IN THE LEEDS COUNTY COURT	CASE NO: 803 of 2005

	B E T W E E N:

STEVEN WILLIAMS
(TRUSTEE IN BANKRUPTCY OF MARTIN ROLAND WHITE)
Claimant
AND

(1) MARTIN ROLAND WHITE
(2) KATHARINE MARY KNOWLES
(3) THOMAS HARDY
(4) HOWARD JULIAN WHITE
Defendant
JUDGMENT
1.	Introduction
1.	This is an application by the Trustee in Bankruptcy (“the Trustee”) of Mr Martin White who was adjudged bankrupt on 21st February 2006. It concerns a transaction whereby property known as Flat 8, Swanland Hall, Tranby Lane, Swanland (“Flat 8”) was transferred to Mrs Knowles on 25th October 2004. It will be necessary to look at the nature of the transaction in detail later in this judgment. The written agreement describes the purchase price as being £389,000.  The transfer contains a receipt clause setting out the price paid as £389,000. The Trustee does not accept that £389,000 was the consideration provided by Mrs Knowles. He contends that it was as little as £316,517.25. He relies on the fact on the day of completion Mr Martin White paid Mr Hardy £41,500, and within 4 days of completion he paid his brother Mr Julian White a total of £30,982.75. Mrs Knowles accepts that she did not pay the full stated consideration of £389,000. She however contends that the consideration provided by her amounted to £334,500.
2.	The Trustee contends that the value of Flat 8 on 25th October 2004 was significantly more than the consideration provided by Mrs Knowles. Pursuant to an order of DJ Fairwood dated 13th December 2006 a jointly instructed valuer initially valued Flat 8 in the sum of £325,000. The Trustee was unhappy with this valuation. In April 2007 I made an order permitting the Trustee to rely on the evidence of an expert instructed by him - Mr Gravel. Mr Gravel has valued Flat 8 at between £340,000 and £389,000. At a joint meeting of experts Mr English also gave a range of between £295,000 and £325,000.
3.	The Trustee brings the claim against Mrs Knowles under section 339 of the Insolvency Act 1986. He contends that the consideration provided by Mrs Knowles was significantly less than the value of Flat 8. In addition he brought a claim under section 423 of the Act. However that claim was not pursued at the trial. Mrs Knowles defends the application on the basis that the consideration provided by her was not significantly less than the value of Flat 8 as at 25th October 2004.
4.	In addition and within the same proceedings the Trustee brought proceedings against Mr Hardy and against Mr Julian White for the return of the £41,500 and the £30,982.75. The claim against Mr Hardy remained live until the end of the trial. As will appear below it is inconsistent with the claim against Mrs Knowles. If (as the Trustee contends and Mrs Knowles accepts) the consideration provided by Mrs Knowles is to be reduced by the £41,500 that was returned by Mr Martin White then no money was returned to Mr Hardy. Thus the claim fails. In his closing submissions Mr Tindall abandoned the claim against Mr Hardy. In the result that claim falls to be dismissed with costs.
5.	The claim against Mr Julian White has been compromised. The terms of the compromise have not been disclosed to the Court despite an invitation to do so. It is apparent that the compromise involved the payment of some moneys by Mr Julian White to the Trustee. Mr Julian White has consulted solicitors. There is correspondence between solicitors in which Mr Julian White is claiming an indemnity from Mrs Knowles in respect of any moneys payable to the Trustee.
2.	Representation
6.	The Trustee was represented by Mr Paul Tindall instructed by Freeth Cartwright of Manchester; Mrs Knowles and Mr Hardy were represented by Miss Eleanor Temple instructed by Carrick Read Insolvency of Leeds. 
7.	Both Counsel produced full and helpful skeleton arguments. I am grateful to them.
3.	Evidence
8.	The evidence of fact comprised 2 witness statements from Mr Byrne, the solicitor on behalf of the Trustee together with a number of exhibits, 2 witness statements from Mrs Knowles, a short witness statement from Mr Hardy, and a witness statement from Mr Julian White. There was no cross-examination of Mr Byrne, Mr Hardy or Mr Julian White. The cross-examination of Mrs Knowles was commendably brief. In reality there was very little dispute of the material facts.
