Department for Environment Food and Rural Affairs v Feakins and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moses,Lord Justice Jonathan Parker |
| Judgment Date | 09 December 2005 |
| Neutral Citation | [2005] EWCA Civ 1513 |
| Docket Number | Case No: A2/2004/2727, A2/2004/2745 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 December 2005 |
[2005] EWCA Civ 1513
Lord Justice Waller
Lord Justice Jonathan Parker and
Lord Justice Moses
Case No: A2/2004/2727, A2/2004/2745
AND A2/2004/2745(C)
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The High Court of Justice
Chancery Division
Mr Justice Hart
Royal Courts of Justice
Strand, London, WC2A 2LL
Nicholas Dowding QC and Stephen Jourdan (instructed by Burges Salmon) for the Appellants on the Claim and Stephen Jourdan (instructed by Burges Salmon) on the Counterclaim
Nicholas Caddick and Sarah Lee (instructed by DEFRA Legal Department for the Respondents on the Claim
Neil Garnham QC,Sarah Lee, Paul Harris and Sarah Stevens (instructed by DEFRA Legal Department) for the Respondents on the Counterclaim
Introduction
This judgment deals with the claim. The counterclaim is dealt with in the judgments of my Lords. I agree with those judgments.
By its claim, The Department for Environment Food and Rural Affairs ("DEFRA") seeks relief against the defendants ("KF" and "Miss Hawkins") on the footing that an arrangement into which they entered in early October 2001 relating to the sale of Hill Farm, Llancloudy, Herefordshire constituted a transaction at an undervalue for the purposes of section 423 of the Insolvency Act 1986 ("the 1986 Act") . KF and Miss Hawkins deny that the arrangement in question constituted such a transaction. At trial Hart J upheld DEFRA's claim, and by his order dated 26 November 2004 he granted relief accordingly.
The Factual Background
The general factual background, which is not in issue, is set out by the judge in paragraphs 2 to 12 of his judgment, as follows:
"2. [DEFRA] is the government department which sues (and is sued) as successor to the rights (and liabilities) of the Ministry of Food Agriculture and Fisheries ("MAFF") and the Intervention Board for Agricultural Produce ("IBAP") . It is unnecessary to set out the steps by which this succession took place. For much of the period with which I am concerned the relevant body was MAFF rather than DEFRA. For convenience I refer to DEFRA as the relevant body throughout.
3. [KF] is a farmer. In 1986 he and his first wife ("Sarah") moved from Wiltshire and together bought Hill Farm, comprising a sizeable Georgian farmhouse with various agricultural buildings and farm land of approximately 250 acres in Herefordshire. Their business, conducted at first in partnership, and later through the medium of a limited company KA and SBM Feakins Ltd ("the company") in which their eldest child Matthew was a 10% shareholder, prospered. By 1997 its turnover approached £6m per annum. In 1997, however, the first in what were to be a series of hammer blows of misfortune struck. One of the company's major customers, the UK Halal Meat Company ("Halal") failed leaving huge debts owing to the company. Thereafter, the company ceased to trade, remaining in existence solely for the purpose of seeking to realise the security which it enjoyed in respect of Halal's indebtedness. The business was thereafter carried on either by KF and Sarah in partnership, by a new limited company KA & S Feakins & Sons Limited and, as from February 1998, by a further limited company, Garron Livestock Limited ("Garron") which had an outside shareholder Mr S. W. Watkins.
4. From 1992 onwards KF and Sarah had been engaged in litigation in the High Court, along with others, against IBAP relating to the validity of payments received pursuant to what was known as the sheep premium clawback scheme. A reference to the European Court of Justice was one amongst other causes of that litigation becoming protracted. Eventually, however, on 23 June 2000 Mr Justice Kennedy gave judgment for IBAP against KF in the sum of £650,654.
5. In the meantime the relationship between KF and Sarah had broken down. Sarah commenced divorce proceedings against KF in the autumn of 1999. The financial negotiations between them eventually resulted in a Consent Order dated 25 th May 2000 pursuant to which KF agreed to pay Sarah £50,000 and to indemnify her against any adverse judgment in the IBAP litigation. In return, Sarah gave up her interest in Hill Farm, in the company and in KA & S Feakins & Sons Ltd. The mortgage liabilities in respect of Hill Farm in favour of National Westminster Bank plc ("NatWest") were transferred into the sole name of KF.
