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You are here: BAILII >> Databases >> England and Wales High Court (King's Bench Division) Decisions >> Malik v Messalti [2023] EWHC 553 (KB) (06 February 2023) URL: https://www.bailii.org/ew/cases/EWHC/KB/2023/553.html Cite as: [2023] EWHC 553 (KB) |
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KING'S BENCH DIVISION
Royal Courts of Justice Strand London WC2A 2LL |
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B e f o r e :
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MR KAMRAN MALIK |
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- and - |
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MS FARIDA MESSALTI |
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291-299 Borough High Street, London SE1 1JG
Tel: 020 7269 0370
legal@ubiqus.com
THE DEFENDANT appeared In Person
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Crown Copyright ©
MASTER DAGNALL:
"Parties – general
19.1 Any number of claimants or defendants may be joined as parties to a claim.
19.2 (1) This rule applies where a party is to be added or substituted except where the case falls within rule 19.5 (special provisions about changing parties after the end of a relevant limitation period)
(2) The court may order a person to be added as a new party if –
(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or
(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.
(3) The court may order any person to cease to be a party if it is not desirable for that person to be a party to the proceedings.
(4) The court may order a new party to be substituted for an existing one if –
(a) the existing party's interest or liability has passed to the new party;
and
(b) it is desirable to substitute the new party so that the court can resolve the matters in dispute in the proceedings".
"This declaration of trust is made on the 10th day of November 2008 between Mr Kamran Malik ("the Husband"), of 521 Romford Road, London, E7 8AD, 'the property', and Mrs Humera Kamran, ('the wife'), also of 11 St Clair, London, E13 9DU, for the benefit of Mr Arfeen Kamran Malik, 'the son', dated of birth 1.2.1999, also of 11 St Clair Road, London, E13 9DU; Miss Urwah Kamran Malik, 'the oldest daughter', date of birth 15.12.2000, also of 11 St Clair Road, London, E13 9DE; Miss Sanaa Kamran Malik, 'the second oldest daughter', date of birth 29.11.2001, also of 11 St Clair Road, London, E13 9DU and Miss Imaan Kamran Malik, 'the youngest daughter', date of birth 21.9.2003, also of 11 St Clair Road, London, E13 9DU".
"As from the date of this deed the Husband wishes to give his entire share (50%) in the property to his Wife for the beneficial interest of their son, their oldest daughter, their second oldest daughter and their youngest daughter. The husband appoints his wife as a trustee of his share for the benefit of their son and their oldest daughter, their second oldest daughter and their youngest daughter".
"The Husband will remain the legal owner of the property. However, the Wife will have additional powers as the trustee under this deed for the benefit of their son, their oldest daughter, their second oldest daughter and their youngest daughter".
"The Husband will continue to make use of the property and continue to pay the mortgage payments as before. The "Wife has the power to repair, maintain, improve and develop the property as far as the property deed and schedule in the property title will allow given the respective covenants within."
"The Wife is not liable for making any payments and/or to answer any inquiries from any person who appears to be the appropriate officer collecting debt. The Husband has the liability to answer all inquiries in respect of any debt that may arise".
"The Husband does not have the power to use the property in order to raise funds thereby potentially incurring debt in the event of non-payment of those raised funds. The Husband does not have the power to sell the property in order to cover debts".
"This deed may also be deemed as effective also as an agreed notice under Family Law Act 1996, section 31(10)(a) in the Family Law Act 1996, paragraph 4(3)(b) of Schedule 4 to, the for registration, of the Land Registration Act 2002 of the applicant's mentioned in panel two in respect of the home rights charge in the individual register of the title of the property".
"In addition, the deed is to remain as evidence that the Wife holds the full beneficial share of the entire property, upon all parties being signatory to this deed".
"This express declaration of trust shall be executed as evidence of the existence of the expressed declaration of trust. Any person may rely upon this declaration of trust as evidence of the existence of said declaration of trust".
"No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the Court".
"For the avoidance of any doubt (Mr Kamran Malik having attempted to make submissions before me today in relation thereto), this Court has no jurisdiction to entertain any further applications made by Mr Malik or Mrs Kamran concerning the final charging order made by Deputy Master Nussey over the property at 11 St Clair Road, London, E13 9DU".
It seemed from that to be clear that whatever final charging order had been made in relation to the Property remained in place and that it could no longer be challenged.
"On a proper construction of the Express Declaration of Trust ('the Declaration of Trust') dated 10 November 2008, and in the event which have happened, the references throughout the Declaration to 'the property' are to be interpreted as references to 11 St Clair, London, E13 9DU, and wherever the words 'the property' appear, they are to be treated as if the words '11 St Clair Road, London, E13 9DU' appeared".
66. Mrs Kamran also produced a witness statement of 25 June 2021, saying, firstly, that she had had a marital dispute with Mr Malik which had led to the application to HHJ Dight and resultant order. Secondly, that she thereafter entered the restriction on the Land Register in order to make clear the position. She also reiterated that Mr Malik had no interest in the Property. Mrs Kamran also did not refer to limitation or lateness.
"423 Transactions defrauding creditors.
(1)This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—
(a)he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;
(b)he enters into a transaction with the other in consideration of marriage; or
(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 subsection, 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 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.
(4)In this section 'the court' means the High Court or—
(a)if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;
(b)if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.
(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; and in the following two sections the person entering into the transaction is referred to as 'the debtor'.
424 Those who may apply for an order under s. 423.
(1)An application for an order under section 423 shall not be made in relation to a transaction except—
(a)in a case where the debtor has been made bankrupt or is a body corporate which is being wound up or is in administration, by the official receiver, by the trustee of the bankrupt's estate or the liquidator or administrator of the body corporate or (with the leave of the court) by a victim of the transaction;
(b)in a case where a victim of the transaction is bound by a voluntary arrangement approved under Part I or Part VIII of this Act, by the supervisor of the voluntary arrangement or by any person who (whether or not so bound) is such a victim; or
(c)in any other case, by a victim of the transaction.
(2)An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction.
425 Provision which may be made by order under s. 423.
(1)Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows)—
(a)require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made;
(b)require any property to be so vested if it represents, in any person's hands, the application either of the proceeds of sale of property so transferred or of the money so transferred;
(c)release or discharge (in whole or in part) any security given by the debtor;
(d)require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct;
(e)provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction to be under such new or revived obligations as the court thinks appropriate;
(f)provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction.
(2)An order under section 423 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the debtor entered into the transaction; but such an order—
(a)shall not prejudice any interest in property which was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and
(b)shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.
(3)For the purposes of this section the relevant circumstances in relation to a transaction are the circumstances by virtue of which an order under section 423 may be made in respect of the transaction.
(4)In this section 'security' means any mortgage, charge, lien or other security".
"1 Charging orders.
(1)Where, under a judgment or order of the High Court or the family court or the county court, a person (the 'debtor') is required to pay a sum of money to another person (the 'creditor') then, for the purpose of enforcing that judgment or order, the appropriate court may make an order in accordance with the provisions of this Act imposing on any such property of the debtor as may be specified in the order a charge for securing the payment of any money due or to become due under the judgment or order.
(2)The appropriate court is—
(a)in a case where the property to be charged is a fund in court, the court in which that fund is lodged;
(b)in a case where paragraph (a) above does not apply and the order to be enforced is a maintenance order of the High Court or an order for costs made in family proceedings in the High Court, the High Court or the family court;
(ba)in a case where paragraph (a) does not apply and the order to be enforced is an order of the family court, the family court;
(c)in a case where none of paragraphs (a), (b) and (ba) above applies and the judgment or order to be enforced is a judgment or order of the High Court for a sum exceeding the county court limit, the High Court or the county court; and
(d)in any other case, the county court. In this section 'county court limit' means the county court limit for the time being specified in an Order in Council under section 145 of the County Courts Act 1984 as the county court limit for the purposes of this section and 'maintenance order' has the same meaning as in section 2(a) of the M1Attachment of Earnings Act 1971.
(3)An order under subsection (1) above is referred to in this Act as a 'charging order'.
(4)Where a person applies to the High Court for a charging order to enforce more than one judgment or order, that court shall be the appropriate court in relation to the application if it would be the appropriate court, apart from this subsection, on an application relating to one or more of the judgments or orders concerned.
(5)In deciding whether to make a charging order the court shall consider all the circumstances of the case and, in particular, any evidence before it as to—
(a)the personal circumstances of the debtor, and
(b)whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order.
