How Your Beneficial Interest In Property Can Evaporate 

Failure to pay the deposit can mean your beneficial interest in property evaporates. That is what happened to Mrs Katung (“Mrs K”) in Hamilton & Anor v Katung & Ors [2025] EWHC 1401 (KB). This was a judgment handed down by Mr Justice Jay – typically worth a read.

The Trustee for Civil Recovery and Tax sought possession of the property at 2 Sandmoor Drive, Leeds, LS17 7DG (“the Property”) and succeeded. This was notwithstanding the fact that Mr K did pay, the deposit.

Mrs K’s Purchase Of The Property

Mrs K and two of her children occupied the Property.

The Second Applicant, the National Crime Agency (“NCA”) considers that the Property purchased by Mansoor Mahmood Hussain (“MMH”) on 18 February 2006 for £650,000 resulted from money obtained by criminal conduct. 

Mrs K agreed to purchase the Property from MMH on 1 April 2015 for £1,000,000. The deposit, set at a conspicuous 40%, being £40,000 payable on 1 April 2015 and the balance of £360,000 on 29 May 2015. Further to that, one must not forget the completion monies of £600,000 but matters went well and truly off the rails well before completion.

However, to sprinkle a further complexity into the matter, the mortgage outstanding on the Property that MMH had to discharge was more than the property was being purchased for. This position appears to have prompted Mr Justice Jay to say:

I do not particularly wish to rub salt into Mrs Katung’s wounds, but I have to say that her solicitors gave her egregiously bad advice. The deposit was atypically and unreasonably high (more of which later) and the buyer was being informed in terms that the mortgage debt was above £1,000,000. Mrs Katung may have thought that she was getting the property at a good price, but the overall deal was in my opinion an unacceptably bad one.

Did Mrs K Pay?

Well, Mr Justice Jay, says Mrs K, did pay (the deposit), but perhaps not in an ideal way:

Mrs Katung was late in paying the remainder of the deposit. The total amount of £336,175 was transferred in increments to Mr Hussain’s Coutts bank account between 1 July and 27 August 2015 from the bank account of Mrs Katung’s company, 1st Resource Consultancy Ltd (“1st Resource”). I shall be examining those payments in due course, as well as the source of the monies. The parties are agreed that further sums were paid to Mr Hussain out of Mrs Katung’s personal bank account. The figures which I have been given do not wholly reconcile, but the real dispute between the parties concerns what the NCA says is a shortfall of £6,000. Mrs Katung relies on two transfers of £3,000 which were made from GT Bank in Nigeria to a Post Office in Leeds on 16 and 21 July 2015. She says that she withdrew the money in cash and gave the total of £6,000 to Mr Hussain. I accept her evidence on this issue, not least because on 27 August 2015 Mr Hussain confirmed by email that the whole of the deposit had now been paid.

At the time she made these remittances to Mr Hussain, Mrs Katung was acting without the benefit of legal advice. That was unwise. Unfortunately, but maybe not altogether surprisingly, Mr Hussain did not transfer any of the balance of £360,000 to the mortgagee.

Mrs Katung failed to pay the remaining purchase price of £600,000 on 1 April 2016 or at all. She accepts that she did not have the funds to do so. Instead, on 1 April 2017 she reached an oral arrangement with Mr Hussain, presumably terminable on reasonable notice by him, that she would remain in the property and would pay council tax and insurance premiums. Later, that arrangement was varied to the extent that Mrs Katung would also pay the mortgage instalments. This she did between 28 July 2017 and December 2019, at which point she was unable to continue to pay. The total amount she paid in this way was £97,671.28, but those actions did not confer in her a beneficial interest in the property.

NCA Procedural Path To Possession

On 2 October 2020, the Property was vested in the NCA due to a Civil Recovery Order under Section 266 of the Proceeds of Crime Act 2002 and Section 267 of the Proceeds of Crime Act 2002.

On 5 May 2021, the NCA served notice to complete on Mrs K. On 24 May 2021, the NCA served notice to rescind the contract of sale of the Property. On 28 June 2021, the NCA issued a claim for possession. Possession was granted on 15 September 2021 by the Court. 

Mrs K’s Beneficial Interest In The Property

The Judge summarised the issue as follows:

At the moment she signed the Contract of Sale, Mrs Katung acquired an equitable or beneficial interest in the whole of the property. If she complied with the terms of the Contract, that beneficial interest would transmute or crystallise into a legal interest upon completion. But, in the event that she did not so comply, and a valid notice to complete was served, her beneficial interest would evaporate and – subject to one qualification – any deposit paid be forfeited to the seller. In the event, however, that the deposit was a penalty, the buyer could obtain relief from forfeiture vis-à-vis the seller and compel repayment of the deposit.

