REF//2011/0377

 

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

LAND REGISTRATION ACT 2002

 

IN THE MATTER OF A

REFERENCE FROM HM LAND REGISTRY

 

 

BETWEEN

 

(1)    ANDREW FRANCIS GARGUILO

(2)    JENNIFER MARGARET GARGUILO

Applicants

and

 

 

(1)    JON HOWARD GERSHINSON

(2)    LOUISA BROOKS

(Both acting as Joint Fixed Charge Receivers of Desmond Daniel Charles Moore in respect of Flat 4 Station Court, 140A High Street, Godalming)

 

 

 

Respondents

 

 

Property: Flat 4, Station Court, 140a High Street, Godalming

Title Number SY777996

 

Before: Ann McAllister, sitting as Deputy Adjudicator

Victory House, London

7 and 8 December 2011

 

Representation: Mr Miall of Counsel instructed by Marshalls Solicitors appeared for the Applicants; Mr Ollech of Counsel instructed by Berwin Leighton Paisner LLP appeared for the Respondents

 

Whether lease validly executed – section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 – R v Her Majesty’s Commissoners of Revenue and Customs [2008] EWHC 2721 – Shah v Shah [2001] EWCA 138 – Chief Land Registrar ordered to give effect to the application

 

DECISION

 

Introduction

 

1.       By an application dated 18 October 2010 the Applicants (Mr and Mrs Garguilo) applied to rectify the register of title number SY777996 under paragraph 5 of Schedule 4 to the Land Registration Act 2002 by cancelling the lease dated 11 September 2008 (‘the Lease’) of Flat 4, Station Court, 140a High Street, Godalming (‘the Flat’) purportedly granted to Desmond Moore and by cancelling the charge of the same date (‘the Charge’) in favour of the Royal Bank of Scotland (‘the Bank’). Both the Lease and the Charge were registered on 18 September 2008.

 

2.       Mr and Mrs Garguilo, together with John Raymond Westwood, are the registered freehold owners of the block (‘the Property’) in which the Flat is situated, and have been since 16 April 2009. Mr Westwood is not a party to these proceedings, although, following a letter from the Land Registry on this point, he has consented to the application for rectification. The owners at the time of the purported grant of the Lease were Mr Westwood and Mr Moore.

 

3.       The Property consists of four shop units on the ground floor and basement, and eight flats and maisonettes on three floors above, and covers Nos 140-146 High Street. The flats were converted from offices.

 

4.       On 8 June 2010 the Bank demanded repayment of £1.3m odd from Mr Moore and on 18 June 2010 the Respondents were appointed fixed charge receivers by the Bank over the Flat (and two other flats in the Property, and another flat elsewhere).

 

5.       The basis of the application (in effect to extinguish the leasehold title and to remove the Charge) is that the Lease was a nullity because Mr Westwood did not knowingly sign the Lease. It is not now Mr Westwood’s case that his signature is a forgery, but rather that the final page of the Lease, bearing his signature, and the signed plan were added to the Lease without his consent. Any suggestion that his signature was a forgery was abandoned when he saw the original, in August 2011.

 

6.       It is common ground that if Mr Westwood did not knowingly sign the Lease , the Lease is, in effect, a forged document. It is also common ground that if the Lease is void (either on this ground or because of a want of formality, as discussed below), then the registration of the Lease constituted a ‘mistake’ for the purposes of paragraph 5(a) of Schedule 4 to the 2002 Act, and that, subject to whether the additional requirements set out in paragraph 6(2) of the Schedule come into play and are satisfied, the register should be rectified to remove both the Lease and the Charge.

 

7.       At trial, the Applicants sought to rely on a further argument, namely that the Lease is invalid. It is said that the Lease was not validly executed as a deed because it did not comply with section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989. I allowed the case to be put on this basis in the alternative, and gave time to both Counsel to put in further written submissions to deal with the point I raised during argument, namely that even if this were the case, it might be open to the Respondents to argue that the Applicants were estopped from taking the point.

 

8.       The Respondents’ position in essence is that, whilst they are not in a position to advance a positive case, they are entitled to and do put the Applicants to strict proof of their case. In relation to the alternative ground, if made out, their case is that Mr Westwood is estopped from taking the point, relying on the authority of Shah v Shah [2001] EWCA 138.

 

9.       The matter was referred to the Adjudicator on 13 April 2011.

 

10.   On behalf of the Applicants, I heard evidence from Mr and Mrs Gargulio, and from Mr Westwood. The Respondents did not call any evidence, but sought to rely on the witness statement of Linda Stevens (Mr Moore’s personal assistant, who deals with the attestation point). This statement was in fact obtained by Mr and Mrs Garguilo’s present solicitors and is dated 14 April 2011. It replaces an earlier statement dated 6 January 2011. The Respondents also rely on letters from the two solicitors involved in the various transactions relating to the Property and the Flat: Mr Wright of Wright and Wright, and Mr Truelove of TWM solicitors. Neither solicitor was willing to disclose his files to Mr and Mrs Garguilo but the Respondents obtained a copy of TWM files. Some of their documents appear in the trial bundle. There is no statement from Mr Moore.

 

11.   For the reasons given more fully below I will order the Chief Land Registrar to give effect to the application. In essence, whilst I do not accept that the Lease is a forged document I do find that it fails to comply with the statutory requirements relating to deeds, and this want of formality, in the circumstances of the case, cannot be cured by estoppel.

