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B v IB [2013] EWHC 3755 (Fam)

Judgment considering whether former wife’s application pursuant to s.423 Insolvency Act 1986, to set aside substantial money transfers made by her deceased ex-husband during his lifetime should be dismissed

The husband was born in 1938 and the wife was born in 1949.  They married in 1984. The husband had been married previously and there were two daughters and a son from his first marriage.  The husband owned the majority of shares in a company, which was sold in 2000 and the bulk of the sale price was paid in 2002.  The minority shareholdings of the wife of 10% and the husband's son (IB) of 5% were transferred back to the husband before sale. 

In 2002, the husband transferred £1.2M to IB, on IB ceasing to be employed by the company. In April 2005 he transferred £30,030 to IB and in September 2006 he transferred a further £1.75M to him.  It was IB's case that all payments reflected his shareholding or were a gift to him to reflect his part in the company's success. The wife did not accept IB's contention.  The wife pointed out that IB had received 65% of the net proceeds and queried why payments were made in 2006, four years after the sale moneys were received. 

In 2009, the wife filed a petition for divorce and in October 2009 she applied to set aside the money transfers to IB between 2002 and 2006 under s.37 Matrimonial Causes Act 1973 so as to bring back those moneys into the assets available within the financial remedy proceedings. She obtained an ex-parte freezing order in respect of the husband's assets.  The order stated on its face that it was made both pursuant to s.37 MCA 1973 and the court's inherent jurisdiction.

IB was joined as second Respondent in June 2010 but by July 2010 the Husband was very ill and unable to give instructions.  Medical opinion was that he lacked capacity to litigate. There was no evidence that he had been incapacitated as at the date of the transfer(s).  He became represented by the Official Solicitor.

In March 2011 District Judge Aitken sitting at the PRFD set aside the transfer from H to IB which had been made on 21 September 2006 of £1.75M.  She dismissed the applications to set aside the transfer of £1.2M in 2002 and £30,030 in April 2005.  IB appealed. The wife did not cross-appeal. In September 2011, Mostyn J granted permission to appeal and set aside the order because the District Judge had specifically disbelieved IB on a point which arose in cross-examination on behalf of the husband about which the judge had asked questions, but upon which IB ought to have been challenged, and in respect of which the wife ought to have been recalled. There were other evidential points and it was held that the district judge had not given a clear explanation as to why she had exercised the discretion to set aside the transaction. A retrial was ordered.

In October 2011 the wife's solicitors served notice that as well as pursuing the s.37 set aside remedy that also she intended to apply for an order under s.423 Insolvency Act 1986 (IA 1986), restoring the financial position of the husband to that which would have existed had he not made the transfers to IB of £30,030 in 2005 and £1,750,000 in 2006 and for an order waiving compliance with any other procedural requirements that might otherwise exist in respect of the making of the application under s.423 IA 1986.

The wife's solicitors argued that although the two provisions are similar in effect, s.423 does not require proof that the transaction about which complaint is made had been effected with the intention of defeating a claim under the MCA 1973, which she was otherwise required to establish since the two transfers had been made more than three years before the date of her application.

The two applications came before Parker J for hearing on 25 to 28 June 2012.  The hearing outran its allotted span and was adjourned.  The husband died on the night of 10 July 2012. 

The wife's legal team wanted to consider the legal consequences and their client's position and a hearing was not reconvened until April 2013.  The parties now agreed that the right to pursue an application to judgment does not extend past joint lives and that the s.37 jurisdiction had come to an end. 

The husband's will, made in 2010, replacing an earlier will and made shortly after the wife had presented her petition, named IB as executor together with another individual. His estate was left on trust for his surviving children. The wife was to receive nothing under the will.  The wife also intended to commence proceedings under the Inheritance Provision for Family and Dependants Act 1975 ("I(PFD)A 1975").

The wife owned half of the former family home. The husband's remaining estate is about £2M.  The wife sought to set aside the transaction so as to bring back the sum of £1.75M into the estate and sought to have the s.423 route available to her as well as the statutory route under s.10 I (PFD)A 1975.  The issue for Parker J to determine was whether the application made by the wife under s.423 Insolvency Act 1986 should be dismissed or not.

After consideration of the law and the relevant case law and in particular the interrelationship between s.423 IA 1986 and s.10 I(PFD)A 1975, Parker J held that it was not impossible to restore the position, at least in law, as to ownership, to what it was at the date of the transaction, that she did not accept that s.423 only applies to cases where the estate is insolvent and that the s.423 test is wider than the s.10 test and that the remedy was therefore different.  The judge held that applications were not indistinguishable.  In her judgment, Parker J held that s.423 provides an additional remedy which may be of utility in the case, that an application can be issued in its own right pending the making of a claim, and that it did not require formal insolvency: the husband or his estate may be characterised as the debtor and the wife (and indeed the co-beneficiaries) as victims of the transaction.  It was held that the court had jurisdiction and the merits of the applications will be tried in due course.  On the issue of costs, the judge held while there was a possibility that the case may settle that to decide on costs now would not serve the overriding objective.

