The Official Receiver v Going

An equitable charge may arise where a debtor agrees that a debt will be paid from a specific fund coming to him. The agreement must impose an obligation to pay from that fund; a merely negative restriction or personal promise is insufficient. The agreement is construed in its factual matrix, and an informal family arrangement is not treated differently solely because the parties are related.

On an appeal by way of review, the appeal court cannot make a new order based on conduct that was not properly advanced below or on which the lower court made no findings. Conduct relied upon in support of a bankruptcy restrictions order must be identified with sufficient procedural clarity.

The appellant challenged an eight-year bankruptcy restrictions order made by District Judge Parfitt on 2 July 2010. The order followed payments from the proceeds of sale of the appellant’s property, including £93,420 paid to his mother.

The Official Receiver accepted that the mother had a beneficial interest corresponding to 60% of the property. The dispute concerned whether the appellant’s correspondence also charged his remaining 40% share with repayment of any shortfall. The appeal also raised whether minor payments and the circumstances of the property sale could support the order, although those matters had not been properly pursued or particularised below.

1. Permission and outcome. Permission to appeal was granted and the appeal was allowed. The bankruptcy restrictions order could not stand on the basis relied upon by the district judge.
2. Equitable charge. The governing question was whether, in context, the appellant agreed that any sum remaining due to his mother after payment of 60% of the net proceeds would be paid from the specific fund represented by his 40% share. Applying the principle stated in Swiss Bank Corporation v Lloyd’s Bank [1982] AC 584, the court held that the words promising to make up any shortfall from that share imposed the necessary obligation. The 40% share was a specific fund coming to the debtor.
3. The whole factual matrix had to be considered. The mother sought security for the whole debt, the appellant’s only substantial asset was the property, and the family relationship did not alter the analysis. The reference to the solicitor paying 60% directly did not negate the charge over the remaining share. The district judge’s contrary construction was rejected.
4. Scope of the appeal. The appeal was a review, not a fresh hearing. It was therefore inappropriate to maintain or remake the order by reference to minor payments which had not materially formed the case before the district judge and on which no substantive findings had been made.
5. Additional observations. Had it been necessary to decide the issue, the court would have considered both whether the appellant honestly believed that he was obliged to pay his mother in preference to other creditors and whether that belief had reasonable grounds. The circumstances of the sale could properly form part of the background to the payments, but could not themselves be treated as charged conduct when they had not been identified in the statement of conduct. The observations were unnecessary to the result.

• High Court (Chancery Division): On 16 February 2011, permission to appeal was granted and the appeal from the order of District Judge Parfitt dated 2 July 2010 was allowed.
• District Judge Parfitt: Made a bankruptcy restrictions order for eight years from 2 July 2010 to 1 July 2018.