England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE IN BANKRUPTCY
Mrs Justice Proudman [2016] EWHC 1536 (Ch)

IN THE MATTER OF THE INSOLVENCY ACT 1986
AND IN THE MATTER OF EAITISHAM AHMED (A DEBTOR)

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/03/2018

Lady Justice Gloster:

Introduction

1. This is an appeal by Mr Kashif Ahmed ("the first appellant"), Ms Bushra Ahmed, Ms Tesneem Ahmed and Ms Tabusam Hussain (collectively "the appellants") against an order and corresponding judgment of Proudman J ("the judge") dated 29 June 2016.
2. This action relates to an application issued on 28 May 2013 by the respondents, Mr David Ingram and Ms Michaela Hall ("the trustees in bankruptcy" or "the respondents") as the joint trustees in bankruptcy of Eaitisham Ahmed ("the bankrupt"), pursuant to s.284 of the Insolvency Act 1986 in relation to transfers of minority shareholdings ("the shares") in three companies made by the bankrupt to the first appellant on 6 June 2007 ("the transfer date"), and later transfers by the first appellant of some of the shares to the second to fourth appellants (collectively "the sisters").
3. The transfers to the first appellant took place after presentation of the relevant bankruptcy petition and before the bankruptcy order was made against the bankrupt. The exact timing of the subsequent transfers to the sisters is unclear, although it was agreed that these would have taken place sometime during the period 2008 to 30 June 2009 when the public records showed that they had been transferred. Amongst other things, the trustees in bankruptcy claimed a declaration that the transfers of the shares ("the share transfers") were void. Although that was originally opposed, at trial such relief was admitted and the remaining issue in dispute related to the trustees in bankruptcy's monetary claims, by which they sought to restore the bankruptcy estate with the fair value of the shares as at the transfer date which they alleged was the relevant date for valuation purposes. Although the appellants had issued a cross-application seeking a validation order in respect of the share transfers, they had in fact delivered the shares up to the trustees on 27 February 2015, shortly before the trial began and accordingly had withdrawn their cross-application,
4. The trial took place before Proudman J on 9 - 13 March 2015, 14 January 2016 and 18 March 2016. A proposed preliminary issue was dealt with on 9 March 2015 to 11 March 2015 but not determined. The evidence, factual from one of the trustees in bankruptcy ("Mr Ingram") and from the first appellant, and expert evidence from the parties' respective valuers, was then heard on 12 and 13 March 2015 and 14 January 2016. Closing submissions were made orally on 18 March 2016.
5. Proudman J handed down her judgment on 29 June 2016 and, by her order of the same date, upheld the trustees' application. She held that the appropriate basis of valuation was a fair value (as opposed to a market value) and declared that the fair value of the shares as at the transfer date^[1] was £2,216,000. She ordered that each of the appellants were jointly liable to pay the value of the shares as at that date (to the extent that they had held relevant shares), less the fair value of the shares as at their date of return to the trustees on 27 February 2015. Directions were then given for the determination of the value of the shares as at 27 February 2015. The appellants were also ordered to pay interest on the principal sums payable by them as from 25 February 2010 and to pay the trustees in bankruptcy's costs of the application and the withdrawn cross-application on an indemnity basis after 27 August 2013.
6. Notwithstanding her judgment, Proudman J gave permission to appeal and, with the agreement of the trustees in bankruptcy, extended the time for filing the appellant's notice to 4pm on 3 August 2016. Further, the judge stayed payment of the sums ascertained to be due upon valuation of the shares as at 27 February 2015, until determination of the appeal or further order.
7. Mr Giles Maynard-Connor appeared on behalf of the appellants and Mr Francis Collaço Moraes appeared on behalf of the respondents on the appeal. Both appeared below, although Mr Maynard-Connor only appeared at a later stage of the trial.

Factual Background

8. A detailed narrative of events is set out in the judgment of Proudman J. It is not necessary to repeat that full account in this judgment. I merely summarise the key events relevant for the purposes of the appeal. I shall make more detailed reference to the judge's findings when I consider the various issues which arise on the appeal.
9. The bankrupt and the appellants are siblings. The subject companies, Continental Shelf 128 Ltd ("Continental"), Hornby Street Ltd ("Hornby") and Wembley Menswear Company Ltd ('Wembley') (collectively "the companies"), are private family owned companies, trading in Manchester and London in the design, sourcing and distribution of branded and non-branded fashion clothing. The first appellant has been a director of Continental since 2 June 1997 and a director of Wembley and managing director of Hornby since 27 October 1999.
10. On 14 July 2006 Monecor (London) Limited (trading as 'Tradeindex') ("Monecor") served a statutory demand in the sum of £4,443,457.73 on the bankrupt. An application to set aside the statutory demand failed.
11. In mid-September 2006 several members of the family of EA (including the first appellant and the sisters) retained Mr Andrew Andronikou of UHY Hacker Young to advise in respect of the insolvency of the bankrupt.
12. Monecor presented a bankruptcy petition against the bankrupt on 23 January 2007 ("the petition").
13. An initial proposal for an IVA for the bankrupt was prepared by Mr Andronikou as nominee on 13 February 2007 and was accompanied by the 1st Nominee's report. An amended IVA Proposal was prepared on 8 March 2007 which was accompanied by a second Nominee's report of the same date.
14. By letter dated 28 March 2007 the first appellant agreed to contribute £1.45million to the IVA in return for the transfer to him of the bankrupt's 24% shareholding in Hornby.
15. On 29 March 2007 the IVA proposal was approved and Mr Andronikou and a Mr Andrew Hosking were appointed as joint supervisors as a result of what was subsequently determined to have been "vote-rigging" by the first appellant and other family members of the bankrupt.
16. On 22 May 2007, the first appellant paid £200,000 to the IVA in accordance with his letter.
17. On 26 April 2007, Monecor challenged the IVA under s.262 of the Insolvency Act 1986 ("the IVA challenge"). The IVA challenge was ultimately successful.
18. On 5 June 2007:

i) the first appellant entered into a written guarantee in respect of certain payments that the bankrupt agreed were going to be made in the IVA ("the guarantee"); the guarantee acknowledged that the bankrupt had an interest in each of the companies;

ii) under the terms of the guarantee the bankrupt agreed to transfer the relevant shares in the companies to the first appellant absolutely (as well as other assets) in consideration of the provision by the first appellant of the guarantee.