9.	The expert evidence comprised the report of the joint expert - Mr English, answers by Mr English to questions put to him by the parties, the report of the Trustee’s expert - Mr Gravel and the joint statement from the experts. Both experts attended the trial and were cross-examined.
4.	The Law
4.1.	The Insolvency Act
10.	Section 339 of the Act provides 
(1)     Subject as follows in this section and sections 341 and 342, where an individual is adjudged bankrupt and he has at a relevant time (defined in section 341) entered into a transaction with any person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under this section.
(2)     The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.
(3)     For the purposes of this section and sections 341 and 342, an individual enters into a transaction with a person at an undervalue if--
 (c)     he enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the individual.
11.	It is common ground that 24th October 2004 is a “relevant time” within the meaning of section 341 and thus the issue to be addressed is whether this is a transaction at an undervalue within the meaning of section 339(3)(c). Helpful guidance is to be found in the judgment of the Court (delivered by Mummery LJ) and by Neuberger J in National Westminster Bank v Jones
12.	The facts were complicated and largely irrelevant for present purposes. For completeness I set out the summary taken from the headnote at [2000] BPIR 1092
The defendants owned a farm which they operated in partnership. This farm was the subject of security consisting of a mortgage and an agricultural floating charge which the defendants had granted in favour of the claimant. The mortgage imposed restrictions upon the defendants leasing the mortgaged property without the written consent of the mortgagee. The floating charge was to crystallise, inter alia, on the dissolution of the partnership. After encountering financial difficulties and faced with a demand for repayment by the claimant, the defendants on advice set up a company and granted an agricultural tenancy in its favour. The assets of the farm were also sold to the company with payment by instalments provided for. Prior to these transactions the defendants entered individual voluntary arrangements with their creditors. The claimant appointed receivers under its security and applied to the court for declarations that it had a prior interest in the farm and assets
13.	One of the issues to be determined was whether the arrangement and the sale of the farming assets were transactions at an undervalue within the meaning of section 423 of the Act. Both Neuberger J at first instance and the Court of Appeal held that they were. The relevant wording of section 423(1)(c) is identical to that in section 339(3)(c).
14.	In his judgment at first instance Neuberger J said:
In a case where the court has to ask itself whether a transaction has taken place at an undervalue within s423(1)(c), I believe that the court has to form a view as to the price which the property would have fetched in the open market, which is the same as effecting ‘a correct valuation’. First, insofar as the observations of Lord Hoffmann are applicable to case such as this, it appears to me that the issue is closer to that of assessing damages in a negligent valuation case, than it is to assessing whether or not negligence has occurred. Secondly, it seems to me that a closer analogy is to be found in a recent decision of the Court of Appeal in Skipton Building Society v Stott [2000] 2 All ER 779, where the issue was whether a mortgagee had sold at an undervalue, and if so what the damages should be. Evans LJ (with whom Potter LJ and Alliott J agreed) said this at 783C–D: 
‘The evidence enabled the judge to assess what the market value was, and that figure would correspond with the price that could be expected to be achieved, given exposure to the market for a reasonable time. The question, what the figure was, was an issue of historic fact which had to be established on the evidence …’ 
Thirdly, I consider that Mr Jourdan’s approach would be too generous to a person in the defendants’ position. Section 423(1)(c) only applies where the consideration is ‘significantly less’ than the value of what has been transferred. To my mind, the defendants would effectively be having their cake and eating it, if they could argue that the value of what had been transferred has to be assessed by reference to the bottom of the permissible band, and even if the consideration is below the bottom of that band, s 423 will still not apply unless one is significantly below the bottom of the band. 
In effect, it may well be that, in many cases, the band of values referred to by Lord Hoffmann would be very similar to the band of values within which the consideration could fall without being ‘significantly’ more or less than the value arrived at by the court, which, as Lord Hoffmann went on to point out at [1997] AC 221H to 222A, will be the middle of the band. However, I must emphasise that there is no necessary equivalent between a band of values within which a surveyor may not be negligent, and a band within which a transaction would not be significantly higher or lower than the actual value of the asset concerned. 
