The court held that an order for sale in bankruptcy can be delayed in exceptional circumstances and that WhatsApp messages can only confirm a transfer of interest if they are signed.
Summary
In previous court proceedings, the High Court held that the bankrupt’s family home should be sold. The sale was delayed by over eight years due to exceptional circumstances.
On appeal by the trustees in bankruptcy, the court agreed that the family home should be sold. However, it held that the length of the delay was excessive. The delayed sale was reduced by five years.
The court also held that the sender’s name which shows in a WhatsApp message header does not constitute a signature for the transfer of property.
Background
Mr Gudmundsson and Ms Mei-Lin were involved in divorce proceedings. During 2018 they exchanged WhatsApp messages and emails which discussed arrangements for the family home.
In 2019 the family court decided that Gudmundsson’s interest in the family home should be transferred to Mei-Lin. Following various delays to these proceedings the property adjustment order confirming the transfer was made on 26 February 2020.
The family court was unaware that Gudmundsson was made bankrupt one week earlier.
Previous court proceedings
Section 335A Insolvency Act 1986 allows the court discretion when considering whether to delay the sale of the bankrupt's family home in exceptional circumstances.
The bankruptcy trustee applied to court to confirm Gudmundsson‘s interest in the family home and to order its immediate possession and sale under section 335A Insolvency Act 1986.
Mei-Lin applied for a declaration that Gudmundsson's interest in the family home did not vest in the bankruptcy trustee. She argued that Gudmundsson had transferred his beneficial interest to her in WhatsApp and email messages exchanged before the bankruptcy order.
The court decided that Gudmundsson had agreed to transfer his interest to Mei-Lin in their WhatsApp messages and emails. However, this was not legally binding until approved by the family court. This approval had not been given at the time of the bankruptcy order. The bankruptcy trustee therefore had the right to pursue sale of the family home.
The court considered there were exceptional circumstances which justified delaying the sale until 31 July 2032. It accepted Mei-Lin’s arguments that Gudmundsson was guilty of misconduct in delaying the family proceedings. It also agreed that sale of the family home would cause disruption to the children’s education and risk further deterioration in Mei-Lin’s and her son’s mental health.
The appeals
The bankruptcy trustee argued that the judge was wrong to defer the date for sale by eight years.
Mei-Lin argued that Gudmundsson transferred his interest to her before the bankruptcy order through WhatsApp messages and emails sent in December 2018. The family home could not vest in the trustee and they had no right to force a sale.
The court’s decision
Gudmundsson’s interest vested in the bankruptcy trustee. The WhatsApp messages did not transfer his interest in the property as they were not signed.
There were exceptional circumstances sufficient to delay the sale of the family home, but the delay was reduced by five years.
Transfer of interest
The court held that Gudmundsson’s messages did not amount to a transfer of his interest. They showed that he intended for the family court to make the final decision.
Gudmundsson’s interest in the property vested in the bankruptcy trustee.
WhatsApp messages
Section 53 of The Law of Property Act 1925 states that a transfer of interest in property must be ‘in writing signed.’
The court decided that the fact that a sender’s name appears in the header of a WhatsApp message does not mean that the messages are ‘signed’. The court also considered that transfer of interest in property was unlikely to be carried out using such an informal medium.
Exceptional circumstances
The court agreed there were exceptional circumstances in favour of a delay in the sale of the property. Gudmundsson’s conduct was at least partly responsible for the delay in the property adjustment order. There was also sufficient evidence that an immediate sale of the property would be detrimental to the mental health of Mei-Lin and her son.
However, the court held that the previous judge had erred in his decision making when considering the interests of creditors against those of the Mei-Lin and her family. He should also have taken the significant costs of bankruptcy into account alongside creditor claims.
An eight-year delay was equivalent to an indefinite suspension. The court cited Grant v Baker [2016] EWHC 1782 (Ch), which stated that any delay granted under s.335A Insolvency Act 1986 should be measured in months rather than years. Mei-Lin must give up possession in 18 months’ time, on 31 July 2027.
Comments
This case demonstrates that exceptional circumstances can justify a delay in selling the family home in bankruptcy, but not an open-ended delay.
It also demonstrates that informal digital communications might not satisfy formal legal requirements.