The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MRS. JUSTICE ELEANOR KING
Between :
Sharon Joanne Theresa S | Applicant |
- and - | |
Christopher John S | Respondent |
Martin Pointer QC and Justin Warshaw (instructed by Withers and Co) for the Applicant
Jeremy Posnansky QC (of Farrers &Co LLP) for the Respondent
Hearing dates: 31/7/2008
Judgment
Mrs. Justice Eleanor King :
This is a Case Management directions hearing in Ancillary Relief proceedings between S S (W) and C S (H).
W is 58 and H 61. They married on 23 September 1975 and separated in August 2004; this was therefore a marriage of 21 years. There are three adult children: R who is 30, A who is 29 and C who is 27.
W now lives with her new partner. H lives alone although he has a girlfriend.
W issued a Divorce Petition on 3 May 2005 and decree nisi was pronounced on 14 September 2005.
The parties are very wealthy. In late 2005 their total assets amounted to something in the region of £78m. The parties’ cases are conventionally put: H was the wealth creator and W the home maker.
On 29 November 2005 a round table meeting was held in an attempt to resolve the ancillary relief proceedings by agreement.
H’s case is that the decisions made at that meeting and the effect of subsequent negotiations that were necessary in order to refine details, drafting and collateral issues such as tax, amount to a concluded agreement (the ‘agreement’) between the parties. This ‘agreement’ he says has subsequently been implemented in its entirety (save for a modest pension share provision which cannot in law be implemented prior to the making of an order). The result is that W has had assets to the tune of approximately £34m transferred to her or her trusts pursuant to the agreement.
In those circumstances H submits that it does not matter that the final draft order was signed by W but not released to H’s solicitors for reasons which are dealt with below.
W’s case is that whilst there was an agreement that the assets should be divided as to 45% to W and 55% to H, there has not been a concluded agreement and there remain a number of unresolved and significant issues which require resolution via ancillary relief proceedings. Those proceedings can, it is said on her behalf, be dealt with in a somewhat truncated manner due to the agreement between the parties as to the proportions in which the assets were to be split. The outstanding issues will require the trustees of the family settlement to be joined as parties and may require the variation of nuptial settlements.
On 4 February 2008 W filed a Notice of Intention to Proceed with an application for ancillary relief: Form A. In it she indicates her intention to seek all forms of ancillary relief and to vary a nuptial settlement
On 30 April 2008 H issued a Notice to Show Cause why an order should not be made in the terms of a draft order which H says had been agreed between the parties.
The matter came before District Judge Redgrave on 8 May 2008. The District Judge transferred the matter to the High Court and Hmade directions which essentially allowed for either course to be pursued in that she ordered the filing of Forms E and of Questionnaires and Requests for Documents but listed a further directions hearing in the High Court in respect of both the ancillary relief proceedings and the H’s notice to show cause.
So it was that the matter came before the court with H and W each represented by Leading Counsel: Mr Pointer QC for W and Mr Posnansky QC for H.
W seeks to persuade the court to make directions in the ancillary relief proceedings, albeit on a slightly more limited basis than would be normal given the concession made by W as to the proportions in which the assets should be held (although requiring replies to her questionnaire). H submitted that the court should stay the ancillary relief proceedings and hear the notice to show cause, with a view to making an order in the terms he submitted had been agreed. This course would leave open to the court the possibility of reinstating the ancillary relief proceedings in the event that the court was not satisfied that:
i) there was an agreement and
ii) that W should be held to its terms.
The case management decision which the court has to make is to decide which of these two approaches to adopt in giving directions for the future management of the case or whether to adopt either of them in their entirety.
The Legal Framework
The Court of Appeal recently considered case management issues in Crossley v Crossley [2008] 1 FLR 1467 This was an appeal against a case management decision of Mr Justice Bennett, where he had been asked significantly to limit the issues to be litigated at trial on account of the fact that there was one factor of such magnetic importance that it must necessarily dominate the application of s25 and the discretionary process.
In Crossley the Court of Appeal considered how ancillary relief proceedings could best be case managed in circumstances where there is a factor of magnetic importance. In that case it was a pre-nuptial agreement in the context of a 2 year, childless marriage where each party was independently wealthy.
Lord Justice Thorpe said:
“[15] All these cases are fact dependent and this is a quite exceptional case on its facts, but if ever there is to be a paradigm case in which the court will look to the prenuptial agreement as not simply one of the peripheral factors in the case but as a factor of magnetic importance, it seems to me that this is just such a case. As to the second and third grounds, that the judge was bound by the provisions of r 2.61, I am quite un-persuaded, as was the judge, that these individual rules were intended to be some sort of straitjacket precluding sensible case management. I would particularly stress the overriding objectives that govern all these rules, carefully and fully drafted in r 2.51D. It is easy to attach this case on its facts to a number of the objectives there articulated. It is very important that the judge in dealing with the case should seek to save expense. It is very important that he should seek to deal with the case in ways proportionate to the financial position of the parties. It is very important, more so today than it was when these rules were drafted, that he should allot to each case an appropriate share of the court’s resources, taking into account the need to allot resources to other cases. In his general duty of case management he is required to identify the issues at an early date and particularly to regulate the extent of the disclosure of documents and expert evidence so that they are proportionate to the issues in question.”
