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Jonathan Upton wins important appeal on the Ft-T’s jurisdiction in land registration cases

6th November 2019

Jonathan Upton wins important appeal on the Ft-T’s jurisdiction in land registration cases

Wolloff v Patel [2019] UKUT 333 (LC)

Summary

Where a joint legal owner of a property objects to an application made by the trustee in bankruptcy of his bankrupt co-owner on the basis that the bankrupt has no beneficial interest in the property, the First-tier Tribunal (“F-tT”) has jurisdiction to determine whether the bankrupt has a beneficial interest in the property. It is not necessary for the issue to be determined by the court simply because one of the co-owners has been adjudged bankrupt. Accordingly, it is not necessary for the F-tT to stay the proceedings and direct a party to commence proceedings in court.

Introduction

The appeal concerned the legislative scheme for protecting an interest in property which may form part of a bankrupt’s estate for the benefit of the bankrupt’s creditors and, in particular the interrelationship between the provisions of the Land Registration Act 2002 (“the 2002 Act”) and the Insolvency Act 1986 (“the IA 1986”).

Background

The Respondent was one of two registered proprietors of a freehold property in Ilford (“the Property”). The other registered proprietor, Mr Dhillon, was made bankrupt on 19.10.16. Trustees in bankruptcy were appointed in the usual way. On 24.11.16 the trustees applied to HM Land Registry to enter a restriction in standard Form J against the registered title to the Property. Both registered proprietors objected to the application on the basis that Mr Dhillon had no beneficial interest in the Property. The registrar referred the matter to the First-tier Tribunal (“F-tT”), under s.73(7) of the Land Registration 2002. At the hearing on 10.12.18 the Appellants submitted that the F-tT did not have jurisdiction to determine whether Mr Dhillon had any beneficial interest in the Property (which, by s.306 of the IA 1986, vested in the Appellants). The F-tT held that it did have jurisdiction and determined the substantive issue in the Respondent’s favour. The Appellants appealed on the jurisdiction issue.

What were the issues at first instance?

Before the F-tT, the trustees contended that this case was governed by s.86(4) of the 2002 Act, and that accordingly the F-tT’s role was limited to deciding whether the bankrupt appeared to be interested in the Property, whereupon it should have directed entry of the restriction and left the matter of the true beneficial ownership to be decided in the bankruptcy proceedings, if and when the bankrupt’s apparent interest was sought to be realised or upon any application made by the respondent to determine her interest as against the trustees. It was submitted that this interpretation of the 2002 Act was consistent with the scheme of the bankruptcy parts of the 1986 Act, and in particular s.363 of that Act, which confers “exclusive jurisdiction” on the High Court or the county court to decide “all questions, whether of law or fact, arising in any bankruptcy”. There was not, the trustees argued, a parallel jurisdiction in the F-tT to make final decisions of fact or law, and in the case of bankruptcy restrictions the Land Registrar should enter the restriction without going further than asking himself whether the bankrupt appeared to have an interest. The 2002 Act regime, so construed, therefore reflected the requirements of the 1986 Act as regards the court’s jurisdiction.

In rejecting those submissions, the judge explained that s.86(4) applies in a case where the bankrupt is the sole proprietor of registered land, in which circumstances the property has by operation of law vested in the trustee in bankruptcy but the register of title has not yet caught up. The restriction in such a case prevents registration of any disposition of the property before the trustee is registered.   Where on the other hand the legal estate is jointly owned (or owned by another) but the bankrupt has a beneficial interest in it, the restriction is of a different kind, which recognises that the legal estate has not vested in the trustee, and it provides protection by another means. This is to ensure that the trustee is forewarned of the fact that a disposition is going to be made, thereby enabling the trustee to take whatever steps are appropriate to protect the proceeds of the disposition in the event that the bankrupt’s interest will be overreached. That quite different situation is governed by sections 42 and 43 of the 2002 Act and rule 93(j) of the 2003 Rules. Accordingly, the Land Registrar is not concerned with the question of whether the bankrupt is registered as proprietor but with whether it is “necessary or desirable to enter a restriction to protect … a right or claim in relation to the property”. A trustee in bankruptcy will have such a right or claim if a beneficial interest under a trust of land has vested in him: rule 93(j).

What were the issues on appeal?

 On appeal, the trustees accepted that the judge was correct in rejecting that argument for the reasons he gave. Despite having abandoned their argument based on section 86(4) of the 2002 Act, the trustees argued that the F-tT had no jurisdiction to determine whether the bankrupt had a beneficial interest in the Property prior to his bankruptcy on the basis that such jurisdiction would be inconsistent with the terms of the 1986 Act that confer on the court “exclusive jurisdiction” in relation to issues of fact or law arising in a bankruptcy. The trustees’ argument was that it was implicit in the relevant provisions of the 2002 Act that an exception applied in relation to any bankruptcy matter, to avoid a conflict with the exclusive bankruptcy jurisdiction of the court. The effect of that would be that no question of fact or law relating to a bankrupt (or at least “arising in any bankruptcy”) could be decided by the F-tT.

The decision on appeal

Mr Justice Fancourt, Chamber President rejected the trustees’ argument. The separate statutory codes do not conflict because sections 363 and 373 of the 1986 Act do not prevent any matter properly falling within the jurisdiction of the F-tT from being decided there. Whether the bankrupt had some beneficial interest in the Property is a matter that the Ft-T needed to decide in order to determine whether the objection succeeded and whether a restriction was necessary or desirable.

A decision that the Tribunal has jurisdiction to determine whether the bankrupt had any beneficial interest does not threaten any proper interest of the bankruptcy court in supervising the administration of the bankrupt estate. The F-tT has a discretion to direct that “the matter” be decided by a court, where that would provide a more appropriate hearing. That is likely to be so where there is a live dispute about quantum: see Hallman v Harkins [2019] UKUT 245 (LC). Otherwise, in most cases, a determination in a more informal and specialist part of a tribunal, to which the matter is first referred, is likely to facilitate earlier and cheaper administration of the bankrupt’s affairs, and also appropriate protection for any interest of the trustees being put in place at an earlier time, to the benefit of the creditors.

Conclusion

Questions of fact or law relating to a bankrupt (or at least “arising in any bankruptcy”) can be decided by the F-tT. It is not necessary for a trustee in bankruptcy or a joint registered proprietor to issue separate proceedings in court for a determination of whether the bankrupt has any beneficial interest in a property in circumstances where a trustee in bankruptcy applies to enter a restriction against the property and a co-owner objects on the basis that the bankrupt has no beneficial interest in the property. Where the objection is not groundless and the registrar refers the matter to the F-tT, the F-tT has jurisdiction to determine whether the bankrupt has a beneficial interest in the property. Accordingly, it is not necessary for the F-tT to stay the proceedings and direct a party to commence proceedings in court. The practical effect of this decision is that the matter in dispute will be determined sooner and at less expense than if only the court could determine such matters. It also means that the length of the period during which the bankrupt’s creditors are exposed is reduced.

 

Jonathan Upton appeared for the successful Respondent.

 

Team: Jonathan Upton
Expertise: Real Property

 

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