Hill and another v Haines
| Jurisdiction | England & Wales |
| Judge | Lord Justice Thorpe,Lord Justice Rix,The Chancellor |
| Judgment Date | 05 December 2007 |
| Neutral Citation | [2007] EWCA Civ 1284 |
| Docket Number | Case No: A2/2007/1077 |
| Court | Court of Appeal (Civil Division) |
| Date | 05 December 2007 |
[2007] EWCA Civ 1284
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT CHANCERY DIVISION
HIS HONOUR JUDGE PELLING QC
CH20070058
Royal Courts of Justice
Strand, London, WC2A 2LL
the Chancellor of the High Court
Lord Justice Thorpe and
Lord Justice Rix
Case No: A2/2007/1077
Mr A Khangure QC & Mr A Burden (instructed by Messrs Harrison Clark, Worcester) for the Appellant
Mr P Arden QC & Mr N McCulloch (instructed by Messrs Clarke Willmott, Bristol) for the Respondents
Hearing dates : 13 & 14 November 2007
The Chancellor
Introduction
The appellant, Wendy Haines (“the Wife”) married David Haines (“the Bankrupt”) in 1991. There was one child of the marriage born in 1997. In April 2002 the Bankrupt and the Wife bought Strudges Farm, Dunhampton, Worcs as joint tenants at law and in equity for the sum of £302,000 of which £287,000 was borrowed on the security of the farm. They separated in March 2003. The Wife presented a petition for divorce in April and commenced ancillary relief proceedings in May 2003. On 22nd December 2004 District Judge Mackenzie ordered the Bankrupt to transfer his interest in the farm to the Wife within 14 days or 7 days of decree absolute, whichever was the later. Decree absolute was granted on 21st February 2005 so that the order for transfer became effective on 28th February 2005.
On 31st March 2005 a bankruptcy order was made against the Bankrupt on his own petition. In the event the transfer was executed by the District Judge on 22nd September 2005 pursuant to an order entitling him to do so made on 13th September 2005. In due course the farm was sold for a sum which provided £120,000 in respect of the Bankrupt's share. On 13th April 2006 the Trustees in Bankruptcy of the Bankrupt (“the Trustees”), with the sanction of the Official Receiver, applied to the Birmingham County Court for a declaration that the transfer of the beneficial interest of the Bankrupt in Strudges Farm in accordance with the order of the District Judge was a transaction at an undervalue pursuant to s.339 Insolvency Act 1986 and as such is void against the Trustees.
So far as material to this appeal s.339 is in the following terms:
“(1) Subject as follows in this section and sections 341 and 342, where an individual is adjudged bankrupt and he has at a relevant time (defined in section 341) entered into a transaction with any person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under this section.
(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.
(3) For the purposes of this section and sections 341 and 342, an individual enters into a transaction with a person at an undervalue if —
(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration,
[(b) … or]
(c) he enters into a transaction with that person 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 the individual.”
District Judge Cooke, sitting in the Birmingham County Court, considered that the circumstances did not fall within the provisions of either sub-paragraph (a) or (c) of sub-section (3). By his order made on 10th January 2007 he dismissed the Trustees' application. The Trustees' appeal to the High Court came before HH Judge Pelling QC sitting as a deputy High Court judge of the Chancery Division. He concluded that the terms of sub-paragraphs (a) and (c) were satisfied and made the declaration sought by the Trustees. I granted permission to appeal on 27th June 2007 on the grounds that the prospective appeal raised an important point of principle and had real prospects of success.
The Issues
The terms of s.339 indicate that the jurisdiction of the court to make any order under subsection (2) depends on a number of pre-conditions. They include:
(1) a transaction entered into at a relevant time by an individual who is subsequently adjudged bankrupt; and, either
(2) on terms that provide for him to receive no consideration, or
(3) 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 the individual.
