COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE FAMILY DIVISION
Mr Justice Mostyn
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SEDLEY
LADY JUSTICE ARDEN
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The First Respondent did not appear and was not represented
Christopher Stirling (instructed by Richardson Smith & Co) for the 2nd Respondent
Hearing date: 16 February 2011
Crown Copyright ©
Sir Nicholas Wall P:
1. It is declared that the transfer of the single share in (the appellant) to Edward Kinigopolou dated 27 September 2007 is a sham and of no effect.
2. It is further declared that in consequence thereof Edward Kinigopolou held the said share as a nominee and / or bare trustee for (Boris Agrest) and that Boris Agrest retained beneficial ownership of the (appellant).
3. It is further declared that all material times whilst he was the beneficial owner of (the appellant) Boris Agrest was wrongfully using the corporate identity of (the appellant) as a faηade to conceal his interest in (the appellant's) sole asset namely South Lodge Burhill Road Walton on Thames Surrey KT12 4BE from Janna Kremen in any matrimonial proceedings.
4. The transfer of the beneficial ownership of (the appellant) to George Chesnokov is set aside pursuant to section 23 of the Matrimonial and Family Proceedings Act 1984 ...
Prior to their separation, Mr. Agrest and Mrs. Kremen appear to have enjoyed an affluent life style. The detail does not matter. However, although he was neither represented nor appeared before either Mostyn J or in this court, it is not in dispute that Mr. Agrest has done his best to divest himself of any assets which could be the subject of a claim by Mrs Kremen under the 1984 Act. As the judge found in a judgment given on 16 April 2010: -
"I have come to the clear conclusion that, as regards his obligations to maintain his wife and his children, (Mr. Agrest) is actuated by extreme malice towards (Mrs. Kremen). He had the means to pay, but refuses to do so."
The questions for the court
"It does seem to me critical to try and preserve the one asset which still seems to be in existence, albeit that its ownership is much in dispute. I therefore order that (Mr. Agrest) and (the appellant) are restrained from taking or permitting any step to be taken that leads to (1) a charging, sale of other dealing with (the property) and (2) the creation of any tenancy of (the property) "
The judge's view
"Although the contract was made on 27 August 2008 for the sale of the single share in (the appellant), it was amended in December 2008. Much more importantly it was the subject of a clear, albeit unwritten, collateral agreement to the effect that (Mr Chesnokov) could reverse out of the deal if he could not obtain mortgage finance on (the property) to supply part of the consideration. It is accurate to describe the obtainment of mortgage finance as a condition precedent for performance of the contract. Therefore I agree with Mr Stirling that the effective date of the second transaction for the purposes of Section 23 is 3 March 2009 when the mortgage was completed and the funds made available."
It was on this basis that the judge set aside the transfer of the property to Mr. Chesnokov.
The argument for the appellant and Mr. Chesnokov
The argument for Mrs. Kremen.
"(inaudible) I would buy the company and house (inaudible) but if I get a mortgage for it so I didn't want it to come up as a lot of money, but the mortgages was very good at the time, cheap, and I buy the property if I get the mortgage. (Inaudible). All the searches was done. Of course, the bank will never give the mortgage if something isn't clear. "
Question: .you always understood, and had explained to Mr. Kinigopolou that in order to purchase the property you required finance
Answer Yes, that it is correct.
Q If you could not obtain finance, the deal was off, whatever the stock purchase agreement said?
A Yes, that is correct
Judge So there was no piece of paper that said: "if I fail to get a mortgage, I can unwind the deal"? There was an understanding between you, is that right? Is that what you are saying?
A It was I didn't really think that there would be a problem to get a mortgage
"38. The next question is whether I should exercise my discretion to set the charge aside. Mr Stirling argues that in making that decision I should have regard to the relative impact of my decision: who would suffer more (Mr Chesnokov) or Mrs. Kremen? Mr Feehan QC strongly disagrees and says that the discretion should only be exercised by reference to the circumstances surrounding the transaction itself. I believe the Court can take into account the full range of facts when deciding whether to exercise its discretion, including the fact that about £600,000 - £800,000 of equity in the property will make a significant difference to (Mrs Kremen's) claims to relief, for the reasons explained in my previous judgment. At this stage it is a question of striking a balance of fairness as between W and GC."
39. I now turn to GC's position. If I were to reverse the sale of the single share in (the appellant) then I must go on to reverse the assignment of the Kyrgyzstani Bonds to EK as a consequential order (no one is suggesting that I can or should reverse the mortgage in favour of the Bank of Scotland). Having regard to the nature of the relationship between EK and GC I have little doubt that the bonds will in fact be returned to GC. Thus other than in relation to some costs referable to South Lodge (including the loss of rent from Jolima since April 2010), he will have suffered minimally if the transaction is set aside. I will in any event order that (Mr. Agrest) indemnify GC against all expenses and costs incurred by him in this transaction and the subsequent litigation to include any cost order made by me against GC in W's favour. Although GC is liable to the Bank of Scotland under the personal guarantee it is unrealistic to think that the Bank will recover its money from any source other than the proceeds of South Lodge.
My disposition is therefore as follows:
i) It is declared that at all times EK was acting as nominee for H.
ii) The sale of the single share in (the appellant) by H (through his nominee EK) to GC is set aside.
iii) It is declared that (the appellant) holds the property beneficially for H, subject to the mortgage in favour of the Bank of Scotland.
iv) The order of Mr Cohen QC dated 12 February 2009 concerning the property is confirmed.
v) The assignment by GC to EK on 3 April 2009 of bonds issued by AUB Bank with a face value of 1,489,850 is set aside.
vi) H shall indemnify GC against all expenses and costs incurred by him in the transaction and in the subsequent litigation to include any costs order made against GC in W's favour.
I will hear counsel as to the form of the order and as to costs."
Lord Justice Sedley
Lady Justice Arden