Z -v- Y (Matrimonial) [2014] JRC 140 (07 July 2014)

Matrimonial - reasons for decision of the court to vary injunction to allow payments requested by the wife.

[2014]JRC140

7 July 2014

Before :

Sir Michael Birt, Kt., Bailiff and Jurats Marett-Crosby and Blampied

Between	Z	Plaintiff
And	Y	First Defendant
And	A Limited	Second Defendant

Advocate M. J. Haines for the Plaintiff.

Advocate N. S. H. Benest for the First Defendant.

judgment

the bailiff:

1. On 7^th April, 2014, the Court sat to hear applications by the plaintiff ("the wife") and the first defendant ("the husband") for payment of certain sums out of an escrow account with Collas Crill ("the escrow account") which is the subject of a freezing injunction obtained by the wife. The Court announced its decision on 11^th April, which was to vary the injunction so as to allow the payments requested by the wife (which were not opposed) and to allow in part the application of the husband (which was strongly opposed). The Court now gives its reasons.

The factual background

2. This application is part of bitterly contested divorce proceedings between the parties. The Court received affidavits from both parties and they each gave oral evidence and were cross-examined. However the application is quite specific and we propose to confine ourselves to dealing only with those aspects of the evidence which are necessary to explain our decision.

3. The parties began to live together in about 1991. There are two children, one aged 17 and one aged 10. They married in August 2005. The former matrimonial home ("the matrimonial home") was purchased in 1997 in the sole name of the husband.

4. The parties separated in June 2009 and the wife moved out of the matrimonial home into rented accommodation in January 2010. The husband remains in the matrimonial home together with, in a separate part of the property, his parents ("the grandfather", "the grandmother" and together "the grandparents"). Care of the children is shared.

5. What has led to the length and complexity of these proceedings is the wife's assertion that the husband has sought to transfer assets out of his name so as apparently to reduce the capital assets available for distribution upon divorce. It is not necessary to describe this allegation in any detail as it will be the subject of resolution before the Court shortly. However, it is necessary to touch upon it to explain the background to this application.

6. The husband is a property developer and this was the source of the parties' income during their period together. They appeared to have had a good standard of living during the marriage. The wife asserts - and the husband accepted in evidence - that shortly before the marriage in 2005 he had asked her to sign a pre-nuptial agreement which she had refused to do. According to the wife, the husband at that time held shares in five property development companies. In some he was the sole shareholder, in others the majority shareholder and in one case a 50% shareholder. It is asserted by the wife that not long after her refusal to sign the pre-nuptial agreement, the husband transferred all the shares in those companies which were in his name to one or more of the grandparents or his brother. It is further said that he had a document drawn up in 2005 which stated that in fact the matrimonial home was owned jointly with the grandparents despite the fact that it was in his sole name. In 2007 the husband and the grandfather took out a joint mortgage on the matrimonial home which was used to pay off the existing mortgage in the husband's sole name. The wife further alleges that in 2007 the husband established a further property development company which he owned in equal shares with a business colleague. It is said that he subsequently transferred his 50% interest to the grandfather.

7. The wife's contention is that, in the light of her refusal to sign the pre-nuptial agreement, the husband decided to divest himself of his assets so as to mask his true wealth. He, on the other hand, contends that it was always the grandfather who was the main provider of funds for property development and was the beneficial owner of the relevant shares. He made the transfers simply because he was advised that the shareholdings should reflect the true position. In particular, the grandfather had not been qualified to purchase immoveable property in the Island so that, although it had always been understood that the husband and the grandparents were equal 50% owners of the matrimonial home, it had to be put in the husband's sole name.

8. The wife contends that if these various transfers are added back into the matrimonial pot, the overall capital assets are in the regions of £8.3 million so that, on a 50/50 division, she would be entitled to over £4 million.

9. The husband's position, on the other hand, is that the only capital available for distribution consists of the escrow account (currently just under £286,000), the value of one flat owned by the second defendant ("the Company") valued at £300,000, and his half share of the equity (after deduction of the mortgages) in the matrimonial home which he puts at £410,000. He accepts that he is also the registered owner of a property in the UK but says that this belongs in equity to the grandparents. Thus, on his case, the total value of the matrimonial assets available for distribution between himself and the wife amounts to approximately £996,000 less selling costs.

