Random House UK Ltd v Allason & Ors [2008] EWHC 2854 (Ch)

[2008] EWHC 2854 (Ch)Case No HC04C02012
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11/12/2008
Before
MR JUSTICE DAVID RICHARDS
Between
RANDOM HOUSE UK LIMITEDClaimantJULIAN ALLASONDefendantsPAUL HANSONDefendantTHOMAS CHEPLICKDefendantRUPERT ALLASONDefendant
Christopher Tidmarsh Q.C (instructed by Simons Muirhead & Burton) for Claimant for The First and Second Defendants did not appear and were not representedThe fourth Defendant Rupert Allason, acting in person, for in personappeared for himself and the Third Defendant
Judgment

Introduction

[1]The purpose of these proceedings is the enforcement of costs orders made in favour of the claimant Random House UK Limited (“Random House”) against the fourth defendant Rupert Allason.[2]Mr Allason is a well-known writer, under the name Nigel West, of books dealing with espionage. In 1997 he and Westintel Research Limited (“WRL”), a service company owned and controlled by him, commenced proceedings against Random House for alleged breach of copyright (the copyright action). The proceedings concerned the copyright in a biography of John Cairncross, a senior civil servant who for a number of years passed secret intelligence to the Soviet Union. The action was tried in 2001 before Laddie J who dismissed it. The judge formed a very unfavourable view of Mr Allason, finding that he had “told untruth after untruth” and describing him as “amongst the most dishonest litigants I have ever seen”. He ordered Mr Allason to pay Random House’s costs on the indemnity basis and made an interim order for costs of £140,000. Mr Allason and WRL failed to pay any of these costs. In 2002, freezing orders and orders for the disclosure of assets were made against Mr Allason, with a view to enforcing the costs order. On 14 April 2002, Neuberger J found him guilty of serious and plain contempts of court in his failures and delays in the compliance with disclosure orders. Rather than commit him to prison at that stage, the judge gave him a last chance to give full disclosure. He was ordered to pay costs assessed at a total of £22,500. On 2 September 2005, Mr Allason, in his personal capacity and as the director of WRL, was again found guilty of contempt in breaching disclosure orders and was committed to prison for six months, suspended on condition that he complied with the order.[3]Random House has yet to recover anything under the costs orders in its favour. Mr Allason and WRL assert that they have no assets.[4]The present claim concerns essentially two matters. First, in 1994 Mr Allason created a trust called the DC Allason Trust (“the trust”) in favour of his children and settled £150,000 on the terms of the trust out of monies which would otherwise have come to him under his late aunt’s will. Random House claims that this gift is liable to be set aside under s.423 of the Insolvency Act 1986. Secondly, WRL is the registered proprietor of leasehold premises at 6 Burton Mews, London SW1, but it is asserted by Mr Allason that it is not beneficially owned by WRL but is held by WRL as bare nominee for the trust. This is disputed by Random House. It says that the trust has no interest in the property and that WRL cannot avoid enforcement of the costs order against the property. Alternatively, if the trust is the true owner of the property, Random House contends that the payments made by Mr Allason in or towards repayment of the loan advanced to WRL to buy it fall within s.423.[5]At the time when these proceedings were commenced, the trustees of the trust were Mr Allason’s brother Julian and Paul Hanson and they were the original defendants. In 2005 they resigned in favour of Mr Allason and Thomas Cheplick who were joined as additional defendants. The first trustees have since played no significant part in the proceedings, and Mr Allason acting in person, as he did in the copyright action, has appeared for himself and his co-trustee.[6]The trial took an unusual course. It started in November 2006. On the third and fourth days Mr Allason gave oral evidence and was cross-examined. During the afternoon of the fourth day, in the course of his cross-examination, Mr Allason collapsed and was taken to hospital. In the following weeks Mr Allason provided evidence as to his medical condition. Following an application by Random House in late 2007, the trial resumed in January 2008 when the cross-examination was completed. In order to assist Mr Allason, I did not hear closing speeches but directed the sequential service of written closing submissions by Random House and Mr Allason, with a reply from Random House.[7]Random House’s case was based on the documents. The only witnesses to give oral evidence were Mr Allason and his accountant James Lee. Statements were signed by each of the first trustees but neither was called as a witness. The beneficial ownership of 6 Burton Mews[8]I will consider first the ownership of 6 Burton Mews.[9]The freehold interest in 6 Burton Mews is held by Grosvenor Estates which on 12 March 1985 granted a lease for 56¾ years from 25 March 1985. By a contract dated 22 April 1997 WRL purchased the leasehold interest at a price of £261,000 from Grosvenor Properties Limited, a Jersey company owned or controlled by a Mr Michael O’Connor and not connected with Grosvenor Estates. On 2 May 1997 WRL was registered as the proprietor with title absolute of the leasehold interest. No third party beneficial interest was noted either in the contract of sale to WRL or in the Land Registry entries.[10]The full purchase price was financed by a loan facility provided by The Private Bank and Trust Company Limited (Private Bank). The terms of the facility are set out in an offer letter dated 19 February 1997. It provides for a non-revolving loan facility of £261,000 with the express purpose of financing the purchase of 6 Burton Mews, with interest at 3% above LIBOR. The term of the loan is stated to be up to two years, with any outstanding balance to be repayable on the second anniversary of the date of initial drawdown. The facility was to be secured by a first legal charge over 6 Burton Mews, which was created by WRL on 22 April 2007 and registered on 2 May 1997, and by a continuing guarantee of Mr Allason. The guarantee was to be secured by a first legal charge over a freehold property in Fulham Road, the assignment of a life policy on Mr Allason’s life and “assignment of distributable earnings from [WRL] to include all salary, dividends and any other payments due”. The property in Fulham Road was in the course of being sold and the facility letter provided that the net proceeds of sale were to be paid to Private Bank in reduction of the loan.[11]The deposit of £26,100 on the purchase of the property was paid on 4 February 1997 and funded by an initial drawdown on the facility. On 22 April 1997 a further £213,900 was drawn down, almost all of which was applied towards payment of the balance of the purchase price. In August 1997 the net proceeds of sale of the Fulham Road property amounting to £110,434, were paid to Private Bank in reduction of the loan.[12]Neither the original nor a copy of the guarantee given by Mr Allason was produced until Mr Allason attached to his closing submissions a scanned electronic copy provided to him by Private Bank in January 2008. This document confirms what would in any case have been my finding. Mr Allason gave evidence that he provided a guarantee and, as his guarantee was a condition of the loan, it would be very unlikely that Private Bank would not have required it. The existence of a guarantee was further evidenced by the payment to Private Bank of the net proceeds of sale of the Fulham Road in reduction of the loan.[13]Following payment of the net proceeds of sale of the Fulham Road property in August 1997, the outstanding principal was reduced to £129,551. Loan rollover advices issued by Private Bank indicate that in late 1999 the loan increased by £50,000 to £179,551. In late November 2000 Mr Allason paid £84,328 to Private Bank in reduction of the loan. This represented the net proceeds of sale of his remaining interest in a family trust.[14]On 2 September 2000 WRL granted a second charge over 6 Burton Mews in favour of Lloyds TSB Bank plc to secure an overdraft facility for WRL.