Amari Lifestyle Ltd (t/a Amari Super Cars) v Warnes & Ors

On 1 March 2016, the Claimant entered judgment against the First Defendant, Matthew Warnes, for £216,220 plus costs. He did not pay the judgment debt, and on 24 June 2016, the Claimant obtained a final charging order against his interest in Belmont House, 7A York Drive, Bowdon, Altrincham (“the Property”) to secure the judgment debt, the costs of the claim, to be assessed if not agreed, any further interest becoming due, and the costs of the application, to be assessed if not agreed, less the sum of £105,194.09, with provision for calculation of the balance due.

On 26 September 2016, it was ordered that the charge should continue as modified by the order, and that the interest of Matthew Warnes in the Property should stand charged with payment of the sum of £312,508.12. Matthew Warnes says that figure is incorrect, but no application has been made to vary or correct the order.

In this claim, the Claimant applies pursuant to s.15 of the Trusts of Land and Appointment of Trustees Act 1994 for an order for the sale of the Property.

The registered proprietors of the Property are the First Defendant, Matthew Warnes, his father, Charles Warnes, who is the Second Defendant, and an accountant, Michael Bulcock, who is the Third Defendant. Charles Warnes and Mr Bulcock are the trustees of a discretionary trust called The Matthew Charles Warnes Life Interest Settlement (“the Trust”). I will refer to them together as “the Trustees”. It is common ground that the legal title to the Property is held by the registered proprietors on trust for the Trust and Matthew Warnes in equal shares. The Property is occupied by Matthew Warnes, his fiancée Stella Dunne, and her two children, aged 17 and 18.

Mr Bulcock has played no part in this litigation. Charles Warnes has made witness statements on behalf of Matthew Warnes, and attended the trial and was cross-examined on his statements. He did not wish to make any submissions in his own right.

There are two legal charges registered against the title to the Property, one in favour of Barclays Bank plc securing around £847,000 and one in favour of Bridging Finance Ltd securing around £470,000. Together, therefore, they secure debts of around £1,317,000. The Property is estimated to have a value of something between around £2 million and £2.5 million, meaning that there is equity after paying Barclays and Bridging Finance and the estate agents and solicitors who act on the sale of something roughly in the order of £665,000 to £1.16 million. Accordingly, subject to the issues which I have to decide, if the Property is sold then Matthew Warnes’ entitlement to one half of the beneficial interest in the Property will lead to him receiving a sum of something roughly between about £330,000 and £580,000, which should be sufficient to pay the amount secured by the charging order.

The Property has, in fact, been on the market for about a year and a half, since December 2015, as quite apart from this application, Matthew Warnes and his family wish to move. The original asking price was £2.65 million, but that has been reduced since. Charles Warnes said in his oral evidence he thought realistically it would fetch around £2.2 to £2.3 million.

This claim was started under Part 8 and, although a direction was made for cross- examination on the witness statements served by Matthew Warnes, there was no direction for pleadings. This has made identifying the issues difficult, and I think in future cases of this kind, where it becomes clear that there are issues of fact which need to be resolved in order to decide whether to make an order for sale, pleadings should be directed.

By the end of the trial, it was apparent that there are four issues for me to decide. First, whether Matthew Warnes’ interest in the Property is subject to an equitable charge to the Trustees created by a Land Registry form CH1 dated 30 September 2009 to secure a debt of over £1m. Second, whether the title to the Property (both legal and beneficial) is subject to an equitable mortgage to the Trustees created by a form of legal mortgage dated 20 February 2014 to secure that debt. Third, whether, assuming either or both of those security interests do exist, if I make an order for sale, it is likely that the Trustees will not enforce their security. If not, then Matthew Warnes will receive a sum sufficient to enable him to pay the judgment debt. Fourth, whether (having regard to my resolution of the first three issues), in the exercise of my discretion under s.15 I should order a sale of the Property. Mr Goldstone made it clear in opening that the Claimant did not contend that any of the documents relevant to this claim were shams.

In 1997, Matthew Warnes was severely injured in a car accident which led to him sustaining life changing and debilitating personal injuries. As a result of his injuries, he is a double above the knee amputee. In April 2003, he created the Trust in order to manage and protect funds of around £3m received by him by way of damages for compensation for the accident. The original trustees were his father, Charles Warnes, and his then solicitor, Mr Sturrock.

