John Baylis & Anor v Syed Ali Haider & Ors

A transaction is not void for non est factum merely because the signatory hoped that a sale would later be reversed. The plea requires a radical or fundamental difference between the document signed and the document believed to have been signed.

A unilateral mistake of the relevant kind may render a transfer voidable rather than void, so it does not engage the power to rectify the register for mistake under Schedule 4 to the Land Registration Act 2002. Where rectification is otherwise available, the court must rectify unless exceptional circumstances justify refusing it. Benefit received from the transaction and the innocent or technical nature of the registration error may constitute such circumstances.

A person who knowingly permits mortgage borrowing on the property cannot ordinarily assert an overriding interest against the mortgagee.

The claim concerned the purported sale of the claimants’ family home to the first defendant, following the bankruptcy of the first claimant and threatened possession proceedings. The claimants sought to set aside the transaction for non est factum, mistake or improper execution, and to rectify the register. They also advanced claims under the Financial Services and Markets Act 2000, unjust enrichment and against the defendant solicitors for negligence and breach of duty. The lender sought to preserve its registered charge.

The court also determined consolidated possession proceedings brought by the first defendant. The central issues were the legal effect of the TR1, the availability of rectification, the status of the charge, whether the arrangement was a regulated sale and rent back agreement, and whether the claimants had any tenancy after completion.

1. Primary claims against Mr Haider. The claimants understood that they were executing a TR1 which would transfer the property to Mr Haider. Their expectation that the transaction would be reversed after annulment of the bankruptcy did not create the radical difference required for non est factum. The plea therefore failed.
2. The parties were not at cross-purposes. The claimants intended to execute a transfer which, once registered, would transfer the property to Mr Haider. Any relevant unilateral mistake would make the TR1 voidable, not void, and therefore would not engage Schedule 4 rectification for mistake.
3. The consideration inserted after execution did not invalidate the TR1. The claimants had seen and approved a draft recording the same consideration, so the amendment was consensual or non-material. If the signature page had instead been attached to a different document, the TR1 would have been a nullity under R (Mercury) v HMRC, but that possibility did not alter the court’s ultimate conclusions.
4. Assuming rectification was available, the court would refuse it. Under paragraph 3(3) of Schedule 4, the questions were whether exceptional circumstances existed and whether they justified refusing rectification. The claimants had substantially benefited from the transaction through payment of the bankruptcy liabilities and removal of the LPI restriction. Those circumstances justified refusing rectification against Mr Haider and, if necessary, Together.
5. The claimants’ alleged overriding interest failed. They knew that the purchase would be funded by mortgage borrowing. A person who agrees to funds being raised on the property by mortgage cannot ordinarily assert priority against the mortgagee.
6. The FSMA claim also failed. The claimants had no formalised right to occupy after completion and were, at most, tenants at will pending a proposed buy-back. There was no evidence that Mr Haider acted in the course of business. Even if the arrangement fell within the statutory prohibition, enforcement would have been just and equitable because the claimants had benefited, Mr Haider remained liable to the lender, and the purchase was at full market value.
7. The possession claim based on an assured shorthold tenancy failed. No tenancy agreement existed and the monthly payments were referable to Mr Haider’s mortgage instalments.
8. The solicitors had received the full purchase price but failed to account for approximately £175,000 remaining in their client account. Their failure to advise and challenge the LPI restriction also constituted a clear breach of duty. Costs and consequential matters were adjourned for a further hearing.

First-instance decision. The judgment records that possession proceedings issued in the Canterbury County Court and later in the Thanet County Court were consolidated with the High Court claim by consent.