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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Rashid v Nasrullah [2018] EWCA Civ 2685 (29 November 2018) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2018/2685.html Cite as: [2019] 4 All ER 424, [2019] 2 WLR 1310, [2018] EWCA Civ 2685, [2018] WLR(D) 731, [2019] 1 P & CR DG18, [2020] Ch 37, [2019] 2 P & CR 8 |
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CIVIL
DIVISION)
ON APPEAL FROM UPPER TRIBUNAL
(TAX AND CHANCERY DIVISION)
Upper Tribunal Judge Cooke
[2017] UKUT 0332 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LADY JUSTICE KING
and
LORD JUSTICE PETER JACKSON
____________________
FARAKH ![]() ![]() |
Appellant |
|
- and - |
||
TEYUB ![]() ![]() (acting as Executor of the estate of the late Mohammed ![]() | Respondent |
____________________
Ms Stephanie Tozer & Ms Tricia Hemans (instructed by Green and Olive Solicitors ) for the Respondent
Hearing date: Tuesday, 20th November, 2018
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
Lord Justice Lewison:
Introduction
The Land Registration Act 1925
"(1) After the commencement of this Act, estates capable of subsisting as legal estates shall be the only interests in land in respect of which a proprietor can be registered and all other interests in registered land (except overriding interests and interests entered on the register at or before such commencement) shall take effect in equity as minor interests…"
"(xi) "Legal estates" means the estates interests and charges in or over land subsisting or created at law which are by the Law of Property Act 1925, authorised to subsist or to be created at law; and "Equitable interests" mean all the other interests and charges in or over land; an equitable interest "capable of subsisting at law" means such as couldvalidly
subsist at law if clothed with the legal estate…
(xv) "Minor interests" mean the interests not capable of being disposed of or created by registered dispositions and capable of being overridden (whether or not a purchaser has notice thereof) by the proprietors unless protected as provided by this Act, and all rights and interests which are not registered or protected on the register and are not overriding interests, and include—
(a) in the case of land subject to a trust of land, all interests and powers which are under the Law of Property Act 1925, capable of being overridden by the trustees, whether or not such interests and powers are so protected…
(xx) "Proprietor" means the registered proprietor for the time being of an estate in land or of a charge"
"(1) In the case of a freehold estate registered with an absolute title, a disposition of the registered land or of a legal estate therein, including a lease thereof, forvaluable
consideration shall, when registered, confer on the transferee or grantee an estate in fee simple or the term of years absolute or other legal estate expressed to be created in the land dealt with, together with all rights, privileges, and appurtenances belonging or appurtenant thereto, including (subject to any entry to the contrary in the register) the appropriate rights and interests which would, under the Law of Property Act 1925, have been transferred if the land had not been registered, subject—
(a) to the incumbrances and other entries, if any, appearing on the register and any charge for capital transfer tax subject to which the disposition takes effect under section 73 of this Act; and
(b) unless the contrary is expressed on the register, to the over-riding interests, if any, affecting the estate transferred or created,
but free from all other estates and interests whatsoever, including estates and interests of His Majesty, and the disposition shall operate in like manner as if the registered transferor or grantor were (subject to any entry to the contrary in the register) entitled to the registered land in fee simple in possession for his own benefit.
…
(4) Where any such disposition is made withoutvaluable
consideration, it shall, so far as the transferee or grantee is concerned, be subject to any minor interests subject to which the transferor or grantor held the same, but, save as aforesaid, shall, when registered, in all respects, and in particular as respects any registered dealings on the part of the transferee or grantee, have the same effect as if the disposition had been made for
valuable
consideration."
"(1) The proprietor of land (whether he was registered before or after the commencement of this Act) shall be deemed to havevested
in him without any conveyance, where the registered land is freehold, the legal estate in fee simple in possession, and where the registered land is leasehold the legal term created by the registered lease, but subject to the overriding interests, if any, including any mortgage term or charge by way of legal mortgage created by or under the Law of Property Act 1925, or this Act or otherwise which has priority to the registered estate."
"Subject to the provisions in this Act contained with respect to indemnity and to registered dispositions forvaluable
consideration, any disposition of land or of a charge, which if unregistered would be fraudulent and
void,
shall, notwithstanding registration, be fraudulent and
void
in like manner."
