Ainscough v (1) Ainscough (2) Bank of Scotland Plc – Abuse of process and decisions of the Land Registry
In the above proceedings, HHJ Hodge QC (sitting as a judge of the High Court) decided the novel point that, although the doctrine of res judicata does not apply to decisions of the Land Registry, it would nevertheless be an abuse of the court’s process to seek to challenge such a decision by way of subsequent court proceedings if the registrar’s decision is not impugned by way of judicial review within the prescribed time limit of three months. The case also provides an insight into the circumstances when the presence of an interest on the register will be categorised as a “mistake” and a further example of the application of the “exceptional circumstances” test in paragraphs 3(3) and 6(3) of Schedule 4 to the Land Registration Act 2002.
The claim arose out of a family dispute between two brothers which had lasted for many decades. In 1978, the claimant, John Ainscough (“John”) had purchased a property in Liverpool (“the Property”) for the sum of £4,000 with the benefit of a 100% interest-only mortgage from Liverpool City Council. By the late 1990s, however, John and his family had begun to experience financial difficulties. As a result, John came to an agreement with his brother and the first defendant, Christopher Ainscough (“Christopher”) to transfer the Property into Christopher’s sole name. John contended that the transfer was merely “surety” for a loan of £7,000 (or so) to provide him with some immediate financial assistance; Christopher’s case was that he purchased the freehold title outright for the sum of £10,000. It was common ground that the mortgage over the Property was discharged at this point.
The parties later fell into dispute when Christopher refused to re-convey the freehold title to the Property in exchange for repayment of the alleged loan, with accrued interest, in 2006. By this time, Christopher was demanding £35,000 for a transfer of the Property, which he viewed as 50% of the market value of the Property, although his demand was later reduced to £32,500. John was only prepared to pay £17,000, which he viewed as representing the original sum borrowed, plus a generous amount of interest.
Whatever the parties’ differences, it was clear on the evidence that, by a further conveyance dated 28 June 2006, the Property had been transferred into John and Christopher’s joint names for nil consideration. The conveyance included a declaration that they would thereafter hold the Property on trust for each as tenants in common in equal shares. No reason was suggested at trial for declaring this transfer void or otherwise having it set aside; and both brothers admitted at trial to having signed it.
In August 2006, John was sentenced to twelve months’ imprisonment for drugs offences. On 3 November 2006, however, a purported transfer was executed transferring the Property from John and Christopher’s joint names into the sole name of John’s son, Joseph Ainscough (“Joseph”). On 12 February 2007, around the time John was released from prison, the Property was mortgaged to the Birmingham Midshires for the sum of approximately £56,000.
Many years later, in the course of a visit to HM Land Registry’s offices, John claimed to have discovered that his signature had been forged. In March 2015, John therefore applied to the Land Registrar for rectification of the title register to remove Joseph as the registered proprietor. He also sought the removal of the registered charge, which was by now registered in favour of the second defendant (“the Bank”).
The assistant land registrar proceeded to raise various detailed requisitions. By letter dated 27 July 2015, however, she explained that, although the Land Registry considered it to be the case the mortgage constituted a mistake on the register, exceptional circumstances were considered to exist which justified not removing the mortgage from the register. The letter stated:
“The exceptional circumstances would be that you adopted the mortgage by your actions after it was created, even though at the time you may not have understood fully the mechanism whereby your son was able to mortgage the property. You accepted the existence of the mortgage by making mortgage payments for a period of time and you confirmed the receipt of two lump sums from your son - £1,700 to build a kitchen extension on the property and a further £15,000. These sums appear to derive from the mortgage proceeds and were therefore a benefit that you received under the mortgage. In these circumstances the Land Registrar would not remove the mortgage from the register.”
The assistant land registrar continued to explain that John was at liberty to proceed with his application to rectify the proprietorship register, but that, if he wished to do so, his application would result in both John and Christopher’s names being restored to the register as this would reflect the position on the register immediately prior to the purported transfer. John expressly consented to his application being treated on this basis and proceeded to provide a forensic handwriting report which suggested “strong evidence” that the disputed signature on the transfer was not John’s and “moderate evidence” that it was in fact Joseph’s.
