THOMAS V THOMAS ET AL:
JUDICIOUS ENCOURAGEMENT, IMPROPER PRESSURE OR DEMANDING MONEY WITH
MENACES?
1.
Each subparagraph of Matrimonial Causes Act 1973 s.25(2) is equal. But when we are
actually thinking about a case we have to start somewhere, and even if only in terms of
practicalities the first port of call is “the income…, property and other financial resources
which each of the parties to the marriage has or is likely to have in the foreseeable future”.
Certainly logically, before deciding how to redistribute the parties’ resources, an assessment
needs to be made of what they actually are, or are likely (in the future) to be. Entirely
coincidentally, that is also the first item in the s. 25(2) list.
2.
This approach of quantification first, then distribution is that espouses by the Court of
Appeal in Charman v Charman No 4 [2007] 1 FLR 1246
3.
Actual full ownership is of course not everything in assessing resources. The very essence of
a properly constituted trust (and in this lecture I will be referring to discretionary trusts in
the main) is of course to remove/separate legal ownership from those who could or may
expect or hope to personally benefit from the asset in question.
4.
Nuptial trusts the court effectively treats exactly as if they were the owned by the parties,
insofar as it has power to make orders directly against them and their assets. However, nonnuptial trusts, are that most frustrating of beast to a family judge: something they cannot put
in one or other party’s column on an asset schedule, and then do with as they will. They
have no power whatsoever to deal with the assets of such a trust or infringe them directly.
How then are they “bought into account”?
5.
It was as long ago as 1945, that the Court of Appeal first determined where to draw the line.
6.
In Howard v Howard [1945] P 1, the Court of Appeal were considering a periodical
payments order of £100 p.a., after payment of which left the husband with just £50 p.a. from
his own income. He was one of the discretionary beneficiaries of a valuable family trust, of
which the had told him that he would receive nothing from them, at least for a substantial
time. The court of appeal enquired how it was that the wife received 2/3rds of the husband’s
income.
“‘[Counsel] informed the court that seemingly the basis of the judge’s
decision was that he took the view that if he made an order of this kind the
effect would be to bring pressure on the trustees to make to the husband an
allowance out of the settlement income. If that was the object of this order,
it was, in my opinion, entirely wrong in principle. Trustees who have a
discretion are bound to exercise it, and if they do so nobody can interfere
with it. In my opinion there is no jurisdiction in the Divorce Court to make
an order which will leave the husband in a state of starvation (to use rather
picturesque language) with a view to putting pressure on trustees to
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exercise their discretion in a way which they would not have exercised it but
for that pressure … What has to be looked at is the means of husband, and
by ‘means’ is meant what he is in fact getting or can fairly be assumed to
be likely to get. I must not be misunderstood. It is, of course, legitimate (as
was done in this case) to treat a voluntary allowance as something which
the court can, in proper circumstances, infer will be likely to continue and
make an order on that basis.’
7.
Thus, Thomas v Thomas [1995] 2 FLR 68 (CA) should have been, therefore, a fairly easy
case. It is worth noting in this case there was no trust. The court was concerned with a
company. H did not control the company in practice and could not rely upon receipt of, its
assets or income as of right. It did not even involve a ‘one-man company’, but a family
company, and while H was the majority shareholder and joint managing director, his
majority extended only to 50.05% (so he would have needed support for a special
resolution), he was not the only director, and the company could not be described as simply
“his”. The issue (for these purposes) arose in relation to the provision of security for H’s
indebtedness, and in particular to H’s income, for although the business was successful, it
had always maintained a policy of ploughing back profits and paying relatively modest
salaries to the directors (while at the same time making very generous provision for them by
way of pension contributions).
“In the Nottingham County Court on 1 November 1994 his Honour Judge
Heald dealt with those difficulties firmly…in regard to income, he made an
order for payment to the wife of periodic maintenance for the children at a
figure which left the husband facing a deficiency of income after meeting
expenses which included the cost of educating the children at private
schools - the view being expressed by the judge that the deficiency was one
which the husband could and should make good by procuring changes by
the company in its policy towards the payment of dividends and/or the
remuneration of its management.”
8.
H appealed. He met Waite LJ, who said (p.670):
“The discretionary powers conferred on the court by the amended ss 2325A of the Matrimonial Causes Act 1973 to redistribute the assets of
spouses are almost limitless. That represents an acknowledgement by
Parliament that if justice is to be achieved between spouses at divorce the
court must be equipped, in a society where the forms of wealth-holding
are diverse and often sophisticated, to penetrate outer forms and get to the
heart of ownership. For their part, the judges who administer this
jurisdiction have traditionally accepted the Shakespearean principle that ‘it
is excellent to have a giant’s strength but tyrannous to use it like a giant’.
The precise boundaries of that judicial self-restraint have never been
rigidly defined - nor could they be, if the jurisdiction is to retain its
flexibility. But certain principles emerge from the authorities. One is that
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the court is not obliged to limit its orders exclusively to resources of
capital or income which are shown actually to exist. The availability of
unidentified resources may, for example, be inferred from a spouse’s
expenditure or style of living, or from his inability or unwillingness to allow
the complexity of his affairs to be penetrated with the precision necessary to
ascertain his actual wealth or the degree of liquidity of his assets. Another
is that where a spouse enjoys access to wealth but no absolute entitlement
to it (as in the case, for example, of a beneficiary under a discretionary
trust or someone who is dependent on the generosity of a relative), the
court will not act in direct invasion of the rights of, or usurp the discretion
exercisable by, a third party. Nor will it put upon a third party undue
pressure to act in a way which will enhance the means of the maintaining
spouse. This does not, however, mean that the court acts in total disregard
of the potential availability of wealth from sources owned or administered
by others. There will be occasions when it becomes permissible for a
judge deliberately to frame his orders in a form which affords judicious
encouragement to third parties to provide the maintaining spouse with the
means to comply with the court’s view of the justice of the case. There are
bound to be instances where the boundary between improper pressure and
judicious encouragement proves to be a fine one, and it will require
attention to the particular circumstances of each case to see whether it has
been crossed.
