Brown v Brown & Anor

This is an application under s.339 of the Insolvency Act 1986 (transactions at under value) by the trustee in bankruptcy of Rodney Lambton Brown (“Mr. Brown”) in respect of a transfer of 49% of the beneficial interest in a house at 74 Chester Road, Wanstead, London E11 to the Second Respondent, Mrs. Malden-Browne. The background to this matter is as follows.

Mrs. Malden-Browne occupied the house in question from 1981 as a secured tenant. She was married, but the marriage broke down in 1987. She continued to live in the house with the child she then had. From the early 1990s until June 2005, she had a relationship with Mr. Brown with whom she has had two further children, one born in 1993 and the other in 2001. Despite the similarity in names, she was not married to Mr. Brown. Mr. Brown did not actually live in the house before 1998. He moved into the house around May 1998 after he was badly injured in a motorcycle accident.

In September 1998, following the death of the owner of the freehold, Mrs. Malden-Browne was offered the chance to purchase the freehold, at a substantial discount to the value of the house with vacant possession because of her secured tenancy.

Eventually the purchase price was agreed at £130,000, which was some £70,000 less than the value of the property with vacant possession. The purchase was financed by a mortgage of £129,780 after deduction of some expenses from Mortgages 2 Limited. Mrs. Malden-Browne says she paid an additional £2,776.68 for legal and other expenses. She had borrowed £6,000 from her parents to pay the deposit.

Completion took place on 23 November 1999. The property was conveyed into the joint names of Mrs. Malden-Browne and Mr. Brown expressly on trust for themselves as joint tenants. Mrs. Malden-Browne says her original intention had been to purchase the property in her sole name. The reason the house was put into their joint names was because the mortgage company insisted that the mortgage be in their joint names. But she says there was an agreement or understanding between her and Mr. Brown that he was only to have a nominal interest in it. She also says he made no capital contribution to the purchase of the house, nor has he contributed to the mortgage payments, the life policy premiums or household expenses since the purchase.

The express trust as joint tenants in the conveyance does not accord with what Mrs. Malden-Browne says was their understanding at the time of the purchase. She says she was not given any explanation by her solicitors as to what the legal effect of buying as joint tenant would be, or the possibility of declaring a tenancy in common in unequal shares. She discovered Mr. Brown had acquired more than a nominal interest in the property the month after the purchase, when she met Sheila Conroy, a legal executive to whom she was introduced by a mutual friend. Following informal advice from Ms. Conroy about the effect of the declaration of a joint tenancy, and how this could be changed to reflect her and Mr. Brown’s intentions, on 6 February 2000 she signed and gave to Mr. Brown a notice of severance of the joint tenancy which stated that the property would thereafter be held by them as tenants in common in unequal shares, 99% for her and 1% for him, and he signed a document acknowledging receipt of the notice and accepting the apportionment of the shares stated in it. This is the transaction which the Trustee seeks to set aside under s.339 of the Insolvency Act 1986 in this application before me. Before dealing with that, I shall summarise briefly the subsequent history of this matter.

Mr. Brown together with a Mr. Paul Moscow had been concerned in business, through a company called Cigar Vending Company Limited. There was a dispute between that company and a company called Swedish Match Limited, which resulted in proceedings being commenced in November 1999. Cigar Vending Company was represented in those proceedings by Kay & Co., (the same solicitors who acted for Mrs. Malden-Browne in the purchase of the house). At Mr. Kay’s insistence, Mr. Moscow and Mr. Brown agreed to accept personal responsibility to Mr. Kay for the company’s legal costs. In July 2001, Cigar Vending lost the proceedings against Swedish Match. Swedish Match obtained orders for costs against Mr. Moscow and Mr. Brown personally, and a freezing injunction against Mr. Brown.

On 12 July 2001, Mr. Kay obtained a legal charge from Mrs. Malden-Browne and Mr. Brown over the house, as security for Kay & Co’s costs. Those costs were ultimately assessed at just over £71,000, of which Mr. Brown paid approximately £1,300 and Mr. Moscow paid the rest. Mr. Moscow then claimed a contribution from Mr. Brown. He duly obtained judgment against Mr. Brown for some £40,000, and in October 2003 he obtained a charging order over Mr. Brown’s beneficial interest in the house.

Mr. Moscow then commenced proceedings seeking to enforce his judgment against the house, in which he claimed to be entitled to an assignment of the benefit of the charge in favour of the Kay & Co., and made an alternative claim under s.14 of the Trusts of Land and Appointment of Trustees Act 1996 for a declaration that Mr. Brown was entitled to 50% of the beneficial interest in the house. Mr. Moscow died shortly after commencement of those proceedings, and they were continued by his son, Simon, as his personal representative.

