England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice
		28 August 1992

JUSTICE FERRIS:

This litigation arises out of a mistake admitted to have been made by the Land Registry. Fortunately such mistakes are a rare occurrence. When they do happen they can give rise to difficult questions, as has happened here.

The facts, which are not in dispute, are as follows. In 1976 Mr. and Mrs. Jarvis purchased a freehold property known as Spinners Corner, 10, Blyton Close, Beaconsfield, Buckinghamshire, to which I shall refer as "Spinners Corner." Shortly afterwards they were registered at the Land Registry as the proprietors of Spinners Corner with absolute title under title No. BM 52804. The charge certificate contains no restriction in Form 62 concerning dispositions by the survivor of joint proprietors, which indicates that at the time of registration the Land Registry must have been informed that Mr. and Mrs. Jarvis were joint tenants beneficially. That they were indeed such joint tenants has been confirmed during the course of the proceedings by the production of a copy of the conveyance to them.

In June 1990 Mr. and Mrs. Jarvis were still the proprietors of Spinners Corner, subject to a charge in favour of Barclays Bank registered in 1987 and subject also to certain restrictive covenants which have no relevance to these proceedings, but otherwise free from incumbrances. On 5 June 1990, in proceedings in the Queen's Bench Division, Mr. and Mrs. Clark, who are the plaintiffs in this action, obtained judgment against Mr. and Mrs. Jarvis for the sum of £200,000 plus £14,444.66 interest and £227.75 costs, making a total of just under £215,000. When this judgment remained unsatisfied the plaintiffs applied for and were granted on 3 August 1990 a charging order nisi charging Mr. and Mrs. Jarvis's interest in Spinners Corner with the amount due under the judgment in their favour. On 16 August 1990 the plaintiffs registered at the Land Registry a caution in order to protect this charging order. On 21 November 1990 the charging order in favour of the plaintiffs was made absolute and on 29 November a further caution was registered in respect of the charging order absolute.

On about 25 June 1990 Mr. Peter Edward Jones, who has been joined as second defendant since the proceedings were commenced, advanced a sum of about £92,000 to Mr. and Mrs. Jarvis. On 19 November 1990 he issued a writ against Mr. and Mrs. Jarvis claiming relief intended to establish that the advance made by him was secured by a legal charge of Spinners Corner which was said to have been lost. That action was compromised on 7 December 1990 when Mr. and Mrs. Jarvis executed a legal charge of Spinners Corner in favour of the second defendant to secure the advance which he had made and interest thereon. That legal charge was presented for registration at the Land Registry by the second defendant's solicitors on 11 December 1990.

It was then that the mistake on the part of the Land Registry occurred. What should have happened was that, on presentation of the second defendant's charge for registration, the Land Registry ought to have given notice to the plaintiffs under s.55 of the Land Registration Act 1925 and rule 218 of the Land Registration Rules 1925 (S.R. & O. 1925 No. 1093 (L. 28)). On receipt of that notice the plaintiffs would have had an opportunity to object to the registration of the charge in favour of the second defendant. Nobody doubts that they would have availed themselves of that opportunity. The plaintiffs maintain that they could and would have objected to the registration of the charge in favour of the second defendant unless the charging order nisi which they had obtained before the date of the second defendant's charge was given priority over the second defendant's charge by the registration of a notice in respect of it pursuant to s.48 and s.49 of the Act. The plaintiffs contend that if they had taken this course they would have been given priority by this means, but this is disputed by the Chief Land Registrar ("the registrar") on grounds which I shall come to.

However this matter was never put to the test. Unfortunately the Land Registry failed to serve the requisite notice on the plaintiffs, with the result that they remained in ignorance of the charge in favour of the second defendant. That charge was duly registered, the registration being effective on 11 December 1990, the date when it was lodged for registration. On the face of the register the second defendant's charge has effect subject only to the charge in favour of Barclays Bank Plc. and has priority over any equitable charge created in favour of the plaintiffs by the charging order absolute obtained by them. However this question of priority is also disputed by the registrar.

In August 1991, thinking that they had a charge over Spinners Corner which had effect subject only to the charge in favour of Barclays Bank Plc., the plaintiffs took steps to sell Spinners Corner. They did not get so far as to obtain an order for sale, but they did obtain an offer of £355,000, which they desired to accept. This amount would have been sufficient to discharge the amount due to Barclays Bank Plc. (including a contingent liability due to the bank) and leave a significant sum available towards satisfaction of the judgment obtained by the plaintiffs. In connection with the intended sale the solicitors for the plaintiffs obtained an office copy of the entries on the register. They then discovered that the charge in favour of the second defendant had been registered and apparently had priority. The Land Registry immediately accepted that a mistake had been made, for which it apologised. But it contended that, for reasons which I shall have to consider, the plaintiffs had suffered no loss.

In order to obtain the benefit of what was considered to be the advantageous offer secured by the plaintiffs; Barclays Bank Plc. took over the sale as first mortgagee and duly completed it. The bank has satisfied the debt which is unconditionally due to it and has retained a further sum in respect of its contingent claim. A significant balance remains, which has been placed in an account in the joint names of the solicitors to the plaintiffs and the second defendant. It is clear, however, that the proceeds of sale will be insufficient to satisfy the amounts due to all three chargees. If the second defendant's charge has priority over the charging order in favour of the plaintiffs and the contingent debt due to the bank has to be paid the plaintiffs' debt may remain wholly unsatisfied. On any view either the second defendant or the plaintiffs will suffer a substantial deficiency, the burden of such deficiency falling most heavily on whichever of them does not have priority over the other.

In these circumstances the plaintiffs seek, in these proceedings, a declaration that they are entitled to an indemnity under s.83 of the Land Registration Act 1925 in respect of the loss they have suffered by reason of the denial of the priority over the second defendant which, they say, they have lost as a result of the Land Registry's failure to serve notice pursuant to the caution. The claim to an indemnity is made under s.83(2) of the Land Registration Act 1925 which provides:

"Where an error or omission has occurred in the register, but the register is not rectified, any person suffering loss by reason of such error or omission, shall, subject to the provisions of this Act, be entitled to be indemnified."

