REF/2013/0627
NCN: [2015] UKFTT 153 (PC)

PROPERTY CHAMBER, LAND REGISTRATION
FIRST-TIER TRIBUNAL

LAND Registration act 2002

IN the matter of a reference from hm land registry

BETWEEN

Martin Pickard (Trustee in Bankruptcy)

APPLICANT

And

(1)	Mesud Habib Sali
(2)	Dionys Gkiorgki Gkioka

RESPONDENTS

Property Address: 35 Cottesmore Avenue Ilford IG5 0TG
Title Number: EX13781

Before: Mr Gatty sitting as Judge of the Property Chamber of the First-tier Tribunal

Sitting at: 10 Alfred Place, London WC1E 7LR 
On: Tuesday 13 May 2014

Applicant Representation:	None Attended
Respondent Representation:	None Attended

DECISION

Procedural history

1.	In this reference I am concerned with an application by Martin Pickard, one of the trustees in bankruptcy for Mr Asoka and Mrs Prithiva Janaka, for a Form J restriction to be noted against 35 Cottesmore Avenue, Ilford IG5 0TG, title number EX13781 (“the Property”), a residential property of which Mr and Mrs Janaka are the registered proprietors.

2.	Mr Pickard and Ann Nilsson, both of Lazars LLP, were appointed trustees in bankruptcy for Mr and Mrs Janaka on 23 April 2013.  On 16 May 2013 Mr Pickard applied for a Form J restriction to be noted against the title of the Property.  An objection to that application was lodged in June 2013 on behalf of Mr Mesud H Sali who claims an interest in the Property under a joint venture agreement (“the JVA”) dated 24 September 2012.  Mr Sali is represented by Mr Clifford Frank, a partner in LEXeFISCAL, a firm described as international tax-law consultants on its notepaper.

3.	By an order dated 15 October 2013 Mr Dionys Gkiorgki Gkioka was joined to the proceedings as Second Respondent.  Mr Gkioka appears to have entered into an agreement to buy the Property from Mr and Mrs Janaka by instalments on 12 October 2012 (“the Purchase Agreement”).  Mr Gkioka is also represented in these proceedings by Mr Frank/LEXeFISCAL.

4.	The application was referred to this Tribunal on 23 July 2013 and directions were duly given for a hearing to determine the dispute.  By a letter to the Tribunal dated 15 January 2014, Mr Pickard indicated his intention not to attend any hearing because no realisations had been made in either bankruptcy estate so he was not, he said, in a position to expend costs on attending a hearing.  He stated that he relied on previous statements filed and a statement (with no statement of truth) contained in that letter.

5.	In a letter dated 28 February 2014 from Mr Frank, he stated that he was awaiting Mr Pickard’s agreement to withdraw his application but otherwise would file form LRHRG (the Tribunal’s listing questionnaire) by 10 March.  I assume that there was no such agreement because on 5 March 2014 Mr Frank sent the Tribunal a completed Form LRHRG.  In it he indicated that he would be attending the hearing and calling three witnesses (the two Respondents and Mrs Janaka).  Witness statements were filed for those three witnesses.  On 2 April 2014 notices of a hearing on 13 May 2014 were sent to Mr Pickard and to LEXeFISCAL.

6.	In breach of the directions issued with the notices of hearing, the Applicant did not provide the Tribunal with a hearing bundle and none of the parties filed a list of issues nor a chronology nor a skeleton argument nor copies of any authorities.

7.	Neither Mr Frank, the Respondents nor anyone else representing the Respondents attended the hearing on 13 May 2014, which was scheduled to start at 10.30 a.m.  Nor did Mr Pickard attend but that was expected in the light of his previous correspondence.  I caused a telephone call to be made to LEXeFISCAL’S offices but the person who answered the telephone did not know where Mr Frank was and could not contact him.  At 11.15 a.m. I began the hearing with nobody present to represent any of the parties and at 11.20 a.m. I brought the hearing to a close.

8.	By rule 31(1) of the 2013 Rules, the Tribunal must hold a hearing before making a decision which disposes of the proceedings, subject to the exceptions provided for in Rules 31(2) and 31(4).  A hearing has been held in this matter, albeit that none of the parties attended it.  By rule 6(3)(i) of the Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 the Tribunal may decide the form of any hearing.  By rule 6(3)(d) of those Rules the Tribunal may permit or require a party to provide or produce documents, information or submissions to the Tribunal.  Having regard to those rules and in the circumstances described in the preceding paragraphs, I consider it appropriate to dispose of the proceedings by making a decision based upon the statements of case, witness statements and documents filed by the parties, which I shall proceed to do.

The facts

9.	Although I have heard no oral witness evidence, the following facts appear from the documents that I have seen.  

10.	On 5 March 2002 Mr and Mrs Janaka became registered proprietors of the Property, having purchased it on 1 February 2002.  A legal charge dated 11 May 2007 in favour of Accord Mortgages Limited (“Accord”) was registered against the Property on 6 November 2007.  

