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Banking Matters – September 2017

Banking Matters – September 2017

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Enforcement: Charging orders and orders for sale

Clear and common case Walker Morris’ Banking Litigation specialist Sandip Singh explains the recent case […]

Clear and common case

Walker Morris’ Banking Litigation specialist Sandip Singh explains the recent case of Rai v Ahir (The Shiri Guru Ravidass Sabha Southall) [1], in which the High Court has provided welcome clarification on the practice, procedure and order of realisation for the enforcement of charging orders over multiple properties.

The key facts of the case are straightforward. The claimant was owed a judgment debt which had been secured by way of charging order against properties owned by a number of judgment debtors respectively. All of the secured properties were marital/family homes.

Practical approach to law and procedure

Master Teverson, in the High Court, clearly set out the correct legal and procedural issues:

It is one thing to make a charging order; but another to order a sale.
The court has a separate discretion whether or not to order a sale.
Where a property is a debtor’s home, the court must consider Article 8 of the European Convention on Human Rights (which gives the right to respect for family and private life).
To order a sale is a step of last resort.
Where the debtor is a joint beneficial owner, an application for an order for sale should be made under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). (Section 15 TOLATA sets out the matters to which the court will have regard when determining such an application.)
Where the charging order covers multiple properties, and as to the order in which properties are sold, the court’s role is limited to that of controlling enforcement of a joint and several liability. The court is not engaged in assessing conduct.
Absent any compelling individual circumstances (such as particular hardship or unfairness, for example), the fairer course is to order all properties to be sold at the same time.

WM Comment

Obtaining a charging over property to secure a judgment debt is not necessarily the end of the story. Claimants seeking to recover monies owed to them often require to compel the sale of secured assets, so as to actually release value. Enforcement and realisation can amount to another litigation process in itself. When a debt is secured over more than one property (and, in particular, where the properties are owned by more than one person); and/or where any secured property is a marital or family home, that can result in additional difficulties and cost. Rai v Ahir provides welcome confirmation as to how the court will approach the enforcement process in such cases.

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[1] [2017] EWHC 1255 (Ch)

Innovative advice for lenders

Walker Morris’ Banking Litigation Team increasingly advises on the ever-present threat to lenders of forfeiture/loss […]

Walker Morris’ Banking Litigation Team increasingly advises on the ever-present threat to lenders of forfeiture/loss of leasehold security. The Team also increasingly handles cases involving breaches of mortgage conditions other than mortgage arrears, as a ground for recovering possession. These two seemingly quite separate trends have, together, resulted in some exciting new options for lenders.

The problem

Diversity in Low Cost Home Ownership (or, Immediate Market) options , coupled with economic pressures facing borrowers of all ages and across all socio-economic groups today, is resulting in mortgages increasingly being offered on leasehold flats, retirement housing, shared-ownership arrangements and so on.

In addition, while leasehold has traditionally been the appropriate form of land ownership for properties within communal buildings and estates, a recent trend has emerged over for housebuilders to sell new-build houses as leasehold properties.

Earlier this year the BBC announced that: “Almost half of all newly built properties in the UK are sold as leasehold rather than freehold properties. Some homeowners have found they are then tied into paying a ground rent that increases every year.” The reason for this is commercially motivated. Housebuilders sell the leasehold title to the house owner and then make a further financial return by selling the freehold title to a third party – often a profit-making entity owning a number of such properties. One MP has described this practice as the “PPI of the property sector”.

All of this means that lenders are increasingly finding themselves having to grapple with issues affecting their leasehold securities. These difficulties apply to both shared ownership and conventional long leasehold properties. Where a tenant defaults on paying monies due under the lease (such as service charges and ground rent), the first a lender hears about this is often when the landlord takes steps to forfeit the lease.

Faced with a threat of forfeiture lenders can be on the ‘back foot’ and are frequently left in the position of paying such charges (including substantial legal fees to the landlord’s lawyers), so as to ensure that the lease, and therefore the lender’s security, is not lost. This can be before proceedings are issued, or as a condition of applying for relief against forfeiture. The lender then generally debits such payments to the mortgage account in accordance with its Mortgage Terms and Conditions.

