NICHOLAS MOSTYN QC
This judgment is being handed down in private on 9 December 2005. It consists of 135 Paragraphs and has been signed and dated by the judge. The judge hereby gives leave for it to be reported. The title of any report should be TL v ML and Others (ANCILLARY RELIEF: CLAIM AGAINST ASSETS OF EXTENDED FAMILY)
Nicholas Mostyn QC:
- This is the hearing of the claim of TL ("W") for ancillary relief. I also have to deal with the appeal of ML ("H") against the order for maintenance pending suit made by District Judge Maple on 7 July 2004.
- I will explain below that I find the total assets of H and W to amount to about £560,000, before liabilities for costs are taken into account. W's costs amount to £209,713, and have been funded by her father. H's costs amount to £209,533, and have been funded by his father. The costs of the Second Respondent (H's brother ("MCL")) amount to about £21,000. The costs of the Third Respondent (H's father ("CL")) amount to £34,032. The total costs are £474,278.
- The reason that so much money has been invested in this case is, first, that W asserts that other assets, held either by H's brother, or in off-shore companies, are beneficially the property of H. These assets amount to about £2m in value. Her claims have been strenuously resisted by H, his brother and his father.
- W's secondary position is that the assets of H's father and mother amount to "resources" within the extended meaning of that word supplied by Thomas v Thomas [1995] 2 FLR 668 which I should "judicially encourage" them to provide to meet her claim. This is for £2.3m on the clean break basis (alternatively, for £815,000 capital provision, and £126,000 p.a. maintenance for herself and the two children, including school fees).
- On 8 February 2005 Singer J described this case as a "power struggle" between the two families. I agree. These families have preferred to spend nearly half a million pounds in legal fees in pursuit of their respective grievances rather than to enter into a peaceable compromise. That is their undoubted right. But I wonder whether at the end of the day anyone (apart from the lawyers) will have really profited from that expenditure.
THE BACKGROUND
- W was born on 17 July 1972 and is therefore 33 years old. She is of Serbian origin. In 1980 her parents emigrated from what was then Yugoslavia to Austria. By that stage her father had already established a successful building company. In order to satisfy Austrian immigration requirements the shares of that business were put in W's mother's name while her father was presented as an employee of the business.
- At some point W's parents bought 66% of a substantial building in Vienna at Hedwigasse. This ownership is in part held directly, and in part through a company the shares of which are in W's mother's name. Within this building is a big flat which was W's childhood home, and it remains the home of her parents. She lives there now with the two children of the marriage.
- In 1991, aged 19, W came to live in London. In 1997 she met H and began a relationship with him. In that year she conceived their first child Maria who was born on 12 February 1998 and who is now 7 years old. The parties were married in the Chelsea Register Office on 24 April 1998. This was followed by an Orthodox religious marriage in Vienna in May 1998. On 9 May 2001 their second child Alexander was born. He is now 4 years old. During their marriage the parties lived in London. They separated on 27 March 2004, and so their relationship lasted about 7 years. In August 2005, with the permission of Wilson J (as he then was), W and the children returned to live in Vienna.
- H was born on 25 February 1969 and is now 36 years old. He is his parents' third child of four. He has a sister Maria aged 41, a brother MCL aged 40 (the Second Respondent), and a sister Angela aged 31. His parents are CL aged 68 and Mary aged 61. H's parents are cousins. The family is Greek and is in the shipping business.
- W has asserted throughout that H's family is very wealthy. After an absurd denial of this in an affidavit filed in Part IV Family Law Act 1996 proceedings on 28 April 2004 H has also accepted that his family is wealthy.
- Before, during and after the marriage H has worked in the family business in London. He does not seem to be formally employed. He receives money for his services more or less as required.
- In June 1998 H and W moved to live in a spacious mansion flat in St John's Wood. I shall refer to this as 24 AL. Since 1990 legal title has been registered in the name of H's brother MCL. It has been in H's family for a long time. According to H, MCL, CL and Mary it was purchased in 1965 with money from H's paternal grandmother and put into the name of H's parents. They moved out in 1972 leaving the paternal grandmother in occupation. At her request it was transferred into MCL's name in 1990. She had a particular affection for him as he bore the same Christian name as her husband who had been killed during the Second World War. In 1997 the paternal grandmother died and the flat was unoccupied. It was offered to H and W following their marriage. After they took up occupation a substantial sum of about £50,000 was spent on renovation; this was supplied in part by H's family and in part (US$30,000) by W's father. W claims that 24 AL beneficially belongs to H.
- It is clear that during the marriage the parties enjoyed a high standard of living although the evidence is not sufficiently clear for me to assess with precision the annual monetary rate. Mr Cusworth says that was at the rate (including the discharge of school fees) of about £100,000 - £120,000 p.a. This lifestyle was in large measure funded by payments made through the bank accounts at Alpha Bank of a Panamanian company which I shall call SMCFSA. This is one of a number of off-shore companies that have featured in this case. Another is a Liberian company which I shall call GE, which owns a building in Central London which I shall designate 104 WS. W claims that both SMCFSA and GE are beneficially owned by H.
THE CLAIM IN RESPECT OF 24 AL
- Mr Brett, counsel for H's brother MCL, has provided a chronology in relation to the relevant history of this property. It appears to be largely agreed. From that chronology I extract the following main events.
- In 1958 CL rented 24 AL. His mother and grandmother moved in with him. In 1963 CL married Mary and 24 AL became their matrimonial home. In 1965 CL's mother funded the purchase of the leasehold interest in the property which was in due course put into the joint names of CL and Mary (the mother of H and MCL). In 1972 CL, Mary and their then three small children moved out of the property to their new home in Avenue Road. In that year CL's grandmother died, leaving the property occupied by his mother.
- On 16 February 1990 CL and Mary transferred the leasehold interest in the property to the brother in accordance with the wishes of CL's mother who remained living at the property. At that point an extension to the lease was obtained. It is to be noted that at the time of the transfer H was aged 21. It is W's case that at this point it was expressly agreed that MCL would hold the property as a bare trustee or nominee for H who became the true beneficial owner.
- In about 1991 MCL moved to live in Greece; H (aged 22) remained living with his parents at Avenue Road.
- In 1994 or 1995 MCL purchased a property in Kokkinara Street, Athens for approx. $150,000.
- In early 1997 H started a relationship with W; he says he was then living partly at Avenue Road and partly at W's sister's home in Pitt Street.
- In late 1997 CL's mother died, leaving the property empty.
- On 12 February 1998 H and W's first child Maria was born. By then H and W were living full time at Pitt Street.
- In April 1998 H and W moved in to 24 AL by agreement with MCL.
- In late 2000 H and W spent about £50,000 on redecoration and refurbishment of the property. As I have mentioned above, the money was contributed by way of gifts from their respective parents.
- In October 2003 the marriage of H and W was obviously in difficulties. H was admitted to hospital suffering from clinical depression.
- On 20 November 2003 MCL sought legal advice as to status of H and W as occupiers of the property.
- On 30 March 2004 W filed her petition for divorce. On 25 April 2004 W left the property to live with her sister in Pitt Street.
- On 26 April 2004 W issued her Form A; she did not make a claim for a transfer of property order of 24 AL. In a statement made in a Part IV Family Law Act 1996 application of the same date she stated "I am not entirely sure of the ownership but believe it is owned by the Respondent's family in some form". In a further statement dated 6 May 2004 made in support of her application for maintenance pending suit W stated: "The property, I believe, is owned by the Respondent's brother [MCL]".
- In May 2004 W changed her solicitor from Frances Hughes of Hughes Fowler Carruthers to Julia Stanczyk of Miles Preston.
- On 24 June 2004 W made a further maintenance pending suit statement where for the first time she suggested that MCL's ownership of the property was only "nominal". However in her Form E, sworn on 29 June 2004 W stated in relation to 24 AL "I believe I am only a bare licensee". Consistently with that statement, on 7 July 2004, W abandoned her application for an occupation order because she would have no defence to possession proceedings brought by MCL.
