Enforcement of Judgements: Orders for Sale Jonathan Owen
Introduction 1. The Practice Direction to Part 70 of the Civil Procedure Rules 1998 (hereafter the CPR ) sets out the methods of enforcing money judgements. One of those is the grant of a charging order over a judgement debtor s interest in land in accordance with Part 73 of the CPR. Such a charge will secure a judgement creditor s interest to the extent of the equity already existing in the judgement debtor s interest. The judgement creditor will, however, often want not simply a security interest in land, but rather money in the bank. The question then arises as to whether or not the charging order can be enforced by an order for sale of the land to which the charging order relates, such that the judgement debt can be extracted from the proceeds of sale and be paid directly to the judgement creditor. 2. This article seeks to address the basic principles relating to the grant or refusal of an order for sale and some practical questions relating to such applications. CPR Rule 73.10 and the general discretion 3. Rule 73.10 (1) provides that subject to the provisions of any enactment, the court may, upon a claim by a person who has obtained a charging order over an interest in property, order the sale of the property to enforce the charging order (emphasis added). 4. It is clear from the may that the court has a discretion. The rule itself gives no clue as to how that discretion is to be exercised. The same is true of the practice direction to CPR Part 73, save to the extent that paragraph 4.3 sets out the information which must be evidenced in an application for an order for sale which suggests that the court is, at least, likely to have regard, amongst other matters, to the extent of any prior charges over the property, the amounts due to the judgement creditor, the judgement debtor s interest in the property, the value of the property, and the details of the persons in possession of the property. 2/9
5. Although it is a matter of discretion for the court, as a matter of principle, it appears likely that the court will have regard to the following matters:- a. Whether the judgement creditor is likely to get his money otherwise. Although an order for sale is a severe step, potentially depriving a person of his home, the policy of the law [is] that a creditor is entitled to be paid and to be paid in due time. See e.g. Pickering v. Wells [2002] 2 FLR 798 (hereafter Pickering ). Accordingly, the court is likely to wish to know about:- I. How long the debt has been outstanding. II. What other attempts have been made enforcement, and what other means of enforcement may be open to the judgment creditor. III. The debtor s engagement with the process: is this a case of cannot pay all in one go, but is doing his best, or rather may or may not be able to pay, but in any event shows no credible intention of paying now or in the future? What, if any, proposals for payment have been made, and what payments of actually been made to reduce the debt? b. What practical benefit will an order for sale bring:- I. How much equity is in the premises? II. What proportion does that equity bear to the amount of outstanding debt? c. The interests of any other creditors: have such creditors expressed a view, and if so what view, and for what reasons? 3/9
d. Special statutory considerations under sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996 (hereafter TOLATA ): please see below. e. Human rights considerations: please see below. Statutory considerations under Sections 14 and 15 of TOLATA 6. First, these considerations do not strictly apply to the case of a property which is solely owned by the judgement debtor: please see Pickering. However, in any case in which a property is jointly owned by the judgement debtor and another, sections 14 and 15 of TOLATA are engaged. The matters to which the Court is to have regard are to include:- a. The intentions of the person or persons (if any) who created the trust (under which the property is held), b. The purposes for which the property subject to the trust is held, c. The welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and d. The interests of any secured creditor of any beneficiary. 7. From this, it is clear that the interests of the judgement creditor are only one matter to be considered. Further, even though sections 14 and 15 of TOLATA do not strictly apply in a case in which the property is solely owned by the judgement debtor, one would expect the court to have regard to similar factors as part of its general discretion, and in particular, insofar as it is a factor, the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to [the charging order] as his home. 4/9