(6)Subsections (7) and (8) apply where, under a judgment or order of the High Court or the family court or the county court, a debtor is required to pay a sum of money by instalments.
(7)The fact that there has been no default in payment of the instalments does not prevent a charging order from being made in respect of that sum.
(8)But if there has been no default, the court must take that into account when considering the circumstances of the case under subsection (5).
(9)In this section 'family proceedings' means proceedings in the Family Division of the High Court which are business assigned, by or under section 61 of (and Schedule 1 to) the Senior Courts Act 1981, to that Division of the High Court and no other.
2 Property which may be charged.
(1)Subject to subsection (3) below, a charge may be imposed by a charging order only on—
(a)any interest held by the debtor beneficially—
(i)in any asset of a kind mentioned in subsection (2) below, or
(ii)under any trust; or
(b)any interest held by a person as trustee of a trust ('the trust'), if the interest is in such an asset or is an interest under another trust and—
(i)the judgment or order in respect of which a charge is to be imposed was made against that person as trustee of the trust, or
(ii)the whole beneficial interest under the trust is held by the debtor unencumbered and for his own benefit, or
(iii)in a case where there are two or more debtors all of whom are liable to the creditor for the same debt, they together hold the whole beneficial interest under the trust unencumbered and for their own benefit.
(2)The assets referred to in subsection (1) above are—
(a)land,
(b)securities of any of the following kinds—
(i)government stock,
(ii)stock of any body (other than a building society) incorporated within England and Wales,
(iii)stock of any body incorporated outside England and Wales or of any state or territory outside the United Kingdom, being stock registered in a register kept at any place within England and Wales,
(iv)units of any unit trust in respect of which a register of the unit holders is kept at any place within England and Wales, or
(c)funds in court.
(3)In any case where a charge is imposed by a charging order on any interest in an asset of a kind mentioned in paragraph (b) or (c) of subsection (2) above, the court making the order may provide for the charge to extend to any interest or dividend payable in respect of the asset".
"30. Such assistance as can be derived on this point from the Report of the Law Commission (No 74) which led to the passing of the 1979 Act is to be found at paragraph 63, where the following explanation is given:
'There is one further situation in which it would be proper for the trustees' interest to be the subject of a charging order – namely, where it is the trustees themselves who are indebted as trustees to the judgment creditor. The trustees' interest in property is not, of course, a beneficial one and so it could not be charged to secure any personal debt of theirs. They hold it on behalf of the trust. But if the debt is also incurred on behalf of the trust, and a judgment has been obtained against the trustees in that capacity, we think it clear that a charging order should be obtainable in respect of the trust assets'
31. The primary concept in play in that paragraph is of the liability having been incurred on behalf of the trust. Where the liability is incurred (as here) by virtue of the bare legal ownership of the property in question together with the concomitant rights necessary for its enjoyment (ex hypothesi authorised by the trust) it seems to me entirely apposite to speak of it as having been incurred on behalf of the trust and in that sense a liability of the trustee as trustee. That, in my judgment, remains the case whatever private arrangements exist between the trustee and his beneficiary as to the former's right to be indemnified against the liability out of the trust property.
32. I have accordingly concluded that the applicant was indeed prejudiced by the transactions which it seeks to set aside. There is no evidence that Centralex or Karlton London is good for the judgment debt without recourse to the value of the Units. The only remaining question is whether at each stage in the chain of transactions the relevant transferor had the requisite statutory purpose. As to that, the evidence clearly established that the relevant purpose existed in the case of the transfers to Congress and Mortimer: Dr Tayfoor's own evidence was that:
'The purpose of these transfers was to ensure that the property of the beneficial owner was not encumbered by the debt of the first 2 Defendants. The beneficial owner requested that I set up 2 new companies into which to transfer the Units so its assets would not get confused with those of the first 2 Defendants'
In cross-examination he sought to add an additional purpose, namely the desire to separate the ownership of the two Units so as to facilitate a possible sale (to separate purchasers) of the share capital of the two new holding companies. How this squared with the proposition that the Units were trust property (when the share capital in the holding company was not) was not explained or explored but, having regard to the decision of the Court of Appeal in IRC v Hashmi [2002] 2 BCLC 489, the existence of this additional purpose (as to which I was not in any case satisfied) is beside the point. I am satisfied that the transfers were substantially motivated by the desire to prevent the applicant from seeking to enforce its judgment against the Units.
33. The transfer to Karlton London was also, in my judgment, substantially so motivated. No attempt was made in the Defence or witness statements to suggest what other motivation there might have been. In cross-examination Dr Tayfoor proffered a narrative which sought to suggest that the transfer had been motivated by a desire to change the direction of the business being carried on from a hardware computer business to a software business, but the account was both confusing and confused, and unsupported by any evidence other than its own belated assertion. I did not believe it".
"100. Most of the issues of law which arise concern section 423 and therefore I start with some general observations about that section and sections 424 and 425, which are connected with it. Sections 423 to 425 are drafted in wide terms. The sections apply to transactions defrauding creditors (using the terminology in the marginal note) whether or not the person effecting the transaction has become insolvent.
101. The scheme of section 423 is unusual. Subs (1) defines the circumstances in which section 423 applies: there must be a transaction at an undervalue as defined. Both gifts and transactions with a gratuitous element are covered. Subs (2) defines the objects for which the court can grant relief and refers to 'victims'. Subs (2) does not set out the circumstances in which the court may grant that relief. Those circumstances appear from subs (3). Subs (3) stipulates the purpose with which the transaction must have been entered into before relief can be granted. Subs (4) identifies the court which can hear a claim under section 423. Subs (5) defines a 'victim' of a transaction defrauding creditors, and it is to be noted that the definition is not restricted to creditors with present or actual debts: whether a person is a victim turns on actual or potential prejudice suffered. The definition of 'victim' is employed in relation to the criteria for relief in subs (2). It is not used in subs (3), which defines the necessary purpose. The person or persons who fulfil the conditions in section 423(3) may thus be a narrower class of persons than those who at the date of the transaction are victims for the purpose of section 423(5). For a person to be a 'victim' there is no need to show that the person who effected the transaction intended to put assets beyond his reach or prejudice his interests. Put another way, a person may be a victim, and thus a person whose interests the court thinks fit to protect by making an order under section 423, but he may not have been the person within the purpose of the person entering into the transaction. That person may indeed have been unaware of the victim's existence. That answers the question: what connection must there be between the purpose and the prejudice? Section 423(2) in conjunction with the definition of victim in 423(5) makes prejudice or potential prejudice a condition for obtaining relief. That prejudice does not have to be achieved by the purpose with which the transaction was entered into. Nor in my judgment does the purpose have to be one which by itself is capable of achieving prejudice. What subs (3) requires is that the purpose should be one which is to prejudice 'the interests' of a claimant or prospective claimant. The 'interests' of a person are wider than his rights. The expression the 'interests' of a member in section 459 of the Companies Acts 1985 (right of members of a company to apply for relief against unfair prejudice) have been similarly construed: see for example Re Sam Weller & Sons Ltd [1990] Ch.682, 685. Likewise in Peter Buchanon Ltd v McVey [1955] AC 516n at 521, Kingsmill Moore J of the Supreme Court of Ireland spoke of having to consider the interests of creditors (which included in that case the tax authority in respect of a tax liability triggered by a sale of whiskey stocks), when a dividend is paid by a solvent company, even though those creditors have no right in law to stop a dividend being paid. I do not therefore consider that it is any answer to the application of section 423 in the present case that the settlement did not by itself prejudice the right of the Revenue to make an assessment of tax on the disposal of OS 160 to the settlement when it was exported to Guernsey. In my judgment, therefore, where as in this case the applicant relies on section 423(3)(b), the crucial step is to identify the interests of the person which are said to be prejudiced.
102. The next question is whether a person can be said to have the necessary purpose if he is completely mistaken as to whether entry into the transaction can have the effect of prejudicing a person's interests. This question assumes a rather exceptional state of affairs where a person has the necessary purpose of putting assets beyond the reach of his creditors and wrongly thinks that if he enters into a transaction at an undervalue (e.g. gifts property to his wife) his creditor, B, will be prejudiced. If unbeknown to him his wife has agreed to pay the monies transferred to her to B, the purpose that he had in mind will not be achieved. If the creditor takes the benefit of the transaction solely for himself and refuses to share it out with other creditors, they will be persons who (arguably at least) are prejudiced by the transaction and can constitute victims within section 425(5). Another situation that might occur is where the debtor enters into a transaction knowing that his entry into that transaction, together with the happening of some other event, will prejudice a creditor. I consider that the court does not have to consider the relative causal effect of the two matters. If the transaction is entered into with the requisite purpose, the fact that some other event needs to occur does not mean that the transaction cannot itself be within section 423(3). I consider that this is what the judge meant by his test of whether the transaction was an essential part of the purpose (in which connection he applied his analogy with petrol and matches for a fire). I therefore do not accept Ms Newman's subMsion that it is necessary to approach section 423 as if a test of causation were to be applied. The right approach in my judgment is to apply the statutory wording. It is enough if the transaction sought to be impugned was entered into with the requisite purpose. It is entry into the transaction, not the transaction itself, which has to have the necessary purpose.
