Eye to the Telescope The Variation of ante-­‐nuptial and post-­‐nuptial settlements on divorce (etc) 1.
s.24(1)(c) of the Matrimonial Causes Act 1973 provides that (on divorce) a Court may make a property adjustment order of the following type:-­‐ “an order varying for the benefit of the parties to the marriage and of the children of the family or either of any of them any ante-­‐nuptial or post-­‐nuptial settlement (including such settlement made by will or codicil) made on the parties to the marriage, other than one in the form of a pension arrangement …” 2.
What exactly is an “ante-­‐nuptial or post-­‐nuptial settlement” for the purposes of the
subsection?
Historical Position 3.
s.24(1)(c) of the Matrimonial Causes Act 1973 a)
derives from s. 192 of the Judicature (Consolidation) Act, 1925, which
b)
re-­‐enacted the provisions of s.3 of the Matrimonial Causes Act, 1878, which in turn
c)
derives from s.5 of the Matrimonial Causes Act, 1859.
4.
It was therefore “born” in a very different time. It had been only two years earlier that the
Matrimonial Causes Act 1857 year removed divorce from the ecclesiastical Court of Arches
into the civil courts. When the provision first saw the light of day, indeed, it was still to be
more than 20 years before the Married Women's Property Act 1882 was passed (and
almost 70 years before universal adult suffrage). Thus on marriage:
a)
A woman ceased to be a separate legal person (a femme sole), and to all intents
and purposes her legal identity (as a femme coverte) was subsumed in her
husband’s (apparently as a quid pro quo for the burdens imposed on a husband by
the taking of a wife); and in particular
b)
All a woman’s property (except household goods, which were hers by custom)
became her husband’s.
5.
Therefore fathers, or at least fathers of means, often made their own provision, by way of
settlement, for their daughters when they married – lest their son-­‐in-­‐law-­‐to-­‐be turned out
to be a wastrel or worse. At the same time, wealthy families often made provision for both
newlyweds even if “theirs” was the husband. Sometimes, even, wives of means settled
funds before the marriage on trust for themselves (so that they would still be able to use
them freely) with their new husband as remainderman, and husbands settled funds or
covenanted to pay an income to their new wives so as to give them something “for their
own use and enjoyment” (the original “pin money”).
6.
This was the “marriage settlement”, and the target of the provision. Obviously, it did not
have to have been made by either of the spouses so long as it was made on them (e.g. Paul
1 7.
8.
9.
v Paul1). But the courts knew what they were dealing with. In Bosworthick2 Lord Hanworth MR said: “A consideration of the authorities would appear to show that the object of s. 5 of the Act of 1859, passed two years after the Divorce Act of 1857, was for the purpose of meeting the difficulty which had arisen from the fact that although the marriage had been dissolved yet the parties remained bound by the nexus of the settlement of their property, and it was with reference to that property that s. 5 was passed.”3 Thus the “classic” (“classical”?) judicial description of a nuptial settlement for these purposes comes from Hill J, who said in Hargreaves4: “…This section is dealing with ante-­‐nuptial and post-­‐nuptial settlements, and it refers to marriage. It refers to it because what it is dealing with is what we commonly know as a marriage settlement, that is, a settlement made in contemplation of, or because of, marriage, and with reference to the interests of married people, or their children.” It was, it seems, obvious to him (even 70 years on from the original statute) what the section was aimed at. Nor has the terminology used by the legislature changed since then -­‐ compare the equivalent provisions in the Civil Partnership Act 2004 (S.72 and Sch.5 Paragraph 7(1)(c) and (d)): 7(1)…property adjustment orders are— … (c) an order varying for the benefit of— (i)the civil partners and the children of the family, or (ii)either or any of them, a relevant settlement; … (3)In this paragraph— “relevant settlement” means, in relation to a civil partnership, a settlement made, during its subsistence or in anticipation of its formation, on the civil partners including one made by will or codicil, but not including one in the form of a pension arrangement (within the meaning of Part 4) However, although “marriage settlements” in the sense in which Hill J would have understood them are almost non-­‐existent in the 21st century, yet the provision is alive and well. For the courts have come much further than Hill J took matters. Much more than “marriage settlements” are now understood to fall within the subsection. Settlement 10.
What is a “settlement” for these purposes? It does not seem to have been thought noteworthy in any of the authorities that, although “settlement” is not defined in the 1973 1
(1870) LR 2 PD 93 [1927] 1P 64 3
68-­‐69 4
[1926] P 42, 45 2
2 11.
12.
13.
Act, nevertheless the word is used elsewhere in the same Act – including in the sub-­‐section immediately preceding s.24(1)(c), which provides that the court can make “an order that a settlement of such property as may be so [i.e. in the order] specified…be made to the satisfaction of the court for the benefit of the other party to the marriage…”. This obviously smacks of a formal trust – and certainly a formal trust will qualify as a settlement for s.24(1)(c), and will be what most of this audience will be concerned with. However: “a transaction may be a settlement within the meaning of s. 192, although it falls far short of being a settlement such as Chancery judges and practitioners in the Chancery Courts would require before they could hold that there was a settlement.” (Wallington J in Gunner5). Indeed, in Bosworthick6 Lord Hanworth MR had had no doubt that a bond entered into by W to pay H £300 p.a. during the marriage was a settlement: “It is not unimportant to see that at a very early stage, within a few years of the passing of the Act of 1859, Lord Penzance, referring to s. 5 of that Act, said in Stone v. Stone and Brownrigg (1) : "I am not prepared to say that the separation deed was not a post-­‐nuptial settlement within the meaning of that section; undoubtedly property was settled, and I think the section should be liberally construed." I agree with that statement.”7 However, the bond in Bosworthick was a “marriage settlement” still, having been entered into by W in consideration of the marriage. Of course, the explanation, at least for over a century after the original 1859 Act, for the fact that the courts were determined to draw the net widely may very well be that, throughout that period, variation of settlement was the only “bi-­‐directional” means available for the adjustment of capital to meet the justice of the case. No other “property adjustment orders” were available. Thus, other arrangements that have been held to be nuptial settlements include: a)
A deed of separation – Worsley8 b)
A husband’s covenant to pay his wife £200 p.a. during their joint lives -­‐ Dormer (otherwise Ward) v Ward9 c)
Holding the matrimonial home as beneficial joint tenants – Brown10 and Cook11 (in the latter case, even though the legal title was in H’s sole name, as each had contributed to the purchase price) d)
An arrangement where a company owned by a trust, of which H was a beneficiary, purchased a property to be the matrimonial home of H and his intended and was then used by them as such, despite the fact that (after about 3 years) H and W were granted an assured short-­‐hold tenancy N v N and F Trust12 5
[1949] P 77 [1927] 1P 64 7
68-­‐69 8
(1869) L.R. 1 P. & M. 648 9
[1901] P. 20 10
[1959] P. 86 11
[1962] P 235 12
[2006] 1 FLR 856 6
3 e)
14.
