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England and Wales High Court (Family Division) Decisions
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Cite as:  EWHC 3755 (Fam)
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MRS JUSTICE PARKER
This judgment is being handed down in private on 29 November 2013. It consists of 19 pages and has been signed and dated by the judge.
The Judge gives leave for this judgment to be reported.
Strand, London, WC2A 2LL
B e f o r e :
|- and -
Mr Christopher Pocock QC with Ms Linda Turnbull (instructed by Wellers Law Group LLP) for the Respondent
Hearing dates: 10th April 2013
Crown Copyright ©
Mrs Justice Parker :
1) An order under s423 IA 1986, restoring the financial position of H to that which would have existed had he not made the transfers to IB of £30,030 in 2005 and £1,750,000 in 2006.
2) An order waiving compliance with any other procedural requirements that might otherwise exist in respect of the making of the said application under s423 IA1986.
1) Should I dismiss the application made by W under s423 Insolvency Act 1986?
2) Should I rule on the costs of the June 2012 hearing now, or should I adjourn costs?
Dispositions intended to defeat applications for financial provision.
1) Where an application is made to the court for an order under section 2 of this Act, the applicant may, in the proceedings on that application, apply to the court for an order under subsection (2) below.
2) Where on an application under subsection (1) above the court is satisfied-
a) that, less than six years before the date of the death of the deceased, the deceased with the intention of defeating an application for financial provision under this Act made a disposition, and
b) that full valuable consideration for that disposition was not given by the person to whom or for the benefit of whom the disposition was made (in this section referred to as "the donee") or by any other person, and
c) that the exercise of the powers conferred by this section would facilitate the making of financial provision for the applicant under this Act,
then subject to the provisions of this section and of sections 12 and 13 of this Act, the court may order the donee (whether or not at the date of the order he holds any interest in the property disposed of to him or for his benefit by the deceased) to provide, for the purpose of the making of that financial provision, such sum of money or other property as may be specified in the order.
3) Where an order is made under subsection (2) above as respects any disposition made by the deceased which consisted of the payment of money to or for the benefit of the donee, the amount of any sum of money or the value of any property ordered to be provided under that subsection shall not exceed the amount of the payment made by the deceased after deducting therefrom any capital transfer tax borne by the donee in respect of that payment.
4) Where an order is made under subsection (2) above as respects any disposition made by the deceased which consisted of the transfer of property (other than a sum of money) to or for the benefit of the donee, the amount of any sum of money or the value of any property ordered to be provided under that subsection shall not exceed the value at the date of the death of the deceased of the property disposed of by him to or for the benefit of the donee (or if that property has been disposed of by the person to whom it was transferred by the deceased, the value at the date of that disposal thereof) after deducting therefrom any capital transfer tax borne by the donee in respect of the transfer of that property by the deceased.
5) Where an application (in this subsection referred to as "the original application") is made for an order under subsection (2) above in relation to any disposition, then, if on an application under this subsection by the donee or by the applicant for an order under section 2 of this Act the court is satisfied-
a) that, less than six years before the date of the death of the deceased, the deceased with the intention of defeating an application for financial provision under this Act made a disposition other than the disposition which is the subject of the original application, and
b) that full valuable consideration for that other disposition was made or by any other person,
the court may exercise in relation to the person to whom or for the benefit of whom that other disposition was made the power which the court would have had under subsection (2) above if the original application hade been made in respect of the other disposition and the court had been satisfied as to the matters set out in paragraphs (a), (b) and (c) of that subsection; and where any application is made under this subsection, any reference in this section (except in subsection (2)(b)) to the donee shall include a reference to the person to whom or for the benefit of whom that other disposition was made.
6) In determining whether and in what manner to exercise its powers under this section, the court shall have regard to the circumstances in which any disposition was made and any valuable consideration which was given therefore, the relationship, if any, of the donee to the deceased, the conduct and financial resources of the donee and all the other circumstances of the case.
