REF/2008/0602 and REF/2009/0047/0052

 

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

LAND REGISTRATION ACT 2002

 

IN THE MATTER OF

REFERENCES FROM HM LAND REGISTRY

 

 

BETWEEN

ALEXANDER KARCZEWSKI CRAWLEY

(Personal Representative of Verena Marcelina Crawley, deceased)

 

Applicant

and

 

 

SRINIVAS GUDIPATI

Respondent

 

AND BETWEEN

 

ALEXANDER KARCZEWSKI CRAWLEY

(Personal Representative of Verena Marcelina Crawley, deceased)

Applicant

And

(1)   SRINIVAS GUDIPATI

(2)   STANDARD LIFE BANK LIMITED

Respondent

 

Property: Flat 225, Lexington Building, Fairfield Road, London E3 2UE

Title Number: EGL279890

 

Before Ann McAllister, sitting as Deputy Adjudicator to HM Land Registry

Victory House, London

1 October 2009

 

 

Representation: The Applicant was represented by David E. Grant instructed by Poole & Co; the First Respondent was represented by Mark Warwick instructed by Dale R.Walker; the Second Respondent was not represented and did not attend.

 

 

Application to alter the register by removing proprietor and charge – applications to remove proprietor given effect to – issue as to validity of attestation of transfer – S 1(3) of the Law of Property Act – Shah v Shah [2002] QB 30 – undue influence – Royal Bank of Scotland v Etridge (No 2) [1998] 4 All ER 705. Position of the Bank considered and remitted for further argument – Barclays Bank v Guy [2008] 2 EGLR 74

 

 

 

Introduction

 

1. The Applicant, Mr Crawley, is the son and sole personal representative of Verena Crawley who died intestate on 21 September 2007 aged 58. Letters of administration were granted on 12 August 2008.

2. By a transfer dated 8 May 2007 (‘the Transfer’) Mrs Crawley transferred Flat 225, Lexington Building, London E3 (‘the Flat’) to the First Respondent, Mr Gudipati. Mrs Crawley had an unencumbered leasehold interest in the Flat. The lease is for a term of 125 years from 25 December 1988. By a charge dated 15 August 2007 Mr Gudipati charged the Flat in favour of the Second Respondent, Standard Bank (‘the Bank’).

 

3. By an application dated 21 January 2008, Mr Crawley applied to enter a restriction against the title of the Flat on the grounds that the Transfer might have been the result of undue influence or fraud. Following an objection from Mr Gudipati, this matter was referred to the Adjudicator on 9 May 2008.

 

4. On 18 June 2009 Mr Crawley made two further applications to the Land Registry, against Mr Crawley and the Bank respectively. In each case he sought rectification of the register to remove Mr Gudipati as registered proprietor and to replace him with Crawley and to remove the charge in favour of the Bank.

 

5. The ground relied on, in the applications, was that Mrs Crawley’s signature on the Transfer had not been properly witnessed by Yewande Fregene, the person whose signature appears on the Transfer.

 

6. Both Mr Gudipati and the Bank objected to the applications. Both these matters were referred to the Adjudicator on 8 January 2009. The three references were heard together on 1 October 2009.

 

The Applicant’s case

 

7. Mr Crawley’s Statement of Case dated 1 July 2008 in relation to the first application alleged that the signature of the witness on the Transfer (Miss Fregene) was forged, and that she did not at any time attest a TR1 form. In a statement dated 31 July 2008 she changed her position by stating that she recalled signing one document at the request of Mr Gudipati, but believed this to be a loan document. She did not witness Mrs Crawley’s signature. The factual background to the dispute is also set out.

 

8. Mr Crawley’s Statement of Case dated 16 March 2009 in relation the second application sets out the factual background to the dispute and raises, first, the question of the validity of the attestation to the Transfer, and secondly (albeit only by way of narrative) the fact that Mrs Crawley was seriously ill at the time of the Transfer and sold the Flat (without the benefit of any legal advice) to Mr Gudipati, who was the store manager of the convenience shop (‘Hudsons’) in Lexington Building. The value of the Flat at the time of the Transfer was £240-250,000. The amount Mr Gudipati says was agreed was £50,000 together with repayment of Mrs Crawley’s debts. In the event only £20,000 out of £50,000 was paid to Mrs Crawley. Debts of some £9,300 were also discharged (or allegedly discharged).