More generally, whether a transaction was for a consideration ‘significantly less’ than the value of the consideration provided must depend on the figures in the particular case. Of course, the exercise to be carried out by the court will involve comparing actual figures – ie the consideration and the value. It will also involve the court considering, in percentage or proportionate terms, how much less the consideration is than the value. It may well be right also to take into account the shortfall in absolute terms. 
15.	In paragraphs 28 and 29 of the judgment in the Court of Appeal this approach is approved:
28.	The third is: was the value of the consideration provided by the transferee “significantly less” than the value provided by the transferor? There is no challenge to the judge’s findings of fact relating to the values. As Millett J held in Re MC Bacon Limited [1990] BCC 78, section 423 (1)(c) requires a comparison to be made between the value of the consideration  received by the transferor for the transaction and the value of the consideration provided by the transferor. Both values must be measured in money or in  money’s worth . Both must be considered from the transferor’s point of view. There is no express or implied reference in section 423 to the concept of a “band or range of values”, such as is used by the courts when determining the liability of a valuer for professional negligence. Failure to come up with the “correct” value does not necessarily mean that a valuer has been negligent. He is not negligent if the valuation provided by him is within the “range of values”  which a competent valuer would have made. A margin of error is allowed in determining whether there has been negligence.
29.	There is no place for such a concept in the language and purpose of section 423. The section requires a comparison to be made between two figures. For that purpose the court must arrive at  a conclusion on actual values. The evidence may, of course, disclose a range of suggested figures. But the court must ascertain from the evidence the actual value against which the consideration for the transaction must be measured. This was the approach adopted by the judge. It is correct. 
16.	It is thus plain that I must determine the actual value of Flat 8 as at 24th October 2004, and the value of the consideration provided by Mrs Knowles. I must consider these from Mr Martin White’s point of view. If the value of the consideration provided by Mrs Knowles is less than the value of Flat 8, I must go on to consider whether the shortfall is significant. In order to do so I must consider the shortfall in percentage, proportionate and absolute terms.
5.	 The consideration provided by Mrs Knowles
5.1.	Background to the Transaction.
17.	Mrs Knowles is divorced. She has no financial qualifications but has some financial experience. She is currently the Financial Director of 2 companies – Total Recruitment Limited and Skillwise Limited. The former provides temporary or permanent staff to its clients. The latter is involved with bookkeeping.
18.	Mrs Knowles cohabits with Mr Hardy. She has done so since her divorce. Initially they rented a property in Hessle but on 31st March 2004 they became tenants at Flat 5, Swanland Hall. This was a flat owned by Mr Walsh, the partner of Mr Martin White. 
19.	All of the negotiations for the tenancy of Flat 5 were carried out by Mr Martin White who was, at the time occupying Flat 8. As a result Mrs Knowles and Mr Hardy became very friendly with Mr Martin White. They believed him to be very wealthy. He had a flamboyant lifestyle with apparent ownership of a number of luxury vehicles; he also gave the impression of owning a number of properties.
20.	In her witness statement Mrs Knowles gives other examples of the friendship but it is not necessary to set them out.
5.2.	Discussions in the summer of 2004
21.	In July 2004 Mr Martin White approached Mrs Knowles and asked for her help. He told her he had financial difficulties arising from a bridging loan taken out on Flat 8 and the fact that he was temporarily unemployable due to an impending operation. Mr Walsh was supposed to be purchasing Flat 8 but had been let down because the prospective mortgagee (TMB) had ceased property lending. [Mrs Knowles was sufficiently concerned about the story to check this fact on the internet]. In any event he asked Mrs Knowles if she would be willing to purchase Flat 8. It was proposed as a temporary arrangement for a matter of months. During that time Mr Martin White would continue to occupy Flat 8, he would pay all of the mortgage instalments , Stamp Duty and legal fees. After a few months when he had resolved his mortgage difficulties Mr Walsh would repurchase Flat 8 from Mrs Knowles. Mrs Knowles was to receive £10,000 by way of commission or consideration for getting involved in the transaction.
