Derbyshire County Council & Anor v Akrill & Ors

Subject to abuse of process, a public-law challenge may be raised as a defence in county court proceedings where it undermines the basis of the claim. A failure to consider such a defence requires reconsideration.

Under section 423 of the Insolvency Act 1986, a transaction may be challenged where a substantial subjective purpose was to put assets beyond the reach of a person who might claim, or otherwise prejudice that person. Dishonesty or fraud is unnecessary. Purpose may be inferred from all the circumstances, and a prospective claimant need not be an existing or identifiable creditor.

Derbyshire County Council and the operators of a nursing home obtained judgment against Stephen Akrill and his father’s estate for residential care charges and related sums. The county court also made orders under section 423 of the Insolvency Act 1986 concerning the father’s gift of his house to his children.

The appeal challenged alleged breaches of Article 6, errors of law and errors of fact. The central issues were whether a public-law challenge to the council’s reassessment could be raised in the county court, and whether the statutory requirements for relief against the gift were satisfied.

Disposition

Latham LJ gave the leading judgment. Neuberger and Brooke LJJ agreed. The appeal was allowed only in relation to the county council’s claim. That issue was remitted to the county court; the appeal concerning the second claimants was dismissed.

1. Article 6. The procedural orders debarring the appellant for non-payment of ordered costs pursued legitimate case-management aims. The resulting disadvantage was self-inflicted. No material suggested that the trial judge lacked independence or impartiality. There was therefore no breach of Article 6.
2. Public-law defence. Wandsworth London Borough Council v Winder [1985] 1 AC 461 established that the procedural principles in O’Reilly v Mackman [1983] 2 AC 237 and Cocks v Thanet District Council [1983] 2 AC 286 did not remove the right to raise a public-law issue as a defence where it undermined the claim. That principle was followed in Pawlowski (Collector of Taxes) v Dunnington [1999] STC 550 (CA) and Rhondda Cynon Taff County Borough Council v Watkins [2003] EWCA Civ 129. The county court had therefore erred in refusing to consider the challenge to the council’s reassessment. The Court of Appeal lacked sufficient material to determine it and remitted that issue.
3. Section 423. The requirements were a transaction at an undervalue, the requisite purpose, and a victim capable of being prejudiced. The relevant purpose was subjective and could be inferred from all the circumstances, including subsequent events. It need not be dishonest or fraudulent, but had to be a substantial purpose. A potential claimant need not be an existing or identifiable creditor.
4. The timing and circumstances of the gift supported the finding that protecting the house from future care-fee claims was a real and substantial purpose. That purpose was not defeated because it was understandable or morally unobjectionable. Both nursing-home operators were capable of being prejudiced and had an independent entitlement to relief under section 423. Those conclusions were upheld.

• Court of Appeal (Civil Division): On 16 February 2005, allowed the appeal on the public-law defence issue only and remitted that issue to the county court. The appeal concerning the second claimants was dismissed.
• Derby County Court: HHJ Inglis gave judgment on 14 July 2004 for sums claimed against the father’s estate and made orders under section 423 of the Insolvency Act 1986 in favour of both claimant groups.
• Earlier interlocutory proceedings: HHJ Orrell struck out parts of the defence and counterclaim and imposed a costs condition. Permission to appeal was refused by Rafferty J and Harrison J, and Arden LJ refused a further application.