9.
The boundary was determined not to have been encroached. H was not left destitute, and the
deficiency in his income (over expenditure) would endure only while he was paying for the
children’s education.
“The judge’s order certainly involved a powerful inducement to the
extended family to come to the husband’s assistance, but the provision of
that incentive fell, in my judgment, within the bounds of judicious
encouragement and lay well short of the kind of order that is condemned in
the authorities as placing improper or undue pressure on third parties.”
10.
Glidewell LJ in dealing with Thomas, referred to three cases since Howard: O’D v O’D
[1976] Fam 83, B v B (1982) 3 FLR 298 and Browne v Browne [1989] 1 FLR 291, and
said (p. 677-8)
“From these authorities I derive the following principles:
(a) Where a husband can only raise further capital, or additional
income, as the result of a decision made at the discretion of trustees, the
court should not put improper pressure on the trustees to exercise that
discretion for the benefit of the wife.
(b) The court should not, however, be ‘misled by appearances’; it
should ‘look at the reality of the situation’.
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(c) If on the balance of probability the evidence shows that, if trustees
exercised their discretion to release more capital or income to a
husband, the interests of the trust or of other beneficiaries would not
be appreciably damaged, the court can assume that a genuine request
for the exercise of such discretion would probably be met by a
favourable response. In that situation if the court decides that it would
be reasonable for a husband to seek to persuade trustees to release more
capital or income to him to enable him to make proper financial
provision for his children and his former wife, the court would not in so
deciding be putting improper pressure on the trustees.
In relation to the facts of the present case, I would apply these principles to
the family company as if it were a trust, and the shareholders (the husband,
his mother and brother) the trustees.
On that basis, the judge was in my judgment entitled to reach the
conclusion he did. I note in particular the passage in his judgment where
he said:
‘... the financial adviser to the company did seem to indicate that the
company had been run in this way because it was the decision of the
family rather than that it was the advice of the financial advisers. It
seems to me that the respondent has got to a stage in his life where he
has to consider what is in the best financial interest of his children
over the next 10 years and try to convince his co-directors and
shareholders that that interest is also the interest of the company.’
11.
So we must look to “realities”. O’D v O’D was about the true value to the husband of an
hotel business, but Browne v Browne had been an easy example of a “realities” case.
12.
W was (on the available evidence) the sole beneficiary of two offshore trusts holding assets
derived from her mother and grandmother. Butler-Sloss LJ said that
“In considering whether or not, as the judge found, she had effective
control over these trusts, it is of some relevance to note that, prior to the
divorce and parting of the husband and wife, every application by the wife
for funds for herself and for her husband for any of the pursuits that they
wished to engage in, pleasure as well as the buying of property, was met
and the sums asked for were advanced at the request of the wife. Although,
perhaps, the phrase 'effective control' might more appropriately be
expressed as 'immediate access to the funds', in my judgment, the judge
was entirely justified in coming to the conclusion as at 6 February that
every request had been granted and that she was in a position to ask for
money and to have it paid, and there was nothing to show that the trustees
would not do so.”
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13.
The fact that during the proceedings, in contrast to what went before them, the trustees had
not done as she asked was not too surprising, since she had made it clear to them during the
case that she was “not at all anxious” that they should pay out, and she had also made it
pretty clear that she held a dim view of H, so that the trustees did not want funds going to
him.
14.
Her Ladyship continued:
“One has, of course, to bear in mind that these are trusts and it would be
wrong to put pressure upon discretionary trustees to act in a way which
was not in accordance with the discretion which they have. Nevertheless,
one has to look at reality, and I would like to refer briefly to Milburn v
Milburn (3 October 1979), an unreported decision of this court, and to the
judgment of Roskill LJ in which, in looking at the position of trusts, he said:
‘'The whole purpose of this modern legislation is to enable a
court to look at the reality of a particular situation. The reality at
present is that there are these vast capital assets in Switzerland
and Lichtenstein to which the husband has no legal or equitable
title, but from which from time to time money can be, and on a
balance of probabilities will be, made available if the necessity
arises for purposes discharging such obligations as making
periodical payments under an order of this court.’”
15.
B v B had not been much harder, with a trust from which W was entitled to withdraw
everything with the trustees’ consent. One of the trustees gave evidence that he would not
consent. The Court of Appeal did not have much trouble with that. The trustee was W’s
matrimonial solicitor!
16.
It might strike one however, when looking at these cases that there is an immediate tension
between (a) “the reality”; and (b) the reality the court might try (newly) to bring about by
use of judicious encouragement.
17.
In J v V (Disclosure: Offshore Corporations) [2004] 1 F.L.R. 1042, Coleridge J found little
difficulty in attributing to H the assets of “a Liberian (bearer share) company, E Corp,
registered in Monrovia which owns the former matrimonial home, a large house in
Surrey...a Liberian company called PER Ltd which owns a flat in London... a Gibraltarian
company…owned by a Liberian company… Between them they own an 85ft motor
yacht…moored for most of the time in Naples”, all things treated by H as his during the
marriage. Coleridge J noted that:
Sophisticated offshore structures are very familiar nowadays to the
judiciary trying ancillary relief proceedings and do not impress, intimidate
or fool them or anyone else.