19. On 6 June 2007 the bankrupt transferred 1,200 shares in each of the companies to the first appellant pursuant to the terms of the guarantee; this represented 24% of each company.
20. At some date in 2008-2009, many months after the date of the original transfer on 6 June 2007, the first appellant transferred certain of the shares in the companies (excluding Continental) to the second to fourth appellants. They subsequently re-transferred the shares to the first appellant by no later than 30 June 2010.
21. Following a trial before Deputy Judge Andrew Simmonds QC on 15 December 2008, the IVA was revoked. He held that members of the family of the bankrupt (excluding the second to fourth appellants) and his associates had wrongly claimed they were owed debts of £6,980,876. Those claimed debts were used to approve the IVA. The Deputy Judge held, however that the claims were false and amounted to vote-rigging as, in reality, the claimed debts only amounted to £3,260,425. The first appellant gave evidence at the IVA challenge trial which was rejected. For the purposes of voting at the IVA, he claimed a debt of £3,882,424 whereas the debt he was owed in fact amounted to only £1,851,500.
22. A bankruptcy order was subsequently made against the bankrupt on 21 April 2009. On 22 July 2009 the bankrupt's assets vested in Mr Hosking on his appointment as trustee in bankruptcy. Mr Hosking subsequently resigned on 14 April 2010 and was replaced by Mr David Ingram, the first respondent, and Mr Nicholas Miller. Mr Miller was replaced by Mr Ian Defty on 1 May 2013. Mr Defty was later replaced by Ms Michaela Hall, the second respondent.
23. The application by the trustees in bankruptcy was subsequently issued on 28 May 2013 and the appellants' cross-application for validation of the transfers was issued on 27 August 2013.
24. On 14 January 2014 Mrs Registrar Derrett made an order that the parties should agree the number of the shares and the potentially relevant dates for valuation purposes, failing which she would determine them herself. In the event the parties agreed that the potentially relevant dates were 5 June 2007, 30 June 2009, 30 June 2010, 30 June 2011 and 30 June 2012.
25. Shortly before the trial was due to begin, and following the instruction of new solicitors by the appellants (Pannone Corporate replacing Jeffrey Green Russell) and new counsel, Glen Davis QC, on 26 February 2015 the appellants confirmed that their cross-application was withdrawn. They further accepted that the share transfers were void and share transfer forms executed by the first appellant were delivered up on 27 February 2015. The first appellant also offered to purchase the shares for £120,000 on that date.

The issues on the appeal

26. In my judgment, in light of the arguments presented by counsel, the following issues arise for determination on this appeal:

i) S284: Does s.284 of the Insolvency Act 1986 provide a free-standing right to recover the value of the shares as awarded by the judge, namely the value of the shares as at the transfer date, less their value as at the date of their redelivery to the trustees? (This issue was raised by the respondents' notice.)

ii) Approach to determination of liability: If issue i) is decided in the negative, were the trustees in bankruptcy automatically entitled to be compensated in respect of the difference in value between the value of the shares as at the transfer date, less their value as at the date of their redelivery to the trustees, or were the latter only entitled to be compensated for any diminution in the value of the shares which the trustees in bankruptcy could prove that the estate had actually suffered as a result of breach of trust on the part of the appellants?

iii) Pleading and evidence point: If issue ii) is decided on the basis ("the loss basis") that the trustees in bankruptcy were obliged to prove the loss which the estate had actually suffered as a result of a breach of trust on the part of the appellants, had the trustees in bankruptcy adequately pleaded and proved such breach of trust? Had they failed to do so, and, if so, should their claim be dismissed?

iv) Date of calculation of loss: If issue ii) is decided on the loss basis, as at what date should the loss be calculated?

v) Method of valuation: If liability was established, was the judge correct that the shares should be valued at fair, as opposed to market, value?

vi) Liability of sisters: Was the judge correct to find the sisters jointly liable with the first appellant?

The appellants' submissions before this court

27. The arguments advanced in the written and oral submissions by Mr Maynard-Connor on behalf of the appellants may be summarised as follows.

i) S284: S.284 was silent as to the remedy available to a bankruptcy estate when a disposition had been avoided. The appropriate remedy was governed by the general law: Re J Leslie Engineers Co Ltd [1976] 1 WLR 292 at 298B-D, Hollicourt (Contracts) Ltd v Bank of Ireland [2000] EWCA Civ 263 at [22] and Rose v AIB Group (UK) PLC [2003] EWHC 1737 (Ch) at [30].

ii) Approach to determination of liability: The trustees were only entitled to be compensated for any diminution in the value of the shares which the trustees in bankruptcy could prove that the estate had actually suffered as a result of a breach of trust on the part of the appellants. In particular:

a) The authorities established that the remedy is a restitutionary one, the purpose of which is to replace a loss to the trust fund which the trustee has brought about: AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58 at [65]. AIB and Target Holdings v Redferns [1996] AC 421 supported the proposition that, in order to be able to recover equitable compensation, actual loss had to be proved. The appellants accepted that this remedy was available even where there had been a return of the asset.

b) Further, the judge had erred as a matter of law and or fact in finding that the respondents had established actual loss to the bankruptcy estate.

c) The respondents' use of a value as at the transfer date of the shares (5/6 June 2007) represented a hypothetical value. It was some 22 months before the bankruptcy and 24 months before Mr Hosking as the trustee in bankruptcy was appointed. On any analysis, the shares would not have been realised on that date. In determining equitable compensation, the court cannot ignore the reality of what would have actually happened: see Lord Toulson at [64] – [67] and Lord Reed at [107] in AIB and Lord Browne-Wilkinson at p 436 in Target Holdings.

d) The effect of the judge's order was actually to grant an unfair and erroneous windfall to the bankruptcy estate which bore no correlation to reality and was contrary to both the trustees in bankruptcy's own case and evidence and the principles confirmed in AIB and Target Holdings.

e) The judge was wrong to have found that the case did not involve the temporary deprivation of an asset and in distinguishing this case from the principle confirmed in Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864. Equity should follow the law on conversion cases.

iii) Pleading and evidence point: The judge erred in finding that the trustees in bankruptcy were not obliged to plead and prove actual loss to the bankruptcy estate in terms of when the shares would have been sold by the trustees, to whom and at what price. The respondents' case was insufficient in a number of ways. They were required to show when the shares would have been sold by the trustees in bankruptcy, to whom and at what price. Their failure to do so meant that their action failed from the outset.

iv) Date of calculation of loss: The respondents argued that liability for breach should be determined as at the transfer date and that liability to account flowed from that date.

a) However, as at the transfer date, the shares had been transferred but the first appellant was not a trustee and could not have committed any breach of trust.

b) Once the bankruptcy order was made, the effect of s.284 was retrospectively to create a restitutionary trust that had not previously existed prior to the date on which the order was made. There could be no breach as at this point.

c) If the first appellant were to be liable, the breach could only have occurred as from the date the trustees in bankruptcy demanded the shares. However, there was no demand.

d) The date at which the value of the shares had to be determined was necessarily the date at which the shares would have been sold by the trustees. As such, if the first appellant was liable, the only correct valuation date was 30 June 2010, because that was the only date that fell within the window of possible dates on the trustees in bankruptcy's own case.

v) Method of valuation: If the appellants were unsuccessful on issue (i), then nonetheless the judge erred as a matter of law in finding the shares were to be valued at a fair value, not at market value.

vi) Liability of sisters: The finding that the second to fourth appellants were jointly liable was wrong as a matter of law and/or fact. There was insufficient evidence to support such a finding.

