Barclays Bank Plc v Guy

The deputy Judge: This is an application by Barclays Bank Plc, who I shall refer to as “the claimant”, against Mr Trevor Guy, who I shall refer to as “the defendant”, for summary judgment. Mr Guy represented himself but was very ably assisted by Miss Victoria Gregory, who I allowed to address me with the consent of Mr McGhee, counsel for the claimant.

The claimant’s claim is for declaration that it is entitled to sell registered freehold land at Ten Acres Lane, Manchester, which I shall refer to as the property, pursuant to its registered first legal charge dated 8^th March 2005, granted by the registered proprietors of Ten Acres Limited, who I shall refer to as Ten Acre, and that any purchaser of the property of the property from the claimant selling as chargee would take the property free of any interest, right or claim the defendant may have in, over or in relation to the property.

The total sum due to the claimant and secured by the charge is in excess of £110m. The value of the property is estimated to be around £35m and is likely to represent the single largest recovery for the claimant in part payment of the sum secured by the charge. I refer to the second witness statement of Miss Bradford at paragraph 33. witness statement, of Miss Bradford at paragraph 33.

The defendant has served a defence, which remains in draft. No formal defence has been served following an application by the defendant to join Ten Acres, a part 20 defendant, to these proceedings; that application has been adjourned until after the determination of the claimant’s summary judgment application, which is before me today.

The defendant’s draft defence and counterclaim seeks to defend the claimant’s claim on two bases. First, it asserts that the charge is not a genuine legal document. I refer to paragraphs 1 and 2 of the draft defence, although no reasons are given for the assertion in the draft defence. Secondly it asserts that the transfer of the property by the defendant to Ten Acre on 22^nd June 2004 by a document, which I shall refer to as the transfer, was fraudulently procured by Ten Acre. As a result the Defendant contends that the transfer is void, at paragraphs 3 and 4 of the draft defence, and that the charge is invalid or ineffective, and that he is entitled to rectification of the register as against the claimant.

The defendant’s contention that the transfer was fraudulently procured by Ten Acre is the subject of separate proceedings issued on 2^nd March 2006, to which the claimant is not a party. Those proceedings were stayed pursuant to paragraph 43 of schedule B1 of the Insolvency Act 1986 upon Ten Acre entering into administration on 18^th October 2006, and a further application by the defendant to lift the stay and to join the claimant and his former solicitors to those proceedings has also been adjourned pending determination of this application.

I shall summarise the chronology of events briefly. On 22^nd June 2004 the property was transferred by the defendant to Ten Acre. A copy of the form TR1, signed by the defendant and witnessed by his solicitors, is in the bundle, and I have seen that document. It was apparently completed subsequently by the Defendant’s solicitor who wrote in the amount of the consideration.

On 30^th July 2004 the transfer was registered against each of the registered titles to the property, the price being recorded as £15m.

On 8^th March 2005 Ten Acre, Lexi Holdings Plc, which I will refer to as Lexi, a related company, and the claimant entered into the charge. By clause 2, Ten Acre charged the property as security for the payment or discharge of all monies and liabilities for the time being due, owing or incurred to the claimant, whether by Ten Acre or Lexi. By clause 5 of the charge the statutory power of sale was exercisable at any time after demand. Accordingly, the charge was an all monies charged, which explains why such a large amount of money, well in excess of the value of the property, is apparently secured by the charge.

On 11^th March 2005 the same parties entered into a deed of priorities by which the charge was granted priority over an earlier charge in favour of Lexi. On 23^rd March 2005 the charge was duly registered at the Land Registry with priority.

On 5^th October 2006 the claimant demanded repayment by Lexi of the sum of £102m odd due under a credit facility. Lexi failed to satisfy that demand. On 5^th October 2006 the claimant appointed insolvency practitioners from KPMG as joint administrators of Lexi. By an administration order made on 18^th October 2006 the same insolvency practitioners were also appointed joint administrators of Ten Acre.

By letter dated 9^th August 2007 the joint administrators of Ten Acre consented to these proceedings and to the sale of the property by the claimant. The joint administrators of Ten Acre have been in negotiations for the possible sale of the property to Countryside Properties UK Limited. A conditional offer has been made which both the joint administrators and the claimant considered to be fair, although this offer is subject to the satisfactory resolution of the various claims asserted by the defendant by declarations in the form sought by the application. In the light of what I have said before it is obvious that neither Lexi nor Ten Acre through their administrators have sought to or are seeking to challenge the charge.

The grounds for the defendant’s assertion that the charge is not a genuine legal document are that there are unspecified inconsistencies in the last three pages of the charge. Those inconsistencies seem to me to flow more from photocopying than anything else. The defendant asserted that the charge does not state how much is secured under it. It does. It is an all monies charge; furthermore, he said the charge did not bear the same references at the foot of each page right through the document. In my opinion none of these matters suggest that the charge is not a genuine document, and I was afforded the facility of inspecting the original, and nothing on that suggests that there was anything untoward about it. It was, as I have said, registered on the date I have referred to above.