10. Clearly the parties and the Court need to know which capital assets are to be treated as being available for distribution upon divorce and accordingly a preliminary hearing to decide this issue has been fixed to commence on 28^th July, 2014.

The current application

11. Following the separation in 2009, the husband agreed to pay the following outgoings for the benefit of the wife and children (who apparently spend broadly equal time with each parent):-

(i) Rent of premises for the wife - currently £2,162 per month.

(ii) Maintenance of £350 per week.

(iii) Payment of electricity, water, rates, telephone, mobile telephone and Sky TV of the wife's rented premises.

(iv) Payment of specific costs for the children including clothes, after school activities and entertainment.

12. The husband asserts that his financial position has deteriorated dramatically since the separation. The last property development he undertook with the grandfather was that of the property owned by the Company which was completed in 2001 - 2002. Most of the units of accommodation at that property were sold but four were retained, two for the grandfather and two for the husband. One of the flats allocated to the husband has since been sold and it is the net proceeds of the sale of that flat which were placed in the escrow account. Subsequently he undertook two more modest developments on his own account, the last one of which was competed in 2009 - 2010.

13. He asserts that when he was looking for his next development project an ongoing hip problem of some four years became unbearable. He had keyhole surgery in June 2010. Unfortunately the operation was not successful and he had to undergo a full hip replacement in May 2012. He was then signed off on long term incapacity benefit and only deemed physically well enough to work again in mid-2013. Although he carried out paid work for the grandfather for approximately eight weeks towards the end of 2013, he asserts that the stress of the litigation with the wife has left him currently unable to work and he has been signed off unfit to work since mid-February 2014. The current position therefore is that neither the husband (who is aged 46) nor the wife (who is 47) is working or earning an income from work.

14. The husband ceased payment of the rent and the bills listed at (i) and (iv) at para 11 above in October 2013. The wife had by order of justice dated 20^th February, 2013, obtained a freezing injunction over the husband's assets including specifically the matrimonial home, the property in the UK and the four flats retained by the Company. As already mentioned, that injunction was varied by agreement so as to allow the sale of one of the units owned by the Company, with the net proceeds being placed in the escrow account. Following the non-payment of the rent and other expenses in October, the parties agreed to a variation of the injunction so as to permit the release of sufficient funds from the escrow account to the wife to cover the rent and bills for the next four months. Subsequently, on 22^nd January, further sums were released to cover the rent till October 2014 and various other bills up to a similar period.

15. On 14^th February, the husband ceased payment of the maintenance for the wife and children of £350 per week and he has now stopped all payments of any nature including those for children's clothing etc.

16. It is in these circumstances that the wife makes her application. Rounding all figures hereafter to the nearest pound, she asks for payment of £4,550 for arrears of the maintenance of £350 per week, £6,067 as provision for such maintenance to the middle of September and £3,400 (including a figure which the Court estimated at £500 for car insurance) for various listed expenses. This comes to a total of £14,017. The husband did not oppose this application and it is clearly necessary in order for the wife to pay her way in the coming months. Accordingly the Court varied the injunction so as to permit that sum to be paid from the escrow account.

The husband's application

17. The husband submits that he is in a dire financial position and requires the payment of £139,547 from the escrow account so as to put him back on his feet.

18. He asserts that he has only two sources of income, namely Income Support and the rent from the three flats retained by the Company. Although two of these belong to the grandfather, the latter has agreed for some years to the income from all three being paid to the husband. The gross rental received from the three flats is £45,600 per annum. The defendant estimates that the running costs of these properties (including accountancy fees, repairs, rates, income tax etc amount to approximately £12,000 per annum, leaving therefore a net income of £33,600 per annum (£2,800 per month)). Thus the husband asserts that his net monthly income is £3,073 made up of Income Support of £273 and rent from the Company's flats of £2,800.

