Bank of Scotland v Hussain

This action has been brought by the Bank of Scotland (the “Bank”) for possession of a property at 30 Drayton Road, West Ealing, W5 0LD (the “Property”).

On 27^th September 2007, Master Moncaster dismissed the Bank’s application to strike out the defence of the second Defendant, Mona Qutb (“Mona”). The bank had argued that the issues raised by Mona have been or should have been raised in previous proceedings involving the same parties, and it was therefore an abuse of process to raise them as a defence to this action.

On 2^nd November 2007, however, Master Moncaster granted the Bank summary judgment against Mona on the issue of whether Mona has an overriding interest in the Property under section 70(1)(g) of the Land Registration Act 1925 (“Section 70(1)(g)”), holding that she had no such interest.

Master Moncaster granted Mona permission to appeal from his grant of summary judgment, and, on Thursday 12^th March 2008 at the beginning of this hearing, I granted the Bank permission to extend time for appealing and permission to appeal from his refusal to strike out Mona’s defence. The 2 appeals raise distinct, but connected issues. I will deal with some of the background facts and will then deal with the summary judgment appeal followed by the strike out appeal.

This is a very sad and unusual case, the detailed facts of which are set out in the judgment of Nicholas Warren QC (as he then was) dated 26^th April 2005 in claim number 2001 Q 0191973 between Mona as Claimant and Afzaal Hussain (“Afzaal”) and the Bank as Defendants (the “Previous Proceedings”). I shall limit what I say to those matters that are strictly relevant to the determination of these appeals.

In the broadest outline, Afzaal exercised undue influence over Mona to persuade her to sell the Property to him at the notional price of £225,000, at which it had been valued. Afzaal persuaded Mona to execute a Deed of Gift in his favour for £80,000 on 14^th December 2000, and he raised the balance of the supposed purchase price by way of a mortgage loan from the Bank in the sum of £145,000.

The Bank’s mortgage offer to Afzaal was dated 3^rd January 2001. The contract of sale between Mona and Afzaal was dated the 19^th January 2001 (the “Contract”). The transfer (the “Transfer”) and Afzaal’s mortgage to the Bank to secure repayment of £145,000 (the “Charge”) were completed on 29^th January 2001.

Immediately after the transaction was completed, Afzaal accompanied Mona to withdraw a total of £128,000 in cash. Mr Warren QC raised doubts about whether Afzaal had received that money, but made no finding about the matter.

Mr Warren QC did, however, make the following determinations:-

Mr Warren QC rejected Mona’s claim that the transfer was void ab initio on the grounds of nonestfactum. Had Mona succeeded in this claim, of course, she would not have been bound by the Charge, as Afzaal would never have had any interest in the Property to charge to the Bank. The Bank appeared at the trial, and argued against Mona’s plea of nonestfactum.

In the event, Mr Warren QC ordered that the Property be re-registered in Mona’s name (as a result of the undue influence and unconscionability affecting the transaction), subject to the Bank’s charge.

On 31^st January 2001 (2 days after completion) Mona went to the USA to see her son, Azam, by whom she defends these proceedings. Azam reported the matter to the police, and in due course Afzaal was arrested. He was convicted on 18^th March 2002 at Isleworth Crown Court on a charge of conspiracy to defraud. The particulars were that between 30^th August 2000 and 3^rd May 1991, Afzaal conspired with others to defraud Mona and her two children of their real and personal property by dishonesty. The Indictment listed 7 activities in support of the charge including inducing Mona to sell the Property to Afzaal at an undervalue, and inducing Mona to withdraw £128,000 in cash and using that sum for his own purposes. It was not clear, however, which of the 7 stated activities Afzaal was convicted of having undertaken.

