England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		10th June 2004

Mr. Justice Hart:

1. This is an application under section 423 of the Insolvency Act 1986 for orders setting aside the following transactions:

i) The transfers by the First Respondent ("Centralex") to the Second Respondent ("Karlton London") of the registered title to the following properties by means of HM Land Registry Forms TR1 dated 27th October 2002, namely the property known as Unit 29 Metro Business Centre, Kangley Bridge Road London SE26 5BW and registered at HM Land Registry under title number SGL575339 ("Unit 29") and the property known as Unit 30 at the Metro Business Centre and registered at HM Land Registry under title number SGL572029 ("Unit 30");

ii) The transfer by Karlton London to the Third Respondent ("Congress") of the registered title to Unit 29 by means of HM Land Registry Form TR1 dated 25th July 2003; and

iii) The transfer by Karlton London to the Fourth Respondent ("Mortimer") of the registered title to Unit 30 by means of HM Land Registry Form TR1 dated 25th July 2003.

2. The applicant also seeks a charging order over Unit 29 and Unit 30 to secure payment of the County Court Judgments of £20,226.19 obtained against Centralex and/or £10,485.50 obtained against Karlton London plus costs and interest.

Background Facts

3. The background to this matter has been helpfully summarised by Mr Adair on behalf of the applicant in his skeleton argument from which the following account is largely taken. The Units in question are two of thirty-one freehold business units at the Metro Business Centre. The applicant is the management company responsible for the management and upkeep of the common parts at the Centre. Such management and upkeep is financed by a service charge paid by the owners of each of the business units pursuant to covenants executed by them on purchasing their unit. On 28th February 1994 Unit 30 was purchased by Karlton-London Limited (not to be confused with the Karlton London), a company controlled by Dr Khalil Tayfoor ("Dr Tayfoor") and Susan Macaskill ("Miss Macaskill"). On 29th July 1994 Unit 29 was purchased by Karlton plc, a company also controlled by Dr Tayfoor and Miss Macaskill.
4. Dr Tayfoor and Miss Macaskill have been directors of numerous companies with similar sounding or, in one case, identical names of which the following have featured in this case:

i) Karlton-London Limited (No. 02705992). Dissolved 15th August 1995

ii) Karlton Plc (No. 02947522). Dissolved 16th June 1998

iii) Karlton Computers Limited (No. 03024538). Dissolved 2nd December 1997.

iv) Karlton Futures Limited (No. 03027603). Dissolved 2nd December 1997

v) Karlton International Limited (No. 03223191)

vi) Karlton London Limited (No. 03463113). Dissolved 12th June 2001

vii) Karlton London Limited (No. 04382142)