19. The husband asserts that, because of his inability to work and lack of income, he has incurred considerable liabilities. He had to take out a personal loan of £150,000 (secured against the matrimonial home) from Maison Blanche Private Investments Limited at the end of May 2012 and £72,216 from Acorn Finance in March 2014 (to consolidate two pre-existing Acorn Finance loans, both of which should have been repaid in full in October/November 2013 and were therefore overdue). In addition, the husband has had to borrow from the grandfather and the grandfather has paid school fees etc when he has been unable to do so. He says that he currently owes the grandfather £242,125 capital together with interest at £76,654 which is calculated at 8%. He says that he has traditionally paid the grandfather interest on loans from him. He says that the grandfather has in turn had to borrow money in order to provide these funds. The husband has also had to rely on credit cards and now owes very substantial amounts on those cards.

20. The husband prepared a schedule of the amounts which go to make up the total sum of £139,547 requested and these are as follows:-

	Amount	Creditor	Notes
(i)	£15,568	Barclaycard
(ii)	£9,068	Mastercard
(iii)	£13,123	MBNA credit card
(iv)	£24,866	RBS Mastercard	This is in the name of the grandfather but represents sums spent on the card by the husband
(v)	£40,000	Benest & Syvret legal fees	Unpaid fees to Benest & Syvret total £107,943 and there is £8,258 work in progress
(vi)	£3,629	Acorn Finance	To cover loan repayments for the next six months until August 2014
(vii)	£9,450	Wife's living expenses	Wife's maintenance £350 per week 14th February - 25th August 2014
(viii)	£9,450	Husband's living expenses	£350 per week for the same period as above
(ix)	£1,896	Social Security	Husband's outstanding Social Security contributions April - December 2013
(x)	£64	Plumber	Plumbing work at the Company
(xi)	£64	Plumber	Plumbing work at the matrimonial home
(xii)	£1,821	Plumber	Replacement water cylinder at matrimonial home
(xiii)	£2,357	Accountant	Overdue accountancy bills for husband
(xiv)	£1,693	Accountant	Overdue accountancy bills for the Company
(xv)	£78	Doctor	Doctor's bills for children
(xvi)	£45	Doctor	Doctor's bill for husband
(xvii)	£615	Insurance company	Insurance premium for the Company
(xviii)	£153	States Treasurer	Income Tax for husband 2012 & 2011
(xix)	£105	JEC	re the Company
(xx)	£332	Garage	Car repair bill
(xxi)	£4,510	School	School fees due April 2014 + French trip
(xxii)	£623		Driving lessons etc for elder child
(xxiii)	£38		Water bill for husband

21. The husband gave his continuing minimal essential outgoings as follows (on a monthly basis):-

(i) Maison Blanche loan interest £969

(ii) Matrimonial home mortgage £450

(iii) Electricity at matrimonial home £183

(iv) Gardener at matrimonial home £500

(v) Window cleaner at matrimonial home £ 50

(vi) Acorn loan interest £717

£2,869

This does not include provision for food, clothing etc.

The applicable principles

22. Advocate Haines sought to argue that the wife had a proprietary claim to the escrow account and that accordingly the applicable principles for allowing payment out of injuncted funds are those set out by the Court of Appeal in Armco Inc v Donohue 1998/194. However, this was to misunderstand the position. There is no claim that these proceeds (which derive from the sale of a flat in the Company) ever belonged to the wife. What is said is that they are family assets some of which should be allocated to the wife under the Court's jurisdiction on divorce. In view of this misunderstanding it is perhaps worth repeating fully what the Court said in the case of P v P [2002] JLR N18; P v P 2002/80 about the different types of injunctions and the tests to be applied:-

"12. It appeared from the skeleton arguments that the parties were at one on the principles which the Court should apply. In the case of a Mareva injunction, the general rule is that the injunction should allow for the payment of living expenses and legal costs. It should also allow for bona fide commercial liabilities. A Mareva injunction is not intended to give the plaintiff preference over other bona fide creditors of the person whose funds have been injuncted. The plaintiff claims no property rights in the assets, which belong to the defendant. The person injuncted should therefore be allowed to use his funds in order to defend the proceedings, to pay essential living expenses and to settle bona fide obligations.

