Dhillon v Barclays Bank Plc & Anor

Under paragraph 3(3) of Schedule 4 to the Land Registration Act 2002, the court ordinarily must rectify a mistaken register. It may decline to do so only where exceptional circumstances exist and those circumstances justify non-rectification.

Exceptional circumstances are unusual, special or uncommon circumstances bearing on whether rectification is justified. Their practical effect on the parties must be assessed. Non-rectification may be justified where rectification would confer an unearned windfall, place an applicant in a better position than the applicant could otherwise have occupied, or depend upon taking the benefit of a fraudulent disposition.

The possible availability of a Land Registry indemnity does not compel rectification or displace the statutory two-stage assessment. At most, it may be relevant on the facts of a particular case.

The appellant occupied a house formerly owned by a local authority. Her husband fraudulently procured two transfers using her forged signature: first from the authority to her and then from her to a company. The company granted the first respondent bank a registered charge. After the company was dissolved and the property had escheated, an order under the Insolvency Act 1986 vested in the appellant the estate and interest formerly held by the company. She was registered as proprietor subject to the bank’s charge.

The appellant sought rectification of the register by removing the charge. The High Court dismissed her claim in [2019] EWHC 475 (Ch), holding that exceptional circumstances justified non-rectification under paragraph 3(3) of Schedule 4 to the Land Registration Act 2002.

The central issue on appeal was whether that evaluative conclusion was wrong. Questions about jurisdiction, illegality and a possible Land Registry indemnity were also raised.

1. Appeal dismissed. The judge correctly held that exceptional circumstances justified leaving the bank’s charge on the register. Paragraph 3(3) of Schedule 4 to the Land Registration Act 2002 requires a structured inquiry: first, whether exceptional circumstances exist; secondly, whether they justify non-rectification. Circumstances are exceptional when they are unusual, special or uncommon, although they need not be unique or unprecedented.

2. The judge’s conclusion was evaluative and was not open to appellate interference without a clear error of principle. He had applied the correct exceptional-circumstances test. His incidental references to the separate test under paragraph 3(2) did not affect his reasoning or prejudice the appellant.

3. The vesting order transferred only the estate and interest previously held by the company. It did not create a new, unencumbered freehold. The appellant therefore received the company’s equity of redemption subject to the registered charge. Escheat had not extinguished that charge.

4. The circumstances were exceptional when considered cumulatively. The appellant had never owned the freehold, had paid nothing for it and could not have afforded to purchase it without financing and an immediate resale. Her claim also depended upon taking the benefit of the first forged and void transfer. Rectification would consequently have given her an unencumbered, valuable freehold and placed her in a substantially better position than she could have occupied absent the fraud.

5. Those circumstances justified non-rectification. Leaving the charge registered preserved the appellant’s equity of redemption, estimated at about £350,000, and broadly approximated the position she might have achieved through a financed right-to-buy purchase and resale. This was a just and proportionate outcome. Her occupation did not constitute an overriding interest capable of outweighing the other circumstances.

6. The court assumed, without deciding, that it had jurisdiction to remove the charge and that illegality did not bar the claim. Nevertheless, the appellant’s reliance on the first fraudulent transfer was relevant to whether non-rectification was justified.

7. The possible availability of an indemnity under Schedule 8 was neither pleaded nor within the grounds of appeal. In any event, an indemnity cannot short-circuit the paragraph 3(3) inquiry or compel rectification. At most, its possible availability may be relevant in an appropriate case.

Rose and Patten LJJ agreed with Coulson LJ.

1. Court of Appeal (Civil Division): The court unanimously dismissed the appeal in [2020] EWCA Civ 619 and upheld the refusal to rectify the register.
2. High Court, Business and Property Courts, Property, Trusts and Probate List: His Honour Judge Pelling QC dismissed the rectification claim in [2019] EWHC 475 (Ch), holding that exceptional circumstances justified leaving the bank’s charge registered.