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July 2009

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Update July 09

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Case name Re: Richards (A Bankrupt)
Neutral citation [2009] EWHC 1760 (Ch)
Legal points Bankruptcy - rights of trustee - equity of exoneration in respect of mortgage debts - right of set-off under s 323 Insolvency Act 1986 - equitable accounting - mortgage payments and occupation rent
Facts Mr & Mrs R had formerly held property as beneficial joint tenants. They charged the property twice (1) £25,000 to secure the initial costs of construction of the property, and (2) £49,591 to secure H's debts and liabilities, and in 1989 they re-mortgaged both to Birmingham Midshires in the sum of £74,591. H and W subsequently divorced and W severed the beneficial joint tenancy. H was subsequently declared bankrupt. W remarried twice. She remained responsible for servicing the Birmingham Midshires mortgage. Improvements valued at £45,000 were carried out, paid for by her second husband and her parents (who contributed £11,250 on her behalf). In 2002, W's third husband redeemed the Birmingham Midshires mortgage in the sum of £65,424. In 2005, H's present trustees in bankruptcy (T) sought to realise his share in the property. The trial judge declared that T was entitled to a 50% beneficial interest in the property and made an order for sale, but subject to W's equity of exoneration to the extent of half the sum borrowed to discharge the two earlier charges (£37,295.50 being half of the £74,591) and the sum of £11,250 being the contribution made by W's parents on her behalf towards the improvements. The judge set-off the continuing mortgage payments made by W against an occupation rent. W appealed on the basis (amongst other things) (1) that her equity of exoneration should have been fixed in a larger sum - that in respect of the sum of £49,591 relating to H's debts and liabilities, she had only benefited to the extent of £7,000 used to purchase the land on which the property was built, so that the correct sum to have allowed by way of exoneration was £42,591; (2) that it should have been treated as a set-off pursuant to s 323 Insolvency Act 1986 against the value of the trustee's interest in the property at the commencement of the bankruptcy; and (3) that although W accepted the entitlement to set-off the mortgage payments against an occupation rent in principle, given the delay by T in bringing the proceedings, it should have resulted in a shorter period for the occupation rent.
Held (1) In respect of the size of the equity of exoneration, the judge had been entitled to find that W had benefited from a small part of the additional borrowings, so that overall, the judge's approach on the figures was justified. (2) In respect of the claim to set-off under s 323 Insolvency Act 1986, it applied as much to liabilities which are contingent at the date of bankruptcy, or even at the date when the calculation falls to be made, as to those which are due and payable at those dates. However, it was fundamental to the operation of s 323 that there should be liabilities (albeit only contingent) each way between the bankrupt and the other person as at the date of bankruptcy. Here there was no such liability due from W. it was not possible to set-off H's contingent liability to her against his beneficial interest in the property. Accordingly the judge had been entitled to reject the claim for a set-off. (3) In respect of equitable accounting, having reviewed the authorities (Re Byford (Deceased) [2003] EWHC 1267 (Ch); Re Barcham [2008] 1 WLR 1124; and Laskar v Laskar [2008] 1 WLR 2695, the judge had been entitled to adopt a broad brush approach and set-off mortgage interest payments against an occupation rent. W benefited from the delay by making use of the property without any benefit to H's creditors. The fact that H and W had divorced and H had left the property did not provide a ground for distinction.
Comment This case raises a number of useful, practical points which occasionally arise in co-ownership disputes involving a mortgage, and which typically arise following the bankruptcy of one of the parties - usually the husband in a husband and wife case. In the contect of mortgages, disputes occasionally arise where a wife gives security over the jointly owned matrimonial home for the debts of her husband. This often leads to an enquiry as to whether the mortgage was procured by undue influence and/or any or other vitiating factors and consequently whether the lender has for its own protection, complied with the Etridge guidelines. See the page under Law on Undue Influence. Even if there are no vitiating factors and the wife has to accept the validity of the mortgage, to the extent that she received no benefit from the advance, she may be able to seek equitable exoneration as against her husband - to require the lender to recover its debt out of her husband's beneficial interest first. See for example Re Pittortou (A Bankrupt) [1985] 1 WLR 58. See the page under Law on Apportioning the debt. This case is also another example of the broad brush approach usually adopted by the court when it comes to deal with the question of equitable accounting - setting off the wife's payment of mortgage interest against her husband (or his trustee in bankruptcy's) claim for an occupation rent. See for eg. Re Gorman [1990] 1 WLR 616 and Re Pavlou [1993] 1 WLR 1046.
Item HM Land Registry Practice Bulletin 16 (April 2009 - effective 3rd August 2009) HM Land Registry Practice Guide 31 (August 2009)
Details Land Registry Practice Bulletin 16 advised that with effect from 3rd August 2009, Land Registry would be applying a policy of early completion where an application to remove entries relating to a registered charge is lodged together with other applications but proof of satisfaction of the registered charge does not accompany, or precedes, the application. Consistent with this policy, Land Registry Practice Guide 31 amends previous guidance (July 2008) concerning the discharge of registered and noted charges and withdrawals of notices of deposit of land and charge certificates. It covers discharges both in paper form and by electronic means.
Item The Home Repossession (Protection) Bill 2009
Details The Bill was initially given a revised date for its second reading in the House of Commons on 3rd July 2009, but owing to lack of Parliamentary time, the Bill will now come back to the Commons for debate on 16th October 2009. For details of the Bill see the separate page under Law. To monitor progress of the Bill see http://services.parliament.uk/bills/2008-09/homerepossessionprotection.html