Mr Justice Mostyn:
- In this case the total assets are, as I will find, just over £2.5m. Of these just over £1.3m are held in a post-nuptial settlement called the Brown Sugar Trust created on 22 January 1986. The settlement is a discretionary Jersey trust. This owns a Liberian company (Summer International Ltd) which in turn owns a UK company (Summer Ltd) which in turn owns two UK companies (Oakleaf Ltd and Deerpark Ltd) which in turn own two retirement villages in Lincoln and Gainsborough as well as some other assets, all of which are sited in the UK.
- The applicant wife applies for a variation of the settlement under s24(1)(c) of the Matrimonial Causes Act 1973. In my decision of BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) [2012] 1 FLR 667 I attempted to set out the principles to be derived from the authorities concerning applications of this nature, and I will not here repeat any of what I wrote there. In my later decision of Hope v Krecji [2012] EWHC 1780 (Fam) [2013] 1 FLR 182 I addressed a further aspect which I had not considered in BJ v MJ. That aspect was whether the interposition of companies between the trust at the top of the tree and the assets at its bottom acted as any kind of impediment to making a variation which disposed of the actual assets at the bottom. I concluded in reliance on authority never before doubted, as well as my own experience over decades of dealing with this class of case, that there was certainly no such impediment (see paras 12 -13).
- In Hope v Krecji (at paras 14- 27) I also offered some comments as to the power of the court when exercising the jurisdiction under s24(1)(a) of the 1973 Act to penetrate the carapace of a company owned by a respondent and to transfer to an applicant assets owned by the company. Again, in reliance on high authority never before doubted, as well as on my experience, I expressed the view that where the company was under the control of the respondent and where there were no material minority interests such property could be so transferred as it constituted property to which the respondent was "entitled" within the meaning of the section. However, in Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395 [2013] 2 WLR 557 Rimer LJ, with whom Patten LJ agreed, politely but firmly held that my view about the scope of s24(1)(a), and the many antecedent authorities to like effect upon which I had relied, were all quite wrong, as they violated the long-standing principles stated in the decision of the House of Lords in Salomon v. A. Salomon & Co Ltd [1897] AC 22 (see paras 132 – 150 per Rimer LJ and para 161 per Patten LJ). But nothing was said about the s24(1)(c) point. The decision of the Court of Appeal was strictly confined to the question whether s24(1)(a) allowed the court to get under a corporate carapace and to dispose of assets within the company in favour of an applicant.
- The decision of the Court of Appeal has been appealed to the Supreme Court and judgment is awaited. I am aware that the Supreme Court declined to hear argument about the scope of s24(1)(c) where matrimonial assets are held by companies.
- In this case all the companies have been joined to the proceedings in circumstances which I will describe. They are represented by Mr Matthew Haynes who argues that the effect of the Court of Appeal judgment in Prest is to render my view about the scope of the s24(1)(c) powers wrong also. He argues that respect for the corporate personalities means that the variation powers are confined only to adjustments in the shareholdings of the Liberian company and nothing more. Specifically the interposition of the companies means that the court cannot directly deal with the assets at the bottom of the tree.
- If this argument is right it would mean that this jurisdiction would be almost totally emasculated. This is because it is only in rare cases that the settlement directly owns the underlying assets (although this does crop up from time to time in cases about landed estates here). In the great majority of cases there is an interposed company, and it is usually off-shore. A grant of relief that leaves the applicant to engage in enforcement proceedings in Monrovia or Tortola or George Town is likely to prove to be a poisoned chalice. That said, if the argument is right the unintended consequence of the destruction of the efficacy of this type of relief is something that will have to be borne.
- However, I am quite certain that the argument is not right. The language of the two sub-sections is completely different and the decision of the Court of Appeal in Prest was squarely based on the language of s24(1)(a). In Brooks v Brooks [1996] AC 375 Lord Nicholls emphasised the very wide meaning given to the term "settlement" under s24(1)(c). He stated:
"In English law "settlement" is not a term of art, with one specific and precise meaning. Its meaning depends on the context in which it is being used. To a conveyancer a settlement essentially connotes a disposition by deed vesting property in trustees to be held by them for a succession of interests. In some contexts settlement bears a statutorily defined meaning, as in section 1 of the Settled Land Act 1925. Another example, where settlement is given an extremely wide statutory meaning, is section 670 of the Income and Corporation Taxes Act 1988 ("any disposition, trust, covenant, agreement, arrangement, or transfer of assets").
In the Matrimonial Causes Act settlement is not defined, but the context of section 24 affords some clues. Certain indicia of the type of disposition with which the section is concerned can be identified reasonably easily. The section is concerned with a settlement "made on the parties to the marriage" So, broadly stated, the disposition must be one which makes some form of continuing provision for both or either of the parties to a marriage with or without provision for their children. Conversely, a disposition which confers an immediate, absolute interest in an item of property does not constitute a settlement of that property. The statutory provision is concerned with an order varying the terms of a settlement. This would not be an altogether apt exercise in relation to property given out-and-out and belonging to one of the parties to the marriage as his or her own absolute property. The context does not require that outright gifts of this nature should fall within the scope of the variation provision. In such a case the appropriate order on the dissolution of the marriage, if an order is needed in respect of the property, is a property transfer or property settlement order.