Risks

However, this approach creates multiple risks for the lender:

Customers may decide to rely upon the lender to repeatedly pay the landlord on their behalf, instead of making those payments themselves;
Equity can be eroded; and
Lenders can ‘sleep walk’ into a negative equity situation, as a result of multiple debits to the mortgage account.
A landlord of a shared ownership lease (most likely a Housing Association) may refuse to accept continued payments from a lender and may bring its own possession proceedings to recover possession (for fear of erosion of equity and of being out-of-pocket if the lender takes possession and relies on the Mortgagee Protection Clause in the lease allowing it to staircase up to 100%). A vitally important point to note here is that such action by a Housing Association will ultimately result in loss of the security. This is because these possession proceedings are for statutory termination of an assured tenancy under the Housing Act 1988 and a lender does not therefore have a right to apply for relief from forfeiture.
Ongoing payment by the lender of customer’s lease sums can also mask wider affordability issues. It will often result in the mortgage debt increasing and the customer’s financial situation worsening overall. This raises the question whether the lender is acting responsibly and treating the customer fairly.

Financial Ombudsman Service (FOS) complaints

Another key issue for lenders is that payment of customers’ outstanding lease sums can (albeit somewhat paradoxically) lead to serious customer relationship issues. Through our own research we have discovered that, in the last three years, numerous customer complaints have been upheld by the Financial Ombudsman Service following the payment by lenders of ground rent and service charges on behalf of their customers. For example:

In several cases lenders have made payments prematurely, often where the landlord has made demands but has not obtained a debt judgment or tribunal determination regarding the lease arrears. In such cases, the situation had not reached the stage in the forfeiture process where the security was at any material risk of forfeiture and so, according to FOS, the lender should not have made payment to the landlord.
In several cases the security has been at risk and the lender has legitimately made payment in respect of some arrears, but the lender has not checked properly and has paid additional sums, which it was not obliged to do. (That can lead to additional charges to the mortgage account and/or it can prejudice the customer’s position in any outstanding disputes with the landlord regarding sums allegedly owing.)
In other cases the lender has legitimately made a payment to protect its security, but has then continued paying subsequent demands without fully investigating their validity.
In at least one case the lender’s involvement in the payment of lease sums resulted in an administrative error (the lender’s incorrect recording of the customer’s change of address) which meant that the customer did not receive payment demands. The customer’s arrears situation therefore worsened significantly as a result of the lender’s involvement.
In another case an administrative error meant that a lender made payment of a customer’s lease arrears in reliance on a court order which, in actual fact, the lender knew had been set aside.
The FOS has also upheld complaints arising from customers’ prolonged difficulties in actually dealing and corresponding with the lender, due to communication errors and poor complaints handling.
In many other cases lenders have avoided complaints being upheld by the FOS by pre-emptively offering compensation to customers whose positions have been prejudiced as a result of the lenders’ payments to landlords.

In any event, whenever a complaint is made – and whatever the outcome – significant management time and costs are wasted, and customer relationships and lenders’ reputations are adversely affected.

Draft Pre-Action Protocol

Currently, in many cases a lender’s options when faced with a potential lease forfeiture will depend on the approach taken by the particular landlord.

Some landlords (and their legal advisors) are aware of a lender’s need to contact its customer (to verify whether the customer is aware of the situation; whether the customer contests the lease sums claimed; and whether the customer consents to the lender intervening to make any payment to preserve security in the immediate term); and to take legal advice on the options open to it. Such landlords/legal advisors may take into account the timescales involved in the lender doing this; others do not and instead use this delay to increase the level of legal costs claimed to resolve matters.
Some law firms acting for landlords are fully aware of the propensity for lenders to pay up to protect their security and they use this as a viable business model. They operate by incurring unnecessary and unreasonable legal costs and make payment of those costs a condition of agreeing settlement to avoid forfeiture. It is not uncommon for legal costs of several £thousand to be claimed in recovery of a few hundred pounds. In one well publicised (but extreme) case the 74 year old owner of a flat worth £800,000 in Chelsea Harbour was threatened with forfeiture for landlord’s legal costs of £76,000 incurred in relation to a service charge demand of just £7,500.
Some landlords/legal advisors also do not contact lenders until after proceedings have been issued (it is only at this stage that landlords have to make contact, due to the requirements of the CPR).

