Forgery, Shams And The Defence Of Illegality In Property Transactions

• Published date: 16 September 2021
• Law Firm: Gatehouse Chambers
• Author: Ms Amanda Eilledge

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

Introduction

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.

Facts

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...