Finance and Divorce November Update
Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse October’s financial remedies and divorce news and cases.
Anna Heenan and David Salter both of Mills & Reeve LLPThis monthly Financial remedies and divorce update is divided into two parts:
1. News in brief
2. Case law update
News in brief
This section of the update highlights some of the news items that will be of particular interest to practitioners who advise on divorce and financial remedy cases.
Should bankruptcy wipe out a debt to a former spouse?
The Telegraph reports on the case in which the husband, a former company director claims that he should no longer have to pay off his matrimonial debts to his ex-wife since he went bankrupt.
Mr Justice Hildyard reserved judgment in the case.
For the full story, click here.
Lord Chief Justice expresses concern over the rise in self-represented litigants
At his annual press conference on 27 September, Lord Judge commented on the difficulty faced by judges where both sides are unrepresented:
"Where you have two self-represented litigants, life becomes very difficult indeed, and up and down the country, particularly in civil cases, district judges up and down the country have long lists in which both sides are now self-represented. The cases take much longer and they are much more difficult for the judge. The judge, contrary to some popular idea, does not know all the law. He does not go into court with 25 cases in his list and know the law applicable to every case. He does not. He needs help. He needs to be shown where to find the law. And so district judges in particular in the civil courts have lists of cases in which both sides are self-represented. That undoubtedly slows the process down, and it makes it more difficult for the judge."
The Lord Chief Justice also addressed the issue of diversity within the judiciary.
For the full story, click here.
Commons Justice Select Committee seeks views on interpretation/translation
The Committee has launched an inquiry into the provision of interpretation and translation services since Applied Language Solutions (ALS) began operating as the Ministry of Justice's sole contractor for language services in February 2012.
The Committee received a good response to the call for written evidence but, in response to concerns that some people with direct experience of the provision might be reluctant to provide formal written evidence, has opened a web forum. The forum will remain open until 2 November 2012.
For the full story, click here.
Law Society response to Family Justice Review draft legislation published
The response, prepared by the Society's Family Law Committee and Children's Law Sub-Committee, agrees that it is appropriate for the detailed application of the legislation to be set out it new Family Procedure Rules.
For the full story, click here.
Survey reveals continuing concerns over hidden assets
Grant Thornton's ninth annual matrimonial survey comments on a range of issues of relevance to matrimonial lawyers. The results of the survey include that:
- the law relating to cohabitation is the main area in which respondents would like to see legislative reform. There is a difference of opinion about how the law should be reformed, although there seems support for the idea that legislation should be on an 'opt in' basis;
- It continues to be more common for wives to petition for divorce than for husbands (59% of Respondents said this was the case);
- Whilst the majority of divorces continue to occur in marriages of between 11 and 20 years, the percentage of divorces in that bracket had reduced and the number of divorces in marriages lasting between six and ten years had increased;
- Growing apart continues to be the most common reason for divorce with extra marital affairs a close second;
- The impact of Imerman is reflected in the fact that 29% of Respondents said they had knowledge of concealed assets, but were unable to rely on documents that had been obtained (last year it was 22%)
For more information, click here.
Marriage a declining institution?
A Centre for Social Justice policy paper entitled "Forgotten families? The vanishing agenda" comments that families are becoming increasingly unstable and comments on the overriding need to prevent family breakdown. The report comments that if current trends in the decline of marriage continue, married couple families would be in the minority within 35 years.
For the full story, click here.
Telegraph claims tightening of credit could be slowing divorce rate
Not only is it noted that divorcing couples are less likely to pay their legal fees by credit card, but the fear of branching out alone during a recession seems to be making people more insecure about instigating a divorce.
For more information, click here.
Lord Wilson on "The long struggle of wives under English Law"
On 9 October, Lord Wilson delivered the High Sheriff of Oxfordshire's Annual Law Lecture on the development in the position of wives under English law.
The full speech is available here.
Couples get more choice about the time of their marriage ceremony
The Protections of Freedoms Act 2012, s 114, which came into force on 1 October 2012, removed previous restrictions that meant that couples could only marry between 8am and 6pm.
For further information, click here.
Conservative party Chairmen suggest same-sex marriage legislation should be dropped.
A ComRes poll carried out on behalf of the Coalition for Marriage found that over 70% of Conservative Party Chairmen feel the government's proposals for same-sex marriage should be dropped.
For the full story, click here.
Case law update
This section of the update deals with cases concerning non-matrimonial property, another instalment of Kremen v Agrest an application under the Matrimonial and Family Proceedings Act 1984 in a "very international" case and last, but by no means least, a case in which the Court of Appeal refused to lift the corporate veil which has caused some disquiet amongst family lawyers.