Beyond this the authorities have consistently given a wide meaning to settlement in this context, and they have spelled out no precise limitations. This seems right, because this approach accords with the purpose of the statutory provision. Financial provision that is appropriate so long as the parties are married will often cease to be appropriate when the marriage ends. In order to promote the best interests of the parties and their children in the fundamentally changed situation, it is desirable that the court should have power to alter the terms of the settlement. The purpose of the section is to give the court this power. This object does not dictate that settlement should be given a narrow meaning. On the contrary, the purpose of the section would be impeded, rather than advanced, by confining its scope. The continuing use of the archaic expressions "ante-nuptial" and "post-nuptial" does not point in the opposite direction. These expressions are apt to embrace all settlements in respect of the particular marriage, whether made before or after the marriage." (emphasis added)
- Assuming that "disposition" is a synonym for "arrangement" the test for what comprises a nuptial settlement can be thus expressed: "any arrangement which makes some form of continuing provision for both or either of the parties to a marriage". In Brooks the arrangement in question was a pension scheme of which the husband and wife were beneficiaries which was established by a company (since struck off) owned by Mr Brooks. Looked at in the round (rather than at the transactions that led to its creation in isolation) Lord Nicholls was satisfied that the scheme amounted to a variable nuptial settlement.
- In Ben Hashem v Shayif & Anor [2008] EWHC 2380 (Fam) [2009] 1 FLR 115 Munby J (as he then was) gave a characteristically lucid and comprehensive judgment in which, among (many) other things, he analysed the origin and scope of the variation of settlement power at paras 222-301. In para 234 he stated:
"In Blood v Blood [1902] P 78 Gorell Barnes J, considering the ambit of section 5 of the 1859 Act, said at page 82:
"Those words are extremely wide, and I am anxious that they should not, by any construction the Court may put upon them, be narrowed in any way. To narrow them would be undesirable for this reason: the various circumstances which come before the Court, and for which this section is brought into operation, are so diverse that it is to my mind extremely important that, so far as possible, the Court should have power to deal with all the cases that come before it, and, in dealing with them, to meet the justice of the case. I, therefore, do not desire to see any narrow interpretation placed upon the words of the section."
That policy seems to me to be as important and the approach, in my judgment, is as valid today as a century ago."
- An example of the width of the power is N v N and F Trust [2005] EWHC 2908 (Fam), [2006] 1 FLR 856 The case concerned a property which was owned, via a Bahamian company, by a Jersey based trust of which the husband was a beneficiary. It was common ground that the Jersey settlement was not per se a nuptial settlement which could be varied by the court under section 24(1)(c) of the 1973 Act. But the Jersey Trust had made available a property to the husband and wife which they used as their family home. Coleridge J held that the property was subject to an ante-nuptial settlement which could accordingly be varied. In Ben Hashem at paras 236 – 239 Munby J specifically agreed with this decision.
- In Ben Hashem at paras 240 – 260 Munby J went on to address what Lord Nicholls had called "nice questions [which] may arise over whether property is or is not property brought into the settlement." He pointed out that a settlement which affects a property does not necessarily capture all of that property. Thus in Dormer v Ward [1901] P 20 one of the assets included in the marriage settlement was a jointure rent-charge charged on certain specified hereditaments. A jointure rent-charge is a settlement on a woman in consideration of marriage of rents from land, to be owned by her after her husband's death. The Court of Appeal decided that the property which was the subject of the settlement was the jointure rent-charge only, and not the heriditaments on which it was charged.
- In Ben Hashem itself a company Radfan Limited which was owned before the marriage by the husband and his children owned (at the time of trial) two properties 17 Kensington Heights and 57 Forest House. These properties (as well as three others, since sold) were acquired as investments and rented out, though there were periods when they (or some of them) were used by the husband, the wife or the children whilst visiting, holidaying or staying in here. After the breakdown of the marriage the wife entered into and occupied 17 Kensington Heights.
- Munby J decided, with some misgivings, that there was a nuptial settlement of 17 Kensington Heights. As he said at para 270:
"The arrangement which the children went along with, and as described by Mrs Penny, had, in my judgment, a sufficient nuptial element – the provision of the (married) wife's home in this country – and was also intended to make continuing provision for that purpose throughout an undefined period, likely to be measured in at least months, and in the event measured in years, which was more than temporary, fleeting or transient."
- However, he held, consistently with Dormer v Ward, that the property which was the subject matter of the settlement was not 17 Kensington Heights itself but rather no more than a revocable licence to occupy it. And he varied the settlement to give the wife not less than six months' notice to quit from the date when his order was finalised (see para 294).
- Thus it can be seen that the grant by a company, a separate legal personality, of a right to occupy a property created a variable settlement of that occupancy right. Similarly, in Brooks, the establishment by a company, a separate legal personality, of a pension scheme, created a variable settlement of that scheme. In N v N and F Trust the provision by a company, a separate legal personality owned by a non-nuptial settlement, of a home for the spouses created a variable settlement of that property.
- Indeed it is clear to me that a family company which under an arrangement makes some form of continuing provision for both or either of the parties to a marriage is capable of itself of amounting to a variable nuptial settlement whether or not the company is owned by a trust of which the spouses are formal beneficiaries. In Brooks at 391 Lord Nicholls justified the very wide scope of the definition of "settlement" by analogy to the equally wide definition given to that word in section 670 of the Income and Corporation Taxes Act 1988 viz "any disposition, trust, covenant, agreement, arrangement, or transfer of assets". And cases under that section (and its predecessor and successor) have clearly decided that a company can fall within that definition: see, for example, Commissioners of Inland Revenue v Payne (1940) 23 TC 610 (per Sir Wilfred Greene MR) and Jones v. Garnett (Her Majesty's Inspector of Taxes) [2007] UKHL 35, [2007] 1 WLR 2030 at para 47 (per Lord Walker) and at para 80 (per Lord Neuberger).
