The judgment of Sir Peter Singer in this complex financial remedy case runs to over 50 pages. This article focuses on providing a summary of the key facts of the case and looking at three important topics considered in the judgment, namely:
- The involvement of offshore trustees in English financial remedy proceedings on divorce;
- The treatment of trust assets in financial remedy cases; and
- The issue of conduct and the potential costs consequences.
Summary of the Facts
The parties married in 2006 and separated in 2011. They have three sons aged between nine and four. At the time of the judgment, the husband was occupying the former matrimonial home, a six-bedroom luxury château in the South of France. The wife was living nearby in rented accommodation, and the children were spending time with both parents as directed by the French Court (where the litigation was ongoing in respect of the children).
The wife issued divorce proceedings in London in July 2011 on the basis that both parties were domiciled in this jurisdiction. This was challenged by the husband. There followed complex and expensive litigation on the issue of whether the English Court had jurisdiction (which it was eventually determined it did after the husband abandoned his challenge). Singer J noted that in respect of this aspect of the case the husband had shown a "very significant lack of integrity and honesty".
Eventually, the first decree of divorce, the Decree Nisi, was pronounced in May 2013 and Singer J made an order restraining the husband and certain connected persons from diminishing his worldwide assets below the sum of £35 million. The order permitted him to access £145,000 monthly. In June 2013, Singer J ordered the husband to pay to the wife 'maintenance pending suit' ("MPS") (interim maintenance while the proceedings were underway) for her and the children in relation to living expenses and legal costs.
The family's wealth was largely derived from the husband's business activities in commercial airline leasing with the majority held in a discretionary trust established in the British Virgin Islands ("BVI") in December 2002 ("the Trust"). The Trust had as its trustee, until shortly before the judgment, a Hong Kong based fiduciary company, Royal Fiduciary Group ("RFG") of which Mr Tim Bennett ("TB") was a director. RFG merged with or was acquired by the Third Respondent in the case, another offshore trust corporation of which TB became a director. The judge noted that TB was the "human face and mind" of the trustees, taking the lead in speaking for them and in informing and forming RFG's decisions in relation to the Trust and the husband. The protector of the Trust was a long-standing Dubai-based friend of the husband, Mr Richard Smith ("RS").
Neither the trustees, TB nor RS responded to the proceedings by participating in them as parties or directly as witnesses. TB made available on behalf of the Trust some information and documentation, however, although he withheld more than he offered (of which more later).
The husband and the children were potential beneficiaries of the Trust until 2010 but the wife was never a potential beneficiary.
By late 2013, TB had already taken steps to exclude the husband permanently and irrevocably as a beneficiary of the Trust, on the basis that (i) the purpose of the Trust was to benefit his children and grandchildren; and (ii) the trustees were obliged to protect the Trust's assets from further losses which might arise due to the proceedings. After November 2013, the husband's only source of liquid capital was his 1928 Bentley, which he pledged to his solicitors on account of costs and which became the subject of protracted interlocutory proceedings. The wife sought the Bentley's sale so the proceeds could be applied towards discharging arrears of MPS (which the husband had not paid as he was ordered to). The 1928 Bentley was eventually sold to the Trust for £650,000, with £550,000 paid to the husband's solicitors and the £100,000 balance used towards reducing his liability to the Trust. Following hearings in 2014, Singer J suspended the liabilities for MPS and legal services provision as well as the wife's enforcement applications, pending the final hearing.
The wife had nothing by way of significant assets or income of her own and sought a lump sum of £27m for a clean break, on the basis that the matrimonial pot for division was at least £54m. In order to reach this sum, the wife argued that the marital acquest included a collection of vintage motor cars (which she stated was beneficially owned by her husband rather than the Fourth Respondent (a BVI company, LCAL Anthology Inc)) as well as a number of London properties. The wife also argued that the Trust was an ante-nuptial settlement capable of variation pursuant to section 24(1)(c) of the Matrimonial Causes Act 1973 (this is considered in further detail below).
