Those floors were converted into four flats. The Claimants retained title to their respective parts of the roofspace, which were designated as “flats 5 and 6”. As part of that sequence of events fresh leases were entered into in 2000 in respect of those flats, with terms of 135 years running from 1988. The registered titles were numbers BGL36978 (flat 6) and BGL36979 (flat 5). Both leases were entered on the schedule of notices of leases relating to the freehold title (i.e. BGL 70889), to which I will refer as “the Leases Schedule”.

The roofspace continued unoccupied and unconverted. The Claimants work, and live for most of the time, in Africa; but their interests were represented by agents in London. Mr Ralph coveted the opportunity to develop the top floor. On the Judge’s findings – which indeed reflect his own candid admissions in evidence – he orchestrated a sequence of events which he hoped would enable him to acquire the roofspace without having to make any payment to the Claimants. The Judge found that Mr Ralph was aware that “the Claimants … and their agents were somewhat unworldly folk, not well attuned to defeating attempts to take their property”.

Mr Ralph’s plan developed as follows. On 13 February 2009 his son Matthew, the First Defendant, acquired the freehold of the Property. On the Judge’s findings, Matthew Ralph, whether or not technically a nominee for his father, operated entirely at his behest. The next payment of ground rent in respect of the roofspace, £50 for each “flat”, was payable on 25 March 2009. Payment was not made on the due date, and on 4 June Mr Ralph instructed a firm of bailiffs to effect a formal re-entry (though since the lease provided for re-entry only when the rent was more than three months in arrears any lawful re-entry could not be before 26 June). On the same date he made an application for planning permission in respect of the roofspace.

In ignorance of these developments the Claimants did, albeit belatedly, tender payment of the ground rent, by cheque payable to Mr Ralph junior, which was sent to him by post at his father’s address (which was the only address of which they had notice) on 11 June. Mr Ralph senior was aware of the receipt of the cheque, but he took no steps to forward it to his son.

On 27 July 2009 Mr Ralph junior made a statutory declaration to the effect that the Claimants’ leases had been determined by peaceable re-entry following non-payment of the rent: he exhibited a letter from the bailiffs claiming to have re-entered on that very day. To anticipate, the Judge found that no re-entry had in fact taken place; and that is accepted before us. On 30 July an application was made to the Land Registry for the closure of titles BGL36978 and BGL36979 on the basis of the forfeiture of the leases to which they related. The application was granted and the Register was amended accordingly on 5 August. At the same time, and most pertinently to this appeal the Registrar amended the Leases Schedule by removing reference to the leases.

In the meantime a long lease of the whole of the roofspace had been granted by Mr Ralph junior to a company called Insignia Property Ltd, the Third Defendant, apparently for a premium of £5,000: I will refer to this as “the new lease”. The sole director of Insignia was a Mr Qayoumi, a business associate of Mr Ralph senior. Title in respect of that leasehold interest was registered with effect from 2 September 2009, with the number BGL72632. The new lease was entered on the Leases Schedule. On 28 February 2010 Insignia assigned the new lease to a company called Lavender Estates Ltd, the Fourth Defendant, for, apparently, £10,000. Lavender on the same day assigned it on to Gold Harp Properties Ltd, the Second Defendant and the Appellant before us, apparently for £150,000: Gold Harp was also the intermediary lessee of the Property. Both Lavender and Gold Harp are owned and controlled by Mr Ralph senior.

I have referred to the “apparent” premium/price of each of the transactions in relation to the new lease because the Judge observed that no evidence had been produced that any money in fact changed hands. He said, at paragraph 28 of his judgment:

“In my judgment, when viewed in that light together with the evidence of Grahame Ralph and what in actual fact happened or did not happen on the 27^th July 2009, it is right to find and conclude that Grahame Ralph was the mastermind or orchestrator of not only the enfranchisement of the freehold, which strictly is not directly relevant to the issues I have to determine but forms part of the background, but also to closure of the leases and, there being no evidence that actual money changed hands from Insignia to Matthew Ralph and then from Lavender to Insignia and then from Gold Harp to Insignia and that it was Grahame Ralph who was the person instructing all parties’ solicitor Christopher Evans, that in reality it is right to find that all transactions were orchestrated by and linked by the common thread of Grahame Ralph.”

That passage does not contain an explicit finding that no money changed hands (as opposed to simply that there was no evidence that it had); but in the subsequent judgment to which I refer at para. 15 below the Judge made it clear that that was indeed his finding and the appeal proceeded before us on that basis.

The Claimants commenced proceedings in the County Court in August 2011. They sued by their attorneys, Messrs Gibbons and MacLeod (who are the Third and Fourth Claimants). Initially the only defendants were Mr Ralph junior and Gold Harp. The claim form and the Particulars of Claim as originally pleaded claimed relief from forfeiture and damages for trespass and wrongful forfeiture. It was decided that there should be a trial of a preliminary issue as to whether the Claimants’ leases over the roofspace had indeed been properly forfeited.

That issue was tried before Judge Gerald on 18 and 19 March 2013. Mr Bowker and Mr Brown appeared for the Claimants and the Defendants respectively. By a reserved judgment dated 22 March the Judge held that the bailiffs had not effected a physical entry on 27 July 2009. He further found that even if there had been a physical entry on that date it would not have given rise to a forfeiture because the Claimants’ tender of the rent on 11 June had been effective. The finding that there had been no forfeiture of the Claimants’ leases was recorded in the recital to an order of the same date. The Claimants were given permission to amend to plead a claim for rectification of the Register and for damages for slander of title (though the latter claim has not been proceeded with). The Claimants were given permission to join Insignia and Lavender as further defendants. They also applied to join Mr Ralph senior for the purpose of applying for a costs order against him; that application was adjourned.

The trial of the rectification issue took place on 24 May 2013. Mr Bowker again appeared for the Claimants. Mr Brown appeared for both the original Defendants and Lavender. Mr Qayoumi appeared in person on behalf of Insignia. Judge Gerald in an ex tempore judgment decided that the Register should be rectified. His order dated 28 May 2013 reads (so far as relevant):

“1.

HM Land Registry Title numbers BGL36979 and BGL36978 be reinstated and re-opened as if neither had ever been closed.

2.

HM Land Registry Title number BGL70889 be altered or rectified so that BGL36979 and BGL36978 be entered in the Schedule of notices of leases both to rank in priority to Registered Title number BGL72632.”

(I assume that the Judge’s intention was that the priority of the Claimants’ leases would be demonstrated by their being inserted in the list of leases above the new lease; but precisely how it was done is a matter of mechanics.)

The effect of paragraph 2 of that order is that the Claimants, and their successors in title, will enjoy the right to occupy the roofspace under their respective leases in priority to Gold Harp, whose interest will thus be reversionary only and practically valueless save in the unlikely event of a future termination of the Claimants’ leases short of their terms. The present appeal, by Mr Ralph junior and Gold Harp, is against that part of the order.

I should briefly refer to a subsequent hearing, on 21 November 2013, which dealt with the Claimants’ application to join Mr Ralph senior as a fifth Defendant. The Judge made the order sought and directed that Mr Ralph pay the Claimants’ costs of the claim on the standard basis.

Before I turn to the issues raised by this appeal I should set out the relevant statutory provisions. Although the governing statute is the Land Registration Act 2002, it will be necessary to refer also to its predecessor, the Land Registration Act 1925.

I need not refer to Parts 1 and 2 of the 2002 Act. Part 3 deals with dispositions of registered land. Sections 28-31, which fall under Part 3, are headed “Effect of dispositions on priority”. Section 28 reads (so far as relevant) as follows:

“Basic rule

(1)

Except as provided by sections 29 and 30, the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge.

(2)

It makes no difference for the purposes of this section whether the interest or disposition is registered.

Section 29 reads (again, so far as relevant):

“Effect of registered dispositions: estates

(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)-(4)   ...”

Sections 30 and 31 make provision for, respectively, the effect of registrable dispositions of registered charges and Inland Revenue charges and are immaterial for present purposes.

It is convenient to note here, by way of anticipation, that counsel were agreed that section 29 had no application in the present case because, although the creation of the new lease involved a registrable disposition, it was not, on the Judge’s findings, made for valuable consideration. Accordingly the “basic rule” in section 28 applies.

Part 4 is concerned with notices on the Register. I need only note section 32, which is the statutory basis of the Leases Schedule to which the disputed part of the Judge’s order relates. It reads as follows:

“(1)

A notice is an entry in the register in respect of the burden of an interest affecting a registered estate or charge.

