Hughmans Solicitors v Central Stream Services Ltd & anr [2012] EWHC 1222 (Ch)

Analysis

Hughmans Solicitors (Hughmans) made an application against Central Stream Services Ltd (in liquidation) (the company) and its liquidator for an order for payment of £19,000 from the proceeds of sale of 3 Tisdal Place, London (the property). Hughmans claimed to be entitled to the payment on the basis of a judgment debt secured by a final charging order against the property.

The respondents claimed a prior secured right to the whole of the sale proceeds arising from the contractual terms of the schedule to a Tomlin Order dated 13 June 2008 (the schedule) made in compromise of proceedings between the company and a Mr Davidson. Hughmans had acted for Mr Davidson in those proceedings and their charging order secured a judgment debt in respect of professional fees.

The issues were:

1. (1) Did the schedule give rise to a proprietary interest on the part of the company in the property?
2. (2) If so, did Hughmans’ charging order, and its protection at the Land Registry by a unilateral notice, confer priority in favour of Hughmans over the company’s interest?

The schedule recited that the company and Mr Davidson had settled the company’s claim on the basis that the company would accept the net proceeds of sale of the property, subject to a minimum payment of £100,000. Mr Davidson’s various debts (including Hughmans’ professional fees) would be paid once the company had received £100,000, with any balance thereafter payable to the company. It had been assumed by all parties when the Tomlin Order was entered into on 13 June 2008 that the proceeds of sale of the property would be sufficient for the company to receive £100,000 and for Hughmans’ fees to be paid. Hughmans ceased to act for Mr Davidson in November 2009, obtained judgment for their fees on 12 April 2010 and obtained a final charging order on 27 August 2010, which was protected by a unilateral notice. The property was sold and the net proceeds of sale were only £49,104.07.

The company and its liquidator argued that the company had priority by virtue of an equitable charge, declaration of trust or estoppel. It was submitted that the property and its proceeds of sale were a fund from which, pursuant to a contract for valuable consideration, the company was to be paid £100,000 in priority to all other claims. This arrangement had all the characteristics of an equitable charge.

Hughmans argued that the schedule did not contain sufficiently clear words to display an intention to create an equitable charge. In any event, any proprietary interest (whether by charge or trust) that might attach to the proceeds of sale did not extend to the property itself, pending sale.

Held (dismissing the application):

1. (1) A proprietary beneficial interest in the property, by way of trust rather than equitable charge, was created by the schedule. The schedule had to be reviewed as a whole. Its object and intent was for Mr Davidson to give the company the whole of his own beneficial interest in the property, subject only to the payment of certain debts from any net proceeds of sale in excess of £100,000. This disclosed an intention on the part of the parties that the company should thenceforth be the beneficial owner of the property (paras [14]-[16]).
2. (2) There is nothing in the point that the rights in relation to the property are expressed by reference to its proceeds of sale. It is common for a declaration of trust of real property to be expressed by reference to proceeds of sale, rather than by reference to the property itself (para [17]).
3. (3) Priority of competing equitable interest is determined by the order in which those interests are created. The priority of a later over an earlier interest is conferred by registration (including by way of notice) if, but only if, the later interest is a disposition made for valuable consideration. If it is, then the earlier interest loses its priority if it is not protected on the register. If it is not, then the two competing interests remain governed by the order of their created (paras [19]-[21]).
4. (4) Most equitable charges are made for valuable consideration and their enforcement in equity may depend on that. Nonetheless, some equitable charges are conferred voluntarily (para [23]). Authority shows that a judgment creditor who obtains a charging order is a volunteer because the debtor receives no consideration. It is unlikely that it was the purpose of the Charging Orders Act 1979 to confer upon the recipient of a charging order any priority over the holder of a prior beneficial interest in the relevant property, even if unprotected by registration (paras [24]-[25]).
5. (5) The company obtained a beneficial interest in the property, which entitled it to the whole of the net sale proceeds, since the proceeds fell short of £100,000. Hughmans’ subsequently obtained charging order was ineffective to confer priority over the company’s prior beneficial interest (para [26]).

JUDGMENT MR JUSTICE BRIGGS: Introduction [1] This is an application by Hughmans Solicitors against Central Stream Services Ltd (in liquidation) (the company) and Stephen Hunt (its liquidator) for an order for payment out of the proceeds of sale of a property known as 3 Tisdal Place, London SE17 1QQ (the property) of the sum of …

Continue reading "Hughmans Solicitors v Central Stream Services Ltd & anr [2012] EWHC 1222 (Ch)"