Those proceedings came on for trial before Mr. Justice Lloyd in January 2005. The principal issues in those proceedings were:

whether the charge over the house was voidable; and

whether the notice of severance and receipt were fabricated in the sense of being back dated, having really been signed some date after Mr. Moscow obtained the charging order in October 2003.

Mr. Justice Lloyd found for Mrs. Malden-Browne on both issues. As to the first issue, the charge signed by Mrs. Malden-Browne in favour of Kay & Co. was a security by her over her interest in the property for an existing liability of Mr. Brown to Kay & Co. (who was also Mrs. Malden-Browne’s former solicitor), where there was no further credit to be gained on the security and no particular incentive for Mrs. Malden-Browne to sign the document. Clause 7 of the charge stated that both she and Mr. Brown had taken independent legal advice in respect of the charge and confirmed that the charge was executed voluntarily without any undue influence, coercion or preference. But that was untrue, at least as regards Mrs. Malden-Browne. The Judge found that “Mr. Kay plainly should have advised Mrs. Browne to get separate advice and knew it, as Clause 7 of the mortgage shows, but failed to do so…I am satisfied that her signature on this mortgage was procured in breach of duty by Mr. Kay, and probably, also, by a collateral contract, and that Mr. Kay could not enforce it against her”. Accordingly, the charge was voidable and there would be no benefit to the Claimant in having the mortgage assigned to him.

As to the second issue, the Judge “conclude[d] on the balance of probability that [Mrs. Malden-Browne] was telling me the truth about the circumstances in which the notice of severance and receipt came to be prepared and signed and, in particular, that the date they bear is accurate” and “reject[ed] the contrary submission that this part of her evidence is perjured, and that the documents were thought up and created after October 2003 by the First Defendant”.

Accordingly, Mr. Justice Lloyd dismissed both claims and held that Mr. Brown had only a 1% share of the property. In the course of his judgment, he recorded that Counsel for the Claimant had mentioned Section 339 of the Insolvency Act, and observed “but that is only open to a trustee in bankruptcy. So that is a future question not arising in these proceedings”.

Following the trial before Mr. Justice Lloyd, a bankruptcy petition was presented, I understand 3 days before the expiry of the “relevant period” for the purposes of the s.339 application now before me. The bankruptcy order was made on 23 March 2005. On 27 April 2005, Mrs. Malden-Browne paid Mr. Moscow’s estate the sum of £1,409.76 representing 1% of the agreed value of the equity in the house, being Mr. Brown’s beneficial interest as determined by Mr. Justice Lloyd, so that she became the sole beneficial owner. Mr. Singla was appointed Mr. Brown’s trustee in bankruptcy on 20 May 2005, and issued this application in early September 2005.

Mrs. Malden-Browne’s relationship with Mr. Brown ended in June 2005, and in October 2005 she emigrated to Australia where she now lives with her two younger children in rented accommodation. She intended to sell the property before emigrating, and use the net proceeds to buy a property in Australia where property prices are cheaper. She instructed estate agents to market the property, but has been unable to sell it because of the present application and a notice placed by the Trustee on the registered title. The property was eventually let on 5 December 2005. It is currently let on a year’s tenancy from December of last year.

The principal issues for decision are:

whether the notice of severance and receipt fall within s. 339 of the Insolvency Act 1986; and, if so,

what order the Court should make, and in particular whether the Court can and should decline to make any order in the exercise of its discretion, notwithstanding that the transaction falls within s. 339.

The principal witness was Mrs. Malden-Browne who has made three witness statements in this action (one of which also refers to and exhibits one of her witness statements in the earlier action tried by Mr. Justice Lloyd). She was cross-examined by videolink from Australia. Mr. Singla, the Trustee, has made a witness statement and was tendered for cross-examination, but the cross-examination was very limited. He has no direct knowledge of any relevant matter. Mr. Brown is also a party to the proceedings but he did not appear before me. In reality, the only substantive evidence was from Mrs. Malden-Browne.

The Trustee’s case under s.339 is simple. Mr. Davies, Counsel for the Trustee, says that the notice of severance and receipt (really, he says, the receipt under which Mr. Brown accepted the apportionment of the shares stated in the notice of severance) had the effect of transferring 49% of the beneficial interest from Mr. Brown to Mrs. Malden-Browne; there was no consideration for that transfer; and accordingly it falls within s. 339(3)(a) as a gift or otherwise a transaction for no consideration.

Mr. Winfield, Counsel for Mrs. Malden-Browne, says that it always was the intention of Mrs. Malden-Browne and Mr. Brown that he was only to have a nominal interest in the house, and the notice of severance and receipt were simply to give effect to that intention. They were, he says, effectively an informal rectification of the error in the original transfer. He says those matters have already been decided by Mr. Justice Lloyd in the earlier trial, which findings of fact are binding on Mr. Brown’s trustee in bankruptcy, alternatively the evidence of Mrs. Malden-Browne bears them out.