The Trust is a discretionary trust. Matthew Warnes is one of a number of beneficiaries. The trustees have an unrestricted power of appointment of both capital and income and a power to add beneficiaries. In default of appointment, the income is to be paid to Matthew Warnes. The ultimate beneficiary, if no appointments are made, is Matthew Warnes’ brother. Sch 1 para 3 gives the trustees power to lend money to beneficiaries.

The effect of the Trust is that Matthew Warnes has no proprietary interest in any of the Trust assets. Where property is held on discretionary trusts such as those here, no beneficiary has in law any vested interest in the assets of the trust. Each beneficiary’s only right is to be considered for the exercise of the trustee’s discretion and to compel due administration of the trustee’s duties. They have no more than a hope that the discretion will be exercised in their favour, albeit that the hope may be a very confident one. So far as creditors are concerned, except for any money that the trustee has already appointed to a beneficiary, a beneficiary has no interest that his creditors or assigns could claim against: see Snell’s Equity (33rd ed) [22-005] and Re Smith, Public Trustee v Aspinall [1928] Ch 915 at 919.

In 2005 the Trust used funds from the Trust Fund to acquire a house which came to be called Hillfield Farm, to be occupied by Matthew Warnes and his then wife, Michelle, and her daughter. After an extremely distressing armed robbery, Matthew Warnes and his family moved out, and lived in a friend’s flat. Hillfield Farm was then sold and on 29 September 2009, the Property was purchased for £1,900,000, using the net sale proceeds from Hillfield Farm and a mortgage loan from Barclays Bank plc (under the name “Woolwich”). Whereas Hillfield Farm had been owned by Matthew Warnes and Charles Warnes as trustees of the Trust, the Property was purchased by Matthew Warnes and Michelle, with the Trust lending Matthew Warnes the net sale proceeds from the sale of Hillfield Farm.

The reasons why the purchase was effected in this way do not seem to me to matter. Insofar as it matters, I think that the most likely reason is that given by Matthew Warnes, namely that it proved difficult for him and Charles Warnes as trustees to obtain a mortgage in their capacity as trustees. I do not think it makes any difference, however, if Mr Goldstone was right in the suggestion he put in cross-examination that it was to make it easier to borrow money on the security of the Property to fund the business of Matthew Warnes’ companies.

On 30 September 2009, the day after completion of the purchase, Matthew Warnes and Charles Warnes signed a document using Land Registry form CH1 (“the CH1”). This form is intended to create a legal charge of a registered estate. Matthew Warnes and Charles Warnes filled in the form as follows. In boxes 1 and 2 they identified the Property with its title number. In box 3, date, they wrote 30th September 2009. They put Matthew Warnes’ name in box 4 which requires details of the “Borrower”. In box 5 which requires details of the “Lender” they put the name of the Trust. In box 7, they put a cross next to “full title guarantee” so that it read: “The borrower with full title guarantee cha rges the property by way of legal mortgage as security for the payment of the sums detailed in panel 9. In box 8 they put a cross next to the words “The lender is under an obligation to make further advances and applies for the obligation to be entered in the register”. In box 9, additional provisions, where the notes say: “Insert details of the sums to be pa id (amount and dates) and so on”, they wrote:

“The some (sic.) of £1,599,217.78 … is to be lent to Mr Matthew Warnes & is fully repayable to the Matthew Giles Warnes Life Interest Trust upon sale of the Property. The money is advanced for the purpose of purchasing the property only. The money is a fully repayable loan!”.

In box 10, execution, they wrote:

The note next to box 10 says:

“The borrower must execute this charge as a deed using the space opposite. If there is more than one borrower, all must execute. Forms of execution are given in Schedule 9 to the Land Registration Rules 2003. If a note of an obligation to make further advances has been applied for in panel 8 this document must be signed by the lender or its conveyancer”.

The amount stated in the CH1 to have been loaned by the Trustees to Matthew Warnes in box 9 was not accurate; the correct figure was £200,000 lower. It seems clear that a mistake was made as to this.

The CH1 could not create a charge by way of legal mortgage over the Property as Michelle, one of the two legal owners, was not a party to it. Two legal principles are engaged here, neither of which was in dispute. The first is that, where a party executes a document which is intended to create a legal estate or interest, including a legal charge, but fails to comply with the necessary requirements to achieve that objective, the law will treat them as entering into a contract to create the legal estate or interest. Provided the contract satisfies the formal requirements for the creation of a contract, and is specifically enforceable, it will be treated in equity as conferring on the parties the same rights as if a legal estate or interest and been created. A valid contract to create a legal mortgage therefore creates an equitable mortgage: Fisher & Lightwood: Law of Mortgage (14th ed) [1.18, 1.20, 3.6].