 

Background

 

12.   The principal issue in this case (whether or not the Lease is valid) requires a detailed analysis of events which took place over a short period of time. An understanding of the background, is, however, necessary to set the scene. Relevant, too, is the way in which Mr Westwood and Mr and Mrs Garguilo conducted themselves after the grant of the purported Lease, and I will deal with that below.

 

13.   There are a number of key events in relation to the dealings between the parties. The first, in 2003, relates to the introduction by Mr Westwood of Mr and Mrs Garguilo to Mr Moore , and the loan by them to Mr Moore of £67,500 towards the purchase of the Property on the understanding (as I find) that a flat would be transferred to them. The second is the handing of the key of the Flat to Mr and Mrs Garguilo by Mr Moore in April 2007 when Mrs Garguilo’s sister, Rachel, moved in. The third was the transfer of the freehold in September 2008 from Mr Moore to Mr Moore and Mr Westwood and the (disputed) grant of the Lease to Mr Moore. The fourth is the transfer in March 2009 of Mr Moore’s share of the freehold to Mr and Mrs Garguilo.

 

14.   Mr Westwood is a commercial property agent who has been in business in Godalming for some 30 years. He had known, and had done deals with, Mr Moore from about 1999. Mr Moore wanted to buy the freehold of the Property but did not have enough money for the deposit. Mrs Garguilo’s sister, Rachel, who is suffering from a mental disability, was at that time living unhappily in local authority care. Mr and Mrs Garguilo decided to advance the money for the deposit to Mr Moore, on the basis that, in return, they would be granted a one bedroomed flat for Rachel. At this time, the Property had not been converted into flats.

 

15.   On 25 March 2003 Mr and Mrs Garguilo and Mr Moore entered into a written agreement headed ‘Loan Agreement’. This defines the parties as lender and borrower respectively. The purpose of the loan (£67,500) is described as being the deposit for the purchase of the Property. The loan repayment date is given as 1 January 2004. The interest payable is (a) £32,000 up to the loan repayment date and (b) the interest rate payable on civil judgment debts from that date onwards.

 

16.   The document also records the following: Additional Conditions of Loan: ‘the parties intend subject to contract and to the grant of planning permission and to the obtaining of all necessary and appropriate consents that the Loan and Interest will be satisfied by the transfer to the Lender of a leasehold flat to be constructed by the Borrower on the Property at a market value of not less than £125,000 at the date of transfer but nothing herein imposes upon either any obligation to effect or accept such a transfer. For the avoidance of doubt, if such a transfer is not effected, the maximum liability of the Borrower to the Lender hereunder shall be for the repayment of the Loan and interest.’

 

17.   This document was prepared by Mr Moore. Mr and Mrs Garguilo did not take any legal advice. So far as they were concerned (and I entirely accept their evidence on this) and subject only to obtaining planning permission, the agreement was that they would receive a flat, even though, of course, this is not what the Loan Agreement provides. It seems that Mr Moore purchased the freehold of the Property in or about April 2003. In November 2004 Mr Garguilo wrote to Mr Moore asking about the progress of the development, in particular so far as it related to their proposed flat. In May 2005 the solicitors then acting for Mr and Mrs Garguilo wrote to Mr Moore asking for details of his solicitors so that the leasehold can be transferred to them. In August 2005 TWM replied stating that they had instructions to transfer Flat 1 to Mr and Mrs Garguilo. (It is common ground that Flat 1 in due course was re-numbered as Flat 4). A draft lease was sent.

 

18.   In January 2006 Mr and Mrs Garguilo’s solicitors raised a number of matters relating to the lease. Certain construction details still needed to be sorted out, and were not finally resolved until then. Chasing letters were sent. A substantive reply was received from TWM in November 2006, dealing with all the points raised.

 

19.   In March 2007 Mr Moore gave Mr and Mrs Garguilo the keys to the Flat and Rachel moved into the Flat in April 2007. She has lived there since that date. The flat was not quite finished, and Mr and Mrs Garguilo spent some £4,000 on outstanding works and on furnishings.

 

20.   On 21 April 2007 Mr and Mrs Garguilo entered into an assured tenancy of the Flat with Rachel. They were anxious that Rachel should have security, and that there should be no issue as to her entitlement to stay in the event of anything happening to them. The agreement provided that Rachel was to be entitled to remain an assured tenant so long as she occupied the Flat as her only or principal home. The rent was £600 per month. It is now £650.00 per month. This, I am told, is what Rachel receives by way of housing benefit.

 

21.   Negotiations for the grant of the lease of the Flat to Mr and Mrs Garguilo by Mr Moore continued to February 2008. The last letter I have seen is a letter from Mr and Mrs Garguilo’s solicitors dated 25 February 2008 asking for the counterpart lease for signature by their clients. This did not happen. Mr and Mrs Garguilo were in constant contact with Mr Moore, who kept assuring them not to worry and that everything would be sorted.

 

22.   On 12 February 2008 a valuation of the freehold of the Property was carried out for Svenska Handelsbanken. The freehold was valued at £1,570,000. The shop units had been let. The report also states that seven of the eight flats were let on assured shorthold tenancies and that one flat had been sold. This, it seems to me, can only refer to the Flat. The name ‘Garguilo’ appears in the schedule of tenants as the tenant of Flat 4. Flat 1 was, it seems, let on a long lease (125 years) to a Mr Stuart Tidy on 19 June 2008.