On that basis, Mr. Winfield says the transaction comprising the notice of severance and receipt was not a gift or otherwise a transaction for no consideration within s. 339(3)(a). Nor was it a transaction for a consideration the value of which in money or money’s worth was significantly less than the value of the property transferred within s.339(3)(c) because Mr. Brown held his interest subject to Mrs. Malden-Browne’s potential claim for rectification. The value of that potential rectification claim to Mrs. Malden-Browne was very high if I accept (either on the basis of Mr. Justice Lloyd’s findings in the earlier proceedings or on the basis of Mrs. Malden-Browne’s evidence in these proceedings before me) that the common intention at the time of the transfer was that Mr. Brown was only to have a nominal interest in the property. It would inevitably be subject to the uncertainties inherent in any litigation, but on the face of it the value of the potential rectification claim would be very high, so that the actual value transferred (49% of the beneficial interest subject to the potential claim for rectification) would be very small. Alternatively, by the notice of severance and receipt Mrs. Malden-Browne effectively gave up her potential rectification claim which was consideration for the transfer of Mr. Brown’s 49% beneficial interest, which consideration was not significantly less than the value of the beneficial interest transferred, so that s.339(3)(c) was not satisfied.

Assuming for the purposes of these arguments that the common intention at the time of the transfer was that Mr. Brown was only to have a nominal interest in the property and that the transaction was to give effect to that common intention (to which I will return later in this Judgment), I am nevertheless unable to accept the submission that the transaction would fall outside the conditions of s.339.

If Mrs. Malden-Browne had claimed or counterclaimed rectification of the original transfer in these proceedings, and if that claim had been successful, the decree of rectification would have been retrospective in effect, so that the original transfer would be treated as having conferred only 1% of the beneficial interest on Mr. Brown from the outset. The notice of severance and receipt 2 months later would not then have transferred any of the beneficial interest to Mrs. Malden-Browne because she would already have had 99% of the beneficial interest vested in her under the original transfer as rectified by the Court.

However, it is trite law that unless and until a document is rectified by an order of the Court, the document takes effect as it stands: see, for example, Goodman v. Gallant [1986] Fam 106 (C.A.). No claim for rectification has been made by Mrs. Malden-Browne in these proceedings. I gave Mr. Winfield the opportunity on behalf of his client to consider whether he wished to plead a rectification claim (Mr. Davies on behalf of the trustee in bankruptcy fairly taking no objection to such a claim being pleaded in the course of the trial). Having been given the opportunity to consider it, Mr. Winfield later confirmed no claim for rectification would be made in these proceedings. I was not told the reason. It may be, as suggested by Mr. Davies, because of concern about the high evidential burden of proving a common mistake for a rectification claim to succeed, particularly in the absence of evidence from Mr. Brown. Be that as it may, for whatever reason, no claim for rectification has been made. In the absence of such a claim being made and succeeding, the express declaration of trust in the conveyance takes effect as it stands, so that Mrs. Malden-Browne and Mr. Brown held the property upon trust for themselves as joint tenants, and the notice of severance and receipt also take effect as they stand, transferring 49% of the beneficial interest from Mr. Brown to Mrs. Malden-Browne.

Moreover, even on Mr. Winfield’s analysis that Mr. Brown held his beneficial interest subject to the potential rectification claim which had a very high value, the transfer (however small its value) would still be a transfer for no consideration within s.339(3)(a).

Mr. Winfield’s alternative analysis - that it was a transfer of the beneficial interest in consideration of Mrs. Malden-Browne giving up her potential rectification claim, is not, in my judgment, correct either. Mr. Winfield, on behalf of Mrs. Malden-Browne, rightly accepted that “consideration” in s.339 means consideration in the contractual sense. Entering into the transaction would, of course, preclude, indeed make redundant, the potential rectification claim, but that is not the same thing as saying that the transaction was entered into in consideration of Mrs. Malden-Browne giving up her potential rectification claim. The “consideration” analysis is that she promised to give up her potential claim for rectification in return for him entering into the transaction. That is an attempted ex post facto rationalisation by lawyers. There is no evidence that Mrs. Malden-Browne was even aware of a potential claim for rectification, still less that there was any discussion of it between her and Mr. Brown, let alone a promise by her to give it up in return for him agreeing to enter into the transaction. In my judgment, there is no warrant for treating her as having made a promise (to give up a potential claim for rectification) which she never in fact made.

Accordingly, in the absence of any claim for rectification, I am driven to the conclusion that the requirements of s.339 are indeed made out.