- On 19 July 2004 W filed her schedule of issues for the First Appointment in which the beneficial ownership of the property was raised as an issue. On the First Appointment on 21 July 2004 Deputy District Judge Fenton gave permission to W to amend her Form A to claim a property adjustment order in respect of 24 AL. MCL was given permission to intervene and to file evidence, which he duly did.
- On 27 July 2004 MCL caused a notice to quit to be served on H.
- A year then elapsed before there were any further evidential developments in relation to this issue. It was not until 17 August 2005 that W gave particulars of her case as to H's beneficial ownership. In her fourth statement W stated that throughout the marriage he and members of his family had talked openly about 24AL being his property. She stated: [H] explained to me that 24 AL was left to him by his maternal grandparents and that he had given his elder brother money in cash, by way of family accounting, to enable his elder brother to purchase the flat in Athens where the Second Respondent lives.
THE PROCEDURE REFERABLE TO THIS CLAIM
- It is well established that a dispute between a spouse and a third party as to the beneficial ownership of property can be adjudicated in ancillary relief proceedings: see Tebbutt v Haynes [1981] 2 All ER 238, per Lord Denning MR:
'It seems to me that, under s.24 of the 1973 Act, if an intervenor comes in making a claim for the property, then it is within the jurisdiction of the Judge to decide on the validity of the intervenor's claim. The Judge ought to decide what are the rights and interest of all the parties, not only of the intervenor, but of the husband and wife respectively in the property. He can only make an order for transfer to the wife, of property which is the husband's property. He cannot make an order for the transfer to the wife of someone else's interest. '
- It is to be emphasised, however, that the task of the Judge determining a dispute as to ownership between a spouse and a third party is of course completely different in nature to the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division.
- Mr Brett makes the valid complaint that this issue has never been properly defined, pleaded or particularised. At no stage since the First Appointment has this discrete issue been the subject of any case management, notwithstanding that the parties have been before the court on numerous occasions.
- In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:
i) The third party should be joined to the proceedings at the earliest opportunity;
ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;
iii) Separate witness statements should be directed in relation to the dispute; and
iv) The dispute should be directed to be heard separately as a preliminary issue, before the FDR.
- In this way the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place. It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided. It is a great pity that none of these steps took place in this case. Had they happened, I believe that a great deal of costs would have been saved.
THE LAW REFERABLE TO THIS CLAIM
- A transfer of the legal title carries with it, prima facie, the absolute beneficial interest in the property conveyed. Any person other than the legal owner who asserts that he is the beneficial owner will need to establish a basis on which equity will intervene on his behalf. The only recognised basis is by way of a trust of land under which the legal owner holds his legal interest on trust for the beneficial owner.
- The burden of proof lies on the person asserting the existence of a trust of land.
- Trusts of land can be divided broadly into two main categories: express trusts and implied trusts.
- Express Trusts
i) An express declaration of trust relating to land is enforceable only if evidenced in signed writing. Section 53(1)(b) Law of Property Act 1925 provides: A declaration of any trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will.
ii) Section 53(2), however, provides that the requirement of writing does not affect the "creation or operation of resulting, implied or constructive trusts".
iii) The other exception to the requirement of writing is the rule in Rochefoucauld v Boustead [1897] 1 Ch 196. This re-states the ancient rule that the Statute of Frauds shall not be used as an engine of fraud. If the legal owner knows full well that the property was conveyed to him on trust for another, it is a fraud to deny it and accordingly parol evidence of the trust will be admitted.
- Implied Trusts
i) There are two principal types of implied trust: the resulting trust and the constructive trust.
ii) A resulting trust arises by way of implication in circumstances where the property is purchased in the name of the legal owner with the money of the beneficial owner.
iii) A constructive trust requires (a) a common intention between those concerned, (b) a change of position on the part of the beneficiary and (c) a finding that it would be unconscionable to deny the claim.
MY FINDINGS
- It has been unclear on what basis W was putting her claim. In his original skeleton Mr Brett surmised that W was alleging a constructive trust. However by the time that Mr Amos came to make his final submissions it was tolerably clear that he was relying on the rule in Rochefoucauld v Boustead [1897] 1 Ch 196, in other words that an express trust, albeit oral, came into being on 16 February 1990.
- I asked Mr Amos to identify what was the reason for the establishment of this covert ownership at that time. He accepted that it could not have been for asset protection in the event of divorce as H was not then married nor was he planning to marry. Mr Amos' theory was that it was done in this way in order to bolster H's Greek domicile for tax purposes. He also stated that it was "common sense" and that H was at that time "due" a property from his parents.
- There was also the suggestion (which I have referred to above) that the purchase by MCL of his Athens property in 1994 or 1995 was in some way funded by H, and that this was a "straight swap" for the earlier receipt by H of 24 AL.
- I entirely reject W's case. I find that she knew all along that the property was owned by MCL. I reject her evidence that she was told either by H or any members of his family that it was owned by H. That was a late invention. Had she been told that she would have said so in her first, second and third statements, and in her Form E. What she in fact said was only consistent with a clear knowledge that the property was not H's but was in fact MCL's. When she was asked in cross-examination why her earlier statements had omitted this crucial evidence she responded that she had told her solicitor from the outset that that was the case. It was clear that W was referring to Frances Hughes. I told Mr Amos that I would be likely to disbelieve this evidence unless a letter was produced from Frances Hughes confirming that W had indeed said this to her. However, by a letter dated 30 November 2005 Frances Hughes stated: At my initial meeting with [W] she told me that 24 AL was owned by her husband's brother [MCL]
- In his final submissions Mr Amos told me, for the first time, that Frances Hughes was not W's first solicitor but that W had earlier instructed another solicitor in St John's Wood and it was this solicitor who had obtained office copy entries on her behalf. I understood Mr Amos to be saying that it was to this solicitor, rather than Frances Hughes, that W was referring. I do not believe any of this. It is clear to me that W told her solicitors at the beginning that this property was owned by MCL, and that she had known this throughout. Her later case is complete invention. It reflects no credit on her, and I have to say that it colours her evidence generally.
- I agree with Mr Brett's final submission that: The wife's case amounts to hearsay evidence provided by the wife herself, who was plainly not a reliable witness, and wishful thinking based on nothing more than a feeling of injustice. If these were civil proceedings brought under TOLATA 1996 or a claim for rectification of the register, the wife's case would be very unlikely to survive an application for summary judgement. There is no reason for this court to adopt an approach in respect of this issue that is any less rigorous than the approach one would expect in the Chancery Division.
- I therefore dismiss W's claim and declare that 24 AL is the sole legal and beneficial property of MCL.
THE OFF-SHORE COMPANIES
- The family shipping business is operated through a network of off-shore companies. There are companies in Liberia, Panama, Jersey, Malta and Greece. Some of the companies are bearer share companies where the shares have not been issued. This gives them an uncertain status.
- In Paragraph 16.44 of the 18th Edition of Rayden and Jackson it is stated that: The Court of Appeal has stated that it is perhaps notorious that there are men in Greek shipping circles who can provide money for their families and their pleasures even though they have no assets for their creditors, or former wives [Re T (27 March 1987, unreported)].
- The arrangement of assets in the sort of case to which the Court of Appeal was referring brings to mind the remark of Franco Ferrarotti, the eminent Italian Professor of Sociology, that: What is basic in the Mediterranean culture is the veneration, even the cult, of ambiguity. Problems are not supposed to be solved. You circle around them in the hope that they will eventually evaporate.
I have to say that the arrangements made in this case for the holding of assets is a clear manifestation of the cult of ambiguity, and a great deal of time and energy has been spent during the course of hearing circling around the problem. I must therefore approach the matter robustly and sceptically, reminding myself at every turn that the arrangements exist in order to perpetuate ambiguity.
- Although Mr Amos' opening note asserted that H was a one-third owner as of right of the entirety of the shipping business of this family, he has focused on seeking to prove that the two companies I have mentioned above (SMCFSA and GE) are solely owned by H.
- SMCFSA was established in Panama in 1965. It is a bearer share company but no shares have ever been issued. The original incorporation directors were immediately replaced by three relations of CL and Mary Dimitris L, Panos F and Costas F. By 1976 Dimitris L had died and was replaced by Michael F. By 1980 Michael F had died and was replaced by Stavros F. By 1991 Costas F had been replaced by Loucas F. By 1996 Panos F had died and was replaced by Stamos F. Stamos and Lucas are the first cousins of CL and Mary, and Stavros was Mary's uncle. He has since died.