viii) Centralex Limited (No. 03224350. Dissolved 20th April 2004

5. Clause 7(a) of each of the transfers by which the Units were originally purchased contained a covenant requiring the owners of the Units to pay service charges to the Claimant. Clause 7(c) of the transfers contained a covenant that precluded an owner from transferring the Units without obtaining from the transferee a covenant in identical terms to clause 7(a). Each of the transfers was signed by Dr Tayfoor and Miss Macaskill on behalf of Karlton-London Limited and Karlton plc. In breach of the covenants at clause 7(a) of the said transfers Dr Tayfoor and Miss Macaskill procured that Karlton-London Limited and Karlton plc transferred the Units to other companies controlled by them without obtaining the requisite covenants from the transferees. Following such transfers it would appear that on or about 2nd September 1996 the registered proprietor of both of the Units became Centralex, a company also controlled by Dr Tayfoor and Miss Macaskill.
6. By reason of a failure to pay the service charges the applicant commenced proceedings against Karlton London Limited (No. 03463113 - a different company from the Second Respondent) in the Northampton County Court on 1st November 2000. On the 8th January 2001, during the course of the proceedings, the directors of the company (Dr Tayfoor and Miss Macaskill) applied for the company to be voluntarily struck off the Register of Companies.
7. The service charges were not paid by Centralex and, having discovered that it was the registered owner of the Units, the applicant issued proceedings against that company in the Central London County Court on 6th February 2002. Dr Tayfoor represented Centralex and defended the proceedings on the basis that there was no contractual obligation to pay the service charges. On 27th October 2002, during the course of the proceedings, Centralex transferred the Units to Karlton London, a company controlled by Dr Tayfoor and Miss Macaskill. The Land Registry Forms TR1, by which the transfers were made, were signed by Dr Tayfoor and Miss Macaskill and recorded the fact that the transfers were not for money or anything that had a monetary value. As a result of these transfers Karlton London was joined to the proceedings with the permission of the court. On or about 24th December 2002 Karlton London applied for an order "to discharge the order joining Karlton London Limited". A witness statement in support of this application was prepared by Dr Tayfoor. The application was dismissed.
8. The trial of the claim took place at the Central London County Court before District Judge Hasan on 26th June 2003. On the basis of the principle laid down in Halsall v. Brizell [1957] Ch 169, judgment was granted against Centralex in the sum of £9,741.69, a declaration was made that Karlton London was liable to pay the service charges in future and both Centralex and Karlton London were ordered to pay the costs of the claim. Those costs were assessed in the sum of £10,485.50 on 28th July 2003. An application for permission to appeal from the judgment of District Judge Hasan was dismissed by HHJ Cooke on 26th August 2003.
9. On preparing to enforce the judgment and costs order the applicant's solicitors, Messrs Arnold Fooks Chadwick, discovered that on 25th July 2003 (i.e. between judgment being granted and the costs being assessed) Karlton London had transferred Units 29 and 30 to Congress and Mortimer respectively for no consideration. The Land Registry Forms TR1 by which these transfers were made were signed by Dr Tayfoor and Miss Macaskill as director and secretary respectively of Karlton London.
10. On discovering that the Units were to be sold at auction on 8th October 2003 the Claimant applied ex parte for an injunction to restrain such sale. An injunction was granted by Peter Smith J on 6th October 2003. On the return date of that application on 20th October 2003 Park J ordered that the injunction continue until trial or further order. At that hearing all four of the respondents were represented by Dr Tayfoor, who informed the judge that he was a director of all of the respondent companies.
11. In these circumstances the application is made to set aside the transfers from Centralex to Karlton London and from Karlton London to Congress and to Mortimer under section 423 of the Insolvency Act 1986. Section 423 of the Insolvency Act 1986 ("the 1986 Act") provides that where a person enters into a transaction at an undervalue the court may make such order as it thinks fit to restore the position to what it would have been if the transaction had not taken place and to protect the interests of any victims of the transaction if (section 423(3)) it is satisfied that the person entered into the transaction "for the purpose –

" (a) of putting assets beyond the reach of a person who is making or may at some time make a claim against him; or

(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make".

Section 424 of the 1986 Act provides that an application may be made under section 423 by, inter alios, a victim of the transaction, i.e. a person who is or is capable of being prejudiced by it.

12. The applicant claims to have been a victim in relation to the transactions complained of on the grounds that their effect (unless reversed) is to deprive it of the opportunity of enforcing its judgment against the Units. The answer of the respondents is that the transactions were not transactions at an undervalue, that they were not undertaken with the statutory purpose, that in any event there has been no prejudice to the applicant since the Units were at all material times held by the relevant registered proprietors (and in particular Centralex) as trustees for a Panamanian company called Pasonic International Corporation ("Pasonic"), and that the terms of that trust precluded resort by the trustee to the trust property to discharge the trustee's liability to the applicant in respect of the service charges. That defence raises issues of fact and law. The issue of fact is as to the existence of the alleged trust. The issues of law is as to the consequences if the trust existed.

The issue of fact

13. The documents relied upon as having initially constituted the Trust consisted of a photocopy of a letter from Pasonic to Karlton Plc dated 19^th July 1994, countersigned on behalf of Karlton Plc by Dr. Tayfoor, and a photocopy of a three page unsigned and undated document headed "Helwan Trust".
14. The letter was in the following terms:

"This is to confirm that you will buy the two units, 29 and 30 of Metro Business Centre, Kangley Bridge Road, London, and hold them in your name for us, Pasonic International Corporation, until such time as we require them, or request otherwise.

You will be responsible for all outgoings whilst you hold the properties, and you are entitled to use the properties free of charge.

Dr Tayfoor is authorised by us to instruct you to transfer either or both units to sub trustee, successor trustee, nominee or other person or corporation."