Case summary by Richard Tambling, barrister, 1 Garden Court


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Neutral Citation Number: [2013] EWHC 3755 (Fam)
Case No: FD09D04707

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 29/11/2013

Before :

MRS JUSTICE PARKER
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Between :

B Applicant

- and - 

IB Respondent
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- - - - - - - - - - - - - - - - - - - - -

Mr James Turner QC (instructed by VKS Solicitors) for the Applicant
Mr Christopher Pocock QC
with Ms Linda Turnbull (instructed by Wellers Law Group LLP) for the Respondent

Hearing dates: 10th April 2013
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Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
.............................

MRS JUSTICE PARKER
This judgment is being handed down in private on 29 November 2013. It consists of 19 pages and has been signed and dated by the judge.

The Judge gives leave for this judgment to be reported.

Mrs Justice Parker : 
1. H (born 1938) and W (born 1949) were married in 1984. H had been previously married.  There are two daughters and a son of that first marriage.

2. H owned the majority of shares in a company, which was sold in 2000. The bulk of the sale price was paid in 2002. Minority shareholdings of W (10%) and his son IB (5%) were transferred back to H before sale. 

3. In 2002 H transferred £1.2M to IB, on IB ceasing to be employed by the company. In April 2005 he transferred £30,030 to IB and in September 2006 he transferred a further £1.75M to him.  What W knew about this, when, and why she did not take action earlier, is in issue.   

4. IB's case is that all payments reflected his shareholding or were a gift to him to reflect his part in the company's success. W denies that. She points out that IB has received in total about 65% of the net proceeds. She also queries why payments were made in 2006, four years after the sale moneys were received. 

5. In 2009 W filed a petition for divorce.  On 15 October 2009 she applied to set aside the money transfers to IB between 2002 and 2006 under s37. Matrimonial Causes Act 1973 so as to bring back those moneys into the assets available within the financial remedy proceedings. She obtained an ex parte freezing order in respect of H's assets.  The order states on its face that it was made both pursuant to s37 MCA 1973 and the court's inherent jurisdiction.

6. H made a statement pursuant to the order made at the ex parte hearing of the application in January 2010.

7. IB was joined as second Respondent in June 2010.

8. By July 2010 H was ill (Parkinson's disease and onset of related dementia) and unable to give instructions.  Medical opinion was that he lacked capacity to litigate. There was no evidence that he had been incapacitated as at the date of the transfer(s).  He became represented by the Official Solicitor.

9. In March 2011 DJ Aitken at the PRFD set aside the transfer from H to IB on 21 September 2006 of £1.75M.  She dismissed the applications to set aside the transfer of £1.2M in 2002 and £30,030 in April 2005.

10. IB appealed. W did not cross-appeal. On 8 September 2011 Mostyn J granted permission to appeal and set aside the order of the District Judge.  He did so because the District Judge had specifically disbelieved IB on a point which arose in cross-examination on behalf of H about which the judge asked questions, but upon which IB ought to have been challenged, and in respect of which W ought to have been recalled. There were other evidential points. Finally, the district judge had not given a clear explanation as to why she had exercised the discretion to set aside the transaction (see Everclear v Agrest and Kremen [2011] 1 FLR 506). He ordered a retrial.

11. In October 2011 W's solicitors served notice by letter that as well as pursuing the s37 set aside remedy she intended to apply for an order under s423 Insolvency Act 1986 (IA 1986) and her formal notice was issued on 28 October 2011 for:

1)  An order under s423 IA 1986, restoring the financial position of H to that which would have existed had he not made the transfers to IB of £30,030 in 2005 and £1,750,000 in 2006.

2) An order waiving compliance with any other procedural requirements that might otherwise exist in respect of the making of the said application under s423 IA1986.

12. In the October 2011 letter W's solicitors argued that although the two provisions are similar in effect, s423 does not require proof that the transaction about which complaint is made had been effected with the intention of defeating a claim under the MCA 1973, which she was otherwise required to establish since the two transfers had been made more then three years before the date of her application (s37 (5) MCA 1973).    

13. The two applications came before me for hearing on 25 to 28 June 2012.  I heard evidence from W, IB, and two other witnesses, principally about the circumstances in which the transfers were made.

14. The hearing outran its allotted span.  At the end of day three Mr Turner had not concluded his submissions.  I adjourned.  Mr Turner said that I could not decide the case without further submissions which he would provide in writing, and that he would perhaps require to address me further in court.  Mr Pocock also wished to provide details in writing of alleged inconsistencies in W's evidence.

15. H died on the night of 10 July 2012, just under a fortnight later. 

16. W's legal team wanted to consider the legal consequences and their client's position. They did not reconvene a hearing until April 2013.

17. The parties now agree that (i) the right to pursue an application to judgment does not extend past joint lives (Barder v Caluori [1988] AC 20 and Harb v King Fahd Bin Abdul Aziz [2005] EWCA 1324), and (ii) the s37 jurisdiction has come to an end. 

18. H's will, made in 2010, replacing an earlier will and made shortly after W had presented her petition, named IB as executor together with another individual. His estate is left on trust for his surviving children. W receives nothing under the will.