The error or omission which has occurred, about which there is no dispute, is the registration of the second defendant's charge without the requisite notice having been served on the plaintiffs. The register has not been rectified, in that the second defendant's charge remains on the register without any entry having been made which accords priority to the plaintiffs' charging order.

In response the registrar has disputed this claim on three grounds which can be identified as (1) the charging order point, (2) the caution point and (3) the rectification point. I will explain these three grounds in more detail as I consider them. As the caution point affected the interests of the second defendant, the originating summons was amended by adding him as second defendant and claiming a declaration as to the priorities inter se of the charging order and the second defendant's charge.

(1) The charging order point

There can be no question of the plaintiffs' charging order having priority over the second defendant's charge unless the effect of that order was to give the plaintiffs a charge over the legal estate in Spinners Corner, as distinct from a charge over the beneficial interests of Mr. and Mrs. Jarvis in the proceeds of sale of Spinners Corner. The registrar contends that the order had only the latter effect; the plaintiffs contend that it had the former. In order to evaluate these rival contentions it is necessary to consider the terms of s.2(1) of the Charging Orders Act 1979, under which the charging order obtained by the plaintiffs was made. It will also be necessary to consider the predecessor of that Act and some of the decisions made under it.

S.2(1) of the Act of 1979 so far as material provides:

"Subject to ss..(3) below, a charge may be imposed by a charging order only on - (a) any interest held by the debtor beneficially - (i) in any asset of a kind mentioned in ss..(2) below, or (ii) under any trust; or (b) any interest held by a person as trustee of a trust ('the trust'), if the interest is in such an asset or is an interest under another trust and … (ii) the whole beneficial interest under the trust is held by the debtor unencumbered and for his own benefit, or (iii) in a case where there are two or more debtors all of whom are liable to the creditor for the same debt, they together hold the whole beneficial interest under the trust unencumbered and for their own benefit."

Ss..(2) provides that the assets referred to in ss..(1) are, inter alia, land. Ss..(3) has no relevance to this case. For the sake of simplicity I will, in referring to the Act, omit references to s.2(1) and describe the material provisions as paragraphs (a)(i) and (ii) or (b)(ii) and (iii) respectively.

The registrar contends that the order obtained by the plaintiffs was made under paragraph (a)(ii) and that, as it charges only the Jarvises' interests under the statutory trust for sale arising by virtue of their joint ownership of Spinners Corner, it creates no interest in land capable of being protected on the register by a notice or other entry which would give it priority over the charge in favour of the second defendant, which is undeniably a charge over the legal estate. The argument for the plaintiffs is that the charging order was made either under paragraph (a)(i) or under paragraph (b)(iii) and that on either basis it gives rise to a charge over the land, as distinct from the proceeds of sale. It is accepted on their behalf that the charge was equivalent to an equitable, not a legal, charge because that is what s.3(4) of the Act of 1979 provides. But at the stage at which the plaintiffs ought to have been given notice pursuant to the caution they had registered, the second defendant's charge took effect in equity only (see s.106(4) of the Land Registration Act 1925), because it had not yet been registered. Accordingly the contest at that stage would have been between two charges which fell to be treated as equitable charges and the plaintiffs' charge, being first in time, ought to have been accorded priority. The latter part of the argument for the plaintiffs is accepted by all parties. The dispute is concentrated on the first part. In essence there are two separate questions, namely (a) whether, in a case where land is vested in joint proprietors and is thus held on a statutory trust for sale, a charging order on the land can be made under paragraph (a)(i); and (b) if a charging order could not be made under paragraph (a)(i) in such a case, ought the charging order which was obtained by the plaintiffs to be regarded as made under paragraph (a)(ii) or paragraph (b)(iii)?

(a) Can a charging order on land held by joint proprietors be made under paragraph (a)(i)?

The predecessor of the Charging Orders Act 1979 was s.35 of the Administration of Justice Act 1956. This s.empowered the court for certain purposes:

"by order [to] impose on any such land or interest in land of the debtor as may be specified in the order a charge for securing the payment of any moneys …"

In Irani Finance Ltd. v. Singh [1971] Ch. 59 registered land was conveyed to the two defendants as legal and equitable joint tenants. Subsequently, on an application by the plaintiff, the court purported to make an order charging the first defendant's interest in the land with the amount due under a judgment obtained against him; and on a subsequent date the court purported to make a similar order charging the second defendant's interest in the land with the amount due under a separate judgment for a different debt obtained against him. On the status of the plaintiff under the charging orders being called into question it was held that the defendants individually had no interest in land capable of being made the subject of a charging order under s.35 of the Act of 1956. All that each of them had was an interest in the proceeds of sale of the land, which was not enough to satisfy the words of the section.

A similar point came before the court in National Westminster Bank Ltd. v. Allen [1971] 2 Q.B. 718. That case was like Irani Finance Ltd. v. Singh [1971] Ch. 59 in that land was vested in the defendants as joint tenants legally and beneficially; but the judgment obtained by the plaintiff was a single judgment obtained against the defendants jointly in respect of a debt for which they were jointly liable. Waller J. was able to distinguish the Irani Finance case on the ground that, on the facts of that case, the charging orders could have effect, if at all, only as charges upon the interests of the defendants in the proceeds of sale, whereas in the case before him a charging order was sought on the land itself, the legal estate in which was vested in the defendants jointly on behalf of themselves beneficially, and was to secure a judgment debt for which the defendants were jointly liable.

The Act of 1979 was passed in order to give effect to the recommendations of the Law Commission embodied in a Report on Charging Orders (1976) (Law Com. No. 74) (Cmnd. 6412). In that report the Law Commission generally expressed approval of National Westminster Bank Ltd. v. Allen [1971] 2 Q.B. 718 and recommended that the power to grant charges should be extended in a number of respects. These include giving power to charge beneficial interests under trusts in the cases which now fall within paragraph (a)(ii) (which would include a case of the Irani Finance Ltd. v. Singh type) and power to charge the trust property itself in the cases which fall within paragraph (b).

