England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
IN BANKRUPTCY

		Royal Courts of Justice Strand, London WC2A 2LL
		7th June 2007

Introduction

1. The Trustee in Bankruptcy ("the Trustee") of Mr Nowrag Pasram ("Mr Pasram") seeks declarations in relation to property known as 64/64A Stapleton Road, Tooting Bec, London SW17 8AU ("the Property"). Mr Pasram is the First Respondent to the Trustee's application; Mrs Pasram, at all material times his wife, is the Second Respondent and lives at the Property.
2. The declarations sought include declarations (a) that at all material times prior to a transfer dated 29 September 1999 ("the Transfer") Mr Pasram and Mrs Pasram held the Property in equal beneficial shares, (b) that the Transfer amounted to a transaction at an undervalue pursuant to section 339 of the Insolvency Act 1986 ("the Act"), and (c) that Mr Pasram's beneficial interest in the Property vests in the Trustee pursuant to section 306 of the Act.
3. The Trustee also seeks various consequential orders, to set aside the Transfer and to realise, through a sale of the Property, the beneficial interest in the Property that is vested in the Trustee.
4. The Bankruptcy Order was made on 9 May 2000.

Beneficial ownership prior to the Transfer

5. Mr and Mrs Pasram married in 1961 in Guyana. They had a family. The Property was purchased in the early 1970s in the joint names of Mr Pasram and Mrs Pasram. The choice of joint names was not a formality; in re-examination, in the context of a question about beneficial ownership, Mrs Pasram herself referred to the fact that "[the Property] was jointly bought in both of [our names]".
6. In oral cross examination it was put to Mrs Pasram that Mr Pasram had a half share in the Property and Mrs Pasram agreed. In my judgment that view accords with the true position.
7. At the point of purchase of the Property Mr and Mrs Pasram were both in employment, Mrs Pasram working in the evenings and in due course at night. Subsequent to the purchase there were periods when, for various reasons, one or other of Mr and Mrs Pasram were not in employment. Overall I have formed the view that Mr Pasram achieved the higher earnings, while Mrs Pasram combined lower earnings (or, later, benefit) with taking primary charge of looking after the home and family. In her evidence Mrs Pasram described a wholly understandable picture when she said "Mr Pasram was working, rent was coming in, I was working; in 1972 we had bought a place and it was very difficult for us. We had children. We were a married family."
8. It was Mrs Pasram's evidence that her parents gave her money to pay the deposit. This was not the first occasion that her parents had provided financial help. Describing earlier occasions, Mrs Pasram referred to her father sending "us" money time and time again. She explained that "us" meant her and her husband. Describing the occasion that provided money to pay the deposit, Mrs Pasram said that her parents had given her £1000 "in order to help me establish a home for myself and the children". I do not construe that phrasing too strictly, because I cannot accept that this particular gift from her parents was, alone, to the exclusion of Mr Pasram. Nor was there clear evidence to the effect that it was.
9. Summarising the financial contributions, Mrs Pasram's evidence was that, of the total purchase price of the Property, she contributed the deposit, half of the repayment of one mortgage, all of the repayment of a small second mortgage and a small "balance". Mr Pasram, she said, contributed half the repayment of the first mortgage, which was the principal mortgage used to finance the purchase. These contributions summarised in Mrs Pasram's evidence amounted, she said, to £5,000 from Mrs Pasram and £2,500 from Mr Pasram. However this evidence on respective financial contributions is not supported by documentation, although an order for disclosure was made, and although I accept it as an honest recollection I am not satisfied as to its accuracy and must treat it with caution.
10. At various points in her evidence, Mrs Pasram emphasised that she paid for things, and often that Mr Pasram did not. Often these references are, in my judgment, properly understood as references to her effecting payment rather than her earning or procuring by other means the funds with which to effect payment. I illustrate this as follows:

a. Referring to the payment of the deposit, Mrs Pasram says "I" paid this. Referring at the same point to two mortgages on the Property, she says "we" obtained mortgages.