19. W intends to commence proceedings under the Inheritance Provision for Family and Dependants Act 1975 (I(PFD)A 1975).  Such an application must be made within 6 months from the date on which representations with respect to the deceased are first taken out. The court may give permission for an extension of time.  W's solicitor asked whether there had been an application for probate.  No response was received.  Until the commencement of the April hearing it was still not clear whether this had been done, but Mr Pocock was then able to confirm that probate had still not been obtained.

20. At that hearing Mr Pocock QC for H rightly complained that he had heard nothing from the wife's legal team for months until further submissions were served by Mr Turner QC for W on the afternoon of the previous day. It seems that W's solicitor had changed firms and communications were not passed on.

21. Mr Turner made the valid point that his client's intention had been that the  application under s37 MCA 1973 be replaced with an application under s10 I(PFD)A 1975, and that the s423 application could then be deployed in the context of 1975 Act proceedings. In earlier communications with Mr Pocock he had mistakenly thought that I(PFD)A proceedings had been issued. In fact there had been an attempt to issue which had been unsuccessful because of the absence of proof of the grant of probate.

22. Although at first I was inclined to concur with Mr Pocock that it was not clear why a hearing was taking place at all, it became clear that a real and substantial issue arose in respect of the s423 application, which Mr Pocock contended should be dismissed for want of jurisdiction.

23. W owns half of the former family home. H's remaining estate is about £2M.  W seeks to set aside the transaction so as to bring back the sum of £1.75 M into the estate.  She wishes to have the s423 route available to her as well as the statutory route under s10 I (PFD)A. 

24. At the end of the hearing the issues for decision were:

1) Should I dismiss the application made by W under s423 Insolvency Act 1986?

2) Should I rule on the costs of the June 2012 hearing now, or should I adjourn costs?

The law
25. S10 I(PFD) A 1975 provides:-

Dispositions intended to defeat applications for financial provision.
1) Where an application is made to the court for an order under section 2 of this Act, the applicant may, in the proceedings on that application, apply to the court for an order under subsection (2) below.

2) Where on an application under subsection (1) above the court is satisfied-

a) that, less than six years before the date of the death of the deceased, the deceased with the intention of defeating an application for financial provision under this Act made a disposition, and

b) that full valuable consideration for that disposition was not given by the person to whom or for the benefit of whom the disposition was made (in this section referred to as "the donee") or by any other person, and

c) that the exercise of the powers conferred by this section would facilitate the making of financial provision for the applicant under this Act,

then subject to the provisions of this section and of sections 12 and 13 of this Act, the court may order the donee (whether or not at the date of the order he holds any interest in the property disposed of to him or for his benefit by the deceased) to provide, for the purpose of the making of that financial provision, such sum of money or other property as may be specified in the order.

3) Where an order is made under subsection (2) above as respects any disposition made by the deceased which consisted of the payment of money to or for the benefit of the donee, the amount of any sum of money or the value of any property ordered to be provided under that subsection shall not exceed the amount of the payment made by the deceased after deducting therefrom any capital transfer tax borne by the donee in respect of that payment.

4) Where an order is made under subsection (2) above as respects any disposition made by the deceased which consisted of the transfer of property (other than a sum of money) to or for the benefit of the donee, the amount of any sum of money or the value of any property ordered to be provided under that subsection shall not exceed the value at the date of the death of the deceased of the property disposed of by him to or for the benefit of the donee (or if that property has been disposed of by the person to whom it was transferred by the deceased, the value at the date of that disposal thereof) after deducting therefrom any capital transfer tax borne by the donee in respect of the transfer of that property by the deceased.

5) Where an application (in this subsection referred to as "the original application") is made for an order under subsection (2) above in relation to any disposition, then, if on an application under this subsection by the donee or by the applicant for an order under section 2 of this Act the court is satisfied-

a) that, less than six years before the date of the death of the deceased, the deceased with the intention of defeating an application for financial provision under this Act made a disposition other than the disposition which is the subject of the original application, and

b) that full valuable consideration for that other disposition was made or by any other person,

the court may exercise in relation to the person to whom or for the benefit of whom that other disposition was made the power which the court would have had under subsection (2) above if the original application hade been made in respect of the other disposition and the court had been satisfied as to the matters set out in paragraphs (a), (b) and (c) of that subsection; and where any application is made under this subsection, any reference in this section (except in subsection (2)(b)) to the donee shall include a reference to the person to whom or for the benefit of whom that other disposition was made.

6) In determining whether and in what manner to exercise its powers under this section, the court shall have regard to the circumstances in which any disposition was made and any valuable consideration which was given therefore, the relationship, if any, of the donee to the deceased, the conduct and financial resources of the donee and all the other circumstances of the case.

7) In this section "disposition" does not include-

a) Any provision in a will, any such nomination as is mentioned in section 8(1) of this Act or any donation mortis causa, or

b) Any appointment of property made, otherwise than by will, in the exercise of a special power of appointment,

But, subject to these exceptions, includes any payment of money (including the payment of a premium under a policy of assurance) and any conveyance, assurance, appointment or gift of property of any description, whether made by an instrument or otherwise.