On behalf of the plaintiffs Mr. Nugee contended that, before the Act of 1979 was passed, a charging order on Spinners Corner could properly have been made under s.35 of the Act of 1956, because the case would have been indistinguishable from National Westminster Bank Ltd. v. Allen. He argued that s.35 of the Act of 1956 has been substantially re-enacted as paragraph (a)(i). Paragraph (a)(ii) and paragraph (b) give effect to the extended powers which the Law Commission thought that the court should have, but the plaintiffs had no need to invoke these powers and have not done so. The order which they have obtained should be treated as creating a charge on the land, as in National Westminster Bank Ltd. v. Allen, by virtue of paragraph (a)(i). In particular it would have been necessary for the plaintiffs to resort to paragraph (b)(iii) only if a charge had been sought over trust property vested in trustees who were not themselves the judgment debtors.

Against this Mr. Crampin, on behalf of the registrar, contended that the Act of 1979 has, in enlarging the powers of the court, adopted a different scheme from that of s.35 of the Act of 1956. Paragraph (a) now deals with charges over property which is vested in a person beneficially, including a beneficial interest under a trust by virtue of paragraph (a)(ii). Paragraph (b) deals with cases where there is trust property and the charge is sought over that property, as distinct from being sought over a beneficial interest in that property. He relied on the fact that paragraph (a) extends only to "any interest held by the debtor beneficially." The word "beneficially" had no equivalent in s.35 and, said Mr. Crampin, confined paragraph (a) to property to which the debtor is entitled in the eye of equity. The Jarvises did indeed have such property, namely their beneficial interests under the trust for sale, but these come within paragraph (a)(ii), not within paragraph (a)(i). This view of the two paragraphs was, he said, consistent with the language of paragraph (b)(ii) and (iii), under which a charge can be created over trust property only where the interest of the debtor is unencumbered. If Mr. Nugee were right a charge could be created over trust property under paragraph (a)(i) in a case of the present kind even where the beneficial interests of the debtors are encumbered. The legislature cannot have intended that this should be so merely because the beneficiaries and the trustees happen to be the same persons (so equating the circumstances to those of National Westminster Bank Ltd. v. Allen [1971] 2 Q.B. 718) when, in a case where they are different persons, paragraph (b)(iii) would not enable it to be done. Mr. Crampin emphasised that his argument did not in any way mean that the legislature has superseded National Westminster Bank Ltd. v. Allen. The jurisdiction which was there exercised as continued, in extended form, in paragraph (b)(iii) (although Mr. Crampin went on to say that this jurisdiction had not been invoked by the plaintiffs).

Mr. Crampin argued that the word "debtor" in paragraph (a) means debtor in the singular, the general rule to the contrary in the Interpretation Act 1978 being excluded by the context. I do not feel able to accept this part of Mr. Crampin's submissions. I do not see why, in a case where there is no express or implied trust (e.g. where government stock is vested in joint debtors jointly), there should be no jurisdiction to grant a charging order under paragraph (a)(i). But I accept the rest of Mr. Crampin's submissions. In my judgment, in a case where there is a trust, including a statutory trust of the kind which exists when land is vested in joint proprietors, the court has no jurisdiction to make a charging order over the trust property by virtue of paragraph (a)(i). If the relevant conditions are satisfied, it has jurisdiction to grant a charging order over the trust property by virtue of paragraph (b). If the relevant conditions are not satisfied, the only charging order that can be made is one over the beneficial interest of a debtor pursuant to paragraph (a)(ii).

(b) Ought the charging order that was obtained by the plaintiffs to be regarded as made under paragraph (a)(ii) or paragraph (b)(iii)?

It is not disputed by the registrar that, on the facts of this case, there was jurisdiction to make a charging order under paragraph (b)(iii) at the time when the plaintiffs' application for a charging order came before the master. It was also accepted that a charging order on the land under paragraph (b)(iii) would have been much more beneficial to the plaintiffs than a charging order on the respective interests of the Jarvises in the proceeds of sale under paragraph (a)(ii). It was, however, contended on behalf of the registrar that what the plaintiffs obtained was the second, not the first. In order to evaluate this contention it is necessary to consider the terms of the plaintiffs' application and of the orders which they obtained.

The application for a charging order was, in accordance with the rules, made ex parte, without there being a summons or other initiating document. The application was founded upon an affidavit sworn by a Mr. Merrick, a trainee solicitor with the firm representing the plaintiffs. In that affidavit Mr. Merrick referred to the judgment obtained by the plaintiffs and stated that "It is sought to impose a charge on the freehold land known as Spinners Corner …" He gave particulars of the registered title and said that he was informed and verily believed that the Jarvises "are the beneficial freehold owners of the said property." He mentioned certain creditors of the Jarvises of whom he was aware and concluded by asking that "an order may be made imposing a charge on the said property of the defendants." The order, which was made on 3 August 1990 referred to the affidavit of Mr. Merrick, from which it appeared that the plaintiffs had an unsatisfied judgment and that the Jarvises had "a beneficial interest in the asset specified in the schedule hereto." It was then directed that, until a further hearing fixed for 21 November 1990, "the defendants' interest in the said asset" should stand charged with the payment of the amount due under the judgment, with interest and costs. In the schedule to the order the asset was described as "Spinners Corner … registered at H.M. Land Registry under title No. BM 52804." On 21 November 1990 the matter came before the court again. It seems that no one sought to show cause why the charging order should not be made absolute. It was then ordered that "the interests of the defendants in the assets specified in the schedule hereto" should stand charged with the amount due under the judgment and interest and costs. The schedule to this order was in the same terms as the schedule to the order of 3 August.

On behalf of the plaintiffs Mr. Nugee argued that it was manifest that what had been charged was the land known as Spinners Corner, not merely the Jarvises' beneficial interests in the proceeds of sale of that land. Mr. Merrick had, in his affidavit, asked for a charging order "on the freehold land" and he had said (albeit on the basis of information from an unidentified source) that the Jarvises were the beneficial freehold owners of such land. The masters who had made first the order nisi and then the order absolute must have intended to make the orders asked for and the orders which they had made were appropriate for this purpose. Although both orders are expressed in terms of charging the Jarvises' interest (or, in the case of the order absolute, interests) in the asset described in the schedule, that follows from the language of s.2 of the Act of 1979, for both paragraph (a) and paragraph (b) empower the court to grant a charging order only upon an "interest" of a particular kind. Moreover this language accords with that of Forms 75 and 76 in Appendix A to the Rules of the Supreme Court, the use of which is made mandatory for charging orders nisi and absolute respectively by R.S.C., Ord. 50, rr.1(2) and rr.3(2).

