High Court rules WhatsApp header not a S53(1) LPA signature and on limits of Judicial Discretion when balancing hardship and creditors' rights in bankruptcy possession proceedings

DLA Piper's Restructuring & Insolvency team successfully advised the joint trustees in bankruptcy from Quantuma Advisory (Joint Trustees) on an appeal to the High Court relating to e-signatures. The judgment provides critical guidance not only for insolvency practitioners but for legal professionals on digital communications and what constitutes a sufficient signature on a WhatsApp message. The judgment also considers the "exceptional circumstances" test under section 335A of the Insolvency Act 1986 (IA 1986), clarifying the limits of judicial discretion when deferring the sale of a family home in bankruptcy proceedings.

The court considered two distinct issues:

• The Joint Trustees' appeal of an earlier decision of the Insolvency and Companies Court which held that due to the presence of exceptional circumstances and in exercise of the Court's discretion, the sale of a former marital property should be deferred for over 8 years until August 2032; and
• The cross-appeal of the bankrupt's ex-wife that the Joint Trustees have no claim upon the marital property, as the judge erred in finding that the bankrupt had not transferred his beneficial interest in the marital property to her prior to his bankruptcy, following an earlier WhatsApp and email exchange.

 

The Beneficial Interest Dispute: WhatsApp and Section 53(1) of the Law of Property Act 1925 (LPA 1925)

Considering the cross-appeal first, the primary issue was whether a 2018 exchange of WhatsApp messages and emails between the bankrupt and his ex-wife constituted an immediate disposition of his beneficial interest in their London property and if so, whether these communications satisfied the requirement for "signed writing" in s.53(1) LPA 1925 for a disposal of an interest in land. It was common ground that WhatsApp and email messages were in writing, and that the emails were signed. With regard to the WhatsApp messages, the bankrupt's ex-wife argued that the header on the WhatsApp message chain constituted a valid signature for the purpose of s.53(1) LPA 1925.

Immediate disposition?

Dismissing this cross-appeal, Mr Justice Cawson concluded that the communications did not evince an unequivocal and immediate intention to divest interest. Instead, they were informal negotiations within a divorce context, where both parties expected solicitors to finalise "paperwork".

Satisfaction of the requirements of s.53(1) LPA 1925?

Although then not strictly necessary for the Court to consider whether the WhatsApp messages were signed for the purpose of s.53(1), the Court offered an insightful analysis of digital signatures. While an email footer can satisfy s.53(1), the Court found that a WhatsApp header, which is system-generated, identifying the sender via the recipient's "contacts" (if saved), is incidental to the message rather than an integral part of it. Therefore, such headers generally lack the necessary authenticating intent to serve as a legal signature for property dispositions.

 

The Joint Trustees' Appeal: Exceptional Circumstances under s.335A IA 1986 and the Court's discretion

The Joint Trustees recognised the personal hardship endured by the ex-wife. Nonetheless, based on the evidence and the applicable law, the Joint Trustees argued that the Deputy Judge erred in finding that there were “exceptional circumstances” in the ex-wife's favour and was wrong, in exercising his discretion pursuant to s.335A(2) IA 1986, to defer the date at which she was to deliver up vacant possession of the property for as long as over eight years.

Crucially, under s.335A(3) IA 1986, one year after an interest vests in the trustees, the interests of creditors are presumed to outweigh all other considerations unless "exceptional circumstances" exist.

Mr Justice Cawson upheld the finding of exceptional circumstances based on a unique combination of factors:

1. Procedural Delays: A significant delay by the Family Court in handing down a property adjustment order meant that the bankrupt's interest had not been transferred to his ex-wife, before the bankruptcy petition was presented. The resulting "windfall" to creditors was viewed as a factor that took the case out of the ordinary.
2. Health Issues: There was evidence of health issues for those living in the property, which distinguished their situation from the "melancholy consequences" of debt typical in bankruptcies.

 

Judicial Discretion and Balancing Creditor Interests

However, while Mr Justice Cawson found exceptional circumstances were present, he allowed the appeal finding that the Deputy Judge’s decision to defer the sale for over eight years (until 2032) was "plainly wrong". He had taken into account irrelevant matters and failed to take into account relevant matters, when exercising his direction.

The Court emphasised that even when circumstances are exceptional, when exercising its discretion, the Court must have regard to the statutory scheme of bankruptcy, which requires the realisation of assets to pay creditors and defray the costs and expenses of the bankruptcy. A deferment of over eight years was practically akin to an indefinite suspension, unfairly keeping creditors out of their money.

The Court substituted a shorter deferment, ordering vacant possession by 31 July 2027, a reduction of over 5 years. This approximately 18-month period is intended to grant the ex-wife time to secure alternative housing, while balancing the creditors' right to payment and the requirement to meet the costs and expenses of the bankruptcy.

 

Key Takeaways

• Digital Dispositions: Digital messages are unlikely to effect a transfer of beneficial interests in land if they appear to be part of ongoing negotiations or lack a clear, "voluntarily affixed" signature.
• Creditor Windfalls: Delays in separate legal proceedings can contribute to a finding of "exceptional circumstances" if they result in an unexpected benefit to the bankruptcy estate.
• Deferment Caps: Deferring a sale for nearly a decade is akin to an indefinite suspension; the Court must have due regard to the statutory scheme of bankruptcy, even where exceptional circumstances are present.

Please reach out to a member of DLA Piper's Restructuring & Insolvency team noted above, if you would like a copy of the judgment or to discuss it in further detail.