Analysis
Mr and Mrs Onyearu were a married couple. Mr Onyearu was declared bankrupt in 2011 and Mr Armstrong was his trustee in bankruptcy. The question before the Court was whether Mrs Onyearu could rely upon the equity of exoneration in order to take a charge over her husband’s share of the matrimonial home.
Mr Onyearu was the sole registered proprietor of the matrimonial home in Catford (purchased in 2000), and he and his wife maintained that they beneficially owned the property in equal shares. In 2005, a loan facility was granted to Mr Onyearu by Bank of Scotland in order to provide funds to meet liabilities of the solicitor’s practice carried on by him as a sole practitioner. He informed his wife about the loan but did not seek her consent. There was no agreement as to whether, and if so, however, the liability on the loan facility should be shared between them.
Deputy Registrar Middleton held that the equity of exoneration applied in favour of Mrs Onyearu: the business loan was the sole liability of Mr Onyearu and was applied in paying debts of his practice for which he was alone liable (subject to any liability of his salaried partner from 2005); neither Mrs Onyearu nor any other member of the family had any involvement of any kind in Mr Onyearu’s practice; Mrs Onyearu had her own income; Mr and Mrs Onyearu maintained separate accounts and they did not pool their income in a joint account over which they both had control; there was no evidence of a prosperous lifestyle (unlike in some of the authorities to which he was referred). He said that ‘although this was a family unit it was a family in which family members had their own resources which could be used to support the family’. He concluded that the payments to his creditors could, in a sense, be to the benefit of Mrs Onyearu, but this indirect benefit was not what was envisaged.
Upon appeal to the High Court, the trustee challenged the Deputy Registrar’s decision on the basis that, having found that Mrs Onyearu had enjoyed a benefit from the business loan, he was wrong to hold that she was entitled to the equity of exoneration. The High Court rejected the submission that the presence of any benefit was sufficient to deny application of the equity, nor was indirect benefit sufficient to deny the equity of exoneration to her.
The trustee appealed on the grounds that Mrs Onyearu received a benefit fro the loan to pay off her husband’s business creditors, because she and her husband operated as a family unit, and enabled Mr Onyearu to continue in practice and meet payments under the mortgage loan.
Held:
- 1) None of the recent cases provided support for the view that the existence of some indirect benefit, or the prospect of some indirect benefit, to the co-owner who is not the debtor will necessarily prevent the equity arising in his or her favour. Nor did overseas authorities call into the question the approach that had been adopted over a long period up to the present day by the English courts.
- 2) The law in the area should not be changed to accommodate the relationship between co-habiting couples in their family affairs in current times. Couples arranged their financial and family affairs in an infinite variety of ways. There is no standard template, nor is any business of the courts to suggest that there is a particular way in which couples ought to rarrange these matters. The concept of operation as ‘one family unit’ was not a helpful or useable test.
- 3) The decisions of the Deputy Registrar and the Deputy Judge on appeal were correct. The purpose of the bank loan was to pay the creditors of Mr Onyearu’s practice. The creditors and Mr Onyearu were the people directly benefitted by the loan. Any benefit that might have been anticipated for Mrs Onyearu was subject to a double contingency: first, that Mr Onyearu’s practice would survive, and secondly, that it would make profits from which he could make drawings. Any benefit to Mrs Onyearu was too remote to provide a basis for inferring or presuming that her intention was to bear the burden of the loan equally with her husband.
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