Scottish Court of Session Decisions

In this action the pursuer concludes inter alia for payment to her by the third defender, the Keeper of the Registers of Scotland, of the sum of £26,000, founding her claim on section 12(1)(b) of the Land Registration (Scotland) Act 1979. After sundry procedure, all that remains to be resolved is the amount of that claim, and a proof before answer was allowed on that issue. In the event, all matters of fact were agreed, and at the diet of proof I therefore heard the parties' respective submissions on the agreed facts.

The circumstances out of which the pursuer's claim arises may be summarised as follows. In April 1994 the pursuer and her husband, Kulwinder Singh, the second defender, purchased the flat known as 3/2, 30 Woodlands Drive, Glasgow. Their title was registered, and the relative land certificate (GLA 27547) showed them as proprietors "equally between them and the survivor of them". They purchased the flat with the assistance of a loan from the Woolwich Building Society (now Woolwich plc), the fourth defenders, and in security of that loan granted a standard security which appeared in the charges section of the land certificate. In March 1996 the second defender purported to sell the flat to Balbir Singh, the first defender. The disposition by which that purported sale was given effect bore to be executed by the pursuer and the second defender, but what bore to be the pursuer's signature was a forgery. Nevertheless, effect was given to the disposition in the land register. When the fraud came to light, the pursuer raised the present action in which she sought various remedies. After sundry procedure declarator was pronounced on 22 February 1999 in the following terms:

The interlocutor of 22 February 1999 went on to record that counsel for the Keeper intimated that, since rectification of that inaccuracy would prejudice the second defender as the current proprietor in possession, the Keeper refused to make such rectification, and that counsel for the pursuer therefore intimated that the pursuer no longer insisted in her conclusion for an order on the Keeper to effect rectification. Decree of dismissal was therefore pronounced in respect of that conclusion and, in respect of the alternative conclusion for declarator of entitlement to indemnity, a further declarator was pronounced in the following terms:

That left as the only outstanding issue the quantification of the pursuer's claim for indemnity.

The 1979 Act deals with the eventuality of an inaccuracy in the register in two ways. Section 9 provides inter alia as follows:

Section 12(1) provides inter alia as follows:

Initially the pursuer identified five possible dates at which her claim for indemnity might fall to be valued, the earliest being 8 March 1996 (the date on which the inaccuracy in the register was created by the entry which showed title to the flat transferred from the pursuer and the second defender to the first defender), and the latest being 22 February 1999 (the date of the hearing at which counsel for the Keeper intimated that the Keeper refused, because of the restriction imposed by section 9(3), to rectify the inaccuracy which had been identified). In the event, however, parties reached agreement that the pursuer's claim should be valued as at 8 March 1996. I must proceed on the basis of that agreement. I wish, however, to record that in those circumstances I heard no argument as to the correct date at which to value the pursuer's loss for the purpose of section 12(1)(b), and have made no decision on that point.

The parties were also in agreement that the value of the flat as at 8 March 1996 was £51,000. It was further agreed that on 7 March 1996 the loan secured by the standard security granted by the pursuer and the second defender in favour of the fourth defender was redeemed in the sum of £41,089.94, and that the discharge of the standard security was registered on 21 March 1996.

The sole remaining dispute between the parties was whether the pursuer's loss was to be assessed at £25,500 (i.e. one half of £51,000), or £4955.03 (i.e. one half of the value of the net equity in the flat immediately before the transaction which resulted in the inaccuracy in the register, calculated by deducting from the agreed value the agreed amount of the secured debt that had been owed to the fourth defenders).

For the pursuer, Mr Mitchell's submission was that it was important to bear in mind that the loss in respect of which the pursuer was entitled to indemnity was the loss which she suffered "as a result of ... the refusal or omission of the Keeper to make [the] rectification" (section 12(1)(b)). The claim was not in respect of the loss which the pursuer suffered as a result of the second defender's fraud. It was acknowledged that if that were the loss which fell to be indemnified, it would involve a different calculation. In that event, there would require to be set off against the value of the interest lost by the pursuer the benefit to her of being relieved of the heritable debt which had burdened her interest, but there would be additional heads of loss which she would be entitled to claim. Having regard, however, to the terms of section 12(1)(b) it was inappropriate to seek to measure the pursuer's loss by comparing her actual position with the position in which she would have been if the forged deed had not been granted, and the inaccuracy had therefore not entered the register. The appropriate comparison was with the situation in which she would have been if rectification had been granted. Leaving aside the question of the standard security granted by the pursuer and the second defender in favour of the fourth defenders, the pursuer's loss as a result of refusal of rectification was plainly her share of the value of the flat. Bringing the standard security into account did not alter the computation. The secured debt was repaid on 7 March 1996. Although the standard security was not discharged until later, and the discharge was not reflected in the land register until 21 March 1996, the continued subsistence of the standard security had no effect on the value of the pursuer's share of the flat, once the secured debt had in fact been repaid (Cameron v Williamson (1895) 22 R 293). Rectification, if granted, would have restored the pursuer's title, but would not have altered the fact that the secured loan had been repaid. There was therefore no justification for bringing into account, as a deduction from the value of the pursuer's interest in the flat as at 8 March 1996, a share of the heritably secured debt which was repaid on 7 March 1996.