 

9. Mr Grant’s skeleton argument identified the issues as being whether (1) the requirements of s 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 were complied with and in any event (2) whether the Transfer was procured by undue influence and whether the doctrine of non est factum could be relied upon and (3) whether the register should be altered pursuant to Schedule 4 to the Land Registration Act 2002. An issue was also raised as to whether or not Mr Crawley is entitled to an indemnity, but that is not a matter over which I have any jurisdiction.

 

10. Mr Warwick, for Mr Gudipati, objected to what he argued were new matters being raised in the skeleton argument, namely undue influence and non est factum. Having regard to the basis for the first application, the correspondence, the Statement of Case and the witness statement made by Mr Crawley it seems to me that this objection is misplaced.

 

11. The jurisdiction of the Adjudicator is to determine matters referred under section 73(7) of the Land Registration Act 2002. In this case the matter, broadly stated, is the validity of the Transfer. In any event no prejudice could possibly be sustained by the Respondents in allowing the case to proceed on the basis argued for by Mr Grant.

 

 

The First Respondent’s case

 

12. Mr Gudipati denies any wrong doing, and argues that the defect in the attestation of the Transfer can be cured by estoppel, relying on the case of Shah v Shah (2002) QB 30. He also argues that even if I come to the conclusion that the register should be rectified to remove Mr Gudipati as registered owner, I am precluded, by authority, from removing the Bank’s charge. The obvious benefit for Mr Gudipati is that the Bank will not need to rely on his personal covenant alone.

 

Second Respondent’s case

 

13. The Bank’s position in the reference is as follows. It does not object to the entry of a restriction against the title, but does object to the removal of the legal charge in its favour. Its case is that it advanced the sum of £180,000 on 14 August 2007 secured by a charge over the Flat. The charge is dated 15 August 2007 and was registered on 29 August 2007.

 

14. The Bank further makes the point that it had no knowledge of, nor was put on inquiry, as to any impropriety relating to the Transfer. There was no reference on the Land Registry or elsewhere to the fact that the sale had not been for full value. To the contrary, the Bank’s files note that an Independent Financial Advisor had advised the Bank that Mr Gudipati had paid £240,000 for the Property, and that the mortgage monies were required to carry out cosmetic works to the Property.

 

15. The Statement of Case served by the Bank concluded by saying this: ‘The Second Respondent acknowledges that in determining the application for rectification so far as it relates to the Second Respondent’s charge the Adjudicator is bound to proceed in light of the determination of the issues as between the Applicant and the First Respondent’.

 

16. This might be read as suggesting that, if the register were to be rectified to remove Mr Gudipati as owner, it would also follow that the Bank’s charge would be removed. By letter dated 29 September 2009 Mr Gudipati’s solicitors wrote to the Bank’s solicitors stating that, in their view, the stance taken was wrong in law and adding that in the event that the Bank ever took action against Mr Gudipati he would argue that they failed to take proper steps to protect their interest. This led to a letter from the Bank’s solicitor to this office, essentially repeating their position, received the day before the hearing, and stating that they relied on Barclays Bank v Guy [2008] 2 EGLR 74.

 

Factual background and evidence

 

17. I have already set out some of the relevant background above. Mrs Crawley was born in 1949 in Germany and married Martin Crawley in 1983. Mrs Crawley was a company formation specialist, helping German companies to set up businesses in this country. She had her own business. Martin Crawley was an architect. Their son, the Applicant, was born in 1984. Mrs Crawley stopped working shortly afterwards.

 

18. Mr Crawley’s parents separated in 1990, and were divorced in 1993. In about 1998 Martin Crawley acquired the Flat where his wife and son lived. Prior to that, the family had lived together in another flat in Lexington Buildings. Mr Crawley lived in the Flat until March 2005, shortly before he graduated. Martin Crawley moved to France sometime around 2003.

 

19. A consent order in the divorce proceedings was made on 22 January 2007. Mr Crawley agreed to clear an overdraft with the Co-operative Bank; to transfer the Flat to his wife and to pay her a monthly sum of £485.00 until her death or re-marriage. At the time of her death Mrs Crawley had savings of some £18,000 and debts of some £6,000.