15.
An insurance policy written under the Married Women’s Property Act: Gunner13 and Lort-­‐Williams14. Nevertheless, in Brooks v Brooks15 per Lord Nicholls:-­‐ “In the Matrimonial causes Act 1973 settlement is not defined, but the context of section 24 affords some clues. Certain indicia of the type of disposition with which the section is concerned can be identified reasonably easily. The section is concerned with a settlement ‘made on the parties to the marriage’. So, broadly stated, the disposition must be one which makes some form of continuing provision for both or either of the parties to a marriage, with or without provision for their children. Conversely, a disposition which confers an immediate, absolute interest in an item of property does not constitute a settlement of that property” “Settlement” had become “disposition”, in this case a (private) pension, under which H could elect to provide out of the fund a pension for a spouse. What will not qualify, however connected to a marriage, is a disposition which does not make “continuing provision”. For example: a)
An outright gift to a mistress in the hope that she will marry the donor once he is divorced from his current wife, and even (she having done so) the outright appointment to her by trustees of a settlement of even more money – Hindley16 b)
A deed, even though specifically entitled “Settlement on Marriage”, insofar as it provided for W to make (which she had done) an absolute gift to H of £15,000 in securities – Prescott v Fellowes17. What exactly is “settled”? 16.
Again, although the focus of many in this audience will be the formal trust, it is important to note that in Brooks, only that part of the pension “settled” by H – not surplus funds which, by the terms of the pension, were to become the property of his employer company – were held to be comprised in the nuptial settlement and therefore available to be varied. 17.
This highlights that particular attention must be paid to what is actually comprised in the relevant settlement – even if it is a case involving a formal trust. This arises again below (under “nuptialisation”), but for instance in Ben Hashem v Al Shayif18, a company had allowed the wife (the stepmother of the shareholders) to live in a property it owned. Munby J concluded that the “settlement’ comprised only a licence to occupy, terminable on reasonable notice. Nuptiality 18.
If it is a settlement, then, what makes it “nuptial” – whether pre-­‐nuptial or post-­‐nuptial? 13
supra [1951] P 395 15
[1996] AC 375, 391 16
[1957] 1WLR 898 17
[1958] P. 260 18
[2009] 1 F.L.R. 115 14
4 19.
20.
21.
22.
23.
24.
It ought to be easy to answer that question – a settlement must, presumably, be either nuptial or not nuptial. Unfortunately, just as there is no definition of “settlement” for the purposes of the subsection, there is no statutory explanation of what “nuptial” means for these purposes. First, the answer is not “binary” in relation to any particular settlement. If it were: a)
a settlement that was nuptial because it made provision for a husband and his first wife would be variable for the “benefit” of his second wife, b)
indeed, if a nuptial settlement were made on H and his third wife, but whilst ancillary relief proceedings are ongoing with his second (but divorced) wife, the court in those proceedings would be able to vary it for the “benefit” of the second wife. It is clear that in order to be variable at the instance of a party to divorce proceedings, the settlement has to be nuptial in relation to the marriage between the Applicant and the Respondent. Although the Matrimonial Causes Act 1973 does not (at least very clearly) require that, its predecessors did. As has been said already, the original provision was meant to bring within the ambit of the court’s powers a settlement made in consequence of or by reason of or in contemplation of the fact that this H and this W are about to marry/have now married – it was aimed at marriage settlements. Hence the original 1859 wording: “The Court after a final Decree of Nullity of Marriage or Dissolution of Marriage may inquire into the Existence of ante-­‐nuptial or post-­‐nuptial Settlements made on the Parties whose Marriage is the Subject of the Decree, and may make such Orders with reference to the Application of the whole or a Portion of the Property settled either for the Benefit of the Children of the Marriage or of their respective Parents as to the Court shall seem fit.” Thus, a settlement “made on the parties to the marriage” must be one made with reference to the marriage in question in the proceedings in which the application to vary is made, not to some other marriage -­‐ Loraine v Loraine & Murphy19 (cited in Hargreaves): “This … is a power enabling the Court in terms to vary and alter settlements and settlements only, made either before or after the marriage of the husband and wife whose marriage is in question.” In Prinsep20, Hill J (at 232) put the question of nuptiality thus: “Is it upon the husband in the character of husband or in the wife in the character of wife, or upon both in the character of husband and wife? If it is, it is a settlement on the parties within the meaning of the section…it should provide for the financial benefit of one or other or both of the spouses as spouses and with reference to their married state.” Again, and perhaps for the same reason, it has long been held that “nuptial” settlement should be construed widely. Cf Bosworthick (supra), and in Melvill21 Greer LJ said:-­‐ 19
[1912] P 222, 228 [1929] P 225 21
[1930] 1P 159 20
5 25.
26.
27.
28.
