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Orders for sale

Section 13

Rodway v Landy
[2001] EWCA Civ 471

Under s13 of the Trusts of Land and Appointment of Trustees Act 1996 trustees and the court have power to exclude particular beneficiaries from part or parts of the property and thus to partition it between them for purposes of occupation.

In this case GPs in a practice were in dispute. The court refused to order a sale of the practice premises as requested by one of them but instead divided up the property into different areas of occupation.


Extent of powers of court

Giving beneficiary opportunity to purchase

Bagum v Hafitz and Hai
[2015] EWCA Civ 801

Summary

The Court had no power to order one beneficial owner to sell its interest to another. However, there was power to order a sale of the property and to provide that another beneficial owner should have the first opportunity to buy the property on terms.

Facts

C and her two sons, D1 and D2, owned a property as tenants in common in equal shares. Following a breakdown in family relations between D2 and C and D1, D2 moved out. At the trial of a preliminary issue, C sought an order for the purchase by D1 of D2’s one-third beneficial interest in the property. The primary issue was the scope of the court’s power to make the order sought. At first instance the judge held that she had no jurisdiction to make an order directing one beneficiary to sell to another. Therefore, she ordered that the property should be sold and that D1 should have the opportunity to buy it for a price determined upon valuation evidence by the court, failing which the property should be sold on the open market, with liberty for all the beneficial owners to bid.

D2 appealed asserting that the judge had no jurisdiction to make the order under the Trusts of Land and Appointment of Trustees Act 1996 ("TOLATA").

Decision

On appeal the Court of Appeal dismissed the appeal. The Court held that the judge was correct in her decision as to her jurisdiction under TOLATA, and that her exercise of the wide discretion conferred by sections 14 and 15 of that Act could not be challenged.

Briggs LJ held that the court has no power under section 14 of TOLATA to order or direct that one beneficiary under a trust of land sell or transfer their beneficial interest to another beneficiary. Section 14(2), which confers certain powers, provides only that “The court may make any such order - … relating to the exercise by the trustees of any of their functions… as the court thinks fit.” He said:“It is, in my judgment, no part of the functions of trustees of land to deal with or dispose of beneficial interests under the trust, whether by sale or otherwise, at least not directly.”Turning to the issue of whether the judge had the power to order the trustees to sell to a beneficiary when the other beneficiaries did not agree to the sale, Briggs LJ said:
    “I consider that the clear object and effect of sections 14 and 15 is to confer upon the court a substantially wider discretion, exercised upon the basis of wider considerations, than might be enjoyed by the trustees themselves, acting without either the consent of their beneficiaries or an order of the court.”
The judge's order, that there should be a sale of the trust property, preceded by the conferring upon one of the beneficiaries, of an opportunity to be the purchaser on terms was within the Court’s jurisdiction under section 14(2)(a) of TOLATA.

Although the order was unusual the judge had properly directed herself. She had carefully analysed the intentions of the persons creating the trust, and the purposes for which the trust had been created, namely to secure the continued availability of the property as a home for C and D1.


Bankruptcy

Introduction

On an application by a trustee in bankruptcy of a beneficial co-owner of real property, the court can declare the parties' beneficial interests and consider making an order for sale under s14 Trusts of Land and Appointment of Trustees Act 1996. However, by s 335A(1) Insolvency Act 1986, an application for an order for sale has to be made to the court having jurisdiction in relation to the bankruptcy, and the court is required to have regard to the further matters in s 335A(2)-(3).

Statutory provisions

The relevant provisions of the Insolvency Act, as amended are as follows:

335A Rights under trusts of land
    (1) Any application by a trustee of a bankrupt's estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

    (2) On such an application the court shall make such order as it thinks just and reasonable having regard to:

      (a) the interests of the bankrupt's creditors;
      (b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the [bankrupt's spouse or civil partner or former spouse or former civil partner]:

        (i) the conduct of the [spouse, civil partner, former spouse or former civil partner], so far as contributing to the bankruptcy,
        (ii) the needs and financial resources of the [spouse, civil partner, former spouse or former civil partner], and
        (iii) the needs of any children; and

      (c) all the circumstances of the case other than the needs of the bankrupt.

    (3) Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt's estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations.

    (4) The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this section.
It will be noted that where the application is made after one year from the date on which the bankrupt's estate first vests in his trustee, subsection (3) imposes a statutory assumption that unless the circumstances are exceptional the interests of the bankrupt's creditors outweigh all other considerations.

Exceptional circumstances

Nicolls v Lan and Nicholls
[2006] EWHC 1255 (Ch)
Paul Morgan QC sitting as a Deputy High Court Judge

Summary

In this case the High Court Judge on appeal had to consider the exercise of discretion by the District Judge, and the application of the above provisions.

Facts

The facts were fairly unusual. Mr N had been discharged from bankruptcy in September 1998 but a trustee was appointed in May 2003 and subsequently applied for a declaration as to Mr and Mrs N's respective beneficial interests in a property, and for an order for sale. The Judge commented that the appointment and application were probably prompted by the limitation period on applications for sale subsequently imposed by the Enterprise Act 2002.

