Jeffrey Orchard & Anor v Daljit Dhillon

An agreement made in breach of the general prohibition in the Financial Services and Markets Act 2000 is voidable rather than void. The innocent party’s statutory entitlement under section 26 to recover property transferred under the agreement may bind a successor in title, subject to ordinary rules concerning priorities and bona fide purchase. Where legal title to land has passed, the right to seek reconveyance is capable of constituting a mere equity and may qualify as an overriding interest through actual occupation. A court may permit a new legal analysis to be raised on appeal where the essential factual matters were pleaded, no materially different evidence or trial would have been required, and the other party can be protected. The phrase “by way of business” in section 22 involves ordinary language and its application is a question of fact.

The defendants appealed against an order requiring them to give possession of a property to the claimant and to pay £97,000 in rent arrears. The property had originally been transferred to Red 2 Black Ltd under a sale and rent back agreement. Red 2 Black was unauthorised for the purposes of the Financial Services and Markets Act 2000. The defendants remained in occupation and later paid rent to the claimant, who acquired the property from Red 2 Black.

The County Court rejected a fraudulent misrepresentation defence and held that the claimant’s post-acquisition activities were not carried on by way of business under section 22. On appeal, the defendants argued that the original agreement was unenforceable under section 26, that their right to recover the property bound the claimant as successor in title, and that their occupation protected the right under the Land Registration Act 2002. The central issues were whether those arguments could be raised on appeal and what consequences followed from sections 26 and 28.

1. Appeal allowed. The question whether the claimant’s activities were carried on by way of business was one of fact. The judge had applied the correct approach and his conclusion was open to him. The absence of other sale and rent back properties was relevant, although not determinative, to whether the claimant was acting by way of business. Ground 1 therefore failed.
2. The new arguments on ground 2 were admitted. The essential factual building blocks had been pleaded. The arguments would not have required materially different evidence or a different trial. Delay and acquiescence were already in issue, and the claimant had sufficient time to address the legal arguments on appeal. Any costs difficulty could be addressed because there was sufficient equity in the property.
3. Red 2 Black Ltd had entered into a regulated sale and rent back agreement by way of business without authorisation. Section 26 was therefore engaged as between Red 2 Black and the defendants. Sections 26 and 28, read together, made the agreement voidable rather than void. Property passed under it, subject to the innocent party’s right to seek recovery and the court’s power under section 28(3) to allow the property to be retained where just and equitable.
4. The section 26 right to recover property was capable in principle of binding third-party transferees. The statutory scheme was to be read against general principles governing rescission, title and priorities. A transfer to a third party did not automatically extinguish the right. The third party’s position, including value, good faith, notice, registration and actual occupation, was relevant.
5. Where legal title to land had passed and the court’s intervention was sought to reverse the transfer, the defendants’ right was best classified as a “mere equity”. It was consequently capable of protection as an overriding interest through actual occupation. The claimant therefore did not take the property free of the defendants’ rights.
6. Article 63J(6) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 designated certain conduct as a regulated activity. It did not automatically place a successor in title under the original agreement’s section 26 obligations. The claimant’s liability arose from the defendants’ statutory rights and her status as successor in title.
7. The matter was remitted for a further hearing on consequential issues, including section 28 relief, counter-restitution, the absence of Red 2 Black from the proceedings and the effect of the charge in favour of the claimant’s father.

• County Court: His Honour Judge Duddridge ordered the defendants to give possession of the property and pay £97,000 in rent arrears on 25 July 2024.
• High Court, Chancery Appeals List: Mr Justice Miles allowed ground 2, rejected ground 1, and remitted the consequential issues for a further hearing.