Y v Y  EWHC 2063 (Fam) (Baron J) 27 June 2012
This case considers the treatment of inherited wealth and has been widely commented on for the fact that the wife received £8.73m to meet her "needs".
The wife was aged 50 and the husband aged 52. The parties married in 1984 and had five children, the youngest of whom were still at school and the eldest of whom were in their mid-twenties. Baron J held that the wife's earning capacity was limited.
The husband was part of an "illustrious" and wealthy family. He had inherited a country estate in Oxfordshire of approximately 1,495 acres, which had a net value (after costs of sale, CGT and borrowings of £6.7million) of £22.9 million.
Baron J commented: "The Estate is no longer subject to trust or settled land arrangements, rather it is owned outright by the Husband. It represents inherited wealth acquired as the result of the endeavours of previous generations. This important factor is at the forefront of my mind in the resolution of this case. I note, however, that in the past the Y family have been prepared to switch tack and move their asset base as circumstances dictated or as seemed appropriate…"
The husband was devoted to the Estate (he was said to have described it as "part of me") and wanted to pass it to his own son. Whilst it had not been suggested that the Estate should be sold, there were concerns about its economic viability.
When the parties first married they lived in a modest property on the Estate, moving into the mansion house after the death of the husband's grandmother. During their marriage, they had lived in "an extremely privileged manner. They were not flashy by nature but they were patrician and mixed in the highest echelons of English Society." The husband had access to large amounts of capital (from the trusts and borrowing) during the marriage. Whilst it was accepted that the bulk of that money was spent on the Estate, Baron J concluded "I have no doubt but that the lifestyle was smart, expensive and, of its kind, quite outstanding."
Economic viability of the Estate
The Estate included a number of buildings, both residential and commercial. Baron J noted that the rent from all of these was a "mere" £451,169 per annum.
Since the death of the husband's grandmother, the husband had done a great deal to maximise the value of the previously dilapidated Estate. However, despite seeking extended planning permission and commercial opportunities, borrowing was required. The husband took the view that land values increase over time, whereas the value of money decreases and, therefore, considered the borrowing on the Estate to be a shrewd investment. Baron J took the view that this policy would only work if interest rates remained low and land values continued to increase above inflation: a major change to any variable "could (and almost certainly would) lead to the collapse of his seemingly efficient equation."
The other assets
In addition to the Estate, the key assets were as follows:
1) Trust assets totalling approximately £225,000;
2) The husband's investments totalling approximately £1million (the husband managed these himself and Baron J noted that they had lost 12% of their value as compared with the equivalent general market loss of 8%); and
3) Family antiques worth around £2.2million net.
Baron J reviewed the case law on inherited wealth at length and it is worth setting out her analysis in some detail:
a) In claims for financial remedy, the court must apply the Matrimonial Causes Act 1973 to produce "a result which is fair to both parties after considering all the circumstances of the case." Although the parties had minor children, Baron J was "confident that there is sufficient wealth in this case to have no doubts that their needs will be covered by their parents."
b) The wealth here originated from the husband. "Prima facie, this makes it non matrimonial property and places it in a special category. As such, the court should be slow to invade it without good reason. Nevertheless 'In the ordinary course, this factor [inherited property] can be expected to carry little weight, if any, in a case where the claimant's financial needs cannot be met without recourse to this property' White v White  UKHL 54,  2 FLR 981 at 994G."
c) Accordingly, this was a needs case as the Estate was pre-acquired. There were no arguments as to compensation.
d) "The Wife's needs should be interpreted fairly on the application of the statute, but in the context of the factor that the wealth was inherited."
e) In relation to income needs, Baron J cited the following statement of Moylan J in AR v AR  EWHC 2717 at 70 and 71:
"In assessing the wife's income needs...the analysis, as has been said on many occasions, is a broad one as the court is considering what income it would be fair for the wife to have available to her, in this case, for the next 30 or so years.....in my judgment the court's task when addressing this factor is not to arrive at a mathematically exact calculation of what constitutes an applicant's future income needs. It is to determine the notional annual income which in the circumstances of the case it would be fair for the wife to receive. Further in a case such as the present, in my judgment the wife is entitled to have sufficient resources to enable her to spend money on additional, discretionary items which will vary from year to year and which are not reflected in her annual budget"
f) The fact that the Estate was inherited must be reflected in the award. It was accepted that the mansion house was the family home for most of the marriage and that it was the centre of family life, that the Estate has supported the family lifestyle and that this was a long marriage to which the wife had made a full contribution.
g) Baron J cited Lord Nicholls comments at paragraph 22 of Miller/McFarlane  UKHL 24,  1 FLR 1186 that, even if the parties' matrimonial home was brought into the marriage by one of them at the outset, it "usually has a central place in any marriage. So it should normally be treated as matrimonial property…" However, Baron J went on to say:
"As I said in NA v MA  EWHC 2900 (Fam),  1 FLR 1760, referring to the above quote:
"I do not take that to mean that the property must be divided equally but its value and the lifestyle that it produced are relevant factors in the court's consideration of fairness."
