Keegan Quarries Ltd v McGuinness & Anor [2011] IEHC 453

The facts in brief

Keegan Quarries had a claim against Mr McGuinness, and in the earlier part of the same judgment the court held that it was entitled to a money judgment against him. In 2010 he executed a deed of transfer of property while that claim was still only a potential claim, so Keegan Quarries was not a creditor of his at the date of execution. He pointed to a concern about his medical condition as a reason for the transfer.

Keegan Quarries sought to have the transfer avoided under s.74(3). The transfer was made after the 2009 Act came into operation on 1 December 2009, so the challenge fell to be decided under the new section rather than the older statute it replaced.

What the court decided

Finlay Geoghegan J found that an express intent and object in Mr McGuinness's mind when making the transfer was to defeat any potential claim by Keegan Quarries. The medical concern was secondary; defeating the possible claim was the primary intent. Keegan Quarries had therefore proved a fraudulent intent as a fact.

She held that the court should in any event infer fraud as a matter of law, because the necessary or probable consequence of the transfer was to defeat, delay or hinder creditors. A claimant has two routes: direct proof of intent, or a presumption drawn from what the conveyance was bound to achieve.

The second issue was who may sue. The judge held that section 74(3) reaches beyond the defrauding of creditors. It extends to a creditor or other person and makes the conveyance voidable by any person thereby prejudiced, and a person from whom the transferor contemplates a potential claim comes within that class.

Prejudice was supplied by the money judgment to which Keegan Quarries was entitled under the earlier part of the same judgment, so the transfer was voidable at its instance.

The ratio

The ratio has two limbs. The principles settled under the repealed pre-2009 legislation apply to s.74(3), so an intention to defraud may be proved as a fact or presumed in law from the necessary or probable consequences of the conveyance. And the persons protected are not confined to existing creditors: someone from whom the transferor contemplates a potential claim is an other person, and may avoid the conveyance if prejudiced by it.

The alternative holding, that fraud should in any event be inferred as a matter of law, came after fraudulent intent had already been found as a fact, so on these facts it is obiter. It is now applied as the working test.

Statutory basis

Section 74 of the Land and Conveyancing Law Reform Act 2009 has two operative limbs. Subsection (1) makes a voluntary disposition of land intended to defraud a subsequent purchaser voidable by that purchaser, and subsection (2) stops a disposition being read that way merely because a later disposition of the same land was for valuable consideration. Subsection (3), the limb in issue here, makes any conveyance of property made with the intention of defrauding a creditor or other person voidable by any person thereby prejudiced.

Subsection (4) sets the limits: it protects an interest conveyed for valuable consideration to a person in good faith without notice of the fraudulent intention at the time of the conveyance, and leaves bankruptcy and corporate insolvency law untouched. Conveyance is defined broadly by section 3 of the 2009 Act, taking in an assignment, charge, lease, mortgage, surrender, transfer and other assurances by instrument, but not a will.

The provision it replaced

The historic response was the Conveyancing Act 1634, as amended by the Voluntary Conveyances Act 1893. Section 74 replaces sections 1 to 5, 10, 11 and 14 of the 1634 Act together with the 1893 Act, and Schedule 2 to the 2009 Act repealed the 1634 Act so far as it remained unrepealed. The earlier learning on fraudulent intention, including In Re Moroney, was built on section 10 of the Conveyancing Act 1634. Because the transfer post-dated the 2009 Act, the court was applying s.74(3) itself and had to decide whether that older learning survived the change of statute. It held that it did.

Later amendments

Section 74 has been amended twice since, for reasons unconnected with this case. Subsection (5) was inserted by the Central Bank and Credit Institutions (Resolution) Act 2011 from 28 October 2011, and section 21 of the Irish Bank Resolution Corporation Act 2013 made subsections (1) and (3) subject to the new subsections and inserted subsection (6) from 7 February 2013. Both carve out disposals of the property of a resolved credit institution and of IBRC. Neither disturbs the reasoning here.

What it is authority for

• The pre-2009 approach to intention to defraud applies to s.74(3) unchanged.
• Fraudulent intent can be found as a fact, or inferred in law from the necessary or probable consequences of the conveyance.
• The claimant need not have been a creditor at the date of execution; a person from whom a claim is contemplated is an other person under the subsection.
• The claimant must still be prejudiced, prejudice being shown here by the money judgment already obtained.

