Appeal concerning the effect of a party’s bankruptcy and declaration of trust on the other party’s equitable interest in a property, derived from a historical consent order.
- The first appellant (‘H’) was formerly married to the respondent (‘W’) and is now married to the second appellant (‘SW’).
- Financial remedy proceedings were concluded between H and W by a consent order (‘the Consent Order’) which provided that:
- H was to make 3 lump sum payments to W;
- If H defaulted on any of the lump sum payments, W was entitled to sell any of two properties in order to recover the lump sum due to her plus interest; and
- Until H made the lump sum payments in full, W was entitled to live in one of the properties (‘the Property’).
- H failed to make the third lump sum payment.
- W registered a restriction against the Property based on her beneficial interest in the proceeds of sale pursuant to the Consent Order.
- H and SW were made bankrupt. They entered into a Settlement Agreement with the trustees in bankruptcy under which:
- H and SW paid £230,000 to the trustees in bankruptcy;
- H purchased any interest the estates in bankruptcy had (including any interest in the Property); and
- the trustees in bankruptcy agreed to remove any restrictions on any properties (including any restrictions on the Property).
- W applied for and was granted an order for sale in respect of the Property, the proceeds (net of the mortgage) of which were to be paid into court.
- SW registered a restriction on the Property pursuant to a Declaration of Trust, which stated that H held the Property on trust for SW.
- W applied under s.37 of the MCA to set aside the Declaration of Trust.
- H and SW objected to W receiving the proceeds of sale of the Property.
- The first instance judge found that W was entitled to the proceeds of sale of the Property on the basis that:
- the Consent Order gave W an equitable interest in the property;
- this interest was not affected by, or waived or lost during, H’s bankruptcy; and
- W’s equitable interest remained enforceable against H and SW; and in the alternative
- the Declaration of Trust should be set aside.
- H and SW appealed the decision of the first instance judge.
The Consent Order gave W an equitable interest in the Property.
- Moylan J found that the Consent Order gave W the very rights which Ward LJ identified as being the essential elements of an equitable charge creating an equitable interest ((Hughmans Solicitors v Central Stream Service Ltd (In Liquidation)  EWCA Civ 1720) .
- In the event of default in payment of any instalment of the lump sum, the order gave W the immediate right to sell the Property and to the payment of the lump sum due from the proceeds of sale .
The effect of H’s bankruptcy on W’s equitable interest
- The trustee of bankruptcy acquired the properties subject to W’s equitable interest (s.283 and s.306(2) of the Inheritance Act) . This occurred by operation of law, and there was no registrable disposition .
- W, by her conduct, did not give up or surrender her interest in or rights against the properties in accordance with the Insolvency Rules 1986  – .
- The trustee had made no determination as to the nature or extent of her interest  – .
The effect of the settlement agreement on W’s equitable interest
- The properties had vested in H’s trustee of bankruptcy subject to W’s interest; the terms of the settlement agreement did not affect this .
- The removal of the restriction against the properties did not amount to a transfer of a registered estate or a registrable disposition . Therefore W’s interest was not affected by H’s bankruptcy .
- Even if there had been a registrable disposition, W’s interest in the Property would have constituted an unregistered interest which overrides: she was in actual occupation of the Property at all relevant times and H was aware of this .
Set aside of the declaration of trust under s.37 MCA
- Moylan J did not need to determine this issue on the basis of his conclusions above in order to allow the W to enforce her equitable interest .
- However, he allowed the appeal because the court had not been in a position to properly and fairly determine this issue on the basis of submissions alone; H and SW should have been permitted to give evidence .
- His Lordship therefore set aside this part of the order .