Hill v Spread Trustee Company Ltd and another

JurisdictionEngland & Wales
JudgeLady Justice Arden,Sir Martin Nourse,Lord Justice Waller
Judgment Date12 May 2006
Neutral Citation[2006] EWCA Civ 542
Docket NumberCase No: A3/2005/1183
CourtCourt of Appeal (Civil Division)
Date12 May 2006
Hill (As Trustee In Bankruptcy of Nurkowski)
Applapplicant/Respondent To Appeal
Spread Trustee Company Ltd & Anor

[2006] EWCA Civ 542


Lord Justice Waller

Lady Justice Arden and

Sir Martin Nourse

Case No: A3/2005/1183

Catherine Newman QC and Timothy Evans (instructed by Osborne Clarke) for the Appellants

Stephen Davies QC and Stefan Ramel (instructed by Clarke Willmott) for the Respondents

Lady Justice Arden

The judgment under appeal in this case occupies nearly eighty pages of the law reports ([2005] BPIR 842). It concerns claims made by the trustee in bankruptcy of a Mr Nurkowski to obtain relief under section 423 of the Insolvency Act 1986 ("the 1986 Act") in respect of a settlement made by Mr Nurkowski in favour of his daughter, and in respect of certain charges given by him to the trustees of that settlement. The appellant trustees challenge a number of the judge's crucial findings of fact. But this appeal also raises a number of important issues of law about claims made under section 423 with which we must also deal. The relevant statutory provisions are set out in the appendix to this judgment. The essence of section 423 of the 1986 Act is that it empowers the court to avoid transactions entered into at any time if made by a person at an undervalue and with the purpose of prejudicing his creditors. As we shall see, section 423 is cast in very wide terms in order to cover the vast range of transactions which might meet the basic criteria which I have just mentioned. As I said in IRC v Hashmi [2002] 2 BCLC 489, 504:

"Section 423 plays an important role in insolvency law. It can moreover apply even though the debtor is not in a formal insolvency … Section [423] is a carefully calibrated section forming part of a carefully calibrated group of sections."


I have dealt with all the issues that were argued, save as stated in paras 118 and 138 below.


This then is an appeal by Spread Trustee Company Limited and Mr David John Warr, the trustees of the Henry Stanley Nurkowski Maintenance and Settlement Trust ("the trustees") , against the order of HHJ Weeks QC sitting as a deputy Judge of the High Court of Justice, Chancery Division. By his order it was declared, on the application of Mr Richard Hill, Mr Nurkowski's trustee in bankruptcy, that the settlement dated 10 March 1989 ("the settlement") , of which the trustees are trustees, two legal charges dated 17 April 1996 and 12 August 1996 (respectively "the second legal charge" and "the third legal charge" and collectively "the later charges") and an assignment dated 21 November 1997 in their favour of a loan account owed to Mr Nurkowski by his company HS and KM Nurkowski Ltd ("the company") constituted transactions within section 423(3) of the 1986 Act. By way of relief in respect of these transactions, the order provided (1) that the trustees should indemnify the estate of Mr Nurkowski in bankruptcy against any claim by HM Revenue & Customs ("the Revenue") to set aside a compromise of tax liabilities made with Mr Nurkowski on 30 March 1993 ("the compromise") ; (2) that the first legal charge and the second legal charge should be set aside; and (3) that the trustees should repay the sum of £162,051 plus interest to Mr Nurkowski paid to them under the assignment dated 21 November 1997, such sum to be recredited to the amounts owed by him to the trustees.

The background


The judge set out the background in detail in his judgment, and my summary, which follows, is based largely on his judgment. The paragraphs of the judgment of the judge are not numbered and accordingly I will use page references from the report in BPIR. My summary should be read with the report of the judge's judgment. The numbers in brackets are references to the pages of that report.


