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A Land Registry lawyer examines the outcome of Swift 1st Limited v Chief Land Registrar [2015] EWCA Civ 330

The long-awaited decision of the Court of Appeal in the case of Swift 1st Limited v CLR has been handed down. The registrar lost the appeal and will not be seeking permission to appeal further to the Supreme Court.

The case involves complex areas of law and has significant implications in the context of Schedule 8 to the Land Registration Act 2002 (LRA 2002), that part of the legislation which covers the payment of indemnity in the event of mistakes in the register. The case involved a forged disposition; in this case a charge.

Factual background

The case involved facts which are fairly common in these kinds of cases. The claimant for indemnity, Swift 1st Limited (‘Swift’), a lending company, claimed  indemnity on the grounds that the removal of its charge from the register following alteration amounted to ‘rectification’ for the purposes of the Act and accordingly that it was entitled to indemnity.

The register was rectified because the charge in Swift’s name had been forged and accordingly amounted to a mistake in the register. The registered proprietor of the property had never signed the mortgage deed that gave rise to Swift’s registered charge; it was accordingly void, and hence the register contained a mistake. The registered proprietor successfully applied for the register to be altered.

The registered proprietor had remained in occupation of her property throughout the events which gave rise to the mistake.

Arguments

The registrar argued that because the registered proprietor had been in occupation at the time of the disposition, Swift’s charge always took effect subject to an overriding interest in her favour. This followed reasoning by Lady Justice Arden in the case of Malory Enterprises v Cheshire Homes [2002] EWCA Civ 151.

The registrar argued that as the registered proprietor had the right to have the register altered in her favour (by removing the charge), and as she was in occupation at the time of the disposition, her right qualified as an overriding interest under Schedule 3, paragraph 2 to the Act.

The right qualified as such because Swift had not inspected the property, and to defeat such rights a disponee has to conduct a “reasonably careful inspection of the land at the time of the disposition”. Hence, not having done so, the right to alter was overriding.

Swift argued that this did not matter. It relied upon that provision in the Act which seems specifically designed, at first glance, to deal with this situation; namely paragraph 1(2)(b) of Schedule 8 (‘the deeming provision’) which states:

The proprietor of a registered estate or charge claiming in good faith under a forged disposition is, where the register is rectified, to be regarded as having suffered loss by reason of such rectification as if the disposition had not been forged.

Swift argued that this meant that as it had acted in good faith this was all the court needed to ask itself; it had suffered loss by its security having disappeared and accordingly was entitled to an indemnity to reflect the value of the charge as though it had never been forged.

The registrar countered that the deeming provision did not apply because of the overriding interest, the existence of which rendered the alteration non-prejudicial and, hence, not ‘rectification’. In other words, no loss was suffered because the removal of Swift’s charge (using the reasoning in re Chowood’s Registered Land [1933] 1 Ch.574) from the register merely gave effect to an overriding interest.

The registrar further argued that the purpose of the deeming provision was very limited. It was pointed out that the history of the deeming provision went back to the early days of land registration, its predecessor in the 1925 Act having been inserted simply in order to reverse the decision in the case of A-G v Odell [1906] 2 Ch 47, and that it was not intended to have any wider impact on the availability of indemnity.

Decision

The court accepted that the registered proprietor did have an overriding interest but that the effect of the ‘deeming provision’ was to undo its impact.

Lord Patten, who led the judgments, considered that had Parliament intended this ostensibly clear provision to be subject to the application of the re Chowood principle in the context of forged dispositions, then it would have made this clear in the legislation. Parliament had not done so and, accordingly, the deeming provision effectively “trumped” the overriding interest so as to enable Swift to claim indemnity.

Lord Patten did, however, comment that he had not found the decision an easy one to arrive at. Part of the difficulty had been the impact of Malory on what is understood to be the effect of registration. However, one aspect of the decision which is perhaps to be welcomed is the removal of what has been referred to as “The Malory Trust” from the pantheon of suspect legal principles, whereby a disponee under a forged instrument only obtains a bare legal estate, subject to the retained beneficial interest of the defrauded owner. That particular heresy appears to have been laid to rest.

Implications

The decision will no doubt have some effect on the application of the state guarantee in this context. Lenders may seek to rely upon the case as a basis for making claims for indemnity in these circumstances. The registrar may still be able to argue that the lender has not been careful enough in certain circumstances, but will no longer be able to refer to the effect of an overriding interest where that interest is the right of a defrauded owner to alter the register in their favour.

Some of the legal implications are problematic. For example, what about the case where the charge is not forged but is signed by an owner who simply does not realise what they are doing? This would not be a forgery but a case of being void owing to the principle of non est factum. A lender would not be able to rely on the deeming provision in such a case. Anomalies, accordingly, may result from this decision.

Towards the end of his judgment, Lord Patten said: “I have not found this an easy question and it is certainly an issue which deserves to be considered in the forthcoming review by the Law Commission of the workings of the LRA 2002.”

We would forcefully submit that these issues are indeed worthy of such consideration.


Gavin Curry
By Gavin Curry,
Digital Communications and Editorial Officer at HM Land Registry