15. The Helwan Trust document describes Pasonic both as the Settlor and the Beneficiary and identifies the property as consisting of units 29 and 30. The broad shape of the document is to entitle Pasonic to the income of the Trust, to empower the Trustee at its discretion to apply capital for the benefit of Pasonic, and to entitle Pasonic at any time to withdraw the whole or any part of the Trust property. The only provisions which need to be set out in full are contained in the following numbered paragraphs of section 1 of the document, namely:

"(4) The Trustee is hereby authorised to appoint one or more sub trustees, successor trustees and split the Properties between such sub trustee or successor trustees, at its sole discretion subject to the same terms and conditions of this trust. Any person or corporate body of any nationality, resident or non-resident, can be validly appointed as a trustee or sub trustee. In case of a corporate body the signature of any one of the Directors will be sufficient authority to act for such a corporate body as a trustee.

(5) The Trustee will seek to find tenants for the property. The rent payable by the tenants will be regarded as income ('income'). All expenses associated with the property, including, but not limited to, repairs, alterations, extensions, maintenance and service charges, if any are to be paid by the trustee from the said income.

(6) If the property is vacant or not let, for whatever reason, then the Trustee may use the property, on a temporary basis, for its own business, and only for the periods when the property is not let or leased to a tenant. The Trustee will be responsible, at the expense of the Trustee, for the full payment of all maintenance, repairs and service charges, if any."

16. On 29^th July 1994, Karlton Plc purchased Unit 29 from a Mr Powdrill and Mr Richards (the Receivers of MIP (Beckenham) Limited) for £100,000 plus VAT of £17,500. On 28^th February 1994, Karlton-London Limited purchased Unit 30 from the Receivers for £128,000 plus VAT of £22,400. On 18^th August 1994, Unit 30 was transferred by Karlton-London Limited to Karlton Plc for a consideration of £128,000. The proposition is that each of these purchases by Karlton Plc were effected in accordance with the instructions of the letter dated 19^th July 1994 using Pasonic's money for that purpose.
17. On 2^nd September 1996 both Units were transferred by Karlton Plc to Centralex Limited in consideration of "release of nominee obligations", by transfers which did not bear ad valorem Stamp Duty. Photocopy minutes of a Board Meeting of the Directors of Karlton Plc on 1^st September 1996 were produced and contained the following text:

"1. That Karlton PLC will authorise the transfer from Karlton PLC, in its capacity as a Trustee, to Centralex Limited, as a New Trustee, of units 29 and 30 of the Metro Business Centre, Kangley Bridge Road, London SE26 5BW, Land Registry Title Numbers SGL575339 and SGL572029 respectively, to be held for and on behalf of the sole beneficiary Pasonic International Corporation.

2. That Pasonic International Corporation does not have any outstanding financial obligations towards Karlton Plc."

Photocopy minutes of a meeting of the Directors of Centralex on the same day recorded that:

"1. That Centralex Limited will accept to act as a Trustee of Helwan Trust.

2. That Centralex Limited will accept the transfer to Centralex Limited, of units 29 and 30 of the Metro Business Centre, Kangley Bridge Road, London SE26 5BW, Land Registry Title Numbers SGL575339 and SGL572029 respectively to hold such properties in its capacity as a trustee.

3. That Centralex Limited agrees to transfer either or both properties 29 and 30 Metro Business Centre to any sub trustees, successor trustee or any other person or corporation upon receiving authorisation from Dr K. Tayfoor."

On the following day Centralex appears to have written a letter to Pasonic confirming that the Units were held by Centralex as Trustees for Pasonic.

18. Similar documentation was produced covering the transfers of the Units from Centralex to Karlton London Limited which took place on the 27^th October 2002, although there is an absence of any communication with Pasonic in relation to these transactions.
19. In relation to the transfers to Congress and Mortimer, photocopy minutes of a Board Meeting of Karlton London Limited dated 25^th July 2003 were produced which contained the following text:

"1. That Karlton London Limited will authorise the transfer of Unit 29 of the Metro Business Centre, Kangley Bridge Road, London SE26 5BW, Land Registry Title Number SGL575339, from Karlton London Limited, in its capacity as a trustee, to London Congress Limited, as a New Trustee of the Heliopolis Trust.

2. That Karlton London Limited will authorise the transfer of Unit 30 of the Metro Business Centre, Kangley Bridge Road, London SE26 5BW, Land Registry Title Number SGL572029, from Karlton London Limited, in its capacity as a trustee, to Mortimer Corporation Limited, as a New Trustee of Helwan Trust."

