Jackson v Song  EWHC 1636 (Ch) is another example of an unhappy interaction between bankruptcy and family law, again in the form of an unsuccessful application by the trustee in bankruptcy of Michael Sheridan for relief under s. 339 Insolvency Act 1986 on the basis that payments made under the terms of a maintenance agreement constituted transactions at an undervalue.
Mr Sheridan and Ms Song had married in 2003 and had two children. The matrimonial home had been purchased in 2007 in the sole name of Mr Sheridan, although both Ms Song and Mr Sheridan asserted joint ownership. Ms Song also claimed to have carried out a great deal of work on the property, giving her an interest in it or bolstering the half interest she claimed. Mr Sheridan had been the only wage earner in the family; Ms Song did not work outside the home.
The marriage broke down, and Mr Sheridan and Ms Song agreed that the matrimonial home should be sold, the mortgage repaid and a substantial sum from the proceeds would be provided to Ms Song to enable her to buy a house for herself and the children, who were then 8 and 10 years old. Ms Song consulted a solicitor, and the parties entered into a separation agreement on 27 March 2012 which was executed as a deed and purported to dispose of any financial claims that either party might have against the other.
When the property was sold, Ms Song realised that the 80% of the proceeds of sale from the property which she was to receive under the agreement was not going to be enough for her to purchase the property in which she intended to live, so she asked Mr Sheridan for more. He agreed to provide a further £40,000. Ms Song was also helped with the purchase by her parents and sister in China, enabling her to complete the purchase of the new property in her sole name. The overall result was that Ms Song received £429,128 out of the net proceeds of sale of the matrimonial home and Mr Sheridan only £57,282, less than the 20% to which he was entitled under the agreement.
Mr Sheridan went bankrupt in December 2013.
The first issue Deputy ICC Judge Agnello had to decide was Ms Song’s interest in the former matrimonial property. She concluded on the evidence that there had been a common understanding or intention that the property would be owned equally. She also concluded that, in reliance on that understanding, Ms Song had acted to her detriment, so that the work she had done on the property met the test set out in Lloyds Bank v Rosset. “However,” she went on, “even if I had determined that Ms Song’s share was one quarter rather than one half, this would not have assisted the Trustee’s case. As I set out below, the valuation of the consideration provided by Ms Song is not necessarily restricted by whether she owned a quarter or one half of the family home. The exercise carried out by the Family Court is much wider.”
The deputy judge then analysed the agreement, concluding that Ms Song had agreed to accept her share of the proceeds of sale of the property in consideration of relinquishing any family law financial claims she had against Mr Sheridan. “In my judgment, the parties were bound by the terms of the separation agreement, subject to what is set out below relating to the effect of section 34 [Matrimonial Causes Act 1973] on the separation agreement.” (The judge held that the agreement was a maintenance agreement within the meaning of s. 34(2) of the MCA.)
The deputy judge then considered the case law. Having done so, she said:
“In my judgment, the issue as to whether the consideration provided by the wife under a settlement agreement is capable of being consideration of value and measurable ‘in money or money’s worth’ has been effectively determined by Hill v Haines and the earlier cases of Re Pope and Re Abbott. I do not consider that there is any distinction to be made as between the case relating to a settlement agreement, such as in Re Pope or the present case, or a case such as Hill v Haines, where the order is made in the ancillary relief proceedings. In relation to settlement agreements, then there is a risk that a court may subsequently alter what has been agreed by the parties. That does not, in my judgement invalidate the consideration provided or enable it to be valued at zero. In cases such as Xydhias v Xydhias, a compromise between the parties reached during the ancillary relief proceedings needs to be approved by the court. This is the distinction explained in…Sharland. However in both types of cases, in my judgment, the consideration is not zero and according to the Court of Appeal in Hill v Haines, is capable of being valued in money or money’s worth.”
The deputy judge’s findings above were plainly not of assistance to the trustee’s case, but the way the trustee had put her case now led to even greater problems: for the trustee had not set out what she asserted was the value of the consideration provided by Ms Song (beyond saying there was none). In a reply to a request for information she had pleaded that, in the event of the court determining that Ms Song had provided consideration, she, the trustee, would invite the court to determine the value of that consideration. That approach did not commend itself to the judge:
“In my judgment, it is for the Trustee to establish her case on the alternative limb being section 339(3)(c). Once the Court has considered the Trustee’s case as to value of the consideration provided and given, then the Court would determine whether the Trustee has discharged the burden of proof to the relevant standard. It is not for the Court to assess what is the value of that consideration. The burden remains on the Trustee.”
The trustee’s contention that Ms Song had provided “zero consideration”, or consideration the value of which was significantly less than the consideration she received was rejected.
An understandable attempt by counsel for the trustee in the face of that to run an alternative case on the additional £40,000 also failed. The judge found that it fell to be treated in the same way as the larger sum due under the strict terms of the agreement. She also said:
[I]n so far as I am wrong about the position relating to the additional £40,000 being in reality part of the separation agreement between the parties, I would not have, in the exercise of my discretion pursuant to section 339(2), made an order for Ms Song to account to the trustee in relation to the additional £40,000. Ms Song entered into the separation agreement and agreed a split of 80% of the net proceeds of sale, relying upon the promise made by Mr Sheridan, that the sum which would be available to her would be in the region of £450,000. Her intention was clearly to obtain sufficient funds to enable her to purchase a property for her and the children. She had clearly relied upon what she believed the sums available to her were to be when she exchanged contracts for the purchase of 50 Waterside. Although Mr Sheridan asserts that he was unaware that Ms Song intended to use the sums to buy a new property, in my judgment, he was certainly aware of that intention when Ms Song asked for further sums because of the shortfall. He agreed to provide further sums to Ms Song because she needed them for the acquisition of the new home for her and the children.”
The judge accordingly granted a declaration as to Ms Song’s 50% interest in the property and dismissed the trustee’s application.
The judgment in Jackson v Sing demonstrates the difficulties a trustee often faces in seeking to undo a maintenance agreement, even when it has been reached in circumstances that appear to fly in the face of creditor interests. The main lesson appears, however, to relate to the need to think carefully about issues of consideration and value in claims of this kind, which is often not easy.
It has long been known that settlement agreements are recognised as valid by the Matrimonial Causes Act and so have the same status as a consent type of order. This is the first case to confirm that position.
Deputy Judge Agnello also devotes a significant portion of her judgment to her evaluation of the witness evidence, drawing attention to the need for particular care where evidence is being given through an interpreter, as it was by Ms Song in this case.