22.	Mrs Knowles did not immediately agree to the proposal. She was worried that if Mr Martin White did not pay the mortgage instalments she would be unable to meet them herself. However as a result of the advocacy of Mr Martin White or Mr Walsh she agreed to help and was introduced to an Independent Financial Advisor, Mr Mackenzie. [Mr Martin White and Mr Mackenzie are currently under investigation for possible mortgage fraud in relation to this transaction. Although both Mrs Knowles and Mr Hardy were questioned under caution by the police, both have been exonerated and it was and is no part of the Trustee’s case that either Mrs Knowles or Mr Hardy were in any way involved in any dishonesty.]
23.	Mr Mackenzie arranged a mortgage loan of £330,000 repayable over 15 years at the fixed rate of 5.74% from Capital Home Loans Limited (“CHL”). The facility letter describes the purchase price as £389,000. Mrs Knowles was assured that this was the correct price for the property. She told me that Mr Martin White showed her 2 valuations at £420,000. She did not see the mortgage valuation report obtained by CHL valuing the property at £389,000. In any event she was not unduly concerned about the purchase price as the arrangement was only a temporary one to help out a friend.
24.	There were, of course, monies to be paid over and above the £330,000 raised from CHL. These included the balance of £59,000, Stamp duties of about £11,600 and other costs. Initially Mr Martin White said that he would pay all of these sums. Later in the discussions Mrs Knowles was told that the balance of the purchase price would be paid by Mr Julian White. In fact there were difficulties over this; Mr Martin White then sought to persuade Mrs Knowles to help to the extent of £40,000 with the balance of the purchase by assuring her that it would be repaid on completion. Mrs Knowles had savings of approximately £45,000 but she was not anxious to tell Mr Martin White this. Thus she and Mr Hardy told Mr Martin White that the moneys had come from criminal elements in Newcastle. This was to impress on Mr Martin White that if the money was not repaid as promised there would be serious consequences.
5.3.	The transaction
Irrevocable instructions
25.	On 14th October 2004 Davis Davidson, the solicitors for Mr Martin White sent a letter to Mr Hardy in which they stated that they had irrevocable instructions to send him the sum of £41,500 on the day of completion of the sale of Flat 8. On 22nd October Davis Davidson wrote a letter to Mr Julian White stating that they had they had irrevocable instructions to send him the sum of £30,982.75 on the day of completion of the sale of Flat 8.
Moneys paid to Lockings
26.	Mrs Knowles instructed Lockings to act for her in the transaction. Her bank statement reveals that she paid a total of £46,000 the following sums to Lockings - £30,000 on 18th October 2004, £10,000 on 19th October 2004 and £6,000 on the day of completion 25th October 2004.
27.	Mr Julian White also paid money to Lockings. His bank statement shows that on 22nd October 2004 he paid £25,000 to Lockings. In addition he paid Lockings a further £1,000 in cash. He had attempted to pay £6,000 in cash but they could not accept more than £1,000. It was for that reason that Mrs Knowles paid the final £6,000 on the day of completion.
28.	In paragraph 7 of his witness statement Mr Julian White describes the payment as a short term loan to Mrs Knowles to enable her to fund the purchase. He has also exhibited a fax sent by Mrs Knowles on 19th October 2004 giving details of Lockings bank account. Thus it is to be inferred that the moneys were paid at Mrs Knowles’s request. As already noted Mr Julian White did not attend court and was not cross-examined.
29.	In addition, of course, Lockings received the £330,000 lent by CHL. Thus Lockings received a total of £402,000 (£330,000 + £46,000 + £26,000).
Completion
30.	Completion took place on 25th October 2004. On that date both Mr Martin White and Mrs Knowles exchanged contracts and signed the Transfer Document. All of these documents record the price at £389,000. Included in the bundle is a draft completion statement from Davis Davidson prepared on 22nd October 2005. That document records the purchase price of £389,000 but lists expenses of £356,467.25. Amongst those expenses are £41,500 payable to Mr Hardy. It suggests that some £32,532.75 will be payable to Mr Martin White and makes no mention of moneys being payable to Mr Julian White.
31.	Following completion £41,500 was duly paid to Mr Hardy. He paid it to Mrs Knowles. £25,000 was paid to Mr Julian White on the day of completion. A further £5,982.75 was paid in cash by Mr Martin White to Mr Julian White on 29th October 2004.
