Besharova v Berezovsky

This appeal concerns a narrow point of construction of a consent order (“the Order”) by which the claim by Galina Besharova for financial remedy orders against her former husband, the late Boris Berezovsky, was compromised. The Order itself refers to Ms Besharova as “the Petitioner” and to Mr Berezovsky as “the Respondent”. I will otherwise refer to them as “the wife” and “the husband” respectively. In summary, paragraph 2 of the Order provides for the wife to receive all but the first £16 million of the net proceeds of sale of a specified property (“the property”); paragraph 3 provides for her to be paid 20% of any monies the husband receives in specified litigation; but paragraph 3(b)(i) contains a proviso that “[t]he sum received pursuant to paragraph 2 above shall be credited against and deducted from the figure of 20% calculated as above”. The property has not yet been sold, so that no monies have yet been received by the wife under paragraph 2, but since the husband’s death his estate has received substantial monies from the litigation to which paragraph 3 applies. The essential question is whether the set-off provided for in paragraph 3(b)(i) applies only to sums already received by the wife under paragraph 2 at the time when litigation monies are received by the husband, or also applies to sums that may be received by her in the future under paragraph 2. The wife contends for the former construction, whereas the respondents to the appeal (the general administrators of the husband’s estate, originally appointed as joint receivers but subsequently appointed trustees under an insolvency administration order) contend for the latter.

In a judgment dealing with that and related issues, Roberts J decided the point in favour of the respondents. Her order sealed on 24 February 2015 included a declaration in the following terms:

“In the event that the applicant receives any sum or sums due to her under paragraph 2 of the Order following the sale of [the property] and distribution of the proceeds of sale …, the amount of any such receipt or receipts shall be set off in reduction or extinguishment of the amount payable to the applicant pursuant to paragraph 3 of the Order ….”

The wife brings this appeal against that part of the judge’s order. The relief sought is the amendment of the declaration by the insertion of “not” between “shall” and “be set off”.

It is unnecessary to go into the background in any detail. A final hearing of the wife’s financial claims against the husband had been listed to commence in February 2012 but the parties decided to enter into an agreement with the intention of concluding all further litigation between them on the basis of a clean break settlement. In July 2011 they put before King J (as she then was) a short written document entitled “Heads of Agreement”. An order approving the terms of the agreement was made on that occasion but, for administrative reasons, was not sealed. The matter was restored before Coleridge J in October 2011, when the terms of the agreement were again approved and a formal order was drawn up and sealed. This was followed by a final and perfected consent order made in February 2012 by Mr Nicholas Francis QC, sitting as a deputy High Court Judge, which set out the detailed terms of the agreement. That is the Order to which the appeal relates.

Roberts J (rejecting a submission to the contrary on behalf of the respondents) held that the Heads of Agreement were admissible as part of the surrounding circumstances and, to the extent that there was any ambiguity about the Order and the interaction of paragraphs 2 and 3, as an aid to construction of the Order. In practice, however, she did not find them to be of material assistance on the issue of construction and they were not relied upon by the appellant before us. In the circumstances they can safely be left on one side, without the need to consider their admissibility. I can therefore move straight to the terms of the Order.

The Order starts with definitions, including a definition of what I have referred to as “the property” and a definition of the relevant sets of litigation as “the actions”. There are then various recitals relating to the property and other matters. Recital A sets out the husband’s confirmation that he is able to secure the sale of the property. Recital B records the parties’ agreement that a Land Registry restriction against the property shall be removed for the purpose of facilitating a sale. Recital C contains an undertaking by the wife to remove the restriction and that in the event that, prior to completion of the sale of the property, she shall have received from the husband the sum of £200 million pursuant to paragraph 4 of the Order (see below), she will as soon as reasonably practicable relinquish any interest or rights she has in relation to the property. Recital D contains an undertaking by the husband to provide full documentary evidence of ownership of the property to the wife upon any reasonable request by her at any time pending compliance with the Order, and pending division of the net proceeds of sale not to dispose of or deal with his interest in the property save for the purpose of complying with the Order and the recitals to it. Recital G includes an undertaking by the husband to instruct irrevocably his executors to pay the sums that would be due to the wife pursuant to paragraphs 3 and 4 of the Order in the event of his death, subject to recital H which concerns the minimisation of tax liabilities.

Paragraph 1 of the Order provides that a freezing order made on 1 July 2008 and confirmed in September 2008 shall remain in force save that it may be varied to facilitate compliance with paragraph 2 of the Order. The Order continues:

“2.

