National Westminster Bank Plc v Jones and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUMMERY |
| Judgment Date | 24 October 2001 |
| Neutral Citation | [2001] EWCA Civ 1541 |
| Docket Number | Case No: B3/2000/2666 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 October 2001 |
[2001] EWCA Civ 1541
Lord Justice Judge
Lord Justice Mummery And
Sir Martin Nourse
Case No: B3/2000/2666
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE NEUBERGER
CHANCERY DIVISION
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr Stephen Jourdan (instructed by Messrs Burges Salmon, Narrow Quay House, Bristol, BS1 4AH for the Appellant)
Mr John Martin QC & Miss Georgina Middleton (instructed by Messrs Addleshaw Booth & Co, 100 Barbirolli Square, Manchester, M2 3AB for the Respondent)
This is the judgment of the Court.
This is an appeal from the decision of Neuberger J on 22 June 2000 in proceedings brought by the National Westminster Bank (the Bank) to enforce its rights as mortgagee against Mrs Rosemary Jones, against her husband, Mr Harold Jones, and against Neuadd Goch Farm Limited (NGF), a company owned, controlled and operated by them in connection with their farming activities.
The defendants appeal, with the permission of the judge, against orders declaring that securities granted by them to the Bank are valid and subsisting in respect of the farm land, stock and assets and setting aside under section 423 of the Insolvency Act 1986 (the 1986 Act) a tenancy agreement and asset sale agreement made on 27 April 1999 between Mr and Mrs Jones and NGF. Mr Jourdan, who appears for Mr and Mrs Jones, informed the court that other cases are waiting on the result of this appeal. It turns on whether transactions entered into by the appellants with NGF, without the concurrence of the Bank, with a view to ensuring the survival of their business, were effective to prevent the Bank from enforcing its rights and remedies in respect of property subject to fixed and floating charges made by Mr and Mrs Jones to secure their indebtedness to the Bank.
The Facts
Mr and Mrs Jones, who were married in 1975, are sheep and cattle farmers at Neuadd Goch farm (including Neuadd Goch hill) Newtown, Powys comprising 179 acres of pasture, a farmhouse and buildings, owned by Mrs Jones since 1989, and also on 30.5 acres at Rhostwpa, Adfa, Newtown, owned by Mr Jones since 1989.
The couple are long standing customers of the Bank. On 31 January 1990 Mrs Jones granted a legal mortgage to the Bank over Neuadd Goch Farm to secure all monies from time to time owing to the Bank. Clause 6 of the mortgage deed contained a provision requiring the written consent of the Bank for leasing or parting with possession of the farm or for the granting of a right or interest to occupy it.
On 2 April 1993 Mr Jones deposited the title deeds and Land Certificate of the Rhostpwa land with the Bank and signed the Bank's standard form memorandum confirming the grant of an equitable charge for all his liabilities to the Bank.
On 1 November 1994 Mr and Mrs Jones executed three Agricultural Charges in favour of the Bank securing all their borrowings and creating floating charges on the farming stock and other agricultural assets. The charges were made under the Agricultural Credits Act 1928 (the 1928 Act).
Unfortunately, Mr and Mrs Jones ran into financial difficulties. In December 1998 another creditor began bankruptcy proceedings against Mr Jones. They sought advice from Mr Des Phillips of UK Mortgages & Finance Services Limited, who obtained valuations of the farms from Norman Lloyd & Co of Welshpool in January 1999. Neuadd Goch Farm was valued at £346,000 and Rhostwpa at £45,000. On 8 March 1999 the Bank was supplied by Mr Phillips with copies of documents relating to an Individual Voluntary Arrangement (IVA) and was informed that Mr & Mrs Jones would be making an offer to the Bank.
On 12 March 1999 the Bank made a formal written demand on Mrs Jones in the sum of £332,852.45. It was not satisfied. A further demand was made on Mr & Mrs Jones on 9 April for £335,418.85. The events which occurred after the demands caused the Bank to seek relief in these proceedings commenced on 28 September 1999.
In April 1999 Mr Phillips advised Mr and Mrs Jones that they could save their home and their farming business from action by the Bank by forming a company and by then granting an agricultural tenancy to it and selling the farming assets to the company at a proper value. The advice was implemented. On 12 April 1999 NGF was incorporated. Mr and Mrs Jones were the sole directors and shareholders, each holding beneficially one of the two issued shares.
On 23 April 1999 Mr Phillips informed the Bank that NGF had been incorporated, that Mr and Mrs Jones would be granting a tenancy to it and that they would be transferring the farming assets to it. On learning of this the Bank made it clear that it would not grant its consent to or recognise the proposed transactions, and would not be submitting any claims in the IVA. It confirmed its position in a letter of 26 April 1999.
On 27 April a meeting of creditors was held to approve the IVA. On the same day Mr and Mrs Jones granted to NGF a tenancy of the farms for a term of 20 years from 27 April at a base rent of £1,000 a year for the first 5 years, rising to £4, 276 a year for the remaining 15 years. A further rent was payable at the rate of £17, 420 a year to be reviewed to the market rental as at 1 June 2004, 2009 and 2014. NGF was put under full repairing and insuring obligations.
By the Sale Agreement of the same date Mr and Mrs Jones transferred their agricultural assets to NGF for the sum of £341,880, payable by 20 equal instalments of £17, 094 starting on 27 April 2000.
The Bank took steps to protect its position. A letter before action was sent on 12 July 1999, followed on 17 September 1999 by a formal demand for £350,774.34 and on 21 September 1999 by the appointment of receivers. The Bank instituted proceedings on 28 September asserting the validity of its security and of the appointment of the receivers and seeking an order under section 423 of the 1986 Act setting aside the tenancy agreement and the asset sale agreement. On 30 September an interim injunction was made restraining Mr and Mrs Jones from dealing with the farming assets without the consent of the receivers.
The Judgment
Although the Bank won the action, it did not succeed in all its arguments. The judge rejected the Bank's contentions that (a) it was entitled to rely on a breach of clause 6 of the mortgage as a ground for contending that it was not bound by the tenancy; (b) Mr and Mrs Jones had in truth invalidly granted a tenancy to themselves and had breached the self dealing rule; and (c) the tenancy and the sale agreement were shams.
The judge held in the Bank's favour that (a) the tenancy and the sale agreement were each transactions at an undervalue and were entered into in circumstances caught by section 423 (1) (c) of the 1986 Act and (b) the Bank's floating charges on the farming assets had crystallised and become fixed charges in favour of the Bank as a result of Mr and Mrs Jones ceasing to carry on business.
Transactions at an Undervalue
Section 423 of the 1986 (" Transactions defrauding creditors") Act provides as follows: -
"(1) 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.
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next sub-section, make such order as it thinks fit for -
(a) restoring the position…., and
(b) protecting the interests of persons who are victims of the transaction.
(3) 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."
(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it"
The judge decided that the tenancy agreement and the sale agreement were transactions at an undervalue caught by section 423 and that they should be set aside as against the Bank.
Mr and Mrs Jones admitted that they had entered into the two agreements for a purpose falling within section 423 (3), but contended that when their overall asset position, including the value of their shares in NGF, was considered as a whole, there was no transaction at an undervalue. Agricultural Mortgage Corporation PLC –v Woodward [1995] 1 BCLC 1 at 11 d-g was cited for the proposistion that, in considering whether a tenancy fell within s.423 (1)(c), the transactions should be viewed as a whole and that a broad approach should be taken. The judge rejected their contention,...
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