To know a ‘Veil’ – Persad v Singh

By Melissa,

By Paul Moulder

To know a‘Veil’

Not infrequently in practice, one comes across the issue whether personal liability can supplement corporate liability. This issue was recently before the Privy Council in an illustrative case.

Persad v Singh [2017] UKPC 32 (Judgment given on 30 October 2017)

In order to ‘pierce the corporate veil’ the conditions outlined in Prest v Petrodel Resources Ltd [2013] 2 AC 415 must be met.  Such ‘piercing’ would only be appropriate where a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.

The issue in this case was whether, as both the High Court and Court of Appeal had held, the appellant (P) could be held liable for sums due to the respondent landlord (S) under a lease S had issued to a company (C) set up by P.

P and S entered into discussions for a 5-year lease of S’ property in Trinidad. When they reached agreement, it was also agreed that P, an attorney, would draft the lease.  The lease, as drafted, had C, a company set up by P, as tenant. In January 2002 a copy of the draft lease, executed by the company was sent to S.  In May 2002 S signed the lease.

Rent was initially paid, not always on time. On at least two occasions C’s company cheque was signed by P. In late 2003 S became aware of some disrepair and served notice, as required by local statute. In late 2004 S issued proceedings for possession, arrears of rent, damages for breach of covenant, and mesne profits.  Both C and P were named as defendants.  The claim identified the lease as being made between S and C, and referred to P as a director of C and “at all material times acting on his own or as the servant and/or agent of [C]”.  It alleged that both defendants had breached the covenants of the lease.

The High Court gave judgment effectively against both defendants thus allowing the ‘veil’ to be pierced. P’s appeal to the Court of Appeal of Trinidad and Tobago was dismissed.  The latter court said that C was effectively a ‘front’ for P.  They summarized the judge’s reasons as including that:

  • P had concluded negotiations in his personal capacity;
  • He had afterward formed the company;
  • He had produced no corporate documents and could not recall the last time annual returns had been filed; and that
  • Based on these facts it had been inferred that the company had been formed in the hope that, if all was not well, P would not be held personally liable.

The Privy Council disagreed. Lord Neuberger, giving the leading judgment, said that the occasions when the corporate veil would be pierced were rare, a point implied in VTB Capital plc v Nutritek International Corp. [2013] 2 AC 337 and expressed in Prest.  Crucially, P had been under no existing “legal obligation or liability” to S at the time that he proffered the draft lease.  Further, P had not misled S in any way: S had given evidence that he appreciated that the lease which he was being asked to execute involved grant of the lease to C and not P.  He also understood that a limited company was a different legal person to its shareholders or directors.  It made no difference that P had personally gone into occupation of a first-floor office within the property (ground-floor shop with office over).  The fact that C was a “one man company” was also irrelevant.

The case of Salomon v A Salomon and Co. Ltd [1897] AC 22 famously established the importance of the difference between a company and its shareholders. That case also established that it was fallacious to suggest ‘piercing’ was allowable when the purpose of interposing a company had been to avoid personal liability. The appeal was allowed.

Comment

Being a Privy Council decision, this is not a ‘binding authority’ of course, but the reinforcement of the two Supreme Court decisions is important. The thought behind Salomon one might say, is that the price of encouraging entrepreneurship – that financial liability protection can be obtained by incorporation – is a price well-worth paying.

However, landlords will be well advised to consider these issues when entering a lease with a company, and the wisdom of obtaining appropriate guarantees.

If you require advice, or representation, in a claim relating to land or property you can instruct Paul Moulder by contacting his clerks on 01483 539131 or emailing them at clerks@guildfordchambers.com

Disclaimer

This article has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Guildford Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.

Accelerated Possession for an Assured Shorthold Tenancy property – New Form

By Melissa,

By Paul Moulder

For those of you applying for a possession order for an Assured Shorthold Tenancy property, a new claim form has been issued for use as Form N5B (for property in Wales: N5B Wales).

The form has been amended to include questions concerning the statutory changes brought about in ss21A and 21B of the Housing Act by the Deregulation Act 2015.

There is now information to be confirmed by the Claimant concerning, amongst other things :-

  • Energy Proficiency Certificate provision
  • Gas Certificate provision
  • Information Booklet ‘How to Rent’ for private registered providers of social housing
  • Deposit Requirements
  • Licensing Requirements (where applicable)
  • Any ‘relevant notice’ under the Improvement Order or Emergency Remedial Order provisions

A copy of the new Claim form for possession of a property located in England (accelerated procedure) (assured shorthold tenancy) is available from the usual hmctsformfinder website.

If you require advice, or representation, in a claim relating to land or property you can instruct Paul Moulder by contacting his clerks on 01483 539131 or emailing them at clerks@guildfordchambers.com

Disclaimer

This article has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Guildford Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.