- The first visible sign of involvement of any members of H's direct family in this company in the official file is a minute of a directors' meeting on 23 December 1997 whereby CL and Mary were authorised to sign on the company's bank account at the Alpha Bank in London. There is no evidence in the official file of any involvement on the part of H in this company.
- CL told me that before 1991 the company was owned by the F family and that he acted as administrator in respect of it. Since 1991 the company has been owned three ways, by him, Mary and Loucas F. He told me that the company was funded by Mrs F, Mary's mother.
- I heard the oral evidence of Mr A, the manager of Alpha Bank in London who attended under a subpoena issued by W. He told me that throughout the time he has been at the branch the driving force behind the company was CL and that he believed it belonged to him. As a result of further inquiries raised by me the bank's solicitors have written a letter to the court in which they state that the bank has always understood CL to be the ultimate beneficial owner of the company "based on its dealings with him and the account since 1965". They stated that the Bank had never been given any advice or had any reason to believe that the ultimate beneficial ownership of the company had changed and that therefore there has been no requirement to obtain any additional evidence of beneficial ownership.
- W's case that the company is owned by H is based on two propositions:
i) The majority of the payments out of the company bank accounts over the last seven years have been for H's benefit;
ii) H had simulated (I hesitate to use the word forged) his father's signature on the payment orders.
- Mr Cusworth has provided a schedule which analyses expenditure out of the company bank accounts over the last seven years. It shows that a total of £1.29m has been spent. Of this £344,000 went into H's personal Alpha Bank accounts; £123,000 has gone to his solicitors Sears Tooth as costs in these proceedings; and £38,000 went on the school fees of H's children. These total £505,000 or 39% of the payments out.
- In addition £141,000 was drawn in cash by H. He says that he did this on behalf of his father who is infirm and for whom he acted as courier. He points to the fact that he would be taking cash from his own account at the same time and so asks rhetorically why he would need to take cash for himself from two sources. W says that this cash was taken by H. In addition Mr Amos has produced a schedule in his final submissions that a further £85,000 was spent from the account for H and W such as travel and renovations to 24 AL. If these are added in then the total spend on H or for his benefit rises to £731,000 or 57% of the total.
- Whether it is 39% or 57% I struggle to understand why expenditure of the funds in the company's bank account should denote ownership. Indeed W's own evidence suggests the direct contrary. There is little doubt but that the majority of H and W's expenditure emanated directly or indirectly from payments from the SMCFSA bank account. In her Form E at Paragraph 4.3 W referred to the "massive subventions" received from H's family. This would not have been apt language if the money came from a company owned by H.
- It is clear that the payments into the company bank account came from sources other than H. I have no reason to doubt that it was originally funded from payments from the F family. Latterly it has received the proceeds of sale of a property owned (through a Liberian company) by Mary's mother and the rent of a property from a flat now held in the name of H's sister Angela which had previously been owned by Mary's mother. The evidence clearly establishes that the money in it has been used by H's parents to support themselves, H and their other children.
- I have no hesitation in rejecting the suggestion that the signature of CL on the payment orders were simulated by H. CL was clear that he signed all of them. The fact that on one or two documents, unrelated to the operation of the bank account, H had signed for his father is neither here nor there. I accept the clear evidence of CL and H that on no occasion did H simulate CL's signature.
- I have considered this aspect of the case very carefully and am left in no doubt that H has no beneficial ownership in SMCFSA. I am less certain whether it is owned by CL alone or three ways between him, Mary and Loucas F, but this doubt does not matter. What does matter is that the funds, presently frozen under a Mareva injunction, amounting to £465,000, are not the assets of H. Subject to what I say below in Paragraph 73, that injunction will be discharged.
- The company GE was incorporated in Liberia in 1998. It too is a bearer share company, but no such shares have been issued. The initial single subscriber share is held by a Jersey company CHL. Until April 2005 the sole director was H's brother MCL. He was then replaced by CL, Mary and someone called Maria P. The signatories on the company bank accounts have been CL, MCL and H.
- GE owns 104 WS, a building in Central London worth £1.4m. There have been instances where people have connected H to this company, and in one document some accountants refer to it as H's company. On the other hand the solicitors for Alpha Bank have stated "the Bank believes that the ownership of the company lies with CL and Mary through a holding company called CHL".
- Although the matter is not entirely free from doubt I am satisfied by a clear balance of probability that GE is owned by CL and Mary through CHL. That latter company's shares are held by a Jersey nominee organisation but there is in the official file a general power of attorney in favour of CL and Mary. There is nothing to suggest that H has put any funds into this company or otherwise exercises exclusive ownership or control of it.
- I accept that the organogram prepared by MCL was unsatisfactory so far as this company is concerned in that it appeared to suggest that it was owned by him. He explained that at the time he was sole director and the diagram was intended only to reflect administrative control. If that be right then the exercise was very sloppy. But the organogram did not evidence any involvement of H, whether of ownership or control, and so the misleading impression is in my view inconsequential.
- My overall impression is that CL and Mary are patriarch and matriarch respectively and retain overall control and ownership of the family personal and business assets save where they have specifically donated property to their children. While it is true that H seems to have received somewhat less than his siblings that is not a reason for inferring that in truth he owns more.
- I therefore reject W's claim that H owns as of right either SMCFSA or GE.
THE ASSETS AND H'S PROPOSAL
- The assets (ignoring inconsequential sums in bank accounts, and debts of costs) are as follows:
| |
£ |
| W's Vienna property |
44,000 |
| H's Piraeus properties |
265,000 |
| H's 25% interest in Athens property |
111,000 |
| H's Eurobank shares |
140,000 |
| Total |
560,000 |
| in |
826,000 |
- In his open proposal H offered a lump sum to W of 400,000. This was on the basis that there remained in existence a debt owed by him under a guarantee in the sum of £195,000. When Mr Amos cross-examined MCL it was revealed that the debt had been repaid by him about 6 months ago. I was left with the distinct impression that had Mr Amos not asked the question that debt would have remained asserted by H as still outstanding. Mr Cusworth's explanation that his trial asset schedule was merely reflecting Form E figures was completely unconvincing. It is the duty of a party to give up to date instructions to his solicitors and counsel to put forward a current schedule. I have to say that I regard this aspect of H's presentation as distinctly shabby.
- As a result of the increase in his overall wealth H has increased his lump sum proposal to 500,000. In addition CL is prepared to guarantee this sum by leaving this amount in the frozen SMCFSA account and for there to be a provision in the order that in the event that H does not satisfy the lump sum award within a matter of weeks then the payment shall be made from that source.
- It can be seen that the effect of H's proposal is that W should receive 500,000 plus the value of her Vienna property (65,000), a total of 565,000 or 68.5% of the total assets owned as of right by H and W.
- H says that the annual rate of "income" received by him from his father is £83,000. Of this he offers £55,200 (81,420) to W and the children, inclusive of school fees. This represents 66.5% of his "income".
THOMAS V THOMAS
- Mr Amos' fall-back position is that if I should find (as I have) that neither 24 AL nor SMCFSA nor GE are H's property as of right then I should nonetheless include in my assessment of H's resources under s25(2)(a) Matrimonial Causes Act 1973 the "bounty" that he is likely to continue to receive from his parents. He says that W's claim as set out above should be ordered on the basis that I should reasonably encourage CL and Mary to make those funds available to H to meet the award.
- This aspect of W's claim requires a careful consideration of the case of Thomas v Thomas and the anterior and subsequent authorities.