8) The provisions of this section do not apply to any disposition made before the commencement if this Act.

26. S423 IA 1986 provides that:

Transactions defrauding creditors.
1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if-

a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

b) he enters into a transaction with the other in consideration of marriage [or the formation of a civil partnership]; or

c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less that the value, in money or money's worth, of the consideration provided by himself.

2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for-

a) restoring the position to what it would have been if the transaction had not been entered into, and

b) protecting the interests of persons who are victims of the transaction.

3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose-

a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

4) In this section "the court" means the High Court or –

a) if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;

b) if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.

5) In relation to a transaction at an undervalue, references here and below to a    victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as "the debtor".

27. Section 424 provides that:

Those who may apply for an order under s.423.
1) An application for an order under section 423 shall not be made in relation to a transaction except-

a) in a case where the debtor has been adjudged bankrupt or is a body corporate which is being wound up or [is in administration], by the official receiver, by the trustee of the bankrupt's estate or the liquidator or administrator of the body corporate or (with the leave of the court) by a victim of the transaction;

b) in a case where a victim of the transaction is bound by a voluntary arrangement approved under Part I or Part VIII of this Act, by the supervisor of the voluntary arrangement or by any person who (whether or not so bound) is such a victim; or

c) in any other case, by a victim of the transaction.

2) An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction.

28. Section 425 provides that:

Provision which may be made by order under s. 423.
1) Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows) -

a) require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made;

b) require any property to be so vested if it represents, in any person's hands, the application either of the proceeds of sale of property so transferred or of the money so transferred;

c) release or discharge (in whole or in part) any security given by the debtor;

d) require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct;

e) provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction to be under such new or revived obligations as the court think appropriate;

f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be changed on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction.

2) An order under section 423 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the debtor entered into the transaction; but such an order-

a) shall not prejudice any interest in property which was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and

b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.

3) For the purposes of this section the relevant circumstances in relation to a transaction are the circumstances by virtue of which an order under section 423 may be made in respect of the transaction.

4) In this section "security" means any mortgage, charge, lien or other security.

Issue 1: IA 1986 or I(PFD)A 1975.
29. Mr Turner submits that:

1) The remedy under s.423 IA 1986 is a freestanding remedy;

2) It is supplemental to the s.10 I(PFD)A 1975 remedy and is not excluded by it;

3) The intention that must be established is wider than is required by s.10 I (PFD)A 1975;

4) The range of remedies is wider, particularly the power to restore assets to the estate.

30. Mr Pocock submits that:

1) The appropriate statutory mechanism is contained in the Inheritance (Provision for Family and Dependants) Act 1975 s.10.  There is no scope for the application of the Insolvency Act remedy. He had made the same submission in respect of the s.37 remedy: this issue of course had not been determined.

2) The existence of the s.10 remedy precludes reliance on s.423 IA 1986.

3) The s.423 remedy is not freestanding, and there is now no cause of action.

4) It applies only in cases of insolvency. 

5) The Limitation Acts apply.

31. In Inland Revenue Commissioners v Hashmi & Anor [2002] EWCA] Civ. 728;  [2002] 2 BCLC 489; 504; [2002] BPIR 974 ("Hashmi") Arden LJ said:

"[21] Section 423 is a new section. … Its predecessor, s172 of the Law of Property Act 1925, had a long history… However, its judicial interpretation had not always been consistent and it was heavily criticised by the Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) (the Cork Report). That report explained that the meaning of the expression 'intent to defraud' was not entirely clear and in consequence recommended that s172 should be re-enacted in an amended form to make a number of matters clear. In this connection the report recommended that the necessary intent should be an intent on the part of the debtor to defeat, hinder, delay or defraud creditors, or to put assets belonging to the debtor beyond their reach (Cork Report, para 1215 (b)).  It is interesting to note that, as part of the same recommendation, the report also recommended that such intent should be inferred whenever it was the natural and probable consequence of the debtor's actions in the light of the financial circumstances of the debtor at the time, as known, or taken to have been known, to him.
 
"[22] Section 423 plays an important role in insolvency law. It can moreover apply even though that the debtor is not in a formal insolvency. The counter-consideration is that, unlike transactions at an undervalue and preferences, which may be avoided only in a formal insolvency, under s423(3) the stricter requirements of s423 (3) must be satisfied. In my judgment s423 is a carefully calibrated section forming part of a carefully calibrated group of sections. It only applies to transactions which are gifts or which have a gratuitous element (s423 (1)). The transaction is only set aside for the limited purposes of subs (2) (a) and (b). The onus is on the claimant to show the statutory purpose (see (3)) and although there is a very wide jurisdiction to make appropriate orders under s424, these may not prejudice the interests of bona fide purchasers for value under subsequent transactions. Even, however, as regards a party to a transaction potentially falling within s423, there are significant checks and balances. This is not of course a comprehensive summary of the section…".

32. The Court held that purpose to be established need not be the sole purpose, but that substantial purpose or intention is sufficient. In Hashmi the inference of purpose was established by the debtor's persistent under-declaration of profits, and because he would have known that should his dishonesty have been uncovered he would have been liable for tax. Simon Brown LJ, as he then was, stated that a gift should not be saved merely because the debtor would in any event have given it to the donee.