I consider that observation to be especially apt to the facts of this case."
h) Both parties accepted that the sharing principle could apply to inherited assets as well as the marital acquest and Baron J cited with approval paragraph 66 of Potter P's statement in Charman v Charman (No. 4)  EWCA 503,  1 FLR 1246, which suggested that the sharing principle applies to all property, but that in the case of non-matrimonial property there is likely to be a better reason for departure from equality.
i) Subsequent jurisprudence has "tended towards a needs-based determination." Various factors are relevant to the likelihood that inherited wealth is shared. These include, for example, the nature of the assets, whether they have been preserved in specie and whether the other spouse has directly contributed to their improvement/preservation.
j) Baron J then set out in full the guidance offered in Robson v Robson  EWCA Civ 1171,  1 FLR 751 by Ward and Hughes LJJ about how to treat "big money" cases where the wealth is inherited.
k) Finally, Baron J cited with approval various statements made by the Court of Appeal in Jones v Jones  EWCA 41 Civ,  1 FLR 1723 and the dicta of Munby J in P v P (Inherited Property)  EWHC 1364 /  1 FLR 576.
The parties' positions
The wife sought an award of £11.2 million, which included £6.5 million to purchase a house in London (although she accepted that she would have to downsize later). She argued that this represented her reasonable needs and was a fair share of the parties' resources.
The husband initially offered £6.2 million, which was based on the wife's needs. He also argued initially that, because they were a "country couple", the wife ought to buy a country house and that if she moved to London then her housing needs should be tied to the cost of a reasonable country home. This point was eventually abandoned because the higher running costs of a country property would have offset the lower purchase price. However, Baron J commented, obiter, that: "When a marriage breaks down I doubt, in the normal course of events, that it will be unreasonable for a 'country' spouse to seek to live in London or some other part of England and Wales." However, in this case, Baron J considered the wife's desire to move to London, where she had family and friends, to be genuine.
During the hearing the husband increased his offer to £7 million, including £3.15 million for a long-term house in London (based on the assumption that the wife would initially live somewhere more expensive and then downsize).
Baron J considered that the husband's suggestions as to properties the wife could occupy were driven by what he was prepared to pay, rather than by her needs. However, the wife's concentration on a limited number of streets was "short-sighted." Baron J awarded the wife a housing fund of £5.1million inclusive of stamp duty and legal costs. This would allow her to buy a house in a good area of Kensington or Chelsea. This award did not envisage the wife moving to a smaller property later on: "After all, she will still be a distant part of this grand family in the sense that she will continue to be a mother and, in due time, a grandmother."
The wife was also awarded a Duxbury fund of £3 million which was premised on the basis that her needs would reduce as the children left home but would, in any event, produce just over £125,000 net per annum for the whole of her life.
Additional sums for furnishing, the wife's debts and a car were ordered so that the total award stood at £8.738m (or 32.5% of the assets). Whilst the award was based on the wife's needs, it involved sharing inherited assets which would need to be invaded to meet her award: "In this case needs and the right to sharing are essentially the same."
The husband had said in evidence that an award in excess of £8 million would be "gut wrenching". Baron J was unconvinced by the husband's vague figures and had doubts about the husband's borrowing strategy as a whole: "It would seem to me that a sale of the entire Estate in time is more likely than not. From the Husband's perspective this will be sad but the figures demonstrate this is likely even on his own offer. His financial difficulties are not solved by demoting the Wife's needs below a fair attribution given this was a 26 year marriage/contribution with all that entails."
