Knightsbridge Property Development Corporation (UK) Ltd v South Chelsea Properties Ltd & Anor [2017] EWHC 2730 (Ch)

Case Nos: B30CF057 & B90SA048

[2017] EWHC 2730 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue CARDIFF DISTRICT REGISTRY, Royal Courts of Justice, Strand, London, WC2A 2LL

Date 02/11/2017

Before

LORD JUSTICE NEWEY

Between

KNIGHTSBRIDGE PROPERTY DEVELOPMENT CORPORATION (UK) LIMITEDClaimant

SOUTH CHELSEA PROPERTIES LIMITEDDefendants

ADVANCED INDUSTRIAL TECHNOLOGY CORPORATION LIMITEDDefendant

And between :

Between

KNIGHTSBRIDGE PROPERTY DEVELOPMENT CORPORATION (UK) LIMITEDClaimant

IBRID SLDefendant

Mr Andrew Butler (instructed by Douglas-Jones Mercer, Swansea) for Claimant

Mr Charles Apthorp (instructed by De Brett, Sutton) for South Chelsea Properties Limited & Ibrid SL

Miss Sophie Evans (instructed by Engleharts, Hove) for Advanced Industrial Technology Corporation Limited

Hearing Hearing dates: 8-10 & 12 May, 4-5 July and 2 October 2017

Judgment

Lord Justice Newey :

[1]This litigation concerns: i) Land at Alder Road, Headley Down, Bordon in Hampshire registered at the Land Registry under title number SH11319 (“the Alder Road Land”); and ii) Land at Bordean, Petersfield in Hampshire registered at the Land Registry under title numbers HP560232 and HP562674 (“the Bordean Land”).

[2]In May 2014, a charge which the claimant, Knightsbridge Property Development Corporation (UK) Limited (“KPDC”), had over the Bordean Land (“the KPDC Charge”) was removed from the register because the Land Registry had been told that the property was no longer charged. In November of that year, the first defendant, South Chelsea Properties Limited (“South Chelsea”), was registered as the proprietor of the Alder Road Land in place of KPDC on the basis of a transfer that had been lodged with the Registry. KPDC challenges both the removal of the KPDC Charge and the transfer of the Alder Road Land and contends that the register ought to be altered by restoring the KPDC Charge and to show KPDC as the proprietor of the Alder Road Land. The parties KPDC

The parties

[3]KPDC, which has carried on a property development business, was incorporated in 1996. Mr Peter Mathieson and Mr John Brazell (“Mr Brazell Senior”) were appointed as the directors and each acquired one of the two issued shares, while Mr John Foote-Forster became the company secretary.

[4]In 1997, Mr Mathieson’s wife Jennifer joined KPDC’s board. On 10 September 2007, Mr Brazell Senior’s son Warren (“Mr Brazell Junior”) was also appointed a director of the company. Accordingly, between 2007 and May 2014 KPDC’s board comprised Mr and Mrs Mathieson, Mr Brazell Senior and Mr Brazell Junior.

[5]In 2003 a further 245,998 shares in KPDC were issued. The company’s 2003 accounts explain that the shares were issued in exchange for a similar number of shares in Knightsbridge Property Development Corporation Limited. Following the allotment, Mr Mathieson held 133,000 shares, Mrs Mathieson 73,000 shares and Mr Brazell Senior 40,000 shares (20,000 of which are said by Mr Foote-Forster to have been held on trust for him). According to Mr Foote-Forster, Mr Brazell Senior executed a stock transfer form transferring his 40,000 shares to him on 4 June 2013. Mr Mathieson, in contrast, relies on a stock transfer form dated 18 October 2013 providing for the shares to be transferred to him. I do not need to express any view on the validity of either transfer.

[6]Although the Mathiesons had far more shares than Mr Brazell Senior in KPDC and Mr Foote-Forster was not a registered shareholder at all, in practice profits were, I gather, shared more or less equally between Mr Mathieson, Mr Brazell Senior and Mr Foote-Forster. That, it seems, had been the plan from the outset. Mr Mathieson accepted in cross-examination that the original plan was to split profits from transactions three ways. For his part, Mr Foote-Forster said that the “verbal agreement” was that “when we sold things we split them a third each”.

[7]KPDC’s affairs were evidently conducted very informally. If board meetings were held at all, they were a rarity. Mr Foote-Forster said in re-examination that nothing at all was written down. That may have been an exaggeration, but it was not much of one.

[8]The way in which business was carried on is also noteworthy for its startling lack of transparency and regard for conventional proprieties, not to say legal requirements. I have already referred to the fact that profits were shared in a way that did not correspond to the shareholdings. More than that, KPDC never itself made any distribution. Companies were interposed in transactions so that gains would accrue to them rather than to KPDC. In that connection, Mr Foote-Forster said in cross-examination, seemingly with some justification:

“the way that we got money out of the company was by selling to third parties and then the third party companies selling … the relevant bits of property and then Peter [Mathieson], John [Brazell] and I receiving cheques from the various solicitors … that dealt with them”

. Money sometimes appears to have been routed via an account which was held in the name of Ms Jonah Socao (to whom Mr Foote-Forster was and remains married although he said in evidence that he had not seen her for about three years), but which was generally operated by Mr Foote-Forster. Mr Foote-Forster was keen to stress that such arrangements suited Mr Mathieson (who, he observed, was a higher rate taxpayer), but I doubt whether they existed solely for Mr Mathieson’s convenience. In other respects, too, there seems to be force in Mrs Mathieson’s comment in cross-examination that Mr Foote-Forster was “looking for dodges”. By his own account, he came up with the “devious little scheme for minimal deposit purchases” that was used in relation to the Welsh properties mentioned in paragraphs 12 and 13 below. He was also clearly involved in the registration of the charge mentioned in paragraph 34 below, which he himself said did not secure a real loan.

[9]I have the impression, too, that Mr Foote-Forster preferred to be in the shadows. Not only did he use an account in his wife’s name, but he was a director of neither KPDC nor (up to late 2013) South Chelsea despite playing a major part in both companies. In each case, he was instead the secretary (as he was also with Bohunt Manor Limited and West Coast Property Co Limited), but he said in evidence that he had “never been a company secretary in the real sense of the word”. Again, he had two signatures: a “British” one and an “Andorran” one. On occasion, both signatures are to be found on the same document.

