Charging Orders Act 1979 – Claimants obtaining charging order over properties belonging to debtor – Debtor subsequently declared bankrupt – Claimants incurring legal costs in opposing third party claims to the properties – Whether such costs payable to claimants out of proceeds of sale – Whether charge to be fully equated with equitable charge
In September 1992 the claimants, who owned leasehold flats in London SW17, obtained a money judgment (the 1992 judgment) against the freeholder (the debtor) for various breaches of covenant. In January 1993 a charging order was made in the claimants’ favour, whereby it was ordered that the debtor’s beneficial interest in certain properties should stand charged with the payment of £56,500 due under the 1992 judgment, together with interest and further costs amounting to £541. However, some six years passed before the claimants were able to take possession and sell the properties, during which time the debtor was declared bankrupt and the claimants were obliged to engage in extensive, though ultimately successful, litigation (the third party litigation) with various persons who claimed to be interested in the properties.
As against the defendant, the debtor’s trustee in bankruptcy (the trustee), the claimants sought an order that the costs of bringing the third party litigation should be paid to them out of the proceeds of sale. The trustee, while not disputing the reasonableness of those costs, resisted the application on the ground that, on the proper construction of section 1(1) of the Charging Orders Act 1979, the only costs capable of being secured by the charge were the costs, ascertained or ascertainable, of securing the payment of the money due under the 1992 judgment.
Held: Judgment for the claimants.
The claimants had correctly founded their case on section 3(4) of the 1979 Act, which, for the purposes of effect and enforcement, equated a charge imposed under the Act with an equitable charge created in writing by the debtor. It was clear that an equitable mortgage or charge did operate to secure the costs reasonably incurred in warding off claims, like those under consideration, which were directed against the title of the debtor to the property in question, as the chargee in such a case was acting for the benefit of the equity of redemption as much as for that of the security: see per Nourse LJ in Parker-Tweedale v Dunbar Bank plc and others (No 2) [1991] Ch 26 at p33. The argument that the same rule applied to charges imposed under the 1979 Act was strongly supported by observations of Millet LJ in Ezekiel v Orakpo [1997] 1 WLR 340 at p346. Section 1(1) of the Act governed the nature of the debts in respect of which a charging order could be made. The right to add to the security further sums for interests and costs was governed, not by section 1(1), but by the common law as applied by section 3(4): A & M Records Inc v Darakdjian [1975] 1 WLR 1610; Glenister v Rowe [1999] 3 WLR 716 distinguished.
Stephen Atherton (instructed by Wakefields) appeared for the claimants; Adam Goodison (instructed by Morgan Cole) appeared for the defendant.
Alan Cooklin, barrister
