Lowry Trading Ltd and another v Musicalize Ltd and others

Sale of land – Charging order – Beneficial interest – Claimants obtaining summary judgment against defendants – Court making interim charging order against defendants’ beneficial interest in property – Claimants applying for final charging order – Whether defendants having beneficial interest under vendor/purchaser trust capable of being subject of charging order – Whether third party vendor affirming contract of sale – Application dismissed By a contract dated 9 January 2019, the third party agreed to sell a substantial residential property known as Openshaw, in Orpington, Kent, to the second and third defendants for £2.65m. Under the Standard Conditions of Sale, 5th edition, the buyer was not entitled to transfer the benefit of the contract and the seller could not be required to transfer the property to anyone other than the buyer. The contract provided for completion on 30 September 2019. The second and third defendants paid the deposit of £100,000. The third party agreed to let the second and third defendants into possession of the property pending completion. She granted them an assured shorthold tenancy at £8,000 a month. They failed to complete on 30 September and the third party served a notice to complete the contract within 10 working days of the notice to complete and time was of the essence. The defendants did not proceed to completion but the third party did not rescind the contract. In July 2024, the claimants obtained summary judgment against the defendants and obtained an interim charging order for over £6.3m against the second and third defendants’ beneficial interest in the property, after which the third party purported to rescind the contract by letter of 9 July 2024. The claimants contended that the defendants had a beneficial interest as purchasers under a contract of sale of land which had never completed and remained in force. Held: The application was dismissed. (1) The contract for the sale of the property immediately gave rise to a trust with the third party as trustee and the second and third defendants as beneficiaries. The trust arose through the doctrine of conversion. It was a trust “to give effect to the contract” and, as such, it was governed by the terms of the contract. Although as against third parties it created an equitable interest, the proprietary consequences between the parties themselves were limited, because the vendor retained a lien over the property for the price until it was paid. Under the vendor’s common law lien, the vendor was entitled to possession of the “trust” property until payment of the purchase price. The interest acquired by the purchaser against the vendor could not be passed onto a sub-purchaser: Berkley v Poulett [1977] 1 EGLR 86, Southern Pacific Mortgages Ltd v Scott [2014] UKSC 52; [2015] EGLR 3 and Ezair v Conn [2020] EWCA Civ 687; [2020] PLSCS 103 applied. (2) On termination of a contract for sale of land the vendor/purchaser trust collapsed. Clearly, if the contract for sale in this case had been terminated, the second and third defendants would have no beneficial interest in the property and there would be no question of a final charging order being made. The third party relied on a letter of 9 July 2024 as rescinding the contract. An innocent party faced with a breach of contract by the other party was entitled to some “thinking time” to decide whether or not to rescind the contract. However, on any view, that letter came too late to be effective. It was apparent that her then solicitors advised the third party to rescind. She was aware of the failure to complete and aware of her right to rescind but she wished to proceed. The purpose of the assured shorthold tenancy was to allow the defendants into possession pending completion. The tenancy was allowed to continue on the basis that the completion would take place at some point. The third party was relatively relaxed about the completion date so long as she was in receipt of £8,000 a month in rent. She had affirmed the contract and could not resile from that affirmation. (3) A charging order was not possible against this kind of beneficial interest given the terms of the trust. The contract/trust itself prohibited the assignment or sub-sale of the defendants’ interest. They could not create an equitable charge over their interest. By section 3(4) of the Charging Orders Act 1979, a charge imposed by a charging order was enforceable in the same way as an equitable charge created by the debtor under his hand. The second and third defendants could not create an equitable charge over their interest. In the circumstances now prevailing, the contract for sale of the land was no longer capable of specific performance by application by the defendants. The trust had ceased and the defendants no longer had a beneficial interest. Accordingly, the interest of the second and third defendants in the property (if they had an interest) was not capable of being the subject of a charging order. (4) If that was wrong, the court had to consider its discretion whether or not a charging order should be granted. Section 1(5) of the 1979 Act provided that the court had to consider, in deciding whether or not to make a charging order: the personal circumstances of the debtor; and whether or not any other creditor was likely to be unduly prejudiced by the making of the order. The third party was a creditor and the court was entitled and obliged to take her position into account. She was entitled to expect to put the property on the market and sell for its current market value. An order for specific performance against her was no longer possible. The second and third defendants did not have the funds to purchase the property and had no interest in it.  A judgment creditor would normally enforce a charging order over land by applying for sale of the land. In the present case, it was difficult to see how the land could ever be sold, particularly as the third party retained the right to possession of it. As soon as a court ordered the sale of the property to another party, the present contract would cease to be specifically enforceable so that any subsisting trust would cease. In the circumstances, the third party would be unduly prejudiced if a charging order were granted. Therefore, the court would refuse to make the charging order final and would dismiss the application. The interim charging order would be discharged.  Jia Wei Lee (instructed by ARMA Litigation) appeared for the claimants; Daniel Gatty (instructed by Wykeham-Hurford Sheppard & Son) appeared for the third party. Eileen O’Grady, barrister Click here to read a transcript of Lowry Trading Ltd and another v Musicalize Ltd and others