“As I understand [counsel’s] argument it was this, that any settlement is a post-­‐
nuptial settlement, if it is a settlement during marriage by one of the parties, which gives some interest to either of the spouses or their offspring. That is a proposition which appeals to me as a fair and reasonable representation of what the section means.” In fact, there are two difficulties with this formulation. First, whilst Greer LJ referred to the earlier cases of Worsley22, Blood23, Churchward24, and Bosworthick25, in all of those cases the Court was concerned to protect an “innocent” spouse from what would be “an extraordinary state of things to contemplate” (Gorell Barnes J in Blood) if the provision was held not to permit the court to intervene. Moreover: a)
Blood and Churchward were not concerned with nuptiality at all, but with the extent of the Court’s powers to vary an admittedly nuptial settlement: b)
In Worsley the Court was sure that it could and should “make special arrangements in the case of a woman being found guilty of adultery, in reference to property settled upon her in her character as a wife" by her husband. c)
In Bosworthick, the question of whether, if it was a settlement, W’s bond was a nuptial one was, again, not argued and seems to have been taken as read. Bosworthick was about construing “settlement” (not “nuptial”) widely enough to ensure that an innocent wife did not have to continue to pay the husband she had divorced after her remarriage to someone else. Secondly, although Greer LJ’s words echo those of Hill J in Hargreaves, the section then relevant (Supreme Court of Judicature (Consolidation) Act 1925 s.192) did not refer to settlements on (or, at least, only on) children – any more than did its predecessor or have its successors. In fact, despite the words of Greer LJ in Melvill, the closest the court had (and has) come to recognising as “nuptial” for these purposes a settlement on children of the family is probably Compton (Marquess of Northampton) v Compton (Marchioness of Northampton) and Hussey26. There, however, W was a trustee; she had a potential life interest in two trusts (for the parties’ daughters); and she had power of appointment in two others. Marshall J thought this sufficient to make them “post-­‐nuptial settlements” capable of variation – although in the result he varied them no further than was conceded by W (i.e. by extinguishing her potential life interest). “A settlement can settle on parties to a marriage power over the disposal as well as over the property itself.” It may be thought that, all that said, the “nuptial element” is something the court has managed to find where it considers that fairness as between H and W can only be achieved if it finds it. Compare the following two cases. 22
L. R. 1 P. & D. 648, 651 [1902] P. 78, 82 24
[1910] P. 195, 197 25
[1927] 1P 64 26
[1960] P. 201 23
6 29.
30.
Melvill In Melvill27 a wife guilty of adultery, whose husband was in the process of divorcing her on that ground, executed a settlement (on herself for life, then her children, with power to appoint a moiety to any husband) of interests under her grandfather’s will and her parents’ marriage settlement to which she was absolutely entitled. Plainly, if looked at from outside, the settlement was made in anticipation of her imminent second marriage (to the Co-­‐Respondent in the first divorce). However, at the time of the settlement, although her first husband had issued proceedings, there had been no decree. Her first husband applied in his divorce proceedings for a variation of that settlement (not to set aside the disposition), and his application was granted by the Court of Appeal. Lord Hanworth M.R. said: “It is said that one must construe the settlement from what are called the surrounding circumstances, and take into account what is the substance of the matter; in other words, that particularly in the present case one ought in some way to treat this settlement as having been made for the purposes of the future intended marriage between the co-­‐respondent and the guilty wife, and not as being one which was made by her as the wife of Colonel Melvill, although at that time she was in fact the wife of Colonel Melvill. I have great difficulty in accepting that view. It appears to me that one must apply the ordinary canons of construction to this document. One must take the document as it stands and see what it does, and derive its purpose from its terms; and that one cannot give a different interpretation or meaning to its terms by reason of some outside circumstances which are to be collected from other sources.” 28 “I do not think it possible to accept the view that one must ascertain the intention of the lady from exterior circumstances. I think one ought to look at the terms of the settlement itself. It contains, as I have already pointed out, some history in it. It shows that she was the wife of Lieutenant-­‐Colonel James Lister Melvill; it records the fact that there had been issue of that marriage, and the issue of that marriage are included, but not exclusively in clause 4, under which a trust is established for the children of the lady. It is quite true that Colonel Melvill is not specifically mentioned as her husband under clause 6, but the wider term used is "any husband" making it possible, if not certain, that a new husband is intended; but nevertheless it does make a settlement of property, the wife of the existing marriage being the settlor, recording the marriage, and the issue of that existing marriage being some, or included among, the beneficiaries. Under those circumstances I find it impossible to exclude that settlement from the terms of s. 192….” And in the same case Romer LJ says: “In my opinion, one is not entitled to regard the motive with which settlements are entered into… I agree with what was said by Hill J. in Prinsep v. Prinsep (1), that "On the question whether a settlement is a settlement within s. 192, the 27
[1930] 1P 159 At p 170-­‐171 28
7 31.
32.
33.
34.
35.
36.