11.	On 13 February 2012 the London Borough of Redbridge presented bankruptcy petitions against both Mr and Mrs Janaka as a result of unpaid Council Tax.  According to Mrs Janaka’s statement dated 7 November 2013, the amount of outstanding Council Tax was £4,359.45 when statutory demands were served on her and her husband in July 2011.

12.	According to Mrs Janaka’s statement, by September 2012 Mr and Mrs Janaka had run up mortgage arrears with Accord of over £33,000.

13.	Mrs Janaka states that she met with Mr Sali, the First Respondent, in August 2012.  According to his statement dated 21 September 2013 he is a partner in a firm of property agents named “Move on Now”.  I have seen a copy of an agreement dated 24 September 2012 made between Mr and Mrs Janaka and Mr Sali, the JVC.  It provides for Mr Sali to attempt to arrange a sale of the Property, either a traditional sale or a “Vendor Term Agreement” (a purchase by instalments).  The JVA provided that if the Property was sold, Mr and Mrs Janaka would receive sufficient of the purchase price to redeem the Accord mortgage and the balance would be paid to Mr Sali.  There was a power of attorney (“the PoA”) in favour of Mr Sali expressed to be “by way of security to protect a proprietary interest in the Property” scheduled to the JVA.

14.	The documents provided by the Respondents include an agreement dated 12 October 2012 made between Mr and Mrs Janaka and Mr Gkioka (“the Agreement”).  The Agreement provides for a purchase price of £283,000 to be paid by one payment of £31,000 and monthly instalments initially at a rate of £1,608.15.  The Agreement provided for Mr Gkioka to occupy the Property as a tenant until completion of the purchase.  It provided for a restriction to be entered on the register in respect of the Agreement (as was done on 25 October 2012).  It provides at clause 6.5 for the whole purchase price to become due if any instalment should not be paid for two months and a final notice to pay it not be complied with.  It provides at clause 17.1 that if the whole purchase price becomes due and is not paid for two months after written demand, the seller can rescind the contract and recover vacant possession of the Property.

15.	The copy of the Agreement supplied to the Tribunal is signed by Mr Gkioka but not by or on behalf of Mr and Mrs Janaka.  I assume that contracts were exchanged and that there exists a copy of the Agreement signed by or on behalf of Mr and Mrs Janaka.  It appears from Mr Sali’s “Defence”, i.e. statement of case, that it was probably Mr Sali who signed the Agreement on behalf of Mr and Mrs Janaka pursuant to the PoA but whether that is so is not clear from the documents I have seen.

16.	The Respondents state that Mr Gkioka paid £31,000 on signing the Agreement which was used to pay off arrears on the Accord mortgage.  They say that he moved into the Property and has paid £1,600 per month ever since.  For present purposes I am prepared to proceed on the basis that this is correct without making any actual findings about it.

17.	My papers include a copy of the register of title for the Property dated 20 September 2012 which does not include a bankruptcy notice, as one would expect when the Property is not held in the sole name of one owner.  It appears that neither Mr Sali nor Mr Gkioka nor the solicitors who acted for Mr Gkioka, King Prior MacDonald Bridge, searched the land charges register to ascertain whether a bankruptcy petition had been presented against either of the Janakas before the JVA and the Agreement were entered into.  So far as Mr Gkioka is concerned, that is understandable if, as he states, he is a Greek plumber living in the UK since 2011 and unfamiliar with the English legal system.  Whether it was wise for Mr Sali and in particular King Prior MacDonald Bridge not to take that step is not for me to say.

18.	On 7 February 2013 District Judge Wright of the Romford County Court made bankruptcy orders against both Mr and Mrs Janaka.  On 23 April 2013 Mr Pickard and Ms Nilsson were appointed as their trustees in bankruptcy.

The Applicant’s case

19.	Mr Pickard seeks a Form J restriction, namely:
No disposition of the registered estate, other than a disposition by the proprietor of any registered charge registered before the entry of this restriction, is to be registered without a certificate signed by the applicant for registration or their conveyancer that written notice of the disposition was given to Martin Pickard and Ann Nillson … at Mazars LLP...

20.	Mr Pickard’s position can be summarised as follows:
(a)	The property vested in him and Ms Nillson on their appointment as trustees pursuant to section 306 of the Insolvency Act 1986.
(b)	There is equity in the Property after repayment of Accord.
(c)	The JVA is void (unless ratified by the court) pursuant to section 284 of the Insolvency Act 1986 because it was entered into during the period between presentation of the bankruptcy petitions against the Janakas and the making of the bankruptcy orders.
(d)	The Agreement is also void.  I am unclear whether Mr Pickard contends that it is void because it is caught by section 284 or because Mr Sali had no power to sign it because his power of attorney was void pursuant to section 284 or both.  I will assume both.
(e)	Mr Pickard has tried and failed to reach an agreement with Mr Sali.
(f)	Mr Pickard would oppose any application to the court under s. 284 to ratify the Agreement.
(g)	So, the usual Form J bankruptcy restriction should be entered against the Property.