103. Ms Newman seeks to test her propositions by supposing that Mr Nurkowski had entered into the transaction with the requisite purpose but had then thought the better of it with the result that there was no concealment of the £700,000 offer from the Revenue. I infer that the Revenue would in this case have gone on to make a proper assessment of the tax. It is not necessary to express a final view on the application of section 423 to this example but if that example had happened and there was no reason why Mr Nurkowski should not make the gift to the settlement, it is doubtful whether there would have been any victims for the purpose of section 423. However, the point does not arise in this case and I express no view on it.
104. Section 424 sets out who may apply for an order under section 423. A victim may bring proceedings under section 424 as well as (say) a trustee in bankruptcy, but any application, by whomsoever brought must be brought on behalf of all the victims of the transaction.
105. Section 425 sets out a non-exhaustive list of the orders that may be made under section 423. The 1986 Act does not specify any period of limitation in relation to a claim under section 423. Although section 423 has been in statute in one form or another since 1571, there is no reported case that we have seen which decides whether any period of limitation applies to claims under the section and if so what that period is. I shall have to deal with that question and a number of detailed points that arise on the interpretation of sections 423 to 425 below".
"111. Before I go to the authorities, attention should be drawn to the features of claims under section 423 which mean that, if such claims are subject to a statutory limitation period, there may be practical difficulties in bringing such claims. As noted above, there is no requirement that the transaction should have occurred in a specified 'twilight' period before the bankruptcy. It is quite possible that it will have lain undiscovered for some time. It is one of the characteristics of transactions to which section 423 applies that they are entered into by a person when he is solvent just in case he becomes unable to pay his debts as they fall due later (as where a person is about to begin a new and risky business venture). In that situation he might well have entered into the transaction with the necessary purpose of prejudicing his creditors in those circumstances. Moreover, if the statutory limitation period runs, as Ms Newman submitted, from the date of the transaction, that period might well have expired before the appointment of the office holder who is entitled to bring a claim under section 424(1) (a) or (b) unless, of course, section 32 applies.
112. Under section 424(1)(c) a victim can bring an application under section 423 at any time. If he does so, he is deemed to bring the claim on behalf of every victim of the transaction (section 424(2)). If the judge is right, then there must be separate limitation periods for different applicants even though there can only be a single cause of action. On the face of it, that is anomalous. A victim who brings an application under section 423 is not enforcing a remedy for prejudice to himself alone because he, like the trustee to bankruptcy, is deemed to bring the proceedings on behalf of all the victims (section 424(2)). Moreover, once the court has made an order on an application under section 423, that must be the end of any claim by any other person under section 423 in respect of that transaction. If there is a statutory limitation period commencing on the date of the transaction, there may well be victims who only come into existence after its expiry, but it may be said that it is the inevitable consequence of any limitation period that it will give the defendant a good defence to claims brought after the expiry of the period. I would add that there is a question on which we have not heard argument as to who benefits from an order under section 423. It may not be the general body of creditors in the bankruptcy (see for example Fidelis Oditah, Legal Aspects of Receivables Financing, 1991, para 7.6)".
"126. In these circumstances, in my judgment, the statutory limitation period cannot start to run until there is a victim within the statutory definition. It must be part of the cause of action that it can be shown that he is a victim. The limitation period must in my judgment then continue unless and until whichever first occurs of (a) the disposal of the possibility of any claim under section 423 by a binding judgment or settlement, or (b) the expiry of the period of limitation applicable to the section 423 claim.
127. The next issue is whether the period also begins when a trustee in bankruptcy is appointed. I do not consider that that is the effect of section 424 because the trustee's application is also made on behalf of the victims. This is an indication that he is to be in no better position than the victims themselves, and thus not able to bring a claim if their claims under section 423 or against the debtor are statute-barred. On the other hand he must be in a position to make an application so long as there is any victim whose claim is not statute barred. I note that in Re Maddever, the co-applicant was the nominee under letters of administration of the insolvent estate of the deceased but the judgment of this court does not suggest that his presence had any effect on the limitation question. I accept, of course, that that case was decided before section 424 was enacted. I have put forward in para. 113 above a possible explanation for including the trustee as a person who may make an application under section 423.
128. The next issue is whether the limitation period begins each time a victim comes into existence. I would put my answer to this issue in this way. Section 424 establishes the collective nature of the remedy under section 423: any victim can make the application but if he does so he represents all victims. Likewise, a trustee in bankruptcy can make an application. However, if the trustee makes an application under section 423, his application is also on behalf of all victims. Section 423 is thus a collective remedy. It follows that the ingredients of the cause of action can be established by pointing to the existence of any one of the victims. It must follow logically from this that the limitation period applicable to the section 423 claim made on any particular application cannot start before the victim for the purposes of that application (ie the applicant, or, if the applicant if not himself a victim, the person(s) on whose behalf the applicant makes the application) became a victim. The period then runs from this date or, if the commencement of that period is postponed under section 32 of the 1980 Act, from that postponed date. The length of the period is governed by section 8(1) of the 1980 Act, unless section 9 of that Act applies".
"130. There can be no doubt but that section 423(3) requires the person entering into the transaction to have a particular purpose. It is not enough that the transaction has a particular result. The question which Ms Newman raises is: what must be shown in order for the court to be able to find that a purpose has been formed?
131. This is different from the question considered by this court in the recent case of IRC v Hashmi [2002] 2 BCLC 489. In that case the question was whether when there was more than one purpose the proscribed purpose had to be dominant or not. This court held that it is not necessary for the proscribed purpose to be the dominant purpose; it was sufficient if it was a real substantial purpose.
132. Here it is said that Mr Nurkowski could not be confident that he would get any tax advantage. It was just a hope that he would save tax, rather than an intention. I would accept that there is a line to be drawn between mere hopes and settled aims. As Asquith LJ said in Cunliffe v Goodman [1950] 2 KB 237, 253, a person cannot be said to have an intention merely because he contemplates something as a possibility or if his wishes are merely a minor factor in the achievement of a particular result.
133. The judge did not draw a distinction between hopes and purposes. However, in my judgment the strength of his finding makes the distinction irrelevant since he found that inducing the Revenue to make a wrong assessment of the capital gains was something that Mr Nurkowski positively intended and was a factor which 'substantially motivated' him (915A). This in my judgment was enough to show that Mr Nurkowski acted with what was in law a purpose".
"141. On that issue the first question is whether there is a period of limitation at all. It is not clear why in Law Society v Southall [2002] BPIR 336 the parties, and thus this court, proceeded on the basis that there was no period of limitation applicable to the claim under section 423 of the 1986 Act. What is clear is that the point was not argued, so that the decision is of no assistance in the present case.
142. Those who may apply for an order under section 423 are specified in section 424(1). They include, in para (a):
'in a case where the debtor has been adjudged bankrupt ……. the trustee of the bankrupt's estate ……. or (with the leave of the court) …. a victim of the transaction'.
In the present case the action is brought by a trustee in bankruptcy and there is at least one victim of the transaction in the shape of the Inland Revenue.
143. There is no general rule that an action brought by a trustee in bankruptcy is not subject to the provisions of the Limitation Act 1980, and I can see no justification for there to be an exception in the case of a claim brought under s.423. That is confirmed by such authority as may be said to bear on the point; see in particular Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144, a case relating to the somewhat comparable provisions of section 238 to 241 of the 1986 Act.
144. The second question is whether the claims of the trustee in bankruptcy fall within section 8(1) or section 9(1) of the Limitation Act 1980. My own view, like that of Judge Weeks QC (pp 915-916), is that, since the main claim was in origin and substance a claim to set aside the settlement, the action as a whole was 'an action upon a specialty' within section 8(1). But because the action was commenced on 4 December 2002, more than twelve years after the settlement was made on 10 March 1989 and less than six years after the bankruptcy order was made on 28 January 1999, the question whether the applicable period of limitation was twelve years under section 8(1) or six years under section 9(1) is academic.
