McPherson v Legal Services Commission [2008] EWHC 2865 (Ch)

[2008] EWHC 2865 (Ch)

Case No CH/2008/PTA/0086

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

ON APPEAL FROM

THE ADJUDICATOR TO HER MAJESTY’S LAND REGISTRY

IN THE MATTER OF THE LAND REGISTRATION ACT 2002

AND IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 24 th November 2008

Before

MR JUSTICE MORGAN

Between

MAUREEN LINDA MCPHERSONAppellant/

LEGAL SERVICES COMMISSIONRespondent/

Mr Mc Pherson appeared for Appellant

Michelle Stevens-Hoare (instructed by Legal Services Commission) for Respondent

Hearing Hearing date: 29 th October 2008

Judgment

Heading Paragraph Introduction 1 The case in summary 4 The facts 5 The decision of the Deputy Adjudicator 31 The relevant legislation 34 Mrs Mc Pherson’s submissions 44 The LSC’s submissions 45 A possible further analysis 50 The authorities 54 Discussion 72 Conclusion on the main point 94 Registration in relation to the statutory charge 97 Estoppel 106 The overall result 111

Introduction

[1]This is an appeal by Mrs McPherson from an order made by a Deputy Adjudicator to HM Land Registry (Mr Rhys) on 12th November 2007. The Deputy Adjudicator refused permission to appeal and, having considered the matter on the papers, I granted permission to appeal on 8th May 2008. The issues of law and of fact raised by this appeal are far from straightforward and the issues of law may be of some general importance.

[2]Mrs McPherson did not herself appear at the hearing of this appeal. She had served various documents setting out written submissions prepared for her by others and, pursuant to section 27(2)(c) of the Courts and Legal Services Act 1990, I permitted her husband to address me on her behalf.

[3]Miss Stevens-Hoare appeared for the Legal Services Commission (“the LSC”), the Respondent to the appeal. Her submissions were of considerable assistance to the Court on the various matters arising. Miss Stevens-Hoare sought to draw my attention to all of the relevant authorities under the legal aid legislation. Following the hearing, she made written submissions on points that emerged for the first time at the hearing and in relation to two further authorities.

The case in summary

[4]The LSC claims to be entitled under Section 16(6) and (7) of the Legal Aid Act 1988 (“the 1988 Act”) to a charge, conventionally called the statutory charge, in relation to a residential property known as Woodland Cottage, Vine Grove, Hillingdon, Middlesex, UB10 9LW. Section 16(6) of the 1988 Act refers to “any property which is recovered or preserved for him in the proceedings”. The reference to “the proceedings” is a reference to proceedings in which a person is a legally assisted person. Mrs McPherson was a legally assisted person in relation to proceedings which concerned Woodland Cottage which, the LSC says, was preserved for her in those proceedings. The amount of the costs which are claimed to be the subject of the statutory charge are £16,762.30. Mrs McPherson contends that no property was preserved for her in the proceedings and Woodland Cottage is not therefore subject to a statutory charge. Further, Mrs McPherson relies on Regulation 99(6) of the Civil Legal Aid (General) Regulations 1989 (“the 1989 Regulations”) which, for certain purposes, states that references to the amount of any charge created by Section 16(6) of the 1988 Act are references to the amount of the costs in question or to “the value of the property to which it applied at the time when it was recovered or preserved”, whichever is the less. Mrs McPherson submits that if any property were preserved in this case, at the time of such preservation, that property had a nil or negative value, if one took into account the amount of a mortgage over the property securing a substantial debt owed to a lender.

The facts

[5]Mr and Mrs McPherson appear to have acquired the freehold of Woodland Cottage in 1986, with the assistance of a mortgage. The legal title to the property was, at that time, vested in them jointly. There is no direct evidence as to the extent of their beneficial interests in the property although there is a reference in a later document which indicates that Mr and Mrs McPherson were beneficially entitled in equal shares.

[6]On the 17th April 1989, Mr and Mrs McPherson re-mortgaged Woodland Cottage to Royal Trust Bank (Jersey) Limited. The amount of the advance was 478,040 Swiss francs. In 1989, that sum in Swiss francs was equivalent to approximately £170,000.

[7]At some unspecified time after 1989, but before 1997, the benefit of the mortgage of 17th April 1989 became vested in Birmingham Midshires Mortgage Asset Number One Limited (“BM”). BM became registered as chargee or mortgagee at the Land Registry. I will refer to this charge or mortgage as a “mortgage” to help distinguish it from the statutory charge claimed by the LSC.

[8]It appears that from time to time, Mr and Mrs McPherson lived at Woodland Cottage and at other times they let it in order to gain a rental income.

[9]On 9th December 1997, BM brought mortgage possession proceedings against Mr and Mrs McPherson. These are the relevant proceedings for present purposes. Initially, Mr McPherson obtained legal aid for the purpose of defending those proceedings and, later, Mrs McPherson separately obtained legal aid to assist her in defending the proceedings.

[10]The Particulars of Claim filed in the above proceedings claimed possession of Woodland Cottage and an order that Mr and Mrs McPherson pay the outstanding arrears on their mortgage. The sum said to be outstanding as at 11th December 1997 was £267,864.35. The Particulars of Claim also refer to further sums by way of costs and charges. These further sums together came to approximately £1,000. The Particulars of Claim also referred to an early redemption penalty in excess of £11,000, but that penalty only applied in the case of a redemption before 1st January 2000. No such redemption took place and that penalty can be disregarded for present purposes. The Particulars of Claim itemise receipts from Mr and Mrs McPherson in 1995, 1996 and 1997 and stated that Mr and Mrs McPherson had fallen into arrears to the tune of some £42,000. The Particulars of Claim stated that the monthly sum due was £1,362.21 and interest was payable at the rate of 7.10%. It is not immediately clear how these last figures are to be reconciled.

[11]On 12th May 1998, Mrs McPherson applied for emergency legal aid under the 1988 Act. The purpose of the application for legal aid was stated to be “to defend possession proceedings”. In her application, Mrs McPherson stated that she had been given a copy of the Legal Aid Board’s leaflet about the statutory charge and that this had been explained to her by her solicitor. Her application was countersigned by her nominated solicitor who certified that the statutory charge had been explained to her and that she had seen the relevant leaflet.

[12]On 19th June 1998, Mr McPherson obtained a legal aid certificate. The scope of the certificate referred to Mrs McPherson being represented “in an action for possession of property under a legal charge and/or other remedies in the same action against the opponent”.

[13]The proceedings brought by BM continued for some years and were eventually settled on 30th January 2002. The issues in those proceedings are referred to in two places in the documents before the Court. The first is an affidavit sworn by Mrs McPherson in those proceedings on the 9th November 1998 and the second is the bill of costs prepared by her solicitor for the purposes of detailed assessment. In brief summary, Mrs McPherson raised a number of issues by way of Defence and Counterclaim. She put BM to proof that it was the proprietor of the mortgage of 17th April 1989; she did not deny that there was a mortgage but she raised an issue as to whether the benefit of the mortgage was vested in BM. She denied that she was liable to BM under a facility letter which she said she had not signed. She said that her liability was that of a surety for her husband’s liabilities in respect of the facility and that she had been discharged as a surety. In relation to the possession claim, she relied on Section 36 of the Administration of Justice Act 1970 and Section 8 of the Administration of Justice Act 1973. For the purpose of that jurisdiction, she sought, by way of Counterclaim, an account of the monies due and she referred to alleged errors in the computation relied on by BM.

[14]Mrs McPherson’s affidavit referred to the fact that she and her husband were receiving rental income from Woodland Cottage and were living in rented accommodation, but paying rent at a lower rate. She also stated that the court in those proceedings had ordered payment to BM of a little over £1,000 per month. In relation to the claim for possession, she stated that her husband had received a mortgage offer which would enable payment of what was said to be the initial advance of £170,000, subject to assistance from family members.

[15]On 13th March 2001, Mrs McPherson wrote to the LSC dealing with certain queries that had been raised. In the course of her letter she referred to an enquiry made by her husband for clarification concerning the statutory charge. It was explained that clarification as to the circumstances in which a statutory charge would be imposed on the property was urgently needed in order for Mr and Mrs McPherson to consider the possibility of settling the claim brought against them. There is no indication in the documents before the Court of any clarification being given by the LSC to Mr and Mrs McPherson at that point. However, the request for clarification would seem to indicate that Mr and Mrs McPherson were not at that stage clear as to the circumstances in which a statutory charge might or might not be imposed.

