Bankruptcy – Deed of trust – Transaction at undervalue – Appellant appealing against order of district judge setting aside deed of trust by bankrupt in her favour – Whether appellant entitled to raise new grounds of appeal – Whether appellant giving consideration in money or money’s worth – Whether transfer by deed of trust being transaction at undervalue – Appeal dismissed
The appellant was the wife of a bankrupt (H). The respondent trustees in bankruptcy applied for a declaration that any transfer of H’s beneficial ownership or interest in two residential properties, including a transfer effected by a deed of trust, was a transaction at an undervalue, within the meaning of section 339 of the Insolvency Act 1986, and for consequential relief. The deed of trust recited, among other things, that H sought to make financial provision for his wife and their son for their financial security, and that H would pay the monthly amounts due on the mortgages secured on the two properties, 7 Hill Close, London NW2 (their matrimonial home) and Flat 1, 269A West End Lane, London NW6.
The district judge held that there was no consideration given by the appellant for the declaration of trust or, if there was any consideration, it was substantially less in value than the financial value of the property transferred to her by H under the deed of trust. On the date of the deed of trust, H was insolvent, or became insolvent as a consequence of the transfer effected by the deed of trust. There was no valid reason why the deed of trust should stand, and a restorative order should be made setting aside the deed.
The appellant appealed contending, among other things: (i) the declaration of trust in relation to H’s share of 7 Hill Close had to be considered separately from Flat 1 and the commercial premises; (ii) the only evidence which the district judge should have accepted was that H’s equity in 7 Hill Close was at most £12,000; (iii) the judge was wrong to hold that there was no consideration in money or money’s worth and the value of the consideration given by the appellant was not significantly less than the value of H’s equity in 7 Hill Close; (iv) The district judge failed to exercise his discretion under section 339 (2) of the 1986 Act and should not have set aside the deed of trust as regards 7 Hill Close; and (v) the judge should alternatively have deferred making, or stayed, any order for sale of 7 Hill Close.
Held: The appeal was dismissed.
(1) Most of the grounds of appeal had not been advanced at the trial. The Court of Appeal had repeatedly stated that new arguments should not be permitted on appeal if they were not deployed in the lower court and if their being deployed might have caused the respondent to conduct its case differently, as regards the evidence adduced or otherwise. Had grounds (i) and (ii) been advanced at trial, it was quite likely that the respondents would have sought to adduce evidence of the open market value of and the debt secured on 7 Hill Close at the date of the deed of trust: see Jones v MBNA International Bank [2000] EWCA Civ 514 and Crane v Sky In-Home Ltd [2008] EWCA Civ 97.
(2) In any event, there was no basis on which the deed of trust could properly be interpreted as effecting three separate transactions, for the purposes of section 339 or otherwise. By the deed of trust, H transferred to the appellant his beneficial interest in the real property that he owned other than a flat in Suffolk. Section 436(1) of the 1986 Act defined “transaction” as including “a gift, agreement or arrangement”. H did not enter into three separate agreements or dispositions, nor did he make three separate gifts. He declared a trust of his beneficial interest in three properties. There was only one transaction effected by the deed of trust.
(3) Even if it were possible to divide the deed of trust into three separate transactions, no consideration in money or money’s worth was given by the appellant for the transfer. H retained the mortgage liability and the appellant assumed none. She made no enforceable promise in the deed or in any collateral agreement at that time. In any event, the consideration had to arise as part of the transaction. The appellant took on no liability or obligation and she made no agreement in consideration of the transfer effected by the deed of trust.
There was no valuable consideration in law moving from the appellant in her reassurance that H could continue to see his wife and son regularly because no right to it was conferred. There was no evidence that the appellant had entered into a binding agreement to submit to future access or not to pursue her rights for a judicial separation. As a matter of law, giving up a right to pursue a claim could be valuable consideration but not unless the right was given up in an enforceable way, as distinct from the giving of an unenforceable assurance, or the right in question simply not being exercised. The transfer therefore fell within section 339(3)(a) and the true value of the assets transferred to the appellant became irrelevant. Even if the appellant had been able to argue and had succeeded on grounds (i) and (ii), the transfer of H’s share of 7 Hill Close would still be a transaction at an undervalue.
(4) The district judge had validly exercised his discretion under section 339(2). It was impossible to conceive that he could have concluded that it would be just not to make a restorative order.
(5) There was no evidence of anything that would justify refusing an order for immediate sale of 7 Hill Close and Flat 1. There were no factors that could result in the appellant’s interest in maintaining her home being given priority over the interests of H’s creditors. There was very substantial equity in 7 Hill Close and a sale of the other properties would not realise sufficient funds. Although the sale of the family home was a serious outcome, without substantially more, it did not amount to the exceptional circumstances required to be shown before a sale would be postponed or stayed.
Cameron Maxwell Lewis (instructed by direct access) appeared for the appellant; Graham Sellers (instructed by Freeths LLP) appeared for the respondents.
Eileen O’Grady, barrister
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