England and Wales High Court (Chancery Division) Decisions

Holder & Ors v. APC Supperstone & Ors [1999] EWHC Ch 189 (30th November, 1999)

1. The plaintiffs, (as the proceedings were commenced,) to whom I will refer as "the Claimants" were long lease holders of various flats located in a number of converted houses situated at numbers 2,4,6 - 8 & 10, Trinity Square Upper Tooting London SW17 ("the Properties"). On the 2^nd August and 1^st October 1990 the Claimants commenced two sets of proceedings for damages against a Mr Quereshi ("the Bankrupt"), the Claimants landlord and then the freehold owner of the Properties, in respect of alleged breaches of leasehold covenants by him. The proceedings were defended by the Bankrupt and he counter-claimed against the Claimants for alleged arrears of rent. The two sets of proceedings were consolidated and came for trial before Judge Tibber in the West London County Court. On the 22^nd September 1992 after a trial lasting 15 days the Judge found in favour of the Claimants and made an order for damages against the Bankrupt to be assessed. However the Judge ordered a payment by the Bankrupt, on account of damages, of £41,500 together with a further sum of £15,000 in respect of particular losses of the Claimants. The total amount payable by the Bankrupt pursuant to the judgment was therefor £56,500. The Bankrupts counter-claims were dismissed.

2. On the 16^th November 1992 a Charging Order Nisi was made over the Properties in respect of Judge Tibber's judgment. That order was made absolute on the 6^th January 1993 when the West London County Court ordered:-

   "... that the beneficial interest of [the Bankrupt] in [the Properties] stand charged with the payment of £56,500 the amount due from [the Bankrupt to the Claimants] on a judgment (or order) of this Court... dated 22^nd September 1992, together with interest and £541.00 being the costs of this application, the costs to be added to the judgement debt."

3. Cautions were duly lodged at the Land Registry on behalf of the Claimants against the titles to each of the Properties in respect of the Charging Order.

4. Searches against the registered titles of the Properties in March 1993 revealed that on the 8^th March 1993 applications had been made to register transfers by the Bankrupt of the title to the Properties to three individuals, Messrs Sajjad, Aijaz and Khan ("the Transferees") dated the 29^th October 1988. The search also revealed the grant by the Bankrupt of ten long leases in relation to the Properties between September 1987 and December 1991 in favour variously of the Transferees.

5. In 1993 the Claimants commenced proceedings against the Bankrupt and the Transferees seeking to set aside the dealings with the Properties which their searches had revealed and orders for possession and sale of the Properties by way of enforcement of the Charging Order. The Claimants were unable to effect service on the Transferees and obtained leave to discontinue the proceedings against them. On the 31^st October 1994 Mr Justice Knox made an order in favour of the Claimants against the Bankrupt for sale of the Properties. The order as drawn ordered taxation of the Claimants costs but did not specifically order them to be paid by the Bankrupt which was plainly an error in drafting the order. Because the order was not binding on the Transferees leave was sought to rejoin them to the proceedings for the purpose of obtaining similar relief against them as had previously been sought. On the 27^th April 1995 that leave was granted and it was ordered that issues be tried as between the Claimants on the one hand and the Bankrupt and the Transferees on the other namely:

What interest, if any, the Transferees had in the freehold titles to the Properties;

What interest, if any, they had arising from the purported transfers of the freehold title and grant of the leases in respect of the Properties.

6. Those issues came to be tried on the 12^th January 1996 by Mr Jules Sher QC siting as a deputy Judge of this Court. He found that the purported transfers and leases were ineffective to give any interest in the Properties to the Transferees and he ordered that the Bankrupt and the Transferees pay the Claimants costs of the issues ordered to be tried. Various appeals were made against this order all of which were dismissed. On the 15^th October 1997 the Claimants made a further application in the proceedings for possession and sale of the Properties against the Transferees. Those proceedings were again contested but an order for possession and sale against the Transferees was made by Master Bowman on the 25^th November 1997.
7. Meanwhile on the 12^th February 1996 a bankruptcy petition was presented against the Bankrupt by the Bank of Credit and Commerce International SA upon which a bankruptcy order was made on the 1^st April. Mr Supperstone was appointed the Bankrupt's trustee in bankruptcy.
8. On the 22^nd February 1999 Master Bowman made an order, inter alia for payment to the Claimants from the proceeds of sale of the Properties of the sum of £111,043.78p being the original judgment sum of £56,500 together with a sum for interest at 15% from the 17^th September 1992. That sum has been paid.
9. On the 22^nd March the Claimants issued a summons seeking an order that the costs of the proceedings to enforce the Charging Order be paid out of the proceeds of sale of the Properties. It is that summons, which, having been adjourned by Master Bowman into Court to be heard by a Judge, is before me to be dealt with.
10. Section 1(1) of the Charging Orders Act 1979 provides:

