<oliver.radley-gardner@law.ox.ac.uk>

Copyright © Oliver Radley-Gardner 2003
First published in Web Journal of Current Legal Issues

---

This note considers the developments in the case law under section 15 of the Trusts of Land and Appointment of Trustees Act 1996 since the case of The Mortgage Corporation v Shaire. Its central contention is that the law has not improved, despite early assertions to the contrary in the literature and cases. It draws attention to the fact that this is due to the underlying law of insolvency, into which most cases arising under section 15 can also be fitted. It questions whether it was appropriate to deal with secured creditor disputes in the same way as disputes co-owners are treated, rather than acknowledging that there are inherent differences between those disputes, as the old law under section 30 acknowledged.

---

The object of law reform is to improve the law, by making it clearer and/or more just. A steady stream of case law under the Trusts of Land and Appointment of Trustees Act 1996 section 15 makes it seem doubtful that the Act is achieving either of these objectives. The main practical application of the section has been in the field of resolution of disputes between co-owners of property as to when to sell it. While the machinery of the Act seems to give courts a wider jurisdiction as to how to resolve such disputes than it formerly had under of the Law of Property Act 1925 section 30, it does not appear to have done much to better the position of defendants in cases where the claimant is not the original, but a derivative co-owner: banks and other secured lenders seeking to enforce their security interests. Disputes of this kind are by far the most frequent (or most frequently reported) in practice. It is becoming increasingly difficult not to take a sceptical view of the impact of section 15.

Section 15(1) of TLATA provides that:

By weighing these factors, and any other relevant ones, the court may determine whether to make an order and what type is appropriate under s 14. Aside from offering an open-ended jurisdiction for exercising a structured discretion, the wording of section 15(1) gives no clue as to the relative importance of the various factors to be taken into account by the court when exercising its powers.

The Law Commission’s own views of the effect of section 15 of the Trusts of Land and Appointment of Trustees Act 1996 do not assist further. The report on which TLATA was based, Law Com No. 181, suggests two possible views of the section.⁽¹⁾ On the one hand, the report talked of “restructuring the jurisdiction under section 30” (Law Com No. 181, para 10.6), ushering in “a genuinely broad and flexible approach” (ibid., para 12.5).⁽²⁾ Yet on the other hand, the Law Commission also spoke of the need for a provision that retained the collateral purpose doctrine while trying to “consolidate and rationalise” the case law immediately prior to the report (Ibid., para 12.5). Clarity was not further aided by the fact that the Bill was subjected to radical surgery between report and enactment without a clear indication of what the changes actually meant. Opinion on the effect of this provision is divided. The latest pronouncement of the Court of Appeal on this section, in the case of First National Bank v Nano Kojo Adjei Achampong and others [2003] EWCA Civ 487, appears to realign the operation of section 15 with the consolidation, rather than the reform, view. Since late 2000 we have been assembling a picture of how section 15 works in practice. This piece is intended to show the state of development of the case law to date.

Prior to Achampong, the courts have examined the section 15 jurisdiction, and its legal context, in three significant decisions: The Mortgage Corporation v Shaire [2001] Ch 743, Bank of Ireland v Bell [2001] 2 All E.R. (Comm) 920, Alliance and Leicester v Slayford [2001] 1 All E.R. (Comm) 1. These cases have already been thoroughly examined elsewhere, but a brief survey will be necessary to assess the contribution of Achampong.

Shaire has been held to be both a pro-co-owner and a pro-bank case.⁽³⁾ Undoubtedly, some portions of Neuberger J’s judgment in that case seem generous. In particular, his passage considering the impact of TLATA leans in favour of the reform rather than the restatement view of the effect of the Act ([2001] Ch 743, at pp. 758 and following), though he was unwilling to discount the relevance of the old section 30 cases altogether.⁽⁴⁾ Yet a closer inspection of the context in which these statements were made is instructive. Shaire was clearly a case in which generosity was possible. Although Mrs Shaire could not rely strongly on any of the grounds expressly in section 15, she was in the unusually fortunate position that her estranged husband appeared to be ready to assist her financially. Furthermore, counsel for the lender had in principle agreed to a restructured loan to buy out the bank’s share rather than a straight buy-out (at p. 764). Additionally Neuberger J allowed, as a failsafe, the lender what looks like a veto right over the repayment scheme should it not be able to “enjoy” the terms of it. The veto right to force immediate sale was palatable as Mrs Shaire was financially well off, with a large equity in the house, and would not suffer undue hardship from the sale (at p. 765). In other words, Mrs Shaire was an unusual defendant, in that she was solvent and had the means to re-house herself. With hindsight, Shaire was an unusual case in which the court could afford to be generous.

