Analysis
Mostyn J granted an application by the applicant (W) to set aside transactions pursuant to s37(2) of the Matrimonial Causes Act 1973 that had been made by the first respondent (H) on about 2 December 2010 by which H disposed of his 86.4% shareholding in D Holdings Limited (DH). None of the respondents opposed the application. There was an issue whether or not the effect of the order operated retrospectively for all purposes, including fiscal purposes. Judgment was reserved and further written submissions were invited to determine whether the order setting aside the transactions was effective to annul or avoid ab initio for all purposes, including fiscal purposes, or whether the order operated only to effect a re vesting of the assets in H. The question was significant because it would determine where a capital gains tax liability would fall.
H was aged 62 and W was aged 34. They had married in 1998. In June 2010 the marriage broke down and H was diagnosed as suffering from frontal lobe dementia in September 2010. In December 2010, W issued divorce proceedings, which were dismissed by consent in April 2011. A fresh petition for divorce was issued in October 2011. Decree nisi was pronounced on 30 March 2012 but on 2 July 2012 it was agreed that it would be rescinded and the petition would be amended to pray for judicial separation. A decree of judicial separation was pronounced on 3 July 2012.
DH was the holding company of D Limited, which was a highly successful producer and distributor of certain products. It had been valued at between £75m and £100m. On about 7 December 2010, H transferred his shares in DH to the ninth respondent, a corporate trustee in the Isle of Man, for onward transmission to other Isle of Man entitles to hold pursuant to trust and pension fund arrangements. In setting aside the transaction, Mostyn J had held that W’s claims for a financial remedy were seriously compromised by these steps. Negotiations were advanced for the sale of DH for £62m and injunctive relief had been obtained by W.
Held:
(1) There is no doubt that an order under s37 MCA 1973 is a voidable transaction and an order setting the transaction aside would effect avoidance ab initio. The language of ‘avoidance’ and ‘setting aside the disposition’ in s37 would not be apt if the concept was repayment or revesting. This stands in stark contrast to other statutory provisions, such as s10 of the Inheritance (Provision for Family and Dependants) Act 1975, where the draftsman expressly did not want a reversing transaction to operate as avoidance ab initio (paras [15]-[18]).
(2) Unless a taxing statute says to the contrary, the right of the state to charge tax is subject to the effect of the transaction according to the general law. Tax effects of a transaction will be annulled retrospectively if it found to be voidable and declared void. An order that is retrospective under the general law is retrospective for the purposes of tax (paras [31]-[32]). If such tax liabilities survived the setting aside of a transaction, they would end up being attached to the disponer or to the assets and so diminish the capacity to restore the status quo ante. There is no public policy reason why HM Treasury should benefit from the brief life of transactions which have for all other purposes been set aside (paras [40]-[41]).
JUDGMENT MOSTYN J: [1] On 2 July 2012, at the suit of the applicant (W), I set aside a transaction made by the first respondent (H) on about 2 December 2010, pursuant to s37(2) Matrimonial Causes Act 1973 (MCA 1973). That transaction was the transfer by H of his 86.24% shareholding in D (Holdings) Ltd …
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