In the recent case of Dhillon v Barclays Bank PLC (reported in March 2019) the High Court considered what amounts to “exceptional circumstances„ in refusing an application to correct a mistake on a registered title.

Rectification

The Court can make an Order to correct a mistake on a registered title that prejudicially affects the title of a registered proprietor (known as “rectification„) under Schedule 4 of the Land Registration Act 2002.

Under paragraph 3 of Schedule 4, no order may be made without the proprietor’s consent in relation to land in his possession unless:

1. S/he contributed to the mistake by fraud or lack of proper care; or
2. It would be unjust for the alteration not to be made.

If the Court considers it has the power to make such an order it must do so unless there are “exceptional circumstances„ which justify otherwise. Whether such circumstances exist is a question of fact, but requires something “out of the ordinary„.

When lenders are faced with applications to amend the register to remove a legal charge, they cannot rely on paragraph 3 to avoid the rectification, since (unless they have taken possession) the alteration would not be in respect of “land in his possession„. Accordingly, a lender’s only resort is to seek to rely on “exceptional circumstances„ to avoid such an order being made.

The Facts of the Case

In this case, Ms Dhillon was originally a tenant of a property in London. Her husband, fraudulently and without her knowledge and consent, purchased the property in her name exercising her right to buy from the Council. Her husband then (again fraudulently) transferred the property to a company (Crayford Estates Limited (“CEL„)) and mortgaged the property to (ultimately) Barclays Bank.

It was subsequently ordered that the two transfers were void. Following the dissolution of CEL, Ms Dhillon obtained a vesting order in relation to the property, making her the registered proprietor (albeit subject to the Barclays charge).

Ms Dhillon applied for rectification of the title to remove the Barclays charge. Given that the transfers were void and should not have been registered (and were therefore “mistakes„), the charge was considered a further mistake. It therefore fell to be considered whether there were “exceptional circumstances„ to prevent rectification.

Findings

In the present case, the Judge considered that the circumstances were “exceptional„. Whilst Ms Dhillon had not signed up to the Barclays mortgage if the order were not made Ms Dhillon would be the owner of an unencumbered property which she could never have otherwise afforded. Indeed, that would put her in a position better than that of CEL who were bound by the Barclays charge. It was considered that such an outcome would be so unjust as to be exceptional.

Commentary

Whilst the outcome shows that such matters remain highly fact-specific, it will be welcomed by lenders as showing the difficulties in removing a registered charge, even in instances of fraud. The case further highlights that even where a person has been a victim of fraud, the law does not allow remedies that would essentially give them a windfall.