Yet the perception that Shaire was a pro-co-owner case naturally caused concern from the point of view of commercial lenders. They need not have worried, however. Even if the pro-co-owner view of Shaire had triumphed it could easily be undercut, as demonstrated in Alliance and Leicester v Slayford [2001] 1 All E.R. (Comm) 1. While not directly relevant to section 15, Slayford is important for the present discussion in one respect: it is a reminder that the disputes under section 15 can easily be turned into ones under the Insolvency Act 1986. This tactic was memorably deplored by the judge at first instance in that case (cited at p. 4 of Slayford), but a straightforward application of the law of mortgages makes it inevitable. In that case, the bank chose to sue the defaulting co-owner on the covenants to repay the mortgage sum, bankrupting him and then enforcing the security under section 335A of the Insolvency Act 1986 instead of a straightforward application under section 15. The effective insolvency of departed co-owners in section 15 cases means that there is a factual overlap between most section 15 cases and the insolvency jurisdiction, meaning that a chargee has the choice of either route to get at the security for their loan. This means that even if a more flexible approach had emerged under section 15, it would have been a paper tiger, easily undercut by recourse to the insolvency regime – which is precisely the outcome in Slayford.

This realisation resulted in a much more restrictive approach to section 15 cases. A chance to reconsider Shaire was granted the Court of Appeal in Bank of Ireland v Bell [2001] 2 All E.R. (Comm) 920.⁽⁵⁾ Peter Gibson L.J. had previously indicated, obiter, that he favoured a flexible interpretation of section 15.⁽⁶⁾ Yet in the Bell case, his judgment, at least in emphasis, seems to hark back to the more restrictive approach under section 30 to which he himself did not fully ascribe when it was still in force.⁽⁷⁾ Bell was another case of a wife’s forged signature on the mortgage documents. The wife had only a small (10%) beneficial share. There was no real prospect of the wife acquiring the other share. Peter Gibson L.J. stated at para. 31 that:

Tellingly, Shaire is used as an authority to support this reading of the section. Bell was remitted to the County Court so that Mrs Bell could adduce further information as to her health and to determine the timing of the sale. Peter Gibson L.J. did not, of course, state that other factors are irrelevant in determining whether or not sale is appropriate, yet the substance of what is said leans strongly in favour of such a reading.

This steady resettling of the balance in favour of institutional lenders continues in Achampong, though the lack of any information as to the outcome of the case on its return to the County Court makes it difficult to be categorical. The case suggests, without conclusively deciding, that the threshold for convincing the court to deny an order for sale is very high indeed where there is no chance of a buy-out.

It need scarcely be said that this was strongly suggested to be a case of mortgage fraud, though that point was not in issue in the instant case. Mr and Mrs Achampong agreed to charge their family home as security for a bank loan of £51,500. At the time, Mr and Mrs Achampong lived in the house with their grown-up children (one of them mentally handicapped) and some grandchildren. The loan was not, however, for their own use. Rather the loan was intended to fund the business of a Mr Owusu-Ansah, a cousin of Mrs Achampong. The loan was applied for in terms of a business loan. The loan was arranged by a broker, London Trust Securities, and communicated to the Claimant bank. Repayment was to be by means of instalments paid into a life insurance policy, backed up by the legal charge. The bank then sent out an offer letter, along with a request for the details of the solicitor who was acting for the defendants. This was returned signed by Mr and Mrs Achampong, and Mr and Mrs Owusu-Ansah (even though the latter does not appear to have been in the country at the time, or, indeed, ever), accompanied by the details of the solicitor acting for them, and a legal charge to be executed in the solicitor’s presence. The loan was advanced, and immediately paid to Mr Owusu-Ansah. It was Mr Owusu-Ansah who factually bore the responsibility for repayment of the loan.

Aficionados of these types of cases do not need to be told what happened next. Mr Achampong left his wife shortly after the charge was executed and the loan secured and returned to Ghana (though Blackburne J notes this “may be no more than coincidence”). Mrs Achampong’s agreement to the loan was found to have been procured by undue influence. Mr Owusu-Ansah, already back in Ghana, did not keep up the instalments on the insurance a few years later. The Bank then mishandled its issuing and conduct of proceedings, so that the whole matter was allowed to drag on the best part of seven years. In the meantime, the outstanding debt had mounted up to £180,000 by the time of trial.

