(Chancery Division; David Richards J; 22 July 2009)
The husband and the wife held the matrimonial home as joint tenants. When the parties were divorced the joint tenancy was severed by notice. In the same year a bankruptcy order was made against the husband. About 15 years later, following a rise in the value of the matrimonial home, the trustee in bankruptcy applied for a declaration in respect of the interests in the property, and for an order for sale. The judge made a declaration that the trustee had a 50% beneficial interest, with an order for sale. The judge made certain deductions in the wife's favour, including £37,245.50 by way of equity of exoneration and £11,250 representing the value of improvement works to the property. The wife appealed, arguing that the equity of exoneration figure should have been treated as a set-off against the trustee's interest in property, under Insolvency Act 1986, s 323(1).
The appeal was dismissed. It was fundamental to the operation of set-off under s 323 of the 1986 Act that there be liabilities each way between the bankrupt and the other person as at the date of bankruptcy. While there had been a contingent liability of the bankrupt husband to the wife as at the date of bankruptcy, there had been no liability due from her to the bankrupt husband. Therefore, applying s 323, the notion of setting-off the contingent liability to her against the husband's beneficial interest in the property had no place.