Kremen v Agrest  EWCA Civ 1266 (Lloyd LJ) 18 September 2012
This case concerned three applications for permission to appeal the decision of Mostyn J in Kremen v Agrest (No. 11) (Financial Remedy: Non-Disclosure: Post-Nuptial Agreement)  EWHC 45 (Fam) which was made in February 2012. These applications were made by:
1. Mr Agrest;
2. Mr Fishman, who claimed to be a creditor of Mr Agrest; and
3. Mr Chesnokov.
No-one involved in the court proceedings knew where Mr Agrest was or where his assets were. There were, however, two assets within this jurisdiction that Ms Kremen, Mr Chesnokov and Mr Fishman were interested in pursuing:
1. A fund in court
This represented the net proceeds of sale of the former matrimonial home. This fund had originally been £1 million but, as a result of amounts paid out to Ms Kremen, now stood at £600,000.
2. South Lodge
This was a property Mr Agrest had bought in England in the name of a company called Everclear. Mr Agrest had been the beneficial owner of the shares in Everclear but these shares were purchased by Mr Chesnokov for money or money's worth.
Ms Kremen had previously obtained an order setting aside the sale of the shares (although no imputation was made against Mr Chesnokov, for example that he was in cahoots with Mr Agrest).
Mr Agrest's appeal
At the hearing in February the husband, Mr Agrest, was not represented and did not appear but was assisted by Mr Beck as a McKenzie Friend, despite the fact that an earlier order had provided both Ms Kremen and Mr Agrest should attend the hearing in person. Mostyn J referred to the order for personal attendance and noted the limited role of a McKenzie friend but, nevertheless, allowed Mr Beck to be in court and lodge written submissions from Mr Agrest. Those submissions were highly abusive of Ms Kremen and the court.
Lloyd J declined to allow Mr Beck to represent Mr Agrest's in his application for permission to appeal: "It seems to me altogether out of order that Mr Agrest should proceed in this way. Either he should attend personally, in which case he could address the court and he could have assistance from Mr Beck or any other McKenzie friend, or he should be represented in the proper way by someone with a right of audience before the court."
Mr Agrest's case was that:
1. the judge was wrong to hold, or at least imply, that the husband and wife had moved to England in 1999 and that the "post-nuptial" agreement between them should be governed by English law;
2. the judge ignored relevant factual evidence in the form of documents submitted by Mr Agrest and relied on unsupported statements by Ms Kremen; and
3. the judge showed bias in favour of Ms Kremen and against Mr Agrest.
Lloyd J rejected all three arguments. In relation to the first point, he held that there was no substance to the point about the move to England as the judge did not consider the matter to be governed by English law; "He simply looked at it under English law because the proceedings before him were necessarily governed by English law, being an application under the 1984 Act."
The second ground of appeal was rejected as "a bit rich" as the husband had not attended to give evidence or to challenge evidence.
Finally, on the issue of bias, "all that is said really is that the judge had taken a strong view against Mr Agrest and he had not believed his evidence, and that is a matter for the judge to decide."
Mr Fishman's appeal
Mr Fishman had applied to intervene in the financial remedy proceedings. He effectively sought an order against Mr Agrest for a debt that he said was owed to him. Mr Fishman had sought freezing injunctions against Mr Agrest and Everclear in relation to the sale proceeds of South lodge and the fund in court, security over those assets and the payment of the net proceeds to him in satisfaction of his debt.
In October 2011, Mostyn J had ordered that this application be heard at the trial. Mr Fishman did not attend the trial and sought an adjournment of his application, which was rejected. He sought permission to appeal that decision which Lloyd LJ refused:
"Mr Fishman had previously applied to the judge for the funds in court to be paid out to him pursuant to a charge over Whitecliff in his favour which was created in January 2008. But Mostyn J had held in October 2010 that that charge should be set aside under section 23 of the 1984 Act both as against Mr Agrest and as against Mr Fishman. Mr Fishman applied unsuccessfully to the Court of Appeal for permission to appeal against that in January 2011. In those circumstances Mostyn J's comment in his judgment at paragraph 81 that Mr Fishman's application is "in any event wholly meritless and appears to seek a reversal of his judgment of 15 October 2010 in circumstances where he was denied permission to appeal" seems entirely justified."
Mr Chesnokov's appeal
When the transfer of the shares in Everclear to Mr Chesnokov was set aside, the judge allowed Mr Chesnokov an indemnity from Mr Agrest against the loss the arising. Mr Chesnokov subsequently sought to enforce the indemnity, claiming around £1.2million. Mr Chesnokov obtained default judgment on this claim and sought to enforce it by way of a charging order over South Lodge. At the hearing in February, Mostyn J refused Mr Chesnokov's order to make the final charging order absolute because to do so would have effectively undone the order setting aside the share transfer.
Mr Chesnokov argued that, in refusing to make the charging order final, Mostyn J had gone way beyond the guidance in the case of Harmon v Glencross  Fam 81. Lloyd LJ granted permission to appeal.
