Markham v Karsten

On a bankruptcy petition, the court should not make a bankruptcy order where the debtor raises a genuine triable issue. The test is broadly equivalent to the test for permission to defend under CPR Part 24. A defence need not be probable; it is sufficient that the evidence is not inherently incredible.

Where a transaction is procured by a solicitor from a client, the solicitor-client relationship remains relevant even if the parties are also domestic partners. A transaction may call for an explanation, giving rise to an arguable undue-influence defence. An evidential presumption that payments were loans, arising where no presumption of advancement applies, does not by itself eliminate a triable issue about whether the payments were gifts or an informal quid pro quo.

Mr Markham appealed against a bankruptcy order made by Registrar Jacques on Mrs Karsten’s petition. The petition relied principally on an alleged trust deed and acknowledgment recording debts exceeding £1 million. Mr Markham disputed signing the documents and contended that the payments were gifts or were made in return for emotional support and childcare.

He also alleged undue influence, relying on Mrs Karsten’s concurrent roles as his domestic partner and solicitor. The Registrar rejected his evidence as incredible, held that no arguable undue-influence case arose, and treated the payments as loans because no presumption of advancement applied. The appeal concerned whether those conclusions eliminated any genuine triable issue.

1. Appeal allowed. The evidence raised genuine triable issues, so the bankruptcy order should not have been made.
2. The Registrar was entitled to reject as incredible Mr Markham’s evidence about the Trust Deed. A person could not coherently say both that he could not remember signing it and that he knew it was blank and signed while intoxicated. That conclusion did not, however, resolve the separate undue-influence issue.
3. The solicitor-client relationship remained legally relevant notwithstanding the parties’ domestic relationship. The influence presumed in a solicitor-client relationship could be strengthened by a marriage or domestic partnership. The presumption did not mean that every transaction between solicitor and client was procured by undue influence. The question was whether the transaction called for an explanation in light of its background.
4. The evidence disclosed a triable issue as to whether the Trust Deed and acknowledgment recorded an already agreed loan, or instead imposed a substantial disadvantage on Mr Markham by recording payments which had been gifts or an informal quid pro quo. The fact that Mr Markham’s evidence was improbable, and in part dishonest, did not make it inherently incredible. Equity’s protection extends to a foolish liar as well as to an honest claimant.
5. The same reasoning applied, with somewhat less force, to the acknowledgment. The evidence that Mr Markham had not signed it required assessment at trial rather than rejection without further testing.
6. The absence of a presumption of advancement placed the burden on a recipient asserting that payments were gifts, as explained in Seldon v Davidson [1968] 1 WLR 1083. That burden did not make the recipient’s evidence incapable of raising a genuine triable issue. The Registrar’s contrary approach was an oversimplification.
7. The test for a genuine triable issue in opposition to a bankruptcy petition was broadly equivalent to the test under CPR Part 24. An improbable defence may still require trial. The court therefore allowed the appeal and reserved the form of order because other creditors might wish to support the petition.

• High Court (Chancery Division): Appeal from the bankruptcy order made by Registrar Jacques on 7 February 2007. The bankruptcy order was set aside in principle; submissions were invited because other creditors might wish to support the petition.