Court of Appeal restores faith in limitation and charging
orders (Gotham -v- Doodes)
This article looks briefly at the recent bankruptcy case of
Gotham -v- Doodes [2006] EWCA Civ 1080, which overruled the
surprising decision of Lindsay J ((2005) EWHC 2576 (Ch)) which had
held that the 12-year limitation period ran from the date of a
charging order and not – as had been thought to be the case – the
date of an order giving permission to enforce that charging
order.
The Chancery decision
The trustee applied for possession in the normal way in 1992, was
instead granted a s313 charge, and remained in office until 2004
when he eventually applied for possession based on the charge, but
the trustee had not concerned himself with the possibility that
such an action might have become statute barred by reason of
limitation. In Chancery, the bankrupt’s lawyers made reference to
the nineteenth century precedent of Hornsey Local Board -v- Monarch
Investment Building Society (1889) 24 QBD 1, C.A. Lindsay J
found himself bound by that authority to conclude that a s313
charge, being at law an equitable charge equivalent to a charging
order, was susceptible to the ordinary 12-year limitation period,
commencing from the date of the charge’s creation and not some
subsequent date of presumed or actual default.
The relevant statutory provision is s20 of the Limitation Act 1980
which, so far as relevant, reads:
“20(1) No action shall be brought to recover
–
(a) any principal sum
of money secured by a mortgage or other charge on
property…
after the expiration of 12 years
from the date on which the right to receive the money
accrued.”
The judge explored the authorities in considerable detail,
concluding that the use of the term “right to receive” in the 1980
statute was deliberate and distinct from “right to enforce”. The
case of Hornsey had been around for almost a hundred years and it
must have been clear to the drafters of the 1980 Act what was meant
– ie “capable of giving receipt or discharge for it”. It followed
that, as the bankrupt could have redeemed the s313 charge anytime
after it was granted, limitation ran from that date and the
trustee’s application for possession late in 2004 was therefore out
of time.
In the Court of Appeal
Lindsay J had said in Chancery that he found for the bankrupt “with
some reluctance and no enthusiasm”. Justice was plainly not with
the bankrupt, who was taking advantage of the trustee’s inaction so
as to ensure that he took full advantage of having lived in the
property throughout the period, and the corresponding rise in
property prices.
The Court of Appeal found a way around the precedent which Lindsay
J had not, however, contemplated. It held that the context of a
Limitation Act and the accrual of “rights to receive” or of causes
of action it was implicit that the right to receive was a present
right. Time did not run in respect of future causes of action and
in the case of charges imposed by orders under s.313 (which secured
a future obligation), the right to receive could not pre-date an
order for sale of the property.
Implications for insolvency practitioners
The Chancery decision, which stood as good law for a considerable
time, had caused a number of IPs to have an urgent look in their
cupboards for ‘skeleton’ files in which they had obtained s313
charges. Normality now reigns again, however, and the option of
such a charge in place of possession and sale proceedings so as to
overcome the impact of s283A IA 1986 is once again viable.
For more information on this topic, please contact Mike Pavitt of Blake
Lapthorn Tarlo Lyons’ Insolvency and Business Recovery
team.