C & W Berry Ltd. v Armstrong-Moakes

A charging order should be considered on the evidence before the court when the order is sought. Later insolvency events cannot retrospectively establish that the order should not have been made.

Conduct in proving in a bankruptcy for the full debt and receiving a dividend does not, without more, amount to surrender of the charging order security. The court nevertheless has a broad discretion under section 3(5) of the Charging Orders Act 1979 to discharge or vary the order. That discretion may take account of the creditor’s failure to value or mention the security during the bankruptcy and the resulting balance of disadvantage.

C & W Berry Ltd appealed against an order of District Judge Wheeler discharging an absolute charging order made over residential property in 1992. The order secured a judgment debt owed by Neil Armstrong-Moakes, whose widow, Stephanie Armstrong-Moakes, later became the property owner.

The District Judge rejected the argument that the charging order should never have been made because bankruptcy proceedings were impending. He nevertheless held that Berry had surrendered its security, or alternatively that it should be discharged under section 3(5) of the Charging Orders Act 1979. Berry appealed. Mrs Armstrong-Moakes cross-appealed the finding on the original validity of the order.

1. The court upheld the District Judge’s conclusion that the charging order should not be treated as invalid merely because bankruptcy proceedings were impending. Under section 1(5) of the Charging Orders Act 1979, the relevant question was what evidence was before the court when the order was made. Hindsight could not be relied on. The cases of Roberts Petroleum v Kenny and IDC Ltd v Marrons were distinguishable because the orders in those cases were made with knowledge of pending insolvency proceedings and knowingly preferred unsecured creditors.

2. Berry had disclosed the charging order in its proof of debt, but had supplied no valuation and had thereafter been treated as an unsecured creditor. That conduct did not amount to an express or implied surrender of the security. The statutory mechanisms for the loss of security, including voluntary surrender and court discharge, did not establish that proving for the whole debt automatically surrendered the charging order.

3. Whitehead v Household Mortgage Corporation plc supported the conclusion that receipt of a dividend did not itself surrender security. The present case also concerned a charging order and the court’s statutory discretion, so the authority did not determine the exercise of that discretion.

4. The discretion under section 3(5) was broad. The court could balance the parties’ respective disadvantages and consider Berry’s failure over many years to value or mention its security, its receipt of a dividend calculated on the full debt, the Trustee’s treatment of Berry as unsecured, and Mrs Armstrong-Moakes’s payment of £10,000 towards the creditors. Those factors justified discharge of the charging order, although Berry’s conduct did not constitute surrender.

5. The appeal was dismissed. The District Judge’s order discharging the charging order was upheld.

• High Court (Queen’s Bench Division): District Judge Wheeler’s order of 1 June 2007 discharging the charging order was upheld. Berry’s appeal was dismissed, and the cross-appeal on the original validity of the charging order failed.