    "1(1) Where under a judgment or order of the High Court or a County Court, a person (the "debtor") is required to pay a sum of money to another person (the "creditor") then, for the purpose of enforcing their judgment or order, the appropriate Court may make an order in accordance with the provisions of this Act imposing on any such property of the debtor as may be specified in the order a charge for securing the payment of any money due or to become due under the judgment or order."

11. Section 3(4) of that Act provides:-

    "3(4) Subject to the provisions of this Act, a charge imposed by a Charging Order shall have the like effect and shall be enforceable in the same Courts and in the same manner as an equitable charge created by the debtor by writing under his hand."

12. In Parker-Tweedale v Dunbar Bank plc & ors (No 2) 1991 CH p 26 the Court of Appeal was considering the contention of a mortgagee that it was entitled to obtain payment of its costs from the proceeds of sale of the mortgaged property where the costs had been incurred in proceedings by a party, other than the mortgagor but who claimed to have an interest in the mortgaged property, challenging the exercise of the power of sale by the mortgagee. The Judge at first instance held against the mortgagee's contention. His decision was upheld by the Court of Appeal. At page 33 of the report Lord Justice Nourse says:-

    "A mortgagee is entitled to re-imburse himself out of the mortgaged property for all costs, charges and expenses reasonably and properly occurred in enforcing or preserving his security. Often the process of enforcement or preservation make it necessary for him to take or defend proceedings. In regard to such proceedings three prepositions may stated. (1) The mortgagee's costs reasonably and properly incurred, of proceedings between himself and the mortgagor or his surety are allowable. The classical examples are proceedings for payment, sale, foreclosure or redemption, but nowadays the most common are those for possession of the mortgaged property preliminary to an exercise of the mortgagees statutory power of sale out of Court. (2) Allowable also are the mortgagee's costs, reasonably and properly incurred, of proceedings between himself and a third party where what is impugned is the title to the estate. In such a case the mortgagee acts for the benefit of the equity of redemption as much as for that of the security. (3) But where a third party impugns the title to the mortgage, or the enforcement or exercise of some right or power accruing to the mortgagee thereunder, the mortgagee's costs of the proceedings, even though they are reasonably and properly incurred are not allowable."

13. It is not in issue that these principles apply equally to equitable charges as to mortgages. In Ezekiel v Orakpo, at first instance, unreported, in which judgment was given on the 4^th November 1994 Carnwath J said at page 8 of the transcript:-

"So far as concerns the costs of enforcing the security, it is well established that:-

"A mortgagee is allowed to re-imburse himself out of the mortgaged property for all costs charges and expenses reasonably and properly incurred in enforcing or preserving his security..." although that principle is based on an implied term in the mortgage contract (see Gomba Holdings v Minories Finance 1993 CH 171 at p 184) the same principle is in my view applicable (by virtue of section 3(4) of the 1979 Act) to a Charging Order."

14. That case was concerned with a claim by a creditor to recover interest on a judgment debt in respect of which judgment had been given in 1979 but no attempt to enforce it was made until 1993 by which time a substantial sum for interest had accrued due. The creditor subsequently obtained a Charging Order serving the judgment debt. There was no mention of interest or costs of enforcement in either the judgment or Charging Order. Mr Justice Carnwath held that the plaintiff was entitled to add judgment interest to the judgment debt but limited by the effect of Limitation to interest accruing over the previous six years and also the costs of enforcement. The court of Appeal upheld the Judges decision that interest could be added to the security conferred by the Charging Order but varied his judgment so as to remove the restriction on that interest to that accruing during the limitation period. In the Court of Appeal the case is reported at 1997 1WLR p340. In his judgment at page 346 Lord Justice Millet, having concluded that the effect of section 17 of the Judgments Act 1938 was that, for a judgment to carry judgment interest it is not necessary for the judgment specifically to mention interest which attaches automatically, and that therefore it is not necessary to mention interest in any Charging Order carrying the judgment into effect for such interest to be added to the security, continued:-

