Haines v Hill & Anor

The appellant, Wendy Haines (“the Wife”) married David Haines (“the Bankrupt”) in 1991. There was one child of the marriage born in 1997. In April 2002 the Bankrupt and the Wife bought Strudges Farm, Dunhampton, Worcs as joint tenants at law and in equity for the sum of £302,000 of which £287,000 was borrowed on the security of the farm. They separated in March 2003. The Wife presented a petition for divorce in April and commenced ancillary relief proceedings in May 2003. On 22nd December 2004 District Judge Mackenzie ordered the Bankrupt to transfer his interest in the farm to the Wife within 14 days or 7 days of decree absolute, whichever was the later. Decree absolute was granted on 21st February 2005 so that the order for transfer became effective on 28th February 2005.

On 31st March 2005 a bankruptcy order was made against the Bankrupt on his own petition. In the event the transfer was executed by the District Judge on 22nd September 2005 pursuant to an order entitling him to do so made on 13th September 2005. In due course the farm was sold for a sum which provided £120,000 in respect of the Bankrupt’s share. On 13th April 2006 the Trustees in Bankruptcy of the Bankrupt (“the Trustees”), with the sanction of the Official Receiver, applied to the Birmingham County Court for a declaration that the transfer of the beneficial interest of the Bankrupt in Strudges Farm in accordance with the order of the District Judge was a transaction at an undervalue pursuant to s.339 Insolvency Act 1986 and as such is void against the Trustees.

So far as material to this appeal s.339 is in the following terms:

District Judge Cooke, sitting in the Birmingham County Court, considered that the circumstances did not fall within the provisions of either sub-paragraph (a) or (c) of sub-section (3). By his order made on 10th January 2007 he dismissed the Trustees’ application. The Trustees’ appeal to the High Court came before HH Judge Pelling QC sitting as a deputy High Court judge of the Chancery Division. He concluded that the terms of sub-paragraphs (a) and (c) were satisfied and made the declaration sought by the Trustees. I granted permission to appeal on 27th June 2007 on the grounds that the prospective appeal raised an important point of principle and had real prospects of success.

The terms of s.339 indicate that the jurisdiction of the court to make any order under subsection (2) depends on a number of pre-conditions. They include:

S.39 Matrimonial Causes Act 1973, as amended, provides that:

This provision does not sit comfortably with the decisions of the Court of Appeal in Maclurcan v Maclurcan (1897) 77 LT 474 and Mountney v Treharne [2003] Ch.135 to the effect that it is the order of the court exercising the matrimonial jurisdiction which effects the transfer of the beneficial interest not the subsequent disposition made by or on behalf of the individual who later becomes bankrupt. In those circumstances the subsequent transfer is of the bare legal estate in the relevant property which, as the Federal Court of Australia observed in Official Trustee in Bankruptcy v Mateo (2003) 202 ALR 571, 585[57], could never be void against the trustee because:

In the light of this problem District Judge Cooke assumed [18] without deciding that it was the order of the court exercising the matrimonial jurisdiction which constituted the ‘transaction’ and that it had been entered into by the Bankrupt, however unwillingly. The Wife did not appeal from that conclusion. Judge Pelling QC recognised the difficulty but considered that such an assumption was correct in the light of the partial definition of the word ‘transaction’ in s.436 Insolvency Act 1986 as including a gift, agreement or arrangement and the terms of s.39 Matrimonial Causes Act 1973. Before us counsel for the Wife conceded that the order of the matrimonial court is the relevant transaction for the purposes of s.339 Insolvency Act 1986 and was entered into at a relevant time. Thus there is no issue as to the first pre-condition set out in paragraph 5 above.

With regard to the second pre-condition District Judge Cooke found [32] that there was consideration for the transfer consisting of the satisfaction or partial satisfaction of the Wife’s claims for ancillary relief. In relation to the third pre-condition, District Judge Cooke held [45] that the decision of the matrimonial court had determined the extent of the Wife’s claim and its value as the equivalent of the value of the assets transferred by the order. In those circumstances he did not have to consider the exercise of any discretion under s.339(2). Judge Pelling QC disagreed with the conclusions of the District Judge on both the second and the third pre-conditions but decided that there was no ground for exercising his discretion not to make an order under s.339(2). In order to explain his reasoning and conclusions, the arguments before us and my conclusion it is necessary to review a number of reported cases and other material in their chronological order.

In re Pope [1908] 2 KB 169 concerned a post-nuptial settlement made by a husband in favour of his wife and children within two years of his bankruptcy. Under s.47 Bankruptcy Act 1883 such a disposition was void as against his trustee in bankruptcy unless made “...in favour of a purchaser...and for valuable consideration.” The consideration expressed in the settlement was ‘natural love and affection’. The consideration in fact, as proved to the satisfaction of the judge, was the promise of the wife to refrain from taking proceedings in the Divorce Division for dissolution of marriage in respect of the husband’s past misconduct and a permanent allowance for maintenance. The judge held the settlement to be valid and the Court of Appeal, by a majority, agreed.