20. The Heliopolis Trust was said by Dr Tayfoor to be a reference to a three-page document in identical terms to that of the Helwan Trust save that it was headed Heliopolis Trust. Once again no evidence was produced of contemporaneous communication with Pasonic in relation to these transfers. However, according to a letter dated 5^th January 2004, apparently written by Pasonic, Pasonic was plainly aware of the fact of the transfers to Congress and Mortimer.
21. The applicant was not in a position to challenge the authenticity of this documentation. My attention was, however, drawn to some oddities in the evidence in relation to the alleged Trust. There had been no mention of Centralex holding as a trustee in the course of the County Court proceedings, save for a passing (and somewhat obscure) reference to that fact by Dr Tayfoor under cross-examination. The fact had not been mentioned in the skeleton argument lodged by Dr Tayfoor on behalf of the respondents for the hearing before Park J on 20^th October 2003 or in a witness statement made by him on 18^th October 2003. Reliance was first placed by Dr Tayfoor on the existence of the trust in his witness statement dated 18^th January 2004, and it was only thereafter that the documentation had been produced. In addition the actual terms of the alleged trust are not only unusual, but have the curious feature of containing the apparently mutually incompatible provisions requiring the trustee to find the tenants on the one hand but permitting the trustee (at its own expense) to have beneficial occupation of the Units on the other.
22. While the applicant was certainly entitled to suspect that the alleged trust was a fabrication by Dr Tayfoor, or, if not a fabrication, that Pasonic was a mere cipher for Dr Tayfoor, I do not find that proved on a balance of probabilities. I proceed therefore to consider the legal consequences of that trust having existed at all material times.

The issues of law

23. The respondents raise a number of points on the construction and effect of Section 423 in its application to the case where the debtor (D) is trustee of property for another (B) and at B's direction transfer the bare legal estate in the property for no consideration to a third party (T). The first is whether D has entered into a transaction at an undervalue within section 423(1) on the footing that it is a transaction "with [T] on terms that provide for [D] to receive no consideration" within section 423(1)(a)." On the literal reading of section 423(1) he has. I see no reason not to apply the literal reading: the transaction will in the normal course be protected from attack by application of the conditions in section 423(2). Unless D's creditor has for some reason a right to enforce against the trust property he will be unaffected by the transaction.
24. D's creditor will have a right to enforce against the trust property in two possible situations. The first is where D has himself a right to be indemnified against his liability out of the trust property. The creditor may then be entitled by subrogation to stand in the D's shoes as against the trust property: see the cases discussed in Lewin on Trusts, 17^th edition at pp. 543-546. The second is where section 2(1)(b)(i) of the Charging Orders Act 1979 applies.
25. So far as the trustee's right of indemnity is concerned the difficulty for the applicant in the present case is its apparent exclusion by Section 1(6) of the Helwan Trust. As at present advised I do not see what answer there is to this difficulty. On the available facts the Units appear always to have been either vacant or occupied by the relevant trustee: they were never let to tenants. Centralex never therefore had the right to recoup itself in respect of outgoings from the trust property. There is no evidence that it had any independent rights against the trust property apart from its ability to occupy the Units.
26. I turn therefore to section 2(1)(b)(i) of the Charging Orders Act 1979. Section 2(1) provides so far as material as follows:-

"(1) ….a charge may be imposed by a charging order only on-

(a) any interest held by the debtor beneficially-

(i) in any asset of a kind mentioned in subsection (2) below, or

(ii) under any trust; or

(b) any interest held by a person as trustee of a trust ("the trust"), if the interest is in such an asset or is an interest under another trust and –

(i) the judgment or order in respect of which a charge is to be imposed was made against that person as trustee of the trust, or

(ii) the whole beneficial interest under the trust is held by the debtor unencumbered and for his own benefit.."

