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Hill & Anor v Haines [2007] EWHC 1012 (Ch)

Appeal by trustees in bankruptcy against dismissal of their application to set aside a transfer of property order made in ancillary relief proceedings. Appeal allowed.

The appellants argued that, as the wife had given no measurable consideration for her part of the matrimonial home, then it was a transaction at an under value. As such the trial judge has no discretion and merely has to make an order that best restores the position as if the transaction had not taken place.

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Neutral Citation Number: [2007] EWHC 1012 (Ch)

Case No: CH/2Q07/APP/0058

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
Royal Courts of Justice
Strand. London, WC2A 2LL
3rd May 2007
B e f o r e :
His Honour Judge Pelling QC
(Sitting as a Judge of the High Court)
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Between:

(1) Richard John Hill
(2) John Ivor Bangham (Appellants)

- and -

Wendy Pearl Haines (Respondent)
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Mr Peter Arden QC and Mr Niall McCulloch (instructed by Clarke Wilmott) for the Appellant
Mr Avtar Khangure QC and Mr Angus Burden (instructed by Harrison Clark) for the Respondent

Hearing dates: 26th and 27th April 2007
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HTML VERSION OF JUDGMENT
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Crown Copyright ©

His Honour Judge Pelling QC:
Introduction
1. This is an appeal from an Order of District Judge Cooke given on 14th December 2006 by which he dismissed an application by the Appellants under Section 339 of the Insolvency Act 1986 (IA) for an order setting aside a transfer of property made pursuant to an order (the MCA Order) made by a district judge at Worcester County Court in ancillary relief proceedings brought pursuant to Sections 23-25 of the Matrimonial Causes Act 1973 (MCA) by the Respondent against her husband, the Bankrupt. The Appellants are the trustees of the Bankrupt.

2. The relevant background is not in dispute. The Respondent and the Bankrupt were married and were the joint legal and beneficial owners of a property called Strudges Farm, Dunhampton, Stourport-On-Severn, Worcestershire (the Property). On 25th April 2003, the Respondent presented a petition for divorce. On 15th May 2003, the Respondent commenced ancillary relief proceedings in which she sought all the types of relief available under MCA, Sections 23-25 including property adjustment, lump sum and maintenance orders. In the result, the Matrimonial Court ordered that (a) the Bankrupt transfer to the Respondent all his interest in the Property (b) the Bankrupt pay the Respondent periodical payments of £0.05 per annum and (c) the application for lump sum provision be adjourned.

3. It is clear from the judgment of the Matrimonial Court Judge that on the Bankrupt's case before him the Bankrupt was hopelessly insolvent and that although the Bankrupt had not given proper or satisfactory disclosure, there was a substantial, risk that the Bankrupt would be made the subject of a bankruptcy order and that if he was that might have an effect on the order made by the Matrimonial Court. The Matrimonial Court Judge also concluded that both parties had "...been extravagant in the acquisition of the house, horses and cars ..." and had lived beyond their means although he also accepted that it was difficult to think of a case where the husband had done more to raise serious suspicion. The Matrimonial Court Judge adjourned the application for a lump sum order specifically because of the risk that the Bankrupt might become bankrupt - he said in his judgment: "... There remains ... the risk that the husband will go bankrupt in the near future and bankrupt as a result of his own deliberate actions. Merely to guard against that eventuality and the possible consequences to the wife of the trustee in bankruptcy seeking, as he may, to impugn the transfer of the Mercedes and the house to the wife, I believe that the lump sum claim should be kept alive. It should only be kept alive in those extreme circumstances but because of that it would be wrong to dismiss it."

3. On 31st March 2005, the Bankrupt was made bankrupt by virtue of an order made on his own petition. On 24th May 2005, the Appellants were appointed trustees at a creditors' meeting and on 22nd September 2005, a district judge executed a transfer of the Property on behalf of the Bankrupt.