13. In the case of a proprietary claim, different considerations apply. In such cases the plaintiff alleges that the assets injuncted belong to him. The Court therefore needs to preserve the subject matter of the claim. On the face of it, it is not reasonable that the defendant should be able to fund his defence out of assets which may be found to belong to the plaintiff and not to him. The Court cannot of course assume that the plaintiff's claim is necessarily justified. The defendant is entitled to defend himself against the claim. Nevertheless the Court adopts a more stringent approach than in Mareva injunctions and requires, amongst other things, the injuncted party to show that there are no other funds upon which he could draw to defend himself. The principles to be applied in such cases have been authoratively set out by the Court in Appeal in Armco Inc -v- Donohue (24th September 1998) Jersey Unreported; [1998/194].

14. Prior to the hearing it appeared to be accepted by both parties that this was not a case of a proprietary claim and that the applicable principles were those for a Mareva injunction. However, at the hearing, Mr Hoy referred the Court to a relatively recent decision of the Court of Appeal in Matthews-v-Matthews (2001) JLR 671 CofA. In that case, the Court of Appeal held that an injunction in aid of matrimonial proceedings was neither a Mareva injunction nor an injunction in support of a proprietary claim. It was different to a Mareva injunction in that the Court was being asked to preserve assets which, if the claim for ancillary relief succeeded, would be awarded in whole or in part to the plaintiff. It followed that, in matrimonial cases, the threshold for the risk of dissipation of assets could justifiably be lower than for a Mareva injunction. However, a matrimonial claim was not the same as a proprietary claim and accordingly the principles applied in such cases were not applicable either. The Court of Appeal held that the test for granting a matrimonial injunction therefore lay somewhere in between. Mr Hoy argued that the test for allowing payments out of assets injuncted in support of matrimonial proceedings therefore also fell between the test applied in respect of a Mareva injunction and that applicable in the case of a proprietary claim. Miss Lawrence, on the other hand, argued that Matthews was concerned only with the test for granting an injunction in the first place. It was not relevant in considering the test for payments out of injuncted funds. Because the case of Matthews was produced at the last moment, she was not in a position to refer the Court to any English authorities on the test to be applied in respect of payments out of injuncted funds in matrimonial cases; nor did Mr Hoy refer us to any such authority.

15. It follows that anything we say on this subject must be regarded as subject to review following more detailed argument in another case. But it seems to us that the position in matrimonial cases is somewhat closer to that of a Mareva injunction than a proprietary claim. The wife (we shall assume that she is usually the plaintiff for convenience) is only entitled to claim a share of the husband's assets. These can only be calculated after allowance for payment of bona fide liabilities. Furthermore, the husband is entitled to defend himself against the wife's claim to ancillary relief and to pay his regular living expenses in the meantime. It seems to us that it would be a matter for decision according to the circumstances of the particular case as to whether such liabilities and expenses should be paid out of the injuncted funds. Whether it would be reasonable to use the injuncted funds would, amongst other things, depend upon the level of funds injuncted. If, for example, the Court has injuncted all or most of the husband's assets, the argument for allowing him to pay such liabilities and expenses out of the injuncted funds would be strong. But where the injuncted funds comprise only a small part of his worldwide assets, the Court may well conclude that he should fund such liabilities and expenses from elsewhere, so as not to eat into funds available for the wife, although there may of course be many other factors to be taken into account."

We propose to adopt the approach outlined in paragraph 15 of the above extract.

Decision

23. The wife submitted that we should not allow any part of the husband's application. She emphasised the following:-

(i) The husband had brought his situation upon himself. He had lived extravagantly after the separation, spending at least £148,771 in 2011 and £203,326 in 2012 (being figures taken from bank and credit card statements).

(ii) He was clearly being supported by the grandfather and the Court should assume that this would continue to be the case rather than allow the use of funds which might prejudice the wife.

(iii) The escrow account was vital to securing the wife's claim to financial relief. Assuming that she was successful in whole or in part in relation to her claim concerning the transfer of assets, the fact remained that, unless the Court set aside some of those transfers, the assets currently available to meet the wife's claim to financial relief consisted only of the escrow account, the three units in the Company and the equity in the matrimonial home. These would all be needed to meet her claim if she was successful (in whole or in part) in relation to the transfers but the Court felt unable to set them aside so as to secure the return of the actual assets to the matrimonial pot.

