4Eng Ltd v Harper & Ors

The claims before me relate to claims brought by the claimant (“4Eng”) which have been the subject of a judgment on liability (4Eng Ltd v Roger Harper and Barry Simpson, unrep., 3 May 2007, Briggs J) and another on damages (4Eng Ltd v Roger Harper and Barry Simpson [2008] EWHC 915 (Ch), David Richards J). The present claims relate to efforts by 4Eng to realise assets to meet the award of damages in its favour. The claims are brought under s. 423 of the Insolvency Act 1986 to set aside certain transactions entered into by Barry Simpson (“Mr Simpson”) transferring property owned by him to his wife. At the start of the trial before me, similar issues arose in relation to assets transferred by Roger Harper to members of his family. However, part way through the trial a settlement agreement was reached in relation to those issues and it was not necessary for me to hear evidence or rule on those issues.

Section 423 of the 1986 Act provides as follows:

“Transactions defrauding creditors

(1)

This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if -

(a)

he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

(b)

he enters into a transaction with the other in consideration of marriage [or the formation of a civil partnership]; or

(c)

he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.

(2)

Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for –

(a)

restoring the position to what it would have been if the transaction had not been entered into, and

(b)

protecting the interests of persons who are victims of the transaction.

(3)

In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose –

(a)

of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

(b)

of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

Section 424 provides, in relevant part, as follows:

“Those who may apply for an order under s 423

(1)

An application for an order under section 423 shall not be made in relation to a transaction except - …

(c)

in any other case, by a victim of the transaction.

(2)

An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction.”

Section 425 provides as follows:

“Provision which may be made by order under s 423

(1)

Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows) -

(a)

require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made;

(b)

require any property to be so vested if it represents, in any person’s hands, the application either of the proceeds of sale of property so transferred or of money so transferred;

(c)

release or discharge (in whole or in part) any security given by the debtor;

(d)

require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct;

(e)

provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction to be under such new or revived obligations as the court thinks appropriate;

(f)

provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction.

(2)

An order under section 423 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the debtor entered into the transaction; but such an order –

(a)

shall not prejudice any interest in property which was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and

(b)

shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.

(3)

For the purposes of this section the relevant circumstances in relation to a transaction are the circumstances by virtue of which an order under section 423 may be made in respect of the transaction.

(4)

In this section “security” means any mortgage, charge, lien or other security.”

The leading authority on the meaning of “purpose” in s. 423(3) is Hashmi v Commissioners of Inland Revenue [2002] EWCA Civ 981; [2002] BPIR 974. The holding in the decision is summarised in the head note as follows:

“In order for a claimant to demonstrate that the transferor had the requisite statutory purpose of defrauding creditors as set out in s 423(3), it was not necessary to establish that such was his sole or dominant purpose and it was sufficient for the claimant to establish that such was a substantial purpose and, in this respect, two or more purposes may co-exist.”

Arden LJ dealt with the issue at [23]-[25] as follows:

“[23] The question arising on this appeal is whether on the true construction of s 423 the purpose shown must be a dominant purpose. In my judgment the answer to that question must be arrived at taking into account the role, as explained above, of s 423 in insolvency legislation. Accordingly it is not necessarily helpful to apply the construction placed on similar words in different provisions and none was suggested. In my judgment there is no warrant for excluding the situation where purposes of equal potency are concerned. That was pointed out by His Honour Judge Moseley QC in the Starelm Properties case and is in my judgment correct. Thus one purpose can co-exist with another. Moreover, as Jonathan Parker J said in Re Brabon, there is no epithet in the section and thus no warrant for reading one in. Accordingly, in my judgment, the section does not require the inquiry to be made whether the purpose was a dominant purpose. It is sufficient if the statutory purpose can properly be described as a purpose and not merely as a consequence, rather than something which was indeed positively intended. Moreover, I agree with the observation of the judge that it will often be the case that the motive to defeat creditors and the motive to secure family protection will co-exist in such a way that even the transferor himself may be unable to say what was uppermost in his mind.

[24] To take a homely example, suppose that I need to post a letter and also need to take the dog for a walk, and combine bother operations in the same outing. I approach this example on the footing that neither objective counts as trivial. It will be clear that I have two purposes in leaving the house. It is a meaningless inquiry to ask whether I regard one of those objects as superior to the other or regard them as of equal potency. By contrast, if I go out to post a letter and the dog gets out of the house, slips under the gate and runs after me, it could certainly not be said that I had two objects in that I was not intending to take the dog for a walk at the time. Likewise, if I go to take the dog for a walk and going past the postbox find an unposted letter in my pocket and take the opportunity of posting a letter at the same time, it will not be correct to say that I had two objects in that walk. I had only the one object, that of walking with the dog, and the posting of the letter was but a consequence of it. On the other hand, if I decide to take the dog for a walk but take the view that I will use the opportunity to post the letter at the same time, it can be said that I had two objects in that outing even if I would not have posted the letter until another day but for the need to take the dog for a walk.