4. The Bankrupt's total liabilities are estimated by the Appellants to be approximately £132,000 odd. The Property (other than a small parcel of land) has been sold and the Respondent has preserved half the net proceeds of sale (£120,000 odd) in a fund that is available for transfer to the Appellants if they succeed on this appeal. The land that has not been sold is held by the Respondent in her sole name. It is agreed between the parties that at the date the property transfer order was made (the date relevant for present purposes -see Re Thoars Deceased [2003] BPIR 489 ) the Property had a value of approximately £500,000. It was subject to a loan secured by a mortgage or charge of approximately £300,000. The property was sold some time after the date when the property adjustment order was made, when its value had increased.

The Statutory Context
5. By IA, Section 339:

"(I) ... where an individual is adjudged bankrupt and he has at the relevant time (defined in section 341) entered into a transaction with any person at an under value, the trustee of the bankrupt's estate may apply to the court for an order under this section.
(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the individual had not entered into that transaction
(3)... an individual enters into a transaction with a person at an under value if:
a) He makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration,
b) He enters into a transaction with that person in consideration of marriage or the formation of a civil partnership, or
c) He enters into that transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money 's worth, of the consideration provided by the individual."

It is not necessary that I set out IA Section 341 since it is not in dispute that the transfer of the Property took place at a relevant time.

6. The word "transaction" is defined by IA, Section 436 as including a gift,, agreement or arrangement. To the extent that this partial definition, or the general meaning of the word, suggests that it could not apply to orders made after a contested ancillary relief hearing, that suggestion is trumped by MCA Section 39 which provides that "The fact that a settlement or transfer of property had to be made in order to comply with a property adjustment order shall not prevent the settlement or transfer from being a transaction in respect of which an order may be made under sections 339 or 340 of the Insolvency Act 1986 (transfers at an under value and preferences)".

The Parties Cases
7. In summary, the Appellants' case is that the property adjustment order made in this case did not involve the wife giving consideration at all and certainly not such that can be measured in money or money's worth within the meaning of Section 339(3)(c) and thus that it was a transaction at an under value either under IA Section 399(3Xa) or (c]_ and that on an application by a trustee under IA Section 339 made by reference to a transfer or settlement at an under value, the court has no discretion under Section 339(2) other than a discretion as to what order to make for the purpose of best achieving the statutory purpose namely "... restoring the position to what it would have been if that individual had not entered into that transaction." That being so, the Appellants submit that the District Judge should have acceded to, not dismissed, their application, and that this appeal ought to be allowed.

8. The Respondent's case is that whilst it is accepted that the court would have jurisdiction under IA Section 339 to entertain an application made by reference to a transfer or settlement made pursuant to a property transfer order made after contested proceedings, in the ordinary case a transferee under a transfer made pursuant to such an order is to be regarded as having given consideration (in the sense that word is to be understood in this context) equivalent to the value of the property being transferred, unless the case is an exceptional one where it can be demonstrated that the property transfer order was obtained by fraud or some broadly similar exceptional circumstance. It is submitted that this is the only basis upon which effect can be given to MCA Section 39 whilst at the same time avoiding what it is submitted would be an otherwise startling anomaly created by Re Abbot (A Bankrupt), ex parte Trustee Of The Property Of The Bankrupt v. Abbott [1983] 1 Ch 45 and Re Kumar (A Bankrupt), ex parte Lewis v. Kumar [1993] 1 WLR 224 which it was submitted establish the proposition that a transfer or settlement made pursuant to a compromise of ancillary relief proceedings is supported by sufficient consideration to prevent an application under Section 339 to set aside such a transfer or settlement from succeeding. Even if that is wrong, the Respondent submits that the court has an unqualified discretion as to whether or not to make an order and that in order to avoid the anomaly to which I have referred, that discretion should be exercised by refusing to make such an Order in all cases where a property adjustment order has been made following a fully contested hearing and where it is not suggested that the order is compromised by fraud or the effect of non or partial disclosure. Accordingly, the Respondent submits that the District Judge was right to dismiss the Appellants' application and that I should dismiss this appeal.