(2)

The entry of a notice is to be made in relation to the registered estate or charge affected by the interest concerned.

(3)

The fact that an interest is the subject of a notice does not necessarily mean that the interest is valid, but does mean that the priority of the interest, if valid, is protected for the purposes of sections 29 and 30.”

Part 6 includes a number of general provisions about registration. These include section 65, which is headed “Alteration of the Register” and gives effect to Schedule 4. The relevant provisions of Schedule 4 are as follows:

The structure of paragraphs 1-3 is a little convoluted, but their effect can be summarised as follows:

Schedule 8 to the Act, which is given effect by section 103, provides for the payment of an indemnity by the Registrar where a person suffers loss by reason of various specified circumstances, including (at paragraph 1 (1) (a)) rectification of the Register.

The system of land registration thus provides only for qualified indefeasibility of registered title: that is, in the circumstances provided for by Schedule 4 the Register may be altered in order to correct a mistake even where that will, in the words of paragraph 1, “prejudicially affect the title of a registered proprietor”. The Court (or the Registrar) has a discretion as to whether to make such an alteration, though the guidance as to the exercise of that discretion given by paragraph 3 makes it clear that a proprietor in possession is protected to a much greater extent than a proprietor who is not in possession. Either way – that is to say, whether the discretion is exercised or not – there will be a loser; but he or she will be entitled to compensation by way of indemnity under Schedule 8.

The essential structure of the 1925 Act was, in the relevant respects, similar to that of the 2002 Act. But the detailed drafting was very different. The provision dealing with “rectification” (Footnote: ¹) of the Register is section 82. It can be summarised as follows:

Section 83 gave a right to an indemnity in circumstances broadly equivalent to those specified in the 2002 Act.

The Judge noted that he had been referred to very little authority, which is rather surprising in view of the quantity of authorities cited before us. He approached the issues by reference to the statutory provisions alone. It is sufficient if I give a summary of his reasoning, as follows:

The Judge accordingly proceeded to make the order which I set out at para. 13 above.

Two grounds of appeal are pleaded. The first is that the Judge should have found that there were exceptional circumstances, within the meaning of paragraph 3 (3) of Schedule 4, which justified him in not ordering rectification. The second is that even if he was entitled to order the reinstatement of the Claimants’ leases on the Register he was wrong to order that they should appear on the Leases Schedule in such a way that they had priority over the new lease. It is the second point on which Mr Brown mainly relied, and I take it first.

PRIORITY

Mr Brown’s primary case can be summarised as follows. The Judge based his order altering the priorities of the Claimants’ leases and the new lease on the provisions of paragraph 8 of Schedule 4: see para. 26 (3) above. But in doing so, says Mr Brown, he ignored the words “for the future”. Those words make it clear that, as he put it, rectification of the Register cannot operate retrospectively. The effect of the Judge’s order was necessarily retrospective because its aim was to treat the Claimants’ leases as if they had appeared on the Register at a date when they in fact did not. He submits that it was clearly established in the authorities decided under the 1925 Act that there was no power to rectify the Register retrospectively, and that it was clear from the Law Commission reports which led to the 2002 Act that Parliament intended that that should continue to be the case.

A subordinate theme in Mr Brown’s submissions was that the only “mistakes” with which we were concerned were those affecting the Claimants’ leases – that is, their de-registration and their removal from the Leases Schedule: the Judge had found in terms that the registration of the new lease was not a mistake within the meaning of the Act (see para. 26 (8) above). Accordingly it was not open to the Claimants to proceed on the straightforward basis that the new lease should not appear on the Register at all. This point was essentially pre-emptive. There is no Respondent’s Notice from the Claimants taking such a point and Ms Bretherton did not try to do so in her oral submissions: her case was that the Judge’s order was justified as part of the process of correction of the mistakes which he found. Nevertheless the authorities to which he referred us on this point do overlap to some extent with the issues raised by his primary point.

Those submissions make it necessary for me to review in some detail the case-law under both the old and the new Acts and the legislative history – although, as I have already noted, almost none of this material was put before the Judge. Before I do so, however, I should make one or two points by way of preliminary ground-clearing.

First, the subject-matter of paragraph 8 is the priority “of any interest affecting the registered estate … concerned” – paraphrased in the heading as “derivative interests”. The leases with which we are concerned – that is, the Claimants’ leases on the one hand and the new lease on the other – affect the freehold title and accordingly fall within the terms of the paragraph. That may seem obvious but it is worth stating as a foundation, if only because it is, at least in my experience, unusual to encounter questions of “priority” between two leasehold estates granted over the same land for the same or overlapping terms.

Secondly, the central question raised by Mr Brown’s primary case is the effect of the words “for the future” in paragraph 8. The submissions before us often resorted to the paraphrase “prospective” – or, as its opposite, “retrospective”; and, as will appear, those terms appear in the case-law and also the academic commentaries and the Law Commission reports to which we were referred. But it should be borne in mind that they are not the words used by the statute, and it will be necessary to be careful to identify the sense in which they are used in any particular context.

Thirdly, the Judge’s order proceeds on the basis that an alteration to the Leases Schedule is necessary in order to restore priority to the Claimants’ leases. I am not sure that that is in fact so. As section 32 of the Act says, the effect of an entry on the Schedule is to protect the priority of an interest “for the purpose of sections 29 and 30”. But, as noted at para. 18 above, it is common ground that section 29 has no application in this case and that the “basic rule” in section 28 applies. It would seem to follow that what appeared on the Schedule was immaterial to the issue of priority as between the parties; and if, as I would suppose, the result of the basic rule is that the Claimants’ leases enjoy priority irrespective of the Judge’s order, simply by being prior in time (Footnote: ³), there would on the face of it be no need for their priority to be changed by resort to paragraph 8. Unfortunately the point that this was not a case falling within section 29 and that paragraph 8 was accordingly irrelevant – which was not of course how the Judge approached it – was not raised in a Respondent’s Notice and only emerged at a late stage and by a side-wind and was not the subject of developed submissions before us (Footnote: ⁴). I am not wholly comfortable that the analysis is as straightforward as may appear at first sight. Since, as will eventually appear, I have reached a clear view that the appeal should be dismissed on the basis of the issues as they were before the Judge, which were also the focus of the argument before us, I do not consider this aspect further.

The story starts with Freer v Unwins Ltd [1976] Ch 288. In that case registered land comprising shop premises was subject to a restrictive covenant prohibiting their use for the sale of tobacco products and sweets. By mistake, notice of that covenant was not included on the Register. The (unregistered) leasehold of the premises was assigned to purchasers who wished to sell such products: since the covenant was not registered they had no notice of it. The beneficiary of the covenant then successfully applied to the Chief Land Registrar for the Register to be rectified so as to include notice of the covenant on the Charges Register. There was no appeal against that decision; but the purchasers maintained that notwithstanding the rectification the covenant was not binding on them. The beneficiary of the covenant sought an injunction.

Walton J, in an unreserved judgment, dismissed the claims. He expressed surprise that rectification had been ordered in the first place, but he held that in any event its effect was not to bind the purchasers. Part of the argument turned on the construction of section 50 (2) of the 1925 Act, which provided that (in short) an incumbrance would affect the title only from the date that it was entered on the Register. Counsel for the beneficiary of the covenant submitted that that was inconsistent with the general scheme of the Act. Walton J rejected that submission, saying (at p. 297 G-H):

“It appears to me that the general scheme of the Act is that one obtains priority according to the date of registration, and one is subject, or not subject, to matters appearing on the register according to whether they were there before or after one took one's interest, whatever that interest might be. That seems to me to be the only sensible way in which the provisions of the Act can all be made to mesh together.”

He also said, at pp. 298-9:

“... [T]he Act is clear ... [that] ... it is only matters that are actually registered at the time that the disposition is made which affect the person who derives title under the registered proprietor.”

Mr Brown submitted that those passages constituted plain statements that rectification under the 1925 Act could not have retrospective effect. However they have to be read in the context of the matters in dispute. The general proposition that priority depends on the date of registration is wholly unexceptionable, but it was not being advanced by Walton J as the answer to an argument that the Court can in ordering rectification alter the priorities that would otherwise apply. The case was not put that way, because rectification had already occurred, and there was no reference to section 82 (2). It is important to note that, as Ms Bretherton pointed out, in a later passage (at p. 299) Walton J does in fact contemplate that if the purchasers had had a registered leasehold interest the Court would have had jurisdiction to rectify in such a way that they were bound by the covenant, though he expresses the view that on the facts of the case the statutory discretion would have been exercised in their favour.

