Patel v Freddy's Ltd & Ors

Rectification of a registered title cannot be ordered where the registered proprietor in possession has not, by fraud or lack of proper care, caused or substantially contributed to the registration mistake. The assessment of proper care is objective and must be made in the circumstances known at the time, without hindsight. A purchaser and its solicitor need not duplicate the vendor solicitor’s identity checks where ordinary conveyancing practice places that responsibility on the vendor’s solicitor, unless the circumstances require additional steps. A substantial contribution requires more than identifying enquiries which could have been made: the omitted step must probably have revealed the fraud. Where that threshold is not met, the statutory protection for a registered proprietor in possession applies.

The claimant had purchased Sai Villa in 1996 but, following an identity fraud, the property was transferred to Simon Finegold and then to Freddy’s Ltd. Freddy’s Ltd became the registered proprietor and took possession. The claimant sought rectification of the register under the Land Registration Act 2002, alternatively an indemnity from HM Land Registry.

The issue was whether Freddy’s Ltd had, by fraud or lack of proper care, caused or substantially contributed to the mistaken registration. The court also considered, hypothetically, Freddy’s Ltd’s claim against Mr Finegold under covenants for title if rectification had been ordered.

1. Rectification claim dismissed. Freddy’s Ltd was the registered proprietor in possession. Under Schedule 4 to the Land Registration Act 2002, rectification could not be ordered without its consent unless it had caused or substantially contributed to the mistake by fraud or lack of proper care, or it would otherwise be unjust to leave the register unaltered.

2. The court applied the professional standard described in Prestige Properties Ltd v Scottish Provident Institution [2002] EWHC 330 (Ch): a solicitor is judged by the standard of a reasonably competent practitioner in the circumstances existing at the time. Hindsight is not the test. The purchaser’s solicitor had carefully reviewed the transaction, carried out searches and advised against proceeding. He was not required to duplicate the vendor solicitor’s identity checks or to investigate matters which were not relevant to his client’s immediate interests.

3. The purchaser and its director were entitled to adopt a commercially informed assessment of the risks associated with a distressed, multi-occupied property. The unusual features of the transaction did not require further identity enquiries. Nor would the additional enquiries relied upon by the claimant probably have revealed the fraud. Accordingly, there was no lack of proper care and no substantial contribution to the mistaken registration.

4. The court applied the principle in Swift 1st Ltd v Chief Land Registrar [2015] EWCA Civ 330 that registration under section 58 vested both the legal and beneficial estate in the registered proprietor, absent circumstances making that proprietor a constructive trustee. The claimant therefore remained entitled to pursue an indemnity, but rectification was refused.

5. Had rectification been ordered, Mr Finegold would in principle have been liable under the full title guarantee implied by section 1 of the Law of Property (Miscellaneous Provisions) Act 1994. However, the court considered that Freddy’s Ltd would first have had to seek the available Land Registry indemnity, with any covenant claim limited to loss remaining after that indemnity. This was an obiter conclusion because rectification was refused.

Not stated in the judgment.