Barclays Bank Plc v Eustice
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SCHIEMANN,LORD JUSTICE ALDOUS,LORD JUSTICE BUTLER-SLOSS |
| Judgment Date | 06 July 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0706-11 |
| Docket Number | NO 95/0187/E |
| Court | Court of Appeal (Civil Division) |
| Date | 06 July 1995 |
[1995] EWCA Civ J0706-11
(His Honour Judge Jack QC)
Before: Lord Justice Butler-Sloss Lord Justice Aldous and Lord Justice Schiemann
NO 95/0187/E
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM: QUEENS BENCH DIVISION
MR P MORGAN QC and MS S WARD (instructed by Burges Salmon, DX 7829, Bristol) appeared on behalf of the Appellant.
MR A MANN QC and MR S DAVIES (instructed by Bond Pearce, DX 8521, Plymouth) appeared on behalf of the Respondent.
Thursday, 6th July 1995
.
On 21 June we dismissed an appeal against an order for discovery made by His Honour Judge Jack QC. These are my reasons for approving that course. The action in which that order was made was one in which the Plaintiff Bank sought, amongst other relief, a number of declarations pursuant to the provisions of s. 423 of the Insolvency Act 1986 to the effect that various transactions entered into by the defendants were void because they defrauded the creditor bank. In the interlocutory proceedings with which this appeal is concerned the Bank sought an order that the defendants should disclose all documents containing or evidencing communications between the defendants and their legal advisors relating to the transactions. The defendants claimed that these documents were privileged from disclosure on the basis of legal professional privilege. The judge ruled in favour of the bank and the defendants appeal against that order by leave of this court.
The appeal raises two questions the first of which is of interest only to the parties but the second of which is of some general significance. The first question is whether the judge was entitled to find that the evidence disclosed a strong prima facie case in favour of making the s.423 order sought by the bank. The second question arises only if the answer to the first question is in the affirmative. It is this: Does legal professional privilege attach to documents containing or evidencing communications between the transferor and his legal advisors relating to transactions entered into by the transferor at an undervalue for the purpose of prejudicing the interest of persons making a claim against him? This is, so far as the researches of counsel go, the first time that this question has fallen for decision.
Mr Morgan QC who appeared on behalf of the appellant concentrated his submissions on the second question which raises a point of law or policy rather than on the first which is purely factual. However, he did not concede that the present was a case where the evidence disclosed a strong prima facie case in favour of making an order under s. 123. It is common ground that, absent a prima facie case, legal privilege is available for the documents in question. It is therefore necessary to consider the factual position first. There was some argument as to whether the persons seeking discovery and inspection needed only to make out a prima facie case or whether they needed to demonstrate a strong prima facie case. Since, for reasons which will appear, I regard the present case as being a strong prima facie case I do not need to express an opinion on the point. The next section of this judgment sets out my reasons for concluding that there is here a strong prima facie case on the facts for the making of such an order. Having done so I shall move to consider the point of law of general significance.
THE CASE FOR THE MAKING OF A S.423 ORDER
Section 423 of Insolvency Act of 1986 provides in its first sub section that:
"This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if
(a) …
(b)…
(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."
The third sub section says:
"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."
The second subsection gives the Court a discretionary power of making such order as it thinks fit for restoring the position to what it would have been if the transaction had not been entered into and protecting the interests of persons who are victims of the transaction.
"Transaction" is defined in section 436 as including a gift, agreement, or arrangement.
It is thus apparent that before an order can be made under the section the court must be satisfied
1. That a transaction was entered into at an undervalue
2. That it was entered into for a prohibited purpose
The judge summarised the background in his judgment of 10.1.95 in words which are not criticised and which I gratefully adopt:
"The background to the application is as follows. The Eustice family have farmed in Cornwall for some 170 years. In 1992 Paul Eustice was farming in partnership with his mother, Inez Eustice. Part of the land they farmed, Tregotha Farm, was held under a tenancy between himself as successor to his late father as freeholder and his mother and himself as tenants. Other land was held by Mr Eustice as freeholder. There was some 300 acres in all. Mr Eustice wished to acquire a further 200 acres from his uncle and to develop a strawberry farm. His bank, the National Westminster Bank, would not agree to fund the venture and he approached the Plaintiff bank, Barclays, whom I will call "The Bank". In November/December 1992 it was agreed between the bank and Mr Eustice that he should borrow £550,000 on a 20 year loan with a separate overdraft facility of £100,000. The bank took charges over his freehold land. He asserts that it was agreed that the project should be considered on a long term basis and that the overdraft facility could be increased if further funds were needed until the strawberry venture was established. There would be a limit imposed by the available security.
By November 1993 further funds were needed. The bank was prepared to increase the overdraft facility to £150,000, but only on terms that the 20 year loan was converted to a 12 month facility and that agricultural charges were given over all the agricultural assets. Mr Eustice says that he protested against the bank's breach of its promises but had no option but to accept. He did so, he asserts, on the basis of an assurance from the bank that the bank would exhaust every alternative course before exercising any remedy under the agricultural charges.
The accounts for the year ending 31 March 1994 showed a net loss of £116,028 and during 1994 the bank watched the progress of the business with care. On 9th June 1994 the bank agreed to increase the overdraft limit from £150,000 to £200,000. Their letter of that date sets out the terms on which this was offered. In accordance with those terms the bank reduced the limit to £150,000 by letter of 5th August, but on 25th August agreed to reinstate the £200,000 limit. The strawberry season was in progress over this period. In August Mr Eustice proposed to the bank the sale of certain inessential assets to raise some £300,000. By 16th December some £120,000 had been applied from this source to reduce the overdraft. On 5th October the bank sought and later obtained Mr Eustice's agreement to the appointment of Andersons, who are farming consultants, to prepare a report on the business. The context is found in the bank's letter of that day. This referred in particular to a projected overdraft of £185,000 at the end of December as opposed to approximately £105,000 projected for then as recently as August, and to an overdraft of £200,000 to £240,000 at the end of June 1995. It pointed out that there were no longer reserves of assets to finance future loss.
On 10th November 1994 the Inland Revenue distrained goods on the farms to cover amounts due for PAYE and National Insurance contributions totalling £9,982.83 and served notice to that effect on Mr Eustice.
In that month Mr Eustice himself sought the assistance of agricultural consultants named Baybrook Agriculture. On 18th November three agreements were entered into, as follows:
(a) an assignment of the lease of Tregotha Farm by Mr Eustice and his mother to his sons, Charles and Giles Eustice;
(b) an agreement granting a tenancy to his sons of the other land;
(c) an agreement for the sale of listed agricultural assets by Mr Eustice to his sons. This included assets within the Inland Revenue's distraint.
For the time being the bank was not informed of these agreements. Other than saying that they were "made as a result of consulting Braybrook Agriculture", Mr Eustice is silent as to their genesis or purpose. Although the point was not raised before me, it is clear that, at least so far as banking was concerned, the business continued to be run as before. I say that because the bank did not notice any change. If the income of the enterprises had stopped being paid into the same partnership account of Mr Eustice and his mother the bank would have noticed. Whether the sons now have separate banking facilities is not known to me. It was suggested to me on behalf of the bank that there are now no facilities. This was not...
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