The respondents' submissions before this court

28. The arguments developed by the respondents, in written submissions and by Mr Moraes in oral submissions, in relation to the above issues may be summarised as follows.

i) S284: The judge ought to have concluded that the Insolvency Act 1986 provided a freestanding right pursuant to s.284 to recover compensation for loss arising out of the illegitimate transfer. That right required the restoration of the bankruptcy estate as at the date of the impugned disposition: see Harman J in Re McGuinness Bros. UK. (1987) 3 BCC at 571.

ii) Approach to determination of liability: Contrary to the appellant's assertion, the judge did find that actual loss had been suffered. There could not have been any evidence of an actual sale as the appellants deliberately and wrongly detained the shares. Further, the judge was correct in holding that the bankruptcy estate suffered actual loss:

a) The statutory matrix meant that the estate was the estate of the bankrupt at the date of commencement of the bankruptcy, via a bankruptcy petition, including avoided dispositions. The appellants had actual notice of the petition for bankruptcy making the share transfers void without a validation order. The trust was a real trust imposed by statute to preserve assets of the bankrupt's estate, which arose at the date of the disposition: In re Gray's Inn Construction [1980] 1 WLR 711 at p 716E.

b) The shares were taken out of the estate on 5 June 2007. On that date, the first appellant became a bare trustee of the shares. Given the context, namely that he was aware of the bankruptcy petition at the time of the disposition, he had an immediate obligation to restore the estate. Failure to do so constituted a breach.

c) The estate was depleted by its value on this date and this is the date from which loss must be assessed: Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2002] AC 883.

d) The remedy was one of restoration of the position as at the date of the void disposition: see In re Gray's Inn, In re Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch 555, Rose v AIB Group (UK) plc and another [2003] EWHC 1737 and Pettit v Novakovic [2007] BPIR 1643.

e) The trustees in bankruptcy were under an obligation to sell the shares. The judge was correct to conclude that, given the wrongful detention of the shares and their fall in value, specific restitution was not possible and a compensatory remedy was not limited to merely returning the asset: Re French's Wine Bar Limited (1987) 3 BCC 173 J at p 178 (2^nd column).

f) Relevant trust authorities on wrongful payments of money established that returning the original asset was often not enough and more can be recovered to compensate for loss which would not have been suffered, but for the breach. The only limitation was that a claimant could not recover more than what had in fact been lost: Target Holdings at p 436C-E, 437H and 439B.

g) As confirmed in AIB, if the value of the trust could not be restored in specie, then value would have to be put back in to put the beneficiary back in the position he would have been in but for the breach:

h) The judge correctly distinguished the decision in Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864 and was right to find this case involved permanent deprivation of an asset.

iii) Pleading and evidence point: The judge was correct to find that the trustees in bankruptcy did not have to plead the amount of the actual loss suffered.

iv) Date of calculation of loss: The judge correctly concluded that the correct date for valuation was the transfer date - i.e. 5 June 2007. That was when the estate had been depleted and, accordingly, the first appellant, as trustee, came under an immediate obligation to restore the shares, which the trustee had taken for the trustee's own benefit. The misapplication of the trust fund was the wrongful disposition. However, if there were a requirement of a triggering event, the following were alternative dates as at which the loss should be calculated:

a) the date of the bankruptcy order on 21 April 2009 which crystallised the position; the appellants came under an obligation to restore the estate at this point and their failure to do so constituted a breach;

b) in the further alternative, the relevant date was the date on which the trustees in bankruptcy would have sold the shares; the appellants came under an obligation to restore the estate as at this date and their failure to do so constituted a breach;

c) in the further alternative, the relevant date was when the transferees had notice of the trustees in bankruptcy's claim; the appellants came under an obligation to restore the estate at this point and the failure to do so constituted a breach.

v) Method of valuation: The judge correctly concluded the shares should be valued on the basis of a fair valuation in the circumstances of the case.

vi) Liability of sisters: The judge correctly concluded the second to fourth appellants were jointly liable with the first appellant and there was sufficient evidence to support such a finding. In particular:

a) The sisters were aware of the bankruptcy petition and the fact that the shares had been transferred to the first appellant; nonetheless, they accepted the shares subsequently transferred to them by the first appellant without question and, until shortly before the trial, positively sought to validate those wrongful transfers.

b) They would only suffer unfairness if the first appellant were to fail to honour the indemnity which they were entitled to from him. In this connection it was relevant to note that not only have the second to fourth appellants still not indicated when they received the relevant shares (or for that matter when they claimed to have transferred them back to the first appellant), but they took no steps in the proceedings to assert the indemnity they have from the first appellant.

Discussion and determination

Issue (i) – A free-standing remedy under s284?

29. In the respondent's notice, the respondents submitted that the judge ought to have concluded that s.284 of the Insolvency Act 1986 provides a free-standing right to recover the compensation ordered by the judge. I disagree. In my judgment s.284^[2] only operates to avoid relevant dispositions. The section is silent as to the remedy available to the bankruptcy estate when a disposition has been avoided, and the appropriate remedy is, accordingly, governed by the general law. This is a point which was decided by this court in Hollicourt (Contracts) Ltd supra where Mummery LJ, giving the judgment of the court^[3], said at [22]:

"As Oliver J pointed out in Re J Leslie Engineers Co Ltd [1976] 1 WLR 292 at 298 the invalidating provisions (then to be found in section 227 of the Companies Act 1948) do not spell out the appropriate remedy of the company when the disposition is avoided. The right of recovery of the company's property which has been disposed of is determined by the general law. It is common ground in these proceedings that the right of recovery, whether invoked against the payees or against the Bank, is restitutionary."

30. In [31] of her judgment, the judge appears not to have accepted the respondents' submission on this issue and her reasoning, although somewhat opaque, appears to rely on her application of the general law. That, in my judgment, is the correct approach in cases involving dispositions which have been avoided under s.284.

Issue (ii) – Approach to the determination of liability:

31. In my judgment the main scope of the appellants' argument in relation to this issue are to be preferred and the judge was wrong to decide otherwise.
32. The judge's reasoning is hard to follow. She seems to have taken the view that: the trustees did indeed have to establish loss caused by the breach in accordance with Target Holdings and AIB; that loss had indeed been caused by the breach (para 75); that (apparently) the breach occurred on the transfer date, when the first appellant became a trustee; and that the loss was the diminution in the value of the shares from that date until the shares were returned. However, there is no explanation as to why she thought that a breach had occurred, or loss had been suffered, on that date, other than her view that the first appellant held as a trustee from that date and "owed a fiduciary duty to preserve the value of the asset." Thus, she stated in para 72:

"72. The second respondent held as trustee from 5 or 6 June 2007 and owed fiduciary duties including the duty to preserve the value of the asset. The trustees would have realised the Shares soon after their appointment for the benefit of the creditors and the second respondent cannot get round this by appropriating the assets to his own use. The court therefore has to restore the fund, preserving the value of the estate for the benefit of the creditors. It is not enough to say, by analogy with In Re French's Wine Bar Limited [1987] 3 BCC 173 at 178, that the beneficial owner can require the property to be transferred to him and to account for any profits. A loss has "in fact [been] suffered by the beneficiaries" and "using hindsight and common sense, can be seen to have been caused by the breach."

