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Home > Judgments > 2012 archive

KK v MA & Ors [2012] EWHC 788 (Fam)

Judgment, following a fact finding judgment, in financial remedy proceedings as to the division of assets, in some of which the Official Receiver had claimed an interest.

This is one of several judgments dealing with the preliminary issues of the beneficial ownership of property that is the subject of financial remedy proceedings.  The preliminary issues had arisen as a result of the husband having been declared bankrupt.  The litigation relates to shares in two companies, AA Ltd and Properties Ltd as well as properties known as 642 SR, 136 YR, 19A SJR and the garage.  There is also reference to another company, 'Southend', which had been dissolved but was linked to AA. Southend had transferred its business to AA and so, the judge found, the ownership of shares in AA was the same as the ownership had been of Southend. 

It was accepted by all parties that the properties were bought from dividends declared by Southend (in respect of 642 SR) and/or dividends declared by Southend and/or AA through the family loan account in Properties (136 YR, 19A SJR and the garage).

In this judgment, Charles J begins with a summary of the history of the litigation, his previous findings and previous judgments.
In order to identify the surplus property to be considered in the financial remedy proceedings following the husband's bankruptcy, it was first necessary to identify the ownership of the subject property in light of various transfers of property that had taken place primarily between the husband and members of his family.

Dealing first with the product of the shares in 'Southend', the effect of the statutory vesting of all of the husband's assets in his trustee in bankruptcy was that the beneficial interest in these shares was held by the Official Receiver (as the husband's trustee in bankruptcy).  Consequently, the husband had no interest in the shares that gave him authority to deal with them or the dividends declared on them and the Official Receiver had an absolute beneficial interest in them and therefore had the right to trace the declared dividends, sums credited to the family loan accounts and the assets bought with the monies debited to those accounts.

It therefore followed that the Official Receiver could claim the beneficial interest in 642 SR which was the subject of the OR's preliminary claim. However, the view of the Judge was that the OR was duty-bound to consider the possibility that tax and penalties might be due in respect of the dividends of Southend that were used to purchase 642SR.  The OR could not simply therefore make a claim against this property as it would cover the bankruptcy debt, but needed to investigate the position insofar as it was possible to do so and raise it with the Revenue before applying the 642SR proceeds to cover the bankruptcy debt and dropping out of the picture.

Similarly, the OR could follow his beneficial interest in all the shares issued in Southend to all the issued shares in AA because the ownership of the shares in AA was based on the shares in Southend. The OR was also entitled to the credit in the family loan accounts in AA and Properties.  The properties at 136 YR, 19A SJR and the garage had been bought in the name of Properties with monies debited to its family loan account.  The OR could ignore any lack of clarity relating to the agreements and arrangements regarding the monies debited to that account by electing to follow the right to claim the dividend, to which he was beneficially entitled, and so the monies debited into the family loan account, into the property bought with it.

The limitations and defences raised against the claims of the OR were not found to be substantiated. 

The judge therefore ordered that the proceeds of 642SR, the three properties and the monies standing to the credit of the family loan account should be transferred to the Official Receiver.  He then went on to consider an alternative analysis of the claims and entitlements of the husband and wife.

Summary by Sally Gore, Barrister, 14 Gray's Inn Square
_____________________________

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.

MR JUSTICE CHARLES
This judgment is being handed down in private without further attendance on 4 April 2012. It consists of 29 pages and has been signed and dated by the judge.  The judge hereby gives leave for it to be reported.

Case No: HG04D00192
Neutral Citation Number: [2012] EWHC 788 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 29/03/2012

Before :

MR JUSTICE CHARLES
- - - - - - - - - - - - - - - - - - - - -
Between :

KK Applicant

 - and - 

(1) MA
(2) NM
(3)SM
(4) PROPERTIES LIMITED
(5) FB
(6) MM
(7) THE OFFICIAL RECEIVER
(In his capacity as the Trustee of the Estate of MA, a former Bankrupt)
(8) A-A LTD 
Respondents

- - - - - - - - - - - - - - - - - - - - -
Miss Julia BEER (instructed by Makin Dixon Solicitors) for the Applicant
MA appeared in person and as a McKenzie Friend and spokesman for Respondents 2 and 6
Mr Gary TURNER represented the Official Receiver

Hearing dates: 13/14 February, 2012
- - - - - - - - - - - - - - - - - - - - -
Judgment
Charles J :  
1. I gave a fact finding judgment in May 2011.  I have given two further judgments on 20 December 2011 and 14 February 2012, which show some of the procedural history that has followed. In this judgment, I consider the legal consequences flowing from my fact finding judgment.  I shall use the same abbreviations and references herein to numbers in brackets (e.g. (10)) are to the paragraphs in that fact finding judgment.

Background
2. Southend and AA.  The relevant chain of events relating to the shareholdings in Southend and AA is as follows:

The first stage relating to Southend.
i) In July 1988, Southend was incorporated.  99 shares were issued to the husband and one share to a Mr A (no relation).

ii) On 23 December 1988, the husband transferred all his shares to his sister (AS). I have found that the purpose of this transfer was to avoid his creditors, and that it was made on the basis that his sister would hold the shares for the husband.  This was an unlawful purpose.

iii) In November 1991, a bankruptcy petition was issued against the husband.

iv) On 1st March 1992, Mr A(no relation) transferred the share in his name to the husband's sister (AS).

v) On 31st March 1992, the husband was adjudicated bankrupt.

vi) During the bankruptcy, the husband did not disclose to his trustee (the Official Receiver) that he had any interest in the shares of Southend and asserted (as he did to me) that he was an employee of the family business.  On 31st March 1995, the bankruptcy was discharged.

vii) A central issue is whether the beneficial interest in the shares in Southend vested in the Official Receiver.

The second stage relating to Southend.
viii) The parties married in February 1996, and the wife came to the UK in June 1996.

ix) In 1997, the husband's sister (AS) transferred 25 shares to each of the husband, the wife, the husband's mother and another sister (S).

x) The oral evidence given by Mr B, and the husband, was that these transfers were made to reduce the total tax payable on the dividends, and so each of these shareholders were, and were intended to be, the owners of the shares. The latter part of that explanation introduced a change in the case of the husband and his family, and I rejected it, and found that the intention was that the husband remained the beneficial owner.  It follows that the expressed intention to reduce tax on dividends, by purportedly dividing the ownership of the shares, was an unlawful purpose. 

xi) Issues arise as to the ownership of the shares at this stage and as to the impact of any vesting of a beneficial interest in the shares in the Official Receiver.  Tax issues also arise.

The third stage relating to Southend and AA.
xii) AA was incorporated in November 2001, and the ice cream business and related assets of Southend were transferred to it for no consideration, (9) and (78).  The shares in AA were issued to match the shareholdings in Southend.

xiii) In 2002, the shares in both companies were held in the following names: 35 the husband, 35 the wife, 15 the husband's mother and 15 his sister S.  The reason given by the husband and Mr B for the change in Southend from 25/25/25/25 was that his sister and mother did not wish to be involved in the paperwork related to matters concerning exchange control (78).

xiv) Issues arise as to the beneficial ownership at this stage of the shares of AA (and Southend although they are rendered academic by the later dissolution of Southend) and as to the impact of any vesting in the Official Receiver pursuant to the Insolvency Act.  Tax issues also arise.

