England and Wales Land Registry Adjudicator

PROPERTY CHAMBER

FIRST-TIER TRIBUNAL

LAND REGISTRATION DIVISION

 

 

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

LAND REGISTRATION ACT 2002

 

 

REF NO 2015/0176

B E T W E E N:

 

LORD CHANCELLOR

 

Applicant

 

And

 

 

SUKPAL KAUR SANGHERA

 

 

Respondent

 

 

Property address: 7 Edwin Phillips Drive, West Bromwich B712AZ

Title number: WM736841

 

 

Before Judge McAllister

Birmingham Employment Tribunal

16 November 2015

 

Representation: Mr Michael Rimer appeared for the Applicant; Mr Tim Jacques appeared for the Respondent.

 

DECISION

 

Introduction

 

1. On 2 December 2014 the Applicant, as statutory successor to the Legal Services Commission, applied to register a charge against the title of 7 Edwin Phillips Drive, West Bromwich (‘the Property’). The issue in this case is whether or not the Respondent, Ms Sanghera, ‘preserved or recovered an interest’ in the Property within the meaning of section 10(7) of the Access to Justice Act 1999.

 

2. For the reasons set out below  I will order the Chief Land Registrar to enter a restriction in Form JJ against the above title, to protect the Lord Chancellor’s charge secured on the property ‘recovered’ by Ms Sanghera in the proceedings, namely her former husband’s beneficial interest which, on the evidence before me, I assume to have been 50%.

 

Background and evidence

 

3. The facts of this case are not in dispute. Ms Sanghera is the registered proprietor of the Property. Prior to the consent order referred to below, the Property had been registered in the joint names of herself and her husband, Mr Sanghera. They had bought the Property in 2007.  On 15 May 2010 a substantive public funding certificate was issued to her, through her then solicitors, Messrs Bachers, to be represented on an application for a non molestation and occupation order, an application to vary a contact order, and a contact order.

 

4. In the usual way, Ms Sanghera signed a declaration on 20 April 2010, to the effect that she understood that she might have to accept, at the end of the case, that an interest bearing charge would be registered against her home.

 

5. The certificate was amended on 12 November 2011 to cover an application for ancillary relief. This application for ancillary relief was issued on 25 November 2011. Directions were given by the District Judge on 14 May 2012 for the Property to be valued by an independent valuer if the parties could not agree a valuation.

 

6. On 2 January 2013 a consent order was approved by the District Judge. Upon Ms Sanghera undertaking to procure the release of her former husband from any liability under the mortgage secured on the Property, and to pay the sum of £3,500 to a credit card company to release a restriction on the Property, and on the basis that Mr Sanghera was entitled to certain items from the Property, he agreed to transfer all his legal and beneficial interest in the Property to Ms Sanghera. On completion of the transfer, it was further agreed that all other claims by Ms Sanghera and her former husband would stand dismissed. The order further recited that for the purposes of the applicable legal aid regulations, so as to provide security for the postponement of the legal aid charge, the Property had been preserved or recovered to provide a home for Ms Sanghera and her children.

 

7. The narrative of the solicitors’ bill provides further information. At the time of the transfer the Property was said to be worth £135,000 with a mortgage of £135,007 (together with a further charge in respect of the £3,500 debt to the credit card company). It also recited the fact that although  Ms Sanghera’s ex husband had agreed to transfer the Property to her, on the terms set out above,  he refused to sign the consent order until he attended court on 2 January 2013. The husband’s position was set out in his Form E and statement of issues: he did not seek a transfer of the Property into his name, and he stated that, subject to a release of his obligations under the loans secured on the Property, and the return of his certain items, he was prepared to agree to the transfer of the Property to his wife.

 

8. It is also clear from the solicitors’ narrative in the bill of costs that it was necessary to instruct a valuer, Paul Jackson, in the summer of 2012. It should also be noted that in her Form E, Ms Sanghera valued her interest in the Property at £7,000 odd, and her former husband valued his interest at some £20,000. Mr Sanghera valued the Property at £180,000.

 

9. Following the consent order, the bank refused to allow the transfer until the mortgage was reduced to £120,000. Ms Sanghera borrowed money from her family to do so. On 11 November 2013 the Legal Aid Agency wrote to Baches in these terms:’ Thank you for your letter dated 25 October 2013. I confirm that as your client has not recovered or preserved any money or property in this matter the statutory charge will not apply.’

 

10. On 9 January 2015 the Legal Aid Agency wrote both to the Land Registy and Ms Sanghera explaining that, on a review of the original decision, the Agency had come to the view that the statement in the letter dated 11 November 2013 was incorrect. The letter to Ms Sanghera said this: ‘ I offer my sincere apologies that you were not informed immediately when the original decision of the Legal Aid Agency, where it was decided that the statutory charge would not arise, had been reviewed and this decision reversed. Your solicitors were informed of this reversal in a letter dated 2 December 2014. It was decided that the charge will now arise because it was clear from the information available that the work under the Funding Certificate has been instrumental in your obtaining a transfer of the property from joint names to your sole name….I must make it clear that in cases where the property has a very low level of equity or is in negative equity, the amount of the statutory charge is the lesser amount of either the equity in the property at its sale or the amount of the costs paid under Public Funding. This means if your property is sold and there is no equity then you will not be required to repay your costs.’