 

20. Mrs Crawley was an alcoholic. In April 2003 a consultant at the Chelsea and Westminster Hospital had written her a stark letter in which he said: ‘I think the issue is for you to come off alcohol completely otherwise you will greatly shorten your life as you have established alcohol related liver damage. I think you need on going medical care either in the NHS or privately…’. She did not heed his advice and, in due course, died of cirrhosis of the liver. She was found dead in the Flat by one of the staff of Hudsons.

 

21. Her alcoholism was the cause of her estrangement with her son. Sometime in the course of 2006 he decided he could not handle her alcohol related conduct. He had been living with her while in his first year studying. He described her mood swings and increasing volatility. His evidence, which I accept entirely, was that he decided that the only way to help her to stop drinking was to threaten to, and then to, stop seeing her. When he last visited her she was suffering from jaundice and was very frail. He did not speak to her in the last year of her life. His only source of information was, occasionally, from his father. He stated that the arrangement she made with in relation to the Flat with Mr Gudipati (of which he knew nothing) ‘did not add up’ and did not feel right.

 

22. By early 2007 she lived the life of a recluse, drinking two bottles of wine a day and chain smoking. She relied heavily on her contact with the staff at Hudsons in the Lexington Building complex, about 5 minutes walk away from the Flat. Lexington Building is one of six buildings within the former Bryant & May factory which has, I am told, some 750 units in all.

 

23. Mrs Crawley had an arrangement with the store whereby she could run up credit for the purchase and delivery of various grocery items, wine and cigarettes. I was told by Mr Chudasama, who worked part time in the store, that this arrangement was expressly sanctioned by Mr Gudipati and that no-one else had such an arrangement. Mr Chudasama spoke to Mrs Crawley almost on a daily basis from the time he began working there in May 2006. On occasion he delivered her shopping to her. This was, at least sometimes, because she was unable to come to the store. She spoke fondly of Mr Gudipati, referring to the financial assistance he provided her. This consisted of Mr Gudipati paying her bills from his own credit card. According to Mr Chudasama, Mrs Crawley trusted Mr Gudipati. She mentioned living in India. In the months before her death she stopped coming into the shop on a daily basis, but would do so 2 or 3 times a week.

 

24. Mr Chudasama stated that she was drinking too much. Her hands were shaking and she was afraid of falling. He knew her preferred wine, Hardys, as did all the employees of the store. It was possible to have a sensible conversation with her, and he said that he did not believe she had any mental problems. His perception was that she spent all day drinking and smoking.

 

25. Mr Gudipati began working in the store in 2002 and by 2005 he was the manager of the store. Mrs Crawley came in regularly and would often talk to him in his office. She was lonely, and, he confirmed, a heavy drinker, buying one or two bottles a day. Mr Gudipati told me that she said that she did not want her son to inherit the Flat and that she was disappointed in him.

 

26. In late 2006 Mrs Crawley told Mr Gudipati that she had financial problems. She could not pay her electricity, and he paid it for her, and occasionally paid her bills to the store. He created a running account for her. I have seen copies of this dating from April 2006 to August 2007. Mrs Crawley often spent £20 or more at the store, usually on alcohol and cigarettes.

 

27. Occasional payments were made, sometimes clearing the amount due. As at August 2007 the debt owed was £1,119.89. Mr Gudipati has also produced a schedule showing the total amount of money he lent her. This amounted, at her death, to £9,378.95.

 

28. In early 2007, according to Mr Gudipati, Mrs Crawley showed him a transfer form whereby the Flat was to be transferred to her by ex husband. He witnessed the transfer. It was at about this time that they began to have discussions about the possibility of the Flat being sold to Mr Gudipati. By March, he said, they had agreed in principle that the flat would be sold for £50,000 and the discharge of the debts she owed him.

 

29. I note that in his witness statement Mr Gudipati said that those debts amounted to £20,000 or £30,000 or even more. In the event he accepted that, at her death, they were less than £10,000. At the time of the Transfer the debts were even more modest: they amounted to £4,015.55. I should also add that, at least in respect of some items, there is no documentary evidence that the debts were paid by Mr Gudipati.

 

30. The Transfer, as I have said, is dated 8 May 2007. No sum is given in respect of the consideration paid. Mr Gudipati’s evidence was that the TR1 was obtained by Mrs Crawley. She telephoned him from the Flat and asked him to fill in the form, which he did in its entirety, save for the three signatures, and the date. Mrs Crawley, he said, signed the TR1 in the Flat and gave it to him to find a witness. Mr Gudipati was shown another copy of the form which does not have a date. He then stated that the form was sent to the Land Registry and returned so that it could be dated. He took the information from the previous TRI transferring the Flat to her.