    "Section 3(4) of the Charging Orders Act 1979 provides that the Charging Order takes effect as an equitable charge created by the judgment debtor by writing under his hand. It must therefore be given the same effect unless the Act itself provides otherwise as would an equitable charge on the land in question to secure a stated principle sum but with no mention of interest. Such a charge would carry interest even though there were no words allowing interest on the charge itself. That was decided at first instance in re Drax... which was followed ... in Stoker v Elwell... . The defendant invited us to over rule Stoker...and re Drax although they have stood unchallenged for nearly a century.

    His submission was founded on the well established principle that a Charging Order cannot be given except for an ascertained sum.... It is clear Law for example that a Charging Order cannot be made for untaxed costs. In the present case, of course, the costs were taxed. But it is said by parity of reasoning that it cannot be made to secure future interest since the amount of such interest cannot be ascertained in advance. However, the Charging Orders Act 1979 itself entitles the Court to make a Charging Order for monies due or to become due, and it appears to me that future interest at an ascertained rate (albeit a variable rate) from the date of judgment to the date of payment is an ascertained or at least an ascertainable sum for the purpose of the rule in question.

    So far as the costs of enforcing the security are concerned, it is of course perfectly true that at the date of the Charging Order, or indeed subsequently, it was quite impossible to ascertain them. The Judge came to the conclusion that the Charging Order must, by the provisions of the statute, be given the same effect as if it were an equitable charge under hand only. If it were, the chargee would have the right in equity to add the costs of enforcing the security to the security. He considered that that should be implied into the Charging Order by virtue of section 3(4). I agree with him and do not think it necessary to add anything further on the matter."

15. It was submitted on behalf of the Trustee in bankruptcy that section 3(4) of the 1979 Act is expressly made "subject to the provisions of this Act" and therefore to the provisions of section 1(1). That section empowers the Court to make a Charging Order for the purpose of "securing the payment of any money due or to become due under the judgment ...". Those words, it was submitted, mean that Charging Orders can only be made in respect of ascertained indebtedness. It follows that a sum due in respect of untaxed costs, a fortiori in proceedings which have been commenced but where no order for costs has been made, cannot be added to the security conferred by a Charging Order and certainly where there is no specific mention of such untaxed or unordered costs in the order itself. It was further submitted that the rule that a mortgagee is entitled to re-imburse himself out of the mortgaged property in respect of interest on the mortgage debt or costs incurred in enforcing it or protecting the mortgaged estate, is based on the proposition that terms to that effect are to be implied into the mortgage contract see per Scott LJ in Gomba Holdings Ltd v Minories Finance 1993 1CH p 171 at page 184. The process of implication of terms is inapplicable where a charge does not result from a contract but from a statutorily prescribed procedure. In any event such terms could not be implied into a Charging Order because they are inconsistent with the provisions of section 1(1) of the 1979 Act. It was submitted that to the extent that Mr Justice Carnwath in the Ezekiel case decided that a judgment creditor could add untaxed costs incurred in enforcing his judgment to the amount secured by a Charging Order I should not follow his decision. To the extent that the Court of Appeal in the same case appear to support Carnwath J's decision I should not follow the Court of Appeal because it is apparent from the report that the issue of costs was not before them and so the passage in the judgment of Lord Justice Millet which I have set out above where he deals with the "costs of enforcing the security", is obiter and appears to be inconsistent with the immediately preceding passage in his judgment where he says, inter alia, "that a Charging Order cannot be made for untaxed costs" but could be made for interest because it was "ascertained or ascertainable".
16. Mr Goodison for the Trustee supported these submissions by citations from the decision of the Mr Justice Walton in A&M Records Inc v Darakdjian 1975 1 WLR p1610 and the recent Court of Appeal decision in Glenister v Rowe 1999 3 WLR p 716.
17. In the latter case the Court of Appeal were considering the question of whether a debt for costs owed by a bankrupt as a result of an order made in proceedings which were commenced before the bankruptcy order but were only concluded after his discharge, constituted a claim provable in the bankruptcy from which his discharge released him. The Court of Appeal reversing the Judge concluded that it did not. Lord Justice Mummery as part of the reasons for this conclusion said at page 722:-

    "The reasons for this result are as follows.

