Where a judgment creditor obtains a charging order, which is then registered at the Land Registry by way of notice, it is often assumed that this will give the judgment creditor priority over other equitable charges which have not been so registered. If there are competing equitable interests, however, determining which interests should have priority is not “easy to resolve”.
By reason of sections 28 and 29 of the Land Registration Act 2002 (“the Act”) priority of equitable interests are determined by the order in which they are created. However a later interest will obtain priority over an earlier one if the later interest is a disposition made for valuable consideration, which is conferred by registration (including by way of notice). If it is not made for valuable consideration then the priority of the two competing equitable interest continues to be governed by the order of their creation.
Section 28 of the Act provides that:
(1) Except as provided by sections 29 and 30, the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge.
(2) It makes no difference for the purposes of this section whether the interest or disposition is registered.
Section 29 of the Act provides that:
(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.
(2) For the purposes of subsection (1), the priority of an interest is protected
- In any case, if the interest –
i. Is a registered charge or the subject of a notice in the register.
The two competing equitable interests in this case were first a beneficial interest forming a trust in respect of a company’s property having been created by way of a settlement (and forming part of a schedule to a Tomlin Order) and secondly a subsequent charging order obtained by solicitors in relation to a judgment for unpaid invoices. The interest created by the settlement had not been registered against the property at the Land Registry, but a charging order obtained by solicitors in relation to a judgment for unpaid invoices created after the tomlin order had been registered.
The question was whether the charge imposed by a charging order should, for the purposes for the purposes of the Act, be treated as having been made for valuable consideration. In United Bank of Kuwait plc v Sahib [1997] Ch 107 Chadwick J held that:
“If a charging order is to be treated as an equitable charge created by the judgment debtor, regard must be had to the circumstances in which it is created. The analogy must take into account the fact that the debtor receives no consideration from the judgment creditor at the time that the charge is created. The judgment creditor, as chargee, is a volunteer.”
The Judge in this case considered that Chadwick J’s Judgment analysis was compelling and correct. He decided that the recipient of a charging order was a volunteer and gave no valuable consideration. As such, the settlement which had created a beneficial interest in the property took priority to the charging order as it had been made before the charging order, despite the charging order having been registered at the Land Registry because a charging order is not made for valuable consideration.
This case demonstrates once again the precarious nature of a charging order even if it is registered by way of notice at the Land Registry. A charging order will offer a judgment creditor some protection, but it has its limitations. Where there are other competing equitable interests – even if they are not registered – they will take priority to a charging order if they were granted prior to the date of the charging order as the court’s view is that when a charging order is granted a judgment creditor has not provided any valuable consideration.
Hughmans solicitors v Central Stream Services Ltd [2012] EWHC 1222