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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 [2002] EWCA Civ 1174 (8 August 2002)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1174.html
Cite as: [2002] 3 FCR 97, [2003] Ch 135, [2002] BPIR 1126, [2002] 3 WLR 1760, [2002] 2 FLR 930, [2002] EWCA Civ 1174, [2002] Fam Law 809
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- A property adjustment order is made by way of ancillary relief in matrimonial proceedings under section 24(1)(a) of the Matrimonial Causes Act 1973 as amended (“the 1973 Act”) whereby the respondent husband is ordered forthwith to transfer all his interest in the former matrimonial home to his former wife. The order provides that if the husband fails to execute the requisite documents to effect the transfer within 14 days after such documents have been sent to him, they may be signed by the district judge. By virtue of section 24(5) of the 1973 Act, the order only takes effect when decree absolute is pronounced. Within the 14-day period, decree absolute is pronounced. The next day, still within the 14-day period, the husband is made bankrupt on his own petition. At the date of the bankruptcy order no transfer documents have as yet been executed, either by the husband or by the district judge. The issue on this appeal is whether on his bankruptcy the husband’s beneficial interest in the matrimonial home vested in his trustee in bankruptcy as part of his estate for bankruptcy purposes, free from any rights of the wife under or by virtue of the order. That in turn depends upon the true interpretation of section 283 of the Insolvency Act 1986 (“the 1986 Act”), and in particular section 283(5).
- The appeal is brought by Mrs Helen Mountney against an order made by Stanley Burnton J on 21 December 2001 dismissing her appeal from an order made by District Judge Dudley on 23 August 2001 declaring that the former matrimonial home, 22, Main Road, Hawkwell, Hockley, Essex (“the property”) vested in the trustee in bankruptcy of her former husband, Stewart Mountney (“the bankrupt”), by virtue of section 306 of the 1986 Act. Permission to appeal was granted by Chadwick LJ on the papers on 12 February 2002.
- The relevant facts are not in dispute and can be shortly stated.
- The property was purchased in the bankrupt’s sole name. Mrs Mountney remains in occupation of the property, with the three children of the marriage. In February 2000 she petitioned for divorce. On 6 July 2000 District Judge Dudley made a property adjustment order under section 24 of the 1973 Act. Paragraphs 2 and 3 of the order were in the following terms (so far as material):
- On 13 July 2000 decree absolute was pronounced.
- On 14 July 2000, by which date no transfer documents had been signed either by the bankrupt or by the District Judge, a bankruptcy order was made against the bankrupt on his own petition. On 28 September 2000 Mr Stephen Treharne, the respondent to this appeal, was appointed as the bankrupt’s trustee in bankruptcy. Leaving the property out of account, the deficiency in the bankrupt’s estate is approximately £195,000.
- It is convenient at this point to set out the relevant provisions of the 1986 Act and of the 1973 Act.
- The relevant sections of the 1986 Act are sections 283, 284 and 306. They provide as follows (so far as material):
- The relevant sections of the 1973 Act (as amended) provide as follows (so far as material):
- Sections 52, 53 and 54 of the Law of Property Act 1925 were also referred to in argument, and it is convenient to set out the relevant parts of those sections at this point. They provide as follows (so far as material):
- Before the district judge, it was contended on behalf of Mrs Mountney that the bankruptcy was an abuse of the process of the court, in that it was designed to defeat the property adjustment order; and that in any event the effect of the order was to subject the property to a constructive trust in favour of Mrs Mountney which was binding on the trustee. The district judge rejected both these arguments. As to abuse of process, he held that Mrs Mountney’s remedy, if any, was to annul the bankruptcy. As to constructive trust, he held that my own decision in Beer v. Higham [1997] BPIR 349 was determinative of the issue against Mrs Mountney. He accordingly held that the property, which remained vested in the bankrupt’s sole name at the date of the bankruptcy order, vested in the trustee in bankruptcy.
