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Home > Judgments > 2015 archive

Gadhavi v Gadhavi [2015] EWCA Civ 520

Financial remedy proceedings appeal involving a Thomas v Thomas argument as to judicial pressure that can be put on donees and a judicial decision as to the value of a property

HHJ O'Dwyer gave judgment in a financial remedy application. A matter of dispute between the parties was a property in India. HHJ O'Dwyer accepted that the legal and beneficial title was held by the husband's mother. However, he found that:

"there are in the mother's name funds which have been originally almost entirely provided by the husband from the family income of Mr and Mrs Gadhavi in this country.  These funds are available to the husband by reason of his position in the household and he is able to cause them to be paid or distributed as he may deem appropriate." 

He stated that the husband was in control of the funds and that:

"if requested by him, moneys would be made available to him and the property sold."

As such, HHJ O'Dwyer considered that the funds were available to the husband and should be taken into account as a resource. The judge calculated the value of the property at £400,000 net.

There were two grounds of appeal. First, that the court should not have taken into consideration the property in India and second, even if that resource was available to the husband, the realisable value of the asset was never quantified. 
 
The Court of Appeal (Ryder LJ [giving the leading judgment], Tomlinson LJ and Beatson LJ) dismissed the first ground of appeal but allowed the second ground of appeal and remitted the matter to HHJ O'Dwyer.

In relation to the first ground of appeal, the Court of Appeal accepted HHJ O'Dwyer's findings of fact. The husband further argued that HHJ O'Dwyer had placed improper pressure on the family in India and in particular the husband's mother. In so doing the Court of Appeal was invited to consider the dicta in Thomas v Thomas [1995] 2 FLR 668 and TL & ML [2005] EWHC 2680. Ryder LJ highlighted that the distinction between the fiduciary obligations of a trustee to a beneficiary and the relationship between a donor and a donee are well made in both Thomas and TL & ML. Paragraph 88 of TL & ML reads:

"(88) This exposition 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."

Ryder LJ stated that the courts have been very cautious not to invade the rights of third party donors or to place them under improper pressure. However, he considered that that did not mean that as a matter of law, the judge could not conclude on the facts that prospective advancement was likely.

In relation to the second ground of appeal, Ryder LJ found that the position at trial was clear; there was no valuation evidence upon which the judge could rely other than a report disavowed by the wife as being out of date. As such, the judge's finding as to valuation could not stand and Ryder LJ set it aside. Ryder LJ refused both parties cross applications to admit additional evidence in relation to valuation, remitting the matter back to HHJ O'Dwyer.

 

Summary by Josh Viney, barrister, 1 Hare Court

_____________________


Case No: B6/2014/0087 (A) & (B)
B6/2014/0087
Neutral Citation Number:
[2015] EWCA Civ 520

IN THE COURT OF APPEAL (CIVIL DIVISION)
PRINCIPAL REGISTRY OF THE FAMILY DIVISION
(HIS HONOUR JUDGE O'DWYER)

Royal Courts of Justice
Strand
London, WC2A 2LL

Thursday, 23 April 2015


Before

LORD JUSTICE TOMLINSON
LORD JUSTICE BEATSON
LORD JUSTICE RYDER

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Between:

GADHAVI  Applicant
- and - 
GADHAVI Respondents
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(DAR Transcript of
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Mr Duncan Watson (instructed by Zaiwalla & Co) appeared on behalf of the Applicant
Mr Ranjanbala Karsan Govin Gadhavi appeared in Person
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Judgment
LORD JUSTICE RYDER:

1. On 12 December 2013, His Honour Judge O'Dwyer gave judgment in a financial remedy application brought by Mr Gadhavi against Mrs Gadhavi.  I shall, for convenience refer to them as "Husband" and "Wife" respectively.  The order was perfected on 6 February 2014.  The husband was represented by counsel and the wife was a litigant in person as she is before this court. 

2. The parties married in 1978 and separated in 2008 or 2009.  Their relationship was conceded to be a long marriage.  They had lived together at the former matrimonial home in Middlesex since 1985.  That property was the principal asset of the marriage and had an assumed and accepted valuation of £300,000 net of the costs of disposal.  The parties wanted a clean break and had identified their separate need for housing in this jurisdiction as the key issue in the proceedings.  They had roughly similar net disposable income that provided no surplus to satisfy their accommodation need.  Their debts and costs to date in the context of their very small pension provision gave the court no flexibility at all in its discretionary task.