The husband's case was that his debts by far exceeded any assets available to him. He also argued that he had been excluded from any potential future benefit from the Trust and would therefore only be able to make modest periodical payments and no capital payment to the wife. The primary issue for the judge was whether the husband’s financial plight was “genuine or a contrived farce”? As noted by the judge, "the polarisation between the spouses' positions could not be more extreme".
Sir Peter Singer's Decision
The wife's suspicions and her case against the husband were held to be founded. The circumstances surrounding the Trust were seen as an intricate sham which the husband had sought to veil without regard to cost. His presentation of the case was described as an "elaborate charade". It was likely that the husband would return to car-related employment through the Trust and this work would support the high standard of living the family had been accustomed to. His primary reason for not seeking employment in France was to avoid tax.
The wife's claims for a lump sum and for an adjustment of property order were adjourned. The husband was to pay the wife periodical payments at the annual rate of £120,000, payable in monthly instalments.
Although the judge was mindful that authorities suggest capital claims should not be left indeterminately unresolved, this was a complex case where fairness and justice had to prevail over the normal desirability of finality.
Involvement of Trustees in Financial Remedy Proceedings
Trust practitioners will all be acutely aware of the fiduciary position of trustees (i.e., they have, inter alia, duties of confidentiality and good faith to their beneficiaries). Trustees will not normally owe any duty to a stranger to a trust, such as, in the case of family proceedings, a non-beneficiary spouse/partner. These duties can become pressure points where trustees become involved in financial remedy proceedings on divorce, as any party to the proceedings who is a beneficiary of a trust, whether a life tenant or discretionary beneficiary, must disclose their interest or potential interest. This information is provided in their financial statement (Form E), which is in many ways the cornerstone of the litigation. A party that fails to provide full, frank and proper disclosure regarding trust interests may be subject to a request for further information and/or risk the Court drawing adverse inferences based on that failure. Indeed, the Supreme Court has made it very clear in the recent cases of Sharland v Sharland  UKSC 60 and Gohil v Gohil  UKSC 61 that there is to be a zero-tolerance approach to material or fraudulent non-disclosure.
In Joy, the husband's Form E was served in July 2013 but no trust deed or other documentation about the Trust was attached to the form. Bannister J in the Commercial Division of the Eastern Caribbean Supreme Court had made an order absolving TB of any duty to provide the husband with documentation, and determining that the husband, as settlor, had no entitlement to any trust assets and no right to require that any such entitlement be conferred on him.
However, Singer J made the following comments, offering a sage reminder of the balance that trustees need to strike when beneficiaries become involved in litigation on divorce:
“[the] trustees have been entirely entitled to decline to submit in any way to this court's jurisdiction…But the fact that those duties and obligations, and the choice whether or not to attend, do exist does not render the trustees ….immune from the court's findings drawn from such evidence as it does have available. Nor should a court shrink from drawing justifiable conclusions from that evidence which the trustees…may find unpalatable, nor abstain from expressing them because the distance they have kept from the enquiry entails that if they are criticised the trustees ….were not here to speak in their own defence.“
Singer J highlighted comments made by Mr Justice Mostyn in the case of BJ v MJ (Financial Remedy Overseas Trusts)  EWHC 2708 (Fam), a leading case in this area (though Singer J noted that Mostyn's comments in BJ were made in the different context of forecasting whether trustees are likely to benefit their beneficiary if called on to do so):
"[The Family Court] is undertaking the task specifically set for it by Parliament in s25(2)(a) MCA 1973 of judging what resources the party in question "is likely to have in the foreseeable future". It will make its judgment on the available evidence, which will include evidence deriving from the trustees. If the trustees have refused to participate meaningfully or helpfully in the inquiry then neither they nor their beneficiary can complain if the court draws robust conclusions as to the likelihood of future benefit."
