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In this week's bulletin we report on recent cases concerning property in bankruptcy and proprietary estoppel. As usual, this is accompanied by our positive news and insights from around the firm.

Mehers (Trustee in Bankruptcy of Schrzade Khilji) v Sherzade Khilji and others [2023] EWHC 298 (Ch)

This case considered the statutory revesting provision in s.238A of the Insolvency Act 1986 ('IA 1986'), and specifically considered the relevance of the point in time when a Trustee in Bankruptcy becomes aware of the Bankrupt's interest in a property.  

In this recent case, the claim for revesting of the Bankrupt's home failed due to the Trustees' insufficient level of awareness of the Bankrupt's interest in her home. The judgment concerns what it means for a Bankrupt to 'inform' their Trustee in Bankruptcy of an interest in a property, such that the Trustee will be taken to have become aware of the interest for the purposes of s.283a(5) IA 1986.

Section 238.A IA 1986 gives a Trustee in Bankruptcy three years to decide what to do in respect of an interest in a property which is also the home of the Bankrupt or the Bankrupt's spouse. If certain action is not taken within that 3 year period, the Bankrupt's former interest revests in the Bankrupt and ceases to be part of the Bankrupt's estate available to the Trustee. 

In this case, the Trustee sought various declaratory and other reliefs in relation to a property which had been the Bankrupt's marital home, including a declaration as to the extent of respective beneficial interests and a declaration that the property had not revested in the Bankrupt. 

By way of brief background as to the facts of the case:

  • The Bankrupt's husband died intestate on 23 August 2014, when their marital property was registered in his sole name.
  • The Trustee in Bankruptcy was appointed on 7 August 2018. 
  • On 28 September 2018, the Bankrupt attended an interview with an examiner for the official receiver ('OR') and a statement was taken. The Bankrupt detailed that she had contributed to the mortgage following the death of her husband. The official copy of the Land Registry title to the property also detailed that the Bankrupt had occupational rights in respect of the property, and it was submitted this enabled her to claim the property. 
  • On 12 April 2019, the Administrator commenced proceedings for possession of the property and this was supported by the Trustee in Bankruptcy.
  • The Bankrupt defended the proceedings and claimed a beneficial interest in the property arising under a common intention constructive trust. She later applied for permission to amend her defence to include an argument that as a period of three years from the date of the Bankruptcy Order had expired, her interest in the property had revested under s283(a)(2) of the IA 1986.

The case primarily centred around when the Trustee became 'aware' of the Bankrupt's interest in what had been her matrimonial home.

Counsel for the Bankrupt conceded that she had not "positively asserted" her interest in the property; in fact she had stated to the OR that "I don't think I was ever joint owner of this property".

The Court held that "it is both pragmatically desirable and plainly just that a bankrupt who fails to comply with their duty to notify their trustee either of after-acquired property or of an interest in a property within the meaning of s.283A(1) will face an uphill struggle in persuading a court that the trustee was nonetheless aware of that interest such that the property is no longer available to the estate." 

The Court concluded that neither the Trustee nor the OR had been informed that the Bankrupt had an interest in the subject property, either at the date of her bankruptcy or any earlier than receipt of her defence in the possession proceedings. This was found on the basis that she had failed to inform the Trustee or the OR of any such interest.

This case highlights the ongoing duties of a Bankrupt to notify all or any property interests, and that the three year clock will not start ticking without proper notification.

Mate v Mate [2023] EWHC 238 (Ch) 

This case arose as a result of a dispute between family members in respect of the family's dairy farm in Netherton, West Yorkshire. 

The Claimant alleged that her mother (the first Defendant) had promised her in 2002 that, if farmland was sold, the proceeds of sale would be shared equally between the mother and her five children (of which the Claimant was one).
The Claimant also said that her brothers (being the second and third Defendants respectively) had been well aware of the promise made.

The Claimant argued that, in reliance on that promise, she had undertaken work to remove a "green belt" designation from 40 acres of land on the farm, which had secured its allocation for housing development and significantly increased its value. The land was subsequently released from green belt designation in 2015 and identified as being suitable for 250 new homes.

A dispute arose when the land was sold for around £9 million to a housing developer by the Claimant's mother and brothers.

The Claimant claimed that her mother and brothers knew that she would not have spent so much time (some 550 hours between 2008 and 2018) and money (£6,000) on the work she undertook to remove the green belt restriction, if it had not been for her reliance on the promise made by her mother (of which her brothers were aware). She therefore asserted that the Defendants should be estopped from denying her a share of the proceeds of sale. 

The Court rejected that there were sufficient grounds to establish proprietary estoppel. The Court reviewed the requirements for proprietary estoppel, noting that there needed to be a clear assurance, reliance by the Claimant on that assurance, and detriment to the Claimant as a result of that reasonable reliance. The Claimant had failed to demonstrate that her mother had made a sufficiently clear promise as to the division of the sale proceeds and as a result it followed that, in the absence of a sufficiently clear promise, the Claimant could not have relied on any such promise. The issues of reliance and detriment therefore did not arise.

However, the Court did allow a claim for unjust enrichment.  The Court held that the Claimant's brothers had been unjustly enriched as a result of the work undertaken by the Claimant to remove the green belt restriction, such that it could be allocated for residential development. The Claimant had not done that work without expectation of reward, but her mother and brothers had freely accepted her services and therefore been unjustly enriched at her expense. The Court therefore awarded the Claimant £652,000 calculated as a commission of 7.5% of £8.7 million (being the uplift of the value of the land due to her work, from £300,000 to £9 million).

Family and farming circumstances can sometimes lead to allegations of proprietary estoppel due to family members often working on the farm for a low or nil wage, or undertaking acts, in anticipation of inheriting certain parts of the farm or benefiting from their disposal.  It is therefore important to ensure that intentions are clearly reflected in succession planning, to avoid ambiguity where possible.  However, proprietary estoppel claims can often be very fact-specific and the Court in this case was quick to caution against treating of the legal tests as a "straightjacket", indicating that the Court will need to undertake a detailed inquiry as to the circumstances arising in each individual case.

For further queries relating to agricultural land or estoppel, contact Meadow O'Connor.

Insights from around the firm

Positive news

Footballer who rushed to the aid of his opponent who had fallen unconscious mid-game has been honoured with the FIFA Fair Play award

Austria Wien's right back, Georg Tiegl had suffered a head injury after colliding with an opponent's knee mid game. Wolfsberger AC player Luka Lochoshvili sprinted over and administered first aid when realising Tiegl was at risk of choking. 

Tiegl, who suffered with a skull fracture as well as a broken cheekbone, later thanked Lochoshvili for potentially saving his life. 

Earlier this week, Lochoshvili was honoured with the FIFA Fair Play Award at the Best Fifa Football Awards. When accepting his award, Lochoshvili said 'the most important things in football are fair play and respect'.

Northern lights are to be more visible in Southern England for the next two years 

No longer will you need to run to Iceland in hope of seeing the Northern Lights – they are more likely than normal to be visible from Southern England in the next two years, as the sun becomes more active with the approach of the solar maximum. 

Residents from Shropshire, Kent and Cornwall have reported seeing colourful skies earlier this week. The Northern Lights are more often visible in the North of England, but it is rare for the activity in the sun to be strong enough to be viewed further South. 

The Prince and Princess of Wales have launched a series of therapy gardens and allotments. 

The Royal Couple visited Wales earlier this week to help launch a series of therapy gardens and allotments. The initiative will be used to help provide mental health support for communities across South Wales.