- Mr Thomas was joint managing director of a successful family business. He became a name at Lloyds in 1985. His resources included the family home valued at £250,000 which secured a mortgage to the bank of £78,000, a bank guarantee covering contingent liabilities to Lloyds of up to £100,000 and a Lloyds losses loan of £43,000. His pension fund was valued at £394,000 and his 25.2% shareholding in the company at £600,000. His net assets, ignoring the contingent Lloyds losses were £1.24m. His income from the company was £2791 per month, it being company policy to pay relatively low salaries to the directors and plough back the profits. He had additional income of £172 per month. Mrs Thomas had no capital and no independent source of income. At the hearing of her application for financial relief the judge held that the husband had failed to satisfy him that it was beyond his power to free the primary equity in the family home by providing the bank with alternative security. He accordingly ordered the sale of the family home and payment to the wife of £158,000, which was to extinguish all capital claims, payment to the wife of periodic payments for the benefit of the children at the rate of £1500 per month, and payment by the husband of the boys' school fees (£12,000 p.a.). He expressed the view that the deficiency of income thus arising was one that the husband would make good by procuring changes in the company's policy towards the payment of dividends and/or the remuneration of management. It is not clear from the report whether the wife's claims for periodical payments for herself were dismissed.
- It can therefore be seen that the capital award to Mrs Thomas was only a small fraction of Mr Thomas' overall capital wealth. The income award consumed the great majority of Mr Thomas' monthly income.
- On Mr Thomas' appeal it was argued that he lump sum order was improper because it assumed without sufficient evidence that he could find substitute security for his liabilities; it was premature in that if he had merely failed to prove a negative, i.e. failed to satisfy the court that alternative assets were available to support the security, the judge ought to have ordered an adjournment to enable alternatives to be investigated; and the income award amounted to a breach of the principle of self-imposed restraint on which the court normally acted, particularly where third parties were involved, when exercising its jurisdiction.
- The third parties were Mr Thomas' brother and mother who owned directly or indirectly (together with Mr Thomas) the remaining shares in the company.
- The Court of Appeal dismissed Mr Thomas' appeal. It held that it was reasonable to assume that the husband, with the assistance of his mother and brother, would find a way of freeing up the equity in the former matrimonial home to enable the lump sum to be paid to Mrs Thomas. It also held that it was reasonable, for as long as Mr and Mrs Thomas elected to send their children to private schools, for Mr Thomas' relations to alter the company remuneration policy to enable Mr Thomas to have a reasonable income on which to live. What is important to recognise, however, is that no part of the ancillary relief award ranged over assets or income that were not Mr Thomas' as of right.
- Waite LJ held
'
the court is not obliged to limit its orders exclusively to resources of capital or income which are shown actually to exist. The availability of unidentified resources may, for example, be inferred from a spouse's expenditure or style of living, or from his inability or unwillingness to allow the complexity of his affairs to be penetrated with the precision necessary to ascertain his actual wealth or the degree of liquidity of his assets. Another is that where a spouse enjoys access to wealth but no absolute entitlement to it (as in the case, for example, of a beneficiary under a discretionary trust or someone who is dependent on the generosity of a relative), the court will not act in direct invasion of the rights of, or usurp the discretion exercisable by, a third party. Nor will it put upon a third party undue pressure to act in a way which will enhance the means of the maintaining spouse. This does not, however, mean that the court acts in total disregard of the potential availability of wealth from sources owned or administered by others. There will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court's view of the justice of the case. There are bound to be instances where the boundary between improper pressure and judicious encouragement proves to be a fine one, and it will require attention to the particular circumstances of each case to see whether it has been crossed.'
Glidewell LJ held
'the judge also had, as we have, the guidance to be derived from the various authorities to which Waite LJ has referred. Those which are the most helpful in this case are, in my view, the decisions of this court in O'D v O'D [1976] Fam 83, B v B (1982) 3 FLR 298 and Browne v Browne [1989] 1 FLR 291. From these authorities I derive the following principles: (a) Where a husband can only raise further capital, or additional income, as the result of a decision made at the discretion of trustees, the court should not put improper pressure on the trustees to exercise that discretion for the benefit of the wife. (b) The court should not, however, be 'misled by appearances'; it should 'look at the reality of the situation'. (c) If on the balance of probability the evidence shows that, if trustees exercised their discretion to release more capital or income to a husband, the interests of the trust or of other beneficiaries would not be appreciably damaged, the court can assume that a genuine request for the exercise of such discretion would probably be met by a favourable response. In that situation if the court decides that it would be reasonable for a husband to seek to persuade trustees to release more capital or income to him to enable him to make proper financial provision for his children and his former wife, the court would not in so deciding be putting improper pressure on the trustees. In relation to the facts of the present case, I would apply these principles to the family company as if it were a trust, and the shareholders (the husband, his mother and brother) the trustees.'
- It is important to bear in mind, when considering the width of the words used, what the Court of Appeal was in fact endorsing. As I have mentioned, it was an award of capital and income that did not exceed in either respect what was Mr Thomas' as of right. There is in my view a big difference between that state of affairs and what is urged on me here - an award that very substantially exceeds what is H's, in the hope and expectation that CL will make up the difference.
- If it is said that the width of the words in Thomas clearly permit what is sought here, then that gives rise to a conundrum that I find myself unable to resolve. What happens if the person being encouraged says very politely "Thank you for your encouragement, but I have decided not to assist"? Or, as here, "I am only prepared to assist to such and such an extent". Is the court supposed to ignore that stance and simply make an award on the basis that the assistance will be given? What happens if and when it is not? How is the court supposed to enforce its order? It could hardly be said that the payer is in wilful default justifying a penalty under the Debtors Act 1869. It is for this reason that I expressed the view during argument that often the so called "judicious encouragement" can turn out to be no more than mere empty rhetoric.
- I think that a clear distinction is to be drawn between, on the one hand, the position where the person being encouraged is a member of the payer's family and, on the other hand, where he is a trustee in a fiduciary relationship with the payer. In the former case the payer has no more than a mere spes of bounty which may, at the election of the provider, reasonably or unreasonably, be withheld. In the latter case the provider has a legal obligation to consider the beneficiary's interests. The very reason for the existence of the trust is to provide benefit for the beneficiary.
- A clear and helpful description of the relationship of trustee and beneficiary in a discretionary trust has been given by the Royal Court of Jersey in Re the Esteem Settlement [2004] WTLR 1 at 60 et seq:
'[163] A trust exists where a trustee holds property for the benefit of one or more beneficiaries (see Article 2 of the 1984 Law). The important point is that save to the extent permitted by the trust deed (e.g. remuneration) the trustee may not benefit from the assets; they are held entirely for the benefit of the beneficiaries. As Lord Blackburn put it in the Privy Council decision in Letterstedt v Broers (1884) 9 AC 371 at 386:
'It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.'
In other words, trustees have no interest of their own in the trust property; their sole purpose is to deal with the trust assets for the benefit of the beneficiaries. All the powers of the trustees may be exercised only in the interests of the beneficiaries and in accordance with the terms of the trust deed. [164] What the exercise of such powers will involve will, of course, vary considerably according to the nature of the trust the number of beneficiaries, the underlying purposes behind the establishment of the trust the nature of the assets and many other factors
[165] Furthermore, it is important that the relationship between trustee and beneficiary should be harmonious. Indeed, lack of harmony may be of itself a good reason for a trustee to resign or be dismissed (see Letterstedt at 386). This is not surprising because the trustee's sole duty is to act for the benefit of the beneficiaries. In our judgment there is nothing untoward in beneficiaries making requests of a trustee as to the investment of the trust fund, the acquisition of properties for them to live in or for the refurbishment of properties in which they already live. In our judgment many decisions of this nature are likely to arise because of a request by a beneficiary rather than because of an independent originating action on the part of a trustee. The approach that a trustee should adopt to a request will depend upon the nature of the request, the interests of other beneficiaries and all the surrounding circumstances. Certainly, if he is to be exercising his fiduciary powers in good faith, the trustee must be willing to reject a request if he thinks that this is the right course. But when a trustee concludes that the request is reasonable having regard to all the circumstances of the case and is in the interests of the beneficiary concerned, he should certainly not refuse the request simply in order to assert or prove his independence. His duty remains at all times to act in good faith in the interests of his beneficiaries, not to act against those interests for improper reasons. [166] In our judgment, where the requests made of trustees are reasonable in the context of all the circumstances, it would be the exception rather than the rule for trustees to refuse such requests. Indeed, as Mr Joumeaux accepted, one would expect to find that in the majority of trusts, there had not been a refusal by the trustees of a request by a settlor. This would no doubt be because, in the majority of cases, a settlor would be acting reasonably in the interests of himself and his family. This would particularly be so where there was a small close-knit family and where the settlor could be expected to be fully aware of what was in the interests of his family. Indeed, in almost all discretionary trusts, the settlor provides a letter of wishes which expresses informally his desires in relation to the administration of the settlement. Furthermore he may change his wishes from time to time. In our judgment it is perfectly clear that trustees are entitled (see Abacus Trust Company (Isle of Man) Ltd v Barr [2003] 1 All ER 763) to take account of such wishes as the settlor may from time to time express provided, of course, that the trustees are not in any way bound by them. The trustees must reach their own independent conclusion having taken account of such wishes. [167] On numerous occasions during the course of the hearing Mr Journeaux was driven to repeat that Abacus had not rejected any request of Sheikh Fahad. A lack of any refusal may of course be indicative of the fact that trustees have abdicated their fiduciary duties and are simply following the wishes of the settlor without further consideration. But, as mentioned above, a lack of any refusal may be equally consistent with a properly administered trust where the trustees have in good faith considered each request of the settlor, concluded that it is reasonable and concluded that it is proper to accede to such requests in the interests of one or more of the beneficiaries of the trust. But one does not start, as at times seems to have been the plaintiffs' case, with an attitude that it is very surprising and worthy of criticism that the trustee acceded to all Sheikh Fahad's requests. On the contrary, as the Privy Council said in Letterstedt, trustees exist for the benefit of beneficiaries and it is in our judgment very common that trustees will have perfectly properly acceded to all the requests of a settlor without in any way abdicating their fiduciary duties and responsibilities.'
