Byford v Butler
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 10 June 2003 |
| Neutral Citation | [2003] EWHC 1267 (Ch) |
| Date | 10 June 2003 |
| Court | Chancery Division |
In the Matter of Anthony William Byford (Deceased)
[2003] EWHC 1267 (Ch)
Mr Justice Lawrence Collins
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
On Appeal from the Romford County Court
(District Judge Chrispin) BANKRUPTCY 101 of 1991
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Roger Bartlett (instructed by Shah & Burke) for the Appellant
Mr Adam Deacock (instructed by Darbys) for the Respondent
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
(Mr Justice Lawrence Collins)
Introduction
1. In Re Gorman [1990] 1 WLR 616 and Re Pavlou [1993] 1 WLR 1046 the matrimonial name was in the joint names of husband and wife. In each case the marriage broke down, the husband left the home, and the wife thereafter discharged all mortgage payments (both capital and interest). In each case the husband was adjudicated bankrupt. The wife sought credit for the mortgage interest payments for the purposes of the equitable accounting on the sale of the home, and it was assumed or held that she could only have such credit against a set-off in favour of the trustee in bankruptcy for an occupation rent. This appeal from a decision of District Judge Chrispin in the Romford County Court raises the question whether the same result should follow where, as in this case, there was no breakdown of the marriage, and the husband continued to reside in the matrimonial home until his death nearly ten years after the bankruptcy.
II
Facts
2. Anthony and Brenda Byford bought 18 Chittys Lane, Dagenham, Essex (“the property”) in July 1986. They took out an endowment mortgage with Woolwich plc on the property in 1989 on which about £47,500 remains outstanding. Mr Byford was adjudicated bankrupt on June 5, 1991 with debts of about £50,000. He died in December 2000. Mrs Byford has acquired from the Official Receiver her late husband's interest in the endowment policy taken out to secure repayment of the capital. Mr Butler (“the trustee”) was appointed Mr Byford's trustee in place of the Official Receiver in April 2001. 3. Until Mr Byford's death, Mr and Mrs Byford lived together in the property. After Mr Byford's bankruptcy, Mrs Byford worked full time as an administration assistant with National Westminster Bank and made all the mortgage payments on the property out of her own pocket. Mr Byford, who had previously run a business driving a Readimix Concrete lorry, did not work after his bankruptcy and made no contribution to the mortgage. There were no payments of capital as such because the mortgage was an endowment mortgage, and Mrs Byford has purchased the trustee's interest.
4. The property has, in line with market conditions, increased strikingly in value in recent years. It was valued at £75,000 in January 2001, £95,000 in May 2001 and £138,000 in October 2002. 5. Between the bankruptcy of Mr Byford in June 1991 and his death in December 2000 his trustee (then the Official Receiver) took no steps as against Mrs Byford to realise his interest in the property.
6. In January 2001 Mrs Byford offered to buy out the trustee's interest for £5,000, which she increased to £8,000 in June 2001. In August 2001 the trustee indicated that he would accept £21,157, and informed Mrs Byford that she was not entitled to any credit for the mortgage interest payments made by her following the bankruptcy.
7. In July 2002 the trustee issued an application in the Romford County Court for a declaration that the trustee was beneficially entitled to half the equity in the property, and an order for sale (but only if Mrs Byford did not pay an appropriate amount for his interest in the property). The trustee's position was that there was an equity of £47,000 in the property (increased to about £86,000 at the time of the hearing), of which he was entitled to half. Mrs Byford's position was that she was entitled to be repaid out of Mr Byford's share of the proceeds half of the mortgage interest payments which she had made since his bankruptcy, and that she was entitled to credit for repairs and improvements. The trustee replied that if Mrs Byford were entitled to credit for mortgage interest payments (which he denied) then any credit should be set off against an occupation rent arising against Mrs Byford.
8. Following a hearing in November 2002 District Judge Chrispin held in January 2003 that (a) Mrs Byford was entitled to a credit for the improvements which she had made to the property; (b) Mrs Byford was entitled to credit for the mortgage interest payments; and (c) the trustee was entitled to a set off for an occupation rent from Mrs Byford without further enquiry.