3. There were two issues that underpinned the accommodation need question.  The first was whether either party had dissipated funds.  The judge concluded that they had not, subject to the second issue, which was whether the husband had available to him other financial resources within the meaning of section 25(2)(a) of the Matrimonial Causes Act 1973: 

"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, including in the case of earning capacity any increase in the capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire."

4. The financial resource in question was a property in India which the judge accepted is in the legal and beneficial ownership of the husband's mother.  The judge's conclusions on the question are as follows:

"24. The assets that were not only to be used for the benefit of the husband's family in India but in truth were predominantly to enable him to acquire a significant holding of property in India.  The reality of these funds is that the husband controls them.  They are available to him as much or as little as he determines in his position as head of the family in India and in his position as having funded and having continued to fund that property.  I have no doubt that if requested by him, moneys would be made available to him and the property sold.

25. To that extent, looking at the criteria under section 25 that I read out, they are resources available to the husband.  The issues in this court seem to have revolved though also as to whether they are beneficially owned by the husband.  It is clear that the property is in the mother's name.  It was paid, as originally described, probably initially funded by the husband and thereafter by the husband's TV scheme.  The husband was entirely unbelievable in his assertion that his father might have had the funds that he was not aware of for the initial acquisition.  I find that it was the husband's project throughout and his claim that the father might have been assisted by others in the husband's family including his sisters is unsupported by any credible evidence.  But there is in fact evidence going the other way that Mr Gadhavi was in fact supporting his sisters.  As I have said, there is no account of how the husband's father could begin to have funded the original £18,000 deposit required. 

26. Throughout the husband's evidence it is clear that he was the originator of funds and in control of the property.  He accepts he is the head of the family and has always provided.  I accept that he feels heavily the need to provide for his family in India.  He could, in my judgment, undoubtedly occupy the property in India himself but I accept that he does not wish to live primarily in India.  If it were to be sold he would feel the need – and I recognise the part he plays in the family – to provide for his family and I take that into account to the extent that this property should be treated as a resource for the husband.

27. However, it has not been demonstrated to me that the actual beneficial ownership does not follow the legal ownership.  On the contrary, the likelihood is that the property does genuinely vest in the mother but because of the ties of family and the origins of the money, she undoubtedly would do, as her son requested, as would indeed the Indian family.  The strict concept of Chancery law as to ownership and equity does not sit easily in these circumstances with the family traditions in India and the structures adopted by the husband.  And in my judgment it would strain the language of trusts to impose a resulting or constructive trust upon these arrangements.  Nor do I find room for implying a trust.  I have not been assisted by counsel in this particular regard but my own assessment is that this was clearly a binding family arrangement rather than that vested in property law.

28. The finding I make, therefore, is intended to be a finding that accurately reflects the reality of the position: that there are in the mother's name funds which have been originally almost entirely provided by the husband from the family income of Mr and Mrs Gadhavi in this country.  These funds are available to the husband by reason of his position in the household and he is able to cause them to be paid or distributed as he may deem appropriate.  I have stopped short of finding, however, that the husband has a definable property interest as understood under English law but I am satisfied that it is a resource available to the husband should he so choose."

5. Although the judge's characterisation of the husband's control over the asset in question might be criticised on the basis that the concept of control can have a different quality from whether a resource is available now or in the future, the import of his conclusion is clear.  The conclusion followed through into the judge's discretionary exercise in this way.  He accepted that the parties should to all intents and purposes be equally provided for in respect of their accommodation need.  Although the particulars of different available properties ranged in value from below £175,000 to above £300,000, he settled on £200,000 as a broad estimate of the quantification of that need.  He decided the former matrimonial home should be sold and that the wife should have the first £200,000 of the balance of proceeds of sale, the rest of the balance, subject to costs, to be divided equally.  The husband's need was to be met by such benefit as he chose to realise from the property in India.

6. Mr Watson who appears on behalf of the husband today criticises that determination on two bases.  He submits first that the court should not have taken into consideration the property in India and second, even if that resource was available to the husband, its value, that is the realisable value of the asset, was never quantified. 