In the interests of seeking to resolve matters to the benefit of all parties without the need to progress to litigation, and in accordance with the spirit of the Civil Procedure Rules’ Practice Direction on Pre-Action Conduct generally, Walker Morris has (working in conjunction with one of our key clients and the CML) drafted a proposed new Pre-Action Protocol – the draft Pre-Action Protocol for Claims based on Forfeiture of Long Residential Leases – which seeks to address this issue.

We are currently seeking comments from the CML Legal Advisory Panel prior to referring the draft to the Ministry of Justice and the Civil Procedure Rules Committee. It aims to prevent landlords from issuing lease forfeiture claims before lenders have received appropriate notification and have had sufficient time to contact and consult with their customer and respond with any proposals to resolve matters.

It is to be hoped that, if and when the draft Protocol is finalised and incorporated into the Civil Procedure Rules, the number of cases in which lenders’ leasehold security are lost can be reduced, along with the amount of costs added to mortgage accounts to resolve these cases.

Innovative advice

However, there will also be an alternative option for lenders, which might preclude action by landlords in any event. This involves lenders pursuing possession themselves, but on the basis of breach of mortgage conditions, as opposed to on the basis of mortgage arrears.

The usual course…

We have seen that, in the majority of cases, the mortgage lender receives a payment demand from the landlord and the lender then makes payment so that its security is not left vulnerable to forfeiture or possession. The lender then adds any such payments to the mortgage debt.

In due course the mortgage account might fall into arrears as the customer’s repeated failure to pay sums due under the lease masks wider affordability issues. The lender will then pursue possession proceedings on the basis of mortgage arrears.

A suspended order is very often likely to be made because reliance on mortgage arrears engages the court’s discretion under section 36 of the Administration of Justice Act 1970 to adjourn proceedings; stay or suspend execution; or postpone the date for possession, where the court considers that the customer is likely to be able within a reasonable period of time to pay any sums due under the mortgage.

…an alternative approach: Ousting the court’s discretion?

However, in many cases where a lender has been asked to make payments under a lease where forfeiture is threatened (or where a shared ownership Housing Association is threatening to commence possession proceedings), lenders may be better served by following an alternative course. This involves lenders seeking possession on the basis of breach of mortgage condition (the breach being the customer’s failure to comply with the terms of its lease), rather than/or in conjunction with, action on the basis of mortgage arrears.

It is likely that, on the facts of many of these cases, a lender should be able to prove that its security is at risk and that it should thereby be entitled to an outright possession order. In addition, if a borrower cannot put forward reasonable proposals to remedy the breach of mortgage condition, then the section 36 discretion to suspend a possession order will be excluded in any event.

Intervention in practice: Sharing our success

Walker Morris’ Banking Litigation team already acts for a number of retail lenders who have adopted an enforcement policy which involves seeking possession of leasehold properties on the basis of repeated breach of mortgage conditions where the customer fails to meet their leasehold obligations.

These lenders have taken this ‘alternative approach’ in over 150 cases in which the security was at risk due to lease non-compliance. In 48% of those cases lease arrears were cleared by the customer. That not only resolved the immediate security risk, but also ensured that the customer fully understood, and took responsibility for, their liability to make lease sum payments going forwards.

The remaining cases were resolved through via the threat and/or issue of mortgage possession proceedings and the vast majority of those – some 89.4% – resulted in an outright possession order for the lender. (In the 10.6% of cases which resulted in a suspended possession order, the lender had actually paid the lease arrears and added those sums to the mortgage debt, such that the security was no longer at risk.)

As well as the high rate of outright possession orders, this approach by lenders has been a “wake up call” for customers resulting in them properly addressing lease and mortgage compliance, and affordability issues generally, where they may previously have been unwilling to do so. As well as resolving the security risk for the lenders, this has enabled customers to continue living in their homes.

If you would like to find out more about Walker Morris’ draft pre-action protocol and/or alternative approach to resolving lease forfeiture/loss of security issues, please do not hesitate to contact a member of the team who will be very happy to help.

No duty, no negligence!