Analysis
9. It is necessary first to consider the premise that underlies the Respondent's case. Re Abbott was a decision of the Divisional Court of the Chancery Division. It was concerned with the application of Section 42(1) of the Bankruptcy Act 1914 to an ancillary relief order made following a compromise agreement. The order was made in December 1978 and provided for the sale of the former matrimonial home and the payment to the wife from the proceeds of sale of £18,000. The husband was adjudicated bankrupt in May 1980. The trustee applied for an order declaring that the order was void under Section 42(1) of the 1914 Act. Section 42(1) of the 1914 Act provided that "... Any settlement of property not being a settlement ... made in favour of a purchaser or incumbrancer in good faith and for valuable consideration ... shall if the settler becomes bankrupt within 2 years after the date of settlement, be void against the Trustee in the bankruptcy ...". Sub-section (4) defined settlement to include any conveyance or transfer of property. The application was dismissed on the basis that though there had been a settlement within the meaning of Section 42(1) of the 1914 Act, the wife was a purchaser for valuable consideration because she had given up a legal right to pursue her claim under MCA Section 24 in return for what the husband had given her. This was upheld by the Divisional Court on appeal and a submission by the Trustee that Section 42(1) of the 1914 Act would only not apply where proprietary interests were ordered to be transferred between the parties to ancillary relief proceedings of substantially equivalent value was rejected.

10. Peter Gibson J gave the lead judgment. He referred to, and adopted, the reasoning of the majority in Re Pope ex parte Dicksee [1908] 2 KB 169 where Sir Herbert Cozens-Hardy MR, giving the judgment of the majority, had held that "... the release of a right or the compromise of a claim, not being a merely colourable right or claim, may suffice to constitute a person a "purchaser" within the meaning of section [42 (I)]". In Re Pope the wife had given up all her rights but in Re Abbott (as in this case) the wife's right to seek further relief from the court was preserved. However, that distinction did not affect the outcome. Peter Gibson J concluded that there was no distinction of principle between the two situations. As he put it "... In each case that which was given up was a right to seek from the court the exercise of a discretion in the wife's favour. In each case the wife had no prior proprietary interest in the property, the subject matter of the settlement in her favour. In each case there was no transfer of a proprietary interest in property by the wife to the husband as part of the bargain. In each case there was a compromise of rights not measurable in money terms ".

11. In the course of the submissions made on behalf of the Trustee in Re Abbott, it was submitted that had there been no compromise and had the wife's claim been fought out and the same order made by the Court as the consent order then the wife could not have been described as a purchaser for valuable consideration. This being so, it was submitted that it would anomalous if a wife who entered into a compromise was placed in a better position as the result of a settlement than she would be if an order was made following a contested hearing. This is the mirror image of the submission made in this case on behalf of the Respondent. As to that point, Peter Gibson J said merely that "It is unnecessary, and perhaps undesirable, to decide what would have been the position if, contrary to the facts, there had been no compromise, and I shall say no more on this than that I am not convinced that /"the/ premise is correct". Although the Respondent placed some slight reliance on the last part of this dictum, in my view it provides no realistic support for her case.

12. There are two points that need to be noted in relation to Re Abbott. First, it was decided by reference to Section 42(1) of the 1914 Act. As Millett J (as he then was) said in Re Bacon Ltd (No. I) [1990] BCLC 324, cases decided under the old law cannot be of any assistance when the language of the statute has been so completely and deliberately changed. That warning is of particular application in this case. In Re Abbott it was accepted by Peter Gibson J that the compromise was not measurable in money terms. Thus, it is difficult to see how his reasoning can or should be applied by analogy to cases brought under Section 339(3)(c) where reference is made to the required consideration being in money or money's worth.

13. Secondly, both members of the court in Re Abbot proceeded on the basis that the reasoning of the majority in Re Pope meant that foregoing ancillary relief claims brought under MCA Sections 23-25 was capable of being consideration. Sir Robert Megarry V-C concluded, in relation to a submission that it was not, that "/ cannot see any special element in section 24 which would put a compromise of proceedings under that section in any position which materially differs from a compromise of other proceedings". It is submitted on behalf of the Appellants that such is not a correct analysis in light of the judgment of Thorpe LJ in Xydhias v. Xydhias [1999] 2 All ER 386, the judgment of Coleridge J in G v.G (Financial Provision: Equal Division) [2002] 2 FLR 1143 and that of Black J in McMinn v. McMinn [2003] 2 FLR 823. I return to these cases following a consideration of the effect of Re Kumar (ante) to which I now turn.