Two issues arose in Achampong. First, whether there had been undue influence: the court held there had been (see paras 21 and following of Achampong). This note will not discuss this point further. Second, the case deals with the application of section 15 of TLATA. At first instance in Achampong, the court (somewhat oddly) held that the undue influence meant that the bank did not have any sort of enforceable charge, so that the issue of an application for sale did not arise. The trial judge did venture to say, however, that he would have refused sale had it been an issue (reproduced at para. 55 of the Court of Appeal’s judgment). On appeal, it was found that first, the mortgage procured by undue influence was sufficient to sever any joint tenancy, and second that section 63(1) of the Law of Property Act 1925 operated so as to bind only the share of Mr Achampong. Furthermore, it upheld an application for sale. In her submissions to the court, Mrs Achampong relied on the following points to resist sale:

Points 1(a) and 3 were rightly rejected by the judge. There was no evidence to substantiate the first, and the latter was simply bad in law. Point 2 could be resolved on the sale of the house. This left Mrs Achampong with four reasons within section 15(1) for defending the application for sale of the land: two relevant to her own position, and two related to the conduct of the bank.

Her arguments that she was living with two children of hers, both grown up but one disabled, and that her grandchildren still lived on the premises, were badly hamstrung by the fact that she adduced little or no evidence as to what the effect of sale on her handicapped child or her grandchildren might have been (paras 65-66 of the judgment). It seems, however, that the mere presence of infant children or disabled persons was not enough to prevent a sale. Such reasons would, at most, be sufficient to postpone it.⁽⁸⁾ As Blackburne J stated, “the effect of refusing an order for sale is to condemn the bank to wait – possibly for many years – until Mrs Achampong should choose to sell before the bank can recover anything. In the meantime the debt continues to increase” (para. 62). In the instant case, the lack of evidence on the arguments raised by Mrs Achampong meant that the court did not consider the issue of postponement. Yet if one were feeling cynical, the blanket refusal to look at the effect of sale on the grandchildren and the disabled daughter looks like a search for circumstances rather more exceptional than ordinary hardship. One might be tempted to call to mind the dictum of Nourse L.J. in re Citro, [1991] Ch 142, at 157, that re-housing, disruption of schooling and other such hardships “...cannot be described as exceptional. They are the melancholy consequence of debt and improvidence with which every civilised society has been familiar”. Could it be that the spectre of exceptional circumstances still haunts the co-owner – secured creditor disputes? If so, is section 15 genuinely an improvement in these common disputes?

Turning to the arguments to do with the bank: an argument which is frequently raised, and was raised here, is that the bank’s misconduct in failing to protect Mrs Achampong and its poor conduct of the case should count against an application for sale. The authorities under section 30 had been divided on this point, and in some cases it had been thought this might be material.⁽⁹⁾ The section 15 cases seem to take the view that the fault of the bank cannot be relevant at all.⁽¹⁰⁾ On this point, Blackburne J stated that “it [does not] lie with Mrs Achampong to complain of the delay since she has had use of the property in the meantime” (para. 62). It might be objected that this is what she is entitled to under section 12 of the Act anyway, yet it is submitted that Blackburne J’s approach is right. While there may be some extreme cases, generally a bank’s misconduct in issuing and conducting proceedings is properly a matter for sanction under the C.P.R., and hardly a factor relevant to section 15. As to the argument that the bank needed to enforce its personal claims against the other debtors first (argument 6 above), such an argument is clearly untenable in the light of Slayford. Blackburne J, having denied all grounds for preventing sale, ends on the familiar refrain: “this assumes, as I take to be the case, that there is no realistic prospect of Mrs Achampong acquiring the half share in the property which now stands charged to the bank” (para. 66). It seems that this is the only true basis on which sale will be refused completely.

It is, of course, difficult to have a complete picture of the law without some idea of the general approach of the County Courts. Unfortunately, until today, those decisions are only known about when they are overruled. The reported cases seem to confirm, in substance if not their phraseology, that two types of reasons need to be distinguished in attempts to resist an application for sale under section 15:

