Registered titles can be altered to restore title to the victims of fraudulent transfers.
Property fraud remains a significant problem in the United Kingdom. Fitzwilliam v Richall Holdings Services Limited [28 January 2013] highlights the approach of land registration legislation to fraudulent transactions.
Mr Fitzwilliam had been the registered proprietor of a property since 1972. He was based in Dubai and had been in prison for much of the period during which the following events unfolded.
Fitzwilliam was put in touch with a Mr George who said he was willing to intercede to try to secure Fitzwilliam’s release from prison. George told Fitzwilliam that he could help him to raise money on the security of the property. Fitzwilliam never authorised George to effect a sale, merely to obtain a loan.
George asked a Mr Kumar whether he would lend money secured against the property. Kumar refused, but was willing to buy the property on the basis that Fitzwilliam would have the option to buy it back within 12 months. Kumar would pay 65% of the value of the property. According to Kumar, George said that he had been granted a power of attorney by the owner of the property.
Kumar was a beneficiary of a trust, the trustee of which owned a BVI incorporated company called Richall Holdings Services Limited which was proposed to acquire the property. Enquiries were made by Richall’s solicitors about the power of attorney and they were supplied a certified copy. Contracts were exchanged and completion followed immediately. Richall was registered as the property’s owner. However, none of the sale proceeds reached Fitzwilliam.
When Mr Fitzwilliam and his wife became aware of the transfer of the property (which was let to third parties), they contacted George, who told them that it was a mistake that Fitzwilliam was no longer shown as the registered proprietor. The option that Fitzwilliam had to buy back the property expired without it having been exercised.
Ultimately, the matter ended up in the High Court when Fitzwilliam (now released from prison) sought a Court order pursuant to the Land Registration Act 2002 that the register be altered to delete Richall’s name and insert his name in place. The legislation empowers a Court to order rectification of the register, which involves correcting a mistake and prejudicially affects the title of a registered proprietor. The Court accepted that the power of attorney was forged.
Fitzwilliam argued that he had retained beneficial ownership of the property. Richall’s registration as proprietor served only to give it title at law and it held the property on trust for Fitzwilliam. Fitzwilliam was accordingly entitled to have the register altered in his favour.
The Court decided in Fitzwilliam’s favour. The primary basis for the decision was a case Malory v Cheshire Homes , which the Court stated was binding authority. Malory related to the previous land registration regime under the Land Registration Act 1925, the relevant section of which provided that the registered proprietor was deemed to have vested in him the legal estate. In Malory, the court decided that Malory, deprived of its title by deception, was able to sue the registered proprietor, Cheshire, for trespass, because it was the true owner and had a better right to possession.
Section 69 of the 1925 Act only vested in Cheshire the legal estate and, therefore, its status as registered proprietor was subject to Malory’s rights as beneficial owner. This decision has been much criticised for its proposition that a void transfer passes only the legal title while leaving the beneficial interest with the former defrauded owner, which it was said undermines the essential structure of land registration.
Despite this, the Court decided that the principle in Malory (which it regarded as binding authority) also applied to the Land Registration Act 2002. Fitzwilliam remained the beneficial owner of the property despite Richall’s registration as the property’s owner. The Court ordered the register to be altered to show Fitzwilliam as proprietor.