Everclear Ltd (BVI) v Agrest & Anor

Under section 23 of the Matrimonial and Family Proceedings Act 1984, the effective date of a challenged transaction depends on its true contractual terms. Where mortgage finance is a condition precedent to a purchase, the transaction is not effective merely because the agreement was signed; it takes effect when the condition is fulfilled. Once the statutory discretion to set aside exists, the court may consider the full factual context and must balance fairness, including the attempted defeat of financial-relief claims, the asset’s importance to those claims, and the purchaser’s likely loss. Judges should explain the discretionary assessment fully. On the facts, setting aside the transfer was the only proper exercise of the discretion.

Everclear Limited (BVI) appealed from Mostyn J’s decision, reported at [2010] EWHC 3091 (Fam). The judge declared that Edward Kinigopolou had held the company’s share as nominee for Boris Agrest and set aside its transfer to George Chesnokov under section 23 of the Matrimonial and Family Proceedings Act 1984. The company’s sole asset was an English property relevant to Janna Kremen’s application for financial relief. Everclear argued that Chesnokov had acquired the beneficial interest when the share-sale agreement was signed in 2008, before a later restraining order. The respondents contended that mortgage finance was a condition precedent and that the transaction was not effective until March 2009. The issues were the effective date of the transaction and the proper exercise of the discretion to set it aside.

Sir Nicholas Wall P delivered the leading judgment. Sedley LJ and Arden LJ agreed.

1. Effective date of the transaction. The court rejected the argument that the share-sale agreement transferred the beneficial ownership in August 2008. The evidence showed that Chesnokov would purchase the property only if he obtained mortgage finance and that the deal would be abandoned if finance could not be obtained. Mortgage finance was therefore a condition precedent. For section 23 purposes, the effective date was 3 March 2009, when the mortgage was completed and funds became available. The earlier signature of the agreement did not determine the date of the transaction.
2. Purchaser without notice. The parties’ arguments under section 23(7) depended on whether Chesnokov had acquired the beneficial interest before the order of Cohen QC dated 12 February 2009, or before notice of it. Since the acquisition occurred only after the condition precedent was fulfilled, the purchaser-for-value-without-notice argument did not assist him.
3. Discretion to set aside. Once the discretion existed, the court could consider the full range of facts and strike a balance of fairness between the applicant for financial relief and the purchaser. Relevant matters included the manifest attempt to defeat the claim, the importance of the property to the financial-relief claims, and the consequences for Chesnokov. Wall P considered that the judge should have explained the discretionary reasoning more fully in future cases, but held that the discretion could only properly have been exercised one way on these facts.
4. Disposition. The attempted defeat of the claim and the addition of approximately £600,000 to £800,000 to the matrimonial assets were material. The factors identified by the judge concerning Chesnokov’s likely limited loss were also relevant. The appeal was dismissed and the judge was entitled to set aside the transfer of the company and, consequentially, the property.

1. Court of Appeal (Civil Division): In [2011] EWCA Civ 232, the appeal was dismissed. The court upheld the conclusion that the transaction was not effective until the mortgage condition was fulfilled and that the transfer could be set aside.
2. Family Division: Mostyn J, in [2010] EWHC 3091 (Fam), declared the earlier share transfer a sham, found that Agrest retained beneficial ownership, and set aside the transfer to Chesnokov under section 23 of the Matrimonial and Family Proceedings Act 1984.