11th May 2012
The applicant (H), a firm of solicitors, applied for an order for payment out of a sum from the proceeds of sale of a property that had been owned by its former client (D) to satisfy a judgment debt that was supported by a charging order.
H had represented D in earlier litigation with the first respondent (C) which had been settled in 2008 by way of a Tomlin order. A schedule to the Tomlin order provided that D's property would be sold with the proceeds going first to discharge a mortgage, then £100,000 to C, then to D's various other debts, including H's fees and disbursements for that action. In 2010 the property had not yet been sold, and H obtained a judgment against D, and a charging order on the property, for its unpaid fees. When the property was eventually sold the net proceeds after discharge of the mortgage were less than £100,000, leaving the whole sum payable to C under the schedule to the Tomlin order. The issues were (i) whether the schedule to the Tomlin order gave C a proprietary interest in the property; (ii) if so, whether H's charging order had priority over C's earlier interest.
(1) The schedule to the Tomlin order had to be read as a whole for the purpose of deciding whether it displayed a sufficient intention to confer a proprietary interest on C. The object and intention of the schedule had been that D was settling C's claim by agreeing to give C the whole of his net equity in the property, subject only to retaining a sufficient sum for himself to pay certain debts if the net proceeds exceeded £100,000. That sufficiently disclosed an intention by the parties to the schedule that C should be the beneficial owner of the property subject to the mortgage, save only for that part of any net proceeds of sale in excess of £100,000 necessary to discharge the debts. The schedule therefore conferred upon C a beneficial interest in the property by way of trust. It did not matter that the schedule had expressed C's rights by reference to proceeds of sale; it was common for a declaration of trust of real property to be expressed in that way, rather than by reference to the property itself, without depriving the intended beneficiaries of their proprietary interests (see paras 12, 15-18 of the transcript). (2) The effect of the Land Registration Act 2002 s.29 was that it was for H to show that its charging order was made for valuable consideration in order to obtain priority over C's earlier equitable interest, Halifax Plc v Curry Popeck (A Firm)  EWHC 1692 (Ch), (2008) 152(37) S.J.L.B. 31 applied. The analysis in United Bank of Kuwait Plc v Sahib  2 W.L.R. 94, which held that the recipient of a charging order under the Charging Orders Act 1979 s.3(4) was a volunteer and gave no valuable consideration, was compelling and correct. H's charging order was therefore ineffective to give its consequential equitable charge priority over C's beneficial interest in the property, Sahib applied (paras 21, 24-26).
A judgment creditor's charging order did not have priority over an earlier unregistered equitable interest in the property as the charging order had not been made for valuable consideration.