motive of the settlor seems to me immaterial, except so far as it is given effect to by the terms of the deed.”29 Joss In Joss30, 3 years after his marriage H settled property on himself, with power to charge or assign income “in favour of any child or children of his” and to appoint by will or deed to “any wife who may survive him”. However, neither his wife nor the child already born was named or specifically indicated in the settlement. Nonetheless, Henn Collins J found that the settlement was made “because of” the existing marriage. He said that “It is the substance and not the form which must be regarded, and to construe the settlement I must put myself in the position of the settlor, and take as, in effect, recited the relevant facts, including his then existing marriage and the existing issue of that marriage…”. Similarly, in Brooks, Lord Nicholls said that: “In considering the purpose of the husband when entering into the scheme, the scheme must be looked at in the round and in the context of the circumstances then subsisting.” In order to justify the conclusion that “the husband is to be taken to have entered into this scheme with the intention of providing for the retirement of himself and his wife”. Obviously intention is not the same as motive, but a)
Lord Hanworth talked about the “intention of the lady” – not just her motive; b)
In any event, can it really be said that Mrs Melvill’s intention (putting oneself “in the position of the settlor”) was to settle property on herself and Colonel Melvill in their capacity as husband and wife to each other when he was divorcing her at the time? The difference may be that, on the one hand, it was thought (in 1930) that an adulterous wife should not be allowed to take property away from her marriage “willy nilly”, and on the other that (in 1996) reform of the law to allow pension sharing on divorce was so overdue that “something must be done”. There are certainly settlements which are not nuptial settlements: a)
A wife’s father’s will trust, under which W was entitled for her separate use to the income of a fund, subject to a life interest in favour of her mother: Loraine31 -­‐ where Cozens-­‐Hardy MR in the CA said32: “This power conferred by s. 5 of the Act of 1859 is a power enabling the Court in terms to vary and alter settlements, and settlements only, made either before or after the marriage of the husband and wife whose marriage is in question. It certainly does not go beyond those settlements which are either ante-­‐nuptial or post-­‐nuptial, and I think for a very good reason. The settlement of the parties to a divorce suit is an arrangement which it seems perfectly reasonable and right that the Court should have power, in the event of the misconduct of the wife, to modify, and to modify in such a way as the statute provides, but there is no such power 29
179 [1943] P. 18 31
[1912] P 222 32
227-­‐8 30
8 b)
c)
whatever given by s. 45. The interest which the wife takes under any other instrument is something which the Court cannot interfere with…” In relation to a second marriage, a settlement executed by H when he was married to his first wife, for himself and any wife and issue: Burnett33. Indeed here even an appointment made under the terms of that settlement in favour of his second wife, just before their marriage and in express contemplation of it, was held not to qualify – or at least not to qualify for variation. Bucknill J said “in my view the Court has no jurisdiction under s.192 of the Judicature Act 1925 to vary an appointment in such a way that the principal settlement is also varied although that settlement is not within s.192”. A deed executed after Decree Nisi but before Decree Absolute, whose primary purpose was to make provision for W once she was no longer H’s wife. Having been entered into not on the footing that the marriage was to continue, but that it was to end, the settlement lacked the requisite nuptial element – Young34 (compare Worsley supra) Nuptialisation/de-­‐nuptialisation 37.
In Prescott v Fellowes (supra), a second covenant by W was to lend £20,000 to H should he become a name at Lloyds in the first 18 months of the marriage. He did not do so, and the Court of Appeal decided that as there remained no “property settled” at the date of the decree absolute, which was held to be the material date, there was no nuptial settlement to vary at that date. 38.
In Charalambous35, it was conceded that the discretionary trust was originally nuptial. H and W were beneficiaries, as were their children. H and W were also joint protectors, with various vetoes. As the marriage broke down, however, H and W were probably insolvent. Concerned about creditors, the trustees removed both parties (revocably) as beneficiaries. Although (at first instance) Wilson J decided that a nuptial trust was forever nuptial, the Court of Appeal held that such a trust was at least capable of losing its nuptial character – although on the facts of this case it did not do so: Per Thorpe LJ36 “The parties remain joint protectors. Their children remain in the beneficial class. The removal was apparently motivated by the desire to preserve the assets against claims that might be brought by the spouses' creditors. The parties may be reinstated to the beneficial class. The powers of the joint protector are extensive. Any decision of the trustees to distribute or accumulate requires the consent of the protector under clauses 8 and 22 of the deed of settlement. Subsequent to the removal of the parties there is clear evidence that the husband has in fact benefited substantially from the Hickory Trust which has provided him with working capital by substantial loans to one of his businesses.” 39.
So, conversely, if a settlement was not nuptial when it was made, can it subsequently acquire the requisite nuptial element? Logically, there is no reason why, if a nuptial trust can lose its nuptial character, a non-­‐nuptial trust should not be able to acquire it. 33
[1936] P 1 [1962] P 27 35
Reported as C v C [2005] Fam 250 36
§45 34
9 40.
41.
42.
It is certainly possible for an appointment under the powers of a non-­‐nuptial trust to create a nuptial trust of the appointed property, again underlining the importance of ascertaining what, exactly, the nuptial settlement is a settlement of. For example: a)
In Hargreaves (supra) “the property settled is not the whole fund out of which the £500 was carved, but it is the £500 and nothing else.” b)
In N v N (supra), the property purchased (in a company) under powers in the non-­‐
nuptial trust was held to be subject of a nuptial settlement – but not the whole of the trust. Can nuptialisation extend further? In D v D and I Trust37, Baron J was faced with a dishonest husband who had already been through battles with a previous wife, family members and the local authority (over the use of part of the land at the former matrimonial home), in a case that had gone on for ca. 4 years. Even though there were no beneficiaries at all named in the trust instrument, and none mentioned anywhere until a letter of wishes 9 years after the inception of the trust, Baron J had little difficulty in finding that it was a post-­‐nuptial settlement. However, in that case: a)
the trust was established during the marriage (a fact which leads more or less ineluctably to a finding of nuptiality); b)
H was the true settlor (although no settlor was named in the deed); c)
the trustees had always treated him as the beneficiary; d)
the trust held, as its only asset, the former matrimonial home (a farm and farmland), albeit through two companies; e)
H and W had occupied the property and had the income from it throughout the marriage. f)
The letter of wishes was sent long after the divorce proceedings started and was no more than “self-­‐serving…brought into being so as to convince this court that the husband had no interest…”. Thus there were no other “real” beneficiaries – certainly none to whose interests the court should pay any heed. Thus, although the entire trust was held to be nuptial, all it did was provide the parties with their home and the income from it. Compare AB v CB38, where a trust that was not nuptial “on its face” was settled by H’s father to hold a property (according to a contemporaneous letter) “to make provision for a home there for our younger son CB and his wife.” There, Mostyn J thought, first, that it was obviously nuptial (taking into account motive?), and secondly that: “51 The more difficult question is whether the arrangement only brings within the scope of the Court's powers the right to occupy. I am satisfied, however, that this would not be the right conclusion to draw in this case. Had clause 5.2 not been present I might have reached a different decision, it would then have been more borderline. However, the existence of clause 5.2, which gives the trustees the specific power to advance all of the property to the husband during his lifetime, in my view makes clear to me that this settlement as a whole, and all of the property which it captures, is to be regarded as a variable nuptial settlement.” 37
[2011] 2 FLR 29 [2015] 2 FLR 25 (approved on appeal at [2015] EWCA Civ 47, but the nuptiality finding was not challenged) 38
10 43.