 

23.   On 22 August 2008 TWM sent a report on title to the Bank in relation to the Flat. Attached to this, was a schedule of occupancy which showed Flat 4 as vacant and not rented. In recent correspondence Mr Truelove has stated, as would be expected, that he knew nothing of Rachel’s occupation of the Flat. From the limited information before me, it would appear that Mr Moore had a change of heart about granting a long lease of Flat 4 to Mr and Mrs Garguilo sometime between February and August 2008.

 

24.   The next chapter in this narrative relates to the decision by Mr Moore to transfer the freehold of the Property to himself and to Mr Westwood. Mr Westwood’s evidence is that this had always been planned, and that he was to receive 50% of the freehold in return for introducing the Property to Mr Moore and acting for him in various ways in relation to the shop lettings. 0n 18 August 2008 Mr Truelove wrote to Mr Wright. At this stage, Mr Wright was going to act for Mr Moore as vendor of the freehold to himself and Mr Westwood. Mr Truleove acted for them as purchasers. This letter stated that Mr Moore had agreed with Mr Westwood to transfer to both of them, as tenants in common in equal shares, the benefit of the reversion to the four shop leases. In simple terms, the easiest way of achieving this was to transfer the freehold to Mr Moore and Mr Westwood, and, at the same time, to grant long leases of the flats to Mr Moore. Mr Wright was again to act for them as lessors, and Mr Truelove for Mr Moore as lessee. The letter stated that the flats (so far as not already disposed of) were to be refinanced to Lloyds and the Bank. The Bank had a charge over the freehold which would only be released in return for charges over the flats.

 

25.   On 29 August 2008 Mr Wright wrote to Mr Moore and Mr Westwood (at Mr Moore’s address). Mr Westwood denied receiving this letter, but accepts that he saw the letter dated 18 August 2008 from Mr Truelove. I have seen emails from the Bank dated 29 August 2008 and 5 September 2008 which make it clear that the Bank would only release its existing charge over the freehold in favour of Svenska Handelsbank if fresh charges were entered into in respect of flats 2,3 and 4. Lloyds were to lend against charges over the other flats (5,6,7 and 8).

 

26.   It seems to me absolutely clear that the sale of the freehold, grant of the leases, and new mortgages were all, in effect, one transaction: the transfer to Mr Moore and Mr Westwood could not have proceeded unless charges were granted over the (newly created) leasehold interests to Mr Moore in respect of flats 2,3 and 4. These charges were, as I have said, a precondition of the release by the Bank of its charge over the freehold of the Property. Lloyds lent against flats 5,6,7 and 8.

 

27.   The letter dated 29 August 2008 from Mr Wright stated in terms: ‘ As part of this transaction Des and John are granting long leases back to Des of Flats 2,3,4,5,6 ,7 and 8. I will act on your behalf in your role as freeholder in granting the six leases. The purpose of proceeding in this way is that as part of Des’s financial restructuring he is ensuring that these leases are granted in his individual name…’ It will be noted that seven leases are identified (Flat 1 had already been let on a long lease to Mr Tidy). In later correspondence Mr Wright stated that the reference to six leases was simply a mistake. I think this must be right: Flat 4, as seen above, was already the subject of a draft charge to the Bank.

 

28.   The letter also referred to the need for a meeting at which all the documentation would be executed. A completion meeting had been arranged with Mr Truelove on 4 September. It is not clear if a meeting took place on this day. Mr Wright said he was going away the following week (8 to 15 of September).

 

Transfer of the freehold and execution of the Lease

 

29.   A crucial meeting took place at Mr Moore’s offices. Mr Wright attended, as did Mr Moore and Mr Westwood. The various leases had been prepared by TWM. No attendance note appears to have been kept by Mr Wright (at least, I have not seen one). It is not entirely clear when the meeting took place, other than this was before 16 September.

 

30.   Mr Wright wrote to Mr and Mrs Garguilo’s solicitors in December 2010. He started by saying that he had located his file. He also says this: ‘ I do remember attending a meeting at the offices in Hurtmore. At the meeting the leases for flats 2,3,5, 6,7 and 8 were signed in my presence and I witnessed the signatures. On looking at the file I do remember that John Westwood raised the issue with Mr Moore that he was not happy with flat 4. I did point out to him that for the transfer to go ahead and for the refinancing to be completed the leasebacks would have to include flat 4. …. The executed pages to flat 4 I believe were lodged with my office after the meeting – I do not know by whom because I then lodged the transfer of the freehold and executed leases together with the executed pages of flat 4 with TMW. They then inserted the pages on the engrossment they were holding and attended to the registration in the normal way. I did not witness the executed pages of flat 4. ‘

 

31.   This recollection of events ties in with a letter dated 16 September 2008 delivered by hand to Mr Truelove. This letter enclosed the executed transfer dated 11 September 2008 and the executed leases of all the flats, except 1 and 4. The letter went on to say : ‘if you remember after our meeting I lodged with you the executed pages to flats 4 and you were going to insert those in the two engrossments you hold’. It is curious to note that this letter suggests that the executed pages of the Lease were delivered to TWM after a meeting between the solicitors, but before the other leases were delivered to TWM by hand. By a second letter of 16 September, Mr Wright acknowledged receipt of all counterpart leases (including the Lease).