 

31. Mr Gudipati stated that he took the Transfer to the shop. It is his case that Miss Fregene recognised Mrs Crawley’s signature and that she knew she was witnessing a transfer document. He accepts, and has always accepted it, that she did not witness Mrs Crawley signing the Transfer.

 

32. In order to complete the transaction Mr Gudipati needed various other documents, some of which were held by Martin Crawley and sent by him to Mr Gudipati in March 2007. A note on the service charge accounts says that these were the only documents he had. On 8 June 2007 Mr Gudipati wrote to Martin Crawley updating him on the progress of the sale, and asking him to sign the stock transfer form which had been supplied to by solicitors, Hewitsons. Mr Gudipati was registered as a shareholder in the management company on 9 July 2007.

 

33. In evidence Mr Gudipati stated that Martin Crawley was aware of the proposed sale of the Flat, but says that he knew this because Mrs Crawley had told him that she had told her ex husband. He did not speak to Martin Crawley directly about, as I understand it, the consideration to be paid.

 

34. The Stamp Duty Land Tax form was completed by Mr Gudipati on 28 July 2007. He completed the form on the basis that the transfer was a gift. It is Mr Gudipati’s case that he did so at Mrs Crawley’s suggestion. I have to say that I find this very hard to accept. It is plain from the documents I have seen, and in any event from the evidence given, that Mr Gudipati took the lead in all matters connected with the Transfer. I cannot see why Mrs Crawley would have been in any way involved in the completion of the SDTL form.

 

35. On 30 July 2007 Mr Gudipati signed a form in respect of a cancellation of home rights notice. This should have been signed either by the applicant (Mrs Crawley) or by her conveyancer. The explanation given was that Mrs Crawley was content for him to sign. He wrote a covering letter to the Land Registry on her behalf. The cancellation of the home rights notice was prompted by a letter from Pannone, the Bank’s solicitors, dated 26 July 2007 which stated that the mortgage could not proceed unless the notice was removed.

 

36. Mr Gudipati, as mentioned above, applied to the Bank for a mortgage of £180,000. The ‘mortgage notepad’ disclosed by the Bank show the introduction by an independent financial advisor, David Knight (of David Knight Mortgages) There is a note saying that it was necessary to establish exactly what the ‘client bought the property for’; followed by a phone call from Mr Knight saying that Mr Gudipati had paid £240,000 and that the only works carried out are cosmetic. Inquiries were then made as to Mr Gudipati’s salary. I should also add that the Bank valued the Flat at £230,000.

 

37. The Bank’s standard instructions to Pannone required them, in the usual way, to obtain an occupier’s signed consent form, and to advise such occupiers to take independent legal advice. The confirmation form sent to Mr Gudipati by the Bank made it clear that they only considered owner occupied properties which were not tenanted. The section headed ‘Other people living at the property’ has been left blank. The form was signed by Mr Gudipati on 29 June 2007.

 

38. I have not seen any documents held by David Knight Mortgages or by Pannone . But it is clear from the documents I have seen that Mr Gudipati was untruthful when he stated that he had paid £240,000 for the Property, and that he was less than candid in completing the application form. Significantly, there is no mention in the form of the fact that Mrs Crawley still resided at the Property, and continued to do so until her death.

 

39. In evidence Mr Gudipati told me that he did not tell Mr Knight that he had paid £240,000 for the Flat, but that Mr Knight knew that the Flat was given to him. Again, I find this to be highly improbable.

 

40. Mr Gudipati received the mortgage monies in August 2007. He was not able to give a satisfactory explanation as to why he did not pay the full £50,000 to Mrs Crawley in one payment. In fact three payments were made: on 17 August, £9,000 was transferred by a bank transfer; on 28 August, a further £6,000 was transferred in the same way and on 30 August, he paid Mrs Crawley £5,000 in cash. Mr Gudipati’s explanation that he paid her in this way at her request. The last payment, he says, was for dental treatment. He accepts, of course, that if Mr Crawley is not successful in this matter, he will have to pay the estate the balance of what is due, namely £30,000.

