FA v OA and intervenor (financial remedies - s37 application to set aside)

The husband is 61. The wife is 39. They are both Nigerian nationals. They met in Nigeria when the wife worked for the husband in the guesthouse he owned. He owned two other hotels in Nigeria.

The husband and wife were married in Nigeria in December 2004. They have four children together, now aged 16, 14, 12 and 9.

In March 2009, when their oldest child was two and a half, and the wife was heavily pregnant with their second child, the family relocated to London.

In December 2009 the husband purchased in his sole name a home at [address in London, hereafter ‘the FMH’]. The property was bought for £1.35 million and was not subject to a mortgage. This became the family home.

In July 2010 the husband’s business, [DS Hotel Limited], purchased a property known as [the Red House], and an orchard next to it. This property was relatively close to Heathrow airport. His intention was to develop it into a hotel, similar to one of the hotels he operated in Nigeria, which was close to Lagos airport.

The husband and wife separated in February 2015.

The wife issued an application for a non-molestation order and an occupation order, providing that she and the children should remain living in the FMH, and excluding the husband from the property. That application was resolved by undertakings given in April 2016.

In November 2015 the wife registered her home rights under the Family Law Act 1996, giving her address as her place of work.

The husband returned to Nigeria to live at around this time.

In February 2017 the husband petitioned for divorce in Nigeria.

The husband returned to the jurisdiction in July 2017 whereupon the wife renewed her applications for a non-molestation order and for a prohibited steps order, which applications were granted on 28 July 2017.

In August 2017 the wife petitioned for divorce in England.

In February 2018 the wife applied to the Family Court in this jurisdiction for an order that the petition for divorce should proceed in England.

In March 2018 the husband’s brother’s company, [L], commenced proceedings in Nigeria for enforcement of a loan agreement. It was asserted in the pleadings that [L] had loaned £1.6 million to the husband’s hotel business in August 2009, which sums had been used to buy the family home. The pleadings sought the return of the £1.6 million and in the alternative, repossession and sale of [the FMH].

The husband did not seek to defend this claim and within a couple of weeks of the claim form being issued, entered into a settlement agreement with [L], providing for him to repay £1.6 million to [L] in four instalments of £400,000.

The Nigerian Court pronounced decree nisi on 7 September 2018. There is a narrative judgment of the Court which states that the wife had been served with, but had not responded to the petition, which proceeded undefended. The judgment records that the husband had sought for an order that the wife and children be required to vacate the matrimonial home on the basis that he would provide alternative accommodation for them. This application was rejected, as the husband had not provided proof of his ownership of the matrimonial home, nor any evidence that he was in a position to provide alternative accommodation to the wife and their children. The order provided that the husband should pay £400 a month to the wife in maintenance.

In October 2018 the wife agreed to her English petition being withdrawn. She issued an application for the Nigerian divorce to be recognised in this jurisdiction, and applied for financial relief, pursuant to the Matrimonial and Family Proceedings Act 1984 (MFPA). Her application for financial relief was allocated to the Family Court at Barnet.

On 27 March 2019 the High Court of Justice of Nigeria issued a judgment in favour of [L], requiring the husband to pay £1.6 million plus judgment interest of 21%.

On 30 April 2019 this judgment was registered by order of Deputy Master Davidson in the High Court, Queen’s Bench Division.

When he filed his Form E in the financial remedy proceedings in Barnet on 7 May 2019, the husband asserted that [the FMH] was worth £1.8 million, but that £1.6 million of the equity was effectively held on trust for his brother’s company, because he said, the loan of £1.6 million had been used to fund the purchase of the property. This was the first that the wife or her representatives had heard of the loan.

On 16 August 2019 the Court made an order that the husband pay interim maintenance to the wife in the sum of £1,000 a month, in addition to the £400 already directed by the Court in Nigeria.

The husband’s UK business [DS Hotel Limited], was put into liquidation on 28 August 2019. I understand that there had been a fire at [the Red House] which prevented it from being developed into a hotel as the husband had intended, and the husband’s business in this country thereby failed.

On 8 October 2019 [L] applied to the High Court for a charging order against [the FMH], to secure the judgment debt for £1.6 million. An interim charging order was made the following day.

