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The facts of Durani are pretty similar to a case decided a fortnight ago in the English CA, Collings v Lee, 19/10/00.

Lee was a fraudster who offered to help Mrs Collings sell her house; he fraudulently misrepresented to her that he had sold the house to a 3rd party for £250,000, and without paying her anything got her to execute a transfer of the property to himself under a different name; he was thus able to become registered as the proprietor of the property at the Land Registry; he then executed a legal charge in favour of Halifax plc to secure a loan of around £125,000; Halifax did not inspect the property or discover Mrs Collings in actual occupation.

When the facts came to light, Mrs C sought rectification of the Register against Lee and Halifax, and at first instance His Honour Judge Boggis QC, sitting as a judge in Ch D, held that her right to set aside the transfer to Lee for fraud was an interest which amounted to an overriding interest under LRA 1925, s 70(1)(g) when coupled with actual occupation. He therefore ordered rectification and Halifax appealed.

In the CA, the parties were all set to discuss the thorny question whether a mere equity, such as a right to avoid a transfer of registered land which is voidable for fraudulent misrep, does or does not fall with s 70(1)(g). But in the course of argument, Mummery LJ then pointed out that this was not the case before the court.

It was true that in Lonrho v Fayed (No 2) Millett J had held that 'a contract obtained by fraudulent misrep is voidable not void, even in equity' and that until the representee elects to avoid it 'the representor is not a constructive trustee of the property transferred pursuant to the contract'. However, in Nourse LJ's words:

'The rationale of the principle [stated by Millett J], as it applies to a transfer of property, is that, even where the transfer is obtained by fraudulent misrepresentation, the transferor nevertheless intends that the whole legal and beneficial ownership in the property shall pass to the transferee. But that was not this case. [Mrs C] did not intend to transfer the property to [Lee] and ... did not intend to transfer it for no consideration. [Lee] acquired the property without [her] knowledge and consent and in breach of his fiduciary duty to her.'

Under these circumstances, Lee can never have taken clear title, as an equitable beneficial interest in the property arose in Mrs C's favour at the moment of the transfer, whether under an 'implied, resulting or constructive trust' being 'a matter of no importance' (ouch).

Authorities for this analysis: Daly v Sydney Stock Exchange (1986) 160 CLR 371, 389-90 (Brennan J); Agip v Jackson [1990] Ch 265, 290 (Millett J), approved in Heinl v Jyske Bank [1999] Lloyd's Rep Bank 511 (CA); Twinsectra v Yardley [1999] Lloyd's Rep Bank 438, 461 (Potter LJ).

Conclusion: appeal dismissed and the judge's order for rectification affirmed, although not for the reasons he thought.

_____________________________________
Dr Charles Mitchell
Lecturer in Law
School of Law
King's College London
Strand
LONDON WC2R 2LS

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