9. The judge held that it was not the physical occupation of the property which was the decisive factor in respect of a trustee in bankruptcy's entitlement to charge an occupation rent. Once the bankruptcy order had been made, then the trustee stood in the shoes of the bankrupt and it was no longer of relevance whether the bankrupt left the property or stayed after that time.
10. The result was that (a) there was an equity in the property of £86,254; (b) divided equally that produced a figure of £43,127; (c) Mrs Byford was entitled to a credit of £5000 for her improvements, which left a sum of £38,127 for the trustee's interest. The parties agreed at the trial that if an occupation rent was payable it should be treated as extinguishing the credit to which Mrs Byford was entitled for mortgage interest payments.
III
The appeal
11. Mrs Byford's position on the appeal is that no occupation rent should be charged at all in the circumstances of this case. The trustee has chosen for his own reasons to leave her in occupation of the property with the bankrupt for nearly ten years and leave her to meet all the outgoings on it. Now that the property has substantially increased in value he wants to take for the bankrupt's creditors half of that increased value. He is entitled in principle to do that. What he is not entitled to do is to take that benefit without meeting his share of what it has cost to get the benefit. The District Judge's judgment enables him to do that and produces an extremely inequitable result.
12. It is argued on her behalf that (a) the general rule both at common law and in equity is that each of two joint tenants or tenants in common has a right to occupy the whole of the jointly owned property; (b) accordingly, one joint owner does not have to pay an occupation rent to the other merely because he is in sole occupation of the property; but (c) there are three circumstances in which such rent is payable: (1) by agreement; (2) where one of the joint owners actually receives rent for the property he must share it rateably with the other; (3) where one of the joint owners has occupied the property to the exclusion of the other and it is equitable to require such a rent to be paid.
13. The third circumstance requires that one co-owner must in some sense be excluding the other. A trustee in bankruptcy has no right to possession of the property except for the purpose of realising it for the benefit of the creditors. His right to enjoy the property is a right to require the property to be sold (subject to and in accordance with the provisions of the Insolvency Act 1986). The trustee asserts and the District Judge has held that whether or not the bankrupt is in occupation is irrelevant because he is no longer a co-owner of the property. If that is right the only way in which the bankrupt's spouse can in practical terms exclude his trustee in this type of case is by refusing to co-operate with a sale. That has never happened in this case at any stage. What the trustee is really contending for is an automatic right for trustees to charge an occupation rent to a spouse in this situation, which is wrong in principle and inequitable in its operation.
14. The factors that make it inequitable in any event to require Mrs Byford to pay an occupation rent are these: the trustee is essentially seeking to take the benefit of the increase in the property's value without meeting his share of the cost of achieving that increase. Mrs Byford has remained in occupation of the property because the trustee has chosen to do nothing. Had he acted earlier the position would have been resolved, almost certainly by Mrs Byford purchasing his interest. If the trustee is right what Mrs Byford should have done here immediately after the bankruptcy was call on the trustee to meet his share of the mortgage and other outgoings on the property. When he inevitably failed to do so she should have applied to the court for an order for sale. In reality an order for sale at that time would probably have realised nothing for the creditors. It is neither just nor realistic to put the onus of taking such steps on the bankrupt's spouse. The bankrupt occupied the property with Mrs Byford until his death. This is a relevant consideration because he had to live somewhere. At least in some cases there will be a positive benefit to the creditors if the bankrupt is housed free of charge by his spouse.
15. Parliament has now made it clear in the new section 383A of the Insolvency Act 1986 to be introduced by section 261 of the Enterprise Act 2002 (not yet in force) that it is undesirable for trustees to wait many years before resolving their rights in respect of the home of the bankrupt or his spouse. This introduces a general rule that the trustee must take steps to realise his interest in the home of the bankrupt or his spouse within three years of the bankruptcy, subject to specified exceptions. If he fails to...
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