b. Referring to the repayment of the second mortgage (a mortgage for £1,000) Mrs Pasram says she repaid this. I find the source of repayment to have been weekly rental income from a tenant, due to Mr and Mrs Pasram, although I accept that Mrs Pasram ensured that the repayments were physically made.

c. Asked how she paid £5000 for new windows, Mrs Pasram said the windows were paid for every year. Again the emphasis in her mind is, in my view, on who ensured payments were made.

d. Describing a period when Mr Pasram was working for Rediffusion, Mrs Pasram said "We paid the mortgage between ourselves. Sometimes he also paid bills. He gave me money and I paid the bills, with my money as well. It was not only the mortgage we were paying; it was clothing food etc.".

11. When it came to household expenses, again Mrs Pasram's evidence was that she paid almost all of these. This may well be so, in terms of ensuring that the payments were physically made, but more of the context of the ultimate, intended and actual, source of payment is shown by one of the particulars to her divorce petition. This alleges on her behalf that "throughout the years [Mr Pasram] kept [Mrs Pasram] short of house-keeping money". It is also clear, on Mrs Pasram's evidence, that children of the family helped with some household costs, including towards new windows.
12. In her written evidence Mrs Pasram said that until the first mortgage was paid off she and her husband paid one half each of the mortgage instalments. Indeed she added that "[m]y husband refused to pay more than one half always saying that I owned half of it". In 1993 the Property was further charged by Mr and Mrs Pasram in favour of Barclays Bank plc ("Barclays"). By this point Mr Pasram had provided an unlimited guarantee to Barclays of the debts of a company with which he was concerned, Arrowsign Traders Ltd. Mrs Pasram says she knew nothing of the guarantee.
13. Mrs Pasram told the Court of continual mistreatment that she suffered at the hands of Mr Pasram. That state of affairs has given her a sense of conviction that the Property should be hers rather than any part of it being Mr Pasram's any longer. The mistreatment also led to matrimonial proceedings to which I shall refer. In law, in the present context, the mistreatment itself cannot affect the question of where the beneficial interests in the Property lie. Whether the matrimonial proceedings, and in particular the Transfer that was executed in the course of them, achieved that is a question to which I shall turn shortly.
14. Mr John Orme, who appeared for Mrs Pasram, contended that Mr Pasram's share in the Property was one third at most. Taking the evidence, oral and documentary, in this case I cannot justify a finding to that effect. I cannot find (as I was asked to, with reference to Lloyd's Bank plc v Rossett [1991] 1AC 107) sufficient evidence of contributions to the purchase price from Mrs Pasram sufficient to make good Mr Orme's contention. The present is a case in which the "probable common understanding" (Stack v Dowden [2006] 1 FLR 254 (CA); [2005] EWCA Civ 857) was equal shares.

The Transfer

15. Mrs Pasram was granted a decree nisi of divorce on 7 March 2006. About six years earlier she and Mr Pasram executed a document entitled "Deed of Release and Discharge" ("the Deed") dated 29 September 1999. This deals with the Transfer which was executed the same day. It preceded the Bankruptcy Order by 8 months.
16. The Deed recites that Mr and Mrs Pasram "are seized of [the Property] with title absolute conveyed upon trust for themselves as beneficial joint tenants". The Deed continues:

"AND WHEREAS the husband and the wife have agreed that in consideration of the wife paying him the sum of One Thousand Pounds (£1,000) in full settlement and satisfaction of all his legal and beneficial interests in the property AND ALSO in full and final settlement satisfaction and discharge of all claims which the wife may now have or for which she may issue application for ancillary relief in her intended divorce proceedings including maintenance pending suit, periodical payments order, a lump sum or sums order, secured financial provisions, a transfer of property order or adjustment of property order the husband will transfer all his legal and beneficial interests in the property to the wife absolutely.