I bear in mind Lord Justice Thorpe’s observations throughout my consideration of this application.
I have been invited by both Mr Posnansky QC and Mr Pointer QC to look at a number of authorities which relate to cases where there has been an alleged agreement. It is no part of my case management task to decide whether there was in fact an agreement and if so whether W should be held to it. Consideration of the authorities is however, I accept, a necessary backdrop against which to assess the strength of H’s submission that there is an agreement and if there is one, of its importance within the discretionary process upon which the court has to embark in order to achieve a fair outcome to the ancillary relief proceedings.
Mr Pointer submits that:
an application to stay the ancillary relief application is wrong
An application utilising the procedural route of a Notice to Show cause in order to obtain a determination of the status of ‘the agreement’ as a preliminary issue in isolation is wrong.
in any event, there is no concluded agreement in this case and the court’s duty to consider all the s25 circumstances must lead the court to having an ancillary relief trial, albeit truncated as to disclosure, but, significantly, with the court able to make such orders as in its discretion it thinks fit, which orders may be different from those ‘agreed’ between the parties.
In any consideration of the authorities relating to ‘agreements’ the starting point must always be Edgar v Edgar and Lord Justice Ormrod’s classic exposition of the law:
“Under s25(1) it is the duty of the court to have regard to all the circumstances of the case and , in particular, to the matters detailed in paragraphs (a) to (g)………..
To decide what weight should be given in order to reach a just result to a prior agreement not to claim a lump sum, regard must be had to the conduct of both parties, leading up to the prior agreement, and to their subsequent conduct, in consequence of it. It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel, all the circumstances as they affect each of two human beings must be considered in the complex relationships of the marriage. So, the circumstances surrounding the making of the agreement are relevant. Undue pressure by one side, exploitation of a dominant position to secure an unreasonable advantage, inadequate knowledge, possibly bad legal advice, an important change of circumstances, unforeseen or overlooked at the time of the making of the agreement, are all relevant to the question of justice between the parties. Important too is the general proposition that, formal agreements, properly and fairly arrived at with competent legal advice should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement.”
The following propositions drawn from the authorities referred to by Counsel, seem to me to be of particular relevance on the facts of this case:
i) The existence of a concluded agreement is a matter of great weight:
“formal agreements, properly and fairly arrived at with competent legal advice should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement” Edgar
See also X and X (Y and Z Intervening)[2002] 1 FLR 508
“[103] The court will not lightly permit parties who have made an agreement between themselves to depart from it”
Recently in Soulsbury v Soulsbury [2007] EWCA 969; [2008] 1 FLR 90 Lord Justice Ward seemed to go further:
“[45] ……... I accept that if there are negotiations to compromise a claim for ancillary relief, then there is a duty to seek the court’s approval as is stated in Smallman. But as Smallman states, and I do not see how that authority of this court can be ignored by me, even an agreement subject to the approval of the court is binding on the parties to the extent that neither can resile from it.”
It is not necessary for the purposes of this judgment to consider how Lord Justice Ward’s recent observation fits with the body of case law. Its significance for the purposes of the case management decision I have to make is that it is a further example of the importance of agreements in the eyes of the Court of Appeal
ii) The court when considering whether there is an agreement and its effect if there is, does so against the backdrop of 225.
Dean v Dean [1978] 3 All ER 758
“The court must, in performing its duty under s25 in circumstances where there is an agreement between the parties, adopt the broad rather than the particular approach. On the one hand, the court has a duty under s25, but at the same time the court owes a duty to uphold agreements validly arrived at….”
In Xydhias v Xydhias [1999] 1 FLR 683 the Court of Appeal noted that
“An even more singular feature of the transition from compromise to order in ancillary relief proceedings is that the court does not either automatically or invariably grant the application to give the bargain the force of an order. The court conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflect the criteria listed in s 25 of the Matrimonial Causes Act 1973 as amended.” P691
Mr Pointer relies on Smith v Smith[2000] 3 FCR 374 in support of his submission that the issue of an agreement should not be dealt with as a preliminary issue in isolation by way of a Notice to Show cause. Smith v Smith is an example of a case where the court at first instance fell into the trap of considering an agreement as a preliminary issue in isolation without any consideration of the s25 factors. As a consequence an order was made holding a wife to an agreement which singularly failed to meet her basic needs.
