Hawk Recovery v Hall & Brunswick Wealth
The court declined to order the sale of a property owned by debtors where the debtors had an appeal pending against an order that the creditor had a beneficial interest in the property, and would be able to repay the debt if they won their appeal.
A creditor applied for a direction that the property in which the defendants (H) lived be sold to pay a debt.
The application was part of several pieces of litigation which H alleged constituted a vendetta against them and their daughter by the daughter's former partner (B), and which previous judges had found that B had orchestrated for illegitimate reasons. The instant claim was for repayment or tracing of a sum used to purchase the property for H, which H said had been paid to them as a gift by B, and which the creditor alleged had been paid to them in breach of the terms of a trust. The creditor was alleged to be the assignee of the rights of action regarding the money. H were made bankrupt on the petition of B, based on H's failure to pay a costs order made against them in another claim. They had since been discharged, but their assets remained vested in their trustee in bankruptcy. A master declared that the creditor was entitled to claim the beneficial interest in the property. H obtained permission to appeal against the declaration. A judge refused to join the trustee in bankruptcy to the proceedings for the purpose of ordering him to transfer title to the creditor, and refused to order that the creditor was entitled to possession. The creditor obtained permission to appeal against those orders. H claimed that, if their appeal succeeded and they were held to be entitled to the equitable interest, a family member would lend them money to pay off the bankruptcy debt. They were unwilling to identify the family member for fear that they might be subjected to harassment.
The creditor expressed scepticism as to the third-party funder and the lack of detail as to the terms of funding. It argued that the court had power to give directions as if the trustee in bankruptcy had applied for an order for sale.
There was every reason why a person who knew H should be prepared to pay off the debt to save their home, as long as the property's value was greater. It was also clear why H should fear to reveal the funder's identity, even if, according to the creditor, such fears were misplaced. There was no substance to the creditor's criticism of the absence of discussion of the terms of the funding: family life was not conducted on the same basis as commercial banking (see paras 26-27 of judgment).
The problem with the creditor's order for sale argument was that it depended on H's appeal being unsuccessful. If the appeal succeeded, the landscape would change dramatically. H said that they could pay the debt with the funder's help. A court in that case could not properly exercise its discretion to order the sale of a property in order to pay a particular bankruptcy debt when the amount of the debt was being offered in cash to the trustee in bankruptcy (para.29).
The application came down to whether the court should wait until the appeals were disposed of. The hearing of the appeals could not be more than a few months away. If the application were granted, H would have to vacate the property when a buyer was found and find somewhere else to live. If it were refused, the creditor would be kept out of its money until the appeals were decided. On the appeals, it could turn out that H were successful and the creditor had no current beneficial interest in the property. H would still have to pay the bankruptcy debt in order to be able to remain in the property, but they had said that they would do that. If H were unsuccessful and the creditor had a current beneficial interest, they would ultimately have to vacate. Greater justice was achieved by allowing H to continue in possession of the property pending the hearing of the appeals (paras 30-32).
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03 Jun 2016
Thomas Grant QC