This page deals with the following issues in relation to charging orders:
- Land Registry Practice Guide.
- Charging order made shortly a bankruptcy order.
- Limitation points - in particular charging order made more than 12 years ago not made unenforceable by Limitation Act 1980.
- Tomlin order - created a trust which ranked in priority over a subsequent charging order.
- Interest of judgment debtor - some is enough
Land Registry Practice Guide 76
Practice and procedure
Practice Guide 76
Practice Guide 76, which gives advice on the practice and procedure for the protection of charging orders over registered land and beneficial interests under a trust of registered land. Some key points to note are as follows:
- A charging order that charges the legal estate may be protected by the entry of a notice.
- A charging order that charges a beneficial interest under a trust of land cannot be protected by way of notice but can be protected by a restriction in standard form K.
- An interim and final charging order may each be protected by the entry of a notice or restriction as appropriate.
- For more information about the effect of a notice or restriction and how to apply for their entry or removal, see Practice Guide 19 – Notices, restrictions and protection of third party interests in the register.
- An application to the court for a charging order on the legal estate is a pending land action and is capable of protection by entry of a notice.
- However, an application to the court for a charging order in respect of a beneficial interest under a trust cannot be protected by notice because it does not appear to be a pending land action, as the applicant is seeking a charging order over an interest in a trust, not in land. As an application to the court does not give the applicant a beneficial interest such an application cannot be protected by a restriction.
Nationwide Building Society v Wright
 EWCA Div 811
A charging order on property was allowed to stand where it had been made shortly before a bankruptcy order was made, even though the court making the charging order was unaware of the petition. The court did have a discretion to set aside the charging in order in these circumstances but "some additional feature" was needed; the default position was to let the charging order remain.
Trustee in bankruptcy
Doodes v Gotham
 EWCA Civ 1080
In a conventional mortgage lending situation we know that the date on which the right to receive the money accrues depends on the terms of the mortgage, typically following two months arrears or following a demand for repayment (see further here). But does s20 apply in respect of a charging order, and if so, since there are no terms and conditions for repayment, when does the right to receive the money accrue for the purposes of limitation? These issues were resolved in this claim, in relation to a trustee in bankruptcy, who was seeking to enforce a charging order over the bankrupt's share in a residential property.
12th October 1988 - bankruptcy Order made
12th May 1989 - trustee appointed
18th December 1990 - trustee applies to Court for possession of the bankrupts home (registered in the joint names of himself and his partner)
27th February 1992 - charging Order nisi
29th May 1992 - charging Order absolute
16th June 2004 - trustee applies for order for sale
7th December 2004 - application transferred to High Court
3rd March 2005 - trustee applies to amend application - bankrupt opposes on the ground that the claim is already barred by s 20(1) Limitation Act 1980
19th May 2005 - Bankruptcy Registrar rules that the claim is not statute barred
22nd June 2005 - bankrupt appeals
October 2005 - hearing before Lindsay J
17th November 2005 - judgment handed down
Lindsay J held that s20(1) Limitation Act 1980 (12-year limitation period on actions to recover principal money secured by a charge on property) extended to legal charges imposed by the Court (in favour of a trustee in bankruptcy), and that the "right to receive the money" for the purposes of that section accrues concurrently with the making of the charging order. Accordingly, on the facts, the trustee's application for sale was out of time. The trustee in bankruptcy appealed.
Decision on appeal
The Court of Appeal held that in the context of the Limitation Acts and the accrual of "rights to receive" it was implicit that the right to receive was a present right to receive. Time did not run in respect of future causes of action. A charge imposed under s313 Insolvency Act 1986 (such as this one) secured a future obligation and until the obligation was a present one no right to receive the principal sum secured could accrue. It followed that time had not started to run under s20(1), and would not do so until an order for sale had been made.
Enforcement of standard charging order
Yorkshire Bank Finance Ltd v Mulhall
 EWCA Civ 1156
A charging order that was not enforced for more than 12 years was not made unenforceable by the Limitation Act 1980.
A bank obtained a money judgment against the defendant ("D") and a charging order against his interest in a property. However, it took no steps to enforce the judgment or charging order for more than 12 years.
D then applied to set aside the charging order. He contended that under s20(1) of the Limitation Act 1980 no action could be brought to recover any principal sum secured by a mortgage or charge on property after the expiry of 12 years, and that the charging order was therefore unenforceable.