- In BJ v MJ there were two Jersey trusts (No. 1 and No. 2) which between them owned the two classes of shares in a BVI company called Giloch Ltd. Between the three entities assets of £4.3m were owned. Looked at in isolation it was hard to say that the No. 2 trust was a nuptial settlement as the spouses were excluded from benefit, and, of course, Giloch Ltd was separate legal personality. The arrangement was an ingenious tax saving structure the operation of which is explained in my judgment, and which I need not repeat here. In paras 60 – 63 I concluded that when "viewed as a whole" the set-up amounted to a variable nuptial settlement. No appeal was heard against my decision. I have read Prest extremely carefully and have asked myself if that analysis and finding was wrong in the light of the reasoning of Rimer and Patten LJJ and have concluded that it was not.
- By parity of reasoning I am of the opinion that if under an arrangement "some form of continuing provision for both or either of the parties to a marriage" (which would include, on the authorities, the provision of accommodation) has been made from assets held by a group of family companies then the entire set-up, when viewed as a whole, is capable of amounting to a variable nuptial settlement. If the top company is owned by a trust of which the spouses are formal beneficiaries then the position is a fortiori.
- I pass from the substantive law to an aspect of procedure which has bedevilled this case. Here at the FDR on 21 June 2012 the trustees of the Brown Sugar Trust were joined as parties. At the PTR on 12 March 2013 all of the companies were joined also. In neither case was an application made for joinder, and neither the husband nor the trustees nor the companies had any notice of the application to join. Counsel for the wife simply turned up at each hearing with a draft order providing for joinder. So far as I am aware the applications had not prefigured in the antecedent solicitors' correspondence. The trustees have not participated in the proceedings. The companies have made their own application to be dis-joined and have appeared through Mr Haynes in support of that application.
- It would seem that there is an instinctive belief held by some practitioners that in a variation of settlement case the trustees must be joined and probably all underlying companies as well. As I will show, this is a belief which is built on foundations of sand.
- From the very inception of the judicial power to vary settlements the law has not required joinder of trustees. Instead the rules require that notice of the application is given to the trustees and also to the settlor, if living. The present rule is FPR 2010 rule 9.13 which states:
(1) Where an application for a financial remedy includes an application for an order for a variation of settlement, the applicant must serve copies of the application on –
(a) the trustees of the settlement;
(b) the settlor if living; and
(c) such other persons as the court directs.
…
(4) Any person served under paragraph (1), … may make a request to the court in writing, within 14 days beginning with the date of service of the application, for a copy of the applicant's financial statement or any relevant part of that statement.
(5) Any person who –
(a) is served with copies of the application in accordance with paragraph (1) …; or
(b) receives a copy of a financial statement, or a relevant part of that statement, following an application made under paragraph (4),
may within 14 days beginning with the date of service or receipt file a statement in answer.
(6) Where a copy of an application is served under paragraph (1) …, the applicant must file a certificate of service at or before the first appointment.
(7) A statement in answer filed under paragraph (5) must be verified by a statement of truth.
- It can be seen therefore that the default position in a variation of settlement case is that the trustees, should be served but should not be automatically joined. Once served they can file evidence in answer. They can then decide whether to participate only as witnesses or to seek to intervene (i.e. to be joined) and to be represented. It is up to them. But if they have been served in accordance with the rules, and do nothing, then it is clear beyond a shadow of a doubt that any variation order will be valid and binding on them. And, no doubt, countless valid variation orders have been made under the default procedure without joinder of the trustees.
- Mr Southgate QC made submissions to me which I found surprising. He argued by reference to Tebbutt v Haynes [1981] 2 All ER 238, Harwood v Harwood [1991] 2 FLR 274 and Whig v Whig [2008] 1 FLR 453 that unless the trustees and the underlying companies were joined then a variation order would not be binding on them. If that is so then it would seem that there must be very many invalid variation orders at large. And further that one would have expected Parliament when enacting the Family Procedure Rules to have provided for mandatory joinder so that valid orders may be made.
- The Tebbutt v Haynes line of cases say no more than if there is a dispute about whether a property is owned by a spouse (and therefore subject to the discretionary distributive powers of the divorce court) or by a third party (where it would not be) then the divorce court can make a declaration as to ownership which is binding on the third party provided that the third party has been joined to the proceedings. This seems to me to state the obvious and provides no support for Mr Southgate's argument that the bespoke procedure specified in rule 9.13 will, absent joinder, lead to invalid orders being made.
- However, in certain circumstances it may in fact be apt to seek to join the trustees and/or the underlying companies. If such an order is sought then the terms of rule 9.26B must be satisfied in all respects. This provides:
(1) The court may direct that a person or body be added as a party to proceedings for a financial remedy if –
(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or
(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.
(2) The court may direct that any person or body be removed as a party if it is not desirable for that person or body to be a party to the proceedings.
(3) If the court makes a direction for the addition or removal of a party under this rule, it may give consequential directions about –
(a) the service of a copy of the application form or other relevant documents on the new party; and
(b) the management of the proceedings.
(4) The power of the court under this rule to direct that a party be added or removed may be exercised either on the court's own initiative or on the application of an existing party or a person or body who wishes to become a party.
(5) An application for an order under this rule must be made in accordance with the Part 18 procedure and, unless the court directs otherwise, must be supported by evidence setting out the proposed new party's interest in or connection with the proceedings or, in the case of removal of a party, the reasons for removal.