- Before the judge, Mr William Hansen (for Mrs Mountney) challenged the decision of the district judge on the constructive trust issue. In addition, he put forward new grounds of appeal which had not been canvassed before the district judge. Thus, he contended (without objection from Miss Raquel Agnello, for the trustee) that Mrs Mountney’s rights under the order were binding on the trustee by virtue of section 283(5) of the 1986 Act, and/or under the rule in ex parte James (1874) LR 9 Ch 609 (where a liquidator was ordered to repay money paid to him under a mistake of law on the ground that it would be inequitable in the circumstances for him to retain it); and that section 283(5) should be construed in a manner which was compatible with Mrs Mountney’s rights under Article 8 of the European Convention on Human Rights (“the ECHR”). He also sought to adduce evidence, which had not been before the District Judge, to the effect that the bankrupt had behaved unconscionably towards Mrs Mountney. Miss Agnello objected to the introduction of this new evidence, but in the event it proved unnecessary to adduce it since the judge indicated that he was prepared to assume, for the purposes of the appeal, that the bankrupt had behaved unconscionably towards Mrs Mountney in seeking to avoid or defeat her claims for ancillary relief. On that footing, Mr Hansen submitted that the bankrupt’s (assumed) unconscionable conduct itself gave rise to a constructive trust of the property in favour of Mrs Mountney.
- The judge rejected Mr Hansen’s submission based upon unconscionable conduct on the part of the bankrupt, holding (in paragraph 8 of his judgment) that “[un]conscionable conduct must relate to specific property if that property is to be the subject to a constructive trust”. He continued:
- The judge also concluded that there was no basis for any suggestion of unconscionable conduct by the trustee, observing (in paragraph 12) that:
- As to whether the effect of the order itself was to create a constructive trust, the judge concluded that this must depend on the terms of the order. As to that, the judge agreed with the district judge that Beer v. Higham was determinative of the issue in favour of the trustee. He continued (in paragraph 10):
- The judge accordingly rejected the submissions that the property was subject to a constructive trust in favour of Mrs Mountney.
- Turning to ex parte James, the judge held (in paragraph 15) that the principle applied in that case was inapplicable to the instant case since in the instant case the trustee in bankruptcy had not been guilty of any impropriety nor had his conduct been inequitable: he had simply sought to enforce the insolvency law as he conceived it to be in the interests of the general body of creditors of the bankrupt. The judge continued:
- The judge then turned to the question whether Mrs Mountney’s right in respect of the property adjustment order is a right to which the trustee takes subject, by virtue of section 283(5). He described this question (in paragraph 16) as being the only question on the appeal.
- Addressing this question, the judge began by considering Mr Hansen’s submission based on Article 8 of the ECHR. He concluded that Mrs Mountney’s rights under Article 8.1 were qualified by Article 8.2, and in particular (in the context of the instant case) by the need to have regard to the interests of the bankrupt’s creditors. He continued (in paragraph 16):
- The judge then turned to consider the terms of section 283. Having set out the relevant parts of the section, the judge continued (in paragraph 18):
- The judge then referred to the decision of Goff J in Re Solomon (a bankrupt) [1967] 1 Ch 573 as supporting the trustee’s proposition that personal rights against the bankrupt do not bind the estate as against the trustee, but indicated that this must be so as a matter of general principle.
- Referring once again to Beer v. Higham, the judge said (in paragraph 20):
- The judge then turned to section 24 of the 1973 Act. Having set out the relevant parts of the section the judge continued (in paragraph 22):
- The judge accordingly concluded (in paragraph 23) that the order did not, of itself, create any proprietary interest in the property. He continued:
- The judge went on to observe that his conclusion was consistent with the decisions of this court in Re Holliday [1981] 1 Ch 405 and McGladdery v. McGladdery [1999] 2 FLR 1102 to the effect that a property adjustment order cannot be made against a trustee in bankruptcy, even if an application for such an order was pending at the date of the bankruptcy. He concluded his judgment as follows (in paragraph 25):
- Mrs Mountney appeals on three grounds. First, she contends that the judge ought to have held that, by virtue of paragraph 2 of the order, on the making of the decree absolute on 13 July 2000 the beneficial ownership of the property vested in her on the basis that equity looks upon as done that which ought to be done. Further or alternatively, she contends that the judge ought to have held that by reason of the circumstances in which the order was made, and in particular the unconscionable conduct of the bankrupt, there arose a remedial constructive trust over the property in her favour. Lastly, she contends that the judge was in error in concluding that her rights under the order were not rights within the meaning of section 283(5) of the 1986 Act, subject to which the bankrupt’s estate vested in the trustee.
