Summary

On the facts, a transfer of land was not made for valuable consideration because it was part of a fraudulent enterprise in which the concept of consideration was meaningless. Accordingly, the general rule in the Land Registration Act 2002 s.28 applied so that an equitable interest created before the transfer had priority over an interest created subsequent to it.

Facts

The court was required to determine as a preliminary issue the priority of the competing interests of the claimant banks (H and S) over a property so as to establish which of them had a loss claimable from the defendant conveyancing firms (D) as a result of the actions of mortgage fraudsters (T and J). J and T had fraudulently obtained mortgage advances, first from H and then from S, as a result of transfers of a domestic property executed with D's assistance. Both H and S had thought they were making advances against the security of the entire property but in fact each ended up with a registered charge over only a small strip of the property. By the time S became involved J and T had transferred the property to J, who was acting under another name. In due course S obtained a money judgment against J, then a charging order over the property, which created an equitable charge in its favour. It then obtained an order for sale and sold the property. The order required S to apply the proceeds to discharge other securities over the property that had priority to its charging order. It was common ground that H had not acquired an immediate and direct equitable charge over the property because there was no contract that satisfied the Law of Property (Miscellaneous Provisions) Act 1989 s.2 signed by J and T promising to grant such a charge; and instead a proprietary estoppel had arisen in favour of H. The issue was whether H's interest by proprietary estoppel had priority over S's subsequent equitable charge. The second defendant argued that the registration of the transfer of the property to J had had the effect of wiping the registered estate clean of all equities not noted on the register as at the date of registration.

Held

The burden lay upon S to show that there had been a transfer to J for valuable consideration. On the evidence, S had not discharged that burden because none of the conveyancing documents could be trusted. The transfer was part of a fraudulent enterprise in which the concept of consideration was entirely meaningless. Accordingly, the general rule that where equitable interests were equal the first in time prevailed, as preserved by the Land Registration Act 2002 s.28, applied because S could not bring itself within the provisions of s.29. Therefore H's interest had priority as it was created first in time.

Preliminary issue determined in favour of first claimant