7) In this section "disposition" does not include-
a) Any provision in a will, any such nomination as is mentioned in section 8(1) of this Act or any donation mortis causa, or
b) Any appointment of property made, otherwise than by will, in the exercise of a special power of appointment,
But, subject to these exceptions, includes any payment of money (including the payment of a premium under a policy of assurance) and any conveyance, assurance, appointment or gift of property of any description, whether made by an instrument or otherwise.
8) The provisions of this section do not apply to any disposition made before the commencement if this Act.
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 the formation of a civil partnership]; 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 that 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".
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 adjudged 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.
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 think 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 changed 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.
Issue 1: IA 1986 or I(PFD)A 1975.
1) The remedy under s.423 IA 1986 is a freestanding remedy;
2) It is supplemental to the s.10 I(PFD)A 1975 remedy and is not excluded by it;
3) The intention that must be established is wider than is required by s.10 I (PFD)A 1975;
4) The range of remedies is wider, particularly the power to restore assets to the estate.
1) The appropriate statutory mechanism is contained in the Inheritance (Provision for Family and Dependants) Act 1975 s.10. There is no scope for the application of the Insolvency Act remedy. He had made the same submission in respect of the s.37 remedy: this issue of course had not been determined.
2) The existence of the s.10 remedy precludes reliance on s.423 IA 1986.
3) The s.423 remedy is not freestanding, and there is now no cause of action.
4) It applies only in cases of insolvency.
5) The Limitation Acts apply.
" Section 423 is a new section. … Its predecessor, s172 of the Law of Property Act 1925, had a long history… However, its judicial interpretation had not always been consistent and it was heavily criticised by the Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) (the Cork Report). That report explained that the meaning of the expression 'intent to defraud' was not entirely clear and in consequence recommended that s172 should be re-enacted in an amended form to make a number of matters clear. In this connection the report recommended that the necessary intent should be an intent on the part of the debtor to defeat, hinder, delay or defraud creditors, or to put assets belonging to the debtor beyond their reach (Cork Report, para 1215 (b)). It is interesting to note that, as part of the same recommendation, the report also recommended that such intent should be inferred whenever it was the natural and probable consequence of the debtor's actions in the light of the financial circumstances of the debtor at the time, as known, or taken to have been known, to him.
" Section 423 plays an important role in insolvency law. It can moreover apply even though that the debtor is not in a formal insolvency. The counter-consideration is that, unlike transactions at an undervalue and preferences, which may be avoided only in a formal insolvency, under s423(3) the stricter requirements of s423 (3) must be satisfied. In my judgment s423 is a carefully calibrated section forming part of a carefully calibrated group of sections. It only applies to transactions which are gifts or which have a gratuitous element (s423 (1)). The transaction is only set aside for the limited purposes of subs (2) (a) and (b). The onus is on the claimant to show the statutory purpose (see (3)) and although there is a very wide jurisdiction to make appropriate orders under s424, these may not prejudice the interests of bona fide purchasers for value under subsequent transactions. Even, however, as regards a party to a transaction potentially falling within s423, there are significant checks and balances. This is not of course a comprehensive summary of the section…".
" … The sections apply to transaction defrauding creditors (using the terminology in the marginal note) whether or not the person effecting the transaction has become insolvent).
" The scheme of section 423 is unusual. Subsection (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. Subsection (2) defines the objects for which the court can grant relief and refers to "victims". Subsection (2) does not set out the circumstances in which the court may grant that relief. Those circumstances appear from subsection (3). Subsection (3) stipulates the purpose with which the transaction must have been entered into before relief can be granted. Subsection (4) identifies the court which can hear a claim under section 423. Subsection (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 subsection (2). It is not used in subsection (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 section 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 subsection (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 Act 1985 (right of members of a company to apply for relief against unfair prejudice) have been similarly construed: see for example In re Sam Weller & Sons Ltd  Ch 682, 690. Likewise in Peter Buchanan Ltd v McVey (Note)  AC 516, 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.
" …. I …do not accept … that is it 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.