Re Amin; Abdulla v Whelan [2017] EWHC 605 (Ch); [2017] 1WLR 3318

By Melissa,

 

By Christopher McCauley

Re Amin; Abdulla v Whelan [2017] EWHC 605 (Ch); [2017] 1WLR 3318

The appeal of Abdulla v Whelan [2017] EWHC 605 (Ch) is an interesting case that addressed the question of whether a trustee in bankruptcy can disclaim a legal interest, in a jointly owned leasehold property, by serving a notice of disclaimer pursuant to section 315 of the Insolvency Act 1986 (“the 1986 Act”).

By way of general overview: the 1986 Act allows a trustee in bankruptcy[1], or a liquidator of a company[2], to disclaim onerous property[3] and, apart from some limited circumstances in bankruptcy[4], it is not necessary to obtain the Court’s permission to disclaim the property.

Disclaimer brings an end to the rights, interests and liabilities of the bankrupt in the property[5] but does not affect liabilities that accrued prior to the notice.[6] For example, in a case involving disclaimer of a lease: the rent that accrued prior to the disclaimer will be a debt that the landlord can prove for, in the bankruptcy, but the landlord cannot prove for future rent as the disclaimer “operates to bring an end to the tenant’s liability to pay rent and the landlord’s right to receive it.[7] However, by virtue of section 315(5) of the 1986 Act, any person sustaining loss or damage in consequence of the operation of the disclaimer is deemed to be a creditor and can prove for that loss or damage as a bankruptcy debt. Therefore, in the above example,  the subject matter of the landlord’s proof is compensation for loss of his right to future rent not the rent itself.[8]

The position where others have liabilities in respect of the lease, for example a guarantor, is less straightforward. In Hindcastle Ltd v Barbara Attenborough Associates Ltd, Lord Nichols held that the statute takes effect as a deeming provision so far as the other person’s rights and obligations are concerned. Further, he held that the Court should interpret the disclaimer provisions in a way that releases the bankrupt from the liabilities in relation to the property but does so with the minimum amount of violence being caused to the other parties’ property rights.[9] The appellant in Abdulla v Whelan relied on Hindcastle in support of his argument.

The Background

Mrs Sarah Omer Hassan Amin (“the Bankrupt”) was made bankrupt, on the 8 of June 2010, and Mr Whelan was appointed as the Trustee in bankruptcy. At the time of her bankruptcy, she was a joint tenant at law with Mr Elhilali (“the Tenants”) of a business premises in Kingston (“the Property”). The Property was held by the Tenants under the terms of an Underlease, granted on the 26 September 2003 and, which was due to expire on the 31 July 2018 (“the Underlease”).

On the 24 June 2011, the Trustee served a notice of disclaimer. The Official Receiver had previously served a notice of disclaimer on the 12 July 2010.

The matter came before District Judge Gold, on the 7 June 2016, and the District Judge had to decide whether the notice of disclaimer prevented the landlords from proving for rents falling due after the date on which notice of the disclaimer had been served. District Judge Gold held that the “purported disclaimers” did not prevent the landlords from proving for rents.

An appeal was subsequently brought by Dr Abdulla who claimed to be a creditor[10] of the bankrupt and who is also her husband.

Arguments on appeal

Dr Abdulla, relying on Lord Nichols’ reasoning in Hindcastle, argued that primary purpose of the disclaimer provisions was to free the Bankrupt from liability. Dr Abdulla argued that to achieve this purpose, whilst doing the minimum violence to property law principles, the Trustee should be able to disclaim the Bankrupt’s legal interest in the Underlease and that strict property law principles should give way to the statutory scheme.

In response, the Trustee submitted that the interest that had vested in the Trustee was Bankrupt’s interest in the Underlease as one of two beneficial tenants in common and legal estate did not fall within the Bankrupt’s estate and, therefore, did not pass to the Trustee. The notice of disclaimer, therefore, had no effect on the legal estate, in the Underlease, as the Trustee was unable to disclaim something that is not in his ownership. Further the Trustee submitted that any step taken in relation to trust property, such as the Underlease, could only be taken by the two Trustees acting together and a joint tenancy at law cannot not be severed. The Trustee also distinguished the Hindcastle case on the basis that the Hindcastle case concerned a situation where there was a lack of clarity between property law and insolvency law but in the present case there was no such lack of clarity.

The landlords adopted and supported the arguments advanced by the Trustee but in addition they submitted that the obligation to pay rent is a contractual, legal obligation, which flows from the legal interest in a lease and not from the beneficial interest. Pursuant to this, it was argued that Dr Abdulla’s approach failed to distinguish between the rights and liabilities that flowed the legal estate as opposed to the beneficial interest. Further, it was argued that, the Bankrupt and the co-owner were one joint entity and, as trustees, they could not be divided by the provisions of the 1986 Act.

In reply, Dr Abdulla sought to rely on the word “other” in the sentence the “property held by the bankrupt on trust for any other person” to argue that section 283(3)(a) of the 1986 Act did not apply.