Mostyn J accepted that the position may be slightly different with regard to offshore trustees:"I am aware that overseas trustees sometimes take a highly defensive and limited position in their participation in the court's inquiry for fear that anything more active will be construed as a submission to the court's jurisdiction…..I can therefore see why overseas trustees may not want to submit to the jurisdiction of the English Court. They may prefer to keep their powder dry and to wait to see what judgment emerges before deciding whether or not to resist enforcement proceedings in their local court. I have to say, however, that I find it hard to see why participation by the trustees in a helpful or meaningful way in this court's inquiry qua witness could be construed as a submission to the jurisdiction"In any event, the Family Court's position in relation to cases involving trusts is perhaps best summarised by Mr Justice Coleridge in the case of J v V (disclosure: offshore corporations)  EWHC 3110 (Fam):
'…sophisticated offshore structures are very familiar nowadays to the judiciary who have to try them. They neither impress, intimidate, nor fool anyone. The courts have lived with them for years. If clients "duck and weave" over months or years to avoid coming clean they cannot expect much sympathy when it comes to the question of paying the costs of the enquiry which inevitably follows."
Advisers should therefore ensure the duty of full and frank disclosure is impressed upon clients from the outset and remind them that this is an ongoing duty to be adhered to throughout proceedings. In Joy the flow of information regarding the Trust was described by the judge as "sporadic and incomplete".
Was the Trust a “Nuptial Settlement” capable of variation?
Under section 24(1)(c) of the Matrimonial Causes Act 1973 the Court may make:
"an order varying for the benefit of the parties to the marriage and of the children of the family or either or any of them any ante-nuptial or post-nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage".
Such an order can be a powerful tool for financially weaker parties seeking to satisfy their financial claims. For example, the Court may vary a trust to provide income for the spouse and/or children or, in extreme cases, form a completely new trust. Such an order would provide a secure financial interest for a spouse meaning that they are not subject to the whim of the paying party who might withhold payments (albeit they would then be in breach).
It should be noted, however, that the Court will try to interfere as little as possible, particularly where this would impact on a third party. A variation will only be considered if it is necessary to achieve fairness and to meet a party's needs.
As noted above, the wife in Joy asked the Court to make an order under the power conferred by this section. Singer J was therefore left to determine whether (i) the Trust was a nuptial settlement from its inception; (ii) if not, had it subsequently become "nuptialised"; and (iii) if it was a nuptial settlement, how would the judge consider this financial resource in the distribution of the marital acquest between the parties?
As discussed above, the Judge had very little information available to him as, pursuant to Bannister J's order of 28 June 2013, there was no obligation on the trustees to provide any information to the husband. However, the Judge remarked rather pointedly that this was not an obstacle which prevented TB from releasing documentation when he regarded it as helpful to the Trust to do so. TB and the husband both maintained that no distributions were ever made by the Trust to the husband, who said he was paid a salary starting in about September 2007 and ending with the payment in January 2010.
The full extent of the assets held in the Trust was never been divulged. It was left to Singer J to determine whether the husband settled the Trust in contemplation of marriage. In doing so he drew on the case of Burnett v Burnett  All ER Rep 490 noting that "in order to bring the section into operation, there must be a marriage which is the subject of the decree of divorce, and it is in contemplation of this marriage and because of this marriage that the settlement must be made". On the basis of this formulation he concluded swiftly that the evidence fell short of establishing this. Interestingly, he noted:
"Despite the breadth and diversity of arrangements which have been held to fall within the meaning of a nuptial settlement for the purposes of this provision, there must always be some nuptial element. Here that was lacking. The answer is as short and can be as simply stated as that and does not require further elaboration or citation of authority."