 

11. Mr Rimer correctly submitted that it is not possible for the Legal Aid Agency to be estopped from pursuing its remedies, but he accepted that it might be possible for the Ombudsman to make a compensation order in appropriate circumstances, where, as here, a letter was written in unequivocal terms informing the assisted party that no charge had arisen. I was told by Mr Jacques, who appeared for Ms Sanghera, that she had acted to her detriment in reliance on this letter. This point was not pursued further in the course of the hearing, but it may be a relevant fact, if it can be made out, in any complaint to the Ombudsman.

 

Applicable law

 

12. Section 10(7) of the Access to Justice Act 1999 provides as follows:

 

‘ Except so far as regulations otherwise provide, where services have been funded by the Commission for an individual as part of the Community Legal Service-

(a)   the sums expended by the Commission in funding the services (except to the extent that they are recovered under section 11) and

(b)   any other sums payable by the individual by virtue of regulations under this section

shall constitute a first charge on any property preserved or recovered by him (whether for himself or any other person) in any proceedings or in any compromise or settlement of any dispute in connection with which the services were provided.’

 

13. The leading authority is the decision of the House of Lords in Hanlon v the Law Society [1981] AC 124, which concerned the meaning of a similar provision in section 9 of the Legal Aid Act 1974.  In essence, the House of Lords held that property is ‘preserved or recovered’ if, as a matter of fact, its ownership or transfer had been in issue in the proceedings, and that, on the facts of that case, the transfer of the house to wife’s name had involved both a recovery (of his share) and a preservation (of her share). Where the only issue is whether the husband’s share should be transferred to the wife, and no issue but that she should retain her share, the charge only attaches to the husband’s half share.

 

14. Lord Simon said this (page 180): ‘… property has been recovered or preserved if it has been put in issue in the proceedings – recovered by the claimant if has been the subject of a successful claim, preserved by the respondent if the claim fails. In either case it is a question of fact, not theoretical ‘risk’. In property adjustment proceedings, in my view, it is only property the ownership or transfer of which has been in issue which has been ‘preserved or recovered’ as to be the subject of a legal aid charge. What has been in issue is to be collected as a matter of fact from the pleadings, evidence, judgement and/or order. I can see no reason for extending the words to items of property the ownership or possession of which has never been questioned.’

 

15. Lord Scarman at page 187 made the same point: ‘A person recovers or preserves in legal proceedings only what is in issue between the parties: and one discovers what is in issue by looking at the pleadings and the evidence. Had there been in this case a clear concession or admission that, as a matter of prior entitlement, that is, before the exercise of the court’s discretion under section 24 and 25 of the Act of 1973, the husband’s interest in the house was limited to half a share I would have agreed that by her proceedings the appellant ‘recovered’ that is to say, got, his half share, but was not engaged in ‘preserving’ hers, which was not in dispute. But  I am satisfied that no such concession or admission was made by the husband. The whole house was in issue.’  He also stated that if it were established that the wife held the entire beneficial interest, and the husband was ordered to transfer the legal estate, it would be clear that no property had been preserved or recovered. The charge attaches to the beneficial interest.

 

16. In the present case, the Property was registered in both names, and there is nothing, in my judgment, in this case to displace the starting presumption that the Property was held by Mr and Mrs Sanghera as joint tenants beneficially. It is also clear from all the evidence that Mr Sanghera at no stage made any claim to his wife’s share: the issue, if any, related to his half share alone. In Hanlon the whole house was in dispute in the matrimonial proceedings.  

 

17.  There have been a number of decisions relating to the Legal Aid statutory charge since Hanlon. These were considered in McPherson v Legal Services Commission by Morgan J, on appeal from a decision of Deputy Adjudicator Rhys (as he then was).

 

18. Mrs McPherson was a defendant in possession proceedings brought against her and her husband in relation to mortgage arrears. The proceedings were compromised on terms that the McPhersons were to pay £265,000 to the mortgagee in relation to all outstanding claims. The Legal Services Commission (LSC) applied to register a charge against the property. The entire legal and beneficial interest was transferred to Mrs McPherson. The matter was referred to the Adjudicator. Mr Rhys found that the property was preserved by virtue of the proceedings. The relevant regulations in force at the time were the Civil Legal Aid (General) Regulations 1989. The relevant act was the Legal Aid Act 1988 (see section 16).

 

19. A further argument advanced on behalf of Mrs McPherson was that, as the property was in negative equity at the date when it was ‘preserved’, the statutory charge could not bite. At the time, the LSC appeared to adopt the attitude that if the legally aided party could establish that there was negative equity, the charge would not apply. This approach was not based on any decided case law, but on an interpretation of regulation 99 of the regulations then in force. Mr Rhys held that the terms of section 16 of the Legal Aid Act 1988 (the relevant provision then in force) were not limited in any way by reference to ‘the equity’ in the recovered or preserved property. He held that the property is the legal and beneficial interest preserved or recovered by the assisted party.