These proceedings were commenced on 26^th March 2002. At a hearing in the Previous Proceedings before Master Bowman on 24^th April 2002, he suggested that the newly commenced possession action should be transferred from the Brentford County Court to the High Court and tried alongside the Previous Proceedings. The possession action was duly transferred into the High Court, but was never ordered to be tried at the same time as the Previous Proceedings. Counsel suggested that the reason may have been because the parties thought that the outcome of the possession action would be a formality once the Previous Proceedings were resolved. Either way, it is unfortunate that this case management decision was never made, since if it had been, one might legitimately expect that all matters in issue between the parties would by now have been resolved.

After Mr Warren’s decision in April 2005, this action was revived, and after some further delay, the Bank’s two applications were made to Master Moncaster.

The main issue in this action is whether Mona can claim an overriding interest under Section 70(1)(g), which provides as follows:-

“All registered land shall … be deemed to be subject to such of the following overriding interests as may be for the time being subsisting in reference thereto …

(g)

The rights of every person in actual occupation of the land …save where enquiry is made of such person and the rights are not disclosed;”

It is common ground between the parties that, for the purposes of this appeal, I can assume there to be a triable issue as to whether or not Mona was in actual occupation of the Property when completion took place on 29^th January 2001 and thereafter. And Mr Peter Kirby (Counsel for the Bank) accepted before the Master and before me that a right to rectify the register by vindicating a claim to avoid the Contract for undue influence and unconscionability could amount to a “right” of a person in actual occupation under Section 70(1)(g), so as to amount to an overriding interest.

In the result, the summary judgment application concerned only the issue in paragraphs 3e of Mona’s defence and paragraph 6e of the Bank’s Reply, namely whether the Bank had made any adequate enquiry with Section 70(1)(g), such as to trigger the proviso to that sub-section, namely: “save where enquiry is made of such person and the rights are not disclosed”.

The Bank’s case, put very simply, is that:-

The Master expressed his reasoning in paragraphs 14-16 of his Judgment where he said “Section 70 is supposed to have got rid of the doctrine of notice. It is now completely an objective or mechanical test which is applicable….The lender in these cases … has before it a transfer, and indeed usually a contract pre-dating the transfer, from the vendor in which, in the case in question here, and in the normal case, the vendor will agree that she is giving vacant possession. In my view it is impossible to fit that state of affairs into section 70(1)(g). The vendor is, on the face of the documents, transferring the land and is transferring it free of any rights. It is, it seems to me, senseless to suppose that one can direct, or be required to direct, an inquiry to the vendor asking the vendor whether the vendor is conveying the land or is asserting any rights (emphasis added)”.

It is remarkable that the proviso to Section 70(1)(g) has been the subject of so little judicial attention in the 77 years during which it was enacted (until it was replaced by paragraph 2(b) of Schedule 3 to the Land Registration Act 2002, which is in rather different terms). The cases that have been drawn to my attention, however, seem to me to support a construction which draws a distinction that the Master failed to draw, namely between:-

In my judgment, looked at as a matter of pure construction:-

As it seems to me, in this case, the Bank never got to the second stage at all. It claims that simply enquiring if Mona would be in actual occupation was enough. But it cannot be so. The section abrogates the doctrine of notice, so the Bank cannot escape because it has no notice. It can only escape if upon making an appropriate enquiry of the person who is or will be in actual obligation about their rights, those rights are not disclosed.

Mr Julian Greenhill (Counsel for Mona) cited three authorities to me:-

In UCB Bank v. France CA Lexis transcript 26^th July 1995, a Mr Beasley purchased a restaurant from Miss France using a loan from UCB. Miss France agreed to accept payment in part to an offshore account. Mr Beasley defaulted, but completion took place nonetheless and she claimed an unpaid vendors’ lien (which is an equitable interest), and argued that she had an overriding interest in priority to the bank’s charge by virtue of her continuing in actual occupation after completion as the restaurant manager (of which the bank was aware).

The pre-contract enquiries asked whether vacant possession would be granted on completion (to which Miss France had responded that it would), and whether she was aware of any other overriding interests to which the Property would be subject on completion (to which Miss France had responded that she was not).