 

32.   The leases of flats 2,3,5,6,7 and 8 are all in identical terms. They all contain a signed block plan, signed by Mr Moore and Mr Westwood. The plan identifies in red the flat sold. In all cases, the signatures are witnessed by Mr Wright. The last page of the lease contains only the (witnessed) signature of Mr Westwood and Mr Moore. Both signatures appear to be witnessed by Ms Stevens, who also witnessed Mr Moore’s signature as lessor. I have seen the original of the Lease. It is (as I imagine all the other leases are) a bound document. The plan page is unnumbered and is inserted between pages 4 and 5 and is signed by Mr Westwood.

 

33.   Mr Westwood’s evidence is as follows. He had known Mr Gargulio for a long time, and Mrs Gargulio had been working for him as a typist for some 5 or 6 years . He introduced Mr Moore to them in 2003. The eventual transfer of the freehold became complicated because of the way Mr Moore had borrowed against the Property.

 

34.   Mr Westwood was at all times aware of Rachel’s occupancy of the Flat and of the expectation that the Flat would be transferred to Mr and Mrs Garguilo. His evidence is that he was clear that he would not grant a lease of the Flat to Mr Moore, but that he was aware of the nature of the re-financing and that the Bank wanted a charge over the Flat. He recalls the meeting at Mr Moore’s offices. The leases were all ready for execution. They were clipped together in piles. He was told that the Bank would not lend unless he signed. His reply was that this was not his business, and he assumed that Mr Moore would make some other arrangement. He said: ‘I imagine Des said he would sort it.’ He accepted in cross examination that it was to his advantage to allow the deal to proceed, not only because this meant that he would receive 50% of the income from the shops, but also because he received £60,000 from the loan (albeit that he had to wait to recover £29,000 until Mr Moore sold his share to Mr and Mrs Garguilo).

 

35.   He had no explanation for his signature on the execution page or the plan. In evidence in chief he said that it had occurred to him that the signature might have come from a shop lease he signed with Mr Moore, but this, of course, does not explain the signature on the plan. It is possible, he said, that he signed the plan in blank, and the colouring was put on afterwards. In his statement he said that he might have signed the Lease if he had been told that it was a lease of Flat 4 to Mr and Mrs Garguilo, but he thought that the better explanation was that Mr Moore had used other pages and coloured in the plan.

 

36.   I have referred above to the statements of Linda Stevens. In her first statement she stated that she has, on occasion, witnessed Mr Westwood’s signature; she has no recollection in relation to the Flat, but that she would not witness any signature unless the person signing was present. In her later statement she went a little further: she said that having checked her expense records, she has a recollection of an occasion in mid September 2008, around the 15 ^th, when she took a document to Mr Westwood’s home. He was waiting to sign it: he rang when she was en route to see if she was lost, which she was. As soon as the document was signed she drove to Guilford, first to TWM’s offices, then to the banks.

 

37.   There are certain aspects of this evidence which require comment. First, it is arguably strange that Ms Stevens having found her expense records, was not able to be more precise as to the date when she went to Mr Westwood’s house (although this may simply reflect her way of keeping records). Second, the missing pages of the Lease went back first not to TWM but to Mr Wright. Again, this may simply be a mistake on her part: but without having an opportunity to test her evidence, questions must remain as to what exactly happened. Third, the completion date on all the documentation is 11 September.

 

38.   Mr Westwood’s evidence on this point is that he does recall one occasion when Ms Stevens visited his home, but he cannot remember when. He does recall that she was lost, but the purpose of the visit was not to sign any document but to give her an envelope for Mr Moore. In cross examination he stated that her evidence was a lie: he did not sign the Lease (or any pages connected with the Lease) in her presence.

 

 

Subsequent events: sale of the freehold to Mr and Mrs Garguilo and Mr Westwood

 

 

39.   On 23 December 2008 Mr Moore and Mr and Mrs Garguilo entered into an agreement for the purchase of Mr Moore’s share of the freehold of the Property. The purchase price was £333,850. The sale was completed on 25 March 2009. The idea was suggested to Mr and Mrs Garguilo by Mr Westwood. They considered the purchase to be a good investment, and mortgaged their own property. TWM acted for them as purchasers, and Mr Wright acted for Mr Moore as vendor. At this point, Mr Moore fell out of the picture (albeit that he remained the long leaseholder of six, if not seven, of the flats).

 

40.   It is important to note that by clause 16(iii) of the agreement dated 23 December 2008, £5,000 was retained ‘upon completion of the transfer by the First Seller to the First and Second Buyer of all that Leasehold flat situate and known as Flat 4, 140 High Street, Godalming Surrey and the said sum is to be retained by the Buyers’s solicitors pending transfer of the said Flat as aforesaid.’ In evidence Mr and Mrs Garguilo stated that they did not know, or understand, that the Lease had been granted: so far as they concerned the only lease in existence was the travelling draft which their solicitor had been dealing with.

 

41.   As I have said, the solicitors acting for Mr and Mrs Garguilo on this transaction were TWM solicitors. So far as they were concerned, of course, Mr Westwood had executed the key pages of the Lease so that the leasehold interest in Flat 4 was held by Mr Moore. Mr Wright acted for Mr Moore and Mr Westwood as vendors.

