Gotham v Doodes

The issue on this appeal is whether the application of Mr Gotham (“the Trustee”), the Trustee in Bankruptcy of Mr Doodes (“the Bankrupt”), to enforce by orders for possession and sale of 22 Basildon Drive, Laindon, Basildon, Essex (“the Property”) the charge thereon imposed by an order made under s.313 Insolvency Act 1986 on 29th May 1992 is barred by s.20(1) Limitation Act 1980. Chief Registrar Baister thought that it was not. Lindsay J considered that it was.

The relevant facts may be shortly stated. In March 1988 Mr Doodes and Cheryl Barbara Perry bought the Property in their joint names, with the assistance of a mortgage, for £60,000. On 12th October 1988 a bankruptcy order was made in the Chelmsford County Court against the Bankrupt on the petition of a judgment creditor. On 12th May 1989 the Trustee was appointed and remains the trustee in Bankruptcy of the Bankrupt notwithstanding the discharge of the latter on 12th October 1991.

On 18th December 1990 the Trustee applied to the Chelmsford County Court for an order for possession of the Property so that he might sell the same with vacant possession. On 27th February 1992, instead of making the order for which the Trustee had applied, Mr Recorder Storr ordered that:

“a Charge be imposed upon the Bankrupt’s property known as and situate at 22 Basildon Drive, Laindon, Essex in favour of the Trustee and that the said property be removed from the Bankrupt’s Estate pursuant to Section 313(1) and (3) of the Insolvency Act 1986”

By a further order, purporting to be a charging order absolute, made by some unidentified individual in the Chelmsford County Court on 29th May 1992 it was ordered that:

“the interest of the Bankrupt, Kevin Leonard Doodes, in the asset specified in the schedule hereto, stand charged in favour of the Trustee of the Estate of Kevin Leonard Doodes, Peter Gotham.”

The schedule contained the address of the Property and its title number in HM Land Registry, EX 362308.

On 16th June 2004, being apparently unaware of these orders, the Trustee applied to the Chelmsford County Court for orders for possession and sale of the Property pursuant to s. 335A Insolvency Act 1986 and s.14 Trusts of Land and Appointment of Trustees Act 1996. The ground of the application was that it appeared to the Trustee from a valuation of the Property made in February 2003 that after repayment of the mortgage on the Property there was now an equity of at least £50,000 available for the benefit of the creditors of the Bankrupt. The District Judge before whom this application came, having read the file and discovered the orders made in 1992, adjourned the Trustee’s application and transferred it to the High Court.

On 2nd March 2005 the Trustee applied to amend his application. The application was opposed by the Bankrupt on the grounds that s.20(1) Limitation Act applied and barred the claim the Trustee sought to advance. That sub-section provides as follows:

“20.

(1) No action shall be brought to recover—

(a)

any principal sum of money secured by a mortgage or other charge on property (whether real or personal); or

(b)

proceeds of the sale of land;

after the expiration of twelve years from the date on which the right to receive the money accrued.”

The resolution of the issue before us depends on the proper application of that provision to the rights conferred on the Trustee by the two orders to which I have referred.

The Report of the Review Committee on Insolvency Law and Practice (“the Cork Committee”) (Cmnd.8558) recognised (paragraphs 1114-1123) that the residual value of a debtor’s house after repayment of the mortgage debt is frequently the major asset in the estate of a consumer debtor and that its sale to enforce the creditors’ rights should be deferred so as to avoid the considerable personal hardship to the debtor and his family which may otherwise be inflicted. They considered that any new Insolvency Act should confer on the court specific power to postpone a trustee’s rights of possession and sale of the family home and that in exercising that jurisdiction the court should have a wide discretion to do what is just in the great variety of circumstances which may arise. Effect was given to these recommendations by ss. 336 and 337 Insolvency Act 1986, which conferred rights of occupation on a bankrupt and his spouse, and s.313.

At the time the Insolvency Act 1986 was passed sales of jointly held property were ordered under s.30 Law of Property Act 1925. In Re Citro [1991] Ch.142 the Court of Appeal held the interests of a bankrupt spouse’s creditors would, absent exceptional circumstances, usually prevail over those of the other spouse and children. Accordingly it reduced to six months the period of postponement of the order for sale of the property made by the judge below.

