Emma Sayers & Anor v John Charles Dixon & Anor

A transaction is a sham where the parties intend to create rights and obligations different from those appearing on the face of the transaction and intend to give that false impression to third parties or the court. Subjective intention may be inferred from surrounding circumstances and subsequent conduct.

For Insolvency Act 1986, s 423, the prohibited purpose need only be one purpose of a transaction at an undervalue. It need not be sole, dominant or directed towards an identified creditor, but must be an actual purpose rather than a mere consequence. The provision does not require insolvency or a particular level of knowledge about the eventual claimant.

The claimants were joint trustees in bankruptcy of John Charles Dixon. They challenged six declarations of trust executed in favour of his wife, together with a related loan agreement, alleging that the arrangements were shams and transactions at an undervalue intended to prejudice persons who might claim against him.

The trustees also challenged the purchase of a Barbados property in Mrs Dixon’s name and dispositions concerning the Cambridge and Argyll properties. The defendants disputed the claims and relied on alternative purposes, good faith and change of position. The court determined whether the statutory requirements for relief and the alleged sham arrangements were established.

1. Section 423 claim. The court held that each declaration of trust was entered into for no consideration and for the purpose of putting assets beyond the reach of a person who might make a claim against Mr Dixon, or otherwise prejudicing that person’s interests. The statutory purpose need only be one purpose, not the sole, substantial or dominant purpose, although it must be an actual purpose and not merely a consequence: JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176.
2. The purpose was established by the near-contemporaneous Penningtons file note, the full suite of trust documents, later correspondence and the parties’ conduct. The court rejected the attempted characterisation of the arrangements as inheritance-tax planning. A high income and the absence of a specific creditor did not prevent the statutory purpose being established. Section 423 does not require insolvency, knowledge of the eventual claimant or contemplation of that claimant: El-Husseiny [2023] EWCA Civ 555; Gordian Holdings Ltd v Sofroniou [2021] EWHC 235; Malik v Messalti [2024] EWHC 2713.
3. Sham. The EY Trust, the residual estate trust and the Loan Agreement were shams. The documents were not administered in accordance with their terms. The unchanged banking arrangements, substantial retention of income by Mr Dixon, the artificiality and impossibility of the loan arrangements, and the parties’ explanations demonstrated an intention to create a false appearance of rights and obligations. The remaining property, chattels and vehicles declarations were not proved to be shams, but this did not affect the statutory relief.
4. Defences and relief. Mrs Dixon could not rely on change of position, even assuming that defence was available in a s 423 claim, because she knowingly participated in the asset-protection scheme and therefore lacked good faith. Expenditure alone was insufficient. The court ordered that the declarations of trust be set aside and granted relief under ss 423–425.
5. The Barbados purchase was a transaction at an undervalue under s 339, with the statutory presumption of insolvency unrebutted. The sale of the Cambridge and Argyll properties between presentation of the bankruptcy petition and the bankruptcy order engaged s 284. The trustees were entitled to declarations concerning Mr Dixon’s 50% interests and the sale proceeds.