The events in issue occurred between 1988 and 2001. I will start with an overview of the facts. Mr Nurkowski, an ice-cream manufacturer and vendor with commercial interests also in building and property development, owned two fields, called respectively OS149 (3-12; acres) ("the bottom field") and OS160 (4-12; acres) (the bottom field) , at Hilperton, near Trowbridge, Wiltshire. These fields abutted an area of some 200 acres ("the Paxcroft Mead development") for which Gallagher Limited ("Gallagher") made an application for planning permission. (Unless otherwise stated, when I refer to OS 149, I include a small parcel of land forming part of the top field which was known as OS 149A) . The application for planning permission was made to West Wiltshire District Council and Mr Nurkowski was a member of the planning committee of that Council, though he did not vote on the grant of permission to Gallagher on 4 April 1989. About a month before that resolution, Mr Nurkowski had made a gift into settlement of OS160. The settlement was a newly formed accumulation and maintenance settlement for Mr Nurkowski's 2 -12; year old daughter, Anna. Those representing Mr Nurkowski advised subsequently the Revenue that OS 160 was worth only £35,000 on its settlement in March 1989. In fact, the judge found that Mr Nurkowski had already received an offer for this field of £700,000 from Gallagher and that Mr Nurkowski knew that £700,000 was the minimum value of OS160. OS149 and OS160 were sold some five months after the settlement for £2m, even though neither field was within the planning permission which had been given.


The Revenue did not accept the valuation of £35,000 for OS 160 put forward by Mr Nurkowski's advisers. In due course, the Revenue agreed to compromise its claim against Mr Nurkowski in the sum of £160,000. The trustee in bankruptcy takes the view that that compromise was colourable and that the Revenue could now raise a new assessment under section 29 or section 36 of the Taxes Management Act 1970.


Following the receipt of the sale consideration, the trustees made a number of loans to Mr Nurkowski. Between 1994 and 1997 Mr Nurkowski executed charges conferring additional security on the trustees for its loans to him. He also made an assignment to the trustees of the sums owed to him by the company on loan account. The first of these charges is not material for the purposes of this appeal.


We have been provided with a helpful chronology prepared by counsel. In reading the summary below, the following critical dates should be borne in mind:

14 March 1986 Mr Nurkowski acquires OS 149 and OS 160 for £21,000

10 March 1989 gift of OS 160 into settlement

4 April 1989 Gallagher's planning application granted for land abutting OS 149 and OS 160

1/2 August 1989 OS160 sold to Gallagher (£218,000 paid immediately and £518,000 deferred until 2 February 1991)

10 October 1989 Submission to the Revenue of a valuation of £35,000 for OS160

16 February 1993 No 1 Loan (£250,000) secured over the share certificates representing shares in the company

28 March 1993 No 2 Loan (£198,500) secured over the Lion & Fiddle public house

30 March 1993 compromise between Mr Nurkowski, the trustees and the Revenue

30 March 1993 No 3 Loan (£160,000) secured over land at Cockhill, Trowbridge

19 May 1993 No 4 Loan (£30,000) (no additional security)

29 June 1993 No 5 Loan (£70,000) secured over The Three Lions, Holt, Wiltshire

17 April 1996 the second legal charge. This was an all monies charge which gave the trustees security over Mr Nurkowski's home, a property called Enniswood

12 August 1996 a field adjoining Enniswood was charged to the trustees – the third legal charge

27 September 1996 all monies charge executed in favour of the trustees ranking behind a charge over the property already given to Lloyds Bank plc (Lloyds)

21 November 1997 assignment by way of charge by Mr Nurkowski in favour of the trustees of his loan account with the company

7 January 1998 the Revenue assess capital gains tax on Mr Nurkowski in respect of the sale of OS 149 in the sum of £436,790.32

28 January 1999 a bankruptcy order was made against Mr Nurkowski on the Revenue's petition

4 December 2002 Notice of this application was issued by the trustee in bankruptcy


I will now amplify this summary of events. The judge deals with the planning history (846) , and I do not consider that I need set it out. The process was a long and drawn out one, but the judge found that it was generally agreed between Gallagher and the planning officers that OS 160 should eventually be part of the comprehensive development of the area, and that OS 149 might either be developed as an independent site or as a means of access to adjacent land.


Mr Nurkowski's own accountant was a Mr Holdway. In late 1987 he approached the Revenue on behalf of Mr Nurkowski for their view of the income tax implications of a sale of the land. The Revenue replied that they could not give a tax clearance without more information. So the tax implications of a disposal were under consideration at this early stage.


Gallagher were in touch with Mr Nurkowski before permission was given. In May 1988 they made an offer to buy an option over OS 149 and 160 for £40,000. If the option was exercised, Gallagher would pay 80% of the market value following grant of planning permission. On 12 December 1988, Mr Cox of Gallagher and Miss Foster, representing the agents for Gallagher, met Mr Nurkowski. It was agreed that the negotiations should be put on hold so Mr Nurkowski "could put his own house in order". He said that he would revert to Gallagher in due course. There is an...

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