Hargreaves v Salt & Ors

The court is concerned with appeals by Mr Andrew Hill against orders made by HHJ Cooke, sitting as a judge of the High Court in the Family Division in two different proceedings. In each of them Mr Hill has applied for permission to appeal. Wilson LJ directed that those applications be referred for hearing before the full court on the basis that if permission to appeal were granted the hearing of the appeals should follow at once.

The orders appealed against were made in different but related proceedings. They arose in this way. A property which I will call just The White House, which is situated in Spain, was once the matrimonial home of Mr Andre David Salt and his wife, Mrs Janet Salt. Neither of those, however, ever owned the property as such. It is owned by a Spanish company called Proserpina Investments, which in turn is owned by a Gibraltar company, Blair Advisory Services ("BAS"). The shares in that company were held by nominees on behalf of Mr Salt. In that way he was the indirect but sole beneficial owner. The White House was subject to a mortgage in favour of a Spanish bank, Bank Inter, for a sum in the region of €1 million. We were told that The White House had been bought, in the sense that indirect ownership of it had been acquired, by Mr Salt in February 2004. The terms of his purchase were the subject of submissions to us by Mr Peter Fox who appears on Mr Hill's behalf today, but it is manifest that that was not a straightforward transaction and in particular that the full circumstances of it were not put before the judge below and he made no finding about it. Accordingly, it would be wrong to place any reliance on any knowledge of what those terms may have been.

In October 2006 Mrs Salt commenced divorce proceedings against her husband. In January 2007 Mr Salt and Mr Hill entered into an agreement for the sale by Mr Salt to Mr Hill of the shares in BAS. That appears to have been completed early in February 2007. At that point the nominee shareholders in BAS declared that they held their shares on trust for Mr Hill instead of for Mr Salt.

In January 2008 a divorce decree was made absolute and by July 2008 Mrs Salt was on the point of making an application for financial relief, including an application under Section 37 of the Matrimonial Causes Act 1973 designed to establish that the disposition of (in effect) the White House ought to be set aside because it had been intended to defeat her claim.

On 23 July 2008 Mr Salt presented his own bankruptcy petition and was adjudged bankrupt. Almost immediately thereafter Mrs Salt's application under Section 37 was issued and it proceeded on its due course. In fact Mrs Salt was able to obtain a default judgment but that was later set aside and the application came to trial before HHJ Cooke in November 2010. In the meantime, following Mr Salt's bankruptcy, Mr Hargreaves was appointed as the Trustee in Bankruptcy and he made an application against Mr Salt and Mr Hill to set aside the transaction whereby the benefit of the White House was sold, as being a transaction at an undervalue, so that application was made under Section 339 of the Insolvency Act 1986. That application likewise came to trial before HHJ Cooke in November 2010.

At that hearing Mr Salt was present, though not represented, for part of the time, but he did not stay for the full period of the hearing and he chose not to give evidence. Mrs Salt, Mr Hargreaves and Mr Hill were all represented. Mr Hill was at that stage represented by Mr Stancombe of counsel. Mrs Salt was represented then, as now, by Mr Stephen Murray; Mr Hargreaves then, as now, by Mr Musaheb.

The judge heard the evidence over some four days and gave judgment on 18 November 2010. He held that the sale had been at an undervalue; he also held that Mr Hill had known of the matrimonial proceedings and that he had not acted in relation to the transaction in good faith and without notice of Mr Salt's intention to defeat his wife's claim for financial relief. That is relevant under Section 37(4) of the Matrimonial Causes Act 1973. Orders to give effect to the judgment that he delivered orally were made on 3 December 2010. In the insolvency proceedings he made an order which recited his finding that the transaction by which Mr Hill became the ultimate owner of the White House was a transaction at an undervalue within the meaning of the Insolvency Act. He ordered that the beneficial interest of Mr Hill in the shares in BAS be forthwith vested in Mr Hargreaves as Trustee in Bankruptcy. He gave directions with a view to resolving by agreement, or if necessary by a court order, exactly what relief to grant in consequence of his finding that the transaction was at an undervalue. As to that, the court has a wide range of powers under Section 342 of the 1986 Act.

