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Home > Judgments > 2005 archive

N v N & F Trust [2005] EWHC 2908 (Fam)

This judgment declared that a former matrimonial home was an anti-nuptial settlement capable of variation pursuant to S 24(1)(c) of the MCA 1973.

The property was bought by a company whose shares were entirely owned by the F trust. The main question was whether a tenancy arrangement between the trust and the married couple altered the character and true legal relationship between the husband and trustee such that it was no longer capable of being a nuptial settlement. Coleridge J asserted that the husband and trustee remained in the relationship of trustee and beneficiary and the tenancy agreement did not affect that fundamental position.

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Case No: S004D000644

Neutral Citation Number: [20051 EWHC 2908 (Fam)

IN THE HIGH COURT OF JUSTICE

FAMILY DIVISION

SOUTHAMPTON DISTRICT REGISTRY

(Sitting at Bournemouth Combined Court Centre)

Royal Courts of Justice

Strand, London, WC2A 2LL

16th December 2005

Before:

THE HON. MR JUSTICE COLERIDGE

Between:

HN Petitioner

- and -

AN Respondent

- and -

F TRUST 2nd Respondent

Valentine Le Grice QC (instructed by Bell Pope) for the Petitioner

Miss Kate Branigan (instructed by Parker Bullen) for the Respondent Husband

Dominic Brazil (instructed by Howes Percival) for the Respondent Trust

Hearing dates: 23 November 2005

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this

Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE COLERIDGE

This judgment is being handed down in private on 16th December 2005 in Bristol. It consists of 10 pages and has been signed and dated by the judge. The judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.

Mr Justice Coleridge:

1. HN ("the Wife") and AN ("the Husband") married on 30 September 2001. They had become engaged the previous year, in April 2000, and during the Summer of that year they looked for a property to become their future matrimonial home. In July 2000 they discovered Brooklands Farm ("Brooklands"). They viewed it and decided they wanted to live there as their home. The property was purchased by a company called WP Ltd, a Bahamian company, all the shares in which are owned by a Guernsey trust called the F Trust.

2. The purchase was completed by the Company in September 2000 and the Husband and Wife lived together in the property before and during their marriage. A, their one son, was born on 13 November 2003. Sadly the marriage became unhappy and the Wife presented a petition on 20 May 2004. Her Form A is dated 5 July 2004. It seeks a property adjustment order but not in respect of the matrimonial home, The Wife vacated Brooklands on 19 December 2004.

3. During the interlocutory stages of the Wife's ancillary relief application the point was taken that Brooklands was and is subject to an anti-nuptial settlement and as such that the court would have power to vary the terms of the settlement under section 24(1)(c) of the Matrimonial Causes Act 1973.

4. That is an assertion which if correct, has potentially far reaching implications both for the determination of this case and, I suspect many others. So, the point having been raised, the Deputy District Judge, quite rightly, determined that such an issue should be discreetly resolved in the High Court prior to the application to vary proceeding further. Accordingly by order of 2 June 2005:

"The issue of whether the purchase of the former matrimonial home known as 'Brooklands' is an anti- or post-nuptial settlement capable of variation pursuant to section 24(1)(c) of the Matrimonial Causes Act 1973, as amended, be transferred to the High court pursuant to the Practice Direction of 5 June 1992.".

5. The Deputy District Judge also joined the Trustees of the F Trust and gave them permission to file and serve evidence.

6. Accordingly on 23 November 2005 the issue came on before me for preliminary determination. The Wife, the Husband and the Trustees all filed statements dealing with their knowledge of and the circumstances leading to the purchase of 'Brooklands'. The Trustees also provided documents and information relating to the creation of a short-hold tenancy between the Husband, the Wife and the Trustees. I have not heard any oral evidence. Apart from one file of documents containing the statements and documents to which I have referred, the hearing was confined to argument by counsel who had each filed skeleton arguments on behalf of their respective clients.

7. The Wife maintains that looking at all the circumstances surrounding the purchase of Brooklands the property is held by the Trustees of the F settlement on the terms of an anti-nuptial settlement capable of variation by the court. Both the Husband and the Trustees resist that interpretation. Whilst they accept that the purchase of a matrimonial home might in some circumstances constitute an anti nuptial or post nuptial settlement, in this case, they maintain, the terms under or by which the Husband and Wife occupied 'Brooklands' were no more than as tenants of the Trustees pursuant to an assured short-hold tenancy. That tenancy agreement was eventually reduced to writing and signed on 25 March 2004, some 2 months before the Wife presented a petition for divorce. That is, essentially, the issue between the parties.