145. So the third and decisive question is whether the period started on the date of the settlement, in which case the action is barred, or on 28 January 1999, in which case it was brought in due time. Following the view expressed by Charles J in para 182 of his judgment in Re Yates (A Bankrupt) [2004] All ER (D) 373, Judge Weeks held that the cause of action could not have accrued before the bankruptcy order was made. Charles J said:
'If there is a limitation period, the passages in Muir Hunter suggest that in the case of a claim by a trustee in bankruptcy begins to run from the date of the bankruptcy order. Counsel for the trustee made the same subMsion on the basis that that is the date when the cause of action accrued to the trustee. I agree……'
146. The principal objection to that view is that, because section 424(2) provides that an application made under any of the paragraphs of sub-section (1) is to be treated as made on behalf of every victim of the transaction there can only be a single cause of action, while if the view expressed by Charles J and Judge Weeks is right, there must be separate limitation periods for different applicants under section 423.
147. In my respectful view the premise of this objection is incorrect. It may be difficult to know exactly what Parliament did or did not have in mind in enacting section 424(2), but it seems that its main purpose must have been to ensure that a victim who had not applied under section 423 should gain the same advantage as one who had.
148. In any event, I do not think it is right to say that the effect of section 424(2) is that there can only be a single cause of action in respect of one transaction. In Letang v Cooper [1965] 1 QB 232, 242, Diplock LJ said:
'A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.'
That shows that the identity of the claimant or applicant is an ingredient of the cause of action and because two different persons may have the same or a similar cause of action it does not follow that there is only a single cause of action.
149. Further, I see no inherent objection to the notion that there may be separate limitation periods for different applicants under section 423. While it has always been the policy of the Limitation Acts to put an end to stale claims, it has not been part of their policy to provide that time shall run against a claimant or applicant before he has been able to commence his action; see in particular section 28 of the 1980 Act (disability).
150. Three further points must be made. First, it is not an objection to the judge's view that the limitation period may begin many years after the transaction. That state of affairs is perfectly capable of arising under other sections of the 1980 Act, e.g. sections 28 and 32. Secondly, I do not agree that the appointment of the trustee in bankruptcy is not an ingredient of the cause of action vested in the trustee. It is not until a bankruptcy order is made that the trustee is identified as the person entitled to sue. Thirdly, it is in my view immaterial that when the bankruptcy order is made there may be other victims of the transaction whose individual claims may already be statute-barred but who may nevertheless be able to claim as creditors in the bankruptcy".
"9. A claim under s. 423 is a claim for some appropriate form of restorative remedy, to restore property to the transferor for the benefit of creditors, who may then seek to execute against that property in respect of obligations owed by the transferor to them. In an appropriate case, an order might be made to require the transferee to pay sums or transfer property direct to the creditors, if the position in relation to execution is clear and any further costs associated with execution ought to be avoided. But often the appropriate order will be for the transferee to pay sums or transfer property back to the transferor, leaving the distribution of those sums or property as between the creditors of the transferor to be governed by the general law. This may be particularly important if the transferor is bankrupt or in liquidation (or about to become bankrupt or go into liquidation) and has a range of creditors not all of whom are before the court on the application made under s. 423. In the present case, 4Eng primarily seeks orders requiring Mrs Simpson to pay monies and restore property to Mr Simpson to assist it in then executing against those monies and property.
10. The trigger for an order to be made under s. 423 and s. 425 is that it is established that the transferor has entered into a transaction at an undervalue as defined in s. 423(1) in circumstances where the transferor entered into that transaction for the purpose of putting assets beyond the reach of a person who is making or might make a claim against him (s. 423(3)(a)) or of otherwise prejudicing the interests of such a person in relation to such claim (s. 423(3)(b)) (which I will refer to compendiously as 'a relevant purpose'). Where there is the combination of a transfer of assets at an undervalue entered into by the transferor for a relevant purpose, the usual interest of a transferee in the security of his receipts is overridden in favour of those with valid claims against the transferor ('the transferor's creditors'). The interests of the transferor's creditors override the interests of the transferee. By virtue of the statute, this combination of factors operates so as to make the transaction reversible for the benefit of the transferor's creditors.
11. The statute does not specify any particular mental state or action on the part of the transferee as an ingredient of the trigger conditions for liability, but that does not mean that such matters are irrelevant for defining the extent of the liability to be imposed, or the order to be made, at the next stage in the analysis, when the court considers the question of remedy under s. 423(2) and s. 425.
12. So far as I am aware and according to Counsel's researches, there is no relevant authority governing the operation of these statutory provisions. Once the trigger conditions defined in the statute are satisfied, a creditor of the transferor will have a claim against the transferee. A wide jurisdiction is then conferred upon the court to fashion a suitable remedy. The broad objective of the remedy is set out in s. 423(2) (to 'restore the position to what it would have been if the transaction had not been entered into' and to 'protect the interests of persons who are victims of the transaction'), but leaving a wide margin of judgment to the court to decide what order is appropriate (it is to 'make such order as it thinks fit for' the defined objective). An extensive, non-exhaustive list of the wide range of orders which may be made in pursuit of that objective is set out in s. 425. This includes making an order to transfer any property transferred in the relevant transaction at an undervalue to any other person (such as the transferor, so as then to enable his creditors to execute a judgment against it, or directly to the transferor's creditors) (s. 425(a)), making such an order in respect of any other property which represents in the transferee's hands property which was transferred in the relevant transaction at an undervalue (i.e. a statutory power to trace assets in the transferee's hands – s. 425(b)) and making an order requiring the transferee to pay to the transferor or his creditors such sums as the court may direct in respect of benefits received from the transferor (i.e. an order which does not depend upon the transferee still having in his hands the transferred property or traceable assets representing it).
13. In my judgment, the nature of any order and the extent of the relief granted by the court under s. 423(2) and s. 425 should take into account the mental state of the transferee of property under a relevant transaction (or of any other person against whom an order is sought) and the degree of their involvement in the fraudulent scheme of the debtor/transferor to put assets out of the reach of his creditors. The principles in the application of this statutory regime should reflect in this respect general principles inherent in other areas of the law, which treat the mental state and degree of involvement of a defendant in wrongdoing as relevant to the extent of recovery available against him (compare, as one example among many, Seager v Copydex [1967] 1 WLR 923, 932 – no order of an account of profits ordered against an innocent wrongdoer in respect of a breach of confidence). Although the trigger conditions for liability to make restoration under s. 423 set out the basic balance to be struck between the interests of the creditors and of a transferee as established by Parliament, the making of an order under s. 423(2) and s. 425 necessarily requires some further balancing of the interests of the transferor's creditors and of the transferee to be determined by the court, since by the time the court has to take action events will have moved on from the transfer and the balance of the equities between creditors and transferee may well have been affected by changes in circumstances over time.
14. For example:
(1) A transferee may have received a gift of money in good faith, without knowing that the transferor acted with a relevant purpose in making the gift. In such a case a broad analogy may be drawn with claims based on unjust enrichment, such as a claim for money paid on the basis of a mistake of fact, where the recipient's interest in being able to rely on the security of his receipt is overridden by the unfairness to the transferor of being held bound by a payment made by him by reason of a mistake. In relation to such claims a defence of good faith change of position on the part of the recipient applies (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548). In my view, if the transferee in the example has changed his position on the basis of the receipt in a way that would make it unfair to require him to repay the money (e.g., thinking it was a completely valid gift, he has spent the money on a world cruise which he would not otherwise have taken) it would not be appropriate for the court to make an order under s. 425(1)(d) requiring the transferee to pay back a sum equivalent to the amount he received;
(2) Where an asset has been transferred to a transferee who has no knowledge that the transferor acted with a relevant purpose in making the transfer, and then the transferee has simply held the asset while its value has fluctuated in line with market conditions, I think that ordinarily the appropriate order under s. 423(2) and s. 425 should be an order for the transfer of the asset (either to the creditors directly or to the transferee);
(3) At the other end of the spectrum, however, if the transferee has taken property knowing that it was transferred to him by the transferor for a relevant purpose, and has sought to further the fraudulent design by lying to the transferor's creditors to shield the property against their claims, the justice of the case will be very different. Then it may well be appropriate to make orders against the transferee to protect the creditors to the fullest extent - perhaps by a combination of orders to transfer property under s. 425(1)(a) or (b) with orders for payment of money under s. 425(1)(d), if the property has gone down in value in the hands of the transferee – by analogy with the approach to damages in cases of deliberate deceit exemplified by Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254.