Judgment Highlights

The question then became as to whether Mrs K had a beneficial interest not in the whole of the Property but an interest in 40% of the Property through having paid the deposit and this prompted Mr Justice Jay to say:

Mrs Katung is not contending in these proceedings that she has a beneficial interest in the whole of the property. Nor, as I have already pointed out, is she seeking relief from forfeiture in the context of the claim for possession. Her contention, advanced in various ways through Mr Pons, is that she has a beneficial interest equivalent to the deposit: that is to say, 40% of the property, or (as it is pleaded), 36%. Of course, that equitable interest would take second place behind the mortgagee, but that is the least of Mrs Katung’s problems. But in my opinion the payment of the deposit, whether or not it went into the hands of the mortgagee, did not confer on her a beneficial interest in the property to that extent or at all. All that it meant was that she was fulfilling a contractual stipulation en route, in due course, to obtaining a full legal interest.

It seems to me, therefore, that Mr Pons’ entire case is based on a fallacy that the payment of the deposit (and he accepts that the £400,000 was paid as a deposit) conferred on Mrs Katung some sort of additional or different beneficial interest. It did not. At the time the deposit was paid, Mrs Katung already had a full beneficial interest in the property.

My reading of s. 245 of POCA is that “associated property” in this context means a proprietary right cognisable either in law or equity. “Associated property” cannot encompass purely contractual rights subsisting in personam as between Mr Hussain and Mrs Katung. If I am correct in holding that the deposit is not in the nature of being an equitable interest in the land, it must follow in my judgment that it cannot be regarded as “associated property” for POCA purposes.

That conclusion flows whether or not the deposit was lawfully forfeited to the NCA, standing for these purposes in the shoes of Mr Hussain, after Mrs Katung failed to complete pursuant to the notice. I agree with Mr Pons that this wholly unusual deposit was in the nature of a penalty where special circumstances do not exist (see Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573). The fact that one year was allowed for completion is not relevant to this issue because the consideration for that benefit was an additional £50,000. Further, that Mrs Katung was in effect living rent-free during that period does not significantly add to this main point. My analysis is that the issue of relief from forfeiture in the context of a purely financial claim is not justiciable against the NCA: Mrs Katung’s remedy lies in personam against Mr Hussain alone. If, as I have found, the deposit is not in the nature of being “associated property”, that determines the matter conclusively against Mrs Katung in the context of her endeavour to compel the NCA in some way to account for the £400,000.

Ms Kerry Bretherton KC referred me to a mass of authority which, with respect, I do not think is relevant. Nor do I consider that the NCA’s interesting point on s. 314(4) of POCA is germane. The whole of s. 314 is about the obtaining and disposing of property, and for the reasons I have given Mrs Katung’s argument fails at first base. The deposit was not property at all.

Not content with winning this case by the direct route, the NCA drew my attention to two complex authorities. I do not think that either is relevant. In Arthur v AG of the Turks & Caicos Islands [2012] UKPC 30, the Privy Council was considering the limits of the doctrine of knowing receipt and the scope of the remedy of tracing. That is not at issue here. In Cavendish Square Holdings BV v Makdessi [2015] UKSC 67; [2016] AC 1172, the Supreme Court was addressing the wider question of relief from forfeiture in general. The NCA relied on one passage in Lord Toulson JSC’s dissenting judgment, but I cannot see how that helps.

Mr Pons valiantly advanced a number of submissions seeking to deflect me from my principled analysis. He argued, for example, that Mrs Katung was entitled to rely on the promise in the solicitors’ letter that the deposit would go towards the mortgage. Maybe she was, but even if the monies had been properly applied by Mr Hussain the outcome would have been the same. He submitted that, given the NCA’s failure to serve the proceedings on Mrs Katung in the first instance, she should be placed in the position she would have been in before the proceedings were ever started. However, the failure to serve the proceedings did not undermine the validity of the civil recovery order or the NCA’s ability to serve a notice making time of the essence. This, with respect, was no more than a jury point.

If, as I have found, the deposit cannot be “associated property” for the purposes of s. 245 of POCA, it follows that the entirety of the property under discussion is “recoverable property” regardless of whether the £360,000 was itself “recoverable property” for separate reasons.

The NCA therefore succeeds on the first issue, and that is determinative of the claim for a civil recovery order in respect to the whole legal interest in the property and the claim for possession…