John McLinden v Shiao-Chen Lu & Anor

A final charging order should not be made over property unless the judgment debtor’s beneficial interest has been determined where that issue has been raised. If the court expressly leaves beneficial ownership open for enforcement proceedings, later determination of that issue is not abusive re-litigation. An unpaid costs order does not, without a debarring or striking-out order, make continuation of the litigation an abuse. A genuine written declaration may create or transfer a beneficial interest despite imprecise drafting or mistaken assumptions about overreaching. Specific insolvency remedies should not readily be displaced by common-law illegality, particularly where an innocent property owner’s vested rights are engaged.

The proceedings concerned Avarn Road, property registered in the name of Mohamed Munaver Khan. Shiao-Chen Lu had obtained judgment against him and a final charging order in November 2011. Shabnam Khan, acting for the estate of Fazal Khair Khan, contended that Fazal was the beneficial owner and sought determination of that ownership and discharge of the charging order. John McLinden also had an interim charging order over Ms Lu’s charging order.

The court considered whether District Judge Lightman had already determined that Munaver held a beneficial interest, whether the estate’s claim was abusive re-litigation, and whether declarations of trust made in 1996 and 2010 were authentic, genuine and effective. It also considered overreaching, statutory formalities, similar-fact evidence, insolvency remedies and illegality.

1. Charging order and re-litigation. District Judge Lightman had made the Avarn Road charging order final without determining beneficial ownership. His express reservation of Fazal’s right to assert ownership meant that the estate was not re-litigating an issue already properly decided. The unpaid costs order did not itself create an abuse or debar the claim. The order was improperly made and was liable to discharge under section 3(5) of the Charging Orders Act 1979.
2. Beneficial ownership. The 1995 transfer overreached Fazal’s prior beneficial interest. The February 1996 declaration nevertheless validly created a new trust under which she held a 50% beneficial interest. Its informal drafting and the parties’ mistaken understanding of overreaching did not defeat the clear intention to recreate that interest.
3. The May 2010 declaration was authentic and genuine. Its operative terms declared that Munaver held the property on trust for Fazal absolutely. Recitals explaining that the transfer followed receipt of mortgage funds did not qualify or postpone the operative declaration. In any event, a signed written disposition may take effect from a future date and comply with section 53(1)(c) of the Law of Property Act 1925.
4. The declarations were not shams. Evidence of Munaver’s past willingness to obscure assets was admissible as similar-fact evidence because it was potentially probative and did not create collateral issues, but it did not prove that he acted similarly in this transaction. The transfer was for full value and was not shown to fall within section 423 of the Insolvency Act 1986.
5. Illegality was not established. The burden lay on Ms Lu, and the evidence indicated that Munaver could have established the innocent-intention defence under section 352. The court added that, even if the transfer had been illegal, it would have permitted Fazal’s estate to enforce its property rights. Common-law illegality should not replace the focused civil remedies provided by the 1986 Act.
6. The November 2011 charging order was discharged. Mr McLinden’s interim charging order, which depended on Ms Lu’s charging order, was also discharged.