33. In Hill v Spread Trustees Co Ltd and Another [2007] 1 WLR 2404 the Court of Appeal again considered the ambit of s423 IA 1986.  At [1] Arden LJ cited the passage in Hashmi reproduced above.  She turned later to a fuller analysis of the law, commencing with observations about sections 423 to 425:-

"[100] … The sections apply to transaction defrauding creditors (using the terminology in the marginal note) whether or not the person effecting the transaction has become insolvent).

"[101] The scheme of section 423 is unusual.  Subsection (1) defines the circumstances in which section 423 applies: there must be a transaction at an undervalue as defined.  Both gifts and transactions with a gratuitous element are covered.  Subsection (2) defines the objects for which the court can grant relief and refers to "victims".  Subsection (2) does not set out the circumstances in which the court may grant that relief.  Those circumstances appear from subsection (3).  Subsection (3) stipulates the purpose with which the transaction must have been entered into before relief can be granted.  Subsection (4) identifies the court which can hear a claim under section 423.  Subsection (5) defines a "victim" of a transaction defrauding creditors, and it is to be noted that the definition is not restricted to creditors with present or actual debts: whether a person is a victim turns on actual or potential prejudice suffered.  The definition of "victim" is employed in relation to the criteria for relief in subsection (2).  It is not used in subsection (3), which defines the necessary purpose.  The person or persons who fulfil the conditions in section 423(3) may thus be a narrower class of persons than those who at the date of the transaction are victims for the purpose of section 423(5).  For a person to be a "victim" there is no need to show that the person who effected the transaction intended to put assets beyond his reach or prejudice his interests.  Put another way, a person may be a victim, and thus a person whose interests the court thinks fit to protect by making an order under section 423, but he may not have been the person within the purpose of the person entering into the transaction.  That person may indeed have been unaware of the victim's existence. That answers the question: what connection must there be between the purpose and the prejudice?  Section 423(2) in conjunction with the definition of victim in section 423(5) makes prejudice or potential prejudice a condition for obtaining relief.  That prejudice does not have to be achieved by the purpose with which the transaction was entered into.  Nor in my judgment does the purpose have to be one which by itself is capable of achieving prejudice.  What subsection (3) requires is that the purpose should be one which is to prejudice "the interests" of a claimant or prospective claimant.  The "interests" of a person are wider than his rights.  The expression the "interests" of a member in section 459 of the Companies Act 1985 (right of members of a company to apply for relief against unfair prejudice) have been similarly construed: see for example In re Sam Weller & Sons Ltd [1990] Ch 682, 690.  Likewise in Peter Buchanan Ltd v McVey (Note) [1955] AC 516, 521, Kingsmill Moore J of the Supreme Court of Ireland spoke of having to consider the interests of creditors (which included in that case the tax authority in respect of a tax liability triggered by a sale of whiskey stocks), when a dividend is paid by a solvent company, even though those creditors have no right in law to stop a dividend being paid.  I do not therefore consider that it is any answer to the application of section 423 in the present case that the settlement did not by itself prejudice the right of the revenue to make an assessment of tax on the disposal of OS 160 to the settlement when it was exported to Guernsey.  In my judgment, therefore, where, as in this case, the applicant relies on section 423(3)(b), the crucial step is to identify the interests of the person which are said to be prejudiced. 

"[102] ….  I …do not accept … that is it necessary to approach section 423 as if a test of causation were to be applied.  The right approach in my judgment is to apply the statutory wording.  It is enough if the transaction sought to be impugned was entered into with the requisite purpose.  It is entry into the transaction, not the transaction itself, which has to have the necessary purpose.

34. The Court further held that it is not enough to show purpose that the transaction has a particular result.  Arden LJ said (at [132] and [133]) "I would accept that there is a line to be drawn between mere hopes and settled aims … [the trial judge] found that inducing the revenue to make a wrong assessment was something that [N] positively intended and was a factor which 'substantially motivated' him.  This … was enough to show that [N] acted with what was in law a purpose."

35. The court further said that all that has to be shown in order to make an order under 423 (1) and (3) is that a person is making or at some time may make a claim, and that the term "victim" seems to have been avoided in those subsections.

The interrelationship between s423 IA 1986 and s10 I(PFD)A 1975

36. In Trowbridge v Trowbridge [2003] 2 FLR 231 Mr David Richards QC (later Richards J) granted relief to a wife pursuant to s423 IA 1986, setting aside payments made by a husband to his second wife.  He found that they were made with the purpose of frustrating an ancillary relief order.  He commented that in that case relief could also be granted under s37 MCA 1973: the words 'intention' and 'purpose' both carried the same subjective meaning. I do not accept the argument that there is any material distinction between this case and Trowbridge, where an actual creditor was trying to enforce an existing order. In my view the same principles apply in I(PFD)A cases as under s 37 MCA 1973.