Against this Mr. Crampin, on behalf of the registrar, pointed out that once it has been established, as I have held, that a charging order could not have been made under paragraph (a)(i), Order 50 lays down special requirements. The scheme of Order 50 is, by rules 1(2), 2 and 3, to lay down the procedure applicable to the making of a charging order in respect of a judgment debtor's beneficial interest (i.e. under paragraph (a) of s.2(1)). Where a charging order is sought in respect of an interest held by a trustee (i.e. under paragraph (b)) rule 4 applies. Under this rule the procedure applicable to beneficial interest cases is modified. In particular, instead of verifying the judgment debtor's beneficial ownership of the interest to be charged, the affidavit in support of the application is to state the ground on which the application is based and is to verify the material facts; on making the order nisi the court is to give directions for service of the order and affidavit in support on such of the trustees and beneficiaries as may be appropriate; and Forms 75 and 76 are to be modified so as to indicate that the interest to be charged is held by the debtor as trustee or, as the case may be, that it is held by a trustee (to be named in the order) on trust for the debtor beneficially. Moreover the note to the Schedule in Form 75 (which applies also to the Schedule to Form 76) directs that there shall be described therein, with full particulars, the relevant "land, securities, funds or trust."

The result of these requirements, according to Mr. Crampin, is that a charging order on Spinners Corner could only have been made under paragraph (b)(iii) if (a) the court had before it evidence to satisfy it that the Jarvises together held the whole beneficial interest in Spinners Corner unencumbered and for their own benefit; (b) Mr. Merrick's affidavit had contained a statement that the application was made on the ground specified in paragraph (b)(iii) and had verified the material facts; (c) the master had at least considered whether to require the order nisi and affidavit in support to be served on the trustees and beneficiaries; (d) the order had been expressed in a way which indicated that the interest charged was held by trustees named in the order; and (e) the schedule to the order had described with full particulars the relevant trust. As none of these requirements was properly satisfied the order, it was submitted, cannot have been made under paragraph (b)(iii) and must have been made under paragraph (a)(ii). But on that basis it can only have been an order charging the interests of the Jarvises in the proceeds of sale of Spinners Corner.

While I see the force of Mr. Crampin's submissions I am unable to accept them for three reasons. First I have no doubt that what was applied for on behalf of the plaintiffs and what the masters who made the orders intended to do was to charge Spinners Corner as such, not to charge interests in the proceeds of sale of Spinners Corner. To allow this manifest intention to be defeated by reason of some non-compliance with the relevant procedures would not, in my judgment, represent a proper approach to an exercise which, in essence, is one of construing the court's own orders. Had I felt greater doubt about the matter I would have given an opportunity for an application to be made to amend the orders under the slip rule, but in my judgment this is not necessary.

Secondly any failure to comply with the requisite procedure was not, in my view, of any great seriousness. While Mr. Merrick's affidavit was not, I think, prepared with the requirements of paragraph (b)(iii) in mind, it does, it seems to me, satisfy the substance of those requirements. Where a trust arises by virtue of the impact of statute upon co-ownership it is difficult to see what more could be said about the trust than is said or is implicit in Mr. Merrick's affidavit. While Mr. Merrick's affidavit does not refer to paragraph (b)(iii), it does, I think, verify all the material facts save possibly that the interests of the Jarvises were free from encumbrances. But a party seeking a charging order will seldom have affirmative evidence about this and a statement in the affidavit to the effect that the deponent is not aware of any encumbrance on the beneficial interests is likely to be all that is to be expected. I see nothing wrong in the court acting on such a statement unless and until the contrary appears. To do otherwise might stultify paragraph (b)(iii), because an applicant would be unable in many cases to show that his application comes within it. But if this is right I cannot think that the absence of such a statement in the affidavit in support amounts to a reason for treating the order as being different in its effect from what I would otherwise have supposed. Moreover it may be said to be implicit in Mr. Merrick's statement that he believed the Jarvises to be the beneficial freehold owners and that he believed them to be the only persons having beneficial interests under the relevant trusts, to the exclusion of any encumbrancers. As to service on the trustees and beneficiaries, service on the Jarvises was in any event required by R.S.C., Ord. 50, r.2(1)(a) (applied to a trustee case by virtue of rule 4(1)) and the master would not have directed the order or affidavit to be served on anyone else even if his attention had been drawn to rule 4(3). In respect of the last two requirements identified by Mr. Crampin, neither order identifies the Jarvises as trustees or describes the relevant trust as such, but the essential information from which the nature of the trust can be ascertained is, it seems to me, contained in the order.

Thirdly it must be borne in mind that the procedural points to which Mr. Crampin drew attention are relied upon not for the purpose of supporting an argument that the orders were invalid but in support of an argument that they must be regarded as made under paragraph (a)(ii) in respect of interests in the proceeds of sale only. But the orders as drawn are not strictly in conformity with the requirements for orders under paragraph (a)(ii), for in order to comply with the note to Form 75 the relevant trust ought to have been identified in the schedule to each order. It is not therefore a case where it can be said that all problems are avoided by regarding the orders as affecting only the interests of the Jarvises in the proceeds of sale of Spinners Corner.

In my view the probability is that, so far as they addressed their minds to the point, those representing the plaintiffs and the masters from whom they obtained the orders thought that they were proceeding under paragraph (a)(i). That was not, on the view which I take of s.2(1) of the Act of 1979, something which could be done in the circumstances of this case. But if I am right in supposing that that was the basis on which the orders were made, it is clear that the intention was to charge the land, not the proceeds of sale and it is not surprising that the orders were expressed in terms which, to my mind, create a charge over the land. There was, in fact, power to charge the land under paragraph (b)(iii). In order for this power to be exercised certain additional formalities ought to have been observed, but it cannot, in my judgment, be suggested that compliance with them would have presented any difficulty or given rise to anything more than minor changes in the affidavit in support or in the orders which were in fact made. In my view it is more natural to treat the orders as having the effect which it seems to me that they were intended to have than to treat them as having a different effect.

