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Ancillary Relief and Family Money

Alexander Chandler, of 1 King's Bench Walk, reconsiders the limitations of Thomas v Thomas, procedure in intervenor cases and maintenance pending suit.

The limitations of Thomas v Thomas, procedure in intervenor cases and maintenance pending suit reconsidered

Alexander Chandler, 1 King's Bench Walk

It is a well-known principle of ancillary relief that the courts look to the reality of a party's financial position rather than being restricted only to the resources which a party legally owns. In Thomas v Thomas [1995] 2 FLR 668, Waite LJ stated at p 670:

'…that where a spouse enjoys access to wealth but no absolute entitlement to it (as in the case, for example, of a beneficiary under a discretionary trust or someone who is dependent on the generosity of a relative), … there will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court's view of the justice of the case.'

What should a court do where a previously generous relative decides to withdraw support or to assist only to a certain degree? Can the court make an order that exceeds the actual resources of a party to 'judiciously encourage' such a relative?

The profession may be surprised by the conclusions of Nicholas Mostyn QC (sitting as a Deputy High Court judge) in the case of TL v ML and Others (Ancillary Relief: Claim Against Assets of Extended Family) [2005] EWHC 2860. In a wide-ranging and compelling judgment, Mr Mostyn (hereafter 'the judge') considers the limits of the court's powers of 'judicious encouragement' against family members and sets down guidelines as to applications for maintenance pending suit and the correct procedure on a party's intervention. In time, this judgment may prove to be as influential as the judge's earlier pronouncements in GW v RW (Financial Provision: Departure from Equality) [2003] 2 FLR 108.

The facts of TL v ML and Others
H (36) and W (33) were married for six years and had two children. The length of the relationship was seven years. H came from a wealthy Greek shipping family whereas W's family originated in Yugoslavia and settled in Austria. The parties met and married in London and, following their separation, W obtained leave to return with the children to live in Austria. The parties' assets amounted to £560,000 with legal costs of £419,000, such sums having been met by the parties' parents in what Singer J had earlier described as a 'power struggle' between the two families. The intervention of H's brother and father increased the total legal costs to £474,000.

W sought £2.3 million on a clean break whereas H offered €565,000 (£383,000), representing two-thirds of the parties' assets. In addition, H's parents offered to set up a trust fund for the children provided W's family also assisted and that certain conditions, including contact between the children and their paternal grandparents, were met.

H's family shipping business was operated through a network of off-shore companies. W alleged that H was the beneficial owner of part of this business and specifically of two bearer share companies – one established in Panama, the other in Liberia, the shareholding of which was held by a Jersey nominee organisation. Quoting an Italian Professor of Sociology, the judge commented:

'[52]… I have to say that the arrangements made in this case for the holding of assets is a clear manifestation of the cult of ambiguity'.

W's primary case, that H was the beneficial owner of part of this business and of a flat owned by H's brother, was rejected on the facts by the judge. He found that H's parents

'[69]…are patriarch and matriarch respectively and retain overall control and ownership of the family personal and business assets save where they have specifically donated property to their children.'

'Judicious encouragement' and Thomas v Thomas
W's fall-back position was to invite the court to 'judiciously encourage' H's parents to provide to her the 'bounty' which H would likely receive in future.

The judge recalled the facts of Thomas v Thomas and underlined two points of significance:

(i) Distinction between fiduciary and family arrangements
A 'clear distinction' should be drawn between the relationship of trustee to beneficiary, where the trustees might properly accede to the request for release for funds, as against a family member whose response to such 'judicious encouragement' might be to call the court's bluff and retort:

'[85]… 'Thank you for your encouragement, but I have decided not to assist'. Or, as here, 'I am only prepared to assist to such and such an extent'. Is the court supposed to ignore that stance and simply make an award on the basis that the assistance will be given? What happens if and when it is not? How is the court supposed to enforce its order? It could hardly be said that the payer is in wilful default justifying a penalty under the Debtors Act 1869. It is for this reason that I expressed the view during argument that often the so called 'judicious encouragement' can turn out to be no more than mere empty rhetoric.

[88] This exposition [in Re the Esteem Settlement [2004] WTLR 1] sets out with clarity the very different nature of, on the one hand, the relationship between a fiduciary and his beneficiary; and, on the other, that of mere donor and donee. If the court makes a reasonable request of trustees to make funds available to meet an ancillary relief award then it can assume that ordinarily the trustees will accede to such a request. The same cannot be assumed of a request of a mere donor, for it is his prerogative to be unreasonable, if that is his inclination.'

(ii) Could the court make an award that ranged outside a party's means?
The award in Thomas v Thomas represented a small fraction of Mr Thomas's capital resources and the majority of his income from the family business, but:

'[84]…did not exceed in either respect what was Mr Thomas' as of right. There is in my view a big difference between that state of affairs and what is urged on me here – an award that very substantially exceeds what is H's, in the hope and expectation that [his father] will make up the difference.'

The judge questioned the court's jurisdiction to make an order that would so exceed a party's means. Counsel for W relied upon two authorities in support of seeking an order that so exceeded H's own resources: M v M (Maintenance Pending Suit) [2002] 2 FLR 123 and X v X (Y & Z Intervening) [2002] 1 FLR 508.