Morritt LJ (as he then was) relied at page 7 on the latter enquiry as to her awareness of overriding interests, as being the relevant enquiry for section 70(1)(g) purposes, in answer to which she had not disclosed her unpaid vendor’s lien. The proviso was thus engaged and Miss France was held to have no overriding interest. See also page 8 of Morritt LJ’s judgment.

In the second case, Winkworth v. Edward Baron Development (1985) 52 P&CR 67, Nourse LJ in the Court of Appeal (in a passage that was not overruled in the later House of Lords decision) said expressly at page 77 that “It seems to me that the person in actual occupation must be asked what rights he or she has in the land”. In that case a wife in actual occupation of a property, purchased by her family company, claimed an overriding interest (said by the Court of Appeal, but not the House of Lords, to have been an equitable interest) arising from her repayment of the company’s overdraft from the proceeds of sale of her previous home. The wife was asked as to the capacity in which she occupied – i.e. as tenant or licensee, but was not asked about their rights in the land generally, so the Court of Appeal thought her interest was an overriding one.

Mr Greenhill also relied on Holaw v. Stockton (2000) 81 P&CR 404 at paragraphs 71 and 76 per Neuberger J (as he then was).

The Bank also argues that the request for the reasons for the gift being made is (or may be) good enough to trigger the proviso. The Bank says that, even though the enquiry may not be directed at what rights Mona has, it is directed precisely at the undue influence which was what eventually turned out to be her asserted right – so it says it must be adequate to trigger the proviso and protect the Bank from Mona having an overriding interest.

The problem with this argument is that the question about the reasons for the gift comes nowhere close to asking about the rights that Mona has. In Winkworth, it was not sufficient for the Bank to enquire as to the capacity in which the wife was occupying the property (i.e. as tenant or licensee), when the right claimed was an equitable interest arising from the previous repayment of an overdraft. Likewise here, in my judgment, asking about the reasons for the gift is simply not calculated to elicit a response as to Mona’s rights.

The Bank then raises an argument to the effect that it would be absurd and unjust if a vendor could sell the property with a full title guarantee and contract to give vacant possession, allow an unsuspecting lender to rely on those commitments, and then stay in actual occupation and claim an overriding interest.

Mr Kirby relies on Lord Wilberforce’s speech in Williams and Glynns v. Boland [1981] AC 487 at pages 503-4 and 508-9 for the proposition that Section 70 did away with the doctrine of notice and substituted a system based on actual occupation alone. That meant that enquires had to be made about the actual occupation of wives if banks were to avoid being affected by their interests.

I have some sympathy with Mr Kirby’s submission. In any normal case, it would be most counter-intuitive to think that a vendor could inaccurately (or even dishonestly) inform the purchaser and the bank that he would give vacant possession, and then remain in actual occupation and claim an overriding interest.

In my judgment, however, that is not the issue that the Master was deciding. The Master was simply asked to decide the true meaning of the proviso to Section 70(1)(g); no other more extensive case is pleaded. My holdings that (a) the Master was wrong to attribute the meaning he did to Section 70(1)(g), and (b) the enquiries to which the proviso is directed are those to be made to a person in actual occupation in relation to his rights in the property, do not prevent a more extensive case being advanced by the Bank at trial.

Thus, the proper construction of Section 70(1)(g) is not, in my judgment, an end of the matter.

Before finishing this part of my Judgment, I should mention that Mr Greenhill raised three other arguments in support if his appeal, one of which suggested that the proviso operated in effect as a form of estoppel, and necessitated an enquiry into what the Bank knew. It will be seen that I have not found it necessary to decide on the correctness of that approach, supported as it is by paragraphs 8.60ff of the Law Commission’s Report entitled “Land Registration for the Twenty-First Century – A Conveyancing Revolution”. In the light of my holdings as to the correct construction of Section 70(1)(g) as it affects this case, I have not found it necessary to deal in detail with Mr Greenhill’s other arguments, nor with the detailed knowledge of the Bank as it appears from the conveyancing file.

