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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Pagemanor Ltd v Ryan & Ors [2002] EWCA Civ 1518 (02 October 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1518.html Cite as: [2002] EWCA Civ 1518

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MISS SONIA PROUDMAN QC)

		Royal Courts of Justice Strand London, WC2 Wednesday, 02 October 2002

Wednesday, 2 October 2002

1. LORD JUSTICE SCHIEMANN: The claimants appeal the refusal of Miss Sonia Proudman QC, sitting as a Deputy Judge in the Chancery Division of the High Court, to make an order under section 423 of the Insolvency Act 1986, setting aside a transfer made in 1998 of a house, 26 Leabourne Road, Stamford Hill, London, by the first two defendants, Martin and Lesley Ryan, and the third and fourth defendants, Michael and Doris Ryan.
2. The section provides for the setting aside of transactions entered into at an undervalue. Subsection (1) provides:

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

(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."

3. Subsection 3 of that section says:

"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."

4. The case in front of the judge was primarily concerned with a contract made in 1991 between Martin and Lesley Ryan, on the one side, and Michael and Doris Ryan on the other, and it related to the same house.
5. The judge was asked to set it aside under section 423. She declined to do so and that decision is not appealed. However, the judge also dealt with a later transaction between the same parties in respect of the same house. That is the transaction with which we are concerned: the transfer in May 1998 of the house from Martin and Lesley to Michael and Doris Ryan.
6. It is noticeable that this second transaction, the transfer of 1998, does not feature at all in the originating application with which these proceedings were commenced, does not play a significant part in the submission in closing below made on behalf of the claimant, and only occupies a very short part of the judgment.
7. The claimants had in 1998 an unpaid judgment in their favour against Martin and Lesley Ryan for £20,000 plus interest. It was accepted before the judge that the 1998 transfer was entered into in order to obtain priority over the claimant (so there has not been any argument in front of us in relation to subsection(3) of section 423).
8. The main point which has been made by Mr Sprat runs as follows. He says that immediately prior to the execution of the 1998 transfer the parties to that transfer, namely Martin Lesley on one side, and Michael and Doris on the other, must have abandoned the 1991 contract. The transfer is on different terms and it really could not stand with the earlier contract. He says that effectively they elected not to pursue their rights under the 1991 contract but only to go under the 1998 contract.
9. For my part I find that an unconvincing proposition. Certainly the 1991 contract was still in existence, as the judge found, and gave rights to Michael Ryan and Doris Ryan in 1998. That much is common ground. In those circumstances I do not consider that it is at all plausible to argue that the 1991 contract had no existence prior to the transfer. Clearly any abandonment of rights under the 1991 contract must be coincidental with commencement of rights under the 1998 transfer.
10. The crucial question under section 423, in the context of the present case, is whether the 1998 transaction was one entered into at an undervalue. Now, Mr Sprat takes two points. His first point was that whereas under the 1991 contract more than £67,000 was payable, under the 1998 transfer the sum was less than £20,000. Let me explain. The first instrument of 1991 provided for a payment of £67,210, and it was agreed that that sum, as is so often the case, would be used in part to pay off the outstanding mortgage. The 1998 transfer had a different arrangement. Much less was payable in cash to the transferors, Martin and Lesley Ryan; but instead the transferees agreed to assume the liabilities of the mortgagor. Those liabilities at that time were £50,837 and the mortgagee released the transferors from their obligations under the mortgage. But in very broad terms the position of the two is rather similar. Broadly speaking, £59,000-odd was the total amount with which the buyers had to part, or in any event assume liability for.
11. When the section talks of an undervalue it presupposes a valuation undertaken immediately prior to the sale. The seller is to ask himself "If I enter into this transaction is the sale at a significant undervalue?" In doing so he must take into account all the encumbrances which bite upon the property. In the present cases there were two. One was the mortgage and the second was the obligation to transfer to Michael and Doris Ryan. In my judgment those obligations stayed until the time of the second transfer. There is no evidence to suggest that there was any undervalue in any sensible terms, once one bears in mind that the purchasers are not the world at large but rather the particular purchasers, Michael and Doris, who had a right to purchase this property on the terms set out in the 1991 agreement.
12. A further point was made by Mr Spratt. This was that house values generally went up between 1991 and 1998. So in general they have. However that contention does not help him because in the present case the house could not be sold to anyone other than Michael and Doris because of their rights under the 1991 contract. In any event there is no finding by the judge as to the 1998 value of the house. Mr Spratt cannot complain of any failure to make such a finding since he was not asked in clear terms to make one.
13. For those reasons I consider that this appeal ought to be dismissed.
14. LADY JUSTICE ARDEN: I agree. The crucial question is whether the 1998 transfer was carried out at an undervalue for the purposes of section 423(1)(c) of the Insolvency Act 1986. That section provides in material part:

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

(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."