 

42.   In an exchange of emails on 17 December 2008 John Westwood wrote to Andrew Wright as follows: ‘Andrew, I understand Des Moore may have been in touch regarding the disposal of his interest in the above property to Jennifer and Andrew Garguilo, what do you need and what charges are we looking at? Please advise.’ Mr Wright replied that he had only just been instructed. Later the same day Mr Westwood sent another email to Mr Wright which ended as follows: ‘Finally Jenny and Andy are to receive an undertaking from Des regarding the transfer of the title to Flat 4 (I think) Station Court, Godalming, no doubt all this will come over from Matthew toute suite or faster than that, regards John.’

 

43.   The reference to ‘transfer’ of the title can clearly be seen as an indication that Mr Westwood knew that the Lease had been granted. In evidence he stated that the phrase ‘transfer of title’ was as good a phrase as any, and that he believed some further documentation was necessary from Mr Moore, although he could not say what. It is nonetheless an odd email: if Mr Westwood believed that the Lease had not been granted, he would have known that the Flat would pass as part of the freehold on the second sale. Mr Moore could not have disposed of or charged the Flat without Mr Westwood’s consent. It is also worth noting that although Mr Westwood’s evidence was that he believed he told Mr and Mrs Garguilo that Mr Moore had been anxious to obtain the Lease, their evidence was that Mr Westwood had made no mention of this.

 

44.   An even more striking feature of this case is this. By March 2009 the freehold of the Property was owned jointly by Mr and Mrs Garguilo and Mr Westwood. Mrs Garguilo was working for Mr Westwood. As is set out below, Mr and Mrs Garguilo continued to press Mr Moore to transfer the Flat to them. On Mr Westwood’s case, of course, the Lease had not been entered into. It was therefore open to him (together with Mr and Mrs Garguilo) as freeholders, to grant a long lease of the Flat to Mr and Mrs Garguilo. Notwithstanding this, in his statement Mr Westwood stated that the issue of the Lease only came up when the Respondents were appointed ‘because up to that point Des Moore was still adamant that he was organising the paperwork to grant a lease of Flat 4 to Andrew and Jenny’. This reasoning is hard to follow. If there was no lease to Mr Moore, there was no paperwork to organise. Mr Moore had no interest in the freehold of the Property and no interest in the Flat. When he was pressed on this point, Mr Westwood’s answers were equally hard to follow. Finally, I should just add that Mr Westwood stated that, if this application succeeds, he would co-operate in executing a lease in favour of Mr and Mrs Gargulio, and refused the suggestion that he would stand to gain by the rectification of the title.

 

45.   On 15 October 2009 Mrs Garguilo wrote to Mr Truelove stating that Mr Moore had still not transferred the lease of the Flat to them, and asking if he still held the £5,000 retention. On 26 November 2009 Linda Stevens sent an email to Mrs Garguilo suggesting a meeting with Mr Moore to talk about the Flat. The email said that Mr Moore ‘had been onto RBS’. On 8 December 2009 Mrs Garguilo asked Mr Wright if Mr Moore was intending to transfer the Flat to them. The reply, on the same day, was that Mr Wright had instructions to proceed. Their case is that they continued to believe that Mr Moore would, eventually, honour his promise to grant them a lease of the Flat. Although a copy of the office copy entries for the freehold of the Property was sent to Mr Westwood’s office address, Mrs Garguilo did not see this until much later. The Lease is, of course, entered in the schedule of leases.

 

46.   Mrs Garguilo trusted both Mr Moore and Mr Westwood. She says that she did not discuss the position with Mr Westwood, but, as I said, continued to believe that Mr Moore was in a position to transfer the Flat. This, of course, would have been the position if the Lease had been validly granted. In evidence, she seemed surprised to be told that, as joint freeholder with Mr Westwood (and on the assumption that the Lease had not been granted) it would have been possible to grant a lease to her and to her husband. So far as she was concerned, the freehold consisted of the ground rent from the flats and the rent from the shops. Mr Garguilo agreed with his wife’s evidence. As he said, in relation to the execution of the Lease, he simply relied on what Mr Westwood told them.

 

47.   On 9 December 2009 Mr Moore signed an acknowledgment of debt in favour of Mr and Mrs Garguilo. Added to this acknowledgement was a further sentence: ‘In settlement of this debt I have agreed to transfer the ownership of Flat 4 Station Approach, 140 High Street, Godalming, Surrey to Andrew and Jennifer Garguilo’.

 

48.   On 21 September 2010 a proposal for an Individual Voluntary Arrangement was lodged at Guilford County Court on behalf of Mr Moore. The Flat is not listed amongst the included investment properties, and indeed does not feature at all in the proposal. The sum of approximately £87,500 is given as an unsecured debt owed to Mr and Mrs Garguilo for an investment made in a development property (but no further details are given.) It is not clear how this figure is reached. Mr and Mrs Garguilo’s response was to say that Mr Moore did not owe them money: he owed them the Flat. They had possession of the Flat and they had (in their own mind) paid for it.

 

49.   On 7 October 2010 Mr and Mrs Garguilo applied to enter a unilateral notice on the title to the Flat. This was superseded by the application for rectification. I have seen a letter dated 7 October 2010 from their current solicitors to the nominee stating that their clients’ claim should not appear in the list of creditors, as they have a proprietary claim in respect of Flat 4. They also raised the issue of forgery.

