Tuesday Law Report: Costs of proceedings to enforce charging order

7 December 1999 Holder and others v Supperstone and others Chancery Division (Evans-Lombe J) 30 November 1999

WHERE PROCEEDINGS were necessary in order to enforce a charging order, the costs of those proceedings were payable out of the proceeds of sale of the property charged.

The court ruled that the claimants were entitled to have their costs paid of the proceeds of sale of properties in respect of which charging orders had been made.

The claimants, who were long leaseholders of various flats in a number of converted properties, obtained judgment against their landlord in respect of breaches of leasehold covenants by him. A charging order was made over the properties in respect of that judgment, and cautions were duly lodged at the Land Registry on behalf of the claimants.

Thereafter, searches against the registered titles of the properties revealed applications by the landlord to register transfers of the title to the properties, and the grant by the landlord of ten long leases in relation to the properties. The claimants commenced proceedings against the landlord 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 judge made an order in favour of the claimants against the landlord for sale of the properties. Leave to rejoin the transferees to the proceedings was granted and it was ordered that issues be tried as between the claimants on the one hand and the landlord and the transferees on the other.

Those proceedings resulted in an order for possession and sale of the properties against the transferees. In the meantime a bankruptcy order had been made against the landlord. 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.

Section 3(4) of the Charging Orders Act, provided that:

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.

It was submitted for the landlord's trustee in bankruptcy, inter alia, that section 3(4) was subject to the provisions of section 1(1) of the Act, which empowered 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 . . ."; that, therefore, charging orders could only be made in respect of ascertained indebtedness; and that it followed that a sum due in respect of untaxed costs could not be added to a charging order.

Stephen Atherton (Wakefields) for the claimants; Adam Goodison (Morgan Cole) for the trustee in bankruptcy.

Mr Justice Evans-Lombe said that the submissions of the trustee in bankruptcy involved a confusion between the rules which governed the nature of the debts in respect of which there was a power to make charging orders under section 1(1) of the Act, and the rules which applied to the holder of a charging order and which governed what right he had to add to the security conferred by the charging order further sums for interest and costs. Those rules were 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).

It was not clear whether the issue of adding costs to the amounts secured by a charging order had actually been before the Court of Appeal in Ezekiel v Orakpo [1996] 3 All ER 659. If it had been, the court was bound by that decision. If it had not , the court was content to follow the guidance of Nourse LJ in Parker-Tweedale v Dunbar Bank plc (No 2) [1990] 2 All ER 588 and of Carnwath J at first instance in Ezekiel v Orakpo (4 November 1994, unreported).

Accordingly, the claimants' costs, to be assessed if not agreed, should be paid out of the proceeds of sale of the properties.

Kate O'Hanlon,

Barrister