Human rights 8. The Article 8 right is as follows, and, importantly, contains specific reference to a person s home:- Right to respect for private and family life 1. Everyone has the right to respect for his private and family life, his home and his correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others (emphasis added). 9. The effect of the Article 8 right has been considered in the context of charging order enforcement. See Arnold J in National Westminster Bank PLC v. Rushmer and Rushmer [2010] EWHC 554 (Ch) at paragraph 50:- I agree that the power to enforce a charging order under section 14 of TOLATA is compatible with the Convention. I also agree that the court s discretion under section 15 has to be exercised compatibly with the Convention rights of those affected by an order for enforcement. In my judgment, it will ordinarily be sufficient for this purpose for the court to give due consideration to the factors specified in section 15 of TOLATA. That will ordinarily enable the court to balance the creditor s rights, which include its rights under Article 1 of the First Protocol, with the Article 8 rights of those affected by an order for sale. I would not rule out the possibility that there may be circumstances in which it is necessary for the court explicitly to consider whether an order for sale is a proportionate interference with the Article 8 rights of those affected, but I do not consider that this will always be necessary. 5/9
10. Although that authority only refers to the joint ownership scenario where sections 14 and 15 of TOLATA apply, the article 8 right is logically of no less importance in a joint ownership case. Without the checks and balances of the TOLATA framework, it is probably all the more important expressly to check that any interference with the article 8 right is proportionate. 11. The article 8 right accordingly provides a potentially important argument to a judgement debtor. Caution when considering the merits of such an argument is, however, to be advised. The case law to date, as appears from the above, is not suggestive that this argument in itself is likely to be enough to save the judgement debtor if the other important factors go against him. The human rights argument is therefore probably best to be deployed as an argument amongst several, rather than as a sole line of defence. Practical considerations Jurisdiction 12. Under CPR rule 73.10 (2) a claim for an order for sale should be made to the court which made the charging order, unless that court does not have jurisdiction to make an order for sale. A county court has jurisdiction where the amount owing does not exceed the County Court limit of 30,000. If the matter is one which has to be started in the High Court that it should be started at the Chancery Chambers in the Royal Courts of Justice or at a Chancery District Registry: please see paragraph 4.2 of the practice direction to CPR part 73. Matters which the application must address 13. Paragraph 4.3 of the practice direction to CPR part 73 importantly identifies the various matters which the written evidence in support of the claim must address. Importantly, pursuant to paragraph 4.4 the claimant must take all reasonable steps to obtain the information required. A copy of the charging order must be filed with the claim form. 6/9
Part 8 procedure 14. Expressly pursuant to CPR rule 73.10 (3) the claimant must use the CPR part 8 procedure. Form of order 15. As noted in paragraph 4.4 of the practice direction to CPR Part 73 sample forms of order for sale are set out at Appendix A to the practice direction. These are not prescribed forms of order and they may be adapted or varied by the court to meet the requirements of individual cases. There are separate sample forms for properties solely owned by the judgement debtor and properties owned by the judgement debtor and another person. Important questions which both sides will need to consider regarding the proper form of order if any order for sale is made are as follows:- a. Should the order be suspended for a certain period of time to allow the debtor to pay? b. Who should have conduct of the sale? Presumably this will often be the judgement creditor in circumstances in which matters have gone on long enough for an order for sale to be granted. c. Does the judgement debtor need to give possession in order for the sale effectively to take place, and if so by when? d. Should the court fix a minimum price for the sale (unless varied by agreement between the parties or further order of the court)? e. What should be done with the proceeds of sale? First, the costs and expenses of effecting the sale will need to be discharged. Secondly, the monies will have to be used to discharge any charges or other securities over the property which have priority over the charging order. 7/9
Thirdly, the judgement creditor is paid. Finally, the balance is to be paid to the judgement debtor. Conclusions 16. The making of orders for sale is a discretionary matter in which there is a premium on each side being reasonable and proportionate in its approach. Each side will have, if it wishes to maximise the chances of success, to prepare its evidence fully and carefully to ensure that all matters touching upon the discretion are properly addressed. If an order for sale is to be made careful attention needs to be given to the form of order. There is a loss at stake for either side and these claims merit careful attention. Jonathan Owen January 2013 Jonathan Owen Jonathan Owen was called to the Bar in 2004. He is a specialist in personal injury, clinical negligence, disease, fraudulent claims, regulatory, costs, business and property, employment, planning and environmental and local government claims and professional discipline and regulation matters. jonathanowen@ropewalk.co.uk 8/9
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