Z v A  EWHC 1434 (Fam) (Coleridge J) 9 May 2012
This is the second decision in this matter by Coleridge J. The first, which concerned the issue of whether there was a prenuptial agreement between the parties, is reported at Z v A  EWHC 467 (Fam).
This was the wife's claim for financial provision after foreign divorce under the Matrimonial and Family Proceedings Act 1984.
The facts of this case were summarised as follows:
"a. This was a short(ish) marriage that lasted for only 4½ years and produced one child;
b. W is (and has been for many years) a wealthy woman with c£7m of assets of her own now and with considerable family wealth behind her;
c. The parties married and divorced (consensually) in a country (W's by birth and of lasting attachment) that W accepted afforded no legal redress to either party in the event of divorce.
d. Although W has a substantial connection to this jurisdiction, both H and the marriage itself do not. This is not a marriage that was English from the beginning to the end, or a case that is English through and through. This is, in reality, a very international case.
e. (W would emphasise) H's wealth of c£34m was generated substantially during the marriage – but that is of less significance in a needs case as opposed to a sharing case."
In addition, the judge made a number of findings about discussions between the parties, including that they had agreed to keep their finances entirely separate and that neither of the parties intended or expected there to be any financial arrangements arising out the divorce other than in relation to their child.
The judge noted that the child's interests were of primary importance. He also commented that the fact that this forensic war had been ongoing since 2009 made a clean break highly desirable. As the assets in this case totalled some £40 million, a clean break was also achievable. The judge noted that "needs" were relative in such cases.
The judge cited paragraphs 70 and 73 of the speech of Lord Collins in Agbaje and felt the approach could be summarised as follows:
...when almost all relevant connecting factors are with England. In those circumstances there would be no reason not to apply English law so as to give the same provision for the wife as she would have obtained had there been divorce proceedings in England.
It is not the purpose of Part III to allow a spouse (usually, in current conditions, the wife) with some English connections to make an application in England to take advantage of what may well be the more generous approach in England to financial provision, particularly in so-called big-money cases.
This case fell within the "some English connections" category.
The Judge's comments at paragraph 20 and 21 about the approach to be adopted are interesting as they suggest a reluctance to apply the concepts from Miller Mcfarlane in these circumstances:
"20. I intend to approach the wife's claim on the basis of what is fair and reasonable provision for her and the child's needs against the background of all the circumstances, financial and otherwise, but without in this case importing special local domestic law notions of sharing and compensation.
21. The circumstances of this Part III application do not justify, in my judgment, the inclusion of those modern extra-statutory notions which were brought into existence by the Supreme Court to deal with the fact that English ancillary relief law had become stuck and needed modernising where it seemed the United Kingdom parliament was paralyzed by inactivity in this field. In the end I did not detect much dissent from Miss Stone about the adoption of this approach. She said, rather disarmingly in her note, "You look at all the factors; you weigh them up and you do what is right." As an attempt to encapsulate the problems inherent in the exercise of judicial discretion in this highly discretionary field, I like and agree with that approach and have tried to adhere to it. Anything more sophisticated risks falling back into the mire of judicial gloss again. However, helpful to practitioners and first instance judges those glosses may have been, they are just that and tend to end up, in the end, on the scrapheap of outdated judicial pronouncement. Of course, whether others would regard the outcome as right depends on one's perspective."
The wife's income needs were held to be £250,000 (of which £50,000 was considered the right figure for child support) and she was held to have no earning capacity. Her housing needs were put at £4.25 million. The husband had argued that housing provision should only be made whilst their child was being educated, as if this was a schedule 1 case. The judge rejected this approach:
"The earlier findings I made certainly lead the court to ignoring modern UK post-White principles, but that does not, in my judgment, render the case a Schedule 1 case. I have not made findings akin to those in Radmacher. They are very much vaguer than that and their impact therefore is very much less significant or determinative.
40. In the light of the fact that (a) the parties were married and this is a divorce case (b) the husband's fortune (c) the wife's contribution as wife and mother and (d) the overwhelming desirability to achieve a clean break, any capital provision should be outright and in the form of a lump sum."
The wife was due to receive sale proceeds from her own London flat which left a shortfall of £2-£2.5 million for her own housing needs. Similarly, the wife had assets that could be used to generate some income, although she would be left with a shortfall of £50,000 per annum. Rather than adopt a straight Duxbury approach to the shortfall, which could be considered unduly generous in such a short marriage, a multiplier of 10 was applied so that the wife's income needs were capitalised at between £500,000 and £1 million. Therefore, the husband was ordered to pay a lump sum of £3million plus child periodical payments of £50,000 per annum (secured against an existing trust fund set up in favour of the child).
