Poole J. Finding of a sham lease within enforcement proceedings of a final financial remedy order.

Facts

A final order was made in June 2023, followed by a series of enforcement orders by Knowles J. An application was made by the applicant under the Matrimonial Causes Act 1973 or the Insolvency Act 1986 to set aside, or for a declaration of a sham in respect of a purported assured shorthold tenancy (AST) or lease over the first respondent husband’s property in the Cotswolds. The tenancy is dated 5 September 2023 and between the first and second respondents. This tenancy was not disclosed until 3 September 2024.

Legal principles

Section 37 of the Matrimonial Causes Act 1973 sets out the law on avoidance of transactions intended to prevent or reduce financial relief.

• Section 37(2)(b): ‘if it is satisfied that the other party has, with that intention, made a reviewable disposition and that if the disposition were set aside financial relief or different financial relief would be granted to the applicant, make an order setting aside the disposition’.
• Section 37(2)(c): ‘if it is satisfied, in a case where an order has been obtained under any of the provisions mentioned in subsection (1) above by the applicant against the other party, that the other party has, with that intention, made a reviewable disposition, make an order setting aside the disposition’.
• Section 37(4): ‘any disposition made by the other party to the proceedings for financial relief in question (whether before or after the commencement of those proceedings) as is reviewable disposition for the purposes of subsection (2)(b) and (c) above unless it was made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any intention on the part of the other party to defeat the applicant’s claim for financial relief.
• Section 37(5): ‘Where an application is made under this section with respect to a disposition which took place less than three years before the date of the application or with respect to a disposition or other dealing with property which is about to take place and the court is satisfied— (a) In a case falling within subsection (2)(a) or (b) above, that the disposition or other dealing would (apart from this section) have the consequence, or (b) in a case falling within subsection (2)(c) above, that the disposition has had the consequence, of defeating the applicant’s claim for financial relief, it shall be presumed, unless the contrary is shown, that the person who disposed of or is about to dispose of or deal with the property did so or, as the case may be, is about to do so, with the intention of defeating the applicant’s claim for financial relief.’
• Section 37(6) defines disposition as ‘any conveyance … of property of any description’. A periodic tenancy is capable of constituting ‘property’ within the ambits of MCA 1973, s 24 (Newton Housing Trust v Alsulaimen [1998] 2 FLR 680).

A tenancy cannot be granted to a company, only to an individual (s 1(1)(a) Housing Act 1988).

Judgment

Overall, Mr Justice Poole ruled that the lease was a sham concluding it was ‘a hastily conceived and ill-thought out means to defeat the claim for financial relief and to frustrate or impede enforcement of the orders’. He granted the application to set it aside with immediate effect.

Poole J highlighted the lease was not an AST in any event as the lease was granted to a company.

In coming to his decision, he explained that the grant of a lease in respect of the Cotswolds Property was a conveyance or assurance of the property – not a disposition of a lease but a disposition of the Cotswolds Property by the creation of a lease. The lease was a conveyance of the property hence the purported AST was a disposition under MCA 1973 s 37 which had the effect of frustrating or impeding the enforcement of the final order because a sale has not been able to proceed.

Poole J considered that MCA s 37(5) applies to raise a presumption that the first respondent disposed of the property with the intention of defeating the applicant’s claim for financial relief, because the disposition took place less than three years before the date of the application and the disposition had the effect of frustrating or impeding the enforcement of the final order. The AST was therefore a reviewable disposition unless the exemption under MCA 1973, s 37(4) applies. The disposition in question was for consideration, therefore consideration was needed of whether at the time of the disposition, the second respondent acted in relation to good faith and without notice of any intention on the part of the first respondent to defeat the applicant’s claim for financial relief. Poole J found that he did not and that he had actual knowledge of the first respondent’s intention to defeat the claim for financial relief.

Furthermore, the judge commented that ‘the conduct of both Respondents to this application – and by this, I mean Mr Fuchs and Mr Hooker personally – is of great discredit to them’. He found that it was likely that the respondents communicated about the application, the final order and the enforcement proceedings. They are good friends and associates. He also found that the respondents would have expected that the AST would make it more difficult to sell the Cotswolds property than if no AST was in place as they are both very experienced in property deals.

Poole J did not need to consider setting aside under the Insolvency Act. He did however comment that the applicant would have had to establish that the transaction in question was entered into at an undervalue.