 

Conclusions on the evidence

 

50.   The central factual issue in this case is whether Mr Westwood executed the Lease of Flat 4, that is to say whether he signed the execution page and the plan knowing that they related to the Lease. It is not in dispute that he did not do so at the meeting where the other leases were executed. I also find that the pages signed by him (the final execution page, and the plan) were, at the time of signature, separate from the remainder of the Lease. This conclusion seems to me inescapable in the light of the letters referred to in paragraphs 28 and 29 above. The only evidence on this point comes, in letter form, from Mr Wright: he is clear that the executed pages were inserted in the engrossment. I should also refer to a hand written, undated, note which appears to have been written by Mr Wright during the course of a meeting (or phone call) with Mr Truelove in which it is said: ‘ Me to send you lease for 4.Pages.’

 

51.   I bear in mind, in reaching my conclusion on this point, that no evidence was given to counter the evidence of Mr Westwood. Nonetheless, for the reasons given below, I am satisfied that Mr Westwood did sign the relevant pages knowingly and willingly. My reasons are as follows. First, the entire deal between Mr Westwood, Mr Moore and the Bank, depended on the execution of leases of flats 2, 3 and 4. Without the execution of the Lease Mr Westwood would not have become the joint freeholder (at least, not without serious delays, expense and uncertainty). It was clearly in his financial interest to make sure the deal went through.

 

52.   Second, and even accepting that Mr Westwood was initially reluctant, it was his evidence that he expected Mr Moore to make other arrangements to satisfy the Bank. I suspect he may well have convinced himself, or have been convinced, that those arrangements could be made once the deal was done, and that Mr Moore would, in due course, transfer the Lease to Mr and Mrs Garguilo (free of the Bank’s Charge). Third, Mr Westwood did not have any or any satisfactory explanation as to how his signature (accepted as his once he had seen the original) came to be on the relevant pages. I am not persuaded that he was signing so many documents, or so many plans, that he did not know what he was doing.

 

53.   Fourth, Mr Westwood’s conduct after the execution of the Lease and after the further sale of the freehold to Mr and Mrs Garguilo is only consistent, it seems to me, with the existence of the Lease. There is no other sensible explanation for the email dated 17 December 2008 , nor for the fact that at no stage did he say to Mr and Mrs Garguilo that they were able, as joint freeholders, to grant a lease of the Flat to themselves. He was at all times aware of their expectations, and fully aware of Rachel’s occupancy of the Flat. His comment, in his witness statement, that he only realised the position when the Respondents were appointed because, up to that moment, Mr Moore was still adamant that he was organising the paperwork to grant the Lease only makes sense if he knew the Lease had been executed. Unlike Mr and Mrs Garguilo he is an experienced property agent. He received the office copy entries of the freehold title showing the Lease. Even if he did not understand that the Lease had been granted (which I do not accept) it is telling that he gave no evidence of any conversation with Mr Moore along the lines of: ‘I see that you managed to sort everything out with the Bank: how did you do it?’, particularly given the short time frame in which all the key events took place. His evidence was weak and unreliable.

 

54.   By contrast, I found Mr and Mrs Garguilo to be honest, if naïve, and at times confused, witnesses. It seems to me that they were, at all material times, out of their depth and out witted by Mr Moore, and, not assisted, it seems to me, by Mr Westwood. I entirely accept their evidence that they believed, from the outset, that they would receive a flat in return for the money advanced to Mr Moore. In reliance on this belief and expectation, they spent more money refurbishing the Flat and, most relevantly, they were given the key by Mr Moore and allowed Rachel into possession.

 

55.   I also accept that, in their mind, the person who could grant a leasehold interest in the Flat to them was always Mr Moore (and of course, that is exactly the position in any event). The freehold, to them, consisted of the rents from the shops, and the ground rent from the flats.

 

56.   I accept that the steps taken by them from October 2009 onwards (set out in paragraph 43 above) suggest that they had, by then, realised that Mr Moore was the leaseholder of the Flat, but I am not convinced that they realised the implications of the first transfer of the freehold of the Property to Mr Westwood and Mr Moore, and the granting of the Lease. What is clear is that Mr Westwood never said to them that he had not entered into the Lease and that, therefore, the way was open to them (with his co-operation) to grant a lease to themselves. In this sense their behaviour was consistent throughout: they had struck a bargain with Mr Moore which they expected him in due course to honour, and on which they relied to their detriment. Their hand was forced, when the Respondents came on the scene, and informed Rachel by letter dated 1 July 2010 that they had stepped into the shoes of Mr Moore as her landlord.

 

57.   At the hearing, the issues whether Mr and Mrs Garguilo could claim a proprietary interest against Mr Moore, and indeed whether Rachel, in her own right, has an over-riding interest which binds the Bank were raised in passing. Regrettable though it may be not to deal with all the issues relevant to the case at the same time, it seems to me that I can only deal with the matter referred to and argued before me, namely whether the Lease was invalid for the reasons set out above. Mr and Mrs Garguilo did not put their case to the Land Registry, or to me, on the basis that they had acquired a proprietary interest in the Flat. Both parties accepted that, if the application to alter the register fails, further litigation might be inevitable.

 

 

 

 

Legal Analysis

 

58.   I have found that the signature page and the plan were signed by Mr Westwood at some time after the meeting referred to above, and that he did so knowingly and willingly. The Lease is therefore not a forged document.