The second is that, where one of two owners of a property agrees to grant a legal charge of the property then, subject to two points, under the doctrine of partial performance, that will be treated as creating an equitable charge over that person’s interest in the property, because the courts will order him to perform the obligation to provide security to the extent of his interest in the property: Fisher & Lightwood [3.6], Thames Guaranty v Campbell [1985] QB 210. The first point to which that rule is subject is that the court will not order the chargor to provide security to the extent of his interest if that would prejudice the rights of other persons with interests in the property. It is not suggested that this principle has any relevance here. The second point is that the document must comply with the requirements of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989: United Bank of Kuwait Plc v Sahib [1997] Ch 107. Under s.2, a contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. The terms may be incorporated in a document either by being set out in it or by reference to some other document. The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

Mr Goldstone argued that the CH1 failed to create a valid equitable charge over Matthew Warnes’ interest in the Property for two reasons. First, that the CH1 was not signed by Matthew Warnes in his personal capacity and therefore failed to satisfy the requirements of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989. Second, that in any event it could not create a valid equitable charge as the debt was only repayable upon the sale of the Property.

Both counsel agreed that the test for deciding if Matthew Warnes had signed the CH1 in his personal capacity was that stated by Lewison J in Redcard Ltd v Williams [2010] EWHC 1078 (Ch), applying a dictum of Lord Millett in Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715. Lord Millett said:

“Where a contract is contained in a signed and written docume nt, the process of ascertaining the identity of the parties and the capacity in which they entered into the contract must begin with the signatures and any accompanying statement which describes the capacity in which the person who appended their signatures did so. This may require interpretation, and to this extent the process may without inaccuracy be described as a process of construction but it is not of the same order as the process of construing the detailed terms and conditions of the contract. These describe the incidents of the contract and the nature and extent of the parties' obligations to each other But the identity of the parties themselves is not an incident of the contract. Where a signature is accompanied by a description of the capacity in which the signatory has appended his signature the description is not a term or condition of the contract. It is part of the signature and so part of the factual evidence of the identity of the party which is undertaking contractual liabilities under the contract”.

Redcard raised a question under s.44 of the Companies Act 2006. That provides that a document is validly executed by a company if it is signed on behalf of the company by two directors. A document signed in that way, and expressed in whatever words to be executed by the company has the same effect as if executed under the common seal of the company. In Redcard, the freehold in a house divided into 5 flats was owned by a company, Redcard Ltd, and each of the leases were owned by individuals, who were all directors of Redcard. The contract was for the sale of the freehold and the leases, and Redcard was within the definition of “seller” in the contract. The contract was signed by the individuals, but there was nothing under their signatures to indicate that they were signing both in their capacity as individual owners of the leases and as directors of Redcard. The purchasers argued that the contract had not been signed by Redcard and therefore was a nullity under s.2 of the 1989 Act.

Lewison J applied Lord Millett’s approach, and held, at [21-22] that the question was whether “…on a fair interpretation of the words in a contract, the reasonable reader would understand the signatures of the natural persons are signatures both on their own account and on behalf of the company… Would a reasonable reader with the background knowledge reasonably available to the parties have understood that the contract was signed on behalf of Redcard?”.

Lewison J’s decision was upheld by the Court of Appeal: [2013] BCC 689. Mummery LJ, with whom the other members of the Court agreed, took a slightly different approach to s.44 to Lewison J. That approach turned on the specific requirement in s.44(4) of the Companies Act 2006 that a document be “expressed, in whatever words, to be executed by the company”. Mummery LJ considered that the contract did express that it was executed by the company, because the definition of “seller” included the company, and the individuals had signed as “seller”. However, he did not disagree with Lord Millett’s statement of the general approach to be taken to identifying the capacity in which a party signs a contract, or with the way in which Lewison J applied that approach. In my view, that is the right approach and, as I have said, both counsel agreed that was the case.

Applying that approach, the question is whether a reasonable reader of the CH1, knowing of the background to it, would have understood Matthew Warnes to be signing only in his capacity as trustee of the Trust, and therefore as one of the lenders, or also in his personal capacity as borrower.