- This rule, which took effect on 6 April 2012, reiterates in more modern language RSC O15 rule 6(2)(b). That old rule was examined in the context of a variation of settlement case by Wilson J (as he then was) in T v T and Others (Joinder Of Third Parties) [1996] 2 FLR 357. At pages 365 – 366 the court stated:
"Be that as it may, I am of the view that Mr Pointer has brought himself within both parts of the subparagraph. A crucial matter for my determination in March 1996 will be to evaluate the real control over the assets of this trust which forms so substantial a fund in relation to any other assets which the parties have. Are these funds, in terms of capital and not just of income, funds which, in effect although not in form, are able to be deployed by the husband? That is directly relevant to the duty of inquiry that I have under s 25(2)(a) of the Act. I have to have regard to the ' . . . property and other financial resources which each of the parties to the marriage has . . .'. It seems to me that that question will, in addition to its relevance to any lump sum order, be of the greatest importance in the decision which I reach as to whether (and if so in what terms) to vary the settlement under s 24(1)(c).
Quite apart from the fulfilment of my duty under s 25, I have, as I have already indicated, come to the view that the enforcement of any orders that I might make is likely to be facilitated by the trustees remaining as parties to the proceedings. I would have had some doubt about whether to have added that consideration into my conclusion about the applicability of Ord 15, r6(2)(b)(i) and/or (ii), had I not been referred to a decision of Mummery J in TSB Private Bank International SA v Chabra [1992] 1 WLR 231 where a very wide construction was placed upon the justice and convenience referred to in r 6(2)(b)(ii). He decided that there should be joined to the proceedings a UK company which it was alleged by the plaintiff was the alter ego of the defendant but which really had, so far as I can see, nothing to do with the substantive issue as to liability raised between plaintiff and defendant; and the justification for bringing that company in as a party seems to have related to the judge's perception as to the facility for enforcement later of any order that might ultimately be made. I have already said that I would consider it far easier for the wife to enforce against the trust assets in England if the trustees remained a party. I would also expect and believe that, notwithstanding that there might be difficulties about the automatic enforcement in Jersey of any order that I made in the event that following this afternoon the trustees failed to take an active part in these proceedings, nevertheless their having been made parties to the proceedings would be likely to assist the wife in, if not direct enforcement, the obtaining of an analogous or supplementary judgment in Jersey; and, indeed, might assist her in putting before the Jersey court, as facts which have been found and from which there should be no escape, facts found by me at a hearing in which, whether they actively participated or not, the trustees were parties."
- Therefore, in that case joinder of the trustees was upheld because (a) it might assist in determining whether the husband there had real control over the trust funds and (b) it might help in obtaining a reciprocal enforcement order in Jersey.
- I have to say, with respect, that I have some difficulty in understanding why the factual inquiry referred to would be assisted by the formal joinder of the trustees. As I pointed out in BJ v MJ at paras 18 - 21 if trustees do not voluntarily participate at the very least as witnesses and give proper disclosure then they can hardly complain if robust findings are made about the realities of control and the likelihood of benefit. The inquiry will be done on the evidence before the court and the formal joinder of the trustees will not enlarge that evidence. It may be said that the obtaining of information for the inquiry might be better achieved if the trustees are parties but as against that there is the fact that if they are not parties orders for disclosure against them as non-parties can be obtained under FPR 2010 rule 24.2 or, if the trustee is overseas, by means of the procedure in rule 24.12 (in a non-EU case) or rule 24.16 (in a EU case).
- So far as assisting enforcement is concerned the view of Wilson J must, at least as far as Jersey is concerned, be seen in the light of the decision of Birt DB in Mubarak v Mubarik [2008] JRC 136 [2009] 1 FLR 664 and Art 9(4) of the Trusts (Jersey) Law 1984. In that case it was decided that the operation of Article 9(4) prevented enforcement of an English variation order but that Article 51 might permit a direction that had that effect provided that the court was satisfied that the variation was within the powers of the trustees and was in the interests of the beneficiaries as a whole. In para 76 Birt DB summarised the court's conclusions:
"In summary:
(i) By reason of Art 9(4) of the 1984 Law, this court cannot enforce a judgment of the Family Division varying or altering a Jersey trust under the 1973 Act even where the trustees have submitted to the jurisdiction of the Family Division. Whether that is an appropriate outcome is not for us to comment. It is the effect of the introduction of Art 9(4).
(ii) Where the variation ordered by the Family Division does not amount to an alteration (in the sense that we have described above), this court may give directions under Art 51 of the 1984 Law which have the effect of achieving the objectives of the English judgment. Whether this court will do so in a particular case is a matter of discretion having regard to the interests of the beneficiaries.
(iii) Where the variation ordered by the Family Division does amount to an alteration, there is no jurisdiction in this court to give directions under Art 51 which authorise or direct the trustees to act in a manner which is outside the powers conferred on them by the trust deed."
- In para 79 Birt DB recognised that if the trust assets were sited in England and Wales and this court could enforce directly against them then trustees were not to be criticised for "bowing to the inevitable" and complying with the order here.
- It can be seen that the very limited extent to which enforcement of this court's order can be achieved in Jersey does not depend one jot on whether the trustees were joined to the proceedings, or even if they submitted to the jurisdiction. Further, if the assets are sited here then a successful applicant will likely seek to enforce a variation directly here and will not involve the Jersey Courts at all. And Jersey trustees will not be criticised by bowing to the inevitable and accepting a direct variation against UK assets ordered by this court.