 

41. Mr Gudipati denied knowing that Mrs Crawley was very ill. He claims that she was not jaundiced, and could walk unaided from the Flat to the store. He also claimed (for the first time in oral evidence) that she planned to move to India, and that he had gone to look for a property for her there. He knew, however, that she did not have a valid passport, and could not say when she had last been abroad. There is a document in the papers (which is not signed or dated) which appears to be a fax sent to Martin Crawley from Mrs Crawley saying that she doubted if she would see either of them again, and saying that soon India would be her new home. Mr Gudipati says it was typed by Mrs Crawley. There is no evidence that this fax was ever sent.

 

42. When pressed on this point, Mr Gudipati said that she had also spoken about living in France. In any event, he had made no plans to ask her to leave the Flat, nor did he intend to charge her any rent. He told me that she could have lived there, rent free, for as long as she lived, however long this might have been. He would pay the mortgage, the service charge and all the outgoings. He was aware of the market value of the Flat, and claimed that Mrs Crawley told him he deserved it. There were no discussions, he said, about the terms upon which she would be entitled to occupy the Flat.

 

43. Mr Gudipati went to India at the end of August 2007, and learnt of Mrs Crawley’s death whilst he was away. He said, in evidence, that one of the reasons for going was to look for somewhere for her to live. He accepted that he could have made arrangements to pay the balance of the purchase price in his absence.

 

44. On 21 October 2007, a month after Mrs Crawley’s death, Mr Gudipati granted an assured shorthold tenancy to a Mr Macdonald at rent of £1040.00 per month. The Flat, as I understand it, has been tenanted since Mrs Crawley’s death. I have seen a copy of the most recent tenancy agreement which expires in February 2010.

 

45. Miss Fregene did not give evidence. As stated above in her first witness statement dated 31 July 2008 she denied having witnessed a TR1 form. She states that she recalled Mr Gudipati (or Vasu, as she knew him) asking her to sign what he called a loan document one weekend, which she did. It was a blank page concealed by, she said, a PC keyboard. Since she states the page was blank it must follow that Mrs Crawley’s signature was not on the page. Her solicitors then qualified this statement by saying that she was clear that she did not attest Mrs Crawley’s signature but could not say whether or not it was her signature on the TRI form. Mr Gudipati claims that Mrs Crawley’s signature was already on the Transfer.

 

46. In June 2009 her solicitors stated that they had tried to contact her but to no avail. She was, it was said, keen to see the matter resolved and to speak to the police.

 

 

Conclusions on the evidence

 

47. I have no doubt that in the months leading up to her death Mrs Crawley was extremely frail, lonely, and clearly suffering from advanced stages of alcoholism. She was a virtual recluse who depended heavily on, and had complete trust, in Mr Gudipati. The suggestion that she might make a new life elsewhere, whether in India or in France, was plainly fanciful. I do not accept that Mr Gudipati believed this to be a real option. I also find that he was fully aware of, and took advantage of, her condition.

 

48. I accept Mr Crawley’s explanation as to why he stopped seeing his mother before she died. She may have expressed dissatisfaction with her son to Mr Gudipati, but I do not doubt that her son acted with the best motives when he took the decision he did. He had lived with her deteriorating condition for a considerable period of time.

 

49. I also have no hesitation in finding that Mr Gudipati was the prime mover and took the lead in all aspects of the Transfer. I do not accept that Mrs Crawley produced the TRI form or that she told him to find a witness, or to put ‘gift’ in the Stamp Duty Land Tax form. I am also struck by the equivocal way in which Mr Gudipati answered the questions relating to what, exactly, Martin Crawley knew of the transaction. Mr Warwick criticised Mr Crawley for not calling his father as a witness. It seems to me that the criticism could be levelled equally, if not more forcefully, against Mr Gudipati.

 

50. It also seems clear, as I have said elsewhere, that Mr Gudipati had no hesitation in misleading the Bank in relation to the purchase price. It is telling that he did not pay Mrs Crawley the agreed sum of £50,000 before her death. Even though he was abroad there was no reason why the balance should not have been remitted, as he recognised. His claims relating to the discharge of her debts were, initially at least, greatly exaggerated.

 

51. The complete absence of any documentation relating to the terms upon which Mrs Crawley was to remain living in the Flat indicate to my mind that Mr Gudipati was reasonably confident that Mrs Crawley would not live for any length of time. She died four months after the Transfer.