The decision of the Court of Appeal in Re Paramount Airways Ltd [1993] Ch 223 established that even if all those pre-conditions are established there remains a discretion in the court as to whether any and if so what order should be made under s.339(2). Thus, in appropriate cases, there is a further issue, namely:
(4) whether any and if so what order should be made under s.339(2).
S.39 Matrimonial Causes Act 1973 , as amended, provides that:
“The fact that a settlement or transfer of property had to be made in order to comply with a property adjustment order shall not prevent that settlement or transfer from being a transaction in respect of which an order may be made under section 339 or 340 of the Insolvency Act 1986 (transactions at an undervalue and preferences).”
This provision does not sit comfortably with the decisions of the Court of Appeal in Maclurcan v Maclurcan (1897) 77 LT 474 and Mountney v Treharne [2003] Ch.135 to the effect that it is the order of the court exercising the matrimonial jurisdiction which effects the transfer of the beneficial interest not the subsequent disposition made by or on behalf of the individual who later becomes bankrupt. In those circumstances the subsequent transfer is of the bare legal estate in the relevant property which, as the Federal Court of Australia observed in Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571, 585[57], could never be void against the trustee because:
“the market value of the property (nil) would never be greater than the consideration given for the transfer (also nil).”
In the light of this problem District Judge Cooke assumed [18] without deciding that it was the order of the court exercising the matrimonial jurisdiction which constituted the 'transaction' and that it had been entered into by the Bankrupt, however unwillingly. The Wife did not appeal from that conclusion. Judge Pelling QC recognised the difficulty but considered that such an assumption was correct in the light of the partial definition of the word 'transaction' in s.436 Insolvency Act 1986 as including a gift, agreement or arrangement and the terms of s.39 Matrimonial Causes Act 1973. Before us counsel for the Wife conceded that the order of the matrimonial court is the relevant transaction for the purposes of s.339 Insolvency Act 1986 and was entered into at a relevant time. Thus there is no issue as to the first pre-condition set out in paragraph 5 above.
With regard to the second pre-condition District Judge Cooke found [32] that there was consideration for the transfer consisting of the satisfaction or partial satisfaction of the Wife's claims for ancillary relief. In relation to the third pre-condition, District Judge Cooke held [45] that the decision of the matrimonial court had determined the extent of the Wife's claim and its value as the equivalent of the value of the assets transferred by the order. In those circumstances he did not have to consider the exercise of any discretion under s.339(2). Judge Pelling QC disagreed with the conclusions of the District Judge on both the second and the third pre-conditions but decided that there was no ground for exercising his discretion not to make an order under s.339(2). In order to explain his reasoning and conclusions, the arguments before us and my conclusion it is necessary to review a number of reported cases and other material in their chronological order.
Previous authority
In re Pope [1908] 2 KB 169 concerned a post-nuptial settlement made by a husband in favour of his wife and children within two years of his bankruptcy. Under s.47 Bankruptcy Act 1883 such a disposition was void as against his trustee in bankruptcy unless made “…in favour of a purchaser…and for valuable consideration.” The consideration expressed in the settlement was 'natural love and affection'. The consideration in fact, as proved to the satisfaction of the judge, was the promise of the wife to refrain from taking proceedings in the Divorce Division for dissolution of marriage in respect of the husband's past misconduct and a permanent allowance for maintenance. The judge held the settlement to be valid and the Court of Appeal, by a majority, agreed.
There were two issues, first, whether the wife had provided any consideration and, second, whether she could be regarded as a 'purchaser' within the meaning of the section. The court was unanimous on the first point. Lord Cozens-Hardy MR, with whom Fletcher Moulton LJ agreed, considered (p.172) that it was plain that there was valuable consideration “having regard to the finding of the judge as to the bargain”. Similarly Buckley LJ (p.173) held that the release of the right to relief for matrimonial offences was “no doubt…valuable consideration”. On the second issue the majority considered that the wife was 'a purchaser'. At p.173 Lord Cozens-Hardy said:
“I am unable to adopt the view that there must be either money or physical property given by the purchaser in order to bring the case within the exception. In my opinion, the release of a right or the compromise of...
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