- The requirements of rule 9.26B(5) are important. The Part 18 procedure requires at least 7 days' notice to be given to the other party and the provision of evidence in support of the application is crucial. The period of notice would enable the other party to alert the trustees/companies so that they could either signify consent or appear at the hearing to oppose that application. The failure to give any notice or to provide any evidence deprived them of that obvious right. I asked Mr Southgate why the rule was disregarded and he was unable to give me an answer. In the future I would expect the rule to be scrupulously complied with.
- The rules do however provide for one class of beneficiary to be mandatorily joined. Rule 9.11(1) provides:
Where an application for a financial remedy includes an application for an order for a variation of settlement, the court must, unless it is satisfied that the proposed variation does not adversely affect the rights or interests of any child concerned, direct that the child be separately represented on the application.
- Here the applicant failed to make any application under rule 9.11(1) notwithstanding that the Brown Sugar trust has two minor discretionary beneficiaries. I considered whether the case should be adjourned to arrange for this representation but was persuaded not to. I was persuaded that under rule FPR 2010 rule 4(3)(o) I had power to modify the mandatory language of the rule. I exercised that power in circumstances where I considered that the interests of the minor beneficiaries were properly represented by their parents and grandparents and where in this judgment I will reflect properly and fairly the interests of beneficiaries other than the parties in this trust. But I would not expect such latitude to be extended in any future case and would clearly state that rule 9.11 must be complied with.
- Drawing the threads together it seems to me that the applicable principles on the question of joinder are as follows:
i) Joinder either of trustees or of the underlying companies is not an essential pre-condition for the validity of a variation of settlement order.
ii) However, it is mandatory for beneficiaries under the age of 18 to be joined unless the court can say that the proposed variation does not adversely affect the rights or interests of any such child. The court has power to modify this requirement but should be very sparing in its exercise. Failure to comply with this rule will not nullify any order later made. The application to join minor beneficiaries should be made at the first appointment following the issue of the application.
iii) The applicant, respondent, and the trustees and/or companies themselves can apply for joinder, but in each instance both the substantive terms of, and the procedure prescribed in, FPR 9.26B must be carefully complied with.
iv) The applicant for joinder must show either:
a) that there is an existing matter in dispute which requires for its resolution the joinder of the new party, or
b) that there is a matter in dispute between a party and the proposed new party which is connected to the main matters in dispute between the parties and that it is desirable to resolve all the issues together.
v) Under the first limb it must be clearly shown that an existing matter in dispute between the parties cannot be effectually and validly resolved without the joinder of the proposed new party.
vi) Under the second limb it must be shown that there is a separate dispute between a party and the proposed new party and that it is desirable to hear the matters together. The question of whether it is desirable to hear the matters together extends to the commonality of evidence as well as the saving of costs.
vii) If better enforcement of an order in a foreign jurisdiction is relied on under either limb there must be evidence that joinder would actually make a difference. Mere assertion or statements of belief will not suffice.
viii) An application for joinder must be made on notice under the Part 18 procedure, which requires 7 days' notice. Although the application strictly speaking does not need to be served on the proposed new party it would be better in the future if it were. The application must be supported by clear evidence.
- Applying these principles here I can see no good reason why either the trustees or the companies were joined. Quite apart from the failure to comply with the prescribed procedure I cannot see how either limb of rule 9.26B is engaged. The substantive application for variation does not require the joinder of the proposed new parties in order that it can be effectually resolved. There is no separate dispute between the wife and either the trustees or the companies which it would be desirable to determine alongside the variation application. There is no evidence that enforcement of any variation order would be better achieved if the trustees or companies were joined. There is a mere assertion to that effect but that is belied by the decision of Mubarak.
- In my judgment the companies succeed on their application to be dis-joined.
This case
- The applicant wife was born on 19 March 1945 and is now therefore aged 68. The respondent husband was born on 15 March 1944 and is now therefore aged 69. The parties commenced their relationship in 1975 and were married on 9 March 1976. 33½ years later on 7 October 2009 they separated when the wife left the matrimonial home.
- This was a second marriage for each of them. By her first marriage the wife has two children: Maggie who is single and Edward who is married to (but separated from) Libby. Edward and Libby have one child Grace aged 11. The husband was previously married to Christina and from that marriage has one child Susie who lives with her partner in Australia and who has a daughter Chloe aged seven. The husband and wife have one child Amelia who was born on 1 February 1978 and who is now aged 35.
- In 1975 the husband was aged 31 and was clearly a man of some substance. Unfortunately he only advanced his case about premarital wealth very late in the day and in such a way that has prevented any kind of careful quantitative appraisal of the scale of such wealth. He told me that in the divorce proceedings between him and Christina he would likely have made an affidavit of means and he accepted that it would have been open to him to have applied for the retrieval of the court file from his first divorce and to have bespoken a copy of it. This would have told him and me with some precision the scale of his wealth at the time of the commencement of this relationship with the wife. But he did not do so and nor did he produce any corroborative contemporaneous documentary evidence of the scale of such wealth. The inevitable consequence is that this factor must be treated extremely sceptically and conservatively and if an injustice is thereby meted out to the husband then he has only himself to blame.