    Costs of legal proceedings are in the discretion of the Court. Until an order for costs is made there is no obligation or liability to pay them and there is no right to recover them.

    Once legal proceedings have been commenced there is always a possibility or a risk that an order for costs may be made against a party and, in certain circumstances, even against a non party or the representative of a party. I would accept that an order for costs is a "contingency" which may or may not happen at some stage during or at the conclusion of the proceedings.

    The fact that an order for costs (a) creates an obligation to pay money and (b) is a contingency in legal proceedings is not sufficient, however, to make a claim that the Court should exercise its discretion to make such an order a "contingent liability" of the person against whom such an order may ultimately be made."

18. In the A&M case Mr Justice Walton was considering a case where a successful litigant obtained an order for costs but before those costs could be taxed, having become apprehensive that the defendants were about to sell certain freehold property which would remove an asset of the defendants from which such costs could be paid, applied for a Charging Order to be made against the defendant's land pending the taxing Master's final certificate of the amount due. Mr Justice Walton held that there was no jurisdiction to make a Charging Order in the circumstances because at the time the application was being made there was no ascertained sum in respect of which the order could be made and so no "monies due or to become due" within section 35(1) of the Administration of Justice Act 1956 the predecessor of the present section 1(1).
19. I am unable to accept these submissions. In my judgment they involve a confusion between the rules which govern the nature of the debts in respect of which there is a power to make Charging Orders under section 1(1) of the 1979 Act and the rules which apply to the holder of a Charging Order which govern what right he has to add to the security conferred by the Charging Order further sums for interest and costs, which are not found in section 1(1) but rather in the common law applicable to equitable chargees generally applied to Charging Orders by section 3(4) of the 1979 Act.
20. It seems to me, with respect, that this is a contrast of which Lord Justice Millet was fully aware when he gave judgment in the Ezekiel case. Although he treated the interest accruing on the judgment debt as being a debt in respect of which a Charging Order could be made because such interest was ascertainable at time of the making of the Charging Order, it seems clear that it also could have been added to the judgement debt by the holder of the Charging Order when its amount was subsequently ascertained.

21. Mr Justice Walton in the A&M case was not considering the powers of the holder of a Charging Order but rather whether a Charging Order could be made for costs ordered but not yet taxed. The position of a holder of a Charging Order did not arise in Glenister v Rowe.

22. The present case concerns only the powers of the holder of a Charging Order to add costs incurred by him to the secured judgment debt. It is not in issue that the costs incurred by the Claimants in enforcing the Charging Order, subject to the question of reasonableness, fall into Lord Justice Nourse's first class in the passage from his judgment in the Parker Tweedale case quoted above. These are their costs of the proceedings commenced by originating summons in 1993 leading up to the orders of Mr Justice Knox of the 31^st October 1994 and of Master Bowman on the 25^th November 1997, 19^th May 1998 and 22^nd February 1999. Nor is it in issue that the costs of the Claimants in the same proceedings leading up to the judgment of Mr Jules Sher QC fall into Lord Justice Nourse's second class.

23. I accept that it is not clear from the report whether the issue of adding costs to the amounts secured by the Charging Order was actually before the Court of Appeal for decision in the Ezekiel case. If it was I am bound by that decision. If it was not I am respectfully content to follow the guidance of Lord Justice Nourse and of Mr Justice Carnwath at first instance in that case.

24. In these circumstances it is unnecessary for me to go on to consider whether, had the Trustee succeeded, I would have required him as an officer of the Court to have made an allowance in favour of the Claimants in respect of the costs incurred by them in defeating the claims of the Transferees to the Properties, and in obtaining orders for their possession and sale, costs which the Trustee would have had to incur had the Claimants not undertaken the task, either under the principle applied in the case of re Berkley Applegate (Investment Consultants)Ltd (in liquidation) 1989 CH p 32 or the rule in ex- parte James (1874) LR 9 CH Appeals p 609.

25. It was not contended before me that any part of the costs which I have summarised above were unreasonably incurred. I order that those costs, to be assessed if not agreed, be paid to the Claimants out of the proceeds of sale of the Properties held in the joint account of the solicitors to the parties pursuant to paragraph 1 of the summons which was adjourned into Court before me by the order of Master Bowman of the 27^th April of this year.