Ramlort Ltd and Michael James Meston Reid [CA (Civil), 06/07/2004]
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Lord Justice Waller,Lord Justice Judge |
| Judgment Date | 06 July 2004 |
| Neutral Citation | [2004] EWCA Civ 800 |
| Docket Number | Case No: A2 2003 1748 CHBKF |
| Court | Court of Appeal (Civil Division) |
| Date | 06 July 2004 |
[2004] EWCA Civ 800
Lord Justice Judge
Lord Justice Waller and
Lord Justice Jonathan Parker
Case No: A2 2003 1748 CHBKF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION - His Honour Judge Norris QC
(Sitting as a Judge of the High Court)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Gabriel Moss QC and David Alexander (instructed by Messrs Clintons) for the Appellant
Stephen Davies QC and Brian Watson (instructed by Messrs Peterkins) for the Respondent
INTRODUCTION
This is an appeal by Ramlort Ltd ("Ramlort") against an order made by His Honour Judge Norris QC, sitting as a judge of the Chancery Division (in Bankruptcy), on 18 July 2003, in proceedings brought against Ramlort by Mr Michael Reid, as judicial factor of the estate of the late Allan Thoars ("Mr Thoars"), who died domiciled in Scotland on 19 September 1996. Mr Thoars died intestate and insolvent.
By a Declaration of Trust dated 26 July 1996 Mr Thoars declared that he held the benefits of a whole life assurance policy ("the Policy") effected on his life with Skandia Life Assurance Company Ltd ("Skandia") on trust for Ramlort absolutely. It is common ground that as consideration for the making of the Declaration of Trust Ramlort made two payments. One was a payment of £1,100 to a third party. The other was a payment of £1,900 which the judge found was made by way of loan to Mr Thoars (there is no challenge to that finding on this appeal).
By his originating application in the proceedings, Mr Reid seeks a declaration that the making of the Declaration of Trust constituted a transaction at an undervalue within the meaning of section 339 of the Insolvency Act 1986 ("the 1986 Act"), and an order setting the Declaration of Trust aside. At an early stage in the proceedings a preliminary issue was directed as to the extent to which (if at all), in valuing the consideration provided by Mr Thoars to Ramlort by the Declaration of Trust, account should be taken of the fact that Mr Thoars underwent a liver transplant operation on 18 September 1996 and that he died the following day. The preliminary issue was heard by The Rt. Hon. Sir Andrew Morritt V-C in November 2002, but he declined to decide it. He took the view that the value of the consideration provided by Mr Thoars to Ramlort was a matter for the court to determine at trial, after considering all the available evidence.
The trial took place before Judge Norris QC. The judge found that as at 26 July 1996 (the date of the Declaration of Trust) the Policy had a minimum value of £10,000. As to the payments made by Ramlort as consideration, the judge valued each payment at nil. He accordingly found that the making of the Declaration of Trust was a transaction at an undervalue within the meaning of section 339.
By his order, the judge ordered that the proceeds of the Policy (amounting to some £186,000), together with accrued interest, be held on trust to repay to Ramlort the sums of £1,900 and £1,100 which Ramlort had paid as consideration, and subject thereto on trust for Mr Reid as part of Mr Thoars' insolvent estate.
On this appeal, Ramlort challenges the judge's findings as to the minimum value of the Policy and as to the value of the consideration provided by Ramlort, contending that as at 26 July 1996 the Policy was not worth significantly more than the value of the consideration which Ramlort gave for it, and accordingly that the making of the Declaration of Trust was not a transaction at an undervalue within the meaning of section 339. In the alternative, should that challenge fail, Ramlort contends that the appropriate remedy is not to set aside the Declaration of Trust, but rather to order Ramlort to pay monetary compensation equal to the amount of the undervalue.
Mr Reid has served a Respondent's Notice inviting us to uphold the judge's decision on additional grounds.
Permission to appeal was granted by Carnwath LJ on the papers on 28 September 2003.
I should record at this point that the version of the judge's judgment which was before us at the hearing of the appeal contained a formatting error, in that paragraph 44 of the judgment was split into two paragraphs. It now transpires that that error was at some stage corrected and a revised version of the judgment produced, with different paragraph numbering. In this judgment I adopt the paragraph numbering in the revised version. The judge's judgment is now reported as Re Thoars (Dec'd) [2003] EWHC 1999 (Ch); [2003] BPIR 1444
THE BACKGROUND FACTS
Mr Thoars took out the Policy on 1 February 1994. He was then aged 47. He had been a heavy drinker for many years, and had become alcohol-dependent. Although he had in the past received treatment for his alcohol-dependency, by February 1994 he was once again drinking heavily and on a regular basis.
