Mr Ahmed (the first defendant) claimed to have purchased a property known as ‘High Elm’ in his sole name in 1995. In 1996 Mr Ahmed and his wife Mrs Ahmed (the second defendant) executed a deed which purported to record that Mr Ahmed held on trust for Mrs Ahmed all the significant assets that he owned, including High Elm. The proprietorship register in respect of High Elm showed that Mr Ahmed had become the registered proprietor in November 2006 (which Mr Ahmed did not accept, but was unable to explain), and that at the same time he had granted a first charge over High Elm in favour of Halifax bank.
On 30 November 2006 Mr Ahmed acquired a property known as ‘Hilltop’ as sole legal and beneficial owner. On the same date Mr Ahmed granted a first charge over Hilltop in favour Halifax bank.
On 28 December 2006 Mr and Mrs Ahmed entered into a deed in similar form to the 1996 deed. The 2006 deed purported to transfer Mr Ahmed’s entire beneficial interest in High Elm and Hilltop to Mrs Ahmed subject to the Halifax mortgages. No restrictions were entered on the registered title of High Elm or Hilltop indicating the existence of any trust, and the 2006 deed was kept in a safe at Mr Ahmed’s workplace.
On 2 May 2007 Mr Ahmed received £297,000 from Swift (the claimant) pursuant to an application made earlier in his name and to a credit agreement that referred to High Elm. On 29 October 2007 Mr Ahmed received £200,000 from Swift pursuant to an application made earlier in his name and to a credit agreement that referred to Hilltop.
Mr Ahmed defaulted on the two loans made by Swift. Swift applied under s423 of the Insolvency Act 1986 (transactions defrauding creditors) to set aside the 1996 deed and the 2006 deed.
Mr and Mrs Ahmed argued that the 1996 deed and the 2006 deed were not entered into to defraud Mr Ahmed’s creditors. Rather, in 1996, as part of the family’s re-evaluation of its financial affairs, it was concluded that it was wise to enter into a deed of trust to secure and protect Mrs Ahmed financially in the event of the couple’s marital or family circumstances changing. By 2006 Mr Ahmed had acquired further assets and this led him to update the 1996 deed by executing the 2006 deed.
Shortly after the trial (at the end of which judgment was reserved) Swift wrote to the Judge explaining that in light of Mr Ahmed’s evidence a review had been undertaken the day following the trial of the documents obtained by Swift in relation to High Elm. That review revealed that in February 2000 Mr Ahmed transferred High Elm into the joint names of himself and Mrs Ahmed, and on 10 November 2006 High Elm was transferred legally and beneficially back to Mr Ahmed, who was registered as the sole proprietor on 16 November 2006. Swift sought permission to rely upon this new evidence. This was opposed by Mr and Mrs Ahmed.
Held (admitting the new evidence, and setting aside the 2006 deed):
- 1) The principle that there must be finality in litigation must weigh heavily. But at the time Swift sought to introduce the new evidence the Judge had not assessed the evidence and the trial had not concluded. It would be an affront to common sense and to any sense of justice to exclude from consideration the new evidence. Further, Mr and Mrs Ahmed’s evidence that the 2006 deed was simply an updating of the 1996 deed to include further property was liable to mislead because the 2006 deed was in truth a reinstatement of the 1996 deed which had in effect been set aside by the terms of the 2006 transfer that reconveyed to Mr Ahmed whatever beneficial interest Mrs Ahmed acquired under the 1996 deed. The new evidence could fairly be admitted as Mr and Mrs Ahmed had been afforded an opportunity to put in further evidence (which they took) and had the opportunity to be cross-examined further (which they declined).
- 2) The admission of the new evidence rendered it unnecessary to consider the 1996 deed in relation to High Elm and Hilltop as its effect (if any) in respect of the former was undone by the transfer in 2006, and in respect of the latter the purchase post-dated the 1996 deed.
- 3) To grant relief under s423 of the Insolvency Act 1986 the court must be satisfied that: (a) the 2006 deed was a transaction entered into at an undervalue; (b) the 2006 deed was entered into by Mr Ahmed for the purpose of putting assets beyond the reach (or otherwise prejudicing the interests) of someone who might at some time make a claim against him; (c) that purpose of Mr Ahmed must have been a real and substantial purpose of his executing the 2006 deed (so that it is not enough that the prejudicing of the interests of the potential claimant is simply a by-product or consequence of the transaction which of itself made no contribution of importance to Mr Ahmed’s decision to undertake the transaction); and (d) it is appropriate in all the circumstances to grant the relief sought.
- 4) It was common ground that the 2006 deed was a transaction entered into at an undervalue.
- 5) Mr Ahmed’s purpose in entering into the 2006 deed is a question of fact, to be decided both upon the direct written and oral evidence of the witnesses called and the content of documents adduced in evidence (and any proper inferences to be drawn from those documents). The latter is important because direct evidence of a disponor’s purpose in entering into a transaction nine years earlier may well not be reliable.
- 6) Swift had discharged the burden of showing on the balance of probabilities that a real and substantial purpose of Mr Ahmed entering the 2006 deed was to place assets beyond the reach (or otherwise prejudice the interests) of those who might have a claim upon him.
- 7) The 2006 deed (if effective) does prejudice the interests of those who might have a claim against Mr Ahmed. An inference is raised that that obvious result was its purpose to a substantial degree: an obvious result of an action is generally an intended result.
- 8) It could be inferred from the documentary history that Mr Ahmed understood the importance of the borrower being the beneficial owner at the time of the borrowing and he knew that lenders would be concerned about the identity of the beneficial owner. Although appreciating this, Mr Ahmed did not record in any way on any public register what the true ownership was (for example by the entry of restrictions on the proprietorship registers, which is a requirement of the Land Registration Rules 2003). The court is entitled to infer that a reason for not doing so was to keep knowledge of the transaction private and the information subject to his control. This reinforces the inference raised above.
- 9) That assessment is not outweighed by any evidence adduced by Mr Ahmed. It is unconvincing that, having obtained the entire beneficial interest in High Elm from Mrs Ahmed a few weeks before, Mr Ahmed felt compelled to give the entirety and more back to her almost immediately ‘as security for her’. It is more likely that the object was to enable Mr Ahmed to continue to act as if he were the legal owner so far as the outside world was concerned and not to reveal to the outside world the intended change of ownership.
10) The 2006 deed would be set aside. The effect of this would be to revest in Mr Ahmed beneficially both High Elm and Hilltop.