The Law Society v Dua & anr [2021] WTLR 1469

Analysis

Between 2011 and 2013, the claimant obtained multiple charging orders in respect of five properties registered in the joint names of Mr and Mrs Dua. The Duas occupied four of the properties as a single residence, known together as ‘Fulmer House’. The other was a separate property known as 49 Sudbury Avenue.

The Duas had purchased 49 Sudbury Avenue in 1987 and occupied it as their family home until 2004. The purchase had been funded by a mortgage and the Duas’ evidence was that Mr Dua alone had made the mortgage payments. In 1992/93 and 1995, there were two major extensions to 49 Sudbury Avenue which, according to the Duas’ evidence, Mr Dua funded and was then reimbursed from the proceeds of sale of the Duas’ previous marital home that had been subject to an express declaration that it was held jointly in law and equity.

In 2004, the Duas purchased and moved into Fulmer House. By a trust deed dated 15 October 2004, the Duas, as settlors and trustees, had declared the Fulmer Trust, being a trust of, inter alia, Fulmer House for themselves, their children and descendants. Under the trust deed, the Duas had the right to the income of the trust fund and had the power to nominate beneficiaries and transfer property to any beneficiary. On 22 October 2004, the Duas completed the purchase of Fulmer House which was funded by a mortgage with a security deposit held by the mortgagee for the first year. By minutes of a meeting dated 24 October 2004, the Duas recorded a resolution that they would be removed as beneficiaries of the Fulmer Trust. By minutes of a meeting dated 12 September 2005, the Duas, as trustees, resolved to purchase 49 Sudbury Avenue for the Fulmer Trust for £90,000, being the same as the security deposit held by the mortgagee of Fulmer House.

On 12 December 2008, Mr Dua was adjudged bankrupt. His trustee in bankruptcy investigated the Fulmer Trust but made no claim on Fulmer House or 49 Sudbury Avenue.

In respect of the claimant’s charging orders, Mrs Dua had resisted five of the charging orders, one against each property, which had then been made final by Chief Master Marsh in April 2013. Mrs Dua had unsuccessfully resisted on the basis that the properties were held subject to the Fulmer Trust. Mr Dua was not a party to the charging order proceedings and was not treated as a person who objected under CPR 73. He did however assist Mrs Dua during the proceedings informally and as a McKenzie friend.

In these proceedings, the claimant sought an order for possession and sale on the basis of the charging orders. Mr and Mrs Dua resisted the order on the basis that they held the properties pursuant to the Fulmer Trust and, alternatively, that they held the properties on trust for Mr Dua alone and not Mrs Dua. The claimant submitted that the Duas were prevented by res judicata, issue estoppel and/or abuse of process from relying on the Fulmer Trust and that the Fulmer Trust was illusory in any event. By the time of trial, the claimant accepted that Chief Master Marsh’s reasons for summarily rejecting Mrs Dua’s defence in the charging order proceedings were no longer supported by the evidence.

Held:

1. (1) As Mr Dua was not a party to the charging order proceedings, the procedural argument that Mr Dua was prevented from defending these proceedings on the basis that Mrs Dua held no beneficial interest in the properties was based on abuse of process principles. The ultimate question was whether, in all the circumstances, Mr Dua’s conduct was an abuse, following Johnson v Gore Wood [2000]. The fact that the parties were not the same was not dispositive but it will be a rare case where the re-litigation of an issue which has not been decided between the same parties or their privies will amount to an abuse, particularly if the parties concerned are defendants, following Simms v Conlon [2006].
2. (2) An abuse of process argument may be stronger if brought earlier in proceedings, following Booth v Booth [2010]. The fact that the claimant’s case against the underlying argument was unsupported by the evidence by the time of trial could be taken into account because any unjust harassment had already occurred by the fact that the case had proceeded to trial, oral evidence was not required to determine this abuse of process argument and the efficiency or cost-saving argument was considerably reduced by the abuse of process arguments being considered at the same time as the underlying argument.
3. (3) Mr Dua was not prevented from defending these proceedings on the basis that Mrs Dua held no beneficial interest in the properties. Ordinarily only parties are bound by proceedings, Mr Dua was not involved as a party to the charging order proceedings and there was no suggestion that the Duas were attempting to ‘game the situation’. It had been unnecessary to reject the defence in its entirety in the charging order proceedings and different considerations arose on an application for an order for sale. The Duas were defendants in the charging order and these proceedings respectively and the claimant had the choice to join the parties, had not joined Mr Dua to the charging order proceedings and may have resisted any application by Mr Dua to be joined. If a person were to be bound by proceedings due to assisting their spouse who was a party, they should be warned of the same, preferably by being joined. The fact that the claimant had not made a strike out application earlier in proceedings weakened any argument based on oppression or efficiency.
4. (4) If the above factors were insufficient to reject the abuse of process argument, the underlying merits would have supported rejection of the argument. The three bases of Chief Master Marsh’s decision had fallen away during these proceedings and this was accepted by the claimant. Further, the Duas’ children were not part of these proceedings and the administration of justice favoured determining the underlying issues in circumstances in which the Duas’ children could attempt to re-open the question.
5. (5) It was unnecessary to determine whether Mrs Dua was prevented from defending these proceedings on the basis that she held no beneficial interest in the properties.
6. (6) The trust deed for the Fulmer Trust was executed on 15 October 2004 and varied on 24 October 2004. The Fulmer Trust included, on proper construction of the trust deed, all of Fulmer House.
7. (7) The signed minutes of 12 September 2005 were sufficient to provide the Fulmer Trust with an equitable interest in 49 Sudbury Avenue, whether at the time or by a combination of the minutes and subsequent oral agreement or conduct.
8. (8) The Fulmer Trust was not illusory in the sense of the Duas failing to part with the beneficial interest. To find otherwise would require the Duas’ fiduciary duties, a beneficiary’s entitlement to be considered for appointment and Mr and Mrs Dua’s separate personalities to be ignored, which was not permissible. Further, the argument was based on the Duas having the right to appoint themselves as beneficiaries and, on a proper construction of the variation of 24 October 2004, they had been permanently excluded as beneficiaries. If such a construction was not possible, rectification to the same effect would be granted.
9. (9) Accordingly, the Duas did not have any realisable beneficial interest in the properties or none which is of substantial value.
10. (10) If 49 Sudbury Avenue were not held subject to the Fulmer Trust, it would have been held for Mr and Mrs Dua jointly. It was purchased and resided in as a family home, the Duas’ evidence as well as the reimbursement of the extensions funding by the proceeds from a jointly held property indicated an intention to hold jointly, and this was acknowledged in the minutes dated 12 September 2005. The fact that Mr Dua may have been solely or principally responsible for the mortgage was insufficient and, in any event, it was likely Mrs Dua made some contribution.
11. (11) If Fulmer House were not held subject to the Fulmer Trust, it would have been held for Mr and Mrs Dua jointly. It was purchased and resided in as a family home, the monies used were deposited in the Duas’ joint names even if the source was ultimately Mr Dua, it is likely that Mrs Dua made some contribution to the mortgage for Fulmer House and it is difficult to reconcile Mr Dua being the sole beneficial owner with the terms of the Fulmer Trust.
12. (12) If the properties were not held subject to the Fulmer Trust, the equity of exoneration would not have applied. The equity of exoneration does not apply where the mortgage over Fulmer House and 49 Sudbury Avenue is in the Duas’ joint names, following Re Pittortou [1985] and Armstrong v Onyearu [2017], and there was insufficient evidence of Mr Dua’s contributions.
13. (13) If the properties were not held subject to the Fulmer Trust, equitable accounting would not have applied. While there is no absolute rule that equitable accounting cannot apply before a relationship breakdown, following Wilcox v Tait [2006], there was no room for equitable accounting in this case because the Duas continued to live in the family home together, Mr Dua’s contributions did not increase any equity value in the properties and it would be inconsistent with the terms of the Fulmer Trust.
14. (14) If it had been necessary to determine whether to grant an order for sale, the principles under s14 of the Trusts of Land and Appointment of Trustees Act 1996 would have applied. The court would have the discretion whether to make any order and as to the form of any order, following Mortgage Corp v Shaire [2000].
15. (15) Before making any order for sale, the court would have required an up-to-date valuation report, including consideration of a marketing period, given the lack of valuation evidence. After the valuation, the court could balance the benefits to each party of any order. During the adjournment, the creditors of other charging orders on the properties and the Official Receiver, as Mr Dua’s trustee in bankruptcy, would need to be served with notice. If the court were to consider the fact that Mrs Dua made an offer to reduce the debt owed to the claimant, the Duas’ children would need to be joined and given the opportunity to make representations.
16. (16) As Mrs Dua had no realisable beneficial interest in the properties, the claimant’s application failed.

JUDGMENT MR HUGH SIMS QC: Introduction [1] Fulmer is a village about one mile from Gerrards Cross, in Buckinghamshire. In 2004 the defendants, Mrs and Mr Dua, purchased Fulmer House, in Fulmer, as a family home. The claimant, The Law Society, is a judgment creditor of Mrs Dua, and seeks an order for possession and …

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