21.	Section 306 of the Insolvency Act 1986 provides for the vesting of a bankrupt’s estate in his trustee in bankruptcy on his appointment.  At the date of execution of the JVA and the Agreement, section 284 of the Insolvency Act reads as follows (so far as relevant):

284 	Restrictions on dispositions of property.
(1)	Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court. 
(2)	… 
(3)	This section applies to the period beginning with the day of the presentation of the petition for the bankruptcy order and ending with the vesting, under Chapter IV of this Part, of the bankrupt’s estate in a trustee. 
(4)	The preceding provisions of this section do not give a remedy against any person— 
(a)	in respect of any property or payment which he received before the commencement of the bankruptcy in good faith, for value and without notice that the petition had been presented, or 
(b)	in respect of any interest in property which derives from an interest in respect of which there is, by virtue of this subsection, no remedy. 
(5)	….
(6)	A disposition of property is void under this section notwithstanding that the property is not or, as the case may be, would not be comprised in the bankrupt’s estate; but nothing in this section affects any disposition made by a person of property held by him on trust for any other person.

The Respondents’ case

22.	The Respondents’ case appears from Mr Sali’s Defence as supplemented by the witness statements mentioned above.  In summary:
(a)	Neither Respondent knew of the bankruptcy petitions presented against the Janakas when they entered into, respectively, the JVA and the Agreement.  Indeed the JVA contains a warranty of solvency.  They acted in good faith.
(b)	The Janakas were not insolvent when they executed the JVA and when the Agreement was entered into.
(c)	Because the bankruptcy petitions were adjourned for payment to be made, the bankruptcy proceedings did not begin until 21 November 2012 “when it became clear that The Janakas’ [sic] were unable to satisfy the Court Order for payment by 15 December 2012”.
(d)	When you take into account payments made by Mr Gkioka totalling £47,479.93 in September 2013, for which he not the Janakas are entitled to credit, there is no equity in the Property available for the Janakas’ estate.
(e)	The restriction sought would prejudice Mr Gkioka by preventing him from completing the purchase without paying a significant sum to Mr Pickard “to release the caution”.
(f)	If the Agreement is void Mr Gkioka is entitled to repayment of the payments he has made from Mr Pickard.
(g)	The granting of the application would cause the Respondents great difficulties.

Discussion

23.	Applications for restrictions are governed by the relevant provisions of the Land Registration Act 2002 and the Land Registration Rules 2003. Section 42(1) of the 2002 Act provides:
42(1) 	The registrar may enter a restriction in the register if it appears to him that it is necessary or desirable to do so for the purpose of— 
(a) 	preventing invalidity or unlawfulness in relation to dispositions of a registered estate or charge, 
(b) 	securing that interests which are capable of being overreached on a disposition of a registered estate or charge are overreached, or
(c) 	protecting a right or claim in relation to a registered estate or charge.

24.	S. 43(1) of the Act provides:
43(1) 	A person may apply to the registrar for the entry of a restriction under section 42(1) if—
(a) 	he is the relevant registered proprietor, or a person entitled to be registered as such proprietor,
(b) 	the relevant registered proprietor, or a person entitled to be registered as such proprietor, consents to the application, or
(c) 	he otherwise has a sufficient interest in the making of the entry.

25.	The Land Registration Rules 2003 provide at rule 93: 
93	The following persons are to be regarded as included in section 43(1)(c) of the Act-
…
 (j) 	a trustee in bankruptcy in whom a beneficial interest in registered land held under a trust of land has vested, and who is applying for a restriction in Form J to be entered in the register of that land

26.	The overarching questions for me, therefore, are:
(1)	Has a beneficial interest in the Property vested in Mr Pickard?
(2)	If yes to (1), is it necessary or desirable for a Form J restriction to be entered against the Property in order to 
(i) 	prevent invalidity or unlawfulness in relation to dispositions of a registered estate or charge, or
(ii) 	protect a right or claim in relation to a registered estate or charge?