Lord Justice Thorpe said: (p381f)
“My greatest criticism of this judgment is one that is perhaps not directed against the judge himself. I believe that the omissions in the judgment are probably the product of the way the case was presented and argued. It seems as if it was almost presented to the judge as a preliminary issue for him to decide whether the existence of the contract in September 1996 disentitled the wife, as a matter of either law or discretion, from an investigation of her statutory claims. That was simply not the judicial function. As Ormrod LJ had made clear first in the unreported case of Brockwell v Brockwell [1975] CA Transcript 468 and then in Edgar, when a wife brings to the court her statutory claims for determination the existence of an earlier contract is only one of the considerations to which the judge must give weight. In the application of the statutory criteria to the case, Ormrod LJ said that it should be brought in under the head of conduct: s 25(2)(f) of the Matrimonial Causes Act 1973.”
I do not take Smith v Smith to be saying that the court must always hear a case as a full blown ancillary relief hearing where there is an alleged agreement, but rather as a trenchant reminder that an agreement forms part of all the circumstances of a case and that, even if such an agreement be found to be of magnetic importance, the court should only ever consider such an agreement against the backdrop of all the s25 factors.
There is no reason why in an appropriate case, the status of an alleged agreement should not be dealt with as a Notice to Show Cause determined against the backdrop of a consideration of the s25 factors. Such an approach is in my judgment, fundamentally different from one where the court embarks on a consideration of evidence as to the existence of an agreement as a preliminary issue, in a vacuum, with no consideration of the surrounding circumstances or s25 factors.
I therefore accept Mr Pointer’s submission to the extent that I agree that it would be wrong to ‘stay’ the ancillary relief proceedings and to list the issue of the agreement as a preliminary issue isolated from a proper consideration of the s25 factors.
I do not accept however that there may not be circumstances in which there is a factor of such magnetic importance that it must necessarily dominate the discretionary process. In such a case the vehicle of a ‘notice to show cause’ can appropriately be regarded as the proportionate and just route by which to determine the extent to which that factor should be determinative of the action.
An application for a Notice to Show Cause is therefore an appropriate means by which an aggrieved party can bring the matter before the court. In Dean v Dean, Xydihias v Xydhias and X and Y (Y and Z Intervening) [2002] 1 FLR 508 such a procedure was adopted. I note also the Court of Appeal’s approach in Crossley where a pre-nuptial contract was the dominant factor.
“[18] this case…. demonstrates the discretionary power of the judge to require a party to show cause why a contractual agreement should not rule the outcome of an ancillary relief claim, not just when the contract is made post-separation and in contemplation of an application, but also when the contract has been made prenuptially or postnuptially before the breakdown of the marriage.”
iv) Public policy requires the court to consider whether there has been an agreement and also to ‘exclude from the trial lists unnecessary litigation’ Xydhias and Crossley
In Xydhias the Court of Appeal said:
“If there is a dispute as to whether the negotiations led to an accord that the process should be abbreviated, the court has discretion in determining whether an accord was reached. In exercising that discretion the court should be astute to discern the antics of a litigant who, having consistently pressed for abbreviation, is seeking to resile and to justify his shift by reliance on some point of detail that was open for determination by the court at its abbreviated hearing. If the court concludes that the parties agreed to settle on terms then it may have to consider whether the terms were vitiated by a factor such as material non-disclosure or tainted by a factor within the parameters set in Edgar v Edgar” p692
“Litigants in ancillary relief proceedings are subjected to great emotional and psychological stresses, particularly as the date of trial approaches. In my opinion there are sound policy reasons supporting the conclusion that the judge is entitled to exercise a broad discretion to determine whether the parties have agreed to settle. The pilot scheme depends on judicial control of the process from start to finish. The court has a clear interest in curbing excessive adversariality and in excluding from trial lists unnecessary litigation. P693”
v) The overriding objective to deal with cases justly, set out in FPR r2.51D, allows judicial case management to seek to save expense and deal with matters in a way that is proportionate to the financial position of the parties and allots an appropriate share of the court’s resources. The FPR 1991 are not intended to be a straightjacket precluding sensible case management. Crossley [para [15],[17].
It is not necessary for every detail to have been resolved prior to the court taking the view that there is an agreement to which a party should be held :Xydhias v Xydhias. The first stage of negotiation, which should then be recorded in a simple heads of agreement, is ‘what is the applicant to receive? (p696a). Points of detail can thereafter be determined by the court at an abbreviated hearing. (p692g)
vii) In determining whether there has been an agreement the court will look at all the circumstances including the extent to which the parties themselves attached importance to the agreement and the extent to which the parties themselves have acted upon it X and X (Y and Z Intervening) [2002] 1 FLR 508
The Procedural Route
Mr Pointer poses three questions which he suggests are key in determining how the matter should be dealt with:
Is there in fact an agreement?
In the event that there was, has there been a change in circumstances such that W should not now be held to the agreement?
If there was an agreement, is it now capable of being implemented in any event?
He submits the evidence in favour of a concluded agreement is scant and there was only a ‘headline’ agreement as to the proportions in which the assets should be divided.
In any event, he says, subsequent changes in circumstance in the intervening period of nearly three years mean that W should no longer be held to the agreement, and even if she should, those same changes mean that it is no longer possible to implement the agreement.
