Williams v Taylor & Anor

For a transaction to be set aside under Insolvency Act 1986 section 423, the statutory purpose need not be the debtor’s sole or dominant purpose. It must, however, be a real and substantial purpose. Objective circumstances may shift the evidential burden, so that an inference of the statutory purpose is available if unanswered. They do not determine the issue where the other party supplies evidence explaining the transaction. The court must then assess all the evidence, including credibility, prior agreements, contemporary documents and surrounding circumstances. An appellate court will not interfere with a trial judge’s findings of fact merely because another judge might have evaluated the evidence differently, provided the approach was legally sound and the conclusions were adequately reasoned.

The appellant, the trustee in bankruptcy of Jonathan James Taylor, challenged the transfer of a property into the joint names of Mr Taylor and his wife, Dr Raines, followed by a declaration of trust. The transactions occurred shortly after the liquidation of a company connected with Mr Taylor, when he faced potential liabilities to creditors.

The trustee brought proceedings under section 423 of the Insolvency Act 1986, alleging that the transaction was at an undervalue and was entered into for the purpose of putting assets beyond creditors’ reach or otherwise prejudicing their interests. HHJ Hodge QC dismissed the claim, finding that the documents implemented earlier arrangements between the spouses and that Mr Taylor lacked the statutory purpose. The central issue on appeal was whether the judge had properly evaluated the objective evidence and the witnesses’ account.

1. Appeal dismissed. The transaction was objectively at an undervalue, satisfying Insolvency Act 1986 section 423(1). The issue was whether Mr Taylor entered into it for a purpose specified in section 423(3).
2. Under section 423(3), the relevant purpose need not be the sole or dominant purpose. Under Hashmi v The Commissioners for Inland Revenue [2002] EWCA Civ 981, it must be a real and substantial purpose.
3. The objective evidence, including the timing after the company’s liquidation, Mr Taylor’s potential guarantee liabilities, his lack of employment and his limited other assets, shifted the evidential burden in the practical sense. If unanswered, it could justify an inference that the statutory purpose was a substantial purpose. It did not resolve the issue where the respondents had given evidence in explanation.
4. The trial judge was entitled to assess the disputed oral evidence first, in the context of the contemporary documents and surrounding circumstances. He was entitled to accept that earlier agreements had given Dr Raines an interest reflecting her contributions and that the transfer and declaration of trust implemented those arrangements. His failure to spell out every discrepancy or evidential consideration did not make the judgment inadequate or unreasoned.
5. Authorities concerning the predecessor provision, section 172 of the Law of Property Act 1925, could not automatically be applied to section 423 because the provisions were differently worded. The relevant intention was a question of fact, not a presumption of law.
6. The court noted, without relying on it to decide the appeal, that a spouse’s contribution to improvements might support a commensurate beneficial interest under section 37 of the Matrimonial Proceedings and Property Act 1970.
7. The appeal was a challenge to findings of fact. The Court of Appeal would not substitute its own assessment of credibility merely because another judge might have reached a different conclusion. The judge’s findings that the statutory purpose was absent were open to him on the evidence.

Lord Justice Lloyd gave the leading judgment. Lady Justice Rafferty and Lord Justice Ward agreed. Order: appeal dismissed.

• Court of Appeal (Civil Division): Appeal from an order of HHJ Hodge QC dated 2 November 2011. The appeal was dismissed.
• Manchester High Court District Registry: The claim under Insolvency Act 1986 section 423 was dismissed after the judge found that the statutory purpose had not been proved.