27.	I consider that a beneficial interest in the Property did vest in Mr Pickard on his appointment as a trustee for Mr and Mrs Janaka.  Even if the JVA and the Agreement were valid, i.e. are not avoided by section 284 of the Insolvency Act 1986, they did not deprive Mr and Mrs Janaka of all beneficial interest in the Property.  The Agreement had not been completed when the trustees were appointed and has not yet been completed.  If Mr Gkioka were to default on his payment obligations for long enough, the Agreement could be rescinded.  So the execution of the Agreement did not deprive Mr and Mrs Janaka of all beneficial interest in the Property, even if the sum total of the payments made by Mr Gkioka and the mortgage debt exceed the value of the Property.  And I do not have any satisfactory admissible valuation evidence so cannot conclude that the payments made by Mr Gkioka and the outstanding mortgage debt do exceed the value of the Property.  The JVA did not deprive Mr and Mrs Janaka of all beneficial interest in the Property either, even though it entitled Mr Sali to the balance of any proceeds of sale if he should find a purchaser.  Mr and Mrs Janaka remained beneficial owners of the Property after execution of the JVA, albeit subject to contractual obligations which deprived them of much practical benefit from their beneficial ownership if Mr Sali could find a purchaser for it.  Accordingly, I conclude that Mr and Mrs Janaka had beneficial interests in the Property to pass to their trustees on their appointment, even assuming that the Agreement and the JVA were not avoided by section 284 of the 1986 Act.

28.	In the light of that conclusion it is not strictly necessary for me to decide whether the JVA, the PoA and/or the Agreement were made void by the effect of section 284 of the 1986 Act.  Were it necessary for me to decide that, however, I would have decided that section 284 did avoid the PoA.  It was executed between the presentation of the petition and the making of bankruptcy order, the period in which section 284(1) applies by s. 284(3).  It matters not whether Janakas were actually insolvent at the time although it appears likely that they were because they could meet their debts as they fell due.  

29.	The PoA is stated to be by way of security to protect a proprietary interest in the Property.  As such it is a disposition of the Janakas’ property and so caught by section 284(1).  If the PoA is void and Mr Sali executed the Agreement under it, then the Agreement would not have been effectively executed on behalf of the Janakas.  

30.	It may be that the Agreement was also a disposition avoided by s. 284 even if it was validly executed.  For some purposes, such as under the Law of Property (Miscellaneous Provisions) Act 1989, a contract for the sale of land is not a disposition – it is the conveyance/transfer completing the sale which is the disposition.  However, the question here is whether the Contract is a disposition for the purposes of the Insolvency Act 1986, where a somewhat different approach has sometimes been taken.  See for example Re French’s (Wine Bar) Limited [1987] BCLC 499.  The Agreement is not an ordinary agreement for the sale of land and includes a lease of the Property.  On any view a lease is a disposition of property.  So, if necessary, I would have concluded that the Agreement does amount to a disposition of the Property caught by s. 284(1), even if validly executed by Mr Sali on behalf of the Janakas.

31.	If so, the Respondents require the ratification of the Court before they can rely on the JVA and the Agreement as against the trustees.  And even if the Respondents can rely on the JVA and the Agreement, the trustees still obtained a beneficial interest in the Property on their appointment, albeit a limited beneficial interest.  I therefore consider that Mr Pickard was entitled to apply for entry of a Form J restriction under s. 43 of the 2002 Act and rule 93 of the 2003 Rules.  I consider that he was so entitled whether or not the JVA (including the PoA) and the Agreement are avoided by s. 284 of the 1986 Act.

32.	Having reached that conclusion on the first question, I must now decide whether it is necessary or desirable that a Form J restriction be entered for one of the purposes specified in section 42(1) of the 2002 Act.  I have concluded that it is necessary or desirable that a restriction be entered.  

33.	The effect of a Form J restriction is limited.  It requires notice to be given to Mr Pickard before a disposition such as the transfer to Mr Gkioka is registered, but it does not prevent such a disposition being registered.  I am unable to say on the material available to me whether there is any value in the Property for the Janakas’ estates after taking into account the mortgage and any claim Mr Gkioka may have either under the Agreement or for repayment by way of subrogation or restitution if the Agreement is void and not ratified.  It is possible, however, that there is some value.  So the entry of the restriction is necessary or desirable to protect Mr Pickard’s “right or claim” to the Property.  It is also necessary or desirable to prevent invalidity or unlawfulness should the Agreement be rescinded and should the Janakas seek to transfer the Property to someone else.  Without it, there would be nothing on the register to put a potential purchaser on notice that the Janakas are bankrupt.

34.	For the above reasons, I direct the Chief Land Registrar to give effect to Mr Pickard’s application as if the Respondent’s objection to it had not been made.

35.	The general rule in this jurisdiction is that costs follow the event.  If any party wishes to apply for an order for costs they should serve on the Tribunal and the other parties an application for costs supported by a schedule itemising the costs claimed (limited to the period after reference of the dispute to the Tribunal) on 23 July 2013).  Such an application should be made within 21 days from today and any submissions in response should be served within 14 days of service of the application.  Any reply to the submissions in response should be served within 14 days of receipt of those submissions.

Dated this Tuesday 3rd day of June 2014

BY ORDER OF THE TRIBUNAL