Guy v Barclays Bank Plc

The Court of Appeal refused an application for permission to appeal against a Chancery Division deputy judge's summary declaration that Barclays, as mortgagee, was entitled to sell land subject to a legal charge registered in March 2005. The central legal issue was whether the registration of the bank's charge could be rectified under Schedule 4 to the Land Registration Act 2002 as a correction of a "mistake" where the intermediate registered proprietor (Ten Acre Limited) had acquired title by alleged forgery or fraud.

The court treated, for the purposes of the application, the appellant's case that the transfer to Ten Acre Limited might be forged or procured by fraud, but held that even if the transfer were void the appellant could not show an arguable case that the charge's registration was a "mistake" within Schedule 4 unless the mortgagee had actual or "Nelsonian" (deliberately closed-eye) notice of the defect in the mortgagor's title. The appellant had not shown such notice on the evidence presented. The application for permission to appeal was therefore refused.

Background and parties.

• The dispute concerned some 48 acres of development land in Manchester. The appellant (Mr Guy) asserted that he was the beneficial owner; the registered proprietor was Ten Acre Limited and Barclays held a registered legal charge dated 8 March 2005. Ten Acre Limited was, at the time of the hearing, in liquidation and not joined as a defendant.
• Mr Guy alleged that the TR1 transfer to Ten Acre, dated 22 June 2004, was procured by fraud or was forged and that the stated purchase price had not been paid in full. Barclays sought to sell the land under its powers as mortgagee and applied, successfully before the deputy judge, for summary relief clearing its title to sell free from Mr Guy's claims.

Relief sought and procedural posture. The appellant sought permission to appeal the deputy judge's order which declared Barclays entitled to sell and protected purchasers for value. The summary judgment and consequential orders had been made by Mr Mowschenson QC in the Chancery Division; permission to appeal was initially refused on the papers and renewed orally before the Court of Appeal.

Issues framed.

• Whether, assuming the transfer to Ten Acre was void or voidable for forgery or fraud, the registration of Barclays' charge could nonetheless be set aside by rectification of the Register under Schedule 4 to the Land Registration Act 2002 as a "correction of a mistake".
• What constitutes a "mistake" for the purposes of Schedule 4 and whether a subsequent registered charge can be treated as a mistake where the mortgagee did not have notice of the underlying defect.
• Whether the appellant had evidentially established at least an arguable case that Barclays had actual or "Nelsonian" notice of the defect in Ten Acre's title such as to permit rectification against the bank.

Court's reasoning. The court accepted for present purposes that the transfer to Ten Acre might have been forged or procured by fraud and that, as between Mr Guy and Ten Acre, rectification against Ten Acre would be arguable. However, Schedule 4 requires that alteration be for the purpose of "correcting a mistake". The Court held that it is not arguable that the registration of a charge by a properly executed mortgagee document is a "mistake" unless the mortgagee had actual or deliberate blind-eye notice of the defect in the mortgagor's title. The appellant relied on extraneous material (notably a statement by auditors about Mr Luqman and authorities and commentary suggesting different possible approaches), but had not shown on the material before the court an arguable case that Barclays had the requisite notice. The Court therefore refused permission to appeal.

Context. The Court recognised that the scope of "mistake" under Schedule 4 may require further development in future cases, but emphasised the importance of protecting bona fide registered mortgagees unless there is evidence of actual or implicitly dishonest knowledge of title defects.

Application for permission to appeal refused. The Court held that even assuming the transfer to the registered proprietor might have been fraudulent or forged, rectification under Schedule 4 of the Land Registration Act 2002 to remove a properly executed registered charge cannot be ordered unless the mortgagee had actual or equivalent (deliberate blindness) notice of the defect in the mortgagor's title; the appellant had not shown an arguable case of such notice and the application was dismissed.

Appeal from the High Court of Justice, Chancery Division (Mr T Mowschenson QC), where summary judgment / declaration was given in favour of Barclays allowing it to sell the property subject to its charge. Permission to appeal was initially refused on the papers; the renewed application for permission to appeal to the Court of Appeal was refused by order of the Court of Appeal ([2008] EWCA Civ 452).