England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/07/2011

Mr Justice Sales :

1. This is an appeal from the order of District Judge Henry dated 8 March 2010 in the Reading County Court, refusing an application by the trustee in bankruptcy ("the Trustee") of the First Respondent ("Mr Claridge") for a declaration that a transfer of £26,689.50 by Mr Claridge to the Second Respondent (his wife, "Mrs Claridge") on or about 30 January 2003 amounted to a transaction at an undervalue, contrary to section 339 of the Insolvency Act 1986 ("the 1986 Act"), and for an order that Mrs Claridge pay the Trustee that sum or some other appropriate sum.
2. Section 339 provides:

"Transactions at an undervalue

(1) Subject as follows in this section and sections 341 and 342, where an individual is adjudged bankrupt and he has at a relevant time (defined in section 341) entered into a transaction with any person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under this section.

(2) The court shall, on such application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.

(3) For the purposes of this section and sections 341 and 342, an individual enters into a transaction with a person at an undervalue if –

(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration,

(b) he enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the individual."

Section 339(3)(a) and (b) corresponds with certain other provisions in the 1986 Act: see section 238(4)(a) and (b) (in relation to transactions at an undervalue by a company) and section 423(1)(a) and (c) (in relation to transactions defrauding creditors). Authorities on those provisions provide guidance in relation to section 339.

3. Section 436(1) of the 1986 Act defines "transaction" in an expansive way, as follows:

"'transaction' includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly. "

The facts

4. At all material times, Mr and Mrs Claridge (together with various of their children) have lived at 6 Upper Crown Street, Reading ("the property"). The property was acquired in 1984 in the joint names of Mr and Mrs Claridge with a loan from Birmingham Midshires Building Society ("Birmingham Midshires"), taken out by them both and secured by a mortgage over the property.
5. Mr Claridge works as a mobile welder. Mrs Claridge also worked to some limited extent until she fell ill shortly after 30 January 2003, at which point she stopped working.
6. Mr Claridge was made bankrupt by an order dated 22 February 1996, with the Trustee appointed as his trustee in bankruptcy. By an agreement dated 9 July 1998, the Trustee sold the half share in the beneficial interest in the property which was Mr Claridge's (and had vested in the Trustee upon Mr Claridge's bankruptcy) to Mrs Claridge for £8,000. It seems that the valuation of Mr Claridge's share in the property may have been low because the property was in a state of poor repair at that stage. From that time, Mrs Claridge has owned the full beneficial interest in the property.
7. It seems, however, that no changes were made to the register or mortgage documentation to reflect the change in ownership. Mr and Mrs Claridge continued to appear as joint owners. Mrs Claridge made the mortgage payments from her bank account, into which Mr Claridge paid his income. Mrs Claridge continued to allow Mr Claridge to reside at the property.
8. In late 2002 Mr and Mrs Claridge wished to raise money against Mrs Claridge's equity in the property and Mr Claridge's income, principally to provide funds to repair and renovate the property. To that end, by agreement between themselves, they took steps to remortgage the property.
9. On 3 November 2002 Mr and Mrs Claridge, through a mortgage broker, filled out a mortgage application form with the Kensington Mortgage Company Limited trading as The Mortgage Lender ("KMC"), which they signed. Mrs Claridge was the only one who had a bank account at this time and the mortgage application documents included a direct debit payment instruction addressed to her bank for payment of the periodic sums due to KMC in respect of the loan being sought.
10. On 28 November 2002, KMC made an offer of a loan of £53,379 to Mr and Mrs Claridge jointly, from which certain legal expenses, search fees and so forth were to be deducted and from which the existing loan balance due to Birmingham Midshires charged against the property was to be repaid. Mr and Mrs Claridge accepted this offer. One firm of solicitors (Eric Robinson & Co) acted for both Mr and Mrs Claridge and KMC in relation to the re-mortgage transaction.
11. On 30 January 2003, KMC paid the loan of £53,379 into the client account of Eric Robinson & Co and the re-mortgage of the property was completed (i.e. the outstanding balance of £18,990.94 due to Birmingham Midshires was repaid, the mortgage in its favour was discharged and KMC took a mortgage over the property). On about the same day, in accordance with the joint instructions of Mr and Mrs Claridge, Eric Robinson & Co. paid the balance of the loan monies (less legal and other expenses and the monies repaid to Birmingham Midshires) - £30,719.18 - into Mrs Claridge's account.
12. The Deputy Judge found that the KMC loan was based on Mr Claridge's income and was to Mr and Mrs Claridge jointly (Mrs Claridge did not put her own income forward to KMC as the basis of the loan – no reference was made to it in the mortgage application form). Mr Claridge continued to pay his earnings into Mrs Claridge's bank account, and the mortgage payments (now to KMC) continued to be made from that account. It is implicit in the judgment that any balances in that account were owned absolutely by Mrs Claridge, and on the appeal it was not suggested that Mr Claridge had any rights or interest in relation to them.
13. On 29 April 2004, Mr Claridge was made bankrupt for the second time on the petition of HM Inland Revenue Commissioners. The Trustee was again appointed as the trustee in bankruptcy. The effect of Mr Claridge's bankruptcy was that he was discharged from his liability in respect of the loan by KMC to him and Mrs Claridge.
14. The Trustee issued an application for a declaration that Mr Claridge owned a half share in the property. This was heard by the learned Deputy Judge on 25 February 2010. The representation for the parties was the same as before me.
15. On the morning of the hearing, Mr Dawson, for the Trustee, made an application to amend the claim to add an alternative claim for a declaration that "the transfer of £26,689.50 [i.e. half the KMC loan monies of £53,379] by [Mr Claridge] to [Mrs Claridge] on or about 30 January 2003 amounted to a transaction at an undervalue", under section 339 of the 1986 Act, and for an order that Mrs Claridge should pay the Trustee that sum or such other sum as the court might think fit together with interest. That application to amend the claim was not opposed.
16. Contrary to the submission of the Trustee below, the Deputy Judge found that there was no arrangement between Mr and Mrs Claridge whereby Mr Claridge re-acquired any beneficial interest in the property at the time of the re-mortgage transaction. The Deputy Judge therefore dismissed the primary claim of the Trustee in these proceedings, which was for a declaration that Mr Claridge owned a half-share in the property. There is no appeal against that ruling.
17. In dealing with the Trustee's alternative claim under section 339 of the 1986 Act, although the Deputy Judge in her judgment only referred in terms to section 339(3)(c), Mr Dawson told me that the argument below under section 339 turned both on section 339(3)(a) (transaction for no consideration) and, in the alternative, on section 339(3)(c). I accept this. It appears to be reflected in the Deputy Judge's judgment where, at certain points (last sentence of paragraph [6], certain parts of paragraph [12]), she referred to the contention of the Trustee as being that Mr Claridge made available his share of the loan monies from KMC to Mrs Claridge for no consideration. On the appeal before me, Mr Dawson relied on sub-paragraph (a) and sub-paragraph (c) of section 339(3) in the alternative. In my view, he was entitled to present the argument in that way.
18. The Deputy Judge disposed of the Trustee's claim based on section 339 of the 1986 Act in paragraph [12] of her judgment, as follows:

"I now turn to the alternative argument put forward by the trustee that the joint mortgage advance was a transaction for no consideration; this is the Section 339(3)(c) point. What did Mr Claridge get out of the advance, after payments of the Birmingham [Midshires] mortgage and Mrs Claridge's loan [a personal loan of £2,000 to Mrs Claridge which was repaid out of the funds raised by the re-mortgage]? The bulk of the money was spent on improvements on the matrimonial home in which he lived with his wife and their children. It is where they both lived and continue to live, and he has had a home there throughout. I do find that it is rather a 'last throw of the dice' by the trustee to put this in at the last minute; he argues that half the repayment to the Birmingham Midshires (£9,000) half the money spent on repayment of Mrs Claridge's loan [of] £2,000, and half of the money used to repair and renovate the house, a total of £26,000, should be treated as a transaction at an undervalue and tries to persuade me that it is not a transaction for which Mr Claridge received any consideration. However, I am afraid, Mr Dawson, that I do not agree with you. I do not find that it is a transaction without consideration, in the context of a long marriage; a wife who can no longer work but who is doing her best to manage the household and keep a roof over the family's head; that needs repairs; the benefit that Mr Claridge has got is a comfortable home and a wife more able to manage, so I do reject the trustee's argument in the context of the facts of this case."

19. Mr Purves, for Mr and Mrs Claridge, also referred to part of the transcript in relation to discussion whether the Deputy Judge should grant permission to appeal against her ruling. Mr Dawson indicated that he would wish to submit that the benefits identified by the Deputy Judge in paragraph [12] of her judgment would not amount to "money or money's worth", to which the Deputy Judge replied, "Well, my finding was that it was, even if I did not say so in so many words", and refused permission to appeal, on the basis that her decision in that regard was based on her findings of fact.

The issues on the appeal

20. At the opening of the appeal, Mr Purves applied to put in a Respondents' Notice out of time, to seek to support the judgment below on additional grounds, as follows:

i) There is a statutory duty on each spouse in a marriage to maintain the other, which may be enforced by an order made by a magistrates' court: sections 1 and 2 of the Domestic Proceedings and Magistrates Courts Act 1978 ("the 1978 Act"). Also, pending the coming into effect of section 198 of the Equality Act 2010 - which was not in force at any material time - there was a similar common law duty upon Mr Claridge to maintain his wife: Hounslow London Borough Council v Peche [1974] 1 WLR 26, at 30B-F. Mr Claridge maintained his wife by means of the transaction in question and the regular payment of his income into her bank account, where it was used for various purposes decided on by her, including maintaining herself and the family. Accordingly, so it was said, consideration had been given by Mrs Claridge for the transaction in question, since she treated it as satisfying her husband's legal duty to maintain her. As explained by Mr Purves, this ground did not involve an attempt to introduce any new facts beyond those set out in the judgment or which were common ground between the parties, and only involved additional arguments of law of which Mr Dawson had notice and which he was equipped to deal with. I therefore gave permission for Mr Purves to introduce this additional ground; and

ii) The monies lent by KMC were paid into Mrs Claridge's bank account, which constituted her property and was under her sole control, and there was no evidence that Mr Claridge had a half-share in or was jointly entitled to the advance from KMC. Again, this ground was based upon established facts regarding the ownership and control of the bank account, and simply involved additional arguments of law about the significance of those facts. On that basis, I gave permission for this additional ground to be introduced as well.

21. As well as these two additional grounds for seeking to uphold the judgment below, the Respondents' Notice also raised an issue regarding the content of any declaratory relief and the quantum of any payment to be ordered if the appeal were allowed. This was not a stage which the Deputy Judge reached upon her analysis, since she simply rejected the Trustee's claim. It is debateable whether this issue needed to be raised by way of a Respondents' Notice, since if the appeal is allowed the question of appropriate relief will be at large. At all events, Mr Dawson did not object to the issue of relief being raised in this way, and I gave permission for the Respondents' Notice to include this issue as well.
22. One particular matter which Mr Purves said should be taken into account in any consideration of the relief to be granted is that the legal and other costs associated with the re-mortgage of the property and obtaining the loan from KMC should be deducted equally as between Mr and Mrs Claridge from the total amount of the advance by KMC (£53,379). In reality, after deduction of those costs, the amount of the draw-down available to Mr and Mrs Claridge was £30,719.18 (ultimately paid into Mrs Claridge's bank account) and £18,990.94 (paid to Birmingham Midshires to discharge its outstanding loan and its mortgage rights in relation to the property) - a total of £49,710.12. The half of this sum attributable to Mr Claridge is £24,855.06 (i.e. somewhat less than the £26,689.50 put forward by the Trustee in his application). Mr Dawson agreed that this was a proper adjustment to the amount claimed by the Trustee.
23. There was also debate at the hearing about what should happen if I came to the conclusion that there might be grounds for finding Mrs Claridge liable to the Trustee, but there was doubt about the facts relevant to her liability or the relief to be granted. If the case were remitted for a further hearing in the County Court, there would be a substantial risk that the costs overall would exceed what is at stake between the parties. Mr Purves submitted that if those circumstances arose, I should conclude that the proper course would be to dismiss the appeal; alternatively, if unpersuaded of that, he said that I should allow the appeal and remit the case for further investigation at first instance, because Mr and Mrs Claridge are far from wealthy and any error in the court's assessment of what should be paid by Mrs Claridge could have a serious detrimental effect on them. Mr Dawson, on the other hand, submitted that if those circumstances arose the proper and proportionate course having regard to the overriding objective in the Civil Procedure Rules would be that I should proceed to decide the case finally, doing the best I can on the information available to me.
24. The issues on the appeal, therefore, were whether the Deputy Judge had been correct to reject the Trustee's claims under both section 339(3)(a) and (c) for the reasons she gave; if not, whether the Trustee's claims fell to be dismissed on either of the additional grounds put forward by Mr and Mrs Claridge in the Respondents' Notice; if not, and the Trustee's claim is or might be well-founded, whether the case should be remitted to the County Court; and if not, what order should now be made on the Trustee's claim.

Analysis

25. By the time of the transaction which is sought to be impugned (30 January 2003), Mrs Claridge was the sole beneficial owner of the property (subject to the mortgage to Birmingham Midshires) and was the only person liable to Birmingham Midshires in relation to the loan secured on the property, of which £18,990.94 remained outstanding. Although the Birmingham Midshires loan had been made to Mr and Mrs Claridge jointly, upon his first bankruptcy in 1996 Mr Claridge had been discharged from his liability in respect of it.
26. The loan by KMC was made to Mr and Mrs Claridge jointly, and their liability under it was joint and several. Assessed on an objective basis, the contractual intention when KMC and Mr and Mrs Claridge entered into the loan and re-mortgage agreement was that Mr and Mrs Claridge should each have the benefit of the contractual promise to lend given by KMC and should be entitled to call for the monies to be paid to them together pursuant to that promise. If so paid, the natural inference would have been that they each held a half share in the fund in their hands. That would also reflect the broad underlying merits, since the loan was obtained on the basis that Mr Claridge would provide the income to service it while Mrs Claridge provided the security for it. KMC required to be satisfied both that there was adequate means to service the loan and adequate security for it before it would lend the money to them.
27. In fact, Mr and Mrs Claridge did not call for the money to be paid by KMC directly to them, but jointly directed KMC to pay the money to Eric Robinson & Co.. Mr and Mrs Claridge were both clients of Eric Robinson & Co. in relation to the transaction and in relation to the monies received for their account from KMC. At the time when they received the £53,379 loan money from KMC, Eric Robinson & Co. had a contractual obligation owed to Mr and Mrs Claridge jointly (much like the previous obligation of KMC under the loan and re-mortgage agreement) to pay the money derived from the KMC loan to Mr and Mrs Claridge together or to use it according to their joint instructions. Again, therefore, at that time Mr and Mrs Claridge each had a half-share in a valuable chose in action.
28. They disposed of their rights against Eric Robinson & Co. in relation to the money paid into their client account by jointly directing them to pay Birmingham Midshires the sum of £18,990.94 due to it, authorising Eric Robinson & Co. to recoup the legal and other expenses due in relation to the transaction from the fund in their hands and directing them to pay the balance of the money to Mrs Claridge alone. When these things had been done, Eric Robinson & Co.'s contractual obligation to Mr and Mrs Claridge in relation to payment of the loan money was extinguished.
29. This was the critical stage in the transaction for the purposes of analysis under section 339 of the 1986 Act. Mr Claridge had a half-share in a valuable right against Eric Robinson & Co. (which itself took the place of a valuable right against KMC to be paid the loan money in which he also had a half-share) in relation to which he (jointly with his wife) gave directions for it to be discharged by repayment of a debt which was owed solely by Mrs Claridge to Birmingham Midshires and by payment of the balance to Mrs Claridge alone. The payment to Birmingham Midshires also secured the release of Birmingham Midshires' charge over the property, although that, of course, was immediately replaced by a charge in favour of KMC as part of the same re-mortgage transaction. In my view, by this arrangement, Mr Claridge entered into a transaction the substance of which involved him in conferring a benefit on his wife.
30. This conclusion is also supported by standing back from the legal detail of the arrangement and looking at it in terms of economic substance. Mr Claridge employed his economic resources (his ability to earn an income by working) to make an important contribution to persuading KMC to lend a substantial sum of money, which KMC promised to pay to him and Mrs Claridge together. As a result of directions given, in which Mr Claridge joined, the money which KMC promised to lend paid to Mrs Claridge or to Birmingham Midshires for her sole benefit.
31. I do not accept the submission of Mr Purves, arising under the second additional ground introduced by the Respondents' Notice (see para. [20] above), that the fact that Mrs Claridge signed a direct debit authorisation for the monthly payments to KMC to be made from her account and the fact that the balance of the loan money was paid into her bank account indicate that the relevant intention was that Mrs Claridge should have the sole benefit of the loan which KMC agreed to give, so that Mr Claridge conferred no material benefit upon her at the time of the transaction in question. From the point of view of KMC and Eric Robinson & Co., the fact that Mrs Claridge's bank account was used to receive the balance of the money was a matter of mechanics (Mr Claridge did not have an account into which anything could be paid) and did not qualify the obligations which they assumed to Mr and Mrs Claridge jointly nor the obligations which Mr and Mrs Claridge jointly assumed in return. From the point of view of KMC, the fact that Mrs Claridge was required to sign a direct debit form was again simply a matter of mechanics, which also reflected the fact that Mr Claridge did not have a bank account of his own. In each case, it is clear on the face of the documents generated by KMC and by Eric Robinson & Co. that the contractual obligation each of them assumed with respect to payment of the loan or money representing the loan was owed to Mr and Mrs Claridge jointly. This also accords with the Deputy Judge's findings at trial. It was Mr Claridge's participation in arranging for his rights with respect to these contractual obligations to be discharged which had the effect of conferring a benefit on his wife which constitutes the relevant transaction for the purposes of section 339.
32. Did Mrs Claridge give any consideration for that benefit (section 339(3)(a))? If so, was it consideration the value of which, in money or money's worth, was significantly less than the value, in money or money's worth, of the consideration provided by Mr Claridge (section 339(c))?
33. On the first of these questions, I cannot, with respect, accept the reasoning of the Deputy Judge in paragraph [12] of her judgment. For the purposes of application of section 339, consideration for a benefit conferred by a transaction has to be given at the time of the transaction, but the Deputy Judge appears to have looked at things which happened after the relevant transaction on 30 January 2003. For example, she referred to part of the benefit to Mr Claridge as being "a wife who can no longer work" but was now put in a position where she was "more able to manage" - Mrs Claridge, however, only ceased to be able to work because she fell ill some time after 30 January 2003. Also, it does not appear from the judgment or the underlying evidence that there was any agreement made between Mr and Mrs Claridge that, if he agreed to the payment of the KMC loan money to her or to Birmingham Midshires for her benefit, she in return would allow him to reside in the property. So where the Deputy Judge refers to the benefit to Mr Claridge of getting "a comfortable home", it again appears that she was looking at events as they later transpired rather than identifying specific consideration given by Mrs Claridge at the time of the relevant transaction as the quid pro quo for Mr Claridge entering into it. Mrs Claridge did in fact allow Mr Claridge to reside at the property, but this was an act of generosity on her part rather than the result of an agreement made by them at the time of the transaction (realistically, it may well be that there was some arrangement between them that Mr Claridge could continue to reside at the property for so long as he continued to pay his income to Mrs Claridge, out of which she could meet the family's living expenses and pay the mortgage sum due each month – the important point for present purposes, however, is that such an arrangement would have been distinct from the transaction in question and would not constitute consideration in relation to it).
34. I therefore consider that it is appropriate for this court to analyse the transaction afresh to assess whether any consideration was given by Mrs Claridge in relation to it, and if so what that consideration was. I deal here with the additional argument introduced by Mr Purves pursuant to the first additional ground in the Respondents' Notice, based on Mr Claridge's common law and statutory obligation to maintain his wife (para. [20] above). Since Mr Purves did not suggest that the common law obligation was of any greater ambit or force than the statutory obligation, it is sufficient to focus on the statutory obligation under sections 1 and 2 of the 1978 Act.
35. They provide, in relevant part, as follows (by the time of the transaction, Mr and Mrs Claridge's children were all aged 18 or above, so I omit the parts of the sections which concern maintenance of children):

"1. Grounds of application for financial provision

Either party to a marriage may apply to a magistrates' court for an order under section 2 of this Act on the ground that the other party to the marriage… -

(a) has failed to provide reasonable maintenance for the applicant…"

"2. Powers of court to make orders for financial provision

(1) Where on an application for an order under this section the applicant satisfies the court of any ground mentioned in section 1 of this Act, the court may, subject to the provisions of this Part of this Act, make any one or more of the following orders, that is to say -

(a) an order that the respondent shall make to the applicant such periodical payments, and for such term, as may be specified in the order;

(b) an order that the respondent shall pay to the applicant such lump sum as may be so specified; …

(2) Without prejudice to the generality of subsection (1)(b) … above, an order under this section for the payment of a lump sum may be made for the purpose of enabling any liability or expenses reasonably incurred in maintaining the applicant… before the making of the order to be met.

(3) The amount of any lump sum required to be paid by an order under this section shall not exceed £500 or such larger amount as the Lord Chancellor may from time to time by order fix for the purposes of this subsection. …"

36. Mr Purves submits that Mrs Claridge gave consideration for the benefit conferred on her under the transaction by treating it as discharging rights which she had against her husband under these provisions. In support of this argument, Mr Purves relied in particular on Hill v Haines [2007] EWCA Civ 1284; [2008] Ch 412, in which an application by a husband's trustee in bankruptcy to have a property transfer order in favour of his wife (made by the court in consequence of the settlement of ancillary relief proceedings brought by the wife against the husband in relation to their divorce) set aside under section 339(3)(a) or (c) of the 1986 Act was dismissed. Mr Purves argued that the reasoning in that case should be extended to cover payments made or benefits conferred by a husband which might in practice meet some claim by a wife against her husband for maintenance under sections 1 and 2 of the 1978 Act (or under the common law). On his argument, this would be so even though the potential claim by the wife might be inchoate and unformulated.
37. I do not accept this submission. In my judgment, the short answer to it is similar to that given in relation to a similar argument put forward by reference to Hill v Haines in 4Eng Ltd v Harper [2009] EWHC 2633 (Ch); [2010] 1 BCLC 176, at paras. [57]-[60]. As in 4Eng Ltd, the benefit conferred by Mr Claridge on Mrs Claridge by joining with her in directing Eric Robinson & Co. to pay the loan money to her or to Birmingham Midshires for her benefit was not conferred as part of an agreed exchange by which Mr Claridge proposed to meet his obligations to maintain her, and Mrs Claridge cannot be regarded as giving consideration for that benefit in the form of agreeing not to bring proceedings against him in relation to maintenance payments or agreeing to treat the benefit as being referable to (let alone as discharging) any statutory or common law obligation he might owe her.
38. Mrs Claridge had at no stage by 30 January 2003 put forward to Mr Claridge any claim that he was obliged to pay her anything under the 1978 Act, nor had she attempted to formulate any such claim against him or even referred to the possibility of such a claim. There is no evidence that either she or Mr Claridge thought at the time that there was any prospect she might formulate (let alone bring proceedings in relation to) any such claim. Any such obligation as did exist as at 30 January 2003 was in a completely inchoate and unquantified form, and might not even have arisen (at that time, Mrs Claridge was still working herself and owned the whole beneficial interest in the family home, so it is by no means obvious that she could successfully have brought any claim against Mr Claridge under the 1978 Act even if she had thought about it). Moreover, both before and after 30 January 2003, Mr Claridge was paying all or substantially all his income from his work to Mrs Claridge, and it seems clear that the living expenses of the family were being sufficiently met by these means, without need for recourse to the loan from KMC. The re-mortgage of the property and loan from KMC were taken out primarily to help repair and renovate the property, not so as to raise funds for Mr Claridge to support and maintain Mrs Claridge.
39. However, I think that on proper analysis Mr Claridge did enter into the transaction with Mrs Claridge on terms that provided for her to provide consideration for it. Mr and Mrs Claridge both wished to raise money to repair and renovate the property in which they both lived. They agreed to do so by means of applying for the KMC re-mortgage and loan and then using the resulting funds for that purpose. It was assumed that Mr Claridge would go on living at the property - even if there was not an agreement that he would have a right to do so other than as a licensee at will - so he would in fact derive some benefit from the improvements to the property (as the Deputy Judge said, he got a comfortable home; so did his family). In order to obtain the loan and to arrange for the payment of the money to be spent on the repair and renovation work, Mr and Mrs Claridge had to act jointly (both in relation to applying to KMC for the loan, and then in relation to giving instructions for the release of the funds). In my view, the natural inference and the proper objective interpretation arising from what happened is that they agreed with each other to join in the making of the application to obtain the loan and in giving directions for payment and to use the resulting funds to repair and renovate the property. Therefore, I conclude that Mrs Claridge did give consideration for the transaction and the benefit she received under the arrangement entered into with Mr Claridge. Accordingly, the Trustee's claim under section 339(3)(a) of the 1986 Act is not made out.
40. The Trustee's claim under section 339(3)(c) is a different matter. For the purposes of that provision, the value of the consideration in money or money's worth is to be assessed as at the date of the transaction (here, on about 30 January 2003): see Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143, HL; Re Thoars (decd), Reid v Ramlort [2002] EWHC 2416 (Ch) at [17]. It is to be assessed from the point of view of Mr Claridge: Re Thoars (decd) (No. 2); Reid v Ramlort (No. 2) [2004] EWCA Civ 800; [2005] 1 BCLC 331 at [102]. Although Mr Claridge stood to derive some factual benefit from the transaction, if his wife continued to permit him to reside in the property once it was repaired and renovated, he had no contractual right deriving from the transaction or from anything said and done at the time of the transaction to remain there. In my judgment, assessing the value of the consideration provided by Mrs Claridge at the date of the transaction, it clearly had negligible value in money or money's worth for Mr Claridge at that date. Therefore, I find that the Trustee's claim under section 339(3)(c) is made out.
41. I turn, then, to consider what order should be made under section 339(2) of the 1986 Act. What would the position have been if Mr Claridge had not entered into the transaction in question? I think it is appropriate to focus here on Mr Claridge's release of his half-share in the valuable rights against KMC and against Eric Robinson & Co. (rather than asking what would have happened if the re-mortgage and loan by KMC had not taken place), since it is by those steps - which constituted part of a single arrangement and an overall "transaction" (see section 436 of the 1986 Act) - that Mr Claridge arranged to confer a benefit on his wife.
42. However, it is also important to bear in mind that that arrangement and transaction took place in the context of a wider arrangement between them, according to which they agreed to approach KMC to re-mortgage the property in order to release funds to be spent on repairing and renovating it. Mr Claridge would have had no share in valuable rights against KMC and Eric Robinson & Co. to release if Mrs Claridge had not agreed to join with him in making the mortgage application to KMC in the first place, so it would not be fair or appropriate to leave that wider context out of account when deciding what order the court should make in the exercise of its discretion under section 339(2).
43. Under the arrangements involving KMC and Eric Robinson & Co., Mr Claridge could have insisted that half the KMC loan (£24,855.06, after deduction of legal and other expenses) be treated as in substance his money. But to secure the advance of cash which was the whole point of the re-mortgage transaction (in order to secure the funds needed to repair and renovate the property), the outstanding loan and mortgage of Birmingham Midshires would have had to be discharged out of the proceeds of the KMC loan. Since the property was at the time being treated by Mr and Mrs Claridge as the family home; Mr Claridge was dependent on Mrs Claridge's goodwill to be allowed to stay there; and it was hoped that the whole family would benefit from the renovation of the property, the strong probability – on the hypothetical set of circumstances I am now addressing - is that Mr and Mrs Claridge would have agreed that half the Birmingham Midshires loan should be discharged with funds derived from Mr Claridge's share of the KMC loan and the other half with funds derived from Mrs Claridge's share of that loan. The repayment of the Birmingham Midshires loan would have been treated by Mr and Mrs Claridge as a cost of obtaining the KMC loan, to be deducted when assessing the real benefit for each of them to be derived from the KMC loan (much as the legal and other expenses in connection with obtaining the KMC loan had to be deducted: see para. [22] above).
44. Moreover, as a matter of substance, as to the amount of the Birmingham Midshires loan outstanding on 30 January 2003 (£18,990.94), Mrs Claridge was in no better position after the transaction than she had been before the transaction. She had become indebted in that amount to KMC and had given a mortgage over her property in relation to it, just as immediately before the transaction she was indebted in that amount to Birmingham Midshires and had given a mortgage over her property in relation to it. It is true that on 30 January 2003 Mr Claridge also assumed joint and several liability with Mrs Claridge to repay that loan (whereas, by reason of his first bankruptcy in 1996, he had no liability before the transaction to repay the sum then due to Birmingham Midshires), but I do not consider that this is a material difference in the present context. Both before and after the transaction Mr Claridge was making payments to Mrs Claridge to enable her to meet the mortgage repayments, so there was not a significant difference in the position as a matter of practical substance. Also, in April 2004 Mr Claridge was declared bankrupt once more, and his legal liability to KMC came to an end just as his legal liability to Birmingham Midshires had come to an end previously. It is permissible to have regard to this feature of the present case, even though it is a matter arising after the date of the transaction in question: see Re Thoars, above, at [17] (proposition (2): "if [at the date of the transaction] value is dependent on the occurrence or non-occurrence of some event and that event occurs before the assessment of value has been completed then the valuer may have regard to it"); Re Thoars (decd) (No. 2) above, at [126]. It is a matter which reinforces my assessment that as a matter of substance Mrs Claridge's position in relation to the amount of £18,990.94 was not improved by the transaction; nor was Mr Claridge's position affected in any substantial way as to that part of the monies loaned by KMC.
45. In my opinion, for these reasons, the Trustee's claim under section 339(3)(c) is reduced to consideration of the net proceeds of £30,719.18 derived by Mr and Mrs Claridge from the KMC loan, with them each to be treated as having a half-share of that sum. Of this sum, the Deputy Judge found that £2,000 was used to discharge a personal debt of Mrs Claridge and the balance was used to repair and renovate the house. The raising of funds to repair and renovate the house had, indeed, been the point of the re-mortgage exercise, as set out above. From the time when they approached KMC, Mr and Mrs Claridge agreed that the funds so raised would be spent in this way.
46. I consider that, in the hypothetical circumstances which I have to address, on the basis that Mr and Mrs Claridge would have treated themselves as entitled to half each of the £30,719.18 fund raised by the re-mortgage exercise, it would have been natural for them to agree that Mrs Claridge should discharge her personal debt of £2,000 out of her own share of the re-mortgage proceeds and that they would each spend the balance of the available funds on repairing and renovating the property. On the findings of the Deputy Judge, it appears that that is how the fund of £30,719.18 was in fact used by them – Mrs Claridge repaid her £2,000 debt and used the remainder of the money to repair and renovate the property. There would have been no real difference in the hypothetical circumstances, had the relevant transaction not been entered into, as compared with the actual course of events. In particular, it is clear that - in the hypothetical situation which section 339(2) of the 1986 Act requires me to address - Mr Claridge would not have retained substantial additional assets in his own hands which could then have been available to his creditors. Further, having regard to the wider context in which the transaction took place and his agreement with Mrs Claridge (para. [42] above), Mr Claridge would not have been free to treat his half-share of the money released by the re-mortgage as his own, to spend however he liked. By the time of the relevant transaction, he was committed to spending that money on repairing and renovating the property.
47. On this analysis, the overall effect of what has been done is that Mr Claridge's notional half-share of the fund raised by the re-mortgage exercise (£15,359.59) has been spent on repairing and renovating the property, the beneficial interest in which is owned by Mrs Claridge alone. But in my view it does not follow from this that the Trustee is entitled to an order under section 339(2) against Mrs Claridge in this amount.
48. In an exceptional case where a transaction at an undervalue is found to have taken place (as I have found took place here), the court has a discretion not to make an order under section 339(2) if that is the just result: see In re Paramount Airways Ltd (in administration) [1993] Ch 223, 239G-H; Singla v Brown [2007] EWHC 405 (Ch); [2008] CH 357, [51]-[52] and [59]. In my judgment, that is the position here.
49. In reaching that conclusion I have particular regard to the following:

i) If one focuses on the relevant transaction (by considering what happened in relation to Mr Claridge's share in the rights which arose from the re-mortgage transaction, rather than asking what would have happened had Mr and Mrs Claridge not entered into the re-mortgage transaction in the first place), since it was always agreed between Mr and Mrs Claridge that the funds raised by the re-mortgage would be used to repair and renovate the property, it is just and appropriate to look at the situation as involving a transfer to Mrs Claridge of improvements to her property rather than a simple transfer of money;

ii) One arrives at the same conclusion if one looks at the position from Mrs Claridge's point of view. She received the full amount of £30,719.18 (i.e. including Mr Claridge's half-share of the money released by the re-mortgage) into her bank account, and then (after repaying her personal £2,000 loan from her own half-share, as I presume), caused that whole amount to be spent on repairing and renovating the property. She spent the money in this way in good faith, believing that she was fully entitled to spend it (as, indeed, judged at the time, she was). She therefore changed her position in good faith, converting a money fund into improvements to her property. In considering what order the court should make in its discretion under section 339(2) to restore the position to what it would have been if Mr Claridge had not entered into the relevant transaction, I consider it is appropriate to take account of any change of position on the part of the recipient of a benefit under that transaction, where made in good faith: cf 4Eng Ltd v Harper, above, [12]-[16], in relation to the approach to be adopted to the similar provision at section 423(2) of the 1986 Act. In light of the way in which events have developed, there is no simple way to restore the position to what it would have been if Mr Claridge had not entered into the relevant transaction (section 339(2)). Therefore, in applying the statute the court should in my view seek to produce an outcome which is closest to restoration of the overall position after taking into account the legitimate interests of all affected parties (including, in particular, the creditors of the bankrupt and the recipient of any benefit transferred by him under an impugned transaction);

iii) There is no evidence before the court of the extent to which the value of Mrs Claridge's property was actually increased in 2003 by the expenditure of Mr Claridge's £15,359.59 half-share on it. This may well reflect the last minute nature of the way in which the claim under section 339 was introduced into the proceedings. I do not think it can fairly be assumed that the work on the property attributable to Mr Claridge's half-share of the available fund must have increased its value by an amount equivalent to the monetary value of that share. The effect of this is that I am not in a position to make any proper assessment of the value of the benefit which Mrs Claridge received;

iv) Is there an argument for remitting the case to the County Court for more evidence and submissions? Both parties sought in different ways to dissuade me from doing so too readily, because of the likely disproportion between the costs involved and what is at stake. Mr Dawson urged me to try to reach a conclusion without remitting the case to the County Court for a further hearing; Mr Purves urged me to make no order (in substance, to dismiss the appeal) and not remit the case if I was in doubt: see para. [23] above. In my judgment, it is likely that remission of the case to the County Court for consideration on this basis (which would require expert evidence about property values as well as evidence about what work was in fact carried out on the property) would involve the parties in incurring costs out of proportion to what would be at stake. As things stand, the Trustee has failed to persuade me that it would be just to make any order for payment of money under section 339(2) against Mrs Claridge;

v) I also consider that there is no unfairness to the Trustee in concluding that matters should be concluded in this court with no order under section 339(2) in his favour, having regard to the way in which the section 339 claim was introduced by him at the last minute. If the parties had recognised that the working through of that claim would have involved an extensive new area of evidence, including a need for expert evidence, it is likely that Mr and Mrs Claridge would have objected to the amendment at trial and that it would have been refused by the Deputy Judge;

vi) Another factor which I consider supports my conclusion that I should make no order under section 339(2) for payment by Mrs Claridge is that she has at all times been liable and remains liable to KMC to make all the repayments referable to Mr Claridge's half-share of the re-mortgage proceeds, as well as the repayments referable to her own half-share. Since his second bankruptcy in 2004, she has been solely liable to KMC to make such repayments. She has, then, already had to pay (or remains liable to pay) for the receipt of the proceeds of the re-mortgage. It is true that she has been assisted in meeting these liabilities by financial contributions made by Mr Claridge, but the Trustee has not sought to impugn the making of those contributions. Overall, therefore, it may fairly be said that the extent of Mrs Claridge's benefit arising from the transaction has been limited, so that it does not appear unjust in all the circumstances that no order to pay money to the Trustee should be made against her.

Conclusion

50. For the reasons given above, it is appropriate to make a declaration that the relevant transaction was a transaction at an undervalue, but I decline to make an order for any payment or other relief under section 339(2) of the 1986 Act. In substance, therefore, Mr and Mrs Claridge have succeeded in defending the appeal and in supporting the result arrived at by the Deputy Judge.