As soon as is reasonably practicable the Respondent shall sell, or cause to have sold, [the property], and the following provisions shall apply:

a.

The property shall be sold for the best price reasonably obtainable being such price that the parties agree or in default of agreement at a price determined by the Court.

b.

Both parties shall have conduct of the sale.

c.

The gross proceeds of sale shall be applied as follows and in the following order:

…

iv.

£16,000,000 to the Respondent …

v.

The balance of the net proceeds to the Petitioner.

3.

The Respondent shall pay to the Petitioner a lump sum or lump sums to be calculated as follows:

a.

The sum or sums, as appropriate, that shall be equivalent to 20% of any and all monies that the Respondent receives (excluding costs Orders), whether by way of settlement or court award on an interim or a final basis, in relation to the determination of one or more of the actions

b.

Provided that:

i.

The sum received by the Petitioner pursuant to paragraph 2 above shall be credited against and deducted from the figure of 20% calculated as above; and

ii.

In no circumstances shall the total provision for the Petitioner under paragraphs 2 and 3 above exceed £200,000,000.

Thus, by way of explanation, If the litigation settles/the net award is £500,000,000, then the Petitioner’s share would be £100,000,000 to which credit would be given for any money received from [the property] (say £54,000,000) in which case the Petitioner should be paid £46,000,000 net. If the litigation settles/the net award is £100,000,000, the Petitioner’s 20% share would then equate to £20,000,000 and in such circumstances the Petitioner would only receive the net proceeds of [the property] (assuming that the Petitioner’s net share from [the property] is more than £20 million) (less the £16,000,000 payable to the Respondent and the sum required pursuant to paragraph 2(b)(i)-(iii) above).

The following provisions shall apply

c.

The sum or sums shall be paid to the Petitioner within 10 working days of receipt by the Respondent of all and any net monies received by him, whether by way of settlement or court award on an interim or a final basis, in relation to the determination of one or more of the legal proceedings.

4.

In the event that the Respondent shall have paid to the Petitioner a lump sum or sums of £200,000,000 pursuant to paragraph 3 of this order prior to completion of sale of [the property] pursuant to paragraph 2 above, then paragraph 2 of this order and the freezing Order of 1 July 2008 … shall be discharged and the following provisions shall apply:

a.

The Petitioner shall assign any interest she has in [the property] to the Respondent and shall not thereafter be entitled to any interest in the said property

b.

The Petitioner shall consent to her removal as a beneficiary of any relevant trust.

5.

Upon completion of sale of [the property] and division of the net proceeds in compliance with paragraph 2 of this order AND (conjunctive) payment of the lump sum or sums in paragraph 3 the order of 1 July 2008 … shall be discharged.

6.

Until the receipt by the Petitioner of the net proceeds of sale of [the property] pursuant to paragraph 2 of this order or sooner compliance pursuant to paragraph 4 of this order or sooner payment of at least £54,000,000 pursuant to paragraph 3 of this order, the order of 20 July 2009 shall continue in force and as such the Respondent shall pay or cause to be paid to the Petitioner maintenance pending suit pending decree absolute and thereafter interim maintenance at the rate of £60,000 per month.

7.

Upon receipt by the Petitioner of the net proceeds of sale of [the property] pursuant to paragraph 2 of this order or receipt of the lump sums pursuant to paragraph 3 or 4 (whichever shall occur first), the Respondent shall be released from [certain undertakings].”

Paragraphs 8 and 9 provide for a clean break in respect of the parties’ financial claims against each other, coming into effect immediately in the case of the husband’s claims and “upon compliance with paragraphs 2, 3 and 4 of the order, as appropriate” in the case of the wife’s claims.

It is necessary to refer only briefly to later events in order to explain the dispute that has arisen between the parties in relation to the construction of the Order.

The husband died in March 2013. By March 2014 the general administrators of his estate had received substantial settlement monies in the litigation to which paragraph 3 of the Order applies. Roberts J made a finding as to the amount due to the wife under that paragraph, subject to the question of set-off. No sums have in fact been paid to her, and the question of actual payment is complicated by the insolvency of the estate. The judge found that the wife’s right to receive sums under paragraph 3 does not give rise to any equitable charge over or in respect of any part of the monies held by the general administrators and that any claim she has under the paragraph is as an unsecured creditor. None of those findings is in issue before us.

The property to which paragraph 2 of the Order applies has not been sold and the position appears to be as it was before the judge, that there is no immediate prospect of its sale.