37. In AC v DC and others [2012] EWHC 2032 (Fam) Mostyn J described at [16] the legislative history of s37 MCA from its first origins in 1958.  He said:

" … From inception it was intended as a bespoke divorce statutory alternative to the equitable right to seek rescission or avoidance of a transaction procured by misrepresentation, and also to the general statutory anti-avoidance measure within s172 Law of Property Act 1925. …

"[17] s172 has since been replaced by s423 Insolvency Act 1986, in language which eschews the anachronistic and obscure.  It speaks of "restoring the position to what it would have been if the transaction had not been entered into" which to my mind says in plain English exactly the same thing as "annulling a voidable transaction".  In Chohan v Saggar [1994] 1 BCLC 706, CA Nourse LJ explained that Parliament in enacting s423 had intended the court to have much fuller powers than were previously available under s172 of the 1925 Act.  Thus it is not restricted to the unitary power of setting aside the whole transaction.  Rather, in order to restore the position the court could, where the transaction is made up of a number of competent parts, set aside some parts but leave other parts undisturbed.

"[18] s37 is intituled "Avoidance of transactions intended to defeat applications for financial relief".  "Avoidance" is the language of nullity not of repayment or re-vesting.  Etymologically it refers to the concept of "voidity" (as Wilson LJ coined it in Radmacher v Granatino [2009] 2 FCR 645, CA at para 119). So, by s37(2)(c) in order to impose voidity on the transaction the court may make an order "setting aside the disposition".  That language would not be apt if the concept was repayment or reinvesting.  Instead, it would have said, as s10 (2) of the 1975 Act says, that the court may order the disponee "to provide such sum of money or other property as may be specified in the order".  It is obvious to me that the draftsman of s10 of the 1975 Act expressly did not want a reversing transaction to operate as an avoidance ab initio, in stark contrast to s37, of which he must have been well aware, as many parts of the 1975 Act are modelled the 1973 Act."

38. Mostyn J was not referred to the Cork Report and the Law Commission Report preceding the I(PFD)A 1975. But I agree with his analysis. There are important distinctions between the IA 1986 and I(PFD)A 1975 remedies:

1) Under the I(PFD)A 1975 the applicant must prove that the disposition was made with  intention of defeating an application for financial provision;

2) Under s 423 it is necessary to prove that the purpose is to put assets beyond reach or prejudice interests  - what Mr Turner QC describes as a more general purpose: which has been extensively analysed as set out above.

39. The range of relief is distinct:

1) Under the I(PFD)A it is necessary to prove the deceased had the intention of defeating an application under that Act;

2) Under the I(PFD) A 1975 the powers are confined to provide "for the purpose of making of that financial provision (i.e. under the Act) … such sum of money or other property as may be specified in the order".

40. There is a significant difference between the power to direct the disponee to "provide a sum of money" and setting aside the transaction: for instance, tax consequences may arise on the payment of a sum of money which would not arise if the transactions were voided, as is specifically recognised in I (PFD)A 1975 ss 10 (4) and (5): the "financial cap" as Mr Pocock terms it.

41. Under the I(PFD)A 1975 "the court shall have regard to the circumstances in which any disposition was made and any valuable consideration given therefor, the relationship, if any, of the donee to the deceased, the conduct and financial resources of the donee and all the other circumstances of the case." IA 1986 contains no such provision: there is a general discretion : the court "may" make an order.

42. IB says that he no longer has the funds. Mr Pocock QC says that in ignorance of any potential claim by W,  they have been utilised in various ways: the court must recognise that, and also bear in mind the delay in making the application.

43. In Chohan v Saggar Nourse LJ stated that:

"The object of ss423-425 being to remedy the avoidance of debts, the 'and' between para. (a) and (b) of s423 (2) must be  read conjunctively and not disjunctively.  Any order under the subsection must seek, so far as is practicable, both to restore the position to what it would have been if the transaction had not been entered into and to protect the interests of the victims of it.  It is not a power to restore the position generally, but in such a way to protect the victims' interests; in other words, by restoring assets to the debtor to make them available to the victims.  So the first question the judge must ask himself is what assets have been lost to the debtor.  His order should, so far as practicable, restore that loss."

44. In that case it was impossible to restore the wife's protected tenancy in a property because it would have prejudiced the interest of a third party.  So the judge at first instance granted an alternative remedy. The situation here is quite different.

45. I do not accept that in this case it is impossible to restore the position, at least in law, as to ownership, to what it was at the date of the transaction.  The fact that the moneys may have been dissipated (if they have been) is irrelevant. The issue in this context is not what is available.  The s423 route could restore the totality of the value of the moneys transferred to the estate, at least as a notional credit balance.   The court can then make adjustments, and the estate will be in a position to make claims for any loss. The court will be in a position to readjust the shares between the beneficiaries, all three of H's children, and their issue, and W.

Does there have to be a bankruptcy or actual insolvency?
46. Mr Pocock poses two questions:

1) Does s423 apply outside the insolvency regime?

2) Does it apply after death?

47. The editors of Muir Hunter on Personal Insolvency comment that the predecessor to s423 was not contained in the Bankruptcy Act but was a re-enactment of the Fraudulent Conveyances Act 1571:  "…as was the case with its statutory predecessors, bankruptcy is not a pre-requisite of the application of Pt XVI, which is available to a single creditor of the debtor as well as his trustee in bankruptcy."