44.
45.
46.
Conversely, in K v K (Ancillary Relief: Deed of Appointment)39 (not apparently cited in D v D), the trust was non-­‐nuptial, settled by H’s mother. A deed of appointment made after the parties’ marriage excluded H’s brother and his family (the settlor did not like H’s brother’s wife!), and added as a beneficiary W, with whom H had previously been living for several years and by then had married. Richard Anelay QC held that this did not ‘nuptialise’ the trust à propos this marriage. He held that Burnett (supra) meant that a non-­‐nuptial trust could not become nuptial. With respect to the learned judge, in Burnett what Bucknill J actually decided was that he could not vary the appointment even though he thought it was an ante-­‐nuptial settlement, as the effect would be to vary a settlement that was not nuptial, which is not quite the same: “in this case the settlor under the principal settlement only had power to appoint to a wife who may survive him while she remains his widow. In other words it only covers a period of time which commences with the death of the settlor. But if the appointment is varied by varying the period of the appointment to her life whilst she is single and thereby makes the period start during the settlor's life, then the principal settlement is thereby itself varied, because the appointment covers a different period of time from that which the principal settlement allowed.” However, there remains disagreement at first instance as to where those boundaries lie. In Quan v Bray40 Coleridge J expressed himself of the view (on a preliminary issue as to whether a trust was a nuptial settlement) that “a settlement which is non nuptial at its creation could itself later become “nuptialised” if there was, in fact, a flow of benefit to the parties during the marriage from the trust”. However, that seems to have been on the basis that “If there has been a regular flow of receipts paid from [the trust] to the parties (in their capacity as spousal beneficiaries) for their benefit that could be evidence of a pre existing intention to benefit them whatever the instrument said on its face. It would evidence an existing disposition and render the trust a PNS” – more a reason for seeing a nuptial settlement as such despite a “disguise” – and in this case, as he found, “There were no conversations at the outset or subsequently which took place which establish an intention to benefit them or either of them and there was no ulterior/secondary purpose as the wife now seeks to suggest.” In any event, in Joy v Joy-­‐Morancho41, Sir Peter Singer expressly disagreed with Coleridge J: “109 In the Court of Appeal decision in Charalambous v Charalambous [2004] EWCA Civ 1030, [2004] 2 FLR 1093 Arden LJ at [53] when considering the scope of the word “made” within the statutory context of a “settlement … made on the parties to the marriage” reflected that “the word ‘made’ relates back to the moment of creation of the settlement. At that point in time it must be within the description ‘made on the parties to the marriage.’ It probably must also have been an ante-­‐nuptial or post-­‐nuptial settlement at the date of creation though it is not necessary to decide that point. ” In my view the question left open by 39
[2009] 2 FLR 936 [2014] EWHC 3340 (Fam) 41
[2015] EWHC 2507 (Fam) 40
11 47.
the sentence I have italicised is answered conclusively (so far as previous consistent authority is concerned) by the meaning attributed to the second paragraph quoted from Burnett [above at 36.b) above] which was approved in K v K . Were it to be otherwise every truly dynastic settlement, bereft of nuptial character at the outset but providing benefits for an individual who subsequently becomes either a husband or a wife, would arguably become variable under section 24(1)(c) as soon as that individual, once married, received any benefits. I am satisfied that that is not the law, notwithstanding the breadth of attribution historically afforded to settlements treated as nuptial. The vulnerability of non-­‐nuptial trusts to “nuptialisation” is an area where there is room for further argument, having not yet reached the Court of Appeal. For as the ways in which parties acquire and hold assets become ever more sophisticated, so the likelihood increases of divorcing beneficiaries being faced with applications under s.24(1)(c). Most Recently… 48.
Thus in BJ v MJ42, H as part of a tax-­‐mitigation exercise set up two (Jersey) trusts and a (BVI) company to hold his share of the proceeds of the (imminent at the time) floatation of a company. The first was fairly obviously nuptial (and found to be so) – being for H, W and their child, and H’s siblings etc. However, the second specifically excluded H, W and their child – and it was this trust which, on the face of it and according to H’s written evidence, held the value of the proceeds of the float. Nevertheless, Mostyn J concluded that it, too, was nuptial and variable. 49.
H was not assisted, of course, by the fact that “the accounts of the two settlements have been all over the place in their representation of the value of the money held”, including it in the first (nuptial) trust in more sets of accounts than not. Even more unhappily, H had initially sought to suppress a report from a tax specialist which, in answer to a specific request for advice as to how to access the value in the trusts for the purposes of the divorce, explained that the best way was to distribute them through the first trust. “44 No-­‐one should criticise H for seeking to mitigate the impact of tax….But what is unacceptable is reliance in divorce proceedings on ingenious avoidance schemes to obscure the reality of the scale of a party's resources… 60 In my judgment, the No.1 Trust is unquestionably a post-­‐nuptial settlement. H, W and C are all excluded from benefit of the No.2 Trust but it is an integral, indeed key, component of the overall scheme. It is the left hand to the No.1 Trust's right hand… 61 By way of analogy I would refer to the very well known line of tax cases exemplified by Furniss v Dawson [1984] 1 All ER 530, HL where the court, for the purposes of the taxing statutes, looks at a series of transactions as a composite whole rather than at them individually… 63 In this case I have no hesitation whatever in finding that the three entities “viewed as a whole” constitute a variable post-­‐nuptial settlement. It would be absurd and arbitrary for me not to do so, for the question of whether the value of Giloch ends up in the No.1 Trust or the No.2 Trust is just a question of the timing of a particular meeting...” 42
[2012] 1FLR 667 12 50.