15. Across the range of cases, the position may become more complex if, after the transfer, the transferee has become insolvent, so that the competing interests of the transferor's creditors and the transferee's creditors have to be taken into account (not a complication which arises in the present case). The remedy will also, of course, have to be adjusted as appropriate if the extent of the creditors' claims against the transferor is less than the value of the transferred property in the transferee's hands.
16. In choosing what relief is appropriate in a given case, a great deal will depend upon the particular facts. One of the reasons the court is given such a wide jurisdiction as to remedy under this regime is to allow it flexibility in fashioning relief which is carefully tailored to the justice of the particular case. Helpful analogies may be drawn with other areas of the law to guide the court in reaching its conclusion, but given the wide range of situations which the statutory regime is intended to deal with it would be wrong to be unduly prescriptive in trying to lay down hard and fast rules for the application of these provisions.
17. The claims by 4Eng against Mr Harper and Mr Simpson arise from representations made to induce it to enter into, and the terms of, a share purchase agreement dated 29 June 2001 in relation to an engineering company called Ironfirm Ltd, which traded using the name Excel Engineering ('Excel'), under which Mr Harper and Mr Simpson sold 100% of the share capital in Excel to 4Eng. The nature of the claims was set out in detail in the judgment of Briggs J and is conveniently summarised in this way in the judgment of David Richards J at [2]-[5]:
'2. The facts relevant to the fraud practised by the defendants on the claimant may be summarised as follows. The defendants owned and managed Ironfirm Limited which traded under the name Excel Engineering ('Excel') and provided engineering services. Its principal customer was Mars UK Limited ('Mars'). By a contract dated 29 June 2001, the defendants sold the entire issued share capital of Excel to the claimant 4Eng Limited ('4Eng'). 4Eng had been established by David Shepherd and Ian Tapping as the vehicle for acquiring companies in the engineering sector. Excel was its first, and as a result of the true state of Excel, its only acquisition.
3. The contract provided for a total price of £1.2 million of which £550,000 was payable on completion and the balance by instalments over three years. The instalments were not in the event paid. Following completion, it soon became apparent to Mr Shepherd and Mr Tapping that there were problems in Excel and as a result of their painstaking investigations over a period of at least four years it was revealed that the defendants had over a long period engaged in the systematic bribery of employees of Mars which had resulted in payments by Mars to Excel on inflated or bogus invoices amounting to some £1.8 million. By the terms of the contract the defendants represented that they were not aware of any reason which would cause Mars to terminate its requirements for Excel's products. As the defendants knew, because of the bribery this and other representations were completely untrue. Instead of buying a company worth £1.2 million, 4Eng had acquired a company which, as a result of the defendants' corrupt system, was potentially liable to Mars for a large amount and liable also to lose is principal source of business. In short, the defendants had succeeded in defrauding first Mars and then 4Eng.
4. On 8 December 2005 each of the defendants was convicted at Reading Crown Court on charges of conspiracy to corrupt and conspiracy to defraud in relation to Excel and Mars and sentenced to six and a half years' imprisonment. The conviction of the defendants clearly established the corruption for which they were responsible and in which, through them, Excel had participated. This in turn established that there was, as long suspected, a large potential liability of Excel to Mars. Excel was insolvent and on 9 January 2006 went into administration. On 13 July 2006 it went into creditors' voluntary liquidation.
5. On the application for summary judgment, Briggs J held that the claim in deceit was established against both defendants, based on their knowledge of the falsity of a number of express representations contained in the share sale agreement on which 4Eng had relied in agreeing to purchase Excel. 4Eng's alternative claims for breach of warranty were, at its request, stayed pending completion of the assessment of damages on the claim in deceit'.
18. Evidence about the fraud carried on by Excel upon Mars was adduced in the present claim in the form of unchallenged witness statements from Excel employees describing the conduct of Mr Simpson and Mr Harper while they ran the business of Excel. Mr Shepherd and Mr Tapping also gave evidence about the steps they had taken to unravel the fraud and work out what had happened in relation to a series of 'ghost invoices' created by Mr Harper and Mr Simpson to provide a cover for fraudulent payments made to Mars employees as bribes for comMsioning Excel to do work for Mars".
"443. Given the findings on the previous claims, it is not necessary to look into the s423 claim in any detail. I will focus only on the question of purpose under s423. The principles are summarised in JSC BTA Bank v Ablyazov [2016] EWHC 3071. I take them to be as follows. The burden is on the claimants. The focus is on Mr Pugachev's purpose at the time of the transactions. The purpose must be established for each transaction. The real and substantial purpose must have been to defeat the creditors. That result merely being a by-product is not enough. If the transaction is one which the debtor would have entered into in any event, the court should not too readily conclude that he also had the purpose of defeating his creditors. The purpose cannot be inferred from the simple fact of the transaction and the question is whether the individual actually did have the purpose required, not whether a reasonable person would have. Purpose is not the same as result.
444. I would have found that for each of the trusts Mr Pugachev's purpose in setting it up and each of the transfers of assets in (either himself or by his nominee Victor) satisfied the test in section 423. That is because even if the deeds do in fact divest Mr Pugachev of control, his intention always was to use the trusts as a pretence to mislead other people, by creating the appearance that the property did not belong to him when really it did. Even if his purpose failed in the sense that he actually did divest himself of control, he always intended to use the trusts to hide whatever control he had. The people he intended to hide his control from were persons who might make a claim against him in future".
"14. The description of the requisite purpose as a 'substantial' purpose was not necessary to the decision of the Court of Appeal in the Hashmi case and to my mind it risks causing confusion. The word 'substantial' is not used in section 423 and I can see no necessity or warrant for reading this (or any other) adjective into the wording of the section. At best it introduces unnecessary complication and at worst introduces an additional requirement which makes the test stricter than Parliament intended. I agree with the point made in McPherson's Law of Company Liquidation (4th Edn, 2017), para 11-116, that there is no need to put a potentially confusing gloss on the statutory language. It is sufficient simply to ask whether the transaction was entered into by the debtor for the prohibited purpose. If it was, then the transaction falls within section 423(3), even if it was also entered into for one or more other purposes. The test is no more complicated than that.
15. Arden LJ made this very point in the Hashmi case when she said (at para 23) that 'there is no epithet in the section and thus no warrant for reading one in'. When later in her judgment she referred (at para 25) to a 'real substantial' purpose, it is apparent from the context that the reason for using those adjectives at that point was to underline the distinction between a purpose and a consequence of the relevant transaction. As Arden LJ emphasised, it is not enough to bring a transaction at an undervalue within section 423 that the transaction had the consequence of putting assets of the debtor beyond the reach of creditors. That is so even if the consequence was foreseeable or was actually foreseen by the debtor at the time of entering into the transaction. Evidence that the debtor believed that the transaction would result in putting assets beyond the reach of creditors may support an inference that the transaction was entered into for the purpose of doing so, but the two things are not the same. To illustrate the distinction using a less homely example than that given by Arden LJ, a commander may order a missile strike on a military target knowing that it will almost certainly cause some civilian casualties. But this does not mean that the missile strike is being carried out for the purpose of causing such casualties.
16. When judging a person's intentions, we are generally more inclined to accept that an action was not done for the purpose of bringing about a particular consequence, even if the consequence was foreseen, if there is reason to believe that the consequence was something which the actor wished to avoid or at least had no wish to bring about. Hence, in the example just given, where the missile strike had a clear strategic purpose, we may readily accept that it was not ordered for the purpose of causing civilian casualties – particularly if, for example, there is evidence that the commander gave anxious consideration to how many civilians were likely to be in the target area and planned the strike for a time when the number was expected to be low. By contrast, a consequence is more likely to be perceived as positively intended if there is reason to think that it is something which the actor desired. Thus, evidence that a person who has entered into a transaction at an undervalue foresaw that the result would be to put assets out of reach of creditors and desired that result might lead the court to infer that the transaction was entered into for that purpose. But such a conclusion is not a logical or legal necessity. It is a judgment which has to be based on an evaluation of all the relevant facts of the particular case".
"17. Subject to the bank's arguments which I will come to shortly, it is common ground in the present case that the judge identified the correct legal test. After pointing out that it was 'at least an outcome' of the transfer of funds made by Mr Ablyazov to Madiyar that the funds were put beyond the reach of the bank as a person who was making or might make a claim against Mr Ablyazov, the judge said (at para 130):
'What I therefore have to determine is whether this was also a purpose of Mr Ablyazov in making the Transfer. That depends … on whether Mr Ablyazov positively intended that outcome'.