High stakes can encourage parties to pursue claims in the most strained of circumstances. Professionals […]

High stakes can encourage parties to pursue claims in the most strained of circumstances. Professionals can often find themselves in the firing line in such cases. The recent case of Joseph v Farrer & Co [1] will be a welcome example for defendants and their professional indemnity insurers, of the High Court reiterating that the existence of a clear duty is fundamental to a finding of negligence.

High profile, high value

The facts are somewhat sensational. The claimant, Ms Joseph, was the “close and intimate” friend of Mr Cundill, a multi-millionaire many years her senior, whose wealth was in a discretionary trust. Mr Cundill was diagnosed with a terminal illness and initially wanted £10 million be paid to Ms Joseph. The trustees refused, but instead complied with Mr Cundill’s subsequent written request for periodic payments of £500,000 to be made to Ms Joseph if she remained within him for the duration of his illness, up to a total of £5 million. Mr Cundill passed away and £1 million had been paid to Ms Joseph when it was alleged that she had interfered with Mr Cundill’s care arrangements (with which, he had made clear to his lawyers and trustees, he was happy). The trustees therefore stopped the payments. Ms Joseph sued Mr Cundill’s solicitors for the remaining £4 million, alleging that they owed her a duty either under an implied retainer or because they had assumed a duty of care in tort.

Claimant could not demonstrate duty

In accordance with the authorities on implying terms into contracts generally, and those on implying terms into professionals’ retainers specifically, the High Court undertook an objective consideration of the evidence. It found that the solicitors had been acting for Mr Cundill alone. The court took into account all of the circumstances of the case and found that the express retainer was addressed to Mr Cundill alone; and there was no need at all to imply that Ms Joseph was a party to that, or to any implied, retainer.

The court also gave detailed consideration to the facts of the case in light of relevant authorities on the finding of a duty of care in tort. There were significant tensions (or conflicts) in this case between the interests of Ms Joseph and those of Mr Cundill (in which the trustees and the solicitor were bound to act). In Bank of Credit and Commerce International (Overseas) Ltd v. Price Waterhouse No. 2 [2] the court ruled that, “where… a solicitor is retained by one party and there is a conflict of interest between the client and [another person], the court should be slow to find that the solicitor has assumed a duty of care to the other.” Here, the court found that Farrer & Co had not assumed any duty of care towards the claimant – indeed all indications were against that.

(A further fatal flaw in Ms Joseph’s particular claim was the fact that the trustees of a discretionary trust are, of course, entitled to exercise their discretion. Even if the solicitors had owed any contractual or tortious duty, there was nothing that they could have done to prevent the trustees from acting as they saw fit. There could therefore have been no breach on which to found a negligence claim in any event.)

WM Comment

This case is a welcome restatement of the fact that if there is no duty owed by a professional, then there can be no negligence. The judgment also contains a helpful summary of the key considerations when it comes to ascertaining the existence of implied contracts and/or terms, or of assumed duties.

However, whilst on the facts of this particular case there was no duty and not even any breach, the claim still reached the High Court. Farrer & Co were fully vindicated in this judgment, but nevertheless Ms Joseph’s claim will, inevitably, have put the professionals to wasted time, stress, costs and publicity that they would probably have preferred to avoid. The case is therefore also a reminder that the law cannot protect against the situation where a person is determined to pursue a claim, regardless of its legal merits. The judgment is silent on the question of costs.

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[1] Tina Chantale Joseph v Farrer & Co [2017] EWHC 2072 (Ch)
[2] [1998] PNLR 564

Provision of advice or information? Crucial distinction for professional negligence claims

We reported recently on BPE Solicitors v Hughes-Holland [1], in which the Supreme Court confirmed […]

We reported recently on BPE Solicitors v Hughes-Holland [1], in which the Supreme Court confirmed that the SAAMCO [2] principle distinguishes between cases where a professional is under a duty to provide information to enable someone to decide upon a course or action; and where a professional is under a duty to advise someone as to what course of action to take. Accordingly, a negligent adviser may be liable for all foreseeable loss consequent upon the advised course of action; whereas a negligent information provider may be liable only for the foreseeable consequences of that information being wrong.

Halsall & Ors v Champion Consulting & Ors [3] was a professional negligence claim brought against accountants and is the first case to have applied the Supreme Court’s advice/information distinction.