7. It needs to be understood that the length of the hearing in question was badly estimated with the consequence that the judge heard it over four days in 2013.  That there was a gap between each day of not less than a month.  The first two days was separated by a four-month break.  That is most unfortunate and was a factor that no doubt hindered the judge in his recollection of the detail of what had and had not been addressed by the parties. 

8. On the first day of the hearing, and given the fact that the wife was a litigant in person, the judge helpfully defined the issues.  He said, "Really, I should first determine whether there is an interest before I come to valuing the property".  That was in the context that the wife's case was that the husband had a legal and/or beneficial interest in the property in India.  The husband's case was that he had no interest and that the property had been vested in his father's sole name and on his death, it had been transferred into his mother's sole name.  I need not examine the evidence or the detail of the judge's conclusions about the legal and beneficial interests in the property because that is not the issue in this appeal.  At paragraph 27 of his judgment, the judge sets out his conclusion that the legal and beneficial ownership was vested in the husband's mother and that on the facts, no resulting constructive or implied trust arose. 

9. In light of that determination, the real question is whether the judge fell into an error of fact or law in coming to the conclusions (a) that the husband was the head of the family in India and (b) in that position the husband was able to request that monies be made available to him or that the property be sold and, (c) that as a consequence, the property should be treated as a financial resource available to the husband. 

10. Mr Watson has taken the court through the transcripts of evidence and submission and highlights the proper caution with which the judge dealt with the difference between a vested asset and an inheritance.  He highlights the fact that there was no evidence of advancement of monies nor, indeed, any evidence of a direct benefit to the husband deriving from the purchase and upkeep of the property.  There was evidence from the husband about the position of his father as head of the family and how he was during his life, (that is his father) in charge.  There was even a limited acknowledgment by the husband in evidence to the following question put by the judge:

"Question: [Isn't it] the case that actually this money was going to fund the property and at some point, as the eldest son, you are likely to have an interest in that property?

Answer:  Your Honour, it is true in many ways…"

11. The family arrangements were explored in more detail because of the source of the funds for the purchase of the property and the tax liabilities that arose.  The husband was the "Administrator" which he described in oral evidence as follows:

"The eldest son becomes the administrator in most or almost all of the families.  He helps in the administration work or whatever work is needed and because I was doing that prior to that all my life ever since I became 17, 18, I was helping my father, you know, in all his work."

12. In submission, the judge developed with counsel for the husband the question of fact which arose if the husband had the ability derived from his position in the family to access the financial resource in the property in India.  Mr Roy, the husband's then counsel, put the husband's case which was that his mother lived in the property, he, the husband, could not sell it and accordingly, he could not make use of it.  The judge heard detailed oral evidence from both the husband and the wife.  It is correct to say that at no point was the direct question asked of the husband, "Are you the head of the family in India?"  The wife was a litigant in person and although the judge could have gone further than he did to ensure the issues were fully put, he heard ample evidence about the funding of the property from which he concluded that it was a tax efficient way of the husband accumulating significant family assets in India so as to avoid control of the assets by the wife. 

13. The judge regarded the husband as having been evasive in oral evidence and went further in respect of his evidence about the funds used to purchase the property.  He held that the husband's evidence on that point was unbelievable.  The judge concluded that the property had been designed for the husband's use, at least in part, and that the husband's mother did not live there.  Furthermore, and importantly, the judge held that the husband's denials were unimpressive on the question of whether the property was or would be a financial resource. 

14. It seems to me that on the facts, the inferences that the judge drew from the evidence that he read and heard were entirely permissible and I have come to the conclusion that the judge did not fall into an error on the facts.  Indeed, the judge gave the husband credit for the third party interests, both the legal and beneficial interest of his mother and the possible occupation of the property by his brother in his allocation of only 50 per cent of the resource to him as an available asset.  There is no cross-appeal on that determination.

15. Turning then to the law.  Mr Watson sought to persuade the court that the effect of the order was to place improper pressure on the rest of the family in India, in particular, the husband's mother.  He submitted that that would be contrary to the repeated warnings of this court as classically expressed by Glidewell LJ in Thomas v Thomas [1995] 2 FLR 668 at 678:

(a) Where a husband can only raise further capital, or additional income, as the result of a decision made at the discretion of trustees, the court should not put improper pressure on the trustees to exercise that discretion for the benefit of the wife.