- Mr Paul Morgan QC (leading Mr Hansen, for Mrs Mountney) submits firstly that the effect of the property adjustment order is to give Mrs Mountney a proprietary right, as from the making of a decree absolute, in the form of a beneficial interest in the property. He submits that the position of a party in whose favour a property adjustment order has been made is analogous to that of a vendor under a specifically enforceable contract, who will be treated in equity as the beneficial owner of the property the subject-matter of the contract. Mr Morgan cites the dictum of Sir George Jessel MR (in London & South Western Railway v. Gomm (1882) 20 Ch D 562 at 581) that:
- Mr Morgan submits that Mrs Mountney ought not to be in any worse position than a vendor under a specifically enforceable contract; indeed, she could be said to be in a better position than such a vendor in that she already has the benefit of a court order in her favour.
- In support of this submission Mr Morgan cites a line of English authority, starting with a decision of this court in Maclurcan v. Maclurcan (1897) 77 LT 474, to the effect that an order for periodical payments to be secured on identified property, with provision for the security to be completed by the execution of a deed in appropriate form, has the effect of creating an immediate equitable charge over the property pending the completion of the security in accordance with the order. (Nowadays, the jurisdiction to make such an order is to be found in section 23(1) of the 1973 Act: see above.) Mr Morgan further supports this submission by citing three Australian cases (Re Walker [1970] ALR 300, Pollard v. Pollard [1975] SC(NSW) 256 and Re Pertsoulis (1979) 4 Fam LR 613) in which the Maclurcan line of authority is followed and applied to orders for the transfer of property.
- Mr Morgan submits, as an alternative way of putting the same submission, that, on the principle that equity regards as done that which ought to be done, the effect of the order is that on the making of the decree absolute the husband (and hence his trustee in bankruptcy) becomes a constructive trustee of the property for Mrs Mountney, pending completion of the formal transfer. In support of this submission he relies on Re Flint [1993] Ch 319, a decision of Mr Nicholas Stewart QC, sitting as a deputy judge of the High Court. In that case, Mr Stewart QC said of an order for the transfer of property (at p.326E-F):
- As another example of the application of the same maxim, Mr Morgan relies on A-G for Hong Kong v. Reid [1994] 1 AC 325 HL. In that case a fiduciary accepted a bribe as an incentive to committing a breach of duty, and it was held by the House of Lords that as the fiduciary ought to have paid over the bribe to the person who suffered by reason of the breach of duty, the fiduciary was a constructive trustee of the bribe for that person.
- Mr Morgan’s fall-back position, should his earlier submissions not be accepted, is that even if Mrs Mountney’s right to a transfer of the property pursuant to the order is not in the nature of a proprietary interest in the property, and as such binding on the trustee under section 283(5), nevertheless on the true construction of the subsection it is a “right” to which the trustee takes subject.
- Miss Agnello (for the trustee) submits, on the authority of Burton v. Burton [1986] 2 FLR 419 (a decision of Butler-Sloss J, as she then was) and of Beer v. Higham, that the property adjustment order in the instant case did not effect an immediate transfer of the bankrupt’s beneficial interest in the property on the making of the decree absolute: it was not, she submits, in the nature of a vesting order. She contrasts orders under paragraph (c) of section 24(1) of the 1973 Act, which have immediate effect subject always to the making of a decree absolute (see Harper v. O’Reilly [1997] 2 FLR 816, a decision of Hart J), with orders under paragraphs (a) and (b), which do not. As to the Maclurcan line of authority, and the Australian cases relied on by Mr Morgan, Miss Agnello submits that an order for secured periodical payments under section 23(1)(b) of the 1973 Act is a significantly different type of order from an order for the transfer of property under section 24(1)(a) and that the cases relied on by Mr Morgan are accordingly of little assistance in the instant case.