33. Hollicourt clearly shows that the right to recovery is "restitutionary." Here the appellants (correctly) accepted that, as well as having a right to the return of the shares, the trustees in bankruptcy were, in addition, entitled to claim equitable compensation in respect of any loss that the estate had suffered as a result of the wrongful retention. At trial there was some argument as to the meaning of that term in the context of s.284. Again, it is somewhat unclear what the judge precisely decided on this point, but it appears that Proudman J accepted Mr Moraes' submission that "restitutionary" simply meant that

"the bankrupt's estate is entitled to be restored to the position it would have been in had the [first appellant] not retained the Shares, as if the trustees in bankruptcy had only had them they would have realised them in accordance with their duties."

34. But I cannot agree that that is the right approach. The word "restitutionary" as used in the authorities is used in the sense of restoring trust property actually lost as a result of a breach of trust. The trustees in bankruptcy have chosen to make a case for compensation based on breach of trust. The cases clearly establish that compensatory relief, in addition to the restoration of trust property, is available where the claimant beneficiary can establish a loss to the estate caused by the trustee's breach of trust. Such relief may be awarded in appropriate cases in addition to the restoration of property and is compensatory in nature. That was made clear by Lord Toulson in his judgment in AIB at [64]-[66]:

"64. All agree that the basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law. Where there has been a breach of that duty, the basic purpose of any remedy will be either to put the beneficiary in the same position as if the breach had not occurred or to vest in the beneficiary any profit which the trustee may have made by reason of the breach (and which ought therefore properly to be held on behalf of the beneficiary). Placing the beneficiary in the same position as he would have been in but for the breach may involve restoring the value of something lost by the breach or making good financial damage caused by the breach. But a monetary award which reflected neither loss caused nor profit gained by the wrongdoer would be penal.^[4]

65. The purpose of a restitutionary order is to replace a loss to the trust fund which the trustee has brought about. To say that there has been a loss to the trust fund in the present case of £2.5m by reason of the solicitors' conduct, when most of that sum would have been lost if the solicitors had applied the trust fund in the way that the bank had instructed them to do, is to adopt an artificial and unrealistic view of the facts.

66. I would reiterate Lord Browne-Wilkinson's statement, echoing McLachlin J's judgment in Canson, about the object of an equitable monetary remedy for breach of trust, whether it be sub-classified as substitutive or reparative. As the beneficiary is entitled to have the trust properly administered, so he is entitled to have made good any loss suffered by reason of a breach of the duty. The purpose of a restitutionary order is to replace a loss to the trust fund which the trustee has brought about."

This "causation loss" point was further emphasised by Lord Reed at [107]:

"…to impose an obligation to reconstitute the trust fund, in order to enable the client to recover more than he has in fact lost, "flies in the face and is in direct conflict with the basic principles of equitable compensation." That is clearly correct. As Lord Browne-Wilkinson went on to explain, an obligation to reconstitute the trust fund does not inexorably require a payment into the fund of the value of misapplied property, for example where the consequences of the breach of trust have been mitigated by subsequent events."

35. Thus, as AIB and Target Holdings demonstrate, liability in equity is fault based, and the relevant loss for which compensation is payable must be caused by the actions or omissions of the relevant trustee. As the appellants have now returned the shares to the respondents, the only case remaining is one for equitable compensation. The decision of the House of Lords in Target Holdings ...considered and upheld by the Supreme Court in AIB) represents the highest authority for the proposition that, in order to recover equitable compensation, the trustee must show actual loss caused by the breach, thus equating the equitable principle for calculating compensation, with the common law principle of assessing loss. In that case, Lord Browne-Wilkinson held at p 432-6:

"At common law there are two principles fundamental to the award of damages. First, that the defendant's wrongful act must cause the damage complained of. Second, that the plaintiff is to be put "in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation:" Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, F 39, per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same…

…a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate: see Nocton v. Lord Ashburton [1914] AC 932, 952, 958, per Viscount Haldane L.C. If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed: Caffrey v. Darby (1801) 6 Ves. 488; Clough v. Bond (1838) 3 M. & C. 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred: see Underbill and Hayton, Law of Trusts & trustees 14th ed. (1987), pp. 734-736; In re Dawson, deed.; Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. [1966] 2 N.S.W.R. 211; Bartlett v. Barclays Bank Trust Co. Ltd. (Nos. I and 2) [1980] Ch. 515. Thus the common law rules of remoteness of damage and causation do not apply. However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz. the fact that the loss would not have occurred but for the breach: see also In re Miller's Deed Trusts (1978) 75 L.S.G. 454; Nestle v. National Westminster Bank Pic. [1993] 1 WLR 1260…

…But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach…"

Lord Browne-Wilkinson further held at p 439A-B:

"Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach."

36. Although Proudman J seemed to have both of these cases at the forefront of her mind, it is difficult to follow how she reached her conclusion. As Mr Moraes submitted, it would appear^[5] that she accepted the respondents' case that the bankrupt's estate suffered an actual loss at the transfer date on the grounds that: there was an obligation on that date to restore the shares (the disposition/transfer being void); there was a failure on that date to restore; and actual loss was suffered on the transfer date because the estate has been depleted by the value of the shares on that date. The judge placed the value of the shares at £2.26 million, which was the fair value as at 5/6 June 2007 (the transfer date). However, she did not make a finding, and the respondents did not allege, that the shares would have been sold as at the transfer date. That was obvious, since, as at that date, the bankruptcy order had yet to be made, and the trustee in bankruptcy had yet to be appointed. In her judgment, she fixed the loss as at the date of transfer, assuming a sale at arms length between a willing purchaser and a willing buyer on that date. That had the result that the appellants were effectively on risk in relation to any fall in the value of the shares thereafter.
37. I accept Mr Maynard-Connor's submission that the judge was wrong in her approach in simply imposing this as a measure of liability on the appellants, apparently as a consequence of her view as to the effect of s.284. In accordance with Target Holdings and AIB she was, in my judgment, required to identify at least: (i) what constituted the breach of trust; (ii) when it occurred; (iii) what was the loss actually caused to the estate as a result of the breach of trust on the part of the first, or all four, appellants. This necessitates a complete reconsideration of the judge's approach to actual loss in line with the principles established in Target Holdings and AIB.
38. However, although counsel spent some time addressing the judge's decision to distinguish the present case from the principle articulated in Brandeis Goldschmidt, I do not consider that reference to this case or the other conversion cases is useful. As I am persuaded by Mr Maynard Connor's submission that the present case falls neatly within the principles established in AIB and Target Holdings, whether or not an analogy can be drawn with Brandeis Goldschmidt takes the matter no further. I am already of the view that, in order to recover equitable compensation, the respondents have to prove that the estate actually suffered loss as a result of the appellants' breach of trust.
39. I address below the method by which I consider the judge should have conducted that valuation assessment.