The next case is Argyle Building Society v Hammond (1984) 49 P&CR 148. The registered freehold proprietor of a property in London, Mr Steed, lived abroad, and his mother held a power of attorney. His sister and her husband, Mr and Mrs Hammond, had the register altered to show themselves as the freehold proprietors. It was Mr Steed’s primary case that they had forged the mother’s signature on the transfer documents. A building society mortgage was charged on the property and duly entered on the Charges Register. Mr and Mrs Hammond subsequently defaulted on the payment of the mortgage, and the building society sought possession. It was accepted that if Mr Steed had indeed never transferred the property Mr and Mrs Hammond had no right to create any charge over it, but the building society claimed that the “statutory magic” of registration meant that the charge was nevertheless effective. Mr Steed contended that that effect could be reversed by the rectification of the Register.

On the trial of a preliminary issue, for the purpose of which it was assumed that the transfer had been forged as alleged, the County Court judge held that the Court had no jurisdiction to make an order for rectification which would deprive the building society of the benefit of its charge. However, that decision was reversed by this Court. Slade LJ, giving the judgment of the Court, held that the effect of section 82 (2) of the 1925 Act was that the Court had jurisdiction not only to rectify the Proprietorship Register by restoring Mr Steed as the registered proprietor but also to rectify the Charges Register by removing the building society’s charge. If it exercised its discretion to do so the society would be entitled to an indemnity under section 83. The reasoning is fully developed at pp. 156-163 and I need not set it out here. I need only cite a passage from p. 161 which summarises the Court’s conclusion:

“For the reasons already given, there is no doubt whatever that in the present case, on the basis of the assumed facts, the court would have jurisdiction, in the proper exercise of its discretion, to rectify the charges register as against the charges. … [S]ection 82 (2) makes it clear that the jurisdiction is exercisable against persons claiming through a registered proprietor.”

The Court observed that a passage in the then current edition of Ruoff & Roper:Registered Conveyancing, to the effect that although rectification may be granted against the proprietor of the land a charge created by the transferee in favour of a bona fide mortgagee will not be disturbed, was too broadly stated. The Court did not itself order rectification because the statutory discretion could not be exercised until the facts had been found, and the case was transferred to the Chancery Division for a trial.

The reasoning in Argyle Building Society v Hammond makes it clear that under the 1925 Act, where the proprietor of a registered interest had been mistakenly removed from the Register, the power to rectify extended to the removal of a competing interest which had been duly registered at a time when the first interest did not appear on the Register: the building society could have had no notice of Mr Steed’s interest, and yet its charge was liable to be invalidated. In one sense the rectification in such a case can be characterised as retrospective, because the charge was valid when created and is only invalidated by the subsequent order of the Court; and that is the sense in which Mr Brown submits that the order made in the present case was retrospective. I defer discussion of that for the time being.

The trial ordered in Argyle Building Society v Hammond duly took place. Mr Steed abandoned the allegation that his mother’s signature on the transfer had been forged by Mr and Mrs Hammond but argued instead that she had been tricked into signing it. Knox J found that that was the case, but he rejected a case of non est factum, with the result that he found the transfer to be voidable but not void. On that basis he ordered the rectification of the Proprietorship Register to reinstate Mr Steed in place of Mr and Mrs Hammond; but he declined to order rectification of the Charges Register so as to remove the building society’s charge.

Mr Steed’s appeal to this Court – reported as Norwich and Peterborough Building Society (Footnote: ⁵) v Steed [1993] Ch 116 – was dismissed. The Court, agreeing with Knox J, held that the circumstances of the case did not fall within any of the heads of section 82 (1). Scott LJ held that the intention of heads (d)-(h) was “to enable errors to be corrected” (see p. 134 G-H); but the registration of the charge was not an error because the transfer to the Hammonds was only voidable and had not at the material time been avoided (p. 135 A-C). Counsel for Mr Steed sought to rely on certain passages in the judgment in Argyle Building Society v Hammond. Scott LJ held that those passages were not properly applicable to the case of a merely voidable transfer. But he made it clear that he agreed that if the transfer had been a forgery, as had been assumed for the purpose of the preliminary issue, the Court would indeed have had jurisdiction to rectify the Charges Register against the mortgagees: p. 137 B-C. It follows that there is nothing in the judgment to cast doubt on the ratio of Argyle Building Society v Hammond.

In Clark v Chief Land Registrar [1993] Ch 294 registered land was held by two judgment debtors under a statutory trust for sale. The plaintiffs were judgment creditors who obtained a charging order over the land, which they had protected by the appropriate cautions on the Register. The judgment debtor mortgaged the property to a lender. The Land Registry failed to give the plaintiffs notice of the lender’s application to register its charge. They brought proceedings seeking, inter alia, a determination whether their charge had priority over the lender’s. Ferris J held that it did not. The Registrar, who on that basis was prima facie liable to indemnify the plaintiffs, sought to argue that they could restore their priority (and thus avoid any loss) by seeking rectification of the Register. Ferris J rejected that argument on the basis that such a claim would be “fraught with difficulty” (see p. 318 C-D). The principal difficulty to which he referred was whether the Court would have power to “order that [the plaintiffs’ charge] be entered on the Register immediately before the entry relating to [the lender’s] charge”. He doubted whether the Court had such a power, referring to Freer v Unwins; but he said that even if it did it would not be right as a matter of discretion to order rectification in the circumstances of the case (see p. 318 A-D).

When the case came before this Court – [1994] Ch. 370 – the Registrar did not pursue the rectification argument. Nourse LJ observed in passing (p. 385H) that there was no doubt that Ferris J’s decision on it was correct, but he did not say why.

Clark does not in truth take matters any further. Ferris J referred with approval to Freer v Unwins, but it was not necessary to his decision; and in any event any such decision would not have been binding on us.

In Hayes v Nwajiaku (unreported, 10.6.94) one of two joint proprietors of registered land forged the signature of the other and sold the property. The purchaser charged it to mortgagees who had no notice of the forgery. Mr John Cherryman QC, sitting as a deputy High Court Judge, held that the original proprietor was entitled to have the Charges Register rectified so as to remove the charges in favour of the mortgagees. The judgment is only shortly reasoned, the deputy Judge evidently believing that he was applying settled law. I cite it simply because it is referred to in some of the subsequent authorities and books and is a straightforward illustration of the understanding of the effect of section 82 (2).

In Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] Ch 216 the claimant, a BVI company, was the registered proprietor of freehold land. A fraudster established a UK company with the same name and purported to sell the land to Cheshire Homes Ltd, which was duly registered as the proprietor. Cheshire Homes took possession of the land and carried out some demolition work on it. The claimant brought proceedings seeking rectification of the Register by its reinstatement as the registered proprietor with effect from the original date of registration, together with damages against Cheshire Homes for trespass in respect of the demolition works. The Judge found that the claimant was at all material times in actual occupation of the land so as to enjoy an overriding interest. He ordered rectification, “such rectification to be (insofar as necessary) retrospective to [the date of the registration in favour of Cheshire Homes]”.

On appeal Cheshire Homes accepted that rectification should be ordered but contended that it should take effect only from the date of the order, so that – as it contended – it could not be liable for trespass in respect of the intervening period. This Court upheld the finding that Cheshire Homes was liable for trespass, but it allowed the appeal to the extent of removing from the Judge’s order the provision for retrospectivity which I have quoted above.

The principal ratio was that Cheshire Homes’ status as registered proprietor was subject to the claimant’s rights as beneficial owner, and that those rights gave it sufficient standing to sue for trespass without seeking rectification. That reasoning has been much criticised by academic commentators at the time and since: see the discussion in Fitzwilliam v Richall Holdings Services Ltd [2013] EWHC 86, [2013] 1 P&CR 19, and the recent case-note by Dr Martin Dixon at (2013) 129 LQR 320.

For present purposes, however, we are concerned with a different point. Arden LJ expressed the view that the rectification ordered by the Judge was not simply unnecessary, which followed from her primary ratio, but wrong, because the Court had no jurisdiction under section 82 to order rectification with retrospective effect. The relevant passage is at paras. 71-79 of her judgment (pp. 233-6). After referring briefly to Freer v Unwins and Clark and noting the contents of consultation documents issued by the Law Commission in 1987 and 1998 (which I consider below), she set out at paras. 75-77 a number of what she believed to be indications that Parliament did not intend to confer power to order rectification with retrospective effect. Her principal concern was the absence, as she saw it, of any power in the Court to protect the interests of third parties which might be prejudiced by rectification with retrospective effect (see para. 76). She stated her conclusion in para. 79, as follows:

“Accordingly, in my judgment there is no power to order that rectification should take effect from a past date ... . Parliament would not have created such a power without giving power to protect the position of third parties, which it has not done. Such a power is necessary not only to counteract unfairness but also to produce certainty so far as possible in transactions conducted on the faith of the register. I do not consider that section 82 contains such a power.”

