REF/2011/0713/0714/0715/0716

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

LAND REGISTRATION ACT 2002

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

BETWEEN

COMMERCIAL FIRST BUSINESS LIMITED

APPLICANT

and

(1)    DIN MOHAMMED CHOUDHRY

(2)    AQSA BIBI CHOUDHRY

(3)    KAUSER JOBEEN CHOUDHRY

(4)    RAZIA BIBI CHOUDHRY

RESPONDENTS

Property Address: 9 Carlton Drive Bradford BD9 4DL

Title Number: WYK350646

Before: Mr Owen Rhys sitting as Deputy Adjudicator to HM Land Registry

Sitting at: City House, Albion Street, Leeds

On: Thursday 19 ^th July 2012

Applicant representation: Ms Sophie Mitchell of Counsel instructed by Moore Blatch

Respondent representation: Mr M Choudhry (on behalf of the Respondents)

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D E C I S I O N

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1.       On 1 ^st February 1985 Mr and Mrs Din Mohammed Choudhry, the first and fourth-named Respondents, and husband and wife, became the registered proprietors of 9 Carlton Drive, Bradford BD9 4DL, under Title number WYK350646 (“the Property”). In early August 2007 two of their sons, Mr Waseem Ahmed Choudhry and Mr Naeem Ud Deen Choudhry (“the Judgment Debtors”) began negotiations with Total Mortgage Solutions with regard to a re-mortgage of the Property. On 7 ^th August 2007 a re-mortgage offer in the sum of £420,000 was made by Bank of Scotland, to be secured by a first charge over the Property. On or about 16 ^th August 2007 Mr and Mrs Choudhry transferred the Property to the Judgment Debtors and Mrs Choudhry for nil consideration, and they were registered as joint proprietors on 21 ^st August 2007. On 10 ^th September 2007 Bank of Scotland obtained a charge over the Property and shortly afterwards a sum of £420,000 is remitted to the Judgment Debtors’ solicitors. The charge was registered on 22 ^nd February 2008. In October 2007 the Applicant made an advance to the Judgment Debtors in the total sum of £600,000, secured by a first charge on two commercial properties. Due to default in repayment, the Applicant brought two sets of proceedings against the Judgment Debtors in the Bradford County Court, and on 10 ^th August 2008 obtained an order for possession in respect of the mortgaged commercial properties and two money judgments in the total sum of approximately £630,000.

2.       Despite the orders for possession, there remained a very substantial shortfall in the amount owing to the Applicant after the realisation of the security, and it applied to Bradford County Court for a charging order. On 8 ^th November 2010 the District Judge made an interim charging order in respect of the Property. A hearing was fixed for 7 ^th February 2011. Subsequently, on 5 ^th January 2011, the Applicant applied in Form RX1 to the Land Registry to register a restriction against the title to the Property in order to protect the interim charging order. On 2 ^nd February 2011 the Respondents applied to the court to be joined to the proceedings for the purpose of discharging the interim order. At the same time, they objected to the application for the restriction. The basis of their application to be joined was that they held the entire beneficial interest in the Property, since, it was alleged, the Judgment Debtors merely held the Property on a bare trust for them. It was alleged that when the Property was transferred in August 2007, there was an oral agreement or understanding between the transferors and the Judgment Debtors that no beneficial interest would pass to the Judgment Debtors. Their application was attached to the letter of objection to the Land Registry.

3.       Notwithstanding the trust allegation, when the matter came back before the District Judge on 7 ^th February 2011 he made a final charging order in respect of the Property. It appears that although the Respondents were not themselves present at the hearing, Mr Mohammed Choudhry, who appears today as a friend and representative of the Respondents, was present. Following on from this order, the Respondents’ application to be joined to the proceedings was re-listed before District Judge Lynch on 14 ^th April 2011. No order has been drawn up, but the solicitor’s attendance note of the hearing, which was not attended by the Respondents, indicates that the application was heard and struck out. The Respondents’ original objection to the RX1, on the grounds that the Judgment Debtors had no beneficial interest in the Property but merely held the same as trustees for them, remained unresolved. Accordingly, on 11 ^th July 2011 the Chief Land Registrar referred the matter to the Adjudicator for resolution. The Respondents have filed Statements of Case, supported by statements of truth, including statements from the Judgment Debtors, all reiterating that the Property was transferred to them on the “understanding” that they would hold the beneficial interest on trust for Mr and Mrs Choudhry.

4.       Ms Mitchell, for the Applicant, makes the following submissions. She refers me to section 42(1)(c) of the Land Registration Act 2002 (“the LRA 2002”) which is in the following terms: “ (1) The registrar may enter a restriction in the register if it appears to him that it is necessary or desirable to do so for the purpose of – (c) protecting a right or claim in relation to a registered estate or charge.” A person who “has a sufficient interest in the making of the entry” may apply for a restriction under section 43(1)(c) of the LRA 2002. She submits that the Applicant has a “sufficient interest” in the Property, and relies on Rule 93(k) of the Land Registration Rules 2003, which includes “ any person with the benefit of a charging order over a beneficial interest in registered land…”. There is no doubt, therefore, that the Applicant is entitled to apply for the entry of a restriction in the register relating to the Property. The entry of a restriction is discretionary, but it is clearly desirable that the interest should be protected. If the charging order is not protected, theoretically the registered proprietors could dispose of the Property or encumber it in some way to the prejudice of the unprotected judgment creditor. The entry of the restriction does not create any new interest – it merely protects the equitable interest created by the court’s final charging order.