8. I turn to consider the facts and chronology in a little more detail.

Chronology

9. As I have indicated there is no significant dispute between the parties as to the facts which underlie this issue. They are set out at length in the statements to which I have referred. I have, of course read them with care.

10. 'Brooklands' was bought for £725,000 with the aid of a £500,000 interest only mortgage from a bank. The balance of the purchase price was provided by the F Trust. The origin of that equity balance was monies generated by the Husband through business dealings and deposited in the trust.

11. As I have already indicated the property is itself owned by WP Holdings Ltd., a Bahamian corporation.

12. During the time the parties lived together about £28,000 was also provided by the Trust to build a horse arena at 'Brooklands' because the Wife, in particular, was intent upon running 'Brooklands' as an equestrian centre.

13. It is apparent from the statement of Richard McIntosh, sworn on 23 November 2005, that from about March 2001 the professional trustees were in correspondence with the Husband about the terms of a tenancy which was to be put in place between the company and the Husband and Wife. From paragraph 28 onwards of that statement it can be seen that for the following 3 years discussions took place about the terms of the tenancy and the rent which should be payable. It was a painfully slow process which culminated finally, in two tenancy agreements being signed on 25 March 2004.

14. In fact not very much rent was paid as can be seen from the exhibit to the Trustees' affidavit (ACN1). That exhibit shows that throughout the entire period of the alleged tenancy some £50,926 was apparently paid as rent leaving arrears, at the time when possession proceedings were begun in June 2005, of some £63,599 i.e. rather more than half the rent was outstanding.

15. As I suggested to counsel in argument neither the speed of negotiation of the terms nor the collection of rent shows the Trustees exhibiting the kind of urgency associated with a true commercial arrangement. However, that it is not in any way to be critical of the Trustees. The main purpose of establishing the tenancy was to provide, as I understand it, comfort to the mortgagees who required a proper legal arrangement to ensure that the interest on the bank loan was met in a secure and timely way. In fact the trustees, until comparatively recently, had sufficient other resources (also originating from the Husband) to defray the mortgage repayments so one way or another there was no special urgency so far as the trustees position was concerned.

16. On 20 August 2004 the Trustees served a formal notice to vacate by 15 September 2004 and on 19 December the Wife left the property. The Husband remained in occupation until the middle of this year when, unable to sell the property, the Trustees re-let it for a period of 12 months to third parties.

The F Trust

17. Mr McIntosh deals with background to the F Trust in his statement. I quote from paragraph 2

"The F Trust was created by a trust deed dated 19 January 1989 and executed by Mr F of... Sark as its settlor. Mr F acted as a 'straw man' in creating the settlement on behalf of either Mr R or Mrs R and a life tenancy was created in favour of Mrs R. On the death of Mrs R in July 1998 small payments (£2000 each) were made to Mrs R's two daughters... in satisfaction of their entitlements as beneficiaries. The remaining beneficiaries were Mrs W' s children and Mrs L's son, AN. The W children decided that they would like to receive benefit immediately by way of distribution of part of the trust fund, and each was paid one third of the remainder (approximately £30,500 each) in September 1998. The Trustee of the F Trust wrote to AN on 30 July 1998 to explain to him the financial consequences of his grandmother's death and also the options of receiving immediate benefit or of retaining the trust structure. The W's were Guernsey resident and for them the continuation of an interest in the Trust would have conveyed no tax advantage but would have incurred on going management costs. In AN's case he was UK resident for tax purposes but non-domiciled. There were, therefore, potentially significant advantages in retaining the trust structure and after due consideration the Trustee resolved that the Trust should continue. As such the remaining funds are held on a discretionary basis. He then made a request that the Trustee invest the sum of £28,500 in the purchase of shares in AN & Co. Ltd. After due consideration, the Trustee complied with this request. Since that time the trust fund has basically been illiquid.

The payment of the distributions to the other beneficiaries effectively ended their interests in the trust fund, and the Trustee although understanding that his children would ultimately benefit in the event of his death became concerned to have clear instructions from Mr N as to his wishes with regard to how the trust fund should be dealt with in the event of his death or incapacity."