 

52. Miss Fregene did not attend and could not therefore be cross examined. I do however attach some weight to her evidence. I do not see why, if she knew that the nature of the document she was witnessing, she would have gone to the trouble of preparing a witness statement in which she stated that she did not see Mrs Crawley’s signature and did not know that the document was a transfer document. She has no interest in the outcome of the litigation.

 

The attestation point

 

53. Section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 provides as follows:

 

‘An instrument is validly executed as a deed by an individual if, and only if, -

(a)   it is signed

(i)     by him in the presence of a witness who attests his signature or

(ii) at his direction and in his presence and the presence of two witnesses who each attest the signature; and

(b)   it is delivered as a deed.’

 

54. There is an issue as to whether Miss Fregene signed the Transfer before Mrs Crawley. I have stated above that, even though she did not attend, I am inclined to prefer her evidence on this point to that of Mr Gudipati. But in any event, even if I am wrong on that, there is no doubt that Mrs Crawley did not sign in the presence of Miss Fregene.

 

55. Mr Gudipati relies on the decision in Shah v Shah [2002] QB 35. In that case the plaintiff invested a large sum in a bank of which the defendants were executives. The bank could not repay the money, and the defendants signed a document described as a deed in which they stated that they jointly and severally agreed to repay the money. The signature of a witness attesting the document was added shortly after they had signed but not in their presence. It was held, both at first instance and in the Court of Appeal, that the defendants were estopped from relying on the lack of attestation as a basis for claiming that the document was invalid.

 

56. The trial judge found that the deed was signed by the parties with full knowledge and understanding of its contents, that it was apparently validly witnessed and further that it was put forward by the defendants as a valid and effective document in the knowledge that it was to be relied upon.

 

57. Pill LJ stated that, notwithstanding the clear language of the statute, it would be wrong to conclude that a general assertion of a ‘no-go area’ for estoppel would be unmaintainable. At paragraph 30 he said this: ‘ I have, however, come to the conclusion that there was no statutory intention to exclude the operation of an estoppel in all circumstances or in circumstances such as the present. The perceived need for formality in the case of a deed requires a signature and a document cannot be a deed in the absence of a signature. I can detect no social policy which requires the person attesting the signature to be present when the document is signed. The attestation is at one stage removed from the imperative out of which the need for formality arises. It is not fundamental to the public interest, which is in the requirement for a signature. Failure to comply with the additional formality of attestation should not in itself prevent a party into whose possession an apparently valid deed has come from alleging that the signatory should not be permitted to rely on the absence of attestation in his presence. It should not permit a person to escape the consequences of an apparently valid deed he has signed, representing that he has done so in the presence of an attesting witness, merely by claiming that the attesting witness was not present at the time of the signature. The fact that the requirements are partly for the protection of the signatory makes it less likely that Parliament intended that the need for them could in all circumstances be used to defeat the claim of another party.’

 

58. As I read the decision, it is stating no more than that estoppel may be relied upon to cure an apparent defect of attestation. This is so where the person attempting to resile from the deed in effect represented that it was a valid deed.

 

59. But as Pill LJ also recognised (at para 29): ‘the beneficial effect of the requirement for attestation of the signature in the manner specified in the statute is not in question….. It gives some, but not complete, protection to a potential signatory who may be under a disability, either permanent or temporary. A person may aver in opposition to his own deed that he was induced to execute it by fraud, misrepresentation or, as was unsuccessfully alleged in the present case, duress, and the attestation requirement is a safeguard.’

 

60. In this case Mr Gudipati was, even on his own case, fully aware of the deficiency in the execution of the deed. He says that Mrs Crawley first signed the deed, then he took it downstairs to the store and asked Miss Fregene to witness her signature. There is no representation by Mrs Crawley that the witness to her signature signed in her presence.

 

61. On this basis it seems to me the Transfer is, by reason of the failure of attestation, void.

 

62. I should also add that I do not accept that estoppel is an answer in this case merely by virtue of the fact that Mr Gudipati paid some monies to Mrs Crawley or by reason of the fact that he borrowed £180,000 from the Bank. He clearly has had the benefit of those monies. As for the fact that money was paid, it may or may not be open to him to recover those sums. This is not a point with which I am concerned.