6. By September 2000 Hill Farm with vacant possession seems to have been worth some £1.03m, subject to NatWest's charge of in excess of £400,000. KF was hoping that an appeal against the judgment of Kennedy J would either extinguish or substantially reduce his liability thereunder. His plan, however, at this stage seems to have been to sell Hill Farm. He found potential purchasers at a price of £1.03m in the persons of a married couple, Mr Nechvatal and Ms Cloud ("the Nechvatals") , who were looking to retire from their respective careers in the financial sector and take up organic farming. They were able to agree terms subject to contract. KF was not, however, in a position to enter into a contract with the Nechvatals. On 22 nd September 2000 IBAP obtained a charging order nisi against Hill Farm in respect of its judgment debt and interest. Thereafter KF's hopes of realising anything for himself from a sale rested either on his appeal being successful, or on his reaching some compromise with IBAP, or on finding a way of selling the farm free from the IBAP charge while leaving the net proceeds in friendly hands.
7. We do not know what advice KF had received as to his prospects on appeal. If the position had in fact appeared to him as bad as it turned out to be (the appeal was dismissed in October of the following year) his position was indeed bleak. On 14 th November 2000 Nat West made formal demand for the £202,832.51 owed to it by KF and for the £230,000 owed by the company and guaranteed by KF. The only potential string to his bow lay in the fact that KF and Sarah had, on 6 th March 1995, granted the company an agricultural tenancy of the land at Hill Farm, and had done so with the consent of NatWest. Through a recently instructed firm of solicitors The Robert Davies Partnership ("RDP") he invited IBAP, by a letter dated 15 th November 2000, to consider the consequences if the bank were to sell subject to the tenancy (which would leave IBAP with nothing) , and to interest them in the proposition that, if he were to procure a sale with vacant possession, the net proceeds might be split between IBAP and KF. Nothing came of this.
8. On 26 th February 2001 a case of foot and mouth disease ("FMD") was diagnosed at Hill Farm. This was one of the earliest cases diagnosed in what was to prove to be the catastrophic epidemic which engulfed much of the country in the following months. One amongst many consequences which flowed from this was to throw KF into a closer association with the second defendant, Georgina Hawkins ("Miss Hawkins") . Miss Hawkins had rented stabling and grazing at the farm for her horses (it is not clear from whom, whether Garron, KF or the company) from late 1999, and rooms in the farmhouse for herself from January 2000. By May 2001 they had become engaged, and they married on July 25 th that year.
9. Another consequence was that Hill Farm was declared to be an "Infected Place" ("IP") by DEFRA, and was thereafter subjected to a lengthy, and invasive, series of measures undertaken by DEFRA with a view to the eradication of FMD at the farm. This involved, inter alia, the slaughter and disposal of all the cattle and sheep at the farm and a consequent cleansing and disinfecting (C&D) operation at the farm.
10. By the end of July 2001 a plan was in place for the realisation of Hill Farm. NatWest was to sell as mortgagee to Miss Hawkins subject to the tenancy for a price of £450,000.00. That sale would overreach IBAP's charge, and NatWest would swallow the proceeds under its charge. The company would then surrender the tenancy, leaving Miss Hawkins free to sell with vacant possession to the Nechvatals for £1.03m. This plan was then implemented. On 2 nd October 2001 NatWest exchanged contracts to sell the property subject to the tenancy to Miss Hawkins for £450,000.00. That contract was completed the following day with money borrowed by Miss Hawkins from KF's brother Robin Feakins. Miss Hawkins then entered into a contract to sell to the Nechvatals for £1.03m, a deposit of £103,000 being paid, with completion fixed for 30 th November 2001. KF and Miss Hawkins then left the country for a four week holiday in Australia.
11. While the couple were still in Australia, DEFRA learned of the cancellation of its charge. On their return the couple had to face three unpleasant developments. The first was the receipt of a report ("the Fieldfare report") into the environmental consequences of the operations undertaken by DEFRA on Hill Farm consequent on the FMD outbreak. The second was that the appeal against IBAP's judgment had been dismissed. The third was a freezing injunction granted on DEFRA's application by Gross J on 21 st November 2001 (and continued by Penry Davey J on 4 th December 2001) .
12. Disclosure of the Fieldfare report to the Nechvatals led to the latter refusing to complete and claiming a return of their deposit. Proceedings have subsequently been started by the Nechvatals which are due to be heard later this year."
In paragraph 28 of his judgment the judge described the tenancy as "an extremely fragile interest". He continued:
"The financial state of the company … meant that it was in no...
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