The fourth stage relating to Southend and AA
xv) In March 2003, the 35 shares in AA in the husband's name were transferred into the name of his sister S (83). 

xvi) In March and April 2003, the 35 shares in Southend in the husband's name were transferred into the name of his mother (83) (although there is some confusion on the annual or draft annual returns about whether this transfer was to his sister S, rather than his mother).

xvii) I found that the essential reason for these transfers in April 2003 was a wish by the husband to distance himself from his ownership, so as to put these shares out of the way of his wife (83). 

xviii) In April 2004, the parties separated.

xix) In September 2004, Southend increased its share capital and issued shares to members of the husband's family.

xx) In December 2004, AA increased its share capital and issued ordinary and ordinary A shares to the husband's mother and his sister S.  I have found that the driving reason for this (and the similar exercise in respect of Southend) was to dilute the wife's shareholding having regard to the divorce proceedings (88).

xxi) In March 2005, Southend sold its computer business and effectively ceased to trade.

3. Dividends and the family loan accounts.  From 1997, dividends were declared by Southend and then possibly by AA (10).   The evidence did not establish, what the total of such declared dividends that have been paid out to, or at the direction of, the shareholders was, and what, if any, tax returns have been made and tax paid in respect of these dividends.  But, it was common ground that, a significant amount of the declared dividends were not paid out in cash as income and were retained by the companies and credited in the books to family loan accounts.  The documents include only two records of such loan accounts one in AA and one in Properties.  Debits from that account kept by Properties can be linked to the purchase of properties that are the subject of these proceedings.

4. There was no suggestion in the evidence that dividends that form the basis for the credits to these family loan accounts were declared by any company other than Southend, and possibly AA.  The fact finding hearing proceeded on that basis and so does this judgment.

5. Mr B told me, and I accepted that, there were no allocations made of the moneys credited or debited to the loan accounts by the companies as between the shareholders.  On my findings, there was no need for this because, subject to any claim by the husband's Trustee in Bankruptcy, or the wife, the registered shareholders of Southend and AA, other than the husband, held the shares, and any right to, or in respect of, declared dividends, as trustees for the husband.

6. The family loan account kept by AA, could represent dividend declared but not paid out by that company.  But the majority of the credit entries on the one page of that account that is available, which runs from 22 May 2002 to 31 January 2006 are entered as: "transfers from other loan account".  The only identified source was Southend (see paragraph 4 above). In so far as credits to that account represent dividend declared by Southend the arrangements and agreements, relating to the transfer of such sums to Properties, and upon which such credits were based, were not covered by the evidence.

7. The family loan account in Properties cannot represent dividends declared by that company (Properties) because it has not declared any.  So the sums credited to that account represent, on the evidence, money owed in respect of dividends declared by Southend, and possibly AA (13).  The arrangements and agreements relating to the transfer of such sums to Properties, and upon which such credits were based, were not covered by the evidence.

8. The existing evidence from Mr B and the husband would indicate that the arrangements and agreement upon which credits to the family loan accounts were based may well not have been clear at the time, but the theme of their evidence was that they represented declared dividend, and so moneys owed by the company to its shareholders. Choices include:

i) in respect of Properties that:

a) the shareholders in Southend and AA and so effectively, on my findings, the husband agreed either (a) to lend the sums to Properties, or (b) that Properties would hold such sums for him as a nominee.  Both of which would seem to involve a payment, or deemed payment, of the dividend, followed by the creation of such a loan or trust, or

b) the company that declared the dividends (i.e. Southend and AA) and so owed them to the shareholders agreed either (a) to lend the sums to Properties, or (b) that Properties would hold such sums for it as a nominee.

ii) in respect of AA that:

a) the sums credited to the account represent dividend declared and retained by AA,

b) the shareholders in Southend and so effectively, on my findings, the husband, agreed either (a) to lend the credited sums to AA, or (b) that AA would hold such sums for him as a nominee.  Both of which would seem to involve a payment, or deemed payment, of the dividend declared by Southend, followed by the creation of such a loan or trust, or

c) the company that declared the dividends (i.e. Southend) and so owed them to its shareholders agreed either (a) to lend the credited sums to Properties, or (b) that Properties would hold such sums for it as a nominee.

9. The evidence does not indicate that there were inter company loans, or inter company nominee arrangements, and the following all point strongly to the conclusions that no such loans or arrangements were made, namely: (a) the name of the accounts, (b) the entries showing credits and debits between the accounts, (c) the approach to using moneys debited to the account kept by Properties for buying properties and (d) the lack of any debits when Southend ceased to trade and was wound up (an alternative being that, at that stage, it was agreed that the moneys owed to Southend would thereafter be owed to, or held for, the shareholders of that company.  So, on the existing evidence,  I have concluded that the position, subject to the proprietary claim of the Official Receiver:

i) in respect of Properties is that set out in paragraph 8(i)(a), and
ii) in respect of AA is that set out in paragraph 8(ii)(a) or (b).

That means that the company holding the moneys representing declared dividends credited to the family loan accounts either:

a) (like the company that originally declared them) owed those sums to the shareholders (who had a chose in action to claim them), or
b) held them as a nominee,

and, in both cases, as and when the sums credited to the family loan accounts were paid out the registered shareholders held those sums for the person or persons who were beneficially entitled to the shares in their names.

10. Further, even if there was an inter company loan from Southend or AA, on its repayment that lending company would owe the money to its shareholders who would hold it for the person(s) who were beneficially entitled to the shares.

11. The nature and effect of the dealings with sums representing declared dividends credited and debited in the loan accounts give rise to tax issues.  I have not researched these, but my understanding is that the liability to tax is, or can be, affected by the date upon which retained dividend is paid out, or deemed to have been paid out.

12. Properties.  The relevant chain of events relating to its one issued share is, as follows:

i) In October 1999, the husband subscribed for one share, and in November 1999 he transferred it to his infant nephew IQ.  I found that it was not intended that IQ was to be the beneficial owner and that the husband was intended to remain the beneficial owner. (75)

ii) The share was transferred to Mrs B.  I rejected the oral evidence that she was the beneficial owner and the alternative, but abandoned case that she held the share on a family trust.  I found that the true, and so the beneficial, owner was the husband.  The oral evidence of the husband and Mr B, was to the effect that the share was transferred to Mrs B to seek to gain a tax advantage in respect of any dividend because Mrs B was resident abroad.  This was an illegal purpose. (77)

iii) Issues arise as to the ownership of this share.

iv) There is no evidence that any dividend has ever been declared by Properties and thus that the illegal purpose was ever put into effect, or that any tax became payable in respect of that share.