It is common ground that the principles applicable to the construction of a consent order are the same as those applying to a commercial contract: see Sirius International Insurance Company v FAI General Insurance Limited [2004] UKHL 54, [2004] 1 WLR 3251, at [18]. As Lord Steyn said in that paragraph, the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language; the answer to that question is to be gathered from the text under consideration and its relevant contextual scene.

The case advanced by Mr Marks QC on behalf of the wife is that the provision for set-off in paragraph 3(b)(i) of the Order applies only to sums already received by her pursuant to paragraph 2 at the time when litigation monies to which paragraph 3 applies are received by the husband. If at that time she has received nothing pursuant to paragraph 2, there is nothing to be credited against and deducted from the monies payable to her under paragraph 3. By paragraph 3(c), those monies are to be paid to her within 10 working days of their receipt by the husband. There is no provision for her to repay any part of them in the event of her receiving sums in the future pursuant to paragraph 2. Nor is there any provision for sums paid or payable under paragraph 3 to be set off against any sums she may receive in the future under paragraph 2.

Thus, on the wife’s case the set-off in paragraph 3(b)(i) stands by itself and operates only one-way. If the property is sold before litigation monies are received by the husband, the wife’s share of the proceeds of sale is to be set off against her 20% share of those litigation monies, so that her net entitlement is to her share of the proceeds of sale of the property or 20% of the litigation monies, whichever is greater; but if the property is sold after litigation monies are received by the husband, she is entitled to her share of the proceeds of sale of the property plus 20% of those litigation monies.

Mr Marks points out that the Order plainly contemplates that monies may become payable to the wife under paragraph 3 before the property is sold and the wife receives her share of the proceeds of sale under paragraph 2: that is clear not only from the requirement in paragraph 3(c) for payment of the wife’s share of the litigation monies within 10 days, but also from the terms of paragraphs 4, 6 and 7. It is submitted that if it had been intended to confer an entitlement on the husband to recover some or all of the monies paid under paragraph 3 from the wife’s share of the proceeds of a future sale of the property, provision to that effect would have been made in paragraph 2.

It is further submitted that paragraph 4 supports the wife’s case. That paragraph provides that if the wife has received £200 million (the overall cap set in paragraph 3(b)(ii)) by way of her share of litigation monies under paragraph 3, the provisions of paragraph 2 relating to sale of the property and payment of a share of the proceeds of sale to the wife are to be discharged. If it had been intended that the wife’s share of the proceeds of a future sale of the property was to be set off against monies already received by her under paragraph 3, the trigger under paragraph 4 would have been set at a much lower level than the overall cap of £200 million. The estimate of the wife’s share of the proceeds of sale of the property was of the order of £54 million, as shown in the examples given in paragraph 3. If her share of the proceeds of a future sale was to be set off against monies already received by her under paragraph 3, the sale of the property and the provisions of paragraph 2 would have been otiose once the monies received by her under paragraph 3 had substantially exceeded £54 million. The fact that the trigger in paragraph 4 operates only at the level of the overall cap of £200 million shows that the Order contemplates that however much she may have received under paragraph 3, she may be entitled to additional sums under paragraph 2 until the cap is reached.

The case for the respondents, presented by Mr Moverley Smith QC, is that paragraphs 2 and 3 of the Order operate together to provide a mechanism under which the wife is to get provision by way of a sum equivalent to 20% of the litigation monies received by the husband but with a minimum “floor”, being the wife’s share of the proceeds of sale of the property, and subject to a maximum cap of £200 million. The sum is to come in part from the proceeds of sale of the property and in part from a percentage of the litigation monies and is to be calculated in accordance with paragraph 3(a) and (b). Paragraph 3(b)(i) requires the wife’s share of the proceeds of sale of the property to be brought into account in calculating the sum to be paid; save that if the husband is able to pay the maximum of £200 million from the litigation monies, there is no need to look to those proceeds of sale and the effect of paragraph 4 is that the wife gives up her interest in the property and it need no longer be sold. That construction of paragraph 3(b)(i), it is submitted, gives effect to the language used in it and is consistent with the examples given after paragraph 3(b). Indeed, if the wife’s construction were correct, such that there would be a fundamentally different result if the sale of the property came after rather than before litigation monies were received by the husband, one would have expected the examples to include an illustration of the point.

Mr Moverley Smith submits that, although paragraph 3(c) makes provision for the wife to be paid litigation monies within 10 days of receipt of those monies by the husband, any such payment is conditional. Paragraph 3 as a whole is designed to enable the wife to receive funds as she goes along, but with her total entitlement being determined once all the litigation monies have been received and (unless paragraph 4 applies) the property has been sold and the proceeds of sale distributed. Paragraph 3(b)(i) looks at the overall position. If there has been an overpayment under paragraph 3, the wife will be under an obligation to account to the husband for the amount of the overpayment.