Mr McNeill for the Keeper submitted that the question to be determined was what had been lost by the pursuer, and that the answer was the value of the pursuer's net equity in the flat before the transaction which resulted in the inaccuracy in the register took place. It was illogical to look exclusively at the position which would have existed if rectification had taken place. Rather, the proper approach was to attempt to unravel all that had happened, and to restore the pursuer to the position in which she would have been if the transaction which resulted in the inaccuracy entering the register had not taken place. Altering the word order but not the sense of section 12(1)(b), the pursuer's entitlement was to indemnification in respect of the loss which she suffered as a result of the Keeper's refusal or omission to make the rectification. That meant, so Mr McNeill submitted, that the pursuer was entitled to have made good to her the value her property would have had if her rights had not been lost through the inaccurate entry in the register. To examine the sequence of events hour by hour and day by day gave a false impression of the true nature of the loss which the pursuer had suffered. It was inappropriate to concentrate on the inaccurate entry in the register to the exclusion of the rest of the sequence of events of which it formed part. It was necessary to look at the totality of the events to identify properly the nature and extent of the pursuer's loss. Any other approach led to a result which verged on the absurd. If the pursuer's submissions were correct, the fraudulent second defender would in effect have made a gift to the pursuer of her share of the secured debt, but would have done so at the expense of the public purse. Moreover, the sums in question in the present case were relatively modest, but it had to be borne in mind that the principles to be applied would fall to be applied also in relation to a large-scale fraud where the indemnity claim could run into millions of pounds. Where there was available one construction of the statutory provision which led to absurd results, and one which did not, the latter was to be preferred. There was no absurdity in the Keeper's contention - it would put the pursuer back truly in the position she would have been in if the events of March 1996 had not taken place.

Mr McNeill sought to derive some support for his position from the reasoning adopted in Ahmed v Kendrick and Ahmed [1988] 2 FLR 22, per Slade LJ at 29-30 and Nicholls LJ at 33-34. He also sought to rely on the concept of indemnification in insurance law. He referred to the Stair Memorial Encyclopaedia, Vol.12, § 886, where in relation to the basic principle of indemnity the following dictum by Lord Moncrieff is quoted from Hercules Insurance Co v Hunter (1836) 14 S 1137 at 1142:

He accepted, however, that before applying that principle, it was necessary to identify what had been lost. He also made reference to section 83 of the Land Registration Act 1925 (both as originally enacted and as substituted by section 2 of the Land Registration Act 1997), which provides (originally in subsection (6) and now in subsection (8) of the substituted section) that:

1. Where the register is not rectified, the value of the estate, interest or charge at the time when the error or omission which caused the loss was made."

Reference was also made to Ruoff and Roper, The Law and Practice of Registered Conveyancing, §§ 40-13 and 40-28, and to Barnsley, Conveyancing Law and Practice, 4th Edition, page 101, § 3(b).

The position adopted by the Keeper in relation to the interpretation of section 12(1)(b) had the effect, Mr McNeill submitted, of restoring the pursuer to the position in which she would have been if the events which led to the registration of the competing title had not taken place. On a sound construction of the section, it should be seen as giving the pursuer a right to indemnity in respect of the loss caused to her by the totality of the transaction which led to the change in the register which (i) ought not to have occurred and (ii) could have been put right by rectification if section 9(3) had not precluded rectification. In the present case, if the fraudulent disposition had not been granted, the second defender would not have received the price from the first defender, and would not have repaid the loan to the fourth defenders. It was artificial to regard the repayment of the loan as separate from and prior to the inaccurate change in the register.

In the Keeper's Note of Argument there was foreshadowed a submission that, if the sum secured by the standard security granted by the pursuer and the second defender in favour of the fourth defender was not to be taken into account in computing the pursuer's loss, account should instead be taken of the sum due under a standard security granted by the first defender in favour of the fourth defenders. Mr McNeill confirmed, however, that that contention had been formulated against the eventuality that the pursuer's loss might fall to be valued as at 22 February 1999. In light of the agreement that the valuation was to be carried out as at 8 March 1996, the point did not arise. In these circumstances, it is unnecessary for me to consider it, or express any view on it.

In my opinion the proper starting point for consideration of the issue which I have to decide is to be found in the terms of section 12(1)(b) and in the declarators which were pronounced on 22 February 1999. Those declarators settled (i) that the pursuer's signature on the disposition in favour of the first defender was forged, (ii) that the disposition therefore did not transfer the pursuer's interest in the flat to the first defender, (iii) that the register was therefore inaccurate in so far as it showed the first defender as the proprietor of the interest in the flat that had belonged to the pursuer, and (iv) that the pursuer is entitled to be indemnified by the Keeper for her loss as a result of his refusal to rectify that inaccuracy. Section 12(1)(b) makes it clear that the loss in respect of which the pursuer is entitled to indemnity is the loss which she was suffered "as a result of ... the refusal ... of the Keeper to make such a rectification", and the declarators properly reflect the statutory provision.