The High Court’s decision

John Male QC (sitting as Deputy High Court Judge) held that the starting point was that the Tenants held the Underlease as joint legal owners on trust for themselves and the legal estate, of the Underlease, therefore, did not fall within the Bankrupt’s Estate as the exception in section 283(a) of the 1986 (i.e. “property held by the bankrupt on trust for any other person”) meant that legal estate was excluded. Further the Hindcastle case could be distinguished as in that case there was a lack of clarity in the interaction between the property law and the 1986 Act. However, no such problem arose as the 1986 Act was clear that property held on trust was to be excluded from the Bankrupt’s estate and the Trustee could only disclaim what is the comprised in the Bankrupt’s estate.

The Deputy Judge also rejected the “any other person” argument as it is inconsistent with Justice Goff’s (as he then was) decision in Re McCarthy[11] and held in relation to the other arguments raised that:

  • Any step taken in relation to trust property, such as disclaimer of the legal estate, would need to be taken by the two trustees (i.e. the Tenants) acting together;
  • A joint tenancy at law cannot be severed;
  • The case of Lee v Lee[12] did not support Dr Abdulla’s argument, as the point raised in this appeal was not in issue and was not argued in Lee v Lee. Further the leasehold property in Lee v Lee had been purchased by Mr Lee in his sole name prior to him meeting his wife and, on the facts of that case, it was unclear whether she had intimated a claim, that she was entitled to to a beneficial interest, at the date of the disclaimer; and
  • His conclusions were supported by the Landlords arguments noted above.

If you require advice, or representation, in a claim relating to land or insolvency you can instruct Christopher by contacting his clerks on 01483 539131 or emailing them at clerks@guildfordchambers.com

Disclaimer

This article, or case summary, has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Guildford Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.

[1] Section 315 of the Insolvency Act 1986

[2] Section 178 of the Insolvency Act 1986

[3] Defined in section 178(3) and section 315(2) as (a) any unprofitable contract and (b) any other property which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform the onerous act.

[4] For the circumstances were the Trustee must obtain the Court’s permission to disclaim property, see section 315(4) the 1986 Act.

[5] Section 315(3)(a) of the 1986 Act.

[6] Section 315(3)(b) of the 1986 Act.

[7] Re Park Air Services Plc [2000] p.183 at F

[8] Re Park Air Services Plc [2000] p.184 at A-B

[9] Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70

[10] At the time of judgment, the Trustee had not accepted or rejected the creditor’s proof

[11] [1975] 1 WLR 807; [1975] 2 All ER 857

[12] [1999] WL 478205

Nine Guildford Chambers Barristers in Legal 500 2017

By Melissa,

Guildford Chambers’ practice areas include Chancery and employment matters, but the set has notable strength in family law, where the barristers are ‘very experienced’ in private and public law relating to children as well as TOLATA claims. Senior clerk Simon Morris and first junior Gavin Street are ‘very efficient and take the time to make you feel valued as a client’ – Legal 500 2017

 

Tier 1 Ranked Barristers:

George Coates is a robust advocate, who works hard for his clients” LEGAL 500 – 2017

Claire Shrimpton can instantly put clients at ease” LEGAL 500 – 2017

Matthew Pascall instils confidence in clients” LEGAL 500 – 2017

Janet Haywood is known for public law children cases” LEGAL 500 – 2017

Christine Julien is experienced in relocation and international child abduction cases” LEGAL 500 – 2017

Gregory Tee is very experienced in bankruptcy and insolvency matters” LEGAL 500 – 2017

Fiona Griffin is extensively experienced in private law children matters” LEGAL 500 – 2017

Rowan Morton is a very safe pair of hands” LEGAL 500 – 2017

Amanda Minto is very experienced in financial remedy work” LEGAL 500 – 2017

Case Law Update – Dickinson v Casillas [2017] EWCA Civ 1254

By Melissa,

 

By Christopher McCauley

Dickinson v Casillas [2017] EWCA Civ 1254

The Background

The parties are neighbours and have title to the freehold of their respective properties. The flank wall of the Mrs Casillas’ property is built along the boundary line with Mrs Dickinson’s property and the gas and electricity metres for Mrs Casillas’ property are built into that wall. The metres can, therefore, only be read from the Mrs Dickinson’s property and Mrs Dickinson was of the opinion that Mrs Casillas had no right to go on to her property to read the metres or to inspect the flank wall to see if the repairs were needed.

Their properties were originally purchased from a developer, by their predecessors in title, and the freehold estate that is now owned by Mrs Casillas had originally been transferred from the developer to a Mr Duval and Miss Rains. At the date of that transfer, the house was still in the course of construction. The first schedule to the deed of transfer (‘the first schedule”) carried rights for the benefit of the transferees and their successors in title (which would include Mrs Casillas) and it was subject to rights and easements set out in the second schedule in favour of the developer and its successors in title to adjoining property (which would include Mrs Dickinson). The terms of the transfers of the two properties, from the developer to the original owners, were central to the issues in the case.