[16]On 27th April 2001, Mrs McPherson’s legal aid certificate was revoked. There has been considerable dispute in the past as to the circumstances of this revocation. However, the revocation took effect. Following the revocation, Mrs McPherson no longer had legal aid and she was without legal advice or assistance. It appears however that Mr McPherson continued to have a solicitor acting for him pursuant to his legal aid certificate.

[17]On 18th December 2001, judgment was entered against Mrs McPherson in the mortgage proceedings. I have not seen a copy of the judgment but something of its terms appears from the wording of the consent order of 30th January 2002 to which I will refer. As there described, the order of 18th December 2001 was for judgment to be entered against Mrs McPherson for an amount to be decided by the Court, together with an order for costs in favour of BM.

[18]On 30th January 2002, the proceedings brought by BM against Mr and Mrs McPherson were settled and a consent order was made. The consent order recited that the parties had agreed terms of settlement and that Mr and Mrs McPherson had paid to BM the sum of £265,000 on 30th January 2002. The Order continued with recitals that the parties had agreed that BM would not bring any further claims against Mr and Mrs McPherson arising from the charge of 17th April 1989 or from their occupation of Woodland Cottage and Mr and Mrs McPherson agreed that they would not bring any further claim against BM arising from the charge of 17th April 1989. The operative parts of the order stated that the earlier judgment against Mrs McPherson of 18th December 2001 was set aside and the Claim and the Counterclaim in the proceedings were both struck out. Previous orders for costs in favour of one party against another were to be set aside and there was no order as to the costs of the proceedings, save for detailed legal aid assessment of the costs of Mr and Mrs McPherson.

[19]There is no direct evidence as to the conveyancing steps taken pursuant to the consent order. However it seems that the mortgage in favour of BM was redeemed and the monies needed by Mr and Mrs McPherson to redeem the BM mortgage (£265,000) were raised or were substantially raised by way of a new mortgage of Woodland Cottage.

[20]Following the consent order, Mrs McPherson’s solicitor’s bill was the subject of a detailed assessment and on 7th August 2002, it was certified that the sum arrived at following a legal aid assessment was £16,762.30. There was a further charge in relation to the costs of the detailed assessment but the LSC accept that the amount of the costs for the purpose of any statutory charge, to which it might be entitled, is limited to £17,762.30.

[21]On 7th April 2003, Mrs McPherson’s former solicitor completed the LSC standard form which requires a solicitor to give certain information as to the preservation or recovery of property for the purposes of the statutory charge. The solicitor stated that the issue in the proceedings was whether BM were entitled to an order for possession for non-payment under the mortgage in the sum claimed. The solicitor stated that the outcome of the case was that an agreement was reached whereby the sum owed to BM was less than the amount claimed. The solicitor stated that an order for possession “on terms” was made; that was inaccurate. The standard form asked the solicitor to state the value of the property recovered or preserved. The standard form stated that the solicitor should state the value of a house or flat if that had been agreed or assumed in the proceedings but the solicitor was to deduct the amount due under any mortgage or charge registered on the property, before the recovery or preservation. Mrs McPherson’s former solicitor left blank that part of the form. In a later part of the form, the solicitor stated that Mr and Mrs McPherson owned the property as joint owners in equal shares and separately stated that Mrs McPherson’s share in the equity of the property was 50%.

[22]It will be remembered that Mr McPherson had also obtained legal aid for the purpose of defending the proceedings. In June 2003, Mr McPherson was the subject of an Individual Voluntary Arrangement (“IVA”). The supervisor of the IVA was an insolvency practitioner at the firm of Fortune Peat. The supervisor contacted the LSC to ascertain whether the LSC was asserting a statutory charge in relation to any interest of Mr McPherson. On 6th June 2003, the LSC wrote to Fortune Peat who stated it had spoken to the solicitor who had acted for Mr McPherson. The LSC confirmed to Fortune Peat that Mr McPherson had no liability under his legal aid certificate “as he did not recover or preserve anything in the proceedings”. The LSC wrote to Fortune Peat again on 13th June 2003 to the effect that the LSC made no claim against Mr McPherson for the purposes of his IVA.

[23]On 10th October 2003, the LSC registered a caution against Woodland Cottage. I have not seen a copy of the caution but I infer that it was in connection with a claim to a statutory charge arising out of Mrs McPherson’s legal aid certificate.

[24]In October 2003, Mr and Mrs McPherson wished to re-mortgage Woodland Cottage. The solicitors acting for them were Mills Curry, who had discovered the LSC’s caution on the title to Woodland Cottage. On 28th October 2003, Mills Curry wrote to the LSC giving that firm’s undertaking that on receipt of monies from the re-mortgage of Woodlands Cottage, that firm would hold £15,000 to the order of the LSC pending resolution of the issue regarding monies due from Mrs McPherson pursuant to her Legal aid certificate. I was told that, for reasons that were not explored at the hearing, those monies are no longer available.

[25]On 11th November 2003, the caution in favour of the LSC was cancelled. On 11th November 2003, Mr and Mrs McPherson transferred title to Woodland Cottage to Mrs McPherson alone and on the same day Mrs McPherson mortgaged Woodland Cottage to Northern Rock plc. On 14th November 2003, Mrs McPherson became registered as the proprietor of Woodland Cottage subject to the registered charge in favour of Northern Rock plc.

[26]On 19th December 2004, the LSC applied to register a charge in relation to Woodland Cottage. As a result of a subsequent failure by the LSC to submit a statement of case in relation to that application, their application was rejected on the 12th of January 2005. There is a reference in the papers to a second application made by the LSC to register a charge in relation to Woodland Cottage. The papers indicate that this application was also rejected but the precise history is not stated.

[27]On 1st March 2006, the LSC applied again to register a statutory charge in relation to Woodland Cottage. This was the application which later led to the reference to the Deputy Adjudicator and to this present appeal.

[28]On 21st March 2006, Mrs McPherson objected to the LSC’s application to register a statutory charge. She said that no property had been recovered or preserved and the property had no value, net of the mortgage in favour of BM. The matter was referred to the Adjudicator on the 23rd August 2006 and on 29th November 2006, the LSC served its Statement of Case. In paragraph 19 of that Statement of Case, the LSC accepted that if Mrs McPherson were able to show that there was no equity in her property at the date of the consent order, then the LSC would concede that it did not have a statutory charge as there would be no equity for the charge to attach to.

[29]Mrs McPherson submitted a lengthy Statement of Case on 2nd January 2007. She took a large number of points which included her contention that there was no equity in Woodland Cottage at the date of the consent order, having regard to the liability to BM.

[30]Both parties submitted skeleton arguments to the Deputy Adjudicator. In the skeleton argument on behalf of the LSC, it stated that it applied to register a statutory charge on the basis that the charge would attach to the remaining equity in the property, over and above the debt of £265,000 which was paid to BM.

The decision of the Deputy Adjudicator

[31]The Deputy Adjudicator held an oral hearing on 4th October 2007 and gave a written reasoned decision on 12th November 2007. On that date he ordered that the Chief Land Registrar should give effect to the application of the LSC for the registration of a statutory charge.

[32]In his written decision, the Deputy Adjudicator carefully set out the background facts. He referred to the statutory provisions. He referred to the proceedings for possession by BM and he concluded that Mrs McPherson did preserve Woodland Cottage by virtue of the proceedings. This was because the claim was for possession and a compromise was reached whereby BM abandoned the claim for possession, against payment of a sum of £265,000. Accordingly, he held, the statutory charge applied to Woodland Cottage. He next referred to the fact that Mrs McPherson had argued that the LSC letters of 6th June 2003 and 13th June 2003 gave rise to an estoppel in her favour. He referred to the possibility that reliance on those letters involved the public law doctrine of legitimate expectation rather than the private law doctrine of estoppel. However, applying the principles as to estoppel, he held that there was no unequivocal assertion as to the position of Mrs McPherson, whatever might have been the position in relation to her husband.