Different profession, same rule

In the Halsall case, the claimants instructed the defendant accountants to advise them in relation to tax planning/mitigation. Following alleged losses thereafter, the claimants pursued a claim in negligence.

The claimants argued that the defendants had taken it upon themselves to analyse and evaluate all the advantages and disadvantages of a particular tax mitigation scheme and, as a result of that analysis, had positively advised the claimants to participate. The claimants therefore argued that the defendants had gone beyond the mere provision of information which would enable the claimants to decide upon a course of action and had, instead, proffered positive “advice”, as per the Supreme Court’s test in BPE.

The defendants countered that the ‘advice’ provided by them to the claimants amounted merely to “information” under BPE (and that any liability was therefore limited under SAAMCO).

In a fully reasoned application of the BPE advice/information rule, the court rejected the defendant’s submissions. The High Court reiterated that whether a professional’s advice amounts to “advice” or “information” under BPE depends on whether the professional is responsible for guiding the client’s whole decision-making process (as opposed to merely contributing a limited part of the material on which the client relies when making its decision). The judge referred back to Lord Hoffman in SAAMCO, who explained that the difference lies “between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take”.

The defendants had also raised a concern that a finding of “advice” in this case would result in the general categorisation of tax planning as “advice”, but it is clear from the judgment that whether a professional provides advice or information depends on the individual facts and circumstances of the case and, crucially, on the nature of the assistance provided (not the type of professional advisor).

WM Comment

The Halsall case is helpful because it is a fully worked example of how the court will approach and apply the BPE test in practice – and in a case where the assistance given by the professional fell squarely between the two extremes of “advice” and “information”.

Additional practice points…

As a brief aside, professional negligence practitioners may be interested to note that, despite some to-ing and fro-ing between the parties as to the applicable standard of care expected of the tax planner [4], no mention was made in this case to the relatively recent case of O’Hare v Coutts and the ‘Montgomery‘ test [5] which, as our previous briefing explains, place some emphasis on the client’s own responsibility for making decisions following receipt of professional advice. It is interesting to speculate whether, had the defendants relied on O’Hare, the main focus of the case, and potentially even the outcome, may have been different.

Finally, it bears noting that the victory for the claimants in this case was a Pyrrhic one. Regardless of the claimants’ success on certainly the majority of the legal merits, it turned out that the claim had not been brought within the relevant limitation period, and it therefore failed overall. It is outside the scope of this article to consider the limitation issue in any detail but, for those who are interested, paragraphs 220 – 272 of the judgment comprise a comprehensive practical illustration of how the courts will decide whether a claim has been brought in time, under sections 2 or 14A of the Limitation Act 1980.

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[1] [2017] UKSC 21
[2] South Australia Asset Management Corporation v York Montague [1996] UKHL 10. In SAAMCO the House of Lords held that surveyors who provide negligent overvaluations are only liable for loss caused by the negligent valuation itself, and not for loss caused by any extraneous factor[s] –the SAAMCO principle or ‘cap’. In BPE Solicitors v Hughes-Holland, the Supreme Court confirmed the applicability of the SAAMCO cap to solicitors’ negligence cases.
[3] [2017] EWHC 1079 (QB)
[4] Ibid paras. 108 – 113 incl.

Worldwide freezing injunctions: A practical guide

What is a freezing order? A freezing order is an injunction which restrains a defendant […]

What is a freezing order?

A freezing order is an injunction which restrains a defendant or potential defendant from disposing of or dissipating assets. A freezing order is typically obtained by a claimant or potential claimant, such as a bank or other financial institution, who wishes to ensure that a [potential] defendant’s assets remain available pending the enforcement of a court judgment. Various different types of assets can be frozen, including bank accounts, shares, investments, land, property and so on.

A freezing injunction is an equitable remedy which is granted at the courts’ discretion. That means that the usual equitable bars can apply as hurdles for an applicant to overcome, including:

The equitable maxim of clean hands. That is, unless the party seeking the injunction is free of wrongdoing, the court will not exercise its discretion; and
The doctrine of ‘laches’ (delay). An application may be barred if it is not brought within a timely manner.

Freezing orders are endorsed with a penal notice, so that if a respondent fails to comply, it will be in contempt of court and can face a fine, imprisonment or seizure of assets.