As I have indicated, the defendant contends that the transfer of the property by the defendant to Ten Acre was fraudulently procured. He goes to some length to set out the facts of the alleged fraud in his draft defence and witness statement. In summary he contends that he was in negotiations with a Mr Luqman to sell the property to a special purchase vehicle (controlled by Mr Luqman), which is Ten Acre. The defendant signed the transfer form, which is said to have no date and purchase price on it at the time, and I refer to the narrative and description of what occurred, which is set out at paragraphs 3.4 to 3.8 of the draft defence, and also to paragraph 4 of the draft defence. The issue is whether those assertions give rise to any real prospect of defending the claim, which is a claim for declaration that the claimant may sell the property free of any interest of the defendant.

The claimant contends that assuming in the defendant’s favour that the transfer was fraudulently procured by Ten Acre, which is not a matter I can determine, which is a matter to be determined in Ten Acre proceedings, that cannot affect the claimant’s right as registered chargee. It does not provide the defendant with any basis for rectification of the register as against the claimant.

The grounds for rectification of the register pursuant to 65 of the Land Registration Act 2002, which I shall refer to as the 2002 Act, are set out in section 65 and paragraph 2 of schedule 4 and include the alteration of the register for the purposes of correcting a mistake. By paragraph 1 of schedule 4, references to rectification of the register, in relation to alteration of the register are to alterations which involve the correction of a mistake and which prejudicially affects the title of a registered proprietor.

The starting point is that at the date of the charge and its registration against the property Ten Acre was the registered proprietor of the property. It was entitled to exercise its power to charge the property. By sections 23 sub-section 1 and section 24 of the 2002 Act the registered proprietor of a registered estate is entitled to make a disposition of any kind permitted by the general law, subject to various exceptions. This includes under section 23 (1) (b) a power to charge the estate at law with the payment of money, Section 58 sub-section 1 of the 2002 provides under the heading “Conclusiveness”: “If on the entry of a person on the register as the proprietor of a legal estate the legal estate would not otherwise be vested in him, it shall be deemed to have been vested in him as a result of the registration.”

It follows that at the time the property was charged to the claimant Ten Acre was the registered proprietor. The legal estate was deemed to be vested in it, and it was entitled to exercise its owner’s powers to charge the property. It follows that there can be no mistake in the claimant’s registration as chargee. I refer to the decision of Scott LJ in Norwich Building Society v Steed [1993] Ch 116 at page 135 between letters A to H.

Until the chargor’s title is avoided, his title as the person on the register is a real registration carrying with it all the incidents of the proprietor of the property which registration carries with it.

The claimant contends that for the purpose of a rectification claim no further investigation is required or is relevant. It matters not whether the transfer is ultimately found to be fraudulently procured or whether the transfer is void or voidable, and I was referred to Ruoff & Roper on the Law and Practice of Registered Conveyancing at paragraphs 46.028 to 46.030 on the law and which conveniently consider the position where the transfer to the chargor is void, in example 1.2 at 46.028.

Obviously, where the title of the proprietor is voidable then the example is even stronger, and I was referred in the claimant’s helpful skeleton argument to a passage by Charles Harpum and Janet Bignell in Registered Land: Law and practice under the Land Registration Act 20032 (2004) at 15.1 where they comment on Section 58 under the Land Registration Act 2002 at paragraph 15.1,

I am satisfied that the transfer to Ten Acre was voidable and not void. The reason I am so satisfied is that Mr Guy completed the transfer in the sense of signing it and in effect delivered it to the solicitor to hold as his agent. Albeit, that the solicitor may have released that transfer without authority and as a result of being induced to release it by a fraud, the transfer is not void. It is voidable. At the date that the charge was taken and registered the transfer had not been avoided. Indeed, as I understand it from the argument that was put forward by the defendant, it is not suggested that any attempt has been made to avoid it.

In Norwich & Peterborough Building Society v Steed the Court of Appeal held that where a power of attorney had been validly granted, and a transaction entered into in excess of that authority by fraud, the transaction was voidable and not void. Scott LJ agreed with the judge (Knox J):

Accordingly, this is not a case of forgery or non est factum and there has been no suggestion by Mr Guy that he lacked capacity or title. Indeed, his signature was witnessed by his solicitor. He knew the purposes of the form and he knew that a sale in principle had been agreed with Ten Acre, which required the execution of the document. In those circumstances I reject the suggestion that the transfer was not a deed. The fact that the transfer was delivered to the solicitor subject to conditions under which he was to hold it did not prevent the document becoming a deed and it was sufficient to allow the Land Registry to transfer the title.

Mr Guy has also asserted in his second witness statement at paragraph 6 that the transfer might be considered to be a forgery because he says the dates and the amount of the consideration payable were added after the transfer was signed by him. But, as he himself said in paragraph 44, it was explained to him by the solicitors at the meeting when he signed the transfer that the dates and consideration would be inserted later. In effect, regrettably, Mr Guy knowingly signed a document which he knew could have the effect of transferring the property to Ten Acre. As at the time the charge was granted the voidable transfer had not been set aside and the register had not been rectified as against Ten Acre. No such rectification could affect the claimant in this case.

