Equity

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Beneficial interest - Land charge - Equitable charge - Charging order on land

Hughmans Solicitors v Central Stream Services Ltd (in liquidation) and another: ChD (Mr Justice Briggs): 11 May 2012

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Section 28 of the Land Registration Act 2002, so far as material, provides: ‘(1) Except as provided by sections 29 and 30, the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge. (2) It makes no difference for the purposes of this section whether the interest or disposition is registered.’

Section 29 of the act, so far as material, provides: ‘(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.’

Section 3 of the Charging Orders Act 1979, so far as material, provides: ‘(4) Subject to the provisions of this act, a charge imposed by a charging order shall have the like effect and shall be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand.’

The applicant firm of solicitors (H) carried out legal work for D, who was the registered proprietor of a property (the property). H had acted as solicitors for D in proceedings brought by the first respondent company (the company) by its liquidator, against D. The proceedings were compromised and a Tomlin order (the order) was made. The recital of the schedule of the order (the schedule) provided that the company and D had agreed to settle the claim by the company accepting the net sale proceeds of the property following payment of certain debts of D, ‘provided always that the claimant (the company) shall receive not less than £100,000’.

Paragraph 6 of the schedule provided that the order of priority for the application of the proceeds of sale of the property was, inter alia, to discharge the mortgage on the property; payment of £100,000 to the claimant; and payment of H’s reasonable conveyancing costs and disbursements in connection with the sale. H commenced proceedings against D for unpaid fees in respect of the action brought against him by the company. Judgment was granted in favour of H in the sum of just over £19,000. H obtained a charging order in relation to the property (the charging order) which was filed at the Land Registry.

H subsequently applied, as against the respondents (the company and its liquidator), for an order for payment out of the proceeds of sale of the property of the judgment debt amount, namely some £19,000. The respondents claimed a prior secured right to the whole of the net proceeds of sale of the property by virtue of the contractual terms of the schedule. The instant matter was for the determination of H’s application.

The issues for consideration were: (i) whether the schedule conferred upon the company a proprietary interest in the property and, if so, (ii) whether the obtaining of the charging order, and its protection at the Land Registry by a unilateral notice, had had the effect of conferring priority in favour of H. Consideration was given to section 3(4) of the Charging Orders Act 1979 and to sections 28 and 29 of the Land Registration Act 2002.

The court ruled: (1) In the instant case, the schedule had created a proprietary beneficial interest in the property in favour of the company, by way of a trust, rather than equitable charge. The schedule had to be reviewed as a whole, for the purpose of deciding whether it displayed a sufficient intention to confer a proprietary interest on the company. The recital to the schedule was of particular assistance. The object and intent of the compromise recorded in the schedule was for D to give the company, in lieu of its monetary claim in the pending proceedings, the whole of his own beneficial interest in the property, subject only to the payment of certain of his debts, out of any net proceeds of sale in excess of £100,000. That disclosed an intention, on the part of the parties to the schedule that, thenceforth, the company should be the beneficial owner of the property subject to the existing charge, save only for that part of any net proceeds of sale in excess of £100,000 necessary to discharge the debts of D (see [14]-[16] and [18] of the judgment).

(2) The basic rule as to priority between competing equitable interests in relation to registered land was laid down in unambiguous terms by section 28 of the 2002 act. Priority was determined by the order in which those equitable interests were created. Priority for a later interest over an earlier interest was conferred by registration if, but only if, the later interest was a disposition made for valuable consideration. If it was, then the earlier interest lost its priority if not protected on the register. If it was not, then the priority of the two competing equitable interests continues to be governed by the order of their creation.

It would be wrong to read section 3(4) of the 1979 act as containing within it an unspoken presumption or deeming provision to the effect that a charge imposed by a charging order should, for the purposes of the 2002 act or otherwise, be treated as having been created for valuable consideration. It was not part of the purpose of the 1979 act to confer upon the recipient of a charging order any priority over the holder of a prior beneficial interest in the relevant property, even if unprotected by registration (see [19], [20],[23],[25] of the judgment). In the instant case, the company had obtained, by the schedule, a ­beneficial interest in the property which had entitled it to the whole of the net proceeds of sale thereof after satisfying the existing legal charge, since those net proceeds fell short of £100,000. The subsequent obtaining by H of a final charging order had been ineffective to confer priority for its consequential equitable charge over the company’s beneficial interest in the property (see [26] of the judgment).

The company and its solicitors had been entitled to take the view that the charging order had conferred no priority for H’s claims over the company’s beneficial interest (see [26] of the judgment).

Mark Warwick (instructed by Hughmans Solicitors) for H; Daniel Lewis (instructed by Moon Beever) for the respondents.

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