(2) The caution point

On the footing that, as I have now held, the charging order obtained by the plaintiffs charges the land, the registrar contends that the plaintiffs have nevertheless suffered no loss as the result of the failure to give notice pursuant to their caution. (By "their caution" I mean the caution lodged on 29 November 1990 in respect of their charging order absolute. Although the caution in respect of the charging order nisi remained on the register for some time it had no substantive effect after 29 November 1990). The caution remains on the register and it is said that it has the effect that, if the second defendant were to obtain the surplus proceeds of sale not required to satisfy the charge in favour of Barclays Bank Plc., he would have to satisfy the interests of the plaintiffs as cautioners before he could take anything in satisfaction of his own charge. This contention, if it were right, would be advantageous to the plaintiffs, who would not then need to seek an indemnity from the registrar. The plaintiffs do not, however, support it. On their behalf Mr. Nugee submits that it is manifestly wrong.

The material statutory provisions in respect of cautions are as follows. By s.54(1) of the Land Registration Act 1925 it is provided:

"Any person interested under any unregistered instrument, or interested as a judgment creditor, or otherwise howsoever, in any land or charge registered in the name of any other person, may lodge a caution with the registrar to the effect that no dealing with such land or charge on the part of the proprietor is to be registered until notice has been served on the cautioner …"

The effect of a caution is stated in s.55, which provides:

"(1) After any such caution against dealings has been lodged in respect of any registered land or charge, the registrar shall not, without the consent of the cautioner, register any dealing or make any entry on the register for protecting the rights acquired under a deposit of a land or charge certificate or other dealing by the proprietor with such land or charge until he has served notice on the cautioner, warning him that his caution will cease to have any effect after the expiration of the prescribed number of days next following the date at which such notice is served; and after the expiration of such time as aforesaid the caution shall cease unless an order to the contrary is made by the registrar, and upon the caution so ceasing the registered land or charge may be dealt with in the same manner as if no caution had been lodged. (2) If before the expiration of the said period the cautioner, or some person on his behalf, appears before the registrar, and where so required by the registrar gives sufficient security to indemnify every party against any damage that may be sustained by reason of any dealing with the registered land or charge, or the making of any such entry as aforesaid, being delayed, the registrar may thereupon, if he thinks fit to do so, delay registering any dealing with the land or charge or making any such entry for such period as he thinks just."

By s.56(2) it is provided:

"A caution lodged in pursuance of this Act shall not prejudice the claim or title of any person and shall have no effect whatever except as in this Act mentioned."

For some time after the Administration of Justice Act 1956 was passed it appears to have been thought that the only means of protecting a charging order in respect of registered land made under s.35 of that Act was to lodge a caution. In Parkash v. Irani Finance Ltd [1970] Ch. 101, 110H, Plowman J. said that "the appropriate form of protection for a charging order is a caution." However s.3(3) of the Charging Orders Act 1979 amended s.49 of the Land Registration Act 1925 by providing that charging orders made under the Act of 1979 which in the case of unregistered land might be protected by registration under the Land Charges Act 1972 should be capable of protection by notice, and so have the effect mentioned in s.48 of the Act of 1925. It appears that for some time, even before the Act of 1979 was passed, the registrar had, in exercise of his discretion allowed charging orders under the Act of 1956 to be protected by registration of a notice where this was practicable: see Ruoff & Roper, Registered Conveyancing (1991), para. 35/32.

Protection of a charging order by notice is very effective, because under the joint operation of s.48 and s.49 of the Act of 1925 every proprietor of registered land and the persons deriving title under him are deemed to have notice of the charging order. However protection by notice is not often practicable, for a notice cannot be registered unless the land or charge certificate is lodged in the Land Registry and in the usual case in which a charging order is obtained the degree of co-operation necessary to bring this about is absent. But if a charging order is protected by a caution it may well be practicable to register a notice at the stage when the cautioner shows cause in response to a warning notice. By this means a party entitled to the benefit of a charging order may be able to establish priority over a party taking under a subsequent dealing. It is this that the plaintiffs would have sought to do in the present case if they had been served with the requisite notice pursuant to their caution.

The effect of a caution was considered by the Court of Appeal in Barclays Bank Ltd. v. Taylor [1974] Ch. 137. In that case the land certificate of registered land had been deposited with the bank by way of security and the bank had registered at the Land Registry a notice of deposit which, under the rules, had effect as a caution under s.54 of the Land Registration Act 1925. Subsequently the bank was granted a legal mortgage but before this had been registered the registered proprietors entered into a contract to sell the land to purchasers who lodged a caution to protect their interest as purchasers under the contract. The bank subsequently took steps to register its legal charge and notice of this application was given to the purchasers as cautioners. The purchasers claimed that the bank's charge should be registered only subject to their contract. The Court of Appeal held that the bank's unregistered mortgage and the purchasers' contract were both minor interests which took effect in equity only and that the priority between them was governed by the normal rules, the interest which was first in time having priority. In giving the judgment of the court, Russell L.J. made a number of observations which bear upon the effect of a caution, at p. 147:

"The caution lodged on behalf of the purchasers had no effect whatever by itself on priorities: it simply conferred on the cautioners the right to be given notice of any dealing proposed to be registered … so that they might have the opportunity of contending that it would be a dealing which would infringe their rights and to which the applicants for the registration were not as against them entitled. … [The purchasers'] caution did not and could not confer on their equitable entitlement or interest any priority over the bank's equitable charge …"

Later he observed:

"...counsel for [the purchasers] was quite unable to point to any provision in the statute which stated that their caution as such gave them priority in respect of their equitable interest over the earlier equitable interest of the bank under its mortgage. If such had been the intention of the legislature, it would not have been difficult for the statute to have so provided: see the express provision in s.29 on priorities between registered charges …"

The argument on behalf of the plaintiffs was that the registrar's contention concerning the plaintiffs' caution seeks to give to that caution precisely the effect on priorities which the Court of Appeal said that a caution does not and cannot have. Moreover the suggestion that the plaintiffs have priority over the second defendant is contrary to s.29 of the Act of 1925 under which:

"Subject to any entry to the contrary on the register, registered charges on the same land shall as between themselves rank according to the order in which they are entered on the register, and not according to the order in which they are created."

