Lloyds TSB plc v Mesologgides and another
Mr Stephen Tomlinson QC, sitting as a deputy judge of the High Court
Bank obtaining charging order over husband’s interest in jointly-owned matrimonial home – Husband declared bankrupt – Wife taking transfer of husband’s former share from trustee in bankruptcy on payment of £40,000 – Whether wife fixed with constructive notice of charging order – Whether bank had in any event secured priority under the rule in Dearle v Hall (1828) 3 Russ 1
The defendant married couple (H and W) were at all material times joint registered proprietors of a house in Hornsey, London N2. In June 1992 the claimant bank, having an unsatisfied judgment debt against H for £83,423, obtained an order (charging order nisi) that, failing satisfaction of the debt, H’s beneficial interest in the house would stand charged accordingly. On 1 July 1992 the bank’s solicitor wrote to H enclosing a copy of the charging order nisi. On 3 July 1992 the bank lodged a caution against the registered title to the house. In September 1992 the charging order was made absolute, following which the bank lodged a further caution. The bank’s solicitor then sent a copy of the charging order absolute to W.
In 1996 H was made bankrupt, and in April 1997 his beneficial interest vested in K, his trustee in bankruptcy. In September 1997 K’s solicitor brought proceedings for possession of the house and obtained office copies from the Lands Registry. It then made contact with the bank’s solicitor and learned of the charging order. In the ensuing correspondence, the bank became aware for the first time of H’s bankruptcy.
Bank obtaining charging order over husband’s interest in jointly-owned matrimonial home – Husband declared bankrupt – Wife taking transfer of husband’s former share from trustee in bankruptcy on payment of £40,000 – Whether wife fixed with constructive notice of charging order – Whether bank had in any event secured priority under the rule in Dearle v Hall (1828) 3 Russ 1 The defendant married couple (H and W) were at all material times joint registered proprietors of a house in Hornsey, London N2. In June 1992 the claimant bank, having an unsatisfied judgment debt against H for £83,423, obtained an order (charging order nisi) that, failing satisfaction of the debt, H’s beneficial interest in the house would stand charged accordingly. On 1 July 1992 the bank’s solicitor wrote to H enclosing a copy of the charging order nisi. On 3 July 1992 the bank lodged a caution against the registered title to the house. In September 1992 the charging order was made absolute, following which the bank lodged a further caution. The bank’s solicitor then sent a copy of the charging order absolute to W.
In 1996 H was made bankrupt, and in April 1997 his beneficial interest vested in K, his trustee in bankruptcy. In September 1997 K’s solicitor brought proceedings for possession of the house and obtained office copies from the Lands Registry. It then made contact with the bank’s solicitor and learned of the charging order. In the ensuing correspondence, the bank became aware for the first time of H’s bankruptcy.
In November 1997 K was informed by the solicitor acting for a third party that W had been provided with funds to enable her to purchase the share that had vested in K. Subsequently, and with a view to reaching a compromise, H, W and K executed an undated document (the HWK document) purporting to transfer the house to W alone, free of any interest in favour of K, in consideration of the sum of £40,000 received by K from W. Clause 6 of the HWK document recited that W was deemed to purchase with full knowledge of any registry entries made against the title number of the property. The purported transfer was never registered.
In summary proceedings brought by the bank and heard before a master of the Chancery Division in July 1999, it was held that the charging order in favour of the bank took priority over the interest asserted by W under the HWK document, the master having found that W had taken with constructive notice of the charging order. W appealed, contending that the issue of constructive notice could only be determined at a full trial, there being insufficient evidence to support the master’s finding. The judge proceeded on the basis that: (i) the HWK document was solely intended to effect a transfer to W of the beneficial interest previously owned by H; and (ii) at the time of execution of that document clause 6 necessarily fixed W with constructive notice of the charging order.
Held: The appeal was dismissed.
1. The only reason advanced against the giving of summary judgment was the possibility that an earlier transfer had been made of which W was unaware. However, such a possibility was fanciful, the overwhelming probability being that the HWK document was the product of the first occasion upon which the parties attempted to reduce their wishes to writing. Even if an earlier transfer had taken place, it could not have occurred without W acquiring constructive notice of the charging order, the reason being that such a transaction cried out for the instruction of solicitors, whose routine searches would undoubtedly have brought the order to their attention. It was immaterial that W may not have had actual knowledge of some defect that called for further inquiry: see per Lindley LJ in Bailey v Barnes [1894] 1 Ch 25 at p35.
2. There was, moreover, considerable force in the bank’s alternative submission (based on the first limb of the rule in Dearle v Hall (1828) 3 Russ 1) that it had in any event secured priority when it wrote to H and W in July and September 1992, such letters amounting to the required written notice to the trustees in office at the time.
James Ayliffe (instructed by Cameron McKenna) appeared for the claimant; Jeffrey Littman (instructed by Bryan O’Connor & Co) appeared for the defendants.
Alan Cooklin, barrister