[15]There is nothing in the facts recited above to suggest that the trust had any interest in 6 Burton Mews.[16]In evidence provided in the copyright action, in connection with an application to Laddie J in February 2002 for an order for disclosure of assets, Mr Allason stated that WRL did not then and had never owned 6 Burton Mews, although no explanation was given for the charges on the property. By an order by Laddie J on 27 February 2002, Mr Allason was required to file an affidavit on behalf of WRL giving, among other things, the identity of the beneficial owner or owners and exhibiting copies of any trust deed or other relevant instrument. In an affidavit sworn on 11 April 2002, Mr Allason stated that the beneficial owner was the trust. He exhibited a document which purported to be a copy of a declaration of trust dated 2 May 1997 made between WRL and “The Dolares Celina Allason Settlement”, whereby WRL acknowledged and declared that it held 6 Burton Mews in trust for the Settlement. I will consider this document later. The original has not been produced.[17]On 19 April 2002, Mr Allason was ordered to make an affidavit, identifying among other things the sources of the interest payments on WRL’s loan from Private Bank. In his affidavit dated 8 May 2002, Mr Allason stated that the source was “the DC Allason Settlement, which has assets with a value of approximately three hundred thousand pounds”. Mr Allason added as regards 6 Burton Mews:
“… The purpose of registering Westintel Research Limited in 1997 as the legal owner of 6 Burton Mews was to comply with a requirement of the freeholder, the Grosvenor Estate, which then enforced a policy of requiring leases already in the name of a company to pass only to other companies. This condition was not initially declared by the vendor who had himself originally bought the lease through a Channel Islands company, so the simplest and most obvious expedient was to use Westintel Research Limited as a convenient vehicle. … ”
[18]On 21 July 2004 Pumfrey J ordered Mr Allason and WRL to produce, so far as it was in their possession or power, the original of the declaration of trust and, if they claimed to be unable to do so, to swear an affidavit detailing all steps to locate and obtain it. It also required Mr Allason to provide various information and documents concerning the acquisition of 6 Burton Mews and its financing. The documents to be disclosed included all non-privileged correspondence and documents concerning the purchase and the grant of the charge in favour of Lloyds TSB in September 2000. Mr Allason and WRL failed to comply with this order. On an application to commit Mr Allason for contempt of court by reason of these breaches, Patten J by an order dated 2 September 2005 committed Mr Allason to prison for six months, suspended on condition that he complied with certain disclosure orders. The order as regards the declaration of trust made by Pumfrey J was repeated, with time for compliance fixed as no later than 14 October 2005.[19]Mr Allason swore and served an affidavit on 13 October 2005. As regards the declaration of trust he stated that it had not been possible to recover the original because “it was retained by my late solicitor, Kieron Unwin, whose widow has now confirmed that she has been unable to trace his client file”.[20]In response to the order to produce documents concerning the purchase of 6 Burton Mews, he exhibited a letter to him dated 23 October 1996 from the solicitors acting on the purchase, Terence St J Millett. The letter began:
“Further to the above matter I am writing to advise you of the current position on your Purchase”
. The letter stated that copies of the draft contract, entries at the Land Registry and a copy scheme of management were enclosed. In the exhibit to Mr Allason’s affidavit there then follow copies of a draft contract, Land Registry entries and the Underlease dated 12 March 1985. The exhibited draft contract named “The DC Allason Settlement” as the purchaser.[21]An order was made on 21 September 2006, on Random House’s application, for Terence St J Millett to produce the draft contract enclosed with their letter dated 23 October 1996 to Mr Allason. In compliance with this order they produced a draft contract which named Mr Allason as the purchaser.[22]In compliance with a witness summons, Terence St J Millett produced all draft contracts in their files. They produced two draft contracts. The first was the draft previously disclosed by them, naming Mr Allason as the purchaser. The second was a draft in a form which was used as the contract. The name of the purchaser had been typed as Mr Allason, but this was altered in manuscript to WRL. No draft contract showing the DC Allason Settlement as purchaser was produced.[23]Mr Allason’s case that 6 Burton Mews is owned by the trust rests on the copy of declaration of trust which he has produced, on the draft contract which Mr Allason produced showing the trust as purchaser, on his own evidence that it was purchased as a trust asset and on evidence given by Mr Lee.[24]There are, as Mr Tidmarsh for Random House submitted, a number of suspicious features of the copy declaration of trust. First, it was not prepared by Terence St J Millett, nor do they appear to have had any involvement with it, notwithstanding the draft contract disclosed by Mr Allason showing the trust as purchaser. There is no evidence to suggest that they were ever told that the property was to be acquired, or held by, WRL for the trust.[25]Secondly, it bears the date 2 May 1997 and recital 1 states:
“.. This declaration is supplemental to a Transfer dated the second day of May 1997 and made between (1) Michael O’Connell and (2) the Trustee under which the property described in the Schedule hereto (“the property”) was transferred to the Trustee. ..”
[26]The transfer was in fact dated 22 April 1997, as can be seen from Land Registry entries. 2 May 1997 was the date on which the relevant entries were made on the Land Registry. The mistake may easily be made by a layman looking at the entries, but is very unlikely to be made by a solicitor.[27]Thirdly, the vendor was not, as stated in the recital, Michael O’Connell but Grosvenor Properties Limited as stated in the draft contracts and transfer. If the purported declaration was made on 2 May 1997 or at about that time, there is no reason why Michael O’Connell as opposed to the true vendor should be named in the declaration. In fact, the name of the individual behind Grosvenor Properties Limited was Michael O’Connor, not Michael O’Connell. This mistake is also more likely to have been made at a later date than at the time of the purchase.[28]Fourthly, Recital 4 states that the sum of £261,000 was provided by the trust. In fact, it was provided by WRL by means of the loan facility with Private Bank.[29]Fifthly, the signatures appear on a separate page, rather than in the more than sufficient space at the foot of the second page.[30]Mr Allason’s evidence in his witness statement was that following the separation of his wife and himself and the sale of their home in London, he looked for accommodation for himself and his children. In October 1996 he found a suitable property, 6 Burton Mews, owned by Michael O’Connor (correct spelling). He says that he consulted his divorce lawyer who advised that he should make a gift of a suitable home to his children and he informed the trustees and Mr Lee of his decision. It then became clear that the freeholder insisted on a company as the assignee of the lease. Mr Allason’s statement continues:
“… In these circumstances it was impossible for the purchase to be completed so I consulted further and a possible remedy emerged if Westintel Research Limited was used as a suitable vehicle. The company had handled for many years my professional affairs as a writer and certainly fulfilled the conditions imposed by the landlord. The directors were myself, my wife and my brother Julian, and it was agreed that as soon as the sale had been completed, in May 1997, the property would be transferred to the trust. I recall we received advice from Mr Lee that the property could not be an asset of the company and he was in contact with one of the lawyers regarding the required form of transfer. ..”