On 11 November 2019 the wife applied to the Family Court in Barnet for an order under section 37 of the Matrimonial Causes Act 1973 to set aside ‘the loan agreement of August 2009 and subsequent orders made on 27 March 2019 [the Nigerian judgment] and 30 April 2019 [registration of the Nigerian judgment in England] affecting the property at [the FMH] as reviewable disposition intended to defeat the Applicant’s claim for financial relief.’

On 18 December 2019 Master Eastman adjourned the application for the charging order to be made final, pending the outcome of the wife’s claim for financial remedy under the MFPA 1984, in which a final hearing had been listed for three days in June 2020.

In January 2020 the wife filed a document within the family proceedings and in support of her application under section 37, called ‘Points of Claim’ in which she set out her case against the husband and [L]. She alleged that the loan agreement between the husband and [L] is a sham, created only after the marriage had broken down, and designed as a means of diverting a large part of the equity away from the assets that would otherwise fall to be considered within the proceedings for financial remedy. The document concludes by seeking declarations from the Court that the loan agreement is a sham and has no legal and beneficial effect, alternatively that the loan agreement and subsequent charging order be set aside pursuant to section 37(2)(b) of the Matrimonial Causes Act 1973. In the further alternative, the Court is asked to find that the ‘documents’ created in Nigeria have no legal effect in the UK, and the charging order should be set aside on that basis.

I consider further below the question of whether the Family Court has jurisdiction to make any of the declarations or orders sought.

The proceedings then seem to have been stalled by the coronavirus pandemic. Throughout 2020 a number of hearings were listed and then adjourned.

In March 2021 [L] was joined as an intervenor to the family proceedings. Both the husband and the intervenor filed defences to the points of claim in April 2021. The husband denies that the loan agreement is a sham, and asserts that the proceedings in Nigeria were legitimate. The intervenor asserts that if the wife seeks to challenge the validity of the Nigerian proceedings, she should have done so within that jurisdiction. It is noted that no application had been made to the High Court in England to set aside registration of the foreign judgment. In the circumstances, the intervenor was entitled to enforce the judgment by way of a charge over the former matrimonial home, or any other asset of the husband.

A final hearing in June 2021 was adjourned due to one of the legal representatives becoming unavailable for health reasons. The financial remedy proceedings were then stayed, to give time for the wife to apply to intervene in the enforcement proceedings.

In September 2021 the wife applied to the High Court to intervene in the application for a charging order, and for permission to set aside the registration of the Nigerian judgment.

The first hearing of those applications was listed before a High Court Master in May 2022, but was adjourned to allow the wife to amend her application notice. The hearing was relisted on 28 November 2022. At that hearing Master Eastman made the interim charging order final, adjourned the application to set aside registration of the Nigerian judgment, and advised that the matrimonial proceedings should be transferred to the Family Division of the High Court, ‘so that, if the Claimant herein applies to enforce its charging order, that application by the Claimant [[L]] and the proposed intervenor’s [the wife’s] claim may be heard together under the Matrimonial and Family Proceedings Act 1984.’

The wife then applied to the Family Court at Barnet for the financial proceedings to be reallocated to a High Court judge.

The proceedings were transferred to the Central Family Court. At a directions hearing in April 2023, of which the intervenor was not given notice, this final hearing of the wife’s application for financial relief was listed before me, sitting as a s9 Deputy High Court judge.

The wife’s application under section 37 Matrimonial Causes Act 1973 was deemed to be an application for relief pursuant to section 23 of the MFPA 1984, to be heard at the same time as the final hearing. The order provided that, ‘the preliminary issue relating to the intervenor shall be adjudicated upon on the first day of the hearing.’

At the outset of the hearing there remained some confusion as to my task, and in particular what orders the Court was being invited to consider making.

I believe that confusion may stem from some misunderstanding of Master Eastman’s order. His suggestion that the proceedings be transferred to the Family Division of the High Court appears to be on the basis that if the intervenor were to seek to enforce the final charging order by applying for sale of the home, that application should be heard by the same judge as is considering the application for financial remedies. The intervenor has not yet applied to enforce the charging order. Master Eastman was plainly not suggesting that transfer to a judge of the Family Division (or a Circuit Judge with a s9 ticket) opened up the possibility of a Family Court judge making orders to set aside either the judgments made in the King’s Bench Division – the charging order, and the order registering the Nigerian judgment - nor the judgment obtained by the intervenor in the High Court of Nigeria. However, the wife’s legal team appeared to be under this misapprehension.