NOW THIS DEED made in pursuance of the said agreement and in consideration of the sum of One Thousand Pounds (£1,000.00) paid by the wife to the husband (the receipt of which the husband hereby acknowledges) WITNESSETH AS FOLLOWS:-

1. The provisions of this Deed are accepted by the husband and the wife in full and final settlement of all financial claims that each of them may have against the other in respect of any property or for income capital and other property adjustment including all such claims arising under the Matrimonial Causes Act 1973 (as amended) the Married Woman's Property Act 1882 (as amended) or any claim which each may have against the Estate of the other under the Inheritance (Provisions For Family and Dependants) Act 1975 (as amended).

2. It is also hereby agreed by the husband and the wife that the contents now in the property shall remain the absolute property of the wife in whose possession they are now."

17. In oral evidence Mrs Pasram explained that the payment of £1,000 to her husband came about because by reason of her husband's religious beliefs he wanted to receive something back from the Property. Mr Pasram received advice from his solicitors which referred to the proposed settlement as relinquishing his rights for a "pittance".
18. The Deed is not well expressed: the recital quoted allows for argument over its handling of the consideration it is referring to. However, assuming that the import of the Transfer is that Mrs Pasram agreed to pay £1000 and give up all claims for ancillary relief against Mr Pasram in exchange for his beneficial interest in the Property, can the Transfer stand?
19. The answer, in my judgment, is no. Recent authority is to the effect that an agreement of the type reached in the present case to give up all claims for ancillary relief is not "consideration … in money or money's worth": Hill and Haines [2007] EWHC 1012 (Ch) (Judge Pelling QC, a decision at first instance that I believe I should follow, without entering into a fresh review of the area of law). Among other things, the claims were not in law given up: see Hyman v Hyman [1929] AC 601 (HL), Xydhias v Xydhias [1999] 1 FLR 683 (CA), Re Kumar (a Bankrupt) [1993] BCLC 548 at 559e-i (Ferris J).
20. The consideration of £1,000 is "significantly less than the value, in money or money's worth" of Mr Pasram's beneficial interest in the Property. Property details as at an earlier date, for example, suggest that the Property then had a value of in excess of £200,000. The same position likely applies even if the consideration of release of matrimonial claims (if they did in law amount to "consideration … in money or money's worth) is taken into account, given the evidence of Mr Pasram's financial circumstances at the time and even taking account of the limited evidence that I heard about another property in Guyana.
21. The result is that the Transfer is a transaction at an undervalue within section 339 of the Act and the Court has a discretion (Re Paramount Airways (In Administration) [1993] Ch 223 at 239G-H, per Sir Donald Nicholls VC)) to make an order for restoring the position to what it would have been had the transaction not been entered into.

Vesting

22. There was no material dispute but that if Mr Pasram had a beneficial interest in the Property it vested in the Trustee.

Remedies

23. In these circumstances, broadly speaking for the moment, and subject to the discretion available to the Court, the Trustee should have one half of the beneficial interest in Property (for the benefit of creditors) and Mrs Pasram should have one half.
24. I can see no factor that would cause me to deny this ultimate outcome by the use of such discretion as I have, or to refrain from giving directions necessary to allow the Trustee to realise his share in due course. I will consider, with the benefit of further submissions from Counsel, detailed directions (and their timing) should that be necessary because suitable arrangements cannot be agreed.

.

25. The Property has a particular feature. This is that it is divided into two maisonettes, although used as a single residence. This does not mean that work (and expense) would not be required to achieve a separation of the two maisonettes sufficient to make sale of one (alone) viable. Mrs Pasram occupies the upper maisonette more than the lower. The maisonettes were, at least at one point, of approximately equal value.
26. I would like to make it clear that I will consider sympathetically and willingly any request on behalf Mrs Pasram that I tailor directions in such a way as to allow the Trustee to realise his share in the Property by taking ownership of one the maisonettes, thereby allowing Mrs Pasram to own and reside in the other. I would expect the Trustee to make every effort to accommodate this, if the circumstances allow.

