Haines v Hill and another [2007] EWCA Civ 1284, [2007] All ER (D) 56 (Dec)
Haines v Hill and another [2007] EWCA Civ 1284, [2007] All ER (D) 56 (Dec)
Last month I summarised the decision of Judge Pelling, sitting as a deputy High Court judge in the Chancery Division, in Hill and Bangham v Haines (see NLJ, 4 January 2008, p 24–25). This article summarises the Court of Appeal’s decision of 5 December 2007 on Mrs Haines’s (Mrs H’s) appeal.
The trustees in bankruptcy of Mr Haines (Mr H) have sought leave to appeal the decision to the House of Lords, which is expected to go to an appeal commitee this month. A decision in respect of leave being granted is expected to be made before 14 March 2008.
Summary
Mrs H, the appellant, married Mr H in 1991. There is one child of the family born in 1997. The former matrimonial home was purchased in April 2002 and was held by Mr and Mrs H as joint tenants. The parties separated in March 2003.
In May 2003, Mrs H issued matrimonial proceedings. Decree absolute was granted on 21 February 2005. The district judge ordered Mr H to transfer his interest in the former matrimonial home to Mrs H.
On 31 March 2005, Mr H was made bankrupt on his own petition. On 13 April 2006, the trustees in bankruptcy (the trustees) applied to the court for a declaration that the transfer of Mr H’s interest in the former matrimonial home was a transaction at an undervalue under the Insolvency Act 1986 (IA 1986), s 339 and as such was void against the trustees.
Proceedings in the lower courts
On 10 January 2007, District Judge Cooke dismissed the trustees’ application stating that the circumstances of the case did not fall within IA 1986, s 339. The trustees appealed. Judge Pelling held that IA 1986, s 339(a) and (c) were satisfied. The appeal was upheld and the property adjustment order set aside in favour of the trustees.
Issues before the Court of Appeal
The central issue was whether or not the parties to an ancillary relief order gave consideration for the purposes of s 339. The chancellor commented that s 339(2) referred to a number of pre-conditions which included:
“(1) a transaction entered into at a relevant time by an individual who is subsequently adjudged bankrupt; and, either
(2) on terms that provide for him to receive no consideration, or
(3) 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.”
If these tests were met, the court must ask “whether any and if so what order should be made under s 339(2)” (para 5). The chancellor also referred to the amended s 39 of the Matrimonial Causes Act 1973 (MCA 1973), 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 that settlement or transfer from being a transaction in respect of which an order may be made under s 339 or 340 of the [IA 1986] (transactions at an undervalue and preferences).” (para 6)
Counsel’s submissions
Counsel for Mrs H submitted that the judge’s reasoning was wrong:
“(1) to hold that only the release of a pre-existing legal right or cause of action is capable of constituting consideration for the purposes of s 339, (2) to focus his attention on a compromise agreement rather than...the order, and (3) to hold that consideration is not given by a party to an agreement compromising ancillary relief claims. It [was] also submitted that in cases of contested ancillary relief proceedings if the order made is liable to be set aside under s 339 then as a matter of course the statutory discretion should be exercised against making any such order.” (para 24)
Summary of the appeal court conclusions
The chancellor said that the starting points “must be a consideration of the rights of spouses for financial provision and property adjustment orders under Part II of the Matrimonial Causes Act 1973”. He also referred to ss 25 and 26:
“[T]he ability of one spouse to apply to the Court for one or more of the orders…is a right conferred and recognised by law. Further it has value in that its exercise may...lead to court orders entitling one spouse to property or money from or at the expense of the other. That money and property is, prime facie, the measure of the value of the right.” (para 29)
Competing interests
The court considered the balance between the competing interests of the family and the creditors. Lord Justice Thorpe referred to the “obvious tension” between the statutory scheme for the protection of a bankrupt’s creditors and the statutory scheme for the financial protection of the bankrupt’s former wife and child. He said that “Bankruptcy Acts and Matrimonial Causes Acts may be said to compete for shares in the fund which will always be incapable of satisfying both”, while “difficulties arise when the order under the Matrimonial Causes Act precedes the bankruptcy” (para 43).