5.4.	Analysis
32.	Mr Tindall submits that looked at from the point of view of Mr Martin White the consideration was £316,517.50 (£389,000 - £41,500 - £30,982.75). Miss Temple does not accept this argument. She readily accepts that credit has to be given for the return of the £41,500. This was money returned to her. She does not however accept that any credit has to be given for the £30,982.75 paid to Mr Julian White. Thus she submits that the value of the consideration provided by her is £330,000 plus the £46,000 provided by her less £41,500 returned.
33.	Mr Tindall makes the point that all the payments were made pursuant to the same scheme. Mr Julian White provided some of the purchase money. A total of £402,000 was provided to Lockings to complete the sale and pay the expenses including stamp duty of £11,600. He thus does not accept that the moneys paid were necessarily from Mrs Knowles.
34.	I cannot accept this argument. In my view all of the moneys provided are to be treated as being paid by Mrs Knowles. In so far as any part of the moneys were provided by Mr Julian White they were provided to Mrs Knowles. That is why he paid them to her solicitor. 
35.	Mrs Knowles thus provided initially the full purchase price of £389,000. I do, however, accept that there falls to be deducted the £41,500 returned to her via Mr Hardy.
36.	The real question is whether the £30,982.75 which Mr Martin White chose to pay to Mr Julian White falls to be deducted from the consideration. In my view it does not. There are a number of reasons for this:
1.	£30,982.75 is in any event more than Mr Julian White contributed to the purchase price.
2.	I do not see how a voluntary payment made by the vendor immediately after completion to a third party to the transaction is as a matter of law to be treated as reducing the consideration paid by the purchaser.
3.	Mr Julian White suggests that the moneys he provided to Mrs Knowles were a loan. He is seeking to recover this loan from Mrs Knowles.
4.	The claim by the Trustee for the return of the £30,982.75 and subsequent compromise of the claim against Mr Julian White is to my mind inconsistent with treating the consideration as being reduced by £30,982.75
37.	In my view the consideration provided by Mrs Knowles was £389,000 - £41,500 or £347,500.````````````````````````````
6.	Valuation
38.	Mr English is a surveyor who has lived in the Beverley area for the last 27 years. For about 21 years he has been involved in surveying and valuing mainly residential properties. He set up in sole practice in June 1997. He is a panel valuer for Woolwich plc. He has a good understanding of the local property market.
39.	Swanland Hall is about 8 miles from Hull. It was constructed in 1760 and extended in 1820. It was converted into flats in approximately 1990.
40.	Flat 8 enjoys shared ground floor accommodation including a swimming pool and separate Jacuzzi. It has its own separate entrance and a garage. It is on 2 further floors. It comprises 2/3 reception rooms, 2 bedrooms and a large bathroom. It has a floor area 228 sq metres.
41.	In his valuation report he makes the point that Flat 8 is an extremely spacious and highly individual apartment – the floor area is more than double the floor area of the other apartments considered in his report. He takes as comparables Apartments 1,3,5 and 6 all of which sold between August 2003 and January 2004 of between £201,00 and £250,000. He makes the point that service costs are relatively high but this reflects the very high cost of keeping an old building up to standard.
42.	He was advised that the apartment was in poor condition at the date of the transfer; his valuation takes this into account.
43.	He comments that for highly individual apartments of this nature it is difficult to provide an accurate valuation especially as the valuation date was 2 years  and 5 months before the date of his inspection. He did not know of any apartment in the Hull area where the price had exceeded £300,000.
44.	He valued Flat 8 as at 25th October 2004 in the sum of £325,000. He did not give any detailed analysis of how he arrived at that sum. In a letter dated 6th April 2007 in answer to questions posed by Freeth Cartwright he sought to explain why in his view the value of Flat 8 was as low as he thought it was notwithstanding the large floor area. He makes a number of points:
1.	Whilst there is generally a correlation between floor area and value this tends to be at the lower end of the market. As you move into higher price brackets the number of potential purchasers is reduced and they secure better value for money.
2.	When purchasing an apartment in a place like Swanland Hall the purchaser is buying into “a way of life” and enjoys the communal facilities described in the report. All owners get this advantage irrespective of the size of the apartment. In his report he lists 6 factors that all owners get. These include the location and associated amenities, the communal landscaped gardens, the drive to the site and the indoor heated pool.