I note that if the defendant had registered a unilateral notice against the title as soon as he had discovered the transfer had taken place the charge, if it was taken, would have been subject to the defendant’s right to rectify as against Ten Acre. The defendant’s evidence is that in fact he held off registering such a notice once he discovered that things might not be as they should be. He had received some money in relation to the charge, and he was apparently content to continue to deal with Mr Luqman. Subsequently, he said, he did give instructions to a firm of solicitors to issue a unilateral notice, but they failed to do it. It is noteworthy that when he addressed me this morning he did say that he was prepared to continue to deal with Mr Luqman for a while to see what was happening with the property. The relevance of that will emerge later.

In the light of my holding that the transfer was voidable and not void I do not need to address the question of whether the transfer, the charge, would have been effective if the transfer was void. In addition, Mr Guy at some stages had hinted in his evidence that he might be asserting that he had an overriding interest, but that argument has not been pursued before me and is not set out in the draft defence, and accordingly I do not propose to deal with it.

The further argument that was raised before me, which is not raised in the pleadings, is the suggestion that in some way the claimant ought to have known or was on notice in some way that the transfer had been procured by fraud. It is not alleged that the claimant had actual knowledge of the defendant’s alleged interest in the property as at 23^rd March 2005, nor is there any evidence which I have seen which would support any such assertion.

The claimant’s evidence is that it was unaware of any claim by the defendant to the property whether on 8^th March, when the charge was granted, or on 23^rd March 2005, when the charge was registered. I refer to the second witness statement of Miss Bradford at paragraph 13. The claimant contends that the earliest at which it became aware of the claim against Ten Acre was on 26^th June 2006, and that is some 15 months after the date of the charge, and accordingly is not relevant.

However, the defendant before me sought to argue that the claimant may have been aware of the title issue at an unspecified earlier stage, and he referred to a number of matters which he said should have put the bank on notice. They included the fact that he suggested that the bank had not carried out due diligence into Mr Luqman’s background, and if it had done a search and enquiries it would have discovered that there were many questions to be answered in relation to his character and his business ethics. Amongst matter he referred to were the claimant’s instructions to KPMG to monitor Lexi’s loan book in January 2005 and the claimant’s instructions to investigate the historical title to the property with the Land Registry in February 2005, but those would have been normal instructions. They certainly would not have revealed the defendant’s claim.

Mr Guy also referred to companies associated with Mr Luqman, which appeared to have had a very chequered career; for example a statement by Howarth Clerk Whitehill on their resignation as auditors from Pearl Holdings Limited. Their statement pursuant to section 394 of the Companies Act 1985 contained a description of very serious misconduct by Mr Luqman. Other examples consisted of the fact that certain solicitors acting for the Royal Bank of Scotland at a much earlier stage of the transaction in 2004 might have been aware that the sale of the property to Ten Acre had been called off; I refer to the letter dated 20^th April 2004 from Robert Muckle to Weightman Vizards. That correspondence refers to a failed transaction, occurring almost a year before the charge was taken, and Robert Muckle did not act for the claimant in the transaction which gave rise to the charge. The Bank of Scotland may be a member of the syndicate, but it is a member of a syndicate in an altogether different transaction.

The other point is that whether or not the banks carried out due diligence is not an issue I can resolve today, but, in any event, the banks owe no duty to Mr Guy to lend responsibly; I am not to be taken as holding that the banks lent irresponsibility, When they came to lend money and to obtain their charge they were entitled to look at the proprietorship register at the Land Registry and take it at face value. The whole purpose of the register is that one does not have to make enquiries and go behind it. I am unaware of any banking practice in which a bank would go behind a register. I had understood it to be trite law that the best evidence is the entry on the register.

There is also nothing in the points made by Mr Guy about Mr Luqman’s antecedents that should have put the bank on notice that the register was, so far as he was concerned, not accurate. It might have made them wary about representations as to the value of the land or what he was going to do with it, but I do not see how or why it should have made the bank make further enquiries and seek to go behind the register. In effect the submission was that the claimant should have taken the very unusual step of contacting the previous registered proprietor to confirm the legitimacy of the registration of Ten Acre as proprietor.

Even if the bank had actual knowledge that there were questions as to the title of Ten Acre that would not provide an answer to the defendant’s claim today. That is because the actual notice of a competing claim does not outweigh the effect of the register; I was referred to Ruoff & Roper at 17.016, which stresses that a person must have actual knowledge and there must be actual occupation before the issue of notice is relevant:

This accords with the passage I was referred to from Law Commission Report No. 271 at paragraph 5.16:

It follows that the points made by Mr Guy in relation to constructive knowledge or Nelsonian blindness are not in point. In any event I did not think that they were sufficient to lead to the conclusion that the bank should have been on notice that the title of Ten Acre was questionable; but in any event even they should have done , that would have been irrelevant because what the law requires is that one should be the registered proprietor.

In the light of these matters I am prepared to grant the claimant the relief sought in its summons.