The Trusts of Land and Appointment of Trustees Act 1996 repealed, inter alia, ss. 28 to 30 Law of Property Act 1925 and substituted the regime for the sale of property in which more than one person is interested to be found in ss. 14 and 15. At the same time it inserted into the Insolvency Act 1986 a new s.335A to deal with cases where one of the persons interested is a bankrupt. Further amendments were made to relevant provisions of the Insolvency Act 1986 by the Enterprise Act 2002. I will now set out the relevant legislation as amended by the various stages to which I have referred. Where relevant I indicate the nature of the amendment.

S.313 Insolvency Act 1986, as amended by Enterprise Act 2002 and Civil Partnership Act 2004, is in the following terms (the amendments being shown in square brackets):

“(1)

Where any property consisting of an interest in a dwelling house which is occupied by the bankrupt or by his spouse or former spouse [or by his civil partner or former civil partner] is comprised in the bankrupt’s estate and the trustee is, for any reason, unable for the time being to realise that property, the trustee may apply to the court for an order imposing a charge on the property for the benefit of the bankrupt’s estate.

(2)

If on an application under this section the court imposes a charge on any property, the benefit of that charge shall be comprised in the bankrupt’s estate and is enforceable[, up to the charged value from time to time,] for the payment of any amount which is payable otherwise than to the bankrupt out of the estate and of interest on that amount at the prescribed rate.

[(2A)   In subsection (2) the charged value means—

(a)

the amount specified in the charging order as the value of the bankrupt’s interest in the property at the date of the order, plus

(b)

interest on that amount from the date of the charging order at the prescribed rate.

(2B)   In determining the value of an interest for the purposes of this section the court shall disregard any matter which it is required to disregard by the rules.]

(3)

An order under this section made in respect of property vested in the trustee shall provide, in accordance with the rules, for the property to cease to be comprised in the bankrupt’s estate and, subject to the charge (and any prior charge), to vest in the bankrupt.

(4)

Subsections (1) and (2) and (4) to (6) of section 3 of the Charging Orders Act 1979 (supplemental provisions with respect to charging orders) have effect in relation to orders under this section as in relation to charging orders under that Act.

[(5)   But an order under section 3(5) of that Act may not vary a charged value.]

The provisions in the Charging Orders Act 1979 applied by sub-section (4) are, so far as relevant, as follows:

“(1)

A charging order may be made either absolutely or subject to conditions as to notifying the debtor or as to the time when the charge is to become enforceable, or as to other matters.

[(2)

(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.

[(5)-(8)]”

By CPR Rule 73.10 subject to the provisions of any enactment the court may, upon a claim made by a person who has obtained a charging order over an interest in property, order a sale of the property to enforce the charging order.

S.335A Insolvency Act 1986 inserted by Trusts of Land and Appointment of Trustees Act 1996 and as amended by the Civil Partnership Act 2004 provides:

(1)

Any application by a trustee of a bankrupt’s estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2)

On such an application the court shall make such order as it thinks just and reasonable having regard to—

(a)

the interests of the bankrupt’s creditors;

(b)

where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt’s spouse or civil partner or former spouse or former civil partner—

(i)

the conduct of the spouse, civil partner, former spouse or former civil partner, so far as contributing to the bankruptcy,

(ii)

the needs and financial resources of the spouse, civil partner, former spouse or former civil partner, and

(iii)

the needs of any children; and

(c)

all the circumstances of the case other than the needs of the bankrupt.

(3)

Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.

(4)

The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this section.

S.14 Trusts of Land and Appointment of Trustees Act 1996 authorises “any person who...has an interest in a property subject to a trust of land” to apply to the court for, inter alia, an order relating to the exercise by the trustees of any of their functions. Such functions include selling the property so that the section allows applications for orders for sale of land subject to a trust of land. In any case to which s.335A Insolvency Act 1986 does not apply s.15 prescribes the matters the court is to consider when determining whether to make the order sought. An application by the Bankrupt or Trustee for an order for sale, whether as a joint owner or an equitable chargee, must be made under s.14, see Lloyds Bank plc v Byrne (1991) 23 HLR 472 and Midland Bank plc v Pike [1988] 2 AER 434.

In this context the Bankrupt has contended that the order under s.313 made in favour of the Trustee in 1992 created a charge on property, that is the interest of the Bankrupt in the Property, to secure payment of “the amount payable otherwise than to the Bankrupt out of his estate and of interest on that amount” and that the right to receive that money accrued to the Trustee more than 12 years before he made the relevant application. He submits that such application is an action for the purposes of s.20(1) and, consequently, is barred by that subsection.