iii) Pleading and evidence point:

40. The appellants submitted that the respondents' failure to prove or plead actual loss meant their action failed from the outset. I disagree. The appellants' focus on evidence and pleading here misses the point. Although it might have been preferable if the points of claim had clearly pleaded the alleged loss and the basis upon which the claim was made, by the time of the hearing the relevant issues had been sufficiently articulated in a "non-binding" agreement on the outstanding issues. Moreover, the relevant evidence, both expert and factual, addressed the various contentions of the parties as to the various possible dates for valuation. The real point was that the judge's conclusion that the appellants were simply fixed with liability as of the date of transfer because of s.284, without requiring them to show actual loss, was wrong in law.

iv) Date of calculation of loss

41. This issue in turn raises the questions: (a) when did the first appellant and/or the sisters become a trustee or trustees; (b) when did he or they commit a breach of trust; (c) when did the loss occur; and (d) in the circumstances, from what date should the first appellant and/or the sisters be responsible for the fall in the value of the shares.

When did the first appellant and/or the sisters become a trustee or trustees?

42. In In re Gray's Inn Construction [1980] 1 WLR 711 Buckley LJ, in relation to the then comparable provision of the Companies Act 1948, section 227^[6] in relation to corporate insolvency, stated at p 716E:

"The section must, in my judgment, invalidate every transaction to which it applies at the instant at which that transaction purports to have taken place."

But Buckley LJ was not, of course, considering the position of a transferee in the historic interim when it was uncertain whether a bankruptcy order would be made. He was looking at a case where a winding up order had already been made as at the date that the judge had to determine the application to validate. In my view, the position is somewhat more nuanced in the interim period.

43. However, it is not in my view necessary for the purposes of this case to decide the precise question whether, prior to making of the bankruptcy order (and at a time when it may be uncertain whether one will be made), a transferee holds no title at all (as the quotation from Buckley LJ might seem to suggest), or merely a voidable or defeasible title. It seems to me that, logically, since s284 only takes effect in the event that a bankruptcy order is actually made (when the bankruptcy commences (see s278) and when the bankrupt's estate is defined for the purposes of the trustee in bankruptcy's title as including (a) all property belonging to the bankrupt as at that date and (b) that which is treated as belonging to the bankrupt under Part IX of the Act (see ss283 and 284)), there is necessarily a period of time between the transfer and the making of the bankruptcy order, when it is not certain whether the transfer will indeed turn out to be void. This strange state of affairs was considered by Millett LJ in In Re Dennis (A Bankrupt) [1996] Ch. 80 at page 104 (albeit in relation to the previous effect of ss 37 and 38 of the Bankruptcy Act 1914, where the doctrine of relation back was somewhat different, in that title related back to the relevant act of bankruptcy, as opposed to the petition date as in the case of void transactions under ss284 or 127 and the bankrupt was divested of his title as from that date). Millett LJ said:

"Conclusion

For more than four centuries the act of bankruptcy formed the cornerstone of the English law of bankruptcy. It represented a form of cessio bonorum which marked the moment at which the debtor became insolvent and from which he was to be "reputed, deemed and taken for a bankrupt." Bankruptcy proceedings could be taken against him by any of his creditors whose debt was in existence at the date of the act of bankruptcy. If the debtor was afterwards adjudicated bankrupt, his assets were divisible among his creditors as from the time when he became bankrupt, not from the time when he was adjudged to be so. From this the judges deduced the doctrine of relation back. If the debtor was adjudicated bankrupt, then the title of the trustee in bankruptcy related back to the time of the first available act of bankruptcy. The doctrine was given statutory form in the Act of 1869, the relevant provisions of which were re-enacted without material alteration in the Acts of 1883 and 1914. Together with the act of bankruptcy itself it was finally swept away by the Insolvency Act 1986, following the recommendations of the Cork Committee which expressed its opposition to the whole concept of a notional cessation of payments earlier than the commencement of bankruptcy proceedings: see Report of the Review Committee on Insolvency Law and Practice (1982) (Cmnd. 8558).

It is clear from the authorities that the relation back of the trustee's title did not merely make the title of the debtor himself or any person claiming through the debtor defeasible in the event of adjudication. If the debtor was adjudicated bankrupt, then as from the date of the act of bankruptcy neither the debtor nor any such person claiming under him who could not bring himself within the protective provisions of the Bankruptcy Acts had any title at all; as from that date title was vested in the trustee. The position of the debtor and persons who claimed under him during the intermediate period was extremely curious. They did not possess a defeasible title, but either an indefeasible title if the act of bankruptcy was not followed by adjudication or no title at all if it was. Outside the law of bankruptcy no similar ambulatory title was known to the law.

This was expressly decided by this court in In re Gunsbourg [1920] 2 K.B. 426, but it is also the basis of the reasoning in many of the earlier cases which I have cited (especially Doe d. Lloyd v. Powell, 5 B. & C. 308; Ex parte Edwards, In re Chapman, 13 Q.B.D. 747; In re Pollitt; Ex parte Minor [1893] 1 QB 455; In re Carl Hirth; Ex parte The Trustee [1899] 1 QB 612). In many of the cases the result would have been the same whether the title of the debtor vested in the trustee at the date of the act of bankruptcy or not; but in others the result would have been different if it had not (for example Doe d. Lloyd v. Powell, 5 B. & C. 308; Montefiore v. Guedalla [1901] 1 Ch 435; In re Ashwell; Ex parte Salaman [1912] 1 KB 390; In re Gunsbourg [1920] 2 K.B. 426). Since the property of the debtor vested in the trustee from the act of bankruptcy, it followed that it was divested from the debtor from the same date. If the debtor was a joint tenant, then if adjudication followed his act of bankruptcy operated to sever the joint tenancy with immediate effect. This was so where both the joint tenants were still alive (Cooper v. Chitty, 1 Burr. 20; Fox v. Hanbury, 2 Cowp. 445; Fraser v. Kershaw, 2 K. & J. 496; Morgan v. Marquis, 9 Exch. 145); where the solvent joint tenant had died in the interim (Smith v. Stokes, 1 East 363); and where it was the debtor who had died (In re Palmer, decd. (A Debtor) [1994] Ch 316).

It is true, as counsel for the trustee submitted, that the purpose of the statutory provisions was to defeat dealings with the debtor's property after the act of bankruptcy, and that the acquisition by the trustee of property by survivorship would not conflict with that statutory purpose. But the method by which that purpose was given effect was not (as in the Companies Acts) to avoid all dispositions of the debtor's property after the relevant date, but to divest the debtor of his property at that date. In my judgment the decision of Sir Donald Nicholls V.-C. that the property of the debtor was not divested until he was adjudicated bankrupt cannot be supported.