[33]The Deputy Adjudicator then dealt with questions arising as to the value of the property at the date of the consent order. He recorded the position of the LSC that the charge would apply to the net equity, after taking account of any charge. He held that the evidence as to value as at 30th January 2002 was not satisfactory. Such evidence as had been produced was not convincing one way or the other. He took into account what he thought were the inherent probabilities of the situation and stated that, if he had to decide the value of the equity in the property at January 2002, he would have decided that the equity comfortably exceeded £265,000. He added that he did not consider it necessary to find the extent of the equity at the relevant time. He held that Section 16 of the 1988 Act was not limited in any way by reference to the existence of equity in the recovered or preserved property. He added that the property was owned legally and beneficially by Mrs McPherson as she was the registered proprietor. (That may have been the position at the date of his decision but he appears to have overlooked the fact that it was not the situation as at 30th January 2002.) If he had to make a finding about whether there was equity in the property, he stated that he would hold that the burden was on Mrs McPherson to show that there was nil or negative equity on 30th January 2002 and that she had failed to discharge the burden.

The relevant legislation

[34]Section 16(6) of the 1988 Act provides: “(6) Except so far as regulations otherwise provide -(a) any sums remaining unpaid on account of a person’s contribution in respect of the sums payable by the Board in respect of any proceedings, and

(b) a sum equal to any deficiency by reason of his total contribution being less than the net liability of the Board on his account, shall be a first charge for the benefit of the Board on any property which is recovered or preserved for him in the proceedings.” (a) any sums remaining unpaid on account of a person’s contribution in respect of the sums payable by the Board in respect of any proceedings, and (b) a sum equal to any deficiency by reason of his total contribution being less than the net liability of the Board on his account,

[35]Section 16(7) of the 1988 Act provides:

“For the purposes of sub-section (6) above it is immaterial what the nature of the property is and where it is situated and the property within the charge includes the rights of a person under any compromise or a settlement arrived at to avoid the proceedings or bring them to an end and any sums recovered by virtue of an order for costs made in his favour in the proceedings (not being sums payable to the Board under sub-section (5) above).”

[36]Section 16(9) defines what is meant by “the net liability of the Board”.

[37]It is also relevant to refer to parts X and XI of the 1989 Regulations. Part X (regulations 74 to 86) deals with revocation and discharge of a legal aid certificate. Mrs McPherson’s certificate in the present case was revoked under Regulation 79. Regulation 85 provides that where a certificate has been revoked, section 16(6) of the 1988 Act applies to any property recovered or preserved as a result of the person, whose certificate has been revoked, continuing to take, defend or be a party to the proceedings to which the certificate related. Thus, in the present case, although Mrs McPherson’s certificate was revoked on 27th April 2001, and the matter was settled later on 30th January 2002, the LSC can still refer to the terms of the settlement, for the purposes of identifying any property which might have been recovered or preserved, for the purposes of claiming a statutory charge on it.

[38]Under regulation 86 of the 1989 Regulations, where a certificate has been revoked, the Board has the right to recover, from the person to whom the certificate was issued, the costs paid or payable by the Board. Thus, in the present case, the LSC could in principle seek to recover its costs from Mrs McPherson and obtain judgment for those costs and, in principle, seek a charging order over any relevant property of Mrs McPherson. The LSC has not sought to take steps of that kind against Mrs McPherson and the present appeal is not concerned with the position of the parties, if those steps were to be taken. The present appeal is instead concerned with the operation of Section 16 of the 1988 Act and the LSC’s rights in relation to any statutory charge.

[39]Part XI (regulations 87 to 99) of the 1989 Regulations deals with property and costs recovered for assisted persons. Regulation 95 deals with the vesting of, and the enforcement of, a statutory charge. By regulation 95(1), a charge on property recovered or preserved for an assisted person arising under section 16(6) of the 1988 Act vests in the Board. By regulation 95(2), the Board may, in general, enforce any such charge in any manner which would be available in respect of a charge given inter-parties. The Board may not postpone enforcement of the charge, except in accordance with regulations 96, 97 and 98. By regulation 95(3), a statutory charge shall “according to its nature” be a registrable substantive charge in the case of registered land and, under the then applicable provisions of the Land Registration Act 1925 (now repealed), could be protected by lodging a caution at the Land Registry.

[40]Regulations 96 - 99 of the 1989 Regulations make provision for certain special cases. Regulation 96(1) applies where there is recovered or preserved for the assisted person, pursuant to certain specified statutory provisions, a sum of money which is to be used for the purpose of purchasing a home for the assisted person or his dependents. In such a case, the Board may defer enforcing the statutory charge over the sum of money intended to be so used. Regulation 97 applies where there is recovered or preserved for the assisted person property which is to be used as a home for the assisted person or his dependents. Again, the Board may defer enforcing the statutory charge over that property. Regulation 98 applies where the Board has agreed under regulation 96 or regulation 97 to defer enforcing the statutory charge. Regulation 98 permits the substitution of the charged property in the circumstances therein specified. Regulation 99 deals with payment of the sum secured by the charge and payment of interest. Regulations 96 to 99 refer to “the amount of any charge” or some similar phrase. Regulation 99(6) provides:

“(6) In regulations 96 to 99 references to the amount of any charge created by Section 16(6) of the Act shall be construed as references to the amount determined in accordance with section 16(6) and (9) of the Act or to the value of the property to which it applied at the time when it was recovered or preserved whichever is the less.”

On my reading of regulation 99(6), its operation is for the purpose of interpreting and applying regulations 96 to 99 and not for the purpose of describing the operation of section 16 of the 1988 Act, in a case which does not come within regulations 96 to 99.

[41]Although the 1988 Act has for general purposes been replaced by the Access to Justice Act 1999 (“the 1999 Act”), the transitional provisions enacted by the Access to Justice Act 1999 (Commencement No. 3, Transitional Provisions and Savings) Order 2000 (SI 2000/774) have the effect that the present case is governed by the 1988 Act and the Regulations made under it, rather than the 1999 Act and the Regulations made under that Act: see article 5(1) of the 2000 Order. The functions, property, rights and liabilities of the Legal Aid Board have now been transferred to the LSC: see paragraph 2 of schedule 14 to the Access to Justice Act 1999.

[42]The provisions of the 1999 Act, and the Regulations made under it, are similar to the relevant provisions of the 1988 Act and the 1989 Regulations, although there is no provision which repeats regulation 99(6) of the 1989 Regulations: see Access to Justice Act 1999 Section 10(7) and Part III of the Community Legal Service (Financial) Regulations 2000.

[43]Lastly, in this section dealing with the statutory provisions, I refer to section 73 of the Solicitors Act 1974. This section enables a court, in which a solicitor has been employed to prosecute or defend any suit matter or proceeding, to declare that the solicitor is entitled to a charge “on any property recovered or preserved through his instrumentality for his taxed costs in relation to the suit, matter or proceeding”. This provision, or a predecessor of it, has existed in substantially the same form in every Solicitors Act since 1860. This provision has been the subject of some of the authorities to which I will later refer.

Mrs Mc Pherson’s submissions

[44]Mrs Mc Pherson submitted that she did not recover or preserve any property in this case. The house was not worth any more than the £265,000 which she and her husband paid for it, pursuant to the settlement with BM. Therefore there was no property to which the statutory charge could attach. She relied on regulation 99(6) of the 1989 Regulations. She also relied on certain matters which, she said, prevented the LSC from putting forward some or all of the contentions which they now seek to advance. She submitted that the LSC was estopped in one or more respects.

The LSC’s submissions

[45]The LSC submitted that Mr and Mrs Mc Pherson had preserved property, namely, Woodland Cottage. BM had claimed possession of that property and had not obtained an order for possession. Mr and Mrs Mc Pherson had therefore preserved possession of the property. That was the same thing as preserving the property. Therefore, the charge attached to the property. They had also preserved their title to the property which would otherwise have been sold by BM, following the recovery of possession. There was no need to inquire into the value of that property, as at the date of the settlement. It was simply the case that Woodland Cottage was preserved and was subject to the statutory charge. Because one did not inquire into the value of the property, it was irrelevant that there had been a prior mortgage to BM. In the same way, it was irrelevant that Mr and Mrs Mc Pherson had paid £265,000 to buy off the claim to possession and to free the property from the mortgage to BM. The LSC contended that where the property had no net value at the date of the settlement but became more valuable later as a result of movement in the market, then it could benefit from its charge over the property. It was accepted that, as at 30th January 2002, the statutory charge could attach only to Mrs Mc Pherson’s beneficial interest in the property, whatever the true extent of that interest was as at that date. The LSC submitted that the above approach was supported, indeed required, by authority.