This seems scant protection, but is the only analysis which explains the case law and fits with the insolvency regime. These cases, involving parties which are effectively insolvent, are in truth an attenuated form of the insolvency regime where only the house is being pursued.⁽¹²⁾ If that is true, then any perceived injustice lies not in section 15, but with the underlying law of insolvency. It is not appropriate here to ask whether the Insolvency Act 1986 needs to be amended to be less creditor-friendly, whether one should introduce homestead legislation in this country, or whether the remedies of a mortgagee should cease to be cumulative so that personal claims must be exhausted first. They all suffer from obvious difficulties as practical solutions. Yet without tackling this issue (if, indeed, it is felt it needs tackling), section 15 cannot fulfil the expectations placed on it by some commentators. What can be said is that the declaration that “greater flexibility” exists under section 15, in that “it is not simply bound to order a sale in the absence of exceptional circumstances” (Halsbury’s para 952), has proven too optimistic a prognosis. Without means to pay them off, the signs are that the only question arising when secured creditors apply for sale is not if but when it will be ordered. This outcome was reasonably foreseeable, and it might be a good idea to re-draft section 15 in such a way as to give less false hope to defending co-owners – the ambition of the Law Commission, “to assist encouraging settlements out of court” (Law Com WP No 94, para 10.9) is not being assisted by the mis-match between the appearance of the legislation and the reality of its application. It must be accepted that the interests at stake in a co-owner – secured creditor dispute are very different to those which arise when embittered exes battle over whether to sell their former joint home.

Clarke, P.J. (2001) “Land and Trusts”, All England Reports Annual Review
Cretney, S A(1994) “Abbey National v Moss Comment” Family Law 55.
Emmet on Title (ed. J. Farrand) (1999) 19^th Ed (London: Sweet and Maxwell).
Halsbury’s Laws Online, Matrimonial Law Section, Butterworths Direct (London: Butterworths)
Hopkins, N (1995) “Credit and Collateral Purposes” 111 Law Quarterly Review 72.
Law Commission Working Paper 94 (1985) Trusts of Land (London: HMSO)
Law Commission No 181 (1989) Trusts of Land (London: HMSO) HC 391 Session 1988-1989
Megarry and Wade (Eds Harpum C with Grant, M and Bridge, S) (2000) The Law of Real Property 6^th Ed (London, Sweet and Maxwell)
Pascoe, S (2000) “Section 15 and the Trusts of Land and Appointment of Trustees Act 1996 – A Change in the Law?” Conveyancer and Property Lawyer 315
Probert, R (2002) “The Importance of Creditors in Petitions for Sale” Conveyancer and Property Lawyer 61
Wells, R (1998) “Sale of the Matrimonial Home, Bank of Bharoda v Dhillon” Family Law 208

⁽¹⁾ For a discussion, see S. Pascoe, “Section 15 of the Trusts of Land and Appointment of Trustees Act 1996 – A Change in the Law?” [2000] Conv. 315.
⁽²⁾ See too footnote 743 of that Report.
⁽³⁾ For the former, see S.Pascoe, supra, p. 327. On the latter, see P.J. Clarke, “Land and Trusts” in All England Law Reports Annual Review 2001, paras 17-29 and following.
⁽⁴⁾ Ibid., at p. 761, upholding the view given in C. Harpum and others, Megarry and Wade’s Law of Real Property (6^th ed., 2000), para. 9-064 in preference to that ventured in J. Farrand, Emmet on Title (19^th ed., looseleaf), Volume 2, para 22-035.
⁽⁵⁾ Noted [2002] Conv. 61 by R. Probert, who is critical of the reasoning but not the outcome.
⁽⁶⁾ Banker’s Trust Co v Namdar, (14^th February 1997, unreported): “it is unfortunate for Mrs Namdar that the very recent Trusts of Land and Appointment of Trustees Act 1996 was not in force at the relevant time”.
⁽⁷⁾ Abbey National v Moss [1994] 2 F.C.R. 587. His decision was criticized for being commercially dangerous at the time – see N. Hopkins, “Credit and Collateral Purposes” (1995) 111 L.Q.R. 72; S. Cretney, “Abbey National v Moss Comment” [1994] Family Law 55.
⁽⁸⁾ See, for instance, Slayford at para. 30.
⁽⁹⁾ See Peter Gibson L.J. in Abbey National v Moss [1994] 2 F.C.R. 587, 602; Halifax Mortgages Ltd v Muirhead (1998) 76 P & C.R. 418, 430. Compare the view of the County Court in Achampong, reproduced at para 55 of the judgment.
⁽¹⁰⁾ See Shaire, [2001] Ch 743, 763 – Neuberger J was clearly left unimpressed by this line of argument.
⁽¹¹⁾ On this point generally, see R. Wells, “Sale of the Matrimonial Home – Bank of Bharoda v Dhillon” [1998] Family Law 208.
⁽¹²⁾ The cases under section 30 were, it will be remembered, dealt with under the exceptional circumstances test operating under the insolvency regime – Lloyd’s Bank v Byrne [1993] 1 F.L.R. 369.