Section 23 of the MPFA 1984 (mirroring section 37 of the MCA 1973) provides that the Court may set aside or prevent any disposition of property by a party to a marriage where the relevant disposition has been or will be done ‘with the intention of defeating the claim for financial relief’. Defeating a claim for financial relief includes reducing the amount of relief which might be granted.

In general terms, the wife’s case is clear. She says the loan agreement was set up only after the husband and wife’s separation, with the intention only of stripping £1.6 m of assets out of the matrimonial pot, in order to defeat her claim for financial remedy. The loan agreement led to the Nigerian judgment, registered here and then secured by a charging order. This sequence of actions has, she says, effectively transferred £1.6 million of a beneficial interest in the property to the intervenor. The wife’s case is that this transfer was for no consideration, because there never was a loan. She asserts that even if the charging order is enforced by sale of the property, any proceeds would effectively be held by the intervenor on trust for the husband, to be returned to him once the financial remedy proceedings have concluded.

Which of these actions amounts to a disposition that could or should be set aside within the meaning of section 23 of MPFA 1984 is harder to identify.

It is not obvious that there has been a disposition within the meaning of the Act. The intervenor has got a charge on the property, but the property or part of it has not been transferred into the intervenor’s name. Both the intervenor and the husband assert that the husband has a liability to the intervenor that must be taken into account at the final hearing of the application for financial remedies. The charge could just as well have been secured on a property in Nigeria, or some other asset of the husband.

If accepted as a valid debt, the liability must be accounted for, and given that there is no evidence at present of other assets, the family home would require to be sold and the liability met from the proceeds. The outcome of the proceedings would be that money the wife previously thought was available is not, and the asset pool would be greatly reduced compared to what she has contended it should be. That is not the same as there having already been a disposition of the assets within the meaning of section 23.

The wife’s team has not so far been able to formulate her application pursuant to section 23 with any precision.

Despite (i) the lack of clarity about the section 23 application, and (ii) my confidence that I do not have the power to set aside orders made in the King’s Bench Division, let alone orders made in the Courts in Nigeria, I decided I should proceed to deal with the preliminary issue within the Family Court proceedings. The issue is required to be determined before the application for financial remedy can progress further.

The Court needs to determine whether or not the loan agreement is a sham arrangement created after the breakdown of the marriage for the purpose of defeating the claim for financial remedy.

If a finding in line with the wife’s case is made, that the loan agreement is a sham, then consideration will need to be given to the steps that could or should be applied for, whether in the Family Court pursuant to section 23 or otherwise, the King’s Bench Division of the High Court, and/or in Nigeria, to unpick the orders that have been made consequent upon that agreement. Further directions would be required to be made to progress the application for financial remedies to its conclusion.

If a finding in line with the husband’s and intervenor’s case is made, that the loan agreement is genuine and the husband has a continuing liability to his brother, then the application for financial remedy may proceed to final hearing with the asset schedule drawn up to reflect that.

It was not realistic for me to hear evidence, submissions and give a judgment on the preliminary issue in one day.

Focusing only on the preliminary issue, over the course of two days I heard evidence from the wife, husband, and the husband’s brother, considered the written and oral submissions of the advocates, and thereafter prepared this judgment on what was to have been the third day of the hearing.

The burden of proving an allegation falls on the person who asserts it to be true. The standard of proof is a balance of probabilities; disputed allegations only become proven facts if is more probable than not that they occurred.

Findings of fact must be based on the evidence (including inferences that can properly be drawn from the evidence), and not suspicion or speculation.

I must take account of all the evidence and each piece of evidence in the context of all other evidence:

When considering the evidence of the witnesses, I must take care to identify those parts of their evidence which are part of their direct recollection, and those parts of their evidence where they are reporting what someone else has said, and to assess the relative weight of such evidence accordingly.