This is an application for summary judgment, and it seems to me that the application cannot succeed on the grounds on which it was made, namely that Mona can have had no overriding interest, because the proviso to Section 70(1)(g) was triggered. No enquiry was made by the Bank in this case of the kind envisaged by the proviso as I have explained, and this is not a clear case in which the Court can say without further evidence that the proviso was triggered.

For these reason, I would allow Mona’s appeal and dismiss the Bank’s application for summary judgment.

The Bank argues that it was an abuse of process for Mona to raise her claim to an overriding interest as a defence to the possession action, when that issue could and should have been raised in the proceedings tried by Mr Warren QC.

It is common ground that the law on abuse of process is be found in Johnson v. Gore-Wood [2002] 2 AC 1 at page 31 in the speech of Lord Bingham, where he said:-

“But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice (emphasis added).”

Mr Kirby has argued that Mona accepted in the Previous Proceedings that “in the event of a Court finding that the sale was voidable any transfer back to the Claimant would result in the Claimant’s [Mona’s] property being subject to the [Bank’s] charge”. And he says that Mr Warren QC actually ordered re-registration in Mona’s name subject to the Bank’s charge; so he maintains (and the Master agreed) the defence of overriding interest seeking as it does to attack the Bank’s Charge is a collateral attack on Mr Warren’s judgment.

Next, Mr Kirby contends that there is here unjust harassment of the Bank. He says that the defence could and should have been raised in the Previous Proceedings, and the Bank will be put to much trouble and expense now to deal with the new defence. Evidence in a number of areas will have to be repeated. Moreover he says that the defence was only raised in March 2007 more than 6 years after the transaction, so that, if it succeeds, the Bank will be unable (anyway without the assistance of section 14A of the Limitation Act 1980) to sue its solicitors for negligence.

It seems to me that there is a simple answer to the Bank’s claim. The proceedings before Mr Warren QC concentrated on the relationship between Afzaal and Mona, and consequentially between Afzaal and the Bank. They were not directed at the logically secondary question of what might happen if the transaction between Afzaal and Mona were set aside on one or more of the grounds alleged, so that the Property was re-registered in Mona’s name.

Moreover, as the Master pointed out, these possession proceedings were stayed so that the other action could be determined first. It was always known that, once it had been determined, the possession claim would have to proceed. It is, perhaps, unfortunate, that Master Bowman’s suggestion that the possession action should be heard at the same time as the Previous Proceedings was never acted upon, but I cannot attribute blame to any of the parties for that.

For this reason, I do not think that Mona’s position can be seen as a collateral attack on Mr Warren QC’s judgment. Indeed, Mr Greenhill made it perfectly clear that he accepted all Mr Warren’s holdings and would be basing his case on them. Mona is not saying in this case that the Bank’s charge is invalid, only that Mona has an overriding interest under section 70(1)(g) that means she is not affected by it.

Furthermore, whilst I have sympathy for the Bank’s position, being forced now to fight another action against Mona in respect of the Property, I do not believe, standing back from the matter as Mr Greenhill urged me to do, the effect on the bank can be regarded as unjust harassment or anything close to it. The repeated evidence will be modest – and may in the event only go to the question of Mona’s actual occupation. The Bank could itself have applied to have the possession action heard alongside the Previous Proceedings. It did not do so. The difficulty in suing its solicitors, whilst one of the factors I must and do take into account, is not directly relevant it seems to me to the question of whether there would be an abuse of the Court’s process if this defence were permitted to be pursued.

In my judgment, the test laid down by Lord Bingham in Johnson v. Gore-Wood is not satisfied in this case:-

For all these reasons, the Bank’s appeal against the Master’s refusal to strike out Mona’s defence will be dismissed.