In 2007, Mrs Casillas built a porch to the front door of her property. The guttering on her porch would have overhung into Mrs Dickinson’s property but, before the porch was completed, Mr and Mrs Dickinson erected an iron and wood decorative feature which prevented the gutter being fixed. However, paragraph 3 of the first schedule (“paragraph 3”) allowed Mrs Casillas to erect gutters on buildings that overhang into Mrs Dickinson’s property. Mr and Mrs Dickinson argued, at first instance, that the right conferred by paragraph 3 only extends to the house and other buildings in the form they were constructed or were being constructed at the time of the transfer between the developer and Mr Duval and Miss Rains. Pursuant to this, they argued that, the right does not permit Mrs Casillas to extend those buildings with gutters overhanging into Mrs Dickinson’s property (“the paragraph 3 argument”).

Decision at first instance

Pursuant to the above, Mrs Casillas issued proceedings seeking a declaration of her rights and an injunction to prevent interference with those rights.

At first instance, the learned Recorder found in Mrs Casillas favour and held that:

  • Mrs Casillas was entitled to have access to Mrs Dickinson’s land for inspection, as it was an ancillary right that was necessary to the exercise of the express right of access for maintenance, repair and decoration. Further the only reasonable reading of paragraph 4, of the first schedule (“paragraph 4”), was that it included a right for inspection;
  • On a true construction of paragraph 4, Mrs Casillas was entitled to a right of access to read the meters;
  • The paragraph 3 argument was inconsistent with language used in paragraph 3 and if it had been intended to be limited in this way it would have been drafted as “buildings in situ” or “buildings standing on the property” or used similar words. Further the Recorder placed emphasis on the fact that the house was not completed by the 6th of April 1998 (the date of the transfer from the developer to Mr Duval and Miss Rains) so paragraph 3 could not be limited to buildings already erected at that date.

Mr and Mrs Dickinson appealed.

Court of Appeal

On appeal, Mr and Mrs Dickinson:

  • Accepted that, under paragraph 4 of the first schedule, Mrs Casillas was entitled to enter on to Mrs Dickinson’s land with workmen tools, materials and workmen for the purpose maintenance, repair and decoration but submitted that this does not include a right to enter to inspect the property to see if maintenance, repair and decoration is required or to enable builders to provide estimates for works;
  • Relied on an argument relating to the construction of the documents in support of the inspection issue;
  • Relied on the paragraph 3 argument set out above.

Lord Justice David Richards, with whom Lord Justice Longmore agreed, delivered the decision of the Court of Appeal and held that:

  • A right of inspection to determine whether works of maintenance, repair or decoration are required is necessary to make effective a right of access to carry out those works;[1]
  •  It would be absurd if there were no right to inspect the property;
  •  Even if not expressed in paragraph 4, a right of inspection is a necessary implication; and
  •  The correct reading of the word “maintenance’” in paragraph 4, was in accordance with the Oxford English Dictionary definition of the word “maintain:” meaning to “keep (a building, machine or road) in good condition by checking or repairing it regularly.

Although, Lord Justice David Richards acknowledged that the words “maintenance, repair and decoration” of a house does not obviously include reading its meters; he held that:

  • The developer had positioned the meters in the boundary wall and that it cannot have been intended that the purchaser of the property and their successors in title would be unable to read the meters;
  •  The following statement by Lord Neuberger in Moncrieff v Jamieson [2007] UKHL 42 should be applied: “a general and well established principle which applies to contracts, whether relating to the grants of land or other arrangements. That principle is that the law will imply a term into the contract, where, in light of the terms of the contract and the facts known to the parties at the time of the contract, such a term would have been regarded as reasonably necessary or obvious to the parties;” and
  •  Even if the right of access to read the meters could not be spelt out from paragraph 4, it was implicit in the transfer.

Further, with regards to the positioning of the gutters issue, Lord Justice David Richards held that the words “for the time being” in paragraph 3 were ambulatory words which envisage, and was intended to encompass, a changing state of affairs. Further he held that the words refer to the state of facts which may exist in the future as well as the state of facts at the present time and on that basis they extend to the porch or other structures whenever built.

If you require advice, or representation, in a claim involving an easement you can instruct Christopher by contacting his clerks on 01483 539131 or clerks@guildfordchambers.com

Disclaimer

This article, or case summary, has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Guildford Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.

[1] At paragraph 16

Case Law Update – Wodzicki v Wodzicki [2017] EWCA Civ 95

By robh@wearefinally.co.uk,

chris_mccauleyBy Christopher McCauley

Wodzicki v Wodzicki [2017] EWCA Civ 95

The Background

The appellant and her children had, since its purchase in 1988, exclusively occupied a house (‘the property’) that was registered in joint names of appellant’s father (‘the father’) and his second wife. The father visited the property but never stayed there and the father’s second wife, the respondent, had never visited the property.

The appellant had been actively involved in the preparatory steps relating to the purchase of the property (for example, the survey report had been addressed to her) but the father had been named as the sole purchaser in the contract and the property was registered in the joint names of the father and the respondent. The funds used to purchase the property had been provided by a loan to the father and the respondent from a bank, in France, and had been secured by a mortgage against their jointly-owned property in France. The the loan was repaid in eight annual instalments and the respondent stated in her witness statement that she and the father had repaid the loan over its term.