The evidence of the parties is very important and the Court must be able to form a clear assessment of their credibility and reliability. I further remind myself that credibility alone cannot decide this case and that, if a court concludes that a witness has lied about one matter, it does not follow that he or she has lied about everything.

I remind myself of the direction that, in a criminal case, would be called the ‘Lucas’ direction because it is based on the case of R v Lucas [1981] QB 720. If proved that a person has lied, the Court must analyse the relevance of the lie to the issues in the case. A lie may be in relation to an issue that has no relevance to the real issues before the court. Lies may be told for many reasons. A person may lie out of a sense of shame, misplaced loyalty, humiliation, embarrassment, panic, fear, confusion, emotional pressure, a desire to conceal other misconduct or for many other reasons. I have also been referred to the cases of In Re H-C (Children) [2016] 4 WLR 85 McFarlane LJ and H v City and Council of Swansea and Others [2011] EWCA Civ 195.

The Court should consider how much weight to attach to discrepancies in accounts between witnesses or from one witness at different times. See Re A (A Child) [2020] EWCA Civ 1230 and in Lancashire v R[2013] EWHC 3064 (Fam): per Mostyn J:

Any findings of fact are for the Court to make based on the evidence before it. No weight should be given to the opinions of others about the credibility of a particular witness.

In Bhura v Bhura [2014] EWHC 727 (Fam) Mostyn J reviewed the law concerning sham transactions, and gave the following summary, at paragraph 9:

I note in particular that the burden of proof does not change depending on the severity of the allegation.

I have read the contents of the core bundle and the supplementary bundle. I heard evidence from the wife, the husband and the husband’s brother, who is a director of the intervenor.

I was satisfied that the wife was attempting to give me a true account of her own recollections and understanding of her husband’s financial situation in 2009. However, I was not convinced that her understanding was at all reliable. I find that she herself had not had any involvement in the husband’s business or personal financial arrangements, either in Nigeria or in England.

She told me that she worked in the husband’s guesthouse in Nigeria, and that after their marriage they lived in the small two-bed property that was immediately behind it. Her work was housekeeping and working on reception. She had some involvement in booking rooms and arranging for takings in cash to be collected and banked. There was no evidence that she had any wider management, strategic or financial responsibilities in the business. This puts her at some disadvantage in establishing her claim, because she was not able to give me direct evidence about the husband’s financial position. She is reliant upon the information she says he gave to her. On any view, he does not appear to have shared very much with her. The wife told me that he had shown her financial documents, but she was not able to say what those documents were, or what they proved in support of her claim.

I have been shown a single page undated document on headed with the husband’s name, listing a series of properties said to be in his ownership, comprising two guesthouses, a sales office, and two residential properties let out to tenants. The combined value of these properties is said to be 1.255 billion Naira. On 2009 exchange rates (Mr Holborn helpfully produced a schedule of exchange rates that has been agreed by all representatives) that would equate to £6.6 million. But on the figure I was given for today’s exchange rates that would equate to just under £1.4 million. The husband denies creating this document. I am sceptical about his claim that his letterhead paper had been stolen and this document was a forgery. This claim of theft was made for the first time in the witness box, and has never been alleged before.

But however it came into existence, the document cannot be seen as reliable evidence of the value of the husband’s assets, now or in 2009, or at any time. It is undated and gives no explanation as to who has given the valuations, how they were reached, and for what purpose. Even if it were to be accepted at face value, this document does not tell me the husband had cash available to him to purchase the family home outright in 2009.

The wife said the husband told her he had paid for their family home in London in full, that there was no mortgage, and that he was its sole owner. She was ‘unaware’ of her husband having borrowed any money to fund the purchase. She said she believed he had no need to borrow, because he was a wealthy and influential man in Nigeria, and had run a successful business as a hotelier. I have not been shown evidence to assist me in making findings of his income, savings, assets or borrowing capacity in or around 2009.

The wife’s evidence that the occupancy rate was always one hundred percent in the guesthouse, as well as in the other two hotels owned by the husband, was unconvincing. She said that in 2009 the hotels collectively made two million Naira a day. The parties have researched relevant exchange rates and that would amount to about £10,000 a day, but that figure is not much good to me, firstly because the husband’s evidence was that occupancy was usually between somewhere between thirty and fifty percent, and secondly, because I was given no evidence about running costs, staff and all the other overheads associated with running a hotel.