[31]Because his wife is Bermudian and the divorce proceedings took place in Bermuda, Mr Allason had divorce lawyers in both England and Bermuda. In his oral evidence, he could not remember which of them he had consulted about making a gift of a house to his children. He could not remember who had drafted the declaration of trust, although he said that he would have been involved in giving instructions for it. As to his affidavit dated 13 October 2005 stating that the original of the declaration of trust had been retained by the late Kieron Unwin, one of his divorce lawyers, he could give no explanation as to why his divorce lawyer, rather than the trustees, should have custody of it. It is notable that in the present case the defendants, in particular the original trustees, have not disclosed even a copy of the declaration of trust.[32]In his witness statement, Mr Lee states that at the end of August 1996 Mr Allason had told him that he had separated from his wife and that he intended to make a further gift to the trust as his children would need somewhere to live in London. Mr Allason consulted him again when the purchase of 6 Burton Mews was negotiated. Mr Lee mentions the difficulty caused by the Grosvenor Estate’s requirement that the assignee should be a company and states that the solution was to use WRL. “.. 6. The solution to the problem was to use an Allason family company, Westintel Research Limited, which conformed to the conditions laid down by the Grosvenor Estate. Westintel Research Ltd was therefore used as a temporary vehicle for the purchase of the lease of Burton Mews. The lease was subsequently assigned to the D.C. Allason Settlement within three months, thereby ensuring that there was no liability for further stamp duty on the transaction. A critical component of the purchase was that Burton Mews should not become an asset of the company, as this would have significant tax implications. Therefore, with the consent of the company directors and the trustees the sale and transfer was executed as described. As I recall, the failure of the vendors to mention the existence of the Channel Islands Company resulted in considerable additional work for all involved. ”[33]In cross-examination, Mr Lee confirmed that he had no file notes of these discussions. As Mr Allason’s tax adviser, it might be expected that he would have given advice on the tax implications for Mr Allason and for the trust of a gift of a property to the trust, but it is apparent from his evidence that he did not do so. It is not clear where Mr Lee got the idea that the lease was later assigned by WRL to the trust, but he suggested that there needed to be less than a three month gap between the acquisition by WRL and later assignment to the trust to avoid stamp duty problems. He agreed, however, that if WRL were acquiring the lease on behalf of the trust, there would be no stamp duty problems and no need for a transfer within three months.[34]Mr Lee accepted that he had never seen any documents relating to the purchase of 6 Burton Mews nor had he seen any declaration of trust. He had not been in contact with any lawyer about the form of the declaration of trust. When asked whether he suggested that the trustees should take legal advice about the declaration of trust, he replied “I wouldn’t have anything to do with the declaration of trust”. The truth is that Mr Lee is unable to give any evidence of substance to support the case that the trust was at any time the beneficial owner of 6 Burton Mews.[35]So far as Mr Allason relies on the copy draft contract showing the trust as purchaser which he disclosed in October 2006, there are certain curious features of that document. Although it is almost identical to the draft contracts produced by Terence St J Millett and is in the same typeface, there are some divergences in the version disclosed by Mr Allason. First, it omits incorrectly a second bracket in the heading to the draft contract. Secondly, it refers to “Underlessees”, not Underlessee, when referring to the Underlease dated 12 March 1985. Thirdly, the word “Vendor” has an upper case V wherever mentioned in the draft contracts disclosed by Terence St J Millett but not in the definition of Vendor in the version disclosed by Mr Allason. Fourthly, in all versions cl.6 has four sub-paragraphs, but in the versions disclosed by the solicitors they are correctly given the letters (a), (b), (c) and (d), whereas in the version disclosed by Mr Allason, they are incorrectly given the letters (a), (b), (b) and (c). Mr Tidmarsh submitted that all these features suggested that the version disclosed by Mr Allason was a re-typed version of the draft contract prepared by the solicitors but with the trust substituted for Mr Allason as the named purchaser. The errors are significant in particular because for the most part they occur in those parts of the draft contract which are a standard form template which would not be re-typed for each contract.[36]The most significant fact about the version of the draft contract disclosed by Mr Allason is that it was not on the file of Terence St J Millett, despite being exhibited by Mr Allason as an enclosure with a letter from Terence St J Millett.[37]There are other aspects of the evidence which have a bearing on the claim that that WRL holds 6 Burton Mews on behalf of the trust.[38]First, in the Bermudian divorce proceedings, a questionnaire served on behalf of his wife required Mr Allason to state whether he “by himself or by Westintel Research Limited or otherwise” had purchased 6 Burton Mews. He replied on 21 October 1997 that the property was purchased by WRL on 22 April 1997 with funds provided by a bank loan. No mention was made that it was acquired or held by WRL on behalf of the trust.[39]Secondly, these were produced in evidence contemporaneous notes taken of Mr Allason’s oral evidence during the divorce proceedings in October 1998 by an associate lawyer in the firm acting for Mrs Allason. The notes of cross-examination record the following exchange:
“Q: Suggestion that Eaton Terrace be sold – fair to say on and off at times A: Yes Q: 6 Burton kept on basis that you would move into it A: Emphatically not Q: Residential property yes 6 Burton? A: No – it’s a company property – always has been Q: Owned by a company but in a residential area A: Yes another pressing reason to purchase another property and she encouraged me to buy it. 6 Burton Mews Q: Where you live A: No Q: Who lives at Burton A: No one Q: Will that be your residence? A: Simply an office to retain documents …”
The notes of re-examination contain the following exchanges:
“Q: What reason for purchase of Burton Mews A: Because clear to me that NA going through my papers, Photocopy documents, opening my mail and that was untenable because in nature of my work I possess security sensitive documents which I have to give undertakings and she wrote me a letter threatening to make public information that would embarrass me and in her words “make me unelectable”
. On the basis of that letter and knowledge, my company purchased a short lease on a small property about 100 yards 96 Eaton Terrace Q: How long lease A: About 40 years … ” and “.. Q: Regard Burton Mews as suitable accommodation A: Impossible because doesn’t have accommodation for my daughter – solely there as a stand by office.” fair to say on and off at times Q: 6 Burton kept on basis that you would move into it A: Emphatically not Q: Residential property yes 6 Burton? A: No – it’s a company property – always has been Q: Owned by a company but in a residential area Q: Where you live A: No Q: Who lives at Burton A: No one Q: Will that be your residence? A: Simply an office to retain documents Q: How long lease A: About 40 years

Q: Regard Burton Mews as suitable accommodation

[40]Mr Allason was not prepared to accept these notes as a fair reflection of his evidence. Clearly they are notes, not a verbatim record, but I see no good reason why they should not be accepted as recording the essential features of Mr Allason’s evidence. It is of course significant that Mr Allason is not recorded as suggesting at all that 6 Burton Mews was acquired or held for the trust, but on the contrary, states that it is a company property bought as an office to store documents. This evidence is recorded as given in re-examination, as well as in cross-examination. Moreover, in his closing submissions in the present case, Mr Allason re-asserts what was a central point of his evidence in Bermuda as recorded in the notes, that 6 Burton Mews was “used for the storage of paper and research material which had been interfered with by his wife”.[41]Thirdly, in his affidavit sworn in the copyright action on 8 May 2002 pursuant to the order of the court requiring him, among other things, to identify the sources of the interest payments on the loan from Private Bank to WRL, he stated that the source was “the D.C. Allason Settlement, which has assets with a value of approximately three hundred thousand pounds.” In a witness statement provided by him in these proceedings pursuant to an order, he stated that he believed that the interest payments were made by himself, not by the trust or by WRL. In cross-examination, he said that he thinks that he was making the interest payments on behalf of the trust.