Midland Bank Plc v Wyatt
| Jurisdiction | England & Wales |
| Judgment Date | 1995 |
| Date | 1995 |
| Year | 1995 |
| Court | Chancery Division |
MR DEM YOUNG, QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
Property – beneficial interest – house purchased by husband and wife in joint names – spouses executing declaration of trust giving equitable interest to wife and the spouses' two young daughters – husband subsequently arranging business loans – business failing – bank obtaining charging order nisi on husband's interest in property – whether husband could rely on declaration of trust – whether declaration of trust void or voidable.
In 1981 the defendant husband and his wife purchased a house ("the property") which was registered in their joint names. In 1983 they executed a legal charge with the plaintiff bank to secure a house mortgage loan. In 1986 the defendant decided to set up his own company. Following legal advice, the defendant entered into a trust arrangement with his wife giving the equity in the property to her and their two daughters. The trust deed was dated 17 June 1987. It was signed by the defendant and his wife though the wife stated that she left all financial matters to her husband and would most probably have signed not really knowing what she was signing. During 1987 and 1988 the defendant obtained further loans from the bank to finance the setting up of his company on the security of his interest in the property. In 1989 the defendant and his wife separated. In 1991 the defendant's business went into receivership. The defendant at no stage informed the bank, his business partner, or the solicitors acting for the wife in connexion with the separation, of the declaration of trust. In all his dealings with the bank, the defendant had allowed the bank to understand that he and his wife were the beneficial owners of the property.
The plaintiff bank obtained judgment against the defendant husband for £63,135.50 plus £205 costs. Following that judgment the plaintiff bank obtained a charging order nisi on the defendant husband's interest in the property. The defendant resisted the making absolute of the charging order, relying on the declaration of trust giving his equity interest in the property to his wife and two daughters. The plaintiff contended that, even if the declaration of trust was executed on 17 June 1987, it was either void as being a "sham" transaction or voidable under s 423 of the Insolvency Act 1986.
Held – It was accepted that as there was a duly executed declaration of trust, the burden of proof that the transaction was a sham or was voidable under s 423 of the Insolvency Act 1986 fell on the plaintiff bank. As to standard of proof, it was necessary for the court to be fully satisfied as to the true nature or object of the transaction in question. On the
facts in this case, when the defendant executed the trust deed he had no intention of endowing his children with an interest in the property; it was executed by him, not to be acted upon but to be put in the safe for a rainy day, as a safeguard to protect his family from long-term commercial risk should he set up his own company. As such the declaration of trust was not what it purported to be but was a pretence or a sham. Even if it was entered into without any dishonest or fraudulent motive but was entered into on the basis of mistaken advice, the transaction was still void and therefore an unenforceable transaction if it was not intended to be acted upon but was entered into for some different or ulterior motive. The declaration of trust purporting to transfer the defendant's interest in the property to his daughters was a transaction entered into without consideration and fell within s 423 of the Insolvency Act 1986. As the transaction was entered into for the purpose of putting the defendant's assets beyond the reach of any future creditors, it was voidable under s 423 of the 1986 Act. In the circumstances the declaration of trust could not be relied upon by the defendant to resist the making of the charging order absolute.
Statutory provisions referred to:Insolvency Act 1986, s 423.
Cases referred to in judgment:AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417; [1988] 3 WLR 1205; [1988] 3 All ER 1058.
Bater v Bater [1951] P 35; [1950] 2 All ER 458.
Butterworth, Re (1882) 18 Ch D 588.
Chohan v Sagger [1992] BCC 306.
Lloyds Bank v Marcan [1973] 1 WLR 1387; [1973] 3 All ER 754.
Mackay v Douglas (1872) 14 Eq 106.
Rosseel NV v Oriental Commercial and Shipping (UK) Ltd [1991] EGCS 94.
Snook v London and West Riding Investments Ltd [1967] 2 QB 786; [1967] 2 WLR 1010; [1967] 1 All ER 518.
Shân Warnock-Smith for the bank.
The first defendant in person.
Martin Farber for the daughters.