- Miss Agnello relies on section 53(1)(a) of the Law of Property Act 1925. She submits that to conclude that the order had the effect of transferring an immediate beneficial interest on the making of the decree absolute would be to place the order in conflict with that provision. She also relies on the reference in section 39 of the 1973 Act to “[t]he fact that a ... transfer of property had to be made in order to comply with a property adjustment order” as a clear indication that nothing is transferred until the formal transfer is completed.
- Miss Agnello submits that (as the district judge concluded in the instant case) if Mrs Mountney considers that the presentation of the bankruptcy petition by her husband was an abuse of process, in that it was presented in order to frustrate her claim for ancillary relief, the appropriate course for her to take would be to apply to annul the bankruptcy. In support of that submission she relies on F v. F [1994] 1 FLR 359. There is, submits Miss Agnello, no basis for the imposition of a constructive trust of the property.
- As to the maxim that equity regards that as done which ought to be done, Miss Agnello submits that the question whether the effect of the order was to confer on Mrs Mountney an immediate beneficial interest, subject only to the making of the decree absolute, is one of construction of the order itself, and that if (as she submits) on its true construction it did not have that effect then there is no room for the application of the equitable maxim.
- As to section 283(5) of the 1986 Act, Miss Agnello submits that the judge was right to conclude that the “rights” referred to in the subsection are proprietary rights as opposed to personal rights, since otherwise the general principle that a bankrupt’s unsecured creditors are entitled to share pari passu in his estate (see, e.g., Hollinshead v. Hazelton [1916] AC 428 at 436 per Lord Atkinson) would be contravened.
- Miss Agnello also relies on the decision of the House of Lords in Roberts Petroleum v. Kenny [1983] 2 AC 192 that a party who has obtained a charging order nisi against the property of an individual is not entitled to have that order made absolute if, in the meantime, the individual concerned has been made bankrupt.
- As the judge correctly observed, the issue on this appeal is whether by virtue of the property adjustment order Mrs Mountney acquired rights in relation to the property to which the trustee takes subject, pursuant to section 283(5) of the 1986 Act. That issue raises two sub-issues:
- In the first place, I agree with the judge that no question of the imposition of a “remedial constructive trust” arises in the instant case. Mrs Mountney’s rights under the order cannot have effect beyond that which the order itself gives them. Either the order gives Mrs Mountney a right which is binding on the trustee under section 283(5) or it does not. If it does, there is no need to impose a constructive trust: if it does not, there is no justification for doing so. Accordingly, I reject Mrs Mountney’s second ground of appeal.
- I turn, then, to her first ground of appeal, namely that the judge ought to have held that that the effect of paragraph 2 of the order was that, on the making of the decree absolute, the beneficial ownership of the property vested in her on the basis that equity looks on that as done which ought to be done.
- I begin by considering the various authorities relied on in argument on this issue, starting with the English authorities.
- In Maclurcan a wife presented a divorce petition on grounds of the husband’s adultery. On the petitioner’s application for maintenance, the registrar reported that a sum of £90 per annum should be secured to the petitioner for her life on certain shares of residue to which the husband was entitled under two wills. The court confirmed the report and directed that:
- Thereafter the parties were in communication, and it appears that the husband claimed that he was being put to needless expense in formally completing a security. The wife was content to continue to receive the monthly payments and did not press for the completion of any security. Thereafter, the parties agreed changes to the amount of maintenance payable by the husband, and eventually the wife executed a deed releasing the annuity and agreeing not to enforce the court order. Subsequently, the wife applied to set aside the release and for an order that the husband pay the annuity of £90 per annum directed by the original order. The judge at first instance concluded that since the original order had not been perfected by the completion of the security the wife’s release was ineffective, and he ordered the husband to carry out the terms of the original order and to execute a deed of security. The husband appealed, contending that the wife was in a position to release the annuity as soon as the order was made. For the wife it was contended that until the security was perfected the wife had nothing to release. The Court of Appeal allowed the husband’s appeal.