This argument was rejected by Chief Registrar Baister. He accepted that the sum secured, though fluctuating, was always ascertainable and therefore a principal sum within s.20(1)(a). In the alternative he considered that the circumstances came within the terms of s.20(1)(b) as an action to recover the proceeds of sale of land. But he rejected the argument for the Bankrupt on the grounds that (1) there was no time when the right to receive that sum had accrued to the Trustee and (2) the Trustee’s application was not an action for the purposes of the Limitation Act 1980.

Lindsay J took a different view. He accepted that the order under s.313 created a charge for the purpose of s.20(1) and that the amount for which it stood as security was to be treated as a principal sum of money for the purposes of s.20(1)(a). The alternative of s.20(1)(b) was not pursued before him or this court. Lindsay J considered, by analogy with the decision of the Court of Appeal in Hornsey Local Board v Monarch BS (1889) 24 QBD 1, that the right to receive that principal sum of money arose on the making of the order under s.313 in 1992. He rejected the contention that the so-called bankruptcy exception applied to prevent s.20(1) applying to the Trustee’s application. Counsel for the Trustee submits that Lindsay J was wrong. Before considering his argument and the opposing argument of counsel for the Bankrupt it is convenient to consider the decision in Hornsey Local Board v Monarch Investment BS (1889) 24 QBD 1.

In that case the local authority had incurred expense in paving a street. They were entitled to apportion those expenses amongst the owners of the properties fronting onto that street and summarily to recover from the respective owners the amounts so apportioned. In addition statute provided that such expenses should be charged on the premises in respect of which they were incurred with interest thereon at the rate of 5% until payment. S.8 Real Property Limitation Act 1874 provided that

“no action, suit or other proceeding shall be brought to recover any sum of money secured by any mortgage...or otherwise charged upon...any land...but within twelve years next after a present right to receive the same shall have accrued to some person capable of giving a discharge....”

The charge was imposed when the paving works were completed in 1875. The expenses were not apportioned until 1885. In 1887 a demand for payment was made on the defendant and in 1888 the local board sought to enforce the statutory charge against the defendant. The county court judge granted the relief sought, he was reversed on appeal to the Queen’s Bench Division and the Court of Appeal affirmed the decision of the latter.

The argument for the local board was to the effect that the right to receive the sums secured did not accrue until the charge was enforceable and that would depend on an apportionment of the expenses amongst the frontagers. That argument was rejected by all three members of the Court of Appeal. Each of them emphasised that the only reason why the right to receive was not coterminous with the right to enforce the charge was that the local board had failed in its duty to carry out the necessary apportionment, see pp 6, 9 and 12. They were concerned that if the right to receive was coterminous with the right to enforce then, in the circumstances of that case, the commencement of the limitation period would depend on the actions of the party against whose claim it was relied on by way of defence.

Lord Esher MR said (p.6):

“The charge exists, though the exact amount charged may not be ascertained. It is suggested that a person in whose favour a charge is imposed cannot be entitled to receive an amount which is not ascertained. I do not see why this should be so. A sum may be offered to him, which the person offering it thinks to be the right sum, and which he may also think to be the right sum, although the actual calculation of the exact amount has not been made. What is there in law, or reason, or business, to shew that he is not entitled to receive the sum when so offered to him? I cannot see any difficulty in saying that there is a present right to receive the expenses. In the case where a person has only a reversionary right to receive money, or for some other reason the time when he is entitled to receive the money has not yet arrived, it would be different, and there would be no present right to receive the money.”

Lindley LJ was of the same opinion. He said (p.9):

“The section is dealing with charges on land, and it must be borne in mind that such charges are present charges and future charges, reversionary charges, charges in remainder, and such like. One general form of expression is used to include the whole, and that expression is "present right to receive." It seems to me clear that the meaning is that in each case the moment to be looked to is the moment when the charge comes into present operation; for instance, when reversionary charges are being dealt with, the moment to be looked to is the moment when the reversion falls in and the charge takes effect in possession.”

Similarly Lopes LJ continued (p.11):

“When, then, does the right accrue to the person or persons in whose favour the charge is imposed to receive the amount secured by the charge? It appears to me that it accrues the moment the charge is imposed on the premises by the statute, that is when the expenses have been incurred and the works completed. It may be that certain things have to be done before the right can be enforced, but the right to receive what is secured by the charge arises concurrently with the charge. The words are "present right to receive," not "present right to recover." The right to receive may exist though the definite sum to be received has not yet been ascertained. There are cases where the legislature requires a notice to be given before an action can be maintained. The right of action however exists as soon as an actionable wrong has been committed, though it cannot be successfully enforced until the statutory requirements are complied with.”