With the agreement of all parties, the husband gave evidence from Nigeria by video-link. He gave his evidence in a rather florid and grandiose manner, at times finding it hard to contain his emotions. He found it difficult to focus on any particular question, but tended to give long explanations and speeches, protesting his innocence, and expressing his outrage at the accusation of fraud levelled at him by the wife. When taken to various discrepancies or oddities in the documents, and asked to comment or explain, he was quick to dismiss them as trifling issues, not worth troubling about, and did not often address the question directly.

Nonetheless, when it came to giving evidence about his hotel business in Nigeria, and the business he intended to pursue in London, underneath the somewhat dramatic presentation, his evidence was clear and cogent. He was precise and consistent about things like hotel occupancy, room rate, takings, and overheads. He gave clear and consistent evidence about the chronology of the family travelling to London, establishing the UK branch of his Nigerian hotel business [DS] shortly thereafter, buying first the family home and then the property called [the Red House], which he intended to develop into a small airport hotel, similar to that which he had operated in Nigeria.

He described the small two-bed property he and the wife had lived in behind the guesthouse in Nigeria and in which he currently lives. In cross-examination the wife accepted the husband’s characterisation of their standard of living, which was rather different from the life of luxury with servants and drivers that she had described the husband living in written documents for the Court.

The husband’s brother gave his evidence dispassionately and with an air of detachment. He was anxious to stress that his involvement in the case was only commercial. He did not acknowledge or refer to the other parties as his brother and former sister-in-law, and corrected anyone who implied that he was one and the same as the intervenor company. He seemed keen to establish himself at arm’s-length, stressing that it was the intervenor company as a commercial entity that had advanced the loan, and later sought to enforce its payment through the Courts. This is notwithstanding that he and his wife are the only directors of [L].

He wasn’t asked in any detail about the circumstances in which his company was asked to lend his brother £1.6 million, how it was that he and his wife as directors agreed to do so, and why it was that he seemed indifferent to his brother’s failure to repay the loan for some years.

Like his brother, he dismissed any questions put to him about discrepancies in dates, typographical errors on legal documents or apparent anomalies as trivial, and repeatedly blamed his solicitor for any mistakes that may have occurred.

His oral evidence was consistent with his written response to the points of dispute, that the money loaned was made to [DS] in Nigeria, but was for the purpose of funding the purchase and development of a hotel in the UK. He said that when he discovered his brother had in fact used the funds to buy a family home he was angry with his brother. I wasn’t clear from his evidence when he said this was. He gave evidence to me that the lack of this £1.6 million continues to cause him difficulties in his business and he has had to lose staff as a result.

I did not find him a particularly helpful witness, and somewhat evasive. At the same time, there were no significant discrepancies between his oral evidence and his written statement, and his evidence was consistent with that given by his brother (but not to the extent that there were striking similarities that gave the appearance of collusion or coaching). The steps his company has taken to enforce payment of the loan have been scrutinised by the Court in Nigeria and the High Court in London, and the debt judged to be legitimate, (although it is right to note that the wife’s allegation that the loan agreement is a sham was not raised in either proceedings).

I have considered carefully all the evidence I have heard and read.

Some elements of the evidence point towards the loan agreement being a fiction, created only after the husband and wife separated:

The intervenor can be discharged from the proceedings.

This litigation has proceeded for too long and the costs incurred on both sides will surely have become grossly disproportionate to the assets. While I appreciate that my decision will be difficult reading for the wife, I hope that it will enable the parties to narrow the issues between them and resolve the application for financial relief without the need to expend significant further costs at final hearing.

I hope that the parties can agree an order reflecting my decision, and that I can then hand this judgment down in their absence.

I received written submissions from Mr Infield on behalf of the husband on 12 October 2023, from Mr Holborn on behalf of the intervenor on 26 October 2023, Miss Choudhury-Khawaja on 2 November 2023, and then a brief note in reply from Mr Holborn on 3 November 2023.

The respondent husband and the intervenor seek orders that the Applicant wife pays their costs.