Thorpe LJ then referred to the balance between protecting the creditors against collusive orders in ancillary relief and protection orders justly made at arm’s length for the protection of one of the spouses and the children of the family. He commented that “the approach adopted by Judge Pelling would destroy that balance” (para 61). Lord Justice Rix said that:
“…it would be unfortunate in the extreme if a court approved, or even (an a fortiori case) a court determined property adjustment order would be liable, in practice, to be undone for up to five years because the husband goes bankrupt within that period. That could even encourage such bankruptcy on the part of a disaffected husband. [I]n the ordinary case, where there is no dishonest collusion, and where a court approves or determines the sum or property to be transferred, it would be entirely foreign to the concept of a ‘clean break’ if the husband’s creditors could thereafter seek to recover, in bankruptcy, the property transferred or its value.” (para 82)
Ancilliary relief claim
The right to bring a claim for ancillary relief is a right which has value in money or money’s worth and the value of a spouse’s claim to ancillary relief was matched by the value received by a court order. The chancellor said that “in the context of s 339 [IA 1986], I can see no reason why some dealing with a pre-existing statutory right cannot constitute consideration...In my view the [J]udge’s reliance on both G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam), [2002] 2 FLR 1143 and McMinn v McMinn [2002] EWHC 1194 (Fam), [2003] 2 FLR 823 was misplaced” (para 30). Rix LJ referred to the trustees’ argument that “a settlement or transfer is always liable to relief under s 339 because the transferee gives no valuable consideration at all, or none at any rate which is measurable in money’s worth. That submission… was...inconsistent with authority in this court, at any rate so far as valuable consideration is concerned (in Re Pope)” (para 67). He added that if the Law Commission 1969 report on Financial Provision in Matrimonial Provision in Matrimonial Proceedings (Law Com 25) had, inconsistently in Re Pope [1908] 2 KB 169, intended to “recommend a provision to say that all settlements or transfers in favour of a spouse... should be liable to avoidance under s 42, it would have said so plainly: rather than recommend the very different provision which became s 39” (para 68).
Rix LJ further stated that this was even more the case following the decision in Re Abbott [1982] 3 All ER 181, (para 69). “It would be ridiculous to suppose that in those circumstances it had been intended to abrogate by legislation the decisions in Pope and Abbott to the effect that a wife gave valuable consideration for a property transfer by reason of the release of a right or the compromise of a claim” (para 70). Rix LJ said “[t]he only question is whether a claim for ancillary relief under s 24 is for these purposes a claim like any other. Abbott is a decision, founded in terms on Pope…, that a s 24 [MCA 1973] claim is like any other: that is to say that it can be assessed for its monetary value, even if its award lies peculiarly in the discretion of the court” (para 77).
Consideration in money or money’s worth
The chancellor said in respect of the analysis of the cases of Re Pope and Re Abbott, that “the [J]udge was wrong in law when...he concluded that parties to an order of the court granting some form of ancillary relief do not give ‘consideration’ at all for the purposes of s 339(3)(a)” (para 32). “Whether such consideration is ‘in money or money’s worth’ so as to enable a comparison of value for the purposes of s 339(3)(c) is another matter” (para 33). The chancellor commented “if the…spouse is not treated as providing consideration for the transfer either at all or in money or money’s worth then all such transfers will be void under sub-paragraphs (a) and/or (c). I cannot accept that Parliament intended that what must be one of the commonest orders made by courts exercising their matrimonial jurisdiction...should be capable of automatic nullification at the suit of the trustee in bankruptcy of the husband against whom a bankruptcy order was subsequently made on his own petition” (para 36). The chancellor concluded:
“First, s 339(3)(a) is inapplicable because the wife did give consideration. Second, s 339(3)(c) is inapplicable because the consideration provided by the Wife is in money or money’s worth and its value was not less than the value of the consideration provided by the Bankrupt whether significantly or at all. Third, in light of those conclusions no question of exercising any discretion allowed by s 339 can arise.” (para 40)
Order challenged
A property adjustment order could be challenged where there was an element of fraud, collusion or other vitiating factor and may be easier to challenge if the property transfer was reached by consent.
The chancellor referred to the economic realities and the fact that an order of the court quantifies the value of a spouse’s statutory right by referring to the value of the asset which is ordered to be paid/transferred. Such payment/transfer may be liable to be set aside if a vitiating factor of fraud, mistake or misrepresentation is present (paras 35 and 36).
Thorpe LJ commented that if an ancillary relief order “was the product of collusion between the spouses designed to adversely affect the creditors the trustee would intervene in the ancillary relief proceedings and apply for the order to be set aside” (para 46). “Additionally the…order… might be set aside if some other vitiating factor could be established, including a failure on the part of the wife to make full and frank disclosure of her own assets” (para 47).
Transaction
It was not relevant to consider what the effect of an out of court settlement would be as such a compromise would not be considered as a “transaction” for the purposes of IA 1986, s 339. The chancellor [did] “not think that it helps to resolve the issues in this case to dwell on what the legal effect of an out of court compromise of ancillary relief proceedings may be. Such a compromise cannot amount to the transaction for the purposes of s 339 [IA 1986] so that the extent to which it may have been made for consideration or is otherwise enforceable is immaterial” (para 31). Consequently, Xydhias v Xydhias [1999] 1 FCR 289, [1999] 2 All ER 386 was distinguished. The wife’s appeal was allowed and the order of District Judge Cooke restored.