 

Undue influence

 

63. In this case it is not alleged, and there is no evidence to support, an allegation of actual undue influence. What is said is that the influence is to be presumed from the relationship between Mr Gudipati and Mrs Crawley. Mr Warwick accepts that, if this presumption arises, the Transfer was manifestly disadvantageous to Mrs Crawley. This concession must be right.

 

64. As is well know the kind of relationships which may give rise to a presumption of undue influence fall into two categories; class 2A (well known relationships which are treated as relationships of trust and confidence) and Class 2B where the complainant can establish, on the evidence, that trust and confidence were reposed in the wrongdoer. In respect of Class 2 as a whole the position is stated as follows: ‘In these cases it is sufficient for the complainant to establish the relationship of trust and confidence between her and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused the relationship in procuring her to enter into the impugned transaction. Once such a relationship has been established, the burden shifts to the wrongdoer to prove that the complainant entered into the impugned transaction with her ‘full, free and informed thought’. (Royal Bank of Scotland v Etridge (No 2) [1998] 4 All ER 705 at 711)

 

65. It seems to me that there is no doubt that this is a Class 2B case. Mrs Crawley was ill, lonely and vulnerable. She entrusted Mr Gudipati with the task of paying some of her bills, and allowed him to advance credit to her so that, in reality, she found herself in a dependent and weak position. She had confidence in him. I have no doubt that Mr Gudipati was aware of the fact that he would be benefiting from a windfall on her death, and that he was content to allow her to continue living in the Flat, safe in the knowledge that this would not be for any length of time.

 

66. Mr Warwick submitted that, just as there is freedom of testamentary disposition, so it must be open to people to enter into transaction which, on their face, appear to require some further explanation. The burden of attack, as he put it, is very heavy. This is not quite an accurate statement of the relevant test. The relevant relationship having been established, the burden shifts to Mr Gudipati to show that the transaction was the result of ‘ full, free and informed thought’ . The problem is not lack of understanding but lack of independence. Mrs Crawley had no independent legal advice, and, it would seem, relied entirely on Mr Gudipati. She was not, in my judgment, free from the influence of Mr Gudipati. The test is not whether she asked Mr Gudipati for advice.

 

 

67. Mr Warwick also submitted that I should have regard, before setting aside the Transfer, to the position of third parties, namely the Bank and the tenant now in occupation. As to the Bank, I will deal with this below. As far as the tenant is concerned, the tenancy is an assured shorthold one in any event, and therefore one which attracts very little protection. I do not know what steps if any will be taken by the estate or Mr Crawley in relation to this, but I do not consider that the existence of this tenancy (and I add that I have heard no arguments or submissions from the tenant) should prevent me from setting aside the Transfer and altering the register.

 

68. In coming to this conclusion I am of course conscious of the additional protection offered to ‘proprietors in possession’ (as defined by section 131 of the 2002 Act, which deems the occupation of a tenant to be possession of a landlord) and paragraph 6(2) of Schedule 4 to the Act. In order for alteration sought to be made I must be satisfied either that Mr Gudipati has by fraud or lack of proper care caused or substantially contributed to the mistake or that it would for any other reason be unjust for the alteration not to be made.

 

69. In view of my findings of fact in this case I have no difficulty in concluding that both limbs of paragraph 6(2) are made out. The term ‘fraud’ is not defined in the Act. It is well known that, at least in equity, fraud covers not only actual fraud but constructive fraud, which in turn includes undue influence. In any event, on any footing, Mr Gudipati acted with lack of proper care.

 

The Bank’s position

 

70. Section 65 and paragraph 1(1)(a) of the Land Registration Act 2002 provides that the register can be corrected for the purpose of correcting a ‘mistake.’ There is no doubt that the register can be corrected to remove a proprietor who has acquired title by fraud. The issue is whether the register can be corrected against a third party, be it a successor in title or mortgagee.

 

71. On this point, there are two contrasting decisions, and a growing body of academic debate. In Barclays Bank v Guy [2008] EWCA Civ 42 and [2008] 2 EGLR 74 the Court of Appeal refused permission to appeal to Mr Guy (acting in person) against a decision on summary judgment in favour of Barclays Bank. Mr Guy was the registered owner of 48 acres of land. Ten Acres Ltd became the registered owner by filing (what was assumed to be) a forged transfer. It then executed a legal charge securing more than £100m. The court held, at first instance, that it was not even arguable that Mr Guy was entitled to have the register altered to remove the charge.