- This exposition sets out with clarity the very different nature of, on the one hand, the relationship between a fiduciary and his beneficiary; and, on the other, that of mere donor and donee. If the court makes a reasonable request of trustees to make funds available to meet an ancillary relief award then it can assume that ordinarily the trustees will accede to such a request. The same cannot be assumed of a request of a mere donor, for it is his prerogative to be unreasonable, if that is his inclination.
- In B v B [1982] 3 FLR 398 the parties were married for 20 years and had two children. The husband worked in a pharmaceutical business acquired by the wife's family. The shares of the business were held equally by the husband and the wife. From 1966 the husband worked for a well-known public company. He had a good salary and prospects and would receive a pension at the age of 60, but he had no capital assets. The wife was a member of a wealthy family and the pattern of the married life was that out of her large resources, she provided the home. The wife was a beneficiary under two settlements. Under the first, made by her father in 1951, the trustees had power in their absolute discretion to vest the whole or any part of the trust capital in the wife absolutely. Under the second, made in 1965, of which she herself was the settlor, she was permitted to withdraw all or any part of the trust-fund with the consent of the trustees, although evidence was given by one trustee that their policy was not to consent to the withdrawal of funds from the settlement; but that trustee was the wife's solicitor. The values of the settlements in October 1981 were £78,000 and £212,000 respectively. In addition the wife had substantial free assets consisting of her home, jewellery, a stamp collection, and the proceeds of sale of a house, together worth from £110,000 to £120,000. The wife had suffered for many years from multiple sclerosis leading to increasing disability and consequently increasing expenditure. The children had been amply provided for by the settlement on them of the husband's and wife's shares in the pharmaceutical company and by other family settlements. In addition they were to receive the capital of the trust-funds on the wife's death.
- The husband applied for financial relief in the form of a lump sum sufficient for him to buy a house appropriate to his position. Booth J ordered the wife to pay him £50,000 in full and final settlement of his claim. On appeal the wife contended that the effect of the order had been to put improper pressure on her trustee. The appeal was dismissed. Ormrod LJ held:
'The first question is whether the wife's interests under the settlements are 'other financial resources', e.g. of a capital nature. Under the 1951 settlement the trustees have power to vest the trust-fund, or part of it, in the wife 'in their absolute discretion'; under the 1965 settlement the wife, with the consent of the trustees, can revoke it in whole or in part. Both settlements are potential sources of capital for the wife and are, therefore 'other financial resources', though not under her absolute control. Some assessment must be made of the worth of these potential sources of capital to her, not necessarily in valuers' terms, but in terms of the practical realities of life, or in terms of reasonable expectations. As Lord Merrivale said in N v N (1928) 44 TLR 324, p. 327, the ecclesiastical courts 'showed a degree of practical wisdom. . . . They were not misled by appearances . . . they looked at realities.' Much the same was said by this court in O'D v O'D [1976] Fam. 83, p. 90. Looked at in this way the potential of the 1951 settlement may be small, but that of the 1965 settlement is great. The wife herself was the settlor, settling her own money on herself for life, for her own purposes, and retaining a power of revocation subject only to the consent of the trustees. It is not to be supposed that the trustees would withhold their consent if the wife wished to free capital for any reasonable purpose, more especially when the other beneficiaries are already amply provided for. Balancing the financial resources of each party and their respective needs, giving full weight to the wife's exceptional needs, particularly in the future, it is impossible to regard a lump sum of £50,000 as an unreasonable sum for the purposes of ss. 23 and 25 of the 1973 Act. The next question, and it is often the crucial question in these cases, is practicability. It is at this stage that the court has to consider such problems as liquidity, the cost of raising money on mortgage or overdraft, the effect on a business of withdrawing a substantial capital sum and so on. These are practical matters and must be approached realistically, 'penetrating to the underlying realities' (O'D v O'D (above)), and 'not being misled by appearances' (N v N (above)). In this case the question is, 'Is it practicable for the wife to raise the sum of £50,000?' To start with she has £28,300, plus accumulated interest, from the sale of 9 Clumber Crescent North on deposit or in cash. There remains a balance of £21,000. In a case such as this it is distasteful, and ought to be unnecessary, to look at the wife's personal possessions, but the attitude of her trustees make it unavoidable. She could, undoubtedly, but painfully, raise such a lump sum from her stamps (which in this case are real assets, if not investments) and her jewellery, or she could borrow it (at great and unnecessary expense) by way of mortgage. Alternatively, she could withdraw a relatively small part of the 1965 settlement fund with the consent of her trustees. The consequent loss of income would not be significant, and could be made good by reinvesting part of the fund which will, or may, involve some capital gains tax. The judge concluded that the trustees would, reluctantly no doubt, give their consent to enable her to comply with the order, but it is pointed out by Mr Jackson that one of the trustees gave evidence before the judge which indicated that the trustee's policy was not to consent to the withdrawal of any more funds from the settlement. This produces a somewhat invidious situation which becomes positively embarrassing when the trustee in question is also acting as the wife's solicitor in bitterly contested matrimonial proceedings. It makes it difficult to know what weight to attach to his expression of intention. One might expect that the trustees would wait to see the outcome of the proceedings before exercising their discretion under the settlement.
We do not think that the judge was putting or attempting to put pressure on the trustees; on the contrary it could be said that the trustees were attempting to put pressure on the court. She was dealing in practical terms with the realities of the case and refusing to be misled by appearance. '
- It is important to recognise that, just as in Thomas v Thomas, the award did not range outside assets in the wife's absolute ownership. If the trustees did not come to her assistance the wife could meet the award by having recourse to her property, her jewellery and her stamp collection. Moreover the wife was the principal beneficiary of the trust and the court plainly felt that a proper discharge of the trustees' fiduciary obligations was to help her to meet the award.
- In Browne v Browne [1989] 1 FLR 291 the parties were married in 1965. The husband had no substantial means whereas the wife was the daughter and granddaughter of women with substantial assets, most of them out of the country. The wife had an interest in two trusts, one of them set up in Jersey, and both of them as a result of the assets of her mother. On the imminent death of her mother the Jersey trust was set up to redistribute the assets in such a way that they would not attract taxation in this country. Her interest was as the sole beneficiary worth something in the region, according to the judge's order, of £430,000. In addition, there was a further trust set up in Switzerland, taking effect in Liechtenstein, which was worth, again according to the figures presented to Wood J, a sum between £100,000 and £145,000. It was not entirely clear whether she was the sole beneficiary of the Liechtenstein trust, but nothing had been said to lead the court to believe that there was any other beneficiary.