(iv) The husband was still spending money that was unnecessary. He continued to take holidays off island and employed the services of both a cleaner and a gardener at the matrimonial home. As he was not employed there was no reason for him not to undertake these tasks. In essence she did not accept he was as hard up as he said, because he could rely on his family to support him. Furthermore, there was no reason why he should not take employment if he was not able to carry on property development enterprises.

24. We have carefully considered the wife's submissions. We accept that the husband lived somewhat extravagantly immediately after the separation and indeed the husband himself agreed he had been a little unwise in this respect. We further accept that the grandfather has supported him. Nevertheless, on the evidence before us, the husband is heavily in debt and is unable to meet his debts. We take the view that, notwithstanding the points made on behalf of the wife, the husband should be allowed to clear some of his liabilities with a view to enabling him and the wife to get by until the outcome of the forthcoming hearing is known. However, we certainly do not consider that it would be right to grant the husband's application in full in the light of the points made by the wife. We have to hold a balance between not unduly prejudicing the wife's claim should she succeed on the one hand, and not unduly restricting the husband's ability to maintain himself in the meantime on the other.

25. Although we do not propose to go through each item individually, we can express one or two broad themes. We have disallowed items (x), (xiv), (xvii) and (xix) in the husband's list on the basis that these are properly expenses of the Company and the net income figure from the Company on which we are proceeding is after allowance for maintenance etc incurred in relation to the property of the Company. As to item (iv), we do not think it right at this stage to allow reimbursement of a credit card in the grandfather's name, nor do we think it appropriate to use funds (which the wife may need to have access to) to settle the legal fees incurred by the husband (Item v). As to item (xiii), we do not think this should be paid out of assets potentially needed to meet the wife's claim; nor should the school fees (Item (xxi)), which have in the past been met by the grandparents when the husband has been unable to do so.

26. We have therefore allowed the following items:-

Number	Description	Amount
(i) - (iii)	Barclaycard, NatWest card, MBNA card	£37,758
(ix)	Social Security	£1,896
(xi)	Plumbing at matrimonial home	£65
(xii)	Plumbing at matrimonial home	£1,821
(xv)	Doctor	£77
(xvi)	Doctor	£45
(xviii)	States Treasurer	£153
(xx)	Car repair	£332
(xxii)	Driving lessons etc	£623
(xxiii)	Water bill	£38
Total		£42,808

27. We also accept that the husband will need to meet certain essential monthly expenditure as follows:-

Maison Blanche Limited interest	£969
Acorn loan interest	£717
Matrimonial home mortgage	£450
Matrimonial home electricity	£183
Living expenses (same level as wife)	£1,517
Total	£3,836

We have disallowed matters such as gardening and window cleaning expenses. The husband will also no longer have to pay maintenance and other expenses for the wife as these will now be taken from the escrow account as outlined at para 16 above.

28. The husband will be receiving the net income from the Company. We take this as an annual sum of £40,000 net of expenses as we consider that £5,600 is an adequate deduction from the gross income of £45,600 (rather than the £12,000 claimed by the husband). This leaves a total net income of £3,333 per month from the Company.

29. The difference between his reasonable expenditure and his income will therefore be £503 per month. We consider that this should be provided out of the escrow fund up until the end of September. This is an additional six months totalling £3,018. Thus the total to be paid to the husband is £42,808 plus £3,018 - £45,826.

30. For these reasons, the Court varied the injunction so as to permit this sum to be paid to the husband out of the escrow account, the husband to receive the income from the rental of the flats of the Company and for the sum referred earlier to be paid out to the wife.

Postscript

31. We cannot leave this case without once again repeating what was said at an earlier hearing. The parties have asserted that a hearing of nine days is necessary to resolve the issue of the transfers before the Court can even turn to consider the allocation of the matrimonial assets between the parties in the light of the Court's decision on the transfer issue, which will determine the size of the "matrimonial pot". We urge the parties to consider very carefully whether the enormous expense of a nine day hearing is really the best way forward in relation to his case. It seems likely that, whatever the outcome, very substantial legal fees will be incurred which will benefit neither party. We urge the parties to see whether compromise can be reached.

Authorities

Armco Inc v Donohue 1998/194.

P v P [2002] JLR N18.

P v P 2002/80.