(b) The court should not, however, be 'misled by appearances'; it should 'look at the reality of the situation'.

(c) If on the balance of probability the evidence shows that, if trustees exercised their discretion to release more capital or income to a husband, the interests of the trust or of other beneficiaries would not be appreciably damaged, the court can assume that a genuine request for the exercise of such discretion would probably be met by a favourable response.  In that situation if the court decides that it would be reasonable for a husband to seek to persuade trustees to release more capital or income to him to enable him to make proper financial provision for his children and his former wife, the court would not in so deciding be putting improper pressure on the trustees.

16. The high point of his submission was the analysis of the submissions of Mr Nicholas Mostyn QC, as he then was, in TL & ML [2005] EWHC 2860 at paragraphs 86 and 88:

"(86) I think that a clear distinction is to be drawn between, on the one hand, the position where the person being encouraged is a member of the payer's family and, on the other hand, where he is a trustee in a fiduciary relationship with the payer. In the former case, the payee has no more than a mere spes of bounty which may, at the election of the provider, reasonably or unreasonably, be withheld. In the latter case, the provider has a legal obligation to consider the beneficiary's interests. The very reason for the existence of the trust is to provide benefit for the beneficiary.

(87) A clear and helpful description of the relationship of trustee and beneficiary in a discretionary trust has been given by the Royal Court of Jersey in Re the Esteem Settlement [2004] WTLR 1 at 60:

'[163] A trust exists where a trustee holds property for the benefit of one or more beneficiaries (see Art 2 of the 1984 Law). The important point is that save to the extent permitted by the trust deed (eg remuneration) the trustee may not benefit from the assets; they are held entirely for the benefit of the beneficiaries. As Lord Blackburn put it in the Privy Council decision in Letterstedt v Broers (1884) 9 AC 371 at 386: 'It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate'.  In other words, trustees have no interest of their own in the trust property; their sole purpose is to deal with the trust assets for the benefit of the beneficiaries. All the powers of the trustees may be exercised only in the interests of the beneficiaries and in accordance with the terms of the trust deed.

[164] What the exercise of such powers will involve will, of course, vary considerably according to the nature of the trust the number of beneficiaries, the underlying purposes behind the establishment of the trust the nature of the assets and many other factors …

[165] Furthermore, it is important that the relationship between trustee and beneficiary should be harmonious. Indeed, lack of harmony may be of itself a good reason for a trustee to resign or be dismissed (see Letterstedt at 386). This is not surprising because the trustee's sole duty is to act for the benefit of the beneficiaries. In our judgment there is nothing untoward in beneficiaries making requests of a trustee as to the investment of the trust fund, the acquisition of properties for them to live in or for the refurbishment of properties in which they already live. In our judgment many decisions of this nature are likely to arise because of a request by a beneficiary rather than because of an independent originating action on the part of a trustee. The approach that a trustee should adopt to a request will depend upon the nature of the request, the interests of other beneficiaries and all the surrounding circumstances. Certainly, if he is to be exercising his fiduciary powers in good faith, the trustee must be willing to reject a request if he thinks that this is the right course. But when a trustee concludes that the request is reasonable having regard to all the circumstances of the case and is in the interests of the beneficiary concerned, he should certainly not refuse the request simply in order to assert or prove his independence. His duty remains at all times to act in good faith in the interests of his beneficiaries, not to act against those interests for improper reasons.

[166] In our judgment, where the requests made of trustees are reasonable in the context of all the circumstances, it would be the exception rather than the rule for trustees to refuse such requests. Indeed, as Mr Joumeaux accepted, one would expect to find that in the majority of trusts, there had not been a refusal by the trustees of a request by a settlor. This would no doubt be because, in the majority of cases, a settlor would be acting reasonably in the interests of himself and his family. This would particularly be so where there was a small close-knit family and where the settlor could be expected to be fully aware of what was in the interests of his family. Indeed, in almost all discretionary trusts, the settlor provides a letter of wishes which expresses informally his desires in relation to the administration of the settlement. Furthermore he may change his wishes from time to time. In our judgment it is perfectly clear that trustees are entitled (see Abacus Trust Company (Isle of Man) Ltd v Barr [2003] 1 All ER 763) to take account of such wishes as the settlor may from time to time express provided, of course, that the trustees are not in any way bound by them. The trustees must reach their own independent conclusion having taken account of such wishes.

