Hill and Bangham v Haines [2007] EWHC 1012 (Ch), [2007] All ER (D) 56 (Dec) and Avis v Turner and Avis [2007] EWCA Civ 748, [200
Hill and Bangham v Haines: where an order for a property transfer was made pursuant to an order in matrimonial proceedings, the transfer is susceptible to attack by a trustee in bankruptcy (reversed by Haines v Hill [2007] EWCA Civ 1284, [2007] All ER (D) 56 (Dec)).
Avis v Turner and Avis: despite the terms of an order in matrimonial proceedings, the court in bankruptcy proceedings may order the immediate sale of matrimonial property if one of the spouses is subsequently made bankrupt.
Two recent cases in the Chancery Division highlight the potential conflict between a spouse’s interest after ancillary relief proceedings and the interests of the creditor(s) of the other spouse.
Hill and Bangham v Haines [2007] EWHC 1012 (Ch), [2007] All ER (D) 56 (Dec)
This fully reasoned authority is important to the matrimonial practitioner where the matrimonial home is to be protected from a trustee in bankruptcy seeking to set aside a property adjustment order made in the ancillary relief proceedings.
Matrimonial ancillary relief proceedings
In May 2003, Mrs H brought ancillary relief proceedings at Worcester County Court. In February 2005 Mr H was ordered to transfer his interest in the former matrimonial home to Mrs H. Although Mr H conducted his financial affairs recklessly and was “hopelessly insolvent” at the time of the matrimonial proceedings, he was not a bankrupt. In light of the parties’ financial circumstances, the district judge left the wife’s lump sum claim open to provide Mrs H some protection against Mr H becoming bankrupt. Pursuant to the court order following the contested hearing, the former matrimonial home was transferred to Mrs H in September 2005 which she then sold but retained part of the land.
Bankruptcy proceedings
On 31 March 2005, Mr H petitioned for his own bankruptcy. The bankruptcy order was made against him forthwith. In May 2005, Messrs Hill and Bangham were appointed trustees in bankruptcy. The trustees sought to set aside the transfer of the former matrimonial home despite the order of the matrimonial court. The trustees’ application was made under the Insolvency Act 1986 (IA 1986), s 339. They submitted that the transaction was at an undervalue as Mrs H had not given consideration in money or monies worth. The argument was considered in light of the Matrimonial Causes Act 1973 (MCA 1973), s 39. Mrs H argued that the transaction was made following a contested hearing and this should be considered as having provided consideration.
District Judge Cooke dismissed the trustees’ application after a detailed consideration of the authorities, being Re Abbott (A Bankrupt), ex parte Trustee of the Property of the Bankrupt v Abbott (Re Abbott) [1983] 1Ch 45 and Re Kumar (A Bankrupt), ex parte Lewis v Kumar (Re Kumar) [1993] 1 WLR 224, [1993] 2 All ER 700. The trustees appealed.
On appeal, Judge Pelling QC considered the nature of “valuable consideration” under the Bankruptcy Act 1914 (BA 1914), s 42 (1) with reference to Re Abbott. The judge held that he was not bound by Re Abbott and Re Kumar for the following reasons.
i) Re Abbott was decided under BA 1914 and that statute had completely changed.
ii) After careful consideration of Xydhias v Xydhias [1999] 2 All ER 386, G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam), [2002] 2 FLR 1143 and v McMinn [2002] EWHC 1194 (Fam) [2003] 2 FLR 823, he held that neither party in matrimonial proceedings had “rights” as all the powers were vested in the court. At first instance, the judge exercised his discretion and a party, in this case the wife, gave nothing up in reaching an agreement and therefore had not provided any consideration (end of para 21). Pelling J held that position was the same if an order was made following a contested hearing as an order following a compromise agreement because consideration is not given or received in either case.
The judge concluded that a property adjustment order under MCA 1973, s 23 did not involve any consideration (in either money or monies worth) or at all as was required under IA 1986, s 339 for this section to be disapplied. Consequently, the property transfer order to Mrs H was set aside as a transaction at an undervalue and Mr H’s interest in the property was re-vested in his trustees in bankruptcy.
NB Mrs H has recently won her appeal against this order in a landmark ruling from the Court of Appeal (Haines v Hill ). A full analysis of the case will be given in our next update (see also Civil Way p 27).
Avis v Turner and Avis [2007] EWCA Civ 748, [2007] All ER (D) 309 (Jul)
This authority considers whether there are exceptional circumstances which could prevent an order for sale being granted under IA 1986, s 335A.
Matrimonial proceedings
Mr and Mrs A were divorced in 1985. An order was made by consent in the ancillary relief proceedings (consent order). The former matrimonial home was held on trust. It was agreed that the trust holding the property would be varied to provide for the division of the net proceeds of sale. Mrs A was to hold these as to two thirds in her favour and one third in Mr A’s favour. Mrs A was given the exclusive right to occupy the property. The consent order stated that “the trust for sale shall be postponed” until one of four events occurred. None of these events had occurred at the time of the appeal.
