Trusts and intervenors in financial remedies cases

Transcription

1 Trusts and intervenors in financial remedies cases Zoe Saunders, St John s Chambers Published on 16th October 2014 Zoe will look at trusts in financial remedies post-petrodel and top tips for dealing with intervenors, procedures and precedents. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 [2013] 2 FLR 732 Piercing the Corporate Veil : "[35] I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company s separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in Ben Hashem v Al Shayif, I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. I therefore disagree with the Court of Appeal in VTB Capital v Nutritek International Corp who suggested otherwise at para [79]. For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases Page 1 of 12

2 where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with longstanding principles of legal policy." [36] In the present case, Moylan J held that he could not pierce the corporate veil under the general law without some relevant impropriety, and declined to find that there was any. In my view he was right about this. The husband has acted improperly in many ways. In the first place, he has misapplied the assets of his companies for his own benefit, but in doing that he was neither concealing nor evading any legal obligation owed to his wife. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage upon its dissolution. It cannot follow that the court should disregard the legal personality of the companies with the same insouciance as he did. Secondly, the husband has made use of the opacity of the Petrodel Group s corporate structure to deny being its owner. But that, as the judge pointed out at para [219] is simply [the] husband giving false evidence. It may engage what I have called the concealment principle, but that simply means that the court must ascertain the truth that he has concealed, as it has done. The problem in the present case is that the legal interest in the properties is vested in the companies and not in the husband. They were vested in the companies long before the marriage broke up. Whatever the husband s reasons for organising things in that way, there is no evidence that he was seeking to avoid any obligation which is relevant in these proceedings. The judge found that his purpose was wealth protection and the avoidance of tax. It follows that the piercing of the corporate veil cannot be justified in this case by reference to any general principle of law." Section 24 Matrimonial Causes Act 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 Page 2 of 12

3 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. Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 [2013] 2 FLR 732 "[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 s 24(1)(a) of the Matrimonial Causes Act 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 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 Page 3 of 12

4 under the general law, they have not usually suggested that this can be founded on s 24 of the Matrimonial Causes Act. On the contrary, in Nicholas v Nicholas at 288, Cumming-Bruce LJ said that it could not. [38] This analysis is not affected by s 25(2)(a) of the Matrimonial Causes Act Section 25(2)(a) requires the court, when exercising the powers under s 24, to have regard to the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future'. The breadth and inclusiveness of this definition of the relevant resources of the parties to the marriage means that the relevant spouse's ownership and control of a company and practical ability to extract money or money's worth from it are unquestionably relevant to the court's assessment of what his resources really are. That may affect the amount of any lump sum or periodical payment orders, or the decision what transfers to order of other property which unquestionably belongs to the relevant spouse. But it does not follow from the fact that one spouse's worth may be boosted by his access to the company's assets that those assets are specifically transferrable to the other under s 24(1)(a)." Thorpe LJ (dissenting) Petrodel Resources Ltd and Others v Prest and Others [2012] EWCA Civ 1395 [2013] 2 FLR 576: "[63]... If this court now concludes that all these cases [on piercing the corporate veil] were wrongly decided they present an open road and a fast car to the money maker who disapproves of the principles developed by the House of Lords that now govern the exercise of the judicial discretion in big money cases. [64] In this case the reality is plain. So long as the marriage lasted, the husband's companies were milked to provide him and his family with an extravagant lifestyle. That was only possible because the companies were wholly owned and controlled by the husband and there were no third party interests. Of course in so operating them the husband ignored all company law requirements and checks. [65] Once the marriage broke down, the husband resorted to an array of strategies, of varying degrees of ingenuity and dishonesty, in order to Page 4 of 12

5 deprive his wife of her accustomed affluence. Amongst them is his invocation of company law measures in an endeavour to achieve his irresponsible and selfish ends. If the law permits him so to do it defeats the Family Division judge's overriding duty to achieve a fair result." Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 [2013] 2 FLR 732 "[43] It follows from the above analysis that the only basis on which the companies can be ordered to convey the seven disputed properties to the wife is that they belong beneficially to the husband, by virtue of the particular circumstances in which the properties came to be vested in them. Only then will they constitute property to which the husband is entitled, either in possession or reversion'. This is the issue which the judge felt that he did not need to decide. But on the footing that he was wrong about the ambit of s 24(1)(a), it does need to be decided now." So what lessons can be learnt from Petrodel when it come to intervenors in financial remedy cases? Precision: THE BASES OF CLAIM : four possible legal bases in order to establish a claim for a beneficial interest, namely: common intention constructive trust, through express discussion or otherwise, resulting trust and proprietary estoppel. Constructive Trusts: Express Discussion Common Intention Constructive Trust Express Discussion & Agreement Reliance Detriment Alternative Basis Common Intention Constructive Trust Infer / Impute Intention Page 5 of 12