Is there an agreement?
The issue as to whether or not there was an agreement will be decided by the Judge hearing the case in whatever form it ultimately takes. Mr Pointer and Mr Posnansky agree that unless there is a strong arguable case that there was an agreement then the course proposed by Mr Posnansky is inappropriate.
Whilst making no specific findings (and being conscious that the court has not had sight of all the complete files of documentation to which each party may wish to refer in due course), it is necessary for me to consider in broad terms the strength of the argument in favour of there having been an agreement by reference to the history of the agreement and the relevant law.
The first significant event took place on 29 November 2005 when a round table meeting was convened. It is common ground that agreement was reached that W should have 45% of the assets and H 55%. The parties had a schedule of assets produced from information provided by the parties’ joint accountant. The assets were £ 78m.
Of the £78m about £45m was held in the shelter of a trust called the Murray 1987 Settlement. Part of the ‘agreement’ in November 2005 was that a sub- fund would be created in W’s name to be called the S S Fund. W was to be the principal beneficiary of this fund and the three children would be secondary beneficiaries. H was to have no entitlement under the sub-fund and was to be specifically excluded from being a beneficiary. In the event of the death of either party the funds would be merged again for the benefit of the surviving party.
In this way W had access to substantial funds (£22m), from which H was excluded but the important protection from Inheritance Tax provided by the trust would not be lost.
The day after the meeting Mr Alexiou who then represented H, wrote to Mrs Sandra Mason who was then representing W, expressing pleasure that an agreement had been reached and looking forward to receiving Leading Counsel’s draft order.
Those representing W sent through a draft order on 2 December 2005 describing it as “Philip Moor’s draft of the Agreement reached at the meeting on Wednesday” In the letter W’s solicitor raised a number of minor issues expressing the hope that those ‘loose ends’ could be resolved promptly.
A further meeting was held on 17 February 2006 where the draft order was discussed. Present were the parties’ joint accountants Messrs Saffrey Champness and H’s tax adviser from Wedlake Bell. At that meeting Leading Counsel for W referred to the agreement as being ‘inviolable’ with the only changes being in relation to tax matters. It was agreed that Wedlake Bell and the tax counsel already instructed would advise the parties jointly with regard to drafting and tax issues. The aim at the end of the meeting was to have a Consent Order to put before the court by 5 April 2006.
In the ensuing months a Letter of Request was drafted on behalf of H & W by their jointly instructed advisors and was sent to the Trustees of the Murray 1987 Settlement. The Letter of Request asked the trustees to take certain steps; this included carving out the S S sub-fund for W with her as principal beneficiary and H being excluded and also dealt with the parties’ home in B. Mr Pointer takes the point that no signed letter has been produced. The documentation is, it seems to me, in need of some organisation. I do not know whether a signed copy of the document will ultimately be produced but, in my judgment, the most significant point is that W agreed the document upon advice, it was sent to the trustees of the Murray 1987 Settlement who acted on it to W’s benefit and in accordance with the terms ‘agreed’ at the meeting that is to say a sub-fund called the S S Sub-Fund was created with assets of £22m with W designated principal beneficiary and a Deed of Exclusion executed excluding H as a beneficiary of that fund.
The B property, known as T, as envisaged by the draft and the Letter of Request agreed by H & W. was then vested as to one-third in the newly created S S Sub-Fund and two-thirds in the original Murray 1987 Settlement (which was now H’s trust although the children continued to be beneficiaries of both).
By about May 2006 W had received £34,250,000, which according to a Schedule of Assets produced by W’s solicitors, represented 45% of the assets less the pension transfers which could not be put into effect until there was an order.
Unsurprisingly, in a case where the family’s wealth had hitherto been held within tax efficient vehicles, much time was spent on the preparation of a tax indemnity and on the regulation of future tax issues as between the parties.
On 13 June 2007 W’s solicitors sent an amended draft consent order containing amendments proposed by the tax experts. They asked H’s solicitors to ‘confirm that you are satisfied on behalf of C S that this truly represents the terms of the Order agreed and the further agreement reached between us on advice from counsel.”
That amended draft order was drafted on the basis that all the implementation of the ‘agreement’ was yet to take place.
H’s solicitors wrote back saying the amended draft order was ‘in order’ save for costs and in particular the costs of implementation.
On 30 July 2007 it was agreed between the lawyers that the order should be revised so as to reflect the fact that all the significant transactions had already taken place. This meant that the final draft order prepared on behalf the wife is largely a record of those transactions. In terms of proposed court orders that document made provision only for a pension share and the transfer of the benefit of a loan together with the usual clean break provisions, everything else that was necessary to put into effect the agreed division of assets as to 45% to W and 55% to H having already taken place.