It then fell to be considered whether the Trust had subsequently been "nuptialised" per the reasoning of Sir Paul Coleridge in the case of Quan v Bray and others  EWHC 3340 (Fam), a case which also had at its heart a discretionary trust with substantial assets. Singer J set out the relevant sections of the Coleridge J's analysis:
"58 I have also been addressed on the question of whether a trust, non nuptial at its inception, can later become nuptialised. (see Burnett v Burnett  P 1).
59 The essential features of a PNS [a post-nuptial settlement] seems to be an existing disposition in favour of, one, other or both parties to the marriage (in their capacity as husband or wife) and for their present or future benefit. An existing intention to benefit one of the spousal beneficiaries is obviously a prerequisite.
60 In my judgment on the authorities, a settlement which is non nuptial at its creation could itself later become 'nuptialised' if there was, in fact, a flow of benefit to the parties during the marriage from the trust . Alternatively a later disposition from the trust can itself constitute a post nuptial settlement without the main or superior trust necessarily becoming nuptial."
On the facts, Coleridge J found that in Quan the trust had not become nuptialised. Singer J was invited to find that such a transformation had occurred in Joy. Counsel for the wife started that, "it is plain that H and the family have been continuing to live off borrowing 'collateralised' by NHT since 2010." Singer J was not convinced and, noting (respectfully) that the propositions in Quan were not binding on him, found that they did not reflect the law. In reaching this conclusion he drew upon the cases of Burnett and K v K  EWHC 3485 (Fam). Counsel for the husband drew on the following passage from Burnett and argued that this essentially provided that if the marriage in question was not at that time in contemplation, then looking back at it cannot retrospectively change the settlement's characterisation from non-nuptial to nuptial:
"…there must be a marriage which is the subject of the decree of divorce, and it is in contemplation of this marriage and because of this marriage that the settlement must be made. I do not think that the Legislature intended a spouse of an existing marriage to contemplate a second marriage so as to be able to execute a settlement which is 'ante-nuptial' as regards such contemplated marriage, although at the time being he or she is married and, therefore, incapable of entering into a second marriage at that time."
In K v K the conclusion (at paragraphs 79 and 82) was that Burnett "clearly establishes that a non-nuptial settlement cannot become a nuptial one". Singer J concluded that : "Were it to be otherwise every truly dynastic settlement, bereft of nuptial character at the outset but providing benefits for an individual who subsequently becomes either a husband or a wife, would arguably become variable under s 24(1)(c) as soon as that individual, once married, received any benefits. I am satisfied that that is not the law, notwithstanding the breadth of attribution historically afforded to settlements treated as nuptial."
As with many aspects of family law, where cases turn on their unique facts and circumstances and the Court's powers are wholly discretionary, this technical area of the law requires further clarification. Historically, trust practitioners have been cautious when advising clients on wealth protection matters to ensure that trusts do not become nuptialised and therefore more vulnerable to attack on divorce. In light of judgment in Joy, the temptation may be to relax the traditional approach but, absent further clarification from an appellate court, the sensible approach must surely be to continue to tread carefully and advise trustees be cautious when taking any steps which might render the trust susceptible to an argument that it has been nuptialised (wholly or otherwise).
Due to what was described as his “scandalous and outrageous conduct and attitude” to the proceedings, the husband was ordered to pay all of the wife's costs of and incidental to all proceedings between them in relation to financial matters heard on and since 1 May 2013. There would be no discount to reflect the issues upon which the wife had failed. The husband was required to pay £334,263 to the wife within 14 days of the judgment being handed down. This follows the approach in the case of Thiry v Thiry  EWHC 404 (Fam) (where the husband was ordered to pay the wife's costs of £456,000 and the wife was also awarded £500,000 for the purpose of funding the costs of any future litigation brought by the husband in Belgium) and demonstrates the Family Court’s robust stance against litigation misconduct. Individuals involved in matrimonial litigation should therefore be mindful of their duty of full and frank disclosure and ensure their approach to the litigation does not prolong matters unnecessarily.
This article first appeared in the TELTJ Journal in December 2015.