 

20. If he was wrong about that, he agreed with LSC that the burden is on the legally assisted person to establish that the property was indeed in negative equity, and that she had failed to discharge this burden.

 

21. Mrs McPherson appealed against Mr Rhys’ decision. Morgan J dismissed the appeal. He found that the McPhersons preserved possession of the property. This finding disposed of the matter. He also considered the question of value in this way: if, the property was sold at the time the charge was registered, and the property was in negative equity, then it would follow that LSC would not receive any part of the proceeds of sale. If, of course, the property increased in value, then the position might be different. In any event, on the facts, Mr Rhys had not been satisfied that the property was worth less than £265,000 at the time it was preserved.

 

 

 

 

The parties’ submissions

 

22. On behalf of Ms Sanghera, Mr Jacques advanced two arguments. First, as the transfer of Mr Sanghera’s beneficial title was by consent, it could not be said that any property had been ‘preserved or recovered’. Second, and in any event, as there was no equity in the Property at the time of the transfer, there was no beneficial interest to transfer, and accordingly the charge cannot bite.

 

23. Mr Rimer countered these submissions by arguing that, looking at the totality of the events leading up to the consent order, the ownership of the Property was in issue, and Ms Sanghera ‘recovered’ her husband’s share. As for the second point, he argues that section 10(7) should not be read as limiting ‘property’ to property where there is an ‘equity’.

 

24. I agree with Mr Rimer on both these points. The relevant legal aid certificate was amended to cover an application for ancillary relief; Mr Sanghera was only prepared to transfer his interest on conditions; the parties could not agree a valuation; the solicitors had to undertake ‘considerable work’ to move matters forward, and in the end the parties had to go to court to ensure that Mr Sanghera signed the consent order. In the circumstances, it seems to me that the only conclusion to be drawn is that the ownership of Mr Sanghera’s share in the Property was in issue between the parties in the proceedings. I do not accept the argument that the only issues between the parties were the release of Mr Sanghera from the mortgage and secured debt and the return of his belongings: these matters formed part of the dispute surrounding the transfer of the ownership of the Property.

 

25. As for the second argument, I make the following observations. First, Mr Jacques did not seek to rely on any authority, nor on the relevant regulations. The current regulations (the Community Legal Service (Financial) Regulations 2000 (as amended) are not in the same terms as the 1989 regulations. Regulation 43 provides simply that: ‘ where any money or property is recovered or preserved for a client in a relevant dispute or proceedings, the amount of the statutory charge shall be the aggregate of the sums referred to in section 10(7(a) and (b) of the Act.’ Secondly, I can see no basis for construing ‘property’ in the sense of property contended for: Mr Sanghera clearly had an interest in the property at the time of the consent order, even if the value of that interest, at the time, was less than the mortgage and other debt secured on the property.

 

26. As I understand Mr Jacques, he conceded that, if property was recovered at the time of the consent order, and if equity then builds up, the charge can bite. His argument, put bluntly, is that a share of the beneficial interest at a time when the value of the debt exceeds the value of that interest, is not property. The fallacy in that argument is this: there is a difference between an interest, and the value of the interest. The value can fluctuate. The underlying interest, putting the matter another way, is in the equity of redemption.

 

27. That point aside, there is also the question of what the Property was worth at the date of the consent order. Mr Sanghera, in his Form E, valued it at £180,000. I understand that the parties paid £167,000 for the Property in 2007. The fact that a joint valuation was obtained is not, in my judgment, necessarily conclusive.

 

Other matters

 

28. The amount of the charge (which, as I have said, attaches only to Mr Sanghera’s share) is £15,000. Mr Rimer accepted that no interest will run on this sum because, as I understand it, regulation 53 (3) of the 2000 regulations, provides that where the value of the assisted person’s interest in the property at the time it was recovered (the date of the consent order) is less than the amount of the statutory charge (as it was), then the interest would attach to such lower sum as the Commission considers equitable. Where, as here, there is no value in the interest recovered, then no interest will be charged. The charge will only be levied if and when the property is sold, and there is sufficient equity in 50% of the beneficial interest.

 

29. The application is to register a statutory charge. Mr Rimer, in his skeleton argument, asked that a restriction be entered. This seems to me to be more appropriate. The relevant form is Form JJ of Schedule 4 to the Land Registration Rules 2003. As I have said, the charge can only apply to Mr Sanghera’s interest alone, as this was the only property ‘preserved or recovered’ in the proceedings.  

 

30. Finally, there is the question of costs. In principle, the Lord Chancellor, as the successful party, is entitled to his costs. A schedule in Form N260 or the like is to be served on Ms Sanghera by 22 December 2015, and Ms Sanghera may make such objections or representations as she deems appropriate by 4 January 2016.

 

BY ORDER OF THE TRIBUNAL

 

Dated this 11^th day of December 2015