Petrodel Resources Ltd & Ors v Prest & Ors  EWCA Civ 1395 (CA) (Thorpe, Rimer and Patten LJJ) 26 October 2012
"Why should family justice be regarded as different from any other sort of justice?" per Rimer LJ
The parties were both about 50 and had dual Nigerian and British citizenship. They were married in 1993 and had four teenage children.
The husband was in the oil trade. The parties were very wealthy and their matrimonial home had been worth in the region of £4 million. The husband had acquired eleven other properties in London, all bar one of which were in the name of three Isle of Man companies:
1. Petrodel Resources Limited (PRL)
2. Petrodel Upstream Limited (Upstream); and
3. Vermont Petroleum Limited (Vermont)
Together they were referred to as the Petrodel Group.
At first instance, the London properties were held to be worth £11.3 million gross (£9 million net).
In addition, there were various foreign properties.
There was a significant difference between the parties as to the husband's financial position (see further below). This was reflected in the parties' positions as to the outcome of the case: the wife sought an award of £30.4 million whereas the husband offered around £2 million.
The issues at first instance
These were described by Moylan J at first instance as follows:
"(a) The extent of the husband's wealth including the nature and extent of his interest in the respondent companies; and
(b) Whether I can make orders directly against properties and shares held in the name of some of the respondent companies."
As to (a), at first instance the husband's case was that the net excess of his liabilities over assets totalled £48 million. The wife argued that the husband was worth tens, if not hundreds, of millions of pounds.
Issue (b) turned upon S 24(1) (a) Matrimonial Causes Act ("S 24(1)(a)"). This section provides that the court may make "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."
Counsel for the wife argued that the court's power under s 24(1)(a) allowed the court to make orders against alter ego companies and that the husband's companies were such companies .
A number of cases are cited in both judgments but three of the most important are outlined below:
1. Nicholas v Nicholas  FLR 285 was a case involving a company in which the husband was a majority shareholder. Cumming-Bruce LJ commented, obiter, that in such cases:
"the minority interests in the company can for practical purposes be disregarded, the court does and will pierce the corporate veil and make an order which has the same effect as an order that would be made if the property was vested in the majority shareholder."
2. in W v H (Family Division: without notice orders)  1 All ER 300, Munby J also considered the approach of the Family Division in cases where a wife alleges that the assets belong to her husband but they appear to be vested in someone else or a corporate/trust entity. Munby J commented:
'Mr Everall, referring me to Nicholas v. Nicholas  FLR 285, Green v. Green  1 FLR 326, Purba v. Purba  1 FCR 652 and Khreino v. Khreino (No 2) (court's power to grant injunctions)  1 FCR 80, submits that the court adopts a robust approach in such cases and does not allow itself to be, to use Thorpe LJ's words in Khreino's case (at 85), emasculated by over-refined or technical arguments based on strict principles of property law.
I readily accept that there is much force in Mr Everall's submission. Thus, as can be seen from Nicholas's case (at 287, 292), where property is vested in a one-man company which is the alter ego of the husband, the Family Division will pierce the corporate veil, disregard the corporate ownership and, without requiring the company to be joined as a party, make an order which has the same effect as the order that would be made if the property was vested in the husband. Indeed, the court can and will adopt this approach even where there are minority interests involved if they are such that they can for practical purposes be disregarded.
Moreover, as Thorpe LJ's forthright observations in Purba's case (at 654-655), and Khreino's case (at 85), show, the court will not allow itself to be bamboozled by husbands who put their property in the names of close relations in circumstances where, taking a realistic and fair view, it is apparent that the recipient is a bare trustee and where the answer to the real question – Whose property is it? – is that it remains the husband's property. Again, in such cases there is no need for the third party to be joined. As Purba's case shows, where a transfer has been made post-separation to a close relative in order to defeat a wife's claims, the court can and will act without going through the formality of joining the third party or making setting aside orders under s.37. And as Khreino's case shows, the court can and in appropriate cases will grant Mareva injunctions against both the husband and his offshore company and the relative who holds the bearer shares in the company without requiring either the company or the relative to be joined as parties.