What are the requirements?

Freezing orders necessarily have a severe restrictive impact. They are therefore not issued by the courts lightly and there are additional requirements with which an applicant must comply. To obtain a freezing order:

The applicant must have a substantive cause of action against the respondent (the [potential] defendant);
The applicant must have a good arguable case;
There must be a real risk of dissipation of assets; and
It must be just and convenient to grant the freezing order, bearing in mind the conduct of the applicant (‘clean hands’); the rights of (and any impact upon) any third parties who may be affected by the freezer; and whether such an order would cause legitimate and disproportionate hardship for the respondent.

The requirement for a cause of action means that the applicant must explain to the court its substantive claim, and the facts and evidence upon which it relies, at the time of the freezing order application. The applicant must also demonstrate that its case is good and arguable, which is a relatively high threshold. Case law [1] has suggested that, whilst a freezing order applicant is not required to show a better than 50% chance of success, it does have to establish that its case is more than barely capable of serious argument. That is a higher standard than the mere ‘serious question to be tried’ test that is required for other, less draconian, injunctions.

In the common circumstances where proceedings are contemplated but have not yet been formulated when a potential claimant gets wind or suspects that a defendant might be about to dispose of its assets, a freezing injunction application – and therefore a substantive claim – has to be made urgently and within a very tight timescale. The freezer must be obtained before the assets disappear or it will be worthless.

Assets and risk of dissipation

As a recent Court of Appeal case has confirmed, one of the key components of a successful freezing order application is being able to demonstrate to the court that there are assets in existence. Only once an applicant has managed that, can it begin to go on to convince the court that such assets are at risk of dissipation. (The questions of the existence and whereabouts of assets can come to the fore, in particular, in worldwide applications.)

The case of Ras Al Khaimah Investment Authority & Ors v Bestfort Development LLP & Ors [2], considered the proper test, on an application for a worldwide freezing injunction, for showing that the respondent had assets that could be caught. The Court of Appeal held that it was not enough for an applicant to assert that the respondent was apparently wealthy and must have assets somewhere; rather the applicant must “satisfy” the court of the existence of assets. Demonstrating mere likelihood would not suffice but, whilst an applicant cannot necessarily be expected to know of the existence of another’s assets, it must be able to show a good arguable case or grounds for belief in their existence.

As to the risk of dissipation, an applicant needs to adduce solid evidence that, without a freezing injunction, the [potential] defendant will place assets out of reach of enforcement. Mere unsupported statements or expressions of concern will carry little, if any, weight. In preparing its evidence an applicant should consider:

The nature of the assets in question and how quickly or easily could they be disposed of?
The financial standing of the [potential] defendant and the relative value of the claim as against his/her assets.
whether the defendant operates a business and, if so, how long the business has been established and how reputable it is. The more longstanding a business, the more goodwill it will have acquired, and the less likely it may be that a defendant would risk dissipation of assets.
Where is the [potential] defendant (and any business) based? There is generally less risk of dissipation with purely domestic defendants and a correspondingly higher risk with those domiciled or incorporated abroad. The tax and company laws of the country of domicile or incorporation may also affect the level of risk of dissipation.
The [potential] defendant’s behaviour. Evidence of prior credit or judgment default, threats to dissipate, poor commercial morality, evasion and/or refusing to cooperate with reasonable requests for disclosure or for settlement discussion may help to establish a real risk of dissipation.

Applicants’ obligations

Applicants must also:

Give full and frank disclosure of all relevant information to the court; and
Provide certain undertakings to the court, including an undertaking in damages to compensate the respondent if it is ultimately decided that the injunction should not have been awarded. The undertaking in damages can be very substantial and the applicant may, in some cases, be required to provide security.

The obligation to give full and frank disclosure is onerous and strict. Invariably, freezing injunctions are sought on a ‘without notice’ basis. (Giving notice of a freezing order application is tantamount to tipping off, and could therefore give the untrustworthy respondent the time they need to place assets out of reach, thereby rendering the order useless.) With the respondent being absent and therefore unable to make representations at the initial freezing order hearing, the applicant and its legal advisors are under a duty to ensure that all material facts are brought to the court’s attention.