First instance

The District Judge declared that the parties were beneficially entitled in equal shares. On the question of whether there were exceptional circumstances in s 335A(3), he held that on the psychiatric evidence of Mrs N's chronic schizophrenia, there were.

A significant feature at trial was that Mrs N's Counsel presented an open offer of compromise, in which he proposed an order for sale, suspended on terms but which involved securing the trustee's interest over another property of which Mrs N was interested with her brother. The District Judge held that he had no jurisdiction to make an order in accordance with the proposed offer, because it extended to other property, not the subject of the present application. He therefore went on to carry out the balancing exercise having regard to the matters in s 335A(2), and concluded that there should be an order for sale; that the trustee should have conduct of the sale; and that the vacant possession should be delivered up within 18 months of the date of the order.

Mrs N appealed.

Decision

It was held that the District Judge did have jurisdiction to make an order for possession suspended on such terms as he thought appropriate, until the happening of certain specified events, as reflected in the open offer. However, that did not result in the order being set aside because the District Judge had said that even if he had felt that he had jurisdiction to make the order suggested, on the basis of the open offer, in his discretion he would have refused to do so.

As to the challenge to the exercise of the District Judge's discretion to order sale, the case raised yet again, the scope of the appellate court's powers to interfere. Since the appeal amounted to a challenge to the balancing exercise carried out by the District Judge, it was held that an appellate court could only interfere if the judge had erred in law in his interpretation of s 335A, or in some other respect, such as leaving out of account relevant considerations or taking into account irrelevant considerations, or otherwise being plainly wrong in his conclusion.

The Judge reviewed the various competing factors considered by the District Judge: the effect of the psychiatric evidence; the impact on Mrs N being forced to leave the matrimonial home; the problems of being pushed into sharing with her brother etc. He also reviewed the allegation that too much weight had been attributed to the interests of the bankrupt's creditors, relying on Article 8 of Schedule 1 to the Human Rights Act 1998.

The Judge held, on authority (Jackson v Bell [2001] EWCA Civ 387) that the statutory balancing exercise in s 335A was not inconsistent with the qualified nature of Mrs N's rights under Article 8 or Article 1 of the First Protocol.

Overall, it was held that the District Judge did not commit any error which would allow an appellate court to interfere with his discretion as to what was just and reasonable for the purposes of s 335A

Children

Grant v Baker
[2016] EWHC 1782 (Ch)

Summary

At first instance the County Court ordered the sale of the bankrupt’s property to be postponed until his disabled child no longer lived there. The High Court allowed the appeal and ordered a sale after approximately 12 months.

Facts

A husband and wife had a 30-year-old disabled daughter who was unable to live on her own. Trustees in bankruptcy applied for the sale of the property which was jointly owned by the bankrupt and his wife. The County Court ordered that the trustees were entitled to one half of the beneficial interest in the property and that the wife was entitled to the other half. Sale of the property was postponed until the disabled child no longer resided at the property but no date was given. The trustees appealed from part of the order.

Issue

Whether a finding of exceptional circumstances under s. 335A(3) of the Insolvency Act 1986 permitted a Judge to exercise a discretion so as to indefinitely postpone an order for sale.

Decision

The High Court allowed the appeal. The District Judge had erred significantly in the exercise of her discretion, it would be replaced with the longest further postponement that it could be reasonable to impose, which was one of approximately 12 months.

The District Judge had been clearly entitled to find that the circumstances of the present case were exceptional. This displaced the presumption that the interests of the husband’s creditors outweighed all other considerations under s. 335A(3) of the Insolvency Act 1986. However, the District Judge had paid insufficient attention to the requirement in s. 335A(2)(c) to have regard to “all the circumstances of the case other than the needs of the bankrupt”.

One of those considerations was that under section 283A(2) of the Insolvency Act 1986, the bankrupt's family home revests in the bankrupt automatically on the third anniversary of the bankruptcy order unless the trustee in bankruptcy takes certain actions, such as applying for an order for sale. As Henderson J said,
    “If, as in the present case, the trustee does take action within the requisite period, it seems to me that the court should then exercise its powers under section 335A with the object of enabling the bankrupt's interest in the property to be realised and made available for distribution among his creditors. Only in that way can the underlying purpose of the bankruptcy legislation be achieved.”
The District Judge had failed to give appropriate weight to the fundamental point that an indefinite suspension of the order for sale, for a period that could be measured in decades, is incompatible with the underlying purpose of the bankruptcy code. There was no evidence that the daughter’s life expectancy was lower than normal, so the effect of the Order was that the sale could be postponed for many years, or even decades. In all save the most truly exceptional circumstances, that purpose must require realisation within a much shorter time frame, normally to be measured in months rather than years.

The District Judge had been unduly influenced by the perceived lack of security for the disabled daughter of moving into rented accommodation.

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