Looking at the register immediately after the second defendant's charge was registered, that charge ranked, it is said, subject only to the prior charge of Barclays Bank Plc. It cannot rank subject to the plaintiffs' charging order, because that charging order has not been entered on the register.

The registrar's answer to this argument is based upon s.59 of the Act of 1925 and Parkash v. Irani Finance Ltd. [1970] Ch. 101. S.59(1) provides:

"A writ, order, deed of arrangement, pending action, or other interest which in the case of unregistered land may be protected by registration under the Land Charges Act 1925 shall, where the land affected or the charge securing the debt affected is registered, be protected only by lodging a creditor's notice, a bankruptcy inhibition or a caution against dealings with the land or the charge."

As I have mentioned, s.3(3) of the Charging Orders Act 1979 now expressly permits a charging order to be protected by a notice and even before that Act was passed the registrar allowed this as a matter of discretion. However these facts do not affect the submission of the registrar, which was based on s.59(6) which provides that, subject to certain immaterial exceptions,

"a purchaser acquiring title under a registered disposition, shall not be concerned with any … order … or other document, matter, or claim (not being an overriding interest) which is not protected by a caution or other entry on the register, whether he has or has not notice thereof, express, implied, or constructive."

The argument is that where a charging order is protected by a caution or other entry on the register a purchaser is "affected by it" and that, in the context, "affected by it" means that he takes subject to it. It was submitted that this had been held to be so in Parkash v. Irani Finance Ltd. and that this view was endorsed in Megarry and Wade, The Law of Real Property, 5th ed. (1984), p. 213, footnote 88.

In Parkash v. Irani Finance Ltd. [1970] Ch. 101 the defendant obtained a charging order on registered land which it protected by lodging a caution. The plaintiff entered into a contract to purchase the land and his solicitors obtained an official search which, by an error, did not disclose the caution. The plaintiff then completed his purchase and executed a legal charge over the property. When the transfer in favour of the plaintiff and the charge executed by him were presented for registration, notice was given to the defendant as cautioner. The defendant objected to these instruments being registered until its charge had been redeemed. The registrar, in accordance with the rules, ordered that the following questions be referred to the court: (a) whether the caution should continue to have effect or be cancelled; and (b) if the caution was to continue to have effect the order of priority in which the charging order to Irani, the transfer to the plaintiff and the charge to the plaintiff's mortgagee should be entered on the register. The report of the argument shows that it was accepted on behalf of the plaintiff that, unless there was something to give priority to the transfer in his favour (which at that stage took effect in equity only by virtue of s.106 of the Land Registration Act 1925) the prior equity of Irani must prevail. It was contended that the plaintiff's transfer should have priority because the plaintiff had no notice of the interest protected by the caution and, if it were not for the caution, would have become a purchaser for value without notice. The main argument for Irani was that the ordinary doctrine of notice had no application to registered land. If it were applicable it would be in conflict with s.59. The plaintiff's mortgagee supported the plaintiff's argument and raised other arguments which do not matter for present purposes.

Plowman J. rejected the plaintiff's argument based on the absence of notice. In doing so he referred to s.59(6) and said, at p. 110:

"It is true, as was stressed in the argument before me, that what the ss..says is that a purchaser is not affected by notice, express, implied or constructive, of matters capable of protection by a caution and not so protected and that (unlike the case of a notice of lease under s.48(1) of the Act) it does not say in terms that a purchaser is affected by a notice of matters capable of protection by caution, which are so protected, but that, in my judgment, is implicit in the scheme of the Act and in the subsection."

He went on to hold first that the appropriate form of protection for a charging order is a caution (this may, it seems, have been before the registrar began to allow protection by notice); secondly that once the caution is registered the cautioner could only lose his protection in various specific ways which were not applicable to that case; and thirdly, at p. 111:

"...that therefore he does not lose it merely because a purchaser of the property does not know of its existence, even if the purchaser's ignorance is the result of a mistake of the Land Registry, short of a failure to act on an application to register the caution in the first place."

His ultimate conclusion, at p. 112, was that "Irani's caution should continue to have effect and that it takes priority over the transfer of 10 August 1967 and the charge of the same date."

I have thought it necessary to summarise Parkash v. Irani Finance Ltd. [1970] Ch. 101 in some detail because Mr. Nugee contended, on behalf of the plaintiffs, that although the reasoning of Plowman J. might appear to support the registrar's argument, this was not in fact the case. Mr. Nugee supported that part of the reasoning which rejected the argument that the principles of notice applicable to unregistered land were also applicable to registered land, in so far as this reasoning did not depend on s.59(6). That was all that was necessary to decide the case. The plaintiff could not establish that he was a purchaser of a legal estate because, at the time when the matter came before the court, he did not have the legal estate. Accordingly the contest was between two equitable interests and, in accordance with the principles subsequently applied in Barclays Bank Ltd. v. Taylor [1974] Ch. 137, the interest of Irani prevailed because it was first in time. When, at the end of his judgment, Plowman J. said that Irani's caution took priority over the transfer in favour of the plaintiff and the charge executed by him, he should be taken as meaning that the charging order protected by the caution took priority. That was, in substance the answer to the second question which had been referred to the court by the registrar. I note that Mr. Crampin sought instructions as to what entries had been made in the register pursuant to the order of Plowman J., but the answer was unhelpful as it appears that the registrar indemnified Irani and cancelled the caution, so leaving the field open for registration of the plaintiff and his mortgagee.

