Ram v Ram and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,LORD JUSTICE THORPE,LADY JUSTICE ARDEN,LORD JUSTICE NEUBERGER,Lady Justice Arden |
| Judgment Date | 16 November 2004 |
| Neutral Citation | [2004] EWCA Civ 1452,[2004] EWCA Civ 1684 |
| Docket Number | B1/2004/0882; B1/2004/2247; B1/2004/2248,Case No: A2/2004/0479 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 November 2004 |
[2004] EWCA Civ 1452
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
HH Judge Norris QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Potter
Lord Justice Buxton and
Lord Justice Carnwath
Case No: A2/2004/0479
BM02D01373
Peter Duckworth (instructed by Breakwells) for the Appellant
Avtar A. S. Khangure QC and Shakil Najib (instructed by Eaton, Ryan and Taylor) for the 4 th Respondent
This is the judgment of the court, to which the other members have contributed.
Background
The first respondent, Baskinder Ram ("the husband"), was the subject of a bankruptcy order made on 17 th September 1998, on a petition presented by the Commissioners of Inland Revenue on 28 th May 1998. The principal creditors in the bankruptcy were four: Barclays Bank in respect of an overdraft in the sum of £15,500, HM Customs and Excise in the sum of £10,000, the Inland Revenue in the sum of £101,834 and a firm of accountants which was owed some £2,900. In his initial statement of affairs, he disclosed that he owned a property at Longmeadow Close, the matrimonial home, which he shared with his wife, Gita Ram, the appellant ("the wife"). He also disclosed that two or three years before he had had a quarter-share in the family home at 11 Westfield Road, which he said had since been sold to his father. On the basis of that information the trustee in bankruptcy ("the trustee") began proceedings against the wife in relation to the matrimonial home.
The wife was less willing than the trustee to accept at face value the disposal of the quarter-share in 11 Westfield Road. This disposal had been made on 19th February 1996, by the husband to his father and two of his brothers. On 10 th October 2003, she applied under s 423 of the Insolvency Act 1986 for an order that the transaction be set aside as a transaction at an undervalue intended to defeat creditors. That application (together with a similar application made by the trustee immediately before the hearing) came before His Honour Judge Norris QC on 18 th February 2004. The two brothers, Solinder and Monder Ram, appeared by counsel, but did not oppose the setting aside of the transaction. The husband did not appear.
The judge found, as indeed was agreed by the parties who appeared before him, that the relevant transfer had been at an undervalue and that the substantial purpose of the transfer had been to put assets beyond the reach of persons who had a claim to them, in particular the Inland Revenue. It is unnecessary to review the reasoning which led to this conclusion, since it is not in issue before us. The real dispute before the judge was as to the form of the order to be made in respect of the husband's quarter-share of 11 Westfield Road. Accepting the trustee's submissions, he made an order vesting it in the trustee.
He recorded that at the time of the hearing the current deficiency was of the order of £309,000, consisting of some £73,000 in respect of costs and fees, £165,000 in respect of creditors' claims, and £72,000 in respect of statutory interest. Since then the liabilities (in particular in respect of interest and costs) have been increasing. We were told that the current total is of the order of £411,000.
He made no findings as to the value of the various assets. In addition to those already noted, mention should be made of another asset not disclosed in the husband's statement, his one-eighth share in the estate of his late father. In his skeleton argument for the wife, Mr Duckworth suggests that the approximate value of the husband's estate is £675,000. This includes his interest in 34 Longmeadow Close, three-eighths of the value of 11 Westfield Road net of sale costs, and a one-third share of his father's residuary estate consisting of some commercial properties in Birmingham. The trustee in bankruptcy puts the "available pool of assets" at around £500,000. The precise figures are not material to the issues we have to decide.
Reference must also be made to separate matrimonial proceedings, initiated by the wife in May 2002. They included a petition for divorce and an application for ancillary relief. A maintenance order was made in her favour in May 2003. Following a hearing before Bennett J in November 2003, it was ordered that her application under s 423 should be heard first in the Chancery Division, and an order was made freezing the husband's assets.
