Case Studies

Barely a day goes by without a court making a decision about something interesting. This is where we tell you about our favourites and those that we think you should know about.


Insolvency: A recent decision on the equity of exoneration

Armstrong v Onyearu [2015] EWHC 1937 (Ch)  


The equity of exoneration is typically applied in respect of co-owners of a property, where a debtor and a surety both agree to a charge being registered against their co-owned property. It may act as a defence to an application by a trustee in bankruptcy in that the Court may decide that a co-owner providing the surety may not have his or her share of a property utilised in the payment of the relevant debts. This principle has its roots in judicial decisions dating back several centuries.    

Key facts

This was an appeal and cross-appeal from a decision of Deputy Registrar Middleton dated 18 November 2014. In that instance an application was made by the trustee in bankruptcy of Mr Onyearu for an order for possession and sale of his co-owned property. Previously, in 2004, a second loan charged on the property was agreed with Bank of Scotland. Mr Onyearu was a solicitor and was made bankrupt in 2011. The equity in the property was valued at £107,000 with the value of Mr Onyearu’s interest being £51,500.

In a witness statement Mr Onyearu stated that he had advised Mrs Onyearu about the loan but had not sought her agreement or consent to do so. The Deputy Registrar took this “to mean that the second respondent knew about the further borrowing but that there was no express agreement as to how this should be borne between them”. Mr Onyearu confirmed that all payments using the borrowed funds related to his business.  

Shortly before the final hearing on 22 October 2014, evidence from the respondents raised two points which had previously not been made:

1) Whether the sale should be postponed or suspended because of exceptional circumstances; and 

2) Whether, with regard to the business loan of approximately £105,000, the equity of exoneration should apply.

When giving judgment the Deputy Registrar stated: 

Mr and Mrs Onyearu operated as a family unit and this can be seen from the witness statements. However, I think it is significant that Mrs Onyearu had no connection with Andrews which was her husband’s business. She had her own income from her separate employment, as described in her second witness statement, although it was seasonal employment. In addition other members of the family also contributed … So although this was a family unit, it was family in which family members had their own resources which could be used to support the family. Taking the evidence as a whole I consider the equity of exoneration is applicable”.  

The application was dismissed. 


The Appeal was heard before Mr Jonathan Klein sitting as a Deputy District Judge of the Chancery Division on 03 June 2015.   

Deputy District Judge Klein considered that “the heart of the appeal” was the assertion by the appellant, the trustee in bankruptcy, that Mrs Onyearu had enjoyed a benefit from the business loan and yet the Deputy Registrar had found it should be exonerated. Counsel for the appellant referred to Paget v Paget [1898] 1 Ch 470 in submitting that if a wife had obtained a benefit from a husband’s borrowing, questions of the equity of exoneration never arise.  

Deputy District Judge Klein considered that this “may be a misreading of Paget v Paget and invests too much in the precise words used by the Court of Appeal in that case”.  

Deputy District Judge Klein also referred to what he considered may have been “an alternative point” raised by the appellant that “it was appropriate, in effect, to fix on the Deputy Registrar’s conclusion” that the respondents functioned as a family unit and thus rely on the decision in Lemon and Wood v Chawda [2014] BPIR 49, “and perhaps Scott J’s use of the phrase in Re Pittortou . . . that gave rise to a particular fixed legal consequence, inevitably leading to the same result that the Chief Registrar reached in Re Chawda”. Deputy District Judge Klein summarised the appellant’s contention as “Once a finding of the existence of a family unit had been made, the equity should not arise”. 

Deputy Judge Klein, in referring to the case of Re Pittortou [1985] 1 WLR 58, quoted  the comments of Scott J who stated:

“If the property of a married woman is mortgaged or charged in order to raise money for the payment of a husband’s debts or otherwise for his benefit, it is presumed in the absence of evidence showing an intention to the contrary that she meant to charge her property merely by way of security and, in such case, she is in a position of a surety and is entitled to be indemnified by the husband to throw the debt primarily on his estate for the exoneration of her own”. 

Deputy District Judge Klein considered that “A fair reading of Re Pittortou itself indicates that the fact that a finding that a husband and wife had been a family unit is not enough to prevent the equity arising. If it were otherwise the payments relating to the husband’s business and, indeed, what Scott J described as a second establishment, would not have been the subject of the equity even though they were made whilst the husband and wife were, in that case, a family unit. Even if [counsel for the appellant] is right, that is not how Re Pittortou should be read. I do not think any of the other cases go anywhere near to such a finding. To my mind, such an approach would drive a coach and horses through what is a long-established doctrine”.
With regard to Re Chawda the Deputy District Judge referred to the differing scenarios in respect of that case, Mrs Chawda having enjoyed very specific benefits which Mrs Chawda conceded that she enjoyed and that “the parallels between the circumstances of the Chawda and Pittortou families are clear”.
Counsel for the appellant had stated that Mrs Oyenaru had received two  benefits from the loan, namely:

 1) Mr Oneyaru had continued to make mortgage payments and Mrs Oyenaru had therefore been able to remain in the property; and

 2) if the mortgage payments continued to be met Mrs Oyenaru would ultimately have enjoyed an unemcumbered half share in the value of the property.

The Deputy District Judge considered that the first ‘so-called’ benefit was “no more than a potential uncertain detriment” and omitted to take into account the “admitted corresponding detriment which the second defendant incurred in the disproportionate discharging of the household expenses”.

The second benefit was problematic since the charge on the property would not have been removed as payments were on an interest only basis. 

The Deputy District Judge considered that he saw “no real difference” between Re Pittortou and the case before him and found that “Ultimately, having considered all the submissions that have been made, I do not think that the Deputy Registrar’s decision was wrong in relation to equity of exoneration in any other way. It follows therefore, as I say, that the appeal must be dismissed”. 


The equity of exoneration, despite its aged foundations, appears alive and well. Trustees in bankruptcy should be careful to consider its potential application when assessing the value they can recover where charges on on-owned property are secured for the utilisation of monies for supporting a venture of only one of the co-owners.