[10]Mr Brazell Junior described Mr Mathieson as the managing director of KPDC. Mr Brazell Junior himself, I was told, worked in KPDC’s offices from about 2004, but his main job was always as a technician at a garage. His directorships, he explained, were fitted in around his day job. By the end of 2013, he was “taking a minimum part as required” in relation to KPDC.

[11]KPDC was generally shown as profit-making until 2008, when its accounts recorded a balance on profit and loss account of £101,419, implying a loss that year of £28,958. There were further losses in 2009 to 2013, by which time the company was recorded as having net liabilities of £387,628. The 2016 accounts gave the balance on profit and loss account as (£1,355,308) and recorded net liabilities of £1,109,308.

[12]The change in KPDC’s fortunes appears to be attributable to some disastrous Welsh investments. Between December 2006 and October 2007, KPDC bought a number of properties in South Wales. It borrowed money for the purpose, with guarantees in all cases being given by the three directors: Mr Mathieson, Mrs Mathieson and Mr Brazell Senior. In each instance, a company with a link to Mr Foote-Forster would buy the property and re-sell it simultaneously to KPDC at a significantly higher figure with a view to KPDC being able to borrow the whole of the price payable to the original vendor. All the acquisitions have turned sour.

[13]Following the completion of the first of the Welsh acquisitions, Mr Foote-Forster wrote to Mr Mathieson on 15 December 2006 in these terms:

“I would just like to confirm that Brookdale Street has completed (this proves that my devious little scheme for minimal deposit purchases works!!)”

Later in the letter, Mr Foote-Forster said:

“I will send you copies of both the Bohunt and Knightsbridge completion statements so that you can clearly see the financial cost of each transaction and I suggest that on completion of Ritson Street a lump sum of £xx,xxx can then be repaid to Knightsbridge as a ‘loan’ which of course we can take out of the company when it suits us tax free (as repayment of loan!)”

[14]On 25 April 2014, Mr Foote-Forster ceased to be KPDC’s secretary. Mr Mathieson believed that he had discovered that Mr Foote-Forster had forged his and wife’s signatures on certain deeds which are not in issue in the present proceedings. The Mathiesons therefore took steps to remove Mr Foote-Forster as secretary.

[15]HGB Business Services Limited took over as secretary on 12 May 2014. That same day, Mr Brazell Senior and Mr Brazell Junior both left KPDC’s board. Minutes which, on the face of it, record a board meeting on that date attended by Mr Brazell Senior, Mr Brazell Junior and Mr and Mrs Mathieson (and signed by all four of them) state:

“Because of J.W Brazell’s poor health and his understanding that P.G. Mathieson would redeem the mortgages, releasing him from all financial undertakings, and because he understood, having seen the ‘suspected forgeries’ and the subsequent automatic dismissal of John Foote Forster as Company Secretary, he would resign immediately from [KPDC]. The Directors also approved the share transfer dated 18th October 2013 from J.W. Brazell to P.G. Mathieson. It was also agreed that the other Director, Warren Brazell, would be released from all financial responsibilities, provided he, too, resigns from the Company.”

[16]Mr Brazell Junior explained in evidence that he had signed this document because he was to be relieved of financial responsibilities. He explained that Mr Mathieson had told him that he (Mr Mathieson) knew that, given his illness, Mr Brazell Senior could not bear the brunt of any financial problems and that he “would continue with the financial problems without [the Brazells]” if they both resigned. In effect, the Mathiesons assumed sole responsibility for the very considerable liabilities associated with the Welsh properties. Mr Mathieson said in evidence that they had cost him nearly £800,000. His wife spoke of her horror at looking at their “whole life savings disappearing”.

[17]At the time of its 2003 share allotment, KPDC became the parent of Knightsbridge Property Development Corporation Limited. Like KPDC, Knightsbridge Property Development Corporation Limited undertook property developments and had been established in 1996 with Mr Mathieson and Mr Brazell Senior as the directors and shareholders and Mr Foote-Forster as the secretary. Heads of agreement that were concluded between Mr Mathieson, Mr Brazell Senior and Mr Foote-Forster in advance of Knightsbridge Property Development Corporation Limited’s acquisition stated, among other things, as follows:

“(3) £200,000 Company – P.G.Mathieson to own 80%, J.W.Brazell 20% i.e. £160,000 from P.G.M. and £40,000 from J.W.B. (4) P.G. Mathieson to receive on the first 2 deals 50% and J.W. Brazell 50%, which dividends have to be used by him to equalise P.G. M’s holding (if further deals have to be made before this equalisation then so be it).”

In the event, the 160,000 shares that Mr Mathieson was to have were split between him and his wife (so that he held 87,000 shares and his wife 73,000 shares) while Mr Brazell Senior had 40,000 shares.

South Chelsea

[18]South Chelsea was incorporated in 1984 and used by Mr Brazell Senior and Mr Foote-Forster, who had known each other since schooldays, as a vehicle for property development. For some years, Mr Brazell Senior was the only director and Mr Foote-Forster the secretary, but Mr Brazell Junior joined the board in 2000 after his father had been diagnosed with cancer. On 28 November 2013, Mr Foote-Forster was also appointed as a director. He said in evidence that he had no choice.

[19]Until late 2013, Mr Brazell Junior held 99 of South Chelsea’s 100 issued shares and the remaining share was held by his mother. On 20 December 2013, however, Mr Brazell Junior transferred all his shares to Mr Foote-Forster. The most recent annual return I have seen, filed on 14 January 2016, gave the directors as Mr Foote-Forster and Mr Brazell Senior, but Mr Brazell Senior died in May 2016.

Ibrid SL

[20]Ibrid SL (or, more fully, Inversions Bridgette SL) was established in Andorra in 2001 with Mr Foote-Forster as one of its founders. During his oral evidence, Mr Foote-Forster said that Ibrid was his company and that he had been a director and shareholder from inception.