Nothing that I say should be taken as intended to water down in any way the robustness with which the Family Division ought to deal in appropriate cases with husbands who seek to obfuscate or to hide or mask the reality behind shams, artificial devices and similar contrivances. Nor do I doubt for a moment the propriety and utility of treating as one and the same a husband and some corporate or trust structure which it is apparent is simply the alter ego or the creature of the husband. On the other hand, and as Nicholas' case itself demonstrates, the court does not – in my judgment cannot properly – adopt this robust approach where, for example, property is held by a company in which, although the husband has a majority shareholding, the minority shareholdings are what Cumming-Bruce LJ ( FLR 285 at 287) called "real interests" held by individuals who, as Dillon LJ (at 292) put it, are not nominees but business associates of the husband."
3. In contrast, VTB Plc v Nutritek International Corporation  EWCA Civ 808 concerned a commercial dispute in which one of the issues was the court's ability to pierce the corporate veil. In that case the court recognised and affirmed the strict limitations on the ability of the court to pierce the corporate veil.
The evidence at trial
The wife adduced evidence from Mr Le Breton, a former business associate and fellow director of the husband. Moylan J found that:
1. The directors of the group acted in accordance with instructions given by or on behalf of the husband; and
2. The husband simply drew from PRL whatever the family needed as and when they needed it.
Mr Le Breton gave evidence that between 2001 and 2004 the husband had stated he was worth $40-50 million. He, like the wife, was found to be a reliable witness. The husband was found to be "wholly unreliable". It was recognised that the husband had repeatedly ignored his duty of full and frank disclosure and (per Thorpe LJ) that at trial his evidence was "both deceitful and shambolic". The husband had also flouted his obligation to pay maintenance pending suit, despite having paid in excess of £760,000 towards his own costs.
The first instance judge's findings as to issue (a)
Moylan J concluded that the husband was worth at least $60 million (approximately £37.5 million) and on this basis awarded the wife £17.5 million.
The first instance judge's findings as to issue (b)
Moylan J also various conclusions as to the husband's relationship with the companies, including that:
- the husband operated and controlled the companies and their assets for the benefit of his immediate family: the wealth within the group was family wealth to which the husband had unrestricted access.
- the husband was the effective owner and controller of the whole of the Petrodel corporate structure;
- the husband had told Mr Le Breton that he was the ultimate beneficial owner of the Petrodel Group: "Petrodel is the husband and the husband is Petrodel."
- the husband was the only effective shareholder of the Petrodel Group and managed its affairs solely for his benefit so there as a complete lack of any need for real board control;
- the husband had used the companies to meet his and the family's personal expenditure, including his legal costs;
- the lack of paperwork demonstrated the lack of any effective board control or supervision;
- the assets within the company were effectively the husband's personal property: "He is able to procure their disposal as he may direct based again on his being the controller of the companies and the only beneficial owner."
At paragraph 5 of his award ("the paragraph 5 order"), Moylan J ordered the husband "transfer of cause to be transferred" to the wife:
(i) four London properties and an interest in a fifth all held in the name of PRL; and
(ii) two London properties held in the name of Vermont.
He commented that:
"In this case the husband can without inhibition acquire the properties and shares which the wife seeks because in effect, the companies are his nominees or agents. As a result, in my judgment, the husband is entitled to the shares and properties held in the names of the corporate respondents because there is no impediment, including third party interests, to his enjoying the full benefit of those assets. They are held by the companies for the husband because the corporate structure is being used as a repository for the family wealth. Effectively the husband, in respect of the companies and their assets, is in the same position as he would be in if he was the beneficiary of a bare trust or the companies were his nominees. There exists no legal impediment to his procuring the transfer of the assets held by the companies into his name. In the language of the cases they are his "alter ego". "
The companies appealed this decision.
The judgment of Rimer LJ (with whom Patten LJ agreed)
Rimer LJ upheld the appeal, disagreeing that the husband was 'entitled' to the properties within the meaning of s 24(1)(a). His judgment has been highly controversial, partly because it sheds doubt on the decision in Nicholas. The judgment is lengthy but the conclusions, which are summarised at paragraphs 154-8 of his judgment are as follows:
1. A company and its corporators have separate legal personalities (Salomon v. A. Salomon and Company, Limited  AC 22). It makes no difference that the company has a single corporator with total control over its affairs.
2. A company's assets belong beneficially to the company and its corporators do not have any interest in them. Thus, in the same way that the assets of corporators cannot be used to meet company debts, company assets cannot be used to meet the corporator's individual debts.
