AD Lee v Secretary of State for the Home Department

The Court of Appeal refused permission to appeal against HHJ Cooke's findings that the transfer of beneficial ownership of the Spanish property known as "The White House" was a transaction at an undervalue under Section 339 of the Insolvency Act 1986 and that, for the purposes of Section 37 of the Matrimonial Causes Act 1973, the disposition had been made with the intention of defeating the wife's claim and the purchaser (Mr Hill) had notice and had not acted in good faith. The court accepted the judge's assessment of the valuation evidence (a market value of about €2.4m versus consideration of about €1.1m) and his finding that there was no objective necessity to sell on a truncated timescale which would justify discounting market value to the level of the consideration. The court emphasised the correct objective approach to valuation for Section 339 and the high threshold required to overturn findings of primary fact on appeal.

This appeal arose from contested complementary proceedings: a trustee in bankruptcy's application under Section 339 of the Insolvency Act 1986 to set aside an alleged transaction at an undervalue and a wife's application under Section 37 of the Matrimonial Causes Act 1973 contending that the disposition was intended to defeat her claim for financial relief.

Background:

• The White House (a Spanish property) was owned by a Spanish company (Proserpina Investments) whose shares were held by a Gibraltar company (Blair Advisory Services) in nominee names; Mr Salt was the indirect beneficial owner.
• In February 2007 Mr Salt transferred the beneficial interest in the shares to Mr Hill for consideration said to be about €1.1m. The property had been marketed earlier for about €3m.
• Mrs Salt commenced divorce proceedings in October 2006; a decree absolute was made January 2008 and by July 2008 she was contemplating a Section 37 application. Mr Salt was adjudged bankrupt on 23 July 2008 and Mr Hargreaves was appointed trustee who then brought the Section 339 claim. Both matters were tried before HHJ Cooke in November 2010.

Nature of the application: The appellant (Mr Hill) sought permission to appeal to the Court of Appeal against HHJ Cooke's orders of 3 December 2010 (and consequential orders of 13 January 2011). The relief sought on appeal was to overturn findings that the transaction was at an undervalue (insolvency proceedings) and that the disposition was intended to defeat Mrs Salt's claim and that Mr Hill had notice and lacked good faith (matrimonial proceedings).

Issues framed by the court:

1. Whether the transaction was at an undervalue within Section 339 of the Insolvency Act 1986 (with Section 341 relevant to timing and proof);
2. Whether the husband made the disposition with intent to defeat his wife's claim under Section 37 of the Matrimonial Causes Act 1973;
3. Whether the purchaser (Mr Hill) acted in good faith and without notice of the husband's intention.

Evidence and reasoning: The trial judge accepted joint expert evidence (Mr Ferguson) that the market value in February 2007 was about €2.4m and noted the consideration in fact paid was about €1.1m. The judge also had evidence from Bank Inter's manager (Mrs Zimmerman) and documents concerning mortgage arrears (the judge recorded arrears of about €11,770). The appellant contended the arrears were much greater and that Mr Salt was under severe urgent pressure to sell such that a discounted forced-sale valuation would apply. The judge rejected a subjective test of what the seller might accept, instead applying an objective assessment of market value taking account of market circumstances and any genuine need to sell quickly. He concluded there was no objective necessity to dispose immediately, that the bank would likely have granted time to market, and that the transaction was at an undervalue. The Court of Appeal held that these factual findings were open to the trial judge, that the appellant had no realistic prospect of demonstrating perversity in those findings, and that the judge applied the correct legal approach to valuation under Section 339 and to notice/good faith under Section 37. Permission to appeal was refused and the applications dismissed.

Procedural note: The orders made by HHJ Cooke included vesting of Mr Hill's beneficial interest in the trustee in bankruptcy and directions for determination of appropriate ancillary relief; further hearings were fixed to determine precise relief under the wide powers in Section 342 of the Insolvency Act 1986.

The applications for permission to appeal were refused and the appeals dismissed. The Court of Appeal concluded there was no realistic prospect of overturning the trial judge's factual findings that the transaction was at an undervalue under Section 339 of the Insolvency Act 1986 and that, for the purposes of Section 37 of the Matrimonial Causes Act 1973, the disposition was intended to defeat the wife's claim and the purchaser had notice and lacked good faith. The court endorsed the judge's objective approach to valuation and the high threshold for upsetting findings of primary fact on appeal.

Appeal from HHJ Cooke sitting in the High Court, Principal Registry of the Family Division (orders made 3 December 2010 and 13 January 2011). Applications for permission to appeal to the Court of Appeal were referred for full-court hearing (per Wilson LJ). The Court of Appeal ([2011] EWCA Civ 248) refused permission and dismissed the appeals.