As discussed above, this was the correct question to ask".
"47. By his respondent's notice, Madiyar has argued that the judge should in any event have dismissed the bank's claim under section 423 of the Insolvency Act on the ground that the claim was barred by limitation. On the conclusion I have reached above – with which I understand that the Vice-President and Coulson LJ agree – it is not necessary to decide this issue. But as we have had the benefit of detailed written submissions on the point, I will explain why in my opinion the judge decided it correctly.
48. The judge held – and it is not in issue on this appeal – that the claim under section 423 was an action for a sum recoverable by statute falling within section 9(1) of the Limitation Act 1980, which prescribes a six year limitation period. Accordingly, as this action was begun in December 2015, more than six years after the transfer was made on 26 February 2009, the claim was prima facie time-barred. The bank relied, however, on section 32 of the Limitation Act, which provides for the postponement of the limitation period in certain cases of fraud, concealment or mistake until the claimant has discovered the fraud, concealment or mistake or could with reasonable diligence have discovered it. In cases of fraud or deliberate concealment, the fraud or concealment must be that of the defendant, but section 32(1) provides that references in that subsection to the defendant include references to 'any person through whom the defendant claims'."
"98. The findings of fact mean that the only area of law that now needs to be specifically addressed when considering the 2008 transfer is section 423 IA which concerns 'transactions defrauding creditors'. This provisions confers a discretionary power on the court in circumstances of a transaction having been entered into at an undervalue for a prohibited purpose to make such order as it thinks fit to restore the position to what it would have been if the transaction has not been entered into or to protect the interests of victims of the transaction. The applicant for such relief may be a victim of the transaction (a person who is or is capable of being prejudiced by it, section 423(5) IA) or by a relevant office holder, as here, with the application being treated as made on behalf of every victim in each case (see section 424(1) IA).
99. The inexhaustive definition of a 'transaction' in section 423 IA is set out in section 426 IA as including, 'a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly'. Therefore, any agreement or understanding between parties, whether formal or informal, oral or in writing is capable of being a 'transaction' under section 423 IA (see Feakins v. DEFRA [2007] BCC 54 at [76] per Jonathan Parker LJ. - a decision emphasising the flexibility of the definition in the context of a series of agreements or arrangements which concluded that the court was able to address the transactions as a whole).
100. The prohibited purpose test is now identified as a simple one that does not depend on tests of dominant or substantive or any other adjective. As Leggatt LJ, as he then was, said in JSC BTA Bank v. Ablyazov [2018] EWCA Civ 1176:
'There is no need to put a potentially confusing gloss on the statutory language. It is sufficient simply to ask whether the transaction was entered into by the debtor for the prohibited purpose. If it was, then the transaction falls within section 423(3), even if it was also entered into for one or more other purposes. The test is no more complicated than that'.
101. The prohibited purpose for the person entering into the transaction with another (defined as the debtor – section 423(5) IA) is 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.' (section 423(3) IA).
102. There is no requirement that Mr Wotherspoon had to be insolvent at the time of the relevant transfer. What needs to be proved on the balance of probability is that Mr Wotherspoon entered into the challenged transaction with that purpose for which there must be in his mind not a specific creditor who would benefit from relief at the date of the transaction but a (i.e. any) person who is making or may at some time make a claim against him (see Hill v Spread Trustee Ltd [2006] EWCA Civ 542, [2007] 1 WLR 2404 at [136], by Arden LJ, as she then was). It follows that it does not need to be the person bringing the claim as Sales J., as he then was, explained in 4 Eng v Harper [2009] EWHC 2633 (Ch) at [22]:
'In the present context, in determining whether a relevant purpose is made out under s. 423(3) it would not matter whether Mr Simpson acted in order to protect his assets from possible claims by Mars or from possible claims by 4Eng. It would be sufficient for 4Eng to establish that he acted for either or both purposes, since it is not a requirement of s. 423(3) that the victim claiming relief in relation to a transaction was the very creditor whose claims the transferor was seeking to defeat – it is sufficient that the transferor acted with the purpose of defrauding any person who had made or might make a claim against him (see the reference in general terms in s. 423(3) to 'a person who is making, or may at some time make, a claim against [the transferor]' and Sands v Clitheroe [2006] BPIR 1000).'"
"113. There is no doubt that on 12 June 2008 Mr Wotherspoon aimed to achieve the transfer of his remaining 50% beneficial interest in Strand House as a gift. That, after all, is what occurred. It took place at a time when no specific creditor with a debt due and owing can be identified as a person in respect of whom Mr Wotherspoon was seeking to put his beneficial interest beyond their reach or otherwise to prejudice their interests. The only possible candidate might be HMRC but the evidence establishes that he was able to pay his current tax liabilities at that time. The claim must rely upon Mr Wotherspoon's general financial position and assert a prohibited purpose in respect of persons who may at some time make a claim against him.
114. That claim is based upon circumstantial evidence. There is no direct evidence of Mr Wotherspoon's subjective mindset having a prohibited purpose. Such evidence needs to be viewed as a whole, its effect being cumulative so that the individual elements become stronger by their linkage for the purpose of applying the standard, civil balance of probability test.
115. The problem for the claim is that it cannot be concluded on the balance of probability that there were at the date of the 2008 transfer any possible or potential persons in the mind of Mr Wotherspoon who may at some time make a claim against him. The only possible, identifiable future creditor might be HMRC, as occurred, or another creditor who might be unpaid because of payment to HMRC. However, as at the date of the 2008 Transfer there was no suggestion on the facts or in his mind of any possibility of future tax being potentially at risk of non-payment. That was the position from October 2007 when Mr Wotherspoon first sought advice from Boodle Hatfield.
116. Certainly there is cause for supposing that Mr Wotherspoon may have had concerns about his long term financial position and for supposing that those concerns may have influenced him to decide to transfer his interest to Mrs Wotherspoon to ensure she would have the security of a home for herself and her son (whether those concerns arose from financial and/or health worries or otherwise). However, even if that was proved on the balance of probability, s.423 IA requires more.
117. It needs a purpose to put assets beyond the reach of or otherwise prejudice the interests of persons making (none) or who may at some time make a claim against him. There was no reasonably foreseeable creditor or type of creditor who might do that. It is not enough to assert that the debtor wished to protect assets and that this would have the result of adversely affecting any creditors in the future because it would inevitably diminish Mr Wotherspoon's assets. There had to be, and there had to be in Mr Wotherspoon's mind, creditors to whom he would in the future be unable to make payment and who may at some time make a claim.
118. Mr Hinton suggests Mr Wotherspoon's future financial position was far from secure because his companies did not offer the security needed for the future, he did not have adequate alternative resources and the positioning and ultimate risk of his assets becoming available for creditors was increasing because of the economic climate. In support he points to the difficulties caused by the taxation of his income from the Wickforce Trust suggesting that there was a significant prospect or risk that he would not be able to pay future tax demands and that HMRC may become a creditor making a claim against him. He also suggests that the 'cash at bank' position was not nearly healthy enough and that the other companies were failing or would fail.
119. I accept these are all factors weighing in the balance for his case and that they should be addressed cumulatively. However, none of this evidence satisfies me that it has been established on the balance of probability that Mr Wotherspoon was considering being unable to pay his tax (or any other creditors) in the future with the result that claims may be made. That applies even though he would have been wary of and concerned by the economic crisis. It also applies notwithstanding the difficulties caused by the taxation of his income from the Wickforce Trust or the position of Headfort Properties Limited.
120. There is insufficient evidence from which to conclude objectively that there was a significant prospect or risk at the time of the 2008 transfer that he would not be able to pay future tax demands and that HMRC may become a creditor making a claim against him or that some other creditor would because of the financial difficulties. There is no subjective evidence from which to conclude on the balance of probability that that he had such matters in mind when deciding to transfer his beneficial interest. The circumstantial evidence is of insufficient weight to satisfy the burden of proof.