- They separated in 1983. In February 1986 Wood J made an order for the wife to pay a lump sum of £175,000 to the husband and costs. Upon the wife failing to pay within the proper time two applications for committal were granted, both suspended on terms. The wife then made applications for leave to appeal and to extend time for appealing against the order of February 1986 and for leave to appeal and an extension of time for appealing against the suspended committal orders. By the time of the appeal hearing the capital sum of £175,000 had been paid. Nevertheless, the wife contended that the judge had been wrong, first, in finding that she exercised effective control over two trust funds, which had been set up outside the jurisdiction, and of which she was the beneficiary; and secondly, in making an order which would exert pressure upon discretionary trustees. Butler Sloss LJ held
'In considering whether or not, as the judge found, she had effective control over these trusts, it is of some relevance to note that, prior to the divorce and parting of the husband and wife, every application by the wife for funds for herself and for her husband for any of the pursuits that they wished to engage in, pleasure as well as the buying of property, was met and the sums asked for were advanced at the request of the wife. Although, perhaps, the phrase 'effective control' might more appropriately be expressed as 'immediate access to the funds', in my judgment, the judge was entirely justified in coming to the conclusion as at 6 February that every request had been granted and that she was in a position to ask for money and to have it paid, and there was nothing to show that the trustees would not do so. The second point that Mr Connell makes is that the subsequent events have shown that the trustees have acted totally independently of the wife, that they are not doing what she wishes them to do and that she has no access to the funds at this stage because they choose not to help her out in the situation in which she now finds herself. But, again, it is of some interest to note that this wife was not at all anxious at many stages of this prolonged litigation that the trustees should pay out. The wife had undoubtedly indicated, both in publicity and in what she had said to the trustees, that she held a very poor opinion of the husband, and the views expressed by the trustees in correspondence which has been shown to this court leads one to see that their view of the husband must undoubtedly be coloured by the way in which she had expressed her views of him.
This is not, in my judgment, a case of improper pressure upon the trustees by the court or by the husband's side. Looking at reality, she is the sole beneficiary of some £430,000 in Jersey and a lesser sum in Switzerland. The amount of money that was due to be paid by the wife over and above assets in this country at the time of the judge's judgment was some £60,000 at most. That money was perfectly able to have been paid and the judge was entitled, in my judgment, in February to believe that it would be paid. I, for my part, believe that it would be paid today if the trustees were absolutely satisfied that the wife had to have the money.'
- What is important to deduce from this decision is that it was found as a matter of fact that the wife had effective control over the trusts in that the trustees had historically always been responsive to her wishes. It can therefore be seen that this was not, in reality, a case of judicious encouragement at all, but rather a case of determining the true extent of the wife's resources. When that is understood it can be seen that the award was modest in its scope and entirely unassailable. But even absent the finding of control the award was justified, as the provision of the money to meet it represented a proper discharge of the trustees' fiduciary obligations towards their beneficiary.
- I asked Mr Amos whether he was aware of any case, before or after Thomas, where a court had made an order of the kind sought by him, namely an award that could only be met by provision from a third party (other than a trustee). He relied on M v M (Maintenance Pending Suit)[2002] 2 FLR 123 and X v X (Y & Z Intervening) [2002] 1 FLR 508. M v M was a maintenance pending suit case, where I believe that different considerations arise. I will deal with this below in my adjudication of the maintenance pending suit appeal. I do not believe that the principles stated by Charles J in that case apply fully to a final hearing where capital provision is being sought.
- X v X was a very different case to this. The husband and wife were both practising Jews. On the breakdown of the 5-year marriage, the wife's family entered into detailed negotiations with the husband to ensure that the husband did not issue divorce proceedings based on the wife's adultery, and that the husband would grant the wife a get, permitting her to remarry under Jewish religious law. An agreement was eventually reached under which the husband would be paid £500,000 provided that (1) the get had been given, (2) a decree nisi had been obtained on suitable terms, and (3) a financial order had been made. Although the wife herself apparently had no resources, she came from an extremely wealthy family, and the £500,000 was to be provided by the wife's brother. The brother's solicitors gave both the wife's and the husband's solicitors an undertaking that £500,000 was being held in their client's account and would be paid under the terms of the agreement, provided those terms had been met by a certain date. The get was duly granted by the husband and a decree nisi was eventually granted on the basis of the wife's undefended petition alleging unreasonable behaviour by the husband. There was a delay in obtaining the decree, because the particulars had to be amended to satisfy the district judge that a sufficient case of unreasonable behaviour had been disclosed. The major problem arose when the terms of the agreed financial order were presented to the court for approval, as the district judge refused to approve a settlement in which the wife, apparently without any means whatever, paid a lump sum of £500,000 to the husband, who had assets of over £600,000 and a net income of £75,000 per year. The wife's solicitors refused to take any further action to obtain a financial order and the brother's solicitors refused to pay over the money before the financial order was made. The husband's application asking the wife to show cause why the minutes of the agreement should not be made an order of the court was not heard until after the time-limit on the undertaking had expired. However, the husband was able to obtain a freezing order preventing the brother's solicitors from dealing with the £500,000 until after the hearing.
- Munby J made the agreement an order of the court, following the principles in Edgar v Edgar [1980] 1 WLR 1410.
- Mr Amos relies on the following paragraphs in the judgment:
'[52] The wife's evidence is that, apart from some jewellery, worth less than the husband believes, and one car, a Mercedes, she has no assets of her own. She accepts that she is provided with credit cards which are settled for her by her family. The other cars of which she has the use and the house in which she lives (and its contents) all belong, she says, to her family. She denies that she has any bank account in Switzerland. Her bank account in this country is funded, she says, by her family and any money in it is theirs. Nor, she says, does she have any interest in any family funds, not even as a discretionary beneficiary. She has never worked and claims always to have been supported - plainly at a very high level - by her family's generosity, both before and even during her marriage. She describes her family as having been 'extremely generous towards us as a couple'. [53] There are some specific indications of the extent of that generosity. The wife says that she spent about £250,000 (provided by her family) in completely refurbishing and redecorating the first matrimonial home in which she and her husband lived. It is common ground that in 1998 the wife's father provided her with a fund of either $500,000 (her figure) or £500,000 (the husband's figure) to enable her to trade as a hobby on NASDAQ. She is now living in what is plainly a very valuable house, according to the husband - and not denied by her, though she makes no admissions - worth 'many millions of pounds'. It is owned, she thinks, by her brother, who pays all the running costs, though the contents, she says, belong to her parents. On top of that, of course, on her own case her brother has been prepared to fund the £500,000 agreed to be paid to the husband.
[59] Mr Pointer says that, although the wife, as he would have it, has not made full disclosure of her resources, I can properly infer, not least from the matters summarised in paras [52] and [53] above, that her available resources are very substantial. He says that the true scale of what resources are available to the wife is unknown and will probably never be known. But, he submits, were it necessary for me to come to such a finding, I could, consistently with Thomas v Thomas [1995] 2 FLR 668, properly conclude on the evidence that the wife's resources are more than sufficiently substantial as to justify an order in favour of the husband in the sum of £500,000. [60] But, says Mr Pointer, that does not really matter for present purposes. The husband, he says, was entitled to take the view that he will never get to the bottom of what the wife's resources are and, in those circumstances, to settle on the available terms. Indeed, says Mr Pointer, this is a case in which, although each party's position is that the other has failed to make full and frank disclosure (see paras [51], [54] and [55] above), neither spouse has thought it necessary to investigate the other's finances in detail before reaching agreement. Both, he says, were content to reach agreement on the basis of what they knew. This was in the circumstances an entirely appropriate and sensible approach. And, he submits, the court should not impede such an approach. [61] I agree. I am considering a Dean v Dean [1978] Fam 161 application. In that context, as it seems to me, it is not at the end of the day vital for me to determine what her family is actually worth or to reach a concluded view as to the scale of the wife's financial resources. What is important, as it seems to me, is that (i) the husband believed his wife to have access to very substantial resources and her family to be worth hundreds of millions of pounds, (ii) the wife and her family saw no reason to seek to persuade him otherwise, (iii) both parties were prepared to strike a deal on a basis which, if properly analysed, assumed that the wife did indeed have available to her substantial resources, and (iv) both parties were content to reach agreement on the basis of what they knew, or thought they knew, of the other's resources and without any detailed investigation of each other's finances. [62] I should add that, were it necessary for me to come to such a finding, I would, applying the principles in Thomas v Thomas [1995] 2 FLR 668, be prepared to conclude on the evidence before me that the wife does indeed have available to her very substantial resources and that her resources, whatever they may be, are more than sufficiently substantial as in principle to justify an order in favour of the husband in the sum of £500,000.'