5.       Ms Mitchell also submits that it is not open to the Adjudicator to make any findings as to the beneficial interests lying behind the legal ownership of the Property. More precisely, she submits that the Respondents’ contention that the Judgment Debtors have no beneficial interest in the Property is unarguable. She points to the fact that the court has made a final charging order in respect of the Judgment Debtors’ interest in the Property. That order has not been appealed or set aside, and still stands. She refers me to section 2(1) of the Charging Orders Act 1979 (“the 1979 Act”), which provides that “….a charge may be imposed by a charging order only on – (a) any interest held by the debtor beneficially…” . Although there is a special provision relating to trusts – section 2(1)(b) – this was not the basis of the order made in this case. Accordingly, she submits, the mere fact that a final charging order has been made in respect of the Judgment Debtors is conclusive as to the fact that they have some beneficial interest in it. It is not for the Adjudicator to go behind the court order and seek to investigate the beneficial ownership. However, that is not to say that the Respondents are unable to raise the issue at all. Essentially, according to Ms Mitchell, they have three possible avenues. First, they could apply to discharge, vary or appeal the final charging order – or, indeed, the District Judge’s decision to strike out their application dated 2 ^nd February 2011. Secondly, they could raise the issue in court proceedings brought for that purpose. It appears that there are or may be some proceedings on foot – to which the Bank of Scotland, as first chargee, is a party. I asked Mr Choudhry about the progress of these proceedings, and why the Applicant had not been made a party, but I received no clear response. Thirdly, the beneficial interests would be relevant on an application by the Applicant for an order for sale when the considerations identified in section 14 of the Trusts of Land and Appointment of Trustees Act 1996 come into play. These are the only legitimate methods of re-opening the issue of beneficial ownership, as to which the Adjudicator has no jurisdiction.

6.       I put these points to Mr Choudhry, which appeared to me to have some force, and asked for his response. In essence, his answer was that the Respondents’ original application (of 2 ^nd February 2011) to be joined to the charging order proceedings remains on foot. Although it appears that the application was struck out, he says that no formal notice of this has ever been given to the Respondents, and as far as they are concerned the application still has to be determined. Of course Mr Choudhry is not (as far as I am aware) legally qualified, and it would not be fair to expect from him a detailed analysis of the Applicant’s submissions. However, I consider that he understood the points made by Ms Mitchell, and although I gave him every opportunity to expand his arguments, he kept returning to this same point.

7.       In my judgment, the analysis provided by Ms Mitchell is compelling. I do not see how, in the light of the provisions of the 1979 Act, it is open to the Adjudicator to go behind the decision of the District Judge and hold that the Judgment Debtors have no beneficial interest. Nor is there anything in the point laboured by Mr Choudhry. The Respondents – even if they had been unaware of the strike out in April 2011 – must have been aware of it no later than the date of the service of the Land Registry’s Case Summary in July 2011, which refers in terms to the strike out on 14 ^th April 2011. The attendance note of the District Judge’s decision was exhibited to the Applicant’s statement of case dated 15 ^th August 2011. In any event, this misses the point. Unless and until the final charging order is set aside it is conclusive. The onus is on the Judgment Debtors or the Respondents to bring the matter back before the court. If they choose not to, for whatever reason, they must take the necessary consequences.

8.       I therefore conclude that the Respondents do not have a legitimate objection to the entry of a restriction in the register of the Property to protect the final charging order. I have reached that conclusion on the basis of the legal analysis set out above. Furthermore, this conclusion is in my judgment entirely consistent with the purpose behind the restriction process. The restriction protects the judgment creditor’s equitable interest arising from the charging order. It does not conclude the issue of beneficial ownership against the Respondents, as I have said. However, it does mean that until such time as the charging order is set aside – it that ever happens – it remains effective and cannot be sidestepped by a sale or other disposition which would override the Applicant’s equitable interest.

9.       As a final point, although of course I have not heard the evidence in support of the Respondents’ claim that the Judgment Debtors are bare trustees only, it is difficult to feel any confidence that this argument will ever succeed. Given the chronology, it seems overwhelmingly likely that the purpose underlying the transfer into the names of the Judgment Debtors was to facilitate the re-mortgage of the Property in order to raise the substantial borrowings I have referred to above. Such borrowings would of course have been impossible if the Judgment Debtors were not the beneficial owners of the Property. Furthermore, there is a complete absence of writing recording the alleged “understanding”. Section 53(2) of the Law of Property Act 1925 allows the creation of constructive trusts without any written proof, but the Respondents’ statement of case give no explanation whatsoever for the transfer at nil consideration. There is of course a presumption of advancement – the Judgment Debtors are sons of Mr and Mrs Choudhry – which might lead to the conclusion that the transfer was by way of gift. If, however, the understanding was that Mr and Mrs Choudhry would retain their beneficial ownership, that must call into question the bona fides of the transaction, given the contemporaneous borrowings and re-mortgage. However, it has not been necessary to investigate these issues for the purposes of this reference, and, for the reasons that I have given, it would not be appropriate to do so.

10.   I shall therefore direct the Chief Land Registrar to give effect to the Applicants’ application dated 5 ^th January 2011. I do not see why the Respondents should not pay the Applicant’s costs of the reference on the standard basis. A statement of costs has been served by the Applicant. If they wish to contend for a different order, or challenge any items on the costs statement, they may lodge (and serve on the Applicant) written submissions within 14 days, and the Applicant will then have 7 days to reply.

Dated this 27 ^th day of July 2012

BY ORDER OF THE ADJUDICATOR TO HM LAND REGISTRY