[46]It will be remembered that section 16(6) of the 1988 Act refers to “a first charge”. There was discussion as to whether this entitled the LSC to a charge on the freehold which had priority over all other interests, and in particular the BM mortgage. That was certainly a possible reading of the section. If that were the right reading, then could it be said that this reading supported the LSC’s argument that the property preserved was the freehold and one disregarded the BM mortgage? Counsel for the LSC made written submissions on this point following the hearing. She submitted that the LSC had a first charge on the property preserved but this did not mean that the statutory charge had priority over the BM mortgage. She said that was because the property preserved was the house subject to the BM mortgage.

[47]Any question as to the meaning of the reference in section 16(6) of the 1988 Act to a “first charge” does not need to be addressed on the specific facts of this case. Quite apart from its submissions as to the meaning of “a first charge”, the LSC accepts that the charge in favour of Northern Rock plc has priority over the statutory charge because the LSC effectively agreed in around October 2003 that it would postpone its charge to enable a first charge to be granted to Northern Rock plc.

[48]The LSC made submissions in relation to regulation 99(6) of the 1989 Regulations, to which Mrs Mc Pherson had referred. It appeared to accept that regulation 99(6) applied in this case. However, it submitted that the reference in that regulation to “the value of the property” was not a reference to the net value of Woodland Cottage, after taking into account the BM mortgage or the requirement to pay £265,000, but was a reference to the unincumbered value of Woodland Cottage.

[49]The LSC accepted that whatever property was preserved in the proceedings, the most that could be said to have been preserved by Mrs Mc Pherson was her beneficial interest in that property. That led to a further question, which I consider later in this judgment, as to how a statutory charge on such an interest is to be protected at the Land Registry and the effect, if any, of the fact that the registered title is now vested in Mrs Mc Pherson alone.

A possible further analysis

[50]Before considering the authorities, I will refer to a possible further analysis which was identified in the course of argument. If one asked oneself what Mr and Mrs Mc Pherson had achieved by reason of their defence of the proceedings, one would answer: they reduced the amount of the debt claimed by BM to the lower agreed figure of £265,000. They were then able to redeem the mortgage by paying that lower figure.

[51]In a case which involved an unsecured debt, a Defendant who was said by the Claimant to owe a specific figure and who settled the claim for a lower figure, could not be said to have preserved any property. All that would have happened was that the liability was reduced from the claimed figure to the settlement figure.

[52]However, where the debt was secured on property, then the Defendant’s position in relation to that property was improved. In the claim, the Claimant had asserted that the property was charged with the obligation to repay the claimed figure and the settlement established that the charge was in relation to a lower figure. Thereby the amount of the incumbrance on the property was reduced and, to the extent of the reduction, it was possible to say that property had been preserved.

[53]The last statement might need qualification in a case where the value of the property, which was subject to the charge, was less than the amount owing. Take the facts of this case but assuming that the value of Woodland Cottage at 30th January 2002 was £250,000 and that the parties agreed that the amount of the debt the subject of the BM loan was not, say £300,000 as claimed but was the settlement figure of £265,000. It would be difficult to say that the property was preserved to the extent of £35,000 (£300,000 - £265,000) when both on the figure claimed by BM and on the settlement figure, the house was charged with payment of a sum greater than its value. To say that property was preserved in such a case would be to ignore the fact that property could only be said to be preserved where there was a relevant reduction in the amount of the incumbrance on the property. On that reasoning, there was no property preserved on the facts of the example. The case would be like the case of a debtor sued for an unsecured loan reducing the amount claimed (and unsecured) from £50,000 to £15,000. Further, if that reasoning were correct and the value of Woodlands Cottage at 30th January 2002 was £280,000, the property preserved was the value of Woodlands Cottage to the extent of £15,000 (£280,000 - £265,000) rather than £35,000 (£300,000 - £265,000).

The authorities

[54]I begin by referring to two decisions on section 28 of the Solicitors Act 1860. The first of these is The Philippine (1867) LR 1 A&E 309. A master of a ship sued the ship’s owner for his wages and certain disbursements. The ship’s owner counter-claimed against the master for sums which included money due from the master under an agreement to purchase certain shares in the ship. In the result it was found that some £103 was due to the master and some £173 was due from the master to the ship’s owner, thus leaving a balance of some £70 due from the master to the owner. The solicitor who had acted for the master claimed a charge for his costs in the proceedings upon the master’s interest in the ship as being property “recovered or preserved”. This claim was upheld. The judgment was given by Dr Lushington who referred to the fact that the master was entitled to a transfer of the shares in the ship for a sum less by £103 than he would have been if he had not bought the proceedings against the ship owner. He held that the solicitor had recovered or preserved for the master property to the value of £103 and represented by or rather contained in, the master’s right to be made registered owner of the shares in the ship and so that the solicitor was entitled to a charge upon those shares for his costs. There are two features of the decision of particular interest. First the property charged was not to exceed, in value, the sum of £103 as this was the amount by which the master had improved his position in relation to his right to a transfer of the shares in the ship. The second feature is that the charge on property to the value of £103 was subject to the payment of the net sum due from the master to the owner. Although that figure, prima facie, was some £70, the report explains that it was reduced to some £48 by reason of subsequent discussions.

[55]The decision in The Philippine was considered in detail and was applied by the Railway and Canal Commissioner (Wills J) in Pelsall Coal and IronCompany v London and North Western Railway Company (No. 3) (1892) 8 Railway and Canal Traffic Cases 146. In commenting on the decision in The Philippine, Wills J said at page 153 that the master’s interest in the ship was subject to a lien in favour of the owner in respect of £173 and by the exertions of the solicitor the lien or charge was reduced by £103 so that the solicitor had recovered or preserved for the master £103 in value of ownership of the shares in the ship. In the Pelsall case, the Pelsall Company brought proceedings against the Railway Company complaining of over charging by the Railway Company. The matter was eventually compromised on terms that the Railway Company reduced the amount of its claim by £1,750. The Railway Company had a right, pursuant to contract, to a lien on the wagons of the Pelsall Company to secure the balance owing to the Railway Company from time to time. The result of the litigation was that the lien of the Railway Company was reduced by £1,750 and the wagons were made of greater value to the Pelsall Company by £1,750. Wills J held that the solicitor acting for the Pelsall Company had a charge on the wagons for their fees which were some £558, and therefore less than the amount of the property recovered or preserved by the Pelsall Company in relation to the wagons (some £1,750).

[56]In these cases, the court was concerned with a secured debt, namely, the sum due to the owner of the ship or the sum due to the railway company, where the creditor had a lien or charge on certain property, namely, the ship or the wagons. The result of the proceedings was that the amount secured against the property was reduced from the amount claimed and the extent of the reduction was treated as properly recovered or preserved. This means that the courts did not proceed on the basis that the master’s shares in the ship or the wagons were recovered or preserved but rather that the extent of the reduction was recovered or preserved. The other point which emerges from The Philippine is that the solicitor’s charge was subject to the earlier obligation of the master to pay the net sum due from the master to the owner.

[57]A question may arise as to the status of authorities under the various Solicitors Acts for the purpose of elucidating the operation of the relevant provisions in the legal aid legislation. This point was considered by the Court of Appeal in Till v Till

[1974] QB 558

. Lord Denning MR said, at page 567, that the words “recovered or preserved” in the legal aid legislation had the same meaning as in the Solicitors Acts. Stephenson LJ took the same view: see pages 573 to 574. Cairns LJ agreed with both of the other judgments: see page 572. The point was considered by the House of Lords in Hanlon v The Law Society

[1981] AC 124

. Lord Simon of Glaisdale thought that the approach adopted in relation to the Solicitors Acts was a liberal approach which was not necessarily appropriate in the legal aid context. The decision in Till v Till should be read with this caution in mind. There was a further consideration in Hanlon, namely, that the type of proceedings in question in that case were not the kinds of proceedings being considered in the Solicitors Acts cases, so that the earlier decided cases could only be used by way of analogy: see at pages 176H to 177C. At page 180D to H, Lord Simon referred to two cases under the Solicitors Acts which he said were of value. The point was also addressed by Lord Lowry at page 189F to 190G. He thought the words “recovered or preserved” should be given the same meaning as in the Solicitors Acts. He contrasted the nature of the proceedings in Hanlon with what he described as traditional litigation. In Morgan v Legal aid Board

[2000] 1WLR1657

, Neuberger J commented that a decision under the Solicitors Acts was of assistance in the legal aid case before him: see at [24].

