IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(His Honour Judge Boggis QC)

Royal Courts of Justice
Strand
London WC2
Thursday, 19th October 2000

 

B e f o r e :

LORD JUSTICE NOURSE

(Vice President of the Court of Appeal, Civil Division)

LORD JUSTICE MUMMERY and

LORD JUSTICE RIX

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SHEILA EDNA COLLINGS

(Widow) Claimant

(Respondent)

-v-

MARK WILLIAM LEE First Defendant

(Otherwise Martin Nathen Styles)

HALIFAX PLC Second Defendant

(Appellant)

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Mr Edward Nugee QC and Mr Colin Braham (instructed by Messrs Dibb Lupton Alsop, Leeds) appeared on behalf of the Appellant Second Defendant.

Mr James Behrens (instructed by Teresa Evans Solicitors, Epsom, Surrey) appeared on behalf of the Respondent Claimant.

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J U D G M E N T

(As Approved by the Court)

 

1. Lord Justice Nourse: This appeal raises a question under section 70 of the Land Registration Act 1925, to which the marginal note is "Liability of registered land to overriding interests". So far as material, the section provides:

"(1)All registered land shall . . . . be deemed to be subject to such of the following overriding interests as may be for the time being subsisting in reference thereto . . .

(g)The rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where enquiry is made of such person and the rights are not disclosed."

2. Here it is agreed both that the person who claims the interest or right was in actual occupation of the land at the material time and that no enquiry was made of her. The question is whether her interest or right is one which falls within section 70(1)(g).

3. The question arises on an appeal from a decision of His Honour Judge Boggis QC, sitting as a judge of the Chancery Division, on an application under RSC, Order 14A. There having been no trial, the facts must be taken from the pleadings, the affidavit in support of the application and the exhibits thereto. Since they are undisputed, they can be stated without reference to their source.

4. In 1991 the claimant in the action, Sheila Edna Collings, was living with her late husband, Frank Herbert Collings, at 6 Strawberry Hill Road, Twickenham, Middlesex, a freehold property registered at the Land Registry. The property was registered in their joint names and was held by them as beneficial joint tenants. In or about June of that year Mr and Mrs Collings, being anxious to sell the property and move out of London, were introduced to the first defendant, Mark William Lee, who claimed to be in the business of buying and selling properties. He agreed to find a purchaser for the property and to assist Mr and Mrs Collings in finding a new house for their occupation.

5. Between the beginning of July and the end of August 1991 the first defendant (1) obtained payment of a sum of £6,500 from Mr and Mrs Collings, professedly in respect of his fees for assisting them in finding a suitable buyer for the property and a new house for them to occupy; (2) represented to Mr and Mrs Collings that he had managed to effect a sale of the property to one Martin Nathen Styles at a price of £250,000; (3) obtained from Mr and Mrs Collings in connection with the alleged sale the title deeds to the property (principally, it may be assumed, the land certificate); (4) procured their execution of a transfer of the property expressed to be in favour of Martin Nathen Styles; and (5) obtained payment of a further sum of £26,000 from Mr and Mrs Collings, professedly to be used as a deposit in respect of a new house for their occupation.

6. The first defendant’s representation that he had managed to effect a sale of the property to Martin Nathen Styles was fraudulent in that that name was an alias for the first defendant himself, who had not effected and had no intention of effecting a sale to a third party. Mr and Mrs Collings never received any part of the alleged sale price of £250,000, nor were the sums of £6,500 and £26,000 or any part of them repaid. In September 1992, at Isleworth Crown Court, the first defendant pleaded guilty to various offences of obtaining properties by deception, including 6 Strawberry Hill Road, and was sentenced to a total of five years imprisonment.

7. Accordingly, the reality of the transaction was that the property was transferred not to a third party called Martin Nathen Styles at a price of £250,000 but to the first defendant himself for no consideration. The transfer was executed by Mr and Mrs Collings on 27th August 1991. On 28th October 1991 the first defendant, under the name of Martin Nathen Styles, was registered as the proprietor of the property at the Land Registry. On or about 10th January 1992, under the same name, he executed a legal charge of the property in favour of Leeds Permanent Building Society, now the second defendant, Halifax Plc ("the Halifax"), to secure repayment of an advance to him of £125,030. On 16th January 1992 the Halifax was registered at the Land Registry as the proprietor of the charge. At all material times prior to 31st January 1992 Mr and Mrs Collings were in actual occupation of the property. It appears likely that, if enquiry had been made of them during that period, the first defendant’s fraud would have been exposed. But no such enquiry was made by or on behalf of the Halifax. On Mr Collings’ death the whole of the beneficial interest in the property vested in Mrs Collings by survivorship, subject to the legal charge, if effective.