13. I now turn to deal with the sequence of events relating to the relevant properties.

14. 642 SR.  Southend had a lease of this property that contained an option to purchase.  It was not bought at the option price, but at a lower one in October 1998, in the name of the wife.

i) It was common ground, and I accept that, this purchase was funded by dividend declared by Southend for the tax years ending April 97 and 98, and so during the period when the registered shareholders were (or became) the husband, the wife, the husband's mother and his sister (S) with 25 shares each. 

ii) I found that part of the thought process behind the property being bought by dividends, and being owned outside the company in the name of the wife, was to protect the property from a claim by a major supplier.  As I understand it, no such claim materialised.

iii) The husband, his mother and sister asserted that the wife executed a trust deed dated 30 October 1998 by which she declared that she held the property for the husband's mother and sister.  In support of this claim, the husband and his family also relied on a lease agreement dated 1 December 2001 between the husband's mother and sister (recited therein as being the beneficial owners) and AA at a peppercorn rent.

iv) I found that the trust deed had been created and had not been signed by the wife (74).

v) That document recited that the purchase price was provided by the husband's mother and sister.  I found that that this was not accurate because no allocation of declared dividend had been made and, in any event, they were never beneficially entitled to that dividend and so could only have provided the funds (or some of them) as trustees.  My finding was that (subject to any claim by the trustee in bankruptcy) they held the shares in their names, and so any dividend paid, or allocated to them, for the husband.  It follows that their description, in the lease relied on, as the beneficial owners of the property was not accurate. (70) to (74)

vi) It was common ground between the rival accounts, and my findings are to the effect that, the property was bought by and for individuals with dividends declared by Southend, and so it was funded by a distribution of that dividend.  The evidence does not show what tax was paid in respect of that distributed dividend and thus, for example, whether the tax reasons for putting the shares in the names of members of the family were implemented.  If they were, the relevant tax returns would not have reflected what I have found to be the true position namely that, subject to the interest of his trustee in bankruptcy or the wife, the shares were held for the husband and so the dividend income was his. 

vii) On 7 July 2004, shortly after their separation, the wife charged this property in favour of HSBC as security for advances made to her.

viii) In August 2010, the property was sold for £200,000 by a receiver appointed by HSBC to a company in which the husband and/or his family have interests,  leaving a balance of £70,007.93 after deduction of the debt and costs which is held to the order of the court (the "642SR proceeds").

ix) This property, and the 642SR proceeds, are the subject of proceedings issued by the husband's mother and sister in which they advance claims against the wife based on their assertion that the wife held the property on trust for them.

15. 136 YR.  This was purchased in March 2002, in the name of Properties.  I found (as was effectively common ground) that the family loan account in Properties shows moneys coming out of it to fund this purchase.  It was the family home.

i) The husband and his family asserted that Properties, acting through a director S (who was then a child), executed a trust deed in respect of this property dated 20 March 2002, in favour of S.

ii) That document recited that the purchase price was provided by S.  I found that that this was not accurate because no allocation of declared dividend had been made and, in any event, S was never beneficially entitled to that dividend and so could only have provided the funds (or some of them) as a trustee (80).  My finding was that (subject to any claim by the trustee in bankruptcy) S held her shares and so any dividend paid, or allocated to her, for the husband.

iii) Issues arise as to whether this trust deed was a sham, was ultra vires the company, or was executed in breach of duty.

iv) The claim of the Official Receiver falls for consideration, (b) tax issues arise or may arise, and (c) there may be residual issues as to whether the purchase moneys were provided by Properties or, subject to any interest of his trustee in bankruptcy or his wife, the husband.

16. 19A SJR. This was bought in November 2004, for £45,000 in the name of the husband's mother.  I found (as was effectively common ground) that the family loan account in Properties shows moneys coming out of it to fund this purchase.  I also found that it was put in the name of the husband's mother as a trustee for him and to keep it outside the ambit of the divorce proceedings (89). The claim of the Official Receiver falls for consideration, (b) tax issues arise or may arise, and (c) there may be residual issues as to whether the purchase moneys were provided by Properties or, subject to any interest of his trustee in bankruptcy or his wife, the husband.  Issues may also arise under s. 37 MCA 1973

17. Garage plot.  This was also bought on 8 November 2004 in the name of the husband's mother for £5,000.  (89) (90) I found (as was effectively common ground) that the family loan account in Properties shows moneys coming out of it to fund this purchase.  I also found that it was intended to be a gift by the husband to the husband's mother.  The wife no longer pursues a claim that this property is held for the husband.  But as with other payments debited to the family loan account (a) the claim of the Official Receiver falls for consideration, (b) tax issues arise or may arise, and (c) there are, or may be residual issues as to whether the purchase moneys were provided by Properties or, subject to any interest of his trustee in bankruptcy or his wife, the husband.

The order of Baron J made in November 2009
18. She made an order on an application to strike out the wife's particulars of claim dated 9 July 2008.  The husband and his family were refused permission to appeal her order by Wall LJ in March 2010.  I was not referred to any application by the wife to appeal the order of Baron J.

19. Notwithstanding the recent developments of the law relating to constructive trust (see for example Snell 32nd edit para 24 – 046 and Jones v Kaney [2011] UKSC 13, [2011] 2 FLR 312), I think that it is fair to say that most trust lawyers would still find that order surprising, but it stands and limits the bases on which the wife can advance her claims that the husband is the beneficial owner of assets.  The decision was based on the pleadings as they then existed and a commonly used (but arguably limited) description of the way in which a resulting trust can arise (see paragraph 54).  Baron J struck out the claims in relation to beneficial ownership made by the wife in respect of (a) the share(s) in Properties, (b) the garage and (c) 19A SJR, insofar as they relied on express or resulting trusts.  So, she allowed the claim, as then pleaded, to proceed in respect of those assets on the basis of constructive trust.  She also allowed the claim in respect of the shares in AA, as then pleaded, to proceed, namely that the husband's mother and sister (S), who were asserted to be the registered owners of the shares in AA, held the shares on an express, resulting or constructive trust for the husband.  That pleading makes no mention of, and so is not based on, the position relating to the ownership of the shares in Southend and the transfer of part of Southend's business to AA, when it was incorporated. 

20. Baron J did not permit the wife to amend her pleadings to deal with overlaps, or potential overlaps, between claims based in the alternative on an express oral trust relating to the shares, resulting trust or constructive trust, or to cover a claim based on a resulting trust arising on the voluntary transfer of an asset by A to B, when there is no presumption of advancement.

21. Baron J also refused to strike out the wife's defence in respect of the claim made by the husband's mother and sister in respect of 642 SR. 

22. Amended particulars of claim dated 9 June 2010 were served which deleted and replaced the wife's earlier particulars of claim dated 9 July 2008.  So the pleadings moved on from those that existed when the case was before Baron J, but by these pleadings the wife limited the bases of her claims in the manner ordered by Baron J.   In respect of the claim concerning the shares in AA, it was pleaded that the husband had introduced all the assets and capital into AA and transferred the ice cream business of Southend to AA. Later, I ordered that the wife should serve further and better particulars of her claim and was critical of her pleadings and dealt with another strike out application.  I refused that application and gave directions resulting in re-amended particulars of claim and further particulars (21). 

23. A result of the preliminary hearings before me was that the likely importance of the position relating to the ownership of the shares in Southend was recognised and accepted.  And, in her opening written submissions in May 2011, counsel for the wife asserted that the first question for the court to determine was who was the beneficial owner of the shares in Southend.

24. A District Judge had at an early stage refused to allow the wife to make a claim in respect of the shares in Southend (14) but, to my mind, that did not preclude her from making a claim in respect of the shares in AA by reference to the ownership of the shares in Southend and the transfer of some of its assets to AA on or shortly after its incorporation.  So, in my view, the parties were correct to address the issues relating to the ownership of the shares in Southend at the fact finding hearing.

25. I shall consider the limitations imposed by Baron J on the way in which the wife can put her claims in respect of (a) the shares in Properties, (b) the garage and (c) 19A SJR when considering those assets. 

26. But, in any event, in my view, the husband's trustee in bankruptcy (the Official Receiver) is not bound by any such limitation.