There were two issues, first, whether the wife had provided any consideration and, second, whether she could be regarded as a ‘purchaser’ within the meaning of the section. The court was unanimous on the first point. Lord Cozens-Hardy MR, with whom Fletcher Moulton LJ agreed, considered (p.172) that it was plain that there was valuable consideration “having regard to the finding of the judge as to the bargain”. Similarly Buckley LJ (p.173) held that the release of the right to relief for matrimonial offences was “no doubt...valuable consideration”. On the second issue the majority considered that the wife was ‘a purchaser’. At p.173 Lord Cozens-Hardy said:

The Law Commission Report on Financial Provision in Matrimonial Proceedings (Law Com. No.25) published in 1969 recommended in paragraph 78 that a transfer or settlement, notwithstanding that it is made under an order of the court, should be regarded as a settlement which can be avoided by a trustee in bankruptcy of the transferor or settlor in accordance with s.42 Bankruptcy Act 1914. No doubt s.39 Matrimonial Causes Act 1973 was enacted in its original form to implement that recommendation.

In re Abbott [1983] 1 Ch. 45 concerned the application of s.42(1) Bankruptcy Act 1914. That section was the successor to s.47 Bankruptcy Act 1886 and the predecessor of s.339 Insolvency Act 1986. It invalidated settlements made within two years of bankruptcy except those:

Peter Gibson J (pp.54 and 56) upheld the submission of counsel for the wife to the effect that the authorities established that the compromise of a bona fide claim for ancillary relief can constitute the claimant a purchaser for valuable consideration of what he receives under the compromise, even though no interest in property is transferred by the purchaser and the consideration provided by the purchaser is not measurable in money. The Vice-Chancellor agreed.

The Review Committee on Insolvency Law and Practice under the chairmanship of Sir Kenneth Cork (Cmnd 8558) examined the requirements of s.42 Bankruptcy Act 1914 and recommended (para.1231) that it be repealed and replaced by an entirely new section and drafted in modern language. This was followed by a white paper entitled ‘A Revised Framework for Insolvency Law” (Cmnd 9175) issued in February 1984. The recommendation of the Cork Committee was not repeated. Neither s.339 Insolvency Act 1986 nor its immediate predecessor in s.174 Insolvency Act 1985 went as far as the Cork Committee envisaged either.

The interaction between the matrimonial and insolvency courts was considered again by Balcombe LJ in Harman v Glencross [1986] 2 FLR 241. In that case a creditor had obtained a charging order on the interest of the husband in the jointly owned matrimonial home in relation to which the wife had already applied for a property transfer order. She applied for a variation of the charging order. The creditor suggested that there was little point in allowing her application as any transfer in her favour would be void against the husband’s trustee in bankruptcy under s.42 Bankruptcy Act 1914. Balcombe LJ rejected this argument on the ground that:

Finally under this heading I must refer to In Re Kumar [1993] 1 WLR 224. In that case the husband had transferred his interest in the jointly owned matrimonial home to his wife in consideration of her taking over sole liability for the mortgage debt secured thereon. Nearly a year later the wife’s claim in the matrimonial court for capital provision was dismissed by consent on the grounds that the husband had already transferred his legal and equitable interest to the wife. Three months later the husband went bankrupt. The claim of the Trustee in Bankruptcy to set aside the transfer under s.339 Insolvency Act 1986 succeeded on the grounds that the only consideration for the transfer was the assumption of the mortgage liability and that was insufficient value for the husband’s interest in the equity of redemption. It had been argued that there was other consideration for the transfer namely the release by the wife of her claims for ancillary relief. Ferris J concluded (p.236), applying Re Abbott, that such a release was capable of being consideration in money or money’s worth though on the facts of that case no such consideration had been provided. Ferris J then dealt with a submission made by counsel for the wife on the footing that she had provided such consideration. At p. 240 he said:

I should also mention at this stage two decisions in relation to s.339 or its corporate equivalent in a non-matrimonial field, namely Re M.C.Bacon Ltd [1990] BCLC 324 and Ramlort v Reid [2004] BPIR 985. In the former Millett J considered the application of s.238(4)(b) Insolvency Act 1986, which is the corporate equivalent of s.339(3)(c), in relation to the granting of a debenture to a bank in consideration of the bank forbearing from calling in the company’s overdraft. He indicated (p.340) that to come within the relevant sub-paragraph:

In Ramlort v Reid [2004] BPIR 985 that test was applied by the Court of Appeal to a case under s.339(3)(c). In addition the Court of Appeal considered that it was not necessary, even if preferable, for the court to fix precise values and that it might in appropriate cases compare a range of values. The question in every case would be whether there was a ‘significant’ disparity in the consideration moving from and to the bankrupt (see paras 102-105).

