Malory Enterprises Ltd v Cheshire Homes (UK) Ltd

Registration of a void transfer under the Land Registration Act 1925 vests the registered transferee with the legal estate under section 69, but does not give it the beneficial interest or the rights attached to a valid disposition under section 20. The true beneficial owner therefore retains a better right to possession and may sue in trespass. A proprietary right to seek rectification can itself be an overriding interest under section 70(1)(g), where it is referable to land and capable of transmission. Actual occupation is fact-sensitive. For derelict land, residence is unnecessary, but physical presence with permanence and continuity must be sufficient to put an inspecting person on notice. Arden LJ considered that section 82 did not permit retrospective rectification, but that view was obiter and the other judges reserved their positions.

Malory Enterprises Ltd, a British Virgin Islands company, acquired development land and became its registered proprietor. Following a fraud, a United Kingdom company using the same name purported to transfer the land to Cheshire Homes (UK) Ltd, which was registered as proprietor in January 1999.

The High Court declared Malory to be the beneficial owner, found that it remained in possession and actual occupation, ordered rectification of the register, and held Cheshire liable in trespass. The Court of Appeal considered whether Malory had an overriding interest, whether Cheshire acquired beneficial as well as legal ownership, whether rectification could be retrospective, and which party had the better right to possession.

The appeal was allowed only to remove from the order the words making rectification retrospective to 12 January 1999. It was dismissed in all other respects.

1. Effect of registration. Under section 69 of the Land Registration Act 1925, registration following a legally ineffective transfer vested Cheshire with the legal estate in fee simple in possession. The transfer was not a disposition for section 20 purposes, so Cheshire did not acquire the beneficial interest or the associated rights and appurtenances. Malory therefore remained the true beneficial owner, had the better right to possession, and could sue Cheshire in trespass. The court referred to Chowood v Lyall (No.2) [1930] 2 Ch 156.
2. Right to rectification. Arden LJ additionally concluded that a right to seek rectification reflecting a proprietary interest was a right referable to land and capable of transmission. Although the court’s discretion was needed to fulfil the right, it was not needed for the right to arise. Coupled with actual occupation, the right could constitute an overriding interest under section 70(1)(g). This conclusion was not necessary because rectification was common ground, but Clarke and Schiemann LJJ agreed with it.
3. Actual occupation. The issue depended on the nature and state of the land. Even for uninhabitable land, there had to be physical presence with permanence and continuity. The presence had to give fair notice to an inspector that someone claimed occupation. Fencing, controlled access, boarding-up, maintenance and storage were relevant evidence. The judge was entitled to find actual occupation, and that factual conclusion could not be disturbed.
4. Retrospective rectification. Arden LJ considered, obiter, that section 82 conferred no power to make rectification effective before the application for registration under rule 83(3) of the Land Registration Rules 1925. She relied on the absence of machinery protecting third parties and the need for certainty in dealings based on the register. Clarke LJ stated that this reasoning was obiter and reserved his opinion; Schiemann LJ also reserved his position. The court expressed no final view on the parties’ indemnity rights.

• Court of Appeal: Allowed the appeal only to remove the retrospective element of the rectification order and dismissed it otherwise.
• High Court, Chancery Division, Manchester District Registry: HHJ Maddocks declared Malory the beneficial owner and entitled to possession, ordered rectification of the register retrospectively to 12 January 1999, restrained Cheshire from entering the land, and directed an inquiry into damages for trespass.