In the matrimonial proceedings he made an order which recorded his finding that the disposition was a transaction entered into by Mr Salt with the intention of defeating his wife's claim for financial relief and was a reviewable disposition (see Matrimonial Causes Act Section 37(4)) and also that Mr Hill had notice of the husband's intention and had not acted in relation to it in good faith.

He gave directions for submissions as to what relief could and should be granted, including the question whether the court can, and if so should, order either the husband or Mr Hill to make a compensatory payment to the wife to reflect any diminution in value of the property since the date of the disposition. In both proceedings the outstanding issues were to be dealt with by further hearings before the same judge.

At a further hearing on 13 January this year the judge declined an application on the part of Mr Hill for a stay of the order and fixed a new date of 27 January for Mr Hill to give possession. He gave case management directions in both proceedings. As a result of those a hearing before the judge with a view to a decision as to what form of relief should be ordered in either case is intended to be held not before 14 April of this year.

Mr Hill's first appeal has the number 2010/3017 and is brought against the order made on 3 December 2010. It is not entirely clear from the terms of the appellant's notice whether this is intended to be against one or both of the orders. Strictly speaking, if it was against both of the orders then because they were in separate proceedings there should have been separate appeals. But it is reasonably clear from the drafting of the appellant's notice, and more particularly from the terms of the skeleton argument in support, that the intention is to appeal against the findings of the judge both in the insolvency proceedings and in the matrimonial proceedings as to undervalue and the like, and against both orders on that basis. To appeal against the one and not the other would be eccentric to say the least. I treat the appeal as being against both orders.

Mr Hill's other appeal, which is 2011/0117, is against the order made by HHJ Cooke on 13 January 2011 to which I have referred. That appeal, which has not taken up any of our time this morning, is really consequential on the other. If Mr Hill were able to set aside the orders made on 3 December then the 13 January order would have to fall. If not, it does not.

Mr Hill applied to be allowed to put in new evidence on the appeal, but in fact almost none of what he put before the court is fresh evidence. There is a witness statement in support of the appellant's notice, but most of that is either history or argument and most of the rest of the documentation relates to transcripts from the trial or other documents concerning the proceedings for which no permission is required. He appears to have applied for an extension of time as well, but so far as I can see he does not need one for either of his appeals.

The real issue on the appeal 3017 of 2010 against the orders of 3 December is whether the judge was right to hold that the transaction was at an undervalue. Under Section 339 of the Insolvency Act that is the only question that needs to be answered on the facts of this particular case (see subsections (1) and (3)(c) of Section 339). In accordance with Section 341, if the transaction is less than two years before the presentation of the bankruptcy petition, as it was in this case, then no further point needs to be proved other than that the transaction was at an undervalue.

On the appeal against the finding recited in the matrimonial order under Section 37 of the 1973 Act the issues are, first of all, whether the husband made the disposition with the intention of defeating the wife's claim for financial relief; and secondly whether the purchaser, Mr Hill, did or did not act in good faith and without notice of the husband's intention to defeat his wife’s claim.

In either case the issue before the court is a question of fact to be determined by reference to the evidence of both parties, if available, and of contemporary and surrounding circumstances, so far as put before the court, and of course valuation evidence. The essence of the judge's decision was that, according to the expert evidence that was put before him, the market value of the White House was to be regarded as some €2.4 million in February 2007 at the time of the disposition. By contrast, the evidence was that the transaction between Mr Salt and Mr Hill involved the latter giving value worth no more than some €1.1 million. Mr Hill knew that not long beforehand the White House had been marketed for €3 million. The judge was satisfied that the sale was at an undervalue and was satisfied that Mr Hill had sufficient knowledge of a) the matrimonial proceedings, and b) the value of the property and Mr Salt's previous attempts to sell, for him not to have been acting in good faith and without notice of Mr Salt's intentions.

As I mentioned, Mr Fox did not appear for Mr Hill below, and he has come into this case at relatively short notice and with a considerable learning curve in terms of the bulk of the documentation in relation to the case which, I have to say, seems somewhat inordinate for the purpose of the proceedings before us. (That is a point which the costs judge will need to take into account on any assessment of the costs as between the parties.) On Mr Hill’s behalf he has attempted to challenge the judge's findings of fact. That is of course a seriously uphill task. The judge saw the witnesses; they did not of course include Mr Salt but they included the other parties and they included at least one independent witness on whom he placed some reliance. He came to his findings of fact on the basis of his assessment of the respective credibility of the witnesses whom he saw. His conclusions as to the facts can only be set aside if it can be shown that there was no evidence on which they could be based, so that they were in effect perverse.

Mr Hill, by Mr Fox, seeks to put essentially two different points to the court as being the basis of a viable appeal. The first is to the effect that the judge seriously underestimated the pressure under which Mr Salt was in January and early February 2007 in financial terms, which had, or may be assumed to have had, a serious impact on his position and his attitude in relation to selling the asset represented by the White House. The second, which is linked, is that the judge therefore seriously erred in his assessment of the proper figure to be taken as the value of the White House at that time. One aspect of the pressure under which Mr Salt may have felt himself to be was the state of account on the mortgage account between Proserpina and Bank Inter. This was an account under a mortgage of which he was a personal guarantor, so that he was directly concerned with how that account stood.

The judge had the benefit of evidence, by a video link, as I understand it, from a Mrs Zimmerman, who was the relevant manager in Bank Inter in Spain. She had put in a witness statement and she was cross-examined by video link. We have been shown some passages from the transcript of her evidence. There were also before the judge a number of documents relating to the state of the mortgage account. At paragraph 39 of his judgment the judge records that, whereas previously the arrears had been just under €6,500, the monthly payment due in January was not paid, that being a further €5,300 or thereabouts, and he therefore said at paragraph 39 that the total arrears outstanding by late January and early February was of the order of €11,770.

Mr Fox sought to show us that that was a serious underestimate of the arrears due to a misreading of one or more documents. He submitted that the true figure was that the arrears were by then some €22,000. Mr Salt had by then no income and, although he had substantial other capital assets, none of them, he submitted, were readily realisable. He argued that Mr Salt was therefore in an extremely vulnerable position having regard to the attitude of the bank and his liability as personal guarantor of the mortgage liability.

That ties in with the case that was sought to be put on behalf of Mr Hill in relation to the valuation of the property. There was a single joint expert, Mr Ferguson, who gave a figure in February 2007 of the White House in its actual condition of €2.4 million. At paragraph 21 the judge records that the actual condition was that it was in need of some repair and renovation to bring it up to standard as a high quality villa. The judge said that Mr Hill accepted in evidence that €2.4 million was a proper market value for the property. The case on his behalf had been that that was not the true test of value for the purposes of Section 339, particularly because Mr Salt was under great time pressure to sell the property, and no doubt if it was not the right test for Section 339 it was also not the right test for Section 37 of the 1973 Act.

The case was sought to be put, by way of written questions and then in cross-examination, that Mr Ferguson's figure was all very well in an ideal situation and an ideal market with leisure to market the property, but that for a seller who needed to sell very quickly discounts would have to be accepted and that there might be a situation in which a seller was realistically willing to accept no more than was necessary to clear his personal debts. Mr Ferguson said that a discount to a price of €1.1 million was extreme. The judge at paragraph 24 recorded that counsel then appearing for Mr Hill relied on that evidence as showing that €1.1 million was at the bottom end of a range of possible values of the property. That was the level of the consideration given by his client and on that basis he argued that the consideration given was not substantially less than the value of the property.

I know not whether the point was made before the judge, but Mr Fox sought to draw an analogy between the consideration of €1.1 million on this transaction and the consideration given by Mr Salt three years before, and indeed by his vendor some few years before that. Quite apart from the fact that the evidence as to those transactions was not before the judge on which he could make any comparison -- if a comparison were useful at all -- it seems to me that those transactions are entirely irrelevant. What is relevant is the proper figure to be taken as the value of the White House in February 2007 at the time of the disposition and, set against that, the value of the consideration given. Equally irrelevant for this purpose is any value of the property as at any later date.

In the judge's judgment he considered Mr Stancombe's submission about value but he made the very pertinent point, at paragraph 26, that he had not been shown any authority which suggested that the value to be identified by the court was to be determined by what the seller was subjectively willing to accept as distinct from the price which a purchaser might reasonably be expected to pay given the market circumstances at the time. No doubt, he continued, in evaluating that price the conditions relevant to the market at that time, and particularly any factors requiring the property to be marketed over a truncated period, are relevant to establishing what price a purchaser might be expected to pay.

He then considered some authorities that had been cited to him and at paragraph 29 he said that the focus of the authorities is on what the purchaser would be prepared to pay and not what a seller would be willing to accept in a hypothetical transaction. The authorities, he said, show that the existence of a purchaser must be assumed even if on the evidence there was a restricted or even no market for the relevant asset at the time of the transaction. He went on at paragraph 30 to make the very fair point that in the context of Section 339 of the 1986 Act the court must always look closely at any alleged need to sell a property urgently:

He then considered the particular transaction and the history both up to and at the time of the disposition and he came to the conclusion that had led him to make the recital that he did. At paragraph 44 he said:

That was the basis on which the judge rejected the proposition that Mr Salt was under any time pressure such as to make it appropriate to discount the valuation even by the amount Mr Ferguson accepted to some €1.9 million, let alone a much more savage or extreme reduction to anything remotely approximating to the value given of the order of €1.1 million.

Mr Fox submitted that the judge's approach was wrong because it failed to take into account the pressure that Mr Salt was under and the reasonableness of Mr Salt's possibly subjective reaction to that situation. Let it be assumed that he was in arrears by February 2007 to the extent of €11,000 more than that which the judge considered to be the correct figure. He had no income; he had substantial other assets but not for the most part readily realisable; but it seems to me that the judge was plainly right to say that the matter must be considered not subjectively from the point of view of the seller, but, to some extent at any rate, objectively, on the basis of applying a test as to what the seller ought to have done and what he might reasonably have expected to have realised if he had done so.

There is a very substantial equity in this property on the undisputed figure as to market value. There is every reason why the bank should have been willing and ready to allow Mr Salt time to market the property properly if he had chosen to do so. Even assuming that the bank was faced with four months arrears, the evidence was that the bank might at that stage consider starting legal proceedings, but the legal proceedings would take of the order of one to two years in any event before it could obtain possession. If the proceedings were resisted it might of course have sought to sue Mr Salt on his guarantee, but there is no particular reason to suppose that that would have taken much less time, and in any event enforcement in relation to property located in the same jurisdiction as the bank is likely to be a more attractive recourse for a mortgagee.

It seems to me that in those circumstances, for all Mr Fox's valiant attempts to make the case to us orally and with the benefit of his substantial skeleton arguments in the case, there is no prospect that Mr Hill might succeed on an appeal in challenging the judge's findings either under Section 339 of the Insolvency Act or under Section 37 of the Matrimonial Causes Act.

Mr Fox identified passages here and there in the judgment and in the evidence which, he submitted, did not give proper weight to the evidence, but it seems to me that he is a very long way indeed from establishing that there was no evidence on the basis of which the judge could make the findings that he did, and his submissions are also undermined by a basic legal error in considering in his argument that the right approach is to look at Mr Salt's subjective position rather than an objective assessment of what Mr Salt's position was and what he could and ought to have done in that situation at the beginning of 2007.

I would therefore conclude that, treating as before us appeals both in the matrimonial and in the insolvency proceedings, permission to appeal should be refused in both of those appeals and also, consequentially, in the separate appeal 0117 of 2011 against the judge's order made on 30 January.

For those reasons I would dismiss the applications before us.

I agree.

I also agree.