[167] On numerous occasions during the course of the hearing Mr Journeaux was driven to repeat that Abacus had not rejected any request of Sheikh Fahad. A lack of any refusal may of course be indicative of the fact that trustees have abdicated their fiduciary duties and are simply following the wishes of the settlor without further consideration. But, as mentioned above, a lack of any refusal may be equally consistent with a properly administered trust where the trustees have in good faith considered each request of the settlor, concluded that it is reasonable and concluded that it is proper to accede to such requests in the interests of one or more of the beneficiaries of the trust. But one does not start, as at times seems to have been the plaintiffs' case, with an attitude that it is very surprising and worthy of criticism that the trustee acceded to all Sheikh Fahad's requests. On the contrary, as the Privy Council said in Letterstedt, trustees exist for the benefit of beneficiaries and it is in our judgment very common that trustees will have perfectly properly acceded to all the requests of a settlor without in any way abdicating their fiduciary duties and responsibilities.'

(88)  This exposition 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."

17. The distinction between the fiduciary obligations of a trustee to a beneficiary and the relationship between a donor and a donee are well made.  That does not preclude prospective advancement of monies on the facts.  It is most certainly the case that the courts have been very cautious not to invade the rights of third party donors or to place them under improper pressure.  That does not mean that as a matter of law, the judge could not conclude on the facts that prospective advancement was likely.  Given my conclusion on the facts, I have come to the conclusion that the judge did not fall into an error of law or fact in deciding that the Indian property was a financial resource for the purposes of section 25(2)(a) of the 1973 Act.

18. Turning then to the second ground, the submissions on this question can be put rather more shortly.  The judge anticipated that he would conduct a two-stage process relating to the Indian property, the second part of which was quantification of value.  In compliance with what she recollects was a direction of the court, the wife included in the court bundle at first instance a market valuation of the property in the sum of 2.85 million rupees as at 19 September 2011.  She informs this court that the husband had not provided his own valuation prior to the final hearing.  It is undoubtedly the case that she also volunteered to the judge internet materials relating to smaller properties in the same development which described asking prices of 3.35 million and 3.47 million rupees respectively. 

19. In his judgment at paragraph 8, Judge O'Dwyer sets out the value put on the property by the wife as being £410,000 which at paragraph 31 he rounds down to a net sum of £400,000.  At the outset of the trial, the judge was told that the parties had not been able to agree valuation of the Indian property, such that the bracket was as broad as between £140,000 and £410,000.  The wife handed in a valuation during the hearing which no longer exists.  It cannot be any of those to which this court has been taken because the valuation contended for by the wife is nowhere set out on the face of a surviving document. 

20. Insofar as the judge recollected in discussion after judgment that the wife's valuation had not been challenged by the husband, it suffices to say that that cannot be correct.  Given that the quantification of the resource was a disputed question, there should have been evidence in accordance with Rule 9.15(3) of the Family Procedure Rules 2010 which replicate rule 2.61(D)2(b) of the 1991 rules.  The husband says that no appropriate order was made and the wife recollects that an order was made.  The position at trial is clear; there was no valuation evidence upon which the judge could rely other than a report disavowed by the wife as being out of date.  In any event, that report was a taxation rather than a market valuation.  There was no evidence before the court that the property had a net market valuation of £400,000.  The judge's finding as to that valuation cannot stand and I would set it aside.

21. Before this court, both husband and wife have made cross applications to adduce additional evidence in relation to valuation.  I take the view that given the scale of the dispute between the parties, the method of valuation needs to be considered and a reliable source of a valuation is required.  It is not appropriate for this court to enter into an exercise of considering Whether the additional evidence meets those requirements, given that such an exercise would almost certainly depend on extraneous materials not available to us. 

22. For these reasons I would dismiss the husband's appeal on ground 1 and would allow his appeal on ground 2 to the extent of setting aside the valuation finding and the order made on 6 February 2014.  I would remit the matter to Judge O'Dwyer for an urgent hearing at which directions as to valuation evidence must be made.  The matter must then be set down for a rehearing on the question of valuation upon which the quantification of the terms of a new order will depend. 

LORD JUSTICE BEATSON
23. I agree.

LORD JUSTICE TOMLINSON
24. I, too, agree.

Order:  Application granted in part