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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Mountney v Treharne  EWCA Civ 1174 (8 August 2002)
Cite as:  Fam Law 809,  EWCA Civ 1174,  3 WLR 1760,  3 FCR 97,  BPIR 1126,  2 FLR 930,  Ch 135
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION (Mr Justice Stanley Burnton)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE LAWS
LORD JUSTICE JONATHAN PARKER
- and -
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Miss Raquel Agnello (instructed by Messrs Sprecher Grier Halberstam) for the Respondent
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Jonathan Parker :
“2. All [the bankrupt’s] interest (both legal and beneficial) in the property .... [and its contents] shall be transferred forthwith by him to [Mrs Mountney] absolutely subject to the mortgage with Cheltenham & Gloucester plc.
3. In the event that [the bankrupt] fails to sign and return the transfer documents and any relevant documentation in connection with the transfer ordered at paragraph 2 above within 14 days of them being sent by first class post to him ...., the said documents may be signed by the District Judge.”
The relevant statutory provisions
“283 Definition of bankrupt’s estate
(1) Subject as follows, a bankrupt’s estate for the purposes of any of this Group of Parts comprises –
(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and
(b) any property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling within the preceding paragraph.
(3) Subsection (1) does not apply to –
(a) property held by the bankrupt on trust for any other person, or
(4) References in any of this Group of Parts to property, in relation to a bankrupt, include references to any power exercisable by him over or in respect of property except in so far as the power is exercisable over or in respect of property not for the time being comprised in the bankrupt’s estate ….
(5) For the purposes of any such provision in this Group of Parts, property comprised in a bankrupt’s estate is so comprised subject to the rights of any person other than the bankrupt (whether as a secured creditor of the bankrupt or otherwise) in relation thereto ….
284 Restrictions on dispositions of property
(1) Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court.
(3) This section applies to the period beginning with the day of the presentation of the presentation of the petition for the bankruptcy order and ending with the vesting .... of the bankrupt’s estate in a trustee.
306 Vesting of bankrupt’s estate in trustee
(1) The bankrupt’s estate shall vest in the trustee immediately on his appointment taking effect ....
(2) Where any property which is .... comprised in the bankrupt’s estate vests in the trustee .... it shall so vcst without any conveyance, assignment or transfer.”
“23 Financial provision orders in connection with divorce proceedings etc.
(1) On granting a decree of divorce …. or at any time thereafter (whether …. before or after the decree is made absolute) the court may make any of the following orders, that is to say –
(a) an order that either party to the marriage shall make to the other such periodical payments, for such term, as may be specified in the order;
(b) an order that either party to the marriage shall secure to the other to the satisfaction of the court such periodical payments, for such term, as may be so specified;
(c) an order that either party to the marriage shall pay to the other such lump sum or sums as may be so specified;
(5) Without prejudice to the power to give a direction under section 30 below for the settlement of an instrument by conveyancing counsel, where an order is made under subsection (1)(a), (b) or (c) above on or after the granting of a decree of divorce …. neither the order nor any settlement made in pursuance of the order shall take effect unless the decree has been made absolute.
24 Property adjustment orders in connection with divorce proceedings etc.
(1) On granting a decree of divorce …. or at any time thereafter (whether …. before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say –
(a) an order that a party to the marriage shall transfer to the other party, to any child of the family or to any such person as may be specified in the order …. such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion;
(b) an order that a settlement of such property as may be so specified, being property to which a party to the marriage is so entitled, be made to the satisfaction of the court for the benefit of the other party to the marriage ….;
(c) an order varying for the benefit of the parties to the marriage …. any ante-nuptial or post-nuptial settlement ….;
(d) an order extinguishing or reducing the interest of either of the parties to the marriage under any such settlement ….;
(3) Without prejudice to the power to give a direction under section 30 below for the settlement of an instrument by conveyancing counsel, where an order is made under this section on or after granting a decree of divorce …. neither the order nor any settlement made in pursuance of the order shall take effect unless the decree has been made absolute.