Clarke and Schiemann LJJ declined to endorse that part of Arden LJ’s reasoning, pointing out that it was not necessary to the disposal of the appeal. Clarke LJ said, at para. 87 (p. 238):

“For my part, I would prefer to reserve a decision on [the issue of retrospective rectification] until it arises for decision on the facts of a particular case. I would only say that, while I see the force of Arden LJ's reasoning on it, it seems to me that, if the word “rectification” is given its ordinary meaning it is wide enough to include rectification with retrospective effect. Indeed, to my mind, as in the case of the rectification of instruments and contracts, it naturally has that meaning, since otherwise the rectification would be less than complete. However, since the question does not arise for decision in this case, I would prefer to do no more than reserve my opinion on the point.”

Mr Brown placed considerable weight on Arden LJ’s conclusion at para. 79 of her judgment, while recognising that it was not binding on us because it was not part of the ratio of the majority. But, again, it is necessary to consider the context. I think it most unlikely that Arden LJ had overlooked the provisions of section 82 (2) of the 1925 Act or the decision in Argyle Building Society v Hammond, both of which are referred to elsewhere in her judgment; likewise she will have been well aware of the protection of the rights of third parties afforded by section 82 (3) and the indemnity provisions in section 83. The issue in Malory was different, namely whether Cheshire Homes was liable for acts done at a time when, so far as the Register showed, it was the registered proprietor. This is, to anticipate, a crucial distinction.

The last decision under the 1925 Act to which we were referred is that of Blackburne J in Pinto v Lim [2005] EWHC 630 (Ch), which I mention, again, only because it is referred to in some of the subsequent case-law and commentaries. The claimant was the registered joint owner of a freehold property with his wife, Ms Lim. Following their divorce Ms Lim forged his signature on a transfer of the property into her sole name and then sold it to her brother, who took out a mortgage with Woolwich plc: both he and the Woolwich acted in good faith, without knowledge of the forgery. He was registered as the sole proprietor, and the Woolwich’s charge was registered in the Charges Register. Mr Pinto sought rectification of the Proprietorship Register to restore the registration of his joint interest. He did not seek to have the Charges Register rectified, “acknowledging that rectification would be prospective only” (see para. 75 of the judgment). Beyond that, however, the issue of the retrospectivity of any rectification did not arise: Blackburne J decided, on the particular facts of the case, not to order rectification.

At the risk of repeating myself, it is authoritatively established by Argyle Building Society v Hammond that the effect of section 82 (2) of the 1925 Act was that the Court (and the Registrar) had the power to remove from the Register a derivative interest created by a person who at the material time was, albeit as the result of a mistake, the registered proprietor, and in that sense – without prejudice to whether this is a relevant sense – to make a “retrospective” order. If, which is debatable (to put it no higher), the reasoning of Walton J in Freer v Unwins and of Arden LJ in Malory are inconsistent with that conclusion they are not authoritative.

In Argyle Building Society v Hammond the competing interests were those of the “true” proprietor of the freehold title and of the proprietor of a derivative interest affecting the freehold, and not – as in the present case – two derivative interests. But the language of section 82 (2) – which refers comprehensively to “any estates, rights, charges, or interests acquired or protected by registration, or by any entry on the register” – does not lend itself to any such distinction and it is hard to see any principled basis for one.

I would add for completeness that, although the cases to which I have referred mostly arise as a result of frauds, that is not necessary to existence of the jurisdiction. All that matters is that the de-registration was effected on a mistaken basis.

Between 1983 and 1988 the Law Commission published four reports on land registration. The first and second reports were implemented, but they contain nothing material for our purposes. The third report was published in 1987 ([1987] EWLC 158). Professor Julian Farrand was the Commissioner primarily responsible.

The 1987 report contained, at Part III, a thorough review of the law about rectification and indemnity as it then stood. Its general conclusion was that section 82 embodied the correct principles but that it would benefit from some clarification and simplification. Para. 3.6 reads:

“As far as the powers of rectification are concerned, we adopt the principal suggestion of the working paper which was, in effect, that rectification should be available whenever the register does not accurately reflect the title to the land according to the otherwise established rules of land law … and rectification would be just in all the circumstances (in particular if it is shown that there has been fraud in the obtaining of an entry in the register, or if the transferee or grantee lacked good faith or did not give value). This should be the basic position in relation to all claims however arising. This jurisdiction and its limits are in fact all present in section 82 at the moment and we see no reason for any very substantial amendment of that section except in so far as necessary to present the principles clearly.”

The Commission recognised (para. 3.4) that “defeasibility of title through the existence of section 82 may be regretted in principle, but is compensated for in practice by the possibility of indemnity under section 83”; and it recorded that consultees had not argued for a narrower approach to defeasibility (see para. 3.4). As regards retrospectivity, the only relevant passage is at para. 3.8, which reads:

“The power to rectify was considered in Freer v. Unwins Ltd., where Walton J. held that it cannot be exercised with retrospective effect. Consequently, a lessee under a lease constituting an overriding interest was not affected by notice of restrictive covenants entered by virtue of a rectification after the lease had been granted. Quite apart from the fact that we do not think that this should be the law, it is not clear that the power of rectification is at present so limited.”

The report sets out the terms of section 82 and continues:

“In Freer v. Unwins Ltd. it was emphasised that only matters actually registered at the time of the disposition, in that case the lease, affect the person deriving title from the registered proprietor. However, section 82 (2) was not apparently cited to the court, and it seems unacceptable for rectification to affect a registered leasehold title retrospectively but not an overriding interest. We consider that the court and the Registrar should have as full and ample a power of rectification as is needed to achieve justice.”

At para. 3.10 the report refers to Argyle Building Society v Hammond. It says:

“The power to rectify was also considered by the Court of Appeal in Argyle B.S. v. Hammond. It was held that the jurisdiction is exercisable against persons claiming through a registered proprietor (even a bona fide mortgagee) and that therefore, in a proper case, the charges register may be rectified. Bearing in mind that an order for rectification remains discretionary and that the complementary remedy of indemnity should be available to such persons suffering not dispossession but financial loss, we are quite content to make no recommendation here; i.e. we would leave the law as it is.”

A fourth report the following year set out a draft bill giving effect to the changes recommended in the third report; but no legislation eventuated at that point.

In 1994 a working group representing the Law Commission, the Land Registry and the Lord Chancellor’s Department was set up in order to see which of the recommendations in the earlier reports could be implemented without legislation. A first report of the working group was published in 1995, but it contains nothing material for our purposes.

A second report, in the form of a consultation paper, was published by the Commission and the Land Registry in 1998 entitled “Land Registration for the Twenty-First Century” ([1998] EWLC 254): notwithstanding the dual authorship I will refer to it for convenience simply as a Commission document. Mr Charles Harpum was the Commissioner with primary responsibility. By this time things had moved on, principally because of the move towards electronic conveyancing, and what was proposed was the wholesale replacement of the 1925 Act.

The issue of rectification of the Register is dealt with in Part VIII of the 1998 report. This starts with a review of the existing law. Under the heading “The Effect of Rectification” the Commission points out, by reference to section 82 (2), that rectification of the Proprietorship Register may have an adverse impact on other estates or interests protected by registration (see para. 8.32). In that connection it suggests at para. 8.33, as it had done in 1987, that Freer v Unwins was wrongly decided, probably because Walton J had overlooked section 82 (2). It continues:

“There were attempts in two cases [Freer v Unwins and Clark] to persuade the courts that rectification of the register - like rectification of a document - was retrospective to the time when the mistake was made, so that any derivative interest created after the time of the error or omission would be affected by the rectification.  In neither case was the court willing to sanction such a rectification, and in the second of them, the court doubted whether it had power to do so.  In the light of section 82 (2), we consider that any power to rectify the register retrospectively is unnecessary.”