- In my judgment the only fair way of dealing with the husband's premarital wealth is to identify those assets which actually existed at the time of the commencement of this relationship and which exist now and which remain in the husband's direct sole ownership. These identified assets comprise a 16 acre field behind the former matrimonial home worth net £125,615; a plot of land in Suffolk on which a tennis court has been built worth net £29,100; a mooring in Suffolk worth net £9,700; and some ground rents worth net £28,500. A total of £192,195. The husband says that in addition he had a substantial land-bank, since sold; a nursing home, since sold; and the land on which the jewel in the crown was built – the Gainsborough retirement village. The proceeds of the sold assets are unknown and went into the family pot and over the course of this very long marriage have been well and truly merged with other matrimonial property. The Gainsborough Village is the principal asset of the postnuptial settlement to which I have referred. I am not prepared to make any further adjustment in my application of the sharing principle beyond designating the identified assets which I have specifically mentioned above as non-matrimonial property.
- During the marriage the parties each received inheritances; they were of roughly similar amounts and went into the family pot save that in the case of the wife she retains a one-third interest under a trust in a much loved family holiday property in Robin Hood's Bay together with an interest in a small portfolio of shares used to support that property. That one-third interest in these assets is worth £123,965 and that I also designate as non-matrimonial property.
- The non-matrimonial property amounts to £316,880 in total.
- The husband has always been involved in property and in 1975 he devised the concept of the Oakleaf Village which is a form of sheltered housing for people aged 55 and older. The residents can occupy properties in the village in three different ways – either under shorthold tenancies, or by buying long leases, or under a leasing scheme whereby they advance upfront a substantial deposit which is then drawn down as rent with any balance being refunded upon vacation. The Gainsborough Village commenced operating in 1977 and there are 67 dwellings there; the Lincoln Village commenced operating in 1984 and there are 36 dwellings there. In addition to the individual dwellings there is a communal central block offering social facilities and each village has a resident warden to look after the residents. Until the advent of the current economic crisis the business prospered but it has recently fallen on evil times (to echo Lord Macnaghten's description of Mr Salomon's similar problems back in 1896). The villages are not running at full occupancy – there are 16 voids and in order to meet cash flow apartments are being sold on long leases thereby diminishing the capital base. The husband is very actively involved in both villages both in management and pastoral terms and it is his ardent wish to be able to continue to do so. It is his case that a sale or partition of the business would likely destroy it with the loss of employment and the placing of the residents in jeopardy.
- I have referred above to the creation of the Brown Sugar Trust in 1986 into which the retirement villages and some other assets were placed. In the trust deed the beneficiaries are defined as (1) the husband; (2) any person who is or has been his spouse; (3) the issue of any person within (1) or (2); and a person who is or has been a spouse of a person in (3). Thus at the present time the beneficiaries are the husband, the wife, Maggie, Edward, Libby, Grace (aged 11), Amelia, Susie, Chloe (aged seven), Christina and her adult son by a later relationship James. A total of 11 living people and of course by the terms of the trust they will be joined by persons as yet unborn.
- Perhaps not surprisingly Maggie Edward and Libby express themselves to be unconcerned by the wife's ambition to receive an outright transfer from the trust assets. Edward and Libby state on behalf of Grace that they are unconcerned for her also. By contrast Christina, and Susie (both on her own account and on behalf of Chloe) express strong concern at the prospect of the dismantlement of the trust particularly since the trust has commenced paying Chloe's school fees in Australia. Amelia wisely is taking a neutral stance.
- The authorities which I summarised in BJ v MJ require me to have regard to the interests of the other beneficiaries when exercising my powers as well as to the fact that the creation of this trust was plainly an agreed part of the financial architecture of this marriage. In her evidence the wife agreed that the object of the trust was to benefit all members of the family. On the other hand the assets of the trust are the product of the joint endeavour of the parties each making the fullest possible contribution in their different ways and are quintessentially matrimonial property. I consider that the fairest way of balancing these two considerations is not to allow the full value of the trust as matrimonial property. In my judgment to allow 80 pence in the pound is a fair, if arbitrary, way of balancing these two conflicting considerations.
- Applying the principles I have set out above I conclude on the facts of this case that the entire structure comprises a variable postnuptial settlement and that I am empowered to deal directly with, and to make orders in respect of, the trust assets owned by the companies.
- I now tabulate the trust assets:
| Ship Road |
122,000 |
| Lincoln Village |
632,378 |
| GainsboroughVillage |
1,573,274 |
| Deerpark Enterprise |
415,547 |
| Stanley Road |
45,000 |
| costs of sale |
(132,000) |
| Other lands and garages |
10,000 |
| Plant |
45,294 |
| Trade debtors |
88,499 |
| other debtors |
31,756 |
| Bank debt (residue) |
(167,438) |
| Trade creditors |
(62,065) |
| taxes etc |
(8,895) |
| other creditors |
(157,557) |
| Directors loan accounts |
(83,560) |
| unpaid IHT |
(57,500) |
| unpaid costs in these proceedings |
(10,449) |
| CGT on distribution at 28% |
(642,525) |
| |
1,641,759 |
| at 80p in £ |
1,313,407 |
- I make the following observations about this table.
i) First, the net value of the villages is calculated by reference to the gross valuation of the single joint expert in the sum of £6.6 million. Ms Mullen for the husband sought to persuade me to take a lower figure as my starting point based on a fire-sale or an auction of the villages. I decline to do so not least because the order which I will make in favour of the wife from the trust assets will carry with it a considerable time for payment. I also heard some completely irrelevant evidence from a Mr Alton who is a property developer who might, or might not, make an offer in a sum which he did not specify to buy the villages.
ii) Second, the figure for Stanley Road is half of the valuer's figure the whole of which presupposes that planning consent will surely be granted to develop it. Given that this is highly speculative I consider that a 50% discount for risk is appropriate.