 

59.   This is not, however, the end of the matter. The Applicants argue that the Lease is invalid because it was not executed in accordance with section 1(3) of the 1989 Act. The Respondents do not accept that the Lease is invalid for want of formality, and in any event argue that if is, Mr Westwood is estopped from taking the point. If the Lease is invalid (and no estoppel arises) it is accepted, as I have said, that the registration of the Lease and the Charge are a mistake. This then leads to the final question, namely whether the additional statutory requirements contained in paragraph 6(2) of the Schedule 4 to the 2002 Act come into play and, if so, whether the register should be rectified.

 

60.   A further point was raised on behalf of the Applicants, namely that the Lease might be invalid because Mr Westwood’s signature might not have been properly witnessed by Ms Stevens. As I do not accept Mr Westwood’s evidence on the question whether or not he signed the relevant pages, I do not accept his further evidence that Ms Stevens was lying or mistaken when she said that she would not have added her name as a witness unless she saw Mr Westwood sign .

 

The invalidity point

 

61.   The submission on this point is that, even without forgery being demonstrated, the mere fact that the signatory pages of the Lease were, as I have found, executed separately and inserted into the Lease invalidates the instrument as a matter of law.

 

62.   It is perhaps worth summarising the evidence on this. Mr Wright received only the executed pages (which must have included the plan) at some time after his meeting with Mr Westwood and Mr Moore. They were not given to him by Mr Westwood, but by an unknown person (probably Mr Moore or Linda Stevens). Mr Wright lodged these pages only with Mr Truelove on a different occasion from the handing over of the other executed leases. Mr Wright left Mr Truelove to ‘insert’ the executed pages into the two deeds Mr Truelove already held.

 

63.   Section 1(3) of the 1989 Act, so far as relevant, 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’

64.   The Applicant’s argument proceeds as follows. The ‘it’ in part (a) must refer back to the instrument in question. This means the entire document, and not merely the execution pages or any other page.

 

65.   The point was considered by Underhill J in R v Her Majesty’s Commissioners of Revenue and Customs [2008] EWHC 2721. In that case the claimants sought judicial review of the decision of HMRC to seek warrants to search their offices and the decision of the Crown Court to grant the warrants. HMRC’s case was that the scheme in question was flawed and that the claimants sought dishonestly to conceal the flaws. The judge therefore had to consider whether the scheme was flawed.

 

66.   It was common ground that the documents in question were intended to be deeds. It was also common ground that the clients were asked to sign incomplete drafts of each of the three documents and that, when fresh documents in final form came to be executed, the client was not asked to sign these versions but instead the signature pages from the drafts were detached and stapled to the final version. There were differences between the drafts and the final versions.

 

67.   The claimants argued that there was nothing wrong with the procedure adopted, and referred to a number of decisions which state that a contract in writing could effectively be altered after the signature provided that the party making the change had the authority so to do. On the facts, the judge rejected these submissions. He also stated that he was not aware of any authority, in contract law, where a signature page was taken from one document and recycled for use in another. He went on to say: ‘The parties in the present case must be taken to have regarded signature as an essential element in the effectiveness of the documents: that is to be inferred from their form. In such a case I believe that the common understanding is that the document to be signed exists as a discrete physical entity (whether in a single version or a series of counterparts) at the moment of signing. The significance of this is not entirely talismanic (though it would not affect my view even if it were): the requirement that a party sign an actual existing authoritative version of the contractual document gives some, albeit not total, protection against fraud or mistake.’ [39]

 

68.   Underhill J then went on to consider what he described as the additional factor that each of the three key documents was intended to be a deed. He set out the provisions of section 1(3) and said: ‘Mr Bird submitted, and I agree, that that language necessarily involves that the signature and attestation must form part of the same physical document (the ‘it’) referred to at (a) which constitutes the deed.’ [40]. He also stated: ‘ I accept that the flaws on which HMRC rely are essentially formal. But I see nothing wrong in applying a strict test of formality to the validity of the agreements with which we are concerned in this case. The entire raison d’etre is to create – and demonstrably to create – a series of formal legal relationships: if they do not do that, they do nothing.’

 

69.   It is correct to say that in the Mercury case there were differences between the two versions of the documents. This is not the case here. There is only one version of the Lease. But it seems to me that section 1(3) clearly provides that the signature and attestation must form part of the physical instrument at the moment of signing. This requirement stands alone, regardless of whether there were earlier drafts (which may or may not have been materially different). The policy argument is that the signature should reflect the proper agreement: if the signature is obtained separately the maker cannot be sure of the terms of the deed and the risk of fraud or mistake remains.

 

70.   Mr Ollech submitted that, carried to an extreme, this line of reasoning would produce a situation where a document would be invalid if the signature pages were signed in another part of the room or possibly even merely detached from the remainder of the deed. The question must always be whether the signature page and other relevant pages formed part of the same physical document. That will be a question of fact in each case. In this case, the relevant pages were clearly separate from the remainder of the Lease: they were signed separately and returned separately (and not by Mr Westwood) at some unspecified time after the other leases were executed (and after Mr Westwood had stated, initially, that he did not intend to execute the Lease) and were accordingly not in any sense part of the ‘it’ referred to in the statute.