Advanced Industrial Technology Corporation Limited

[21]Advanced Industrial Technology Corporation Limited (“AITCL”) is a party to these proceedings because it made a loan on the security of the Alder Road Land. The loan has now, however, been repaid. The Alder Road Land

[22]South Chelsea bought the Alder Road Land for £23,500 in 2003.

[23]In a letter dated 20 February 2006, Enticknap & Co, a firm of accountants and tax advisers, gave Mr Foote-Forster advice on how shares in KPDC could be transferred to himself and Mr Brazell Junior. The letter included this:

“When [KPDC] was set up the shareholdings were to have been equal between you, John Brazell and Peter Mathieson…. The three of you now wish to equalise the position and Peter Mathieson wishes to sell a total of 124,000 shares from his own and his wife’s holdings to you and John. At the same time you wish to have John’s shares transferred to his son Warren because of John’s failing health. Peter Mathieson is concerned about capital gains tax and so wishes to transfer the shares at par, and this accords with the original agreement between you all.”

The letter proceeded to outline a rather complicated scheme under which Mr Foote-Forster or Ibrid would have bought shares in KPDC using money that he was said to be owed by South Chelsea.

[24]A letter from Mr Foote-Forster to Mr Mathieson dated 25 August 2006 referred to the possibility of South Chelsea buying shares in KPDC with the proceeds of “land at Headley” (presumably the Alder Road Land). The letter included this:

“In the unlikely event that The Stables actually exchange next week it would make the accounting of the transactions clearer and simpler in my view the following occurs: 1 On completion of the stables, £120,000 less costs is TT’d to Knightsbridge’s bank. £40,000 is sent to Ibrid SL in Andorra. 2 Knightsbridge then sends the purchase price of the land at Headley (£125,000) to Bruce Buglear [of Buglear Bate & Co, a firm of solicitors] to buy the land from South Chelsea Properties Ltd. 3 South Chelsea Properties Ltd are then able to fund the purchase of the shares for £124,000. UNDATED CHEQUE ENCLOSED.”

[25]On 16 March 2007, Mr Foote-Forster wrote to Mr Mathieson in these terms:

“You are totally correct in that the existing company shareholdings are: JWB £40,000 JMM £73,000 PGM £133,000 Total £246,000 The original idea was that John and I would increase our shareholding so that we ended up having one third each i.e. 82,000 shares each (one third of 246,000). However, we recently agreed that it would be far better to leave the existing shareholding as it is and that John and I pay you £124,000 (which would in effect equalise our shareholding: 40,000 + 124,000 = 164,000) by selling some of the Knightsbridge property portfolio and Knightsbridge purchasing a prospective building site at Headley, Hampshire in the sum of £125,000 from South Chelsea Properties Ltd (who have losses carried forward – so are able to take this money from the company tax free legitimately). We would then pay these funds into your account with Credit Andorra in Andorra. By using the latter idea it means that there can be no problems for you over the transfer of your shares at a low value and it also gives you personally better security in view of the fact that you have personally guaranteed the buy-to-let mortgages that we have entered into and those we are likely to enter into in the near future…. I think it was you who told me that the only way that you could get your original investment out of the company (legitimately) was by liquidating it. For our part we are using up our losses in South Chelsea Properties Ltd to give you cash offshore and we have pretty much reached out limit with the existing arrangement.”

JWB £40,000 JMM £73,000 PGM £133,000

Total £246,000

[26]Before me, Mr Andrew Butler, who appeared for KPDC, stressed the references in the letter to agreement that it “would be far better to leave the existing shareholding as it is” and to Mr Mathieson obtaining “better security” in respect of guarantees he was giving. Mr Foote-Forster, on the other hand, pointed to the passage in which he said that there could be “no problems for [Mr Mathieson] over the transfer of [his] shares at a low value”.

[27]A few months later, by a transfer dated 28 June 2007, South Chelsea transferred the Alder Road Land to KPDC for £125,000. The purchase price was paid to Buglear Bate & Co, the solicitors who were representing South Chelsea. Buglear Bate & Co in turn transferred £125,000 to an account that Mr Mathieson opened with Credit Andorra in Andorra. £124,972 was credited to the account on 17 July 2007.

[28]In November 2014, Buglear Bate & Co, again acting on behalf of South Chelsea, lodged with the Land Registry an application dated 17 November for another transfer of the Alder Road Land to be registered. This bore the date 10 August 2013 and provided for the property to be transferred back to South Chelsea for £125,000 (although no money in fact changed hands). The transfer was, on the face of it, signed on behalf of KPDC by Mr Brazell Junior with Mrs Clare Sheridan, Mr Foote-Forster’s former wife with whom, I gather, he is once again living, as a witness. The application to the Land Registry stated that JC Solicitors of Alton, Hampshire were representing KPDC. South Chelsea was entered at the Land Registry as the proprietor of the property with effect from 18 November 2014.

[29]On 18 December 2014, Mr Foote-Forster executed on behalf of South Chelsea an all moneys charge over the Alder Road Land in favour of AITCL. The charge was registered at the Land Registry on 5 January 2015. Mr Foote-Forster explained in evidence that AITCL had made a loan of £40,000. As already mentioned, that debt has since been discharged. AITCL has indicated that it “will abide by the order of the court” and its only continuing interest in the litigation relates to its costs.