- Lindley LJ began by considering under what jurisdiction the original order was made. He concluded that it was made under section 32 of the Divorce and Matrimonial Causes Act 1857. That section was in the following terms (so far as material):
- Lindley LJ continued:
- Chitty LJ agreed. In the course of his judgment he said:
- In Hyde v. Hyde [1948] P 198 an order was made on the application of the petitioner wife under section 190(1) of the Supreme Court of Judicature (Consolidation) Act 1925, which was the successor to section 32 of the Matrimonial Causes Act 1857. The order was in the following terms (so far as material):
- The parties reached agreement as to the form of the security, but the respondent died before the requisite deed was executed. The issue was whether the petitioner had a cause of action which survived as against the respondent’s estate. Barnard J, following Maclurcan, held that she had. In the course of his judgment he said this (at page 203):
- The court accordingly ordered the respondent’s executors to execute a deed granting security in the terms which had been agreed.
- In Mosey v. Mosey and Barker [1956] P 26, an order was made securing an annual sum for the maintenance of the wife “upon part of the real property [of the husband] to be agreed or to be referred to the district registrar in default of agreement”. The husband died before the security had been identified, and the wife sought to enforce the order against his estate. Sachs J held that as the order laid down what was to be done and how it was to be done, the maxim certum est quod certum reddi potest applied, thus creating an enforceable claim against the respondent’s estate pursuant to section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934. It was also argued in the alternative on behalf of the wife, relying on Hyde, that the claim created by the order was enforceable by way of the charge which the order created.
- Referring to Hyde, Sachs J said that it appeared to follow from that decision that the order in the case before him created a charge. He continued (at page 42):
- Sachs J went on to conclude that on the true construction of the order the intention was initially to charge the entire estate, until specific security was granted. That seemed to him to be in accordance with the then practice in the Probate Divorce and Admiralty Division. After referring to the dissenting judgment of Cotton LJ in Montagu v. Earl of Sandwich 32 Ch D 525 to the effect that where the obligation is to charge only a part of a person’s estate, until the assets to be charged are identified no charge is created, Sachs J continued (at page 44):
- In Re Richardson’s Will Trusts [1958] 1 Ch 504, an order was made charging the respondent’s protected life interest under his grandfather’s Will. The order directed that “the deed necessary to give effect to the said charge be settled by conveyancing counsel of the court”. The respondent was adjudicated bankrupt before any deed was executed. The trustee in bankruptcy issued a summons to determine whether the effect of the order was to work a forfeiture under the terms of the protective trusts. Dankwerts J, following Hyde, held that the effect of the order was to create an equitable charge which in turn effected a forfeiture. After stating the facts, Dankwerts J continued (at page 510):
- I accept Mr Morgan’s submission that the decisions in Maclurcan, Hyde and Richardson are clear authority for the proposition that where the court makes an order for secured periodical payments, with provision for the security to be embodied in a deed, and the property to be provided by way of security has been identified, the effect of the order is to create an equitable charge over that property pending execution of the requisite deed. Mosey is also consistent with that proposition.
- In Burton, the registrar ordered that the former matrimonial home be sold and that the debts of the respondent husband be discharged out of the proceeds of sale, the balance of which should be paid to the petitioner wife in full and final settlement of all her claims against the husband. The second respondent in the proceedings, who had lent the husband £10,000 and who had obtained a charging order nisi on the matrimonial home, applied to set aside the order. The two issues before the court were whether the registrar had jurisdiction to make an order that the debts of a party to the marriage be discharged out of the proceeds of the former matrimonial home, and whether at the date of the charging order nisi the husband held a beneficial interest in the former matrimonial home upon which the charging order could be attached. It is the second of those two issues which is relevant for present purposes.
- On the second issue, Butler-Sloss J (as she then was) held that the order should be set aside, since it did not indicate with sufficient clarity whether it was made under section 23 or section 24 of the 1973 Act. Consequently, the husband’s beneficial interest in the matrimonial home remained vested in him at the date when the charging order was made. She did, however, go on to consider the effect of a transfer of property order under section 24(1)(a) of the 1973 Act, and in particular whether such an order operated to confer an immediate beneficial interest on the transferee in advance of any formal transfer being effected. In this context, Butler-Sloss J said this (at page 425D):
- There is no indication in the report of Burton that the Maclurcan line of authority was cited to Butler-Sloss J. Had it been cited, I have no doubt that she would have referred to it in her judgment.