The report goes on to make a number of recommendations about how a re-drafted scheme of rectification might be framed, but the only passage of relevance for present purposes is at para. 8.54, which reads:

“We consider that the substance of section 82 (2) of the Land Registration Act 1925, which enables the register to be rectified, “notwithstanding that the rectification may affect any estates, rights, charges, or interests acquired or protected by registration, or by entry on the register, or otherwise”, should be retained. However, we consider that the legislation should make it clear that when the register is rectified against a registered proprietor, the court or registrar may direct that the rectification should be binding on any person having an overriding interest in the land (such as a tenant under a lease granted for 21 years or less, or a person in actual occupation who has some proprietary right in the land). At present there is some doubt about this. As a correlative of this, we consider that it should remain the case that rectification is effective from the date of the application for rectification and cannot be made retrospective.”

The thinking expressed in those two paragraphs – i.e. 8.33 and 8.54 – is the germ of the provision against retrospectivity in paragraph 8 of Schedule 4 to the 2002 Act. I find it in some respects rather opaque, but three points can be made:

In 2001 the Law Commission published its final report following the responses to consultation. (Footnote: ⁶) It was again entitled “Land Registration for the Twenty-First Century” ([2001] EWLC 271), and was in the form of a draft bill and commentary. As regards rectification the draft bill substantially corresponds to the 2002 Act in its final form. Rectification is discussed in Part X. Para. 10.8 reads as follows:

“The Bill makes it clear that-

(1)

rectification of the register, whether by order of the court or by the register can (as now^[28]) affect derivative interests; but

(2)

any such changes are prospective only,^[29] which accords with the manner in which the analogous provisions of the Land Registration Act 1925 have been interpreted.^[30]”

Footnotes 28 and 29 refer, respectively, to section 82 (2) of the 1925 Act and to paragraph 8 of Schedule 4 to the bill respectively. Footnote 30 says that the 1925 Act “is not explicit on this point” and refers to Freer v Unwins: that is not entirely easy to reconcile with the references to Freer v Unwins in the earlier reports, but there is no discussion of the specific proposition in it which was being endorsed.

There is nothing in the drafting of the bill or its exposition in the 2001 report to suggest any change from the thinking in the 1998 consultation paper as summarised above, namely that the effect of section 82 (2) should be preserved but on the basis that any changes should be “prospective only”. The Commission appears to say that in the relevant respects the bill reflects how section 82 (2) had been understood and applied and thus that it was not intended to effect any change in the law.

In Sainsbury’s Supermarkets Ltd v Olympia Homes Ltd., [2005] EWHC 1235, [2006] 1 P&CR 17, Sainsbury’s claimed to have an equitable interest under an option to buy a parcel of unregistered land. Olympia subsequently acquired an equitable interest in the same land which by mistake was registered as a freehold interest. Sainsbury’s sought to have the Register rectified by deleting Olympia’s title together or so as to ensure that it was recorded as being subject to the option. Mann J held that it was entitled to rectification. A point then arose which is recorded in the judgment as follows (see para. 96, at p. 328):

“[The] skeleton argument [of counsel for Olympia] sought to argue that since rectification of the register operates only from the date of the rectification, Olympia took free from such rights as the rectification would seek to protect because Olympia had become the registered owner of the gas board site at a time when the interest was not registered. Registration was not retrospective. In this respect he relied on Freer v Unwins [1976] Ch. 288 as setting out the law under the 1925 Act, and Sch. 4 paragraph 8 of the 2002 Act as codifying it. He also relied on a passage in Ruoff & Roper at paras 47.017 and 47.018.”

Mann J continued:

"This point was not much pressed in oral argument, and in my view rightly so. It is not a good point. What Freer v Unwins decides is that where A gets registered as proprietor, then makes a registered disposition to B, and A's title is then rectified to reflect some third party interest, the rectification does not bind B because B took from a registered proprietor at a time when the third party interest was not protected. It does not purport to deal (or deal fully) with how the interest affects A and A's estate. It presupposes that for the future A's estate will be affected by the third party interest, and that therefore A is affected by it for the future. If [counsel's] argument were right it is hard to see how there could ever be a useful rectification. The proprietor could always say that he took his title free from the interest because it was not protected by registration when he was registered with his title; the rectification is not retrospective; therefore it cannot bind him. That cannot be right. In cases such as the present the question is whether the proprietor should have been registered free from the interest in the first place. Rectification is allowed to bring the situation into line with what it should have been had the mistake not been made at the time of registration. To allow the registration itself to bar the effect of that would be to let the tail wag the dog. The non-retrospective aspect of rectification means that pending rectification the land is treated as not being subject to the relevant interest, so that those relying on the state of the register at that time would not be bound by it; but it is not saying any more than that. Once registration takes place the land, and the proprietor against whom it is ordered, is bound. Accordingly, rectification prevents Olympia from saying that it now holds the land free from the relevant rights. It is now that matters."

It was not necessary for Mann J’s purposes that he should consider precisely what Freer v Unwins had decided or whether its effect had been embodied in paragraph 8 of Schedule 4 to the 2002 Act. The effect of his reasoning is that what was said to be its conclusion about the retrospective effect of rectification had no application in the circumstances before him. This passage cannot therefore be taken as endorsing the arguments advanced by Mr Brown.

The only decisions of this Court arguably bearing on the issue in the present case (Footnote: ⁷) – though, as will appear, they are ultimately inconclusive – arise out of a case called Barclays Bank plc v Guy. The facts can be sufficiently summarised as follows. Mr Guy was the owner of a large parcel of development land in Manchester. Pursuant to a transfer apparently signed by him the land became registered in the name of a company called Ten Acre Ltd., who created a mortgage in favour of Barclays Bank, which was duly registered on the Charges Register. Ten Acre became insolvent and the bank sought to execute its charge and sell the land. Mr Guy alleged that the transfer to Ten Acre was a forgery and that he was accordingly entitled to have the Register rectified to have the bank’s charge removed.

The bank sought a declaration that its charge was effective. Mr Terence Mowschenson QC, sitting as a deputy High Court Judge, granted summary judgment ([2008] EWHC 893 (Ch)). He did so on the basis that Mr Guy’s allegations did not raise an arguable case of forgery but only of fraudulent misrepresentation, with the result that the transfer to Ten Acre was at most voidable and not void: he relied on Norwich Building Society v Steed.

Mr Guy sought permission to appeal. Permission was refused by Carnwath and Lloyd LJJ – [2008] EWCA Civ 452, [2008] 2 EGLR 74. On ordinary principles that decision is not authoritative and should not be cited (Footnote: ⁸); but it is necessary nevertheless to refer to it here because of how it features in the subsequent case-law. Lloyd LJ was prepared to accept that Mr Guy (who was unrepresented) had an arguable case that the transfer to Ten Acre was not voidable but void and that the registration of Ten Acre as proprietor was a mistake that should be corrected. But he said that it did not follow that the registration of the bank’s charge was also a mistake within the meaning of paragraph 2. Lloyd LJ referred to a difference of opinion between the editors of Ruoff & Roper and Emmet and Farrand on Title about the scope of the term “mistake” and continued (at para. 23):

[W]hile 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.”

He held that there was no prospect of Mr Guy being able to establish notice on the part of the bank.

Two years later Mr Guy sought to re-open the appeal under CPR 52.17 (2): see Barclays Bank plc v Guy (no. 2) [2010] EWCA Civ 1396, [2011] 1 WLR 681. This Court (Lord Neuberger MR and Patten and Black LJJ) held that the application did not fall within the criteria established by Taylor v Lawrence [2003] QB 72, and it did not consider the substantive issues. But in the course of his analysis of the way that the case had been argued on the first occasion, Lord Neuberger MR did say this, at para. 35 (p. 687 F):

“It ... seems clear that Lloyd LJ's analysis proceeded on the basis that the alleged "mistake" for the purposes of para 2 (1) of schedule 4 to the 2002 Act was the registration of the Charge in the charges registers. However, there are other ways of putting Mr Guy's case, namely (a) that the removal of his name from the proprietorship register was a mistake, and, in order to correct that mistake, the Charge would have to be removed from the charges register, or (b) that the registration of the Charge flowed from the mistake of registering the Transfer, and therefore should be treated as part and parcel of that mistake.”

As will be seen, those potential other ways of analysing the issue have been picked up in the more recent case-law.

I have felt obliged to summarise the effect of these decisions because Mr Brown referred us to the judgment of Lloyd LJ: this was also, it seems, the only authority to which the Judge was referred. The issue with which they were concerned is not the same as that which is before us, but they do nevertheless have some relevance, as discussed below.

I turn to a group of decisions by Deputy Adjudicators to HM Land Registry to which we were referred which concern the exercise of the Registrar’s powers under paragraphs 5-7 of Schedule 4: these are, as I have noted, substantially identical to the Court’s powers under paragraphs 2-4.

