Nightingale Mayfair Ltd v Mehta (1999)
A debtor who caused a property purchased with his money to be transferred into a trust or settlement for the purposes of a tax avoidance scheme had successfully deprived himself of any beneficial interest in the property. Futhermore, a promissory note constituted "valuable consideration" for the purposes of s.23(1) Land Registration Act 1925.
Hearing of an inquiry in the course of charging order proceedings to establish the beneficial interest (if any) of the first defendant ('M') in a property formerly registered in the name of the fourth defendant ('Omdeep'), but subsequently transferred into the joint names of the second and third defendants ('the trustees'). If M had any such interest, further issues arose as to whether: (i) M was in actual occupation of the property as at 27 March 1992; and (ii) the trustees had given valuable consideration, within the meaning of s.23(1) Land Registration Act 1925, for the transfer to them of the property on that date. The property was acquired by Omdeep, a Panamanian company, in 1986. M alleged that the funds for its acquisition were provided by his mother, and not by him, and that in any event, whatever the source of the purchase monies, the acquisition was made pursuant to a tax avoidance scheme devised by tax advisers acting for him and/or his mother. The shares in Omdeep were held on the terms of a trust established in Liechtenstein. In late 1990 M was the subject of an investigation by the Inland Revenue. A settlement was negotiated, one of the terms of which was that the property should be transferred by Omdeep at market value before 6 April 1992. In compliance with that term the property was transferred by Omdeep to the trustees on 27 March 1992 to be held by them on the terms of another Liechtenstein-based trust. The consideration for that transfer was a promissory note of #1.1 million. The issues which fell for determination were: (1) whether M funded the purchase of the property from his own funds; (2) If so, whether he thereby became the beneficial owner of the property, notwithstanding its transfer into the name of Omdeep, by reason of a common intention to that effect, or a resulting trust; (3) If M did become the beneficial owner, whether his interest was overridden by the transfer to the trustees, or whether his interest survived (a) as an overriding interest by reason of his actual occupation of the property as at 27 March 1992, or (b) as a minor interest because the transfer was made without valuable consideration. (4) Failing all else, whether the claimant was entitled to have the transfer to the trustees undone on the basis that it was made in breach of a freezing order restraining M from dealing with any interest in the property.
(1) It was entirely clear from the evidence that M was the source of the funds for the acquisition of the property. (2) It was equally clear that the acquisition was made as part of a tax avoidance scheme, and that the use of Omdeep, an offshore company, and the creation of discretionary offshore trusts were all integral parts of that scheme. It was clear that the underlying intention was that Omdeep should be the beneficial owner so that the desired tax objectives could be achieved. It followed that M had no beneficial interest which could be the subject of a charging order. (3)(a) M was not in actual occupation at the material time. Even if he had been, his failure to object to the transfer would, in the circumstances, have precluded him from relying on his interest as being overriding. Abbey National Building Society v Cann & Ors (1990) 2 WLR 832 considered; (b) a negotiable instrument such as a promissory note was valuable consideration within s.23(1) of the 1925 Act. (4) Leaving aside the evidential difficulties which faced the claimants in attempting to have the transfer to the trustees undone, it seemed that there was no jurisprudential basis for unscrambling a transaction between persons (ie Omdeep and the trustees) against whom the claimant had not at any stage had any cause of action.
Declaration accordingly. Charging order nisi set aside.