That is not, however, an end of the matter. Granted that the transaction is a transaction at an undervalue under s.339, the next issue is what order should I make, and in particular whether, on the particular facts of this case, I have a discretion not to make any order and, if so, whether I should exercise it. Although I have rejected Mr. Winfield’s submissions that there was no transfer at an undervalue, the factual premises for his submissions (that there was an agreement or understanding between Mrs. Malden-Browne and Mr. Brown at the time of the transfer that he should have only a nominal interest in the property, and that the severance notice and receipt were implemented in order to reflect that agreement or understanding) may be relevant to the exercise of my discretion (if I have one) to make no order, and accordingly I shall consider that first.

Mr. Winfield for Mrs. Malden-Browne argued that these are facts which have already been found by Mr. Justice Lloyd in the earlier proceedings to which I have referred; that they are binding upon Mr. Brown and also upon the Trustee in these proceedings as his trustee in bankruptcy; and that it is not open to the Trustee to challenge those findings in these proceedings.

Notwithstanding the submissions of Mr. Davies to the contrary, in my judgment it is quite clear that Mr. Brown and his trustee in bankruptcy are privies for this purpose, trustee in bankruptcy being one of the most common examples given of the privy principle (see for example The Doctrine of Res Judicata by Spencer Bower, Turner and Handley, 3rd edition at para. 231). Accordingly, any findings made by Mr. Justice Lloyd in the earlier proceedings binding upon Mr. Brown would also, in my judgment, be binding on the Claimant in these proceedings as his trustee in bankruptcy.

The real difficulty with the estoppel argument, as I see it, is rather the true extent of the findings made by Mr. Justice Lloyd, and how far they were necessary for the purposes of his decision. At the trial of those proceedings, Mr. Davies, who was on that occasion appearing for Mr. Moscow, accepted that if the notice of severance and receipt were signed as they purported to be on 6 February 2000, Mr. Brown effectively gave up 49% of the beneficial interest in favour of Mrs. Malden-Browne (para 47 of the Judgment of Mr. Justice Lloyd). The issue was whether that was true (as was Mrs. Malden-Browne’s evidence) or whether on the contrary she was lying and the documents were fabricated in the sense of being backdated, thought up and created by Mr. Brown in October 2003 after the charging order had been made (see paras. 51 and 53 of the Judgment). The Judge concluded on balance of probabilities that Mrs. Malden-Browne was “telling me the truth about the circumstances in which the notice of severance and receipt came to be prepared and signed and, in particular, that the date they bear is accurate” (para. 52 of the Judgement).

In support of a wider interpretation of the Judge’s findings, Mr. Winfield on behalf of Mrs. Malden-Browne emphasised that in the passage from the Judgement just quoted, the Judge’s acceptance of her evidence was not limited to the date of the documents but also “the circumstances in which…[they] came to be prepared and signed”. He also relies upon the Judge’s formulation of the question at the beginning of para. 51 of his Judgment: whether he believed Mrs. Malden-Browne’s oral evidence as to “how” as well as “when” the documents came to be written and signed.

These points are not without force. However, these passages must be read in the context of the rather stark issue before the Judge which, as already indicated, was whether the documents were signed as they purported to have been on 6 February 2000 as was Mrs. Malden-Browne’s evidence, or whether she was lying and they were fabricated in the sense of backdated, only thought up and created by Mr. Brown in October 2003. Moreover, as Mr. Winfield accepted, there is no specific reference in the Judgement to the parties having had a common intention that Mrs. Malden-Browne should only have a nominal interest at the time of the transfer. The summary of Mrs. Malden-Browne’s evidence in paragraph 18 of the Judgement refers to Mrs. Malden-Browne realis[ing] that a joint tenancy was what she had, but not what she wanted or intended” (emphasis added), but that is not the same thing as common intention. Mr. Winfield argued that the Judge’s acceptance of Mrs Malden-Browne’s evidence on this issue should be read as embracing all the evidence in her witness statements which did refer to the common intention and understanding of the parties. But that is not obvious on the face of the Judgment. Moreover, the Judge regarded the question as “turn[ing] on whether I believe Mrs. Malden-Browne’s oral evidence as to how and when the notice of severance and receipt came to be written and signed” (para. 51 of the Judgment, emphasis added).

At all events, there is in my judgment no clear, unequivocal finding by the Judge of an agreement or common intention of the parties at the time of the transfer that Mr. Brown should only have a nominal interest in the property, to which the Notice of Severance and receipt would give effect, or that such a finding (if made) was necessary for the purposes of his decision. There is a clear, unequivocal finding as to the date when the document was prepared and signed which was necessary for the purposes of his decision, which in my judgment would be binding, but that is a different matter.

I therefore approach the matter on the basis that Mr. Davies on behalf of the Trustee was entitled to challenge Mrs. Malden-Browne’s evidence on these matters. Mrs. Malden-Browne consistently gave evidence throughout these proceedings that there was an agreement or understanding on the part of her and Mr. Brown at the time of the transfer that he was only to have a nominal interest in the property, and that on the informal advice of one Sheila Conroy, a Legal Executive, the notice of severance and receipt were prepared and signed some two months later to reflect that: see for example paragraphs 5 and 6 of her 1st witness statement dated 12 October 2005 and paragraphs 14, 16 and 18 of her 2nd witness statement dated 25 January 2006. She maintained that evidence consistently in cross-examination. She was quite clear that she did not buy the house as a home for herself and Mr. Brown, saying that he was “purely a name” and that they “needed his name on the mortgage, that was all it was”.

Having seen and heard Mrs. Malden-Browne give her evidence orally, I believe her. (I should add the fact her evidence was given by video link rather than physically in court made no difference whatsoever to my ability to assess her as a witness, the quality of the video link being excellent.) In my judgment, she was an honest witness.

Mrs. Malden-Browne’s evidence as to the agreement or understanding at the time of the purchase that Mr. Brown was only to have a nominal interest in the property, and that she was not buying it for both of them, is also consistent with the circumstances and history leading up to the purchase. As Mrs. Malden-Browne emphasised in oral evidence, at the time of the purchase she had been living in the house for some sixteen years as a secured tenant, and for all or almost all of that period Mr. Brown had not been living there. She had a relationship with him but she was not married to him. He only came to live in the house after he had his accident. It was she who was offered the opportunity to purchase the freehold at a substantial discount by virtue of her position as a secure tenant. That had nothing to do with him. Her evidence that she was buying the house as a home for herself and her children makes sense.

Moreover, Mr. Brown made no capital contribution to the purchase of the house and because of his injuries, at least at the time of the purchase, there was no prospect of him contributing to the mortgage, life policy premiums or other household expenses for the foreseeable future. Whatever the position may have been in later years (a subject to which I shall return) I understood Mr. Davies to accept that Mr Brown did not contribute anything in the years immediately following the purchase, or that he was in any position to do so.

The very fact that the notice of severance and receipt were executed only just over two months later also tends to support Mrs. Malden-Browne’s evidence, suggesting that the beneficial joint tenancy in the conveyance was not what the parties wanted or intended. Her evidence as to how these documents came to be produced was that the difference between joint tenancy and tenancy in common was not explained to her at the time of the purchase, and she only discovered the legal effect of buying as joint tenants the following month when she met Sheila Conroy to whom she was introduced by a mutual friend. It was on the informal advice of Mrs. Conroy that she came to effect the severance to reflect what she says was the understanding between her and Mr. Brown at the time of the purchase.

The Trustee has put in evidence under the Civil Evidence Act 1995 a short statement from Ms. Conroy who apparently now lives in Egypt saying that she has never met Mrs. Malden-Browne and denying that she gave Mrs. Malden-Browne any such advice as she claims. The Trustee’s solicitors have apparently been unable to contact Ms. Conroy for some considerable time now, despite repeated efforts to do so, and Mr. Davies for the Trustee understandably placed little reliance on her statement. He did put to Mrs. Malden-Browne in cross-examination that Ms. Conroy had signed a witness statement saying she had never heard of Mrs. Malden-Browne. Mrs. Malden-Browne was quite clear that Ms. Conroy was wrong, that she had met Ms. Conroy and that Ms. Conroy had given her informal advice upon which she acted. Again, having heard and seen Mrs. Malden-Browne give her evidence, I believe she was telling the truth. If Ms. Conroy was right that she had never heard of Mrs. Malden-Browne, it would follow Mrs. Malden-Browne was making this up. I am quite sure she was not.

Apart from the short statement of Ms. Conroy, there was no evidence to contradict Mrs. Malden-Browne’s evidence, and I accept it as the evidence of a truthful witness.

The main thrust of the cross-examination of Mrs. Malden-Browne related to her evidence that Mr. Brown made no substantial contributions to the mortgage, life policy, premiums, council tax and other household expenses since the purchase. Mr. Davies accepted that Mr. Brown was seriously injured, which incapacity prevented him from contributing anything for several years after the purchase, but he pointed to Mrs. Malden-Browne’s bank statements which do show not insignificant payments being made into her account in addition to her salary from 2002 onwards, including a number of payments from two companies called PPS plc and Fordham Research for which Mr. Brown was apparently doing some work, and in 2002 approximately £15,000 received by him as damages for personal injury. Mr. Davies took Mrs. Malden-Browne through a number of these payments in cross-examination, and suggested that contrary to her evidence Mr. Brown was in fact contributing substantially to the household expenses on an increasing scale from 2002 onwards by payments into her bank account.

Even if Mr. Brown had been contributing to the household expenses from 2002 onwards, that is not of itself inconsistent with the existence of an agreement or understanding at the time of the purchase that Mr. Brown should only have a nominal interest in the property. Indeed, on any view that is what he did have following the notice of severance and receipt in February 2000.

In any event, Mrs. Malden-Browne consistently denied that Mr. Brown was contributing substantially to the household expenses from 2002 onwards. As regards the payments from PPS and Fordham Research, she explained (3rd witness statement, para. 15) that Mr. Brown did surveying work for these two companies which involved a lot of travelling in the course of which he incurred very substantial travelling and accommodation expenses which she would pay, and he would return when he was paid. She also provided him with his living expenses and drew cash out of her account for him, all of which used up the money paid in and more, leaving him still owing her money. That was in addition to other loans for legal, medical and other expenses which she had made to him.

Moreover, as she pointed out in cross-examination, there is a pattern apparent in the bank statements of many of these payments in being followed within a short period by substantial payments out, which she was clear related to him and not her. She also said that cash was being withdrawn on her credit card and she referred to her credit card statements in that connection. Mr. Davies expressed scepticism as to how she could remember what these payments related to now up to 5 years later, giving as an example a payment of £40 from a cashpoint. But Mrs. Malden-Browne explained that she herself did not generally withdraw cash from a cashpoint. If she needed cash, she would have it added to her shopping bill at Tesco’s. Whenever she did withdraw money from a cashpoint, it would be no more than £10-£15. Moreover, she did not claim to recall what every receipt or payment in her bank statements related to. In relation to quite a number, she frankly admitted she could not now recall.

In effect, Mr. Brown was using Mrs. Malden-Browne’s bank account to pay in money and then pay it out again. At the time, he told her it was because his own account was overdrawn. She did not know at the time about the freezing injunction over his assets. It was probably because of the freezing injunction that he was using her account in this way. (Whether he should have been doing so is another matter, but, as I have said, Mrs. Malden-Browne was not aware of the freezing injunction.)

Mr. Davies submits that Mrs. Malden-Browne’s salary was not sufficient to pay the mortgage, life assurance premiums, council tax, utility bills and other household expenses, and expenses of looking after her children, and therefore must have had contributions from Mr. Brown in order to make ends meet. Mrs. Malden-Browne did have other income apart from her salary, namely income from part-time work from hairdressing and beauty treatment. She explained in cross-examination how the amount of this other income varied. She did more work in summer outside the academic terms, when she had more time for other work. Mr. Davies submitted that the amount of income from this part-time work could not be sufficient to make ends meet.

A difficulty with these submissions is that Mrs. Malden-Browne undoubtedly was paying the mortgage and all the other expenses without assistance from Mr. Brown in the years immediately following the purchase. If she was able to manage on her own in those years (2000 and 2001), why not in subsequent years - particularly when the mortgage payments in 2001 at £14,557 were substantially higher than in any subsequent year.

I accept Mrs. Malden-Browne’s evidence overall that Mr. Brown did not make any significant contribution towards the mortgage payments, life assurance premiums and other household expenses, and that she was supporting him during his lengthy recovery period.

Mr. Davies also submitted that on Mrs. Malden-Browne’s evidence as to the understanding between her and Mr. Brown at the time of the transfer, it would appear to follow her solicitors had been negligent in completing the transfer form, and the court should be slow to make such a finding or assumption without seeing the solicitor’s files or hearing evidence from the solicitors. For the avoidance of doubt, I make no findings against the solicitors who are not a party to these proceedings. The fact that they completed the form ticking the joint tenants box is a relevant factor to be taken into account. But that fact carries rather less weight than it might have otherwise done when it is recalled that on another occasion in the history of this matter, the same solicitors drafted and caused Mrs. Malden-Browne to sign a charge in their favour containing an express statement that she had received independent advice, which was untrue and the solicitors were found by Mr. Justice Lloyd to have had acted in breach of duty to Mrs. Malden-Browne. (Those findings of Mr. Justice Lloyd were unequivocal and necessary for the purposes of his decision on that issue.)

Accordingly, I accept Mrs. Malden-Browne’s evidence as to the agreement or understanding on the part of herself and Mr. Brown at the time of the purchase that he should only have a nominal interest in the property, and that the severance notice and receipt were executed on the informal advice of Ms. Conroy to reflect that. I approach the question of discretion on that basis.

The first issue here is whether I have a discretion not to make any order at all in this case. S.339(2) provides that if the conditions of s.339(1) are satisfied:

“The court shall, on such an 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”.

That wording may be contrasted with the wording found in s.423(2) (transactions defrauding creditors): “the court may…make such order as it thinks fit…”. The use of the word “shall” rather than “may” in s.339(2) might suggest that the Court must make an order under s.339(2) if the relevant conditions are satisfied. However, the Court of Appeal in Re Paramount Airways Limited [1993] Ch. 223 rejected that interpretation.

In Re Paramount Airways Limited the issue was whether s.238 (the equivalent provision to s.339 for companies) could apply to a transaction with a non-resident (in that case a Jersey bank). The Court of Appeal held that it could, and the section was not limited to domestic persons or territory. However, the Court of Appeal went on to emphasise that:

“This conclusion is not so unsatisfactory as it might appear at first sight. The matter does not rest there. Parliament is to be taken to have intended that the difficulties such a wide ambit may create will be sufficiently overcome by two safeguards built into the statutory scheme. The first lies in the discretion the Court has under the sections as to the order it will make. Section 423(2) provides that the Court “may” make such order as it thinks fit for restoring the position and protecting victims of transactions intended to defraud creditors. Sections 238, 239, 339 and 340 provide that the Court “shall,” on an application under those sections, make such order as it thinks fit for restoring the position. Despite the use of the verb “shall,” the phrase “such order as it thinks fit” is apt to confer on the court an overall discretion. The discretion is wide enough to enable the court, if justice so requires, to make no order against the other party to the transaction or the person to whom the preference was given. In particular, if a foreign element is involved the court will need to be satisfied that, in respect of the relief sought against him, the defendant is sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element ……” [1993] Ch 223 @239F-240A per Sir Donald Nicholls V.-C. with whom Russell and Farquharson LJJ agreed.

So the Court does have an overall discretion which is wide enough to enable the Court to make no order at all “if justice so requires”.

In the light of Paramount Airways, I understood Mr. Davies on behalf of the Trustee to accept (as he had to) that the Court does retain a measure of discretion not to make any order at all. However, he says that it is very limited discretion and that I have no such discretion in this case. He emphasises that the issue before the Court of Appeal was the territorial limitations on S.339 (as it was). He submits that the Court of Appeal’s observations about an overall discretion wide enough to enable the Court not to make any order at all relate only to territorial considerations and the need to avoid an extravagant exercise of extra-territorial jurisdiction. He further relies upon a subsequent passage in the judgment of Nicholls V.-C. to the effect that if the transaction concerned land in this country, “the foreign nationality or residence of the Defendant would not by itself normally be a weighty factor against the Court exercising its discretion under the sections”: [1993] Ch @240B.

In my judgment, the Court’s power to make no order at all, which was recognised by the Court of Appeal as falling within the court’s overall discretion under the relevant sections, is not confined to territorial considerations. It is quite true that the issue before the Court of Appeal was the territorial limitation of s.238, and that the Court of Appeal were concerned to make clear that their conclusion (that s.238 was not confined to domestic persons or property) would not lead to an extravagant or unjust exercise of extra-territorial jurisdiction. However, I do not read the Court of Appeal as saying that the overall discretion which is wide enough not to make any order where justice so requires is confined to extra-territorial considerations. On the contrary, it is the fact the Court has an overall discretion which is wide enough to enable the Court to make no order “where justice so requires” which is one of two answers or safeguards against what might otherwise be an unsatisfactory position of the Court having to make an order with extra-territorial effect irrespective of the justice of the matter (the other safeguard being the requirement to obtain the leave of the Court for service of proceedings abroad). The existence of the overall discretion is one of the safeguards against unjust or extravagant extra-territorial effect, but it is not confined to it.

That that is the correct reading of the Court of Appeal’s judgment is confirmed by the next sentence in the passage quoted above, “In particular, if a foreign element is involved the Court will need to be satisfied that …the Defendant is sufficiently connected with England for it to be just and proper for it to make the order against him despite the foreign element”. The words “in particular” make clear that that is one consequence of the overall discretion wide enough to enable the Court to make no order if justice so requires, but it is not the only consequence or circumstance in which it could apply.

Mr. Davies also relied upon the more recent decision of the Court of Appeal in Ramlort Ltd v Reid [2004] EWCA IV 800 and in particular paragraph 125 in the judgment of Jonathan Parker LJ (with whom Judge and Waller LJ agreed):

“I respectfully agree with the observations of His Honour Judge Havelock-Allan QC in Walker v WA Personnel Limited … to the effect that, as a matter of general approach, in deciding what is the appropriate remedy where there has been transaction at an undervalue the Court does not start with the presumption in favour of monetary compensation as opposed to setting the transaction aside and reinvesting the asset transferred. Indeed, in my judgement, in considering what is the appropriate remedy on the facts of any particular case the Court should not start from any priori position. Each case will turn on its particular facts, and the task of the Court in every case is to fashion the most appropriate remedy with a view to restoring, so far as it is practicable and just to do so, the position as it “would have been if [the debtor] had not entered into the transaction”. In some cases that remedy may take the form of reversing the transaction; in others it may not. In some cases it may take the form of an order for monetary compensation; in others it may not”.

Mr. Davies says this passage makes clear that the discretion is to do what seems just in order to put the parties back in their original position. The discretion is as to how the Court should restore the parties to their original position, not whether it should restore them to their original position at all.

In my judgment, the views expressed by the Court of Appeal in Ramlort are consistent with the views they expressed in Paramount Airways as I understand them. In Ramlort it was not in dispute that if there was a transaction at an undervalue (as the Court of Appeal held), the Court of Appeal should make an order restoring the parties’ original position. The issue was how it should do so, not whether it should do so. The remarks of Jonathan Parker LJ at paragraph 125 should be read and understood in that context. Moreover, even within that context, Jonathan Parker LJ said “each case will turn on its particular facts, and the task of the Court in every case is to fashion the most appropriate remedy with a view to restoring, so far as it is practicable and just to do so, the position …” (emphasis added). Thus, he too recognised that the Court will only act with a view to restoring the parties’ position “so far as it is … just to do so”, echoing the Vice-Chancellor’s phrase “if justice so requires” in Paramount Airways and reflecting the same approach.

Of course in the vast majority of cases where the conditions for the application of the section are satisfied, the Court will make an order. Nevertheless, the Court retains an overall discretion which is wide enough to enable it to make no order where, exceptionally, justice so requires, and in my judgment that is not limited to extra territorial considerations.

I consider, this is an exceptional case in which justice requires that I make no order notwithstanding that the conditions for the application of the section are otherwise satisfied.

In my judgment, when it comes to discretion, it is not right to view the severance notice and receipt in isolation, without regard to the purchase and transfer only two months previously with which they are obviously intimately connected. The freehold was only purchased in the first place because Mrs. Malden-Browne had the opportunity to acquire it on the death of the freeholder at a very substantial discount of £70,000 or over one-third of the vacant possession value, because of her protected tenancy. That was hers and hers alone, nothing to do with Mr. Brown. The purchase of the property as joint tenants in effect conferred a windfall on Mr. Brown of half the value of the discount. True, he was jointly liable with Mrs. Malden-Browne for the mortgage repayments, but they were always going to be made by Mrs. Malden-Browne (as they were by direct debit from her bank account). If she defaulted in the mortgage payments, the mortgage company would enforce the security and sell the house to repay the loan. The equity of redemption belonged to both Mrs. Malden-Browne and Mr. Brown and was worth over 50% of the amount of the loan, on valuations pertaining at the time of the purchase, and even more with the increase in the value of the property which has occurred since the purchase.

The effect of the severance notice and receipt entered into two months later was simply to remove that windfall and reduce Mr. Brown’s interest to a nominal interest. Moreover, on Mrs. Malden-Browne’s evidence (which, as already indicated, I accept), it was never intended that Mr. Brown should have such a windfall in the first place, and the execution of the severance notice and receipt just over two months later was to give effect to what was intended, namely that he should have only a nominal interest in the property. If there had been a declaration of trust at the time of the purchase to reflect that intention, there would have been no basis for an application under s.339 at all.

Moreover, since the severance notice and receipt were signed on 6 February 2000, Mrs. Malden-Browne has (as I have found) made all the mortgage payments and associated life assurance premium payments and all, or almost all, the council tax payments, utility bills and other household expenses. Those by themselves would not justify my declining to make an order, since they can and would be taken into account by way of equitable accounting if I were to make an order as referred to below. However, in all the circumstances, and in particular the matters referred to in paragraphs 61 and 62 above, I consider that justice requires I should make no order.

I should add that if I had otherwise been minded to make an order with a view to restoring the parties to the position they would have been in if the severance notice and receipt had not been executed, it is by no means obvious to me that such an order would in fact yield a substantial net gain to the Trustee at the end of the day. It was common ground that under any order that I might make such as a declaration of trust restoring Mr. Brown’s 49% interest, or monetary equivalent, there would have to be an equitable accounting to reflect the parties’ contributions to the mortgage payments, life assurance premiums, and other household expenses and household improvements paid by her. There is no evidence before the Court as to what the property is worth now. But the value of the property was agreed by the parties in March 2005 (for the purposes of Mrs. Malden-Browne buying out Mr. Brown’s 1% interest following the trial before Mr. Justice Lloyd) at £270,000, or approximately £140,000 after deduction of the mortgage of £130,000. Even allowing for some increase in value since then, it is by no means clear that much would remain once all the mortgage payments, life assurance premiums and household expenses and household improvements paid for by Mrs. Malden-Browne are deducted.

Mr. Davies rightly expressed concern about the need for yet more proceedings to determine valuation and the equitable accounting if I were to make an order, but in the end concluded that was unavoidable if I were to make an order. The result of those further proceedings might well be to produce little, if anything, for the Trustee after the equitable accounting. I would have been reluctant to subject Mrs. Malden-Browne to yet further proceedings over the property. Happily, in view of my decision, that will not now happen.