[25] I cite these examples to emphasise that for something to be a purpose it must be a real substantial purpose; it is not sufficient to quote something which is a by-product of the transaction under consideration, or to show that it was simply a result of it, as in the Royscot Spa case itself, or an element which made no contribution of importance to the debtor’s purpose of carrying out the transaction under consideration. I agree with the point made by Laws LJ in argument, that trivial purposes must be excluded.”

Laws LJ agreed and added this at [32]-[33]:

“[32] I agree. It is clear that the statutory purpose referred to in s 423(3) of the Insolvency Act 1986 need not be the only purpose for which the impugned transaction was entered into. Moreover, there is in my judgment no warrant for a construction of the statute which would qualify the term ‘purpose’ by the adjective ‘dominant’. No such qualification is required to make sense of the Act or to give it pragmatic efficacy. On the contrary, it is easy to envisage cases where more than one purpose is at hand between whose weight or influence it is on the evidence impossible to distinguish in practical terms.

[33] In such a case, in my judgment, the application of s 423(3) is by no means necessarily excluded. What in my judgment is required is that the claimant show that the donor, vendor or settlor was substantially motivated by one or other of the aims set out in ss 423(3)(a) and (b) in entering into the transaction in question. There may be cases in which, even absent the statutory purpose, the transaction would or might have been entered into anyway. That would not necessarily negate the section’s application; but the fact-finding judge on an application made to him under s 423 must be alert to see that he is satisfied that the statutory purpose has in truth substantially motivated the donor if he is to find that the section bites.”

Simon Brown LJ agreed that the relevant test was not a question of whether the transferor’s sole or dominant purpose was to defraud his creditors, but whether that was a substantial purpose of his ([36]). No simple ‘but for’ test applied – it would not necessarily provide an answer to a claim to impugn a transaction under s. 423 that the transaction would have been entered into in any event for some other, legitimate reason that the transferor had for acting ([37]). He said this at [38]-[40]:

“[38] I became persuaded, however, that this is the wrong approach. Assume, say, that the debtor makes a gift partly out of a wish to avoid inheritance tax and partly to escape his creditors; and assume further that he would have made it in any event purely for inheritance tax purposes. That, to my mind, should not save the gift from being set aside. Escaping the creditors may well, after, all have been a substantial factor in the donor’s thinking. No more should a gift, in my opinion, be saved merely because the debtor would in any event have made it to benefit the donee.

[39] It therefore seems to me that the test cannot be refined beyond saying that in each case the question to be asked is: can the court be satisfied that a substantial purpose of the debtor’s transaction was (putting it in shorthand) to escape his liabilities?

[40] I would, however, add this. If in fact the judge were to find in any given case that the transaction is one which the debtor might well have entered into in any event, he should not then too readily infer that the debtor also had the substantial purpose of escaping his liabilities. The judge in the present case, although accepting that the debtor wanted to secure his son’s future, found that his dominant purpose was to put the property beyond the Revenue’s reach. For my part, I would question whether the evidence entitled him to go quite that far. He was, however, in my judgment certainly entitled to conclude that this was one of the debtor’s purposes, and not a negligible one. Such a conclusion was, in my judgment, sufficient to sustain his decision.”

A claim under s. 423 is a claim for some appropriate form of restorative remedy, to restore property to the transferor for the benefit of creditors, who may then seek to execute against that property in respect of obligations owed by the transferor to them. In an appropriate case, an order might be made to require the transferee to pay sums or transfer property direct to the creditors, if the position in relation to execution is clear and any further costs associated with execution ought to be avoided. But often the appropriate order will be for the transferee to pay sums or transfer property back to the transferor, leaving the distribution of those sums or property as between the creditors of the transferor to be governed by the general law. This may be particularly important if the transferor is bankrupt or in liquidation (or about to become bankrupt or go into liquidation) and has a range of creditors not all of whom are before the court on the application made under s. 423. In the present case, 4Eng primarily seeks orders requiring Mrs Simpson to pay monies and restore property to Mr Simpson to assist it in then executing against those monies and property.

The trigger for an order to be made under s. 423 and s. 425 is that it is established that the transferor has entered into a transaction at an undervalue as defined in s. 423(1) in circumstances where the transferor entered into that transaction for the purpose of putting assets beyond the reach of a person who is making or might make a claim against him (s. 423(3)(a)) or of otherwise prejudicing the interests of such a person in relation to such claim (s. 423(3)(b)) (which I will refer to compendiously as “a relevant purpose”). Where there is the combination of a transfer of assets at an undervalue entered into by the transferor for a relevant purpose, the usual interest of a transferee in the security of his receipts is overridden in favour of those with valid claims against the transferor (“the transferor’s creditors”). The interests of the transferor’s creditors override the interests of the transferee. By virtue of the statute, this combination of factors operates so as to make the transaction reversible for the benefit of the transferor’s creditors.

The statute does not specify any particular mental state or action on the part of the transferee as an ingredient of the trigger conditions for liability, but that does not mean that such matters are irrelevant for defining the extent of the liability to be imposed, or the order to be made, at the next stage in the analysis, when the court considers the question of remedy under s. 423(2) and s. 425.

So far as I am aware and according to Counsel’s researches, there is no relevant authority governing the operation of these statutory provisions. Once the trigger conditions defined in the statute are satisfied, a creditor of the transferor will have a claim against the transferee. A wide jurisdiction is then conferred upon the court to fashion a suitable remedy. The broad objective of the remedy is set out in s. 423(2) (to “restor[e] the position to what it would have been if the transaction had not been entered into” and to “protect[] the interests of persons who are victims of the transaction”), but leaving a wide margin of judgment to the court to decide what order is appropriate (it is to “make such order as it thinks fit for” the defined objective). An extensive, non-exhaustive list of the wide range of orders which may be made in pursuit of that objective is set out in s. 425. This includes making an order to transfer any property transferred in the relevant transaction at an undervalue to any other person (such as the transferor, so as then to enable his creditors to execute a judgment against it, or directly to the transferor’s creditors) (s. 425(a)), making such an order in respect of any other property which represents in the transferee’s hands property which was transferred in the relevant transaction at an undervalue (i.e. a statutory power to trace assets in the transferee’s hands – s. 425(b)) and making an order requiring the transferee to pay to the transferor or his creditors such sums as the court may direct in respect of benefits received from the transferor (i.e. an order which does not depend upon the transferee still having in his hands the transferred property or traceable assets representing it).

In my judgment, the nature of any order and the extent of the relief granted by the court under s. 423(2) and s. 425 should take into account the mental state of the transferee of property under a relevant transaction (or of any other person against whom an order is sought) and the degree of their involvement in the fraudulent scheme of the debtor/transferor to put assets out of the reach of his creditors. The principles in the application of this statutory regime should reflect in this respect general principles inherent in other areas of the law, which treat the mental state and degree of involvement of a defendant in wrongdoing as relevant to the extent of recovery available against him (compare, as one example among many, Seager v Copydex [1967] 1 WLR 923, 932 – no order of an account of profits ordered against an innocent wrongdoer in respect of a breach of confidence). Although the trigger conditions for liability to make restoration under s. 423 set out the basic balance to be struck between the interests of the creditors and of a transferee as established by Parliament, the making of an order under s. 423(2) and s. 425 necessarily requires some further balancing of the interests of the transferor’s creditors and of the transferee to be determined by the court, since by the time the court has to take action events will have moved on from the transfer and the balance of the equities between creditors and transferee may well have been affected by changes in circumstances over time.

For example:

Across the range of cases, the position may become more complex if, after the transfer, the transferee has become insolvent, so that the competing interests of the transferor’s creditors and the transferee’s creditors have to be taken into account (not a complication which arises in the present case). The remedy will also, of course, have to be adjusted as appropriate if the extent of the creditors’ claims against the transferor is less than the value of the transferred property in the transferee’s hands.

In choosing what relief is appropriate in a given case, a great deal will depend upon the particular facts. One of the reasons the court is given such a wide jurisdiction as to remedy under this regime is to allow it flexibility in fashioning relief which is carefully tailored to the justice of the particular case. Helpful analogies may be drawn with other areas of the law to guide the court in reaching its conclusion, but given the wide range of situations which the statutory regime is intended to deal with it would be wrong to be unduly prescriptive in trying to lay down hard and fast rules for the application of these provisions.

The claims by 4Eng against Mr Harper and Mr Simpson arise from representations made to induce it to enter into, and the terms of, a share purchase agreement dated 29 June 2001 in relation to an engineering company called Ironfirm Ltd, which traded using the name Excel Engineering (“Excel”), under which Mr Harper and Mr Simpson sold 100% of the share capital in Excel to 4Eng. The nature of the claims was set out in detail in the judgment of Briggs J and is conveniently summarised in this way in the judgment of David Richards J at [2]-[5]:

“2.

The facts relevant to the fraud practised by the defendants on the claimant may be summarised as follows. The defendants owned and managed Ironfirm Limited which traded under the name Excel Engineering (‘Excel’) and provided engineering services. Its principal customer was Mars UK Limited (‘Mars’). By a contract dated 29 June 2001, the defendants sold the entire issued share capital of Excel to the claimant 4Eng Limited (‘4Eng’). 4Eng had been established by David Shepherd and Ian Tapping as the vehicle for acquiring companies in the engineering sector. Excel was its first, and as a result of the true state of Excel, its only acquisition.

3.

The contract provided for a total price of £1.2 million of which £550,000 was payable on completion and the balance by instalments over three years. The instalments were not in the event paid. Following completion, it soon became apparent to Mr Shepherd and Mr Tapping that there were problems in Excel and as a result of their painstaking investigations over a period of at least four years it was revealed that the defendants had over a long period engaged in the systematic bribery of employees of Mars which had resulted in payments by Mars to Excel on inflated or bogus invoices amounting to some £1.8 million. By the terms of the contract the defendants represented that they were not aware of any reason which would cause Mars to terminate its requirements for Excel’s products. As the defendants knew, because of the bribery this and other representations were completely untrue. Instead of buying a company worth £1.2 million, 4Eng had acquired a company which, as a result of the defendants’ corrupt system, was potentially liable to Mars for a large amount and liable also to lose is principal source of business. In short, the defendants had succeeded in defrauding first Mars and then 4Eng.

4.

On 8 December 2005 each of the defendants was convicted at Reading Crown Court on charges of conspiracy to corrupt and conspiracy to defraud in relation to Excel and Mars and sentenced to six and a half years’ imprisonment. The conviction of the defendants clearly established the corruption for which they were responsible and in which, through them, Excel had participated. This in turn established that there was, as long suspected, a large potential liability of Excel to Mars. Excel was insolvent and on 9 January 2006 went into administration. On 13 July 2006 it went into creditors’ voluntary liquidation.

5.

On the application for summary judgment, Briggs J held that the claim in deceit was established against both defendants, based on their knowledge of the falsity of a number of express representations contained in the share sale agreement on which 4Eng had relied in agreeing to purchase Excel. 4Eng’s alternative claims for breach of warranty were, at its request, stayed pending completion of the assessment of damages on the claim in deceit.”

Evidence about the fraud carried on by Excel upon Mars was adduced in the present claim in the form of unchallenged witness statements from Excel employees describing the conduct of Mr Simpson and Mr Harper while they ran the business of Excel. Mr Shepherd and Mr Tapping also gave evidence about the steps they had taken to unravel the fraud and work out what had happened in relation to a series of “ghost invoices” created by Mr Harper and Mr Simpson to provide a cover for fraudulent payments made to Mars employees as bribes for commissioning Excel to do work for Mars.

In his evidence in this court, despite his conviction for conspiracy to corrupt and conspiracy to defraud, Mr Simpson maintained that he did not think that he had done anything significantly wrong in relation to the conduct of Excel’s business. According to him, he considered that the sort of practices in which he and Mr Harper engaged (providing benefits to Mars employees in return for their commissioning work from Excel) were normal in business and there was nothing untoward about them. The object of this evidence in the context of the present claims against his wife (“Mrs Simpson”) for restoration of assets under ss. 423-425 of the 1986 Act was to suggest that he did not, when transferring assets to her, act with the purpose of putting those assets beyond the reach of his creditors in the sense required by s. 423(3).

I find that, whilst Mr Simpson may have had a general feeling (however misguided) that paying bribes was the way of the world, he understood very well that what he and Mr Harper had done was wrong and would not bear scrutiny by others. This is borne out by the evidence of the elaborate steps that they joined together in taking to conceal the payment of bribes in Excel’s books and records, in particular by the creation of “ghost invoices” which were then buried in Excel’s accounting systems. It is also borne out by the fact that, as determined in the judgment of Briggs J, Mr Harper and Mr Simpson deliberately misrepresented Excel’s financial state to Mr Shepherd and Mr Tapping for 4Eng. At no stage did Mr Simpson attempt to explain to Mr Shepherd and Mr Tapping that Excel’s healthy turnover with Mars while it was owned by Mr Harper and Mr Tapping had been achieved by the payment of bribes to Mars employees.

My view is also supported by the guilty verdict against Mr Simpson in the Reading Crown Court in December 2005 on the charge of conspiracy to corrupt and conspiracy to defraud. The jury found that Mr Harper’s and Mr Simpson’s scheme was a dishonest one to corrupt Mars employees, without Mars being made aware of the truth of what was going on.

In the light of this, I find that Mr Simpson knew that if the scheme were ever discovered he and Mr Harper would be likely to be at risk of substantial claims being brought against them by Mars and (after the sale of Excel to 4Eng) by 4 Eng. In the present context, in determining whether a relevant purpose is made out under s. 423(3) it would not matter whether Mr Simpson acted in order to protect his assets from possible claims by Mars or from possible claims by 4Eng. It would be sufficient for 4Eng to establish that he acted for either or both purposes, since it is not a requirement of s. 423(3) that the victim claiming relief in relation to a transaction was the very creditor whose claims the transferor was seeking to defeat – it is sufficient that the transferor acted with the purpose of defrauding any person who had made or might make a claim against him (see the reference in general terms in s. 423(3) to “a person who is making, or may at some time make, a claim against [the transferor]” and Sands v Clitheroe [2006] BPIR 1000).

In relation to the series of transfers from Mr Simpson to Mrs Simpson reviewed below, Mr Simpson denied that he acted with any relevant purpose in making the transfer. In evaluating that evidence in light of the test set out in Hashmi, Mr Burles for Mrs Simpson and Mr Hood for Mr Simpson both emphasised that Mr Simpson entered into the share sale agreement with 4Eng to sell Excel to 4 Eng. They submitted that if he had had any concern that possible claims by Mars that he had been involved in bribing its employees might materialise or might be discovered by 4Eng (the new owner) upon examination of Excel’s books and affairs, he would not have entered into that transaction. The suggestion was that this indicated that Mr Simpson had no active concern that his and Mr Harper’s fraudulent scheme would be discovered, and hence tended to undermine 4Eng’s case that Mr Simpson was at all stages from about 1999 acting with a relevant purpose in view.

They also pointed to the fact that over a long period Mr and Mrs Simpson had, since they married in 1966, put the succession of houses which they owned as the family home into their joint names and had established jointly held bank accounts as their main accounts, into which Mr Simpson paid monies which he received. There is no reason to think that they intended anything other than that they should be joint owners of these assets from time to time. This pattern of joint ownership of the main family asset and principal bank accounts was established well before January 1991 (when, according to the indictment against Mr Harper and Mr Simpson, their fraudulent scheme against Mars commenced) and April 1999 (the first of the transfers of assets from Mr Simpson to his wife now sought to be impugned by 4Eng). In the light of this pattern of behaviour, Counsel submitted, it was clear that when paying monies into the usual joint accounts Mr Simpson was doing no more than following his usual and well established practice to treat his money as part of the joint family assets; it was also difficult to infer that Mr Simpson acted with a relevant purpose in mind, when he left half such property in his ownership as his own share of these assets. Had he had such a purpose, he would have taken care to transfer monies and property into his wife’s sole name in order to protect them from his creditors.

I think there is considerable force in both these points in relation to the earlier part of the period which I have to consider, up to about April/May 2003. They are also supported by the fact that there came a time in early May 2003 when Mr Simpson did take legal advice about how to protect the family house (“Sunset Lake”) in case claims were made against him, by transferring his half share in it to his wife, and promptly acted on that advice by effecting such transfer so that Sunset Lake was owned wholly by Mrs Simpson. This was his single most valuable asset (apart from his pension fund, which could not readily be disposed of) and was the family home, yet he had not sought such advice previously nor taken any steps to protect it against his creditors. I think this is a very powerful marker which indicates that up to that point he was not acting for a relevant purpose when he paid for investments in his wife’s name, paid money into the joint accounts and when the latest family home (Sunset Lake) was acquired and put into his and his wife’s joint names. I do not find it plausible to suppose that Mr Simpson had a relevant purpose in transferring other assets to Mrs Simpson prior to about April/May 2003, yet left his most important and personal asset exposed to execution by those with claims against him.

Mr Simpson also arranged for substantial funds derived from a large lump sum payment he received in about early 2003 out of his private pension fund to be transferred into his wife’s name from April/May 2003. The first payment to take out an investment fund with HSBC in Mrs Simpson’s sole name which was derived from his pension lump sum was a major transfer of funds (£150,000) in late April/May 2003 (see para. [75] below). The coincidence in timing here again supports the view that it was in April/May 2003 that Mr Simpson realised that steps should be taken to protect the family’s assets by putting a major part of them into his wife’s sole name, and began engaging in transfers of assets into her sole name for a relevant purpose. (4Eng has other claims for relief in respect of Mr Simpson’s remaining pension fund which are not before me).

Mr Freedman QC for 4 Eng submitted that Mr Simpson must have acted with a relevant purpose in making transfers before this time for further, additional reasons. In particular, he pointed to the facts that in correspondence from late September 2001 4Eng was asserting possible warranty claims against Mr Harper and Mr Simpson under the share purchase agreement; that on 20 February 2002 4Eng’s solicitor had a meeting with Mr Simpson and Mr Harper and made allegations that they had been involved in a fraud involving ghost companies; and that by letter dated 22 May 2002 from 4Eng’s solicitors to the solicitors acting for Mr Simpson and Mr Harper allegations were made that Mr Simpson and Mr Harper had caused payments to be made using ghost companies and false invoices bearing numbers in the 70,000 series (which allegations went to the heart of their fraud). Also, by letter dated 26 June 2002 4Eng warned Mr Harper and Mr Simpson that they proposed reporting the matter to the police. Mr Freedman submitted that Mr Simpson must have realised that the game was up and that thereafter (i.e. well before April/May 2003) he must have been acting with a relevant purpose in order to protect family assets.

I was not persuaded by this. After none of these events was there any pattern of Mr Simpson promptly taking steps to divest himself of his assets (in particular, his share in the family home) in favour of his wife or to shield his assets from 4Eng. Mr Harper and Mr Simpson put forward defences to 4Eng’s claims, and to some degree seem to have received favourable legal advice about them. It is by no means apparent that they had concluded that they would lose against 4Eng.

Also, over this period, from about October 2001, Mr and Mrs Simpson’s son, Matthew, suffered a marked deterioration in his mental condition. He suffered from a severe depressive illness with suicidal tendencies which worsened at about this time. The evidence of Mr and Mrs Simpson was that they became pre-occupied with caring for him and in trying to be with him as much as possible to prevent him from committing suicide. Mr Simpson’s attention was diverted away from his business and financial affairs to a considerable extent. Tragically, despite these efforts Matthew committed suicide on 17 April 2002. Mr and Mrs Simpson were, unsurprisingly, devastated. Again, their evidence was that Mr Simpson could give little or no attention to his financial affairs. Accordingly, they said, I should conclude that he had not acted at that time or indeed subsequently with any relevant purpose in making transfers to Mrs Simpson.

I accept their evidence in this regard, up to a point. It is corroborated to an extent by indications in the contemporaneous documentation that Mr Harper was experiencing difficulty in trying to get Mr Simpson to focus on the claims which 4Eng was making against them and in preparing their defence, because of the problems he had with Matthew and his grief after his suicide (as an example, I refer to a letter from Jacksons to Mr Harper dated 13 December 2002, which included this: “I know that there have been grave difficulties with Barry Simpson given his mental condition and that of his wife, but I think you need some kind of minimum authority from him so that you can conduct the case accordingly so that it does not stagnate to your disadvantage”). I accept that Mr Simpson was deeply affected by grief and a sense of remorse that he had failed to prevent Matthew’s suicide. All this, combined with the absence of any significant pattern of action being taken to shield his assets from claims at that stage, leads me to conclude that Mr Simpson was not taking steps to effect transfers to his wife with a relevant purpose until somewhat later, in early 2003.

There was a letter from Jacksons dated 23 August 2002 to Mr Harper alone, in which they referred to a meeting to take place and put forward as one item for the agenda “Discussion of asset protection matters”. It is likely that Mr Harper informed Mr Simpson about this letter after receiving it, since they both attended the meeting with Jacksons shortly afterwards. There does not appear to have been any earlier occasion when this topic was raised with Mr Simpson. However, the advice given at the meeting about the claims against Mr Harper and Mr Simpson was favourable, as summarised in a further letter from Jacksons (this time addressed to both Mr Harper and Mr Simpson) dated 2 September 2002, in which the partner advised (in relation to the allegations then being made about payments to ghost businesses), “I do not believe this claim will be sustainable at the end of the day”, and concluded, “… I am considerably more optimistic having discussed this matter at length with you both and feel that we should now be proceeding ahead”. The letter did not set out any advice on asset protection. Although there were some transfers of assets by Mr Simpson to Mrs Simpson shortly before 23 August 2002 (see para. [74(2)] below) they are explicable by reference to other, legitimate considerations. There was no pattern of Mr Simpson transferring other assets to Mrs Simpson immediately after 23 August 2002, after the meeting with Jacksons or after their letter of 2 September 2002. Nor was there any pattern of Mr Harper seeking to transfer his assets to family members at this stage - he approached Jacksons only in January 2003 to ask them to effect transfers for him. This again indicates that Jacksons had not advised Mr Harper and Mr Simpson to take such action in August/September 2002) and that it was not a matter seriously in consideration at that stage.

Mr Freedman also relied on the fact that on 4 December 2002 the police conducted raids at Sunset Lake and at the home of Mr and Mrs Harper, searching for evidence. But no charges followed at that stage or for a considerable period thereafter (Mr Harper and Mr Simpson were arrested and charged only on 12 June 2003), Mars had not asserted any claims against them, and again there is no pattern of action being taken then by Mr Simpson to shield his assets from claims in response to this. Mr Freedman also relied on the fact that letters before claim dated 9 December 2002 were sent to Mr Harper and Mr Simpson putting a figure of £5,127,606 on the principal claim against them. But the same comment applies.

On the evidence I find that what particularly precipitated a change in the position was an unsolicited letter dated 15 April 2003 to Mr Simpson from the solicitors then acting for him and Mr Harper (Beechcroft Wansborough), in which they said that Mr Harper had asked for advice “in connection with his personal assets and what he may do to protect those in the event of an adverse judgment against” him and Mr Simpson, and enclosed for Mr Simpson’s information their letter of the same date to Mr Harper setting out their advice about the steps which Mr Harper could seek to take to transfer his assets to family members to try to avoid having them fall into 4Eng’s hands if he lost the litigation. Beechcroft Wansborough invited Mr Simpson to call if he wished to discuss the matter further. He did not, but it is clear that at this stage he did register the point about taking steps to protect his assets. It was this correspondence to which he referred when he went to see Truman More to arrange for the transfer of his share in Sunset Lake to Mrs Simpson (see para. [54] below).

Accordingly, I conclude that up to about April/May 2003, Mr Simpson did not deal with his assets and effect transfers to Mrs Simpson for a relevant purpose; but that from that time on significant transfers of assets by him into Mrs Simpson’s sole name were arranged for such a purpose.

Mr and Mrs Simpson sought to suggest that even after that time, by reason of his grief and remorse over Matthew’s death, Mr Simpson was completely distracted from dealing with his own financial affairs, and so did not seek to act with a relevant purpose in view. I do not accept this. Although clearly very upset about Matthew’s death, Mr Simpson remained capable of taking and did take steps to obtain advice on arranging his and his wife’s property and financial affairs. I find that from about April/May 2003, when he sought legal advice about putting the family home fully into the name of Mrs Simpson, he had formed the intention that the most valuable elements of the family’s wealth should be protected as far as possible by being transferred into his wife’s sole name.

At trial, 4Eng was hampered by the poor compliance of Mr and Mrs Simpson with their disclosure obligations. Late disclosure was being given by Mrs Simpson well into the trial, and Mr Freedman and his team had to work hard to assimilate the stream of new information. It was sometimes difficult to piece together what had happened in relation to particular assets.

In July 2005 the Serious Fraud Office (“the SFO”) obtained a freezing order in relation to Mr and Mrs Simpson’s assets, in respect of claims to be made against them under the Criminal Justice Act 1988 in the criminal proceedings to strip them of any assets which represented the proceeds of crime. Mr and Mrs Simpson had to provide the SFO with details of their assets and any payments out (e.g. for Mr Simpson’s legal costs in relation to the criminal and civil proceedings) required the approval of the SFO. In the event, no order was made under the 1988 Act in the criminal proceedings, so leaving the way clear for 4Eng to pursue its claims and to seek to execute its judgment against assets held by the Simpsons.

On 8 December 2005, as set out above, Mr Harper and Mr Simpson were convicted of conspiracy to corrupt and conspiracy to defraud and were sent to prison. 4Eng had been asked by the SFO not to commence its civil action until after the conclusion of the criminal proceedings. 4Eng was now able to pursue its claims.

On 3 October 2007 4Eng obtained a freezing order against Mr Simpson in the High Court which included obligations to provide information about his assets to 4Eng. A further freezing order containing similar obligations was made against Mr Simpson on 3 June 2008.

On 8 May 2008 David Richards J made an order consequent upon his judgment on damages in relation to the deceit claims against them requiring Mr Harper and Mr Simpson to pay 4Eng £8,148,002.58.

On 10 July 2008 4Eng issued its present claim based on s. 423 of the 1986 Act against, among others, Mrs Simpson.

On 10 July 2008 David Richards J made an extended freezing order in favour of 4Eng including against Mrs Simpson in relation to certain assets set out in a schedule to the order. The extended order imposed disclosure obligations on both Mr and Mrs Simpson. The scheduled assets held by Mrs Simpson included a half share in the family home, Sunset Lake (i.e. Mr Simpson’s half share in the property which had been transferred to Mrs Simpson in May 2003), various bank accounts and financial investment products held by her, a Jeep Cherokee car, all assets held by her for the benefit of Mr Simpson and all assets of £1,000 or more in value transferred to her by Mr Simpson since January 1991 (the date given for the start of Mr Simpson’s and Mr Harper’s fraud in the indictment against them) and any assets and income derived from such assets. The order thus froze assets in Mrs Simpson’s hands which might be the subject of an application for relief under s. 423. The disclosure obligations upon Mrs Simpson included an obligation to make an affidavit to identify property transferred to her by Mr Simpson after January 1991 and property held by her for the benefit of Mr Simpson, including (at paragraph 7(g)):

“(g)

The capacity in which the assets are held and if held on behalf of another person (directly or indirectly, in whole or in part), the identity of that other person; …”

At this stage Mr Simpson was serving his prison sentence imposed in respect of his conviction in December 2005. He made a very short witness statement dated 16 August 2008 in response to the order giving in a schedule exhibited to it details of his own assets, Mrs Simpson’s assets and joint assets. The exhibited schedule of assets was as follows:

Mrs Simpson also swore a short affidavit dated 16 August 2008 in response to the order. She exhibited to the affidavit the same schedule of assets, which had been prepared in relation to the criminal proceedings against Mr Simpson. Mrs Simpson said that the schedule set out her asset position and continued, “So far as I am aware I do not own any other property either legally or beneficially”. This was obviously her response to paragraph 7(g) in the order of 10 July 2008; it shows that she had the idea of legal and beneficial ownership, and the distinction between them, in her mind when she swore her affidavit. The schedule listed Sunset Lake as her asset. Mrs Simpson did not reveal that she had obtained on order from the Bournemouth District Registry of the High Court on 13 December 2007 declaring that she owned 50% of the beneficial interest in Sunset Lake and that her husband owned the other 50% (“the Bournemouth order” - see para. [62] below). This only emerged from a witness statement of Mrs Simpson dated 21 July 2009 and attached documentation, provided after the trial had started.

In her oral evidence, Mrs Simpson sought to explain her omission to explain the ownership of Sunset Lake as declared by the court by saying that the schedule was just dealing with who owned the various assets “on paper”. I do not accept that explanation. The term of the order of 10 July 2008 set out above was very clear, and Mrs Simpson’s answer was very clear. It is also clear that she had the distinction between legal and beneficial ownership well in mind when she swore her affidavit. It is not possible that on 16 August 2008 she could have forgotten the Bournemouth order of 13 December 2007 obtained on her own application, and she did not claim that she had. If Mrs Simpson had revealed in August 2008 that half the beneficial interest in Sunset Lake was owned by Mr Simpson, 4Eng would immediately have taken steps to obtain a charging order against his share of the property and would have sought a sale of it in execution of the award of damages made against Mr Simpson in 4Eng’s favour. However, Mrs Simpson succeeded in averting that outcome by maintaining in her affidavit of 16 August 2008 (in conjunction with Mr Simpson in his witness statement of the same date) that she was the full owner of Sunset Lake.

I am driven to the conclusion that Mrs Simpson lied in her affidavit in this regard. I cannot infer from the fact that she disclosed very late in the day that the Bournemouth order had been made that she was honest when she made her affidavit in August 2008. In my view it is more likely that, as the trial date when she would have to go into the witness box loomed nearer and lawyers for 4Eng were making energetic enquiries of their own about the various assets in dispute, Mrs Simpson decided that the safer course would be to reveal, at the last possible minute, the truth about the Bournemouth order.

Mr Simpson had been given notice of the application for the order and accepted that he knew of the order which was made. I find that he too must have appreciated that what he said in his witness statement about Sunset Lake being an asset of his wife rather than a joint asset was untrue.

By a further order dated 13 October 2008 the freezing order in 4Eng’s favour was extended to include all Mrs Simpson’s interest in Sunset Lake. 4Eng complained that Mr and Mrs Simpson had not provided adequate disclosure of assets, so they were each also ordered to provide all the disclosure required of them under the order of 10 July 2008 to the best of their ability and after making reasonable inquiries.

By an order of 10 December 2008 revised directions were given for the preparation of the case for trial. Mr and Mrs Simpson were ordered to serve their evidence in answer to the claim by 30 January 2009, and standard disclosure by each party was to follow thereafter.

Mr and Mrs Simpson still had not fully complied with their disclosure obligations under the order of 10 July 2008, so 4Eng applied for and obtained a further order dated 10 December 2008 requiring them to do so by 30 January 2009 to the best of their ability and after making all reasonable inquiries, failing which they would be debarred from defending the claim brought under s. 423.

Mr Simpson made a witness statement and Mrs Simpson swore an affidavit dated 30 January 2009 responding to the disclosure orders made against them and to stand as their evidence for trial in accordance with the directions made on 10 December 2008. Mrs Simpson referred to difficulties in providing full information about their assets because relevant paperwork had been seized by the police previously. Mr Simpson was still in prison (he was released in March 2009).

In her affidavit, Mrs Simpson now said she held Sunset Lake and the other assets previously listed as “Joyce Simpson’s assets” (i.e. assets in her sole name) on trust for Mr Simpson and herself in equal proportions, apart from Sunset Lake which she said she held on trust for herself and Mr Simpson in relation to which she said, “I understand that the beneficial holding may be in the region of 67% for myself and 33% for Barry Simpson”, and gave detailed reasons to support that view. She again did not mention the Bournemouth order which declared that each of them had a 50% interest. In her oral evidence, Mrs Simpson said that she had always thought that she owned only 50% of Sunset Lake. I therefore find that her detailed suggestion in her affidavit of 30 January 2009 that she owned 67% was a further dishonest effort by her to stave off enforcement action and limit the ability of 4Eng to seek to execute the judgment in its favour against the family home (see para. [64] below).

Her new suggestion that she held the other assets listed in her sole name on trust for herself and Mr Simpson was also incorrect and confusing, since in fact they had been transferred or set up in her sole name for reasons which made it clear that the true intention was that she should be sole legal and beneficial owner of them. However, I think that this was not a matter of dishonesty, but of Mrs Simpson’s failure to appreciate where legal and beneficial title in relation to those assets truly lay. Her evidence in that regard is properly to be understood as conveying her broad understanding that these were family assets in a very general sense, rather than as establishing that she did in fact hold them on trust for herself and Mr Simpson (and Mr Freedman did not contend that they were so held).