On 10 October W’s solicitor sent a letter to those representing H it enclosed a number of documents all of which had been approved by W:
Consent Order
Form M1 for H & W ( W’s unsigned)
Schedule of assets to be annexed to the order
The Deed of Indemnity
Schedule of W’s costs
Pension Annexures (sic)
With regard to the running sore about costs incurred to implement the ‘agreement,’ W’s solicitor proposed to deal with the issue in the following way:
“My client is not prepared to concede a change to the terms agreed on 30 November 2005 in respect of her costs and will rely on this agreement being covered by the ruling in Edgar v Edgar…….. If necessary we may seek directions on this sole issue (incurring further costs) but I trust that your client will abide by his original agreement of 30 November 2005 and allow the matter to be concluded”
From the documents available to the court it would appear that, up to this point within the confines of the inevitable anxiety associated with the resolution of any ancillary relief proceedings great or small, H & W had managed to work co-operatively for what, may, (subject to the determination of the trial judge), seem to have been a common goal.
In the letter of 10 October 2007 came the first hint that discord lay ahead with regard to the B property T. In accordance with the Letter of Request, T, as mentioned above, was now held as to one-third in W’s S S Fund and two thirds in H’s in the Murray 1987 Settlement. In the letter W’s solicitor spoke of the possibility that W might wish to become non-resident from the UK and make T her principal home. To this end Mrs Mason said:
“She would need to do so with the written reassurance of a written undertaking from your client not to enforce any provisions previously agreed enabling either to enforce a sale of the property or buy-out, unless at a time acceptable to her…….. I do not believe we need to refer to it in the Consent Order but simply lodge it with the Trustees.”
It is difficult to see why such a solution was being put forward unless W felt bound by an earlier agreement in relation to T.
In a letter of 12 November Mrs Mason wrote that she held the signed Consent Order subject to T being resolved and the costs issue. For the first time there was a reference to the recently decided case of Charman and the threat that if H did not pay the costs then perhaps there should be ‘full disclosure and adjudication on the merits and recent decisions”
In a final letter from Mrs Mason W agrees to accept £20,000 towards costs but still seeks an undertaking to give the trustees of the two trusts in respect of T saying “this must be resolved by way of written undertaking, signed by your client before she will release the main settlement agreement”
W soon after this letter was sent changed solicitors and returned to Withers who had previously represented her. On 4 February 2007 H’s solicitors received a letter from Withers enclosing a Form A and saying that ‘the previous proposals discussed have been rendered unworkable as a result of the draft Finance Bill’ ….
The reference to the draft Finance Act was in relation to the changes which were to take effect at the end of the tax year which would mean, put simply, that CGT would become payable upon any capital advances made from trusts of the type which were sheltering H & W’s wealth. Tax advisors around the country were advising beneficiaries and trustees and decisions were being made as to whether to retain the Inheritance Tax protection enjoyed by the trusts as they stood (on the basis that future capital advances would attract CGT) or conversely to transfer out substantial amounts of capital before the dead line - free of CGT but with the loss of the Inheritance Tax protection.
H decided to do nothing. He took the view that his wealth was such that it was unlikely he would need to advance capital to himself and he wished to retain his Inheritance Tax protection for his children. W and her advisors decided exactly the opposite to which end a request was made by her to the trustees to advance £11m to her out of the S S Fund. The figure of £11m represented the capital sum which, using the Duxbury model, would produce a lifetime income for W of £500,000 pa net.
Investec, the trustees of the Trust, decided that they did not wish to advance such a significant sum but proposed a much smaller sum of £1m to £2m. The children as beneficiaries were consulted. R wrote to the trustees on behalf of himself and his two sisters; their collective view was that the interests of all the beneficiaries would be best served if the assets remained in trust rather than being advanced and that they felt T was not the right house for their mother given its size and the cost of running it and that should their mother’s trust buy out their father’s trust’s share it would represent too great a proportion of the trust in one asset.
“As a result of the impasse that this created the matter went before the court in Jersey where the trusts are based. The children understandably took a neutral stance. Judgment was given on 3 April 2007. The commissioners in giving the history recorded
“…they [H & W] reached an agreement as to how their assets should be divided, namely 55% for CS and 45% for SS. Pursuant to this agreement they asked Investec (the trustees) to consider creating a new revocable sub-fund for the benefit of SS and their children and remoter issue to be known as the SS Fund appointing to it assets valued at just over £22m.””
The Jersey court found in W’s favour and ordered the funds sought to be advanced to W, expressing their view that the trustees’ concern about these proceedings (i.e. the ancillary relief proceedings) and their potential impact on H lay at the heart of their refusal to act on the express wishes of W.
The tax planning put in place by W’s advisors necessitated the ‘rump’ of assets in the S S Fund (being about £8m and the 1/3 interest in T)to be transferred out of the S S Fund and into a newly created S S 2008 Trust. The drafting of the new Trust was in the hands of W’s solicitors but necessitated discussion with the children. Whereas W had pursuant to the implemented ‘agreement’ been the principal beneficiary of the S S Fund that is not case so far as the S S 2008 Trust is concerned.