In my opinion the loss referred to in section 12(1)(b) is to be identified by comparing the position in which the pursuer actually finds herself, the Keeper having (for good reason) refused to rectify the inaccuracy by restoring her title to the share in the flat which belonged to her, with the position in which she would have been if the Keeper had made such a rectification. Without rectification, she has nothing. If rectification had been granted, she would have had title to a one half share in the flat. The loss which she has suffered as a result of the Keeper's refusal to make rectification is therefore loss of title to one half share of the flat. Given that the parties are agreed that the loss is to be valued as at 8 March 1996, and that the value of the flat on that date was £51,000, it seems to me to follow that the pursuer's loss falls to be assessed at £25,500, and that that is the sum in respect of which the Keeper is obliged to indemnify the pursuer. In my opinion the facts that until the day before the agreed valuation date the pursuer and the second defender were indebted to the fourth defenders, and that their indebtedness was secured by a standard security over the flat, have no effect on the value of the pursuer's loss. As at the agreed valuation date that indebtedness had been repaid, and although the standard security remained on the register undischarged, it was by then (as Mr McNeill accepted) securing nothing. The interest which the pursuer had on 8 March 1996 was then worth £25,500. That is what the pursuer lost when the inaccuracy entered the register, that is what would have been restored to her by rectification of the inaccuracy, and that is therefore what she has lost as a result of the Keeper's refusal to make such rectification. That result may be tested, in my view, by asking whether rectification could ever have restored the pursuer to the position by reference to which the Keeper seeks to value her loss, namely to the position of having title to a one half interest in the flat burdened by the heritable debt owed to the fourth defenders. The answer to that question must, in my view, be in the negative. Whatever might in other circumstances have been done by rectification of the title to the flat, the fact would have remained that in a question between the pursuer and the second defender, on the one hand, and the fourth defenders, on the other hand, the secured debt had been repaid. There could have been no question of the Keeper rectifying the register by removing reference to the discharge of the standard security; that discharge did not constitute an inaccuracy in the register. In any event, even if he had done so, the revived standard security would have had no effect on the value of the pursuer's interest in the flat, because the secured debt had been repaid.

I find no assistance in the reference which was made to the English legislation, or the commentaries on it. Nor do I consider that any safe analogy may be drawn with the decision in Ahmed v Kendrick and Ahmed. It is no doubt right to remember what was said in Hercules Insurance to the effect that indemnification cannot exceed the value of the thing lost, but, as Mr McNeill recognised, that simply reinforces the need to identify accurately what loss is to be indemnified.

The fundamental flaw in the Keeper's position, as it seems to me, is to be found in the submission that the loss to be indemnified is to be measured by identifying the sum necessary to put the pursuer back in the position in which she would have been if the totality of the transaction which gave rise to the inaccuracy in the register had never taken place. There is no doubt some truth in the point that if it had not been for the forged disposition (which was reflected in the inaccurate entry in the register), the second defender would not have received the price of the flat from the first defender and would not have repaid the loan to the fourth defenders. But that does not bring the repayment of the loan within the scope of what might, if the second defender had not been in possession, have been reversed by rectification. I do not find it conducive to clarity of analysis to represent the repayment of the loan, so far as disburdening the pursuer's interest in the flat, as a present made by the second defender to the pursuer out of the public purse. Nor, it seems to me, is any light cast on the correct solution to the question of construction by pointing out the fact that, if the pursuer is right, a similar fraud on a much greater scale would yield a much greater claim on public funds under section 12(1)(b). I see no such absurdity in the result argued for by the pursuer as would justify placing on the words of the section the very substantial gloss for which Mr McNeill contends. His submission would be sound if the section provided that the Keeper, on refusing rectification, would make such payment to a claimant as would restore him or her to the position in which he or she would have been if the transaction which gave rise to the inaccuracy in the register (and perhaps any related transaction) had not taken place. That seems to me, however, to be something quite different from what Section 12(1)(b) actually says.

I have reached the conclusion that the loss which the pursuer suffered as a result of the Keeper's refusal to rectify the inaccuracy in the register falls to be measured by reference to the difference between what she now has and what she would have had if rectification had been granted. The difference is that she would have had an unencumbered title to one half share in the flat. As at the agreed date, the agreed value of that share was £25,500. That is therefore, in my opinion, the sum which the Keeper must pay to the pursuer in satisfaction of her claim under section 12(1)(b).

I shall therefore in respect of the fifth conclusion of the summons grant decree for payment by the third defender to the pursuer of the sum of £25,500, with interest thereon at the rate of 8% a year from 8 March 1996 until payment. At the parties' request, I shall put the case out By Order for consideration of any expenses claims which may arise under section 13 of the 1979 Act or otherwise.