Wife claims to have improved husband’s house (a) before his desertion (b) between desertion and bankruptcy, and (c) thereafter–Claim under (a) based on wife’s work in husband’s business–Too remote–Claim under (b) based on payments made (in effect) out of maintenance received from husband, valid to the extent of £227–No claim under (c)–Section 37, Matrimonial Proceedings and Property Act 1970 applies only as between husband and wife, not as between one spouse and the other’s assignee in bankruptcy
By this motion
the trustee of the property of Mr Wesley Altamont Samuels, a bankrupt, sought a
declaration that the freehold premises known as 60 The Chase, Clapham, London,
were the property of the bankrupt now vested in the trustee pursuant to section
38 of the Bankruptcy Act 1914; alternatively, a declaration as to the
respective interests of the trustee and the respondent, Mrs Rosanna Samuels, in
the premises.
Mr E C
Evans-Lombe (instructed by Booth & Blackwell) appeared for the trustee, and
Mr R N Thomas (instructed by Kanter, Jules & Co) represented the
respondent.
Giving
judgment, WALTON J said that the bankrupt married the respondent on October 6
1966. At that time he was running a small wholesale wine-distributing business
in which Mrs Samuels worked hard for no direct remuneration. Between them,
however, they took some £3,000 per annum out of the business for their living
and other expenses. The business was ultimately wholly unsuccessful, and Mr
Samuels was made bankrupt upon a creditor’s petition, the act of bankruptcy
having been committed on June 13 1972. The receiving order was made on
September 28 1972, and the actual adjudication of Mr Samuels as a bankrupt was
made on the 30th of that month. This was a case where hard evidence was in a
good many respects lacking, and that was particularly so in relation to the
conduct of the business, in particular as to the precise point of time at which
it became insolvent. The total deficiency was £4,740.20, and this was probably
building up over a considerable period of time; ultimately he (his Lordship)
was of the opinion that at all material times the business, after making
provision for the £3,000 per annum drawn out by Mr and Mrs Samuels, was
insolvent.
The present
proceedings concerned a property, 60 The Chase, which was acquired by Mr
Samuels, together with a Mr Newell, on March 25 1970 for £7,000. The position
was that the vendor of the house had received an intimation from the local
authority that it was essential that he should carry out certain structural works
which (as ultimately effected) cost in all something of the order of £2,000. He
was unwilling to do this. Mr Newell was a tenant of the property, and he joined
with Mr Samuels in purchasing the property from the vendor, the purchase price
being left by the vendor on a 100 per cent mortgage of the property. Mr and Mrs
Samuels already had a matrimonial home together in Kilburn, but Mr Samuels
intended that 60 The Chase should be a, if not the, matrimonial home as well.
At some stage, which it was not possible to pinpoint with any certainty, after
the property was purchased, the necessary structural work, which was in
relation to a wall, was duly carried out. It involved a certain amount of
professional builder’s work, stated to be to the extent of £1,200, although no
bill for this (or any other) sum was produced. Of this amount, it was stated
that only £700 had actually been paid, and this sum was paid by cheque drawn on
Mr Samuels’ account with the National Westminster Bank. Besides this
professional work, materials costing in all some £700 were used. The most
expensive items were some girders costing £300, but these were obtained by
exchanging an old truck belonging to the business for them. The remaining £400
came out of the business. On March 16 1971 Mr Newell transferred his interest
in the property to Mr Samuels for no consideration apart from an indemnity
against his liability under the mortgage in favour of the vendor. The reason
for this transaction was that Mr Samuels required to borrow some additional
money from the bank and was proposing to give a second charge on the property
to secure it. Mr Newell was unwilling to burden himself with any further
liability and so this transaction was carried out. Mr Newell remained in the
premises thereafter in the character of a tenant.
In October
1971 Mr Samuels deserted Mrs Samuels. She naturally stopped working in the
business, and inquired from him upon what she was expected to live. He told her
that she could have the rents from 60 The Chase, amounting at that time to
about £7 a week. In the circumstances, having regard to Mr Samuels’ prima
facie duty to maintain his wife, he (his Lordship) thought that this should
be regarded as maintenance provided by him for her. Mrs Samuels, who was an
energetic and resourceful woman, proceeded to carry out repairs and
improvements, redecorations and refurnishings of the property, using probably
some of the rents so abandoned to her, borrowings, and her own earnings. As a
result of her efforts she had undoubtedly increased the value of the premises,
and by the time the trustee in bankruptcy started to collect the rents in
October 1972 she had doubtless improved the rental value of the premises. In
proceedings commenced earlier in 1973 in the Family Division of the High Court
she claimed, under section 17 of the Married Women’s Property Act 1882 and
section 4 of the Matrimonial Proceedings and Property Act 1970, a share in the
premises. Those proceedings were stayed with a view to the decision of Mrs
Samuels’ claim in the Chancery jurisdiction, and the present proceedings were
launched by a notice of motion of October 19 1973. Mr Thomas, for Mrs Samuels,
had wisely concentrated solely upon, and placed his client’s case solely on the
basis of, section 37 of the 1970 Act, which provided:
‘It is hereby
declared that where a husband or wife contributes in money or money’s worth to
the improvement of real or personal property in which or in the proceeds of
sale of which either or both of them has or have a beneficial interest, the husband
or wife so contributing shall, if the contribution is of a substantial nature
and subject to any agreement between them to the contrary express or implied,
be treated as having then acquired by virtue of his or her contribution a share
or an enlarged share, as the case may be, in that beneficial interest of such
an extent as may have been then agreed or, in default of such agreement, as may
seem in all the circumstances just to any court before which the question of
the existence or extent of the beneficial interest of the husband or wife
arises (whether in proceedings between them or in any other proceedings).’
