Expert Opinion: Rectification in the case of fraud

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Expert Opinion: Rectification in the case of fraud

Patel v Freddy’s Ltd [2017] EWHC 73 (Ch)

Introduction

This case involved a defrauded proprietor’s claim to have the Register of title altered to restore him as proprietor following a purported sale by a fraudster. The power to alter the Register is available in order to correct a mistake in the Register and its application is set out in Land Registry Practice Guide 39. If the alteration would adversely affect the title of a registered proprietor it is termed ‘rectification’. However, if a rectification would affect the current registered proprietor’s title, no order may be made without the proprietor’s consent unless—

(a) he has by fraud or lack of proper care caused or substantially contributed to the mistake, or

(b) it would for any other reason be unjust for the alteration not to be made. (See Land Registration Act 2002, Schedule 4)

In most cases where a land owner has been defrauded, it would be unjust for the Register not to be altered to restore the defrauded proprietor, even if the current proprietor was completely innocent – but not always.

The Facts

Mr Patel was the registered proprietor of a house in multiple occupation. A fraudster, pretending to be the real Mr Patel instructed estate agents to offer the property for sale and a sale was agreed with a Mr Feingold and a Mr Sorenson. Mr Sorenson subsequently backed out of the purchase and Mr Feingold needed to find a sub-purchaser. A director of Freddy’s Ltd was introduced to him by the agents. The sale to Mr. Feingold for £339,400 and the sub- sale to Freddy’s for £450,000 were completed on the same day. Freddy’s was subsequently registered as proprietor of the property. They obtained vacant possession from the various tenants in occupation and subsequently sent in builders. It was then that the real Mr Patel discovered what had happened. An application was then made by Patel for the register to be altered to restore him as proprietor. This was opposed by Freddy’s. It was accepted that an alteration would amount to rectification, thus normally requiring the proprietor’s consent. However, Mr Patel claimed that the proprietor’s consent was not needed as Freddy’s had ‘by fraud or lack of proper care caused or substantially contributed to the mistake’. There was no claim that Freddy’s had been fraudulent or that it would for any other reason be unjust for the alteration not to be made.

The Decision

Tribunal Judge Elizabeth Cooke, (Sitting as a Deputy High Court Judge of the Chancery Division) refused to order rectification of the Register. Freddy’s had not ‘by fraud or lack of proper care caused or substantially contributed to the mistake’.

It had been claimed by Mr Patel that Freddy’s (or rather their solicitor) should have taken steps to check the identity of the person selling to Mr Feingold to ensure that it was the real Mr Patel. This was firmly rejected by the Judge. It was, she said, not normal conveyancing practice for a buyer’s solicitor to undertake such checks or to ask for confirmation from the seller’s conveyancers that they had done so. It was the seller’s conveyancer’s sole responsibility to undertake such checks as ‘he was the one with access to the client and to his client’s documents.’

It was also argued that in this case there were special reasons to depart from normal conveyancing practice and make enquiries as to identity. These involved (inter alia) the fact that there were misstatements on the Property Information Form and that no authority was received to give to the tenants to authorise rental payments to be made to the new owner. But these did not require a departure from the usual procedure. Freddy’s knew of the true position with regard to what was being misstated and so were not being misled. Also, as they intended to obtain vacant possession, there was no reason to be concerned about rental authorities.

Conclusion

The usual argument when rectification is sought in cases of fraud is that it would be unjust not to rectify; this was not claimed here. It should be noted, of course, that Mr Patel will have a claim for compensation from Land Registry under the indemnity provisions of the 2002 Act.

 

Paul Butt

Paul Butt is a retired consultant at Rowlinsons Solicitors.

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