"(1) The Limitation Acts shall apply to registered land in the same manner and to the same extent as those Acts apply to land not registered, except that where, if the land were not registered, the estate of the person registered as proprietor would be extinguished, such estate shall not be extinguished but shall be deemed to be held by the proprietor for the time being in trust for the person who, byvirtue
of the said Acts, has acquired title against any proprietor, but without prejudice to the estates and interests of any other person interested in the land whose estate or interest is not extinguished by those Acts.
(2) Any person claiming to have acquired a title under the Limitation Acts to a registered estate in the land may apply to be registered as proprietor thereof."
The Land Registration Act 2002
"(1) Where a registered estate in land is held in trust for a person byvirtue
of section 75 (1) of the Land Registration Act 1925 immediately before the coming into force of section 97, he is entitled to be registered as the proprietor of the estate.
(2) A person has a defence to any action for the possession of land (in addition to any other defence he may have) if he is entitled under this paragraph to be registered as the proprietor of an estate in the land.
(3) Where in an action for possession of land a court determines that a person is entitled to a defence under this paragraph, the court must order the registrar to register him as the proprietor of the estate in relation to which he is entitled under this paragraph to be registered."
"(2) If alteration affects the title of the proprietor of a registered estate in land, no order may be made under paragraph 2 without the proprietor's consent in relation to land in his possession 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.
(3) If in any proceedings the court has power to make an order under paragraph 2, it must do so, unless there are exceptional circumstances which justify its not doing so."
Limitation
"Part I of Schedule 1 to this Act contains provisions for determining the date of accrual of rights of action to recover land in the cases there mentioned."
"Where the person bringing an action to recover land, or some person through whom he claims, has been in possession of the land, and has while entitled to the land been dispossessed or discontinued his possession, the right of action shall be treated as having accrued on the date of the dispossession or discontinuance."
"No right of action to recover land shall be treated as accruing unless the land is in the possession of some person in whose favour the period of limitation can run (referred to below in this paragraph as "adverse possession"); and where under the preceding provisions of this Schedule any such right of action is treated as accruing on a certain date and no person is in adverse possession on that date, the right of action shall not be treated as accruing unless and until adverse possession is taken of the land."
"… there are two elements necessary for legal possession: (1) a sufficient degree of physical custody and control ("factual possession"); (2) an intention to exercise such custody and control on one's own behalf and for one's own benefit ("intention to possess")."
"From 1833 onwards the only question was whether the squatter had been in possession in the ordinary sense of the word. That is still the law, as Slade J rightly said." (Emphasis added)
"In my judgment much confusion and complication would be avoided if reference to adverse possession were to be avoided so far as possible and effect given to the clear words of the Acts. The question is simply whether the defendant squatter has dispossessed the paper owner by going into ordinary possession of the land for the requisite period without the consent of the owner." (Emphasis added)
"It is clearly established that the taking or continuation of possession by a squatter with the actual consent of the paper title owner does not constitute dispossession or possession by the squatter for the purposes of the Act. Beyond that, as Slade J said, the words possess and dispossess are to be given their ordinary meaning."
"In the absence of authority, therefore, I would for my own part have regarded the word 'possession' in the 1939 Act as bearing the traditional sense of that degree of occupation or physical control, coupled with the requisite intention commonly referred to as animus possidendi, that would entitle a person to maintain an action of trespass in relation to the relevant land; likewise I would have regarded the word 'dispossession' in the Act as denoting simply the taking of possession in such sense from another without the other's licence or consent; likewise I would have regarded a person who has 'dispossessed' another in the sense just stated as being in 'adverse possession' for the purposes of the Act." (Emphasis added)
"There will be a "dispossession" of the paper owner in any case where (there being no discontinuance of possession by the paper owner) a squatter assumes possession in the ordinary sense of the word. Except in the case of joint possessors, possession is single and exclusive. Therefore if the squatter is in possession the paper owner cannot be. If the paper owner was at one stage in possession of the land but the squatter's subsequent occupation of it in law constitutes possession the squatter must have "dispossessed" the true owner for the purposes of Schedule 1, paragraph 1…"
"Paragraph 8(1) of Schedule 1 to the 1980 Act defines what is meant by adverse possession in that paragraph as being the case where land is in the possession of a person in whose favour time "can run". It is directed not to the nature of the possession but to the capacity of the squatter. Thus a trustee who is unable to acquire a title by lapse of time against the trust estate (see section 21) is not in adverse possession for the purposes of paragraph 8."
