Kamran Malik v Farida Messalti

A charging order can secure a judgment debt only against a beneficial interest held by the debtor. A trust which genuinely divests that interest may nevertheless be challenged under Insolvency Act 1986, section 423. The prohibited purpose need only be one purpose of the transaction. It may be a general purpose of protecting assets from future creditors, even where no creditor or class of creditor is specifically identified. The applicant need not have been contemplated when the transaction was made. Relief is discretionary and must balance restoration and protection of victims against the position of innocent transferees.

The defendant applied for a final charging order over the claimant’s alleged beneficial interest in the family home. The debt arose from a 2016 costs judgment following the claimant’s unsuccessful claim. The claimant relied on a 2008 declaration of trust under which his interest was said to be held for the parties’ children.

The court joined the children, determined the trust’s creation and effect, considered whether it was illusory or a sham, and considered the defendant’s alternative challenge under section 423 of the Insolvency Act 1986. The central issues were whether the trust removed the claimant’s beneficial interest and, if so, whether it was entered into for a prohibited purpose and what relief should follow.

1. Joinder and charging order. The four children were joined because they claimed interests in the property and their participation was desirable for resolving the disputes under CPR 19.2. A charging order could operate only on a beneficial interest held by the debtor. Since the trust removed the claimant’s beneficial interest, no charging order could rest directly on that interest.
2. Trust. The 2008 deed was genuine and was executed on the date stated. Properly construed, and in light of the earlier declaration made by HHJ Dight, it related to 11 St Clair Road despite the missing schedule. It created a genuine, non-illusory trust for the children. The claimant retained only a personal right to live at the property.
3. Section 423. The transaction was at an undervalue. The claimant had a real subjective purpose of protecting the property from creditors, including future creditors. That purpose did not need to be exclusive or dominant, and it did not require a particular creditor or class of creditor to be in contemplation. The court preferred the approach in Sahota v Sohal and treated Hinton v Wotherspoon as distinguishable or fact-specific to the extent it suggested otherwise.
4. The consequence of a transaction is not itself its purpose. The question is whether the prohibited purpose was actually intended and desired. Foreseeability may support an inference, but does not establish purpose without evaluation of all the evidence.
5. The defendant was a victim although she was unknown to the claimant when the trust was created. Section 423 protects persons prejudiced by the transaction, whether or not they were within the transferor’s purpose.
6. Relief. The court had a wide discretion under sections 423 and 425. It ordered sufficient beneficial interest to revert to the claimant to secure the judgment debt, interest, costs and enforcement costs, rather than undoing the trust entirely. The order was not to be sealed for two months, and time to appeal was extended. The children and Mrs Kamran were given permission to appeal.
7. The late limitation argument was not permitted because it had not been pleaded and its introduction after the evidence would have prejudiced the defendant. The court expressed an inclination that the claim would in any event have been timely under the majority reasoning in Hill v Spread Trustee Company Ltd, but did not decide that issue.

First-instance decision. Permission to appeal was granted to the children and Mrs Kamran on the difficult questions of law identified by the court. The order was to remain unsealed for two months and the time for appealing was extended.