30 Direction for settlement of instrument for securing payments or effecting property adjustment
Where the court decides to make a financial provision order requiring any payments to be secured or a property adjustment order –
(a) it may direct that it be referred to one of the conveyancing counsel of the court for him to settle a proper instrument to be executed by all necessary parties ….
39 Settlement, etc., made in compliance with a property adjustment order may be avoided on bankruptcy of settlor
The fact that a settlement or transfer of property had to be made in order to comply with a property adjustment order shall not prevent that settlement or transfer from being a transaction in respect of which an order may be made under section 339 or 340 of the Insolvency Act 1986 (transactions at an undervalue and preferences).”
“52 Conveyances to be by deed
(1) All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.
(2) This section does not apply to –
(f) vesting orders of the court ....
(g) conveyances taking effect by operation of law.
53 Instruments required to be in writing
(1) Subject to the provision hereinafter contained with respect to the creation of interests by parol –
(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law;
(2) This section does not affect the creation or operation of resulting, implied or constructive trusts.
54 Creation of interests in land by parol
(1) All interests in land created by parol and not put into writing and signed by the persons so creating the same, or by their agents thereunto lawfully authorised in writing, have, notwithstanding any consideration having been given for the same, the force and effect of interests at will only.
(2) [Exception for parol leases for a term not exceeding three years].”
The judgment of the district judge
The judgment of Stanley Burnton J
“There was and is no evidence of any unconscionable conduct that could have given rise to a constructive trust of the property.”
“[h]e is simply seeking to get in what, on one view of the law, is an asset, indeed the only asset, of the bankrupt available to meet the claims of his creditors.”
“I am bound to follow the decision of Jonathan Parker J in Beer v. Higham unless I consider it to be clearly wrong. Not only do I not consider it to be clearly wrong, I consider it to be clearly right. I would add that the concept of a constructive trust in a case such as the present seems to me to be wholly unnecessary. This is a case for wielding Occam’s razor. If an order for ancillary relief in matrimonial proceedings such as that made in this case and in Beer v. Higham is to be effective against a trustee in bankruptcy, notwithstanding that the order has not been carried out, it must be because the order creates a right which is valid as against a trustee in bankruptcy within the meaning of section 283(5) of the [1986 Act]. If it does create such a right, a constructive trust is an unnecessary creation. On the other hand, if it is not a right binding the estate for the purposes of section 283(5), to hold that in matrimonial proceedings creates a constructive trust would be inconsistent with, and simply a means of circumventing, section 283(5).”
“Furthermore, while I have the greatest sympathy with the position of [Mrs Mountney], if the [1986 Act] provides for the property to be comprised in the bankrupt’s estate in the events which have happened, there is no equity to prevent the operation of the statute. If, in cases such as this, preference is to be given to a wife or former wife in priority to the general body of creditors of a bankrupt husband (or vice versa if the property is vested in the wife), that is a matter for the legislature.”
“To exclude the former matrimonial home from the bankrupt’s estate would confer on [Mrs Mountney] and absolute right rather than the qualified right under Article 8. For these reasons, in my judgment the interpretation and effect of section 283 of the [1986 Act] are unaffected by section 3 of the Human Rights Act. The Convention rights of [Mrs Mountney] are to be taken into account at a later stage, if she is unsuccessful in this appeal, on any application by the trustee for possession of the property.”
“Although the reference in section 283(5) to “the rights of any person other than the bankrupt” is general, one would expect it in the present context to refer to proprietary rather than personal rights, since otherwise the general principle that creditors of a bankrupt share pari passu in the estate, in so far as they are not secured creditors, would be contravened: cf. Re Goldcorp Exchange Ltd  1 AC 74 (a receivership case). That this is the correct interpretation of section 283(5) is supported by the reference to a secured creditor in the parentheses and the reference to sectin 269(1)(a), which can only apply to a creditor having security. Against this, Mr Hansen cited the decision of the Court of Appeal in Bendall v. McWhirter  2 QB 466. In that case, a deserted wife was held to have a personal licence to occupy the former matrimonial home that was valied as against the trustee bankruptcy of her husband. However, Mr Hansen’s submission overlooked the fact that the decision of the Court of Appeal in that case was disapproved of and overruled by the House of Lords in National Provincial Bank Ltd v. Ainsworth  AC 1175.”