"(1) Subject to section 21(1) and (2) of this Act, the provisions of this Act shall apply to equitable interests in land as they apply to legal estates.
Accordingly a right of action to recover the land shall, for the purposes of this Act but not otherwise, be treated as accruing to a person entitled in possession to such an equitable interest in the like manner and circumstances, and on the same date, as it would accrue if his interest were a legal estate in the land (and any relevant provision of Part I of Schedule 1 to this Act shall apply in any such case accordingly)."
Separation of legal and beneficial interests
"64 Although Malory UK had no title to convey to Cheshire, the position of Cheshire once it is registered as proprietor is governed by section 69 of the LRA. Accordingly, when it became the registered proprietor of the rear land, Cheshire was deemed to havevested
in it "the legal estate in fee simple in possession".
65 However, section 69 deals only with the legal estate. Unlike section 5, which deals with first registration, that registered estate is notvested
in Cheshire "together with all rights, privileges, and appurtenances". Moreover, since the transfer to Cheshire could not in law be of any effect in itself, in my judgment it cannot constitute a "disposition" of the rear land and accordingly section 20 cannot apply. In those circumstances, Cheshire's status as registered proprietor is subject to the rights of Malory BVI as beneficial owner. On this point I accept the submissions of Mr Dagnall and reject those of Mr Martin. It follows that I accept that Malory BVI has sufficient standing to sue for trespass even without seeking rectification of the register because it is the true owner and has a better right to possession: see Chowood Ltd
v
Lyall (No 2) [1930] 2 Ch 156, 163-164."
"… cannot make a generalised assertion about the beneficial ownership of the registered land…. Nor can it affect a trusteeship imposed upon the registered proprietor as a result of his or her conduct – for example, a constructive trusteeship arising from the circumstances of acquisition."
"The Malory 1 argument is a deeply problematic approach. It is unprincipled; it nullifies the provisions of the statute for protection of the proprietor in possession; it isvulnerable
to random outcomes; and it raises problems where an indemnity is claimed. The Malory 1 argument has now been held to be wrong and cannot be relied upon, but it is worth re-capping the reasons why it was so problematic."
"whether the much-debated decision of this court in … Malory … was decided per incuriam in so far as the court held that the innocentvictim
of a forged disposition acquired only the legal estate and not the beneficial ownership of the property."
"Absent a trust, the legal estate carries with it all rights to the property and equity has no rôle to play in separating legal from beneficial ownership. Therefore to achieve the result which obtained in Malory it is necessary to construe section 69 of the 1925 Act as creating a departure from the usual rule that legal and beneficial ownership are, without more, indissoluble and to construe the references to the legal estate as meaning a bare legal estate of the kind that would bevested
in a trustee. This runs contrary to the general principle embodied in section 69 that the register is a complete record of all enforceable estates and interests except for overriding interests and that it is registration rather than the transfer which confers title."
… "makes no reference in her judgment to the earlier decision of the Court of Appeal in Argyle Building Societyv
Hammond (1984) 49 P & CR 148 where Slade LJ, giving the judgment of the court, refers to the statutory magic of section 69 (1) which has the effect of
vesting
title by registration even when the transfer has been a forgery."
"An important, perhaps even critical, part of Arden LJ's reasoning in para 65 of her judgment in Malory was that section 20 of the 1925 Act had no application to a forged disposition. But section 114 makes it clear that, although a registered disposition which would be fraudulent andvoid
if unregistered remains fraudulent and
void
even if registered, this takes effect subject to the provisions of the 1925 Act with respect to registered dispositions for
valuable
consideration one of which is, of course, section 20. It is not therefore possible to construe section 20 as having no application to a fraudulent transfer for
valuable
consideration that is registered."