[42]Fourthly, 6 Burton Mews was charged in favour of Lloyds TSB in 2000 to secure WRL’s overdraft. This is obviously consistent with beneficial ownership by WRL, or Mr Allason personally, but inconsistent with ownership by a trust for the benefit of his children. In cross-examination Mr Allason says that the trustees gave their approval to the charge and they were entitled to do so. It is very difficult to see how they were entitled to give their approval, since the charge was for the benefit not of the children but of their father’s company, and there is no evidence from the trustees that they gave their approval. I should mention here that Mr Allason exhibited to his affidavit sworn in the copyright action on 13 October 2005 pursuant to the order dated 2 September 2005, certain copy documents said to relate to the charge. They include a copy document headed Memorandum and purporting to be a note dated 26 May 2000 from Mr Allason to the then trustees and to Mr Lee concerning the charge over 6 Burton Mews. Mr Lee denied ever seeing this document and gave evidence that he would never have said, as paragraph 3 of the document suggests, that there were no tax implications for the trust. A further copy document purports to be a fax dated 27 May 2001 from Mr Allason to Lloyds TSB stating that although available as security, 6 Burton Mews was not an asset of WRL but was beneficially owned by the trust. These documents did not form part of the trustees’ disclosure in the present action and Mr Allason has not sought to prove them. Before the start of the trial, Random House made clear that it did not accept them as genuine.[43]The copy of the purported declaration of trust is signed or appears to be signed on the third page by Mr Allason’s brother on behalf of the trust. Mr Allason’s brother has not given evidence, and even his statement does not deal with this document. I know nothing of what he may say were the circumstances in which he signed that page. He and Mr Hanson give accounts in their statements of the circumstances in which they say that the trust came to own 6 Burton Mews, similar to that given by Mr Allason, but they were not called to give evidence.[44]In my judgment, the evidence overall establishes overwhelmingly that 6 Burton Mews is not and has never been an asset of the trust. The property has not been included as an asset in the annual accounts of WRL, but in the context of all the other evidence that is a fact of no significance in determining whether it is an asset of the trust.[45]I am satisfied that Mr Allason’s evidence on this matter was untrue and that he concocted both the purported declaration of trust and the draft contract naming the trust as purchaser, for the purposes of preventing enforcement of the costs orders against 6 Burton Mews.[46]In order to establish a beneficial interest in the property in favour of the trust, there must be a written declaration of trust complying with s.53(1)(b) of the Law of Property Act 1925. In the absence of an original document complying with those requirements, the trustees had to satisfy the requirements of the secondary evidence rule before they could rely on the purported copy declaration of trust. They must satisfy the court that the original document existed or had existed, that it had been lost or destroyed and that a reasonable explanation of this had been given : Halsbury’s Laws of England (4th Ed) Vol 17 (1) para 817.[47]Random House submitted that the trustees had failed to satisfy the secondary evidence rule and could not rely on the purported copy declaration of trust. I agree. However, as stated above, the evidence goes further and satisfies me that there never has been a genuine declaration of trust.[48]These conclusions make it unnecessary to consider Random House’s alternative contention that, if the secondary evidence was satisfied, the declaration of trust was not duly signed by WRL, as a result of a failure to comply with the requirements of s.36A (4) of the Companies Act 1986. It also makes it unnecessary to consider Random House’s alternative case that, if 6 Burton Mews was found to be held for the trust, the payments made by Mr Allason in reduction of the loan from Private Bank to purchase the property, and/or the guarantee under which they were made, were transactions to which s.423 of the Insolvency Act 1986 applied. Gift of £150,000 to the trust[49]The other claim made by Random House in this case is that the initial gift of £150,000 to the trust in 1994 constituted a transaction to which s.423 of the Insolvency Act 1986 applies. The conditions which must exist before an order under s.423 can be made are contained in sub-ss (1) and (3). Section 423(1) provides:
“(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if— (a ) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; (b) he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or (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. …”
It is clear that the initial gift satisfies paragraph (a). The sum of £150,000 represented a sum to which Mr Allason was entitled under the terms of the will of his late aunt Mrs D.C. Allason and, by a deed of variation, he settled it by way of gift on the trust. (a ) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; (b) he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or (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.[50]The further conditions are set out in s.423(3) which provides that an order under the section will be made in respect of a transaction only:
“…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.” (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.”
[51]If these conditions are satisfied the court may under s.423(2):
“…make such order as it thinks fit for— (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction ...”
Section 425 makes detailed provisions as regards orders which may be made. A “victim of the transaction” is any person who is, or is capable of being, prejudiced by it : s.423(5). A victim may apply to the court for an order under s.423, unless the debtor, being an individual, has been adjudged bankrupt or is bound by a voluntary arrangement, in which case the leave of the court is required: s.424. (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction[52]In considering whether the conditions in s.423(3) are satisfied, it is the purpose of the debtor, that is, his subjective purpose, which is in issue. The statutory purpose of putting assets beyond the reach of creditors or otherwise prejudicing their interests need not be the only or even the dominant purpose. It is enough if it was a real substantial purpose. See IRC v Hashni [2002] 2 BCLC 489. It is not necessary to show that the transaction would not have taken place if the statutory purpose had not been present in the debtor’s mind. In IRC v Hashmi Simon Brown LJ said at para 38:
“….Assume, say, that the debtor makes a gift partly out of a wish to avoid inheritance tax and partly to escape his creditors; and assume further that he would have made it in any event purely for inheritance tax purposes. That, to my mind, should not save the gift from being set aside. Escaping the creditors may well, after all, have been a substantial factor in the donor's thinking. No more should a gift, in my opinion, be saved merely because the debtor would in any event have made it to benefit the donee…”
He did, however, add at paragraph 40:
“…If in fact the judge were to find in any given case that the transaction is one which the debtor might well have entered into in any event, he should not then too readily infer that the debtor also had the substantial purpose of escaping his liabilities…”
[53]The gift of £150,000 was made by a deed of family arrangement dated 20 August 1994 between the executors of the will of Mrs D.C. Allason and Mr Allason as residuary beneficiary entitled under the terms of her will to one-half of the residue of her estate. By cls.2 and 3 Mr Allason directed that out of his entitlement the executors should deduct £150,000 and pay it to the first trustees of the trust upon the trusts declared by the deed. It was an accumulation and maintenance trust in favour of Mr Allason’s two children.[54]Random House’s case that the settlement of this sum on the trust by Mr Allason was a transaction to which s.423 applies rests primarily on a statement made by Mr Allason in the affidavit sworn by him in the copyright action on 8 May 2002. The affidavit was sworn pursuant to an order made on 19 April 2002 requiring him to provide information as detailed in the schedule to the order. Paragraph 8 of the schedule required him to identify the sources of the interest payments on WRL’s loan account with Private Bank. As well as providing an answer to that question, later acknowledged by Mr Allason to be incorrect, he volunteered the following:
“The First Claimant [Mr Allason] is not, and has never been either a beneficiary or a trustee of the Settlement. The purpose of the DCAS [the trust] is to provide for my children and protect them from losses incurred at Lloyd’s of London.”