The first is the decision of Mr Owen Rhys, dated 9 April 2008, in Ajibade v Bank of Scotland plc [2008] EWLandRA 2006/0613. Ms Ajibade was the registered proprietor of a leasehold flat. Her sister forged a power of attorney in her own favour and in the purported exercise of that power transferred the property to a Mr Abiola (her husband). Mr Abiola took out a mortgage from the Halifax Building Society (which became part of the Bank of Scotland), and he subsequently took a further loan from a company called Endeavour; both loans were charged on the property and duly registered on the Charges Register. Mr Abiola did not oppose the rectification of the Proprietorship Register by removing him as registered proprietor. As regards the chargees, the Bank of Scotland apparently accepted that it followed that its charge also would have to be removed from the Charges Register; but Endeavour took a different line. As summarised by Mr Rhys:

“…[I]t contends that whether or not the transfer in favour of Mr Abiola was a nullity, its second charge must remain on the register, even if the Applicant succeeds in having herself restored as proprietor.  Essentially, it contends that Mr Abiola, once registered as proprietor, albeit by virtue of a fraudulent transaction, was entitled to charge the property to Endeavour, and consequently there is no "mistake" within the meaning of Schedule 4 Paragraph 5 to relieve against.”

The bank relied in particular on the view expressed in Ruoff & Roper that a narrow view of the concept of “correcting a mistake” should be adopted.

Mr Rhys rejected that argument. He said, at para. 12:

“In one sense, the arguments addressed to me by both the Applicant and Endeavour have been focussed on the wrong word – namely “mistake”.  The Applicant contends that the registration of Endeavour is, in effect, a mistake.  Endeavour contends that is not.  However, 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 do 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.”

He went on at para. 13 to consider whether his approach went too far in undermining the “sanctity” of the Register; but he believed that it did not. In that connection he noted that his conclusion was in line with the position under the 1925 Act and referred to Argyle Building Society v Hammond.

In Odogwu v Vastguide Ltd. [2008] EWHC 3565 (Ch), which was decided shortly afterwards, Sir Donald Rattee expressed some doubt about whether Ajibade was correctly decided; but the issue did not arise before him and he did not expand on his reasons.

In Piper Trust Ltd v Caruso (UK) Ltd [2010] EWLandRA 2009/0623 a charge in favour of Piper Trust was removed from the Register on the basis of a forged document. A further charge was then created in favour of Caruso. Piper sought the restoration of the charge to the Register with priority over Caruso’s charge. The Deputy Adjudicator, Mr Michael Michell, was prepared to restore the charge to the Register but not to make an order changing the priority as between the two charges. At para. 11 of his Decision he referred to paragraph 8 of Schedule 4 and said:

“Thus if the register is altered by reinstating the Applicant’s charge, that charge will acquire priority over interests whose priority is not protected at the time of the alteration. Its priority may therefore be changed in that it will acquire priority over unregistered interests to which it was subject prior to the alteration. It is implicit in paragraph 8 that the powers under Schedule 4 to rectify the register do not extend to changing retrospectively the priority of an interest affecting the registered estate. By stating that the powers extend to changing for the future the priority of any interest affecting the registered estate, Parliament was stating that the powers do not extend to changing the priority of an interest retrospectively. In this case, the priorities as between the Applicant’s charge and the Respondent’s charge were determined when the Respondent’s charge was registered. Under section 29, the Applicant’s charge was postponed to the Respondent’s charge at the date of the registration of the Respondent’s charge. To change the priorities as between those charges now would be to do so retrospectively and would thus be beyond the limitation on the registrar’s powers imposed by paragraph 8 of Schedule 4.”

He cited passages from Ruoff & Roper and from Megarry and Wade on Real Property in support of his conclusion (though he acknowledged that Emmet and Farrand took a different view). He referred to Freer v Unwins and Sainsbury’s v Olympia. He distinguished Ajibade on the basis that the Deputy Adjudicator in that case did not have to consider the effect of paragraph 8.

In Stewart v Lancashire Mortgage Corporation [2010] EWLandRA 2009/86 a different Deputy Adjudicator, Mr David Holland, declined to follow Ajibade. This was another case of a forged transfer, the issue being whether a charge created during the period that the fraudster was the registered proprietor should be removed from the Register. Mr Holland relied on the judgments of Mr Mowschenson and of Lloyd LJ in Guy and also on what he understood to be the effect of the decision of the Court of Appeal in Norwich Building Society v Steed. He concluded, at para. 73:

“It seems clear to me that the effect of sections 58, 23, 24 and 132 of the Act is that the [fraudster], 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 [fraudster] 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 … , 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.”

The passage in the Law Commission report (being the 2001 report) referred to by the Adjudicator is very general in character. It reads:

“The fundamental objective of the Bill is that, under the system of electronic dealing with land that it seeks to create, the register should be a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate title to land on line, with the absolute minimum of additional enquiries and inspections.”

In Knights Construction (March) Ltd v Roberto Mac Ltd. [2011] EWLandRA 2009/1459, [2011] 2 EGLR 124, the Deputy Adjudicator, Mr Michael Mark, believed that it was necessary to resolve the conflict between Ajibade and Stewart. A hearing was fixed to deal specifically with that issue, and the Chief Land Registrar was added as a party and was represented by leading counsel. The facts can be summarised as follows. In 2007 the Salvation Army applied for, and was granted, first registration of unregistered land adjacent to its chapel in March; and the land was in 2009 sold to a developer, Roberto Mac Ltd (“RM”), which was duly registered on the proprietorship register. Unfortunately the title as registered erroneously included adjacent land belonging to Knights (Construction) March Ltd. (“Knights”). Knights applied for rectification of the Register to remove the land in question from RM’s registered title. As it is succinctly put in the headnote to the EGLR report:

“The central issue was the extent of the power, under para 5 (a) of Schedule 4 to the 2002 Act, to alter the register for the purpose of “correcting a mistake” and whether it extended to restoring the applicant's title to the disputed land against the first respondent as an innocent purchaser from a vendor in whom the registered title had vested at the time of sale.”

Mr Mark, from whose learned and lucid decision I have derived considerable assistance in tracing the legislative history, held, following Ajibade, that he had jurisdiction to remove RM from the title notwithstanding that the Salvation Army had been the registered proprietor at the time that it acquired its interest. His reasons can be summarised as follows:

The decision in Knights Construction has been accepted as authoritative by the Land Registry. The Practical Guide to Land Registry Adjudication, edited by two Deputy Adjudicators, says, at para. 18-6 (example 2):

“B owns Whiteacre. A forges a transfer of Whiteacre to himself and is registered as freehold proprietor. The effect of registration is that the freehold is deemed to be vested in him: see LRA 2002, s 58(1). Subsequently, A charges Whiteacre as security for a £1M loan from C Bank Ltd. B applies to alter the register by removing A as proprietor and restoring his name as proprietor. This he can do. But can he remove C Bank Ltd's charge? C Bank Ltd argues that because the freehold was deemed to be vested in A at the time of the charge, there has been no mistake.

Land Registry no longer accepts that argument and will now accept an application by A to remove C Bank's Ltd charge on the basis that either:

 • the registration of the charge directly flows from the original mistake;

 • the charge needs to be removed in order fully to correct the mistake.

In Knights Construction (March) Ltd v Roberto Mac Ltd [2011] EWLandRA 2009/1459, the Adjudicator carried out a detailed review of several recent conflicting authorities and adopted the same approach. This can now be taken to be the correct view.”

The final decision in this series, DB UK Bank Ltd v Santander UK plc [2012] EWLandRA 2011/1169, is another forgery case, where the essential facts were on all fours with those of Piper Trust. It was common ground that the mortgagees, DB, whose charge had been wrongly removed from the Register should have it restored, but the Deputy Adjudicator, Ms Sara Hargreaves, refused an application that it should rank in priority to the subsequently-created charge in favour of Santander, on the basis that paragraph 8 of Schedule 4 did not permit retrospective changes in priority. The case is of particular interest because Santander was represented by Mr Harpum, who – as noted above – was the principal midwife of the 2002 Act. The Adjudicator accepted Mr Harpum’s submission that paragraph 8 of Schedule 4 represents a “statutory codification of Freer v Unwins”.

