The Trustee in Bankruptcy of Gordon Robin Claridge v 1. Gordon Robin Claridge and Another
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE SALES,Mr Justice Sales |
| Judgment Date | 29 July 2011 |
| Neutral Citation | [2011] EWHC 2047 (Ch) |
| Docket Number | Case No: CH/2010/0145 |
| Court | Chancery Division |
| Date | 29 July 2011 |
[2011] EWHC 2047 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Sales
Case No: CH/2010/0145
Mr James Dawson (instructed by DWF LLP) for the Appellant
Mr Gavin Purves (instructed by NC Brothers & Co) for the Respondents
Hearing date: 15/7/11
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Sales
This is an appeal from the order of District Judge Henry dated 8 March 2010 in the Reading County Court, refusing an application by the trustee in bankruptcy ("the Trustee") of the First Respondent ("Mr Claridge") for a declaration that a transfer of £26,689.50 by Mr Claridge to the Second Respondent (his wife, "Mrs Claridge") on or about 30 January 2003 amounted to a transaction at an undervalue, contrary to section 339 of the Insolvency Act 1986 ("the 1986 Act"), and for an order that Mrs Claridge pay the Trustee that sum or some other appropriate sum.
Section 339 provides:
"Transactions at an undervalue
(1) Subject as follows in this section and sections 341 and 342, where an individual is adjudged bankrupt and he has at a relevant time (defined in section 341) entered into a transaction with any person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under this section.
(2) The court shall, on such application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.
(3) For the purposes of this section and sections 341 and 342, an individual enters into a transaction with a person at an undervalue if –
(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration,
(b) he enters into a transaction with that person 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 the individual."
Section 339(3)(a) and (b) corresponds with certain other provisions in the 1986 Act: see section 238(4)(a) and (b) (in relation to transactions at an undervalue by a company) and section 423(1)(a) and (c) (in relation to transactions defrauding creditors). Authorities on those provisions provide guidance in relation to section 339.
Section 436(1) of the 1986 Act defines "transaction" in an expansive way, as follows:
"'transaction' includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly. "
The facts
At all material times, Mr and Mrs Claridge (together with various of their children) have lived at 6 Upper Crown Street, Reading ("the property"). The property was acquired in 1984 in the joint names of Mr and Mrs Claridge with a loan from Birmingham Midshires Building Society ("Birmingham Midshires"), taken out by them both and secured by a mortgage over the property.
Mr Claridge works as a mobile welder. Mrs Claridge also worked to some limited extent until she fell ill shortly after 30 January 2003, at which point she stopped working.
Mr Claridge was made bankrupt by an order dated 22 February 1996, with the Trustee appointed as his trustee in bankruptcy. By an agreement dated 9 July 1998, the Trustee sold the half share in the beneficial interest in the property which was Mr Claridge's (and had vested in the Trustee upon Mr Claridge's bankruptcy) to Mrs Claridge for £8,000. It seems that the valuation of Mr Claridge's share in the property may have been low because the property was in a state of poor repair at that stage. From that time, Mrs Claridge has owned the full beneficial interest in the property.
It seems, however, that no changes were made to the register or mortgage documentation to reflect the change in ownership. Mr and Mrs Claridge continued to appear as joint owners. Mrs Claridge made the mortgage payments from her bank account, into which Mr Claridge paid his income. Mrs Claridge continued to allow Mr Claridge to reside at the property.
In late 2002 Mr and Mrs Claridge wished to raise money against Mrs Claridge's equity in the property and Mr Claridge's income, principally to provide funds to repair and renovate the property. To that end, by agreement between themselves, they took steps to remortgage the property.
On 3 November 2002 Mr and Mrs Claridge, through a mortgage broker, filled out a mortgage application form with the Kensington Mortgage Company Limited trading as The Mortgage Lender ("KMC"), which they signed. Mrs Claridge was the only one who had a bank account at this time and the mortgage application documents included a direct debit payment instruction addressed to her bank for payment of the periodic sums due to KMC in respect of the loan being sought.