Lindsay J considered the judgments in Hornsey in some detail. In paragraph 19 he commented:

“But I do not see that notion of fault on the chargee’s part as crucial to the applicability of the decision to a case, such as the one before me, in which there has been no omission by the chargee-trustee “to do that which it is his duty by statute or common law to do”. Rather the decision seems more to rest on what was taken to be the ordinary and natural meaning of a “present right to receive”, coupled, if those words were not in contra-distinction to “a present right to enforce”, with the difficulty that, where the chargor was minded to sit tight, the chargee could postpone limitation even beginning. Nor, whilst I can see that the added word “present” when added to the current phrase “right to receive”, may lead to a different conclusion in some cases – e.g. the case of the reversionary charge referred to by Lord Esher on p. 6 and Lindley LJ on p. 10 – I do not see it as adding anything where, as here, whatever are the Trustee-chargee’s rights, they were from the start vested in his possession and were in relation to property vested in the Bankrupt’s possession.”

Lindsay J noted that Hornsey had been cited without disapproval by the Court of Appeal and the House of Lords in the different circumstances prevailing in West Bromwich BS v Wilkinson [2004] EWCA Civ 1063. He remarked that it had been distinguished in some later cases, notably in Re Loftus [2005] 1 WLR 1890, but did not feel able to do so in this case. He dealt with the submissions for the Trustee concerning the application of the so-called bankruptcy exception from the application of the Limitation Act and rejected them. He concluded in paragraph 28:

“It is unfortunate that Mr Registrar Baister did not have Hornseycited to him. I have seen no way round Hornsey and I must therefore allow the appeal. I do so with some reluctance and no enthusiasm. I have real doubts about whether the result is just.”

Counsel for the Trustee submits that Lindsay J was indeed wrong to have applied Hornsey to the very different circumstances of an order under s.313. He contends that s.20(1) is inapplicable for a number of reasons. He relies on the bankruptcy context as indicating the relevant elements of the charge imposed by the order under s.313. Thus, the jurisdiction conferred by that section is designed for an indeterminate period to preserve for the benefit of creditors the present and future value of the Bankrupt’s interest in the property by exchanging the charge for the property interest previously forming part of the bankrupt’s estate. This enables the bankrupt to deal with the property, but subject to the charge, and the trustee to convene the final meeting of creditors, see s.332(2) Insolvency Act 1986. As counsel for the Trustee points out, if Lindsay J is right then the Trustee exchanged a right to an order for possession and sale to which no limitation period applied for one which, absent any part payment or written acknowledgement, had to be exercised, if at all, within 12 years of the order under s.313. He relies on the circumstance that there is no-one liable to pay the amount secured pursuant to the order under s.313, it is a fluctuating amount, the interest is rolled-up and there is no prospect of obtaining any money unless and until the Property is sold. He contends that an order of sale is not as of right but dependent on the exercise by the court of the discretion conferred on it by s.335A Insolvency Act.

In the light of those observations he submits that s.20(1) Limitation Act 1980 cannot apply because:

Counsel for the Bankrupt disputes these propositions. He contends that the sum charged on the Property by the order under s.313 is a principal sum for the purposes of s.20(1) Limitation Act on which interest accrues pursuant to s.313(2) Insolvency Act, notwithstanding that the amount thereof may fluctuate, because it is always ascertainable. He submits that it is not necessary for there to be any underlying relationship of debtor/creditor. He contends that the right to receive the sums so secured must be vested in the Trustee because in the event of redemption the bankrupt must pay the amount secured to the Trustee if he is to get a good discharge. He comments in relation to Hornsey that it would be odd if, in this case, the Trustee had a right to enforce the charge but no prior right to receive the money due thereunder. He submits that the application of the Trustee is demonstrably “an action” as it is “a proceeding in a court of law” for the purposes of the definition in s.38(1) Limitation Act 1980. He does not object to counsel for the Trustee relying on Article 1 to Protocol 1 ECHR, notwithstanding that it was not relied on in either of the courts below, but submits that it cannot apply in the manner for which counsel for the Trustee contends.