[58]In Cooke v Head (No. 2)

[1974] 1WLR 972

, the Court of Appeal considered a case where Miss Cooke had established a one-third beneficial interest in a property owned at law by Mr Head and Mr Head was ordered to pay Miss Cooke’s costs, such order not to be enforced without leave. Both Miss Cooke and Mr Head were legally aided and the Legal Aid Board was entitled to a charge on property recovered by Miss Cooke and on property preserved by Mr Head. The issue was as to the priority of the orders for costs against Mr Head and the statutory charge on property recovered or preserved. It was held (see at 974H) that the statutory charge attached to such monies as were left to the parties after the various parts of the court’s order were carried into effect.

[59]Hanlon v Law Society

[1981] AC 124

concerned proceedings in which a legally aided wife obtained from her husband a transfer of the matrimonial home pursuant to an order under Section 24 of the Matrimonial Causes Act 1973. Much of the reasoning in that case concerned the nature of proceedings under the 1973 Act and a detailed examination of the facts involved in those proceedings. The House of Lords also dealt with more general matters as to the correct interpretation of the statutory provisions relating to the statutory charge. At page 180D to H, Lord Simon considered the meaning of the phrase “property recovered or preserved”. He cited Pinkerton v Easton (1873) LR 16 Eq 490 for the proposition that this question was in large part a question of fact. He cited the judgment of Sir George Jessel MR in Foxon v Gascoigne (1874) LR 9 Ch. App. 654 at 657n for his description of the circumstances in which property was recovered or preserved. That description focused upon the ownership of the property rather than other rights in, or in relation to, property. Lord Simon then described the matter in his own words as follows:

“…property has been recovered or preserved if it has been in issue in the proceedings – recovered by the claimant if it has been the subject of a successful claim, preserved to the respondent if the claim fails. In either case it is a question of fact, not of theoretical “risk”

. In property adjustment proceedings, in my view, it is only property the ownership or transfer of which has been in issue which has been “recovered or preserved” so as to be the subject of a Legal aid charge. What has been in issue is to be collected as a matter of fact from pleadings, evidence, judgment and/or order. I can see no reason for extending the words to items of property the ownership or possession of which has never been questioned”. It will be noted that in the earlier part of this passage, Lord Simon refers to the ownership or transfer of property, whereas he later refers to the ownership or “possession” of property.

[60]There was one particular feature of the facts in Hanlon which merits consideration. When the matrimonial proceedings were determined by the Registrar, he ordered the husband to transfer the property to the wife in return for the wife paying a lump sum of £5,000 to the husband. That order was subsequently varied by the Court of Appeal whereby the wife was not required to pay that lump sum. However, Lord Simon at page 181F to 182A considered how the statutory charge would apply if the Registrar’s order had stood. The Law Society argued that the phrase “property recovered or preserved” included not only property in issue but also property affected by the order. It argued that under the Registrar’s order the whole house was property affected by the order and the lump sum of £5,000 was not to be deducted from the value of the house in ascertaining the property the subject of the charge. Lord Simon disagreed. He held that the property the subject of the charge, being the property recovered or preserved, was the house less the £5,000 lump sum.

[61]In Hanlon, at page 187G-H, Lord Scarman held that a person recovered or preserved in legal proceedings only that which was in issue between the parties and one discovered what was in issue by looking at the pleadings and the evidence. At page 190H, Lord Lowry stated that for property to be recovered or preserved, it was the existence or possibility of a legal contest which mattered and not the principle on which the ultimate rights of the parties fell to be determined. At page 201B, Lord Lowry agreed with Lord Simon as to the position under the Registrar’s order and the payment of a lump sum by the wife to the husband.

[62]In Manley v The Law Society

[1981] 1 WLR 355

, an action was settled on terms that the defendant would discharge the legally aided plaintiff’s debts to a specified amount rather than the defendants simply paying to the plaintiff that amount. Matters were arranged in that way in an attempt to defeat the statutory charge in respect of the amount in question. The Court of Appeal held that the amount in question was property recovered or preserved for the plaintiff. The case really turned on the meaning of the words “for him” in section 9(6) of the Legal Aid Act 1974, which was in the same terms as Section 16(6) of the 1988 Act. At page 346B to F, Lord Denning MR emphasised the need to look at the reality, rather than the form, of the compromise to ascertain what was achieved by it.

[63]In Van Hoorn v The Law Society

[1985] 1 QB 106

, the principal question related to rights under a compromise and the application of section 9(7) of the Legal Aid Act 1974 which was the predecessor of section 16(7) of the 1988 Act. Balcombe J held on the facts of that case that the rights under the compromise were not property recovered or preserved under what is now Section 16(6), because those matters were not in issue in the proceedings, but they were rights under a compromise within what is now section 16(7), because that subsection was to be construed whereby such rights were not limited to rights in property which had been in issue in the proceedings.

[64]The LSC strongly relied on the decision of the Court of Appeal in Curling v The Law Society

[1985] 1 WLR 470

. In Curling, the husband and wife each owned one-half of the matrimonial home. In the course of divorce proceedings, the wife sought a sale of the matrimonial home to realise her half share. The husband claimed to be entitled to prevent a sale of the matrimonial home to enable him to continue living in it indefinitely. If the husband had succeeded, the wife would not have been able to realise her half share in the property for an indefinite period. On one view, the value of the equity in the matrimonial home was a little in excess of £30,000 and the parties compromised the proceedings on terms that the wife would transfer to the husband her half share in the matrimonial home in return for a payment by him to her of £15,000. The Law Society claimed a charge on the £15,000 as property recovered or preserved under section 9(6) of the 1974 Act and/or as rights under a compromise within section 9(7) of the 1974 Act. The Court of Appeal comprised Oliver and Purchas LJJ and Neill J. The wife asserted that she had not recovered or preserved anything because she had an undisputed entitlement to a half share in the property and the payment of £15,000 was the equivalent of her pre-existing half share. Neill J agreed that ownership of the matrimonial home was not in issue in the proceedings. He also agreed that the sum of £15,000 merely represented her agreed share of the proceeds of sale, or perhaps a little less. He added that the fact that a party to legal proceedings recovered in the proceedings that to which he or she was in law already entitled cannot by itself prevent the attachment of the statutory charge: see at page 477G. He referred to Lord Simon of Glaisdale in Hanlon v The Law Society

[1981] AC 124

at 18 where Lord Simon had referred to not only ownership of property but also possession of property. Neill J reasoned that the wife had recovered £15,000 in that she achieved an immediate or at any rate an accelerated right to her share of the proceeds of sale: see 477H to 478A.

[65]In Curling, at page 482D to E, Oliver LJ held that the wife had overcome the obstacle raised by her husband’s claim that he should be allowed to remain in the property as his residence. Oliver LJ referred to The Philippine (1867) LR 1 A&E 309 and Pelsall Coal & Iron Co v London & North Western Railway Co

(1892) 8 TLR 629

. He regarded those cases as showing the liberal approach adopted under the Solicitors Act 1860 in that the shares in the first case and the wagons in the second case were not strictly speaking the subject matter of the relevant proceedings. Oliver LJ did not agree that property was only recovered or preserved where title to the property had been in issue. He said at page 483D to E:

“Where, even though the title to property may not be in issue, the proceedings are necessary in order to reduce it into or restore it to the possession of its owner, it seems to me that, quite literally, the property has been “recovered”

. For instance, a landlord seeking to forfeit a lease or a landlord seeking to evict a squatter who claims no title but merely refuses to move is pursuing property the title to which is not in issue. But I find it unarguable that the property reduced to possession by the judgment has not been “recovered” by the proceedings. Equally if a trustee for sale wrongly refuses to concur in selling so that proceedings are necessary under Section 30 of the Law Property Act 1925 to compel a sale and the distribution of proceeds, I would have thought it quite clear that, as a result of the proceedings, the beneficiary has “recovered” his share. It seems to me entirely inappropriate and irrelevant in such a case to seek to assess the increment to the plaintiff of the value of his interest. He has, quite literally, recovered (i.e., got into his hands) property which he would not have in his hands had it not been for the proceedings”.