It is easy to see, in this somewhat extreme case, why the two trusts were taken effectively as one. Eye to the Telescope 51.
The difficulty more and more commonly faced by matrimonial applicants and judges, and exemplified only to a limited extent in BJ v MJ, is that more often than not, these days and certainly in “formal” trust structures, not only does neither H nor W directly own the funds/other assets “settled” on them, but neither does the trustee. The most common arrangement is, on the contrary, that the trustees own a company which owns an asset, or which owns another company which, in turn, owns the asset. Indeed the chain is often longer, and even more complex. 52.
Of course the difficulty in most of these cases is that directions to offshore trustees for, say, the transfer of the shares in the offshore company (which they hold as trustee), are difficult or impossible to enforce in the relevant jurisdiction. But the trustees do not “strictly” – i.e. actually – own the asset. They own only the shares. 53.
In Hope v Krejci43, however, this did not prevent Mostyn J from extracting, and transferring to W, the assets themselves. “12 In most overseas trust situations there will likely be an offshore company interposed between the trust and the underlying asset. This is the position here. The fact that there is an interposition of a company has to my knowledge never been argued, let alone found, to be an impediment to making an effective variation. In E v E (Financial Provision) [1990] 2 FLR 233 one of our wisest judges, Ewbank J, was addressed by an array of the most distinguished counsel (as well as myself) in a case where the matrimonial home in Hampstead was held by a Panamanian company the bearer shares of which were held by a Swiss Trust company on trusts the law of which was also foreign. There was not even the faintest suggestion that the interposition of the bearer share Panamanian company amounted to an impediment to an effective variation of settlement, which included some outright provision to the claimant wife… 13 Given that the power of variation is almost limitless it would be absurd were the interposition of the Panamanian company to have prevented the variation that Ewbank J intended. I suppose a technically pure variation would have involved directing the corporate trustee (i) to take steps to wind up the Panamanian company, (ii) to distribute the company's property to the trustee, (iii) to sell the property and (iv) to appoint £50,000 to the wife absolutely and £200,000 to the trustees of the new trust, and in default making a direct order for sale of the property in Hampstead and directing a distribution of part of the proceeds to the wife and the new trust. I suppose (although I cannot recall) that it is possible that the order actually provided for that. But even if it did not but merely reflected the actual words of Ewbank J's judgment, I see no problem with that, it being an example of the “short-­‐circuiting” (but which I prefer to call “telescoping”) approach rightly and legitimately (in my opinion) identified by Bodey J in Mubarak v Mubarak [2001] 1 FLR 673 . In my judgment, in a variation 43
[2013] 1 FLR 182 13 54.
of settlement case, the court can, metaphorically speaking, travel right down the lift-­‐shaft from the top floor to the basement, without having to stop at any floor in between.” Further, although Mostyn J in Hope v Krejci considered piercing the corporate veil separately from “telescoping”, and so it could be said that he saw them as different possible approaches to achieving the same end, he also said this in dealing with veil-­‐
piercing: “21 In VTB the Court of Appeal (at paras 78 – 80) considered Munby J's six principles or criteria in Ben Hashem (at paras 159 – 164) which would need to be satisfied before the veil can be pierced, and found them largely to be correct, subject to some qualifications. In summary, and as qualified by the Court of Appeal, those principles are: i) Ownership and control of a company are not of themselves sufficient to justify piercing the veil. ii) The court cannot pierce the veil, even when no unconnected third party is involved, merely because it is perceived that to do so is necessary in the interests of justice. iii) The corporate veil can only be pierced when there is some impropriety. iv) The relevant wrongdoing must be in the nature of an independent wrong that involves the fraudulent or dishonest misuse of the corporate personality of the company for the purpose of concealing the true facts. v) It follows that if the court is to pierce the veil, it is necessary to show both control of the company by the wrongdoer and impropriety in the sense of a misuse of the company as a device or façade to conceal wrongdoing. vi) Contrary to the view of Munby J, it does not follow that a piercing of the veil will be available only if there is no other remedy available against the wrongdoers for the wrong he has committed. 22 I can easily see why these principles are critically necessary where the objective is that which was sought in the VTB case, namely to deem someone to be a party to a contract to which he plainly is not. But I have great difficulty in seeing why they must be satisfied for the form of piercing of the veil that is the telescoping order, which is almost invariably the situation confronted in financial remedy proceedings… … 27 The basic question I have to answer is whether I should revise my views in Kremen v Agrest in the light of VTB… [he had said: “The understanding had been for years that where the company was wholly owned by one party, or where minority shareholdings could realistically be disregarded, then a direct order could be made against the underlying asset. After all, a strong Court of Appeal in Nicholas v Nicholas had said precisely that”] I…conclude that when seeking a telescoping order in the specific factual context almost invariably encountered in financial remedy proceedings Nicholas is 14 55.
56.
binding authority, and that nothing said in VTB (where Nicholas was not referred to) alters that. “ However, “veil piercing in financial remedy proceedings” has since been considered by the Supreme Court in Prest v Petrodel Resources44. There was no settlement involved in this case, but UK assets were held by offshore companies owned by H alone. Yet the idea that the assets could for that reason be identified as belonging to H was roundly rejected absent a proper basis – that is one which would be applicable in any Division – for piercing the corporate veil, viz (per Lord Sumption):` “27 In my view, the principle that the court may be justified in piercing the corporate veil if a company's separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities…I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse. I also think that provided the limits are recognised and respected, it is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law. 28 The difficulty is to identify what is a relevant wrongdoing. References to a “facade” or “sham” beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the “facade”, but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical.” Furthermore, “37 If there is no justification as a matter of general legal principle for piercing the corporate veil, I find it impossible to say that a special and wider principle applies in matrimonial proceedings by virtue of section 24(1)(a) of the Matrimonial Causes Act 1973 . The language of this provision is clear. It empowers the court to order one party to the marriage to transfer to the other “property to which the first-­‐mentioned party is entitled, either in possession or reversion”. An “entitlement” is a legal right in respect of the property in question. The words “in possession or reversion” show that the right in question is a proprietary right, legal or equitable. This section is invoking concepts with an 44
[2013] AC 415 15 57.
