11th December 2015
Your client wins at trial. You obtain a final charging order. You know that it is secured on valuable real property, and there is at least some equity in it. What can possibly go wrong? Well, nothing, in this case, as it happens! But there are issues and problems to watch out for.
Banwaitt v Dewji & Dewji [2015] EWHC 3441 (Ch)
B obtained judgment against D1 following trial for £1.5 million, representing damages for fraudulent misrepresentation. B obtained a charging order over D1’s beneficial interest in Ds’ jointly-owned matrimonial home.
In 2014, Ds transferred the property into the sole name of D2 by way of a transfer on form TR1. The amount of consideration (some £13,500 it seems) was purportedly calculated by reference to the value of D1’s beneficial interest in the home at that time). D2 applied to the Land Registry to remove the standard-form restriction against the title. The Land Registry refused. B sought an order for sale.
This was a trial of a preliminary issue. Was B’s equitable charge overreached by the transaction, such that B’s claim now lay against the proceeds of sale of D1’s interest? Or did B’s charge remain intact, because there was no overreaching and only a sale of D1’s beneficial interest and a bare transfer of legal title?
Master Matthews accepted B’s argument that, in order to decide the issue, the Court must look to the parties’ intentions (a question of fact), before categorising the transaction (a question of law), and considering public policy if relevant.
The documents, including the TR1 and correspondence, suggested that the arrangement was one whereby D2 bought D1’s beneficial interest in the property. D2 did not become the purchaser of the legal estate within the meaning of section 2 Law of Property Act 1925. D2 bought D1’s beneficial interest subject to the charge.
In any event, the purchase price had not been paid to both Ds (i.e. to the “trustees” within the meaning of section 27 Law of Property Act 1925) but to D2 alone. Thus, there could be no overreaching.
There is a commendable clarity about this short judgment, which makes it a very good read for the nuts and bolts of the circumstances in which a charging order attaches to (and continues to affect) beneficial interest in property. The reasoning is sound, although it must be said that the case was decided on its particular facts and contemporaneous evidence (or the lack of it) regarding the nature of the transaction.
Of most interest is what is said about overreaching, and in turn what this says about the precarious nature of an equitable charge against a beneficial interest (as opposed to an equitable charge against the legal estate, which would have been possible had the judgment for £1.5 million been against both Ds).
The arguments raised in this case, and the obiter comments of the judge, rather than the decision itself, are revealing. They demonstrate that a charging order can have very limited utility, particularly where it is made only against a co-owner’s beneficial interest in land. It may well be that D1’s beneficial interest was not much more than £13,500, so B is unlikely to recover anywhere near as much as £1.5 million by enforcing the charge.
A judgment creditor should always consider alternative methods of enforcement as well. If a charging order is the best option, it pays to ensure that the restriction is tightly worded and a close eye is kept on a judgment debtor’s dispositions of property.
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