On 28 November 2002, KMC made an offer of a loan of £53,379 to Mr and Mrs Claridge jointly, from which certain legal expenses, search fees and so forth were to be deducted and from which the existing loan balance due to Birmingham Midshires charged against the property was to be repaid. Mr and Mrs Claridge accepted this offer. One firm of solicitors (Eric Robinson & Co) acted for both Mr and Mrs Claridge and KMC in relation to the re-mortgage transaction.
On 30 January 2003, KMC paid the loan of £53,379 into the client account of Eric Robinson & Co and the re-mortgage of the property was completed (i.e. the outstanding balance of £18,990.94 due to Birmingham Midshires was repaid, the mortgage in its favour was discharged and KMC took a mortgage over the property). On about the same day, in accordance with the joint instructions of Mr and Mrs Claridge, Eric Robinson & Co. paid the balance of the loan monies (less legal and other expenses and the monies repaid to Birmingham Midshires)—£30,719.18—into Mrs Claridge's account.
The Deputy Judge found that the KMC loan was based on Mr Claridge's income and was to Mr and Mrs Claridge jointly (Mrs Claridge did not put her own income forward to KMC as the basis of the loan – no reference was made to it in the mortgage application form). Mr Claridge continued to pay his earnings into Mrs Claridge's bank account, and the mortgage payments (now to KMC) continued to be made from that account. It is implicit in the judgment that any balances in that account were owned absolutely by Mrs Claridge, and on the appeal it was not suggested that Mr Claridge had any rights or interest in relation to them.
On 29 April 2004, Mr Claridge was made bankrupt for the second time on the petition of HM Inland Revenue Commissioners. The Trustee was again appointed as the trustee in bankruptcy. The effect of Mr Claridge's bankruptcy was that he was discharged from his liability in respect of the loan by KMC to him and Mrs Claridge.
The Trustee issued an application for a declaration that Mr Claridge owned a half share in the property. This was heard by the learned Deputy Judge on 25 February 2010. The representation for the parties was the same as before me.
On the morning of the hearing, Mr Dawson, for the Trustee, made an application to amend the claim to add an alternative claim for a declaration that "the transfer of £26,689.50 [i.e. half the KMC loan monies of £53,379] by [Mr Claridge] to [Mrs Claridge] on or about 30 January 2003 amounted to a transaction at an undervalue", under section 339 of the 1986 Act, and for an order that Mrs Claridge should pay the Trustee that sum or such other sum as the court might think fit together with interest. That application to amend the claim was not opposed.
Contrary to the submission of the Trustee below, the Deputy Judge found that there was no arrangement between Mr and Mrs Claridge whereby Mr Claridge re-acquired any beneficial interest in the property at the time of the re-mortgage transaction. The Deputy Judge therefore dismissed the primary claim of the Trustee in these proceedings, which was for a declaration that Mr Claridge owned a half-share in the property. There is no appeal against that ruling.
In dealing with the Trustee's alternative claim under section 339 of the 1986 Act, although the Deputy Judge in her judgment only referred in terms to section 339(3)(c), Mr Dawson told me that the argument below under section 339 turned both on section 339(3)(a) (transaction for no consideration) and, in the alternative, on section 339(3)(c). I accept this. It appears to be reflected in the Deputy Judge's judgment where, at certain points (last sentence of paragraph [6], certain parts of paragraph [12]), she referred to the contention of the Trustee as being that Mr Claridge made available his share of the loan monies from KMC to Mrs Claridge for no consideration. On the appeal before me, Mr Dawson relied on sub-paragraph (a) and sub-paragraph (c) of section 339(3) in the alternative. In my view, he was entitled to present the argument in that way.
The Deputy Judge disposed of the Trustee's claim based on section 339 of the 1986 Act in paragraph [12] of her judgment, as follows:
"I now turn to the alternative argument put forward by the trustee that the joint mortgage advance was a transaction for no consideration; this is the Section 339(3)(c) point. What did Mr Claridge get out of the advance, after payments of the Birmingham [Midshires] mortgage and Mrs Claridge's loan [a personal loan of £2,000 to Mrs Claridge which was repaid out of the funds raised by the re-mortgage]? The bulk of the money was spent on improvements...
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