At trial, the appellant provided evidence to show that between 2001 to 2007 she had spent £5,000 on improvements to the property and produced evidence of loans of larger amounts that were stated to be for home improvements. She also paid the council tax, utility bills and service charges.

In 2010, the father died intestate and the respondent suggested, in a letter, that if the appellant gave up any entitlement under French inheritance law the respondent would gift the property to her. However, this was not pursued by the appellant.

In 2013, the respondent commenced proceedings for possession. The appellant defended the action and counterclaimed; seeking a declaration that she had the sole beneficial interest in the property and averred that, in any event, by virtue of a promise made by the father, she had a life interest in the property.

The respondent’s solicitors came off record in March 2014 and her claim was struck out for non-payment of Court fees. The matter, therefore, proceeded on the counterclaim only. The respondent filed a witness statement but did not attend the trial and was not represented.

Decision at first instance

At first instance Her Honour Judge Faber held that, following the passing of the father, the respondent held the legal title to the property on trust for the appellant and herself. Further the learned Judge ordered an account to be taken, at a hearing before a District Judge, to determine the parties’ beneficial interests.

The learned judge’s order treated the father’s beneficial interest as having passed to the appellant in equity but, as Lord Justice Richards noted, the learned judge did not explain how this was achieved. Although it appeared to be suggested in the the trial judge’s judgment that this resulted from the father’s death which Lord Justice Richards noted was a conclusion that was “not self-evident as a matter of legal analysis.

In reaching her decision, the learned judge accepted as fact that the father had agreed to transfer the property to the appellant when he had repaid the the mortgage and when he thought she was ready. In view of the fact that the mortgage had been repaid in 1996, but the father had not transferred the property to the appellant, the learned judge inferred that he must have thought that she was not ready to take sole ownership of it. The learned judge also found that there was no evidence that father had informed the respondent of his wish to transfer the property to the appellant or that she had agreed to this course of action.

Further, the judge found that the fact that the property was registered in joint names was evidence that he “intended his wife to be the joint owner and never made known to her expressly or impliedly that his daughter was to be the sole owner.” The learned judge also found that the respondent’s letter, in 2010, was consistent with a belief that the respondent had a beneficial interest in the property.

The appellant appealed seeking an order that she had the sole beneficial interest.[1]

Court of Appeal

On appeal, the appellant sought to advance the following arguments:

  1. The learned judge should not have adopted a solution based on a resulting trust but should have instead followed the steps set out in Jones v Kernott;[2]
  2.  The learned judge should have considered the evidence with a view to inferring an agreement as to the respective beneficial interests rather than imputing an agreement;
  3. Stack v Dowden[3] disapproved of the adoption of a resulting trust in a non-commercial setting;
  4. As the father and the respondent were joint tenants, the respondent was bound by the father’s promise because joint tenants share an indivisible share of the whole; and
  5. The learned judge had failed to consider the appellant’s case that she had the sole beneficial interest by virtue of proprietary estoppel.

In a judgment delivered by Lord Justice Richards, with whom Lady Justice Gloster and Sir Stephen Tomlinson agreed, the Court of Appeal held that:

  1. The appellant was not a registered proprietor of the property. The onus was, therefore, on her to establish that she had any beneficial interest in the property.
  2. The findings of fact were clearly open to the judge on the evidence.
  3. The judge made a finding on the evidence as to the actual intention of the parties. She did not impute an intention but rather the intention was one that she was able to infer, as a fact, on the evidence before her. Pursuant to this there was “no room to go to consider, essentially as a fall-back, the intention that may be imputed to the parties on a basis of fairness.”
  4. Their Lordships accepted that the approach in Jones v Kernott “may be applied outside the precise confines of co-habiting couples, notwithstanding the terms of the judgments in that case.”[4] However, they held that this was not a case where the principles should be applied.
  5. Their Lordships rejected the appellant’s argument that the respondent was bound by the father’s promise as they were joint tenants and therefore are to be treated indivisibly by the world at large. In rejecting the argument their Lordships stated “it is a startling proposition that the beneficial interest of one joint owner of a freehold property could be terminated without his knowledge by the other joint tenant” and that the argument gained no support from Hammersmith & Fulham LBC v Monk.[5]
  6. In relation to the proprietary estoppel argument, their Lordships stated that proprietary estoppel requires “A to act to his detriment, to the knowledge of B, as a result of an expectation created or encouraged by B.” Pursuant to this their Lordships also rejected the proprietary estoppel argument as the appellant would need to establish that the respondent had knowledge of the father’s promise and the learned judge, below, had found that the respondent did not have the requisite knowledge.

