Legal update: Transfers that were fraudulent were held to be effective to transfer half the beneficial interest to the purchaser.

Victus Estates and others v Munroe and others [2021] EWHC 2411 (Ch) (27 August 2021)

Here the High Court considered the effect of two property transfers where one of the joint proprietors (X) had forged the other’s signature. HM Land Registry had registered both transfers and both transfers had charged to separate Banks.

X was the owner of two properties, one jointly with Y and the other with Z. The properties were both held as joint tenants and were subject to a mortgage. After X was declared bankrupt, the joint tenancies were severed.  However, X subsequently secured funding from A to annul the bankruptcy, and sold the properties to companies which were controlled by A. However, Y and Z had not authorised this sale and X had forged their signatures. The initial county court found A was aware of the forgeries. The existing mortgages were redeemed by monies loaned by the Banks.

The High Court acknowledged that the forged TR1s could not have transferred the legal title and therefore A’s companies should be removed from the relevant registers as the registered proprietor. However, half of the equitable interest in each property had been transferred due to s.63 of the Law of Property Act 1925. These equitable interests had been charged to the Banks.  The High Court found that it had been wrong to hold the transfers as a sham, and there was no evidence that the parties had intended the transfers to have no legal effect.

The High Court considered the doctrine of illegality, however, policy considerations prevented this from being applied as allowing this would deprive the Banks of any security for their loans, even though the parties acted fraudulently.