No man's land

Recent case law shows that inaccurate notices at the Land Registry is a predicament the Supreme Court is not yet ready to handle, explains Mark Warwick QCe

The Land Registration Act 2002 has now been in force for over ten years. It has not yet been considered by the highest level of the judiciary. Very recently, the Supreme Court had an opportunity to consider an important aspect of the priority provisions contained within the 2002 Act, namely those relating to unilateral notices.

The opportunity arose because an application had been made for permission to appeal in the case of Bank of Scotland Plc v Joseph (2014) EWCA Civ 28 1 P & Cr 18. The Supreme Court, however, decided not to grant permission "at this time".

Since it is not known when the time may come for the Supreme Court to consider the 2002 Act,
it seems timely to reflect on it, and in particular the state of the law regarding notices and the uncertainty that exists as a result of the decision
in Joseph.

Mortgage fraud

Joseph involved an apparent mortgage fraud.
On 11 March 2005, a developer granted a lease
of a flat in a new development in Docklands to
Mr Samad. On 11 May 2005, Samad was registered at the Land Registry as the leasehold proprietor
of that flat.

Subsequent dealings with the flat were the subject of factual dispute. It was contended by
the Bank of Scotland Plc (the bank) that Samad
had assigned the lease of the flat to Ms Joseph.
She denied any involvement in a sale to her, contending that her signatures on the contract,
the transfer and the mortgage to the bank were
all forgeries. Whether or not the bank had a legal charge over the flat was thus in dispute. In opposition to the bank, it was contended that Samad had granted a charge to Wingfield Financial Heritage Limited.

Wingfield alleged that, pursuant to its charge,
it had taken possession of the flat and had sold it to Mr Lyons. Lyons purchased with the aid of a mortgage, and at all material times his daughter occupied the flat. Lyons was the bank's opposition, in a dispute as to possession of the flat.

The case never proceeded to trial, being decided on a summary judgment basis. For
the purposes of summary judgment, the bank accepted that Joseph's signature might be a forgery, and thus its legal charge might be void.

However, it contended that about £820,000 of its money was used to assist in Joseph's purchase of the flat, and that this purchase money entitled the bank to be subrogated to Samad's unpaid vendor's lien. Such a vendor's lien would enable the bank to claim that it had an equitable charge over the flat, and this equitable charge entitled it to possession of the flat.

The case was fought out in the County Court and in the Court of Appeal on the basis of three entries on the Land Register. These entries were:

(i) On 4 July 2006 an entry stating 'Unilateral notice in respect of a mortgage dated 10 March 2005 in favour of Bank of Scotland'.

(ii) On 22 April 2010 a 'Registered charge dated 11 March 2005', in favour of Wingfield.

(iii) On 9 February 2011 an entry in the charges register reading 'Registered charge dated 10 March 2005', in favour of the bank.

The bank contended that the entry in respect of its notice, entered before Wingfield's charge, gave the bank priority. Lyons (as successor in title to Wingfield) claimed the notice only gave priority in respect of the mortgage mentioned in the notice, and not in respect of any claim to subrogation.

The resolution of the parties' claims depended upon the construction of the provisions of the 2002 Act, in the light of the above facts. The bank contended that its notice was sufficient to give it priority in respect of any interest that it had in the flat. Lyons contended that the notice only gave priority to the property interest that was expressly identified in the application for the notice, and the notice itself, viz the mortgage. The court accepted the bank's contention.

Lyons' submissions

In the Court of Appeal the judgment was delivered by Lord Justice Patten. He recorded Lyons' submissions at paragraphs 22 to 24:
"It is important that in a public register of title which is open to inspection, the nature of
the interests notified on the register should be properly and accurately recorded so that the registered proprietor or a prospective purchaser should be left in no doubt as to what is asserted adversely to the registered title.

“It should not, he said, be necessary to embark on extended correspondence with the person who registers the notice or even litigation in order to decide whether there is any substance in the claim. If accuracy is not required then where, he asks rhetorically, does one stop. Compliance with the 2002 Act and the rules therefore requires a   proper identification of the interests which  are claimed and protection is not given to interests which are not claimed. This is implicit in section 34(1) which requires the notice to be ‘in respect of’ the interest claimed.

“Since an interest based on an unpaid vendor’s lien (whether by subrogation or not) is capable of being registered by way of unilateral notice as a distinct interest in the land, it must follow that it is not validly protected by a notice which makes no reference to it but is based instead on a different type of interest, that of an equitable charge under the 10 March mortgage.

The Law Commission report states in paragraph 9.36 that: ‘The ability to obtain information from the registers of title and causations is an essential feature of the system of conveyancing that the Bill seeks to create. Easy and open access to information held by the Registry are the keys to speedier conveyancing.

Consistently, with this and with section 66 of the 2002 Act which creates the right to inspect the register, it is necessary, he says, for the reader to know what the notice is actually intended to protect.

Reference was made to the Law Commission Report, which annexed the Bill, upon which the 2002 Act was based. Prominent in the introduction to that report was paragraph 1.5, which the Commission placed in bold print. This stated as follows:

“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 online, with the absolute minimum of additional enquiries and inspections”. 

It was submitted that a decision in favour of the bank was inconsistent with the fundamental objective of the 2002 Act, and inconsistent with the language of that Act.

The bank advanced pragmatic reasons why it would be inappropriate to give a narrow construction to the priority provisions relating to unilateral notices. It was pointed out that a lender would often have no reason to know that the money it advanced related to a charge which was void. It would thus have no reason to mention any alternative interest when registering its notice.

Patten LJ found this submission persuasive. At paragraph 30 of his judgment he stated that: “Wingfield took no steps at all to challenge the entries. In my view, it is not now open to it or Mr Lyons as its successor in title to contend in these proceedings that the notice fails to protect the priority of the bank in respect of any interest in the flat which it derives from having lent the money under the 10 March charge”.

The bank’s argument therefore prevailed.

Uncertainties created

The 2002 Act contains repeated reference to
the word 'interest' when addressing questions of priority. The following provisions are particularly important:

n Section 29(2)(a)(i), which states: "For the purposes of subsection (1), the priority of
an interest is protected:

(a) In any case, if the interest:

(i) is a registered charge or the subject of a notice in the register".

n Section 32(3) which states: "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".

As the phrase 'unilateral notice' indicates, a notice is the subject of unilateral action on behalf of a party claiming an interest in registered property. The choice of language as to the interest or interests sought to be protected by a notice is
a matter for the applicant.

If, as occurred in Joseph, the bank only referred to its legal charge in its application, there is no reason to believe that the Land Registry would query that entry, and no reason to believe that any third party would consider that the notice protected any interest other than the one identified.

It was (unsurprisingly) common ground at the hearing of the appeal in Joseph that a legal charge is a different interest in property to an equitable charge, arising by reason of subrogation. One is left with the result that a notice that identifies one interest might give priority to some other interest.

There are two lessons to be drawn from the uncertainty created by Joseph:

(i) when registering a unilateral notice a conveyancer should endeavour to use language that catches all the interests for which priority in a property might later be claimed; and,

(ii) when considering the registered title to
a property, in respect of which a unilateral notice is registered, a conveyancer should not assume that priority will only be afforded to the precise interest the subject of that notice. Instead, although the notice identifies one interest, it might be held to afford priority to a different interest. It is unclear from Joseph what different interest may thereby gain priority. SJ

Mark Warwick QC practises from Selborne Chambers