Bankruptcy – Disclaimer of property by trustee in bankruptcy – Vesting order – Applicant council having charge over bankrupt’s disclaimed property – That charge having priority over further charge in favour of second and third respondents – Property derelict and worth little – Whether applicants entitled to vesting order in terms that further charge extinguished – Appeal dismissed
In 2008, the applicant council carried out works to a derelict former shop close to the town centre of Wisbech, Cambridgeshire, to make the property safe, pursuant to section 78 of the Building Act 1984. The applicant obtained a registered charge over the property, under section 107 of the 1984 Act, in respect of the £72,000 cost of those works. That statutory charge ranked in priority to an earlier charge held by the second and third respondents, which dated from their sale of the property to the bankrupt in 2004; they had accepted the charge to secure the £77,000 purchase price, plus interest, in lieu of its immediate payment.
In 2010, the bankrupt’s trustee in bankruptcy served a notice disclaiming the property pursuant to section 315 of the Insolvency Act 1986. The applicants applied to the court, as a party claiming an interest in the disclaimed property, for an order vesting it in them pursuant to section 320 on terms that the second and third respondents be excluded from any interest in or over it and that their registered charge be deleted. The valuation of the property at that time was only £10,000 on the applicants’ evidence or £35,000 to £40,000 in the evidence of the second respondent. The district judge made a vesting order in the applicants’ favour, but on terms that preserved the second and third respondents’ rights.
The applicants appealed. They contended that, since their own charge would be extinguished on their becoming the freehold owners of the property, the preservation of the second and third respondents’ charge would result in them taking all the benefit of any value in the property, thereby effectively reversing the admitted priority of the applicants’ charge. In response to a suggestion that the vesting order could expressly preserve the applicants’ own charge, they submitted that this would be insufficient, since they would potentially be unable to recoup any further sums that they might expend in redeveloping the property for sale.
Held: The appeal was dismissed.
The district judge had failed to address the potential implications of her order for the applicants’ right to recover the costs of their works. She had therefore failed to take into account a material consideration, which impugned the exercise of her discretion under section 320(3) and made it appropriate for the appeal court to consider the matter afresh.
There was no authority for the proposition that, unless the other chargees also applied for a vesting order in their favour, the court was bound to set aside their charge when making an order in favour of a council that held a charge for the cost of works: Hackney London Borough Council v Crown Estate Commissioners [1996] 1 EGLR 151; [1996] 20 EG 118 distinguished. So far as possible, the interests of third parties should be preserved on the making of a vesting order: Hindcastle Ltd v Barbara Attenborough Associates Ltd [1996] 1 EGLR 94; [1996] 15 EG 103, concerning the provisions for disclaimer, applied.
It was not appropriate in the instant case for the court to make an order in terms that extinguished the rights of the second and third respondents. The applicants’ submissions in that regard were based on a mistaken premise. Their interests as chargee and freeholder would not merge in equity in the absence of evidence that this was intended or that it would be to their benefit. If there was no evidence of intention, the court would presume an intention to keep the charge alive where that was in the chargee’s interest: BOH Ltd v Eastern Power Networks plc [2011] EWCA Civ 19; [2011] [2011] 5 EG 104 (CS), Ingle v Vaughan Jenkins [1900] 2 Ch 368 and Capital & Counties Bank Ltd v Rhodes [1903] 1 Ch 631 applied. Since it was manifestly in the applicants’ interest to preserve the benefit of their charge on the vesting of the freehold in them by order of the court, the court would presume an intention to that effect. Moreover, the court could expressly provide that the applicants’ charge should be preserved as a term of the vesting order.
The applicants’ objections to an order that expressly preserved both charges were purely speculative. There was no evidence of a realistic prospect of the property being worth more than the £72,000 secured to the applicants or as to any likely further costs that they expected to expend. It would be wrong to deprive the second and third respondents of their interest, against their opposition, on the grounds of a purely hypothetical suggestion as to what other development might take place.
Becket Bedford (instructed by the legal department of Fenland District Council) appeared for the claimant; Philip Flower (instructed by Simon Rodkin Litigation Solicitors) appeared for the defendants.
Sally Dobson, barrister
