DW & Anor v CG

An order for sale made to secure payment of a lump sum can create an immediate equitable interest in the specified property. The interest is not lost merely because the debtor later becomes bankrupt, or because the creditor proves for the debt and votes in the bankruptcy, unless the creditor has given up the rights in accordance with the insolvency rules. A trustee in bankruptcy takes the bankrupt’s property subject to existing proprietary rights. Removal of a restriction does not itself transfer or re-vest a registered estate. Where no registrable disposition occurs, priority is preserved under the Land Registration Act 2002. An interest of a person in actual occupation may also override a registered disposition. An application to set aside a declaration of trust under section 37 of the Matrimonial Causes Act 1973 should not be determined on submissions alone where a party, particularly a litigant in person, has had no opportunity to give relevant evidence.

The husband was ordered in 2009 to pay the wife a lump sum by instalments. The order provided that, on default, specified properties were to be sold and the proceeds applied towards the debt. The husband failed to pay the final instalment and was later made bankrupt. The wife claimed that the order gave her an equitable interest in the properties and that the interest remained enforceable after the bankruptcy and subsequent transactions involving the trustees in bankruptcy, the husband and his current wife.

The deputy district judge upheld the wife’s interest and set aside a 2014 declaration of trust under section 37 of the Matrimonial Causes Act 1973. The appellants challenged those conclusions. The central issues were the effect of the 2009 order, the consequences of the bankruptcy and proof of debt, the effect of the 2014 transactions, and whether the declaration of trust had been fairly determined.

1. Appeal allowed in part. The wife’s equitable interest in the properties remained enforceable against the husband and the Second Appellant. The order setting aside the declaration of trust under section 37 of the Matrimonial Causes Act 1973 was set aside and that application required reconsideration.
2. Paragraphs 3 and 4 of the 2009 order were orders for sale under section 24A of the Matrimonial Causes Act 1973, with consequential provisions for payment of the lump sum from the proceeds. Applying Hughmans Solicitors v Central Stream Services Ltd (In Liquidation) [2012] EWCA Civ 1720, the order appropriated the properties for payment of the wife’s defined debt and created an immediate equitable interest. The subsequent conduct of the parties could not alter the meaning of the order: the rights and obligations were determined by the order itself, applying Xydhias v Xydhias [1999] 1 FLR 683.
3. The properties vested in the trustee in bankruptcy by operation of law under section 306(2) of the Insolvency Act 1986, subject to the wife’s rights under section 283(5). The wife’s proof of debt, failure to value the security and vote on the appointment of the trustee did not amount to surrender or waiver. The trustee had made no adjudication determining that she was an unsecured creditor.
4. The 2014 Settlement Agreement did not itself transfer or re-vest the legal estate. Removing restrictions was not a registrable disposition. Accordingly, section 28 of the Land Registration Act 2002 preserved the priority of the wife’s interest. Even assuming a registrable disposition, the wife’s occupation of the Property brought her interest within paragraph 2 of Schedule 3 and section 29(2)(a)(ii). The interest was not overreached because there was no conveyance within section 2 of the Law of Property Act 1925 by two trustees of land or a trust corporation.
5. The section 37 application had been determined without evidence. The Second Appellant, a litigant in person, was entitled to an opportunity to explain the circumstances in which she entered into the declaration. The finding that the parties had tried to manoeuvre free of the husband’s obligations could not fairly be made on submissions alone.

High Court (Family Division): Appeal from the order of Deputy District Judge Simpson dated 11 February 2016. The wife’s equitable interest was upheld, but the order setting aside the declaration of trust under section 37 of the Matrimonial Causes Act 1973 was set aside.