121. Moreover, whilst it is not for Mrs Wotherspoon to prove her case, she can reasonably rely upon the facts that Mr Wotherspoon: had access at the time of the 2008 Transfer to cash in amounts relatively significant in the context of current and foreseeable taxation liabilities; he had an interest in a trust fund which appeared to have more than enough equity from which significant money could be raised; Abbotsinch was a substantial development with the potential for profit, as evidenced by the subsequent sale of land and property realising £9 million, and there was no apparent cause to conclude that it would be loss making at the date of the 2008 Transfer or earlier; and the future problem for payment of tax was the unforeseeable event of the Kaupthing Singer & Friedlander collapse. These are all matters which can be weighed in the balance in favour of the defence and provide additional facts to support the conclusion that the burden of proving the subjective existence of the prohibited purpose has not been satisfied on the balance of probability.
122. It is of concern in reaching that decision that important parts of the evidence of Mr and Mrs Wotherspoon has been rejected. That has caused me to consider whether this evidence was presented to hide the true purpose. I have borne in mind that what may be described as the 'normal matrimonial arrangement' of equally shared assets had been achieved in 2001 (even assuming there was no common intention constructive trust before then). Also that the 2008 Transfer had nothing to do with fulfilment of a promise made during the engagement. That by 2008 Mrs Wotherspoon had the security not only of a half beneficial interest but also of her matrimonial rights in the event of divorce and the parties could arrange matters by will to ensure she received more than her statutory rights upon his death. She also owned the yacht and her flat in Chelsea and both assets would have been relevant to her need to look after herself and her son if required to do so. I have additionally rejected evidence concerning the stepdaughters and the concerns about a will and/or the need for easy access to cash upon Mr Wotherspoon's death.
123. Nevertheless, that still leaves the point that whilst it is plain Mr Wotherspoon wanted to ensure Mrs Wotherspoon was secure and the existence of her son's difficulties no doubt took a place in those thoughts, the rejection of key parts of their evidence does not establish that he had the prohibited purpose in mind. This is a provision concerned with defrauding (not with any requirement of dishonesty) creditors who had brought or may bring claims and I am satisfied it has not been proved that there were such creditors in mind or that there was any intention to escape the liabilities of future claims. Whist purpose may be inferred, it cannot be in this case (see Moon v Franklin [1996] BPIR 196 and Midland Bank v Wyatt [1996] BPIR 288).
124. In BAT Industries plc v Sequana SA [2016] EWHC 1686 (Ch), [2017] Bus LR 82 at [517] Mrs Justice Rose, as she then was, observed that a person cannot have a section 423 IA purpose if they had or would have sufficient assets left to meet the claim which was or may at some time be made. In this case there is no claim against which to measure that result and nothing to suggest that the assets held as at the date of the 2008 transfer would not be sufficient to cover the foreseeable future. Nor is this a case such as Inland Revenue ComMsioners v Hashami [2002] EWCA Civ 981, [2002] B.C.C. 943 where it was found that the debtor transferred property knowing he would become liable to HMRC for substantial sums and because he could not be sure at the time he chose to make the transfer that he would be unable to make provision for those liabilities at a later date. This is a case (applying the approach of Leggatt LJ in JSC BTA Bank v. Ablyazov above at [16]) where the fact of the transfer has had the consequence that the beneficial interest is not available for the benefit of Mr Wotherspoon's creditor but it has not been proved that this was his purpose".
"145. The classic definition of a sham transaction is that of Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at p.802 where he said:
'As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a 'sham,' it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.'
146. Mr Panton referred me to the statements about shams in Snell's Principles of Equity 24th ed at paras.22-062 – 22-068.
147. In my judgment there are two difficulties with the sham argument in relation to the 2012 Deed. First there is no evidence that the 2012 Deed was ever sought to be used to give a false impression to anyone or, indeed, to the court. The argument that it was sets out by assuming that which it needs to prove, that is that the rights and interests of Mr Rajan Sohal, Mrs Pooja Sohal and Mrs Veena Sohal in 31 Windsor Road were intended to be other than those specified in the 2012 Deed. Second, I am not satisfied on the balance of probabilities that the rights and interests of Mr Rajan Sohal, Mrs Pooja Sohal and Mrs Veena Sohal in 31 Windsor Road were intended to be other than those specified in the 2012 Deed.
148. There is a difference between (i) what the parties' rights were or would have been but for the 2012 Deed and (ii) what they were under the 2012 Deed. The fact that there was or may have been a difference between those two things does not mean that the 2012 Deed was a sham. What has to be established in order for the Deed to be a sham is that it was not intended to have the effect that it did and was to be used to give a false impression to third parties or the court as to what the rights and obligations of the parties actually were".
"154. What in my judgment was the case on the evidence, clearly in respect of the 2015 and 2019 Deeds, and less clearly, but probably also the case in respect of the 2012 Deed, is that Mr Rajan Sohal intended as also, by their reliance on him, did Mrs Pooja Sohal and Mrs Veena Sohal, that the Deeds and the interests which they created or confirmed should be produced and used on some occasions, and not on others. Specifically Mr Rajan Sohal intended that when he considered that it would serve his purposes not to produce or refer to them he would not produce them and vice-versa when he thought that his purposes would be served by producing them, he would produce them. So far as the interests of Mrs Veena Sohal under the 2012 and 2019 Deeds were concerned, essentially the intention of Mr Rajan Sohal was that the Deeds would be available to establish her interests in the event of a 'rainy day' in the sense of his creditors seeking to recover from him and his property, and that in the meantime he could and would deal with the properties and raise money on them and apply that money as he saw fit. The question is whether that makes the deeds shams".
"155. It is clearly the law that in order for a transaction to be a sham, all the parties to it must have had a shamming intent. Mr Panton referred me to the passage in Snell's Principles of Equity 24th ed at para.22-068, the accuracy of which I accept, which states:
'In establishing the intention to mislead, it is enough that one of the parties signed the document without knowing or caring what he was signing, or that his intentions were not exercised independently of the other party who was controlling the transaction. Either way, this shows a reckless willingness to mislead third parties'.
156. Applying that passage in the present context, Mrs Pooja Sohal's and Mrs Veena Sohal's evidence to the effect that they relied upon and trusted Mr Rajan Sohal in relation to the properties and the Deeds means that they are fixed with his intentions in respect of the Deeds.
157. In my judgment the 'use in the event of a rainy day' intention does not necessarily result in the Deeds being shams. When they are not produced, they are not being used to mislead; it is their absence which may cause third parties to be misled as to the beneficial ownership of the property. When they are produced and relied upon they are not being used to mislead.
158. What would have made the Deeds shams would have been an intention in Mr Rajan Sohal that in reality Mrs Veena Sohal should not have the interest in 31 Windsor Road which the 2012 and 2019 deeds provided for her. He clearly intended, as the terms of the 2019 Deed themselves show, that the value of Mrs Veena Sohal's interest might be diminished by other borrowings for the purposes of the 31 Windsor Road project; but in my judgment that does not amount to an intention that the Deeds should not take effect in accordance with their terms".
"160. Snell's Principles of Equity 24th ed at para.22-071 explains:
'A purported trust may be 'illusory'. To call a trust 'illusory' is a convenient, although analytically inaccurate, label. The trust transaction is illusory when the true intention gathered from the trust instrument was to leave the beneficial interest in the purported settlor of the trust rather than to create a trust for the beneficiaries named in the instrument.
An illusory trust is analytically different from a purported trust set out in a sham document. The sham doctrine is concerned with the misleading mismatch between the objective intentions of the parties in the trust instrument and their subjective intentions about the transaction between them. The conclusion that a trust is illusory follows from the construction of the trust instruments itself, rather than from a comparison between the terms of [the] trust instrument and the parties' subjective intentions'.
161. My interpretation of the sentence in the 2012 Deed beginning 'Mrs Veena Sohal cannot buy …' means that her equitable interest under the Deed is not illusory. It could be reduced or eliminated by Mr Rajan Sohal and Mrs Pooja Sohal taking out further mortgages on the property with priority to Mrs Veena Sohal's charge, but that would not have been possible without her consent if she had protected her interest with a notice. Also it would have been difficult for further borrowings immediately to swallow up the whole of the equity and wholly eliminate the value of Mrs Veena Sohals' equitable charge. Accordingly in my judgment the 2012 Deed is not an illusory trust".
"182. For s.423(3) to be engaged, the relevant purpose of Mr Rajan Sohal did not have to relate to the person who is making the application. S.423(3) is widely worded. It refers to 'a person who is making, or at some time make a claim against him'. It does not require that person to be identified at the time of the transaction.
183. Nor is it necessary for the purpose specified in s.423(3) Insolvency Act 1986 to be the only or the dominant purpose of a transaction in order for the requirements of s.423(3) to be satisfied. It is sufficient if the relevant purpose is 'a' purpose (JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176, [2019] BCC 96, per Leggatt LJ at paras.13 and 14).