The basis and effect of the claim advanced by the Official Receiver
27. It is based on the statutory vesting in him of the bankrupt husband's estate pursuant to the ss. 283 and 306 of the Insolvency Act 1986, followed by a proprietary remedy (tracing).  The first and vital step in the claim of the Official Receiver is therefore that the husband had a beneficial interest in the shares of Southend (registered in the name of his sister AS) and that that interest vested in the Official Receiver.

28. The statutory vesting covers beneficial interests in shares and is for a statutory purpose.  The result is that the trustee in bankruptcy holds those assets (and their product) for that purpose and that if and when there is a surplus he holds that on trust for the purpose of giving effect to the bankrupt's entitlement to the surplus (see s. 330(5), Jones v Philpott [1900] 1 Ch 822 and Phillips v Symes [2005] EWHC 2867 (Ch), [2006] All ER (D) 16 (Oct), [2006] BPIR 1430).

29. The effect of that combination is that the bankrupt has an interest in the surplus that he can deal with (e.g. charge) see Phillips v Symes.  The surplus is identified as and when all debts, interests and costs have been paid, until then the trustee in bankruptcy holds the estate of the bankrupt and its product to perform his statutory task, and so effectively on a purpose trust.  It follows that, any dealings of the bankrupt with the surplus crystallises when it is identified and, before that, the trustee in bankruptcy can deal with the assets vested in him and their product as he thinks fit in the performance of his statutory task.   

30. The debts etc have not been paid.  It follows that, the discharge of the husband from bankruptcy after 3 years did not divest the Official Receiver of his interest, in the estate of the husband, or in assets to which he is entitled as a consequence of a proprietary claim relating to the product of the estate of the husband that vested in him. 

The ownership of the shares in Southend in the name of the husband's sister AS      
31. I found that the husband transferred 99 shares to his sister (AS) to protect the business of the company from his creditors and on the basis that she would hold the shares for him.  I rejected the assertion that they were transferred to her because she wanted security or control.   

32. The husband has asserted, and I am for present purposes prepared to accept, that at the time of the transfer, and the bankruptcy, the company had little value and so par was a fair value for the shares.  I did not make an express finding that his sister did not pay for the shares at par, which I have been told is the consideration stated in the transfer and this was not an issue raised before me during the fact finding hearing.  As I understood it, some of the additional material the husband sought to put before the court to found a reconsideration of the facts, which I did not permit him to do (see my judgment on 14 February), was directed to introducing an assertion that the shares were paid for and so were purchased by his sister AS.   In my judgment:

i) it is inherent in my findings that she did not purchase the shares from the husband, and that the transfer was a voluntary one made for no consideration, and further

ii) there is no need for me to hear any further evidence or argument to reject any such assertion that she purchased the shares; which I do.

33. In my view, there are therefore potentially three routes by which it could be argued that AS held the 99 shares for the husband absolutely, namely (i) because this was expressly agreed, (ii) because the shares were transferred to AS without consideration and were so held by her on resulting trust for the husband (see, for example Tribe v Tribe  [1996] Ch 107 at 122G) and, alternatively, if necessary (iii) because AS held them for the husband on a constructive trust.

34. In my view, the order of Baron J does not preclude a claim being advanced on grounds (i) or (ii), because (a) it was not directed to the shares in Southend, which were not the subject of the pleadings before her or her order, and (b) the essential relevance of the issues relating to the shares in Southend concerns the ownership of the shares in AA, and Baron J left alive a claim to those shares on the basis of express, resulting and constructive trust.

35. I invited the parties to address me on the issue whether this transaction was tainted by illegality, with the result that the husband could not have claimed the beneficial interest as against AS.  I did so because, at this stage, the husband and his family were no longer represented and it seemed to me that it was a line of argument that might have been considered on their behalf, albeit that its merits would be poor because it would be founded on them seeking to gain advantage from their illegal purpose. 

36. The illegality argument is relevant to the claim advanced by the Official Receiver based on the statutory vesting in him of the husband's estate, and thus his interest in the shares in Southend, pursuant to ss. 283 and 306 of the Insolvency Act 1986.

37. In my view, if the husband had had to rely on a constructive trust the argument could be deployed that he would have had to rely on the illegal purpose to prove his beneficial entitlement, and therefore could not do so as against his sister if she had disputed it (see Snell 32nd edit paras 22.066 and 5.015, Tinsley v Milligan [1994] 1 AC 340, MacDonald v Myerson [2001] EWCA Civ 66 as to which I provided the parties with a copy of my judgment in Owen v Vise [2011] EWHC 200 (Fam)).  Also, the illegality point may have had an impact on a claim based on the agreement between the husband and his sister, unless it was a severable express declaration of trust.  My findings do not address the detail of that agreement and thus whether it amounts to an express declaration of trust.

38. But, in my judgment the husband would not have had to rely on either argument to establish his beneficial entitlement.  This is because the clearest route to him so doing is that AS held the shares on resulting trust for him.  This resulting trust is founded on the voluntary transfer to AS and can be established without having to plead the illegal purpose (see Tribe (the quote passage at 116A), 118D, 122G and 134F).

39. The Official Receiver would not have been troubled by arguments relating to illegality if he had brought a claim under s. 423 of the Insolvency Act 1986, but for understandable reasons, he does not seek to bring a claim under s. 423 (or any other provision of the Insolvency Act apart from ss. 283 and 306 thereof).  If he had so based his claim, he would have had to issue an application and disputed limitation issues would have been argued by the wife, for her benefit (and that of the husband).  But the understandable decision of the Official Receiver not to pursue any such claims renders argument about them academic. 

40. It is clear that the one share held by Mr A (no relation) was not held by him beneficially, but as a nominee.  It is inherent in my findings that the transfer of that one share to AS was at the direction of the husband, and on the basis that AS held it in the same way as the other 99 shares, and thus for the husband.

41. The position is therefore reached that when the husband was adjudicated bankrupt in March 1992, all the shares in Southend were held by AS as a trustee for the husband and so, in my judgment, his beneficial interest in them vested in his trustee in bankruptcy, the Official Receiver (see s. 306 Insolvency Act 1986).

The proprietary claim of the Official Receiver to the product of the shares in Southend
42. From that starting point, in reliance on  Jones & Sons (Trustee) v Jones [1997] Ch 159 the Official Receiver's primary argument is that that he was, and is, entitled to the dividends declared by Southend and can trace into the 642SR proceeds. 

43. But, if his argument is correct it also founds, at least, the start of a proprietary claim to the beneficial interest in all the shares of AA, the dividends declared by that company, and to the product of the dealings with the dividends declared by both Southend and AA.  And, for reasons that appear later, in my view, this has the consequence that it is necessary to consider his claim and entitlement to the other properties that are the subject of the preliminary issues.    

44. The wife, through counsel, submitted that all these claims were now statute barred.  In this context she and the husband (and his family) have a common interest in defeating the claim of the Official Receiver.  I will deal with this limitation argument under a separate and later heading.

45. The decision at first instance in Jones was based on a tracing exercise founded on the existence of a fiduciary relationship.  The Court of Appeal found that there was no such fiduciary relationship but that the trustee in bankruptcy could trace at common law. Tracing is a proprietary restitutionary claim that involves a process rather than a right or a remedy (see Millett LJ at 167B, 168D and 169H).  Here, however there was a fiduciary relationship between AS and the husband and, in my view, AS (and subsequent trustees of the shares in Southend) would have had to account to the husband as trustees in the way described by Millett LJ at 167 B/D.

