Hughmans Solicitors v Central Stream Services Ltd & Anor

A settlement schedule must be construed as a whole when deciding whether it confers a proprietary interest. A contractual allocation of sale proceeds may create a beneficial interest in the underlying property, even where expressed by reference to proceeds of sale. A charging order does not receive priority over an earlier equitable interest merely because it is protected by notice. For the purposes of Land Registration Act 2002, a charging order is not deemed to have been made for valuable consideration.

Hughmans Solicitors sought payment of approximately £19,000 from the net proceeds of sale of a property formerly owned by Mr Davidson. The claim was supported by a final charging order and unilateral notice. The company in liquidation claimed priority under a schedule to a Tomlin Order compromising its proceedings against Mr Davidson. The schedule required the company to receive at least £100,000 from the sale proceeds and regulated the application of the proceeds. The issues were whether the schedule created a proprietary interest and, if so, whether Hughmans’ charging order displaced that interest.

1. The application was dismissed. The company was entitled to the net proceeds after satisfaction of National Westminster Bank’s legal charge.
2. The schedule had to be construed as a whole. Its recital and operative provisions showed that Mr Davidson had transferred to the company his beneficial interest in the property, subject to the bank’s charge and the retention of sufficient proceeds above £100,000 to discharge specified debts.
3. The company’s interest was held on trust, rather than by way of equitable charge. The arrangement was not security for a debt owed by Mr Davidson; the property interest was given in settlement of the company’s claim. Express reference to proceeds of sale did not prevent a trust of the property itself.
4. Under sections 28 and 29 of the Land Registration Act 2002, a later interest obtains priority through registration only where it is a disposition made for valuable consideration. Otherwise, priority remains governed by the order in which the equitable interests were created.
5. Section 3(4) of the Charging Orders Act 1979 did not deem a charging order to have been made for valuable consideration. The analysis in United Bank of Kuwait plc v Sahib [1997] Ch 107 was compelling and correct. Hughmans therefore took no priority over the company’s earlier beneficial interest.
6. The company’s failure to oppose the final charging order did not create an estoppel. It was entitled to regard the order as incapable of giving Hughmans priority.