MR DEM YOUNG, QC.On 26 July 1991 the plaintiff (the Midland Bank) obtained judgment by default against the first defendant (Mr Wyatt) for the sum of £63,134.50 plus £205 costs. Following such judgment on 29 July 1991 the plaintiff obtained a charging order nisi in respect of such sums and accruing interest on the first defendant's interest in the property known as Honer House, Honer Lane, South Mundham, Chichester, West Sussex of which the first defendant and his wife Agatha Carroll Wyatt are and have been registered as joint proprietors since 26 January 1982.
In an affidavit dated 10 October 1991 Mr Wyatt sets out his grounds for resisting making the charging order absolute, namely that in June 1987 he said he entered into a declaration of trust giving his equity interest in the family home to his wife and two daughters, Kirsty and Olivia Wyatt (the second and third defendants as interveners in the action). By an order of the deputy district judge (dated 16 June 1993 and amended on 24 March 1994) it was ordered that in the determination
of whether or not Mr Wyatt is entitled to rely on such declaration of trust and/or whether or not Mr Wyatt has a beneficial interest in the property capable of being charged, Mr Wyatt should be the plaintiff and that the burden of proof should be on him. At the hearing before me, Mr Wyatt represented himself and sensibly it was agreed that Mrs Warnock-Smith for the Midland Bank should address the court first. However, there was some disagreement on whom the burden of proof lay. The plaintiff, whilst not accepting that the declaration of trust was executed on the date it bears, namely 17 June 1987, contends that even if it were so executed it is either void as being a "sham" transaction or voidable at the instance of the bank by reason of s 423 of the Insolvency Act 1986 ("the Act") as a transaction to defraud creditors.
Burden of proofI was referred to Rosseel NV v Oriental Commercial and Shipping (UK) Ltd [1991] EGCS 94 where the Court of Appeal held that the burden of showing cause why a charging order nisi should not be made absolute was upon the judgment debtor. What Mr Farber (for the second and third defendants) contended was that that burden was shifted by virtue of the "duly" executed declaration of trust and that the burden was then placed on the bank to show it was a sham transaction or voidable by reason of s 423 of the Act.
In her reply speech I did not understand there was any real difference between Mrs Warnock-Smith and Mr Farber. Whilst not accepting that the defendants had proved the trust deed (other than it had come into existence before the charging order), Mrs Warnock-Smith accepted that the burden of showing the transaction was a sham was probably on the bank as such an allegation directly impugned the motives of the transferor or creator of the transaction. As regards s 423 it was contended that there may be a difference depending on when the deed was executed; the later in time it was executed the more readily a court ought to infer it was set up to avoid Mr Wyatt's creditors and therefore the more difficult it becomes to shift the burden of proof to the bank, there being the general or overall burden on Mr Wyatt to show cause.
Even if the bank has the burden of both issues, it is contended that it has been discharged in this case and accordingly I shall approach the matter on such a basis, namely, whether the bank have satisfied me that the transaction was either a sham and/or contrary to s 423 of the Act.
Standard of proofI was referred to para 4–38 of Phipson on Evidence (Sweet & Maxwell, 1990, 14th edn) on standard of proof and a quotation of Denning, LJ (as he then was) from Bater v Bater [1951] P 35 regarding the degree of probability required, where he stated (at p 37):
"... the degree depends on the subject matter. A civil court when considering a charge of fraud will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established. It does not adopt so high a degree as a criminal court even when considering a charge of a criminal nature; but still it does require a degree of probability
which is commensurate with the occasion."
It is accepted by the plaintiff that as regards the question whether the transaction in question was a sham, the charge against Mr Wyatt is a serious allegation as it is impugning his motives for entering into such a transaction. Mr Farber says it is akin to a charge of fraud and at any rate higher than a case of establishing negligence. For the reasons set out hereafter I do not believe it is necessary to establish a fraudulent motive to prove that the transaction was a sham or pretence transaction. There may or may not be such fraudulent motive. However, for the purposes of this judgment I have borne in mind the need to be fully satisfied as to the true nature or object of the transaction. As regards the s 423 question, it is common ground that proof of dishonesty is not a requirement, merely...
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