18. Accordingly, after the departure of the W's the husband became the sole beneficiary.

19. So far as the purchase by the Trust of 'Brooklands' is concerned the background to that is contained in paragraph 18 of the Trustee's statement which reads

"In July 2000 AN telephoned to say that significant funds were about to be paid to a company called X Ltd, in which he had a beneficial interest and which was under the management of Y Ltd. He had identified a property which he would like to acquire. It was agreed that Y Ltd should investigate the possibility of acquiring this through an off-shore vehicle and of obtaining funding from Ansbaka Bank in Germany. AN and his accountant were to investigate the viability of restoring the property to its former use as a riding school and would develop a business plan".

20. In the ensuing paragraphs of the statement the steps taken by the Trustees to acquire WP Ltd and for WP Ltd to purchase 'Brooklands' is set out. There is nothing remarkable about the way in which the purchase was effected.

21. So far as the F Trust is concerned, it is conceded by the Wife that in its original form, established as it was in 1989, it could not be, at that stage, regarded as a nuptial settlement. However it is contended that by the purchase of 'Brooklands' as their future home in 2000, (by which time the Husband was effectively the only remaining beneficiary of the Trust), 'Brooklands' itself became subject to an anti-nuptial settlement.

The Law

22. Section 24(1)(c) of the Matrimonial Causes Act 1973 reads as follows:

"On granting a decree of divorce.., the Court may make... 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 anti-nuptial or post nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage;"

23. The statute does not define anti- or post- nuptial settlement. For the definition of that it is necessary to delve into the recesses of victorian and edwardian jurisprudence. I have been shown a large number of authorities. I quote from only a few.

24. At that time the relevant section was section 5 of the Matrimonial Causes Act 1859. In Blood v Blood [1902] Probate 78, Gorell Barnes J when dealing with an application to vary a nuptial settlement said this at page 82:

"I have considered the words of the ~ section of the Act with great care and it appears to me that they do confer such a power as is contended for by the Petitioner. Those words are extremely wide, and I am anxious that they should not, by any construction the Court may put upon them, be narrowed in any way. To narrow them would be undesirable for this reason: the various circumstances which come before the Court, and for which this section is brought into operation, are so diverse that it is to my mind extremely important that, so far as possible, the Court should have power to deal with all the cases that come before it, and in dealing with them, to meet the justice of the case. I, therefore, do not desire to see any narrow interpretation place upon the words of the section...."

25. In 1927 in Bosworthick [1927] Probate 64 Lord Justice Scrutton made the remark often found in other authorities:

"There are a series of decisions in the Divorce court to show that a much wider meaning has been given to the word 'settlement' than it has received in equity".

26. In Prinsep [1929] Probate 225 Mr Justice Hill said:

"The point in issue is whether the settlement of August 25th 1920 is a 'post-nuptial settlement on the parties' within the meaning of section 192 of the Judicature Act 1925. Is it upon the husband in the character of husband or in the wife the character of wife, or upon both in the character of husband and wife? If it is, it is a settlement on the parties within the meaning of the section. The particular form of it does not matter. It may be a settlement in the strict sense of the term, it may be a covenant to pay by one spouse to the other, or by a third person to a spouse. What does matter is that it should provide for the financial benefit of one or other or both of the spouses as spouses and with reference to their married state."

27. Later in the judgment referring to the earlier case of Janion he said this:

"'that the wife was not a party to the deed , that the trustee has an absolute unfettered discretion as to the disposition of the funds, and that the respondent has a power of revocation with the consent of the trustee.' The registrar reported that he agreed with the contention. But the President rejected that contention and varied the settlement.

I follow that decision, and I agree with it."

28. In Smith v Smith [1945] 1AER 584 Mr Justice Denning (as he then was) said this in a judgment relating to a matrimonial home:

"This freehold house was a continuing provision for the future needs of both husband and wife in their character as such".

29. In Parrington [1951] AER page 916 Mr Justice Pearce said this at page 919:

"In my opinion, I am entitled, as Henn Collins J did in Joss v. Joss, to put myself in the position of the settler and take the relevant facts as being recited in the deed, not for the purpose of inquiring into the motive of either party or of contradicting the deed by consideration of some motive that I might infer from such facts, but merely to find out what was the substance of the transaction. Those facts would, in my view, include the fact that the purchase of the hotel was a post-nuptial settlement and the fact that the parties had agreed to separate, and had in fact separated, as part of the transaction."

30. As recently as 1996 in Brooks v. Brooks [1996] 1AC 375 the House of Lords was required to consider the concept of post-nuptial settlements in the context of pensions. There is nothing in that case which shows any departure from the previous approach of the Court over the previous one hundred years. Lord Nicholls of Birkenhead at page 391 said:

"In the Matrimonial Causes Act 1973 settlement is not defined but the context of section 24 affords some clues. Certain indicia of the type of disposition with which the section is concerned can be identified reasonably easily. The section is concerned with a settlement 'made on the parties to the marriage'. So, broadly stated, the disposition must be one which makes some form of continuing provision for both or either of the parties to a marriage with or without provision for their children."