 

71.   Section 52(1) provides that all conveyances of land are void for the purpose of creating a legal estate in land unless made by deed. Accordingly, in my judgment, the Lease is void as it was not made by deed.

 

Estoppel

 

72.   During the hearing, I raised the question of whether estoppel might come into play, referring to Shah v Shah [2001] 4 All ER 138. It is on this point that I received further written submissions from Counsel.

 

73.   In Shah v Shah the third and fourth defendants entered into a deed to pay £1.5m to the claimant. One of the defences raised was that the document was not valid as a deed because the witness to their signatures was not present at the moment of signing. The Court of Appeal held that in the circumstances of that case estoppel could be used to avoid the formal invalidity of the deed.

 

74.   Pill LJ stated, at [21] that the general statement of the law was as stated by Beldam J in Yaxley v Gotts [2000] 1 All ER 711 at 734 was correct: ‘ The general principle that a party cannot rely on an estoppel in the face of a statute depends on the nature of the enactment, the purpose of the provision and the social policy behind it’. The claimant accepted in that case that an estoppel could not defeat the absence of signature, as distinct from a defect in or absence of its attestation. The signature is fundamental to the validity of a deed.

 

75.   Pill LJ then stated this: at [30]: ‘ 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 a 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… 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.’

 

76.   Although the point is not free from difficulty, I have come to the view that the Applicants’ submissions on this point are correct. The attestation of a witness was held to be only secondary. The signature on the deed is not secondary: it is fundamental to the validity of the deed. The lack of a (valid) signature cannot be cured by estoppel. If the signature is not on the complete instrument it is not a signature on the deed. It is merely a signature on one or more pages which do not, at the moment of signing, form part of the deed. The fact that the deed (the ‘it’) is not one document at the moment of signing leaves open, of course, the possibility of fraud or mistake. If it were possible to argue that the doctrine of estoppel can cure the absence of a valid signature on the deed itself the statute could, in all circumstances, be circumvented. Formality has its well established place in the law, even though (as with the operation of the limitation period) the outcome may seem arbitrary, and, in the case of deeds, possibly commercially inconvenient.

 

 

 

Should rectification be ordered?

 

77.   As I have said, it is common ground that if the register is rectified by the removal of the Lease, the Charge will fall away. The Bank may or may not be entitled to be indemnified under section 103 and Schedule 8 to the Act.

 

78.   Paragraphs 2 and 3 of Schedule 4 to the Act deal with alterations made pursuant to court orders; paragraphs 5 and 6 (which are, for these purposes, in identical terms) deal with alterations made otherwise than pursuant to a court order. Paragraph 6(2) provides as follows:

 

‘ No alteration affecting the title of the proprietor of a registered estate in land may be made under paragraph 5 without the proprietor’s consent in relation to land in his possession unless:

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

(b)    it would be for any other reason be unjust for the alteration not to be made ‘.

 

79.   Paragraph 6(3) further provides that if the registrar has power to make the alteration, the application must be approved, unless there are exceptional circumstances which justify not making the alteration.

 

80.   The Respondents, as receivers (and as agents for Mr Moore) are not in possession of the Flat, nor is Mr Moore. But the question is whether he is deemed to be in possession by virtue of section 131(2) of the Act. This section provides that the possession of a tenant is deemed to be that of the landlord; of the mortgagee that of the mortgagor; of the licensee that of the licensor and of the beneficiary that of the trustee.

 

81.   There is no direct relationship of landlord or tenant or licensor and licensee between Mr Moore and Rachel. Her tenancy is with Mr and Mrs Garguilo. But it is clear that, on the evidence, Mr Moore consented to her going into occupation, and knew of the arrangement made between them. On these facts, and for the purpose of this section, it seems to me that Rachel’s occupation could be said to be that of Mr Moore’s licensee (as I have said, the issue of her status vis a vis Mr Moore and the Bank was not an issue before me).

 

82.   If this is the case then the question becomes whether Mr Moore caused or contributed to the mistake (the invalidity of the lease) by fraud or lack of proper care. It seems to me clear that there was lack of proper care either by Mr Moore or by his solicitor in allowing the Lease to be executed as it was. In any event, even if this were not the case, there a number of factors which, to my mind, make it unjust for the alteration of the register not to be made.

 

83.   Mr and Mrs Garguilo advanced money in the expectation that they would be granted a lease of the Flat; on the strength of this Rachel was allowed into occupation and Mr Moore has never lived in the Flat. He is deemed to be in possession by virtue of the very same course of conduct which might, in any event, give rise to a claim to an interest in the Flat by reason of proprietary estoppel. Given all these factors, it seems to me clear that it would be unjust not to make the alteration, and furthermore there are no exceptional circumstances, in my judgment, which would justify not making the order.

 

84.   Accordingly, I will order the Chief Land Registrar to give effect to the application to rectify the register by cancelling the Lease and the Charge. It may also be necessary to alter the register of the freehold title of the Property (SY93542) by removing the notice relating to the Lease of the Flat, but I will leave this to the Applicants to deal with.

 

Costs

 

85.   I invite both parties to make written submissions in relation to costs. The Applicants, as the successful party, may lodge a schedule in Form N260 by 20 January 2012. The Respondents may make such representations or objections as they deem appropriate by 3 February 2012.

 

BY ORDER OF THE ADJUDICATOR

 

ANN McALLISTER

 

Dated this 6 ^th day of January 2012