14. Re Kumar concerned an application by a trustee under Section 339. As in this case, the trustee in Re Kumar relied on both paragraphs (a) and (c) of Section 339(3). It was contended that the consideration that supported the transfer of the bankrupt's interest in the former matrimonial home to the Respondent was a release of such claims as she might have had under MCA Sections 23-25. Ferris J concluded that this assertion failed on the facts. The transfer of the property took place prior to the institution of divorce proceedings by the Respondent in that case and there was no evidence to support the contention that the transfer was in return for the Respondent agreeing not to apply for further capital provision under MCA Sections 23-25. That being so, much of what appears in the judgment of Ferris J concerning the applicability of IA Section 339 to compromises of ancillary relief claims is obiter. At page 236G, Ferris J concluded that: "... Re Abbott, although it is a decision on Section 42 of the Act of 1914, is applicable to section 339 to the extent that it decides that a compromise of a claim to a provision in matrimonial proceedings is capable of being consideration in money or money's worth". This dictum is relied upon by the Respondent

15. As I have said the terms of Section 42(1 ) of the 1914 Act were different to the terms of IA Section 339. The former was concerned with the concept of "valuable consideration" whereas IA Section 339(3) does not use that concept at all. Paragraph (a) refers to a case where the bankrupt has received no consideration - which means that if the bankrupt has received any consideration (which in my judgment will include but is not limited to what was regarded as valuable consideration for the purposes of section 42(1) of the 1914 Act) that will be sufficient to prevent a trustee from relying on Section 339(3)(d). Section 339(3He) refers to a case where the bankrupt receives consideration in money or moneys worth which is significantly less than the value in money or money's worth of what is transferred by the bankrupt. Ferris J appears to suggest, in the dictum set out in Paragraph 14 above, that what was held in Re Abbott to constitute valuable consideration for the purposes of Section 42(1) will also be consideration in money or money's worth for the purpose of Section 339(3)(c). If that is what Ferris J concluded (and as I have said already, this remark is in my view obiter), then I am not able to agree. As I have said, Peter Gibson J regarded the consideration provided by the wife in Re Abbott as being "... a compromise of rights not measurable in money terms". This is inconsistent with such consideration being consideration that is capable of valuation in money or money's worth. Indeed, the dissenting judgment of Buckley LJ in Re Pope (ante) supports this point - he concluded that the combination of the phrase "valuable consideration " with the word "purchaser " in section 42(1) of the 1914 Act meant that valuable consideration was given only when the consideration is "... money, or property or something capable of being measured in money. It does not, I think, extend to the surrender of... the right to relief for matrimonial offences."

16. Further, in Re Abbott Sir Robert Megarry V-C described valuable consideration as being something "... which has a real and substantial value, and not one which is merely nominator trivial or colourable" before concluding that"... a claimant who relinquishes a claim in return for a substantial sum of money ... is a purchaser of that sum for valuable consideration ... whether that sum is an accurate or inaccurate estimate of what the court would award". In my judgment that remark is not consistent with the balancing of incoming and outgoing consideration that is a key element of Section 339(3 )(cI In Re MC Bacon Limited [1990] BCLC 324 Millett J had to consider the effect of IA Section 239 which in so far as is material is in the same terms as Section 339. In considering the effect of the equivalent of Section 339(3)(c) he held that for a transaction to come within the equivalent paragraph:

"... the transaction must be (i) entered into by the company; (ii) for a consideration; (iii) the value of which measured in money or money's worth; (iv) is significantly less than the value; (v) also measured in money or money's worth; (vi) of the consideration provided by the company. It requires a comparison to be made between the value obtained by the company for the transaction and the value of consideration provided by the company. Both values must be considered from the company's point of view".