8. The first defendant’s fraudulent conduct towards both Mr and Mrs Collings and the Halifax became apparent in May 1992 as a result of enquiries made by the police. On 12th October 1992 solicitors acting for Mr and Mrs Collings wrote to the first defendant in prison, stating that they were instructed to apply for rectification of the register on the ground that the transfer to him had been fraudulent. There was then an unexplained delay of nearly five years before the writ in the action claiming rectification of the register against both the first defendant and the Halifax was issued on 5th August 1997.

9. The first defendant has taken no part in the proceedings. The Halifax, while conceding that Mrs Collings has at all times had a right to set aside the transfer of the property as against the first defendant, denies that her right is an overriding interest within section 70(1)(g) of the 1925 Act. On 3rd March 1999 Judge Boggis determined that Mrs Collings’ right was an overriding interest and that, as such, it was binding on the Halifax. He ordered rectification of the register accordingly. Having granted the Halifax permission to appeal, he stayed the order for rectification pending the conclusion of the appeal.

10. Before the judge and during the greater part of the hearing in this court the case was argued on a common assumption that as at 16th January 1992, when the Halifax was registered as the proprietor of the legal charge, Mr and Mrs Collings had no more than a right to set aside the transfer dated 27th August 1991 as against the first defendant. In other words, it was assumed that they did not have an equitable interest in the property. In my judgment that assumption was incorrect. On the facts of the case as I have stated them, and granted that the registration of the first defendant as the proprietor of the property was effective to vest the legal estate in him, it is clear that he at all times held it on trust for Mr and Mrs Collings. If that is the correct view, it necessarily follows that on 16th January 1992 they had an equitable interest in the property, unquestionably an overriding interest within section 70(1)(g).

11. In the first instance it is convenient to consider the question as one of principle and without reference to authority. The first and foremost consideration is that Mr and Mrs Collings constituted the first defendant their agent for the purpose of finding a buyer for the property and, subsequently, of transferring it to a third party called Martin Nathen Styles at a price of £250,000. Accordingly, at any rate from the time that he obtained payment of the sum of £6,500, the first defendant owed general fiduciary duties to Mr and Mrs Collings and, from the time that he obtained the title deeds, a particular fiduciary duty to procure its transfer to a third party called Martin Nathen Styles at a price of £250,000.

12. The first defendant did not procure the property to be transferred to a third party called Martin Nathen Styles at a price of £250,000. Instead, he caused it to be transferred to himself for no consideration and then procured the registration of himself as the proprietor thereof at the Land Registry. In taking those steps he acted in breach of his authority as Mr and Mrs Collings’ agent, in breach of his particular fiduciary duty to them and in contravention of their expressed intention that the property should be transferred to a third party called Martin Nathen Styles at a price of £250,000.

13. It was implicit in the submissions on both sides, his fraud notwithstanding, that the effect of the material provisions of the Land Registration Act 1925 was that the legal estate in the property became vested in the first defendant on his registration as the proprietor thereof. However, it is clear in principle that neither the transfer nor the registration was effectual to divest Mr and Mrs Collings of their beneficial interest in the property. The first defendant held it on trust for them. Whether the trust should be characterised as implied, resulting or constructive is a matter of no importance. The first defendant having acted as he did, the plain fact is that no court of equity could allow him to assert a beneficial interest in the property as against Mr and Mrs Collings.

14. At this stage I should point out that the foregoing view of the transaction only began to emerge in exchanges between Lord Justice Mummery and counsel when the second of the two days of the hearing (10th and 11th July 2000) was well advanced. Mr Nugee QC, for the Halifax, justifiably complained that the point had not been taken on behalf of Mrs Collings. However, recognising that it was a pure point of law, he very properly did not object to its being taken even at that late stage. His difficulty was that he was not fully prepared to meet it. Accordingly, on 26th and 27th July we received further written submissions from Mr Nugee and Mr Braham on behalf of the Halifax and from Mr Behrens on behalf of Mrs Collings, both sides expressing the hope that it would not be necessary for the court to reconvene in order to hear further oral submissions.