15. There is no statutory definition of the word "consideration", and it seems to me that it must be a reference to that which a party agrees to provide under the transaction.
16. To resolve this crucial question the court had to inquire, therefore, what consideration was given by both parties under the 1998 contract. This was the route which the judge took in the material part of the judgment. The judge held that the 1998 contract was not a completely new sale of the property but a variation of terms of the sale; and that at a time when the 1998 transfer was executed there was a binding contract between Martin and Lesley on the one hand (the vendors), and Michael and Doris (the purchasers) on the other, which could not be ignored. The judge further held that under the Ryan contract, Michael and Doris were entitled to register themselves as proprietors on paying off the Abbey mortgage. The vendors gave up nothing by executing the 1998 transfer; all that happened was that instead of being released as a result of the discharge of the mortgage they were released by the substitution of the purchasers as primary debtors. The judge concluded that, in technical terms, that release was the consideration for Martin and Lesley entering into the 1990 transfer.
17. The judge concluded:

"In my judgment, therefore, if the 1998 Transfer was a transaction in its own right for the purposes of s423, it was not a transaction at an undervalue."

18. The judge therefore next analysed this matter in terms of value. Was the transaction at an undervalue? Mr Christopher Spratt, for the appellant, rejects the judge's reasoning in this part of her judgment on a number of grounds. His fundamental proposition is that this was a variation of the contract which results in law in the creation of a new contract: see McCausland v Duncan Lawrie Limited [1996] 4 All ER 995.
19. While not doubting that proposition I agree with the judge's conclusion and her reasoning. Immediately prior to the 1998 transfer the 1991 contract was in force. The only basis on which it could be said in this court that that contract became unenforceable was when the 1998 transfer was itself executed because that transfer varied the contract and Section (2) of the Law Reform (Miscellaneous Provisions) Act 1989 provides (in essence) that a contract for the sale of land must be contained in a single document. There is no other basis on which the 1991 contract could be said to have become enforceable. Moreover, this is not a case where the parties agreed in advance that the 1991 contract should be abandoned. It only became unenforceable, as I have said, when it was effectively varied by the 1998 transfer. That could not take place unless and until the 1998 transfer had itself been executed. So when the parties entered into the transaction, the 1998 transfer, the only consideration which they could provide was consideration available to them immediately prior to the 1998 transfer. In the vendors' case this could not include the beneficial interest in the property. Indeed, the appellants accept the judge was correct to hold that under the Ryan contract Michael and Doris were entitled to register themselves as proprietors on paying off the Abbey mortgage, although Mr Spratt submits that they could only do so by means of enforcing the provision for the transfer provided for in that contract.
20. But that submission does not really diminish the point the judge was making. Under the 1991 contract, the vendors agreed to execute a transfer to be held in escrow pending the third anniversary of the execution of the contract, when the vendors would register themselves as owners. The only consideration which the vendors provided under the 1998 transfer was a covenant to transfer the legal title in a new manner and to release covenants in the Ryan contract particularly the covenant in clause 5 of that contract, which provided that the purchasers should indemnify the vendors against any payments under the Abbey National Building Society mortgage.
21. Under the 1998 transfer provision was made for the transferors to transfer to the transferees the property, subject to the mortgage under which £50,837.51 was owing. In addition they received by clause 4 of the 1998 transfer the benefit of the transferees' covenant that they would at all times observe and be bound by the covenants in the mortgage as if they had been a party to and executed the mortgage as borrowers and the benefit of a covenant from the Abbey National Plc whereby it released the transferors from performance of the covenants in the mortgage with it.
22. As I see it there was no material change between the amount of the Abbey National debt at the time of the 1991 contract the (Ryan contract) and at the time of the 1998 transfer. At the time of the 1991 contract (the Ryan contract) there was some £48,000 apparently due. There is no clear finding on this point, but that appears to be the position, because shortly before that date the vendors had taken out a 100% mortgage from Abbey National and the purchase price of the property was £48,000-odd and, as I have said, as at the date of the 1998 transfer the amount due to Abbey National PLC was £50,837.51. The judge took the view there was no significant difference between those two sums. In my judgment she was correct to do so and was entitled to do so and accordingly, in my judgment, her reasoning was correct and I would dismiss the appeal.
23. LORD JUSTICE DYSON: I agree with both judgments.
24. LORD JUSTICE SCHIEMANN: I also agree with the judgment of my Lady.

(Appeal dismissed; Appellants do pay Respondents' costs, such costs assessed at £3,000 plus VAT with liberty to apply within 14 days).