Bankruptcy proceedings
On 14 February 1989 (approximately four years after the consent order was made), Mr A was declared bankrupt. Therefore his one third share in the former matrimonial home vested in his trustee in bankruptcy under IA 1986, s 306. Time elapsed until before the appointment of a trustee in bankruptcy in October 2003. In 2005, the trustee applied for an order for sale of the former matrimonial home to discharge the bankruptcy debt. His application was based on the Trust of Land and Appointment of Trustees Act 1996 (TLATA 1996), ss 14 and of IA1986, s 335A. Section 14 TLATA 1996 includes the provision of a trust for sale. Mr and Mrs A submitted that the trustee could not apply to the
Matrimonial Court for an order for sale because of the terms of the consent order (ie none of the four events specified had occurred). The district judge said that the significant matter to be considered was the provision in IA 1986, s 336 (5) that after one year from the beginning of the period of first vesting of the bankrupt’s estate in the trustee, the interests of the bankrupt’s creditors outweigh all other considerations “unless the circumstances of the case are exceptional” (although the application at first instance was erroneously brought under IA 1986, s 336; the relevant part of which is the same as IA 1986, s 335). The district judge adjourned the application for a further hearing to enable Mrs A to file evidence as to whether or not there were exceptional circumstances which would displace the right of the trustee to obtain an order for sale of the property under IA 1986, s 336 (5). The district judge rejected the argument that the trustee had acquired a fettered interest in the property as it was subject to Mrs A rights. The adjourned hearing was vacated as Mrs A appealed to the High Court to discharge the whole of the district judge’s order. Mrs A appealed on the basis that none of the four events specified in the consent order had occurred and therefore the trustee in bankruptcy could not obtain an order for sale.On appeal the judge observed that Mr and Mrs A were entitled to agree that a sale be postponed until the happening of one of a number of events and to agree which of them was to occupy the property pending a sale. He then distinguished two scenarios despite the presence of the agreement.
If one of the co-owners desired the property to be sold, that co-owner was entitled to apply for the property to be sold under TLATA 1996, s 14. The application would be decided by reference to all relevant matters, such as the parties’ intention in creating the trust and their agreement, and according to TLATA 1996, s 15.
If one of the co-owners was made bankrupt, the trustee in bankruptcy could make an application for sale of the property and TLATA 1996, s 15 would be displaced by IA 1986, s 335A. If the application for sale is made one year after the bankruptcy, as was the case here, the interests of the bankrupt’s creditors would be paramount save in exceptional circumstances.
The submission that IA 1986, s 283 (5) applied, namely that the trustee in bankruptcy took Mr A’s share subject to Mrs A’s rights of occupation, was rejected. The judge held that any rights concerning a sale were qualified rights. These could not displace the trustee’s power to apply and obtain an order for sale. Mrs A appealed the whole order of Pelling J to the Court of Appeal.
On further appeal
The relevant paragraphs of the judgment in the Court of Appeal are 24 and 25. The court affirmed the judge’s reasoning and held that it had jurisdiction to order the sale of the property, whether Mr A was made bankrupt or not, even though none of the triggering events had occurred and despite the consent order to postpone a sale. Mr A, not being a bankrupt, would have been entitled to make an application for an order for sale under TLATA 1996, s 14. The consent order would have been a relevant consideration for the court when determining the matter. Therefore, Mr A’s trustee in bankruptcy was also entitled to make such an application which would be decided in accordance with IA 1986, s 335A. The court considered whether or not the consent order had some special force which went beyond the parties’ agreement. They rejected that argument. Lord Justice Chadwick said that the true construction of the agreement was that the property was subject to an existing trust for sale. The parties had agreed to postpone the trust for sale until one of the four events had been triggered. The court considered that if both Mr and Mrs A agreed to a sale of the property, although no triggering event had occurred, they could proceed without having to revert back to court to have the consent order varied. The consent order also conferred liberty to apply to the court for a determination on implementation of the order.
Jurisdiction to order
The court considered the jurisdictional point as to whether or not Mr A would have been able to make an application under TLATA 1996, s 14. Lord Justice Chadwick had regard to TLATA 1996, ss 4 and 6. The court held that it had jurisdiction to order that the property be sold even though none of the triggering events had occurred and despite the agreement between Mr and Mrs A to postpone the sale. This would be the case whether Mr A was made bankrupt or not. As Mr A was bankrupt, his trustee in bankruptcy would make his application in light of the criteria set out in IA 1986, s 335A which displaces s 15 of TLATA 1996. Finally, as the property had vested in the trustee more than a year, for the interests of the bankrupt’s creditors outweighed all other considerations unless there were exceptional circumstances. Mrs A’s appeal was therefore dismissed. The case was remitted for a full hearing to determine whether there were any exceptional circumstances within IA 1986, s 335A—for example whether the fact that the trustee took 16 years to make an application renders the circumstances of the case “exceptional”.