Random House’s case is that this statement shows that at least a real substantial purpose of the gift of £150,000 to the trust was to put that sum beyond the reach of creditors arising from his underwriting at Lloyd’s.[55]The same order required Mr Allason to provide a copy of the trust deed under which an overseas company held the freehold interest of the house in Berkshire occupied by Mr Allason. His answer was that an off-shore trust established by his ex-wife in 1980 owned the company and the trust was created “to buy [the house] for the benefit of our children (who are both Bermudian) and their spouses, and protect the property from potential losses at Lloyd’s of London”.[56]In the present proceedings, Mr Allason’s position is that his affidavit of 2 May 2002 is wrong to the extent that it states that protection from losses incurred at Lloyd’s was a purpose of establishing the trust. In paragraph 5 of the defence, first of the first trustees and then of the present trustees, it is pleaded that:
“…the Deed of Variation by which the said gift of £150,000 was effected was entered into as a tax planning mechanism at the suggestion and on the advice of Rupert Allason’s accountant, Mr James Lee of James Lee Associates (‘Mr Lee’), as supplemented by the advice of Rupert Allason’s solicitor, Mr Leonard Collins of Harold Benjamin and Collins (‘Mr Collins’).”
Particulars of the discussions which led to the creation of the trust are then given. It is averred that the sum of £150,000 did not represent the entirety of his capital entitlement under his aunt’s will, but instead comprised “the maximum sum attracting tax benefits under the relevant tax legislation at the time.” It is averred that Mr Allason’s interest under the will, after tax, amounted to approximately £500,000. It was further averred that in 1994 he owned assets of substantial value in addition to the sum of £150,000 and was earning well. It also referred to his position at Lloyd’s, suggesting that it was not such as to require him to put assets beyond the reach of creditors. Any protection from losses at Lloyd’s was, if anything, a by-product of the gift but not a purpose of it.[57]In his witness statement in these proceedings, Mr Allason repeated that the trust was created on Mr Lee’s advice as the most sensible and tax efficient way of arranging for his children to benefit from his aunt’s estate and of providing for their school fees. As to the statement of purposes in his affidavit of 2 May 2002, he said:
“My reply had been given without the benefit of any research into my Lloyd’s results in 1993/94, and my recollection had been coloured by more recent adverse publicity surrounding the Lloyd’s insurance market.”
[58]In determining the true purpose or purposes of Mr Allason in settling £150,000, it is necessary to consider his position at Lloyd’s in 1994, his available assets and income at that time, the contemporaneous evidence as regards the settlement and the statement in the affidavit of 2 May 2002.[59]Mr Allason was an underwriting member of Lloyd’s, or name, from the 1976 year of account to the 1998 year of account. Up to and including the 1993 year of account, his underwriting was allocated among a number of syndicates on an individual, or bespoke, basis. From the 1994 year of account his underwriting was arranged through two MAPAs (member’s agent pooling arrangements). This change did not affect his unlimited liability as an underwriter but it enabled him to be a member of a larger number of syndicates with a view to a wider spread of risk. As is notorious, after a long period of generally good results, the Lloyd’s market as a whole experienced very high losses in the years 1988 to 1992. The position for any individual name, of course, depended on the syndicates of which he was a member and his line on each syndicate. Following these bad years, a market-wide solution, called Renewal and Reconstruction, was agreed by most names in 1996. Under that scheme, liabilities for the 1992 year of account and earlier years were reinsured by a new entity, Equitas, on payment of a premium by each reinsured name calculated by reference to a risk-based assessment of his open position. The scheme was in part made possible by the generally good underwriting results in the 1993 and 1994 years of account. A description of these arrangements may be found in Re Yorke [1997] 4 All ER 907.[60]Years of account at Lloyd’s were closed, so far as possible, at the end of the second year after the relevant year of account, so for example the 1990 year of account closed at 31 December 1992. In the early months of the following year a name would receive a personal statement showing his position in respect of the year reported on and any open positions from earlier years of account.[61]In cross-examination, Mr Allason suggested that he was not sent his personal statements which were instead sent to and retained by Robin Warrender, the individual at Bankside Member Agency who looked after his Lloyd’s affairs. In support of this he relied on the fact that copies had been sent to him in February 1997, presumably in connection with his divorce. This does not show, or even suggest, that they had not been sent to him earlier, at the time when they became available. Mr Lee confirmed that it is normal practice for them to be sent to names and it is very unlikely that they were not sent to Mr Allason. It is even more unlikely that Mr Allason’s agent did not inform him of the basic results and resulting cash calls. I find that the statements were sent to him shortly after their preparation.[62]There is in evidence Mr Allason’s personal statement as at 31 December 1992, which he would have received from his members’ agent, Bankside Members Agency Limited, in the early part of 1993. It showed that his net result for 1990 on the ten syndicates of which he was a member was a loss of £55,851. Six of the syndicate accounts were closed as at the end of 1992 but four remained open. The total amount already called or paid was £32,589. In addition, he had three open syndicates from earlier years with a net deterioration in 1992 of £3,255. Calls or payments amounting in total to £16,754 from 1990 and earlier years were deferred.[63]Mr Allason would have received his personal statement as at 31 December 1993 in the early part of 1994. This showed his results for the 1991 year of account and his position as regards that year and open syndicates from earlier years. It showed a net loss for 1991 of £56,980 on his 18 syndicates, of which eight were closed and the remaining ten remained open. The net deterioration in 1993 on his open syndicates from earlier years was £19,773. A total of £35,008 had been paid or called, leaving a balance of £20,472 uncalled. On his syndicates from earlier years, there was a total uncalled loss of £37,941. The total sum deferred in respect of underwriting results was £58,414.[64]No final results would have been available in 1994 for the 1992 year of account but the members’ agents would have had a reasonable picture of its likely outcome which they would have passed on to their names. Mr Allason’s personal statement as at 31 December 1994, which he would have received in the early part of 1995, shows a net loss of £21,356 for 1992, with 13 syndicates closing their accounts and six remaining open. The net deterioration in 1994 on open syndicates from earlier years was £36,904. The total sum deferred in respect of underwriting results for syndicates in run-off was £76,340.