In construction claims, a charging order can be an appropriate method of enforcing, or at least securing, a judgment where there is a risk that the judgment debtor may go insolvent.
Procedure for obtaining a charging order
The procedure for obtaining a charging order is set out in CPR 73, which was amended on 6 April 2016. In summary:
- A creditor applies for an interim charging order (often without notice).
- If satisfied that the essentials are made out (that is, the creditor has an unpaid judgment in its favour and the debtor owns the relevant property), the court is likely to grant an interim charging order on the papers.
- The court will list the matter for a hearing to decide whether to make the charging order final. In the County Court Money Claims Centre (CCMCC), a final charging order will be made without a hearing if no objections are received.
Test for a charging order
Under section 1(5) of the COA 1979, the court will consider all the circumstances of the case, in particular:
“(a) The personal circumstances of the debtor, and
(b) Whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order.”
Who should be served?
To ensure the debtor and other creditors have an opportunity to explain any prejudice they may face, CPR 73.7(7) requires that the creditor serves the interim charging order, the application and any documents in support of the application on a number of parties, including:
- The judgment debtor.
- Any co-owner (if the order relates to an interest in land).
- The judgment debtor’s spouse or civil partner (if known).
- Such other creditors as are identified in the application notice or as the court directs.
It gets even more complicated if the “interest charged is in securities other than securities held in court”.
The significance of this list is that it requires service on a number of people (such as other creditors, spouses and co-owners of land) who are likely to be non-parties and who could also be out of the jurisdiction.
Service on these persons must be completed not less than 21 days before the hearing of the final charging order (or within 21 days of the date of the interim charging order if the claim was made in the CCMCC and has not been transferred to the debtor’s home court for a hearing).
No consequence or sanction is specified for failure to comply within time or at all. However, it is possible that the court may refuse to grant a charging order as any failure would be one of the circumstances of the case considered by the court in reaching its decision.
Rules for service
The documents to be served are documents other than the claim form. In the case of a debtor and any non-parties in the jurisdiction, any of the methods of service listed in CPR 6.20 can be used.
So far, so good, but what about creditors, co-owners or spouses who are non-parties and are outside the jurisdiction?
Non-party outside of the jurisdiction
Service outside of the jurisdiction is governed by CPR 6.30 to 6.47.
CPR 6.40 deals with methods of service of a claim form or other document on a party out of the jurisdiction. The problem is that CPR 6.40 only applies to service on a “party” outside the jurisdiction. It does not cover service on a non-party outside of the jurisdiction. There are also no provisions for the deemed date of service outside the jurisdiction (for both parties or non-parties).
One might think that CPR 6.39 must surely assist, as it is headed, “Service of application notice on a non-party to the proceedings”. That is precisely the situation a judgment creditor seeking a charging order may be in.
However, CPR 6.39 only provides that where an application notice is served on a non-party outside of the jurisdiction:
“(1) The periods for filing an acknowledge of service, defence or admission in response to a claim form (CPR 6.35, 6.37(a)(i), (ii) and (iii)) do not apply; and
(2) The non-party may apply under Part 11 to dispute the court’s jurisdiction.”
Rule 6.39 does not explain how that non-party outside of the jurisdiction is meant to be served in the first place. In fact, no provisions in CPR 6 (or the rest of the CPR) cover service on a non-party outside of the jurisdiction.
How should a party ensure they serve in accordance with CPR 6?
Parties wishing to secure their position and avoid the court delaying or refusing to grant a final charging order may consider that their only alternative is CPR 6.27.
CPR 6.27 entitles a party to apply for an order permitting service of “any document in the proceedings” by an alternative method or at an alternative place (as is set out in CPR 6.15). To satisfy this test, applicants must show that there is a good reason why the court should make such an order. In effect, a party needs to show a good reason why the “normal” methods of service specified by CPR 6 cannot be used. In the case of a non-party outside of the jurisdiction, this should be satisfied since there is no “normal” method of service.
The situation where a party must serve a document on a non-party outside of the jurisdiction is a potentially rare one. However, it may arise in cases of a charging order. At present, the CPR fails to specify how a non-party outside the jurisdiction should be served. The best option for parties wishing to protect their position is to apply under CPR 6.27 for the court to approve service by an alternative method. This approach was approved by the High Court in a recent TCC case for which I was instructed. However, forcing a party to make such an application is unsatisfactory, particularly where fixed costs apply to applications for charging orders unless the court orders otherwise. Hopefully, this omission in the CPR will be addressed in future.