Lawful possession
"Possession is never 'adverse' within the meaning of the Act of 1980 if it is enjoyed under a lawful title. If, therefore, a person occupies or uses land by licence of the owner with the paper title and his licence has not been duly determined, he cannot be treated as having been in 'adverse possession' as against the owner with the paper title."
"[Malory] was relied on below as authority for the general proposition that rectification of the land register was not a precondition of an equitable right to possession of land in dispute. It was argued that the owners of No 29 therefore had a right of action to recover the disputed land without obtaining a prior order for rectification."
"The claimant disputes the relevance of that ruling to the circumstances of the present case, which do not involve the registration of any relevant transfer tainted by fraud or any separation of the legal and equitable interest in the disputed land. Against that, the defendant says that the absence of fraud in this case does not affect the application of the principle, which is that there was no legal basis for the registration of the defendant's predecessors in title as proprietors of the disputed land and that the owners of No 29 could have brought an action for the recovery of the disputed land without obtaining rectification of the land register before action. Those submissions are dealt with in more detail below."
"[83] In myview,
the key to assessing the defendant's claim to a possessory title is to be found in asking the correct questions under the 1980 Act and then answering them against the background of the concurrent registrations of the disputed land and the object, scheme and language of the relevant legislation and the overall justice of the case.
[84] The correct questions under the 1980 Act are: (1) Did the owners of No 29 have a right of action in the period 1988 to 2003 against owners of No 31 for recovery of the disputed land? If so, (2) Did time run in favour of the owners of No 31 as persons in adverse possession of the disputed land?"
"There was no dispossession in July 1988, because the taking of possession of the disputed land was not unlawful. It was lawful for the owners of No 31 to take and remain in possession of the disputed land, because they had a registered title to it. As long as they remained registered proprietors of the disputed land, that possession would be lawful and could not be adverse to the owners of No 29."
"[100] In brief, the legal position is that the owners of No 29 did not have a right of action against the owners of No 31 for the recovery of possession of the disputed land for putting up the chain link fence round the disputed land in July 1988 or for parking on it. No right of action arose then or subsequently, because there was no unlawful act of taking possession by the owners of No 31; they were entitled in law, even as against other persons with a registered title to the disputed land, to go into it and to remain in possession of it. Time did not begin to run against the owners of No 29.
[101] Just as time did not begin to run against the owners of No 29, so it did not begin to run in favour of the owners of No 31, as their possession of the disputed land was referable to their registered title and was not unlawful or adverse within the meaning of the 1980 Act." (Emphasis in original)
"[93] In my judgment, the Malory case [2002] Ch 216 is not, when properly understood, against the claimant on this point. It was not a case on the effect of first registration nor was it a case of concurrent registrations. It was a case of a purported disposition of registered land that was held not to affect the beneficial ownership of the land, because of the fraud of the transferor. It was held that only the bare legal title passed to the transferee, who was registered as proprietor. The claimant, who had been defrauded, was left with the beneficial ownership of the land and that was held to be sufficient to entitle the claimant in that case to sue for trespass.
[94] In this case there are no circumstances from which a separation of legal title and beneficial ownership of the disputed land could be inferred or implied. Subject to rectification of the register by order, both parties have a good legal and beneficial title to the disputed land conferred by registration."
Was there a separation of legal and beneficial titles in this case?
i) That section 114 of the 1925 Act said in terms that a forged disposition is void
(not
voidable);
ii) That MR2 had nothing to do with the disposition. It was not, therefore, akin to a case in which a person is induced to part with his property as a result of a fraudulent misrepresentation; and
iii) That the current registered proprietor was himself associated with the fraud, so that this is not a case of an innocent buyer.
"26-012 (b) Fraudulent taking.
A distinction must be drawn between fraud consisting in the outright taking of a person's property, wholly without his consent, and a transaction induced by a fraudulent misrepresentation. In the first case, it has been said that a thief who steals the property of another holds it on constructive trust for the claimant. The thief's possessory title is subject to the claimant's equitable entitlement to have the property specifically restored to him so that he holds it as a constructive trustee. The consequence is that the claimant need not rely on the less advantageous common law rules of tracing to recover his property.
