Tanner v Millar

This is a renewed oral application for permission to appeal from a judgment of District Judge Pelly given in the Cambridge County Court on 31 May 2012. By that judgment, District Judge Pelly determined that the bankrupt, MR E, had paid away substantial sums to the respondent to the application, Mr Tanner, by way of a transaction at an undervalue, such that Mr Tanner should be ordered to repay those sums in the amount of £425,000 to Mr E’ trustee in bankruptcy, pursuant to section 339 of the Insolvency Act 1986. I refused permission to appeal on the papers and gave an extended set of reasons for doing so by order dated 9 October 2012.

On this renewed application, Mr Khan, who appears for Mr Tanner, seeks to emphasise five points. Three of the points involve an application by Mr Tanner to have fresh evidence considered by this court, or at any rate indicate that such an application would be made upon the hearing of an appeal and, he says, would be likely to be successful and could give rise to a real prospect of success on appeal.

The first ground of appeal that Mr Khan particularly relies upon today relates to fresh evidence that Mr Tanner would wish to adduce concerning the authenticity of a set of drawings said to be drawings by Francis Bacon, which Mr E, the bankrupt, had sold by contract to a Mr Thompson, Mr Gowe and Mr Burr. The primary basis on which District Judge Pelly found that the bankrupt was insolvent at the time of the transfer of funds to Mr Tanner was that, in breach of the contract of sale in relation to those drawings, the drawings were not authentic. There was evidence before the district judge on the basis of which he concluded that, as a result of the contract of sale and the inauthenticity of the drawings, the bankrupt had a contingent liability to pay damages to the purchasers far in excess of his available assets at the time – see paragraphs [7]-[10] of the judgment, in which the district judge refers to proceedings which had been issued against the bankrupt in that regard leading to a default judgment for damages to be assessed.

The new material which Mr Tanner seeks to place before the court upon an appeal concerns court proceedings in Italy in the form of a judgment on a criminal prosecution of a Mr Ravarino - who is said to have given the relevant drawings to the bankrupt - in relation to what were alleged to be attempts by Mr Ravarino fraudulently to sell certain other drawings purportedly by Francis Bacon from a set of materials which Mr Ravarino maintained he had been given by Francis Bacon. The Italian court judgment is dated 22 March 2005 and resulted in the charges against Mr Ravarino being dismissed. The court concluded that the prosecution could not fully clarify the sustainability and subsistence of the “prosecutorial hypothesis”. It appears that, in the light of evidence received in those proceedings, the court was not persuaded on what, in English court terms, would be a test of “beyond reasonable doubt” that Mr Ravarino had acted fraudulently.

In addition, Mr Tanner has placed before the court a witness statement of a Mr Guerini dated 18 January 2013; a witness statement of Anbra Draghetti, signed by her and dated 5 February 2011 (although curiously in the text referring to the appeal of Mr Tanner from the order of District Judge Pelly of 31 May 2012); a witness statement of Mr Ravarino; a further witness statement of Anbra Draghetti dated 3 January 2013; and a witness statement from Mr Tanner confirming his request in November 2012 for a translation of the Italian judgment. The statements from Ms Draghetti, as I understand it, are by a handwriting expert who had acted in the course of the Italian court proceedings. She has not had an opportunity to inspect the supposed Bacon drawings sold by the bankrupt to the purchasers under the purchase agreement in this case. In relation to other drawings in issue in the Italian proceedings, in the possession of Mr Ravarino, she expresses the view that they were drawings by Francis Bacon. The witness statement of Mr Guerini is the witness statement of the lawyer who acted for Mr Ravarino in those proceedings. He does not purport to be an art expert. He says at the end of his statement that

“In London I had an opportunity to view several of the drawings that Christiano Lovatelli Ravarino gave to Mr E, and which Mr E subsequently sold to the father of Edward Bigden and to Richard Thompson, and I can confirm that they are part of Christiano Lovatelli Ravarino’s collection.”

The suggestion by Mr Guerini is, therefore, that the drawings sold by the bankrupt were genuine. The statement by Mr Ravarino also refers to an incident in which he gave to the bankrupt some of the drawings that Mr Ravarino maintains Francis Bacon had given to him, which he later learned had been sold by the bankrupt.

Mr Tanner, in his new witness statement accompanying these materials, does not explain when or how he learned of the Italian proceedings, nor does he explain when or how he learned of the availability of an account by, for example, Mr Ravarino, about the circumstances in which he gave the disputed drawings to the bankrupt. On any view, Mr Ravarino would have been an obvious person to ask for information about the provenance of the disputed drawings.

Mr Tanner’s case, as presented by Mr Khan today, is that he was let down by his lawyers in the proceedings before the district judge in the Cambridge County Court. Mr Tanner, indeed, dismissed his lawyers partway through those proceedings. The suggestion is that, because of defaults by the lawyers, Mr Tanner could not, with reasonable diligence, have obtained the further evidence now sought to be placed before the court. The new evidence should, therefore, it is said, be admitted into evidence on an appeal and would be capable of giving rise to a real prospect of success for Mr Tanner on the appeal.

So far as the test for admitting further evidence on an appeal is concerned, I refer to the judgment of the Court of Appeal in Campbell v Daejan Properties Limited [2012] EWCA Civ 1503 at paragraph [31] in the judgment of Jackson LJ, where he said this:

“It is convenient to deal with the fresh evidence application at this stage. Under rule 52.11 (2) (b) of the Civil Procedure Rules ("CPR") the Court of Appeal may, in its discretion, receive evidence which was not before the lower court. This power, like all powers conferred by the CPR, must be exercised in a manner which will give effect to the overriding objective set out in Part 1 of the CPR. Rule 52.11 does not identify any specific factors to be taken into account. It is generally accepted, however, that the factors of principal relevance are those stated by Denning LJ in Ladd v Marshall [1954] 1 WLR 1489 at 1491. These are: (1) whether the evidence could have been obtained with reasonable diligence for use at trial; (2) whether the evidence would probably have an important influence on the result of the case; (3) whether the evidence is such as is presumably to be believed, even though it need not be incontrovertible.”

Having regard to those factors, it is my clear view that the fresh evidence in relation to the Italian proceedings and the alleged authenticity of the Francis Bacon drawings would not be admitted on an appeal upon application of this guidance. Mr Tanner has failed to show that this is evidence which could not have been obtained with reasonable diligence for use at trial. I do not accept that reference to default on the part of his lawyers is a good excuse in this regard. It may be that that is a matter which gives rise to a legal liability on their part, if it is true, but it does not establish that this was evidence of a character which could not have been obtained with reasonable diligence for use at trial. Apart from anything else, seeking evidence from Mr Ravarino would have been an obvious course to take, which, in my view, ought reasonably to have been obvious to Mr Tanner himself, quite apart from his lawyers, since Mr Ravarino was the person who had provided the disputed drawings to the bankrupt. The bankrupt was cooperating with Mr Tanner in the course of the proceedings in the Cambridge County Court and, as is clear from the statement obtained from Mr Ravarino, he was perfectly willing to provide supportive evidence if asked to do so. Further, if Mr Ravarino had been approached, the whole matter of the Italian proceedings and those involved in them, including Mr Guerini and Ms Draghetti, would have become known to and been available to Mr Tanner or those acting for him.

I also consider that, even if admitted, this is not evidence which would probably have an important influence on the result of the case. The insolvency of the bankrupt was determined on the basis of court judgments which had been entered against him on grounds of his breach of contract in relation to sale of the disputed drawings. On the footing that he was liable for breach of contract for failing to supply authentic drawings of Francis Bacon, the damages would in any event have been very considerable. The fresh material sought to be adduced is put forward in an attempt to show that the drawings were not in fact inauthentic, but that was a matter which, so far as the bankrupt was concerned, had already been determined against him and in relation to which he was liable to pay damages.

Further, I do not consider that the material that has been put forward satisfies the third criterion in Ladd v Marshall , namely that it is evidence which is presumably to be believed. There was expert art evidence available to District Judge Pelly which supported the court judgment against the bankrupt as indicating that the drawings were not authentic Francis Bacon drawings. The new material put forward does not, in my view, satisfy the test that it is presumably to be believed. Ms Draghetti has not herself inspected the disputed drawings relevant in this case. It also appears to me that there is not a clear statement of her having relevant expertise in the matter of assessment of authenticity of artworks which would allow the court, on the basis of the material before it now, to conclude that her opinion should be given any significant weight. Mr Guerini, as I have observed, is a lawyer and not an art expert. Mr Ravarino is someone who has an obvious self interest in seeking to maintain that works that he has been representing as being works of Francis Bacon are indeed so. I do not consider that this set of evidence is such as is presumably to be believed when placed against the evidence of acknowledged experts to which the district judge referred.

For all these reasons, I consider that there is no real prospect of admission of this fresh evidence on an appeal, if an appeal proceeded, and therefore there is no real prospect of success for Mr Tanner on this proposed ground of appeal.

The second matter urged by Mr Khan for Mr Tanner is in relation to the question whether the bankrupt was insolvent at the time that he transferred the funds in issue to Mr Tanner. Mr Khan submits that there is evidence that, even if the bankrupt were liable at that time for a considerable sum of damages contingent upon assessment by a court in relation to his breach of the contract of sale of the alleged Francis Bacon drawings, Mr Tanner would himself have stepped in to provide the funds necessary for the bankrupt to meet any such contingent liability. Therefore, Mr Khan submits, the bankrupt could not be regarded as being insolvent at the relevant time. In this regard also, Mr Tanner seeks to adduce fresh evidence for the purposes of the appeal in the form of, first, a witness statement of Darren George Edmonston, who was the accountant to Mr Tanner and the bankrupt, dated 21 November 2012. At paragraph 2(2) of the witness statement, Mr Edmonston says:

“I can confirm that Mr Tanner was financially capable of paying in excess of £3 million as evident from the fact that he had 5 years prior to the bankruptcy a house worth over £3 million which Mr Tanner has informed me he would have been happy to sell in order to meet any judgment, together with monies held in bank accounts and business interests. Mr Tanner could have raised a sum sufficient to meet the judgment debts through his house immediately. Accordingly, this demonstrates that Mr E was not insolvent in 2007.”

And, secondly, Mr Tanner seeks to rely on a further witness statement by him, dated 22 November 2012, in which he says this at paragraph 4:

“In 2006, I was the legal owner of Westgate Park, Long Melford, worth approximately £3.5 million. In 2006, both David [the bankrupt] and I also owned a freehold property in Cavendish worth approximately £500,000. Also by 2006, I had at least up to £500,000 in cash in my account. The bankrupt would have thus been able to meet any actual and continuing liabilities arising against him at the very least 3 years prior to his bankruptcy since I was most happy to pay any such liabilities through these properties or otherwise.”

Here again, I consider that Mr Tanner is unable to establish that there is any real prospect that this new evidence could be admitted at the hearing of an appeal, according to the guidance in the Campbell case. In this respect also, Mr Tanner maintains that the reason that such material was not placed before the court was through the default of his lawyers at the hearing. In my view, that is insufficient to establish in this case that this was not evidence which could have been obtained with reasonable diligence for use at the trial. Indeed, in my view, it ought reasonably to have been clear to Mr Tanner himself as the debate proceeded at the hearing before the district judge that, if he wished to adduce evidence to this effect in order to maintain the defence which he now seeks to maintain, he should have done so.

I also consider that, even if admitted, this is not evidence which would probably have an important influence on the result of the case. Quite simply, the fact that Mr Tanner would have been prepared to be generous and to provide monies by way of gift to the bankrupt to meet a damages liability in the period from 2006 does not establish that the bankrupt was not insolvent during the relevant period for the purposes of section 339 of the Insolvency Act. It is quite clear, as the district judge found, that the bankrupt did not have sufficient assets of his own to meet his liability to pay damages. He was therefore insolvent. The fact that he had a generous friend in the form of Mr Tanner on hand who might have been prepared to help him (but had no legal obligation to do so) does not meet the point, as determined by the district judge, that the bankrupt was himself insolvent at the relevant time.

For these reasons, as in relation to the first ground, I do not consider that there is a real prospect that the fresh evidence would be admitted on an appeal and, accordingly, I consider that there is no real prospect of success for Mr Tanner on the second ground.

The third ground urged by Mr Khan relates to the status of a transfer of £100,000 which was alleged to have been a gift from the bankrupt’s mother to Mr Tanner, and in relation to which the bankrupt maintained that, when he paid it on to Mr Tanner, he was simply giving effect to that original gift from the bankrupt’s mother to Mr Tanner so that, to this extent at least, there was not a transfer of monies at an undervalue by the bankrupt to Mr Tanner. The district judge evaluated this account on the evidence before him, particularly by reference to the bankrupt’s evidence at the hearing, at paragraphs [27]-[38] of his judgment. He found the story to be incredible, and concluded at paragraph [38] that it was far more likely that the £100,000 was paid by the bankrupt’s mother to the bankrupt simply because she still owed him that money which she was holding for him. Accordingly, the district judge found that when there was a later payment of £100,000 by the bankrupt to Mr Tanner, it was not in the form of passing on a gift from the bankrupt’s mother to Mr Tanner, but was indeed part of a transaction at an undervalue between the bankrupt and Mr Tanner.

In this respect as well, Mr Tanner seeks to adduce fresh evidence in the form of the witness statement of Mr Edmonston, to which I have referred. At paragraph 2(1) of that statement Mr Edmonston says:

“monies were given by Mrs E in the sum of £100,000 to John Tanner as a gift. At the time, I was personally informed by Mr Tanner that these sums had been given to him as a gift by Mr E. If I had been present, I would have pointed this out in evidence, and the Judge may have held in favour of Mr Tanner. As it happened, since I was not called to give evidence, the Judge wrongly held that the £100,000 was a transaction between Mrs E and Mr E.”

Here again, in my judgment, there is no real prospect, according to the guidance in the Campbell case, that this new evidence from Mr Edmonston would be admitted on an appeal. In my view, for reasons that I have already given in relation to Mr Edmonston, it is clear that this was evidence which could have been obtained with reasonable diligence for use at the trial. Indeed, Mr Edmonston himself said that he had produced various supporting documentation relating to Mr Tanner prior to the hearing to show and support the points that he refers to in his witness statement.

Moreover, I do not consider that this is evidence which would probably have an important influence on the result of the case; nor that it is such as is presumably to be believed. The reasons given by the district judge in his judgment for coming to the conclusion on the facts which he did were very compelling indeed and, in my view, the proposed new evidence from Mr Edmonston referring to matters which he had been told by Mr Tanner would not have been sufficient to meet the many and compelling points referred to by the district judge.

For these reasons, I again consider that this is not material in relation to which there is any real prospect of it being admitted on an appeal and, accordingly, that Mr Tanner has no real prospect of success on appeal in relation to this ground either.

The fourth point urged by Mr Khan was that the district judge ought to have concluded that there was no transaction at an undervalue, because of obligations which the bankrupt owed to Mr Tanner by reason of Mr Tanner’s generosity to him over the years, in particular in allowing him free board and lodging at his house. According to Mr Khan, the circumstances were such as to give rise to a constructive trust in favour of Mr Tanner should the relationship between Mr Tanner and the bankrupt ever break down, so that the payment of the sums by the bankrupt to Mr Tanner could not be regarded as being part of a transaction at an undervalue.

I do not consider that there is any real prospect of success for Mr Tanner on this ground either. In particular, at paragraph [30] of his judgment District Judge Pelly, having reviewed material in relation to the nature of the relationship between the bankrupt and Mr Tanner, said:

“…on the evidence before me there was never, I am afraid, any intention on the part of the respondent and the bankrupt to enter into any binding legal relations requiring the bankrupt to repay the respondent.”

That was in relation to monies paid by Mr Tanner to the bankrupt over the years to finance his lifestyle. It seems to me clear that the provision of board and lodging for the bankrupt by Mr Tanner fell into the same category of generous support for the bankrupt’s lifestyle without any expectation of repayment in due course. There was no substantive evidence before the district judge to support the inference that there was ever an intention to create any form of constructive trust in favour of Mr Tanner as a result of free board and lodging or provision of monies by Mr Tanner to the bankrupt. This is not a matter in relation to which Mr Tanner seeks to adduce any additional evidence for the purposes of the appeal.

In my judgment, on this point also there is no real prospect of success for Mr Tanner on appeal. I repeat what I said at paragraph 4 of my reasons for refusing permission on the papers, which, in my judgment, continues to hold good, even after the efforts that have been made on Mr Tanner’s behalf by Mr Khan at the hearing before me today, as follows:

“4.

The District Judge was also entitled to find on the evidence that the payment of £325,000 by the bankrupt to the appellant on26 June 2007 was a transaction entered into at an undervalue and not in repayment of any legal obligation of the bankrupt to the appellant. The judge was entitled to assess that the appellant’s credibility on this issue was damaged by inconsistent statements of his own and in the bankrupt’s evidence and by the appellant’s own evidence (paras 27-29) and was entitled to make the overall assessment on the evidence that there was never any intention on the part of the appellant and the bankrupt to enter into any binding legal obligations according to which the bankrupt was obliged to repay the appellant any sum (paras 30-31). The judge was therefore entitled to conclude that the payment of £325,000 was a transaction at an undervalue for the purposes of section 339 of the Insolvency Act 1986.”

I also refer to paragraphs 5 and 6 of those reasons, which go on as follows:

“5.

The District Judge was also entitled to find on the evidence that the payment of £100,000 by the bankrupt to the appellant on 13 September 2007 was a transaction entered into at an undervalue for the purposes of section 339. The Judge was entitled to reject the account offered by the appellant that it was a payment on by the bankrupt of a gift made in 2005 by the bankrupt’s mother for the appellant to be delivered via the bankrupt (paras 32-38).

6.

There was no evidence that the payments were made in consideration for any arguable obligation owed by the bankrupt to the respondent to which the decision in Hill v Hayne [2007] EWCA (Civ) 1284 might be relevant.”

Accordingly, in relation to this fourth ground urged by Mr Khan, I again conclude that there is no real prospect of success for Mr Tanner in relation to an appeal.

The fifth point urged by Mr Khan is that the district judge erred in failing to exercise his discretion as to whether to make an order under section 399 of the Insolvency Act. Mr Khan referred in that regard to Singla v Brown [2008] 2 WLR 283. In that case the court held that where, exceptionally, justice so requires, notwithstanding that a relevant transaction has been a transaction at an undervalue within the meaning of section 339, the court may in its discretion decide not to make an order for repayment under section 339(2) of the Act.

In my judgment, there is no real prospect of success for Mr Tanner on this ground either, having regard to the determinations and findings made by the district judge in his judgment. This was, in my view, a clear case in which an order for repayment of the sums transferred to Mr Tanner at an undervalue by the bankrupt should have been made. There were no good grounds on which, on the findings and determinations made by him, the district judge would have been justified in failing to make the order sought. It also appears, in any event, that he was not invited at the trial to consider the exercise of the exceptional discretionary power referred to in Singla v Brown not to make an order for repayment of sums paid by way of a transaction at an undervalue. I therefore do not think he can be criticised for not referring distinctly to the point in his judgment.

For all these reasons, and supplementing and affirming the reasons set out in writing by me on the application for permission to appeal on the papers for rejecting permission to appeal at that stage, I consider that Mr Tanner has failed to show that there is any real prospect of success for him on an appeal. There is no other compelling reason why there should be an appeal and, accordingly, this application is dismissed.