There remains the question whether the decision of the Vice-Chancellor can be supported on the narrow ground that whereas the trustee can rely on the doctrine of relation back to found a claim to property formerly belonging to the debtor, and to claim that a joint tenancy has been severed where it is the debtor who has died in the interim, the personal representatives of a deceased joint tenant cannot rely on the doctrine in order to deprive the trustee of his claim to an interest which has accrued to the debtor by survivorship.

In my judgment such a contention cannot be accepted. It is contrary to the decision in Smith v. Stokes which is direct authority on the point, and to other cases in which the doctrine of relation back operated to the disadvantage of the trustee (as in Montefiore v. Guedalla). A similar contention has occasionally surfaced in argument, but it has received no support in any of the cases when properly understood. Moreover, it cannot be correct in principle. The vesting of the debtor's property in the trustee which occurred on adjudication was automatic; the trustee had no choice in the matter. In some circumstance (as in In re Gunsbourg) he might have a right to elect whether to treat a transaction as constituting an act of bankruptcy. If he elected to do so, he could not avoid the consequences. The relation back of his title to the act of bankruptcy was an automatic statutory consequence. The trustee could not lay claim to the property and deny that it had vested in him at the anterior date."

44. In Re Palmer (Deceased) (A Debtor) [1994] Ch 316 (reversed on appeal, but not on this point) Vinelott J concluded that s284 had a similar effect to the application of the old doctrine of relation back:

"section 284 has a dual effect. First, it supplements the relation back of the trustee's title by avoiding dispositions after the date of presentation of the petition. Secondly, it protects dispositions after the presentation of the petition and before the appointment of the trustee which fall within subsections (4) and (5); to that extent it reflects (though it is not coterminous with) section 45 of the Bankruptcy Act 1914"(at 334C-D).

45. In my judgment, the effect of sections 278, 283, 284 and 306 of the Insolvency Act 1986 was that, in the present case, as from the transfer date, the first appellant held the legal title^[7] to the shares on the following trusts:

i) contingently for the bankrupt, in the event that a bankruptcy order was indeed made against him; and

ii) subject thereto (i.e. in the event that no such order was made), for himself as absolute owner of both the legal and beneficial title.

As from the date when the bankruptcy order was made on 21 April 2009, the first appellant and/or the sisters (if they had had some of the shares transferred to them by this date, as to which see below) held the legal title on trust for the bankrupt and title to them was vested in Mr Hosking, on the latter's appointment as trustee in bankruptcy on 22 July 2009. An alternative analysis would be that the first appellant and/or the sisters held a defeasible or voidable title from the transfer date until the bankruptcy order and thereafter no title to the shares at all, since the transfer was, retrospectively, void. However, the claim for equitable compensation was premised on the trust analysis and I see no reason to depart from it as it makes little difference to the ultimate outcome.

46. It follows that I reject Mr Moraes' submission (accepted by the judge at paragraph [52] of her judgment) that, because the first transfer was after presentation of the bankruptcy petition, the first appellant became a bare trustee of the shares for the bankrupt, immediately upon the disposition. I do not consider that the retrospective effect of s284 or the cited passage from Buckley LJ In re Gray's Inn Construction at 716E lead to, or support, that conclusion. It was only on the making of the bankruptcy order that the first appellant became a bare trustee of the shares for the bankrupt and, on the latter's appointment, for the trustee in bankruptcy.

When did the first appellant and/or the sisters commit a breach of trust?

47. In order to ascertain when the first appellant and/or the sisters committed a breach of trust, one has to determine the scope of his/their duty as trustee. I do not accept Mr Maynard-Connor's submission that the only obligation on the first appellant as bare trustee was to deliver the shares following a demand. As Mr Moraes submitted, it was not suggested in Target Holdings, which was a bare trust case, that a beneficiary under such a trust was only entitled to call for the asset (in that case a legal charge). The right to call for the asset is an additional right which all sui juris beneficiaries have, together with the other rights they enjoy as beneficiaries. In my judgment, the duties of a constructive trustee (the type of trust here) depend on the context.
48. There are a number of factual findings of the judge that provide the relevant context for determining the scope of the first appellant's duty. These are as follows:

i) Her finding that all of the appellants had actual notice of the bankruptcy petition of 23 January 2007 prior to the share transfers at [70].

ii) Her finding that there was a deliberate attempt to rig the votes in the IVA so that the family could retain the shares at [67], albeit one to which the sisters were not party.

iii) Her finding that the first appellant inflated the alleged debt which he said was owed to him and created a debt in Hornby in an attempt to award himself the shares at [80].

49. Further, it is relevant that the first appellant is an astute businessman who signed a guarantee dated 5 June 2007, over five months after the bankruptcy petition and some 22 months before the bankruptcy order. The guarantee acknowledged that the bankrupt had an interest in the companies. Further it made clear:

"4. Should the IVA fail as a result of the legal challenged mounted by Monecor (London) Limited under No. 19-10-2007 (No. 973 of 2007) in the High Court of Justice in London, this guarantee will be void and of no further effect and any money paid thereunder by the Guarantor to the Supervisors (less proper professional fees) will be refunded forthwith."