iii) Third, the figure for underpaid IHT is 50% of the figure given to me by the husband's accountant. As is well known discretionary trusts must pay inheritance tax along the way at 10 yearly intervals. The trust is technically owed a sum of about £1 million by the Liberian company. If the debtor is sited here then inheritance tax must be paid. It has not been paid as it is considered that the Liberian company is resident in Liberia even though its business is here and its directors are here. The husband's accountant felt that it was more likely than not that tax should have been paid in 2006 and he calculates that £115,000 is due with interest (but no penalty). As against this the trustees firmly believe that the debtor is sited overseas and it is a fact that no demand for payment has been made by HMRC notwithstanding that an exhaustive tax enquiry took place about 10 years ago. I therefore allow 50% of the sum to reflect the various uncertainties to which I have referred.
iv) Fourth, the figure for capital gains tax presupposes a distribution of all the assets to the beneficiaries. Although the normal rule as stated in White v White[2001] 1 AC 596 is that latent capital gains tax should be allowed the court must nonetheless be realistic. I consider it reasonable to allow this latent sum but I will bear in mind that it may be a long time before any such tax is paid by the husband (or anyone else) and that in the meantime the husband will continue to have the use of the assets.
- I now tabulate the remaining matrimonial property:
| Joint assets |
|
| The former matrimonial home |
700,265 |
| |
|
| H assets |
|
| Banks etc |
16,971 |
| Bentley |
30,000 |
| unpaid costs |
(40,000) |
| sum due to Anna Goodchild re costs |
(15,000) |
| Directors' loan account |
126,632 |
| |
118,603 |
| |
|
| W assets |
|
| Banks |
52,676 |
| owed by Amelia |
65,000 |
| unpaid costs |
(53,067) |
| |
64,609 |
| |
|
| Total |
883,477 |
- I make the following comments about this table:
i) Real property is expressed net of costs of sale and in the case of the former matrimonial home after deduction of the mortgage on it.
ii) I have not included any of the parties' chattels with the exception of the husband's Bentley. Excluding that it seems that the parties' chattels are valued at about the same amount. The Bentley is a second car and is surplus to the husband's requirements and therefore in this single regard I include that in the schedule.
iii) The sum owed to the wife by Amelia is in my judgment certainly due although it may be a considerable time before it is paid. Amelia was originally lent around £190,000 by her parents jointly. She has repaid the £95,000 due to her father and £30,000 due to her mother. I reject the wife's argument that the remaining sum due from Amelia to her should be disregarded.
iv) The directors' loan account figure is in fact predominantly owed to the wife but it is agreed that this will in any event be attributed to the husband and form part of his assets.
- The total matrimonial property therefore is calculated as follows: £1,313,407 + £883,477 = £2,196,884. With the non-matrimonial property the overall divisible assets are £2,513,764.
- How should the matrimonial property be divided? Had the husband properly and at an early stage formulated a clearly argued evidence-based case concerning his premarital wealth then he may have been able to have persuaded me that the sharing should be other than equal to reflect the original source of the matrimonial property. But in the absence of such a case he is not in my judgment entitled to make such a claim which would inevitably be based on impression, speculation and supposition. Therefore, subject to the question of need, the matrimonial property should be divided equally giving each party £1,098,442
- I now turn to the question of need. The wife's housing claim has been very imprecisely formulated. In her affidavit she stated she would need between £350,000 and £400,000 to buy a suitable property; £13,500 for stamp duty; £50,000 to pay for works including kitchen and bathrooms and ground work; and £15,000 for beds and furniture over and above her share of the utilitarian assets in the matrimonial home. Inevitably the husband produced estate agents' particulars at a lower range and one of them, on the market for just under £300,000, the wife actually liked a great deal, although she stated that quite a lot of work would be needed on it. In my judgment having considered the estate agents' particulars carefully and the wife's written and oral evidence the wife's capital needs are tabulated by me as follows:
| Housing |
300,000 |
| SDLT |
9,000 |
| improvements and furniture |
50,000 |
| Car |
22,000 |
| |
381,000 |
- The wife's income budget was for £63,420 annually. There were a few plainly illegitimate items within it such as saving for her children's inheritance but those aside the figures were not unreasonable even if they represent a gross income substantially in excess of what the business in these straightened times has been able to pay to her over the last few years. In my judgment an annual figure of £60,000 is reasonable. It is agreed that the parties' pensions will be divided equally. This will give the wife pension income of £5,572 . In addition she has the state pension of £5,587. On these parameters the Duxbury calculation is £725,000.
- Mr Southgate QC has argued that the wife should be awarded a further sum of £173,500 as a rainy day fund or Besterman cushion, and has relied on the decision of Moylan J in AR v AR [2011] EWHC 2717 (Fam). The concept of a rainy day fund was firmly disapproved in Dart v Dart [1996] 2 FLR 286 which remains binding authority so far as the calculation of needs is concerned. To depart from the Duxbury pathway when capitalising a lifetime income need risks an unprincipled, formless and impressionistic judgment replacing the tried and tested guideline. Of course the Duxbury figure is only ever a guideline but departure from it must surely be rationally and numerically justified by reference to clear evidence rather than just being, as here, a figure plucked out of the thin air. In this case I discern no good reason to depart from the Duxbury guideline.
- Therefore the wife's overall needs may be calculated as follows: £381,000 + £725,000 = £1,106,000. This corresponds very closely to her sharing entitlement of £1,098,442.