6 Reliance? Detriment? "the whole course of dealings between the parties taking account of all conduct which throws light on the question what shares were intended." Resulting Trusts: voluntary payments by A to B, or for the purchase of property in the name of B or in his and A's joint names, where there is no presumption of advancement or evidence of intention to make an out-and-out gift. Proprietary Estoppel "there is no definition of proprietary estoppel that is both comprehensive and uncontroversial (and many attempts at one have been neither)" 1 Three main elements: a. a representation or assurance made to the claimant b. reliance on it by the claimant c. detriment to the claimant in consequence of his (reasonable) reliance However Gillett v Holt stated that proprietary estoppel cannot be treated as subdivided into three or four watertight compartments and recognised that the relevant factors will influence each other and that reliance and detriment will often be intertwined. In that case Walker LJ clearly stated that "the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all elements of the doctrine. In the end the court must look at the matter in the round" "Soft Loans" Loan (noun) an amount of money that is borrowed, often from a bank, and has to be paid back, usually together with an extra amount of money that you have to pay as a charge for borrowing. 1 Lord Walker Thorner v Majors [2009] UKHL 18, [2009] 3 All ER 945 para 29 Page 6 of 12

7 CF: Gift (noun) - a present or something that is given. Proof: "I think that the time has come to say, once and for all, that there is only one civil standard of proof and that is proof that the fact in issue more probably occurred than not. 2 The Ever-Shifting Burden of Proof: Goodman v Gallant [1986] 1 FLR 513 Stack v Dowden [2007] UKHL 7: "it should be assumed that equity follows the law and that the beneficial interests reflect the legal interests in the property. 3 " "Just as the starting point where there is sole legal ownership is sole beneficial ownership, the starting point where there is joint legal ownership is joint beneficial ownership. The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest. 4 " Proof & Presumptions: Resulting Trust & the presumption of advancement: The person in whose name a purchase or transfer is taken is the spouse or civil partner, child or adopted child of the person paying the purchase money or making the transfer: in those circumstances there is a presumption that a gift was intended. 2 In re B (Children)(FC) [2008] UKHL 35 Lord para Baroness Hale para. 53 Stack v Dowden [2007] UKHL 7 4 Baroness Hale para. 56 Stack v Dowden [2007] UKHL 7 Page 7 of 12

8 In relation to the resulting trust the burden of proof shifts to the Defendant to explain the contribution, per Lord Neuberger in Stack v Dowden [2007] UKHL 7 at paragraph 123: "Accordingly, in my judgment, where there are unequal contributions, the resulting trust solution is the one to be adopted. However, it is no more than a presumption, albeit an important one. Lord Nicholls of Birkenhead said in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773 at para 16, [2001] 4 All ER 449 that the use of the term 'presumption' is descriptive of a shift in the evidential onus on a question of fact, and that the use... of the forensic tool of a shift in the evidential burden of proof should not be permitted to obscure the overall position. Although said in the context of undue influence, those words apply equally to the resulting trust presumption, in my opinion." However: "The time has come to make it clear, in line with Stack v Dowden (see also Abbott v Abbott [2007] UKPC 53, [2007] 2 All ER 432), that in the case of the purchase of a house or flat in joint names for joint occupation by a married or unmarried couple, where both are responsible for any mortgage, there is no presumption of a resulting trust arising from their having contributed to the deposit (or indeed the rest of the purchase) in unequal shares. The presumption is that the parties intended a joint tenancy both in law and in equity. But that presumption can of course be rebutted by evidence of a contrary intention, which may more readily be shown where the parties did not share their financial resources." Baroness Hale & Lord Walker para. 25 Jones v Kernott [2011] UKSC 53 Lack of Disclosure & Presumptions: Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 [2013] 2 FLR 732 "[43]...The issue [of the beneficial ownership of the properties] requires an examination of evidence which is incomplete and in critical respects obscure. A good deal, therefore, depends upon what presumptions may properly be made against the husband given that the defective character of the material is almost entirely due to his persistent obstruction and mendacity. Page 8 of 12