It is further submitted that the wife’s construction of the Order produces an illogical and unfair result which does not reflect commercial common sense. It means that the wife’s overall entitlement would depend on the speed at which the property could be sold and at which the litigation was resolved: she could get a very substantial windfall if the sale of the property came after rather than before the husband’s receipt of litigation monies. The examples given in the Order show that the parties contemplated that the wife’s share of the proceeds of sale of the property could be as high as £54 million. It is most unlikely that the parties intended that entitlement to such a substantial sum would be dependent on which event occurred first.

Mr Marks sought to meet that point by arguing that there was a commercial purpose in providing for the wife to have a potentially greater total entitlement under the Order if the property was sold later, in that it was necessary to incentivise the husband to sell the property as quickly as possible and at a good price. The way the property was held meant that the wife had no control over the property or its sale, and it would be near impossible in practice for her to enforce the obligations imposed on the husband by paragraph 2 as to speed and price of sale. In support of the argument, Mr Marks referred to the recitals to the Order as showing the extent to which control over the property and its sale was in the hands of the husband.

Roberts J dealt with the issue at some length. It is unnecessary to set out her detailed reasoning or to deal with Mr Marks’s criticisms of aspects of that reasoning. It is sufficient to record the following parts of her conclusions:

“66.

It has to be said that the consent order is indeed an unhappy document. Its terms are, in part, wholly impenetrable and apparently inconsistent with one another. Nevertheless, with some reluctance it has to be said, I have come to the conclusion that, as a matter of construction, the set-off in paragraph 3(b) of the consent order cannot have been intended to operate in the manner contended for by the wife ….

…

69.

Taking all these factors carefully into account, I have come to the conclusion that on the balance of probabilities the parties’ intentions and the import of paragraphs 2 and 3 of the consent order were that her primary entitlement to the gross proceeds of sale from [the property] as defined in paragraph 2(c)(v) was qualified by the mechanism for set off provided in paragraph 3(b). The words in line one of paragraph 3 clearly anticipate the necessity for a calculation to be performed in due course. That calculation cannot be undertaken unless and until the figures are known. Whilst they may have crystallised now in relation to the intended source of the lump sum payment(s) due to the wife, they remain completely unknown in terms of the source of the balance of the award (i.e. the sale proceeds which will be achieved when a purchaser is found for [the property]). Ingenious and persuasive though the arguments advanced by Mr Marks might be, I am unable to accept them as providing an opportunity to determine the full extent of the wife’s entitlement at the present time. That determination will have to await another day when the property has been sold ….”

The declaration the judge granted in the light of that conclusion is set out at paragraph 2 above.

The Order is not particularly well drafted but its meaning and effect in relation to the issue now before us are tolerably clear. I accept the substance of the submissions advanced by Mr Moverley Smith. In my view the judge was correct to reject the wife’s case on construction and to grant the declaration she did, though I do not agree entirely with the formulation of her conclusion in paragraph 69 of her judgment.

In my view the provision as to set-off in paragraph 3(b)(i) applies to the sum received by the wife pursuant to paragraph 2 irrespective of when that sum is received. That is the natural reading of the provision. There is nothing in its wording to suggest that it applies only to sums received by the wife under paragraph 2 before litigation monies to which paragraph 3 applies are received by the husband: in particular, the word “received” in paragraph 3(b)(i) is equally apt to apply to a sum received in the future as to a sum received in the past. Mr Marks appeared to concede as much in relation to the wording of the provision itself, but he submitted that the requirement in paragraph 3(c) for payment within 10 days of receipt of the litigation monies by the husband shows that the set-off is limited to sums already received by the wife under paragraph 2 and has no application if the sale of the property comes later. I do not accept that submission. The provision for prompt payment in paragraph 3(c) has an obvious and useful purpose in enabling the wife to receive funds as she goes along, but it does not purport to limit the set-off that would otherwise arise under paragraph 3(b)(i) and it is not to be read as giving rise to such a limitation. It is also helpful to consider how the provision would work if litigation monies were received by the husband in, say, four tranches and the wife had received no sum under paragraph 2 by the time of the first three tranches but had received such a sum by the time of the fourth tranche. Mr Marks submitted that no set-off would apply to the first three tranches but a set-off would apply to the fourth tranche. Such a result strikes me as arbitrary, unsatisfactory and uncommercial.