48. Mr Pocock refers me to the Administration of Insolvent Estates of Deceased Persons Order 1986 (SI No 199) which applies certain provisions in the Act to the insolvent estates of deceased persons dying before presentation of a bankruptcy petition.  It is made pursuant to s421 of the Act, which is in a different Part of the Act to ss423-425.  S421, entitled "insolvent estates of deceased persons", provides that such order may apply the provisions of the act to the estates of deceased persons; defined as estates which "when realised...will be insufficient to meet in full all the debts and other liabilities to which it is subject".  It does not state that s.423 is confined to insolvency. 

49. I do not accept that the provisions of the Order and s421 provide that s423 only applies to cases where the estate is insolvent.

50. Mr Pocock argues that the language of the Cork Report establishes that the estate must be insolvent as the report speaks only of insolvency.  I do not accept that the Cork Report concluded that s423 should not operate "outside the sphere of insolvency".  In any event the Cork Report does not have the status of decided law.  I am in no doubt that the Insolvency Act remedy is not confined to applications where the transferor is insolvent.  Nor need there be insolvency proceedings.  The remedy is meant to be a wide-ranging anti-avoidance remedy.  I agree with Mr Turner that it is not the existence of insolvency but the existence of debt which triggers the remedy.  As Mr Turner submits, the obvious end point of an order for financial provision is that there will be a debt, and accordingly enforcement/recovery proceedings if it is not paid.

No scope for s423 IA 1986 because of the remedy in s 10 I(PFD) A 1975?
51. Mr Pocock submits that the existence of the "tailor made" remedy pursuant to s10 I(PFD)A precludes reliance on s423 and confines applications to s10 only: he refers to Richards v Richards [1984] AC 174.  In Richards what would now be termed an exclusion order had been made pursuant to the inherent jurisdiction of the High Court and s37 of the Supreme Court Act 1981, which provides that "The High Court may by order (whether interlocutory or final) grant an injunction… in all cases in which it appears to the court that it is just and convenient to do so."  The House of Lords held that the proper application was under s.1 of the Matrimonial Homes Act 1967 (MHA 1967), whatever may have been the position before its implementation.  MHA 1967 contained the statutory scheme whereby occupation was to be regulated. Lord Hailsham of St Marylebone was of the opinion that, if the court had any inherent jurisdiction, it was "indistinguishable" from the jurisdiction conferred by the section (199G). He accepted that s37 Supreme Court Act 1981 was still in force, and:-

"… still applies  in principle to all divisions of the High Court.  Nevertheless, and whilst it is there it is reserved in cases where the special legislation does not apply… where, as here, Parliament has spelt out in considerable detail what must be done in a particular class of case it is not open to litigants to bypass the special Act, nor to the court to disregard its provisions by resorting to the earlier procedure, and thus chose to apply a different jurisprudence from that which the Act prescribes.

"any other conclusion would, I believe, lead to the most serious confusion. The result of a particular application cannot depend on which of two statutory provisions the applicant invokes, where one is quite general and the other deals in precise detail with the situation involved and was enacted when the general provision already existed." 

52. Law Commission Report (Law Com. No 61) Family Law, Second Report On Family Property, Family Provision On Death, which led to the I(PFD)A 1975, proposed a bespoke remedy as eventually enacted in s10.  I accept also that a deliberate decision was made by the Law Commission not to imitate s37 MCA 1973 in all its particulars. But I do not accept, as Mr Pocock submits, that the report should be read as recommending that s 10 should be the exclusive set aside remedy in Inheritance Act claims.

53. I am not assisted by reference to Hansard debates in respect of the 1975 Act.  Nothing in either the I(PFD) A or IA is ambiguous (see Pepper v Hart [1992] UKHL 3 (26 November 1992)).  There is nothing in Hansard which touches on the availability of an alternative anti-avoidance remedy.

54. In Khreino v Khreino No 2 (Court's Power to Grant Injunctions) [2000] 1 FCR 80 the Court of Appeal held that the inherent  jurisdiction of the High Court to grant freezing injunctions operates on a broader basis than under s37 MCA 1973.  The court referred to subsequent authority, including in the House of Lords, that the passage cited above from Richards is not a foundation for holding, in relation to a wholly different Act concerned with a wholly different field of activity, that there is no longer an inherent jurisdiction to freeze assets.  

55. The second limb of Khreino, the power to freeze assets of a third party, is irrelevant to this analysis, whatever the effect of the decision in Prest v Petrodel Resources Limited and Others [2013] UKSC 34 either in the Court of Appeal and the Supreme Court.

56. I have already referred to Trowbridge, which supports the proposition that both s37 MCA 1973 and s423 IA 1986 remedies may be sought in tandem. The argument based on Richards was not put forward in Trowbridge. That fact does not reduce the reliance which I can place on the decision in Trowbridge. The s 423 test is wider than the s10 test and the remedy different. The remedies are not identical.  The applications are not "indistinguishable ", per Lord Hailsham in Richards.  