In Ramlort Ltd v. Reid [2004] BPIR 985, a submission was made to the effect that the reasoning set out above should be adopted in relation to section 339(3)(c). Jonathan Parker LJ held that the wording of Section 339(3)(c) was identical to that considered by Millett J in Re MC Bacon Limited (ante) and then continued:

"For present purposes, the critical words in each of the paragraphs are the words "significantly less". For there to be a transaction by an individual (whom I will call the debtor) at an undervalue within the meaning of those paragraphs, the value in money or money's worth, from the debtor's point of view, of the consideration for which he enters into the transaction (I will call it "the incoming value") must be "significantly less " than the value in money or money's worth, again from the debtor's point of view, of the consideration provided by the debtor — that is to say the value in money or money's worth of the totality of whatever the debtor is parting with under the transaction (I will call it "outgoing value")".

With respect this reasoning is clearly correct and in my judgment fatally undermines the application of the reasoning in Re Abbott to applications under Section 339(3)(c) . It is, of course, the case that a trustee has only to succeed under one of the paragraphs in Section 339(3).

17. I now turn to the question whether foregoing ancillary relief claims brought under MCA Sections 23-25 is capable of being consideration at all, a point referred to at the end of Paragraph 13 above. I turn first to Xvdhias. The application in issue between the parties in that case was an application by the wife for an order that the husband should show cause why an order should not be made in the terms of a settlement agreement it was alleged had been reached between the parties. The lead judgment of the court of appeal was given by Thorpe LJ, with whom Stuart-Smith and Mummery L.JJ agreed. The court of appeal held that when parties in divorce proceedings reached an agreement for the compromise of an ancillary relief application, that agreement did not give rise to a contract enforceable in law because the only way of rendering the bargain enforceable was to convert the concluded agreement into an order of the court. Moreover, when asked to carry out that exercise, the court did not automatically give effect to the bargain of the parties but carried out an independent assessment to enable it to carry out its statutory function to ensure that such orders reflected the criteria set out in MCA Section 25. Once the order is made, the rights of the parties derive from the order not the agreement that preceded it. As Thorpe LJ said at 395h, a payer's liability cannot ultimately be fixed by compromise as can be done in the settlement of claims in other divisions of the High Court. The sole purpose of negotiation is not finally to determine liability - which can be done only by the court - but merely to reduce the length and expense of the process by which the court carries out its function.

18. In G v G the relevant issue was whether capital gains tax would be payable if shares were transferred to a wife by a husband pursuant to an order made in ancillary relief proceedings. Coleridge J held that it would not because the wife gave no consideration for the shares and accordingly business hold-over relief was available and no capital gains tax liability would arise. In considering the contrary argument, Coleridge J said:

"The view of the Inland Revenue appears to be that the actual consideration is the surrender by the donee of rights that she would otherwise be able to exercise to obtain alternative financial provision, I do not share their view about that and I have to say that this view appears to be based on a misconception. In an ancillary relief hearing neither party has any "rights" as such at all. All the powers are vested in the court which may or may not exercise them. The parties may make suggestions as to how those powers are to be exercised. That is all. So when I order a transfer of shares in favour of the wife on a clean break basis she is not giving up her claim for maintenance as a quid pro quo. I am simply exercising my statutory powers in the way I consider to be fair. This would be equally the case where the court is making a consent order, for although the parties may have made their agreement, it is for the court independently to adjudge its fairness: see Xydhias v. Xydhias [1999] 1 FLR 683 at 691 where Thorpe LJ stated: "An even more singular feature of the transition from compromise order in ancillary relief proceedings is that the court does not either automatically or invariably grant the application to give the bargain the force of an order. The court conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflect the criteria listed in s. 25
...."

19. Coleridge J's conclusions on this issue were reached without any submissions being made by the only party who appears to have been contending that a wife in such circumstances did provide consideration namely the Inland Revenue. It would appear from the summary contained in the Judgment of Coleridge J that the Inland Revenue's view was probably based on the Judgments, and in particular of the Judgment of Peter Gibson J in Re Abbott. That case was not cited to Coleridge J. Nonetheless, in my judgment his conclusions necessarily follow from the conclusions reached by Thorpe LJ in Xydhias.