184. The only specific allegation about possible creditors in 2012 and a possible trigger for the creation of the 2012 Deed was in relation to Acacia Securities. However, I have already found that the case in respect of Acacia was not made out. Even in the absence of an identified creditor in 2012, a general intention to put assets beyond the reach of creditors would suffice for the s.423(3) condition to be satisfied.
185. In 2012 Mr Rajan Sohal was already in business. His evidence in cross-examination was that when 231 Rochford Gardens and 26 Cedar Close were sold in 2012, a deed of trust would be needed because there would be no properties left in Mrs Veena Sohal's name. The 2012 Deed was therefore necessary to protect her. I accept that evidence as evidence of at least one purpose in Mr Rajan Sohal in effecting the 2012 Deed transaction. It is consistent with the sales of the properties and with Mrs Veena Sohal otherwise losing such security as she otherwise had for the moneys provided out of them and otherwise to Mr Rajan Sohal and Mrs Pooja Sohal.
186. The effecting of the implementation of the purpose of protecting Mrs Veena Sohal by providing her with security certainly had the result of putting assets beyond the reach of Mr Rajan Sohal's unsecured creditors or of prejudicing them. In my judgment the effecting of that result formed part of the purpose; it was not merely incidental to it. That is because the essence of providing security is to give the recipient priority over unsecured creditors.
187. Hence in my judgment the transaction effected by Mr Rajan Sohal by the 2012 Deed in favour of Mrs Veena Sohal was effected for the purpose of putting assets beyond the reach of a person who is making, or may at some time make, a claim against Mr Rajan Sohal or of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make within the meaning of s.423(3) Insolvency Act 1986.
188. In order to have standing as a 'victim' of the transaction within the meaning of s.423(5) Insolvency Act 1986 Mr Sahota has to be a person who 'is or is capable of being prejudiced by that transfer'?
189. On the figures and valuations mentioned near the beginning of this judgment it is possible that after payment out of the proceeds of any sale of 31 Windsor Road of the sums due to OneSavings Bank and Castle Trust (a total of a minimum of £2,479,987.35) there will be no equity left for Mrs Veena Sohal's beneficial interest under the 2019 Deed (I anticipate by saying that I find below that the 2019 Deed converted Mrs Veena Sohal's interest from an equitable charge to a proprietary beneficial interest which took precedence over Mr Rajan Sohal's and Mrs Pooja Sohal's beneficial interests).
190. Thus, if the value of 31 Windsor Road is less than the sums owed to OneSavings Bank and Castle Trust (a total of a minimum of £2,479,987.35) Mr Rajan Sohal's beneficial interest in the property would be non-existent, and Mr Sahota's charging order in respect of it would be worthless, whether or not the transaction effected by the 2012 Deed had taken place or Mrs Veena Sohal had an equitable charge over it or a beneficial interest in it. On that hypothesis Mr Sahota would not in fact be prejudiced by the transaction effected by the 2012 Deed. However, although that would be a possible result, depending on the value of the property and the amounts outstanding to OneSavings Bank and Castle Trust from time to time, it is also possible that he would be. Accordingly I consider that Mr Sahota is capable of being prejudiced by the transaction effected by the 2012 Deed and qualifies as a 'victim' within the meaning of s.423(5), albeit that ultimately he may not be prejudiced by it".
"Even in the absence of an identified creditor in 2012, that is to say at the time of the transaction, a general intention to put assets beyond the reach of creditors would suffice for the section 423(3) condition to be satisfied".
"195. I have already held that the witness signatures to the 2015 Deed were not the signatures of the purported witness and that therefore the 2015 Deed was not in fact a deed. It may have operated as an agreement between Mr Rajan Sohal and Mrs Pooja Sohal as to the beneficial shares in which they owned 31 Windsor Road, but there is no evidence that Mrs Pooja Sohal gave any consideration for that agreement or that she acted to her detriment in reliance on it. Accordingly the agreement did not alter the pre-existing 50:50 beneficial ownership of the property as between Mr Rajan Sohal and Mrs Pooja Sohal. It is therefore unnecessary to decide whether the 2015 Deed was a sham or should be set aside or otherwise dealt with under s.423 Insolvency Act 1986".
The judge did not actually decide anything, therefore, about the law of limitation in this area, although I have noted what was said there.
142. I note that in Sohal the judge also dealt with a later 2019 deed but that was affected by questions of undervalue and resulted in something of a complex remedy being afforded dependant on the facts of that case.
"54. The summary is lengthy, and I will not set it out in full, but it included the following:
116. The following are the key legal tests/principles to be applied for the s. 423 case:
…
c) When deciding whether SICA, acting by Mr Munn and/or Mr Rees, entered into the Asset Sale Agreement for the Prohibited Purpose:
i) It is the purpose of SICA which is to be addressed not that of the person who received the benefit (see Moon v Franklin [1996] B.P.I.R. 196).
ii) The question of whether the transaction was entered into by SICA for the Prohibited Purpose must be judged as a decision of fact based on an evaluation of all relevant facts. There may be more than one purpose. It is sufficient to prove that the Prohibited Purpose was a (not the) purpose positively intended rather than a consequence (see Inland Revenue Commissioners v Hashimi [2002] EWCA Civ 981; [2002] B.C.C. 943 and JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176; [2019] B.C.C. 96 at [8-16]).
iii) Insolvency is not a prerequisite, although the financial position may be evidence relevant to the decision of purpose and (depending on the facts) the absence of insolvency may make a Prohibited Purpose unlikely (see Moon v Franklin (same) at 198 and BTI 2014 LLC v Sequana SA [2016] EWHC 1686 (Ch); [2017] B.C.L.C. 453 at [494], upheld [2019] EWCA Civ 112; [2019] 1 BCLC 347).
d) As to the relief which may be ordered:
i) The Court's very wide discretionary powers of relief are required by s. 423(2) to be exercised (a) to restore the position to what it would have been if the transaction had not been entered into and (b) to protect the interests of victims of the transaction (defined by s. 423(5) as 'a person who is, or is capable of being prejudiced by it'). In other words, exercised to achieve restoration to the extent appropriate to protect the interests of creditors (see Chohan v Saggar [1994] B.C.L.C. 706 at 714).
ii) Although the purpose of the relief is expressed within s. 423 to be restoration, where the position cannot be restored in the literal sense, it can be appropriate to require payment of a sum to compensate for the transaction at an undervalue (see New Media Distribution Co SEZC Ltd v Kagalovsky [2018] EWHC 2876 (Ch)).
iii) Mr David Phillips Q.C., sitting as a Deputy Judge of the Chancery Division, decided in Griffin v Awoderu (23 January 2008) that those requirements for relief exclude the possibility of placing victims '… in a better or more secured position than if the transaction had not been carried out'. In addition, the relief should not 'punish or otherwise prejudice those involved in carrying out the transaction any more than is a necessary and inevitable consequence of restoring the position and protecting victims'.
iv) In 4 Eng Ltd v Harper [2009] EWHC 2633 (Ch); [2010] BCC 746, Sales J., as he then was, pointed out that the objective of s. 423(2) can be achieved by the exercise of the Court's ' wide margin of judgment [when deciding] what order is appropriate' having regard to the non-exhaustive list of relief within s. 425.
v) In Akhmedova v Akhmedova [2021] EWHC 545 (Fam) at [86-87], Gwynneth Knowles J citing 4 Eng Ltd v Harper (above) emphasised that the relief 'carefully tailored to the justice of the particular case' would depend greatly upon the particular facts and that it may be appropriate to consider whether a respondent still holds the relevant assets or has changed their position even though that would not provide a defence. Such considerations, if relevant, would need to be addressed within the context of the mental state and degree of involvement of the respondent.
vi) Mr Justice Trower in Re Fowlds (a bankrupt), Bucknall and Roach (joint trustees) v Wilson [2021] EWHC 2149 (Ch) identified three reasons why it may be appropriate to carry out a balancing act between the interests of the creditors or victims of the transferor on the one hand and the transferee on the other. First because although it is a class remedy, ss. 423 – 425 contemplate the potential for individual victims to claim and be compensated with the result that it may be appropriate to strike a balance between the victim and the innocent transferee. Second, the absence of a statutory clawback period. Third that the power to restore and protect is expressed in terms of 'may … make such order as it thinks fit' which is consistent with a balancing exercise".
Approved by Master Dagnall
17.3.2023