[30]In response to requests from KPDC’s solicitors for information relating to the transfer of the Alder Road Land to South Chelsea, the following were said in correspondence: i) In May 2015, JC Solicitors stated that they had been acting in “contentious litigation matters against South Chelsea Properties Ltd, for approximately 18 months” and had never acted for South Chelsea, KPDC or any of the individuals involved; ii) Mrs Sheridan said in a letter dated 27 May 2015 that she had witnessed the signature of Mr Brazell Junior on 10 August 2013; iii) In a letter dated 5 June 2015, Buglear Bate & Co stated:

“1. our instructions to proceed with the transfer and registration at HM Land Registry came from Warren Brazell, one of the directors of [KPDC]. 2 The name of JC Solicitors … was inserted in error by this firm. We had previously been informed that Kelly-Jayne Cox of that firm was acting for Tony Bailey who held covenants over this land. In making the application the name of JC Solicitors was inadvertently inserted. … 4. we have acted on behalf of both companies and their respective officers for many years and so far as we were aware, both companies were on very good terms. As such there was no urgency in registration of the transfer”; iv) On 16 June 2015, Buglear Bate & Co told JC Solicitors that their details had mistakenly been inserted on the basis of an email Mr Foote-Forster had sent them in May 2013 in which he had said: “I had a meeting with Tony Bailey today (covenant on land at Alder Road)…. His lawyer is Kelly James of JC Solicitors of Alton, kindly get this agreement in order so that I am able to sell the site”; v) In a letter dated 25 June 2015, Buglear Bate & Co said that their “instructions were received from Warren Brazell and came in the form of the signed TR1 together with a verbal instruction”

The Bordean Land

[31]At the beginning of 2007, KPDC owned land at Bordean registered at HM Land Registry under title numbers HP560232 and HP562674.

[32]On 9 February 2007, Mr Foote-Forster wrote to a Mr and Mrs Siddons on KPDC’s behalf to confirm that KPDC had agreed to sell them about an acre of the land comprised in title number HP562674. On the same day, he instructed Buglear Bate & Co to act for KPDC in the sale to Ibrid of the land registered under title numbers HP560232 and HP562674. Also that day, a letter was sent in the name of Ms Socao to a firm of solicitors called Covers Biscoes asking them to act for Ibrid in the transaction. The letter to Covers Biscoes explained:

“The property consists of a small nursery together with 8 acres of land…. The terms of this transaction are as follows: 1 The purchase price is £62,000 GBP 2 Knightsbridge are granting us a mortgage of £62,000 at 6% p.a. secured on 7 of the 8 acres at the nursery. 3 Exchange and completion will take place simultaneously. 4 At the same time we hope to sell the remaining 1 acre to Mr & Mrs Siddons….”

[33]Subsequently: i) On 23 October 2007, KPDC transferred the land registered under title numbers HP560232 and HP562674 to Ibrid; ii) On 25 October 2007, Ibrid transferred part of the land comprised in title number HP562674 to Mr and Mrs Siddons for £15,000; iii) Ibrid had on 23 October 2007 mortgaged the balance of the land transferred to it (viz. the Bordean Land) in favour of KPDC to secure a loan of £62,000 (i.e. the purchase price) plus interest; iv) The transfer to Ibrid and the charge in favour of KPDC (viz. the KPDC Charge) were both registered at the Land Registry with effect from 27 March 2008; and v) Mr and Mrs Siddons were registered with effect from 4 March 2010 as the proprietors of the land transferred to them with a new title number. Mr Foote-Forster suggested in evidence that the Siddons’ solicitors had previously forgotten to attend to registration.

[34]On 22 February 2010, a charge in favour of Ms Socao was entered on the register in respect of the Bordean Land. The charge in question (“the Socao Charge”) was purportedly made on 27 October 2009 between Ibrid and Ms Socao and was stated to secure a loan of £275,000. During his oral evidence, however, Mr Foote-Forster said that there was no real loan. The charge had been put in place to stop the local council taking certain steps in relation to the land. He said:

“So to make sure that they couldn’t interfere with what we’d done, my wife put a charge on there so that when the council looked at the register, they would see that it was charged up to the eyeballs, more than the value of the land, and that if they had reinstated the roadway that we later got planning permission for, then effectively they wouldn’t be able to do anything about it, and that was the sole reason for that document, to protect us financially.”

[35]The KPDC Charge was removed from the charges register in respect of the Bordean Land with effect from 12 May 2014. Buglear Bate & Co had sent the Land Registry, purportedly on behalf of KPDC, applications dated 9 May 2014 to change the register on the basis that the KPDC Charge had been discharged. They lodged with each of the applications a DS1 form bearing the date 6 May 2014 and signed on behalf of KPDC by Mr Brazell Junior. The DS1 stated:

“The lender acknowledges that the property identified in panel 2 is no longer charged as security for the payment of sums due under the charge”

[36]Mr Foote-Forster executed a transfer dated 27 January 2015 on behalf of Ibrid which provided for part of the land comprised in title number HP560232 to be transferred to a company called South Chelsea Property Company Limited (“SCPCL”) for £125,000. Mr Foote-Forster explained in cross-examination that SCPCL belongs to a Mr John Breeds and, despite the similarity of its name, is totally separate from South Chelsea. He said that he is not a shareholder or director of SCPCL.

[37]On 3 September 2015, unilateral notices in favour of KPDC were entered against title numbers HP560232 and HP562674 (i.e. those making up the Bordean Land) in respect of the present proceedings.

[38]On 15 December 2015, Ibrid transferred the land then comprised in title numbers HP560232 and HP562674 to SCPCL at a price of £40,000.

[39]The present position is that: i) SCPCL is the registered proprietor of the Bordean Land; ii) The charges register for each of the relevant titles shows the Socao Charge and the unilateral notice in favour of KPDC.

[40]In response to questions from KPDC or its solicitors, the following explanations of the release of the KPDC Charge were given in correspondence: i) In a letter dated 15 April 2015, Mr Bruce Buglear of Buglear Bate & Co said that he understood that his “client” (by whom he meant Mr Foote-Forster) was “a major shareholder in [KPDC] by virtue of the transfer and stock transfer form executed by [Mr Brazell Senior] on 4th June 2013”. He also said that his “client” had informed him that “the mortgage in favour of [KPDC] was repaid in 2009”; ii) In emails of 14 and 21 April 2015, Mr Foote-Forster said that “Ibrid S.L. repaid the loan … at the end of 2009” and, when told that KPDC had found no trace of the redemption funds, “£125,000 was paid into Peter Mathieson’s bank account with Credit Andorra in Andorra by the Company’s UK lawyer (Buglear Bate & Co)”; iii) In a letter dated 9 July 2015, Buglear Bate & Co said that, prior to the release of the charge, they had spoken to “both Warren Brazell and John Foote Forster who confirmed that the charge was being released in lieu of monies owed by [KPDC]”; iv) In a letter dated 16 July 2015, Mr Buglear said:

“Unfortunately apart from the DS1 itself …, we have no written instructions from John Foote-Forster or Warren Brazell. We would repeat however that we did however speak to them to obtain confirmation that this was to proceed. They confirmed this was the case and that the release was in lieu of monies owed by [KPDC] to South Chelsea Properties.”