Those cases fall into two groups. Two of them – Piper Trust and DB – are explicitly concerned with the question of priority, and in both the Adjudicators held that they were precluded by the terms of paragraph 8 of Schedule 4 from making an order giving the wrongly de-registered but now reinstated charge priority over a charge created during the period of mistaken de-registration. They are thus closely analogous to the present case and support Mr Brown’s submission. The other three – Ajibade, Stewart and Knights Construction – are all (like Guy) concerned with the different question of whether the power to correct the original mistake extends, by one route or another, to correcting the consequences of that mistake by the removal of the later-created interest. They were not concerned with priority between derivative interests. I do not, however, believe that they are for that reason irrelevant, for reasons which I will give in due course.

The most recent authority to which we were referred is Cherry Tree Investments Ltd v Landmain Ltd. [2012] EWCA Civ 736, [2013] Ch 305. The principal issue in that case was to what extent it was permissible to refer to extrinsic material in order to interpret the meaning of a legal charge and, in that connection, where the boundary line lies between purposive construction and (contractual) rectification. That of course has no bearing on the issues with which we are concerned. But Lewison LJ included as part of the relevant context the fact that the charge was intended to be registered under the 2002 Act, and in that connection he briefly summarised the background to the Act and the core provisions. He refers to Schedule 4 and sets out the terms of paragraphs 2 and 8. He then says, at para. 119:

“Paragraph 2 makes it clear that the statutory power is a power to order rectification of the register. It is not a statutory power to rectify underlying documents. In my judgment whether the charge is to be interpreted as containing (or as not containing) the extension of the power of sale, there is nothing on the register that needs to be rectified. The entries which identify the registered charge and the proprietor of the registered charge will remain the same. So in my judgment the statutory power of rectification does not bear on this case. Paragraph 8 makes it clear that even if the register is rectified, it operates prospectively only. Thus it respects the rules of priority.”

That observation about the effect of paragraph 8 does not take matters any further. It is entirely general and is not directed at its meaning or effect in any particular situation.

It is unnecessary to review the full range of academic and textbook opinion bearing on this question, but I should refer to Emmet and Farrand, Ruoff & Roper, and Megarry and Wade. Professor Farrand is one of the editors of Emmet and Farrand and Mr Harpum is one of the editors of Megarry and Wade: both of course were involved at different stages of the consideration of this issue by the Law Commission.

At paras. 9.027-028 of Emmet and Farrand there is a very full discussion of the authorities. The editors emphasise that under the 1925 Act it was well established that “where there was a void transfer, there would be power to rectify the register against a bona fide purchaser for notice”, citing in particular Argyle Building Society v Hammond (Footnote: ⁹); and on the basis that that remains the law they contend that the reasoning of Lloyd LJ in Barclays Bank v Guy was wrong. Para. 9.029 is headed “Retrospectivity of Rectification”. It begins:

“As to the effect of rectification, an issue of retrospectivity arising under the 1925 Act provisions has not necessarily been resolved by the 2002 Act.”

Reference is then made to Freer v Unwins, Clark and Malory. The editors say that in Malory Arden LJ “… expressed concern that there was no power to impose terms protecting third parties from prejudice ...”. They continue:

“However she appears to have forgotten the indication in s. 82 (2) of the LRA 1925 ...  that such third parties are supposed to be affected by rectification anyway so that there is no need for a power to rectify the register retrospectively.”

(The reference to there being “no need” for a power to rectify retrospectively corresponds to the language of the Law Commission to which I draw attention at para. 63 (1) above.) The editors say that paragraph 8 of Schedule 4 “appears cryptic as to retrospectivity as opposed to prospective operation on priorities”.

Para. 46-017-18 of Ruoff & Roper reads as follows (Footnote: ¹⁰):

“46.017.

When the register is rectified, the change takes effect for the future only [paragraph 8 of Schedule 4]. Rectification does not operate retrospectively from the time of the original error. The priority of interests affecting the registered estate or charge in the period between the original error and the order for rectification is unchanged. In this, the 2002 Act continues the generally held view of rectification under the 1925 Act [Freer v Unwins].

46.018.

The rule that rectification operates prospectively is consistent with the policy of the 2002 Act that the register should be as complete and accurate a reflection of the registered title as possible. The interests of third persons who relied on the state of the register would be prejudiced if a retrospective rectification of the register were to change the priority of their interests. Similarly, the effect of retrospective rectification would be that official searches of the register might later become inaccurate, even though they were in fact correct at the time that they were issued. As a result, a third party who acquires an interest in the registered estate before the register is rectified by recording some mistakenly omitted right against that estate cannot be bound by the new right. His interest takes priority over the newly recorded right according to the usual rules of priority in the 2002 Act. But the registered proprietor against whom rectification is ordered would be bound by the newly recorded right, though only with effect from the time that the register was rectified against him [Sainsbury’s v Olympia]. Any indemnity to which he became entitled would reflect the fact that his loss accrued then. For example, a registered proprietor of a freehold estate might grant a lease to a tenant. If the registered freehold estate were later rectified by noting the burden of a restrictive covenant which had been mistakenly omitted when the freehold was first registered, then the tenant would not be bound by the covenant. His lease would take priority over the covenant. But the freeholder himself could not take free from the covenant from that time onwards by claiming that it was not recorded against his title when the estate was first registered. The covenant would bind him from then on, in the same way as any other restrictive covenant that he might enter into once he became the registered proprietor.”

At paras. 46.025-28 the editors discuss the case-law on the extent of the power to rectify in the case of void dispositions, including cases where a mortgagee has acquired an interest at a time when the interest of the true owner does not appear on the register. They recognise that “the current view of the Registrar” is that the Charges Register may be rectified against the mortgagee (Footnote: ¹¹); and that that is consistent with what they describe as “equivocal” authority – namely Argyle Building Society v Hammond, said to be “possibly” endorsed in Norwich Building Society v Steed – as to the effect of the 1925 Act. I have to say that this grudging language is unjustified: the decision and ratio in Argyle Building Society v Hammond are unequivocal, and their endorsement – on the assumed facts – in Norwich Building Society v Steed is explicit. But the editors say, at para. 46.030:

“It is submitted, however, that this approach is not justifiable under the 2002 Act. It was the explicit policy of HM Land Registry and the Law Commission in the consultation paper that preceded the 2002 Act that, in the absence of some mistake in the register, the principles of unregistered land should not determine whether the register should be rectified. Any other result would undermine the general aim of the 2002 Act that the register should indicate accurately and comprehensively the state of the registered proprietor’s title. A registered proprietor cannot be deemed to lack powers of disposition which the fact of registration confirms that he actually has. The applicant for rectification must prove some mistake in registration.”

They continue:

“However, if such a mistake is proved, the full correction of that mistake may involve the correction of both the original mistake itself and the consequences of that mistake arising from the fact that the registered proprietor (albeit that his registration as proprietor was a mistake) exercised the powers of disposition which his mistaken registration as proprietor had conferred upon him.”

The section concludes with a long and careful discussion of whether the outcome in Malory would be the same under the 2002 Act (paras. 46.032-4); but it does not explicitly address Arden LJ’s views about retrospective rectification.

Para. 7-136 of Megarry and Wade (8^th ed) reads as follows:

“The powers relating to rectification extend to changing for the future the priority of any interest affecting the registered estate or charge concerned. Because the effect of rectification is therefore prospective from the date of the order, where the court orders rectification of the register:

(i)

It affects the proprietor of the registered estate or charge from the time that rectification is ordered.

(ii)

It affects the priority of any interest affecting the registered estate or charge concerned that is created or arises after rectification is ordered.

(iii)

It does not affect the priority of derivative estates and interests that were created between the time of the mistake and the order for rectification.”

A footnote reads:

“Retrospective rectification would do violence to the integrity of the register and therefore, in this respect, rectification of the register differs from rectification of an instrument, which is retrospective to the making of the instrument: … . The better view is that the law was the same under LRA 1925: see the judgment of Arden LJ in [Malory] … at [71]-[79]; [… cf. Clarke and Schiemann LJJ, at [87], [89]; … .”

It is clear that there is at least some difference between the views expressed in Emmet and Farrand on the one hand and in Ruoff & Roper and Megarry and Wade about the shape of the law in this area.

I have concluded that the Judge was entitled to make the order that he did. My reasons are as follows.

It is useful to start by spelling out the essentials of the situation in which paragraph 8, whatever its effect, is intended to apply. It is a situation in which at the point of rectification there are two competing derivative interests – A and B. Interest A has been mistakenly omitted or removed from the Register (Footnote: ¹²), but that mistake is to be corrected by its reinstatement. Subject to the effect of the rectification, interest B would have priority: otherwise the question of changing priorities would not arise. It is important to appreciate that the only reason why that would be so is because interest B was created before (obviously) the restoration of interest A to the Register but after the date of its mistaken omission or removal.