58.
59.
60.
established legal meaning and recognised legal incidents under the general law. Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere.” So, if it cannot be said (absent “true” piercing of the corporate veil) that a husband who owns the shares in a company “in reality” owns the company’s asset so that it can be transferred to W by way of a property adjustment order, can it nevertheless still be the case that an order for the variation of a nuptial settlement can treat the asset as owned by the trustees, who in turn own (only) the shares in the company which owns the asset? As Mostyn J conceded (above) in Hope v Krejci, “telescoping” involves a form of veil-­‐piercing. Mostyn J considered “telescoping” again in DR v GR [2013]45. Although this was before Prest reached the Supreme Court, it was after the Court of Appeal had, in the learned judge’s own words, “politely but firmly held that my view about the scope of s24(1)(a), and the many antecedent authorities to like effect upon which I had relied, were all quite wrong, as they violated the long-­‐standing principles stated in the decision of the House of Lords in Salomon v. A. Salomon & Co Ltd [1897] AC 22”. Thus, what he had said about Nicholas was wrong. However, Mostyn J decided that if “telescoping” were not available, “it would mean that this jurisdiction would be almost totally emasculated. This is because it is only in rare cases that the settlement directly owns the underlying assets”. But he held that it was available, justifying his conclusion on the basis that: a)
Prest was dealing with s.24(1)(a) rather than s.24(1)(c), and “The language of the two sub-­‐sections is completely different”; b)
He referred to Lord Nicholls’s words in Brooks, and said that “Assuming that “disposition” is a synonym for “arrangement” the test for what comprises a nuptial settlement can be thus expressed: “any arrangement which makes some form of continuing provision for both or either of the parties to a marriage”; c)
He then referred to the various things held to have been nuptial settlements: i)
In Brooks a pension scheme of which the husband and wife were beneficiaries ii)
In Ben Hashem a revocable licence to occupy a property iii)
In N v N and F Trust the provision of the matrimonial home d)
And said “Thus it can be seen that the grant by a company, a separate legal personality, of a right to occupy a property created a variable settlement of that occupancy right. Similarly, in Brooks, the establishment by a company, a separate legal personality, of a pension scheme, created a variable settlement of that scheme. In N v N and F Trust the provision by a company, a separate legal personality owned by a non-­‐nuptial settlement, of a home for the spouses created a variable settlement of that property.” Indeed Mostyn J then went even further: 45
2 FLR 1534 16 61.
62.
“16 Indeed it is clear to me that a family company which under an arrangement makes some form of continuing provision for both or either of the parties to a marriage is capable of itself of amounting to a variable nuptial settlement whether or not the company is owned by a trust of which the spouses are formal beneficiaries. In Brooks at 391 Lord Nicholls justified the very wide scope of the definition of “settlement” by analogy to the equally wide definition given to that word in section 670 of the Income and Corporation Taxes Act 1988 viz “any disposition, trust, covenant, agreement, arrangement, or transfer of assets”. And cases under that section (and its predecessor and successor) have clearly decided that a company can fall within that definition: see, for example, Commissioners of Inland Revenue v Payne (1940) 23 TC 610 (per Sir Wilfred Greene MR) and Jones v. Garnett (Her Majesty's Inspector of Taxes) [2007] UKHL 35, [2007] 1 WLR 2030 at para 47 (per Lord Walker) and at para 80 (per Lord Neuberger). 17 In BJ v MJ there were two Jersey trusts (No. 1 and No. 2) which between them owned the two classes of shares in a BVI company called Giloch Ltd. Between the three entities assets of £4.3m were owned. Looked at in isolation it was hard to say that the No. 2 trust was a nuptial settlement as the spouses were excluded from benefit, and, of course, Giloch Ltd was separate legal personality. The arrangement was an ingenious tax saving structure the operation of which is explained in my judgment, and which I need not repeat here. In paras 60 – 63 I concluded that when “viewed as a whole” the set-­‐up amounted to a variable nuptial settlement. No appeal was heard against my decision. I have read Prest extremely carefully and have asked myself if that analysis and finding was wrong in the light of the reasoning of Rimer and Patten LJJ and have concluded that it was not. 18 By parity of reasoning I am of the opinion that if under an arrangement “some form of continuing provision for both or either of the parties to a marriage” (which would include, on the authorities, the provision of accommodation) has been made from assets held by a group of family companies then the entire set-­‐up, when viewed as a whole, is capable of amounting to a variable nuptial settlement. If the top company is owned by a trust of which the spouses are formal beneficiaries then the position is a fortiori.” There are a number of potential difficulties with Mostyn J’s conclusions – and it may be worthy of note that the reason why permission to appeal against his decision in Hope v Krejci was refused was that it was out of time. First, simply practically, if a company can be a nuptial settlement and therefore variable under s.24(1)(c), what exactly is the variation that is to be ordered? How do you “vary” a company? What actual orders are to be made in such circumstances? Can a company be ordered to transfer an asset? Buy back its shares? Change its Articles? None of these seems to be in the compass of what has been previously envisaged: per Munby J in Ben Hashem v Al Shayif (supra) §290: “290 …I can perhaps summarise matters as follows: i) The court's discretion under section 24(1)(c) is both unfettered and, in theory, unlimited…so it is within the court's powers to vary (at one end of the scale) by 17 63.