46. The effect of the statutory vesting of all the husband's assets in his trustee in bankruptcy is explained by Millett LJ at 167A.  Substituting his references in the passage to debtor and creditor, with references to trustee and beneficiary, the result here of the statutory vesting, was to affect the identity of the beneficiary not the trustee.  So, the interest in the shares in Southend apparently held by the trustee (the registered shareholder) for herself or the husband was in fact held by her for the Official Receiver (as the husband's trustee in bankruptcy).  As a result:

i) the husband had no (equitable) title to that beneficial interest or authority to direct how it, and its product, were dealt with,

ii) when AS transferred the shares in Southend the new registered shareholders (including the husband) held the shares for the Official Receiver, and

iii) this continued to be the case on subsequent transfers, and on the increase in capital.

47. It follows that, subject to the point that the husband could (as mentioned above) deal with the surplus in a way that will crystallise when it is ascertained, after the statutory vesting of the shares in the Official Receiver:

i) the husband had no interest in the shares that gave him authority to deal with them, or the dividends declared on them, and

ii) the Official Receiver had an absolute proprietary beneficial interest in the shares, and through that, the right to follow or trace in equity the declared dividends, the causes of action relating to them and the sums credited to the family loan accounts, and the assets bought with the moneys debited to those accounts.

48. So, in my view a common law analysis and claim is not necessary. But, if the shares had been owned legally and beneficially by the husband it seems to me that a tracing claim would exist at common law, applying Jones.  As to that, it might be said that some of the funds became mixed funds but, on the claim of the Official Receiver, all the relevant dividends (i.e. those declared by Southend and AA) would be held for the Official Receiver and, in my view, when they were paid out to buy 642 SR, and when they were paid into and out of the family loan accounts, the Official Receiver could trace at common law into the relevant chose in action and property bought (see Snell 32nd edition paragraphs 30 —52 and 53). 

49. There was no suggestion that the properties that are the subject of the preliminary issues were bought from funds other than dividend declared by Southend (in respect of 642SR) and/or dividend declared by Southend and/or AA through the family loan account in Properties (in respect of 136YR, 19A SJR and the garage).

642SR – The entitlement of the Official Receiver
50. This is the primary claim advanced by the Official Receiver.  This property was bought in the name of the wife with dividends declared by Southend.  It was bought before Properties and AA were incorporated and so the moneys used to fund the purchase were paid out from Southend to fund this purchase.

51. Those dividends, and so the purchase price, are the product of the shares in that company and the beneficial interest in (and thus the effective ownership of) those shares, and so the right to payment of the dividends declared, were vested in the Official Receiver. 

52. In the case of this purchase, it is clear that dividend was paid out to fund the purchase.  So, in my judgment, the Official Receiver was beneficially entitled to the purchase price and can therefore claim the beneficial interest in this property, on the basis of a proprietary tracing claim, or of a resulting trust and.  It follows that he is entitled to the 642SR proceeds.

53. The trust deed relied on by the husband's mother and sister does not provide any barrier to the claim of the Official Receiver, firstly because I have found that it was created and not signed by the wife; but also because the alleged parties to it had no beneficial interest in the purchase price.  
Entitlement of the wife to the shares in Southend and later AA that were registered in her name

54. If there had been no bankruptcy the wife could have relied on the presumption of advancement to argue that the shares put into her name at the direction of the husband were hers both legally and beneficially (I return to this below).  But, in my view, she was correct to accept that this argument was not available to her as against the Official Receiver.

The entitlement of the Official Receiver to the shares in AA
55. In my judgment, my findings and the common ground, establish that the common intention was that the ownership of the shares issued in AA, at or about the time that Southend transferred its ice cream business to AA without consideration, was to be the same as that in Southend.  This is the natural, and in my view, inevitable consequence of that transfer and the shareholders acted on it by so transferring that part of Southend's business and assets to AA.  It seems that they also caused a family loan account to be created in AA. 

56. The registered shareholders of all the issued shares in the two companies became the same and the beneficial entitlement to the shares would be founded on agreement (if it amounted to an express declaration), and/or resulting trust on the basis that the shares were so issued because of the inter company transfer, and/or constructive trust. 

57. I have not researched what, if any, tax consequences flow from this inter company transfer. 

58. In my judgment, although he was not privy to this arrangement, the Official Receiver can follow his beneficial interest in all the issued shares in Southend into all the issued shares in AA, because the ownership of the shares in AA is based on, and so is a product of, the shares in Southend. 

59. So, apart from the bankruptcy, and subject to any claim by the wife based on the presumption of advancement, the persons in whose name the shares in AA were held and registered from time to time, both before and after the increase in share capital, would have held them for the husband.  But because of the bankruptcy, and notwithstanding the husband's discharge, they have held them, and continue to hold them, for the Official Receiver, as a result of the statutory vesting in him of the husband's interest in the shares of Southend.

60. The beneficial interest after the increase in share capital mirrors and follows that in the shares that founded the entitlement to the increase.

Entitlement of the Official Receiver to the dividends declared by Southend and AA
61. Dividend is payable to the shareholders and so the entitlement to the dividends is the same as that to the shares.

The balance shown due on the family loan accounts in AA and Properties
62. All such rights as the shareholders of AA and Southend have had from time to time in respect of moneys credited to the family loan accounts, and to the sums paid out and debited to those accounts, they hold, and have held, for the Official Receiver as the beneficial owner of the shares.

63. It follows that, the Official Receiver was entitled to call for the credit balances shown from time to time on these accounts, and so he can call for payment of the present balances on the basis that, as the beneficial owner of the shares, they are owed to him or held by each of the companies as a nominee for him (see paragraph 9 above).

The ownership of the only issued share in Properties
64. The Official Receiver makes no claim to this share.  The wife argues that it is held for the husband on constructive trust (the basis left open to her by Baron J).  I will return to this ownership issue, but the proprietary claim and entitlement of the Official Receiver does not extend to one based on the interest of the husband in this share.

65. So, in my view, it is appropriate to identify the claim and entitlement of the Official Receiver to the other assets that are the subject of the preliminary issues, based on the foundation of his primary argument, namely the vesting in him of the beneficial interest in all the issued shares in Southend, bought with moneys provided by Properties and debited to the family loan account kept by that company.

36 YR – The entitlement of the Official Receiver
66. This was bought in the name of Properties with moneys debited to its family loan account.  My analysis and findings on the entitlement of the shareholders to the moneys standing from time to time to the credit of that account is at paragraphs 8 and 9 above.  Applying the same analysis as that relating to 642 SR, that analysis provides the foundation for a proprietary claim to 136 YR if the debited funds were treated as having been paid out to the shareholders to fund the purchase.

67. That approach accords with the debit to the family loan account and the trust purportedly declared by Properties.

68. Albeit that it does not fit with the debit to the family loan account, an alternative analysis advanced by the wife, is that it was Properties who provided the moneys, as company moneys.   But, even on that analysis (a) the debit shows that moneys so provided, as company moneys, came from the family loan account, and should have been mirrored by a book entry to repay it, and so (b) a linkage with the declared and retained dividend exists.  