It is not authority that every voluntary transfer is fraudulent: being voluntary does not of itself make a conveyance fraudulent, and the question stays one of intention. It says nothing about s.74(1), which protects subsequent purchasers, and it does not test the good faith purchaser exception in s.74(4)(a). Nor does it bear on the regimes preserved by s.74(4)(b), which include the Bankruptcy Act 1988 and section 121 of the National Asset Management Agency Act 2009. As a High Court decision it carries real weight but does not bind the Court of Appeal or the Supreme Court.

Where it sits against later cases

The lineage runs back to Twyne's Case (1601) 76 ER 809 Persuasive and its badges of fraud: a gift of the donor's whole property, secrecy, litigation pending, the donor staying in possession, a trust of the gift for the donor, and needless averments of good faith in the deed. In Re Moroney (1887) 21 LR Ir 27 IE · pre-1922 then gave the leading statement, Palles CB separating fraud proved as a fact from fraud assumed in law. It was applied by Costello P in McQuillan v Maguire [1996] 1 ILRM 394 IE and by Laffoy J in The Motor Insurers Bureau of Ireland v Stanbridge & Ors [2011] 2 IR 78 IE.

Keegan Quarries carried that learning into the 2009 Act and has since been followed rather than doubted. In Quinns of Baltinglass Ltd v Smith & Anor [2017] IEHC 460 IE · High Court Keane J applied the same approach, and granted relief under s.74(3), where a debtor incorporated a new company and moved an existing business into it to frustrate a creditor.

Two decisions point the same way on standing. In Doherty v Quigley & Anor [2015] IECA 297 IE · Court of Appeal, decided on the 1634 Act, the Court of Appeal confirmed that contingent creditors at the date of the transaction may challenge it where the debt crystallises later. In McNamara v McCann & Anor [2016] IEHC 443 IE · High Court Binchy J affirmed the setting aside of a conveyance under s.74 where the transferors knew the plaintiff meant to pursue the first defendant personally for his companies' debts.

Key authorities

• Keegan Quarries Ltd v McGuinness & Anor [2011] IEHC 453 IE · High Court — fraudulent intent under s.74(3) may be proved as a fact or inferred in law; a person from whom a claim is contemplated is protected though not yet a creditor.
• In Re Moroney (1887) 21 LR Ir 27 IE · pre-1922 — the leading statement of fraudulent intention under the repealed s.10 of the 1634 Act, carried forward by Keegan Quarries.
• Twyne's Case (1601) 76 ER 809 Persuasive — the badges of fraud, still the checklist for circumstantial evidence of intent.
• Doherty v Quigley & Anor [2015] IECA 297 IE · Court of Appeal — contingent creditors may challenge a transaction when the debt crystallises later: appellate support for a wide reading of standing.
• McNamara v McCann & Anor [2016] IEHC 443 IE · High Court — conveyance into one spouse's sole name set aside under s.74 where both knew a claim was coming.
• Quinns of Baltinglass Ltd v Smith & Anor [2017] IEHC 460 IE · High Court — assets moved into a new company at the expense of creditors; relief granted on the Keegan Quarries approach.

How it is examined

This case is regularly set as a standalone case note on Irish Land Law papers, as one of a short list of note topics carrying equal marks of around 12 or 13 each. Marks are usually lost by writing a strong first note and a thin second one, so split the time evenly.

Structuring a 12 to 13 mark case note

1. One sentence on what the case decides, naming the subsection.
2. The statutory setting: s.74(3) and the 1634 Act provision it replaced.
3. The facts in two sentences: a transfer made while a claim was contemplated, by a person not yet indebted to the claimant.
4. The two routes to fraudulent intent, and the finding of intent as a fact here.
5. The holding on who may sue, the part most students omit.
6. Where it sits: followed in Quinns of Baltinglass, consistent with Doherty v Quigley.

In a problem question the cue is a debtor or prospective defendant who transfers property, often to a relative and for nothing, just as a claim is threatened. Attack it in order: is the disposition a conveyance within s.3; was there an intention to defraud, proved or inferred; is the claimant a creditor or an other person; is the claimant prejudiced; does the exception in s.74(4)(a) save the transferee. The wider enforcement setting is on our judgment mortgages and fraudulent dispositions note.

Related Land Law notes: judgment mortgages and fraudulent dispositions · Larianov Foundation v Prendergast · Muintir Skibbereen Credit Union Ltd v Crowley · all free Land Law notes.