- In Re Flint (a bankrupt) [1993] Ch 319, an order was made under section 24(1)(a) of the 1973 Act that the husband transfer his interest in the matrimonial home to the wife. At the date of the order a bankruptcy petition was pending against the husband. A week after the making of the order, the petition came on for hearing and the husband was adjudicated bankrupt. The trustee in bankruptcy applied for a declaration that the order was void as being a ‘disposition of property’ made between the presentation of the petition and the bankruptcy order, within section 284(1) of the 1986 Act. The county court judge, sitting in bankruptcy, held that the order was void as against the trustee and he refused to ratify it under section 284(1). An appeal by the wife was dismissed by Mr Nicholas Stewart QC, sitting as a deputy judge of the High Court.
- On the appeal, it was submitted on behalf of the wife that the order effected an immediate transfer of the beneficial interest in the matrimonial home to her. The trustee did not argue the contrary, but rather submitted that the transfer was impeachable under section 284. Hence it was in effect assumed that the transfer, unless void as against the trustee under section 284, passed an immediate beneficial interest to the wife, and the argument proceeded on that basis. Once again, the Maclurcan line of authority was not cited; nor, for that matter, was Burton. Mr Stewart QC accordingly proceeded on the footing that the order would, unless void against the trustee, have passed an immediate beneficial interest to the wife (see the passage from his judgment at pp. 326E-F quoted in paragraph 30 above).
- The last English authority to which I need to refer on this aspect of the case is my own decision in Beer v. Higham. In that case the respondent husband was ordered within 3 months to transfer to the petitioner wife all his interest in the former matrimonial home, which was registered in their joint names. The husband was made bankrupt before any transfer was executed. The trustee sought a declaration that the matrimonial home was held upon trust for the husband and the wife in equal shares. The district judge dismissed the application, holding, in effect, that the order had the effect of transferring the husband’s beneficial interest in the matrimonial home to the wife. I allowed the trustee’s appeal. Following Burton, I held that the order did not itself effect any transfer of the husband’s interest in the matrimonial home; rather, it required him to take the necessary steps to effect such a transfer in compliance with section 53 of the Law of Property Act 1925. In reaching that conclusion I drew the distinction between an order that a party transfer an interest and a vesting order, which by its terms has immediate effect. The case was argued on the footing that if the order did not effect an immediate transfer of the husband’s beneficial interest in the property then on his bankruptcy that beneficial interest would have vested in his trustee free from any rights of the wife under the order. Accordingly, no separate argument was addressed as to the true meaning and effect of section 283(5) of the 1986 Act; nor, for that matter, was the Maclurcan line of authority cited.
- I turn next to the Australian authorities.
- In Walker, the petitioner wife was ordered to transfer a property to the husband and to execute all necessary documents to effect the transfer. The husband died before any document of transfer was executed, and his executors issued a summons seeking the determination of various questions as to the effect of the order. The Supreme Court of New South Wales held (among other things) that the effect of the order was to vest an equitable estate in fee simple in the property in the husband. In the course of his judgment, McLelland CJ in Equity said this (at p.304):
- He concluded his judgment by saying (at page 306):
- In Pollard, an order was made that the registrar take all necessary steps to transfer to the petitioner all the respondent’s right, title and interest in the former matrimonial home. Before any such steps were taken, the petitioner died. The registrar thereupon refused to draw up a transfer on the ground that the action had abated. The Supreme Court of New South Wales, Family Law Division, exercising federal jurisdiction, held that a declaration should be granted that the respondent held his right, title and interest in the former matrimonial home upon trust for the petitioner, and that it would be inconsistent with the intention of the original order if its operation were defeated by the death of the petitioner.
- In Pertsoulis, a decision of the Family Court of Australia, reference is made to Hyde and to Pollard, but the procedural situation in that case was complex, and I do not regard the judgment in that case as being of assistance in the instant case.