15. The essence of the argument advanced by Mr Nugee and Mr Braham is that the transfer of the property to the first defendant was not void, but voidable by Mr and Mrs Collings; that unless and until they avoided it they had no subsisting equitable interest in the property, their right to avoid it being a "mere equity"; and that such a right does not fall within section 70(1)(g). In support of that argument they rely mainly on three authorities, which I list in date order: Daly v. Sidney Stock Exchange (1986) 160 CLR 371, 388-390, per Brennan J; Lonrho Plc v. Fayed (No 2) [1992] 1 WLR 1, 11H-12B, per Millett J; and Twinsectra Ltd v. Yardley [1999] Lloyds Rep Banking 438, 461, per Potter LJ.

16. In my judgment the authorities relied on by Mr Nugee and Mr Braham, so far from casting doubt on the view of the transaction above propounded, confirm it. The basis of their argument is the principle stated by Millett J in Lonrho v. Fayed (No 2) (supra):

"A contract obtained by fraudulent misrepresentation is voidable, not void, even in equity. The representee may elect to avoid it, but until he does so the representor is not a constructive trustee of the property transferred pursuant to the contract, and no fiduciary relationship exists between him and the representee - see Daly v. Sidney Stock Exchange Ltd (1986) 160 CLR 371, 387 - 390 per Brennan J."

17. The rationale of the principle, as it applies to a transfer of property, is that, even where the transfer is obtained by fraudulent misrepresentation, the transferor nevertheless intends that the whole legal and beneficial ownership in the property shall pass to the transferee. But that was not this case. Mr and Mr Collings did not intend to transfer the property to the first defendant and they did not intend to transfer it for no consideration. The first defendant acquired the property without their knowledge and consent and in breach of his fiduciary duty to them. The equitable interest remained vested in Mr and Mrs Collings.

18. The distinction between the two situations is recognised in the two further authorities cited. Thus in Daly, at pp. 389-390, Brennan J said:

"There is no analogy between the present case and one in which a constructive trust is imposed on money or other property which is acquired by a fiduciary in breach of his duty but not pursuant to a voidable contract. In such a case there is no question of avoiding the contract before the constructive trust is imposed."

19. In Twinsectra Potter LJ said, at p. 461:

". . . the distinction of importance here is that between non-consensual transfers and transfers pursuant to contracts which are voidable for misrepresentation. In the latter case, the transferor may elect whether to avoid or affirm the transaction and, until he elects to avoid it, there is no constructive (resulting) trust; in the former case, the constructive trust arises upon the moment of transfer."

20. Other authorities, not cited to us, are to the same effect. In Agip (Africa) Ltd v. Jackson [1990] Ch. 265, 290 Millett J had to deal with the case, analogous to the present, of a senior and responsible officer of a company who is entrusted with possession of the company’s property and then misapplies it for his own benefit:

"There was clearly a fiduciary relationship between Mr Zdiri and the plaintiffs. Mr Zdiri was not a director nor a signatory on the plaintiffs’ bank account, but he was a senior and responsible officer. As such he was entrusted with possession of the signed payment orders to have them taken to the bank and implemented. He took advantage of his possession of them to divert the money and cause the separation between its legal ownership which passed to the payees and its beneficial ownership which remained in the plaintiffs. There is clear authority that there is a receipt of trust property when a company’s funds are misapplied by a director and, in my judgment, this is equally the case when a company’s funds are misapplied by any person whose fiduciary position gave him control of them or enabled him to misapply them."

21. That passage was approved by this court in Heinl v. Jyske Bank (Gibraltar) Ltd [1999] Lloyds Rep Banking 511. Reference may also be made to Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1986] Ch. 246, a decision of this court based both on ordinary principles of agency and on constructive trust.

22. The position being so plain, it has not become necessary for the court to reconvene in order to hear further oral submissions. I have come to a clear conclusion, although by a different route, that the decision of Judge Boggis ought to be affirmed. It thus becomes unnecessary to examine the more general question whether a mere equity, such as a right to avoid a transfer of registered land, which, though procured by fraudulent misrepresentation, is otherwise valid and effective, does or does not fall within section 70(1)(g). Although Mr Nugee advanced a powerful argument in support of the view that it does not, it is inappropriate that such a question should be examined in a case in which the subject matter of the enquiry has been identified as a creature of a different species.

23. I would dismiss this appeal.

 

24. Lord Justice Mummery: I agree.

 

25. Lord Justice Rix: I also agree.

ORDER: appeal dismissed with costs; legal aid assessment of the respondent claimant’s costs; permission to appeal to the House of Lords refused; counsel to lodge an agreed minute of order.