[65]The 1993 year of account was generally profitable for Lloyd’s syndicates. By mid-1994 names would have some indication from members’ agents as to how it was progressing. It is likely that Mr Allason would have been told that it looked as if the outcome would be a profit not a loss. His personal statement for the 1993 year of account issued in 1996 showed a net profit for 1993 of £41,871 and an improvement during 1995 of £41,350 in earlier open years.[66]Under the tax regime then applicable to Lloyd’s, names could in profitable years retain at least some profits in a special reserve free of tax for use in meeting losses in subsequent years. The Lloyd’s tax advices for Mr Allason show that by 1994 he had no funds retained in a special reserve.[67]The evidence shows that Mr Allason was meeting losses through borrowings from Coutts & Co. There are in evidence statements of an account of Mr Allason with Coutts called Lloyd’s Losses Advance Account, covering the period from 10 June 1994 to July 1998. As at 10 June 1994 the debit balance was £51,293.40. On 22 July 1994 a transfer of £13,766.07 was made to his current account, increasing the debit balance to £65,059.47. There was a further debit of £42,505.43 in July 1995, further increasing the debit balance to £107,564.90. There are no further debits, and interest was not charged to this account.[68]Names at Lloyd’s were required to maintain funds at Lloyd’s to support their continuing underwriting, if like Mr Allason they continued as active names. Funds at Lloyd’s could comprise various classes of assets and/or a bank guarantee. There is little evidence of the composition of Mr Allason’s funds at Lloyd’s in 1994, but as at February 1997 they comprised a guarantee by Coutts of £80,000 and cash of £24,867.[69]The overall picture of Mr Allason’s position at Lloyds, as known to him in August 1994 is therefore as follows: substantial losses had been incurred and reported for the 1990 and 1991 years of accounts; there had been a serious deterioration in earlier open years during 1993; he would have a clear idea that there would be substantial losses for the 1992 year of account due to be reported in early 1995, which would require the payment of significant calls; there was likely to be serious deterioration in earlier years during 1994 with the possibility of further deteriorations for 1992 and earlier years in the future; there were hopeful indications of a good result for the 1993 year of account; and he was meeting his losses through loans from Coutts.[70]As regards the establishment of the trust, there are in evidence a number of attendance notes made by Mr Lee of his discussions with Mr Allason. Neither Mr Lee nor Mr Allason has any recollection now of the conversations.[71]On 16 October 1993 Mr Allason explained to Mr Lee that the main beneficiaries under the will of his aunt, who was then still alive, were himself and his brother. Mr Allason wanted advice “in connection with gifts and the drafting of the wording for her will”. Mr Lee explained that there was little that could be done. As she was unmarried, there was no particular use that could be made of the nil band for inheritance tax purposes. Typically, as Mr Lee explained, where a testator is married, he or she can leave the nil band amount (then £150,000) to, say, their children and the remainder to a surviving spouse. Mr Allason also discussed the possibility of paying school fees. He suggested that a lump sum could be transferred to both his own and his brother’s children for use in the payment of school fees. In a further discussion, it was suggested that his aunt might make regularly monthly payments to the schools, and that if they came out of her income there was a good chance that they would not fall into charge for inheritance tax.[72]In the course of a discussion on 14 January 1994, Mr Allason told Mr Lee that his aunt had died over the Christmas holiday. He said that his aunt had left a very substantial estate and:
“He would need some advice later on, as to how best to deal with residue of the estate and plan matters for tax purposes.”
The same note records that as regards his tax liabilities for 1984/85, there were Lloyd’s losses for that year available to take into account. There is no discussion recorded of more recent Lloyd’s losses.[73]A further conversation took place on 19 January 1994 which dealt in part with his aunt’s estate. Mr Lee’s note records:
“…During our conversation, Rupert also reminded me about the death of his late aunt and I suggested to him, that he consider entering into a deed of variation which would effectively re-write his late aunts will so that his children would be entitled to part of his capital entitlement. The re-writing of the will would constitute a gift direct from his aunt’s estate rather than Rupert …which would effectively avoid further death duties and if any income arising from the capital would be deemed to be the childrens. …”
[74]Mr Lee’s note of a further discussion on 21 March 1994 records:
“…We touched on briefly the position in relation to his late aunt’s will. Probate will be granted next month and I confirmed with Rupert that income arising during the administration period would have to be reported on his tax return. The lawyers should produce a tax certificate confirming his entitlement of income. I urged Rupert to reconsider the position of entering into the deed of family arrangement to shift part of any wealth arising from the aunt’s estate into his childrens’ name it [sic] would then have income in their own right which would save on the families tax bill and give the children income for the future.”
It is apparent that Mr Allason had previously rejected Mr Lee’s advice for a deed of family arrangement varying Miss Allason’s will and providing that some funds be paid directly to Mr Allason’s children.[75]Mr Lee’s note of a discussion on 25 April 1994 should be quoted in full:
“I had a telephone call from Rupert in relation to his late aunt’s estate. Miss D.C. Allason (deceased) died on 25 December 1993 and I had previously suggested to Rupert that he consider entering into a Deed of Variation or family arrangement which would entail him giving up part of the entitlement from his late aunt’s estate in favour of his two children. With the sale of 310 Fulham Road going through very shortly and an offer for Eton [sic] Place which was recently made for £450,000 Rupert will have surplus cash in the bank. He has inherited approximately half a million pounds from his late aunt’s estate after death duties but he will receive the sum of £400,000 as he has bought out half interest in a flat which was gifted to both him and Julian. Rupert’s solicitors are Harold Benjamin & Collins, of 61/67 Lowlands Road, Harrow, HA1 3EQ and the partner to whom I should address my enquiries is Mr Collins. I have explained that if Rupert enters into the Deed of Family arrangement that he would be able to make a provision of up to £75,000 for his two children. Any income that arises from the gift will be regarded as the childrens and they will have their own tax allowances accordingly. Rupert can utilise the money as their guardian and could make provision for payment of school fees and other reasonable expenses, or he could simply invest this sum on behalf of his children. We also discussed the possibility of him making a gift to Nicky his wife and on the basis that we agree the non domicile ruling for her with Inland Revenue, there may be possibilities for us to hold some of this money off-shore.”