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18.
On the other hand, in A v A and St Georges Trustees [2007] 2 FLR 467 Munby J said that
however:
“…even in the Family Division, a spouse who seeks to extend her claim
for ancillary relief to assets which appear to be in the hands of someone
other than her husband must identify, and by reference to established
principle, some proper basis for doing so. The court cannot grant relief
merely because the husband’s arrangements appear to be artificial or even
‘dodgy’… the typical case in the Family Division may differ from the typical
case in (say) the Chancery Division. But what it is important to appreciate
(and too often, I fear, is not appreciated at least in this Division) is that the
relevant legal principles which have to be applied are precisely the same in
this Division as in the other two Divisions.”.
19.
Charman v Charman is now a key starting point in considering “realities”. In Charman,
the husband had difficulties in the way of arguing that the Dragon Trust should not be
treated as effectively “his” (or rather it would be handed to him if he asked) given the terms
of letters of wishes relating to it
“31. By two provisions of the Deed, the husband went out of his way to
empower the trustees to benefit one beneficiary at the expense of the others.
By clause 5(e) he provided that, in exercising their powers in favour of one
beneficiary, the trustees could “ignore entirely the interests or
expectations” of any of the others; and, repetitiously, by clause 12(a), he
provided that the trustees could exercise their powers for the benefit of one
beneficiary “without being obliged to consider the interests of the …
others”.
The husband’s [original] letter of wishes to the trustee…was expressed as
follows:
“…Insofar as is consistent with the terms of the Settlement I wish to have
the fullest possible access to the capital and income of the Settlement
including the possibility of investing the entire Fund in business ventures
undertaken by me…”
In 2004, after it had been replaced by Codan, the second Jersey trust
company wrote:
“throughout the whole of our trusteeship of the Trust, we held the
income of the Trust for [the husband] absolutely and regarded the Trust
as an interest-in-possession trust.”
…after the breakdown of the marriage…the husband wrote a fresh letter of
wishes... The main change was that he excised the request…that, following
his death, the trust should be administered primarily for the benefit of the
wife. He wrote:
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“During my lifetime, I would like you to treat me as the primary
beneficiary”
20.
It is important to note in this regard, that the clauses first referred in the above quote
permitting the trustees not to “balance” up the interests of beneficiaries were seized upon the
Court of Appeal in the later case of Whaley, also a case in which the court found that the
trustees did and would do whatever the husband asked of them.
21.
But matters are not necessarily so clear. Where a judgment has to be made by the court as to
whether, on the balance of probabilities, trustees will make funds available to their
beneficiary, the views of the trustees themselves (if they are not H’s solicitor, it seems) are
potentially of importance.
22.
It is perhaps not surprising that trustees very often attempt to keep as low a profile as
possible when assets in their trusts come under the scrutiny of the divorce courts. This is not
necessarily helpful. In an unreported case in 2008, Moylan J said this:
“Neither party has applied to join the Trustees and they also decided that
they would not participate in these proceedings. I can well understand why
the Trustees might decide not to seek to become a party to these proceedings
but it is less clear to me why, in the circumstances of this case, they should
have decided not to assist this court by providing direct evidence and,
perhaps, participating as a witness. I say this because it is not entirely
clear to me why it was decided that it was not in the interests of [the Trust]
(and this family who consist of all the actual/potential beneficiaries) for
information to be provided to assist this court in determining the extent to
which, if at all, the assets in [the Trust] should be regarded as being
available to the Husband.
Following the First Appointment, the Husband’s Solicitors wrote to Mr E
requesting the assistance of the Trustees in the provision of information and
documents as requested by Wife in her questionnaire. Advocates, instructed
by the Trustees in the Isle of Man, responded on their behalf by letter dated
7th July 2006, as follows:
“I have advised (Mr E) that as neither of the two parties … are
beneficiaries of the Trust, the Trustees are placed in a very difficult
position as anything they are required to do has got to be for the benefit
of all the Beneficiaries. The Beneficiaries …, as you are aware, are the
children (of the parties) and therefore there could be a dilution of the
assets of the Trust if the Family Division of the High Court … does
what it normally does in relation to trusts and that is drive a horse and
cart through them …
23.
Having considered Thomas v Thomas, he continued:
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“ I disagree with the description that the court, when exercising its
discretion and powers in this way, would be driving a “horse and cart”
through a trust. As Munby J identified in A v A [2007] 2 FLR 467, whilst
the court will adopt a robust, questioning approach, this does not mean that
“the court can simply ride roughshod over established principle, least of all
where there are … third party interests”.
In that case the trustees
intervened in the proceedings and, by doing so, clearly gave very
considerable assistance to the court when reaching its decision. I am
deprived of such assistance in this case. The result is that I am compelled
to make my decision based on limited evidence, namely the evidence
available to me, rather than by reference to all the evidence which could be
given on this issue, in particular from the Trustees. As explained below, I
am satisfied that a clear picture emerges from the evidence given in these
proceedings. However, there is no doubt that it would have been better if
the Trustees had been willing to engage actively in assisting this court with
the provision of evidence, especially when all the named beneficiaries (and,
if I include the Husband and the Wife, all those who could possibly be
considered potentially to be beneficiaries) expressly requested the Trustees
to co-operate fully with this court.
…
As a general point, trustees must consider whether co-operation with this
court is in the interests of their trust. However cautiously the court
approaches the statutory task, there must be an increased risk that the court
will obtain the wrong picture in the absence of all the information. It is
difficult to see why trustees should consider it in a trust’s interests for this
court to obtain an inaccurate picture.
24.
