Inland Revenue v Hashmi & Anor

Under section 423(3) of the Insolvency Act 1986, the statutory purpose need not be the transferor’s sole or dominant purpose. It is enough that putting assets beyond the reach of actual or prospective claimants, or prejudicing their interests, was a real and substantial purpose of the transaction.

The purpose must be positively intended. A mere consequence, by-product or trivial element of the transaction does not suffice. A genuine concurrent purpose of making family provision does not prevent the section applying. The court may infer purpose from the evidence, but must distinguish intended purpose from foreseeable result.

Omar Ghauri appealed, with permission, from Hart J’s order of 4 October 2001 setting aside a 1989 declaration of trust by his late father. The declaration concerned the beneficial interest in commercial property and was made in Omar’s favour for natural love and affection.

Following an investigation into substantial undeclared profits from the father’s restaurant business, the Inland Revenue sought relief under section 423 of the Insolvency Act 1986. There was no direct evidence of the father’s intention. Hart J inferred that a purpose of the declaration was to put the property beyond the Revenue’s reach, and held that purpose dominant.

The appeal raised whether section 423(3) requires a dominant purpose and whether the evidence justified the inference of the statutory purpose.

Appeal dismissed unanimously. Lady Justice Arden gave the principal judgment. Lord Justice Laws and Lord Justice Simon Brown agreed.

1. Section 423(3) of the Insolvency Act 1986 does not require the statutory purpose to be the transferor’s sole or dominant purpose. There is no statutory basis for adding a dominant-purpose qualification. The provision may apply where the statutory purpose and a family-provision purpose coexist with equal force.

2. The statutory purpose must nevertheless be real and substantial. It must be a purpose which positively motivated the transaction, rather than a consequence, by-product or trivial element of it. Lord Justice Laws expressed the requirement as substantial motivation by one of the statutory aims. Lord Justice Simon Brown added that a transaction is not saved merely because it would or might also have been made for another purpose, including to benefit the donee.

3. Purpose is a question of fact and may be inferred from the surrounding evidence. The court must keep distinct a foreseeable result of a transaction and a purpose for entering it. On the facts, the sustained and substantial under-declaration of profits, the accrued and prospective tax liabilities, and the continuing treatment of the property as the father’s own entitled the judge to infer that putting the property beyond the Revenue’s reach was a real, non-negligible purpose.

4. The Court of Appeal would not interfere with the trial judge’s evaluation of the evidence unless plainly wrong, particularly where oral evidence had been tested by cross-examination. The factors relied on by the appellant did not show that Hart J’s conclusion was plainly wrong. His unnecessary finding that the statutory purpose was dominant therefore did not affect the validity of the order.

The appeal was dismissed with costs, subject to detailed assessment.

• Court of Appeal (Civil Division): dismissed Omar Ghauri’s appeal and upheld the order made under section 423 of the Insolvency Act 1986.
• High Court, Chancery Division: Hart J, on 4 October 2001, set aside the 1989 declaration of trust pursuant to section 423.