Did you miss? Lowry Trading Ltd v Musicalize Ltd [2024] EWHC 2653 (KB), 28 October 2024

Beneficial interest under a contract for the sale of land- charging order  

The claimants had obtained judgment against the defendants and an interim charging order had been made against the defendants’ interest in a freehold house. The claimants sought an order that the charging order be made final. The interest charged arose under a contract of sale dated 9 January 2019 pursuant to which the defendants had contracted to purchase the property and occupied it pursuant to an AST pending completion. The sale had never completed. The freeholder/vendor (being the third-party in the proceedings) had served a notice to complete back in 2019. It was not complied with but the vendor did not rescind the contract. The defendants remained in possession paying rent under the AST.  A deed of variation extending the date for completing was discussed but never finalised. In July 2024, after the interim charging order was made, the vendor wrote to the defendants purporting to rescind the contract.  

The vendor opposed the making of the charging order. The defendants said that they were simply tenants. They did not support or oppose the making of the charging order and did not allege that they had any beneficial interest in the property. 

Decision  

The application was refused by Master Yoxall (sitting in retirement). He held that the contract for sale had immediately given rise to an “unusual and curious form of trust” with the vendor as trustee and the defendants as beneficiaries through the doctrine of conversion; but it was a trust governed by the terms of the contract and which collapses on termination of the contract or it ceasing to be specifically enforceable.  The defendants’ beneficial interest was not capable of being the subject of a charging order given the terms of the trust. As the contract for sale prohibited the assignment or sub-sale of their interest under it, the defendants could not create an equitable charge over it. S. 3(4) of the Charging Orders Act 1979 provides that a charge has the same effect and is enforceable in the same way as an equitable charge created by a debtor. So, a charging order over the defendants’ beneficial interest was not possible.  

Master Yoxall went on to consider his discretion under the 1979 Act if he was wrong about that. He found that the vendor had affirmed the contact by taking no steps to rescind it for a long period, discussing a deed of variation, and allowing the defendants to remain in possession as tenants, but she could serve a fresh notice to complete and rescind the contract if it was not complied with. If she did this, the trust would terminate. There was no evidence that the defendants would or could complete the purchase after service of a new notice to complete. The charging order could not be enforced by an order for sale because the sale agreement would cease to be specifically enforceable and the trust would terminate as soon as an order for sale to a third party was made. In the circumstances the vendor would be unduly prejudiced if a final charging order was made. She should be free to sell the property at its current market value. 

Daniel Gatty acted for the successful third-party vendor.  

Article by Lina Mattsson