On this point Moylan H and Mostyn J are in agreement. In BJ v MJ (supra) Mostyn J
was also keen indeed to emphasise the importance of trustees attendance. At §18
Of course, the court is not making a judgment about facts which have
happened; it is making a judgment about the likelihood of the eventuation of
future facts. It is undertaking the task specifically set for it by Parliament in
s 25(2)(a) to the Matrimonial Causes Act 1973 (MCA) of judging what
resources the party in question ‘is likely to have in the foreseeable future'. It
will make its judgment on the available evidence, which will include
evidence deriving from the trustees. If the trustees have refused to
participate meaningfully or helpfully in the inquiry then neither they nor
their beneficiary can complain if the court draws robust conclusions as to
the likelihood of future benefit. In Whaley v Whaley, as it happens, I
conducted the pre-trial review and recorded in the preamble to the order a
recital expressing the court's expectation that the principal trustee, Mr
Hess, attend in person to give oral evidence at the final hearing. Mr Hess
did not do so, and Baron J found that ‘Mr Hess was/is prepared to do the
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husband's bidding'. In her judgment at para [35] Black LJ stated:
‘The views to which Baron J was led by the rest of the evidence
were plainly bolstered by Mr Hess not being available to give
evidence despite the fact that the order made by Mostyn J at the
pre-trial review included in the preamble a recital of the court's
expectation that he attend in person to give oral evidence at the
final hearing.'
[19]…
[20] I am aware that overseas trustees sometimes take a highly defensive
and limited position in their participation in the court's inquiry for fear that
anything more active will be construed as a submission to the court's
jurisdiction….
[21] I can, therefore, see why overseas trustees may not want to submit to
the jurisdiction of the English court. They may prefer to keep their powder
dry and to wait to see what judgment emerges before deciding whether or
not to resist enforcement proceedings in their local court. I have to say,
however, that I find it hard to see why participation by the trustees in a
helpful or meaningful way in this court's inquiry qua witness could be
construed as a submission to the jurisdiction.
25.
So how have judges actually dealt with these issues in more recent cases? In TL v ML
(Ancillary Relief: Claim against Assets of Extended Family) [2006] 1 FLR 1263 Nicholas
Mostyn QC had to confront an an argument by W that H’s assets should be taken as
including largesse (‘bounty’) which had been bestowed upon him in the past and, said W,
would continue to be so bestowed, by his parents. H had received during the marriage
‘massive subventions’ from his parents, which had funded the majority of H’s and W’s
expenditure. Why should they not be viewed, on the “realities” of the case, as likely to
continue?
26.
In limiting W’s award to H’s offer (viz about 2/3rds of the available assets and income) Mr
Mostyn QC pointed out that neither in Thomas nor in previous or subsequent cases had the
Court’s order “ranged over assets or income that were not [H]’s as of right”. Even in B v B
the wife was able – albeit not without some financial pain, for she would have to sell
jewellery and her stamp collection – to fund the order from assets outside the trusts.
27.
Mr Mostyn said of this:
“84. It is important to bear in mind, when considering the width of the
words used, what the Court of Appeal was in fact endorsing [in Thomas v
Thomas]. As I have mentioned, it was an award of capital and income that
did not exceed in either respect what was Mr Thomas' as of right. There is,
in my view, a big difference between that state of affairs and what is urged
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on me here - an award that very substantially exceeds what is H's, in the
hope and expectation that [his father] will make up the difference.
28.
In AM v SS [2014] EWHC 865 Coleridge J made a similar point more recently in relation to
judicious encouragement.
39. I have been referred to other cases, but they do not it seems to me take
the principles any further but merely represent by illustration the
outworking of those principles. However, I do collect, from the authorities
to which I was referred, that the general practice or philosophy in this
situation is that even if the court is prepared to proceed on the basis that a
relative or trust is likely or can be reasonably expected to "backfill" to
compensate for a share of the visible assets removed by the court order, it is
very unusual indeed to make an order that the outside person or entity
produce fresh money directly to meet an award to a former spouse claimant.
In other words, the availability of these external resources may enable the
court to be more generous with the visible resources if it has sufficient
confidence that the hole thereby created in the payer's resources will be
made up or "backfilled".
29.
In TL v ML, Mr Mostyn continued:
86. I think that a clear distinction is to be drawn between, on the one hand,
the position where the person being encouraged is a member of the payer's
family and, on the other hand, where he is a trustee in a fiduciary
relationship with the payer. In the former case, the payee has no more than
a mere spes of bounty which may, at the election of the provider, reasonably
or unreasonably, be withheld. In the latter case, the provider has a legal
obligation to consider the beneficiary's interests. The very reason for the
existence of the trust is to provide benefit for the beneficiary.”
30.
He referred, on the relationship between trustee and beneficiary, to the Jersey case of Re the
Esteem Settlement [2004] WTLR 1 finding in it (apparently) authority for the following
proposition (that may well surprise many of you):
“If the court makes a reasonable request of trustees to make funds available
to meet an ancillary relief award, then it can assume that ordinarily the
trustees will accede to such a request.:
31.
X v X (Y and Z Intervening) [2002] 1 FLR 508 was a very different case, in which W’s
family (her brother) had actually put with solicitors the funds that were to be paid pursuant
to the lump sum order that she had agreed to. Para 101:
“ The correct view must be this. If the court is satisfied on the balance of
probabilities that an outsider will provide money to meet an award that a
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party cannot meet from his absolute property, then the court can, if it is fair
to do so, make an award on that footing. But if it is clear that the outsider,
being a person who has only historically supplied bounty, will not,
reasonably or unreasonably, come to the aid of the payer, then there is
precious little the court can do about it.”
32.
