The Court of Appeal has ruled that a contract compromising legal proceedings created a proprietary interest in a London property, defeating a solicitors firm’s claim to priority over the proceeds of its sale.
Ward LJ rejected an appeal by Hughmans Solicitors against Brigg’s J’s decision that Central Stream Services Ltd and its liquidator have a proprietary interest in the property at 3 Tisdale Place, London SE17, which takes priority over a charging order secured by Hughmans.
The decision means that Central Stream and its liquidator will receive the full £49,104 left from the proceeds of sale after discharge of a mortgage, and Hughmans will receive nothing.
Ward LJ said that the key question in the case was whether the effect of the compromise agreement in the earlier proceedings was to create a proprietary interest in the property or only an unsecured personal obligation on the part of the defendant, John Davidson – a former director of Central Stream.
Central Stream and its liquidator sued Davidson for more than £10.2m, but, once his assets were calculated, a compromise agreement was reached in which they accepted, in full and final settlement of their claims, all of the net sale proceeds of the property, following the payment of certain debts.
Hughmans, the solicitors who acted for Mr Davidson in the proceedings, later obtained judgment against him for more than £19,000 in respect of unpaid fees and secured a charging order over the property.
However, the property was finally sold in the early part of 2011 at a price which left only £49,104 available after the discharge of the mortgage in favour of National Westminster Bank.
Hughmans claimed that their charging order ranked ahead of any right of the company under the agreement, either because the agreement did not create a proprietary interest in favour of the company or because, by virtue of registration, their charging order enjoyed priority.
However, backing Briggs J’s ruling that a proprietary interest was created, Ward LJ said: “The essential element of an equitable charge is that, in the event of a default by the debtor in the payment of his debt, the chargee is entitled to an order for the sale of the charged property and for the payment of his debt out of the proceeds of sale.
“The obligation under the agreement is an unqualified one to sell the property and to pay the proceeds of sale to the company, subject to other calls upon those proceeds, in settlement of the company’s claim against Mr Davidson. The property is wholly appropriated to that settlement.”
Rejecting Hughmans’ claim to priority, he added: “Once it is established, as it has been, that the agreement created an equitable interest in favour of the company, Hughmans never enjoyed a right to maintain their unilateral notice in the face of a proposed sale of the property. There was therefore no such right reserved in their favour and their claim to priority must fail.”
Hughmans Solicitors v Central Stream Services (in liquidation) and anr Court of Appeal (Ward, Hughes and David Richards LJJ) 21 December 2012
Mark Warwick (instructed by Hughmans Solicitors) for the Appellants
Gary Cowen (instructed by Moon Beever) for the Respondents
The Court of Appeal has ruled that a contract compromising legal proceedings created a proprietary interest in a London property, defeating a solicitors firm’s claim to priority over the proceeds of its sale. Ward LJ rejected an appeal by Hughmans Solicitors against Brigg’s J’s decision that Central Stream Services Ltd and its liquidator have a proprietary interest in the property at 3 Tisdale Place, London SE17, which takes priority over a charging order secured by Hughmans. The decision means that Central Stream and its liquidator will receive the full £49,104 left from the proceeds of sale after discharge of a mortgage, and Hughmans will receive nothing. Ward LJ said that the key question in the case was whether the effect of the compromise agreement in the earlier proceedings was to create a proprietary interest in the property or only an unsecured personal obligation on the part of the defendant, John Davidson – a former director of Central Stream. Central Stream and its liquidator sued Davidson for more than £10.2m, but, once his assets were calculated, a compromise agreement was reached in which they accepted, in full and final settlement of their claims, all of the net sale proceeds of the property, following the payment of certain debts. Hughmans, the solicitors who acted for Mr Davidson in the proceedings, later obtained judgment against him for more than £19,000 in respect of unpaid fees and secured a charging order over the property. However, the property was finally sold in the early part of 2011 at a price which left only £49,104 available after the discharge of the mortgage in favour of National Westminster Bank. Hughmans claimed that their charging order ranked ahead of any right of the company under the agreement, either because the agreement did not create a proprietary interest in favour of the company or because, by virtue of registration, their charging order enjoyed priority. However, backing Briggs J’s ruling that a proprietary interest was created, Ward LJ said: “The essential element of an equitable charge is that, in the event of a default by the debtor in the payment of his debt, the chargee is entitled to an order for the sale of the charged property and for the payment of his debt out of the proceeds of sale. “The obligation under the agreement is an unqualified one to sell the property and to pay the proceeds of sale to the company, subject to other calls upon those proceeds, in settlement of the company’s claim against Mr Davidson. The property is wholly appropriated to that settlement.” Rejecting Hughmans’ claim to priority, he added: “Once it is established, as it has been, that the agreement created an equitable interest in favour of the company, Hughmans never enjoyed a right to maintain their unilateral notice in the face of a proposed sale of the property. There was therefore no such right reserved in their favour and their claim to priority must fail.” Hughmans Solicitors v Central Stream Services (in liquidation) and anr Court of Appeal (Ward, Hughes and David Richards LJJ) 21 December 2012 Mark Warwick (instructed by Hughmans Solicitors) for the AppellantsGary Cowen (instructed by Moon Beever) for the Respondents
