Banking law

Jointly owned property

Barclays Bank PLC v Burgess [2002] EWCA Civ 291

This case illustrates the approach that should be taken when a bank seeks to appropriate sums due to it under an all-monies charge in circumstances where the charge was taken over jointly owned property, securing a mixture of joint and separate liabilities.

A husband and wife jointly owned property that they charged to the bank under the all-monies charge, that is a charge which secured all monies owing to the bank by either the husband or the wife individually or jointly.

After the husband's business suffered serious financial difficulties a possession order was made.

The husband and the wife had conduct of the sale and the net proceeds of sale were deposited at the bank.

The net proceeds of sale amounted to 252,000.

The total of the husband and wife's joint and several liabilities were 102,500.

The total of the husband's separate liabilities to the bank was 329,000.

One of the questions for the Court of Appeal was whether the bank was entitled to debit the joint indebtedness from the wife's half share of the proceeds of sale, leaving the husband's half share of the proceeds of sale to bear his separate liability to the bank.

Adopting this approach would leave the wife with around 23,500 out of her half share of the proceeds of sale.

The Court of Appeal said this was not the correct approach to take.

The court held that the joint indebtedness had to be debited from the proceeds of sale and not merely the wife's half share of the proceeds of sale.

After the deduction of the joint indebtedness, the proceeds of sale were to be divided equally between the husband and wife.

Adopting this approach, the husband and wife were entitled to 74,750 each.

The bank was entitled to apply the husband's half share of the net proceeds of sale, after deduction of the joint indebtedness, in satisfaction of the husband's separate liability to the bank.

The wife's half share of the net proceeds of sale could not be applied towards satisfaction of the husband's separate indebtedness because the wife was not liable for his separate liability, and her beneficial interest in the property was not security for the husband's separate indebtedness.

Adopting this approach, the wife was ultimately entitled to 74,750 out of the net proceeds of sale.

This case confirms the correct approach to take when a bank seeks to appropriate sums due to it under an all-monies charge in circumstances where the charge was taken over jointly owned property, securing a mixture of joint and separate liabilities.

In these circumstances, a bank under a charge of jointly owned property is entitled to satisfy joint indebtedness only against the undivided proceeds of sale and not against a debtor's half share of the divided proceeds of sale.

Credit agreement

Tilby v Perfect Pizza Ltd (28 February 2002) unreported

In this case, an after-the-event (ATE) costs insurance policy provided for payment of the insurance premium to be made on the conclusion of the case.

The issue for the Senior Costs Judge, Peter Hurst, was whether this clause rendered the insurance policy a regulated consumer credit agreement.

It was accepted that the formalities required for a regulated agreement had not been complied with and that if the ATE costs insurance policy was classified as a regulated consumer credit agreement it was unenforceable.

The defendant sought to argue that the payment of the premium would ordinarily have been due when the insurance policy was taken out and that such an obligation amounted to normal practice in insurance business.

Threfore, the deferment of the liability to pay the premium until the conclusion of the case amounted to the granting of credit, thereby activating the requirement to comply with the detailed provisions of the Consumer Credit Act 1974.

Judge Hurst held that the business of ATE costs insurance was still in its infancy and that as yet there was no established normal insurance business practice requiring ATE premiums to be paid at the inception of the policy.

In these circumstances, there was no deferment of the liability to pay the premium until the conclusion of the case and there was no grant of credit.

The new costs regime introduced as a consequence of the Access to Justice Act 1999 has generated and will continue to generate significant litigation.

It is clear that some agreements for the provision of ATE insurance will be classified as an agreement for the provision of credit and will be subject to the regime of the Consumer Credit Act 1974.

It is also clear, as is illustrated by this case, that other insurance policies do not advance credit and are not required to comply with the provisions of the Consumer Credit Act 1974.

Unless or until a normal industry practice is developed, the question of whether an agreement is to be classified as an agreement for the provision of credit can only be resolved by a detailed construction of the agreement in question.

It would be wise for a solicitor acting under a conditional fee agreement, whose client has taken out ATE costs insurance, to determine whether the client's policy advances credit and is enforceable in the absence of compliance with the detailed provisions of the Consumer Credit Act.

By Simon Sugar, barrister, 36 Bedford Row, London