27. It was submitted on behalf of the applicant that its county court judgment was a judgment against Centralex and Karlton as trustees of the trust within section 2(1)(b)(i), the liability to pay service charges having arisen as a result of Centralex having been the proprietor of the Units. For the respondents it was argued that an analysis of District Judge Hasan's judgment showed that the true reason for the liability having been imposed was its status as occupier, rather than as owner, of the Units. In addition it was submitted that, in any event, liability "as a trustee" could not have been established in circumstances where the trustee in question had no right of indemnity against the trust property.
28. So far as the respondents' argument depends upon an analysis of the basis of the liability, the district judge does seem at one point in her judgment (of which I do not have a full or approved transcript) to have expressed herself in terms which suggest that it was because (contrary to the contentions of Dr Tayfoor at the trial) she found that Centralex had actually used and occupied the Units that the doctrine of Halsall v. Brizell applied so as to render Centralex liable. However, in my judgment a correct application of that doctrine turns not on the relevant benefit having actually been exploited but on its existence as a matter of entitlement: Centralex could not take the benefit of the rights granted by the original transfers without accepting the burden of the corresponding covenants. The liability was imposed because Centralex was the proprietor of the land and as such enjoyed concomitant rights.
29. I find more difficult the question whether it follows that the judgment can be said to have been "against [Centralex] as trustee of the trust." It is not at all clear to me what situation this expression was intended to capture. In English law a trustee's liability is generally a personal one, subject to his right to be indemnified out of the trust fund. If liability "as a trustee" is in any sense a term of art, the concept it conveys is of a liability intended to be limited to the trustee's right to be indemnified out of the trust fund and by the availability of assets in his hands as trustee (although I think that it would be a bold draftsman who thought he had achieved that result simply by so qualifying a trustee's covenant). The judgment obtained in this case was clearly not of that character.
30. Such assistance as can be derived on this point from the Report of the Law Commission (No 74) which led to the passing of the 1979 Act is to be found at paragraph 63, where the following explanation is given:

"There is one further situation in which it would be proper for the trustees' interest to be the subject of a charging order – namely, where it is the trustees themselves who are indebted as trustees to the judgment creditor. The trustees' interest in property is not, of course, a beneficial one and so it could not be charged to secure any personal debt of theirs. They hold it on behalf of the trust. But if the debt is also incurred on behalf of the trust, and a judgment has been obtained against the trustees in that capacity, we think it clear that a charging order should be obtainable in respect of the trust assets"

31. The primary concept in play in that paragraph is of the liability having been incurred on behalf of the trust. Where the liability is incurred (as here) by virtue of the bare legal ownership of the property in question together with the concomitant rights necessary for its enjoyment (ex hypothesi authorised by the trust) it seems to me entirely apposite to speak of it as having been incurred on behalf of the trust and in that sense a liability of the trustee as trustee. That, in my judgment, remains the case whatever private arrangements exist between the trustee and his beneficiary as to the former's right to be indemnified against the liability out of the trust property.
32. I have accordingly concluded that the applicant was indeed prejudiced by the transactions which it seeks to set aside. There is no evidence that Centralex or Karlton London is good for the judgment debt without recourse to the value of the Units. The only remaining question is whether at each stage in the chain of transactions the relevant transferor had the requisite statutory purpose. As to that, the evidence clearly established that the relevant purpose existed in the case of the transfers to Congress and Mortimer: Dr Tayfoor's own evidence was that:

"The purpose of these transfers was to ensure that the property of the beneficial owner was not encumbered by the debt of the first 2 Defendants. The beneficial owner requested that I set up 2 new companies into which to transfer the Units so its assets would not get confused with those of the first 2 Defendants"

In cross-examination he sought to add an additional purpose, namely the desire to separate the ownership of the two Units so as to facilitate a possible sale (to separate purchasers) of the share capital of the two new holding companies. How this squared with the proposition that the Units were trust property (when the share capital in the holding company was not) was not explained or explored but, having regard to the decision of the Court of Appeal in IRC v Hashmi [2002] 2 BCLC 489, the existence of this additional purpose (as to which I was not in any case satisfied) is beside the point. I am satisfied that the transfers were substantially motivated by the desire to prevent the applicant from seeking to enforce its judgment against the Units.

33. The transfer to Karlton London was also, in my judgment, substantially so motivated. No attempt was made in the Defence or witness statements to suggest what other motivation there might have been. In cross-examination Dr Tayfoor proffered a narrative which sought to suggest that the transfer had been motivated by a desire to change the direction of the business being carried on from a hardware computer business to a software business, but the account was both confusing and confused, and unsupported by any evidence other than its own belated assertion. I did not believe it.
34. Accordingly the applicant is, in my judgment entitled in principle to the relief which it seeks. A complication is that it emerged, shortly prior to the hearing, that Centralex had been dissolved on 20^th April 2004. Apparently this was the result of a failure to file annual returns, itself a consequence (Dr Tayfoor told me) of the fact that he is a very busy man who, as a result of a medical condition, finds it difficult to read documents. Dr Tayfoor also told me that he had instructed his solicitors to take the necessary steps to have it restored to the register. I shall expect to be told, when this judgment is formally handed down, what stage that process has reached. The form of the order which I shall make will, on the same occasion, be the subject of further submissions.