________________________________________________________

[1] The learned Judge also declared that the appellant had a life interest in the property and was entitled to occupation of it but there was no appeal of this declaration.
[2] [2012] 1 AC 776
[3] [2007] UKHL 17
[4]  For example, see Gallarotti v Sebastianelli [2012] EWCA Civ 865
[5] [1992] 1 AC 478

 

Make Sure Your Charging Order Works

By robh@wearefinally.co.uk,

matthew_pascallBy Matthew Pascall

Interim and Final Charging Orders – Registration of Charging Orders – Restrictions – Alternatives to Standard Form Restrictions – Avoiding Risk that Charged Property will be Sold Without Discharge of the Secured Debt – Land Registration Act 2002 – Charging Orders Act 1979 – CPR Rule 73

The Problem

Judgment creditors who seek to protect their rights under Interim Charging Orders by applying for restrictions at the Land Registry do not always appreciate the limited protection the resulting standard form of protection provides. When a Charging Order is made final, it is essential to have the standard form of restriction replaced by a more robust and effective alternative.

Section 3 (4) of the Charging Orders Act 1979 provides that a charge imposed by a charging order “… shall have the like effect and shall be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand.”

The only protection available to protect the interests of a judgment creditor under either an Interim or a Final Charging Order under the Land Registration Act 2002 (“the LRA 2002”) is the entry of a restriction on the register. Section 40 (1) of the LRA 2002 provides that “A restriction is an entry in the register regulating the circumstances in which a disposition of a registered estate or charge may be the subject of an entry in the register.” 

The Land Registration Rules 2003 (“the LR Rules”) provide for standard form restrictions and they are contained in Schedule 4 of the LR Rules. Form K is the standard form to be used where an Interim Charging Order has been made.

Standard Form K is as follows: –

Form K (Charging order affecting beneficial interest—certificate required)

No disposition of the [choose whichever bulleted clause is appropriate]

—registered estate, other than a disposition by the proprietor of any registered charge registered before the entry of this restriction,

[or]

—registered charge dated [date] referred to above, other than a disposition by the proprietor of any registered sub-charge of that charge registered before the entry of this restriction,

is to be registered without a certificate signed by the applicant for registration or their conveyancer that written notice of the disposition was given to [name of person with the benefit of the charging order] at [address for service], being the person with the benefit of [an interim or a final] charging order on the beneficial interest of [name of judgment debtor] made by the [name of court] on [date] (Court reference [insert reference]).

It is very important to understand the effect of a Standard Form K Restriction. It merely requires that before a purchaser of a property, which is the subject of an Interim or Final Charging Order, can register the transfer of the property to him: –

  1. The purchaser (the applicant for registration of the transfer) must give written notice of the transfer to the person who has the benefit of the Charging Order (the judgment creditor), and;
  2. The purchaser must send to the Land Registry a certificate that this has been done.

The notification of the transfer to the judgment creditor can be given AFTER the transfer has taken place and, one assumes, AFTER the proceeds of the sale have passed into the hands of the judgment debtor. It follows that the Restriction is Standard Form K provides no real or effective protection for the judgment creditor. On receiving the notification that the transfer has taken place, there is very little the judgment creditor can do other than to try and trace the proceeds of sale and seek a new Charging Order in respect of the judgment debtor’s interest in any newly acquired property.

What to Do?

The White Book urges judgment creditors to apply for a non-standard restriction under section 46 of the LRA 2002 at the hearing to consider whether or not to make the interim order final.   Standard Form Restrictions are entered into the Register by the Registrar under section 42 of the LRA 2002. Section 46 grants courts the power to require the registrar to enter a restriction and it is open to the judgment creditor to suggest a form of words that would require certification by an applicant for registration that he had given notice of the proposed transfer 14 days before the date of the transfer, thus giving the judgment creditor time to consider what he wants to do to protect his position. In those circumstances the judgment creditor could insist that the judgment debtor’s solicitor give an undertaking on his client’s behalf that the debt (or some of it) will be discharged out of the proceeds of sale or face the prospect of an application for an injunction stopping the transfer going ahead.

Take Notice!

By robh@wearefinally.co.uk,

paul_moulderBy Paul Moulder

As from 1 December 2016

All those acting for Landlords of Assured Tenants (or Assured Tenants) should note that, by Statutory Instrument, a new prescribed form has been specified for use from 1 December 2016.

See The Assured Tenancies and Agricultural Occupancies (Forms)(England) (Amendment No. 2) Regulations 2016 and the Schedule to the regulations (for the new form).

As you know, the court will not entertain proceedings for a claim for possession under Ground 8 of the Housing Act 1988 unless a Notice complies with the legislation and is in the prescribed form.

Keep me in Suspense – Applying for a Warrant of Possession”?

By robh@wearefinally.co.uk,

paul_moulderBy Paul Moulder

 

Cardiff County Council v Lee [2016] EWCA Civ 1034

If a Landlord has the benefit of a ‘suspended’ possession order, and it is breached, can it go straight for a Warrant of Possession, simply on application?

The Court of Appeal has confirmed that a further permission step will now be required to enforce a suspended possession order.  The former practice of simply applying for a Warrant of Possession, upon breach of a suspended possession order, by form N325, cannot continue.  It will now have to follow, if permission be granted, an application pursuant to CPR 23 and a request for permission, pursuant to CPR 83.2.