The judge started his analysis (para 9) with a consideration of the premise underlying the argument for the Wife that:

The judge then turned (para 17) to consider whether foregoing ancillary relief claims is capable of being consideration at all. He had earlier (para 13) referred to Xydhias v Xydhias [1999] 2 AER 386, G v G (Financial Provision: Equal Division) [2002] 2 FLR 1143 and McMinn v McMinn [2003] 2 FLR 823 as cases relied on by the Trustees for the proposition that the principle in Re Pope cannot be applied to claims under ss.23 to 25 Matrimonial Causes Act 1973. In Xydhias the Court of Appeal concluded that, absent a court order approving the same, the compromise of ancillary relief proceedings was not contractually binding. In G v G Coleridge J held that a share transfer executed under an order made in ancillary relief proceedings was not made for consideration so as to give rise to a liability to capital gains tax. In McMinn Black J concluded that a claim for ancillary relief does not constitute a cause of action for the purposes of s.1(1) Law Reform (Miscellaneous Provisions) Act 1934. Judge Pelling QC considered these cases at some length and upheld the submissions for the Trustees.

The reasoning of Judge Pelling QC is apparent from the following paragraphs of his judgment:

The judge then (para 26) considered the discretion issue. He recognised the existence of the discretion. He concluded that there was no anomaly or factual circumstance to justify its exercise.

Counsel for the Wife submits that the judge’s reasoning is open to criticism on three grounds, namely, the judge was wrong: (1) to hold that only the release of a pre-existing legal right or cause of action is capable of constituting consideration for the purposes of s.339, (2) to focus his attention on a compromise agreement rather than the relevant transaction, ie the order, and (3) to hold that consideration is not given by a party to an agreement compromising ancillary relief claims. It is also submitted that in cases of contested ancillary relief proceedings if the order made is liable to be set aside under s.339 then as a matter of course the statutory discretion should be exercised against making any such order.

Counsel for the Trustees sought to uphold the decision of the judge for essentially the reasons he gave. As I have indicated he accepted that the order was the relevant transaction for the purposes of s.339. This was on the footing that the decision of the Court of Appeal in Mountney v Treharne [2003] Ch.135 to the effect that the beneficial interest passes as a consequence of the order without the need for any subsequent transfer is binding on this court. He reserved the right to contend, if this case goes further, that that case was wrongly decided.

Though I consider that the foregoing summary of the cases for the parties is sufficient for present purposes I should record that the arguments were developed in great detail in the respective written and oral arguments. So far as necessary I shall deal with the detail in the consideration of my conclusions.

The starting point must be a consideration of the rights of spouses for financial provision and property adjustment orders under Part II of the Matrimonial Causes Act 1973. I stray into that unfamiliar territory comforted by the knowledge that Thorpe LJ will have corrected my errors before the judgments of the court are handed down. The range of orders the court may make in favour of one spouse against the other are described in ss.23 to 24D. S.25(1) imposes a duty on the court exercising the matrimonial jurisdiction when deciding whether and if so how to exercise its jurisdiction to make any such order to have regard to all the circumstances, first consideration being given to the welfare of any minor child of the marriage. S.25(2) sets out a list of particular matters to which the court is to have regard in exercising its powers in relation to a party to the marriage. They include means, needs, age and conduct. S.26(1) authorises the commencement of proceedings seeking any such order as and when a petition for divorce etc has been presented.

This somewhat arid description masks the present day reality demonstrated by the speeches in the House of Lords in White v White [2001] 1 AC 596 and Miller v Miller and McFarlane v McFarlane [2006] 2 AC 618. For present purposes it is sufficient to note one passage in the speech of Lord Nicholls of Birkenhead in the latter authority. He said (paras 8 and 9):

I do not suggest that the reference to “an entitlement” indicates any sort of proprietary right before the relevant court order is made. But, whatever the position may have been in earlier days, it is, in my view, self-evident that the ability of one spouse to apply to the court for one or more of the orders referred to in ss. 23 to 24D is a right conferred and recognised by the law. Further it has value in that its exercise may, and commonly does, lead to court orders entitling one spouse to property or money from or at the expense of the other. That money and property is, prima facie, the measure of the value of the right.

In paragraph 21 of his judgment, quoted in paragraph 22 above, Judge Pelling QC appears to have considered that for forbearance or exchange to constitute consideration it must be related to a pre-existing proprietary or contractual right or to a cause of action. In the context of the formation of a contract any benefit or detriment to the relevant party will normally suffice. Thus the compromise of a defence (see Banque De L’Indochine v J.H.Rayner (Mincing Lane) Ltd [1983] QB 711, 734) and the abandonment of a reference to arbitration (see The Leonidas D [1985] 1 WLR 925, 933C-D) may constitute sufficient consideration for the formation of a contract. Similarly abstention in the exercise of a statutory right to apply for child maintenance may afford sufficient consideration to support a compromise of it, see Darke v Strout [2003] EWCA Civ 176. Accordingly in the context of s.339 Insolvency Act 1986 I can see no reason why some dealing with a pre-existing statutory right cannot constitute consideration. In my view, neither the fact that a claim for ancillary relief does not constitute a cause of action for the purposes of s.1(1) Law Reform (Miscellaneous Provisions) Act 1934 nor the fact that a transfer ordered by the court does not give rise to a payment of consideration so as to reduce the value of hold over relief for capital gains tax dictates a conclusion that a property adjustment order must be regarded as made for no consideration. In my view the judge’s reliance on both G v G (Financial Provision: Equal Division) [2002] 2 FLR 1143 and McMinn v McMinn [2003] 2 FLR 823 was misplaced.