Limitation and abuse of process

27. At the commencement of the hearing, Mr Orme, for Mrs Pasram, submitted that the claim under section 339 of the Act was barred by limitation, or should be struck out on grounds of unreasonable delay. The proceedings had not been commenced until 12 May 2006.
28. I ruled against these submissions at the time, indicating that I would give my reasons when dealing with the matter as a whole.
29. Existing authority treats a claim under section 339 of the Act, such as the present, as a claim upon a specialty to which a 12 year limitation period will apply unless the substance or essential nature of the application is to recover a sum of money recoverable by the section: see Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144 (Mr John Randall QC); Re Yates (a Bankrupt) [2005] BPIR 476 (Charles J); Re Nurkowski (a Bankrupt); Hill v Spread Trustee Company Ltd and Warr [2006] EWCA Civ 542 (CA). Mr Orme argues that the present case is effectively one of repayment of a loan to a bank as a creditor. That is, with respect, a loose analysis and this is an area in which the analysis, whilst looking for substance rather than form, must be rigorous. The essential nature of the claim under section 339 is to reverse a transfer of a beneficial share in property. A 12 year period of limitation applies and the claim is inside that period.
30. Nonetheless, argues Mr Orme, there has been unreasonable delay. He asks whether it is reasonable that more than 6 years should have elapsed before any claim was made. He submits that the result has been a prolonged period of uncertainty hanging over Mrs Pasram, and faded memories. I have had no full explanation of the delay, and I am unhappy about it, but am satisfied that I should not treat it, in the present case, as sufficient to order that the proceedings be struck out for delay. Mr Orme's points carry with them the suggestion that Mrs Pasram appreciated that a claim might be brought. She has enjoyed the whole of the Property over the intervening years. The claim was brought within the relevant period of limitation. Memories will have faded, but no specific prejudice was identified here and I have felt able to make allowance in Mrs Pasram's favour on any issue where lapse of time appeared to account for less than detailed evidence. An example of the latter was the admission into evidence, at the beginning of the hearing, of a substantive second affidavit from Mrs Pasram which dealt with additional matters that she had recollected as the hearing had neared.

Costs

31. I have mentioned above that I will consider sympathetically and willingly any request on behalf Mrs Pasram that I tailor directions in such a way as to allow the Trustee to realise his share in the Property by taking ownership of one the maisonettes, thereby allowing Mrs Pasram to own and reside in the other.
32. A potential obstacle to this was highlighted at the end of argument. Although I have yet to deal with questions of costs of these proceedings, I was shown a schedule which reveals that the Trustee's legal costs had by the week before the hearing reached £86,000, including VAT. Of this £77,550 including VAT were solicitors fees. I was told that there was a conditional fee agreement with the Trustee's solicitors, and on my asking what the uplift was I was told 80%.
33. If an order for costs is sought against Mrs Pasram and is made against her, it may well be that this alone would put a maisonette that she retained in jeopardy. Of course the costs will be subject to assessment, but the point remains.
34. On any assessment of the Trustee's legal costs (whether as a result of an order made in these proceedings, or generally in the bankruptcy) I believe it to be important that the reasonableness of a conditional fee agreement with an 80% uplift is examined closely. Of course there may be facts that I do not know, but on one view in this type of case the Trustee was very likely to recover at least a substantial beneficial interest in the Property. The risk of not doing so would seem low.
35. It would do nothing for the reputation of the administration of insolvent estates if large conditional fee agreement uplifts were regularly agreed with solicitors for trustees in bankruptcy in cases involving arguments over the equity in the matrimonial home that vests in the trustee. Further, the presence of a conditional fee agreement with a large uplift may also place undue pressure on the spouse of the bankrupt to accede to the trustee's claim – the spouse who chooses to contest will jeopardise a substantial part of the remaining equity in the home if the trustee will be looking to recover costs that are substantially increased by a large conditional fee agreement uplift.
36. The costs can be seen against a further perspective. The schedule to which I referred showed that the creditors are financial institutions, owed a total of £65,134. The total of legal costs and bankruptcy costs and fees will, on the face of the schedule, be more than twice the total of the debts. This lack of proportionality seems acute in a bankruptcy that involved only one asset (a beneficial interest in the Property), the pursuit of which asset was left for many years, presumably with the acquiescence of the creditors (the largest of whom even held a legal charge over the Property).

The Trustee

37. The Trustee is Mr Richard Andrew Segal. The evidence in support of the application was made by Mr Paul Davis, a licensed insolvency practitioner. Mr Riley, in his written submissions for the Trustee, said that "Mr Davis was appointed the Trustee's attorney in carrying out the Trustee's professional functions pursuant to a power of attorney dated 3 May 2006". Mr Davis referred to and exhibited the power of attorney ("the Power of Attorney"), made by Mr Segal in favour of Mr Davis and a Mr Mark Fry.
38. The Power of Attorney provides, in part, that Mr Segal appoints Mr Davis and Mr Fry:

"… jointly and severally to be the attorneys of [Mr Segal] in his name and on his behalf and as his act and deed or otherwise:-

1.1 to accept any appointment as administrator, administrative receiver, receiver, special manager, nominee or supervisor of a voluntary arrangement, provisional liquidator or liquidator which [Mr Segal] would have been capable of accepting;

1.2 to do anything which he can lawfully do as administrator, administrative receiver, receiver, special manager, nominee or supervisor of a voluntary arrangement, provisional liquidator or liquidator whether sole or joint of any and all companies individuals properties or assets in relation to which [Mr Segal] holds or in relation to which it is proposed that he should hold office;

1.3 generally to execute or sign any deed or document including without limitation any bank mandate or cheque which may be required and to do any other act matter or thing which the Attorneys shall consider necessary or expedient for carrying out any of the purposes or acts authorised in the same manner and as fully and effectually in all respects as [Mr Segal] could have done if personally present."

39. By Clause 2 of the Power of Attorney Mr Segal undertook "to ratify everything" which Mr Davis and Mr Fry "shall do or purport to do by virtue of these premises. By Clause 3 of the Power of Attorney it was to be irrevocable for a 12 month period.
40. "Trustee in bankruptcy" is not mentioned in the list of appointments in the clauses of the Power of Attorney, although it is seems apparent from its production in the present case that the Power of Attorney is seen as applying in bankruptcy too.
41. A Power of Attorney in this form is, in my view, open to principled objection. It purports to allow an insolvency appointment to be taken in the name of an office holder, and the resultant insolvency administration undertaken from beginning to end, without the involvement of the office holder save in name. The scheme of the Act is not that office holders simply lend their name to others in this way, and write an advance "blank cheque" of ratification. The Act contemplates that the officeholder will bring to bear the expertise envisaged by the qualification requirements, and will shoulder responsibilities imposed by the Act, throughout bringing to bear experience and judgment.
42. Of course an officeholder will be assisted by staff and colleagues, and some delegation will be appropriate, and practical arrangements will be necessary to deal, for example, with temporary absence of an office holder who has accepted an appointment. But the Power of Attorney goes far beyond that.
43. I requested further explanation of the Power of Attorney, and received this after the hearing by letter from Mr Riley, Counsel for the Trustee. Mr Riley stated that his instructions included the following:

a. the Power of Attorney was executed only in favour of two partners in the Trustee's firm (Begbies Traynor), and those two partners were licensed insolvency practitioners;

b. the power to accept appointments in the name of Mr Segal has not been exercised in the context of this bankruptcy or any other insolvency regime;

c. pending an internal review, powers of attorney in the form of the Powers of Attorney will not be used by insolvency practitioners within Begbies Traynor.

44. I am grateful for this further information, and for its responsiveness to the problem. An offer was also made to provide me with an update on the outcome of the review, when that was reached, and on implementation of its conclusions. I do not need to take up this offer. What I have now been told allows me to put the issue to one side in the present case. I have indicated my views in relation to a document of the breadth of the Power of Attorney, and it will be for Begbies Traynor to take legal advice, perhaps consult with the Insolvency Service, and reach an informed decision about future practice.