Lowry Trading Limited & Anor v Musicalize Ltd & Ors

A purchaser’s beneficial interest under a vendor-purchaser trust is governed by the sale contract. Where that contract prohibits assignment or transfer, the purchaser cannot create an equitable charge over the interest. Since a charging order has the same effect as an equitable charge created by the debtor, the interest cannot be charged in that form.

Even if the interest is capable of charging, the court must consider all the circumstances, including the debtor’s circumstances and whether another creditor would suffer undue prejudice. A vendor whose contract is about to be rescinded may be unduly prejudiced if a charging order prevents sale at current market value.

The claimants sought to make final an interim charging order for more than £6.3 million over the alleged beneficial interest of the second and third defendants, the Andersons, in a residential property owned by Ms Suzanne Fisher.

The interest arose from a 2019 contract under which Ms Fisher agreed to sell the property to the Andersons. Completion did not occur. The Andersons remained in occupation as tenants, and Ms Fisher later purported to rescind the contract. The issues were whether the contract had been affirmed, whether the vendor-purchaser trust and alleged beneficial interest could support a charging order, and whether the order should be made in the court’s discretion.

1. Application dismissed. The interim charging order was discharged and the application to make it final was refused.
2. The 2019 contract immediately gave rise to a vendor-purchaser trust through the doctrine of conversion. The trust was an unusual trust to give effect to the contract and was governed by its terms. The purchaser’s interest could not be passed to a sub-purchaser, and the vendor retained a lien and the right to possession until payment of the price.
3. Ms Fisher had affirmed the contract after the Andersons failed to complete. She knew of the breach and her right to rescind, but instructed her solicitors that she wished to proceed with the purchasers. She allowed the tenancy to continue and discussed a later completion date. The July 2024 rescission letter therefore came too late. Nevertheless, Ms Fisher could serve a fresh notice to complete followed by rescission.
4. The contract prohibited the Andersons from transferring its benefit. They could not create an equitable charge over their interest. Under section 3(4) of the Charging Orders Act 1979, a charging order has the same effect, and is enforceable in the same way, as an equitable charge created by the debtor under his hand. The alleged interest was therefore not capable of being the subject of a charging order.
5. Further, the vendor-purchaser trust depended on the contract remaining specifically enforceable. In the circumstances the Andersons could no longer obtain specific performance, so the trust had ceased and they no longer had a beneficial interest.
6. Alternatively, the court would have refused the order in its discretion. Section 1(5) of the Charging Orders Act 1979 required consideration of the debtors’ personal circumstances, likely undue prejudice to another creditor, and all the circumstances. Ms Fisher was a creditor entitled to sell the property at its current market value. The claimants’ proposed scheme was unsupported by evidence that funding or a timely purchase would occur and would unfairly constrain Ms Fisher. The order would therefore have caused undue prejudice.