“It is noteworthy that the argument pressed by Mr Hansen under section 283(5) was not raised in Beer v. Higham. I do not think that the reason it was not raised, or noticed by Jonathan Parker J, was any difference between the facts of that case or those of this. It was not raised because it was assumed that the rights of the wife in that case were personal and ineffective against the trustee.”
“The wording of subsection (1)(a), which is the provision pursuant to which the order of 6 July was made, is not suggestive of an order that itself creates any proprietary interest: compare the wording of paragraphs (c) and (d). Subsection (3) points against the creation of an immediate right in the property. If, for example, a wife (assuming that an order for the transfer of a former matrimonial home to her) were to die after the making of an order pursuant to subsection (1)(a) but before the decree absolute, the property adjustment order in her favour would cease to have any effect, and the property would not form part of her estate. Similarly, it would cease to have effect if the husband were to die before it was carried out. In the present case, this consideration is highlighted by the fact that at the date of the property adjustment order there had not yet been a decree absolute. As District Judge Dudley recognised when he made it, the order of 6 July 2000 was therefore contingent on the making of the decree absolute, although the terms of the order did not so provide. If the order created a right to property, it was a curious right.”
“It gave a personal right to [Mrs Mountney], and subjected the bankrupt to a personal obligation to execute the necessary transfer documents. If the order had been carried out, by the husband or by the District Judge executing the relevant transfer on his behalf, and the completion of the transfer [had been effected], [Mrs Mountney would have acquired a proprietary interest, and indeed she would have acquired title. The property would then have ceased to be part of the estate of the bankrupt. Regrettably, at the date of the bankruptcy, that had not occurred, and she had no right within the meaning of section 283(5) good against the trustee.”
“In the end, therefore, while my sympathies are with [Mrs Mountney], I am compelled to dismiss this appeal. The District Judge came to the correct conclusion.”
The grounds of appeal
The arguments on the appeal
“The right to call for a conveyance of the land is an equitable interest or equitable estate.”
“Leaving aside section 284, such an order would have the effect that [the husband’s] equitable interest would pass immediately. That is a relatively straightforward example of equity treating as done that which ought to be done, the same principle by which a purchaser under a specifically enforceable contract acquires an equitable interest upon contract and before completion.”
(1) What rights did Mrs Mountney acquire in relation to the property by virtue of the order?
(2) Did the property vest in the trustee subject to those rights?
(1) What rights did Mrs Mountney acquire in relation to the property by virtue of the order?
The English Authorities
“The payment of £90 per annum, payable monthly, be secured to petitioner for her life on the share of residue taken by respondent under the two wills referred to in the said report, and that a deed of assignment of respondent’s interest on the terms mentioned in the said report be drawn as agreed between the parties, or settled by a conveyancing counsel of the Chancery Division of the court”.
“The court may, if it shall think fit, on any [decree of dissolution of marriage] order that the husband shall, to the satisfaction of the court secure to the wife such gross sum of money, or such annual sum of money for any term not exceeding her own life, as, having regard to her fortune (if any), to the ability of the husband, and to the conduct of the parties, it shall deem reasonable, and for that purpose may refer it to any one of the conveyancing counsel to the court of Chancery to settle and approve of a proper deed or instrument to be executed by all necessary parties; ….”
“The moment this order was made the wife had an equitable charge on the property which could be enforced at once.”
“The charge is given by the order, and the deed is only for the purpose of carrying out the order.”
“It is ordered that the above-named respondent do secure to the above-named petitioner for her life as from the date of decree absolute herein ….the annual sum of £1,200 …. Upon security to be agreed, or wholly or partially by covenant if so agreed, and that in default of agreement between the parties it be referred to conveyancing counsel of the High Court to settle the necessary deed or deeds.”