 

72. At paragraph 29 Lloyd LJ said this: ‘….It seems to me that it is necessary to grasp the nettle of what is meant by ‘mistake’. In that respect, whilst the scope of the phrase ‘correcting a mistake’ is no doubt something that requires to be explored and discussed and developed in the course of future litigation, which will be decided upon the facts and upon the merits of each case, I cannot see that it is arguable that the registration of the charge can be said to have been a mistake, or the result of a mistake, unless at the least Mr Guy can go so far as to show that the bank, the mortgagee, had either actual knowledge or, what amounts to the same, what is referred to as ‘Nelsonian’ or ‘blind eye notice’ of the defect in title of the mortgagor. I simply cannot see how it can be argued that if a purchaser or charge knows nothing of the problem underlying the intermediate owner’s title, that the registration of the charge or sale to the ultimate purchaser or charge can be said to be a mistake.’

 

73. It must, however, be noted that Guy is of dubious authority for the reason that it was an application for permission to appeal. Paragraphs 6.1 and 6.2 of the Practice Direction (Citation of Authorities) [2001] 1 WLR 1001 prohibit the citation in court of applications for permission to appeal unless they contain an express statement that they purport to establish new principles or to extend the present law, which was not the case in Guy.

 

74. Indeed, in a subsequent decision, Guy v Pannone LLP [2009] EWCA Civ 30, Lloyd LJ stated that as Barclays had not been represented in the earlier case, that decision cannot be cited.

 

75. By contrast, in Ajbade v Bank of Scotland 2006/0163/0174, Mr Rhys, (sitting as deputy Adjudicator to HM Land Registry) held that the ‘correction’ of a mistaken registration of a fraudster as owner of the property would require the alteration of the register to remove the consequences of the mistake. The same conclusion was reached by the Privy Council on almost identical wording in section 143(1) of the Land Registration Act 1974 in Quinto v Santiago Castillo Ltd [ 2009] UKPC 15. The view that correcting a mistake can extend to correcting the consequences of a mistake is supported by Emmet & Farrand on Title, paras 9.027 and following.

 

76. If I had to decide this point, I would find that the reasoning in Ajbade and Quinto is to be preferred to that in Guy. The outcome which allows, in this case, Mr Crawley to be replaced as proprietor but subject to a charge in favour of the Bank, without recourse to an indemnity (since there cannot be an indemnity unless there is a mistake, and on the Guy analysis, the Bank’s charge is not a ‘mistake’) seems to me wrong in principle and wrong as a matter of construction of the relevant provisions.

 

77. However, for the reasons set out below, it may not be necessary for me to decide the case on this point.

 

 

Over-riding interest

 

78. In this case Mrs Crawley continued to occupy the Flat. It seems to me, therefore, that she had an over-riding interest under paragraph 2 of Schedule 3 to the 2002 Act. This schedule deals with unregistered interests which over-ride registered dispositions.

 

79. Paragraph 2 refers to: An interest belonging at the time of disposition to a person in actual occupation except for:-

(b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so’

( c) an interest –

(i)                 which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of a the disposition and

(ii)               of which the person to whom the disposition is made does not have actual knowledge at that time;

 

80. Registrable dispositions are defined by section 132(1) and by section 27 of the Act.

 

81. The ‘interests’ protected by this paragraph must not be personal but proprietary in nature. Section 116 provides that an equity by estoppel and a mere equity have effect from the time the equity arises as an interest capable of binding successors in title.

 

82. In this case the right to set aside the Transfer on the grounds that the Transfer was not valid ( on the ground that it was not properly attested) or in any event on the grounds that it was procured by undue influence are proprietary interests which, it seems to me, bind the Bank in any event.

 

83. The position is set out in Rouff & Roper on the Law and Practice of Registered Conveyancing at paragraph 117.0001

 

84. I am conscious of the fact that this point was not argued before me at the hearing, and that, in particular, the Bank have had no opportunity to deal with it. In these circumstances, although I have set out my (preliminary) views above, I will give the parties leave, if so advised, to put in submissions on the question whether or not Mrs Crawley had an over–riding interest which binds the Bank. These submissions are to be filed and served by 26 November 2009, and each party may reply by 10 December 2009.

 

BY ORDER OF THE ADJUDICATOR

 

ANN McALLISTER

 

Dated this 12^th day of November 2009