[76]There are no further notes of discussions. It will be seen from the last note that Mr Lee’s advice was to give £75,000 directly to Mr Allason’s children, which as their parent he could use for payment of their school fees and other expenses. Mr Lee said in evidence that he did not think that the tax savings made the costs of establishing and maintaining a trust for a fund of only £75,000 or £150,000 worthwhile.[77]In discussions with Mr Collins, Mr Allason’s solicitor, Mr Collins considered that a trust should be established because Mr Allason’s children were still minors. Mr Lee says that he “eventually acquiesced” in this course.[78]Mr Lee cannot remember why Mr Allason, having initially rejected a deed of family arrangement, changed his mind in about April 1994. There were some income tax savings if some capital was passed to or for the benefit of the children, but Mr Lee gave evidence that he would have advised Mr Allason that they did not justify the costs of setting up and maintaining a trust, as opposed to a direct gift to the children.[79]Although the thrust of Mr Allason’s pleaded defence and his witness statement is that the purpose of the creation of the trust was to provide a tax-efficient means of using part of his inheritance under his aunt’s will for the payment of school fees, he was not in his oral evidence able to give any reasons for establishing the trust, except that it resulted from the advice of Mr Lee and Mr Collins.[80]Mr Allason also relied on his assertion that in 1994 he owned assets of substantial value over and above the sum of £150,000 settled on the trust and was earning well. His first reply to a request for particulars of the relevant assets was:
“… The relevant assets were a property in Bermuda, valued at $3.5m; a property in Zermatt, valued at $l.5m; property at 310/312 Fulham Road valued at £1.2m; a property in Torquay, valued at £80,000; an unvalued interest in the Alfred Allason Trust; an unvalued contingent interest in the NIRO Trust.”
This was revised a month later to substitute “The relevant marriage assets in 1993/94 when no divorce was contemplated” for “The relevant assets”[81]The property in Bermuda was a house owned by his wife, which had been purchased largely out of funds provided by her and her family trust. When asked whether she would have regarded it as available in 1994 for his creditors, he replied “She wouldn’t have done under any circumstances". The house in Zermatt was in his mother-in-law’s name and he had not contributed to the purchase cost, although he said that he did make a direct contribution towards its upkeep. He had no interest in it and there is no evidence that it would have been made available to pay his Lloyd’s losses. As regards the house in Fulham Road, Mr Allason and his wife entered into a sale in August 1994 whereby they granted or disposed of a leasehold interest in the whole house except for the basement which they retained, together with the freehold interest. The price was £840,000 and a “large chunk”, as Mr Allason put it, of the sale proceeds was paid to his wife. The retained interest in the Fulham Road property was sold in August 1997 for a net sum of £110,434. Mr Allason’s property in Torquay was his constituency base and was fully mortgaged: in 1994, it was charged to Coutts to secure £90,000 and it was sold in 1998 for £113,200. Mr Allason had a one-third interest in the Alfred Allason trust which owned property in Notting Hill and paid income of £6,355 to him in 1994/95. The property was held on trust for sale, with Mr Allason’s brother also having a one-third interest and other members of the family having the remaining one-third interest. Without the agreement of the other beneficiaries, the trust property was not readily realisable, as Mr Allason acknowledged. Mr Allason sold his interest in this trust to his brother for a pre-tax total of £297,750 paid in two tranches in 1999 and 2000. The NIRO trust owned all the shares in a Panamanian company which in turn owned the residential property in Berkshire but Mr Allason’s contingent interest as a discretionary object depended on his wife pre-deceasing him. His interest was, as he accepted, valueless.[82]In addition to the assets specifically pleaded by Mr Allason, he had an interest under a trust of a property in Cheyne Walk, Chelsea but he was not aware of it in 1994, so it cannot have affected his reasons for establishing the trust.[83]There is finally one further asset to which he referred in his defence. The sum of £150,000 settled on the trust came out of his entitlement under his aunt’s will, which is alleged in his defence to have amounted to £500,000 after tax. He did not however rely on this as one of his pleaded “assets of substantial value” at the time of executing the deed of family arrangement. On the contrary, when he disclosed Mr Lee’s note of the discussion with him on 25 April 1994, he redacted the paragraph which stated that he would receive £400,000 under his aunt’s will. Mr Allason’s oral evidence was that it was in fact £500,000, as his brother was buying out his share in his aunt’s flat rather than the other way round. There is no evidence of the receipt of this sum by Mr Allason or of what became of it. His tax return for the year 1994/95 shows income from his aunt’s estate of £4,102 but neither in that year nor in subsequent years is any income disclosed which could come from an investment of £350,000 (£500,000 less £150,000 settled on the terms of the trust). Mr Allason said he did not know where the cash had gone. In these circumstances, this alleged asset is not one which I can or should take into account.[84]It follows that on the evidence there were few assets readily available to Mr Allason to meet Lloyd’s losses on a significant scale.[85]As regards his income, although Mr Allason alleged that he was “earning well”, his tax return for 1993/94 discloses income of £31,898 as an MP and trust income of £4,230. The equivalent figures for 1994/95 were £30,172 and £10,457. There are no other declared sources of income, whether as director’s fees or freelance journalism (as pleaded by Mr Allason) or, for the sake of completeness, from books he had written. There is no evidence of income other than that appearing in his tax returns. In other proceedings, Mr Allason swore an affidavit in which he stated that between February 1993 and February 1995 he was unable to work as an author because of the time he was required to devote to those proceedings and that he signed no new contracts for original works in that period. Mr Allason states in his closing submissions in the present case that by 1994 he had written 15 books and had assigned his royalty income to a service company, WRL, which provided a car and paid his travel and other allowable expenses. The accounts of WRL show turnover in 1993 and 1994 of £30,397 and £42,659 respectively which could be partly or wholly royalty income, but in each year the allowable expenses exceeded the turnover and by 31 December 1994 its retained losses exceeded £119,000. There is no evidence of the value, if any, of any direct or indirect interest in the copyright.[86]The burden of establishing that a real, substantial purpose of Mr Allason in settling £150,000 on trust for his children was one of the purposes set out in s.423(3) lies on Random House. It relies, as it is entitled to rely, on Mr Allason’s own statement in his affidavit of 2 May 2002 that the purpose was “to provide for my children and protect them from losses incurred at Lloyd’s of London”. If that is a correct statement of his purpose, it comes within s.423(3). He would protect his children by taking steps to ensure that assets to which he was entitled, in this case the sum of £150,000 out of his entitlement under his aunt’s will, was not available for creditors in respect of his losses at Lloyd’s and would therefore be available to pay his children’s school fees.[87]Mr Allason maintains that this statement was a mistake, and he has done so since Random House brought its claim under s.423 and the significance of the statement became apparent to him. He suggested that it was wrong in a letter dated 24 November 2004 to Random House’s solicitors:
“… I now know the content of the affidavit to be inaccurate in respect of references to Lloyds of London, in that it has now been established through scrutiny of contemporaneous records that consideration of current or future Lloyds losses did not play any part in the professional advice given, or taken, to create the DCA Trust. Accordingly, although I believed at the time of swearing the affidavit that its content was true, I now acknowledge that I was mistaken in this respect.”