- It is clear that Munby J did not regard himself as needing to enter into a Thomas v Thomas exercise of judicious encouragement. It was unnecessary for him even to consider either the scale of the wife's resources or the extent of the generosity of her family. She had made an agreement and she should be held to it. The money was frozen, and implicitly had come within the court's dispositive powers. It was not necessary, therefore, to consider encouraging anybody.
- Paragraph 62 is not only expressed conditionally but is also, strictly speaking, an obiter dictum. I do not believe that Munby J was enunciating a principle that as a matter of course it is proper to apply pressure on people who have historically provided bounty to meet an award that is outside the capability of the paying party. Put another way, it seems to me unlikely that Munby J was holding that absent (a) the agreement and (b) a finding that the wife had assets as of right, she had sufficient resources, constituted only by the bounty of her family, to pay an award of £500,000.
- The correct view must be this. If the court is satisfied on the balance of probabilities that an outsider will provide money to meet an award that a party cannot meet from his absolute property then the court can, if it is fair to do so, make an award on that footing. But if it is clear that the outsider, being a person who has only historically supplied bounty, will not, reasonably or unreasonably, come to the aid of the payer then there is precious little the court can do about it.
- In this case CL and Mary have made an offer to provide assistance to W. It is as follows:
i) They will pay into a trust for the children up to 400,000 provided that for every 10 supplied by them 5 is supplied to the trust by W's father. Thus, provided that 200,000 is supplied by W's father (from a source other than my award to W for a lump sum), they will supply 400,000 giving a total trust fund of 600,000. If W's father supplies 100,000 they will supply 200,000. And so on.
ii) The terms of the trust will permit the investment in property to provide a home for W and the children. On the attainment of the majority of the children the remainder will go to them.
iii) They will pay half of the children's school fees provide that W's father pays the other half from a source other than the periodical payments that I will order in favour of W and the children.
iv) The above proposals are conditional upon them being granted contact to their grand-children, to take place in their home in Avenue Road, in the presence of their father, for about a week at Christmas, Easter and in the Summer.
- Mr Amos objects to this offer on two grounds. First he says that W's father has neither the means nor the liquidity to put up 200,000 or any other sum. Second, he says that it is wrong in principle for the offer to be linked to contact.
- Mr Amos' second objection is, as matter of principle, right. But this misses the point. CL and Mary can stipulate the assistance they offer, and the terms on which it is to be provided. It is up to them. Whether or not I think it is reasonable is fundamentally irrelevant. As it happens, I will try the question of contact (including grandparental contact) immediately after handing down this judgment. I will make such orders for contact as are in the children's best interests. Whether or not it extends to what CL and Mary want remains to be seen. I would like to think that they will accept my decision, whatever it is, and that the condition about contact will fall away. We will have to see.
- I read an affidavit from W's father and heard his oral evidence. I am sorry to say that his affidavit was very misleading so far as his means were concerned. He presented himself as a mere employee of a building firm and possessing no stocks or shares. He omitted to say that his wife owned a controlling shareholding in one building company and that he himself had a 50% shareholding in another. The scale of that building firm's business is obviously extensive. I have no doubt whatever that he could easily raise 200,000 to put into the trust if he wanted to. The refusal to do so is all about face.
W'S NEEDS AS CLAIMED BY HER
- W has advanced a capital need of 1.19m broken down as to 1m to buy a flat in Vienna, 150,000 to furnish and equip it, and 40,000 for a car. The housing need is based on five pieces of paper supplied by her solicitors four working days before trial. They show flat prices of around 1m in two particular buildings in a part of Vienna that means nothing to me. Mr Amos emphasises that these particulars were not challenged by H. This is true, but he was given almost no opportunity to advance a response. I was not given an explanation why such an important part of W's case was advanced so late and with such scanty evidence.
- During the hearing I pointed out that W's own father had described his four bedroom apartment as being worth 400,000. He described the area in which it was situated as the Vienna equivalent of Paddington. Mr Amos says that it would be very unfair to W for me to take that as a yardstick for W's housing needs. He tells me that that the street is located close to a mainline railway station associated with drunks, drug dealers and prostitutes. There are sex shops within the close vicinity. On the other hand, MCL told me that he had visited the flat which was a fine property in a nice area.
- W's budget for herself and the children is for 183,000 inclusive of 32,000 of school fees (i.e. for 151,000 general support).
MY AWARD
- I do not believe that it would be proper or principled of me to make an award that ranges outside the assets or income that are H's as of right. So far as H's income is concerned I take the entitled figure to be £83,000, even though this is dependent on his father's generosity. Nobody has suggested that this is going to be altered.
- The question is whether it would be proper to appropriate the entirety of his entitled assets and income on the footing that CL and Mary will provide his support for income and housing from their resources. I do not believe that this would be proper. This would be improper pressure on CL and Mary.
- My award is in the terms of H's offer namely 500,000 capital and 81,420 (£55,200) income (which income is to be divided equally between W and the two children).
- If W's father finds 200,000 then a further 600,000 of trust funds will be available. Combined with the 500,000 I have awarded, and W's own asset of 44,000, this would make available 1.144m to W, which would amply cover her capital needs. If he does not then W will in terms of accommodation have to cut her coat in accordance with 544,000 worth of cloth, but given what her father has said about the value of his home I have no doubt that W will be able to accommodate herself and the children.
- I have to say that I have not been helped by either side in forming any clear view as to the cost of reasonable accommodation for W in Vienna.
- If W's father pays half the school fees then CL and Mary will pay the other half, leaving 81,420 for general support. Although this is a long way short of the figure of 151,000 claimed by W (which I regard as completely unrealistic) it will supply a reasonable standard of living. If W's father does not pay half of the school fees then they will have to come out of the general maintenance and the standard of living of W and the children will be reduced pro tanto.
- Mr Amos asks me to order security for the maintenance against H's death or default. He points out the H's interim maintenance record has been poor. I will deal with this below when I adjudicate on the maintenance pending suit appeal. He points out that H has a Greek domicile and that therefore W will not have a claim under the Inheritance (Provision for Family and Dependants) Act 1975 should he die.
- All this is true, but I cannot identify any assets of substance within the jurisdiction on which to secure the maintenance. Nor can I order H to insure himself. I do not order any security.
- I have considered all the relevant factors in s25(2) Matrimonial Causes Act 1973 and I have given first consideration to the welfare of the children. I am satisfied that an award of 500,000 capital and 81,420 annual income is fair given the resources that are properly to be attributed to H.
THE MAINTENANCE PENDING SUIT APPEAL
- On 7 July 2004 District Judge Maple made an award of maintenance pending suit in the annual amount of £205,000. This was broken down as to £60,000 p.a. as a costs allowance; £50,000 for rent; £15,000 for school fees; and £80,000 for general maintenance for W and the children. The required monthly payment was £17,083 p.m.
- H lodged a notice of appeal on 14 July 2004. He did not seek a stay, but engaged in self-help. He did not pay the required amount. Instead he paid as follows:
| 2/7/04 |
....£5,000 |
| 26/8/04 |
....£7,500 |
| 4/10/04 |
....£3,000 |
| 2/11/04 |
....£3,000 |
| 6/12/04 |
....£3,450 |
| 4/1/05 |
....£3,000 |
| 1/2/05 |
....£3,000 |
| 28/2/05 |
....£4,000 |
| 11/4/05 |
....£4,000 |
| 4/5/05 |
....£4,000 |
| 27/5/05 |
....£4,000 |
| 27/6/05 |
....£4,000 |
| 2/8/05 |
....£4,000 |
| 7/9/05 |
....£4,000 |
In addition H paid a further £2,500 during the course of the trial.