Facts

The tenant was granted a ‘secure’ tenancy on 19 January 2009.  On 19 March 2013, the respondent made a claim for possession, on grounds of breach of tenancy, and nuisance and annoyance.  On 3 September 2013, a possession order was made, suspended for 2 years, on terms of compliance with the tenancy terms.  In 2015 there occurred a 3-month period, during which Cardiff alleged there were further breaches.

Thinking that the case fell within CPR 83.26, Cardiff made a Request for a Warrant of Possession (form N325).  The form does not require permission from the court.  The warrant was issued, notice of an appointment given and an application for stay made by the tenant.

The District Judge dismissed the application.  She found that the tenant had breached the tenancy terms, and that the issue of the warrant was within CPR 83.26.  The tenant appealed to the circuit judge, but that appeal was dismissed.

By the time of the CA appeal, the parties were agreed that CPR 83.2 applied, and that there should be a ‘permission’ stage.  Cardiff had amended its procedures.

Court of Appeal

Lady Justice Arden said that the case turned on one issue:  can the court proceed to validate a warrant of possession where a landlord who seeks to enforce his right to possession because of an alleged breach of a suspended order has not complied with CPR 83.2?

The judgment of the Court in Southwark LBC v Brice, that the issue of a warrant was an administrative and not a judicial process had put the onus on the tenant to apply for a stay, if he disputed the breach.

CPR 83.2 provided an important protection for tenants.  The scheme was clear that all landlords in the case of conditional orders for possession should have to establish that the condition which entitles them to possession has been established.

In the circumstances of this case, the tenant had had the procedural protection of a hearing, on the hearing of his application for a stay.  CPR 3.10, which allows a court to make an order to remedy an error of procedure, and provides that an error of procedure such as a failure to comply with a rule or practice direction does not invalidate any step, applied.

Interestingly, Lee argued that CPR 3.10 did not apply here.  The submission was that the specific requirement in CPR 83.2 could not be gainsaid by a general discretion given to the court.  It was argued that here no application had been made pursuant to CPR 83.2.  The Court disagreed, and preferred a broader ambit to the concept of ‘error of procedure’.  Clearly the warrant of possession and the N325 application were connected in terms of procedure.

Comment

The decision is of considerable importance to landlords, both social and private, who will now have a further ‘hurdle’ to cross before obtaining possession, after breach of a suspended possession order.

Although on these facts, the court was prepared to utilize CPR 3.10, it is likely that landlords in the future will be taken to be aware of the need to now apply for permission, and of the “important protection for tenants” contained in CPR 83.2, and therefore an application for permission to apply for a warrant will be required.

Property transaction fraud

By robh@wearefinally.co.uk,

Jonathan Lester B&W

Conveyancers acting for sellers need to be on their guard 

 

By Jonathan Lester

Following the decision in Purrunsing v A’Court & anor. 2016, the fiduciary duties owed to a buyer of property are the same for the seller’s conveyancers as they are for the buyer’s.

Introduction

If all goes well in a typical conveyancing transaction, there will come a point when the buyer sends the purchase monies to his solicitor to hold pending completion. The solicitor holds those monies on a resulting trust for the buyer. The solicitors will, at the appropriate time, then send the purchase price over to the seller’s solicitors to complete the transaction. At the point the seller’s solicitors receive these monies, they too may be held on trust for the buyer, if held to the seller’s solicitors’ order, before passing them onto the seller.

If the seller’s solicitors go on to disburse the buyer’s money without securing a genuine completion of the transaction because, for example, the seller is in fact a fraudster and not the true owner of the property, they will be in breach of trust and liable to the buyer; they will have released the buyer’s funds to someone who is not the actual owner of the property and, in doing so, will have dealt with the funds in a way which is outside the terms of the trust on which they are held. Accordingly, whilst the seller’s solicitor does not act for the buyer and owes no contractual or tortious duty to him, it is established that he can owe a fiduciary duty.

When faced with a claim for breach of trust, a trustee may seek relief pursuant section 61 of the Trustee Act 1925. This provides that the Court may excuse a trustee from what would otherwise be strict liability for breach of trust, if it appears to the Court that the trustee has acted honestly and reasonably and ought fairly to be excused. When considering whether a trustee has acted reasonably, the standard to be applied has been established as just that: “reasonableness, not perfection”. What is reasonable will, as ever, depend upon all the circumstances of the case.

A novel question

On 14 April 2016, the Chancery Division handed down its Judgment in Purrunsing v A’Court & anor. [2016] EWHC 789 (Ch), which dealt with a novel question: in a claim for breach of trust by an intending purchaser of property who has been the victim of a fraudulent sale, is the standard of reasonableness to be applied to the seller’s solicitor, who has no contractual or tortious duty to look out for the buyer’s interests, the same as would apply to the buyer’s own solicitor, or should the seller’s solicitor have to meet some lower test?

The facts

Purrunsing concerned the sale of 35 Merton Hall Gardens in Wimbledon (the “Property”) from Mr Nicholas Dawson to the Claimant. What no one knew was that Mr Dawson was not in fact the real Mr Dawson but a fraudster pretending to be him.