The absence of a substantive claim

57. Mr Pocock submits that the absence of a substantive claim is a "fatal difficulty".  There are no longer any financial remedy proceedings, there are no bankruptcy proceedings, and there is no application under the I(PFD)A 1975.

58. As emphasised by Arden LJ in Hill v Spread Trustees, s423 applies to the case where the applicant has or may make a claim.  As at the date of the hearing W was not able to make a claim because there was no grant of probate, for reasons which I still find obscure.  As a matter of practical application, in the absence of a freezing order, before W is in a position to make a claim, dissipation may take place with impunity. Her application will be made in support of an application under the I(PFD)A 1975.  Injunctive relief is required to preserve the position before W is able to make a claim.

Limitation

59. Pursuant to I(PFD) A 1975 the disposition must have been made "less than six years before the death of the deceased". The earlier and far smaller of the two impugned transactions here is caught by this provision. The District Judge dismissed the application to set this transaction aside. But this fact does not impinge on any question of principle as to the availability of the s423 remedy.

60. The Court held in Hashmi that claims under s423 IA 1986 were subject to a limitation period under Limitation Act 1980.  The period was either 12 years under s8, if the claim was a claim on a specialty (a claim under a deed or instrument), or in any other case six years under section 9, on the basis that it was for a sum recoverable by virtue of an enactment.  The Court held by a majority that there was no inherent objection to different limitation periods for different applicants under s423.  It held unanimously that it was not the policy of the Limitation Acts to allow time to run against a claimant or applicant before he was able to commence an action.  Time only began at the date of the bankruptcy and not at the earlier date of the transaction sought to be set aside. I conclude that W's claim is not time barred.

Necessity
61. I reject Mr Pocock's submission that there is sufficient available to make provision for W without the restoration of £1.75M to the estate.  There are three beneficiaries under the will to be considered alongside W's claim.  Restoration to the estate by the addition of the value of the transferred sums would make a very substantial difference indeed to the way in which W's claims would be assessed, particularly bearing in mind that IB's two sisters are also beneficiaries.  W would be in a position to recoup any award against IB's share.

62. W's s 423 application has not yet been adjudicated upon.  There is no possible basis for dismissing it as without merit, as Mr Pocock urges, without a proper reasoned decision. 

Decision
63. I accept that s423 provides an additional remedy which may be of utility in this case, that an application can be issued in its own right pending the making of a claim, and that it does not require formal insolvency: H or his estate may be characterised as the debtor and W (and indeed the co-beneficiaries) as victims of the transaction.  I accept that this court has jurisdiction. Whether or not it will exercise it on the merits is yet to be decided.  Mr Turner argues that the court must have regard to the natural and probable consequences of H's act. This is a matter which should be left for decision if I permit the application to proceed.

64. I decline to dismiss W's s423 application.

Costs: the second issue
65. Mr Turner seeks his costs of the inconclusive trial.  But as an alternative he is prepared to have this issue adjourned.  He says that there is some prospect that W's Inheritance Act claim will settle, and that a pragmatic view as to costs may well form part of such a settlement.

66. Mr Pocock says that there should be no order as to costs, now, because W's evidence was so unsatisfactory that she could never have succeeded.

67. I am referred to Brawley v Marczynski and another (Nos 1 and 2) [2002] EWCA Civ 756 and [2002] EWCA Civ 1453; [2003] 1 WLR 813. The Court of Appeal held that the overriding objective was to do justice between the parties without incurring additional costs. Where it was obvious which party would have won had the substantive issues been fought to a conclusion it would be appropriate to award costs to that party.  Where it was not obvious, the extent to which the court would be prepared to look into the previously unresolved substantive issues in order to determine the issues of costs would depend on the circumstances of the case, including the costs at stake and the conduct of the parties.  In the absence of a good reason to make a specific order the court would make no order as to costs. Longmore LJ stated that there is "no tradition in these matters of there being no order as to costs merely because a dispute has settled except as to costs." 

68. Whether an order should be made, if W's proceedings in respect of the estate progress to trial, will depend on the conclusions to be drawn on the evidence.  I accept that the evidence will need considerable analysis and that there are on the face of it unsatisfactory elements of the evidence of both W and IB. Whether those aspects of her testimony will prove fatal to W's claim will depend on consideration of all the evidence in the case and in particular an objective view of what happened as well as the documentary evidence.  It is after all H's intention/purpose which must be ascertained.

69. Since I too hope that the case may settle, to decide on costs now would not serve the overriding objective. I am not able without further thought and analysis to form a reasoned judgment as to how I would have decided W's
applications. This would require re-reading and writing time which I do not have, and which, if I were to be given it, would have a significant impact on my ability to sit in other cases on other court users.  It might also hamper constructive negotiations towards settlement.  An appeal against the decision would distract from attempts to resolve the case, and would run up further costs.

70. If the case does not compromise, then the costs of the previous proceedings, where the evidential basis of the decision will be identical with the Inheritance decision, can be decided in conjunction with those proceedings. I do have a full note of the proceedings. With the assistance of a transcript, which the parties already have, I will be in as good a position to make a decision at a later date as I am now, a year after the trial. I adjourn the question of costs.