The primary effect of paragraph 8 is to confirm that the power of the Court or Registrar in that situation is not limited to restoring interest A to the Register but “extends” to changing what would otherwise be the priority as between it and interest B – in other words, to giving it the priority which it should have had but for the mistake. The words “for the future” no doubt qualify that power – the question being in what way – but that is the context in which they fall to be interpreted.

The Appellant’s case has to be, and is, that the effect of the words “for the future” is that if interest B has been registered after the mistake but before the rectification, and thus would otherwise enjoy priority, that priority cannot be altered: an alteration to a priority which already exists cannot be described as an alteration “for the future”. But if that is right then their effect is to prevent the Court from changing priorities in the very situation which paragraph 8 is intended to address. There is no problem of competing priorities once the rectification has been achieved. The only priorities that could be changed relate, necessarily, to interests which have already been created.

It is worth recalling that Schedule 4 is concerned with “correcting” mistakes in the Register, and it is established by the decisions to which I have referred that the power to do so extends to correcting the consequences of such mistakes. It should be noted that that power is in some circumstances a duty: see paragraph 3 (3). The Appellant’s construction would mean that in all cases where derivative interests have been created during the period of mistaken de-registration that correction would be less than complete and that in some cases, such as the present, it would be valueless.

Quiet apart from those points, the Appellant’s construction does not correspond to the words actually used in the statute. What paragraph 8 permits (for the future) is “changing the priority” of an interest. What an interest having priority means is that the owner can exercise the rights which he enjoys by virtue of that interest to the exclusion of any inconsistent rights of the owner of the competing interest. The concept of priority thus bites at the moment that those rights are sought to be enjoyed. Once that is appreciated the effect of the words “for the future” seems to me straightforward. They mean that the beneficiary of the change in priority – that is, the person whose interest has been restored to the Register – can exercise his rights as owner of that interest, to the exclusion of the rights of the owner of the competing interest, as from the moment that the order is made, but that he cannot be treated as having been entitled to do so up to that point. The distinction can be illustrated by the facts of this case. The effect of the Judge’s order is that thenceforward the Claimants were entitled to exercise their rights as leaseholders – primarily, that is, their rights to occupy the roofspace – to the exclusion of Gold Harp. But until that point they had no such right: they could not, for example, claim mesne profits from Gold Harp or its predecessors in respect of any occupation (though in fact there was none) up to that date. Other illustrations can be found in the facts of the earlier cases reviewed above. On facts similar to those of Freer v Unwins, for example, the Court could have made an order by way of rectification which rendered the leasehold subject to the restrictive covenant for the future, but the beneficiary could not have sued in respect of breaches prior to that date. And on facts similar to those of Malory – and ignoring the controversial ratio on which it was in fact decided – the claimants could not have claimed damages for the demolition carried out pre-rectification.

I draw support for my conclusion from what I might call, by way of shorthand, the survival of Argyle Building Society v Hammond, as confirmed in Knights Construction. If the law isthat a derivative interest registered during a period where a relevant freehold interest is wrongly omitted from the Register may be lost as a result of the reinstatement of that interest, I can see no relevant difference of principle or policy in the case where the conflict is between two derivative interests. In both cases the essential issue is the same, namely whether an interest created during the period of mistaken de-registration may be prejudiced by the reinstatement of an interest to which it would have been subject but for that mistake.

I see no difficulty with this construction on policy grounds. It is true that it means that the indefeasibility of the Register is qualified to a greater extent than would be the case on Mr Brown’s construction. But, as all the Law Commission reports acknowledge, the Act was not intended to provide for absolute indefeasibility. Schedule 4 explicitly recognises that the rectification has the potential to prejudice the interests of third parties who have relied in good faith on the Register. The carefully structured provisions of paragraphs 2 and 3 (and their equivalents in the case of rectification by the Registrar), with the special protection given to a proprietor in possession, allow a fair balance between the competing interests to be struck in any particular case; and Schedule 8 gives the loser the right to an indemnity.

I am naturally concerned that my interpretation of paragraph 8 appears to be contrary to that advanced in Ruoff & Roper and Megarry and Wade and accepted by the Deputy Adjudicators in Piper Trust and DB – particularlygiven the involvement of Mr Harpum in one of those works and one of those decisions (Footnote: ¹³). It is some comfort, however, that Emmet and Farrand appears to be (to put it no higher) doubtful about the effect of paragraph 8; also that the views of Ruoff & Roper in this area have failed in the past to attract judicial favour (see paras. 39 and 74-75 above). But I have also to say that the reasoning advanced in support of their conclusions seems to me unconvincing. The essential points relied on are twofold – first, the need to preserve what is referred to in Megarry and Wade as “the integrity of the register”; and secondly, that their preferred construction accords with the authorities on the meaning of the 1925 Act, with particular weight being placed on Freer v Unwins and on Arden LJ’s observations (not adopted by Clarke and Schiemann LJJ) in Malory. As to the first, I have already made the point that the guarantee of title conferred by registration is well understood not to be absolute. As to the second, for the reasons already given I do not think that Freer v Unwins or Malory – quite apart from the fact that they are not binding on us – can safely be regarded as addressing the issue raised by the present case; and the legislative history generally does not support the broad propositions advanced. Indeed, as I have noted, the editors of Ruoff & Roper recognise the difficulty posed by Argyle Building Society v Hammond and adopt the dual strategy of (unjustifiably) doubting its authority and submitting that it has no application under the 2002 Act notwithstanding the avowed intention of the Law Commission to re-enact the substance of section 82 (2).

EXCEPTIONAL CIRCUMSTANCES

As recorded at paragraph 27 (6) above, the Judge held that there were no exceptional circumstances which would justify him departing from the presumption in favour of rectification that would otherwise apply under paragraph 3 (3) of Schedule 4. Mr Brown submitted that that conclusion was wrong for, in effect, two reasons (though they are pleaded as three).

First, the Claimants had first learnt of the cancellation of their leases in October 2009; but it was not until the conclusion of the first hearing in March 2013 that they had sought an order for rectification. The Judge should have treated that delay as an exceptional circumstance but he did not advert to it in his judgment at all.

Secondly, the expert evidence adduced by the Appellant had been to the effect that if each of the Claimants sought to develop his part of the roofspace as a separate flat they would be unlikely to obtain planning permission because the units were too small; whereas Gold Harp should have no difficulty in converting it as one flat. The Appellant’s case that it followed that the loss to it if rectification was granted would be much greater than the loss to the Claimants if it were refused. As to that, the Judge had said, at paragraph 50 of his judgment:

“… I do not think that is sufficient to amount to an exceptional circumstance because the planning position has not actually been tested by Mr Byrne or Mr Briars making a planning application, so far as I am aware and, in any event, the mere fact that planning permission may at this point in time be unlikely, if does not mean that the rightful owner should be excluded and therefore prevented from the possibility of applying for planning permission or perhaps doing a deal with the freeholder, or the now intermediary lessee, Gold Harp Property Limited.”

Mr Brown contended that that reasoning did not properly answer the Appellant’s argument.

I cannot accept either ground. I take them in turn.

As to the delay, the Claimants had issued proceedings in August 2011 but it is correct that they only very belatedly pleaded a claim for rectification of the Register. But it is not axiomatic that delay in advancing such a claim constitutes an exceptional circumstance which would justify not making an order that the Court would otherwise be obliged to make. On the contrary, it seems to me that it would be very unlikely to do so unless the delay had given rise to some substantial identifiable prejudice. No such prejudice was alleged. In those circumstances, while ideally the Judge should have dealt with the point, however briefly, I do not believe that his failure to do so renders his decision wrong.

As for the evidence about the development potential of the roofspace, the points made by the Judge seem to me perfectly sufficient to support his finding that the matters relied on did not justify him in not making the order. Even if Gold Harp’s loss if rectification was ordered would clearly have been greater than the Claimants’ if it was not, I doubt if in the circumstances of this case – where Gold Harp was neither independent of Mr Ralph nor had given any value – that would be a sufficient reason for withholding rectification. But, as he pointed out, it was not definitively established that planning permission would be unavailable; and in any event, as he again pointed out, they could have come to a deal which enabled someone else to realise the development value (if necessary by putting the two “flats” together). Judgments of this kind are matters for the trial judge which only in a clear case can be said on an appeal to be wrong. This is far from being such a case.

I would dismiss the appeal on both grounds.

I agree.

I also agree.