9 [44] In British Railways Board v Herrington [1972] AC 877, [1972] 2 WLR 537, at , Lord Diplock, dealing with the liability of a railway undertaking for injury suffered by trespassers on the line, said: The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs or as to what he or any other of their servants either thought or did about it. This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold. A court may take judicial notice that railway lines are regularly patrolled by linesmen and Bangers. In the absence of evidence to the contrary, it is entitled to infer that one or more of them in the course of several weeks noticed what was plain for all to see. Anyone of common sense would realise the danger that the state of the fence so close to the live rail created for little children coming to the meadow to play. As the appellants elected to call none of the persons who patrolled the line there is nothing to rebut the inference that they did not lack the common sense to realise the danger. A court is accordingly entitled to infer from the inaction of the appellants that one or more of their employees decided to allow the risk to continue of some child crossing the boundary and being injured or killed by the live rail rather than to incur the trivial trouble and expense of repairing the gap in the fence.' The courts have tended to recoil from some of the fiercer parts of this statement, which appear to convert open-ended speculation into findings of fact. There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in TC Coombs & Co (A Firm) v IRC [1991] 2 AC 283, [1991] 2 WLR 682 at 300 and 696 respectively: In our legal system generally, the silence of one party in face of the other party's evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent Page 9 of 12

10 party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party's failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.' Cf Wisniewski (A Minor) v Central Manchester Health Authority [1998] EWCA Civ 596, [1998] PIQR 324 at 340. [45] The modification to which I have referred concerns the drawing of adverse inferences in claims for ancillary financial relief in matrimonial proceedings, which have some important distinctive features. There is a public interest in the proper maintenance of the wife by her former husband, especially (but not only) where the interests of the children are engaged. Partly for that reason, the proceedings, although in form adversarial, have a substantial inquisitorial element. The family finances will commonly have been the responsibility of the husband, so that although technically a claimant, the wife is in reality dependent on the disclosure and evidence of the husband to ascertain the extent of her proper claim. The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. These considerations are not a licence to engage in pure speculation. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing. I refer to the husband because the husband is usually the economically dominant party, but of course the same applies to the economically dominant spouse whoever it is." Evidential Problems - think creatively! Page 10 of 12

11 Procedure: Preliminary Issue Civil Procedure Rules : Part 7 Claim - disputes of fact Precise pleadings required! To consolidate or not to consolidate - that is the question Post-Petrodel Cases: Slutsker v Haron Investments Ltd and Others [2013] EWCA Civ 430, [ FLR 1114 M v M and Others [2013] EWHC 2534 (Fam), [2014] 1 FLR 439 M v M and Others (Costs) [2013] EWHC 3372 (Fam), [2014] 1 FLR 499 AB v CB [2014] EWHC 2998 (Fam) Shield v Shield [2014] EWCA Civ 1136 Chaudhary v Chaudhary [2013] EWCA Civ 758 Thandi v Sands [2014] EWHC 2378 (Ch) Agarwala v Agarwala [2013] EWCA Civ 1763 Quaintance v Tandan [2012] EWHC 4416 (Ch) Tchenguiz-Imerman v Imerman (Disclosure) [2013] EWHC 3627 (Fam), [2014] 2 FLR 939 BROKEN ENGAGEMENTS: Section 2 of the Law Reform (Miscellaneous Provisions) Act Property of engaged couples (1) Where an agreement to marry is terminated, any rule of law relating to the rights of husbands and wives in relation to property in which either or both has or have a beneficial interest, including any such rule as explained by section 37 of the Matrimonial Proceedings and Property Act 1970, shall apply, in relation to any property in which either or both of the parties to the agreement had a beneficial interest while the agreement was in force, as it applies in relation to property in which a husband or wife has a beneficial interest. Page 11 of 12

12 Section 37 of the Matrimonial Proceedings and Property Act Contributions by spouse in money or money's worth to the improvement of property It is hereby declared that where a husband or wife contributes in money or money s worth to the improvement of real or personal property in which or in the proceeds of sale of which either or both of them has or have a beneficial interest, the husband or wife so contributing shall, if the contribution is of a substantial nature and subject to any agreement between them to the contrary express or implied, be treated as having then acquired by virtue of his or her contribution a share or an enlarged share, as the case may be, in that beneficial interest of such an extent as may have been then agreed or, in default of such agreement, as may seem in all the circumstances just to any court before which the question of the existence or extent of the beneficial interest of the husband or wife arises (whether in proceedings between them or in any other proceedings). Zoe Saunders St John's Chambers zoe.saunders@stjohnschambers.co.uk 16th October 2014 Page 12 of 12