- Against the background of those authorities, I turn to Mr Morgan’s submission that, by analogy with the position of a purchaser under a specifically enforceable contract, the property adjustment order in the instant case had the effect of conferring on Mrs Mountney an equitable interest in the property, conditional only upon the making of the decree absolute.
- In addressing this submission it is first necessary to identify the nature of the equitable interest of a purchaser under a specifically enforceable contract, and secondly to consider whether, by virtue of the order, Mrs Mountney is in the same position as such a purchaser.
- In Howard v. Miller [1915] AC 318 HL, Lord Parker said this (at page 326):
- To the same effect is the following passage in Fry on Specific Performance 6th Edition (1921) at para 1392:
- In essence, therefore, equity treats the personal contractual rights of a purchaser under a specifically enforceable contract for the sale of land as conferring on the purchaser a proprietary right enforceable against the land. The rationale for this treatment was explained by Browne-Wilkinson J (as he then was) in Swiss Bank Corp v. Lloyds Bank Ltd at first instance (reported in [1979] 1 Ch 548 at 565):
- Although the decision in the Swiss Bank case was reversed by the Court of Appeal (whose decision was upheld by the House of Lords), no doubt was cast on the accuracy of Browne-Wilkinson J’s analysis quoted above, and I respectfully adopt it.
- It is now necessary to compare the position of a purchaser under a specifically enforceable contract for the sale of land with that of a party in whose favour an order has been made under section 24(1)(a).
- It is in this context that the Maclurcan line of authority is of direct relevance. Maclurcan itself establishes that an order which directs a party to provide security, and which contemplates the completion of the security by the execution of the appropriate deed, creates an immediate equitable charge, provided that the property the subject of the charge can be sufficiently identified. In Maclurcan the order itself identified the property to be charged, viz. the equitable interests of the husband under two wills. Thus, in Maclurcan the order itself had the effect of creating an equitable interest and conferring on the wife a right of realisation by judicial process, thereby supplementing the court’s statutory jurisdiction by giving the order an effect beyond its express terms.
- The fact that the order in Maclurcan was made pursuant to the predecessor of section 23(1)(b) (secured periodical payments) seems to me to be an immaterial distinction for present purposes. As the Australian authorities referred to earlier indicate, the ratio of Maclurcan is directly applicable to an order made pursuant to section 24(1)(a).
- In my judgment, therefore, applying Maclurcan, the order in the instant case had the effect of conferring on Mrs Mountney an equitable interest in the property at the moment when the order took effect (i.e. on the making of the decree absolute). On that basis Mrs Mountney is, if anything, in a better position than a purchaser of the property under a specifically enforceable contract in that (as Mr Morgan has submitted) by making the order under section 24(1)(a) the court has in effect already made a decree of specific performance in her favour. All that remains is for her to enforce it.
- It follows that, applying Maclurcan, my decision in Beer was wrong. The same applies, in my judgment, to the observations of Butler-Sloss J in Burton relating to orders under section 24(1)(a). Per contra Mr Nicholas Stewart QC was right when, in Re Flint, he proceeded on the basis that the maxim that equity treats as done that which ought to be done applied, so as to vest the beneficial ownership of the property in the party in whose favour a property adjustment order had been made.
- I should perhaps also say that although in Beer I placed some reliance in reaching my conclusion on the provisions of section 53(1)(a) of the Law of Property Act 1925 (as did Butler-Sloss J in Burton), I am satisfied that the provisions of that subsection cannot operate so as to prevent the operation of the equitable principle established in Maclurcan.
- I turn, then, to the second of the sub-issues identified earlier, on the footing that at the date of the bankruptcy Mrs Mountney had a subsisting equitable interest in the property.
- This is a pure question of construction of section 283(5), and in particular of the word “rights”. However, it being common ground that section 283(5) applies to proprietary rights, it follows from my conclusion on the first sub-issue that the trustee took subject to Mrs Mountney’s equitable interest under the order, and that she is accordingly entitled to enforce the order against the trustee (subject always to the trustee’s right, preserved by section 39 of the 1973 Act, to challenge the transaction as being a transaction at an undervalue).
