Williams v Taylor & Anor

The Court of Appeal dismissed the trustee in bankruptcy's appeal under section 423 of the Insolvency Act 1986 seeking to set aside a transfer of land and a subsequent declaration of trust. The court accepted the trial judge's findings that the transfer and deed of trust implemented pre-existing agreements between the husband and his wife concerning (i) the wife’s payment for improvement works in 2001 and (ii) a loan in 2002 which was understood to be secured on the husband’s interest.

Although the transfer was at an undervalue for the purposes of section 423(1), the judge found that the trustee had not proved that a purpose of putting assets beyond the reach of creditors, or otherwise prejudicing creditors, was a real and substantial purpose of the transactions for the purposes of section 423(3). The Court of Appeal upheld that factual conclusion and rejected the submission that objective contemporaneous indicators required a contrary inference.

Background and parties: The appellant was the Trustee in Bankruptcy of Mr Jonathan James Taylor. The respondents were Mr Taylor and his wife (Dr Raines). The claim under section 423 of the Insolvency Act 1986 sought to set aside two documents: a transfer of 3 West Beach into the joint names of Mr Taylor and Dr Raines on 23 April 2003 and a Declaration of Trust dated 16 May 2003. The transfer followed the creditor’s voluntary liquidation of JRT on 3 April 2003; the property had been subject to mortgages and there was an outstanding loan and guarantees which exposed Mr Taylor to potential liabilities.

Nature of the claim/application: The Trustee sought to recover for the benefit of Mr Taylor’s creditors the value of the transfer (effectively 13 Hastings Place acquired later by Dr Raines plus £31,500) on the basis that the transaction was entered into at an undervalue and for the purpose of putting assets beyond the reach of creditors under section 423(1) and (3).

Issues framed by the court: (i) whether the transfer and declaration constituted a transaction at an undervalue for the purposes of section 423(1); and (ii) whether the appellant proved that the transaction was entered into by Mr Taylor for the purpose of putting assets beyond the reach of persons who might make claims against him or otherwise prejudicing creditors, i.e. the statutory purpose in section 423(3).

Procedural posture: The appeal was from an order of HHJ Hodge QC dated 2 November 2011 dismissing the trustee’s claim. Permission to appeal had initially been refused on paper by Lewison LJ but was granted orally by the Chancellor of the High Court, Sir Andrew Morritt.

Court’s reasoning and conclusions: The judge below had accepted evidence that (a) in 2001 Dr Raines paid about £120,000 for improvement works and an agreement was reached that her contribution would give rise to a beneficial interest proportional to that expenditure and that the existing mortgages would be borne by Mr Taylor’s share, and (b) in 2002 Dr Raines made a £120,000 loan to the company (or to Mr Taylor) which was to be secured on Mr Taylor’s interest. The judge found that the Declaration of Trust gave effect to those prior arrangements and that the parties honestly and reasonably believed the values recorded, despite some overstatement. The judge held that although the legal transfer was at an undervalue, the trustee had not proved that defeating creditors was a real, substantial purpose of the transactions under section 423(3). The Court of Appeal held that, on the evidence, the judge’s credibility findings and conclusions of fact were open to him and dismissed the appeal.

Subsidiary findings and context: The court treated Hashmi v Commissioners for Inland Revenue as authority for the proposition that the statutory purpose under section 423(3) must be a real and substantial purpose (it need not be dominant). The court noted that objective contemporaneous indicators could shift the evidential burden, but factual evidence from the respondents answered those indicators; the appellate court would not supplant the trial judge’s findings of credibility and fact.

Appeal dismissed. The Court of Appeal upheld the trial judge’s factual findings that the transfer and declaration of trust implemented pre-existing agreements between the parties and that the trustee had not proved that putting assets beyond the reach of creditors was a real and substantial purpose under section 423(3) of the Insolvency Act 1986. The judge’s assessment of credibility and conclusions of fact were not displaced on appeal.

Appeal from an order of HHJ Hodge QC (Manchester High Court, District Registry) dated 2 November 2011 dismissing the section 423 claim. Permission to appeal was initially refused on paper by Lewison LJ and subsequently granted at an oral hearing by the Chancellor of the High Court, Sir Andrew Morritt. The appeal was heard in the Court of Appeal (Civil Division) and is reported at [2012] EWCA Civ 1443 (Case No A2/2011/3014).