It is not for the applicant to decide what information the court might need. The applicant must disclose all facts and information, consideration of which would enable the court to properly exercise its discretion. That includes any facts which may adversely affect the applicant’s own case; the length of time any dispute has been ongoing (the longer a dispute has been ongoing, the less likely is the risk of dissipation of assets); and any relevant facts which might not necessarily have been within the applicant’s or its advisors’ actual knowledge, but which they could have discovered had they made reasonable enquiries.

Ancillary orders

Finally, to ensure the effectiveness of a freezing order, applicants should consider whether also to seek certain other orders in support. For example, a disclosure order is generally essential, as it requires a respondent to disclose its assets. In particularly high risk cases, search and seizure orders; third party disclosure orders; orders requiring cross-examination of a respondent about his or her assets; orders against third parties holding assets which, in truth, belong to the respondent; and/or orders requiring delivery-up of a respondent’s passport, may be made.

Applicants must also consider where any assets within their sights are located. A freezing order may only be enforced in another jurisdiction with the English court’s permission. It is not enforceable outside the jurisdiction, and is not binding on third parties overseas, until it has been recognised, registered or enforced in the local court. In many cases applicants may, therefore, wish to apply for a worldwide freezing order.

Where an applicant’s claim is not just monetary but concerns equitable rights over assets themselves, the court may grant a proprietary injunction (that is, an order as to ownership of assets) alongside, or instead of, a freezing order.

Practical points

Freezing order applicants should note the following practical advice:

Satisfy yourself that there are sufficient assets available to freeze. Not only will you need to satisfy the court in any event, but you will need to know from the outset that a freezing order will be financially worthwhile. Legal advisors and external investigators/tracing agents will be able to assist.
Resource the application properly. Freezing order applications are costly in terms of time and money. With the added pressure of urgency where there is a risk of imminent dissipation, the preparation and issue of the without notice application for the interim freezer, the on-notice return application to continue the freezer, and the underlying claim mean that client contacts and legal representatives are likely to be working around the clock.
Be prepared to assist the court by answering any questions it may have. Remember the duty of full and frank disclosure and the general duty not to mislead the court.
Consider the practical machinations. As well as complying with the necessary legalities, you may need the use of office space and materials close to the court building to ensure that all administrative and procedural matters are dealt with, and all necessary documents served, immediately following the initial hearing. Applicants will also need to liaise with banks, possibly HM Land Registry and other third parties to implement the freezing order as soon as it is obtained.
Note that applicants will have to pay court fees for the initial hearing, the return hearing and issuing the claim up front.
Stay calm. Freezing injunction applications are often highly pressurised situations for clients and advisors alike. Remaining calm throughout the process can help to keep stress levels, and mistakes, to a minimum.
As with anything this important, make sure you have an expert team around you. Issue in the High Court and instruct solicitors and counsel with experience of successfully obtaining and implementing freezing injunctions.

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[1] Ninemia v Trav Schiffahrtsgesellschaft mbH [1984] 1 All ER, CA
[2] [2017] EWCA Civ 1014

Jointly-held assets: Who owns what when a relationship breaks down?

The question often arises, when a relationship breaks down: who owns what, exactly? It might […]

The question often arises, when a relationship breaks down: who owns what, exactly? It might be that a party whose name is not on the deeds to a property nevertheless owns a share, or that the legal ownership of jointly-owned assets does not reflect the parties’ true, or beneficial, ownership. The issue can arise not only between couples whose domestic/personal relationships have ended, but also between friends, family members, business partners and others, who have shared living or working space on all sorts of informal, quasi-legal arrangements, perhaps with a view to stepping on to the property ladder, getting a business off the ground, or otherwise making an investment.

A clash of presumptions

To answer the question, the House of Lords established in Stack v Dowden (in relation to formerly cohabiting couples) that, where there is no express declaration of trust, the starting point is that beneficial ownership follows legal ownership [1]. The onus of proving otherwise is upon the person seeking to show that the beneficial ownership is different from the legal ownership, which can be determined by discovering the parties’ common intention.

Where, however, a party has purchased a property not as a home but with the primary purpose being investment, and another family member, friend or [ex]partner claims an interest, or a dispute arises as to the extent of any beneficial ownership, Laskar v Laskar established that a resulting trust analysis may apply instead [2]. (That is, the beneficial ownership will equate to the parties’ contributions.)