Christopher and Joseph both submitted objections to John’s application to alter the title register but both of these were subsequently rejected as groundless. The second defendant also objected (apparently unaware at the time that the Land Registry had already refused to progress to the application to remove its charge), but later withdrew its objection once it had been explained that its charge would not be removed. Accordingly, as from 26 March 2015, John and Christopher were restored to the title register as joint proprietors of the Property.
On 13 August 2018, John issued the current claim, by which he initially sought to have his brother’s name removed from the title deeds. After extensive case management, however, it became clear that John was again seeking to have the second defendant’s charge removed from the register. Accordingly, the Bank was afforded the opportunity to file a defence and the claim proceeded to trial. By its defence, the Bank contended that:
- The claimant’s claim was an abuse of process in that it amounted to a collateral attack on the prior decision of the HM Land Registry not to remove the Bank’s charge from the register;
- Alternatively, if the proceedings were not an abuse, the presence of the Bank’s charge was no longer a mistake on the register because, having given full consideration to the evidence at the time of John’s application in March 2015, the assistant land register had decided that exceptional circumstances existed which justified the presence of the Bank’s charge on the register;
- Alternatively, if the court was satisfied that the presence of the Bank’s charge on the register was a mistake, exceptional circumstances existed which justified the Court’s refusal to remove it.
At the outset of the trial, which had initially been listed in the County Court at Liverpool, HHJ Hodge QC identified the first of the Bank’s defences set out above as raising a novel point of general public importance and accordingly ordered that the proceedings be transferred to the Chancery Division of the High Court of the court’s own motion. The result is accordingly a binding decision on the status of the Land Registry’s decisions, which is likely to be of interest both the legal profession and to the public in general.
In short, the Court held that, although the substantive doctrine of res judicata only applies to decisions of competent civil courts, subsequent decisions, such as Iberian (UK) Limited v BPB Industries Plc [1997] ICR 164, Re Barings Plc (No.3) [1999] BCC 639 and Kamoka v The Security Service [2017] EWCA Civ 1665 had held that it could nevertheless be an abuse of process to seek to launch a collateral attack on decision of an administrative body acting within its proper powers.
The Court accepted that the collateral attack principle applied to decisions of the Land Registry given its special capacity as the guardian of the land register. The question, as set out in Re Barings, was therefore whether in all the circumstances of the case it would be manifestly unfair to a party to litigation before the court, or would otherwise bring the administration of justice into disrepute among right-thinking people, to allow the claim to proceed.
In this case, the assistant registrar had refused to remove the Bank’s charge from the register pursuant to her statutory power set out in paragraph 6(3) of Schedule 4 to the Land Registration Act 2002. This power had only been exercised after detailed requisitions had been raised from the claimant and a reasoned decision provided. If John had been unhappy with this decision he had a clear avenue of redress: he could have applied to the High Court for judicial review within three months from the date of the decision. John, however, did not see fit to do so but rather waited three years before issuing his claim in court.
The court accepted that issuing court proceedings to challenge a prior decision of the Land Registry in these circumstances would be an abuse of the court’s process. The proper course for John to have taken would have been to apply for judicial review of the Land Registrar’s decision immediately after it was made, rather than seeking to have a “second bite at the cherry” three years later. Any other decision would render the strict time limits for issuing judicial review proceedings entirely meaningless.
The court also considered that it would be abusive to seek to challenge the assistant registrar’s decision in circumstances where the Bank had withdrawn its objection to John’s original application to the Land Registry on the faith of its belief that the Bank’s charge was no longer in issue, thereby depriving the Bank of the possibility of continuing with its objection to John’s application. Accordingly, the claim was dismissed.
Lest the above was wrong, however, the Court proceeded to consider the underlying substantive arguments relating to the law of land registration. It was common ground that, in circumstances where John’s signature had been forged, the court would (absenting the above) normally have power to correct the register, both to remove the Joseph’s name as the registered proprietor and the Bank’s subsequent registered charge from the register.