[66]The reference by Oliver LJ to not assessing “the increment to the plaintiff of the value of his interest” reflected a submission made by counsel for the wife that the enhancement in the value of the property to the wife, represented by the element of acceleration, was incapable of valuation: see at page 482G. Purchas LJ agreed with both of the other judgments in Curling.

[67]Parkes v Legal Aid Board [1997] 1FCR 430 concerned an unmarried couple. The couple bought a house in their joint names. The relationship broke down and the parties separated. Ms Parkes and a child of the relationship remained in the house. Her former partner brought proceedings for the sale of the house with vacant possession and Ms Parkes obtained legal aid to defend the proceedings. The matter was compromised by a consent order under which the sale was postponed and Ms Parkes was to be allowed to remain in possession until the earliest of a number of specified events occurred, when the house would be sold and the net proceeds divided equally between the co-owners. The Legal Aid Board claimed a charge on Ms Parkes’ beneficial interest in the property to secure repayment to the Board of the costs it had incurred on her behalf. Ms Parkes claimed a declaration against the Board that the charge did not apply. She contended, first, that the beneficial interest in the property had not been in contest in the original proceedings and, secondly, that the rights she had obtained under the consent order to a postponement of the sale, and to remain in possession, were insufficient to bring those rights within the definition of property “recovered or preserved” in section 16(6) of the 1988 Act. Thorpe J (whose judgment is reported at [1994] 3 FCR 234) held that there had been no contest between the co-owners as to the extent of their beneficial interests, but that the right of exclusive possession which Ms Parkes had acquired or retained under the compromise brought the property within the charge. The Court of Appeal upheld this decision. Waite LJ held that the correct view of the case was that from the date of the consent order Ms Parkes’ rights under the trust for sale of the home were preserved to the extent that she continued to enjoy a right of possession and they were the subject of recovery to the extent that whereas her possession had been formerly shared it was now exclusive and whereas postponement of the same had formerly been consensual it was now imperative.

[68]In Morgan v Legal Aid Board

[2000] 1 WLR 1657

, the facts were somewhat complicated but it is not necessary for me to summarise them. One feature of that case was that a bank held a mortgage over land and there was a dispute about the amount of the debt secured by the mortgage. The mortgagor had counter-claimed for damages to be set-off by way of reduction of the debt and when the matter was settled, the bank’s claim to some £820,000 was reduced to some £230,000. That might have given rise to an interesting point as to whether the land which was subject to the charge had been recovered or preserved to the extent of the difference between £820,000 and £230,000. However, as the Judge (Neuberger J) stated at [20], counsel for the Legal Aid Board did not rely upon the reduction in the indebtedness as entitling the Board to say that the mortgagor had recovered or preserved property which could be the subject of a statutory charge under section 16(6).

[69]In the Morgan case, the Board had submitted that property belonging to a legally aided person which was subject to an encumbrance, but which was released from the encumbrance, was property “recovered” within section 16(6): see at [18]. That proposition was accepted by the other party in reliance on Jones v Frost (1872) LR 7 Ch. App. 773: see at [22]-[23].

[70]The principal issue in Morgan was how section 16(7), dealing with compromises, applied in relation to rights under the compromise when the rights had not themselves been in issue in the action. The judge held that because section 16(6) was confined to property which had been in issue in the action, section 16(7) should also be confined to rights which were themselves in issue, or which were in substitution for property in issue, in the action: see at [27]. That point is not of direct relevance in the case before me.

[71]In Morgan, the judge considered a second issue as to whether there had been recovery or preservation of property “for” the legally aided party. It was held, on the facts, that the relevant rights in the land were not recovered or preserved for the legally aided party but for a company. On the facts, the legally aided party had sold the land to the company. However, it was not right to regard the legally aided party as having recovered or preserved the purchase price for the land because all of that purchase price was used to discharge the mortgages on the land: see at [55].

Discussion

[72]I will now attempt to apply the legal principles, as they appear from these authorities, to the facts of this case.

[73]In my judgment, it is clear that Mr and Mrs Mc Pherson achieved something by reason of their defence of the proceedings. The most obvious thing that they achieved was that they reduced the sums claimed by BM from whatever was the figure being claimed by BM in the proceedings before the settlement on 30th January 2002 to the lower sum of £265,000. It must be right to take the amount of the BM claim at that date, rather than at the commencement of the proceedings, because the amount claimed will have changed by reason of added interest and, conceivably, by reason of payments made to BM.

[74]An immediate difficulty then presents itself. What was the amount of the BM claim at that date? There was no evidence before the Deputy Adjudicator, nor before me, as to that figure. It must have been more than £265,000. I reach that conclusion in view of the amount of the initial claim and the amount of the interest being claimed and the fact that a smaller figure was ordered to be paid on account of interest. Further, there was no sense in Mr and Mrs Mc Pherson settling on the terms they did unless £265,000 was less than the amount of the claim at 30th January 2002. Accordingly, in the further discussion of this point I will refer to the sums claimed by BM as at 30th January 2002 as being £X. That means that Mr and Mrs Mc Pherson achieved by the settlement a result whereby BM’s claim was reduced by the amount of £X – 265,000.

[75]As explained earlier, in the case of an unsecured debt, the reduction in the amount of the monetary liability does not involve the recovery or preservation of property. The position is different in the case of a secured debt. That is shown, in my judgment, by the decisions in The Philippine and the Pelsall case. The present case is a fortiori those cases because the property at Woodland Cottage was more clearly the subject matter of the proceedings. If I were to apply those decisions in the present case, I would reach the conclusion that prima facie Mr and Mrs Mc Pherson had preserved property to the extent of £X–265,000, in that they had reduced the incumbrance on Woodland Cottage to that extent. I say prima facie for this reason. If Woodland Cottage were worth more than £X at 30th January 2002, then Mr and Mrs Mc Pherson had preserved property to the extent of £X-265,000 by reason of the settlement. Conversely, if Woodland Cottage were worth less than £265,000 at that date then all that they have achieved was to reduce the unsecured debt by £X–265,000, but they have not preserved any part of the value of Woodland Cottage.

[76]The LSC does not accept this last proposition. It submits that if the value of the property is less than the amount of the debt payable under the charge then it is a case of negative equity or negative value. It then submits that to reduce the amount of the debt and thereby to reduce the amount of negative equity or negative value is to improve one’s position and to preserve property to the extent of the reduction in negative value or negative equity. I do not accept that submission. It does not distinguish between the secured debt and the unsecured debt. In my judgment, one does not preserve the property the subject of the charge by reducing the amount of the debt that is not effectively secured on that property by that charge.

[77]There is also an intermediate position which falls to be considered. If the value of Woodland Cottage were lower than £X but higher than £265,000, say £Y, then, in my judgment, what Mr and Mrs Mc Pherson had preserved in terms of property was £Y – 265,000. This reasoning gives rise to a second difficulty in this case. What was the value of Woodland Cottage at 30th January 2002?

[78]The Deputy Adjudicator has stated that if he had to decide the matter he would have held that the value of Woodland Cottage comfortably exceeded £265,000. If that finding stands, then the result is that Mr and Mrs Mc Pherson did preserve property by reason of their settlement, but the precise extent of the property preserved has not been quantified. Mrs Mc Pherson contends that the finding, or the provisional finding, of the Deputy Adjudicator was not justified. She has contended and continues to contend that the value of Woodland Cottage at 30th January 2002 was £265,000 and not more. In my judgment, the Deputy Adjudicator was right to hold that the value exceeded £265,000 and I would not interfere with his finding or provisional finding in that respect.

[79]The above reasoning has considered the position of Mr and Mrs Mc Pherson. However, for present purposes, the only relevant person is Mrs Mc Pherson. One therefore has to ask whether Mrs Mc Pherson preserved property by reason of the settlement. On the assumption that, as at 30th January 2002, Mrs Mc Pherson owned one-half of the beneficial interests in the property, the conclusion would seem to follow that Mrs Mc Pherson preserved one-half of whatever is the right figure, as explained above, for the extent of the property preserved by Mr and Mrs Mc Pherson.

