Agricultural Mortgage Corporation Plc v Woodward and Another
| Jurisdiction | England & Wales |
| Judge | SIR CHRISTOPHER SLADE,LORD JUSTICE SAVILLE,LORD JUSTICE NEILL |
| Judgment Date | 19 May 1994 |
| Judgment citation (vLex) | [1994] EWCA Civ J0519-4 |
| Docket Number | CHANI 93/0554/B |
| Court | Court of Appeal (Civil Division) |
| Date | 19 May 1994 |
[1994] EWCA Civ J0519-4
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BRISTOL DISTRICT REGISTRY
(His Honour Judge Weeks)
Before: Lord Justice Neill Lord Justice Saville Sir Christopher Slade
CHANI 93/0554/B
MR. G. MOSS QC (Instructed by Bond Pearce, Plymouth, PL1 3AE) appeared on behalf of the Appellant
MR. M DOWDING (Instructed by Burgess Salmon, Bristol BS1 4AA) appeared on behalf of the Respondent
( )
Thursday, 19 May 1994
SIR CHRISTOPHER SLADEWith the leave of the Judge, the plaintiff in these proceedings, Agricultural Mortgage Corporation PLC, appeals from an order of His Honour Judge Weeks made in the Bristol District Registry on 3rd March 1993. He had before him an application by the plaintiff under RSC Order 14 for final judgment in the proceedings (l) against both defendants setting aside a tenancy agreement dated l6th April 1992 made between the lst defendant, Mr. Woodward, and the 2nd defendant, his wife, Mrs Woodward and (2) against the lst defendant for payment of all sums due under a mortgage by way of legal charge made on l8th April 1989 between the lst defendant and the plaintiff. The Judge dismissed the summons as regards the 2nd defendant and ordered her to serve a defence within l4 days. He gave the plaintiff liberty to restore the summons as regards the lst defendant for hearing by the District Judge. The issue raised on this appeal is whether the tenancy purportedly created by the lst defendant in favour of his wife was a transaction caught by section 423 of the Insolvency Act 1986 ("the 1986 Act"). The relevant facts are not in dispute and I can take them largely from the judgment in the court below.
The lst defendant is a farmer who owns a farm in Warwickshire. He borrowed £7OO,OOO from the plaintiff. By the legal charge dated 18th April 1989 he charged his farm to the plaintiff to secure repayment of the loan and interest. Before this charge was executed, the plaintiff obtained the 2nd defendant's signature to a document dated 7th March 1989 in which she stated:
"I agree to the mortgage being granted on the clear understanding that [the plaintiff] can exercise its rights in priority to any rights I may have in the property."
The lst defendant soon fell into arrears. Eventually, at a meeting on 14th January 1992, the plaintiff gave him a deadline of l8th April 1992 for the arrears to be cleared. It confirmed the deadline in a letter of l6th January 1992 and in subsequent discussions. The lst defendant did not clear the arrears. By l8th April 1992 the total arrears of capital and interest were about £85O,OOO. The lst defendant had other creditors who were also pressing him to repay substantial debts to them. The lst defendant represented to the plaintiff that he would clear the arrears by selling property, but all he did for this purpose was to sell one small part of the land and make a small payment.
Shortly before the deadline expired, (if the document is correctly dated), the two defendants signed a tenancy agreement dated 16th April 1992 by which the lst defendant granted the 2nd defendant a tenancy of the mortgaged property stated to begin on l6th April 1992 and to continue until 29th September 1992 and thereafter to continue from year to year until determined by l2 months notice to quit. No consent to this tenancy was sought or obtained from the plaintiff, as provided for by the legal charge. However, it is common ground that this absence of consent is remedied by section 99 of the Law of Property Act 1925 which confers limited powers of leasing on a mortgagor and that paragraph l2 of Schedule l4 to the Agricultural Holdings Act 1986 makes it impossible to contract out of those powers in regard to agricultural land.
If the tenancy were valid and binding on the plaintiff, the consequences for the plaintiff would be serious because, on the undisputed evidence, the value of the mortgaged farm with vacant possession is over £lm., whereas its value, subject to the tenancy, is less than £5OO,OOO, that is to say far below the debt owing to the plaintiff. The plaintiff would thus be left without security for a substantial part of the debt owed to it.
In May 1992 the plaintiff issued a writ against both defendants, which was followed by a statement of claim served on 17th July 1992 and subsequently amended on l8th September 1992. The plaintiff then issued a summons under RSC Order l4 seeking the relief which has been summarised at the start of this judgment.
At the hearing before Judge Weeks, the lst defendant, who has not appeared before this Court, was not represented, but the 2nd defendant appeared by counsel. The plaintiff's counsel, having accepted that there were triable issues in relation to a number of the other grounds upon which the relief was sought in the statement of claim, based the plaintiff's claim to summary judgment on two grounds only. The first was based on the acknowledgment dated 7th March 1989 signed by the lst defendant. The judge, in my view, clearly rightly rejected this point, holding that the words in the document "any rights I may have in the property" referred only to then existing rights of the lst defendant in the property and not to future rights which she might acquire thereafter. This part of his decision is not challenged on this appeal.
The second and main ground upon which the plaintiff based its case for summary judgment in the court below was section 423 of the 1986 Act. This section is contained in Part XVI of that Act, which is headed "Provisions Against Debt Avoidance (England and Wales only)" and, so far as material, provides: " Transactions defrauding creditors
(l) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if -
(a)he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;
(b)he enters into a transaction with the other in consideration of marriage; or
(c)he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for —
(a)restoring the position to what it would have been if the transaction had not been entered into, and
(b)protecting the interests of persons who are victims of the transaction.
(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose -
(a)of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b)of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.
………….
(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it: ………"
Section 424 specifies those persons who may apply for an order under section 423. The plaintiff is such a person.
By subsection (3) the Court in the present case is required to investigate the purpose of the 1st defendant in entering into the tenancy agreement. As to the purpose for which the tenancy agreement was entered into, the 2nd defendant gave the following evidence in an affidavit:
"6.In order to continue to produce an income for the family I needed to take over the farming business and I clearly needed land and machinery and livestock to be able to do so. The First Defendant and I had heard from other farmers that it was possible for a farmer to grant a tenancy even where there was a mortgage on the property and after I had taken advice from my solicitors, the First Defendant and I agreed that I should take a tenancy over Sole End Farm and should acquire the live and dead stock. I took the tenancy and, by an agreement of the same date ("the Sale and Purchase Agreement") I purchased machinery equipment and livestock from the First Defendant at a price of £23,969…….
7.I was aware of the fact that the action which I was taking would have the effect that the Plaintiff would be unable to sell the farm with vacant possession and, indeed, my aim could not be achieved if that were not the case. Mr. Drew is correct when he says in paragraph 9 of his affidavit that there would be no point in taking over the business unless I gained some security of tenure since without security of tenure it would be inevitable that the Plaintiff would realise its security. It was therefore imperative that I took a tenancy over the freehold land as well as acquiring the machinery and live and dead stock. I will refer to this aspect in more detail below but it is clear that in order to achieve my aims, a fully protected tenancy with security of tenure which was binding on the AMC as mortgagee was necessary. I was also aware of the fact that the value of the farm to the Plaintiff with a tenancy was significantly less than without a tenancy. However, my understanding was that the First Defendant as mortgagor was entitled to grant such a tenancy and, as I have said, I took it primarily in order to enable me to provide for my young family.
8……………..It is correct to say that I consider that the tenancy was granted for commercial...
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