At page 392 he went on:

"Beyond this the authorities have consistently given a wide meaning to settlement in this context and they have spelt out no precise limitations. This seems right because this approach accords with the purpose of the statutory provision. Financial provision that is appropriate so long as the parties are married will often cease to be appropriate when the marriage ends. In order to promote the best interests of the parties and their children in a fundamentally changed situation, it is desirable that the Court should have power to alter the terms of the settlement. The purpose of the section is to give the Court this power. This object does not dictate that settlement should be given a narrow meaning. On the contrary the purpose of the section would be impeded, rather than advanced by confining its scope. The continuing use of the archaic expressions 'antinuptial' and 'post-nuptial' does not point in the opposite direction. These expressions are apt to embrace all settlements in respect of the particular marriage whether made before or after the marriage."

The Competing Contentions

31. The wife's case is advanced in the skeleton argument of her counsel. In essence it is that Brooklands was bought in contemplation of marriage and by its purchase a licence to occupy it as their matrimonial home indefinitely was settled on the husband and wife. The fact that at some stage a tenancy may have been created for rent did not alter the fundamental relationship of trustee and beneficiary which pre-existed it and continued on after it came to an end. Accordingly an anti nuptial settlement within S24 was created and so can now be the subject of variation by the Court.

32. The husband and the trustee rely entirely on the presence of the tenancy to defeat the wife's case. Once that had been created, they assert, the relationship between themselves became one purely of landlord and tenant. The tenancy overrules the underlying trustee — beneficiary relationship. The fact that the details and terms of the tenancy were not assiduously negotiated or enforced is neither here nor there; all the necessary indicia of such an arrangement were in place throughout. They point to the extensive negotiations which went on over the period when the parties were in occupation relating to the terms of the tenancy. In particular, the Trustee asserts that so far as they were concerned they considered the Husband and Wife no more than tenants. I do not do justice to the careful arguments advanced by the Husband and the Trustee both in written form and orally. However that is the thrust of the point which they make.

Findings and Conclusions

33. My task is to consider what the real substance of the arrangement was which governed this property. The authorities make it clear that I should consider the question broadly and ask myself whether or not it was an arrangement which made ongoing provision for the Husband, Wife and/or Child in those capacities. Motive is irrelevant.

34. This property was bought by the trust during the parties' engagement and prior to their marriage. I think there can be no doubt it was nuptial. In terms of the question of ongoing provision for them during their marriage; it is hard to think of any arrangement that is more ongoing than the provision of a matrimonial home.

35. If the matter ended there, to my mind, there could be little argument but that this was an anti-nuptial settlement on the parties to the marriage and later the child.

36. Does the intervening tenancy arrangement alter the character and true legal relationship between the Husband and the Trustee such that it is no longer capable of being a nuptial settlement?

37. In my judgement it does not. I have already indicated that the intervention of the rental arrangement or tenancy agreement was more form than substance created, as I understand it, largely to satisfy the requirements of the lending house who provided the mortgage. Such a legal arrangement would give them comfort that there was some method of enforcing payment against the beneficiary to ensure that the interest payments were met.

38. If the Court examines the true character of the arrangement the Husband and the Trustees always remained in the relationship of trustee and beneficiary and the tenancy did not affect that fundamental position. In my judgement, that was a subordinate and intermediate legal arrangement which did not undermine the fundamental relationship of trustee and beneficiary which pre-existed its creation and has carried on since its expiry. As I see it, the settlement stood behind that tenancy which, in a sense, was only a part of the terms of the settlement.

39. Whether the Court would have had power to vary the terms of the tenancy if it was still in existence today I decline to decide although I cannot really see why not. But in any event the tenancy has ceased and no longer requires consideration.

40. In the circumstances, on the basis of the evidence available to me and looking at all the circumstances of the purchase of 'Brooklands' and its use throughout the parties' marriage, I find that it constitutes an "anti-nuptial settlement capable of variation pursuant to section 24 of the Matrimonial Causes Act 1973".

41. I shall make a declaration to that effect. However, the question of how the statutory discretion should now be exercised, in the circumstances of this case is not at all straightforward. I think there would be merit in that decision remaining to be decided in the High Court as well.