[80]The above reasoning describes how matters first appeared to me when I considered the facts of this case. I have referred to this analysis earlier in this judgment as a possible further analysis. On looking into the cases decided on the Solicitors Acts, I found that this reasoning appeared to be supported by authority, namely The Philippine and the Pelsall case.

[81]The LSC did not put its case that way and indeed it submits that this approach does not go far enough in its favour. It says that I have to add into the assessment the fact that BM claimed possession of Woodland Cottage and the settlement was on terms that BM did not recover possession. Therefore, Mr and Mrs Mc Pherson preserved possession of Woodland Cottage in the proceedings. It is then submitted that the LSC is entitled to the statutory charge on Mrs Mc Pherson’s beneficial interest in Woodland Cottage as property preserved for her in the proceedings.

[82]My initial reaction to this argument was that it went too far. My view was that it would not be right to say that Mr and Mrs Mc Pherson had preserved Woodland Cottage in the proceedings. I thought that to preserve the possession of property was not to be equated with the preservation of the property. Apart from the fact that Mr and Mrs Mc Pherson had reduced the amount of the debt due from them from £X to £265,000 (and that fact is the subject of my earlier reasoning), I questioned whether they had otherwise improved their position in the proceedings. Both before and after the settlement, the property was charged to BM and Mr and Mrs Mc Pherson were entitled to redeem the charge by paying the amount due under it. Before the settlement, if BM had sold the property, then BM would have to account to Mr and Mrs Mc Pherson for the net proceeds of sale, if any. Thus, Mr and Mrs Mc Pherson could not be said to have preserved the extent of their interest in Woodland Cottage which was charged to BM, because that part was and remained charged to BM, subject to the right to redeem the charge. Similarly, Mr and Mrs Mc Pherson could not be said to have preserved the extent of their interest in Woodland Cottage which was not charged to BM because that part of their interest was never something which could be claimed by BM, as it was obliged to remit any net proceeds of sale, after paying off the sum secured by the charge.

[83]I have had to reconsider this initial reaction in the light of the authorities, particularly the decision in Parkes v Legal Aid Board building, as it does, on Curling v The Law Society. Both of these authorities rely on the use of the word “possession” in the speech of Lord Simon of Glaisdale in Hanlon v The Law Society.

[84]In reconsidering this matter, I have found it helpful to consider a commonplace example of a dispute arising in a mortgage possession action. In this example, there is no dispute about the debt owing to the mortgagee and the dispute is as to whether the court should make an order for possession to enable the mortgagee to sell the security, or whether the proceedings should be adjourned or whether an order for possession should be suspended or postponed pursuant to the section 36 of the Administration of Justice Act1970, as amended by section 8 of the Administration of Justice Act 1973. In such a case, if the court were to refuse to make an early order for possession but were to allow the mortgagor to stay in possession, providing he kept up payments in accordance with a timetable set by the court, then the case would seem to be analogous to the position in Parkes. In the example, the mortgagor would have preserved rights to the extent that he continued to enjoy a right to possession. Further, based on the decision in Parkes that the statutory charge attached to the whole of the beneficial interest of Ms Parkes (and not just to the extent by which that interest became more valuable by reason of the enhancement in Ms Parkes’ right to remain in possession) and the fact that, in Curling, Oliver LJ held that it was inappropriate to seek to assess the incremental value produced by the settlement over and above the pre-settlement position, it seems to follow that the mortgagor should be treated as having preserved the mortgaged property in the proceedings.

[85]In my judgment, I am bound by the decisions of the Court of Appeal in Curling and Parkes to hold that the above analysis is indeed the legal position in relation to my example. Further, it seems to follow that the same result must be reached on the facts of this case. Mr and Mrs Mc Pherson were sued for possession and defended those proceedings on a number of grounds which included reliance on the Administration of Justice Acts 1970 and 1973. Under the settlement, they preserved their possession of Woodland Cottage. Although, that was principally achieved by means of reducing the debt due under the charge and then redeeming the charge, the fact remains that in proceedings in which the possession of the property was in issue, Mr and Mrs Mc Pherson preserved possession of the property.

[86]Accordingly, I am bound to accept the LSC’s submission that, because Mr and Mrs Mc Pherson preserved the possession of Woodland Cottage, they preserved that property. However, I need to go on to consider how to deal with the arguments as to the possible net value of that property as at 30th January 2002.

[87]In the ordinary case, this ought to be a theoretical question. If at the date of the settlement, the value of the property were less than then sums secured by the mortgage, then even if the LSC were entitled to a statutory charge on the title, a sale of the property at that stage would not lead to the LSC receiving any part of the proceeds of sale. The question is not theoretical where there is a delay after the settlement before the property is sold and in that time, the property rises in value, so that on a subsequent sale when the mortgage is paid off out of the proceeds of sale, there will remain net proceeds of sale potentially subject to the LSC charge.

[88]The LSC argues that when one asks whether property was preserved one does not inquire as to the value of that property. It submits that the property preserved is Woodland Cottage and it is irrelevant to ask whether that property had any net value or not.

[89]When I considered the possible analysis based on the reduction in the amount of the secured debt, I had no hesitation in reaching the conclusion that if the value of the property was less than the amount charged on it, then the mortgagor had not preserved any property. With the analysis based upon the preservation of possession of property being treated as the preservation of the property itself, the position is less clear.

[90]I need to differentiate between two possible cases. The first case is where there is no net value as at the date of the settlement. The second case is where there is net value at the date of the settlement, but where the net value is less than the amount of the costs claimed by the LSC. In the first case (which on the facts is not this case) I think that I could reach the view that it is unrealistic to hold that a mortgagor preserves property when that property has no net value. In the second case, where the property does have a net value, I do not see how I could say anything other than that property has been preserved. I would also hold that the statutory charge must reflect the pre-existing mortgage so that the charge can only enable the LSC to pay itself out of the net proceeds of sale after paying off the pre-existing mortgage.

[91]The conclusion in the last paragraph then raises the question whether the statutory charge on the property is restricted to the amount of the net value at the date of the settlement. There is nothing in section 16(6) or section 16(7) of the 1988 Act which produces that result. What then of regulation 99(6) of the 1989 Regulations? The LSC appeared at the hearing to accept that the matter was governed by regulation 99(6) but submitted that the value referred to in the regulation is the gross value and one has no regard to any mortgage on the property. I am unable to accept that submission as to the meaning of the value of the property. However, I am equally unable to agree with the LSC that the matter is governed by regulation 99(6) when the case, like the present case, does not come within regulations 96 to 99. I reach that conclusion with a little reluctance as I understand that in practice the LSC has in other cases applied regulation 99(6) even where the case did not strictly come within the express terms of regulation 99(6). The matter seems to me to be clear. The present case does not come within regulation 99(6). The regulation either applies or it does not. It is not possible to apply it “by analogy”.

[92]If the value of Woodland Cottage as at 30th January 2002 had been less than £265,000, then the result would have been that the LSC did not have a statutory charge on that property. As the Deputy Adjudicator has held that the value of Woodland Cottage exceeded £265,000 on that date, it follows that the LSC has a charge for its costs on Woodland Cottage at that date, on the basis that Woodland Cottage was subject to the BM mortgage to secure the sum of £265,000, alternatively that the BM mortgage was to be redeemed for £265,000 and the property was to be re-mortgaged to secure that sum.

[93]It therefore emerges that the result in this case, based on an analysis which holds that the preservation of possession is the same as the preservation of the property, may not be identical to the result where the analysis is based on the amount of the reduction in the secured debt. The extent of any difference in the result is not at present known because the amounts of £X and £Y, to which I earlier referred, have not been determined. The fact that the two different analyses could produce different results has led me to question whether I am able to choose between them and, if so, which I should choose. If the matter were free from authority, I confess I would be much more attracted to the analysis based on the amount of the reduction in the secured debt, which appears to me to be more realistic as to what the legally assisted person has really gained as a result of the proceedings. The analysis based on the preservation of possession runs the risk that the LSC obtains the benefit of a charge over something which is considerably more than the legally assisted person has gained as a result of the proceedings. However, as I have explained, I have held that this analysis is required by the authorities and in those circumstances, I am not free to prefer a different analysis which might produce a different result.

Conclusion on the main point

[94]The result of the foregoing therefore is this. I hold that Mr and Mrs Mc Pherson have, in the proceedings, preserved possession of Woodland Cottage. The property preserved by them was the title to Woodland Cottage subject to the charge to BM which was then redeemed for £265,000 or, putting the matter another way, the title to Woodland Cottage subject to the obligation to pay £265,000 to redeem the BM charge. The Deputy Adjudicator has held, and I have upheld this finding, that the value of Woodland Cottage as at 30th January 2002 exceeded £265,000.

[95]The LSC accepts that, in view of its consent in October 2003 to the refinancing by Mr and Mrs Mc Pherson and the grant of a charge to Northern Rock plc, that the Northern Rock charge has priority over the statutory charge.

[96]It also follows from my acceptance of the analysis based on the preservation of possession of the property, rather than the analysis based on the reduction in the secured debt, that it is unnecessary to calculate the amounts of £X or £Y as referred to above.

Registration in relation to the statutory charge

[97]I next need to consider the significance of the fact that Mrs Mc Pherson was not the sole legal and beneficial owner of the property as at 30th January 2002 and the statutory charge now being claimed is asserted against her alone and not against Mr Mc Pherson.

[98]I now refer to the relevant facts so far as they are established. As at 30th January 2002, legal title to the property was vested in Mr and Mrs Mc Pherson as joint tenants at law. It seems to be accepted that Mrs Mc Pherson did at that date have a beneficial interest in the property. Strictly speaking, there has been no finding about the extent of that beneficial interest. One possibility is that it was 50% of the beneficial interests in the property. That was certainly the figure referred to by Mrs Mc Pherson’s former solicitor in the form she completed for the LSC. I will therefore proceed on the basis that Mrs Mc Pherson had a half share in equity but if this point ever becomes material then I am not at this stage making a finding on that matter.

[99]Consistent with the above reasoning, what Mrs Mc Pherson recovered or preserved in the proceedings was a half share in the property, which property was charged for the sum of £265,000 or which was subject to a liability to pay £265,000 to BM. The LSC registered a caution against the registered title to the property to protect its charge on Mrs Mc Pherson’s beneficial interest. That was the appropriate step under section 54 of the Land Registration Act 1925. However, the LSC later agreed to remove its caution.

[100]On 13th October 2003, the Land Registration Act 2002 (“the 2002 Act”) came into force. On 11th November 2003, the legal title to the property was transferred to Mrs Mc Pherson alone. There was no specific evidence as to what happened Mr Mc Pherson’s beneficial interest in the property, although I note that in a submission made on behalf of Mrs Mc Pherson it is assumed that Mr Mc Pherson no longer had any beneficial interest in the property.

[101]In its application to the Land Registry, which has led to this appeal, the LSC applied to register a charge against the registered title. The Deputy Adjudicator has ordered the Registrar to give effect to that application. Mrs Mc Pherson has not raised any point in her appeal as to the appropriateness of this method of protecting such rights as the LSC might have. The LSC appears to accept that it does not have a charge in relation to the full extent of the legal and beneficial interests in the property but that its charge relates to one half of the beneficial ownership of the property (assuming that Mrs Mc Pherson owned a half share in equity as at 30th January 2002).

[102]At the hearing, I raised the question whether it was appropriate for the LSC to protect its interest by a charge on the registered title. The LSC made written submissions on this point following the hearing. The LSC contended that it was entitled to a charge on the registered title, alternatively, to a unilateral notice under section 32 of the 2002 Act and was not entitled to a restriction under section 40 of the 2002 Act.

[103]The question as to the appropriate form of protection is not a straightforward matter. My provisional view is that the LSC is not right in its answer to this question. I will therefore explain my provisional view. However, as the matter has not been argued orally, I will permit the LSC if it wishes, following the handing down of this judgment, to seek to persuade me to revise my provisional view on this point.

[104]As at 30th January 2002, the statutory charge automatically applied to Mrs Mc Pherson’s beneficial interest in the property. It did not apply to the legal title as that was owned jointly by Mr and Mrs Mc Pherson. When the legal title was transferred to Mrs Mc Pherson alone on 11th November 2003, the statutory charge on her beneficial interest was not promoted so as to attach to the legal title. There is no specific evidence as to what happened to Mr Mc Pherson’s beneficial interest, in or after November 2003. The LSC has assumed that Mr Mc Pherson’s beneficial interest was transferred to or otherwise vested in Mrs Mc Pherson. Even if that assumption were right, and I make no finding as to that, that does not mean that the trust of land formerly in existence came to an end. I say that because Mrs Mc Pherson’s beneficial interest was charged to the LSC and that beneficial interest must have remained outstanding, rather than merged in her legal title.

[105]If the above analysis is right, then it follows that the LSC does not have a charge on the legal title and may not register a charge against the registered title. Equally, the LSC may not register a notice to protect a charge on a beneficial interest under a trust of land: see section 33 (a) of the 2002 Act. Conversely, the LSC is entitled to register a restriction on the title: see section 42(1)(c) of the 2002 Act, as extended by rule 93 (w) of the Land Registration Rules 2003, as amended, referring to a restriction in Form JJ in Schedule 4 to those Rules.

Estoppel

[106]Mrs Mc Pherson relies on a number of matters which she says estop the LSC from putting forward some or all of the matters on which it now relies. She relies on the literature of the Legal Aid Board at the time she applied for legal aid. She relies on advice given to her by her solicitor and advice given to her husband by his solicitor. She relies on the correspondence from the LSC in June 2003 in relation to her husband’s IVA.

[107]So far as the Legal Aid Board’s literature is concerned, the evidence before the Deputy Adjudicator was far from clear as to the terms of this literature. If and in so far as the literature explained that the statutory charge only applied where there was net value in the property, after taking account of any mortgage on the property, then I have found that that is indeed how the statutory provisions operate. In any event, I doubt if statements made in the Legal Aid Board’s literature could give rise to an estoppel in private law. It seems to me that the legal principles to be applied would be public law principles as to legitimate expectation. On the facts, Mrs Mc Pherson has not established that the literature differed from the true legal position so that it is not necessary to consider the other matters which she would have to show to establish a public law claim to relief based on a legitimate expectation. Nor is it necessary to consider whether a point of public law of that kind could be taken on a reference to an adjudicator or an appeal to this court.

[108]As to the advice given by the solicitors to Mrs Mc Pherson and to her husband, again, I have no reason to hold that that advice was inaccurate but even if it were I do not see that such advice would affect the LSC’s ability to pursue a statutory charge to which it was otherwise entitled.

[109]As to the letters of 6th June 2003 and 13th June 2003 from the LSC to the supervisor of Mr Mc Pherson’s IVA, those letters were not statements made to Mrs Mc Pherson, they were not about Mrs Mc Pherson’s own position and they do not explain what specifically led the LSC to the conclusion that Mr Mc Pherson did not recover or preserve any property in the proceedings, although I acknowledge it is possible that the LSC thought, based on what Mr Mc Pherson’s solicitor might have said, that there was no value in the property, over and above the mortgage on the property. Beyond that, Mrs Mc Pherson did not give any specific evidence as to any change of her position which resulted from that correspondence.

[110]In these circumstances, in my judgment, there is no case of estoppel or legitimate expectation which affects the rights of the LSC in this appeal.

The overall result

[111]As a matter of substance, the result of the appeal is therefore as follows. I reject Mrs Mc Pherson’s case that the LSC does not have a statutory charge because (as she asserted) the value of the property as at 30th January 2002 did not exceed £265,000. The LSC does have a statutory charge on whatever was the extent of Mrs Mc Pherson’s beneficial interest (i.e. 50% or some other percentage) in Woodland Cottage as at 30th January 2002. Woodland Cottage should be considered as, at that date, subject to the BM charge for £265,000, or subject to the liability to pay £265,000 to BM.

[112]As a matter of form, based on my provisional conclusions as to the operation of the 2002 Act as described above, the appeal will be allowed and the charge registered against the registered title will be cancelled and instead the LSC is to be protected by a restriction in Form JJ in schedule 4 to the Land Registration Rules 2003.