Mr. Nugee contended that the observations of Plowman J. on s.59(6) were unnecessary to his decision and, in so far as they suggest that a caution has, in some respects at least, an effect similar to that of a notice, they were inconsistent with s.56(2) and with the emphatic statements of the Court of Appeal in Barclays Bank Ltd v. Taylor and ought not to be followed. Parkash v. Irani Finance Ltd. [1970] Ch. 101 was cited in argument in Barclays Bank Ltd. v. Taylor [1974] Ch. 137 but was not commented upon in the judgment. In my judgment Mr. Nugee's submissions concerning Parkash v. Irani Finance Ltd. [1970] Ch. 101 are correct. I doubt whether Plowman J. intended to suggest that a caution had much the same effect as a notice. In so far as his language may suggest otherwise I must, I think, decline to apply it. If I were to do so I would, it appears to me, ignore the binding reasoning of Barclays Bank Ltd. v. Taylor [1974] Ch. 137.

There is one other argument on this part of the case which I ought to deal with. Mr. Nugee, on behalf of the plaintiffs, and Mr. Allston, on behalf of the second defendant, referred to s.20(1) of the Act of 1925 under which a disposition of a legal estate in land registered with an absolute title for valuable consideration shall, when registered, confer on the grantee the legal estate expressed to be created in the land dealt with, subject to "the incumbrances and other entries, if any, appearing on the register" and to overriding interests "but free from all other estates and interests whatsoever." It was submitted that this had the effect that the second defendant's charge took effect subject only to the restrictive covenants noted on the register and to the charge in favour of Barclays Bank Plc. Against this, Mr. Crampin, on behalf of the registrar, relied upon the words "subject to the … other entries, if any, appearing on the register" and contended that the caution was such an entry. I have no difficulty in accepting that a caution is an entry on the register for this purpose and that the second defendant's charge is "subject to" the caution. But in order to see what this means it is necessary to analyse the effect of a caution, which takes one back to the matters I have already considered. In my judgment a caution is essentially a procedure (namely the procedure prescribed by s.55 of the Act of 1925 and rules 218 to 221 of the Rules of 1925), not an interest in land. Hence, until the second defendant's charge was overreached by the sale effected by Barclays Bank Plc., the second defendant was technically subject to that procedure (although in practice it would have had no impact upon him, because the caution applied only in relation to dealings on the part of "the proprietor," namely the Jarvises, and not to dealings by the second defendant as chargee). What the caution could not and did not do, in my judgment, was to make the second defendant's charge subject to the plaintiffs' charging order.

(3) The rectification point

Shortly before the hearing of the originating summons, the registrar raised the further point that if, as I have held, the plaintiffs have an interest in the land and that interest does not already have priority over the second defendant's charge, then the proper remedy of the plaintiffs is to seek rectification of the register so as to obtain such priority, not to seek an indemnity from the registrar.

Two preliminary points call for mention in relation to this argument. First at a very early stage after the problems first came to light the plaintiffs did ask for the register to be rectified, but the registrar refused to do this. He was, of course, contending that the plaintiffs had no interest capable of being protected by notice and rectification would have been inconsistent with this contention. Secondly there is at present no application for rectification before the court. If it were appropriate leave could be given for the originating summons to be amended in such a way as to include a claim by the plaintiffs for rectification, but it would not be appropriate for this to be done without a substantial adjournment. Although all the primary facts in relation to the jurisdiction to rectify are before the court and are undisputed, the second defendant may well have evidence material to the exercise of the court's discretion to rectify which he ought to have an opportunity to deploy and which the plaintiffs may wish to answer. In Claridge v. Tingey [1967] 1 W.L.R. 134, Pennycuick J. expressed unwillingness to exercise his discretion without relevant evidence being before the court and adjourned the case before him to enable this to be done. Clearly if it came to the point I ought to take a similar course. It is, however, submitted on behalf of the plaintiffs and the second defendant that it is unnecessary to do this because it can be seen either that there is no jurisdiction to rectify or that rectification is out of the question.

The jurisdiction to rectify the register is conferred by the s.82 of the Act of 1925 in various specified cases, including:

"(h) In any other case where, by reason of any error or omission in the register, or by reason of any entry made under a mistake, it may be deemed just to rectify the register."

All parties accept that there has been an error or entry made under a mistake within this paragraph, in that the second defendant's charge has been registered without the machinery prescribed by s.55 and rules 218 to 221 of the Rules of 1925 being operated. Mr. Nugee argued that nevertheless there is now no jurisdiction to rectify the register. He pointed out that the register is a register of title to land, which means, he said, a register of the present title to land and of the incidents affecting that title. When the transfer by Barclays Bank Plc. to the purchaser was registered the cautions lodged to protect the charging order obtained by the plaintiffs were quite properly cancelled pursuant to s.34(4) of the Act of 1925, as were the entries relating to the second defendant's charge. So far as the plaintiffs and the second defendant are concerned the present entries on the register are quite correct. Moreover, on the registration as proprietors of the purchasers from Barclays Bank Plc. the registrar closed the old register of the title to Spinners Corner and made a new edition of it containing only the ss.isting entries relating to it. This he was perfectly entitled to do by rule 17 of the Land Registration Rules 1925. The ss.isting entries do not include any of the encumbrances (other than restrictive covenants) which affected Spinners Corner during its ownership by the Jarvises. Accordingly the charges in favour of Barclays Bank Plc and the second defendant do not now appear, even as cancelled entries, in the current register of Spinners Corner. The record of them is, of course, preserved in some form at the Land Registry. But Mr. Nugee submitted that there is no jurisdiction in the court to rectify a cleared and closed register.

Mr. Allston, on behalf of the second defendant, supported Mr. Nugee's general conclusion, although he put the matter somewhat differently. He relied upon the fact that the only form of rectification which would assist the plaintiffs is retrospective rectification which has effect from a time immediately before the registration of the second defendant's charge. In the case of rectification in accordance with equitable principles rectification usually, if not always, operates retrospectively. But this is not necessarily the case with rectification under s.82 of the Act. Mr. Allston drew my attention to the decision of Walton J. in Freer v. Unwins Ltd. [1976] Ch. 288. In that case the plaintiff claimed to have the benefit of a covenant preventing the defendant from carrying on a particular trade on the property which it owned and brought an action to restrain breach of this covenant.