Applying that test, a reasonable reader would have considered the following points. First, the apparent purpose of the document was to create a charge over the Property to secure a debt owed by Matthew Warnes in his personal capacity to Matthew Warnes and Charles Warnes in their capacity as trustees of the Trust, and that could only be effective at all if Matthew Warnes executed it. Second, the document was dated 30 September 2009, the same date as that below the signatures, so it appeared that the parties intended the document to have effect on that date, which could only be the case if Matthew Warnes executed it in his personal capacity. Third, they would have seen the note to box 10 saying that “the borrower must execute this charge as a deed using the space opposite ”. They would have noted that the document was not executed by Matthew Warnes as a deed, which suggested that he was not intending to execute it. However, they would also have noted that Michelle was not a party, so that the expressed intention to create a legal charge could not possibly be given effect to, and the informality of the language and the mis-spelling in box 9, from which it was clear that the parties were not aware o f the legal requirements to create a legal charge and were doing the best they could to express their intentions without legal advice. Therefore they would, I think, have not attached importance to the fact that Matthew Warnes had not executed the document as a deed. I think they would have attributed that to ignorance of the requirements of a deed rather than to an intention not to execute the document at all.

In the light of those matters, I think there are realistically two possible ways in which a reasonable reader could read the words “Position: Trustee” below Matthew Warnes’ name. First, that they were included to indicate that Matthew Warnes’ signature was intended to represent his assent to the terms set out in the CH1 not only in his personal capacity, but also in his capacity as trustee, rather than meaning he was signing solely in his capacity as Borrower. Second, that Matthew Warnes only intended to sign in his capacity as trustee, and had made a mistake in thinking his signature in his personal capacity was not needed in order to make the document have any effect at all.

I have not found this issue at all easy to resolve. However, on balance I think that a reasonable reader would have understood the words “Position: Trustee” to mean that Matthew Warnes intended to sign both as borrower and as trustee, one of the two Lenders. I think the reasonable reader would give weight to the fact that the document is dated 30 September 2009 and clearly intended to be effective on that date, and could only be effective at all if signed by Matthew Warnes, and that the note to box 10 says that the borrower must execute the document. Accordingly, on balance, I consider that the CH1 was signed by Matthew Warnes in his personal capacity.

The contract set out in the CH1 was one under which Matthew Warnes agreed to repay the loan upon the sale of the Property and agreed that the Property would be charged with that debt. Mr Goldstone said that it was conceptually impossible to charge a property with a debt repayable only upon sale. The debt would fall due at a time when the chargor no longer had an interest in the property, so the property could not provide security for the debt.

On this point, I was referred only to Fisher & Lightwood [1.22] which says: “An equitable charge is created when real or personal property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation without there being any change in ownership either at law or in equity. It creates an equitable interest and confers on the chargee a right of realisation by judicial process ”.

In my view, and in the absence of the citation of any authority to the contrary, an agreement which expressly appropriates an identified property to the payment of a debt, advanced for the purpose of buying that property, and under which the debt is to be paid upon sale and out of the proceeds of sale, does create an equitable charge. The chargee’s rights can be realised by judicial process in the form of an injunc tion restraining the chargor from disposing of the proceeds of sale free from the charge and directing that they be paid to the chargee insofar as needed to satisfy the debt. Although in the normal case, an equitable charge will secure debt payable at a defined time, and the chargee can then apply to the court for an order for sale if the debt is not paid, I do not consider that it is an essential characteristic of an equitable charge that the debt must be repa yable at a specific time, rather than upon sale and out of the sale proceeds, or that the chargee must be able to require sale of the property against the will of the chargor in order to satisfy the debt. Rather, I consider that the essential characteristic of an equitable charge is that the owner of the property assumes an obligation to deal with that specific property for the benefit of the creditor, so that the creditor has a security interest in the property, and can require that, when sold, the proceeds of sale are to be appropriated to the payment of the debt owned to the creditor.

Accordingly, I consider that the CH1 did create an equitable charge to the trustees of the Trust over Matthew Warnes’ interest in the Property to secure £1,399,217.78.

The marriage between Matthew Warnes and Michelle broke down and divorce proceedings were commenced. On 10 May 2013, Michelle obtained an order from the Altrincham County Court for the sale of the Property and the payment of £200,000 from the proceeds of sale.

