McPherson v Legal Services Commission

For statutory-charge purposes, property may be preserved where mortgage-possession proceedings result in the mortgagor retaining possession, even though the debt is redeemed or reduced by settlement. The statutory charge attaches only to the assisted person’s relevant beneficial interest and remains subject to the pre-existing mortgage. Where the property had no net value at the settlement date, the court may regard no property as having been preserved. Regulation 99(6) of the Civil Legal Aid (General) Regulations 1989 applies only within regulations 96 to 99 and cannot be applied by analogy. A charge on a beneficial interest under a trust of land is protected by a restriction, not by registration of a charge against the registered legal title.

Mrs McPherson appealed from a Deputy Adjudicator’s order directing registration of a statutory charge claimed by the Legal Services Commission over Woodland Cottage. She had received legal aid in mortgage-possession proceedings brought by Birmingham Midshires Mortgage Asset Number One Limited. Those proceedings were settled when £265,000 was paid, the possession claim was abandoned, and the mortgage was redeemed or refinanced.

The issues were whether Mrs McPherson had recovered or preserved property under section 16 of the Legal Aid Act 1988, whether the value of the property and the existing mortgage limited the charge, how any beneficial-interest charge should be protected under the Land Registration Act 2002, and whether the LSC was estopped from asserting the charge.

1. Statutory charge. The appeal succeeded in form, but the LSC was entitled to a statutory charge in substance. The proceedings concerned possession of Woodland Cottage. Applying Curling v The Law Society and Parkes v Legal Aid Board, the settlement preserved the McPhersons’ possession of the property. For section 16(6) purposes, preservation of possession in proceedings concerning possession could amount to preservation of the property.
2. The charge attached only to the extent of Mrs McPherson’s beneficial interest as at 30 January 2002. The property was treated as subject to the Birmingham Midshires charge, or to the obligation to pay £265,000 to redeem it. The Northern Rock charge had priority because the LSC had consented to the refinancing.
3. The court considered an alternative analysis based on reducing a secured debt. Under The Philippine and Pelsall Coal and Iron Company v London and North Western Railway Company (No. 3), reducing an encumbrance could constitute preservation of property. However, the court was bound by the possession-based analysis in Curling and Parkes, so it was unnecessary to quantify the reduction in the debt.
4. If the property had had no net value at the settlement date, it would have been unrealistic to treat property as preserved. Here, the Deputy Adjudicator’s finding that the property exceeded £265,000 was upheld. Regulation 99(6) did not apply because the case did not fall within regulations 96 to 99, and it could not be applied by analogy.
5. The statutory charge affected a beneficial interest under a trust of land, not the registered legal title. A charge or notice could not properly be registered against the registered title. The appropriate protection was a restriction in Form JJ under rule 93(w) and Schedule 4 to the Land Registration Rules 2003.
6. The estoppel and legitimate-expectation arguments failed. The LSC’s correspondence concerned Mr McPherson, not Mrs McPherson, and there was no sufficient reliance or change of position.

The registration against the registered title was to be cancelled and replaced by the appropriate restriction.

1. High Court (Chancery Division): On appeal from the Deputy Adjudicator to HM Land Registry, the court upheld the existence of the statutory charge but directed that the registered-title charge be cancelled and replaced by a Form JJ restriction.
2. Deputy Adjudicator to HM Land Registry: On 12 November 2007, ordered the Chief Land Registrar to give effect to the LSC’s application for registration of a statutory charge.