The terms of the Policy are summarised by the judge in paragraphs 4 to 9 of his judgment, as follows:
'4. Under the policy terms, referred to as the "Scandia Plan", the sum assured was fixed. So, also, were the premiums. Clause 2 of the terms provided that the premiums were payable until the death of the life assured and that there would be a thirty day period of grace allowed for the payment of premiums. On non-payment of the premium the policy would be automatically paid-up, provided that it had acquired a surrender value. If it had not acquired a surrender value it would lapse.
5. Although expressed as a "whole life policy for a fixed sum assured", the policy is also described as a "unit-linked policy". By clause 4 of the policy terms, units in selected funds were allocated out of the premium paid at a fixed percentage. By Clause 5, during the life of the policy the number of units allocated could be reduced to reflect the charges of the company in setting-up and maintaining the policy and the cost of maintaining the level of life cover provided by the policy. The premium payable by Alan Thoars was in fact only just sufficient to maintain the level of life cover provided.
6. The units allocated to the policy were relevant only in two contexts. First of all, if there was very substantial growth in the units allocated, then, in addition to the sum assured, the policy might pay an "investment addition". Secondly, by Clause 9, the policyholder had the right to surrender the policy. Clause 9 provided that the policy might be surrendered, in whole, for a surrender value determined by the actuary to the company by reference to the value of the units allocated to the policy fund.
7. It should be noted that this definition of "surrender value" in the policy excludes any value to be attributed to the whole life element of the contract; that is to say, to the fact that at any given time the company was on risk to pay £180,000 were the policyholder to drop dead. Clause 9 deals only with the unilateral right to surrender and does not preclude a negotiated surrender, by consent, in other circumstances, for a different value.
8. Clause 10 of the policy provided for it to be converted into a paid-up policy or to lapse in the circumstances that I have indicated.
9. Although the benefits provided by the policy were, on their face, fixed, as was the premium, the policy terms contain provision for variation. By Clause 18 of the policy documents there was contemplated "a review". At the review, if the actuary was of the opinion that the performance of the units to which the policy was linked were insufficient to sustain the sum assured, and the other benefits payable under the policy, then those benefits could be reduced provided that they were not reduced below 75 per cent of the premiums payable."
By the end of 1994, two companies owned and controlled by Mr Thoars, namely Hair Affair Ltd and DMT (Toiletries) Ltd, owed a total sum of about £185,000 to Ramlort. Ramlort is owned and controlled by Mr Andre Frenkel. From 1995 onwards, Mr Frenkel was pressing Mr Thoars to arrange for payment of this indebtedness. Although, as the judge observed in paragraph 17 of his judgment, there is no evidence of any direct personal liability of Mr Thoars to Ramlort in respect of this indebtedness, it is clear that Mr Thoars nevertheless regarded himself as bound to do what he could to see that it was paid.
The judge takes up the story in paragraphs 49 to 60 of his judgment, as follows:
'49. The documents show that during the course of 1995 Mr. Thoars was in correspondence with Mr. Frenkel and was trying to explain to Mr. Frenkel how he was going to get the Hair Affair account cleared. He told Mr. Frenkel that he, Mr. Thoars, had made himself ill and had put unfair pressure and strain not only on Mr. Frenkel but also on Mr. Thoars' own family, that he had troubles with the Commerzbank, the VAT people, the local police (through drink related incidents), plus numerous other small problems. The reference to "trouble with the VAT people" was a reference to an impending trial of Mr. Thoars on charges of fraud relating to a VAT return.
50. In the course of that correspondence, it is apparent that by the autumn of 1995 Mr. Thoars was proposing that he would use a pension policy, held for the benefit of himself and his wife, as a source of funds to repay Ramlort. In September 1995 Mr. Thoars and his wife instructed the pension provider to communicate with consulting actuaries instructed on behalf of Ramlort with a view to seeing how the pension policy could be used.
51. By November 1995 Mr. Thoars' state of health had deteriorated sharply, and Mr. Fenkel was so informed....
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