Agreement concerning distribution of proceeds of sale of land: a proprietary interest?

In Hughes v Central Stream Services Ltd ([2011] EWCA Civ 1720, CA (Eng)) CSS brought proceedings against D. The parties entered into a compromise agreement: CSS agreed to a stay of the proceedings and D entered into an agreement whereby he agreed to sell a property he owned and then to distribute the proceeds of sale in a way described in the agreement. CSS was to be second in line behind the mortgagee of the property. H were D’s solicitors and they later obtained a charging order which they then registered against the title to the property. The net proceeds of sale were not enough to meet the amount due to CSS and so, if CSS had a proprietary interest, there would be no funds to meet the debt owing by D to H. The English Court of Appeal decided that the agreement did not amount to an equitable charge but that it did give rise to an equitable (proprietary) interest in the property.

Ward LJ spoke of a:

‘general principle that if for valuable consideration the owner of property agrees to hold the property on terms which appropriate it for the benefit of another party, and the agreement is one which the court will enforce by an order for specific performance, the effect of the agreement is to create an equitable interest in the property in favour of the latter party.’ ([26])

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