In A v A [2007] 2 FLR 467, Munby J was dealing with a trust. Having decided that the trust
in question was not a sham, he said (para 92) that
“The question, therefore, adopting the language used by Wilson LJ in
Charman v Charman… comes down to this: Can the wife demonstrate that,
if asked, the trustees would be ‘likely’, immediately or in the foreseeable
future, to exercise their powers in favour of or in some other way for the
benefit of the husband?”.
33.
In relation to Thomas v Thomas “judicial encouragement”, he said:
“[95] In the first place, although the court can ‘encourage’ it cannot
compel. As Mr Wagstaffe put it, and I agree, although the court can
encourage a third party to transfer an asset to a party to the marriage, if
that third party disregards the court’s encouragement, the court has no
power under Thomas v Thomas to compel the transfer, for only property
owned by a party to the marriage can be the subject of a property
adjustment or other order under the Matrimonial Causes Act 1973…
[96] Secondly, as Mr Howard pointed out, ‘judicious encouragement’
must not cross the line into improper pressure. He submits that in the
present case it would be inappropriate for me to give any ‘judicious
encouragement’ because it would in reality amount to improper pressure:
(i)
In the first place, and in contrast to most cases where
encouragement has been given, there is in this case no history of
distributions of any sort, capital or income, to the husband or, indeed,
to anyone else…
(ii)
Secondly, and on the assumption that the case on sham has been
rejected, the husband is only one of a number of beneficiaries of family
trusts set up by or at the prompting of the husband’s father and for the
purpose of benefiting all his (the father’s) descendents. As Mr Howard
put it, these trusts and the surrounding circumstances bear all the
hallmarks of dynastic trusts, very different, for instance, from the trusts
with which the court was concerned in Browne v Browne [1989] 1 FLR
291.
(iii)
Thirdly, there is in any event, Mr Howard says, no money to
distribute. It would be inappropriate, he says, for the trustees to water
down their majority shareholding by selling some of their shares (even
if they could find a buyer), just as it would be inappropriate to
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encourage the trustees to ‘help’ the husband by agreeing to the
declaration of a dividend, carrying in its train serious and undesirable
tax consequences…
I agree with the general thrust of these submissions.”
34.
Importantly, Munby J also sounded a warning that
“despite the sanguine views expressed by the deputy judge in TL v ML
(Ancillary Relief: Claim Against Assets of Extended Family) [2005] EWHC
2860 (Fam), [2006] 1 FLR 1263, at para [88], the court must be careful
not to jump too readily to the conclusion that trustees will always accede
to ‘judicious encouragement’.
35.
The approved passage in question from TL v ML is
85. If it is said that the width of the words in Thomas clearly permit what is
sought here, then that gives rise to a conundrum that I find myself unable to
resolve. What happens if the person being encouraged says very politely
'Thank you for your encouragement, but I have decided not to assist'? Or,
as here, 'I am only prepared to assist to such and such an extent'. Is the
court supposed to ignore that stance and simply make an award on the basis
that the assistance will be given? What happens if and when it is not? How
is the court supposed to enforce its order? It could hardly be said that the
payer is in wilful default justifying a penalty under the Debtors Act 1869. It
is for this reason that I expressed the view during argument that often the so
called 'judicious encouragement' can turn out to be no more than mere
empty rhetoric.
36.
Munby J went on to quote – with firm approval – from the Trustees’ submissions, in which
they pointed out that:
a)
they regard their independence as vital;
b)
that they have a number of beneficiaries (the class of which was not closed) whose
interests they must consider, separately and together; and
c)
that the financial health of the company in which the trust held shares was of
paramount importance to the trust and its beneficiaries.
37.
In the circumstances, Munby J thought that the most the trustees were likely to do, as they
had done in the past, was to waive their entitlement to dividends so as to facilitate the
discharge (or part discharge) of directors’ loan accounts or the compliance by H with the
ancillary relief order.
38.
In contradistinction to the relative respect shown to trustees’ views and self stated attitudes
in A v A and embraced in theory by Mostyn in TL v ML comes SR v CR (Ancillary Relief:
Family Trusts) [2009] 2 FLR 1083.
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39.
Here after a 20-year relationship there were assets of between £7.25m and £7.9m.
Substantial family expenditure had been largely funded by receipts (in the form of “an
irregular series of large capital payments rather than as a periodic and regular allowance”)
by H both
a)
as discretionary beneficiary of family trusts with assets of at least $170m and
b)
directly from his father – who was, in fact, the settlor of the trusts.
40.
H’s father said that he himself would give H no further support, and that he would be
opposed to the trust doing so. The trustees gave evidence that they had never made any
distribution against the settlor’s wishes. However, they accepted that if H found himself in
desperate circumstances, they would probably help – but said that they would do so only to
an “exceedingly modest” level. H offered, in effect, a 50/50 share of the £7.25m-£7.9m
(plus child maintenance). W wanted all of it (plus child maintenance).
41.
Singer J took the view that the case had a “close affinity” with Thomas. On W’s desired
outcome, H would have nothing unless the trustees of his father could be persuaded to “step
up” to help him. Part of the problem for a Court, of course, is that
“The tension between the court and (in this case) the trustees can only be
resolved ex post facto, and so a key component of the court’s role is to
determine on whatever evidence is available how the trustees are likely to
exercise their discretion in the situation postulated by the award which the
court has it in mind to make. That balance involves an exercise in both fact
finding and prediction, and therefore necessarily a large element of
uncertainty.”
42.
The words underlined, I would suggest in fact go further than is appropriate. It puts the cart
before the horse. To do as Singer J suggests
a)
One would have to determine the award that the court “has it in mind to make”; but
b)
One would have to do so before one has identified the assets/resources available
(because Singer asks says the question of what is likely to happen if I do X, Y or Z).
c)
This is the tail wagging the dog.
