19th July 2017
The eagerly awaited Court of Appeal decision in NRAM v Evans  has important implications for lenders seeking alteration or rectification of the register of title. Following their success acting for the lender in the Court of Appeal, Walker Morris’ Banking Litigation expert Kate Hicks explains.
In our previous article, we explained the background facts to this case and the first instance High Court decision. In short, the defendant borrowers had obtained a loan from the claimant in 2004 to assist in the purchase of a property, part of which was secured against a property by way of a first legal charge dated 26 November 2004, and part of which was unsecured. A year later, the borrowers wished to consolidate their various borrowings into a single product and the claimant offered a further loan which, again, consisted of a secured and an unsecured element. The 2005 loan redeemed and replaced the 2004 loan, but no separate charge was registered in respect of the 2005 loan.
In August 2014, when solicitors acting on behalf of the borrowers wrote to the claimant stating that the secured loan taken out in 2004 had been redeemed in 2005 and that the legal charge that secured the 2004 loan should be removed, the claimant filed an e-DS1 with the Land Registry, and the legal charge dated 26 November 2004 was removed.
The High Court decided that the claimant had made a legal mistake in thinking that the 2004 charge had been redeemed and there was nothing more to secure. The consequences of releasing the legal charge by e-DS1 were serious and the High Court decided that the register could be amended accordingly, as for the court to do otherwise would be ‘unconscionable’ and would leave the borrowers with an unencumbered property.
The borrowers were given permission to appeal on the grounds that the trial judge was wrong to require the 2004 charge to be reinstated to the Land Register on the grounds of mistake, in that there was no mistake that required correction; or, in the event that there was a mistake, Mr and Mrs Evans did not contribute to that mistake through fraud or lack of proper care.
The borrowers argued that the court is only able to order rectification to correct a mistake without the proprietor’s consent where the proprietor has caused or substantially contributed to the mistake through fraud or lack of proper care  and that the High Court was wrong to conclude that they had done so. Alternatively, the borrowers argued that they would be entitled to an indemnity from the Land Registry for any loss caused following rectification of the register.
The claimant argued that the order granted by the High Court was correct, in that it referred to the register being altered by being brought up to date. This was a matter falling within the scope of paragraph 2 (1) (b) of the LRA 2002 and was not, therefore, a case requiring rectification of the register. To the extent that the alteration of the register would require the correction of a mistake (and not just bringing the register up to date), the claimant stated that the borrowers’ title would not be prejudicially affected as it was already subject to an equitable charge and a unilateral notice in favour of the claimant.
In the alternative scenario that the reinstatement of the 2004 charge would require rectification of the register (rather than alteration), the claimant submitted that the court would be able to grant such an order without the Defendants’ consent as they had caused or substantially contributed to the mistake due to their solicitors’ letter.
Due to the importance and far-reaching implications of this case, the Chief Land Registrar (“CLR”) was granted permission to intervene in these proceedings. Like the claimant lender, the CLR argued that the reinstatement of the 2004 charge would involve an alteration of the register, and not rectification. In doing so, the CLR argued that there was no mistake capable of being corrected as the e-DS1 was valid at the time it was processed by the Land Registry. There was therefore no mistake capable of being corrected by the Land Registry under Paragraph 2 (1) (a) of Schedule 4 of the LRA 2002. The court would therefore only be able to make an order requiring the register to be brought up-to-date in accordance with paragraph 2 (1) (b) of Schedule 4 of the LRA 2002.
The CLR also argued that, as such, no application for indemnity could be brought by the borrowers under Schedule 8 of the LRA 2002.
The key question to be determined by the Court of Appeal was whether re-instatement of the claimant’s 2004 charge involved an ‘alteration’ or ‘rectification’ of the register of title. The LRA 2002 provides that rectification is a specific type of alteration that (a) involves the correction of a mistake; and (b) prejudicially affects the title of a registered proprietor . The practical consequence of this categorisation is that applications to the Land Registry can only be made or considered in cases of rectification, and not alteration .
There was some ambiguity as to whether the High Court judge had intended to refer to rectification or alteration of the register of title. The judgment referred to ‘rectification’, whereas the order granted referred to the register being ‘altered and/or brought up to date’.
The Court of Appeal stated that the appropriate starting point was to consider the purpose of the alteration: if the alteration was for the purposes of bringing the register up to date, and not for the correction of a mistake, it could not be a case of rectification. Due to the lack of a definition of ‘mistake’ within Schedule 4 of the LRA 2002, the court considered the Law Commission’s Consultation Paper and the academic authorities cited within it. The court noted a general consensus among the academic commentaries that, when considering whether a particular entry of deletion on a register of title is a ‘mistake’, one should look at the point in time at which the entry or deletion was made and a distinction could be drawn between voidable and void transactions. A change to a register of title based on a voidable disposition (that had not been declared void at the time of the change to the register) was correct at that time, and was not therefore a mistake. By contrast, a change to the register based on a void disposition would be a mistake at the time the change to the register was made.
The Court of Appeal decided that the Land Registry’s processing of the e-DS1 dated 28 August 2014 and the subsequent removal of the 2004 charge was not a mistake for the purposes of Schedule 4 of the LRA 2002. At that time, the disposition was valid and it was not until the High Court’s judgment in 2015 that the e-DS1 was set aside. Accordingly, the present case required the register to be altered to bring it up to date – it was not a case of rectification. Accordingly, the borrower’s appeal and application for an indemnity under Schedule 8 of the LRA 2002 failed.
The Court of Appeal’s decision will be welcomed by lenders and is particularly useful in that in addresses the concept of ‘mistake’ for the purposes of Schedule 4 of the LRA 2002, in the absence of any statutory definition. While the issue has not been fully resolved and much is likely to depend on the facts of individual cases, the Court of Appeal’s judgment clarifies the approach to such cases that is likely to be followed by the courts in future cases.
The case also confirms that indemnity claims to the Land Registry can only be made in cases of rectification. In cases of alteration only, lenders should note the possibility that an indemnity claim under Schedule 8 of the LRA 2002 will not be available.
  EWCA Civ 1013
 Para 3 (2) (a) & (b) of Schedule 4 of the LRA 2002
 Para 1 (a) and (b) of the LRA 2002
 See para 1 (1) (a) & (b) of Schedule 8 of the LRA 2002