Williams (Executrix of the Estate of Seals deceased) v Seals and others[2014] EWHC 3708 (Ch)

Proceed with Caution

Summary

The High Court has recently considered the factors that should be taken into account when deciding whether or not to remove a caution against first registration.

In this case, the deceased had left his estate, which included a half share in a farm in Derbyshire and other properties, to a friend. When this was discovered by his adult children, they registered a caution against first registration to prevent the land from being sold, pending their claims to challenge the will.

The Court considered all the facts and ordered that the caution should be cancelled so that the sale of the land could go ahead. This was primarily on the basis that the applicant children would not be in a position to compensate the beneficiary for any losses suffered as a consequence of the delay, in the event that their application to challenge the will failed. Conversely, the beneficiary was in a position to provide compensation to the children if she lost at trial and the land had already been sold.

What is a Caution against First Registration?

If land is registered at the Land Registry, the interest of a party who is not the legal owner can be protected by an entry on the title register. However, there is no title register for unregistered land. Consequently a party with an interest in unregistered land has the ability to apply for the registration of a caution against first registration to protect his position. 

The "caution title" will be given its own title number at the Land Registry, identifying the "cautioner" and providing details of his purported interest in the property and a plan of the property affected. While the caution will not create an interest in land, the Land Registry will be obliged to inform the cautioner of any attempt to register a proprietary interest in the land.

In practice, most solicitors will seek to have a caution cancelled before attempting to register their client's interest in the land. The commercial reality is that, if an individual proceeds with registration without removing the caution, it may be impossible to sell the land. This means that in practice the issue must be dealt with before the land can be sold.

The Facts

The deceased, Mr Arnold Seals, was a Derbyshire farmer. He had been running the family farm since the 1970's, but the ownership of the farm was shared equally with his sister. Overall, his estate included a half-interest in the farm, together with some additional land and a residential property. The total value was estimated to be between £570,000 and £675,000.

The deceased had lost his wife in 2010 and his medical records showed that he had been finding it difficult to cope with her loss, and was suffering from depression. Sadly he committed suicide in December 2013. He had three adult children, one daughter and two sons. He had also developed a close friendship with a Mrs Florence Williams. Again, the evidence showed that he had become very dependent upon Mrs Williams.

After the deceased had died, it became apparent that he had made a new will in 2011. This will bequeathed the entire estate to Mrs Williams. The will was accompanied by a "letter of wishes", explaining that the deceased had lost touch with this children and therefore wished to leave the property to Mrs Williams.

By this stage, the deceased's sister had also died, and her half share of the family farm was in turn held by her own children.

When the deceased's children discovered the new will, they wrote a letter of claim to Mrs Williams, putting her on notice of their intention to challenge the will, and seeking an undertaking that the properties would not be sold until this was resolved. Mrs Williams refused to give the undertaking and so the deceased's children duly registered a caution against first registration of the farm.  

Prior to the deceased's children actually issuing their claim to challenge the will, Mrs Williams applied to the Court for the removal of the caution preventing first registration of the family farm. The reason for the urgent application was that both Mrs Williams and the children of the deceased's sister wanted to sell the farm. Had they missed the auction in November 2014, the next available opportunity to sell would have been the following Spring.

The Court was therefore asked to decide whether or not to remove the caution.

The Decision

Both sides agreed that the starting point was set out in well-established case law, which states that the Court will be obliged to remove an entry from the register where the claim has no real prospects of success.

However, where there is a genuinely arguable case that a party would succeed at trial in obtaining a proprietary interest in the land, the Court must then consider whether to leave the entry in place, or whether either/both parties could be adequately compensated in damages.

In this case, the two adult sons pursuing the claim had made it clear that they had very limited financial means. Although they stated their belief that they could maximise the value of the estate if they could take possession of the farm for redevelopment, there was no evidence that they would be able to raise the funds to buy out the other half, or to carry out the plans. In the meantime, there were several financial risks to the estate in delaying the sale, for example the risk of a drop in property prices, and the costs of maintaining it during the interim period.

Therefore, if the caution were kept in place and a sale was prevented, the deceased's children would struggle to compensate Mrs Williams for the lost opportunity to sell, if she succeeded in the main trial and the will was upheld. The Court also noted that neither of the deceased's sons had any interest in living on the farm or farming the land. Their interest was self-confessedly financial and the sale of the farm would not result in the loss of a unique plot of land of any particular importance to them.

Conversely, Mrs Williams was in a stronger financial position, and the Court found that she was likely be able to pay compensation to the children if the bequest were successfully challenged. 

The Court also took into account the fact that the owners of the other half interest in the farm wished to sell, and would also be prevented from doing so by the caution.

In the circumstances, the Court ordered that the caution should be removed from the register so that the sale of the farm could proceed. However, the deceased's children were free to continue their challenge to the will, and to make a claim for financial losses.

Unilateral Notices

The importance and power of notices on a title was also considered further in the recent High Court case of Swiss Cottage (40) Properties Ltd v Primeestate Investments Ltd. This case related to unilateral notices rather than cautions, but the effect was the same: the party with the benefit of the notice could cause real disruption to any potential sale.

In this case, the Court found that a unilateral notice which had been registered against the title could only remain on the register if the beneficiary of that notice provided a "fortified" cross-undertaking in damages in the sum of £5,000,000. The beneficiary had registered the notice to protect a contract for it to purchase the property, which was the subject of a dispute.

Again, the Court considered the facts and the possible losses for both parties very carefully. The suggestion of the beneficiary that there was no risk of loss was wholly unrealistic. The aim was therefore to protect the selling owner for the period until the dispute with the beneficiary was resolved. Based on the evidence available, it was appropriate to order that the notice could remain on the register if the purchaser provided a fortified undertaking in the sum of £5 million. The "fortified" part meant in this case that cash should be made available by the beneficiary in the English jurisdiction to meet any liability that might arise as a result of the notice remaining on the register.

Our advice

Cautions against first registration and unilateral notices can leave the individual that holds the caution in a position where he potentially has the power to block any sale. While this could leave him in a position to demand a ransom payment, the Court can order the removal of notices and cautions from the register in appropriate cases.

To avoid costly litigation, it is important to consider the merits of an application to register a caution against first registration or a unilateral notice and any possible losses to other parties before proceeding. Advice should also be sought to consider whether an application may be made to have an entry cancelled.

These case demonstrate that the Court will look carefully at all of the facts, especially the prospects of the claims and means of the parties, with the aim of striking a balance.