Is that in the best interest of beneficiaries?

In the recent case of Kamram v Davenport, the High Court considered an appeal against a charging order granted under section 2(1)(b)(i) Charging Orders Act 1979.

Facts

The appellant’s husband and respondent owned adjoining properties. The appellant’s husband brought proceedings against the respondent in 2015 alleging that the respondent’s building works had damaged the appellant’s property.

The appellant’s husband failed to pay the costs of the proceedings, as he had been ordered to by the court, and the respondent obtained a charging order over the property under section 2(1)(b)(i), as the husband was deemed to have been acting as a trustee for the benefit of beneficiaries.

Section 2(1)(b)(i) states that a charge may be imposed by a charging order on “any interest held by a person as a trustee of a trust” if the interest is “in such an asset” and “the judgment or order in respect of which a charge is to be imposed was made against that person as trustee of the trust”. Section 2(2)(a) states that assets include land.

The appellant argued that the court had been incorrect in granting the order as the appellant and her husband had an express declaration of trust which transferred the entire beneficial interest in the property to the appellant and as such she was the only trustee of the property and had not provided consent to bring the proceedings.

The appellant also submitted that she had been unaware of the proceedings brought by her husband in regards to the property until the final charging order had been made. The respondent submitted that they had served the appellant with the charging order application and that her submission was incorrect.

The appellant was granted permission to appeal.

Appeal

The appeal court had to consider whether (1) the appellant’s husband was a trustee of the property, (2) the appellant’s husband had brought the proceedings as a trustee and fell within the meaning of section 2(1)(b)(i), and (3) whether the appellant’s knowledge or lack thereof was relevant to the proceedings.

The court held that:

• The appellant’s husband was at all material times, as evidenced by Land Registry documents and the husband’s witness statement, the sole proprietor of the property and although the appellant held the beneficial interest, the husband had been holding the legal ownership as a trustee for the beneficial owner.

• The proceedings related solely to the property and the husband was acting in his capacity as legal owner and as such as trustee of the property. The husband was bringing the proceedings for the benefit of the beneficial owner, the appellant, and any benefit derived from the proceedings would have been a benefit for the beneficiaries and as such any liabilities should also accrue to them.
• The Charging Orders Act 1979 allows for a charge where the trustee was acting on behalf of the beneficiaries without needing their consent which had been the case here and as such whether or not the husband needed the consent of the appellant was between them and any remedy sought by the appellant would be compensation from her husband.

Comment

Trustees should be aware that any action taken for the benefit of the beneficiaries could lead to subsequent liabilities accruing to the detriment of the beneficiaries. This, in turn, could lead to the trustee becoming liable for compensation where actions are taken without the consent or knowledge of the beneficiaries causing them to feel cut out of important matters and left with a lesser benefit that they started with.

Beneficiaries should be aware that trustees can bring proceedings without the consent of the beneficiaries and subsequent charging orders can be made against assets including land which reduces their value lowering your beneficial interest as a result of the trust.

For more information please contact Sarah Farish.