69. In my view, the Official Receiver can avoid, and so effectively ignore, any lack of clarity relating to the agreements and arrangements made concerning the moneys debited to that family loan account and used to but 136YR, by electing to follow the right to claim the dividend, to which he was beneficially entitled, and so the moneys debited to the family loan account, into the property bought with it and by that route enforcing a proprietary remedy against it.  This is the simplest and most obvious claim of the Official Receiver in respect of debits to the family loan account, and he can enforce it by claiming a lien or beneficial ownership of the substituted asset under a constructive trust (see Snell 32nd edit 30-055,  Re Hallett's Estate  (1879) 13 Ch Div 696 and Foskett v McKeown [2001] 1 AC 102 at 129 to 133).

70. The alternative open to the Official Receiver might be to claim all dividends credited to the family loan accounts in Properties and AA, either directly or by claiming against the companies that paid the moneys to Properties (one of which, Southend, is no longer in existence).  To my mind, sensibly this was not the line of argument adopted by the Official Receiver in respect of 642 SR, and it is difficult to see how it would be a sensible choice in the performance of his statutory role, when the simpler, more direct and cheaper route to getting in the bankrupt's estate referred to in the last paragraph is available to him. 

71. The trust deed executed by the husband's sister, as an officer of Properties, over 136YR does not form any barrier to the claim of the Official Receiver to this property, or indeed to a claim to it by the husband, other shareholders, Properties, Southend or AA.  This is because it is a sham, it is ultra vires Properties, and it was a breach of fiduciary duty. I shall return to these arguments.

19A SJR – The entitlement of the Official Receiver
72. This mirrors that in respect of 136YR because the purchase price was provided by Properties, and corresponding debits were made to the family loan account.  In this case, as the property was transferred to the husband's mother the argument that it was funded by a payment of company moneys is weaker.  And, as with 136 YR, any uncertainty as to this does not stand in the way of the Official Receiver's proprietary claim.

The garage – The entitlement of the Official Receiver
73. This mirrors that in respect of 19A SJR. 

74. I add that my finding that it was a gift by the husband to his mother, is an additional factor that favours the conclusion that the purchase moneys were paid out as dividend, and not as the company moneys of Properties, because a gift by the company would be ultras vires.

Limitation and other defences to the tracing / proprietary claims or other claims of the Official Receiver
75. In my view, the tracing / proprietary claims are against fiduciaries and are not barred by limitation or laches (see Snell 32nd edition paras 3- 035 and 036). Also, I have not identified the existence of any other defences to his claim (e.g. those referred to at Snell 32nd edit paras 30 – 063 to 065). 

76. In my view, at no stage in the proprietary claims does the Official Receiver rely on the underlying purpose of the transactions, and so his claim is not vulnerable to any argument based on any of those purposes being illegal.

77. Additionally, I have not identified any defences that could be advanced by the registered shareholders against the person beneficially entitled to the shares, and their product, or that could be advanced by the companies against the registered shareholders and the person for whom they hold the shares. 

78. If the Official Receiver was to elect to pursue an alternative remedy (see paragraph 70 above) different issues might arise.  But that would be contrary to the argument he has advanced, and I heard no argument about it and any defences to it.

The present position of the Official Receiver
79. As mentioned earlier, the focus of his argument was on the 642SR proceeds.  This is understandable and pragmatic. because they form an easily identifiable and claimable sum that covers the bankruptcy debt, statutory interest and costs.  The position of the Official Receiver before me was that if he is paid a sum from the 642SR proceeds to cover that total he would drop out.  Counsel for the wife supported that stance, if her argument that the Official Receiver's claims were statute barred, or for any other reason, failed.  This was because this solution would stop the high statutory rate of interest running (15% - see s. 328(5)(a) Insolvency Act 1986 and s. 17 Judgments Act 1938).

80. However, it seems to me that there are difficulties in the way of the Official Receiver taking that course even if only the 642SR proceeds are considered.  This is because of the possibility that tax and penalties are due in respect of the dividends of Southend that were used to purchase 642SR.  In my view, the Official Receiver in carrying out his statutory task, and as an officer of the court, should investigate this so far as he can and, in any event, raise it with the Revenue before applying the 642SR proceeds in the way suggested, and dropping out of the picture.  In any event, in my view, the parties, and failing them the court, should disclose this issue to the Revenue because the tax liabilities need to be identified for the purposes of the application for financial remedy (see A v A; B v B [2000] 1 FLR 701).

81. To my mind, there are further difficulties in this understandable and pragmatic course flowing from the nature of the Official Receiver's statutory duties and the establishment in these proceedings, albeit that he concentrated on the 642SR proceeds, of the proprietary claim and entitlement of the Official Receiver to, not only the 642 SR proceeds, but also to:

i) the other three properties,
ii) the shares in AA, and
iii) as the beneficial owner of the rights of the shareholders in AA and Southend, to the credit balances of moneys posted to the family loan accounts of AA and Properties.

82. I acknowledge that I have not heard argument on the points that follow, but from the starting point set out in the last paragraph, it seems to me that:

i) the Official Receiver needs to take formal steps to perform his duty to realise the estate and identify the surplus (s. 330 Insolvency Act 1986),

ii) in taking those steps, he would have to address what he should do about the tax and penalties that may be due on the dividends to which he was (and is) entitled, to avoid any risk that he would be responsible for paying them,

iii) even if he is not so responsible, as an aspect of his realisation of the estate and establishment of the surplus, in carrying out his statutory task as an officer of the court, he should investigate these potential liabilities, and any relating to the transfer of assets by Southend to AA, so far as he can, and, in any event, raise them with the Revenue before finalising the realisation of the estate and making a final distribution.  In any event, in my view, the parties, and failing them the court, should disclose this issue to the Revenue because the tax liabilities need to be identified for the purposes of the application for financial remedy  (see A v A; B v B), and

iv) he will need to consider how he should divest himself of those interests.  (As to that, it may be that when he has taken the above steps he could do so by making it clear that he is not pursuing any proprietary claim to them.  But, there may be a need for more formality, to divest himself of the relevant beneficial interests that comprise the surplus). 

83. Applying that approach, I have concluded that my order should provide that:

i) the 642SR proceeds, the three properties and the moneys standing to the credit of the family loan account should be transferred to the Official Receiver, or otherwise secured to his order (e.g. by declaration and injunction), until all tax and penalties have been paid and the surplus calculated having regard to (amongst other things) the costs incurred in dealing with the tax liabilities, and if possible

ii) moneys should be set aside, or paid out now, to prevent the continuing charge of the high rate of statutory interest on the bankruptcy debt.  

Pausing there
84. On that approach many of the other arguments relating to the entitlement to assets that are the subject of the preliminary issues fall away.  This is because when the surplus in the bankruptcy is ascertained, and the final distribution is made, the assets held by or for the Official Receiver that represent that surplus, will be vested in the husband and so be the subject of the claim for financial remedy.  At that stage, therefore, they should continue to be appropriately preserved to meet the orders made for financial remedy.

85. This approach and relief has the effect that the liabilities for, and in respect of, tax fall to be ascertained:

i) on the basis that the dividends are a product of the husband's estate vested in the Official Receiver, and so

ii) on what, in my judgment is the correct present position at law and in equity, relating to the ownership of the relevant shares, properties and causes of action, flowing from the starting point that the beneficial interest in all the shares in Southend vested in the Official Receiver. 