50. All of the share transfers took place in the context of the bankrupt's IVA proposal, which had been approved on 29 March 2007. I am persuaded by Mr Moraes' submission that that it was the wrongful vote-rigging by the family (but not the sisters who are respondents^[8]) that delayed the making of the bankruptcy order. Once the IVA failed on 15 December 2008, the first appellant was aware of a potential issue with his title to the shares. Nonetheless, he continued to assert title over Hornby and Continental using the s.284(4) defence as late as 19 May 2010. I regard it as irrelevant that he made a payment into the IVA of £200,000 on 22 May 2007, as the guarantee made it clear that the Guarantee was void in the event of bankruptcy and the money was to be refunded.
51. In my judgment, as the judge found, this case involved serious dishonesty in relation to which the first appellant played a central role. In those circumstances, I conclude that, once he had knowledge of the facts that made him a bare trustee - namely that a petition had been presented against the bankrupt and a bankruptcy order had been made – and once the trustee in bankruptcy had been appointed, he had an immediate obligation to restore the estate. This was because, once appointed, the trustee in bankruptcy had an immediate obligation to realise the shares for the benefit of the creditors under s.305 of the Insolvency Act 1986. From this point, the first appellant was under a duty to notify the trustee in bankruptcy that he held the shares and to tender them immediately. If the first appellant was unsure as to his legal position, the level of dishonesty in this case meant he had a duty to inquire.
52. AIB and Target Holdings make it clear that the starting point for any analysis of loss has to be the date when the breach of trust occurred. Of the four possible dates canvassed as the date of the breach of trust in this case (transfer date, date of making of the bankruptcy order, date on which the trustee in bankruptcy was appointed and date on which the trustee in bankruptcy made a demand for the return of the asset), I can reject the transfer date, given my conclusions at paragraphs 45 and 46 above as to the basis on which the first appellant held the shares as at that date. As at the transfer date the first appellant, as transferee, had no obligation to hand the shares over to anybody and further, there was nobody to whom the shares could be handed. I reject Mr Moraes' submission that the first appellant should have immediately returned the shares to the bankrupt. Such an obligation would not have made sense in the alternative counter-factual scenario where the IVA continued and a bankruptcy order was never made.
53. There is some force to Mr Moraes' alternative submission that the first appellant's and/or the sisters'^[9] obligation to restore the shares arose on the making of the bankruptcy order and his/their failure immediately to do this constituted a breach. The problem with this analysis, however, is that at this point the trustee in bankruptcy had not yet been appointed. Consequently, the first appellant and the sisters were not withholding the shares from a trustee in bankruptcy with a legal obligation to realise their value and nor did he prevent the trustee from doing so. Accordingly, I consider neither he nor the sisters were in breach on that date.
54. However, given my conclusion as to the scope of the first appellant's duty, the first appellant was, in my view, in breach of trust when he and/or the sisters failed immediately to restore the asset following the appointment of the first trustee in bankruptcy, Mr Hosking. Given the trustee in bankruptcy's obligation to realize the shares for the benefit of the creditors under s.305 (and it must be assumed for the purposes of ascertaining whether the first appellant and the sisters were in breach, that the trustee in bankruptcy would act in accordance with his duty) the first appellant and/or the sisters, by holding on to the shares prevented the trustee in bankruptcy from doing what he was required to do in law. As such, the relevant breach of trust, in my judgment, occurred on or around 22 July 2009, which is when Mr Hosking was appointed trustee in bankruptcy.^[10]
55. For completeness, I should say that I do not accept Mr Maynard-Connor's submission that, if the first appellant was liable, the breach only occurred on the subsequent date when the trustee in bankruptcy actually demanded the shares because there could be no breach without a demand. That might be the case in other circumstances, but, given the context of this bankruptcy and the dishonesty involved in this case, the first appellant's duty to inquire as to the position in relation to the shares, and to tender them to the trustee in bankruptcy, arose on the appointment of the trustee in bankruptcy. The failure to do both of these things on that date in my view constituted a breach of trust.

When did the loss occur?

56. However, the fact that the breach occurred on that date does not predicate that the loss occurred on, or will be calculated as at, or as from, that date. In Target Holdings, Lord Browne-Wilkinson made it clear that, in cases of breach of trust, the remedy is restoration of the trust estate and the relevant loss for which compensation is payable must be the actual loss caused by the actions or omissions of the subject trustee; in other words, when determining loss, the court is required to look at the actual loss suffered by the trust estate. On the date of the bankruptcy order, the trustee in bankruptcy had still not been appointed. As such, he could not realize the value in the shares and loss could not have flown from this point. Lord Browne-Wilkinson said at 437D-E:

…the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for "stopping the clock" immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered."

57. I accept Mr Maynard-Connor's submission that, in this case, the loss occurred, or flowed from, the date at which the trustee in bankruptcy would have actually sold the shares.
58. The evidence provided in the trial was that shares in a private company of the type under consideration could be sold in 3-6 months from the date of a decision to sell. If the first trustee in bankruptcy, Mr Hosking, had put his mind to the task immediately, he could have sold these shares prior to the end of 2009. However, given Target Holdings, the court cannot ignore the reality of what would have actually happened in the particular circumstances of this case. On the evidence, Mr Hosking did not actually attempt a sale of the shares either upon his appointment or thereafter. The reasons why are unclear. He wrote two relevant letters. The first was a letter to Hornby on 4 November 2009 requesting confirmation that the bankrupt held shares in the company. The second was to the first appellant on 25 February 2010 asserting title to the shares in Hornby and Continental. In neither of these letters, does he appear actually to make a demand for the shares or to evince any intention to realise them.
59. In my judgment, the evidence does not support a finding that he was in the process of taking any steps to sell the shares. Even though he was under an obligation to sell them, the evidence effectively shows that he would not have got round to selling the shares during his time as trustee in bankruptcy, even if he had received them from the first appellant and/or the sisters. Accordingly, the loss cannot be said to have occurred during that time. Any depreciation in the value during that period would have been at the risk of the estate.
60. On the evidence before the judge, it is clear that the loss caused by the first appellant's and/or the sisters' breach of trust in not returning the shares actually occurred within a three to six month window from the date of the appointment of Mr Ingram and Mr Miller as joint trustees in bankruptcy on 14 April 2010. That was because the evidence showed that a sale of the shares (if they had been returned either to Mr Hosking or to the trustees in bankruptcy) would have taken place within that three to six month window. Given the available valuation dates as decided by the Registrar in advance of trial, it follows the most appropriate valuation date is 30 June 2010. That is the only date that falls within the window on the trustees in bankruptcy's own case.
61. In my judgment, the judge was wrong to find that the appellants' liability for loss flowed from the transfer date. Accordingly, I would allow the appeal on this issue and substitute the 30 June 2010 as the date at which the shares should be valued for the purposes of ascertaining the loss which the estate has suffered as a result of having been deprived of the shares until their return shortly before trial; i.e. the diminution in their value between the two dates.

Issue v): Method of valuation:

62. The issue under this head was whether the judge was right to find that the shares should be valued at a fair value, as opposed to at market value. Mr Maynard-Connor submitted that the judge's finding that fair value was the correct basis was based on a flawed premise, namely a sale by the bankrupt to the first appellant. In this context I do not find the appellants' submission that Mr Cowan, the expert valuer, had not been asked specifically to value a sale by the trustee in bankruptcy to the first appellant as persuasive. Under cross-examination by counsel for the appellants, Mr Cowan made it clear that his valuation (based on a fair value as between insiders) would not have been any different.
63. Mr Maynard-Connor further submitted the judge should not have relied on the evidence of Mr Cowan to value the shares, but rather should have relied on that of Mr Hosking in the IVA challenge proceedings. But the question as to the admissibility and weight to be given to Mr Hosking's evidence was a matter for the judge. Since Mr Hosking's evidence was not tested before her, she was perfectly entitled to give it little or no weight. The judge relied on evidence in addition to the expert evidence (at [80]) and was clearly entitled to reject Mr Hosking's conclusion that there was "no worth" in the shares and accept that of Mr Cowan.
64. In my judgment, the judge was entitled to conclude that the shares should be valued on the basis of a transaction between identified knowledgeable and willing parties. Her decision at [110] of her judgment in which she preferred the evidence of Mr Cowan over Ms Longworth, the other expert valuer, is not susceptible to challenge. I am also persuaded that, in the circumstances of this case, the reasons which would apply in a sale between family members similarly apply in the context of a sale from a trustee in bankruptcy to a family member: first that the family would not want a third party holding 24% of the shares in the companies; and second, that the first appellant, as the most likely buyer, would consider the trustee in bankruptcy's next best option of selling to somebody outside the family. I consider the second reason would likely lead to a higher valuation.
65. Accordingly, there is no reason to interfere with the judge's conclusion that the fair value was the appropriate valuation. I would dismiss the appeal on this ground.

