Fraudsters are entitled to make use of the law of adverse possession

The Court of Appeal has held that the law of adverse possession can be used to obtain ownership of a property even if the possession came about due to previous fraudulent activity.

Background

The case of Rashid v Nasrullah involved two people named Mohammed Rashid, whom the court for convenience termed MR1 and MR2. MR1 was the registered owner of a house in Birmingham. In 1989, he went on a trip abroad and in his absence, MR2 forged a transfer of the property to himself. Later the same year, he transferred the property to his son, Farakh Rashid, by way of a gift. Farakh knew about the fraud and was associated with it. He was registered as proprietor on 1 November 1990.

Over 20 years later, MR1 applied for rectification of the register to show him as the registered owner. Farakh argued that, not only was he the registered owner, but was also entitled to be such, having been in adverse possession of the property since it was gifted to him in 1989.

At the time of the fraudulent transfer, the ‘old rules’ of adverse possession applied under the Land Registration Act 1925. They allowed a squatter to acquire title to registered land after being in adverse possession of the land for 12 years, which is the usual limitation period in an action for the recovery of land. When the Land Registration Act 2002 came into force on 13 October 2003, transitional provisions preserved the rights of squatters who had been in adverse possession for twelve years or more ending with that date. The 12-year limitation period can be extended in cases of fraud and deliberate concealment, but this was not relevant here because MR1 became aware of the fraud as early as 1990.

The 12-year period after the date of Farakh’s registration expired on 31 October 2002. MR1 applied to rectify the register on 12 September 2013, some 11 years later. Farakh argued that even if his title as registered proprietor were to be set aside for fraud, he was entitled to be registered as owner because he had been in adverse possession of the property for over twelve years by 13 October 2003,

Both the First Tier Tribunal and the Upper Tribunal rejected Farakh’s argument, saying it would be manifestly unjust for MR1 to be deprived of his property as a result of the forgery. They followed a previous Court of Appeal case, Parshall v Hackney [2013] EWCA Civ 240, in which the court had held that a registered proprietor of land cannot be in adverse possession of it. Farakh appealed to the Court of Appeal.

The Court of Appeal decision

The Court of Appeal allowed the appeal, with Lewison LJ saying “there can be no doubt that bad people are entitled to the benefit of limitation periods”.

It found the right of action had accrued on the date on which the property was given to Farakh, as this was the date on which he dispossessed MR1. 12 years from this date elapsed in 2002, before the date when the Land Registration Act 2002 came into force, and well before MR1 made his claim to rectify the register in 2013.

The court held that the case of Parshall does not sit well with the House of Lords’ decision in Pye (Oxford) Ltd v Graham [2003] 1 AC 419, which is the leading case as to what constitutes adverse possession. The House of Lords had made it clear in Pye that all that is required for a squatter to acquire a title is actual possession. So the fact that Farakh was registered as proprietor of the property was not a bar to his acquiring title to it by adverse possession.

The court also found that the doctrine of illegality (that a person cannot rely on their own wrong as a defence) did not apply here; alternatively, even if it did apply and the fraudulent transfer to MR2 was invalidated, Farakh had still acquired title by adverse possession.

The court recognised that it was a hard result but the alternative would leave the difficulty of there being no limitation period at all in cases like this. The court did point out, however, that the real reason for the outcome in this case was not the result of the fraud, but the result of MR1’s subsequent failure to take effective action to challenge it when he had discovered it in 1990.

Comment

From a purely moral standpoint, this decision does not sit well. However, there is a need for certainty in the land register, else the register would become meaningless through being permanently open to question.

The clear message for registered owners is that if your property is taken from you without your consent, or you become aware that you have been the victim of fraud, take action promptly or delay at your peril.

Rashid v Nasrullah [2018] EWCA Civ 2865