In a case where the parties are (or were) in a personal or domestic relationship, but where the asset in question was purchased as an investment, the above presumptions would seem to clash. That was the problem addressed by the Privy Council in the Bahamas in the recent case of Marr v Collie [3].

Privy Council clarification

Provifing welcome clarification which, no doubt, will be applied by the courts in England and other common law jurisdictions, the Privy Council found that:

whilst, in such cases: “[a] simplistic answer… might be that, if the property is purchased in joint names by parties in a domestic relationship the presumption of joint beneficial ownership applies but if bought in a wholly non-domestic situation it does not… [in fact] the answer is not to be provided by the triumph of one presumption over another. In this, as in so many areas of law, context counts for, if not everything, a lot” [4]
the real task, therefore, is to try to discover the parties’ common intention as to the beneficial ownership by looking at their whole course of conduct in relation to the asset, and to try to give effect to that
the legal presumptions can be a starting point, but…
Stack v Dowden is not limited to a wholly domestic context (and it can, therefore, apply where parties in a personal relationship own a commercial/investment asset); and
the question of intention is central.

WM Comment

Since the downturn in the global and national property markets of the last decade, people have increasingly purchased, shared and invested in properties in ever more wide-ranging and varying circumstances. As relationships and familial and business arrangements come to an end or change over time, it is likely that the courts will continue to encounter beneficial ownership disputes pursuant to myriad different arrangements, and so any clear case law which can assist with the timely and cost-effective resolution of disputes is to be welcomed by lenders and lawyers alike.

In terms of practical advice, this case highlights the importance of seeking specialist legal advice when purchasing property with friends or partners, whether for domestic or commercial purposes (or both); of creating a clear and accurate record of all parties’ intentions as to ownership; and of keeping that record up-to-date if and when circumstances change. Similarly, if and when any misunderstanding or dispute in relation to the exact ownership of joint assets does arise, obtaining expert legal advice at the outset can help to resolve a sensitive situation as quickly and as cost-effectively as possible.

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[1] [2007] UKHL 17. So, for example, where there is sole legal ownership, the starting point is that there is sole beneficial ownership; and where there is joint legal ownership, the starting point is that there is joint beneficial ownership.
[2] [2008] EWCA Civ 347
[3] [2017] UKPC 17
[4] Ibid paras. 53 and 54

Who we are and what we do – Banking Matters September 2017

Conquering the 3 Peaks for Candlelighters! Several members of Walker Morris’ Banking Litigation team set […]

Conquering the 3 Peaks for Candlelighters!

Several members of Walker Morris’ Banking Litigation team set off at the crack of dawn on Sunday 2 July, to conquer the Yorkshire 3 Peaks to raise money for the firm’s charity of the year, Candlelighters.

Despite a few aches and pains along the way, everyone made it safely back in under ten hours, raising a fantastic £1,738.10 for this crucial and cherished local charity.

Spectacular trek for a very special cause

In August, Walker Morris’ banking litigator Christina Gill left Leeds behind for Iceland, the land of fire and ice, to take part in an Icelandic Lava Trek in aid of Sue Ryder Manorlands Hospice. Iceland being home to some of Europe’s most incredible wilderness, the trek involved thundering waterfalls, steaming lava fields, plunging fjords, spouting geysers and a few live volcanoes… and resulted in Christina raising over £6,000 for Sue Ryder and their Manorlands Hospice. A truly rewarding experience.

Walker’s Walk

On 30 September Walker Morris’ walkers will be donning their boots for charity once more, as we undertake this year’s Walker’s Walk, a 15 mile hike from our offices in Leeds to Saltaire – again this event is in aid of the firm’s charity for this year, Candlelighters. The more the merrier, so if you would like to join or donate, please contact Louise Power for details.

High profile success for Walker Morris and lender client

Walker Morris’ Kate Hicks was pleased to achieve success in the Court of Appeal on behalf of a lender client, in the eagerly awaited case of NRAM v Evans. See our detailed briefing for an explanation of the decision, which has important implications for lenders seeking alteration or rectification of the register of title.

Contacts

Richard Sandford, Partner, Banking Litigation

Richard Sandford
Partner
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