On 9 July 2013, a restriction was registered on the title to the Property, providing that no disposition was to be registered other than one by the proprietor of an existing registered charge, without a certificate that written notice of the disposition was given to Charles and Matthew Warnes being the trustees of the Trust.

On 16 October 2013, Matthew Warnes resigned as trustee of the Trust and was replaced by Michael Bulcock, an accountant.

Charles Warnes was able to negotiate an agreement with Michelle’s solicitors under which she would accept less than the £200,000 provided for in the order made on 10 May 2013, and this was embodied in a consent order made by the District Judge Clegg on 20 February 2014 (“the Consent Order”). O n the same date, a legal mortgage of property was executed by Charles Warnes and Michael Bulcock as “Lender” and Matthew Warnes and Michelle as “Borrower” (“the Legal Mortgage”). This was executed by each of the parties as a deed. By this time, in addition to the first legal charge to Woolwich, the Property was also subject to a second legal charge to HSBC to secure a business loan made to one of Matthew Warnes’ companies.

The Consent Order directed that Matthew Warnes should pay or cause to be paid to Michelle a total of £155,000, with £90,000 to be paid on or before 28 March 2014 and £65,000 to be paid on or before 28 May 2014. Upon payment of those sums, Michelle would transfer to the Trust her legal and beneficial interest in the Property and would not seek to enforce the order made on 10 May 2013. If the sums were not paid by the due dates, the order for sale made on 10 May 2013 would be reinstated, with Michelle having sole conduct of the sale, and in that case Michelle would receive £200,000 from the proceeds of sale.

The Legal Mortgage has a number of handwritten amendments, mostly made using the same pen which Michelle used to sign her name, initialled only by her. In the quotations below, I have set those out in italics. There is one manuscript amendment in a different pen, which in the quotations below I have set out in bold italics.

The Legal Mortgage recited that the Lender agreed to provide Matthew Warnes with a loan of £1,599,217.78, referred to as “the Loan”, for the purpose of purchasing the Property in the joint names of the Borrower i.e. Matthew Warnes and Michelle, and that it was agreed and a condition of making the Loan that the Lender would be secured by way of second legal charge against the Property. The order dated 10 May 2013 was rec ited followed by the following words added in manuscript: “for the avoidance of doubt the Lender agrees to be bound by that order and order of 20.2.2014 within the matrimonial proceedings”.

The Legal Mortgage included the following provisions:

“2 The Lender provides to the Borrower, the Loan, on the terms and subject to the conditions of this mortgage.

3

The Borrower shall use the Loan only for the purpose of the property Belmont House.

4

The Borrower shall, on demand, pay to the Lender and discharge the Secured Liabilities on the Repayment Date [the date of sale the Property] or, if earlier, on an Event of Default [as defined in Schedule 6]

5

The Borrower shall pay interest on the Loan rate of 2% per annum simple. Interest shall accrue daily and shall be payable quarterly in arrears on the last Business Day of March, June, September, December.

6

As a continuing security for the payment and discharge of the Secured Liabilities, the Borrower charges the Property, with full title guarantee, to the Lender by way of third legal mortgage

16.1

All monies received by the Lender or the Receiver under this mortgage after the security constituted by this mortgage has become enforceable (other than any sums received under any insurance policy) shall (subject to the claims of any person having prior rights and by way of variation of the LPA 1925) be applied in the following order of priority but subject to the terms of the Order of Altrincham County Court dated 10 May 2013:

(a)

in payment to Michelle Warnes of £200,000 ←To be amended

(b)

in or towards payment of or provision for all costs, charges and expenses incurred by or on behalf of the Lender …

(c)

in or towards payment of, or provision for, the Secured Liabilities in such order and manner as the Lender determines; and

(d)

in payment of the surplus (if any) to the Borrower or other person entitled to it”.

By a facility letter dated 23 April 2015, Bridging Finance Limited offered the Trustees and Matthew Warnes a loan facility of £425,000 for 12 months, to be secured by a second charge over the Property, with a lender’s acceptance fee of £5,343. This loan was to enable the business loan from HSBC to be repaid.

On 28 April 2015, Matthew Warnes and Michelle executed a transfer of the Property to Charles Warnes and Mr Bulcock as trustees of the Trust, and Matthew Warnes. The consideration was £155,000. The transfer declared that the transferees held the property on trust for themselves as joint tenants. The £155,000 was paid by Charles Warnes out of his own money. The transfer was registered on 29 May 2015. On 29 May 20015, a second charge in favour of Bridging Finance Ltd was registered.