20. In McMinn, (the facts of which do not matter for present purposes) Black J held (at paragraph 15) that:

"It is clearly established that until an ancillary relief order has been made, an ancillary relief claim is not a cause of action ... This appears to be because of the discretionary nature of ancillary relief... someone seeking ancillary relief may establish the fact of marriage, the grant of a decree nisi and a number of factors which would be relevant to the court's decision as to what if any ancillary relief orders should be granted but is reliant for relief upon an exercise of the court's discretionary powers. Until those discretionary powers have been exercised he has no cause of action".

21. In the light of these judgments I have come to the conclusion that the reasoning of the majority in Re Pope has no application to applications under MCA Sections 23-25 or to agreements in purported compromise of such applications. Whilst the Divisional Court decided that the contrary was the case in Re Abbott, in my view that reasoning is not binding on me because it was a judgment that concerned the effect of Section 42(1) of the 1914 Act. I respectfully agree with the views of Millett J in Re Bacon Ltd (No.I) to which I have already referred. In any event, the conclusions in Re Abbott concerning consideration provided by foregoing a "right" to apply for ancillary relief or a particular type of such relief is not sustainable in the light of the reasoning in Xydhias, G v. G and McMinn. In my Judgment the conclusions reached by Coleridge J in G v.G follow from the analysis contained in the judgment of Thorpe LJ in Xydhias and that of Black J in McMinn is also consistent with that reasoning. If a compromise agreement cannot give rise to binding contractual obligations, and if an applicant for ancillary relief does not have a cause of action, then it seems to me necessarily to follow that an applicant cannot give consideration by purporting to compromise his or her claims for such relief by entering into a settlement agreement that is by definition not binding.

22. A party who succeeds in an obtaining a property adjustment order following a contested application, which in the end depends on the exercise of the same discretion by the matrimonial court as that which is exercised by that court when approving a settlement, can be in no stronger position than a person whose claim for such relief is resolved by approval following agreement. There is a plain distinction between such a person and a party who succeeds in obtaining a decree for specific performance. In such a situation, the Court will be giving effect to an antecedent contractual or equitable obligation to transfer. There is no such antecedent obligation in the case of an applicant for ancillary relief.

23. The Respondent's submission before me was that where an application for ancillary relief is decided following a contested hearing, the applicant's claim for such relief is extinguished and thus she gives up or is deprived of something and the respondent to the application thus gains something by being released from the claims that the applicant has not succeeded on. In my view such an argument is not sustainable in the light of the reasoning in Xydhias. G v. G and McMinn. In my view, for the purposes of considering the applicability of Section 339, to a case such as this, the position is the same whether the Matrimonial Court makes an order following a contested hearing or following a compromise agreement - in neither case does the receiving party give, nor the paying party receive, consideration. Thus, aside from the points I have already made concerning the effect of Section 339(3)(c) it seems to me that such cases are also susceptible to attack by a trustee under Section 339(3)(a) as well. This outcome is not surprising. If a husband transferred his interest in a property for a consideration that was less than its value in money or money's worth, or for no consideration, to his wife and then was made bankrupt, it would come as no surprise that such a transfer could be attacked by a trustee under Section 339. In my judgment, there is no difference of principle that leads to a different conclusion where the husband agrees to such a course in the context of matrimonial breakdown or where the husband is ordered to adopt such a course following contested ancillary relief proceedings. As Millett LJ said in Albert v. Albert [1996] BPIR 233:

"The Family Division is concerned to ascertain the amount of the bankrupt's income and to decide how much of that income should be made available to maintain the wife and child. In making its determination it must ascertain the amount of the bankrupt's income as best it may, on the evidence put before it. But the amount of that income will be affected by any order that the Insolvency Court has made, or may subsequently make , which has the effect of diverting the bankrupt's income in or towards payment of his creditors. The Family Division is concerned with the division of the cake, but the size of the cake is liable to be diminished by an order made by the Insolvency Court."