The judge distinguished the former but considered X v X in some detail. In that case, a wife without obvious means had agreed to pay a lump sum of £500,000 (to be paid by her brother) in consideration of Mr X not petitioning for divorce and agreeing to give a Get. Whilst the ratio of that case was that the agreement was binding whereby no further investigation was necessary, the trial judge, Munby J noted that had it been necessary to reach such a finding, he would have concluded that as a matter of fact very substantial resources were actually available to Mrs X. Mr Mostyn QC noted:

'[100] I do not believe that Munby J was enunciating a principle that as a matter of course it is proper to apply pressure on people who have historically provided bounty to meet an award that is outside the capability of the paying party.'

In conclusion, the judge summarised:

'[101] The correct view must be this. If the court is satisfied on the balance of probabilities that an outsider will provide money to meet an award that a party cannot meet from his absolute property then the court can, if it is fair to do so, make an award on that footing. But if it is clear that the outsider, being a person who has only historically supplied bounty, will not, reasonably or unreasonably, come to the aid of the payer then there is precious little the court can do about it.'

'[109] I do not believe that it would be proper or principled of me to make an award that ranges outside the assets or income that are H's as of right…

[110] The question is whether it would be proper to appropriate the entirety of his entitled assets and income on the footing that [his parents] will provide his support for income and housing from their resources. I do not believe that this would be proper. This would be improper pressure on [H's parents].'

Accordingly, orders were made in the amount offered by H. The offer by H's parents to assist with a trust fund fell outside the court's ambit: "It is up to them. Whether or not I think it is reasonable is fundamentally irrelevant" [104].

Maintenance pending suit
Having determined the main applications, the judge went on went on to consider and dismiss H's appeal against an order for maintenance pending suit. The judge then made a number of suggestions as to applications for maintenance pending suit following the Court of Appeal decision in Moses-Taiga v Taiga [2005] EWCA Civ 1013.

(i) How might a claimant establish an 'exceptional case' for a costs allowance to be paid?

'[128] Thorpe LJ [in Moses-Taiga v Taiga [2005] EWCA Civ 1013] speaks of the power [to make a costs allowance] only being exercised in "exceptional cases". I would be surprised if he intended by that remark to impose the need to demonstrate anything beyond the requirements that he had previously mentioned, namely, that the applicant (1) had no assets, and (2) could not raise a litigation loan, and (3) could not persuade her solicitors to enter into a Sears Tooth v Payne Hicks Beach charge. The combination of those three factors would, to my mind, make the case exceptional.

[129] The second and third requirements make the Applicant prove a negative in each instance. In order to prove the inability to raise a litigation loan I would have thought that production of correspondence between her solicitors and at least two banks eliciting a negative response would suffice. A simple statement from her solicitors stating that they were not prepared to enter into a Sears Tooth v Payne Hicks Beach charge should ordinarily deal with the third requirement.'

(ii) Duration of orders for MPS and provision of future costs schedules

'[130] In practice I would expect that if the application is made before the FDR the costs allowance
should fund the applicant up to the FDR. In every case I would expect that a fairly detailed estimate of the costs expected to be incurred up to the FDR should be produced. If the FDR fails then the judge in the subsequent directions phase can consider whether to extend the allowance up to trial and, if so, in what amount.'

(iii) Terms of undertaking that might be requested from the recipient

'[131] One of the problems with a costs allowance is the conceptual difficulty of reckoning the payments at final trial. Does one pretend that the payments have not been made and notionally add back the sums to the payer's side of the ledger, while simultaneously increasing the amount of unpaid costs on the payee's? Or does one present the figures as they are, in which event it could be said that the court's ultimate discretion over costs has to some extent been pre-empted? It is on account of these difficulties that I think that, generally speaking, an applicant should be required to give an undertaking (1) only to apply the costs allowance to the payment of costs and (2) to repay such part of the costs allowance at trial if, and to the extent that, the court is of the opinion, when considering costs, that she ought to do so.'

Procedure upon the intervention of a party
With regards to the intervention of H's brother and father, the judge emphasised the need for the issue of a third party's interest to be properly pleaded and determined as a preliminary issue. Perhaps more strikingly, the judge advocated the need for proper civil pleading:

'[34] It is to be emphasised, however, that the task of the Judge determining a dispute as to ownership between a spouse and a third party is of course completely different in nature to the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division…

[36] In my opinion, it is essential in every instance where a dispute arises about the ownership of
property in ancillary relief proceedings between a spouse and a third party, that the following
things should ordinarily happen:

i) The third party should be joined to the proceedings at the earliest opportunity;
ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;
iii) Separate witness statements should be directed in relation to the dispute; and
iv) The dispute should be directed to be heard separately as a preliminary issue, before the FDR.'

The judgment in TL v ML represents a significant restriction of Thomas v Thomas and calls into serious question the powers of courts to judiciously encourage family members to provide assistance. If followed, the dicta as to the proper procedure for intervenors' interests to be heard and for applications for 'costs allowances' within maintenance pending suit, will have a significant effect upon case management of many applications for ancillary relief.