C was the original registered proprietor and the property was let under a power of attorney to various tenants as part of an HMO. By 2014, 3 years after the expiry of the licence as an HMO, the property was in a “sorry state”, infested and full of rubbish.
The property was offered for sale. The fraudster acting by a solicitor sold to a Mr.F who in turn sold it to Freddy’s on the same date.
There were issues relating to the extent to which the First Defendant had, if at all, contributed to the mistake through lack of proper care, though these were emphatically rejected and rectification refused.
The further aspect of the case relating to the inter-relationship between damages and land registry indemnity is interesting.
The problem for Mr.F is that all he received from the fraudster was a void transfer. He was not the legal and beneficial owner, and because, when he sold with full title guarantee, he was not the registered proprietor, he did not have the benefit of s58 LRA 2002. He was therefore exposed on the covenant for title since he did not have the right to dispose of the property, and his subsequent registration does not assist him.
Mr.F argued that he had not caused loss in the event of rectification because Freddy’s were entitled to an indemnity from the Land Registry under Sch 8 LRA 2002. However, the argument was put that the indemnity was irrelevant because Freddy’s could sue successfully on the covenant for title. The point has particular relevance where Freddy’s (as alleged) had contributed to the mistake through lack of proper care, the indemnity would have been reduced, but the claim under the covenant for title would not.
The judge agreed with Mr.F that in the first instance he could expect Freddy’s to pursue the indemnity from the land registry before seeking damages under the covenant for title (ie. an exercise in mitigation). The indemnity is considered to be the first recourse.
Consistent with that conclusion, the judge raised two further points – the first may prove to be unusual in these types of cases, namely the lack of protection under s58 for Mr.F whereby he breached his covenant for title, and therefore, had there been rectification, Mr.F would have been liable on the covenants. Neither Mr. F nor his solicitors would have been aware that the structure of the deal would have created this risk of the land registry guarantee.
Secondly, the judge concluded that the land registry’s right of recourse for its indemnity would not be pursued against solicitors who had neither been fraudulent nor negligent, and that there was a compelling policy reason not to enforce the indemnity against individuals in the same situation.