Treharne & Sand v Forrester
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Lindsay,MR. JUSTICE LINDSAY |
| Judgment Date | 04 November 2003 |
| Neutral Citation | [2003] EWHC 2784 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 7537/2003 |
| Date | 04 November 2003 |
[2003] EWHC 2784 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Honourable Mr. Justice Lindsay
Case No: 7537/2003
MISS SALLY BARBER (instructed by Isadore Goldman) for the claimants
MR. CHRISTOPHER BROUGHAM QC (instructed by Ferrer & Co.) for the defendant
Approved Judgment
I have before me two applications which together raise questions as to the effect of transfer of property orders made in the Family Division in favour of a former wife when, unknown to that division, they were made in the interval between presentation of a bankruptcy petition against the former husband and the making of a bankruptcy order against him.
Although the husband and wife are divorced it is convenient to speak of them in this matter as husband and wife and so I will refer to Claudette Adassa Forrester as the wife and Marcus Richard Forrester as the husband, although sometimes I will, no doubt, call him either the debtor or the bankrupt.
The contest before me is principally concerned with section 284 of the Insolvency Act 1986 and is between the trustees in bankruptcy, for whom Miss S. Barber appears, and the wife, who appears by Mr. Brougham, QC. The husband takes no part. The facts are very little disputed and can be relatively briefly stated. In July 1999 or thereabouts husband and wife separated. He moved to Gibraltar. On 21st July 2000 a divorce petition was presented by the wife. On 13th February 2002 the Secretary of State for Trade and Industry presented a petition against the husband in bankruptcy, relying on a debt of over £1.5 million said to be owing to the Commissioners of Inland Revenue for tax.
The next date is a little disputed but only a little. Miss Barber says that by 1st March 2002 at the latest the wife had learned of the presentation of a bankruptcy petition. Mr. Brougham accepts that that knowledge did come to her in the course of March 2002.
On 3rd May 2002 Master Bowman in the Family Division directed a transfer of the husband's interest in the matrimonial home to the wife. Paragraph 1 of the order said: "The 1st Respondent" that was the husband, "do forthwith upon final decree herein transfer to the Petitioner" in other words the wife "all his legal and beneficial interest in the freehold property situate at and known as Terwick Mill, Mill Lane, Trotten, Rogate, Petersfield, West Sussex and registered under" a certain number of the land registry "subject to the mortgage secured thereon in favour of" the bank there identified. That was 3rd May 2002.
On 9th May 2002 there was a final decree of divorce and hence that order ceased to be contingent in any way and became absolute.
On 28th May a further order was made in the Family Division, this time by District Judge Berry, and he ordered that certain further assets of the husband should be transferred to the wife.
The order said that upon the court finding that the husband had been in default of paragraph 1 of the order of District Judge Bowman dated 3rd May 2002 for the transfer to the wife of the former matrimonial home, which was then described, it was directed that the court should execute the said transfer to the wife with immediate effect and it was ordered that the husband do forthwith assign to the wife all his interests —and there was then listed the corresponding provisions relating to various assets understood to be in the husband's ownership. That was the 28th May.
The transfer that was then directed, I am told, actually did then take effect in the sense that the District Judge made a transfer in respect of the husband's share of the matrimonial home. I have not seen the document but it is not disputed that that took place. As at the 28th May the best evidence seems to be that it was known to the wife that a hearing described as the final hearing in bankruptcy was to take place the next day. It was, as I understand it, known to her that there therefore might be a bankruptcy order made the next day.
Indeed, on that next day, 29th May 2002, a bankruptcy order was made on the petition against the husband. The two orders made in the Family Division, that is of 3rd May and 28th May, are for convenience called "the May orders". No evidence that the wife had made enquiries as to the result of the so-called final hearing in bankruptcy or that she was told what was the outcome or was misled as to the outcome has been put before me.
On 25th July 2002 the wife applied in the Family Division for transfer to her of certain further assets —some bank accounts that were understood to fall within the order that had been made on 28th May. That came for hearing on 30th July. The husband attended or was represented at that hearing and it was then disclosed by his advisers that he had been adjudicated bankrupt. So from that date on, inescapably, the wife had knowledge that there had been not only a petition for bankruptcy but a bankruptcy order.
On 3rd September 2002, the trustees in bankruptcy, Messrs. Treharne & Sands, were appointed as such and, of course, there was therefore a vesting of the husband's estate in them under section 306 of the Insolvency Act.
So much for the background facts. I do not need to go into any detail as to how it is that the applications now come before me. It is a slightly tangled tale but it is common ground that these applications do duly raise questions as to the efficacy of the May orders in the light of the bankruptcy.
Turning to the law, I first look at section 284 of the Insolvency Act 1986. It is headed:
"284 Restrictions on dispositions of property. (1) Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court".
Then there is further provision in subsection (2) relating to payment.
Subsection (3) states:
"This section applies to the period beginning with the day of the presentation of the petition for the bankruptcy order and ending with the vesting under chapter 4 of this part of the bankrupt's estate in a trustee".
That is a reference to section 306.
Then subsection (4) states that "the preceding provisions of this section do not give a remedy against any person (a) in respect of any property or payment which he received before the commencement of the bankruptcy in good faith for value and without notice that the petition had been presented or (b) in respect of any interest in property which derives from an interest in respect of which there is, by virtue of this section, no remedy".
In subsection (5) there is particular reference to banking transactions which I do not think I need read. Subsection (6) states that a disposition of property is void under the section "notwithstanding that the property is not or, as the case may be, would not be comprised in the bankrupt's estate but nothing in this section affects any disposition made by a person of property held by him on trust for any other person".
So much for the statutory provisions. I then need to refer to In re Flint (a bankrupt) [1993] Ch 319, a decision of Mr. Nicholas Stewart QC sitting as a Deputy High Court judge. The facts In re Flint are indistinguishable from the facts before me save in one respect, namely that in that case the property adjustment orders —which is a convenient phrase to use to describe orders such as the May orders —were made in that case by consent. The learned deputy judge, applying the principle that equity looked on as done that which ought to have been done, held that the effect of a property adjustment order was to make a disposition of property by the debtor. The disposition was therefore, in his view, void under 284 unless ratified and he declined to ratify on the facts of that case.
The learned deputy judge held that it was not material to his decision that in the case before him the property adjustment order had been made by consent. At page 326 letter F he states:
"This conclusion does not, I emphasize, depend upon the Crewe order" [that was the property adjustment order in that case] "being a consent order. If the relevant parts of the order had been the result of a contested application my conclusion on this further point would have been exactly the same. As soon as the court makes its order, whether or not by consent, the transfer of property in accordance with the order becomes compulsory in a way that it was not immediate before the making of the order. But the fact that it is then compulsory, and that in the case of a consent order any previous agreement between the parties is superseded, does not in any way prevent its being a disposition by the owner of the property in question, in this case Mr. Flint. It follows, therefore, that once Mr. Flint was adjudged bankrupt, the disposition of Mr. Flint's interest in the house became void under section 284 unless subsequently ratified by the court, both counsel agreeing that 'the court' mentioned in section 284(1) did not include the Crewe County Court".
So much, for the moment, as to In re Flint. A related but not identical point came up for consideration in Mountney v.Treharne (reported in Court of Appeal) [2003] Ch 135. After a full consideration of the authorities (both English and Australian) Jonathan Parker LJ held that it was right to apply the principle that equity looked on as done that which ought to be done. He held that the effect of the property adjustment order in that case was...
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