Issue (vi) – Liability of the sisters

66. The respondents accepted that one of the bases on which the judge found the sisters to be liable was wrong; namely that they had been involved in the "IVA vote-rigging scheme." They had not in fact been involved.
67. At [117] of her judgment, the judge found the sisters jointly liable with the first appellant. However, since, for the reasons which I have already stated, her approach to the question of loss was erroneous, her analysis needs to be reconsidered.
68. Mr Maynard-Connor submitted the sisters were always nominees although Proudman J did not appear to make a finding on this point. I conclude that, even if they did at all times purportedly hold title to the shares as nominees for the first appellant, as opposed to purporting to hold beneficially for themselves, that, in the circumstances, makes no difference to the question as to whether they were in breach of trust. If they held legal title and there was an obligation to return the shares to the trustee in bankruptcy, it applied to them, whether they were nominees or not.
69. Moreover, the evidence of the first appellant (on which he was cross-examined) strongly suggested that he intended to transfer full beneficial ownership to his sisters and not merely legal title. In addition, their participation in the application for cross-validation, is consistent with an assertion of beneficial title by them. If they had been acting purely in a nominee capacity their correct course would by that stage have been to have played no active part but rather to have indicated that, as trustees, they would abide by the court's decision as to whether the beneficial ownership of the shares should remain with the estate or whether the transfers should be validated.
70. In my judgment, the failure of the sisters to give evidence or to provide the relevant stock transfer forms to clarify when the shares were transferred to them, justifies this court drawing the inference against them that the transfer occurred at the earliest of the suggested dates, viz. as from 1 January 2008. In line with my previous analysis, as from that date they held the shares on the trusts referred to in para 45 above, i.e. contingently for the bankrupt, in the event that a bankruptcy order was indeed made against him; and, subject thereto (i.e. in the event that no such order was made), for either themselves or the first appellant as absolute owner of both the legal and beneficial title.
71. It follows that they were likewise in breach of trust for failing to hand the shares back following the appointment of the first trustee in bankruptcy on 22 July 2009, in retaining them in the period to 30 June 2010 and in transferring them to the first appellant (as opposed to handing them to the trustees in bankruptcy) at the relevant date before 30 June 2010. I have no difficulty in concluding that, on the facts as found by the judge, the circumstances in which they came to hold the shares meant that they, like the first appellant, had an obligation to hand the shares back and were in breach of trust for failing to do so. Those circumstances included:

i) the finding that all of the appellants had actual notice of the bankruptcy petition of 23 January 2007 prior to the share transfers at [70];

ii) the finding that all of the family members were aware that the bankrupt was insolvent and that obtaining the shares in return for payment would result in the creditors being disadvantaged, if as eventually happened, the IVA failed at [71];

iii) the finding at [68] that:

"it is inconceivable that, bearing in mind the closeness of the family and the fact that Mr Andronikou acted for all the [appellants], the bankrupt (who knew about the petition at latest on 5 February 2007) would not have told the other [appellants] of the existence of the petition, and why it was so urgent for him to enter into an IVA";

iv) the rejection of the first appellant's attempt to withdraw evidence in paragraph 42 of his witness statement as an opportunistic attempt to exclude his sisters from liability at [66]; and

v) the fact that the sisters did not give any evidence at [113].

72. I also find it relevant that the sisters all "worked in the business," according to the witness statement of the first appellant at [42]. They took the shares transferred to them without any consideration being given to the estate in the context of an insolvent estate and positively, until shortly before the trial, sought to validate those wrongful transfers. I also consider that the judge was entitled to find they were involved – even if to a lesser extent – in the same serious dishonesty as him. Again, once they had knowledge of the facts that made them a bare trustee for the estate, namely that a petition had been presented against the bankrupt, a bankruptcy order had been made and a trustee in bankruptcy had been appointed, they had an immediate obligation to notify the trustee in bankruptcy that they held the shares and to tender them immediately. If they were unsure as to their legal position, their engagement in the dishonesty meant they had a duty to inquire.
73. For the same reasons I have given for the first appellant, I find that, in relation to the shares held by them, they are theoretically liable for the loss suffered by the estate (i.e. the diminution in value) during the period from 14 April 2010 (the date on which Mr Ingram and Mr Miller were appointed) to the date of their return shortly before trial; i.e. the diminution in their value between the two dates. Their liability for loss in the diminution in value did not cease on 30 June 2010 (when they re-transferred the shares to the first appellant) because, as I have said, their obligation was to retransfer the shares to the trustees in bankruptcy – not to do the first appellant. Their failure to so was also causative of the estate's loss.
74. Accordingly, I agree with the judge's finding that the sisters are jointly liable with the first appellant to the extent of their respective shareholdings, but, like the first appellant, only in respect of the diminution in value during the period from 30 June 2010 until the date of the shares' return shortly before trial.

Disposition

75. Accordingly, to the extent stated in this judgment, I would allow the appeal.

Lord Justice Patten:

76. I agree.

Lord Justice David Richards:

77. I also agree.

Note 1   In fact the judge assumed that the transfer date was 5 June 2007, which was the date on which the bankrupt had agreed to transfer the shares to the first appellant under the terms of the guarantee referred to in paragraph 18 below. The actual transfer took place, as I have said, on 6 June 2007. There is no difference for valuation purposes between the two dates although I have defined the transfer date as 6 June 2007.    [Back]

Note 2   S284 provides: “(1) Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is was subsequently ratified by the court. …… (3) This section applies to the period beginning with the day of the presentation of the petition for the bankruptcy order and ending with the vesting, under Chapter IV of this Part, of the bankrupt's estate in the trustee."    [Back]

Note 3   Peter Gibson, Mummery and Latham LJJ.     [Back]

Note 4   All bolded text in this judgment is my emphasis.    [Back]

Note 5   See paras 72 and 75 of the judgment.    [Back]

Note 6   This provided: “In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer of shares, or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.” The comparable provision in the Insolvency Act 1986 is s127. It is in similar terms to s227.    [Back]

Note 7   It was not in dispute between the parties that the legal title to the shares had been transferred. As I explain below, an alternative analysis is that there was no trust, but merely a defeasible title held by the first appellant.    [Back]

Note 8   It was common ground on the appeal that the judge was wrong in her conclusion in this respect.    [Back]

Note 9   See below as to the date from which it is to be inferred that the sisters first held the shares.    [Back]

Note 10   There was no suggestion that there was any involvement of the Official Receiver or any realistic possibility of handing the shares back to him.    [Back]