The Legal Mortgage was never registered against the title to the Property. Therefore, it did not take effect to create a charge by way of legal mortgage, because the grant of a legal charge does not take effect at law unless completed by registration: s.27 of the Land Registration Act 2002. However, subject to the points argued by Mr Goldstone, it did take effect in equity as an equitable mortgage, which takes priority over the charge created by the charging order in favour of the Claimant. A charging order has the like effect and is enforceable in the same courts and in the same manner as an equitable charge created by the debtor under his hand: s.3(4) of the Charging Orders Act 1979. A charging order therefore takes effect subject to any prior legal or equitable mortgages or charges.

Mr Goldstone’s first challenge to the Legal Mortgage was that there is no evidence as to when Michelle’s manuscript annotations were made or whether (or when) they were agreed by the other signatories. He submitted that the provision at 16.1 is subject to a manuscript note ‘to be amended’ and that the clear inference is that this document does not reflect a concluded agreement.

Halsbury’s Laws vol 32 para 281 says: “Any alteration, erasure or interlineation appearing upon the face of a deed is presumed, in the absence of evidence to the contrary, to have been made before the execution of the deed ”. I put it to Mr Goldstone that this presumption applied and he did not dissent, although he pointed out that usually amendments are initialled by both parties and here they were not. I consider that I should apply the presumption, in the absence of any evidence to the contrary. Even apart from the presumption I think that, based on the facts as I have set them out, it is to be inferred that the document was prepared after the order dated 10 May 2013, and then the handwritten amendments were made on 20 February 2014, and that the deed was then dated and agreed by all parties to be effective.

As to the words “to be amended”, I think that a reasonable reader, aware of the background set out above, would understand those words to refer to the effect of the Consent Order, which was that £200,000 would be payable under the order dated 10 May 2013 unless the £155,000 was paid by 28 May 2014. So “to be amended” meant that if, but only if, the £155,000 was paid by 28 May 2014, the obligation to pay the £200,000 would be amended i.e. no longer have to be complied with. In my view, a reasonable reader would not have understood those words to mean that the parties had not reached a concluded agreement.

Mr Goldstone’s second challenge was that the Legal Mortgage could not be considered as a giving rise to a fresh charge in isolation from the charge said to have been generated by the CH1. Rather, it varied that earlier charge in a number of respects, but the variations were not supported by consideration and so were invalid.

The CH1, if it was effective, created an equitable charge over Matthew Warnes’ interest in the Property. The Legal Mortgage did not. It was executed by the registered proprietors and it created an equitable mortgage over the title to the Property, which if completed by registration would create a charge by way of legal mortgage of the Property. It was not, in my judgment, an attempt to vary the CH1 but rather created a fresh and separate security interest. In any event, it was a deed, so consideration is unnecessary.

Mr Goldstone’s third point was not a challenge to the Legal Mortgage, but rather related to the effect of the transfer on 28 April 2015. He submitted that the effect of this was that the Trustees should be treated as receiving a repayment of part of the Loan secured by the Legal Mortgage. I do not think that is right, as there is no indication that it was intended that the sale of Michelle’s interest in the Property to the Trust pursuant to the Consent Order was intended to operate as a partial repayment of the loan. Charles Warnes provided the £155,000 out of his own money, and so satisfied the obligation on Matthew Warnes to pay or cause to be paid that sum to Michelle. The transfer to the Trustees and Matthew Warnes made Matthew Warnes and the Trust joint tenants in equity of the Property. Therefore the effect of the transaction is that Charles Warnes either loaned or gave the sum of £155,000 to the Trust to enable it to pay that sum to Michelle. There being no evidence of any intention that it should be a loan, I think the right inference is that it was a gift by Charles Warnes to the Trust.

In any event, if there was a partial repayment, it cannot have been more than the £155,000 at which Michelle’s beneficial interest was valued. Even if one deducts the £200,000 included in the Loan by mistake and a further £155,000 that would still leave a sum of £1,244,317 secured by the Legal Mortgage, meaning there is no realistic prospect of any money being paid to Matthew Warnes on the sale of the Property, if the security is enforced.

If either the CH1, or the Legal Mortgage, created a valid security interest in favour of the Trustees, then there is no dispute that the security interest takes priority over the charge in favour of the Claimant created by the charging order. On the face of it, that means that there would be no point in ordering a sale, because it would not lead to any money coming to the Claimant. However, Mr Goldstone argues that I should find that the security, even if valid will not, in practice, be enforced.

This is a similar issue as can arise in divorce cases, where a party to a marriage is the beneficiary under a discretionary trust. In such cases, the question is whether, if the discretionary beneficiary were to request the trustees to advance the whole or part of the capital to him, would the trustee be likely to do so now or in the foreseeable future. If so, the court will treat the assets of the trust as part of the resources of the beneficiary for the purposes of deciding what financial provision orders to make: see AAZ v BBZ, C Ltd, P Ltd [2016] EWHC 3234 (Fam) at [25-26] and [73-74]. In the same way, it seems to me that if I consider that, on the balance of probabilities, the Trustees are unlikely to enforce their security, I should proceed on the basis that making an order for sale will lead to a substantial sum being paid to the Claimant towards satisfaction of the debt owed to it.

Charles Warnes made two witness statements in support of Matthew Warnes’ defence to this claim. The statements included an account of Charles Warnes’ understanding of the Trust and evidence of how he proposed to act as trustee. For example, in his first statement (made to resist the making of a final charging order) at para 9 he said:

“The Trustees recognise both their powers and their obligations under the Trust and in the event that the Court made a Charging Order against the beneficial interest of the Defendant under the Trust (such beneficial interest being entirely within the discretion of the Trustees) the Trustees would be obliged to make no appointment of income or capital in favour of the Defendant by reason of their obligations both to the Trust and to other beneficiaries”

In cross-examination, it became clear that these parts of those statements had been drafted for him by Matthew Warnes’ solicitors, and that Charles Warnes did not unders tand them and could not speak to them. He could not explain the statement that, if a charging order was made “the Trustees would be obliged to make no appointment of income or capital in favour of” Matthew Warnes. He said that if an order for sale was made he would need a lawyer to give him advice as to what to do. He accepted that those parts of his statements which gave evidence about the effect of legal documents had been put in by the solicitors and did not represent his own understanding. He said he assumed that he and his fellow trustee would prefer the interests of Matthew Warnes over and above those of any other beneficiary, as the Trust money had arisen as a result of his accident.

His second statement, at para 18, said:

“For the avoidance of any doubt, I would not exercise my discretion as a Trustee transfer income or property of the Trust to Matthew Warnes if this resulted in that income or property vesting in his creditors”.

It was pointed out to him that the sale proceeds from Hillfield Farm had been used to discharge a business loan by HSBC, which Matthew Warnes had personally guaranteed, which he said he believed to be correct. He was then asked if that had not amounted to using money of the Trust to pay Matthew Warnes’ creditors, and he agreed it did. He was then asked to agree that there would be no difference if Trust money was used to pay the Claimant. He said: “I don’t know how to answer that”.

He explained that he, personally, had helped considerably in meeting the payments due to Barclays and Bridging Finance, although currently they were being paid by Matthew Warnes’ fiancée. These payments had been made by him by way of unsecured loans to Matthew Warnes. It was put to him that Matthew could not repay these loans, to which he replied: “When the house is sold, one would hope he could. ” He was asked whether this was because half of the equity in the Property would go to Matthew on sale, to which he replied: “O ne would hope so.”

When asked about the Legal Charge, he said the interest provided for in it, which would come to £32,000 per year, had not been paid, and he suspected never was going to be paid. It was put to him that he, as lender, was never going to ask Matthew Warnes to pay a mortgage he could not afford, and he said: “No, it would be impossible”.

Based on that evidence, Mr Goldstone submitted that, regardless of whether the CH1 or Legal Mortgage created valid security interests, I could be satisfied that, if I made an order for sale, those security interests would not be enforced, so that Matthew Warnes’ half of the net proceeds of sale left after discharging the Barclays and Bridging Finance loans would be available to go towards satisfying the Claimant’s debt secured by its charging order.

I do not accept that argument. Charles Warnes clearly did not understand the effect of the security interests which had been created in favour of the Trust, although in re- examination, after being taken slowly and carefully through the position, he said that he had probably been wrong to say that half of the net proceeds of sale after paying Barclays and Bridging Finance would go to Matthew Warnes. His witness statements contained material which he did not understand and could not speak to, which is contrary to CPR PD32 para 18 and the guidance summarised in Civil Procedure 2017 para 32.4.5. However, that material does, as Mr Parker submitted, show what advice the Trustees are likely to receive as to how they should deal with the position when the Property is sold. In my view, the Trustees are very likely to require that the whole of the net proceeds of sale after paying off the legal charges is paid to the Trustees, in order that they may use the money to buy a new house for Matthew Warnes and his family to live in.