43.
He also made the point (and one which distinguishes the case from Thomas, at least to a
large extent) that
“The balance is made more delicate if, as here, the trust funds in question
derive entirely from an external settlor…to whose wishes the trustees will
very properly pay regard, although they are not bound by them. The trustees
have as primary obligation to exercise what is their own discretion in
favour of the whole class of beneficiaries, weighing the impact of what is
proposed for one against its effect on the interests of the others.”
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44.
Singer J was not prepared to accept the father’s stated position that he would not encourage
the trustees (as settlor) to make payments to H nor would be make them himself. He
commented that
“a desire to protect family wealth from invasion in the throes of a divorce
is perfectly understandable. But a protective attitude may lead to an
artificial presentation of the underlying reality, to which I must attempt to
penetrate…There is here, in my judgment, clear evidence of deliberate
misrepresentation sufficient to persuade me that I cannot accept the
proposition that H’s pot will not be replenished, even if not so munificently
as in the past… I conclude that [the father] and H are marking time, and
that the trustees are seriously unlikely to disregard [the father’s] wishes
when (as I find is more than likely) he reformulates them in H’s favour.”
45.
He awarded W £6.25m of the c.£7-8m. History does not relate (at least publicly) whether
Singer J was right as the father’s or the trustees’ position.
46.
This is, I would suggest, a case of not being interested in the reality, but seeking to alter the
reality. It creates a double hypothetical – what would you, trustee/father do hypothetically, if
I, the judge hypothetically did X?
47.
Singer J sought to put pressure on H’s father and the trust to do the opposite to what they
had said on oath they would do. However he kept the right side of improper pressure
because H could meet the award from his own resources (and have over c.£1m left for
himself). Whilst this may not be demanding money with menaces it is easy to see why the
father and trustees might have felt it was on that spectrum.
48.
No lecture on financial remedies can be complete without reference to a one of a number of
cases decided in recent years by Mostyn J (as he now is). And so one turns to BJ v MJ
[2012] 1 FLR 667, which, I would suggest exposes (somewhat) the snake eating its own tail
that exists in Singer J’s postulation.
49.
The core of his views derive from the ratio of the Court of Appeal in Whaley v Whaley
[2012] 1 FLR 735 at paras 113 and 114 (per Lewison J):
‘[113] As I have said, a discretionary beneficiary has no proprietary
interest in the fund. But under section 25 the court looks at resources; not
just at ownership. Thus whether a beneficiary under a discretionary trust
has a proprietary interest is not relevant. The resource must be one that is
“likely” to be available. This is the origin of the “likelihood” test. No judge
can make a positive finding about the future: the best that can be done is to
assess likelihood. What is relevant is the likelihood of the trust fund or part
of it being made available to him, either by income or capital distribution. If
the husband were to ask the trustees to advance him capital, would the
trustees be likely to do so: Charman v Charman [2006] 1 WLR 1053; A v A
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[2007] 2 FLR 467. The question is not one of control of resources: it is
one of access to them.
[114] In deciding that question the court must look at the facts realistically.
The court will not put “undue pressure” on trustees to exercise their
discretion in a particular way, but may frame an order which affords
“judicious encouragement” to provide one spouse with the means to comply
with the court's view of the justice of the case: Thomas v Thomas [1995] 2
FLR 668. The cases do not say what amounts to “undue pressure”. But in
Thomas Glidewell LJ said what would not be undue pressure (viz. if (a) the
interests of other beneficiaries would not be appreciably damaged and (b)
the court decides that it would be reasonable for the husband to seek to
persuade trustees to release more capital to enable him to make proper
financial provision for his former wife). Even if the court makes such an
order the trustees are not bound to comply with the husband's request; but it
is “plainly proper for the trustees to take it into account … and commonly it
will be decisive”: Lewin on Trusts para 29–157.'
50.
Mostyn J cited parts of Singer J in SR v CR with approval, and specifically his
recognition that a court is not hidebound by the say-so of the trustees. In particular,
Mostyn J was drawn to para [60] of the judgment wherein Singer J agreed with Nicholas
Mostyn QCs (as counsel)
‘What inferences should I draw from the written evidence in the case and
from the oral evidence in particular of H, MR and Mr N? I see this as
essentially a question of fact. I do not accept that a judge must simply
accept the ipse dixit of a person in the position of MR, or indeed of the
trustees, as to what will or will not come H's way if an award leaves him
with limited resources. Is it correct as Mr Mostyn invites me to conclude
that MR and H are engaged in a deliberately duplicitous complicity and that
the truth is that it is more likely than not that trust assets will be released to
H, one way or the other, to supply rather more than the needs of a student
lifestyle?'
51.
Overall however there is the recitation of the key test per Charman v Charman at para
[13]:
‘In principle, however, in the light of s. 25(2)(a) of the Act of 1973, the
question is surely whether the trustee would be likely to advance the capital
immediately or in the foreseeable future.'
52.
You will note that neither Mostyn J nor the Court of Appeal in Charman added the
words of Singer J words “in the situation postulated by the award which the court has it
in mind to make.” Indeed, Mostyn J’s detailed consideration of the proper approach
seemed very much to point against Singer J’s. As the former said at §22:
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Once the judgment as to the likelihood of future benefit has been made the
scale of the resources will be established, which will then be divided in
accordance with the familiar distributive principles of needs, sharing and
compensation.
53.