- The husband's needs are for housing and income. Under the disposal made by me below most of the joint assets will go to the wife and he will be left as the primary beneficiary under the trust with the ability to carry on running the retirement villages. That will supply him with a sufficient income to meet his day to day needs and to rent accommodation, which might even be in one of the voids. He has a partner, Anna Goodchild, who works for one of the villages and who has some modest savings of £57,000. She is owed £15,000 by the husband (see para 51 above). Between them I have no doubt that they will be able to meet their reasonable needs.
- I turn to my disposal. The wife's aspiration as expressed in her formal open proposal was that one of the two villages should be appointed out to her outright from the settlement. The evidence demonstrated this to be a completely unrealistic ambition. There are significant capital demands on the villages looming and the wife was unable to explain how she would raise the funds to meet these beyond saying that she would, if she could not obtain bank credit, use her own capital which would otherwise have been used to meet her housing need. This struck me as highly foolhardy. Further, it was clearly shown to me that the wife simply did not have the practical experience to run a village herself. Further still, I was fully persuaded by the husband that to partition the business would lose synergy and economies of scale and would likely lead to its demise and the prejudice of the workers and the residents. In any event in her oral evidence in answer to a question from me the wife accepted that her preference would in fact be to receive clean money from the business so that with an appropriate allocation of the non-business assets she could rebuild her life anew.
- It is of note that the wife has allowed no less than £80,000 in her Form H1 as the anticipated future costs of implementing her proposal.
- The husband wishes to retain his pre-marital property and in particular the farmland which abuts the matrimonial home. That farmland includes field number 5777 on the Defra digital map which happens to be in joint names. I am satisfied that the value of this field has been captured in the valuation of the rest of the farmland which is held in the husband's sole name. In addition, the husband wishes to retain a small plot within the demise of the matrimonial home. This is the red land on the plan at D382. The reason that the husband wishes to retain this plot is that he has a hope of buying the adjacent bungalow from its elderly occupant and of merging its demise with the red land and to build a home for himself on that enlarged plot. The valuer's view is that to remove the red land would reduce the value of the (reduced) demise of the matrimonial home by £50,000.
- I am satisfied that the husband's proposal is reasonable. My objective is to ensure that the wife receives liquidated sums so that she is not exposed to any risk or uncertainty when it comes to her rebuilding of her life in a new home.
- In order for the wife to receive her needs target of £1,106,000 the following dispositions will take place:
i) The matrimonial home within the reduced demise hatched in blue on D382 will be sold and from the proceeds the wife will receive £650,000. If there is a shortfall then the husband will make it up from his own free assets. If there is a surplus the husband will receive it.
ii) The red land and field number 5777 will be transferred into the sole name of the husband.
iii) The wife will receive £65,000 from Amelia. I had initially considered that as this may not be receivable for a long period it therefore should arguably be disregarded in the needs analysis. But I have concluded that at some point, as matter of fairness and even-handedness between the parties, it ought to be paid and then incorporated into the wife's Duxbury fund. Given that the Duxbury fund will exist for the remainder of the wife's life it does not seem to me that a delay in its constitution by this sum has any appreciable adverse economic impact.
iv) The wife will receive an outright payment from the settlement of £391,000.
- The wife's one third interest in the Robin Hood's Bay holiday home I do not include as part of the money needed to meet her needs. I am satisfied that it is neither fair nor practicable for that interest to be realised during the wife's lifetime having regard to not only the terms of the trust but also the clear understanding between the wife and her co-beneficiaries.
- I have concluded that the husband and the settlement should have two years in which to raise the payment to the wife of £391,000 and that pending payment that sum should carry simple interest at 5%. It should be secured on the assets of the settlement ranking immediately behind the security of the Royal Bank of Scotland. In technical terms of the settlement will be varied as follows:
i) the wife will be erased as a beneficiary;
ii) the assets of the settlement held by the companies will be charged with the sum of £391,000 in favour of the wife;
iii) the charge will be enforceable on 1 June 2015 and until its enforcement will carry simple interest of 5%; and
iv) the wife will cease to act as a director of any of the companies.
- I am satisfied that the delay in the constitution of that part of the wife's Duxbury fund represented by this charge will have no adverse economic impact provided that this interest is paid. I am further satisfied that it is within the capacity of the business to pay the interest – it is rather less than the sum that has been paid to the wife by the business in her capacity as director in recent times. That has been of the order of £30,000 annually.
- In my judgment two years is a reasonable period to give to the husband to see if he can turn this business round and take it out of the present evil times. If he cannot do so within that period then it will have to be sold and the wife's charge satisfied from the sale proceeds. However, with good fortune he should be able either to raise the money to pay off the charge, or, to dispose of some, but not all, of the business assets in order to do so while at the same time allowing the business with all its social benefits to continue to function.
- The above disposition is in full satisfaction of all the wife's claims and is on a clean break basis but the orders giving effect to the clean break will not take effect until the wife has been paid in full.
- Although I have not mechanically recited all the provisions within section 25 Matrimonial Causes Act 1973 I have had them all clearly in mind. Above all I am satisfied that the arrangement is fair. With her non-matrimonial property the wife will leave this marriage with £1,229,965 which is 49% of the total assets as found by me. The authorities require me to stand back at the end of the case and to see what is the departure from the yardstick of equality, if any, when applied to all of the assets. This exercise is vitally necessary to ensure that no insidious discrimination has crept in during the computational or distributive processes. It can be seen that the wife leaves with, to all intents and purposes, half of everything. This crosscheck confirms my conclusion that my disposal is abundantly fair.