Mr Parker went further and argued that the Trustees would be failing in their duties if they allowed Matthew Warnes’ share of the proceeds of sale to be paid to the Claimant. I do not agree with that. If Matthew Warnes was unhappy about having an unsatisfied judgment debt, and wanted to pay the Claimant, I think it would be perfectly proper for the Trustees to waive their security and so effectively advance him the money to do that. It is, however, clear that this is not going to happen. Mr Goldstone established in his cross-examination of Matthew Warnes that he could have paid off the debt to the Claimant if he had wanted to, but instead he chose to use money that he received to fund his defence. Mr Goldstone submitted that this shows what an unsatisfactory character Matthew Warnes is. That may be, but it also means that Matthew Warnes is likely to ask the Trustees not to waive their security, but rather take all the sale proceeds and use them to provide another house for him and his family to live in. Mr Goldstone criticised Matthew Warnes for acting cynically and hiding behind his trust. Again, that may be the case, but I think that it makes it extremely unlikely that the Trustees will exercise their power to waive their security so that money which would otherwise be available to be applied for the benefit of Matthew Warnes is instead paid to the Claimant.

Mr Goldstone argued that that even if I held that either the CH1 or the Legal Mortgage, or both, created valid security interests, and that the Trustees were unlikely to waive their security, I should still order a sale. He said that I could recite in my order that Charles Warnes had said that the Trustees would allow half of the net sale proceeds to be paid to Matthew Warnes, and that would mean that the money would have to be paid to the Claimant. He also suggested that I could, in some way, order that the Trustees not be permitted to enforce their security, although he could not identify any jurisdiction that I have to make such an order.

I do not see how such a recital could assist the Claimant. It would amount, at most, to no more than a record of the present intention of the Trustees, and could not prevent them from changing their minds, and deciding, with the benefit of legal advice, from that they would not waive their security. I am not aware of any jurisdiction which I have to order the Trustees not to enforce their security or to prevent them from insisting that the net sale proceeds after paying off the legal charges be paid to them.

Accordingly, it would be futile for me to make an order for sale, as it would confer no benefit on the Claimant, and I will not do so.

If I had held that neither the CH1 nor the Legal Mortgage created valid security interests, or if I had considered it likely that the Trustees would probably waive their security, I would have had well in mind the principles stated in Civil Procedure 2017 para 73.10C and the authorities cited to me. An order for sale is the ultimate sanction for which powerful reasons are required, and which should be seen as extreme order which should be resorted to only in extreme cases, particularly where the property to be sold is the debtor's home. The rights of those living in the property to respect for their home under Article 8 of the European Convention on Human Rights must be taken into account. However, although it is a draconian step to satisfy a simple debt, it may be justified in the case where in reality without a sale the judgment debt would not be paid.

Applying those principles, I would have made an order for sale, although I would have invited submissions on the terms of the order and in particular how long it should be suspended for. I do not think there is any advantage in my lengthening this argument by explaining in detail why I would have made that order. In summary, it would have been because: (1) the proprietors of the Property intend to sell it in any event; (2) it is the only way that the Claimant is ever going to get the money that is owed to it; (3) it would still leave the Trustees with a substantial sum of money which can be applied for the benefit of Matthew Warnes; (4) there is no evidence that half of the equity in the Property, when taken with Stella Dunne’s resources, would be inadequate to provide Matthew Warnes, Stella Dunne and her children with a home which can be suitably adapted for Matthew Warnes’ needs.

I would not have attached importance to the arguments put forward by Mr Goldstone about the unsatisfactory nature of Matthew Warnes’ behaviour or evidence. A judge is only ever in the position of considering making an order for sale in these circumstances because the defendant has failed to pay money due from them, and that will usually involve unsatisfactory conduct on their behalf. I do not think that Matthew Warnes’ behaviour or evidence takes this case out of the norm in that respect. Nor would I have attached importance to the information which Mr Goldstone provided in his closing submissions about the Claimant’s financial position, as to which there is no evidence.

As it is, however, the claim is dismissed.