W says (although no documentary evidence is as yet available to support it), that this is as a consequence of the children’s refusal to agree that their mother should be principal beneficiary with the ability to request that the balance of the capital in the trust be advanced to her. Her case is that the children’s decision was made as a consequence of pressure put on them by H.
Looking at the history as set out above and the authorities it seems to me that H has a very strong case to support his assertion that there was a concluded agreement:
W does not seek to go behind the 45/55 split agreed at the meeting in November 2005
The agreement involving complex tax and trust provisions was implemented save for the minor issue of a pension share which could not be implemented prior to the making of an order
H gave and W received £34m in reliance on the agreement
W appeared to have regarded herself as bound by the ‘agreement’ certainly so far as T was concerned
W subsequently took independent advice and decided to move on from the structure created under the terms of the agreement and thereafter litigated in the Jersey courts in order to achieve her fiscal goals.
Change of circumstances
Mr Pointer argues that, where nearly three years has elapsed since what he described as the ‘headline agreement’ took place; that agreement can no longer be wholly determinative due to the inevitable changes in circumstances. This, he submits means that there should be ancillary relief proceedings circumscribed by the extent of disclosure but not otherwise. I cannot agree with that proposition where the relevant time lapse should not, in my judgment, be November 2005 to date but rather should be calculated from the last occasion upon which the wife was seen to be relying on the terms of the ‘agreement’. In this case that was as recently as 10 October 2007, only 4 months before a Form A was filed on her behalf.
If it be found that there was an agreement, (agreed between the parties after a panoply of advice and which agreement has substantially been put into effect), then providing the s25 factors have been considered, why should anything less than a change in circumstances comparable to that which would be necessary to launch a Barder v Barder [1987] 2 FLR 480application be required?
Mr Pointer has referred me to a first instance decision: Beach v Beach [1995] 2 FLR 160 in support of his submission that where there is a change in circumstances the case is no longer an “Edgar” case and that the agreement is merely part of the developing history. I do not find Beach of assistance. Beach was wholly different on its facts. Beach concerned a husband who went bankrupt after the agreement was made with his wife; this resulted in the family farm, the only significant asset, being sold by the trustee in bankruptcy for a fraction of the sum which it had been anticipated by both parties would be available for distribution.
I do not therefore agree that there are changes of circumstances which would inevitably lead a court to conclude that the original ‘agreement’ cannot stand.
Ability to implement the agreement
Mr Pointer raises a number matters which he submits mean that there are significant issues to be tried in any event and there should therefore be one single ancillary relief trial rather than piecemeal litigation. Circumstances are such and issues have arisen, he says, that render it impossible to implement the ‘agreement’ even if the court finds there to have been one. It is therefore necessary for me to consider each issue briefly prior to making my decision as to how the case should be managed.
Split of the Murray Trust
Mr Pointer submits that there is a major issue as to whether W is to be regarded as the primary beneficiary of her new trust the 2008 S S Trust, (representing the rump of £8m + 1/3 T after the payment out of the £11m from the S S Fund). If she is not to have access to the capital as the principal beneficiary then he suggests, there may need to be a nuptial variation to ‘restore’ the division of assets. The original objective, he suggests, has not been achieved as a consequence of the children refusing to agree to the new trust (drafted to set up the S S 2008 Trust) containing the same provision as the original S S Fund whereby W was to be regarded as the principal beneficiary.
This is an argument which, if the court finds there to have been an agreement, Mr Pointer can, if he so wishes, advance as a reason for the court not to hold W to the agreement. I do not take the view that it is an argument which is likely to lead a court to conclude that the ‘agreement’ should be varied:
The original objective was achieved: the S S Fund sub trust was carved out of the Murray 1987 Settlement, and made W the principal beneficiary. W thereafter utilised her position as principal beneficiary to obtain an advance out of the trust into her exclusive control of half the assets of £11m, thus putting that sum out of the reach of the other beneficiaries, her children. W would not have been able to accomplish this other than in reliance on the implemented ‘agreement’.
It was surely entirely foreseeable that one of the possible consequences of such an action on the part of W, (particularly in the light of Richard’s letter) was that the children might say ‘enough is enough’. This is not in any way to criticise the actions of W who acted on tax and legal advice and, post the implementation of the ‘agreement’, was entitled to act as she felt to be in her own best interests. There is however in my judgment, a strong argument that W’s loss of position as principal beneficiary was not as a consequence of the original agreement being incapable of being implemented by virtue of the children’s attitude, but as a consequence of the action W took subsequent to the implementation of the ‘agreement’ to advance to herself a very substantial capital sum and to put in place in lieu of the sub-fund created in 2006 the new 2008 trust.
