Charging orders on land
By
Stephanie Tozer and James Tipler discuss the process of applying for an interim charging order and the applicant's duty of full and frank disclosure
Charging orders are a powerful tool for the enforcement of a judgment debt by a judgment creditor. The imposition of a charging order on land owned by the judgment debtor will afford the judgment creditor a valuable security equivalent to a mortgage of the property affected.
In practice, the imposition of a charging order is the first step towards enabling the debt to be satisfied through a sale of the property and distribution of its proceeds, and has the additional advantage of providing the creditor with a measure of protection against the risk of the debtor’s insolvency.
An application for a charging order must be made in accordance with CPR part 73, which sets out a two-stage process.
First, the creditor must apply for an interim charging order.
The rules provide that the application ‘may’ be made without notice. In practice, applications are almost always made without notice, and, in the case of an application for a charging order over land, by filing prescribed form N379.
For typical applications in the county court, the application should be made to the County Court Money Claims Centre. In many cases the grant of an interim order is dealt with by a court officer as an essentially administrative task, without a hearing. However, a court officer may decide to refer the application to a judge, who may then grant the interim order.
It is important to appreciate that it is the making of the interim order which creates the charge over the debtor’s property. The creditor is entitled to (and should) register a notice to protect the priority of the interim order when it is made. Thus a charge can be, and usually is, imposed over the debtor’s property before they know anything about it, and before any hearing has taken place.
Once made, the interim charging order must be served on the debtor; thereafter, the debtor has the opportunity to file written grounds of objection. If objections are received, the matter will be dealt with at a hearing at the debtor’s home court. If no objection is received, a judge in the Money Claims Centre may consider the application on the papers.
In either case, at this second and final stage the judge will consider whether to make a final order confirming the charge; to discharge the interim order; to decide any issues in dispute or direct a trial of any issues; or make such other order as appropriate.
Full and frank disclosure
In the recent case of Ittihadieh v Metcalfe (unreported, 9 February 2017), Master Teverson had to consider the extent to which the general rule that an applicant for a without notice order must give full and frank disclosure of any matters of fact or law which are or may be adverse to the applicant applies in the case of an application for a charging order. He decided the duty does apply:
The fact that the respondent has applied for permission to appeal the order which creates the relevant judgment debt, and to stay the order in the meantime, is something the applicant is obliged to draw to the court’s attention.
The applicant’s duty continues after the application is made. Therefore, if the applicant learns that the respondent has made an application for permission to appeal and a stay after the application is made but before the court has made an interim charging order, the applicant must draw it to the court’s attention.
Where the applicant breaches its duty, and the respondent asserts that the interim charging order should be set aside as a result, the court has a discretion whether to discharge the interim charging order or make a final charging order.
There is no presumption towards discharge. Discharge is only likely if the court would have had serious doubts about whether to make the interim charging order if it had been aware of the application for permission to appeal and a stay.
The Master made a final charging order, despite the applicant’s breach of duty. The parties compromised before a decision as to costs was made; as a result, the question of the extent to which the court should penalise an applicant in costs as a mark of its disapproval of such a breach of duty remains to be decided in another case.
Applicants who do not comply with the duty of full and frank disclosure therefore run two risks: first, that the interim charging order will be set aside, and second, that they will have to pay the costs of determining whether it should be.
Stephanie Tozer, pictured, and James Tipler are barristers at Falcon Chambers. Stephanie appeared for the respondent in Ittihadieh v Metcalfe.