The parties’ cases in brief summary

[41]KPDC contends that neither the transfer of the Alder Road Land to South Chelsea nor the release of the KPDC Charge was duly authorised. Mr Mathieson, it alleges, did not agree to either and, on top of that, the transfer was not executed until late 2014. Even, though, if the date given in the transfer is correct, the transaction can be impugned for failing to comply with Companies Act requirements and on agency principles. The Court should, it is said, further order alteration of the register under the Land Registration Act 2002.

[42]In contrast, South Chelsea and Ibrid maintain that the transfer of the Alder Road Land and the release of the KPDC Charge were in accordance with a general settlement agreed between Mr Mathieson and Mr Foote-Forster in the middle of 2013. It is further alleged that the transfer was not backdated, that there has been no breach of the Companies Act and that it would in any event be inappropriate to grant equitable relief or order alteration of the register. Finally, Mr Charles Apthorp, who appeared for South Chelsea and Ibrid, submitted that KPDC should be denied any relief because of illegality.

General settlement?

[43]A central question in this litigation is whether the transfer of the Alder Road Land and the release of the KPDC Charge were agreed between Mr Mathieson and Mr Foote-Forster as part of a general settlement in 2013. In that regard, South Chelsea’s defence to the claim in respect of the Alder Road Landincluded this:

“The business relationship between Mr Mathieson, Mr Brazell and Mr Foote-Forster continued until or about May 2013 when it broke down. Mr Mathieson and Mr Foote-Forster negotiated a division of the outstanding property in or about June or July 2013. As part of that settlement it was agreed that the [Alder Road Land] would be transferred back to [South Chelsea].”

In a similar vein, South Chelsea’s defence to the KPDC Charge claim stated:

“Following the negotiations in 2013 in or about 6th May 2014 the balance of the sum owed under the mortgage to [KPDC] was discharged by agreement following a general settlement of liabilities between Mr and Mrs Mathieson, Mr Warren Brazell, John Brazell (Deceased) and Mr Foote-Forster.”

[44]Mr Foote-Forster’s main witness statement said this on the subject:

“I argued with [Mr Mathieson] repeatedly from 2010 when I discovered his failure to transfer shares and the relationship gradually broke down. By way of resolution of the financial dispute [Mr Mathieson] and I agreed, in or around July 2013, to transfer Alder Road back into [South Chelsea] for no actual consideration albeit the transfer value was said to be £125,000 i.e. the same sum put on the land in 2007. The book value of Alder Road was agreed at £40,000 which left £85,000 due to [Mr Brazell Senior] and myself. To discharge that debt [Mr Mathieson] and I agreed that a charge in favour of KPDC over land at Bordean Nurseries owned by [South Chelsea] should be discharged. The value of the charge was approximately £50,000 (after the sale of a wood to Mr & Mrs Siddons for £15,000) which still left monies due and owing to [Mr Brazell Senior] and myself but in order to bring the dispute to an end and to cut all ties with [Mr Mathieson] and KPDC, [Mr Brazell Senior] and myself agreed the discharge of the mortgage (plus the transfer of Alder Road) in full and final settlement.”

[45]In cross-examination, Mr Foote-Forster said that he and Mr Mathieson agreed to go their separate ways because of the latter’s “continued refusal to even talk about the resolution of the share situation”. The agreement, he said, was that he and Mr Brazell Junior would walk away with the Alder Road Land and the Bordean Land “free and clear” and Mr Mathieson would sort out Wales. Later in his evidence, he said:

“The deal was very simple. Peter [Mathieson] kept his 125 grand, we got Alder Road and Bordean, it’s as simple as that.”

[46]It seems clear that the “share situation” was a sore point with Mr Foote-Forster. So far as Mr Mathieson was concerned, Mr Foote-Forster had no cause for complaint, but Mr Foote-Forster himself evidently felt that he and Mr Brazell Senior were due shares in KPDC.

[47]Even so, I am unable to accept that any agreement such as Mr Foote-Forster describes was in fact reached. My reasons include these: i) Not only was no such agreement committed to writing, but there is no reference to one in the contemporary documents. Of course, Mr Mathieson and Mr Foote-Forster documented relatively little, but the absence of any mention of the alleged agreement is still of some significance; ii) Email correspondence between Mr Mathieson and Mr Foote-Forster in November-December 2013 strongly suggests that the supposed agreement had not been concluded. Mr Foote-Forster complained that he and Mr Brazell Senior had not been issued with “£125,000 shares” in KPDC, to which Mr Mathieson replied, “Why should I give you £125,000 shares, you must think I am mad!” Again, Mr Mathieson enquired about a badger survey relating to the Alder Road Land and commented on the prospects for both the Alder Road Land and the Bordean Land. Why would Mr Mathieson and Mr Foote-Forster have written in such terms if they had agreed to go their separate ways earlier in the year? iii) Mr Mathieson said in an email written between about 28 November and 6 December 2013:

“I will see this man in Wales who is a builder and see what figure he will come up with. For me and J if it becomes reasonable we would like to get out, we will pay and then that leaves you to do what ever you want with Bordean and Alder Rd. I then do not have to put up £768,000 with all the worry and developing situations that will subsequently happen for us. I will not agree anything at this stage.”