- In conclusion it is right to say, in fairness to the judge, that not only was he faced with an erroneous decision of mine in Beer, but the Maclurcan line of authority was not cited to him. Nor, for that matter, was it contended before him that Mrs Mountney’s position is analogous to that of a purchaser under a specifically enforceable contract. This court, by contrast, has had the benefit of very much fuller argument, coupled with much more extensive citation of authority.
- For the reasons I have given, I would allow this appeal.
- I would allow this appeal for the reasons given by my Lord Jonathan Parker LJ. Their logic seems to me with great respect to be inescapable.
- Yet I do not think the result is satisfactory. This court’s decision in Maclurcan (1897) 77 LT 474, by which I take it we are bound, assumes or implies what seems to me to be a very doubtful proposition. It is that equity may be called in aid of a statute, or more accurately an order made under a statute. Every law student knows that equity may mitigate the rigour of the common law in circumstances where (according to developed principles) it is held that it would be unconscionable for an individual to rest on his strict legal rights:
- Hence so many equitable principles and remedies: constructive trust; equitable estoppel; rectification; and so on.
- My difficulty is that I do not see how the evolution of equity can touch the operation of a statutory order as it may touch the operation of a common law rule. The reason is that there is no room for the courts to supplement the effect of an order made under statute by application of a doctrine not derived from the statute itself. The courts cannot enlarge or diminish the scope of the statute, save on pain of offence to Parliament’s legislative supremacy. Nor may they enlarge or diminish the scope of the order made under the statute, save through the process of appeal. The court making the order must of course construe the statute correctly before exercising the power conferred by it, and will apply judge-made rules of construction. If the court is later asked to enforce the order, it must construe the order correctly. It may then have to choose the appropriate means of enforcement (and, again, look at the statute’s interpretation if that is material to enforcement). But this tripartite process of interpretation, discretionary power, and enforcement is at no point a function of the self-standing doctrines of equity. (Of course the court will act fairly, and so in that general sense equitably.)
- However on my reading of Maclurcan, Hyde [1948] P 198 and Richardson [1958] 1 Ch 504, the court found an equitable interest essentially by application of the maxim that equity treats as done that which ought to be done, which is also the cornerstone of Mr Morgan’s principal argument in the present case. Certainly, with great respect, I cannot see how in Maclurcan the equitable charge found by the court can as a matter of construction be got out of the words of the enabling Act (cited by Jonathan Parker LJ at paragraph 45 of his judgment), or those of the order that was made. Nor, in my judgment, can the equitable interest contended for here be got out of the words of s.24(1)(a) of the Matrimonial Causes Act 1973, or those of the property adjustment order made under the subsection on 6 July 2000.
- The Maclurcan line of authority, which is followed in the Australian cases to which my Lord has referred, was not cited to Butler-Sloss J (as she then was) in Burton [1986] 2 FLR 419, nor to my Lord in Beer [1997] BPIR 349. I have to say that I think it is a line of authority whose correctness is open to question as a matter of principle. But as I have foreshadowed I agree with the conclusion arrived at by my Lord Jonathan Parker LJ (paragraph 75) that the ratio of Maclurcan is directly applicable to an order under s.24(1)(a). It follows, as my Lord has held (paragraph 76), that the effect of the order made in this case was to confer on Mrs Mountney an equitable interest in the property when the decree of divorce was made absolute.
- I agree that the appeal should be allowed for the reasons given by Jonathan Parker LJ.
- The conclusion reached will, in certain circumstances, raise questions of priority to property between creditors and spouses. Decisions in ancillary relief proceedings should be taken against a proper disclosure of the facts.
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION (Mr Justice Stanley Burnton)
Strand, London, WC2A 2LL | ||
B e f o r e :
LORD JUSTICE LAWS
and
LORD JUSTICE JONATHAN PARKER
____________________
| MOUNTNEY | Appellant | |
- and - | ||
TREHARNE | Respondent |
____________________
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 :
Introduction
The facts
“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.
(2) ….
(3) Subsection (1) does not apply to –
(a) property held by the bankrupt on trust for any other person, or
(b) ….
(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 [1995] 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 [1952] 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 [1965] 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.”
Conclusions
(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 [1973] 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 [1973] 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: