Dhillon v Barclays Bank Plc & Anor

Factual and Procedural Background

The appeal concerns a three-storey house located at 47, Moresby Road, The City, where the Appellant ("Mrs Dhillon") has lived since August 1993 initially as a secure tenant. The property was originally owned by Company A ("Hackney"). By 1999, the Appellant had acquired a right to buy the property but lacked the means to pay the purchase price of £167,000. Subsequently, on 9 September 2002, a deed was executed transferring the freehold estate from Company A to the Appellant ("Transfer 1"), but the Appellant’s signature was forged and she was unaware of this transfer or the payment. Eleven days later, on 20 September 2002, the property was transferred again to Company B ("CEL") ("Transfer 2"), also forged, and the same day CEL charged the property to a lender, Company C ("Commercial Acceptances Limited"). CEL was registered as proprietor on 3 October 2002, and the charge to Company C was registered. On 18 October 2002, CEL refinanced with a mortgage from Company D ("BB"), who obtained a first legal charge registered on 20 November 2002 ("the BB charge").

The Appellant was taken abroad by her husband in late 2002 and returned in July 2003 to find the property let to tenants. Her husband was convicted of fraud related to the forged transfers. CEL was struck off the Register of Companies in 2006, causing the property to vest in the Crown as bona vacantia, which then disclaimed the property in 2009, causing it to escheat. In 2010, the Appellant applied to have the property vested in her name. A court order vested the estate formerly held by CEL in the Appellant, subject to BB’s charge. The Appellant was registered as proprietor accordingly.

In February 2016, the Appellant issued proceedings seeking rectification of the Register by removal of the BB charge. The Chief Land Registrar ("CLR") and BB opposed the claim, asserting that exceptional circumstances justified non-rectification under paragraph 3(3) of Schedule 4 of the Land Registration Act 2002 ("the 2002 Act"). The judge dismissed the claim, finding exceptional circumstances justified not rectifying the Register. This appeal challenges that finding.

Legal Issues Presented

1. Whether the court has jurisdiction to rectify the Register by removing the BB charge given the nature of the mistake alleged;
2. Whether the doctrine of illegality precludes the Appellant's claim for rectification;
3. Whether the circumstances of the case constitute 'exceptional circumstances' under paragraph 3(3) of Schedule 4 of the 2002 Act justifying non-rectification;
4. The nature and scope of the Appellant's title to the property following the escheat and vesting order;
5. The relevance and impact of the potential indemnity payable by the CLR to BB if the Register were rectified.

Arguments of the Parties

Appellant's Arguments

• Seeks rectification of the Register to remove BB’s charge, relying on the void nature of the transfers involving forged signatures.
• Argues that non-rectification would threaten her occupation of the property where she has lived for nearly thirty years.
• Contends that exceptional circumstances do not justify non-rectification and challenges the judge’s application of paragraph 3(3) of Schedule 4.
• Later argued (not pleaded) that the availability of an indemnity to BB from the CLR is a critical factor negating exceptional circumstances.

Respondents' Arguments (BB and CLR)

• Assert that the BB charge was validly registered and removal would be unjust as BB was an innocent lender.
• Maintain that the Appellant was not entitled to be placed in a better position than CEL, whose title was subject to the charge.
• Rely on the existence of exceptional circumstances to justify non-rectification under the 2002 Act.
• Contend that the Appellant’s claim is an abuse of process and raise jurisdictional points including the nature of the mistake and illegality.
• Argue the claim is for alteration, not rectification, which was not pleaded and thus not properly before the court.
• Dispute the Appellant’s belated submission regarding indemnity entitlement and its relevance.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by summarizing the factual background and procedural history, emphasizing the fraudulent transfers and the forged signatures of the Appellant. The judge below had found that the Appellant could not have afforded to purchase the property and that both transfers were void. The court accepted that the Appellant's title derived from the vesting order which placed her in the position of CEL, subject to BB’s charge.

Regarding jurisdiction, the court acknowledged arguments that the removal of the charge might not constitute rectification of the relevant mistake, but declined to decide this issue as it did not affect the outcome. Similarly, the illegality argument was considered but not decided, with the court assuming jurisdiction to consider the claim.

The court extensively analyzed paragraph 3(3) of Schedule 4 of the 2002 Act, which mandates rectification unless exceptional circumstances justify refusal. It adopted the two-stage test from Paton v Todd: first, whether exceptional circumstances exist; second, whether those justify non-rectification.

The court rejected the Appellant's criticisms that the judge conflated tests or departed from precedent. It found that the judge correctly applied the law and that the circumstances were indeed exceptional. These included the Appellant never having owned the freehold, being unable to afford the purchase, relying on a void transfer procured by fraud she did not commit, and the fact that rectification would produce an unjust windfall by granting her an unencumbered property worth over £1 million without payment.

The court reasoned that non-rectification left the Appellant in a position similar to what she would have had by legitimately exercising her right to buy, with the property subject to the mortgage charge, which was just and proportionate.

On the issue of indemnity, the court found that the availability or otherwise of indemnity payable by the CLR to BB was not pleaded and not properly before the court. Even if relevant, indemnity entitlement was not determinative of whether exceptional circumstances justified non-rectification. The court noted authorities confirming indemnity does not automatically require rectification. It declined to consider complex indemnity issues as they were unpleaded and immaterial to the appeal’s outcome.

Holding and Implications

The court DISMISSED the appeal, upholding the decision of the High Court judge that the Register should not be rectified by removing BB’s charge.

The direct effect is that the BB charge remains registered against the property, and the Appellant remains subject to it. The court found that the exceptional circumstances justified this outcome, preventing an unjust windfall to the Appellant. No new precedent was established; the decision applies existing law on rectification, exceptional circumstances, and the role of indemnity in such cases. The court emphasized the importance of clear pleadings and proper framing of issues in claims for rectification.