When asked about this in cross-examination, Mr Foote-Forster latched onto the reference to leaving him “to do what ever you want with Bordean and Alder Rd”, but I do not think it lends any real support to his case. It might, for example, be thought surprising that Mr Mathieson should have been referring to the position as regards the Alder Road Land at all if this had already been the subject of a transfer to South Chelsea in accordance with the agreement on which Mr Foote-Forster relies; iv) Other documents confirm that KPDC was still involved with matters relating to the Alder Road Land in the latter part of 2013. On 25 October, a Mr Graham Lea wrote on behalf of Town and Country Planning Partnership Limited (“TCPP”) to provide a breakdown of work done in connection with the Alder Road Land and referred to a meeting that Mr Mathieson had attended on 17 October. On 28 October, KPDC made payments totalling £3,351 to TCPP for matters relating to the Alder Road Land. On 30 October, KPDC made an application to East Hampshire District Council in respect of the Alder Road Land. On 6 December, Mr Lea emailed Mr Mathieson about points made in a letter from the Council, noting that Mr Foote-Forster had told him that he had spoken to Mr Mathieson “about the letter received from the Council requesting additional information and a top up concerning the planning fee submitted”. On the following day, KPDC paid £414 to cover “Underpayment of Planning Application”. On 11 December, Mr Lea referred to Mr Mathieson a quote for a tree survey, and KPDC transferred the relevant sum to TCPP the next day. On 20 December, KPDC paid TCPP £420 to obtain an energy statement relating to the Alder Road Land. None of this would make sense if Mr Foote-Forster’s account of events were correct; v) Mr Brazell Junior referred in re-examination to not having been open with Mr Mathieson in relation to “the very last transaction, once the disputes had started”. He went on to say that he had thought that Mr Mathieson “was aware that this £125,000 was owed and this was a way of addressing the balance” and “knew it was happening”, but “he just didn’t agree with it”. That evidence tends to undermine the idea that Mr Mathieson and Mr Foote-Forster had agreed a settlement; vi) Although the transfer of the Alder Road Land to South Chelsea bore the date 10 August 2013, that is not a reliable indicator of when it was prepared. It was not lodged with the Land Registry until November of the following year and evidence given by Mr Buglear indicates that, if Mr Foote-Forster had asked him to backdate a document, he would have been prepared to do so if there appeared to be a “very good reason” or that seemed to be the “date on which the agreement was originally struck”. Moreover, Mr Brazell Junior said in evidence that he did not specifically remember signing the transfer and could not say whether the 10 August 2013 date had already been entered. The most likely explanation of that date is perhaps that Mr Buglear was led to believe, probably by Mr Foote-Forster, that the transfer had been agreed by then; vii) Last but not least, while it was put to Mr Mathieson in cross-examination that he had “authorised” the two transactions (which he denied), it was never suggested to him that he and Mr Foote-Forster had made an agreement such as Mr Foote-Forster alleges.

[48]In short, the likelihood, in my view, is that no “general settlement” was agreed and the transfer of the Alder Road Land was not prepared before 2014. Mr Foote-Forster may have felt that the fact that he and Mr Brazell Senior had not been given further shares in KPDC made it fair for them to have the Alder Road Land and the Bordean Land, but that was never agreed with Mr Mathieson. I am afraid that I regard Mr Foote-Forster’s evidence on the subject as untruthful.

The execution of the documents

[49]If, as I have concluded, the transfer of the Alder Road Land and the release of the KPDC Charge had not been the subject of any agreement between Mr Mathieson and Mr Foote-Forster, when and why were they undertaken?

[50]There is no reason to think, and Mr Butler did not suggest, that the DS1 form in respect of the KPDC Charge was not completed on the date it bears (viz. 9 May 2014). At that stage, Mr Brazell Junior remained a director of KPDC but Mr Foote-Forster had ceased to be the secretary.

[51]As regards the transfer of the Alder Road Land, I have already indicated that I consider it to have been backdated. That does not mean, however, that I believe it to have been executed as late as November 2014, when it was lodged with the Land Registry. To the contrary, I think it unlikely that Mr Brazell Junior would have signed it once he had resigned from KPDC’s board, which he did on 12 May 2014.

[52]On balance, it seems to me that Mr Brazell Junior probably signed the transfer and the DS1 at much the same time. While it is quite impossible to be certain, the chances are, I think, that Mr Foote-Forster, having been removed as secretary and aggrieved that he and Mr Brazell Senior had not been given the shares in KPDC that he felt were due, asked Mr Brazell Junior to sign the two documents.

[53]There remains a difficult issue as to what Mr Brazell Junior knew when he signed the documents and instructed Buglear Bate & Co in relation to them. Given, however, Mr Brazell Junior’s evidence about not having been open with Mr Mathieson as regards “the very last transaction, once the disputes had started”, I have in the end concluded that, at the time he signed the transfer and DS1 and gave instructions to Buglear Bate & Co, Mr Brazell Junior was probably aware that Mr Foote-Forster had been removed as secretary and that Mr Mathieson had not approved the transactions.

Illegality

[54]In his closing submissions, Mr Apthorp submitted that KPDC should be denied relief because of illegality. He suggested that the evidence relating to KPDC’s dealings revealed that steps were repeatedly taken with a view to evading tax and that that was the case, in particular, with the sale of the Alder Road Land to KPDC in 2007. In that connection, Mr Foote-Forster claimed in the course of his cross-examination that the sale: “was purely a device … to enable Peter [Mathieson] to get £125,000 into his personal account”.

[55]No illegality defence was advanced by either South Chelsea or Ibrid in their defences, but illegality need not always be pleaded.

[56]On the facts of the present case, I have no hesitation in rejecting the illegality defence. Unsurprisingly, since the point had not been raised in the defences, the misconduct alleged against Mr Mathieson has not been the subject of proper disclosure or investigation. I am not, therefore, in a position to decide whether or not the 2007 sale was entered into with the suggested purpose. Even, however, it if was, I cannot see why that should debar KPDC from pursuing the present proceedings. The claims are being advanced by KPDC rather than Mr Mathieson and the sale to KPDC six years earlier is, on its case, at most part of the background history. On any view, the transfer of the Alder Road Land and the release of the KPDC Charge were not themselves undertaken to evade tax and denying KPDC the chance to recover the Alder Road Land and reinstate the KPDC Charge might be said to condone improper conduct on the part of the defendants and Mr Foote-Forster. In all the circumstances, I do not think it can be harmful to the public interest to permit KPDC to seek the relief it does. Legal consequences Alteration of the register: the legal framework

Legal consequences

[57]Paragraph 2(1) of schedule 4 to the Land Registration Act 2002 (“the 2002 Act”) confers on the Court a power to make an order for alteration of the register for the purpose of:

“(a) correcting a mistake, (b) bringing the register up to date, or (c) giving effect to any estate, right or interest excepted from the effect of registration.”

[58]In the context of paragraph 2(1)(a) of schedule 4, “mistake” is “widely interpreted and is not confined to any particular kind of mistake”: Megarry & Wade, "The Law of Real Property", 8th ed., at paragraph 7-133. In Baxter v Mannion

[2011] EWCA Civ 120

[2011] 1 WLR 1594

, Jacob LJ (with whom Mummery and Tomlinson LJJ agreed) said (at paragraph 25) that he could “see no reason for limiting ‘correction of a mistake’ to a mistake through some official error in the course of examination of the application”. At paragraph 24, Jacob LJ had commented:

“A registration obtained by a person not entitled to apply for it would be mistaken. So, putting the register back in the condition it was prior to the application would be correction of a mistake within the meaning of paragraphs 1 and 5(a) of Schedule 4.”

Ruoff and Roper, “Registered Conveyancing”, suggests (at paragraph 46.009) that:

“there will be a mistake whenever the Registrar (i) makes an entry in the register that he would not have made; (ii) makes an entry in the register that would not have been made in the form in which it was made; (iii) fails to make an entry in the register which he would otherwise have made; or (iv) deletes an entry which he would not have deleted; had he known the true state of affairs at the time of the entry or deletion.”

[59]The recent decision of the Court of Appeal in NRAM Ltd v Evans

[2017] EWCA Civ 1013

confirms that void and voidable dispositions are treated differently. An entry in the register in respect of a disposition that is void will be a “mistake” within the meaning of paragraph 2(1)(a) of schedule 4, but (contrary to views expressed in Emmet & Farrand on Title) the same cannot be said of an entry reflecting a voidable disposition. As Kitchin LJ (with whom David Richards and Henderson LJJ agreed) explained in the NRAM case (at paragraph 59), a voidable disposition:

“is valid until it is rescinded and the entry in the register of such a disposition before it is rescinded cannot properly be characterised as a mistake. It may be the case that the disposition was made by mistake but that does not render its entry on the register a mistake, and it is entries on the register with which Schedule 4 is concerned. Nor, so it seems to me, can such an entry become a mistake if the disposition is at some later date avoided. Were it otherwise, the policy of the LRA 2002 that the register should be a complete and accurate statement of the position at any given time would be undermined.”

On the other hand, alteration of the register can potentially be ordered under paragraph 2(1)(b) once a voidable disposition has been rescinded, for the purpose of “bringing the register up to date” (see the NRAM case, at paragraph 60).

[60]Alteration which “involves the correction of a mistake” and “prejudicially affects the title of a registered proprietor” is termed “rectification” (see paragraph 1 of schedule 4). Paragraph 3 of the schedule provides as follows as regards rectification:

“(2) If alteration affects the title of the proprietor of a registered estate in land, no order may be made under paragraph 2 without the proprietor’s consent in relation to land in his possession unless— (a) he has by fraud or lack of proper care caused or substantially contributed to the mistake, or (b) it would for any other reason be unjust for the alteration not to be made. (3) If in any proceedings the court has power to make an order under paragraph 2, it must do so, unless there are exceptional circumstances which justify its not doing so….”

Here (and elsewhere in the 2002 Act) land is considered to be in the possession of the proprietor of a registered estate in land if it is “physically in his possession, or in that of a person who is entitled to be registered as the proprietor of the registered estate” (see section 131 of the 2002 Act).

[61]If the conditions for rectification are satisfied, the Court’s powers “extend to changing for the future the priority of any interest affecting the registered estate or charge concerned” (see paragraph 8 of schedule 4). The words “for the future” “mean that the beneficiary of the change in priority – that is, the person whose interest has been restored to the register – can exercise his rights as owner of that interest, to the exclusion of the rights of the owner of the competing interest, as from the moment that the order is made, but that he cannot be treated as having been entitled to do so up to that point” (see MacLeod v Gold Harp Properties Ltd

[2014] EWCA Civ 1084

[2015] 1 WLR 1249

, at paragraph 96, per Underhill LJ, with whom Richards and Sullivan LJJ agreed).

[62]Where an alteration would not amount to rectification, rule 126 of the Land Registration Rules 2003 is applicable. This states:

“(1) Subject to paragraphs (2) and (3), if in any proceedings the court decides that– (a) there is a mistake in the register, (b) the register is not up to date, or (c) there is an estate, right or interest excepted from the effect of registration that should be given effect to, it must make an order for alteration of the register under the power given by paragraph 2(1) of Schedule 4 to the Act. (2) The court is not obliged to make an order if there are exceptional circumstances that justify not doing so….”

The KPDC Charge

[63]It is KPDC’s case that the removal of the KPDC Charge from the charges register for title numbers HP560232 and HP562674 was a “mistake” within the meaning of paragraph 2(1)(a) of schedule 4 to the 2002 Act both because the indebtedness secured by the charge had not in fact been repaid and because the lodging of the applications to change the register was not duly authorised by KPDC. With regard to the latter point, Mr Butler referred me to Bowstead and Reynolds on Agency, 20th ed., at article 73, which states:

“No act done by an agent in excess of his actual authority is binding on the principal with respect to persons having notice that in doing the act the agent is exceeding his authority.”

[64]In my view, these submissions are well-founded. In the first place, the debt secured by the KPDC Charge cannot, as it seems to me, have been discharged. KPDC had not been paid any of the £62,000 and, on the facts as I have found them, no global settlement agreement had been concluded. Since, in the absence of a deed, the release of a debt is not binding unless there is consideration (see Fisher and Lightwood’s Law of Mortgage, 14th ed., at paragraph 49.2), the KPDC Charge would, I think, have continued to secure indebtedness to KPDC even if the applications to change the register had been properly authorised.

[65]I also, however, consider that the passage from Bowstead and Reynolds on which Mr Butler relied is in point. At the time the DS1 was signed, Mr Foote-Forster had been removed as KPDC’s secretary and Mr Brazell Junior was probably aware both of that fact and that Mr Mathieson, whom he acknowledged to be KPDC’s managing director, had not approved the transaction. In the circumstances, it seems to me that neither Mr Foote-Forster nor Mr Brazell Junior had authority to authorise the removal of the KPDC Charge from the register and also that Ibrid, through Mr Foote-Forster, must have been aware that the removal had not been duly authorised by KPDC.

[66]Further, the void/voidable distinction discussed in NRAM Ltd v Evans appears to me to be irrelevant in this context. There is no need for KPDC to rescind a voidable contract: it never entered into one.

[67]It follows, since there is no evidence that the Bordean Land is physically in the possession of SCPCL or even South Chelsea, that I must make an order rectifying the register in KPDC’s favour unless there are exceptional circumstances justifying my not doing so (see paragraph 3 of schedule 4 to the 2002 Act). Mr Apthorp sought to persuade me that there are such circumstances, but I do not agree. To the contrary, it strikes me as just that the register should be rectified. I further consider it appropriate: i) To confirm that the KPDC Charge will bind SCPCL and have priority over the Socao Charge (which, anyway, seems never to have secured a real loan); and ii) To enter judgment in favour of KPDC for the debt secured by the KPDC Charge.

[68]I should add that in July of this year, pursuant to an order I had made on 7 July, KPDC took steps to inform Ms Socao and SCPCL that they should notify it and the Court if they wished to make representations. SCPCL, through Mr Breeds, initially sought to take advantage of that opportunity, but it was neither present nor represented at the further hearing on 2 October and Mr Breeds subsequently wrote to inform the Court that he did not consider it appropriate for the company to be joined into the proceedings.

The Alder Road Land

[69]Mr Butler contended that the transfer of the Alder Road Land is open to challenge on several grounds. He invoked section 177 of the Companies Act 2006 (duty to declare interest in proposed transaction or arrangement) and section 190 of that Act (substantial property transactions: requirement of members’ approval). He also argued that South Chelsea knew that Mr Brazell Junior was not duly authorised to execute the transfer and, hence, that on ordinary principles of the law of agency South Chelsea could not hold KPDC to the transaction (relying once again on article 73 of Bowstead and Reynolds).

[70]On the facts as I have found them, I do not think section 190 of the Companies Act 2006 (“the 2006 Act”) can be applicable. Mr Brazell Junior transferred his shares in South Chelsea to Mr Foote-Forster in December 2013. If, therefore, he signed the transfer of the Alder Road Land in the interval between Mr Foote-Forster’s departure as secretary of KPDC on 25 April 2014 and his own resignation from the company’s board on 12 May (as I have said is likely), South Chelsea was not at the time a “person connected with” Mr Brazell Junior within the meaning of section 190(1)(a) (see sections 252 and 254 of the 2006 Act).

[71]Turning to section 177 of the 2006 Act, that states:

“(1) If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors. … (4) Any declaration required by this section must be made before the company enters into the transaction or arrangement. … (6) A director need not declare an interest– (a) if it cannot reasonably be regarded as likely to give rise to a conflict of interest; (b) if, or to the extent that, the other directors are already aware of it (and for this purpose the other directors are treated as aware of anything of which they ought reasonably to be aware)….”

[72]The consequences of a breach of section 177 of the 2006 Act are dealt with in section 178. That is in these terms:

“(1) The consequences of breach (or threatened breach) of sections 171 to 177 are the same as would apply if the corresponding common law rule or equitable principle applied. (2) The duties in those sections (with the exception of section 174 (duty to exercise reasonable care, skill and diligence)) are, accordingly, enforceable in the same way as any other fiduciary duty owed to a company by its directors.”

[73]In the present case, Mr Brazell Junior was a director and (until 20 December 2013) shareholder of South Chelsea as well as a director of KPDC. He must, accordingly, have been “interested” (within the meaning of section 177(1) of the 2006 Act) in the transfer of the Alder Road Land to South Chelsea. That being the case, it was incumbent on him to “declare the nature and extent” of his interest to the other directors unless section 177(6) applied. Mr Apthorp faintly suggested that section 177(6)(a) is in point, but I am not persuaded that Mr Brazell Junior’s interest could not “reasonably be regarded as likely to give rise to a conflict of interest”. Mr Apthorp also referred to section 177(6)(b), but, whatever the position may have been as regards the other directors of KPDC, it is not apparent that Mrs Mathieson was aware, or ought reasonably to have been aware, of Mr Brazell Junior’s role in South Chelsea. In fact, Mrs Mathieson was not asked any questions on the subject when she gave evidence.

[74]In all the circumstances, it seems to me that section 177 of the 2006 Act was breached and that, if otherwise bound by the transfer of the Alder Road Land, KPDC would be entitled to set it aside and to seek alteration of the register under paragraph 2(1)(b) of schedule 4 to the 2002 Act. Since, however, contravention of section 177 of the 2006 Act renders a transaction voidable rather than void, KPDC could not on this ground claim rectification under paragraphs 1 and 2(1)(a) of schedule 4.

[75]There remains, however, the agency point. On the view I take of the facts, Mr Foote-Forster was no longer KPDC’s secretary by the time Mr Brazell Junior executed the transfer of the Alder Road Land and he (Mr Brazell Junior) is likely to have been aware both of Mr Foote-Forster’s removal and the fact that Mr Mathieson had not approved the transfer. That being so, I consider that: i) Mr Brazell Junior did not have authority to execute the transfer of the Alder Road Land on behalf of KPDC; ii) South Chelsea, through Mr Foote-Forster and Mr Brazell Junior (both of whom were by now directors of South Chelsea), should be taken to have been aware that the transfer had not been duly authorised; iii) Accordingly, the transfer is not binding on KPDC and its registration was a “mistake” within the meaning of paragraph 2(1)(a) of schedule 4 to the 2002 Act; iv) Since(a) there is no evidence that South Chelsea is physically in possession of the Alder Road Land and

(b) there are no exceptional circumstances justifying my not rectifying the register, I should order rectification.

Conclusion

[76]In all the circumstances, the claim succeeds. I shall order the register to be rectified as regards both the KPDC Charge and title to the Alder Road Land and further give judgment in favour of KPDC for the money owing on the security of the KPDC Charge.