The bank argued that judgment debts were outside the ambit of the Limitation Act and the mere fact that the judgment had been secured by a charging order did not bring it within the Limitation Act.
The Court of Appeal was constrained to follow Ezekiel v Orakpo  1 WLR 340. That case concerned a slightly different point. There the court held that a judgment creditor with the benefit of a charging order was entitled to interest for more than six years, and that s20(5) did not apply. Since the language of s20(5) was precisely comparable to s 20(1) it would follow that s 20(1) had no application in respect of principal monies secured by a charging order. The Court of Appeal did not consider that the findings in Ezekiel v Orakpo were per incuriam and accordingly held that there were no provisions in the Limitation Act 1980 which affect the enforcement of the charging order by the bank.
It also followed that National Westminster Bank Plc v Ashe  EWCA Civ 55 - extinction of mortgagee’s title by virtue of s 17 Limitation Act 1980 - did not apply (and so make the charging order unenforceable) either because the holder of a charging order did not have a right to possession such that time can run against it under s15 and that extinction of title could not occur under s17.
The Court of Appeal also distinguished Gotham v Doodes  EWCA Civ 1080 (see above) in which the Court had held that s20(1) did apply to a charging order on the basis that in that case it was a different kind of charging order created under s313 Insolvency Act 1986 in favour of a trustee in bankruptcy.
Further, there was nothing inconsistent with the decision of the House of Lords in Lowsley v Forbes  3 WLR 501 which provided that s24(2) Limitation Act 1980 applied so as to limit the arrears of interest that can be secured by a charging order, when first made, to six years.
It was not anomalous to conclude that the holder of a charging order was in a position less vulnerable to a limitation defence than the holder of a legal mortgage. In the case of a charging order the creditor has already brought, and succeeded in, his proceedings on the debt. In such a case it is unnecessary to protect the defendant from stale claims on the basis that it may be difficult to collect together the relevant evidence. The parties’ rights have been established by court proceedings and it is only then a question of enforcement.
This is a useful decision not just because it confirms that charging orders obtained by judgment creditors remain enforceable regardless of limitation, but because it also provides some useful clarity on a number of other limitation related issues affecting charging orders.
Priority of Tomlin Order
Hughmans Solicitors v Central Stream Services Ltd
 EWCA Civ 1720
On its proper construction, a Tomlin Order created a declaration of trust in respect of certain property and ranked in priority over a subsequent charging order obtained by a judgment creditor.
CSS sued Mr D. H Solicitors acted for him. The claim was settled with a Tomlin Order, the Schedule to which provided for the sale of a property and for the gross proceeds of sale to be applied (a) in discharge of a prior mortgage; (b) in payment of £100,000 to CSS; (c) in discharge of the costs and fees of sale; (d) in discharge of certain other debts; and (e) for the balance (if any) to be paid to CSS.
H Solicitors signed the Tomlin Order for D. H Solicitors subsequently ceased to act for D and obtained judgment for their unpaid fees and interest amounting to just over £19,000. They secured the judgment by way of a final charging order against the property before it was sold, protected by a unilateral notice.
When the property was eventually sold it only left net proceeds after discharging the prior mortgage of £49,000. According to the Tomlin Order, that was due to CSS. H Solicitors claimed that it had priority by reason of its equitable charge.
CSS claimed that the Tomlin Order gave it an equitable charge ranking in priority to H Solicitors, or that it amounted to an effective declaration of trust. H Solicitors argued that the Schedule to the Tomlin Order was insufficiently clear to secure a proprietary interest.
There were two issues:
- Did the Schedule confer on CSS a proprietary interest in the property?
- Did H Solicitors obtain priority by reason of its charging order and unilateral notice?
It was held as to the first issue, that the Schedule conferred on CSS a beneficial interest, not by way of equitable charge, but by way of trust.
As to the second issue, the basic rule as to priority is that the first in time prevails, but this is subject to the rule that where a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration (see Land Registration Act 2002, ss. 28-30).
It was for H Solicitors to show that their charging order was a disposition made for valuable consideration (Halifax Plc v Curry Popeck  EWHC 1692 (Ch)). The debtor receives no consideration from the judgment creditor and therefore the judgment creditor is a volunteer (United Bank of Kuwait Plc v Sahib  Ch 107 per Chadwick J).