86. However, I shall deal with other arguments put to me in respect of the ownership issues:

i) because, in respect of the issued share in Properties, the Official Receiver makes no claim and that company may well have interests in other assets, and
ii) in respect of the other assets (a) to cover any argument that might be based on the ability of the husband and/or  the registered shareholders to have dealt with them, interests in them or their product, in ways which crystallise, or take effect as to both the legal and beneficial interests in them, when the surplus is identified, or at any other time, (b) to cover the position if my approach to the claim of the Official Receiver is found to be wrong and (c) to identify the bases for alternative relief.  This involves an alternative analysis in respect of the other assets on the basis that the husband had not been made bankrupt or the Official Receiver had no claim.  I shall deal with this next.

This alternative analysis of the claims and entitlements of the husband and wife
87. Save that (a) the husband was privy to the agreements and arrangements made in respect of the family loan accounts, and the application of moneys standing to the credit of those accounts, and so could make further assertions in respect of the uncertainties that exist relating to them, and (b) he was actively involved in the transactions to fulfil their underlying purposes, some of which were unlawful, the husband's claims and entitlement in large measure mirror those of the Official Receiver (standing in his shoes because of the vesting of the husband's estate in him). 

88. However, in this analysis the wife:

i) can make claims based on the presumption of advancement (see  Snell 32nd edit paras 25 – 007 and 008 and Tribe) and,

ii) as she has done, can base arguments on the proposition that moneys debited to the family loan accounts, and used to buy 136YR, 19A SJR and the garage were company moneys, and so that they are properties owned by Properties and that the husband is the beneficial owner of the one issued share in Properties.

89. Equivalent potential liabilities for tax and penalties arise and they will need to be quantified and addressed with the Revenue, because they are liabilities that need to be taken into account in the s. 25 exercise (see A v A, B v B).  The arguments referred to in the last paragraph may have an impact on those potential liabilities for tax and penalties, and so on the value of the assets that are subject to the s. 25 exercise.

90. All of this is academic on the relief I propose. 

91. My conclusions on the family loan accounts are set out in paragraphs 8 and 9 above.  But these leave unanswered the issue referred to in, for example (89) and paragraph 68 above, of the  possibility that the moneys used to purchase assets, and debited to the family loan account kept by Properties, were company moneys, rather than moneys repaid or paid out to the beneficial owner(s) of the shares.  The present evidence points strongly to the conclusion that the true analysis is that the moneys so debited were repaid to, or paid out to, the shareholders, or should be so treated.  But as my findings in the fact finding judgment (89) refer to the possibility of them remaining company moneys, I have concluded that I should not reject that analysis at this stage.

92. This introduces complications to the alternative analysis that I cannot resolve and which could be relevant in an equivalent way to that mentioned in paragraph 89 above.

93. The shares in Southend.  The starting point is the same as that relating to the claim of the Official Receiver because it is based on the legal and beneficial ownership at the time of the bankruptcy.

94. The transfers of the shares in Southend.  My findings, see for example  (69), (78), (79), (83), (88) (89) and (90), found the conclusion that it was the intention, or common understanding, that the members of the husband's family who were registered as the shareholders from time to time (with the possible exception of the wife, albeit the lack of discussion with her also points to the same result) held the shares in their names for, and would deal with them as directed by, the husband.  In my view, the husband would be able to establish his beneficial interest in the shares transferred from time to time into names of members of his family, other than the wife, without having to plead the underlying purposes of the transfers.  This means that those family members could not establish a beneficial interest in the shares in their names on the basis that they had been transferred into their names for an illegal purpose (e.g. to seek to reduce the tax payable on dividends, or to avoid exchange control regulations (if that involves illegality when the shares are held for the husband), or to defeat the wife's claim – and if that was the purpose she can fall back on s. 37 MCA 1973).   

95. The issue of the shares in AA and the later transfers of those shares. The husband can rely on the same analysis as that which founds the claim of the Official Receiver to the shares issued in the names of members of his family, apart from the wife.  Also he could establish his beneficial interest in the shares that were so held from time to time without having to plead the underlying purposes of such transfers. 

96. Presumption of advancement in respect of the shares in Southend and AA. The wife would be able to rely on the presumption of advancement to found the conclusion that the shares in her name (and thus her undiluted share in the companies), and the dividends declared in respect of those shares, are hers legally and beneficially.  This is because to rebut this claim the husband would have to rely on the underlying unlawful purpose of the transfer to her of 25 shares in Southend (which was to enable a false assertion to be made to the Revenue that she was the legal and beneficial owner of the shares in her name in Southend, and then also AA, to spread and so reduce the tax payable on dividends). 

97. Her ownership might reduce the overall tax payable.  But apart from that, this claim and what flows from it, namely her beneficial entitlement to dividends declared on the shares in her name is likely to be academic in the proceedings for a financial remedy under the MCA because, for that purpose, it matters not whether the assets are owned by the husband or the wife.

98. The credit balances posted to the family loan accounts.  If he is believed, the husband could provide clarity as to the alternatives left on my findings (see paragraphs 8 and 9 above), namely whether the sums credited to the accounts are held as loans from, or as nominees for the shareholders in Southend and AA, and through them the person(s) beneficially entitled to the shares. I have not identified a reason why this distinction might be relevant to this alternative analysis.

99. 136 YR. On the basis that the property was bought using moneys owed to the shareholders and thus moneys to which the husband and the wife (relying on the presumption of advancement) were entitled no allocation was made of the debits to the family loan account.  But, in my view, any further analysis of the source of the moneys, or the common understanding of the husband and the wife as to the ownership of the property is unlikely to be necessary, save possibly in determining the tax that is payable.  My finding of fact is that 136YR was regarded as the property of the husband and the wife and that Properties was regarded as his property company (82).  This does not constitute a finding as to the common intention of the beneficial shares in which this property would be so held and, if this becomes relevant, it will have to be further considered.  But, to my mind, the starting point should reflect the percentage entitlements to the declared dividend (i.e. 25% wife and 75% husband) because the underlying theme is that the wife, like other members of the family, left decisions as to the persons in whose names shares and properties should be put to the husband.  However, the present law on constructive trust introduces the possibility that such initial shares could be changed, or found a conclusion that the property is held on constructive trust in equal, or different, shares, not least because 136 YR was the family home (see Snell 32nd edit para 24 – 046).

100. The alternative, but on the present evidence less likely view, is that the purchase price was company money and 136YR is a company asset. 

101. The wife is not prevented by the order of Baron J from basing her claims as to the beneficial ownership on resulting trust, which she can do without relying on the underlying purpose for the purchase of this property.  Further, if that intention was to claim principal private residence relief on a false basis this has not been done and so, in my view, a claim based on constructive trust would not be defeated by an illegality argument (see the reasoning set out below in respect of the share in Properties relying on Tribe).

102. The wife claims that the trust deed relied on by the husband in respect of 136 YR is a sham.  My findings, see in particular (36), (80), (82) and (83), found the conclusion that the parties to the trust intended it to give to others the appearance of creating rights that were different to the substance and reality of the true position as they understood it to be (see Snell 22-067/8 and Snook v London and West Riding Investments Ltd [1967] 2 QB 786), and so, that the trust is sham. There was some suggestion that it was put in the sister's name to enable principal private residence relief to be claimed but I made no finding on that.  Reckless indifference constitutes the necessary intention (see  A v A (St George Trust Interveners) [2007] 2 FLR 467 to found a sham, and my findings at (46), and those identified at the start of this paragraph, establish that the approach of the husband's sister's was one of reckless indifference, if she did not form the actual intention to execute a deed to present a false picture to third parties.