The covenant had been imposed at a time when the title to the property was unregistered and, by an error, it was not noted on the register at the time of first registration. The defendant had in 1974 acquired the residue of an unregistered leasehold term granted in 1969, after the title was registered. Although the defendant as leaseholder was, in principle, bound by covenants affecting the freehold, it had taken the precaution of examining the freehold title before purchasing the lease and had discovered no mention of the covenant. Accordingly it had a complete defence to the action. The plaintiff's solicitors then complained of the error to the Land Registry which rectified the register by opening a new edition which contained in the charges register a note of the covenant which was expressed to have been registered on 28 April 1975. This was treated as an effective entry on the register, although the judge clearly had doubts whether it ought to have been made. The plaintiff then launched a new motion for an injunction, on the footing that the covenant had become binding on the defendant by virtue of the rectification. The hearing of the motion was treated as the trial of the action and no point was taken on the fact that the plaintiff's cause of action did not exist at the date of the writ. The question was what was the effect of the registration of notice of the covenant on 28 April 1975, which was some six years after defendants acquired the leased of the property bound by the covenant. Walton J. said, at p. 296:

"one of the odd things about rectification is that there is no provision in s.82 - which is the s.which deals with rectification - which states in terms or by implication what date is to be inserted against any entry which is inserted pursuant to rectification. One would perhaps have expected to have found some guidance as to the date, but no guidance whatsoever is given. It merely says 'The register may be rectified,' and then, apart from setting out the provision, the circumstances under which it may be rectified, and making certain qualifications as to when it may be and when it shall not be rectified, it does not, I think, tell one anything more about the date as from which the restriction takes effect. Now, of course, if one were dealing with the ordinary sort of rectification with which courts of equity are accustomed to deal in relation to documents, that always relates back to the date when the document was itself executed, but, of course, correspondingly, the rights of all parties who have in the meantime gained interests on the faith of the unrectified document for value without notice are strenuously protected. So that I do not think that one can, having regard to the rather different provisions of the Land Registration Act 1925, really equate a rectification in equity with rectification under the Act."

He then considered certain provisions of the Act from which he concluded that, in order to discover whether the covenant was binding on the defendant, he had to consider the position at the date of the lease in 1969. At that date there was no notice of the covenant on the register. The earliest date at which notice of the covenant could be regarded as having been entered on the register was 28 April 1975, but notice entered at that date could not affect the defendant, who had taken under a disposition made before that date. Freer v. Unwins Ltd. was not, of course, a case in which the court itself was asked to rectify the register, still less to decide the date from which the rectification should have effect. The observations of Walton J. do, however, indicate a doubt on his part whether rectification can be made retrospective under the Act.

For my part, I do not think that Mr. Nugee is right in so far as he submitted that any jurisdiction to rectify the register in relation to an incident affecting the Jarvises ownership of the land was destroyed once the Jarvises' ceased to be proprietors by virtue of the sale effected by Barclays Bank Plc. Suppose a case in which land is subject to three charges, but there is a claim that, as a result of an error in the Land Registry, the second and third charges have been registered in the wrong order, so giving rise to the wrong priority pursuant to s.29. This may lead to a claim for rectification of the register by the second chargee. I cannot accept that this claim for rectification could be defeated, for want of jurisdiction, merely on the ground that while it is pending (or perhaps even before it has been initiated) the first chargee has perfectly lawfully sold the land pursuant to his powers as mortgagee. But in such a case rectification at the instance of the disappointed chargee would not necessarily raise any question as to the time at which such rectification is to have effect. Rectification effective at the date of the order would, it seems to me, be sufficient to restore the priority which is assumed to have been reversed by the error.

In the present case it is not clear what form of rectification would be appropriate to deal with the position. Three possibilities were canvassed in argument namely (i) deletion of the entries relating to the second defendant's charge, without any new entry being made; (ii) registration of a notice of the plaintiffs' charging order; and (iii) as in (ii), but with the addition of a note which states that the second defendant's charge is subject to the charging order, albeit that the notice of the charging order will only have been entered at a later date. The first of these possibilities measures up to the error, in that what has gone wrong is that the second defendant's charge has been registered without the requisite notice being served on the plaintiffs. To cancel the registration would therefore restore the position to what it was in December 1990. But it can hardly be suggested that it ought to be left there. What ought to have happened then was the service of notice on the plaintiffs, followed by them objecting to registration of the second defendant's charge except after prior registration of a notice in respect of their charging order. It does not seem to me to be realistic to follow this course now. Moreover it is not clear to me how this would be done, bearing in mind that none of this will be appropriate to be shown in the current land or charge certificate of Spinners Corner. In addition, to take this course would, it seems to me, merely substitute the second defendant for the plaintiffs as a claimant for an indemnity, albeit that his claim would be under s.83(1), as a person suffering loss by reason of the rectification of the register, not under s.83(2) as in the case of the plaintiffs.

As to the second possibility, it appears to me that merely to require the entry of a notice, without more, would achieve nothing and could not therefore be the appropriate remedy. Such a notice would, prima facie, be entered on the date when it is actually placed on the register, or at any rate on a date not earlier than the order of the court. It would give the plaintiffs priority only if the court could and did order that it be entered on the register immediately before the entry relating to the second defendant's charge and be deemed to have been registered immediately before that charge. Bearing in mind the observations of Walton J. in Freer v. Unwins Ltd. [1976] Ch. 288 I doubt whether the court has power to do this. Certainly there is no express power. But even if the court has the power I consider that it would not be right to exercise it in this way in the circumstances of this case, particularly when this too would merely substitute the second defendant for the plaintiffs as a claimant to an indemnity. As to the third course, it appears to me that the court has no power to rectify the register by including in the charges register a note that a registered charge takes subject to the interest protected by a notice to which that charge would not otherwise be subject.

In the result, although I prefer to base my decision on discretion rather than want of jurisdiction, except as to the point just mentioned, I consider that the registrar cannot defeat what appears to me to be an otherwise well-founded claim to an indemnity by saying that the plaintiffs ought to be left to pursue a claim for rectification which would, at the best, be fraught with difficulty. I do not, therefore, propose to adjourn this application so as to enable a claim for rectification to be made. Subject to the submissions of counsel as to the precise form of order it appears to me that I should grant the declaration sought by paragraph 1 of the originating summons and answer the question asked by paragraph 2 by saying that the plaintiffs' charging order does not have priority over the second defendant's charge.