At first instance the court held that the final charging order obtained by H Solicitors was ineffective to confer priority over CSS’s beneficial interest.
H Solicitors appealed.
Decision on appeal
The Court of Appeal dismissed the appeal.
The principal issue before the Court of Appeal was whether the effect of the compromise agreement embodied in the Tomlin Order was to create a proprietary interest in the property, or only an unsecured personal obligation of D.
The need for an intention to create a proprietary interest had to be clearly shown – per Tradegro (UK) Ltd v Wigmore Street Investments Ltd  EWCA Civ 268. A mere agreement for valuable consideration that a fund shall be applied in a particular way will not amount to an equitable assignment – per Palmer v Carey  AC 703 per Lord Wrenbury at pp 706-707.
However, the structure of the agreement embodied in the Tomlin Order was such that the entire net proceeds of sale of the property were to be paid to CSS, subject to satisfaction of certain costs and liabilities. The property was therefore wholly appropriated to the settlement and the judge was right to analyse the agreement as one which gave CSS the whole of D’s net equity in the property (subject to the costs and liabilities). He was therefore under a positive obligation to sell the property and it was an agreement which the court would enforce by an order for specific performance. The agreement therefore created an equitable interest in favour of CSS.
As to whether the proprietary interest created by the equitable interest ranked in priority to H Solicitors’ equitable charge, it was accepted by H Solicitors that their charging order was not “made for valuable consideration”.
Even assuming that the obtaining of a final charging order is a registrable disposition of a registered estate, the basic rule as to priorities applies. Equitable interests rank in priority according to the time of their creation (save where s29 or s30 provides otherwise). Accordingly the interest created in favour of CSS by the Tomlin Order ranked in priority to H Solicitors’ charging order.
Interest of judgment debtor
Extent of interest can’t be quantified
Walton v Allman
 EWHC 3325 (Ch)
The court has jurisdiction to make a charging order whenever it is satisfied that the judgment debtor has an interest in relevant property, even though the extent of the interest cannot be quantified at that time.
Mr & Mrs W lived in a property which was registered in the sole name of Mr W but in respect of which Mrs W initially claimed to have an equitable interest. Mrs W commenced proceedings against Mrs A for breach of contract relating to the sale of a pony. The claim was dismissed with an order for costs in Mrs A’s favour (with a payment on account of £30,000). In default of payment, Mrs A sought and obtained a charging order in respect of Mrs W’s interest with a further order for costs.
Mrs W was given permission to appeal subject to directions for disclosure with an order that in the event of non-compliance, the appeal should be dismissed. The directions for disclosure were not properly complied with and at the substantive appeal hearing the Circuit Judge held that the appeal had been dismissed, subject to permission to apply for relief from sanction which he also dismissed.
Mrs W appealed (with permission of the High Court Judge) against the refusal to grant relief from sanction and in respect of the court’s jurisdiction to grant a charging order against an unquantified beneficial interest in land.
The High Court Appeal dismissed the appeal. The Court held that the Circuit Judge had applied the correct test in refusing relief from sanction.
As to the jurisdiction to grant a final charging order, it was sufficient for the purposes of giving the court jurisdiction to make a charging order under the Charging Orders Act 1979 that the court is satisfied that the judgment debtor has some beneficial interest in relevant property, even though the precise extent of that interest cannot be quantified at the time the charging order is made (First National Securities v Hegarty  1 QB 850). The obvious juncture at which the court would be likely to be called upon to resolve the precise extent of the judgment debtor’s beneficial interest in the property would be if and when the judgment creditor decided to apply for an order for sale, although there is nothing inappropriate in having to resolve the precise extent of the judgment debtor’s interest some time after the final charging order is made. The decision whether to grant an order for sale is a very different discretionary decision to the decision to make the charging order final. On the application for an order for sale, a variety of other factors must be taken into account, including rights under Article 8 ECHR.
As to timing, the general rule is that a chargee can look to his own interests in deciding whether and if so when to enforce his security by seeking to exercise a power of sale, see, for example, Silven Properties Ltd v RBS  1 WLR 997. The same must apply to the holder of a charging order.
Provided the court is satisfied the judgment debtor has an interest in relevant property, the court will usually make a charging order. In practice, the quantification of the interest (and the determination of competing claims) usually takes place when the court considers whether to make an order for sale. If at that stage the court determines that the judgment debtor has no interest, it will discharge the charging order.
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