“I do not think that it could possibly be said that this order created a floating charge over all the respondent’s property: indeed, the order itself negatives any such suggestion, since it expressly provides “upon security to be agreed”, which must mean by the parties themselves or their respective solicitors acting in that behalf. But as an agreement was in fact come to, all that remained to be done, on the death of the respondent, was the formality of settling and executing the necessary deed or deeds; as Chitty LJ said in Maclurcan v. Maclurcan: “The order having been made, that terminated the jurisdiction of the court except as to the form of the deed to carry out the order”. I therefore find that by the joint effect of the order and the subsequent agreement the petitioner acquired a charge on specific assets of the respondent ….”
“Here again, however, it appears proper to try to apply the somewhat broader test of what would have been the position if the husband had, for good consideration, contracted to give security in terms identical with those of the order.”
“The border line seems to be a thin one, and approaching these problems of equity with marked hesitation, I prefer to rest my decision on the footing that the wife has an enforceable claim under the registrar’s order irrespective of whether or not it created a charge.”
In considering whether there has been a forfeiture, the first question is: What was the effect of the order …, on the footing that it was never completed by the execution of any deed? The matter has been very well argued before me, and I have been taken through a number of cases. I am satisfied upon three decisions, that clearly the effect of that order in itself was to create an equitable charge, if that were possible, upon the interest of [the respondent] under his grandfather’s Will. The cases in question are Waterhouse v. Waterhouse, Maclurcan v.Maclurcan and Hyde v. Hyde. In the last of those cases Barnard J applied what had previously been no more really than the dicta of the Court of Appeal in the Waterhouse case and in Maclurcan v. Maclurcan that an order referring to specific property, in the manner of this specific order which I have to consider, did upon its date create an equitable charge upon the property to which reference therein was made.”
“It has been pointed out to me that different considerations apply depending on under which of the subsections of the  Act the registrar made the order. There is no doubt that if it was an order under section 23(1)(c), that is an order whereby either party to the marriage ‘shall pay to the other such lump sum or sums as may be so specified’. It is an order to the party to pay, and that is a payment in the future. That cannot, in my judgment, transfer the beneficial interest at the moment of the order. It is an order for money, and the wife is entitled to enforcement of that order, but it does not vest in her at the moment of the order.
If it is an order under section 24(1)(a), exactly the same considerations apply, because the order is that a ‘party to the marriage shall transfer to the other party’ such property etc. as may be so specified. In my judgment, again the beneficial interest in that transfer of property does not pass until the consequential documentation has taken effect, and the Act obviously allows for that; and one reason it allows for that, I have no doubt, is the comprehensive code which is formulated by the Law of Property Act 1925 …. Section 53(1)(a) of the 1925 Act provides ‘that no interest in land can be created or disposed of except by writing, signed by the person creating or conveying the same, or by his agents thereunto lawfully authorised in writing, or by will or by operation of law’. In this case, of course, it would not be a voluntary disposition in writing by the husband, but either he would obey the order of the court or a registrar could exercise a procedure on his behalf if he chose not to do so. But it is the moment of transfer, in my judgment, pursuant to the comprehensive code of the Law or Property Act, and in accordance with the order properly made under section 24 of the  Act that the beneficial interest in that property or part of that property, whether it be in money or in land, will pass to the wife petitioner, and not before. But it appears …. that if the order was made under section 24(1)(c), or 24(1)(d), which appears to have the same effect for this purpose, that would be a transfer, not a creation or disposing of the beneficial interest; it would be a variation of a post-nuptial settlement for the benefit of one of the parties; or an extinguishing of the interest of one, thereby benefiting the other; and that would pass or vest immediately upon the perfecting of the order.”
The Australian authorities
“The question then is, what is the effect of an order made pursuant to section 86(1) lf the Matrimonial Causes Act 1959 requiring a party to a marriage to make a settlement of property for the benefit of the other party to the marriage where that other party has died and the order has not been complied with.
