Forgery, Shams And The Defence Of Illegality In Property Transactions

Published date16 September 2021
Subject MatterLitigation, Mediation & Arbitration, Real Estate and Construction, Criminal Law, Trials & Appeals & Compensation, Conveyancing, Real Estate, White Collar Crime, Anti-Corruption & Fraud
Law FirmGatehouse Chambers
AuthorMs Amanda Eilledge

Victus Estates (2) Ltd and others v Munroe; Benjamin v Victus Estates (1) Ltd and another [2021] EWHC 2411 (Ch)


What is the legal position where A and B jointly own a property; B forges A's signature on the transfer to C who is aware of the forgery; and C charges the property to D? Is the defence of illegality available? We all know that where B forges A's signature and C is innocent, although the transfer is ineffective to pass the legal interest in the property, the effect of s.63 of the Law of Property Act 1925 ('LPA 1925') is that B's equitable interest in the property passes to C in any event: see Ahmed v Kendrick (1987) 56 P & CR 120. The consequence of this is that although D's legal charge is likewise ineffective, D has the benefit of an equitable charge over B's former equitable interest which has passed to C.

The issue under consideration in Victus is whether the answer is different if C is involved in the fraud.


The case involved two properties owned by a Mr Charles jointly and beneficially with Ms Munroe and Ms Benjamin ('the Co-owners') respectively. Mr Charles was made bankrupt. Mr Charles and a Mr Agrawal designed a scheme to annul the bankruptcy which involved the sale of the 2 properties to companies owned and controlled by Mr Agrawal ('V2' and 'V1' respectively). The county court judge held that Mr

Agrawal knew that the Co-owners did not consent to the sale and their signatures were forged on the conveyancing documents. The arrangement between Mr Charles and Mr Agrawal was a mortgage fraud, and it was a necessary part of the scheme that the Co-owners' equity would be taken from them. Both properties were then charged to the banks ('the Banks'). It was common ground that the TR1 in relation to both properties did not transfer legal title because in each case one of the co-owners had not signed it: her signature had been forged.

The Banks argued that, applying Ahmed v Kendrick (1987) 56 P & CR 120, the effect of s.63 LPA 1925 was that Mr Charles' beneficial interest passed to V1/V2 in any event and thus although the legal charges were of no effect, the Banks each had an equitable charge over V1/V2's half share. The county court judge found, following Penn v Bristol and West Building Society [1995] 2 FLR 938, that the beneficial interest did not pass because the transfer was a sham. In the alternative, he gave his own reasoning reaching the same conclusion on different grounds, including consideration of what he described...

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