It is well-recognised that the jurisdiction of the Court under ss.21 to 26 Matrimonial Causes Act 1973 cannot be ousted by the agreement of the spouses. Equally such an agreement is not devoid of any legal effect. Thus the existence of such an agreement is a relevant circumstance (see Edgar v Edgar [1980] 1 WLR 1410) and may lead to an abbreviated procedure for translating it into an enforceable court order, see Xydhias v Xydhias [1999] 2 AER 386. Nevertheless, I do not think that it helps to resolve the issues in this case to dwell on what the legal effect of an out of court compromise of ancillary relief proceedings may be. Such a compromise cannot amount to the transaction for the purposes of s.339 Insolvency Act 1986 so that the extent to which it may have been made for consideration or is otherwise enforceable is immaterial. Accordingly I do not consider that the judgment of Thorpe LJ in Xydhias has the relevance to this case the judge seems to have attributed to it.

Re Pope [1908] 2 KB 169 is a decision of the Court of Appeal that an agreement to forebear from taking matrimonial proceedings was “valuable consideration” for the purposes of s.47 Bankruptcy Act 1883. Re Abbott [1983] 1 Ch 45 is a decision of the Divisional Court of the Chancery Division to the like effect in respect of the same phrase in s.42 Bankruptcy Act 1914. It is true that s.339 is not in the same terms as either of those provisions but in the same context it speaks of “consideration” in both sub-paragraphs (a) and (c) of subsection (3). I do not consider that any of the grounds on which the judge relied justifies the rejection by this court of the conclusion to which those cases clearly point. Accordingly, in my view, the judge was wrong in law when in paragraphs 21 to 23 of his judgment he concluded that parties to an order of the court granting some form of ancillary relief do not give “consideration” at all for the purposes of s.339(3)(a).

Whether such consideration is “in money or money’s worth” so as to enable a comparison of value for the purposes of s.339(3)(c) is another matter. Judge Pelling QC considered that it was not. His reasons are set out in paragraphs 15 and 16 of his judgment in the following terms:

This reasoning was criticised by counsel for the Wife on grounds with which I agree. Thus, the reliance on the dissenting judgment of Buckley LJ in Re Pope appears to me to be misplaced. Not only was that judgment a dissenting judgment, as Judge Pelling QC noted, but it was directed to the different point of whether the wife could be described as ‘a purchaser’. The word ‘purchaser’ is not used in s.339 and there is no reason to think that matters relative to that point were intended to qualify the meaning of the word ‘consideration’. The judge also referred to the dicta of Peter Gibson J in Re Abbott that the rights of a spouse to seek ancillary relief are “not measurable in money terms”. But these dicta relate to s.42 Bankruptcy Act 1914 in which the word ‘purchaser’ also appeared and in the context of the submissions of counsel apparent from the report of the argument on page 50F. There was no issue in Re Abbott as to whether consideration not measurable in money terms was or was not within the terms of s.42.

If one considers the economic realities, the order of the court quantifies the value of the applicant spouse’s statutory right by reference to the value of the money or property thereby ordered to be paid or transferred by the respondent spouse to the applicant. In the case of such an order, whether following contested proceedings or by way of compromise, in the absence of the usual vitiating factors of fraud, mistake or misrepresentation the one balances the other. But if any such factor is established by a trustee in bankruptcy on an application under s.339 then it will be apparent that the prima facie balance was not the true one and the transaction may be liable to be set aside.

That this is the true interpretation of s.339(3)(c) appears to me to be confirmed by the terms of s.39 Matrimonial Causes Act 1973. If it be assumed that the relevant transaction is a transfer made by one spouse in favour of the other effected after but pursuant to the order of the Court made on an application for ancillary relief then, as s.39 recognises, such a transfer may fall within s.339. But if the applicant spouse is not treated as providing consideration for the transfer either at all or in money or money’s worth then all such transfers will be void under sub-paragraphs (a) and/or (c). I cannot accept that Parliament intended that what must be one of the commonest orders made by courts exercising their matrimonial jurisdiction, namely that the husband do transfer his beneficial interest in the matrimonial home to the wife, should be capable of automatic nullification at the suit of the trustee in bankruptcy of the husband against whom a bankruptcy order was subsequently made on his own petition.

If the relevant transaction is the transfer of the beneficial interest effected by the order itself, as held by this court in Maclurcan v Maclurcan (1897) 77 LT 474 and Mountney v Treharne [2003] Ch.135 the same point can be made with equal or greater force. Such an order would be self-defeating if the consideration given by the applicant is not to be regarded as being in money or money’s worth for the purposes of s.339(3)(c). Why should Parliament be thought to have intended so bizarre a consequence? This was the proposition rejected by Balcombe LJ in Harman v Glencross [1886] 2 FLR 241. Alternatively why should Parliament have intended that the validity of such a common order should depend on its form, that is to say that the transfer of the beneficial interest would be valid if effected by the order itself but invalid if made by a subsequent out of court disposition in obedience to a court order?

For my part I would uphold as correct in law the proposition, quoted in paragraph 20 above, which Judge Pelling QC rightly regarded as that which underlay the case for the Wife. I would also accept the criticisms of the judgment under appeal advanced by Counsel for the Wife I have summarised in paragraph 24(1) and (2) above. I do not find it necessary to comment further on the proposition summarised in paragraph 24(3). These conclusions also involve acceptance of the dictum of Ferris J in Re Kumar applying Re Abbott.

Judge Pelling QC took a different view to that taken by District Judge Cooke. The essence of the reasoning of the District Judge appears in paragraphs 25 and 34 of his judgment where he held:

The consequences of my conclusions are threefold. First, s.339(3)(a) is inapplicable because the wife did give consideration. Second, s.339(3)(c) is inapplicable because the consideration provided by the Wife is in money or money’s worth and its value was not less than the value of the consideration provided by the Bankrupt whether significantly or at all. Third, in the light of those conclusions no question of exercising any discretion allowed by s.339 can arise.

For all these reasons I would allow the Wife’s appeal and restore the order of the District Judge.

I have had the advantage of reading in draft the judgment of the Chancellor with which I am in full agreement.

There is an obvious tension between the statutory scheme for the protection of a bankrupt’s creditors and the statutory scheme for the financial protection of the bankrupt’s former wife and child. Bankruptcy Acts and Matrimonial Causes Acts may be said to compete for shares in the fund which will always be incapable of satisfying both. Clearly if the act of bankruptcy precedes an order made under the Matrimonial Causes Act the legal and practical outcome is straightforward. Difficulties arise when the order under the Matrimonial Causes Act precedes the bankruptcy.

The rules of law governing this tension have been settled and well understood for almost a hundred years. The decision of this court in re: Pope Ex Parte Dicksee [1908] 2KB 169 established that the financial benefit obtained by the wife under a post-nuptial settlement made by the husband within two years of his bankruptcy in consideration of the wife refraining from taking divorce proceedings against him was valid against the trustee in bankruptcy. That was the conclusion of the Master of Rolls and Fletcher-Moulton LJ, a conclusion from which Buckley LJ dissented.

That this remained the proper approach was demonstrated by the decision of the Divisional Court of the Chancery Division in re: Abbott (a bankrupt) [1983] 1 Chancery 45.

These authorities did not, of course, establish that all ancillary relief orders are proof against the claims of the trustee in bankruptcy. Plainly if the ancillary relief order was the product of collusion between the spouses designed to adversely affect the creditors the trustee would intervene in the ancillary relief proceedings and apply for the order to be set aside. Such a situation is illustrated by the decision of Ferris J in re: Kumar (a bankrupt) [1993] 1 WLR 225.

Additionally the ancillary relief order, like any other order, might be set aside if some other vitiating factor could be established, including a failure on the part of the wife to make full and frank disclosure of her own assets.

It can be assumed that ancillary relief orders resulting from a hard fought trial are less likely to be tarnished by collusion or fraud on the creditors than consent orders. However the same principles apply, albeit that the trustee’s burden of proof may be more easily discharged.

Clearly this court in re: Pope was considering earlier statutory provisions, namely the Bankruptcy Act 1883. Even the relatively recent case of in Re: Abbott considered the provisions of Section 42 of the Bankruptcy Act 1914. However ancillary relief practitioners certainly did not understand, or even conceive, that the traditional boundary between the creditors and the former wife had been shifted by the enactment of Section 339 of the Insolvency Act 1986. The principles established by the cases of re: Pope and re: Abbott were assumed to protect the former wife from the claims of the trustee in bankruptcy, at least where her order was the product of a hard fought case.

Accordingly the decision of His Honour Judge Pelling QC when reported in the Times in May 2007 caused considerable consternation to the ancillary relief practitioners. After all the case of Haines v Haines decided by District Judge McKenzie in the Worcester County Court was commonplace in the extreme. The applicant wife had obtained a divorce on the grounds of her husband’s adultery after twelve years of marriage. There was an only child, born some six years before the final separation. She identified with her mother to the extent that she was not willing to have contact with her father. At the end of the District Judge’s investigations the only assets of value were the matrimonial home and a Mercedes motor car. The husband’s financial circumstances were in chaos, insofar as they could be ascertained. The District Judge summarised the situation in the first paragraph of his reserved judgment when he said: -

Section 25 of the Matrimonial Causes Act required the District Judge to give first consideration to the only child of the marriage. The matrimonial home could not be preserved as it was heavily mortgaged. The District Judge made the almost inevitable order, namely that the home should be sold and that the entire proceeds should go to re-house the wife and child.

That summary shows how far removed was the outcome from any collusion between the parties. The District Judge had regard to the possibility of the husband’s future bankruptcy but, given the extent of the husband’s breach of the duty of disclosure any forecast as to his financial future was necessarily speculative.

The trustee’s intervention and application to secure for the creditors one half of the proceeds of sale of the matrimonial home was dismissed by District Judge Cooke in the Birmingham County Court in a judgment which is a model of lucid erudition. He founded himself on the decisions in re: Abbott and in re: Kumar as well as on the judgment of Balcombe LJ in Harman v Glencross [1986] 2FLR 241 at 254F.

How then did His Honour Judge Pelling QC arrive at the opposite conclusion? The simple answer, in my judgment, is that Judge Pelling misunderstood the case law surrounding Sections 23 – 25 of the Matrimonial Causes Act 1973. His focus was on the decision of this court in Xydhias v Xydhias [1999] 2 All ER 386 (CA) and two subsequent decisions at first instance G v G (financial provision: equal division) [2002] 2FLR 1143 and McMinn v McMinn [2003] 2FLR 823. From these three cases he correctly extracted the proposition that the contractual agreement between applicant and respondent for the compromise of an ancillary relief claim is not conclusive unless and until made the subject of a consent order of the court. That is because the court exercises a quasi inquisitorial jurisdiction and has an independent duty to investigate and determine what is fair to the parties. In very rare cases the court may decide to order more or less than had been agreed. There are obvious parallels with the settlement of an infant’s claim to damages.

Insofar as Xydhias v Xydhias so establishes, the case introduced no novelty but simply reiterated well established principles. The continuing importance of the case is in relation to the practice in the conduct of negotiations. The history of the culminating negotiations in Xydhias was complex. The conclusion of this court was there was not a sufficiently clear concluded agreement to satisfy the law of contract. However the case had clearly settled, subject to the perfection of outstanding detail. In those circumstances the court had a discretion to deny the parties a trial and to impose upon them the terms that had been broadly “agreed”. The message for the practitioners was to record heads of agreement once reached and to ensure that they were signed by the parties. The order to give effect to the heads of agreement could then be addressed by the lawyers at leisure.

What Judge Pelling did not have regard to was the opposite side of the coin namely that once parties have reached an agreement to compromise an ancillary relief claim the court will not permit either party to renege save in exceptional circumstances. This proposition was established by this court in Edgar v Edgar [1980] All ER 887. As Lord Justice Ormerod put it: -

Another and even more important message is to be drawn from authority is of more recent origin. The social and legal policy underlying the exercise of the court’s discretion has been developed by the decisions of the House of Lords in White v White and Miller and MacFarlane. In broad summary the effect of these decisions is that: -

In the present case the outcome determined by District Judge McKenzie was driven by the first of these three factors. The wife had sole responsibility for the care of the seven year old daughter of the marriage. There was no likelihood that that responsibility would be shared in the foreseeable future. Her overwhelming need, and the court’s overwhelming priority was to enable her to re-house herself and her daughter in suitable accommodation.

Thus, if the order of Judge Pelling stood the effect would be to deprive mother and daughter of that security and to frustrate the court’s primary objective. I accept that in the present case there were clear warning signs of impending bankruptcy but, given the fog created by the husband’s obfuscation, there was also the possibility that he would successfully trade out of his business difficulties. It could not possibly be said that District Judge McKenzie weighed the interests of the creditors against the interests of the applicant and consciously or unconsciously preferred the latter to the former.

I believe it can be said that in the twenty-one years since the enactment of the Insolvency Act 1986 practitioners on either side of the boundary between insolvency and ancillary relief law have assumed that the principled approach taken by the courts in re: Pope and re: Abbott held true. Between the two systems of law there needs to be a fair balance which on the one hand protects the creditors against collusive orders in ancillary relief and on the other protects orders justly made at arms length for the protection of the applicant and the children of the family.

In my judgment the approach adopted by Judge Pelling would destroy that balance.

I am relieved that my lords, whose approach is not coloured by any attachment to family law, have arrived at the same conclusion.

I have had the privilege of reading in draft the judgments of the Chancellor and of Lord Justice Thorpe. I am in full agreement with them and their reasons. I add a few observations of my own because of the importance of the issue and because we are differing from the judge.

The submissions of Mr Arden QC for the respondent trustees, reflecting the broad sweep of his helpful skeleton argument, encompassed history, statutory interpretation, case jurisprudence, the legal concept of consideration, and policy.

As for history, he was able to put before us the progression of the insolvency statutes through the years, from section 47 of the Bankruptcy Act 1883, and section 42 of the Bankruptcy Act 1914, to the current section 339 of the Insolvency Act 1986. In that connection he showed us both the report of the Cork Committee and the White Paper which introduced the 1986 Act; and, on the matrimonial side, the genesis of section 39 of the Matrimonial Causes Act 1973 (“MCA 1973”) in the recommendations of the Law Commission’s 1969 Report on Financial Provision in Matrimonial Proceedings (Law Com No 25, written under the chairmanship of Mr Justice Scarman), and in particular paragraph 78 of that report which reads in part –

Mr Arden relied heavily on that paragraph to support a submission that section 39 by its terms and in the light of its genesis and purpose demonstrated that a settlement or transfer by one spouse to the other for the purposes of the 1973 Act, even if made under an order of the court, would be susceptible to avoidance under what had been section 42 of the 1914 Act and would now be susceptible to relief under section 339 of the 1986 Act.

The trouble with that submission is that it proves too much. It is common ground in this appeal that the effect of section 39 is that a property adjustment order under the MCA 1973 or a settlement or transfer under such an order may be treated as a “transaction” for the purposes of what is now section 339. That is because, as Mr Khangure QC would accept on behalf of the Wife, there must always be an opportunity to impeach a property adjustment, even where it has been encompassed in an order of the court and even where there has been no prior agreement between the parties but only a decision of the court leading to its order, on any of the traditional grounds for impeachment, such as fraud, mistake, or concealment. What, however, Mr Arden on behalf of the Trustees seeks to build out of paragraph 78 of the Law Commission Report is the submission that a settlement or transfer is always liable to relief under section 339 because the transferee gives no valuable consideration at all, or none at any rate which is measurable in money’s worth. That submission, however, was already in 1969 inconsistent with authority in this court, at any rate so far as valuable consideration is concerned (In re Pope [1908] 2 KB 169).

Moreover, if the Law Commission had, inconsistently with In re Pope, intended to recommend a provision to say that all settlements or transfers in favour of a spouse ancillary to divorce proceedings should be liable to avoidance under section 42, it would have said so plainly: rather than recommend the very different provision which became section 39.

The matter becomes still more striking following In re Abbott [1983] 1 Ch 45. That decision of the divisional court (Sir Robert Megarry V-C and Peter Gibson J) applied In re Pope not long before the enactment of the 1986 Act and the consequential amendment to section 39 of the MCA 1973 to bring it into line with the wording of the new section 339 (hence “shall not prevent that settlement or transfer from being a settlement of property to which section 42(1) of the Bankruptcy Act 1914 (avoidance of certain settlements) applies” became “shall not prevent that settlement or transfer from being a transaction in respect of which an order may be made under section 339 or 340 of the Insolvency Act 1986 (transactions at an undervalue and preferences”). In Abbott section 39 was expressly considered (see the argument of counsel, which plainly had paragraph 78 of the Law Commission Report in mind, at 49H/50B). Peter Gibson J said (at 54) –

It would be ridiculous to suppose that in those circumstances it had been intended to abrogate by legislation the decisions in Pope and Abbott to the effect that a wife gave valuable consideration for a property transfer by reason of the release of a right or the compromise of a claim.

Thus it seems to me that the history of the genesis of section 39 does not assist the Trustees. On the contrary, it is enacted against the background of Pope, and re-enacted against the background of Abbott.

As for statutory interpretation, Mr Arden did not submit that section 39 by its terms required relief under section 42 or subsequently section 339. But he did submit that, for the purposes of section 339(3)(c), a property adjustment order of the court under section 24 of the MCA 1973 could not amount to “consideration the value of which, in money or money’s worth” was otherwise than significantly less than the value of the property transferred and thus the consideration provided by the Husband. He did so on the basis that either the Wife provided no consideration at all, or at any rate on the basis that any consideration that she might supply (eg by release of her section 24 claim or its merger into the court’s judgment and order) was not measurable in money and thus not “in money’s worth”. For these purposes he relied on what Peter Gibson J had said in Abbott (at 56H), where the latter appears to accept that in such circumstances, whether one is concerned about a claim for maintenance (Pope) or a claim for ancillary relief under section 24 (Abbott) –

Mr Arden also relied on what Millett J said in Re MC Bacon Ltd [1990] BCLC 324 at 340g to the effect that for the purposes of section 339(3)(c) “Both values must be measurable in money or money’s worth”. In this connection Mr Arden submitted that Ferris J was mistaken, both about what Abbott decided and in principle, when in In re Kumar [1993] 1 WLR 224 at 236G he said -

Mr Arden submitted that Abbott had decided otherwise; that in this respect Peter Gibson J was right and Ferris J was wrong; and that, even if this did not matter for the purposes of section 42 (Abbott), it did matter for the purposes of section 339 (our case).

In my judgment, however, Ferris J was right. In Abbott both counsel appear to have used the expression “measurable in money terms” as a label to refer to something in the nature of a monetary quid pro quo (a price or proprietary interest), as distinct from a mere right, such as a claim in tort for damages or a right under section 24 of the MCA 1973 to have the court exercise its discretion in a spouse’s favour, neither of which was “easily measurable”: see Jules Sher QC arguendo at 50E/G, and Peter Gibson J’s reference to Mr Sher’s submission at 54H/55A. Even so, Peter Gibson J decided that Mr Sher had -

Therefore, once section 339(3)(c) had been enacted in its own terms, Ferris J was entitled, in my judgment, to conclude that mutatis mutandis the effect of what Abbott had decided, albeit directly in terms of “valuable consideration” for the purposes of section 42, amounted also to a recognition of something that was capable of being consideration in money or money’s worth for the purposes of the new statute.

After all, a claim in contract for damages for breach of contract or a claim in tort for damages for personal injury may be very difficult to measure in financial terms. As long as the loss in question is not entirely speculative, however, the court is required to do its best to put a monetary value on it. Such a claim is plainly measurable in money’s worth, and the compromise of such a claim likewise. A judgment for damages is the court’s assessment of the claim in monetary terms; and a compromise of such a claim is the parties’ best estimate of the monetary value of such a claim, taking into account the additional uncertainties of the absence of the court’s assessment. The compromise or release of such a claim is plainly consideration in money’s worth, and measurable as such. The only question is whether a claim for ancillary relief under section 24 is for these purposes a claim like any other. Abbott is a decision, founded in terms on Pope (in the pre 1973 Act days when what was being talked about was a claim for maintenance), that a section 24 claim is like any other: that is to say that it can be assessed for its monetary value, even if its award lies peculiarly in the discretion of the court. The result is that its compromise or release can also be assessed in monetary value, even if such compromise is itself subject to the supervision and ultimately the imprimatur or not of the court. It matters not, therefore, that the nature of a section 24 claim may differ from a contractual or tortious claim, in that it is founded entirely in statute and in the exercise of the court’s discretion. It shares with such non-statutory causes of action the ability to be assessed in monetary terms. That is irrespective of the firmness of the modern view of the discretionary right, as now described, for instance, by Lord Nicholls in Miller v. Miller (see at para 28 above).

As for case jurisprudence, Mr Arden was in the position of having to submit either that Pope and Abbott were rendered obsolete by the new terms of section 339, or were wrong: a submission that could not be properly made in respect of Pope since it was itself a decision of this court. He also had to submit that the obiter dictum of Ferris J in Kumar was wrong. The judge accepted those submissions, in part on the basis of a trio of recent decisions about the nature of the section 24 jurisdiction. However, for the reasons given in my Lords’ judgment and here, the earlier cases remain very much in point, and are not undermined by the recent decisions on the nature of section 24 relief. It is interesting to observe in this connection that Muir Hunter on Personal Insolvency, 2007, in its text concerning section 339, at para 3-2263, regards Abbott as of continuing relevance, pointing out that if the judge in this case was correct –

As for the legal concept of consideration, I have already referred to highly relevant cases in this context, such as Pope and Abbott; and see also Balcombe LJ in Harman v. Glencross [1986] 2 FLR 241 at 254/5. More generally, however, there is nothing in the concept as a whole to suggest that the compromise or release of a statutory right such as provided by section 24 of the MCA 1973 cannot amount to consideration. The doctrine is used in essence to distinguish the obligatory promise from the merely voluntary: the concept is “based on the idea of reciprocity: that “something of value in the eye of the law” must be given for a promise in order to make it enforceable as a contract” (Chitty on Contracts, 29^th ed, 2004, Vol I, at para 3-002). Outside section 339 and its predecessors, the adequacy of consideration is not weighed, as long as there is some value in the eye of the law (ibid at paras 3-014 and 3-022). Whereas past consideration, and unlawful promises, have therefore presented difficulties of analysis, the compromise or release of, or forebearance to press, a valid claim, or even a doubtful or invalid claim, as long as it is not known to be invalid but is advanced in good faith, can provide good consideration. In these circumstances, there is nothing foreign to the concept of consideration in the idea that the compromise of a section 24 claim can provide good consideration – even if for section 339 purposes the question of adequacy can be reviewed, especially where there is room to find collusion, fraud or concealment. Where, however, such a claim is assessed by the court itself, in adversary proceedings, in circumstances where the court is required to take account of all the circumstances, there must be little if any room for the possibility that the court’s decision and order can be reviewed on the ground that it gives to the transferee more than the transferee is entitled to in law – even if in theory it is possible for the court itself to be deceived by dishonesty or collusion.

In essence, the statutory right under section 24 has some value in the eye of the law; its value is ultimately for the family court judge to assess and fix in ancillary relief proceedings; and it is that right which is compromised and ultimately released in return for the property adjustment order of the court.

Moreover, there is nothing in Xydhias v. Xydhias [1999] 2 All ER 386 or McMinn v. McMinn [2003] 2 FLR 823 to the contrary, even though those cases proceed on the unsurprising basis that the ultimate arbiter of section 24 relief is the court: see, however, the importance of the parties’ agreement, subject to the court, as restated in Soulsbury v. Soulsbury [2007] EWCA Civ 938 (10 October 2007). As for G v. G (Financial Provision) [2002] 2 FLR 1143, the view expressed by Coleridge J at para 43 regarding potential consequences for the purposes of capital gains tax can hardly be regarded as authoritative in the absence of the Revenue. As Coleridge J stated, his view that the wife gave no consideration for the shares transferred to her, because “neither party has any ‘rights’…cannot, of course, ultimately bind the Inland Revenue”: he merely proceeded “on the footing” that business hold-over relief would be available to the husband. In doing so, he appears to have drawn an unnecessary inference from the decision of this court in Xydhias.

Finally, as to policy, it would be unfortunate in the extreme if a court approved, or even (an a fortiori case) a court determined property adjustment order would be liable, in practice, to be undone for up to five years because the husband goes bankrupt within that period. That could even encourage such bankruptcy on the part of a disaffected husband. Although a collusive agreement by a divorcing husband and wife to prefer the wife and children over creditors and thus dishonestly to transfer to her more than his estate can truly bear, if his debts were properly taken into account, and thus more than her ancillary relief claim could really and knowingly be worth, is no doubt susceptible to section 339 relief despite the existence of a court order in her favour (see the decision in Kumar): nevertheless, in the ordinary case, where there is no dishonest collusion, and where a court approves or determines 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. However, in my judgment, it would require the overthrow of long established jurisprudence, the re-interpretation of section 39, the misunderstanding 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.

In conclusion, I would commend the clear and well reasoned judgment of District Judge Cooke, and allow the appeal.