- Mr Amos calculates that in the result there are arrears of about £260,000.
- The appeal came before Singer J on 8 February 2005. He declined to deal with it, describing it as a waste of time, since a resolution depended on the cooperation of both sets of parents. Instead, he went on, with the agreement of the parties, to conduct an FDR. Although no stay was imposed it appears that parties have proceeded on the tacit basis that one is in place, since W has taken no steps to enforce the arrears.
- There have been two further FDRs before Bennett J on 8 April 2005 and 6 May 2005.
- The leading cases as to the principles to be applied on an application for maintenance pending suit are F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45, G v G (Maintenance Pending Suit: Legal Costs) [2002]3 FCR 339, and M v M (Maintenance Pending Suit)[2002] 2 FLR 123.
- From these cases I derive the following principles:
i) The sole criterion to be applied in determining the application is "reasonableness" (s22 Matrimonial Causes Act 1973), which, to my mind, is synonymous with "fairness".
ii) A very important factor in determining fairness is the marital standard of living (F v F). This is not to say that the exercise is merely to replicate that standard (M v M).
iii) In every maintenance pending suit application there should be a specific maintenance pending suit budget which excludes capital or long term expenditure more aptly to be considered on a final hearing (F v F). That budget should be examined critically in every case to exclude forensic exaggeration (F v F).
iv) Where the affidavit or Form E disclosure by the payer is obviously deficient the court should not hesitate to make robust assumptions about his ability to pay. The court is not confined to the mere say-so of the payer as to the extent of his income or resources (G v G, M v M). In such a situation the court should err in favour of the payee.
v) Where the paying party has historically been supported through the bounty of an outsider, and where the payer is asserting that the bounty had been curtailed but where the position of the outsider is ambiguous or unclear, then the court is justified in assuming that the third party will continue to supply the bounty, at least until final trial (M v M).
- It seems to me that District Judge Maple applied these principles to the letter. H's maintenance pending suit affidavit was an unsatisfactory document it exhibited statements of only one of his three Alpha bank accounts and implied that since June 2003 he had held no others. His Form E arrived on the date of the hearing, so late that neither Mr Amos nor the court had the opportunity to scrutinise it. CL's position was more than ambiguous - there was no direct evidence as to his stance whatever.
- So far as the award of the costs allowance is concerned, at the time of the hearing the District Judge had only the benefit of the decisions in A v A (Maintenance Pending Suit: Provision for legal costs), and G v G (Maintenance Pending Suit: Legal Costs) [2002]3 FCR 339. Since then the Court of Appeal decision in Moses-Taiga v Taiga [2005] EWCA Civ 1013 (5 July 05) has been made. In that case Thorpe LJ stated:
'[25]. In construing section 22 as embracing the applicant's need for cash to finance the continuing litigation, and at least implicitly approving that practice, Mr Aderemi has quite rightly said that my observations in McFarlane were, strictly speaking, obiter. I accept that that is the correct classification. Nonetheless, the passage is a pretty clear indication of where I stand on this issue. In short, it seems to me that the progressive construction that the judges have adopted in the Family Division is both pragmatic and sensible. I accept that at the date of the advent of the Matrimonial Proceedings and Property Act 1970 (1 January 1971) no judge of the Division would have so construed section 22, particularly because one of the provisions of the 1970 Act was to remove the wife's agency of necessity and with it her opportunity to seek security for the costs of future litigation. But times have moved on. In the 1970s a petitioner who had no assets and whose only prospect of affluence lay in the outcome of her application for ancillary relief could easily find specialist solicitors who would pursue her claim on legal aid. That world has long since gone. In those days a number of the leading specialist ancillary relief firms could, as a matter of public duty, take on an admittedly small number of legally-aided cases. Leading firms that would not take legally-aided clients invariably had an arrangement to pass such cases to highly competent firms that would do legal aid. All those support systems have disappeared. The modern reality is that the highly specialist solicitors and counsel necessary for the conduct of big money cases will no longer do publicly-funded work. So if the applicant has no assets, can give no security for borrowings, cannot guarantee an outcome that would enable her to enter into an arrangement such as that which was upheld in Sears Tooth v Payne Hicks Beach, then there is no source of funding of the litigation other than the approach to the court for a maintenance pending suit that will include a substantial element to fund the cost of the litigation. Obviously in all these cases the dominant safeguard against injustice is the discretion of the trial judge, and it will only be in cases that are demonstrated to be exceptional that the court will consider exercising the jurisdiction. But I am in no doubt that in such exceptional cases section 22 can in modern times be construed to extend that far. '
- Any doubt as to the legitimacy of the jurisdiction to award a costs allowance has now been laid to rest. It is clear that a costs allowance is not a costs order. It is a maintenance order that enables a party to fund the costs of her case. So, if and when the proposed reforms to the costs rules ever come into force, the general principle in those draft rules of "no order as to costs" will not apply to inhibit a court from awarding a costs allowance if it is otherwise appropriate to do so.
- Thorpe LJ speaks of the power only being exercised in "exceptional cases". I would be surprised if he intended by that remark to impose the need to demonstrate anything beyond the requirements that he had previously mentioned, namely, that the applicant (1) had no assets, and (2) could not raise a litigation loan, and (3) could not persuade her solicitors to enter into a Sears Tooth v Payne Hicks Beach charge. The combination of those three factors would, to my mind, make the case exceptional.
- The second and third requirements make the Applicant prove a negative in each instance. In order to prove the inability to raise a litigation loan I would have thought that production of correspondence between her solicitors and at least two banks eliciting a negative response would suffice. A simple statement from her solicitors stating that they were not prepared to enter into a Sears Tooth v Payne Hicks Beach charge should ordinarily deal with the third requirement.
- In practice I would expect that if the application is made before the FDR the costs allowance should fund the applicant up to the FDR. In every case I would expect that a fairly detailed estimate of the costs expected to be incurred up to the FDR should be produced. If the FDR fails then the judge in the subsequent directions phase can consider whether to extend the allowance up to trial and, if so, in what amount.
- One of the problems with a costs allowance is the conceptual difficulty of reckoning the payments at final trial. Does one pretend that the payments have not been made and notionally add back the sums to the payer's side of the ledger, while simultaneously increasing the amount of unpaid costs on the payee's? Or does one present the figures as they are, in which event it could be said that the court's ultimate discretion over costs has to some extent been pre-empted? It is on account of these difficulties that I think that, generally speaking, an applicant should be required to give an undertaking (1) only to apply the costs allowance to the payment of costs and (2) to repay such part of the costs allowance at trial if, and to the extent that, the court is of the opinion, when considering costs, that she ought to do so.
- A solution to these problems would be for the Government to bring into force the provisions in the Family Law Act 1996 that enable the Court to award an interim lump sum. Sadly, there seems little prospect of that happening. But it may be sensible in cases where the question of costs' funding arises, where it is common ground that the applicant will recover a lump sum, for the respondent to offer an interim lump sum on terms that (1) it is used only for costs funding and (2) credit is given against the ultimate lump sum in respect of the payment. In this way the conceptual difficulties disappear as well as the irritant of having to make the monthly payments. If such an offer were to be made then ex hypothesi the applicant would have "assets" which would prevent her, under the first requirement, from being able to seek a costs allowance.
- In this case there was no detailed estimate of the costs that W expected to incur. She merely asked for £10,000 per month to cover not only her ancillary relief costs but also her costs in relation to Children Act 1989 and Family Law Act 1996 proceedings. It was not stated for how long it was being asked that the payments should continue - implicitly up to final trial. W advanced no evidence that she could not obtain funding from other sources, and of course, when H did not pay, her father paid the costs. The District Judge considered the figure too high and awarded £5,000 per month.
- I do not think that this element of the maintenance pending suit award was either sufficiently evidentially based, or sufficiently reasoned by the District Judge.
- I therefore dismiss the appeal in respect of the general maintenance, school fees and rent, and allow it in respect of the costs allowance. This would give rise to a sum of arrears, which I have not computed. I shall remit those arrears. If they were to be calculated and paid then W's asset base would be that much higher, and her lump sum need that much lower. It is therefore a pointless exercise.
