Mountney v Treharne

A property adjustment order under section 24(1)(a) of the Matrimonial Causes Act 1973 may confer an immediate equitable interest in identified property once the order takes effect on decree absolute, even though formal transfer documents remain outstanding. The principle that equity treats as done that which ought to be done applies. The interest is proprietary and falls within section 283(5) of the Insolvency Act 1986, so the trustee in bankruptcy takes the property subject to it. The trustee’s right under section 39 of the 1973 Act to challenge the transaction as a transaction at an undervalue remains preserved.

Following divorce proceedings, a district judge ordered the husband to transfer his interest in the former matrimonial home to his wife under section 24(1)(a) of the Matrimonial Causes Act 1973. Decree absolute was pronounced, but no transfer documents had been executed when the husband was adjudged bankrupt the next day.

The district judge held that the property vested in the trustee in bankruptcy. Stanley Burnton J dismissed the wife’s appeal, holding that the order created only personal rights and did not bind the trustee under section 283(5) of the Insolvency Act 1986. The issue before the Court of Appeal was whether the order created proprietary rights to which the trustee took subject.

The Court of Appeal allowed the appeal. Lord Justice Jonathan Parker delivered the principal judgment. Laws LJ and Aldous LJ agreed with the result and Parker LJ’s reasons.

1. Constructive trust. No separate remedial constructive trust arose from the husband’s alleged unconscionable conduct. The wife’s rights could not exceed those conferred by the order itself. If the order created rights binding on the trustee, no constructive trust was necessary; if it did not, a constructive trust could not be used to circumvent section 283(5).
2. Effect of the order. The authority of Maclurcan v Maclurcan established that an order for secured periodical payments, identifying the property and contemplating a formal deed, created an immediate equitable charge pending execution of the deed. That ratio applied equally to an order under section 24(1)(a) of the 1973 Act. The order therefore conferred an equitable interest in the property when decree absolute was pronounced.
3. The wife was in at least as strong a position as a purchaser under a specifically enforceable contract. The maxim that equity treats as done that which ought to be done applied, and section 53(1)(a) of the Law of Property Act 1925 did not prevent that equitable result.
4. Bankruptcy. It was common ground that section 283(5) applied to proprietary rights. Since the wife had a subsisting equitable interest at the date of bankruptcy, the trustee took subject to that interest. She could enforce the order against the trustee, subject to the trustee’s preserved power under section 39 of the 1973 Act to challenge the transaction as being at an undervalue.
5. The court accordingly held that its earlier decision in Beer v Higham, and the corresponding observations in Burton v Burton, were wrong on the effect of a section 24(1)(a) order.

• Court of Appeal: Appeal allowed. The court held that the wife’s equitable interest bound the trustee in bankruptcy.
• High Court, Chancery Division: Stanley Burnton J dismissed the wife’s appeal on 21 December 2001.
• District judge: On 23 August 2001, District Judge Dudley declared that the property vested in the trustee in bankruptcy.