Enforcement: charging orders and bankruptcy

In McLinden v Lu [2021] EWHC 3171 (Ch), the High Court has provided useful guidance on the approach to be taken by the court in an application for a charging order when questions of beneficial ownership arise. The guidance was provided in the context of a wider bankruptcy dispute. The defendant, Shiao-Chen Lu, successfully obtained judgment against Mohamed Munaver Khan in 2010. Khan failed to satisfy the judgment debt and in 2011 Lu brought enforcement proceedings against Khan. She successfully applied for charging orders to be made in respect of two properties situated in Botley in Oxfordshire and Tooting in London that were registered in Khan’s name. Lu had been represented throughout the course of her litigation by her solicitor, the claimant, Jon McLinden. During the course of the 2011 proceedings, a dispute arose as to ownership of the beneficial interest in the Tooting property. Lu asserted that Khan was the owner. Khan asserted that Fazal Khair Khan was the owner. Khair Khan was joined as a party and claimed ownership of the beneficial interest in the Tooting Property. At the material time, it was the practice of Central London County Court to resolve questions of beneficial ownership that arose on an application for a charging order at the final enforcement stage – namely, upon a subsequent application to enforce the charging order by way of orders for possession and sale. In December 2013, Lu petitioned for Khan’s bankruptcy. Part of Khan’s debt consisted of Lu’s legal costs incurred in the 2011 proceedings. Lu herself had failed to pay her solicitors’ professional fees and they subsequently obtained judgment for the same. In 2019, her solicitor applied for a charging order over Lu’s equitable mortgage over the Tooting property, created by the 2011 charging order. An interim charging order was granted. At the hearing of the application to make the interim charging order final, the application was opposed by representatives of the estate of Khair Khan, who claimed that the question of the beneficial ownership of the Tooting property was still unresolved. The representatives applied for a determination as to whether the estate had a beneficial interest in the Tooting property and standing to impugn the restriction which had been entered in the proprietorship register in respect of it. Both applications were transferred to the High Court and Lu was required to disclose all relevant documents pertaining to the 2013 petition. It was the content of her disclosure that led to the preliminary hearing before the High Court. The High Court found that the approach adopted by Central London County Court to resolving issues of beneficial interest only at the stage when an application was made to enforce the charging order by way of an order for sale was wrong. It observed that the jurisdiction to make a charging order under the Charging Orders Act 1979 could only be exercised in respect of a beneficial interest, usually in land, held by the judgment debtor. Accordingly, before granting a charging order, the court must be satisfied that the judgment debtor held a beneficial interest in the property to be charged and, if there was a dispute in that regard, it had to be resolved before the charging order could be made final. Elizabeth Dwomoh is a barrister at Lamb Chambers