The fraudster was able to pull off the fraud essentially by forging a British passport. Using this document, he was able to retain solicitors (“AAC”) to act for him in the sale of the Property. The fraudster told AAC that he was not living at the Property, but had inherited it some years prior and was looking for a quick sale as he needed money quickly. The fraudster was also able to provide utility bills and a bank statement in the name of Mr Dawson. The documents did not bear the Property’s address, nor the address recorded at Land Registry for Mr Dawson. However, this did not raise any suspicions with AAC.

A sale was agreed in principle to a Mr Crompton. A few further discrepancies then emerged between information given by the fraudster and the facts which were discovered by Mr Crompton’s solicitors as part of their pre-contract investigations. These were not exactly overwhelming in their suspiciousness. However, when they sought evidence of Mr Dawson’s place of work, ostensibly a hospital in Abu Dhabi, the fraudster promptly instructed AAC to abort the sale. As the Court remarked, “It ought to have been apparent to [AAC] that it was exclusively the request for information about Mr Dawson’s employment that caused him to withdraw from the sale…

The fraudster then found a new buyer in a Mr Abrahams. Mr Abrahams’ licensed conveyancer made a routine enquiry concerning the extent to which AAC had been able to verify the seller’s true identity but received a reply which ought to have been unsatisfactory. AAC simply confirmed that they had no prior knowledge of Mr Dawson but had seen his passport and utility bills.  Unfortunately for Mr Abrahams, his conveyancer did not press the issue and the transaction completed, with the fraudster making off with the purchase price and the apparent transfer being in fact a complete nullity.

The claims

The Claimant brought claims against his own conveyancer for breach of contract, breach of tortious duty, and breach of trust. The Claimant also brought a claim against AAC for breach of trust (the only claim that could be made against them).

AAC sought relief pursuant to section 61 of the Trustee Act 1925 against the claim for breach of trust. AAC’s honesty was never in question. The issue therefore was whether their conduct had been reasonable.

Standard of reasonableness

It was argued for AAC that the standard of reasonableness to be expected in relation to them ought to be lower than the standard to be expected of the Claimant’s own conveyancer.  After all, it was not AAC’s place to look after the interests of the Claimant – they did not act for him. How could it therefore be justified to hold AAC up to the same standard as the Claimant’s own conveyancer, when ascertaining what each ought to be expected to do in order to verify the fraudster’s identity?

His Honour Judge Pelling QC rejected the argument that AAC should be held accountable to some lower standard than that applying to the Claimant’s own conveyancer. It was of course true that AAC had no duties to the Claimant in contract or tort. However, where the law imposed the resulting trust, making AAC a trustee of the Claimant’s funds, AAC was as much a trustee as anyone could be, and there was no logical reason to apply different standards to AAC and the Claimant’s own conveyancer, simply on the basis that the latter would owe other duties to the Claimant in addition those arising in virtue of the trust.

He said, “Once it is found or admitted that a vendor’s solicitor is a trustee of the purchase money and has parted with it in breach of trust, there is no obvious justification for interpreting s.61 [of the Trustee Act 1925] more leniently in respect of such a breach of trust by a vendor’s solicitor than would be the case in relation to such a breach by a purchaser’s solicitor.  In my judgment, once it is established (as it has been in this case) that a vendor’s solicitor has acted in breach of trust in relation to purchase money, there is no logical basis for concluding that [the recognised standard of “reasonableness, not perfection”] should apply to a purchaser’s solicitor but not a vendor’s solicitor […]. It follows therefore that for each the same standard of reasonableness applies though, of course, what each has to do in order to fulfil that standard may be different because of the different roles that each has in relation to the transaction.

Application of the standard

The crux of the issue was that AAC had not done enough to establish that the person pretending to be Mr Dawson was the real Mr Dawson. The Proceeds of Crime Act 2002 and Money Laundering Regulations 2007 imposed duties on AAC to adequately determine the identity of its clients. The Law Society’s Property and Registration Fraud Practice Note confirmed (if confirmation was needed) that these duties included “looking at all the information in the retainer and assessing whether it is consistent with a lawful transaction. This may include considering whether the client is actually the owner of the property they want to sell“.  The Court found on the facts that AAC had failed in these duties, in light of the several discrepancies and absence of any document specifically linking Mr Dawson to the Property, and that this failure at least contributed to the risk of the fraud succeeding.

It was of course argued for AAC that its duties under the Money Laundering Regulations were not actually owed to the Claimant. However, this was held to be irrelevant. It was not a case of AAC being liable to the Claimant for breach of its duties under the Regulations; rather, its compliance or otherwise with the Regulations was an indication of how reasonable its conduct had been.

Conclusion

The decision may come as a surprise. It means that, in a claim for breach of trust arising out of a property transaction fraud, conveyancers acting for the seller may well be subject to the same standards of diligence even though the potential victim of the fraud is not the party to whom they owed any contractual or tortious duties.

When acting for the seller, conveyancers therefore cannot let their guard down just because it is not their client who would be at risk of fraud. Relying on a “box-ticking” approach to customer due diligence and failing to run discrepancies to ground could see them on the hook for breach of trust further down the line.