64.
wholly excluding a beneficiary from a settlement, to (at the other end) transferring some asset or other to a non-­‐beneficiary free from all trusts… ii) That said, the starting point is section 25 of the 1973 Act, so the court must, in the usual way, have regard to all the circumstances of the case and, in particular, to the matters listed in section 25(2)(a)-­‐(h)… iii) The objective to be achieved is a result which, as far as it is possible to make it, is one fair to both sides, looking to the effect of the order considered as a whole. iv) The settlement ought not to be interfered with further than is necessary to achieve that purpose, in other words to do justice between the parties. v) Specifically, the court ought to be very slow to deprive innocent third parties of their rights under the settlement. If their interests are to be adversely affected then the court, looking at the wider picture, will normally seek to ensure that they receive some benefit which, even if not pecuniary, is approximately equivalent, so that they do not suffer substantial injury. As Sheldon J put it in the passage in Cartwright which I have already quoted: “if and in so far as [the variation] would affect the interests of the child, it should be permitted only if, after taking into account all the terms of the intended order, all monetary considerations and any other relevant factors, however intangible, it can be said, on the while, to be for their benefit or, at least, not to their disadvantage.” Moreover, how are such orders (for “variation of the company”) to be enforced – here? In BVI? Of course, these issues are sidestepped by “telescoping” – but does telescoping survive? The second problem with DR v GR arises in relation to the basis Mostyn J adopts for the idea that “a…company…is capable of itself of amounting to a variable nuptial settlement whether or not the company is owned by a trust” and the authorities he relies on for that proposition, in Jones v Garnett: a)
what Lord Walker said at para 47 was that “Other components of the arrangement might be the formation or acquisition of a private company with an unusual share structure” and b)
at para 80, referring to IRC v Payne itself, Lord Neuberger merely approved of what Sir Wilfrid Greene MR had there said whilst “discussing a somewhat more simply drafted statutory predecessor of the sections in question here, namely section 38 of the Finance Act 1938…in relation to a scheme whose details are not of significance for present purposes: “The word ‘arrangement’ is not a word of art. It is used, in my opinion, in this context in what may be described as a business sense, and the question is: can we find here an ‘arrangement’ as so construed? It is said that the only element in this transaction which falls within the definition of ‘settlement’ is the deed of covenant itself. I am unable to accept that argument. It appears to me that the whole of what was done must be looked at ; and when that is done, the true view, in my judgement, is that Mr Walter Payne deliberately placed himself into a certain relationship to the company as part of one definite scheme… He did it by a combination of obtaining the control of the company, entering into the covenant and then dealing with the company in such a way as to achieve his object ” (emphasis added). 18 65.
66.
Neither said that a company alone (or a group of companies) could itself be an arrangement. Moreover, if s.24(1)(a) and (c) are very different, so are s.24(1)(c) Matrimonial Causes Act 1973 and s.670 Income and Corporation Taxes Act 1988. s.670 is a definitions section, and defines “settlement” “for the purposes of this Chapter” of that Act. That chapter does not “equate” the company, nor even a settlement of any other sort, with the taxpayer who owns its shares, nor attribute its assets to the shareholder. On the contrary, it recognises their separate legal existence. What it does is that it provides that “any income…paid…shall…be treated for all the purposes of the Income Tax Acts as the income of the settlor”. It does not change the fact that it is not his income. This might provide (not that it is needed) support for a Thomas v Thomas approach. It does not support “telescoping”. Fourthly, although in the first century or more of its life, the power to vary a nuptial settlement was the only power to adjust capital available to the court, and stood alone in the legislation, it is no longer alone, and does not stand alone. The point is made above that it seems to have been thought unimportant that the word “settlement” is used elsewhere in the 1973 Act itself. Indeed, it is used elsewhere in the same section. “24 Property adjustment orders in connection with divorce proceedings, etc. (1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say— (a) an order that a party to the marriage shall transfer to the other party, to any child of the family or to such person as may be specified in the order for the benefit of such a child such property as may be so specified, being property to which the first-­‐mentioned party is entitled, either in possession or reversion; (b) an order that a settlement of such property as may be so specified, being property to which a party to the marriage is so entitled, be made to the satisfaction of the court for the benefit of the other party to the marriage and of the children of the family or either or any of them; (c) an order varying for the benefit of the parties to the marriage and of the children of the family or either or any of them any ante-­‐nuptial or post-­‐nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage other than one in the form of a pension arrangement (within the meaning of section 25D below); (d) an order extinguishing or reducing the interest of either of the parties to the marriage under any such settlement, other than one in the form of a pension arrangement (within the meaning of section 25D below); subject, however, in the case of an order under paragraph (a) above, to the restrictions imposed by section 29(1) and (3) below on the making of orders for a transfer of property in favour of children who have attained the age of eighteen. 19 67.
So: a)
b)
c)
68.
69.
all these are “property adjustment orders”. Property must mean the same in all Divisions of the High Court. (b) permits an order for the “settlement” of property, and envisages (cf. s.30, which permits a direction to conveyancing counsel to settle the necessary instrument) a “formal” settlement; (d) permits the court to deal with “the interest of either of the parties to the marriage under any such settlement” – that must mean “any ante-­‐nuptial or post-­‐
nuptial settlement” per (c), and pre-­‐supposes that it is such a thing as gives a party to the marriage some interest. Moreover, Lord Sumption in Prest makes clear that matrimonial law stands with every other type of law. Salomon makes clear that even a husband or wife shareholder in a company has no interest at all in the assets of the company. Much less, surely, does the beneficiary of a trust, the trustee of which is the shareholder, have any such interest. A fortiori the “beneficiary” of an “arrangement” in which he has no interest. Lord Sumption in Prest rejected any Family court “desert island” approach, not just that under s.24(1)(a): “This section is invoking concepts with an established legal meaning and recognised legal incidents under the general law. Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere. It is right to add that even where courts exercising family jurisdiction have claimed a wider jurisdiction to pierce the corporate veil than would be recognised under the general law, they have not usually suggested that this can be founded on section 24 of the Matrimonial Causes Act 1973 .(§37) There is nothing in the Matrimonial Causes Act and nothing in its purpose or broader social context to indicate that the legislature intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer” (§40) It remains to be seen whether, on appeal, telescoping will survive. Christopher Pocock QC 1 King’s Bench Walk January 2016 20