Indeed, Mostyn J identifies that the “exercise” of judicious encouragement' “is often a
misnomer”. At §23 having said this, he continued:
In two trust scenarios the court can find the facts and apply the distributive
principles and then make an award effectively expressing its decision. The
first scenario is where the trust is nuptial and an effective order for
variation can be made, for example where this court is satisfied that its
variation order will be enforced by the overseas court, or where the trust
assets are within the jurisdiction of this court and are subject to its
enforcement powers. In this latter situation the trustee is likely not to be
criticised by his local court for ‘bowing to the inevitable by complying with
an order of the court in whose jurisdiction the real property in question is
situated' (see Mubarak v Mubarik at para [79]).
[24] The second scenario is where there are sufficient assets outside the
trust, but within this court's powers, for it to be able to make its full award
out of the non-trust assets by offsetting. In this way the majority, sometimes
the overwhelming majority, of the non-trust assets go to the claimant,
leaving the respondent to collect the benefit from the trustees which the
court has judged he is likely to receive. Thus in Charman 87% of the nontrust assets were awarded to the wife (£48m). In SR v CR (Ancillary Relief:
Family Trusts) 80% of the non-trust assets were awarded (£6.25m). In
Whaley v Whaley the court awarded 94% of the non-trust assets to the wife
(£3m). In this scenario the court is not judiciously encouraging the trustees
to make money available to the claimant; rather, it is by its award indirectly
encouraging it to provide for its own beneficiary. But it can make an
effective award.
[25] The only truly problematic situation is where the trust is not nuptial
and where there are no or scant assets outside the trust. In such a
circumstance the court might find that its findings as to the likelihood of
advancement are frustrated by a refusal by the trustees to do what the court
expects them to do. In such a case a deal of worldly realism is called for.
54.
Thus, it would seem from these scenarios, Mostyn J is not speaking of putting pressure
on trustees (or even just encouraging them) but ascertaining to what extent they would,
as a matter of generality, advance monies, rather than whether they would assist in the
fulfilment of a particular order.
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55.
In G v G (Financial Remedies: Short Marriage: Trust Assets) [2012] 2 FLR 70 Charles J
sought to summarise the principles again, but in so doing seemed to row back from Singer
J’s postulation of the test. He set out
a)
The family court is engaged in considering what is likely to happen if the relevant
trustees act properly in all the circumstances of the case, as trustees of their trusts,
and so in applying trust law and practice, which introduce the criterion of fairness
judged against a different set of factors and rationales.
b)
Charman v Charman (No. 4) confirms, in line with the approach in the much earlier
case of Thomas, that when doing this the court
i)
is taking a view;
ii)
is not seeking to put pressure on trustees; and
iii)
is bringing to its task ‘a judicious mixture of worldly realism and of respect
for the legal effect of trusts, the legal duties of trustees and, in the case of
offshore trusts, the jurisdiction of offshore courts'.
56.
Charles J, goes on, to talk about how the “mixture” is vital
a)
it recognises the validity of arguments based on the legal effects of trusts, but also
b)
in some cases, to ensure that a fair overall award is made applying the MCA, it
enables the court to treat, or approach, assets of a trust, or of a company controlled
by a party, as the assets of a spouse, whilst respecting and taking account of their
legal identity and independence.
57.
He observes that (b) above means that the ‘judicious mixture' can lead to the result that the
family court does not accept expressions of intention given by trustees or company
directors, or barriers based on the legal independence of a trust or a company advanced by
trustees, directors and/or a spouse.
58.
Taking a more respectful/purist view, than many perhaps, Charles J says (§91):
Further, and importantly, this approach also recognises and takes account
of the significant differences between different types of trust (and
companies), and thus, for example, the differences relating to control and
the likelihood of receipt of assets by a spouse from:
(i) A trust, or company structure, created by a party to the marriage into
which assets earned or acquired during the marriage have been transferred
and whose trustees, or directors, quite lawfully have been acting at, or can
be expected to act at, the direction of, or in accordance with, the wishes of
that party (a Charman type situation).
(ii) A trust created by a non party under which a spouse is one of the
beneficiaries and which is not a nuptial settlement (and thus this case).
Point (ii) is reflected in the common approach that the wife's trust interests
were not resources that should be taken into account in applying the
sharing rationale.
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59.
This view, is I would suggest much more akin to the Mostyn J approach in cases generally,
of quantification then division, rather than the Singer J approach of (a) have an idea what the
division should be; (b) ascertain what the trustees would do if the court ordered that idea;
and (c) only then be able to devine true resources (which miraculously but predictably fits
the resource landscape).
60.
It will come as no surprise to family lawyers that in a debate between Mostyn / Charles JJ’s
precision vs Singer J’s broad pragmatism, to find that Moylan J falls in the latter category.
61.
This can be seen from RK v RK (Financial Resources: Trust Assts) [2013] 1 FLR 328. In
that case it is arguable that Moylan J went even further than Singer J, in that he was not
interested in ascertaining whether the trustees would accede to an order, he was seemingly
working on an assumption that by reason of the very fact that the encouragement was made
by a judge was of itself decisive:
62.
His starting point was to rely on this quote from Re The Esteem Settlement [2004] WTLR
1, [2004] JRC 92, in which the Royal Court of Jersey said, at para 166:
‘In our judgment, where the requests made of trustees are reasonable in the
context of all the circumstances, it would be the exception rather than the
rule for trustees to refuse such requests'.
63.
From this he goes on to conclude that:
The court will expect trustees to respond positively if the court concludes
that the interests of the trust and of the other beneficiaries would not be
appreciably damaged if the trustees were to provide the husband with the
resources he requires to enable him to make proper financial provision for
his wife and children. They would be expected to respond positively because
the court would have concluded that the husband would be making a
reasonable request and trustees are expected to act reasonably in the
discharge of their duties. This requires the court and the trustees both to
reach the same or a sufficiently similar conclusion as to what is reasonable,
which would appear to assume that the former, that is the court, has
sufficient knowledge of the matters which the latter would take into account;
in other words, that they are surveying a broadly similar landscape and
from a broadly similar perspective.