The Court accepted, however, that this was not an ordinary case. Although the entry of the Bank’s charge might originally have been a mistake on the register, this was no longer the case. John had applied for the removal of the Bank’s charge and, with full knowledge of the background facts, the assistant registrar had exercised her discretion under paragraph 6(3) of Schedule 4 of the Land Registration Act 2002 not to remove the Bank’s charge because of what she considered to be exceptional circumstances. That decision had not been challenged by John. Accordingly, the presence of the Bank’s charge on the register was no longer a “mistake” which might fall to be corrected by the Court under the provisions of Schedule 4.
On the assumption that this secondary argument was also wrong, however, the Court proceeded to consider and apply the provisions of Schedule 4 of the Land Registration Act 2002 itself. Assuming that the presence of the Bank’s charge was a mistake, the question was, in accordance with paragraph 3(3) of Schedule 4, whether there were exceptional circumstances which justified the Court not ordering rectification so as to remove the Bank’s charge from the register.
Applying the two-stage test in Paton v Todd [2012] EWHC 1248 (Ch), the Court was satisfied that the circumstances of this case were clearly exceptional. First, this was not a standard in case in which a fraudster forges a transfer, takes out a mortgage over the relevant property and absconds with the proceeds, leaving the property subject to an onerous charge. Rather, in this case, the vast majority of the mortgage monies had been transferred directly from Joseph to John and Christopher, despite the forgery of John’s signature. Secondly, John had accepted making payments under the mortgage for a lengthy period without challenging the legality of the mortgage. Thirdly, on the evidence, it was found that John had always been aware of Joseph’s intention to take out a mortgage over the Property. Fourthly, this was a case in which John had expressly accepted, in progressing his application to alter the proprietorship register at HM Land Registry in 2015, that the charges register should not be rectified.
The Court proceeded to consider whether those exceptional circumstances justified non-rectification of the register. If the charge were to be removed, the result would be that the Bank would be left with an unsecured money claim against Joseph only and, in the course of his closing, John had expressed doubts about Joseph’s solvency. By contrast, if the charge remained registered, the position would have been that John and Christopher would have benefited directly from the mortgage advance, but would take the Property free from any encumbrances. This would give rise to a clear windfall. John would have effectively received the release of his brother’s 50% interest in the Property together with an extra £16,700 in addition. It went without saying that, but for the Bank’s original mortgage advance, neither John nor Christopher would have had access to the funds which they had received in the first place. The Court concluded that there would be no injustice in refusing to rectify the charges register. In any event, the original decision of HM Land Registry was correct in principle and had accorded with the evidence.
In light of the consensual transfer of the Property into John and Christopher’s joint names in June 2006, John’s claim to have the Property registered in his sole name (together with a mirroring counterclaim by Christopher) was also dismissed.
Implications
It is considered that the Court’s (binding) decision on the application of the law of abuse of process to decisions of the Land Registry will, as the Court itself appreciated, be of general importance to the legal profession and property owners across the country. In the vast majority of applications before the Land Registry, any objection will be submitted to the First-Tier Tribunal (Property Chamber) for a binding determination. In the minority of cases in which the Land Registrar makes a decision of his or her own motion based on the materials before him/her, however, it is now clear that practitioners must act promptly, if they are aggrieved by the Land Registrar’s decision, by commencing proceedings for judicial review within the three month time-limit. If they fail to take immediate action but choose to issue court proceedings after this period has elapsed, they risk being faced with an application to strike out the proceedings as an abusive collateral attack on the decision of the registrar. In practical terms, practitioners therefore overlook the implications of this decision, which may apply to the full spectrum of property disputes, at their peril.
The case also sheds light on cases in which there may originally be a mistake in the register, but where a mistake can subsequently be regularised by a decision of the Land Registry, such that alteration/rectification will no longer be available. It is yet to be seen to what extent this reasoning will be adopted in future cases.
A copy of the judgment may be found here.
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