Over recent years a tussle has been going on between the competing rights of spouses and creditors and the inter-relationship of the Insolvency Act 1986, the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) and the ancillary relief regime.

Some of the relevant provisions make it clear which regime prevails. So, where a trustee in bankruptcy applies for an order for sale under TOLATA, section 15(4) provides that the application falls to be decided not by the section 15 considerations, but instead in accordance with section 335A of the 1986 act, as amended. Under section 335A(3), after a year from the vesting of the bankrupt’s estate in the trustee, the court shall assume, unless the ­circumstances are exceptional, that the interests of the creditors outweigh all other considerations.

But what if there had been earlier ancillary relief proceedings? In Avis v Turner [2007] EWCA Civ 748, [2007] 4 All ER 1103, a property adjustment order had been made by consent, varying the trust upon which the matrimonial property was held. The trust for sale (two-thirds in favour of the wife) was to be postponed until the wife: (i) remarried; (ii) cohabited in a stable relationship; (iii) served notice requiring the property to be sold; or (iv) died. None of these events had occurred when the husband was later made bankrupt and the trustee applied to the court for an order for sale to realise the husband’s share. Of course, any person (including the husband) who had an interest in property held upon a trust for sale (or in the proceeds of sale) was entitled to apply for an order for sale under section 14 of TOLATA. The trustee took the bankrupt’s property subject to the equities and liabilities to which it was subject in the hands of the bankrupt but, unless the property adjustment order had some special force which went beyond the agreement of the parties, the trustee too could make such an application. The only relevant question was whether there were exceptional circumstances (section 335A once more trumping section 15).

So far, then, two-nil to trustees. Then came Hill v Haines [2007] EWCA Civ 1284, [2008] 2 All ER 901. Avis was not referred to in the judgment but the difference here, of course, was that, rather than a trust for sale, a contested ancillary relief hearing resulted in an order for the transfer of the former matrimonial home to the wife shortly following which the husband, predictably, presented his own bankruptcy petition. The husband’s trustee sought to have the transfer set aside as a transaction at an undervalue, on the basis that the husband had received no, or no adequate, consideration. The Court of Appeal disagreed. The right of a spouse to apply for an order under the Matrimonial Causes Act 1973 had value in that its exercise might, and commonly did, lead to court orders entitling one spouse to property or money from, or at the expense of, the other. There was no reason why the compromise or release of this pre-existing statutory right could not constitute consideration for the purpose of section 339 of the 1986 act. In the ordinary case, a transferee under a transfer made pursuant to a property adjustment order was to be regarded as having given consideration in money or money’s worth, unless the case was exceptional and it could be demonstrated that the property transfer order had been obtained by fraud or some broadly exceptional circumstance. Whether the order followed contested proceedings or was by way of compromise, in the absence of the usual vitiating factors of fraud, mistake or misrepresentation, the value of the statutory right was balanced by the monetary value of the payment or transfer. A glimmer of hope, then, for innocent spouses.

What if there has been no divorce? Section 13(6) of TOLATA enables compensation to be awarded to a beneficiary whose entitlement to occupy land under section 12 has been excluded or restricted. French v Barcham [2008] EWHC 1505 (Ch), [2008] All ER(D) 64 (Jul) concerned a trustee’s entitlement to such compensation for the continued occupation of the family home by the bankrupt’s wife. The application for an order for sale was made some 12 years after the husband’s bankruptcy, and the trustee wanted to offset such a claim against the wife’s in respect of the mortgage and other payments she had made over the period.

It is to be remembered that the House of Lords, in Stack v Dowden [2007] UKHL 17, [2007] 2 All ER 929, had something to say about equitable accounting, namely that it is now exclusively governed by TOLATA. That was reaffirmed in Murphy v Gooch [2007] EWCA Civ 603, [2007] All ER(D) 350 (Jun). On this basis the district judge decided that, as a trustee in bankruptcy is not a beneficiary entitled to occupy land under section 12 (he could not simply move in), he was not, therefore, entitled to any compensation under section 13(6).

But, of course, Stack v Dowden and the rest had all involved cohabiting couples where ‘two or more beneficiaries are... entitled under section 12 to occupy land’. Here was a different situation and Mr Justice Blackburne effectively distinguished it, saying that sections 12-15 of the act did not provide an exhaustive regime for compensation for the exclusion of a beneficiary from the occupation of property held subject to a trust in land. Where the scheme applied, it had to be applied. However, where a person, such as a trustee in bankruptcy, had no right of occupation, there was no scope for the operation of section 13. In such a case there was no reason why the party who was not in occupation should be denied any compensation at all if recourse to the court’s equitable jurisdiction would justly compensate him. The principles in Re Gorman (a bankrupt) [1990] 1 WLR 616, Re Pavlou (a bankrupt) [1993] 1 WLR 1046 and Byford v Butler [2003] EWHC 1267 (Ch), [2003] All ER(D) 103 (Jun) applied. Here, even though the trustee had no statutory right of occupation within the terms of section 12(2), he was still entitled to charge the wife rent for her occupation of the property from the date her husband’s interest vested in him. Put another way, if it would be unreasonable, looking at the matter practically, to expect the co-owner to take occupation of the property in question, it would normally be fair and equitable to charge the occupying co-owner an occupation rent. The common sense of such an approach can clearly be appreciated.

District Judge Exton sits at Bristol County Court