The question
therefore arose as to what contribution to the improvement–not repair–of the
property was made by Mrs Samuels. That question neatly divided into three: (a)
in relation to the initial structural repairs; (b) in relation to the period
between October 1971 and June 13 1972; and (c) in relation to the period after
June 13 1972. As regarded the initial structural alterations, part thereof was
paid for by Mr Samuels’ cheques drawn on his own bank account, which account
was, as intended, later secured by a second mortgage on the property. Mrs
Samuels maintained in the witness box that this overdraft facility was created,
or intended to be created, for the benefit of the business, to enable it to
import more wine from Italy. Therefore, argued Mr Thomas, since the only basis
on which the overdraft was obtained was the business and the income it was
producing, in which he submitted Mrs Samuels had an interest, the payment of
this part of the cost amounted to a substantial
with the remainder of the payments which were made, in cash or truck, from the
business.
He (his Lordship)
regretted that he was wholly unable to accept this chain of reasoning.
Accepting for the moment that as the result of the decision in Nixon v Nixon
[1969] 1 WLR 1676 if a wife worked full time in her husband’s business for no
wages she might acquire some interest in it, all that could mean was that, as
between herself and her husband, if the business at the end of the day came to
be sold or otherwise realised, or if surplus assets were withdrawn therefrom,
she would be entitled to some proportion thereof. It could not possibly mean
that if, far from being solvent, the business was insolvent, nevertheless she
had an interest in moneys which should never have been withdrawn from it. Not,
at any rate, unless she was claiming such an interest in the business as would
render her also personally liable to its creditors. The situation would in
substance be no different if Mr Samuels had withdrawn £1,000 from an insolvent
business and put the money into, say, premium bonds. On his bankruptcy, nobody
could possibly deny that that money ought to go to his trustee in bankruptcy to
pay his creditors, and he (Walton J) doubted if anybody would even think of
claiming some fraction thereof for Mrs Samuels. The fact that the money went
into the house and not into premium bonds could make no difference. In
addition, so far as the moneys which came out of the National Westminster Bank
were concerned, although of course Mr Samuels used this account for his
business, he was personally liable for the money. It was exactly and precisely
the same as if he had borrowed the money from a bank with whom he did not keep
the business account. The fact that the facility might have been arranged in
connection with the affairs of the business, since it was not in any way
charged upon the business (quite apart from the fact that there was really
nothing there to charge), was nihil ad rem. He (his Lordship) therefore
rejected in toto any suggestion that Mrs Samuels made any contribution
to the initial structural repairs. She plainly did not.
As regarded
the second head of claim, her claim was quantified in a bundle of receipts and
other documents and certain cheques. Mr Evans-Lombe, for the trustee in
bankruptcy, submitted that Mrs Samuels might well have made all such payments
out of the rents she received and that therefore the expenditure by her came
out of the property itself and not from her. He (his Lordship) did not accept
this submission. He thought that the rents she received were received by her by
way of maintenance, and that it was impossible to ignore these payments by her
on this ground. The court was left, so far as this item by itself was
concerned, with expenditure of some £227 by Mrs Samuels towards the
improvement–as distinct from the decorative repair–of a house worth over £9,000.
Was this a sum ‘of a substantial nature’ within the meaning of section 37? With some hesitation, he (Walton J) thought
it was, and he was fortified in this conclusion by the fact that Mr Evans-Lombe
certainly did not proffer any argument to the contrary. It was, however,
clearly extremely marginal.
There remained
the third and last category, namely those items relating to a date after June
13 1972. The crucial question which arose was, clearly, had that date any
significance anyway? Mr Evans-Lombe put
the matter thus. Although undoubtedly the provisions of section 37 must be
given effect to by any court before whom the matter of its application was
raised (note the concluding words ‘whether in proceedings between them or in
any other proceedings’), it related to an accretion or decretion of interests
as between husband and wife, and was no longer applicable where the contest was
not one as between husband and wife. Having regard to the provisions of the
Bankruptcy Act 1914, as from June 13 1972 the husband’s beneficial interest in
the property, whatever it then was, vested in the trustee in bankruptcy, and as
from that date section 37 became inapplicable. It was inapplicable, because the
words ‘in . . . which either or both of them has or have a beneficial interest’
were no longer satisfied. Of course Mrs Samuels had some beneficial interest in
the property, but vis a vis the trustee in bankruptcy she had it as Mrs
Samuels, not as the wife of anybody who had an interest in the property. Put
more shortly and elegantly, that section applied only as between husband and
wife, and did not apply between a wife and a third party, even if that third
party were an assignee of the husband’s. Mr Thomas, for Mrs Samuels, argued, on
the other hand, simply that there was nothing in the section which became
inapplicable on the assignment of Mr Samuels’ interest to the trustee; Mrs
Samuels, the wife, then had a beneficial interest in the proceeds of sale of
the property as the result of her contributions under the second head of claim
already considered, so that the extent of her final share in such proceeds was
to be determined by her post-June-13-1972 contributions as well as her
pre-June-13-1972 contributions.