I am of the opinion that the situation is governed by the principle established in three English decisions, namely [Maclurcan, Hyde and Richardson].”
“In the circumstances I have come to the conclusion that I should follow the English cases to which I have referred and hold that the effect of the orders .... in the present case was to vest in the husband an equitable estate in fee simple in [the property].”
“It is material to consider what this interest [i.e. the interest of the purchaser under a contract for the sale of land] really was. It is sometimes said that under a contract for the sale of an interest in land the vendor becomes a trustee for the purchaser of the interest contracted to be sold subject to a lien for the purchase-money; but however useful such a statement may be as illustrating a general principle of equity, it is only true if and so far as a Court of Equity would under all the circumstances of the case grant specific performance of the contract. The interest conferred by the agreement in question was an interest commensurate with the relief which equity would give by way of specific performance ....”
“Where such a contract [i.e. a contract for the sale of real property] is entered into, the legal estate in the property passes, not by the contract, but only upon and by virtue of the execution of a subsequent formal deed of conveyance. The equitable estate or beneficial ownership, however, passes, as between the contracting parties, by the contract itself, but only sub modo, or, in other words, conditionally upon the contract being one of which the court would decree specific performance, and also being ultimately completed by the fulfilment by vendor and purchaser respectively of the mutual obligations imposed on them by the contract.”
“Historically the courts of equity acted in personam. Whether equity was supplementing the common law by giving additional remedies or correcting the common law by imposing a different legal result, the courts of equity intervened by directing the defendant personally to do, or refrain from doing, a specific act. In deciding whether or not to intervene, the courts of equity required first, that the plaintiff should have some enforceable right and, secondly, that the conscience of the defendant was affected in some way so as to make the failure of the defendant to give effect to the plaintiff’s rights contrary to justice.
The rights which the plaintiff asserted were normally either contractual rights or rights under a trust. In the realm of contracts equity supplemented the common law by ordering the party in default to perform the contract – instead of merely paying damages. In the realm of trusts equity ordered the legal owner of the property, the trustee, specifically to carry out the trust which he had accepted. In matters involving property equity intervened by ordering that the defendant do deal with the property in question in a specific manner, whether the plaintiff’s rights were founded in contract or trust.
But, although the basis of the equity jurisdiction was and still is founded on an order in personam, the courts of equity evolved the doctrine that, in the eyes of equity, that which ought to have been done is to be treated as having been done. Thus under a specifically enforceable contract for the sale of land, the purchaser is treated in equity as the owner of the property whether or not an order for specific performance has been made. Again, in the law of trusts the beneficiary is treated as immediately entitled to his interest in the trust property whether or not an order for the execution of the trust has been made against the trustee. In this way the plaintiff’s rights, although founded upon the ability of the court to make an order in personam against the other contracting party or the trustee, become an interest in the property itself, an equitable interest. Once the position is reached that on order for specific performance could have been made against the legal owner if the matter had been brought before the court, thereafter the legal owner holds the property shorn of those rights in the property which the courts of equity would decree belong to another.
Once an equitable interest in property is established, thereafter any third party taking that property from the original contracting party or the original trustee only takes it, in the eyes of equity shorn of, or subject to, the equitable interest. But as the right and the remedy is equitable only, the courts of equity would not enforce the equitable interest against the third party unless it was inequitable for him not to give effect to the prior equitable interest. It is on this ground that a subsequent purchaser for value of a legal interest without notice takes free of prior equitable interests.”
Did the property vest in the trustee subject Mrs Mountney’s rights under the order?
Lord Justice Laws:
“Equity is… a body of rules or principles which form an appendage to the general rules of law, or a gloss upon them. In origin at least, it represents the attempt of the English legal system to meet a problem which confronts all legal systems reaching a certain stage of development. In order to ensure the smooth running of society it is necessary to formulate general rules which work well enough in the majority of cases. Sooner or later, however, cases arise in which, in some unforeseen set of facts, the general rules produce substantial unfairness…” (Snell’s Equity, 30th edition, paragraph 1-03)
Lord Justice Aldous: