Court of Appeal

Published December 12, 2007

Hill and Another v Haines

Before Sir Andrew Morritt, Chancellor, Lord Justice Thorpe and Lord Justice Rix

Judgment December 5, 2007

An order made in matrimonial ancillary relief proceedings to convey property was not a transaction made without consideration, whether following a contested hearing or a compromise agreement.

The transfer did not therefore fall within section 339 of the Insolvency Act 1986 which made transactions at an undervalue capable of nullification on the application of the trustee in bankruptcy of a spouse against whom a bankruptcy order had subsequently made on his or her own petition.

The Court of Appeal so held allowing the appeal of Wendy Pearl Haines, the former wife, from the decision of Judge Pelling, QC (The Times May 14, 2007) who, sitting as Chancery Division judge, allowed the appeal of Richard John Hill and John Ivor Bangham, joint trustees in bankruptcy of David Haines, the former husband, from the dismissal by District Judge Cooke of their application under section 339 for an order setting aside a transfer of property made in ancillary relief proceedings between the husband and the wife.

The order, that the husband transfer his interest in Strudges Farm, Dunhampton, Worcestershire, to the wife became effective on February 28, 2005. On March 31, 2005, a bankruptcy order was made against the husband on his own petition.

Mr Avtar Khangure, QC and Mr Angus Burden for the wife; Mr Peter Arden, QC and Mr Niall McCulloch for the trustees in bankruptcy.

THE CHANCELLOR said that counsel for the wife submitted that the judge was wrong: (i) to hold that only the release of a preexisting legal right or cause of action was capable of constituting consideration for the purposes of section 339; (ii) to focus his attention on a compromise agreement rather than the relevant transaction, namely the order of the matrimonial court.

The starting point was a consideration of the rights of spouses for financial provision and property adjustment orders under sections 23 to 26 of the Matrimonial Causes Act 1973.

It was self-evident that the ability of one spouse to apply to the court for one or more of the orders referred to in sections 23 to 24D of that Act was a right conferred and recognised by law.

Its exercise could, and commonly did lead to court orders entitling one spouse to property or money from, or at the expense of the other. That money and property was, prima facie, the measure of the value of the right.

The judge was wrong in law when he concluded that parties to an order of the court granting some form of ancillary relief did not give consideration at all for the purposes of section 339(3)(a) of the 1986 Act.

Section 339(3)(a) was inapplicable because the wife did give consideration. Section 339(3)(c) was inapplicable because the consideration provided by the wife was in money or money’s worth and its value was not less than the value of the consideration provided by the bankrupt.

In the light of those conclusions, no question of exercising any discretion allowed by section 339 could arise and the appeal would be allowed.

LORD JUSTICE THORPE, agreeing, said that between the systems of insolvency and ancillary relief law there needed to be a fair balance which on the one hand protected creditors against collusive orders in ancillary relief and on the other protected orders justly made at arms’ length to protect the applicant and children of the family. The approach adopted by the judge would destroy that balance.

LORD JUSTICE RIX, agreeing, said that there was nothing in the concept of consideration as a whole to suggest that the compromise or release of a statutory right such as that provided by section 24 of the 1973 Act could not amount to consideration.

As to policy, it would be unfortunate in the extreme if a court-approved, or even a court-determined property adjustment order would be liable, in practice, to be undone for up to five years later because the husband went bankrupt within that period. That could even encourage bankruptcy on the part of a disaffected husband.

In the ordinary case, where there was no dishonest collusion, between the husband and wife, and where a court approved or determined the sum or property to be transferred, it would be entirely foreign to the concept of a clean break if the husband’s creditors could thereafter seek to recover, in bankruptcy, the property transferred or its value.

It would require the overthrow of long established jurisprudence, the reinterpretation of section 339, the misunderstaning of the doctrine of consideration, and an assault on current views of the statutory entitlement to ancillary relief, to arrive at that unhappy and unnecessary situation.

Solicitors: Harrison Clark, Worcester; Clarke Willmott, Bristol.

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