Rule 28.1 of the Family Procedure Rules 2010 (FPR 2010) provides that the Court may make such order as to costs as it thinks just. The general rule in financial remedy proceedings is that the court will not make an order requiring one party to pay the costs of another party unless conduct issues arise (FPR 2010, r 28.3(6) and (7)). However, preliminary issue applications are not financial remedy proceedings for the purpose of FPR 2010, r 28.3.

So the starting point in respect of this application is that costs follow the event.

Further, Mr Infield and Mr Holborn say the costs should be payable on the indemnity basis. Mr Infield refers me to the case of Crowther v Crowther and others [2021] 2 FLR 1313. In that case the wife sought to set aside transactions she alleged were a sham, but then settled with the intervenors and withdrew the application shortly before hearing. She was ordered to pay the husband’s and the intervenors costs on an indemnity basis.

Lieven J reviewed the authorities, noting the desirability of consistency of approach across all jurisdictions. At paragraph 32, she cited the cases of Playboy Club London Ltd v Banca Nazionale Del Lavoro spa [2018] EWCA Civ 2025, per Sales LJ at para 46, and Clutterbuck v HSBC [2016] 1 per David Richards at paragraph 16:

Mr Infield and Mr Holborn submit that the wife’s allegations of sham in this case amounted to allegations of fraud. Having made such serious allegations and failed to prove them, it is submitted that costs should be assessed on an indemnity basis, the benefit of any doubts in respect of assessment being resolved in favour of the party in whose favour the costs order has been made.

On behalf of the Applicant, Miss Choudhury-Khawaja does not dispute that the wife should pay the husband’s and the intervenor’s costs. She submits that any order for costs should not be paid until after the conclusion of the financial remedy proceedings, as the wife and children are living in the family home. She opposes any order for a payment on account of costs. She submits that any order for costs should be subject to detailed assessment if not agreed.

Miss Choudhury-Khawaja informs me that an application for permission to appeal my judgment has been made, and asks that this is taken into consideration when considering the date for payment of any costs orders.

I understand that neither the husband nor the intervenor are seeking any payment on account of costs at this time.

It is agreed between the Applicant and the intervenor that if not agreed, the costs should be subject to detailed assessment.

In early correspondence it was suggested that submissions might be made in respect of the enforcement proceedings in which an order for sale may be sought in respect of the family home. I do not have jurisdiction to deal with the enforcement proceedings, and cannot interfere with the charging order that has been made nor order a stay on any order for sale. It would appear that this has been accepted by all parties, as this was not dealt with in written submissions.

Having considered the procedural rules, case law, and the submissions from each of the parties, I will make the following orders:

The starting point is that costs follow the event. Costs should be paid on an indemnity basis because the wife alleged that the relevant transactions were a sham, effectively requiring both the husband and the intervenor to come to Court to defend themselves, and incur costs as a result. In the event, the Court found that the wife had not proved her case. Where there is any doubt in the assessment, in all the circumstances it should be resolved in favour of the receiving parties.

I agree with Mr Holborn’s submissions in respect of the time for payment of the intervenor’s costs. While the continuation of the financial remedy proceedings may well be a good reason to delay any steps taken to enforce a costs order, it is not a good reason to delay the time for payment in the order. It is helpful however that the intervenor has agreed not to seek enforcement of the order at this time.

I do not regard the application for permission to appeal as a good reason to defer the date for payment of costs. I have not been asked to stay execution of my order. It is open to the applicant to seek a stay of execution from the Appellate Court.

I consider that the husband’s costs should not be subject to assessment until after the conclusion of the financial remedy proceedings. In Crowther, the Court was concerned the parties’ business interests which had been hived off to be dealt with as a discrete issue, separate from the financial remedy proceedings. In this case the preliminary issue has concerned the former matrimonial home, which is at the heart of the financial remedy proceedings. There is likely to be some overlap in respect of costs incurred for the preliminary issue and the main case, which will be better identified once those proceedings have ended.

Further, the husband has submitted a schedule for summary assessment. The costs of his current solicitors and counsel’s fees amount to £37,703. There is then a further sum of £170,917 sought in respect of ‘fees to other law firms as instructed by party’. There is no explanation of what any of these fees relate to. Further investigation is required, which is better done through the process of detailed assessment.