Hughmans Solicitors v Central Stream Services Ltd (in liquidation) and another

Charging order – Registration – Respondents compromising claim against owner of property – Tomlin order providing for respondents to receive net proceeds of sale of property after discharging specified debts of owner provided that respondents not to receive less than £100,000 – Claimant solicitor obtaining charging order for judgment debt against property owner and registering unilateral notice – Sale of property realising less than £100,000 – Whether respondents beneficially entitled to entire net proceeds – Whether claimant’s rights having priority – Claim dismissed The claimant firm of solicitors acted for the owner of a property in proceedings brought against him by the first respondent company. In 2008, the second respondent, as the first respondent’s liquidator, compromised those proceedings by a Tomlin order under which the first respondent agreed to accept the net proceeds of sale of the property, following payment of certain debts of the owner, in settlement of its claim. A schedule set out the order in which the various debts were to be discharged, and after which any remaining balance was to go to the first respondent, “provided always that [the first respondent] shall receive not less than £100,000”. The listed debts included a mortgage on the property and the reasonable fees and disbursements of the claimant in connection with the action. The claimant subsequently obtained a judgment against the owner of the property for more than £19,000 in professional fees for work done on the case. A charging order securing that sum was granted over the property in the claimant’s favour. The claimant entered a unilateral notice at the Land Registry to protect the charging order but later agreed to remove the notice, so as to enable the property to be sold, provided that the second respondent’s solicitors retained a sufficient sum out of the net proceeds to protect its claim to priority. The sale of the property produced net proceeds of only £49,104 after the mortgage was discharged. The claimant applied to the court for an order for payment out of the proceeds of the £19,000 owed to it. The respondents contended that they had a prior secured right to the net proceeds under the contractual terms of the schedule to the Tomlin order, by way of equitable charge, declaration of trust or estoppel. Held: The claim was dismissed. (1) The schedule to the Tomlin order had created a proprietary beneficial interest in the property in favour of the first respondent. That interest arose by way of trust rather than as an equitable charge. Viewing the schedule as a whole, it sufficiently disclosed an intention to confer a proprietary interest on the first respondent. The object and intent of the compromise recorded in the schedule was for the owner of the property to give to the first respondent, in lieu of its monetary claim in the proceedings, the whole of his own beneficial interest in the property, subject only to the payment of certain of his debts out of any net proceeds in excess of £100,000. There was a sufficiently disclosed intention that the first respondent was thenceforth to be the beneficial owner of the property, subject to the mortgagee’s legal charge, save only for that part of the net proceeds in excess of £100,000 necessary to discharge the owner’s debts. The terms of the schedule did not result in any appropriation of the property or its proceeds of sale for the debts of the owner. Instead, it created a mechanism to ensure that the owner’s reservation of rights to use the proceeds for payment of debts should not prevent the first respondent from realising at least £100,000, if otherwise available after satisfying the legal charge: Palmer v Carey [1926] AC 703 and Tradegrow (UK) Ltd v Wigmore Street Investments Ltd (in administration) [2011] EWCA Civ 268 considered. (2) The basic rule was that priority between competing interests was determined by the order in which the equitable interests were created: see section 28 of the Land Registration Act 2002. One exception was that priority for a later interest over an earlier one could be conferred by registration, including by way of notice, but only if the later interest was a disposition made for valuable consideration: see section 29. Even assuming that the claimant’s final charging order was a registrable disposition of a registered estate, and that registration of a unilateral notice constituted “completion of the disposition by registration”, within section 29(1), that disposition had not been made for valuable consideration. The recipient of a charging order under the Charging Orders Act 1979 was a volunteer, as chargee, since the debtor received no consideration from the judgment creditor at the time when the charge was created: Scott v Lord Hastings (1858) 4 K&J 633 and United Bank of Kuwait plc v Sahib [1997] Ch 107; [1996] EGCS 19 applied. Section 3(4) of the 1979 Act could not be read as creating a presumption or deeming provision that a charge imposed by a charging order should be treated as having been created for valuable consideration. (3) Accordingly, the claimant’s subsequent charging order was ineffective to confer priority over the first respondent’s beneficial interest in the property. Given that the net proceeds of sale of the property, after satisfying the mortgagee’s charge, were less than £100,000, the first respondent was entitled to the whole of the net proceeds. Mark Warwick (instructed by Hughmans Solicitors) appeared for the claimant; Daniel Lewis (instructed by Moon Beever Solicitors) appeared for the defendant. Sally Dobson, barrister