Had W chosen to keep the assets under the umbrella of the S S Fund she would have remained the principal beneficiary of that Fund for her lifetime, held the assets in an Inheritance Tax free vehicle and in the event of H predeceasing her, would have become principal beneficiary of the entire remerged Settlement. W and her advisors knowing the terms of the S S Fund and in reliance on her designation as principal beneficiary, decided that the assets should be transferred out of the S S Fund sub trust in order to achieve tax free gains and provide W with significant assets outside the trust. Whilst W may have hoped, or even presumed, that the other beneficiaries would agree to her again being designated principal beneficiary in the new trust, it is hard to see why their refusal would lead a court to say that W should now be compensated by H for that consequence any more than he should compensate her for any of the other consequences of obtaining the capital advance.
In effect the trusts have moved beyond the agreement at the W’s instigation. The W finds herself in the present situation as a consequence of her own actions carried out by her subsequent to and in reliance upon the implementation of the terms of the ‘agreement’.
T
Mr Pointer wishes to revisit the way in which T is held. He says the Letter of Request was never executed and therefore there is no agreement about the property and further if W is not to be the principal beneficiary of her new trust the beneficial interest in T may have to be varied to give W 45% of the ‘free assets’.
In her Form E W seeks the transfer of the two thirds held by H’s settlement citing a breakdown in the arrangements for its shared use. but; The Letter of Request was drafted on behalf of both parties and has been the backdrop for the implementation of the ‘agreement’ at every stage. It was in reliance on that document that the S S Fund was carved out and that one third of the beneficial interest in T was allocated to the Fund. In the muddle of documentation in this case it is not clear if the Letter of Request was formally executed. What is of more significance is that both sides have acted in accordance with its provisions since the early part of 2006.
The Letter of Request makes specific arrangements to deal with any dispute about T by either party being allowed to ask the trustees to sell the property.
W herself seems to have regarded the ‘agreement’ and the Letter of Request as binding upon her as in October 2007 when she was contemplating going off shore
Material Non Disclosure
This issue is raised by W in her Form E where she says in bald terms that she is ‘not sure’ that the Respondent has made full and frank disclosure of his financial circumstances.
All the original disclosure was provided by the parties’ joint accountant David Watson. In addition W employed the international private enquiry agents Kroll Associates to investigate H and his financial affairs on her behalf.
Mr Pointer does not advance non-disclosure with any enthusiasm saying there should be ‘some investigation’ and that W’s team need to ‘decide whether to proceed’ with that aspect.
The two matters W seems to rely upon are:
a) An assertion that H told Mrs Mason (W’s solicitor who was a personal friend of both parties) that he was worth £140m. H says through Mr Posnansky and in his statement that at the time of the dot.com boom he was worth such a sum but that he did not tell Mrs Mason that he was worth that in 2004. Even if H did say something to that effect to Mrs Mason she thereafter represented W with the benefit of that knowledge; she had disclosure from accountants and private investigators looking into H’s business affairs; it was never suggested there was non-disclosure on H’s part and the round table meeting in November 2005 proceeded on the basis of an agreed, or largely agreed, schedule of assets.
b) H has on one occasion used code names for himself and his wife. Mr Pointer says the motivation is ‘obscure’ but Mrs Mason raised a question about this and on 11 November 2005 Mr Alexiou replied explaining why. This was seemingly accepted by W at the time and has only been raised as an issue nearly three years later.
At present there is scant, if any evidence of material non-disclosure on H’s part.
Financial Misconduct on H’s part
W seeks to assert that H has been guilty of financial misconduct in that he has in some way mismanaged the manner in which she gave up her US citizenship with the consequence that she is now liable to pay very significant sums by way of back tax. This, she says is financial misconduct which it would be inequitable to disregard and H should be wholly responsible for all the tax due together with the cost of her professional advisors. W says that H managed her financial affairs (which is unsurprising and undoubtedly true) and that he would not allow her to conduct her own affairs. In the time available at the directions hearing only the most superficial information was put before the court but it should be noted that tax was dealt with specifically in the draft order and also within a detailed Tax Indemnity prepared on joint instructions. The indemnity was presented as an agreed document by Mrs Mason in her letter of 10 October 2007.
W now, it seems, wishes to go behind these documents and launch what would be a costly and extremely unpleasant financial misconduct case.
Mr Pointer concedes that a court may well take the view that the tax should be split in the same proportions as the assets.
K
Within the M Settlement is a range of private equity investments which for tax reasons are owned by the M 1987 Settlement via a separate limited company called K
W’s case is that whilst shares in K were allocated as between the Murray 1987 Settlement and the SS Fund, no proper segregation has been achieved.
Attempts to obtain information about this from H have failed which has no doubt caused frustration and created suspicion in W’s camp. W, Mr Pointer says, therefore needs orders to obtain the information in order to see what would be a fair division of the K shares to achieve a 45/55 split.
Mr Posnansky draws the court’s attention to W’s Form E where she refers to assets of £8m being transferred to the SS Trust on 5 April 2008 that seems to suggest that, even if the shares were not in fact divided whilst they were held in the Murray 1987 Trust and W’s SS Fund, they were in fact divided on the creation of the SS Trust in April 2008.