Of these two
arguments, he (his Lordship) preferred that of Mr Evans-Lombe. In his view
section 37 was applicable as between husband and wife only, and conferred no
rights to an increased share of the property as between a wife and her
husband’s trustee in bankruptcy by reason of the matters therein referred to. The
section did not in his view effect any general alteration in the law. Assume,
for example, that A and B (not husband and wife) were joint tenants at law of a
property which they held upon trust for sale with the net proceeds belonging to
the two of them as tenants in common. If B improved the property, he did not
obtain a greater interest in the proceeds of sale, but on the usual equitable
principles he would be recompensed out of the proceeds of sale for any
improvements effected by him to the extent to which they had enhanced the sale
price. He (his Lordship) could not think that section 37 was intended to
produce the result that if the improvements had been effected by B’s wife, and
not by B himself, any different result would follow as between A and B. But, of
course, as between B and B’s wife, section 37 would apply.
On these
conclusions and materials the next stage arose: what share of the property was
it just to attribute to Mrs Samuels? It
would, of course, at any rate on the peculiar facts of the present case, be
much easier to answer that question if what was notionally distributable
between the parties was the equity of redemption in the premises after
discharge of the two mortgages charged on the property. But the language of the
section prohibited that. It was the beneficial interest in a share of the
proceeds of sale of the property which had to be fixed. And although of course,
having regard to the width of the language of the section, this would by no
means be a rigid determination, he (his Lordship) would think that in any
simple case the best guide would still be furnished by comparing the respective
financial contributions of both parties, not, as in the usual case, to the
purchase price, but to what might best be described as the cost of the finished
product. Before he came to work out that sum–as a guide, of course, and not as
in any way a compulsory line of approach, having regard to the wide wording of
section 37–he would first notice how narrow were the limits within which he was
compelled under section 37 to proceed if his decision was to have any
meaningful operation at all. He was told–there was no strict evidence about
it–that the market price of the property was now thought to be about £15,000.
If, therefore, the trustee in bankruptcy was to receive anything at all from
the sale of the house, having regard to the fact that the total of the charges
thereon now amounted (including interest) to some £12,000, he must receive over
4/5ths. This at once demonstrated that Mr Thomas’s suggestion that Mrs Samuels
should receive one-third was pitched far too high. Even if one divided the
balance remaining between them equally–and it must be borne in mind that his
contribution throughout was far, far greater than hers–she would only receive
1/10th. There was certainly no obvious reason why she should receive more than
this.
Approaching
the matter via the strict amount of contributions to the finished product, Mr
Samuels contributed the original £7,000 plus £1,900 for the structural repairs;
Mrs Samuels contributed £227 to the finished product price of £9,127. Very
roughly, this would give Mrs Samuels a 1/30th share. On the whole, he (Walton
J) thought justice would be done by giving her a 1/20th share. This would mean,
in monetary terms, that she would get back something like £750, which was a
three-fold return on her investment, and the trustee in bankruptcy would get
about £2,250, which was again not far off three times the
and would not be discharged (via payment-off of the mortgages) in full. To the
extent to which Mrs Samuels’ expenditure after June 13 1972 had added to the
sale price of the property, the trustee must recompense her therefor. And
strictly, if the parties could not agree upon a figure, there should be an
inquiry as to that extent, and this must rank as a charge on the net proceeds
of sale of the property after the discharge of the two mortgages and before the
residue was split in the proportions indicated.
Mr Evans-Lombe
asked his Lordship to grant an order in solemn form directing a sale, the
conduct of the sale to be given to the trustee and the respondent to do all
such things as were necessary to procure such sale with vacant possession. As
to the time within which possession should be delivered, counsel continued, the
trustee had always been prepared to give a reasonable period of time, so that
Mrs Samuels might be given an opportunity to purchase the bankrupt’s interest.
In his submission the trustee in bankruptcy stepped into the bankrupt’s
interest as trustee of the property, though this area of the law was not at all
clear. The wife would be entitled in this case, the court having found that she
had a share, to insist upon the appointment of a fresh trustee to represent, in
a sense, her interests.
His Lordship
said that the bankrupt would have to be joined as a respondent, and he could
not make an order now. He understood Mrs Samuels was anxious to acquire the
property if she possibly could, and the practical course would be to stand the
motion over. By the time the case came back the trustee and Mrs Samuels might
have agreed as to what was to happen.
The motion
was accordingly adjourned. Mr Evans-Lombe said that there might be no need to
trouble the court further. His Lordship made no order as to costs.
