Garguilo v Gershinson [2012] | Register Rectified To Remove Void Charge

In Garguilo v Jon Howard Gershinson & Anr [2012] EWLandRA 2011_0377 (06 January 2012), a landmark decision was made by the Land Registry Adjudicator, prior to the formation of the Property Chamber, in relation to the parties who are entitled to apply for the rectification of the register.

Background

Mr and Mrs Garguilo applied to the land registry to rectify the register of a title to property in Surrey. They and another party were the registered owners. Mr and Mrs Garguilo sought to cancel a lease purportedly granted to a third party and a charge in favour of a Bank . Both the lease and the charge were registered in September 2008.

The third party, a borrower of the bank, failed to make payment and accordingly the Bank appointed LPA receivers over the property. The LPA receivers were respondents to the application, which was made on the basis the lease was a nullity because a third party did not knowingly sign it.

Between the parties it was common ground that if the lease was void then the registration of it constituted a ‘mistake’ for the purposes of paragraph 5(a) of Schedule 4 to the Land Registration Act 2002 (the 2002 Act)

In addition, under paragraph 6(2) of Schedule 4 of the 2002 Act, there was an important issue as to who could apply to remove both the lease and the charge.

Mr and Mrs Garguilo submitted that the lease was invalid, as it 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. The Respondents’ position was to put Mr and Mrs Garguilo to strict proof of their case.

The Adjudicator set out the key facts as to the execution of the lease in the judgment handed down.

Central Issues

The Adjudicator observed that the central issues were:

1. Whether the third party signed the execution page and the associated plan knowing that they related to the lease.

2. Whether 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.

3. Whether there was any evidence to counter the submissions of the third party.

Findings

Firstly, the entire deal between the parties and the Bank depended on the execution of leases. Without the execution of the lease, the third party would not have become the joint freeholder, so it was clearly in his financial interest to make sure the deal went through.

Secondly, the third party’s evidence was that he expected another party to make arrangements to satisfy the Bank and may have convinced himself, or have been convinced, that those arrangements could be made once the deal was done; and that another would, in due course, transfer the lease to Mr and Mrs Garguilo (free of the Bank’s charge).

However, the third party did not have any satisfactory explanation as to how his signature came to be on the relevant pages, but it was not accepted he was signing so many documents, or so many plans, that he did not know what he was doing.

Illegal Execution

Section 1 (3) provides that:

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’

The Adjudicator therefore ruled that:

1. The signature page and the plan were signed by the third party and that he did so knowingly and willingly. The lease was not a forged document.

2. As per section 1 (3) of the 1989 Act, just as Mr and Mrs Garguilo submitted, even if the signatory pages of the lease were, as found, executed separately and inserted into the lease, this invalidates the instrument as a matter of law.

R [HMRC] v Mercury Tax Group

It was also adjudged that the word ‘it’ in section 1(3) must refer back to the entire document and not merely the execution pages or any other page, which was considered by Underhill J in R v Her Majesty’s Commissioners of Revenue and Customs [2008] EWHC 2721.

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 (trust deed) 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 and found that here were differences between the drafts and the final versions.

Underhill J then considered as an additional factor that each of the three key documents was intended to be a deed. Noting section 1(3) Underhill J 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.”

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.”

Instrument Must Be Complete At Execution

In accordance with Underhill J’s findings, the Adjudicator found that section 1(3) clearly provides that the signature and attestation must form part of the physical instrument at the moment of signing. 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. This necessarily applies to any deed that is not dated when it is signed.

However, the question must always be whether the signature page and other relevant pages formed part of the complete physical document. That will be a question of fact in each case.

In the case of Mr and Mrs Garguilo, the relevant pages were clearly separate from the remainder of the lease. They were signed separately and returned separately (and not by the third party) at some unspecified time after the other leases were executed (and after the third party had stated, initially, that he did not intend to execute the lease). Not in any sense could it be said that they were part of the ‘it’ [complete instrument] referred to in the statute, at the moment of execution.

Furthermore, by way of Section 52(1) Law of Property Act 1925, all conveyances of land are void for the purpose of creating a legal estate, unless made by deed. Accordingly, in the Adjudicators judgment, the lease was void [along with the Bank’s charge which arose out of it], as it was not properly made by deed.

When the issue of estoppel was raised by the Respondent, it was held that the lack of a valid signature could not be cured by the doctrine of estoppel.

Who Can Apply For Rectification?

Schedule 4 para 6 (2) (a) (b) makes provision as to alteration of the register:

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 for any other reason be unjust for the alteration not to be made.

The Respondents, as LPA receivers (and as agents for the borrower) were not in possession of the property. Neither was the borrower.

Possession Is Key To Rectification

However the question was whether the borrower was deemed to be in possession by virtue of section 131(2) of the 2002 Act. This section provides that the possession of a tenant is deemed to be that of the landlord; of the lender that of the borrower of the licensee that of the licensor.

In other words, there was no direct relationship of landlord or tenant or licensor and licensee between the borrower and another. But on the evidence, the borrower consented to another party going into occupation and knew of the arrangement made between them.

On these facts, and for the purpose of this section, the Adjudicator found that occupation of another party could be said to be that of the borrower’s licensee.

Alternatively, pursuant to schedule 4 para 6 (2) (a), the question becomes whether the borrower caused or contributed to the invalidity of the lease by fraud or lack of proper care.

It was held there was lack of proper care either by the borrower 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 were a number of factors which made it unjust for the alteration of the register not to be made.

The Outcome

Inevitably, the Gargulio application succeeded and the register was rectified by cancelling the lease and the charge in favour of the Bank.

Just two years after the Adjudicator’s decision, we relied upon Garguilo and Mercury Tax Group in my family’s historic summary judgment win over exactly the same point of law – the section 1(3) point.

Another six years on, we are relying upon Garguilo and Bank of Scotland plc v Waugh & Others [2014] in the TGBMS Class Actions to end fraudulent mortgage registration.

Enormous gratitude is therefore due to the courageous and ground breaking Mr and Mrs Garguilo, without whom we would have had no precedent to rely upon in my family’s successful application to rectify the Charges Register in 2013, without which we would be flying blind in the TGBMS Class Actions.