Following Judge Norris' decision on that issue, the wife's application for ancillary relief came before Hedley J on 4 th March 2004, when an order which (as summarised by Mr Duckworth) required the husband:
i) to transfer to the wife the matrimonial home at 34 Longmeadow Close free of mortgage;
ii) to pay her a lump sum of £150,000 within 56 days;
iii) to pay all arrears under the maintenance order dated 17 March 2003 (amounting to £44,000) and to pay ongoing maintenance at £2,000 per month until i) and ii) were implemented;
iv) to pay all her matrimonial costs (£66,000).
The order records that it was made "upon hearing" counsel for the wife and also Mr Martin Lee, solicitor for the trustee in bankruptcy. However, there is some dispute as to what (if any) part Mr Lee took in the proceedings. For reasons which will become apparent, we think it unnecessary to resolve the point.
On the basis of that order, together with the costs of the section 423 proceedings (assessed at £11,000 by Judge Norris, and directed to be paid in the course of bankruptcy administration), Mr Duckworth puts the total claim of the wife at some £420,000 plus interest.
The 1986 Act and the rules under it provide a comprehensive code dealing with corporate and personal insolvency. For the present case, the relevant provisions are those relating to the functions of the trustee in bankruptcy ("the trustee") (Part IX Ch IV), and the special provisions (not confined to cases of insolvency) to counteract "debt avoidance" (Part XVI). The general function of the trustee is to "get in, realise and distribute" the bankrupt's estate, for which purpose he is specifically authorised "to use his own discretion" (s 305(2)). Immediately on his appointment taking effect, the bankrupt's estate automatically vests in him (s 306). The detailed provisions relating to his powers are not material to this appeal.
Section 423 contains provisions designed to counteract transactions at an undervalue, where the court is satisfied that the purpose was to put assets beyond the reach of claimants. Where the debtor has been adjudged bankrupt, the application may be made by the trustee, or by "a victim of the transaction" (s 424(1)(a)). A "victim" of the transaction is "a person who is, or is capable of being, prejudiced by it" (s 423(5)). (We were told that the wife was given leave by Judge Norris to proceed on this basis on 17 th December 2003.) Such an application is treated as made "on behalf of every victim to the transaction" (s 424(2)).
Where the requirements of section 423 are met (as was found in this case) the court's powers are defined by section 423(2); it may make "such order as it thinks fit" for:
"(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interest of persons who are victims of the transaction."
Section 425 provides ("without prejudice to the generality of section 423") examples of orders which may be made, including one to:
"(a) require any property transferred as part of a transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application is treated as made;"
In Chohan v Saggar [1994] 1 BCLC 706, 714 c-e, Nourse LJ explained the effect of section 423(2):
"The object of ss 423 to 425 being to remedy the avoidance of debts, the "and" between para (a) and (b) of 423(2) must be read conjunctively and not disjunctively. Any order under this section must seek, so far as practicable, both to restore the position to what it would have been if the transaction had not been entered into and to protect the victims of it. It is not a power to restore generally, but in such a way as to protect the victims' interests; in other words, by restoring assets to the debtor to make them available for execution by the victims. So the first question the judge must ask himself is what assets have been lost to the debtor. His order should, so far as practicable, restore that loss."
Matrimonial proceedings and bankruptcy
Before coming to the grounds of appeal, it is necessary to say something of the treatment of matrimonial orders in the insolvency code. Mr Duckworth refers to what he calls "the uneasy relationship" between bankruptcy and matrimonial proceedings. He submits that the "central issue" in the appeal is:
'…whether the claims of creditors should be allowed to prevail, both procedurally and substantively, over those of a wife, or whether she should be at least 'level-pegging'."
He invites the court to look at "creative solutions" to achieve a fair result.
The immediate obstacle to Mr Duckworth's ambitions is found in rule 12.3 of the Insolvency Rules 1986. This provides as follows:
"(1) … all claims by creditors are provable as debts against… the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages.
(2) The following are not...
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