I will start with the question of whether an order under s.313 Insolvency Act creates a charge to which s.20(1) Limitation Act can apply. The word is not defined in the Limitation Act 1980 and, in context, is contrasted with a mortgage. It is used in conjunction with the word “other” as an all inclusive term. In such circumstances it is to be given its usual meaning. Such meaning was authoritatively described by Buckley LJ in Swiss Bank v Lloyds Bank [1982] AC 584, 594 in the following passage:

“An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage. An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: see Fisher and Lightwood's Law of Mortgage, 9th ed. (1977), p. 13. An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: see Fisher and Lightwood, p. 14

S.313 states in terms that the order creates a charge, that such charge is enforceable for the payment of a fluctuating but ascertainable amount as if it were an equitable charge in writing under the hand of the debtor and the benefit of it is comprised in the estate of the bankrupt. As the judgment of Buckley LJ quoted in paragraph 26 above shows, it is not necessary for there to be any associated personal liability or source for payment other than the property itself. In my view it is plain that the Property was appropriated by the order under s.313 to the discharge of the amounts referred to in s.313(2) and is realisable by judicial process, namely an application for orders for possession and sale. I conclude that the right created by the orders made under s.313 is proprietary and a charge for the purposes of s.20(1) Limitation Act 1980.

I turn then to the question whether the amount referred to in s.313(2) can be properly regarded as “a principal sum of money”. Our attention was drawn to the predecessors of s.20(1), namely s.40 Real Property Limitation Act 1833 and s.8 Real Property Limitation Act 1874. In neither of them was the word ‘principal’ used in relation to “any sum of money secured”. Counsel for the Trustee contended that there could be no such sum because it was fluctuating in amount, incapable of ascertainment at the time the charge was created and not the subject matter of any underlying obligation of anyone.

I do not accept this submission either. The word ‘principal’ in relation to a sum of money is used to differentiate the original sum or ‘tree’ from the interest or ‘fruit’ which it may yield. See SOED 3rd Ed p.1585. In that sense the sum secured by the charge under s.313(2), namely “the amount payable otherwise than to the bankrupt out of the estate”, is the principal sum and is to be contrasted with “interest on that amount” which is also secured by the charge. Further a principal sum may be secured though its amount may fluctuate. For example a third party charge to secure the bank overdraft of another. The amount secured by the guarantee will fluctuate depending on the debits and credits to the account arising in the course of its operation by the bank and the customer.

In such a case there is no personal obligation on the part of the guarantor to repay the amount of the overdraft to the creditor either. Counsel for the Trustee seeks to distinguish such a case on the ground that there is a personal obligation on the customer/debtor. That is true but is not in my view a sufficient answer. In times past pecuniary legacies were often charged on land. In such cases the charge existed notwithstanding the absence of any personal obligation on the personal representatives to pay the legacies, see Re Owen [1894] 3 Ch. 220, 225.

So I turn to the question of whether there accrued to the Trustee the right to receive that principal sum when the orders were made in 1992. The predecessors of s.20(1), namely s.40 Real Property Limitation Act 1833 and s.8 Real Property Limitation Act 1874, were in substantially the same terms save that the word “present” was included. Thus under those sections the question was whether “the present right to receive the same” had accrued more than the specified number of years before action brought. In that context such a right was understood by Tindal LCJ, in an opinion adopted by the House of Lords, as “an immediate right without waiting for the happening of any future event”, see Farran v Beresford (1843) 10 Cl.& F. 319, 334/5. Similarly in Earle v Bellingham (1857) 24 Beav. 448 the right to receive the legacies charged on a reversionary legacy payable under the will of another was not a present right to receive them until the reversionary legacy fell into possession on the death of the life tenant. And in Re Owen [1894] 3 Ch. 220 legacies were charged on land after the death of the life tenant. The life tenant died in 1880. No one suggested that time ran from the death of the testator in 1854.

The first two cases were cited in argument to the Court of Appeal in Hornsey (p.3). Only the second was referred to in any of the three judgments but the Court of Appeal was not entitled to depart from the ratio of the first. Accordingly the ratio of Hornsey must be that the right of the Local Board to receive specific sums from individual frontagers was a present right because the only future event on which it could depend was within the power of the Local Board to procure. This accounts for the dicta I have quoted in paragraphs 18 to 20 above. Thus Lord Esher in the passage quoted in paragraph 18 accepts that there is no present right to receive if “a person has only a reversionary right to receive money, or for some other reason the time when he is entitled to receive the money has not yet arrived”. Similarly Lindley LJ considered that the moment to be considered was “when the charge comes into present operation”. Lopes LJ considered that “the right to receive what is secured by the charge arises concurrently with the charge”. But that must have been said in relation to the facts of that case, otherwise he could not have commenced his judgment by expressing his “entire agreement” with the other two judgments.