The interrelationship between s423 IA 1986 and s10 I(PFD)A 1975
" … From inception it was intended as a bespoke divorce statutory alternative to the equitable right to seek rescission or avoidance of a transaction procured by misrepresentation, and also to the general statutory anti-avoidance measure within s172 Law of Property Act 1925. …
" s172 has since been replaced by s423 Insolvency Act 1986, in language which eschews the anachronistic and obscure. It speaks of "restoring the position to what it would have been if the transaction had not been entered into" which to my mind says in plain English exactly the same thing as "annulling a voidable transaction". In Chohan v Saggar  1 BCLC 706, CA Nourse LJ explained that Parliament in enacting s423 had intended the court to have much fuller powers than were previously available under s172 of the 1925 Act. Thus it is not restricted to the unitary power of setting aside the whole transaction. Rather, in order to restore the position the court could, where the transaction is made up of a number of competent parts, set aside some parts but leave other parts undisturbed.
" s37 is intituled "Avoidance of transactions intended to defeat applications for financial relief". "Avoidance" is the language of nullity not of repayment or re-vesting. Etymologically it refers to the concept of "voidity" (as Wilson LJ coined it in Radmacher v Granatino  2 FCR 645, CA at para 119). So, by s37(2)(c) in order to impose voidity on the transaction the court may make an order "setting aside the disposition". That language would not be apt if the concept was repayment or reinvesting. Instead, it would have said, as s10 (2) of the 1975 Act says, that the court may order the disponee "to provide such sum of money or other property as may be specified in the order". It is obvious to me that the draftsman of s10 of the 1975 Act expressly did not want a reversing transaction to operate as an avoidance ab initio, in stark contrast to s37, of which he must have been well aware, as many parts of the 1975 Act are modelled the 1973 Act."
1) Under the I(PFD)A 1975 the applicant must prove that the disposition was made with intention of defeating an application for financial provision;
2) Under s 423 it is necessary to prove that the purpose is to put assets beyond reach or prejudice interests - what Mr Turner QC describes as a more general purpose: which has been extensively analysed as set out above.
1) Under the I(PFD)A it is necessary to prove the deceased had the intention of defeating an application under that Act;
2) Under the I(PFD) A 1975 the powers are confined to provide "for the purpose of making of that financial provision (i.e. under the Act) … such sum of money or other property as may be specified in the order".
"The object of ss423-425 being to remedy the avoidance of debts, the 'and' between para. (a) and (b) of s423 (2) must be read conjunctively and not disjunctively. Any order under the subsection must seek, so far as is practicable, both to restore the position to what it would have been if the transaction had not been entered into and to protect the interests of the victims of it. It is not a power to restore the position generally, but in such a way to protect the victims' interests; in other words, by restoring assets to the debtor to make them available to the victims. So the first question the judge must ask himself is what assets have been lost to the debtor. His order should, so far as practicable, restore that loss."
Does there have to be a bankruptcy or actual insolvency?
1) Does s423 apply outside the insolvency regime?
2) Does it apply after death?
No scope for s423 IA 1986 because of the remedy in s 10 I(PFD) A 1975?
"… still applies in principle to all divisions of the High Court. Nevertheless, and whilst it is there it is reserved in cases where the special legislation does not apply… where, as here, Parliament has spelt out in considerable detail what must be done in a particular class of case it is not open to litigants to bypass the special Act, nor to the court to disregard its provisions by resorting to the earlier procedure, and thus chose to apply a different jurisprudence from that which the Act prescribes.
"any other conclusion would, I believe, lead to the most serious confusion. The result of a particular application cannot depend on which of two statutory provisions the applicant invokes, where one is quite general and the other deals in precise detail with the situation involved and was enacted when the general provision already existed."
The absence of a substantive claim
Costs: the second issue
applications. This would require re-reading and writing time which I do not have, and which, if I were to be given it, would have a significant impact on my ability to sit in other cases on other court users. It might also hamper constructive negotiations towards settlement. An appeal against the decision would distract from attempts to resolve the case, and would run up further costs.