The view I have expressed above is entirely consistent with the absence of a provision for repayment in paragraph 3, or of a provision for set-off in paragraph 2, to cover the situation where the sale of the property takes place after litigation monies are received by the husband. The wife’s entitlement to a share of the proceeds of sale of the property under paragraph 2 does not depend on the date when the property is sold (unless the £200 million cap has already been reached and paragraph 4 is therefore engaged). If the property is sold after litigation monies are received by the husband and 20% of those monies becomes payable to her under paragraph 3, she remains entitled under paragraph 2 to receive, at least notionally, her share of the proceeds of sale of the property. But the provision for set-off under paragraph 3(b)(i) applies at the same time, so that the sum received by her under paragraph 2 has to be credited against and deducted from her 20% share of the litigation monies. This will determine the net overall amount to which she is entitled under paragraphs 2 and 3 taken together. If payments already made under paragraph 3 have resulted in her receiving more than her net entitlement, she will be under an obligation to account to the husband for the difference, and effect can in practice be given to this by a reduction in the amount actually paid to her under paragraph 2. The obligation to account arises by operation of law, so that nothing turns on the absence of reference to it in the Order itself. An account can also deal with all questions of interest on amounts due or overpaid, again without any need for express provision in the Order.

I do not accept that paragraph 4 has the significance sought to be attached to it by Mr Marks. On the construction of paragraph 3(b)(i) that I favour, it might indeed have been possible to set some lower figure as the trigger for discharge of paragraph 2, but the sale price of the property was not a known quantity and it is perfectly understandable that the parties may have decided to use the overall cap of £200 million as the one certain figure at which on any view the provisions for sale of the property should be disapplied.

The construction that I favour produces a sensible result which the parties can readily be taken to have intended. It avoids the potential for a windfall benefit which arises on the wife’s construction. I can see no sensible reason why the parties should have intended the wife’s net entitlement under the Order to be potentially so much greater if the sale of the property and distribution of the proceeds of sale take place after rather than before litigation monies are received by the husband. I do not accept Mr Marks’s submission that the Order was structured in that way so as to incentivise the husband in relation to the sale of the property. There is no evidence before the court to show, by reference to the surrounding circumstances, that this may have been a purpose of the parties. As to the Order itself, paragraph 2 imposes in any event an enforceable obligation on the husband to sell the property as soon as reasonably practicable and for the best price reasonably obtainable; and if specific incentive for an early sale were needed, it is to be found in paragraphs 6 and 7, which provide that the wife’s receipt of her share of the proceeds of sale under paragraph 2 will release the husband from his obligation to pay her maintenance (at the rate of £60,000 per month, i.e. £720,000 per annum) and from certain undertakings. There is no tenable basis for the argument put forward by Mr Marks to justify the otherwise unsatisfactory consequence of the wife’s construction of the Order.

It follows that, as I have said, I agree with the terms of the declaration granted by the judge: the effect of paragraph 3(b)(i) is that in the event of the wife receiving any sum or sums under paragraph 2 following the sale of the property and distribution of the proceeds of sale, the amount of any such receipt or receipts is to be set off in reduction or extinguishment of the amount payable to her pursuant to paragraph 3.

Where I disagree with the judge is in relation to her apparent view that pending sale of the property the wife is not entitled to payment of any monies under paragraph 3 since the calculation of her entitlement under that paragraph cannot be undertaken unless and until the sums received under paragraph 2 are known. That seems to be what the judge is suggesting in paragraph 69 of her judgment; and her rejection of Mr Marks’s submissions appears to extend to the rejection of an alternative submission by him, as recorded by the judge, that the wife is entitled in any event to be paid 20% of the litigation monies pending a sale of the property. That approach does not give proper effect to the obligation in paragraph 3(c) to make the payment under paragraph 3 within 10 days of the husband’s receipt of the litigation monies. If the wife has not yet received any sums under paragraph 2 to be set off against her 20% share of the litigation monies, she is entitled at that stage to payment under paragraph 3 without any deduction. If and when she subsequently receives sums under paragraph 2, the set-off against amounts paid under paragraph 3 will apply and there will have to be an account. To put it another way, the fact that the sale of the property lies in the future does not prevent litigation monies from becoming payable from time to time in accordance with paragraph 3(c). The impact of the insolvency of the estate on the making of actual payments to the wife under that provision is a different matter, with which we are not concerned in this appeal.

That, however, is a point of detail which does not affect my conclusion that the judge was correct to grant the declaration she did and that the wife’s appeal should be dismissed.

I agree.

I also agree.