The first question is whether the omission of the word “present” from s.20(1) undermines the authority of these three cases. In my view it does not. In the context of a Limitation Act and the accrual of rights to receive or of causes of action it must be implicit that the right to receive is a present right. Time does not run under s.5 and 6 in respect of future causes of action. It is not suggested in any reported case or academic commentary brought to our attention that the “right to receive” to which s.20(1) directs attention can accrue at any time when it is not a present right, see Halsbury’s Laws of England 4th Ed. Vol. 28 para 805 n.1; Current Law Statutes Annotated 1980 58/20; McGee: Limitation Periods para 12.015. Accordingly I can see no reason why the principles established by the three earlier cases to which I have referred should not be equally applicable to s.20(1).

It is apparent from the specific dicta in Hornsey to which I have referred in paragraph 32 above that the right to receive may not have accrued because either the right to receive is a future right or the charge is a future or reversionary charge. In principle, it is possible to have a present charge securing payment on a future event. In such a case the right to receive the sums secured will accrue, not when the charge is granted, but when the future event occurs. Thus, in the case of a conventional mortgage, the charge is immediately effective but the right to receive the sum secured does not accrue until the legal redemption date has passed. Another example is given by the Editors of Halsbury’s Laws of England 4th Ed. Volume 28 (Limitation) Reissue para 1010. The unpaid vendor’s lien arises on the conclusion of the contract for sale but the right to receive the purchase money does not accrue until acceptance of title or completion, depending on the conditions of sale.

Lindsay J disagreed with the conclusion of the Chief Registrar on the basis of Hornsey. His conclusion, quoted in full in paragraph 21 above, was that “whatever are the Trustee-chargee’s rights, they were from the start vested in his possession and were in relation to property vested in the Bankrupt’s possession”. No doubt the benefit of the charge was vested in the Trustee in possession and not reversion. But was the right to receive the principal sum thereby secured a present right or was it dependent on one or more future events? It is not clear to me that Lindsay J considered this possibility.

If s.20(1) is to apply then the ‘right to receive’ must be a present not a deferred right and it must have accrued when the order for the s.313 charge was made in 1992. It seems to me to be quite inconsistent with the purpose of s.313 that there should be a right to receive any money at that stage. The only source of payment is the proceeds of sale of the property subject to the charge; but the whole object of the section is to defer the realisation of the property until the circumstances justify its sale. No interest is payable in the meantime because it is rolled up until sale. An order for the sale of the property is not as of right because of the terms of s.335A.

It is true that if the bankrupt wishes to redeem he must pay the sums required for that purpose to the trustee in bankruptcy or into court. It is not a necessary consequence that the trustee in bankruptcy should have a present right to receive the same. If the holder of the equity of redemption wishes to clear off all prior incumbrances then he must redeem them whether they are in possession or reversion, immediate or deferred and whether the sums they secure are immediately payable or only in the future. Similarly, there is no inconsistency between having a right to enforce a charge by sale at a time when there is only a deferred right to receive the proceeds. Such a right is sufficient to confer on the creditor the necessary interest enabling him to apply for and obtain an order for sale and such an order, if made, will remove the element of deferral.

If, as I think, it be the true view that a charge imposed by an order made under s.313 secures a future obligation then until the obligation is a present one no right to receive the principal sum secured can accrue. Hornsey decided that a right to receive the sum secured was not the same as a right to enforce the security. That works both ways. A right to enforce the security may precede or follow the right to receive the sums secured. In my view in the case of charges imposed by orders made under s.313 the right to receive cannot predate an order for the sale of the property. It follows that time has not started to run under s.20(1).

It is clear that had he felt able to do so Lindsay J would have upheld the order of Chief Registrar Baister. For the reasons I have given I feel no such constraint. Accordingly I would allow the appeal on the ground that the right to receive “the amount payable otherwise than to the bankrupt out of the estate” in bankruptcy and “interest on that amount at the prescribed rate” has not accrued for the purposes of s.20(1) Limitation Act and will not do so until an order for the sale of the property is made by the court. It follows that the two further grounds on which the Trustee relied which I have summarised in paragraph 24(4) and (5) above do not arise and I say no more about them.

I agree that the appeal should be allowed, for the reasons given by the Chancellor. As he explains (in paragraphs 36 to 38), section 313 does not confer a right to receive anything until there is an order for a sale of the property. To hold otherwise would be inconsistent with the purpose of the section. By concentrating on the purpose and effect of the statutory provision (rather than the precise limits in other contexts of the principle established by the Hornsey case), it is possible in my view to arrive at the result which Lindsay J would have liked to achieve.

I agree.