103. Further and alternatively, the wife asserts that the trust (a) was ultra vires Properties, and (b) was a breach of fiduciary duty by the husband's sister.  In my judgment, both assertions are correct.  The company did not have power to make corporate gifts, and there was a clear conflict of interest for S, compounded by the fact that she was not the beneficial owner of her shares, and no allocation of the family loan account was made to found a gift to her by the husband of the moneys used to buy the property.

104. Accordingly, I will make declarations to reflect those conclusions in respect of the trust deed.

105. 19A SJR. The order of Baron J places a limitation on the basis of the wife's claim, and excludes an argument based on resulting trust and thus the use of dividends (or money representing them) to which she and the husband were entitled.  This potentially creates a strange situation if the claim can only be based on resulting trust, based on the finding that the purchase price was provided from moneys debited to the family loan account kept by Properties (the type of resulting trust referred to by Baron J).  But, in my view, it is not clear whether the order of Baron J prevents a claim that the property is held on a resulting trust for the company, Properties, being made on the basis that 19A SJR was bought with company money (the less likely conclusion on the present evidence).  But, as this was not argued, I leave any such argument and decision on it, to a later date, if it becomes relevant.

106. However, in my view resulting and constructive trusts are not mutually exclusive concepts.  Indeed, it would be surprising if a claim based on constructive trust, which is one directed to providing a fair result in equity, was so restricted by reference to a strike out decision based on the way a case was pleaded.  This view is supported by Snell 32nd edit at para 24 – 046, which, if anything, supports an argument that an approach based on resulting trust may, in some circumstances, be now subsumed in or replaced by one based on constructive trust.  So,  in my judgment, the restriction placed on the wife by the order of Baron J, and the availability to the wife of a claim based on resulting trust, does not mean that the wife cannot found a claim on constructive trust that the husband's mother holds 19A SJR for either the husband or (and less likely) the company Properties.

107. My findings in particular at (9) and (89) found the ingredients of a claim based on constructive trust, namely in broad terms agreement and detriment (see Snell 32nd edit paras 24 – 049 to 056, and in addition to the cases cited, Jones v Kaney in the Supreme Court [2011] UKSC 13, [2011] 2 FLR 383).  My finding is that it was agreed between, or the common understanding of, the husband and his mother that she would hold the property for him and at his direction, and so either (a) for him if the purchase money was provided by him as the beneficial owner of shares in Southend and AA, or (b) (and less likely on the present evidence) for Properties, if the purchase price was company money.  Both the husband and Properties acted to their detriment by providing the purchase price.  Further, if the whole course of the conduct of the husband and his family, as found by me, is looked at it founds the basis of a constructive trust of this property in his favour as its purchase is a continuum of the process of assets being put in the names of family members, on the basis that they held them for him, and at his direction.

108. However, a problem in respect of the claim based on constructive, as opposed to one based on resulting trust, is my finding that a purpose of the transfer was to keep the property outside the divorce.  But, in my view, this does not prevent the wife asserting and establishing that the husband (or, but less likely, Properties) is the beneficial owner, rather than the husband's mother by relying on s. 37 MCA 1973. 

109. The garage.  I have found that the husband's intention was to make a gift of this to his mother and the wife no longer makes a claim that it is the husband's property, or a property in which he or Properties has an interest.

110. 642 SR.  I deal with this below, together with the separate proceedings issued by the husband's mother and sister concerning it.

The one issued share in Properties
111. Having regard to the order made by Baron J, the wife accepted that she could only seek to establish that this share was held on trust for the husband by relying on a constructive trust, even if, on the facts found, that beneficial entitlement could have been established on the basis of an express or resulting trust.  

112. To my mind, it is arguable that this acceptance is not correct and that Baron J's order should be construed as only precluding a claim of resulting trust that would arise on the basis she sets out in her judgment, with the result that the wife can base a claim on a resulting trust arising on a voluntary transfer of an asset into the name of another.  But, as this was not argued I shall not proceed on this basis but will leave it open for a future date, if it becomes relevant.

113. As I have already indicated, in my judgment, the concepts of resulting and constructive trusts are not mutually exclusive and so the wife can, as she did, advance a claim based on constructive trust.  In my judgment, that claim succeeds on the findings of fact that I made in particular in (38), (48), (54), (75) and (77) which establish that the common intention and understanding was that both IQ and Mrs B were intended to hold the share for, and at the direction of, the husband.  The husband has acted to his detriment in reliance on that common intention and understanding by causing moneys and assets to be transferred to Properties, and by using Properties as his company. 

114. A problem arises in respect of the transfer to Mrs B, if a constructive trust has to be relied on, because I found that the purpose of that transfer was an unlawful one namely to seek to obtain a tax advantage on a false basis, namely that the beneficial owner of the share was resident and domiciled abroad (see the citations in paragraph 37 above).  However, that purpose has never been carried out and, in my judgment, although it was not directed to a constructive trust, the decision in Tribe founds the conclusion that the wife is not precluded from establishing the husband's beneficial interest in the share of Properties now in the name of Mrs B because of that unlawful purpose (see in particular paragraph 134 of the judgment of Millett LJ).  The same applies to any unlawful purpose underlying the transfer of the share into the name of IQ

115. I will therefore make a declaration that Mrs B holds that share on trust for the husband, and that he is the beneficial owner of it.

The claim made by the husband's mother and sister in respect of 642SR
116. This is based on (a) the trust deed the husband and they assert was executed by the wife, and further or alternatively (b) their assertion that they provided the purchase price and an alleged common intention that they were to be the owners, from which they plead a range of alternative relief.  My findings at (70), (72) and (74), and my conclusions herein that the husband's mother and sister had no beneficial interest in the shares of Southend, and that the common intention they assert did not exist, mean that the husband's mother and sister cannot rely on the alleged trust deed, and that they have failed to make good their claims to 642 SR and its proceeds.  I dismiss their claim.

117. On the alternative basis referred to above, and so leaving out of account the claim of the Official Receiver, as the purchase price was provided by dividends declared by Southend, and there was no allocation of those dividends, the wife can rely on the presumption of advancement to claim ownership of 25% of the shares in Southend and the relevant dividend.  One of the reasons that the property was bought outside the company was to protect it from a claim by a creditor against the company and the husband, but that purpose was never carried out and, in my view, Tribe founds the view that the husband would not be precluded from rebutting the presumption of advancement in favour of the wife, or advancing a constructive trust argument in respect of the ownership of the property, because of that purpose. 

118. That leaves an argument as to the shares in which the beneficial interests in the property were held.  This is potentially relevant to the impact of the charge and sale of this property.  My findings on the discussions between the husband and the wife do not include findings as to the beneficial shares in which they would hold this business property.  As with 136YR, my present findings do not warrant a conclusion that the husband and wife discussed the shares in which they were to hold this property but, in my view, the starting point should be the 75 / 25 split of the shares in Southend (and see my comments at the end of paragraph 99 hereof, albeit that this was a business property).

Section 37 claims
119. My findings and conclusions have the result that the shares in Southend and AA in the names of the husband's family (other than the wife) were held for the husband.  The dilution of the wife's shareholding took place after the last declaration of dividend and so does not affect the entitlement to, and in respect of, declared dividend.    The s. 37 claims in respect of share transfers and dilutions were added by amendment to the Form A and, if they become relevant, they can be addressed later in the proceedings for financial remedy (as can any claim based on s. 37 in respect of 19A SJR).