Kremen v Agrest

For the purposes of the Matrimonial and Family Proceedings Act 1984, the operative date of a transaction subject to a condition precedent is the date on which that condition is fulfilled and the transaction becomes effective. A purchaser cannot rely on an earlier period of good faith where, before completion, the purchaser acquires knowledge that the transaction would defeat a claim for financial relief. A corporate veil may be pierced where the company is controlled by the wrongdoer and its structure is used as a device or façade to conceal wrongdoing.

The applicant sought to set aside two transfers of the single share in Everclear Ltd, a British Virgin Islands company holding South Lodge. The first transfer, from the respondent to his associate, was alleged to be a sham. The second transfer was from that associate to the intervener. The applicant relied on section 23 of the Matrimonial and Family Proceedings Act 1984.

The court had to determine whether the second transaction occurred when the sale agreement was signed or when the intervener obtained mortgage finance, and whether the intervener could establish the statutory defence despite acquiring knowledge of the dispute before completion. The court also considered whether the corporate veil could be disregarded.

1. The transfer from the respondent to his associate was a complete sham. It was treated as if it had never occurred, so the later transaction was treated as one between the respondent, acting through his nominee, and the intervener.
2. The oral collateral agreement made mortgage finance a condition precedent to performance. Until the mortgage money was available, the intervener could withdraw and could not be sued for specific performance. The transaction therefore became operative on 3 March 2009, when the mortgage was completed and the funds were received, rather than on 27 August 2008.
3. The statutory defence in section 23(6) failed. By the operative date the intervener knew, actually or constructively, of the dispute concerning South Lodge and of the applicant’s attempt to prevent its alienation. Earlier good faith did not protect the transaction.
4. The evidence did not establish that the second transaction itself was a sham. However, the first transaction involved actual impropriety. Applying the principles discussed in Ben Hashem v Al Shayef [2009] 1 FLR 115, the court was entitled to disregard Everclear and declare that the property was held beneficially for the respondent.
5. In deciding whether to set aside the charge, the court could consider the full range of circumstances, including the comparative impact on the applicant and intervener. The share sale and bond assignment were set aside, Everclear was declared to hold South Lodge beneficially for the respondent subject to the mortgage, and the respondent was ordered to indemnify the intervener. Permission to appeal was granted.

First-instance decision. Permission to appeal was granted to the intervener.