26-013 (c) Fraudulently induced transfer.
In the second case, where the claimant is thevictim
of a fraudulent misrepresentation which induces him to transfer his property to his defendant, the transaction is
valid
until the claimant elects to rescind it. In the meanwhile, the defendant holds his legal interest in the property as beneficial owner, though subject to the claimant's equity to rescind, a right which is itself proprietary in character. On rescission by the claimant, the defendant holds his legal interest in the property on resulting trust. Since the trust arises only at that stage, the defendant cannot be taken to have owed duties qua trustee before then. Nor can any misapplication of money by the defendant be treated as a breach of trust until after rescission. The possibility of rescission leading to the imposition of a resulting trust will be barred if the claimant has elected to affirm the transaction."
"… a thief ordinarily acquires no property in what he steals and cannot give a title to it even to a good faith purchaser: both the thief and the purchaser arevulnerable
to claims by the true owner to recover his property. If the thief has no title in the property, I cannot see how he can become a trustee of it for the true owner: the owner retains the legal and beneficial title."
"In myview,
the position immediately after the making by Mr Mimran of each of his loans to Westland was that the money advanced became Westland's property both legally and beneficially: that is what Mr Mimran intended should happen and that is what did happen. In place of his money, Mr Mimran acquired a chose in action in the nature of a right to claim repayment by Westland of the money so advanced. The money itself became Westland's to do as it liked with. I reject the argument that in equity the money remained Mr Mimran's from the moment it was paid over."
"The effect of the registration of Mr. and Mrs. Hammond as proprietors of the freehold interest in the house must have been tovest
in them the legal fee simple, whether or not the purported signature of Mrs. Mary Steed on the transfer to them was forged. This is by
virtue
of the "statutory magic" effected by section 69 (1) of the 1925 Act, to which Ruoff & Roper refer." (Emphasis added)
The effect of the transfer to Mr Farakh Rashid
Possession in fact?
"While [MR2] does not formally accept that [Mr FarakhRashid]
has demonstrated he is in possession of the Property, the evidence is that it has been treated as an investment property in his hands and has been rented out. It follows that … [he] is to be treated as a proprietor in possession of the Property."
Illegality
"The essential difference between prescription and limitation is that in the former case title can be acquired only by possession as of right. That is the antithesis of what is required for limitation, which perhaps can be described as possession as of wrong."
"… a solicitor he approached said that he had insufficient evidence to support his claim." (para [10]).
"… a solicitor hevisited
on a free consultation was not interested without documentary proof for his contentions. … He was told by the solicitor he
visited
that the possession of keys to the Property was insufficient…. As a result he was in no position to press matters or, it seems, seek Legal Aid for further investigation." (para [14])
"[MR2's] description of being brushed off by … a solicitor on the basis there were no documents in corroboration [is] believable and an unlikely invention." (para [29])
"People arrange their affairs on the basis that stale claims cannot be pursued. Insurance cover is taken out and maintained on the basis that claims against the insured must be timeously brought. Organisations maintain document destruction policies fashioned according to limitation periods. Businesses raise finance and pay dividends on the basis that their accounts can be settled. Householders enjoy their gardens on the basis that long possession will not be disturbed. In addition the state has an interest in the principle of legal certainty. As Plumer MR said in Cholmondeleyv
Clinton (1820) 2 Jac & W 1, 140:
"The statute is founded upon the wisest policy, and is consonant to the municipal law of every country. It stands upon the general principle of public utility. Interest reipublicae ut sit finis litium, is a favorite and universal maxim. The public have a great interest, in having a known limit fixed by law to litigation, for the quiet of the community…""
"A limitation period should not be seen therefore as an arbitrary cut off point unrelated to the demands of justice or the general welfare of society. It represents the legislature's judgment that the welfare of society is best served by causes of action being litigated within the limitation period, notwithstanding that the enactment of that period may often result in a good cause of action being defeated."
"The principle is not that the limitation defence is denied to people who were dishonest. It plainly applies to claims based on ordinary common law fraud. The principle is that the limitation period is denied to fiduciaries. But dishonest assisters are not fiduciaries."
Result
Lady Justice Eleanor King and Lord Justice Peter Jackson: