Summary

Applications under the Insolvency Act 1986 s.423 to set aside a transfer of property were not struck out as an abuse of process where they had been brought subsequent to the determination of the issue of the validity of the transfer. The question of validity was separate from the issue of whether the transfer should be set aside. It was therefore not the case that the s.423 applications should have been brought as part of the earlier proceedings.

Facts

The defendants (D1 and D2) applied for applications brought by the claimants (C1 and C2) under the Insolvency Act 1986 s.423 to be struck out as an abuse of process.

Shortly before his conviction for murder, D1 executed a deed purporting to transfer various properties to D2, his son. The validity of the transfer was in issue. C1 claimed damages against D1 for unlawful killing and obtained judgment in default and a freezing order. C2, solicitors who had acted for D1 in his criminal trial, obtained summary judgment against D1 in respect of unpaid fees. They obtained interim charging orders against the properties by way of enforcement. D2 was joined to the charging order proceedings. He applied for a declaration that he was entitled to be registered as the proprietor of the properties and that the transfer was not in breach of the freezing order. After changing its solicitors, C2 stated that it intended to take a new approach and await the outcome of D2's application before proceeding with a fresh claim under s.423. The court held that the transfer deed was effective to transfer the beneficial interest in the properties to D2 and granted him the declarations sought. The claimants issued their s.423 applications on the basis that the transfer was a transaction at an undervalue aimed at putting assets beyond the reach of those with claims against D1. The defendants maintained that the claimants could have made those applications as part of the earlier proceedings because they arose out of the same circumstances.

C2 argued that there was a public interest in bringing wrongdoers to justice and that that should be regarded as a factor in the broad merits-based judgment required by Johnson v Gore Wood & Co (No.1) [2002] 2 A.C. 1.

Held

Abuse of process - Although it would have been possible to arrange matters so that the questions of the validity and effectiveness of the transfer deed were determined at the same time as the s.423 applications, the question was whether that should have been done and, beyond that, whether there was an abuse of process by reason of the claimants bringing s.423 applications separately from the determination of the validity of the transfer. The court would not lightly conclude that there had been an abuse where the point in question had not already been litigated between the parties: it had to consider whether the point could and should have been raised earlier. Determination of that question involved a broad merits-based judgment (see paras 27, 32, 34 of judgment).

Prejudice - Both defendants were subjected to detriment by the s.423 applications because of the uncertainty they generated regarding control of the properties and because of the need to respond to those applications (paras 37-38).

C1's claim - The issue of the validity of the transfer was distinct from its liability to be set aside under s.423. Although the defendants were being required to direct their minds and evidence for a second time to the circumstances in which the transfer was executed, and there was likely to be an overlap in the evidence to be put forward in the s.423 application, they were not being asked to address the same issue twice. In bringing her application, C1 was responding to the relief sought in D2's application. At the time D2's application was heard, all the parties were aware that an application under s.423 was likely to be forthcoming and the defendants could not have been under any misapprehension that judgment on that day was the end of the matter. Accordingly, C1's claim was not liable to be struck out as an abuse of process (paras 44-48).

C2's claim - C2's claim did not constitute a fresh challenge to the validity of the transfer; it was not seeking to go behind the declarations obtained by D2, but had accepted the validity of the transfer. C2 had explained that a change in legal advisers had resulted in a different view as to the appropriate course to take. That change of course was not as to whether an application under s.423 should be made at all, but as to the timing of that application and whether to combine it with the application in which the court was considering the validity of the transfer. The defendants had not been misled as to the fact that, if the validity of the transfer were to be upheld, they would ultimately have to address a s.423 application from C2. C2's approach of standing back from the dispute as to the validity of the transfer but remaining open to bringing a s.423 application if it was found valid was a legitimate and appropriate one. Therefore, its claim did not fall to be struck out as an abuse of process (paras 52-54, 56).

Section 423 - Section 423 provided the court with a discretion to set aside transactions in certain circumstances, but it was not to be regarded as a form of punishment of wrongdoers. The recipient of a transfer which was ultimately set aside might be entirely innocent of any wrongdoing. There was a public interest in parties being able to bring their disputes before the courts, particularly where there had not already been an adjudication on their claim, Johnson v Gore Wood considered (para.57).

Applications refused.