It is apparent that this is based on reconstruction from Mr Lee’s notes, not on any recollection of his purpose at the time. In his opening skeleton argument for this case, Mr Allason said that the affidavit was sworn in response to a deadline (in fact, 19 days), without the benefit of detailed research, without legal advice, and reflected what he thought in 2002 to have been the prevailing atmosphere in 1994. This too is later reconstruction. It does not explain why Mr Allason should have volunteered the statement of his actual purpose in 1994 if it was not true.[88]Looking objectively at the facts of his financial circumstances in mid-1994, as established by the evidence, it is entirely plausible that Mr Allason might have given £150,000 to a trust for his children, at least in part to put it beyond the reach of Lloyd’s creditors. He had limited capital and income available to him, and he was facing substantial losses, both actual and potential, at Lloyd’s. Against that, it is true that Mr Lee’s contemporaneous notes of discussions do not suggest that this was one of the purposes. However, they are not a record of all discussions and they do not necessarily disclose the totality of Mr Allason’s thinking at the time. So far as Mr Allason relies on tax advantages as the purpose, he was given advice by Mr Lee that the costs of a trust would nullify the modest income tax benefits. In his closing submissions, Mr Allason suggests that reduction of his aunt’s estate was also a tax planning purpose, but it did not of course reduce her estate or the amount of inheritance tax payable on her estate.[89]According to Mr Allason’s affidavit, the establishment of the NIRO trust in 1980 was in part motivated by a desire that the house in Berkshire should not be available to meet losses which might occur from his Lloyd’s underwriting. Protection against losses at Lloyd’s was therefore something which had previously played a part in his thinking.[90]I am satisfied that the statement in his affidavit is a correct statement of his purposes in 1994. It was at least a real substantial part of his purpose in settling £150,000 on the trust to put that sum beyond the reach of actual or potential Lloyd’s creditors. He virtually admits as much in his closing submissions where he says:
“..In a separate action, and in a different context, RA volunteered in May 2002 information about the creation of DCAS and stated that its purpose had been “to provide for my children and to protect them from losses incurred at Lloyds”
. This does not imply any fraudulent intention to fulfil the statutory purpose, but rather to ensure funds would be available for the payment of school fees and avoid temporary embarrassment in the event of a major cash call at Lloyds. Thus a purpose of DCAS may have been to ensure RA’s children were not disadvantaged by any potential future cash flow crisis, and was an appropriate, prudent measure doubtless taken on similar advice by many other Lloyds names. …”[91]I should add here that discovery of the true position as to Mr Allason’s losses at Lloyd’s was not as a result of any evidence or disclosure given by him. His original defence pleaded that his only significant ongoing exposure to Lloyd’s was in respect of a single Wellington asbestos syndicate and that he did not make a loss at Lloyd’s until 1997 when it amounted to £7,000. The only Lloyd’s document disclosed by him was a consolidated personal account statement as at 31 December 1996 which showed a profit. The evidence which enabled Random House to plead and prove the true position was obtained from Mrs Allason and Lloyd’s. Permission was given by the Bermuda court to use evidence from the divorce proceedings. Mr Allason later changed his account to say, in his witness statement of 21 October 2006, that in the years 1976 to 1994 he did not think he experienced a single year of loss and, if he had, it would easily have been covered by his special reserve. As already shown, both of these assertions were wrong.[92]Mr Allason knew that he had incurred heavy losses, as his evidence in his divorce proceedings shows. Information provided in questionnaires in August 1996 and July 1997 showed that he knew that he had no assets in personal reserves or special reserve and that calls had been paid out of the Lloyd’s Loss Account at Coutts. This was in any case apparent to him when he opened this account at Coutts. In his oral evidence in July 1998, as recorded in the notes to which I have referred, he said that he had suffered a very heavy loss. While it no doubt assisted him in his divorce proceedings to emphasise his losses at Lloyd’s, the reverse was true in the present proceedings. In my judgment, Mr Allason is prepared to tailor his evidence to fit his needs in the case in question. Laddie J came to the same conclusion in the copyright action.[93]Mr Allason submits that Random House cannot qualify as a victim of the transaction within s.423(5) so as to be able to challenge the initial gift to the trust. Even if, as I have found, a real substantial purpose of the gift was to put assets beyond the reach of present and future Lloyd’s creditors, Random House was neither within that class nor within Mr Allason’s contemplation as a possible future creditor at the time of the transaction nor was it in fact an actual or contingent creditor at that time. In those circumstances, Mr Allason submits that Random House was not a victim of the initial gift for the purposes of s.423.[94]The definition of “victim of the transaction” was considered by the Court of Appeal in Hill v Spread Trustee Co Ltd [2007] 1 WLR 2404. The judgment of Arden LJ, with which Waller LJ and Sir Martin Nourse agreed except on a different point relating to limitation, makes clear, particularly in paragraphs 101 and 125, that a victim within s.423(5) need not be a person who the debtor has in mind, either specifically or as a member of a class, for the purpose of satisfying the purpose requirement of s.423(3). Equally, the judgment establishes that a victim need not be a creditor at the date of the transaction : a creditor arising in the future may be a victim. If victims are not restricted to either creditors of the debtor at the date of the transaction or to persons whose interests the debtor intends to prejudice, Random House is able to assert a claim as a victim.[95]In his closing submissions Mr Allason argues that the claim under s.423 is statute-barred. This was not pleaded, as it should have been. The argument is that a limitation period of six years applies, starting with the date on which the trust was created in 1994. This is wrong on two counts. First, as this is a claim to set aside a settlement made under a deed, it is claim on a specialty and a limitation period of 12 years applies. Secondly, the limitation period commences not at the date of the transaction but at the date on which the claimant became a “victim” as defined and therefore had a complete cause of action under the section. See Hill v Spread Trustee Co. Ltd. [2007] 1 WLR 2404. As the present proceedings were commenced in June 2004, they were brought well within time. Random House submitted that it became a “victim” in October 2001 when the principal costs order was made against Mr Allason and WRL. It is arguable that Random House became a victim at an earlier stage. As the defendant in proceedings brought by Mr Allason and WRL, Random House could expect orders for costs in its favour if it succeeded in its defence of the claim and may therefore, each time that it incurred costs, have become a person capable of being prejudiced by the impugned transaction. But this is academic, because(i) a 12-year period applies and,(ii) even if a six-year period applies, most of its costs were incurred within six years before the commencement of the present proceedings.[96]I am therefore satisfied that Random House establishes the requisite elements of a claim under s.423 as regards the gift of £150,000 to the trust. This leaves the question of the appropriate remedy. Mr Allason states that the sum of £150,000 and the income earned by it was applied over the following six or so years in paying his children’s school fees and perhaps other expenses. He says that the trust fund is therefore exhausted and in any event, even if the trust had not been established, these funds would have been spent in that way over the same period. I will wish to hear further submissions on the appropriate order to make.

Cited in 3 later judgments