45.	Mr Gravel is a less experienced and younger valuer than Mr English. He has been qualified for 18 months. His practice consists of valuing residential and commercial properties for secured lenders. Most of the properties are in Yorkshire.
46.	In his report he agreed that Flat 8 was a spacious and highly individual apartment. He agreed with Mr English that the separate entrance made Flat 8 more appealing to purchasers but that number of levels detracted from its value. He agrees that the service charge is high. He thinks that the presence of a swimming pool is likely to have a negative effect the marketability of the property.
47.	He agrees that it is very difficult to provide accurate valuation advice in an individual property such as this. He therefore thought it appropriate to provide a range of values. (As already noted that is not a luxury afforded to me!).
48.	He relies on the same comparables as are in Mr English’s report. He has worked out the selling price per square foot for Apartments 1, 6 and 3 (£242, £171, and £202). He has taken the average of these to be £205 per square foot. He has multiplied this by the area and applied a discount of 20% for size. This gave a figure of £400,160 from which he deducted £60,000 for refurbishment works. He thus arrived at a figure of £340,160. 
49.	He then provided a different calculation based on the asking price for Apartment 4 at £395,000. He worked out that the valuation of Apartment 4 as at the valuation date would be £340,000. In the result he valued Flat 8 at between £340,000 and £389,000 on the valuation date.
50.	On one view it may be thought that Mr Gravel’s approach is more scientific but on analysis it can be seen that it contains a number of assumptions:
1.	Why should one take the average of the 3 figures for the price per square foot. The figures are not close and the apartments are different and have different features. As noted above Mr English has given a number of cogent reasons why 
2.	Why should there be a discount of 20% rather than (say) 30%. The figure chosen seems arbitrary.
3.	The figure taken for Apartment 4 is the asking price. It is not a transaction price and thus of limited value.
51.	I have been shown a number of other marketing advices in relation to Flat 8. Thus in October 2005 one (unqualified) estate agent valued Flat 8 at £340,000 whereas another (qualified) surveyor valued it at £265,000. Mrs Knowles has had Flat 8 on the market since June 2006. She originally asked £490,000. In November she reduced the price to £460,000. The property has now been withdrawn from the market. There were no offers. Mr English expressed the view that the asking price was far too high.
6.1.	Conclusions
52.	On any view Flat 8 is difficult to value. Both experts accept this. Furthermore different agents have expressed significantly different views as to its value. Whilst, on one view Mr Gravel’s valuation might appear to be more scientific his analysis is based on a number of assumptions that cannot be verified by evidence. 
53.	In the end it seems to me that considerable weight has to be given to the views of Mr English. This is not only because he was instructed as the joint expert but because he is a very experienced local surveyor. Furthermore the reasons in his letter of 6th April 2007 as to why it is not appropriate to value properties of this type by reference to the floor areas in the way that Mr Gravel seeks to seem to me to be cogent.
54.	It cannot be said that Mr English’s approach is wrong though I accept that he does not give detailed reasoning for arriving at his figure of £325,000.
55.	Mr Gravel has less experience of the area. Furthermore he has plainly attached considerable weight to the current asking price for Apartment 4. In my view very little weight is to be attached to the asking price for Apartment 4.
56.	In all the circumstances I value Flat 8 in the sum of £330,000 as 25th October 2004. My figure is slightly above Mr English’s and below the lower figure in Mr Gravel’s range. However for the reasons I have given I think more weight is to be attached to Mr English’s view. I draw some comfort from the fact that in October 2005 the higher of the 2 valuations from agents was in the sum of £340,000 only £10,000 higher than my valuation for October 2004.
7.	Conclusion
57.	It will be apparent from the foregoing that the value of the consideration provided by Mrs Knowles is greater than the value of Flat 8. It follows that the application against Mrs Knowles fails.
58.	If (contrary to my view) the consideration provided by Mrs Knowles is to be treated as being £316,517.50 then there would be a shortfall between that sum and the £330,000 value that I have placed on Flat 8. The shortfall would be £13,442.50 in absolute terms or 4.09% in percentage terms. In my view such a shortfall would not be significant either in absolute or percentage terms. Thus I would still have dismissed the application.
JOHN BEHRENS
Wednesday 11 July 2007