Fraudulent Transfer of Property and the Avoidance of Legal Duty
A recent High Court decision has found that the transfer of property from a former Irish dancing teacher to his wife was carried out with an intention to avoid an order requiring him to pay €400,000 damages to a former pupil who fell victim to his sexual abuse.
The Court of Appeal, on the 21st of December, dismissed the defendant’s appeal and upheld the High Court decision, awarding costs to the plaintiff. The transfer of property was set aside, and as such the defendant’s efforts to move his assets beyond the reach of the plaintiff failed.
The above ruling is one of many examples of how the courts have prevented the fraudulent transfer of property. Of huge significance in this regard is s. 74 of the Land and Conveyancing Law Reform Act 2009. It provides the following:
“74. (1) Subject to subsection (2), any voluntary disposition of land made with the intention of defrauding a subsequent purchaser of the land is voidable by that purchaser.
(2) For the purposes of subsection (1), a voluntary disposition is not to be read as intended to defraud merely because a subsequent disposition of the same land was made for valuable consideration.
(3) Subject to subsection (4), any conveyance of property made with the intention of defrauding a creditor or other person is voidable by any person thereby prejudiced.
(4) Subsection (3) does not – (a) apply to any estate or interest in property conveyed for valuable consideration to any person in good faith not having, at the time of the conveyance, notice of the fraudulent intention, or (b) affect any other law relating to bankruptcy of an individual or corporate insolvency.
Of particular relevance to the fraudulent transfer of property in order to avoid a legal obligation, is s. 74(3). It provides that any conveyance of property that has been made with the intention of defrauding a creditor will be voidable. It follows that if it can be shown that property was transferred for a fraudulent purpose, such transaction can be set aside at the discretion of the court. The 2009 Act at s.3 defines a conveyance as including “an appointment, assent, assignment, charge, disclaimer, lease, mortgage, release, surrender, transfer, vesting certificate, vesting declaration, vesting order and every other assurance by way of instrument except a will”. This broad definition allows a number of transactions to be challenged under s. 74(3) of the Act.
Section 74 also applies to property transferred by way of voluntary disposition, that is, a conveyance made otherwise than for consideration. Often, the transfer of property without consideration will be indicative of an ulterior motive, namely, the temporary or permanent transfer of ownership of land, in order to avoid a legal duty or obligation.
The motive or intention behind such a transfer can be actual or inferred. In the case of McQuillan v Maguire  it was held that actual fraud need not be shown if it can be established that the probable or likely result of the transfer would delay or defeat creditors. It was more recently held by Finlay Geoghegan J in the 2012 Keegan Quarries decision that if it is found by the court that ‘the necessary or probable consequences of the act done’ was to defeat, or hinder creditors, as a matter of law, the court should infer fraud. Therefore, the courts will look at the resulting consequences of the transaction in order to establish whether an element of fraud exists in creating a favourable state of affairs for the defendant who may wish to dissipate or conceal their assets.
Also of interest is the transfer of property to a company. The corporate veil, first established in the seminal case of Salomon v Salomon , will indeed be pierced if it is found by the courts that the transfer of property was made in order to avoid a legal duty. In the case of Jones v Lipman, the defendant had contracted to sell his house to the plaintiff, and subsequently attempted to avoid a claim of specific performance by conveying his house to a company of which he had ownership and control. It was found by the courts that this had been done in an effort to evade the plaintiff’s enforceable contract for sale. Russell J rejected a defence based on the company being a separate entity, and described the company as: “the creature of the defendant, a device and a sham, a mask which he holds before his face in attempt to avoid recognition by the eye of equity”.
In light of the recent dismissal of appeal by the Court of Appeal on the 21st of December, discussed above, it can be concluded that the transfer, conveyance or disposition of property to another person, or company, will be strictly scrutinized by the courts where it has been carried out by a person who may personally gain from such a transaction, or who may avoid a legal obligation or duty they owe to another. If fraud, actual or inferred, can be shown, such transaction will be set aside and rendered voidable.#
– Johanna Ryan 2015