At paragraph 82, Rimer LJ commented;
"...The question for the judge was in principle simple. Section 24(1)(a) obviously focuses only on property to which the respondent spouse is beneficially entitled, the location of the legal title being immaterial. The assets held by the companies (including therefore the properties) either belonged beneficially to the companies or to the husband... Before the judge could make an order under section 24(1)(a) in relation to the various London properties, he had to be satisfied that they were the husband's beneficial property: and a finding that were 'effectively' his property (whatever that may mean) was not good enough. The judge appears there to have been basing that finding on no more than his primary finding that the husband's sole control of the Petrodel group carried with it the authority to deal with all the group's assets. The critical question, however, is whether such control meant that the husband was in fact the beneficial owner of the companies' assets and, therefore, that the companies had no beneficial interest in them. The judge has not yet answered that question unambiguously, although these paragraphs were not his last word on the topic. The ordinary principle is that the shareholders of a company (including a shareholder with 100% control) have no interest of any nature in the company's assets."
Rimer LJ also noted, at paragraph 106, that:
"... even the one-man...company does not have unlimited power to procure the company to deal as he would wish with the company's assets. He may in practice be able to do so, by procuring the payment of its money and the execution of corporate dividends.... all perhaps for nothing in return. But he will not be able to do so lawfully. Even he will be constrained by the capital maintenance provisions which limit such wholesale disposals..."
Additionally, at paragraph 107 :
"....If the judge was right, third parties would be unlikely ever to be willing to trade with one-man companies, since such companies could never be more than mere nominees for the individual who controls them..."
3. It is possible to pierce the corporate veil in limited circumstances but; "It is not open to a court, simply because it regards it as just and convenient, to disregard such a separate identity and to appropriate the assets of a company in satisfaction either of the monetary claims of its corporators' creditors or of the monetary ancillary relief claims of its corporator's spouse."
The rationale for piercing the corporate veil "is that the controllers of the company have so used the fact of its separate identity for improper purposes that it may be appropriate for the court to disregard its separate identity in order that its controller may not derive the advantage from such abuse that they intended to achieve.... The jurisdiction... is an exceptional one..."
4. In this case the judge had made no finding of impropriety: Moylan J found that the company structure was set up for the purposes of asset protection and tax avoidance. Therefore, it was not possible to pierce the corporate veil. This meant the judge had no jurisdiction to hold that the husband owned the properties for the purposes of s 24(1)(a).
5. Rimer LJ made clear that the approach in family cases should be consistent with the law as a whole. For example, at paragraph 87 he stated that:
"The nature of the court's inquiry as to the beneficial ownership of a particular asset will be the same as it would be in a case not arising under the section 24 jurisdiction: 'property' for the purposes of section 24(1)(a) cannot and does not mean something different from 'property' in other contexts."
The dissenting judgment of Thorpe LJ
Thorpe LJ, the only Family Division judge on the bench held that the appeal should be dismissed: "Were there only one line of authority and were the Family Division judges bound to apply the company law as stated in VTB Plc in many cases he or she would be unable to make orders fair to applicant wives."
Thorpe LJ cited with approval the statement of Munby J in W v H that:
"Nothing that I say should be taken as intended to water down in any way the robustness with which the family division ought to deal in appropriate cases with husbands who seek to obfuscate or to hide or mask the reality behind shams, artificial devices and similar contrivances. Nor do I doubt for a moment the propriety and utility of treating as one and the same a husband and some corporate or trust structure which it is apparent is simply the alter ego or creature of the husband. On the other hand, and as the Nicholas case itself demonstrates, the court does not – in my judgment cannot properly – adopt this robust approach where, for example, property is held by a company in which, although the husband has a majority shareholding, the minority shareholdings are what Cumming Bruce LJ called 'real interest' held by individuals who as Dillon LJ put it, are not nominees but business associates of the husband."
Thorpe LJ continued:
"I would not complicate the approach that a Family Division judge can legitimately adopt either by reference to company law authority on "lifting or piercing the corporate veil" or by questioning whether judges have used an alternative expression of the same principle when they have referred to ownership by an alter ego. The simple question is whether the individual is entitled to the property within the meaning of s.24 (1) (a). The Family Division judges with particular expertise in this field... have on many occasions stressed the need to get to the reality in determining the assets to which the husband is entitled....
.. Vital are the judge's finding as to the complete absence of boundary between the husband and his companies... On the exceptional facts of this case I conclude that the judge was entitled to order the husband to transfer or cause to be transferred the assets which he did."
By the time his judgment was delivered, Thorpe LJ had reviewed the judgment of Rimer LJ but concluded that:
"...despite its cogency I emphasise that all judges who have endeavoured to achieve fairness in big money cases at first instance... have followed the pathway marked by Cumming-Bruce LJ... If this court now concludes that all these cases 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 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 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."