24. It was submitted on behalf of the Respondent that a conclusion to the effect that I have arrived at does not lie easily with the way MCA Section 39 is phrased. If the intention had been that every property adjustment order could be avoided by a trustee then it would have been easy enough for Section 39 to say so. In my view there is no substance in that point. The sole purpose of Section 39 is to provide a statutory answer to a submission that might otherwise have been made concerning the scope of the word "transaction" in Section 339. Whether or not an order is made under Section 339 is to be resolved applying the principles applicable to such applications. It is thus not necessary that Section 39 says any more than it does.

25. It is not either necessary or desirable that I should attempt to decide what the outcome would be where proprietary interests have been ordered to be transferred between the parties to ancillary relief proceedings of substantially equivalent value, where different considerations may apply. In my view that issue must be decided in a case with appropriate facts. However, as I see the position the outcome will not depend upon whether the order was made following agreement between the parties or following a contested hearing.

26. I now turn to the discretion point relied on by the Respondent. The basis of this submission is the judgment of the court of appeal in Re Paramount Airways (In Administration) [1993] Ch 223. In that case, the administrator applied for a declaration pursuant to IA Section 238 that a transfer of funds by the company to a bank based in Jersey was a transfer at an undervalue. The Registrar gave permission for the originating application to be served on the bank in Jersey. An application was made by the bank to set aside service which succeeded before the Judge but failed before the court of appeal. However, in giving the judgment of the court of appeal, Sir Donald Nicholls V-C said that the apparent harshness of the extra territorial application of Section 238 could be avoided because the court retained a discretion conferred by the wording that appears (in relation to Section 339 applications) in Section 339(2). Sir Donald Nicholls V-C said at 239G-H:

"Sections 238, 239,339 and 340 provide that the court "shall" on an application under those sections, make such order as it thinks fit for restoring the position. Despite the use of the word "shall", the phrase "such order as it thinks fit" is apt to confer on the court an overall discretion. The discretion is wide enough to enable the court, if justice so requires, to make no order against the other party to the transaction or the person to whom the preference is given."

26. The applicability of the discretion identified by Sir Donald to situations outside that being considered by the court of appeal in Paramount was considered by Mr Thomas Ivory QC sitting as a Judge of this Court in Re Brown Simla v. Brown [2007] EWHC 405 (Ch). Mr Ivory QC rejected a submission that the scope of the Paramount discretion was limited to cases which would otherwise involve an extravagant exercise of extra territorial jurisdiction. I confess to having some doubts about the scope of the discretion conferred by Section 339(2). However, Paramount is binding on me, as it was on Mr Ivory QC, and, in my view, once a general discretion of the sort identified by Sir Donald Nicholls V-C in Paramount has been held to exist, the conclusion reached by Mr Ivory QC is inescapable. In my view it is not possible for me to conclude, as was submitted on behalf of the Appellants, that Sir Donald's conclusions concerning the discretion he identified were obiter.

27. However, in my view the cases in which the court will conclude that no order should be made notwithstanding that the court has come to the conclusion that a transaction at an under value within the meaning of Section 339 has been established will be extremely rare. The only basis on which it was contended that I should exercise the discretion in favour of the Respondent in this case was to circumvent the anomaly to which I have referred above. However, as I have already concluded, there is no anomaly of the sort alleged by the Respondent. That alone is enough to dispose of this aspect of the case. However, I have also considered whether there is anything in the underlying facts that would lead a court to exercise the Paramount discretion in favour of the Respondent. In my judgment there are none.

Disposal
28. It is common ground that this appeal is a true appeal which raises matters of pure law. For the reasons set out above, I consider that the District Judge was wrong to conclude that the transfer of the Property pursuant to the Order made in favour of the Respondent by the Matrimonial Court was not a transaction at an undervalue. In my view it was by application of Section 339(3Ha) and in any event on an application of Section 339(3)(c). Accordingly, I allow the appeal. I will hear counsel as to the terms of the Order that needs to be made in the light of this conclusion.