I cannot see how this issue is other than a matter for implementation where W is not seeking to upset the percentage to which each should be entitled. In the event that W’s advisors feel that the Trustees are favouring H over W in the allocation of any shares she can go to the Jersey courts to achieve her objective, as she did successfully in April 2008.
Conclusion:
i) In my judgment there is a very strong case to suggest that there was a concluded agreement which has been implemented by both parties.
ii) I think it unlikely that a court would find the unresolved issue as to how the costs of implementing that agreement were to be paid as going to the heart of the agreement; indeed those representing W clearly shared that view as evidenced in the letter of 10 October 2007 where they emphasised that the agreement was subject to the Edgar principles and that any issue of costs could be dealt with by the court as a discrete issue.
iii) None of the issues raised by Mr Pointer strikes me at this stage as undermining the fundamental significance of the ‘agreement,’ if it exists. If the court finds there to have been an agreement upon which both parties have relied for nearly three years and which has been implemented in its entirety save for the pension share (which is stalled only until the making of an order), then the combination of those factors gives rise to a strong argument that a possible result of the s25 exercise will be that the W receives no further financial reward and that an order should be made in the terms sought by H.
iv) I also bear in mind the following :
(a) that the assets are in excess of £75m and that W discloses assets in her name of £28m net which excludes her interest in the S S Trust which she puts at £8 excluding the one third interest in T. W has the advantage of an income of in excess of £400,000pa net and a high degree of liquidity; she has £4m in the bank and £15m in two share portfolios; conversely the majority of H’s substantial resources’ are held largely in trust.
(b) that W has incurred costs of £243,876 between November 2007 when the Form A was issued and August 2008 (to what is, in effect, an adjourned First Appointment). This figure does not include the Jersey litigation, her immigration lawyers fees and has involved no extensive disclosure/investigation in the ancillary relief proceedings. F’s costs for a similar period amount to £91,430.
(c) Mr Pointer suggests that the ancillary relief hearing can be completed in 5 days; Mr Posnansky takes issue with that time estimate. I agree with Mr Posnansky. In my opinion 5 days is a hopeless underestimate even if W does not seeks to suggest there has been any non-disclosure. On W’s case the trustees are to be joined as parties and she is seeking to suggest financial mismanagement on the part of H; such allegations inevitably take up significant court time.
(d) the litigation is taking a significant toll on this family: The adult children are distressed and feel they have been sucked into their parents’ affairs. They, or some of them, have fallen out with their mother over the S S 2008 Trust issue. W feels H is influencing her children against her. H for his part thinks W is being greedy, by contemplating further capital advances from the trust in which their children are beneficiaries. W says in her Form E that she is suffering from depression and, having seen her in court, I can well believe it; she looked tense and at times near to tears during the hearing.
Looking at the fourth factor alone must, in the light of the judgment of Lord Justice Thorpe in Crossley, surely give any court pause to consider whether it is proportionate to sanction an expensive and lengthy trial.
In all the circumstances I have unhesitatingly concluded that this is one of that category of cases identified by Lord Justice Thorpe in Crossley v Crossley where there is a factor of such magnetic importance that it must necessarily dominate the discretionary process. I do not stay or adjourn the ancillary relief proceedings as the agreement must be considered in the context of s25 although I propose to order that the Notice to Show cause is to be determined at the next hearing and intend also to limit any additional disclosure as set out in my proposed directions:
Directions
The matter is to be listed for final hearing of W’s application for ancillary relief with a time estimate of 3 days on the first available date after 1 December 2008 subject to Counsel’s availability. There shall be no further disclosure save as provided by the order and the court at the hearing will determine H’s application for a notice to show cause why an order should not be made in the terms of the draft order submitted on his behalf
Neither side shall reply to the questionnaires filed herein
Solicitors for H & W will identify, agree, file and serve as a discrete bundle copies of the final versions (signed and/or executed where available) of each of the following:
The draft order attached to Mrs Sandra Mason’s letter of 10 October 2007
The Letter of Request
The Tax indemnity
H & W’s forms M1
The parties shall file and serve a report from CC and JS of SC setting out how the investments in K held by the M 1987 Settlement as of November 2005 have been held from November 2005 to date setting out in detail any transfers or apportionment between the Murray 1987 Settlement and either the S S Fund or S S Trust. In the event that transfers between the M 1987 Settlement and the S S Trust 2008 are anticipated details of the proposed transfers should be set out.
For the avoidance of doubt the purpose of ordering the provision of this information is to ascertain whether there has been a separation as opposed to an apportionment of the K assets and it is not intended that the detailed information sought by W in her questionnaire should be provided.
On or before 4.00pm on 3 October 2008 W shall, if so advised, file and serve a Scott schedule setting out in detail each and every allegation made by her of H’s alleged non disclosure and financial misconduct together with the evidence in support of each allegation and in default be debarred from raising those issues at trial.
H shall respond to the said Schedule on or before 4.00pm 31 October 2008
Costs reserved to the final hearing