64.
This of course begs the question what if the trustees and the court are not of the same mind
as to what is reasonable? Surely a divorce court is not surveying matters from a broadly
similar perspective. It is looking to extract funds for someone who no longer will be (in
most cases) a beneficiary (or who never was).
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65.
Where Moylan J says the court would need “sufficient knowledge” of the matters which the
trustees would take into account, that may be right insofar as it goes. But it does not go far
enough. Surely as well as having knowledge of the matters that would be taken into account,
it would also need to accord those matters the same weight as the trustees.
66.
What if for example
a)
the court knows the trustees will take into account that one of the key purposes of the
settlement was to provide for many future generations (i.e. is genuinely dynastic) but
believes that more weight should be put on the current rather than future generations,
but the trustees are of the opposite opinion.
b)
The court knows that the settlor wrote a letter of wishes in firm terms saying “this
trust must not fund divorce settlements, or ex spouses”. The trustees might accord
this particular weight, but the court not (similar it may be said in a less formal way to
SR v CR).
67.
Indeed, the actual outcome illustrates this issue of courts and trustees having different
considerations.
[82] When the trustees consider this issue, they will no doubt reflect on the
fact that the wife came into this marriage with significant resources and
leaves it with significant debts. They will also reflect on the fact that she is
the mother of three of the next generation of beneficiaries of the trusts. I
would also expect them to appreciate that this was a case in which the wife
required legal representation at a level similar to that which was provided
to the husband. His legal costs by the date of the first appointment were
£36,000.
68.
Why on earth would the trustees “reflect on” (by which he must mean “accord significant
weight to”) how the wife leaves the marriage compared to how she entered it? With respect,
what is that to do with them and whether or not they should advance money to their
beneficiary, the husband.
69.
Equally, why would the trustees for a moment care whether W’s legal costs were the same
as H’s? How is that part of their thinking, or why should it be?
70.
Indeed what of Charles J’s unimpeachable recording in G v G that in “applying trust law
and practice…introduce[s] the criterion of fairness judged against a different set of factors
and rationales [to that applied by the family court]”?
71.
Moylan J went on to say, underlining his rejection of this observation, that:
[83] Looking at the landscape, as I would expect the trustees to look at it,
I consider it likely that the trustees will agree to provide the wife direct
and/or provide the husband with resources to enable him to pay a lump sum
of £50,000. This provides the wife with a reasonable sum in respect of her
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liabilities. In my judgment, this would not appreciably damage the interests
of the trusts or of the other beneficiaries. The trustees, as I have said, have
already provided the husband with £86,000 in respect of his costs. Under
this judgment they would be providing an additional £475,000 out of liquid
capital of between £600,000 and £700,000 (if the husband repays the loan
charged against his investment property). This is not a sum sufficient to
enable the wife to discharge all her liabilities but this reflects the fact that I
consider the trustees would be acting reasonably if they declined to make
any further provision available to the wife and/or the husband for this
purpose.
72.
Where, you might ask, after all of this, does the boundary lie between encouragement and
improper pressure? I have no answer for you save to observe that from Howard to Thomas,
from TL v ML to SR v CR to Charman, the pendulum appeared still to be swinging, and it
plainly has not stopped given the differences of approach between Charles J in G v G and
Moylan J in RK v RK.
73.
Much therefore will (sadly for the goal of certainty and predictability) depend on who your
tribunal is.
74.
Further, the uncertainty, as so often in financial remedies, can always be explained by each
case being “fact specific”.
75.
There any pointers to the decision in a particular case. Perhaps the important factors are:
a)
The source of the “fund” in question;
b)
Whether it is held in a trust, or is simply the object of another’s largesse;
c)
The terms of the trust and the terms of any indications of wishes that the settlor (or
other person entitled to give them) has expressed
d)
The extent to which the relevant party to the marriage has any say in the way in
which that “fund” is treated/dealt with;
e)
The way in which that “fund” has actually been treated/dealt with in the past,
especially the recent past.
76.
It is as well to note that there is still no reported case (ignoring X v X as a “special” case) in
which a Court has ordered a party to pay everything he actually has (or more), leaving him
wholly dependant on future receipts from the “fund”. This it is suggested is the only clear
dividing line that if crossed would show improper pressure.
77.
To those searching for certainty, predictability and precision, this is plainly frustrating.
Some of you might be thinking that Deane J in the High Court of Australia in Mallett v
Mallet (1984) 156 CLR 605 had a point when he said:
'It is plainly important that… there be general consistency from one case to
another... Otherwise, the law would, in truth, be but the "lawless science" of
"a codeless myriad of precedent" and "a wilderness of single instances" of
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which Lord Tennyson wrote in his poem "Aylmers Field"'
78.
But to those of us who operate in the Family Division, day in and day out, it comes as no
surprise and we all remind ourselves, and our clients, on a regular basis of the two
competing quotes from Miller v Miller, McFarlane v McFarlane [2006] UKHL 24
"We believe the formulation of policy in this and indeed other areas of the
law involves the resolution of two objectives, each intrinsically desirable,
but perhaps mutually inconsistent. The first is that the law should be
certain and predictable in its results. … The second objective is that the law
should achieve justice and fairness between the parties (per Lord Hope)
“Fairness has a broad horizon” (per Lord Nicholls)
Harry Oliver
1 King’s Bench Walk
1st February 2016
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