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Determining ownership of property between a spouse and a third party in ancillary relief proceedings - Goldstone v Goldstone

David Marusza, a pupil at 1 Hare Court, considers the judgments in Goldstone v Goldstone and Others

David Marusza, Barrister, 1 Hare Court

David Marusza, a pupil, at 1 Hare Court

Introduction
Goldstone v Goldstone and Others
[2011] EWCA Civ 391 is an instructive and concise judgment of the Court of Appeal concerning the proper approach to be adopted where a party to ancillary relief proceedings seeks to join a third party with whom there is a dispute over the ownership of an asset contended to belong to a party to the marriage. The typical situation is one where the wife (W) claims that the husband (H) either owns beneficially or controls assets in the hands of another family member, company, or trust.

Section 24 of the Matrimonial Causes Act 1973 gives the court jurisdiction to transfer to an applicant in ancillary relief only such property as the respondent is entitled to either in possession or reversion. It is therefore crucial to establish the true ownership of any such contentious asset at an early stage.
The case approves the approach of Nicholas Mostyn QC (as he then was) sitting as a Deputy High Court judge in TL v ML and Others (Ancillary Relief: Claim Against Assets of Extended Family) [2005] EWHC 2860 Fam ("TL v ML").

That case established that in every case where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, 'the following 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 financial dispute resolution hearing (FDR). [36]

Goldstone is notable also because the judgment of the Court of Appeal after the substantive appeal differed from the views expressed in the judgment on the hearing for permission to appeal (Goldstone v Goldstone and Others [2010] EWCA 1326)2 3. At the permission to appeal stage, Thorpe LJ, giving the judgment of the Court, expressed scepticism about the necessity of pleading 'elaborate' points of claim in such cases, a practice 'which has apparently recently become fashionable in the Family Division'. He would have had in mind such cases as TL v ML; KSO v MJO and JMO (PSO intervening) [2008] EWHC 3031 and A v A [2007] EWHC 99 (Fam) both per Munby J (as he then was). The decision in Goldstone (No. 2) was, by contrast, a ringing endorsement of the four points cited above from paragraph 36 of TL v ML.

The case is also significant as it confirms that joinder of third parties to ancillary relief proceedings is presently governed by the Family Proceedings Rules 1991 ("FPR 1991") and the Rules of the Supreme Court 1965 ("RSC")4,  rather than by the Civil Procedure Rules ("CPR"), as was argued by counsel for H and Jeeves Group in the appeal.

In addition, Hughes LJ proffers significant obiter dicta about how the question of joinder will be addressed when the new Family Procedure Rules 2010 ("FPR 2010") enter into force on 6th April 2011.

Facts of Goldstone (Nos. 1 and 2)
The case concerned an application by W against H for ancillary relief in which W alleged that an offshore trust company, Jeeves Group, was in the words of Thorpe LJ, 'the depository of the bulk of H's wealth'. W sought a property adjustment order in respect of one UK property owned by Jeeves Group. W's case was based upon an agreement between H and Jeeves Group of February 2006. She alleged, in the alternative, either that the beneficial ownership of Jeeves Group resided with H, or that H's agreement with Jeeves Group was a sham. The appeal concerned whether Jeeves Group, who were subsequently joined as a party, should have been discharged from the proceedings.

First Instance Hearings
W petitioned in September 2008 and on 23rd February 2010 Bennett J joined Jeeves Group as respondents to the ancillary relief proceedings. On 11th March 2010 Jeeves Group issued an application to set aside their joinder and the application was heard on 25th March 2010 before Charles J. In line with the guidance from TL v ML, Charles J made a case management order which provided for 'detailed points of claim' as to the allegations of beneficial ownership by H and of sham to be served on H and Jeeves Group.
The trial of the application for the discharge of Jeeves Group from the proceedings took place before Hedley J. The learned judge posed the question whether or not Jeeves Group had been properly joined, and whether they should have been joined in family proceedings or civil proceedings (i.e. pursuant to the FPR 1991 and RSC or to the CPR). Hedley J came to the conclusion that the proceedings were family proceedings and that Jeeves Group had therefore been validly joined.

Appellate Hearings 
Permission to Appeal (Goldstone No. 1)
H and Jeeves Group sought permission to appeal. The matter came before the Court of Appeal in Goldstone (No. 1).

Charles Howard QC, for H and Jeeves Group, marshalled arguments that the claim was a proprietary claim, to be 'decided in law that excludes judicial discretion' and was 'properly characterised as a chancery claim which, for convenience, had been assigned to a judge of the Family Division.' It was also a claim against an extraterritorial entity, Jeeves Group, and therefore he contended that the claim needed to comply with the CPR, specifically r. 6.36 ('Service of the claim form where permission of the Court is required'). As this had not transpired, he argued that the claim was not procedurally compliant and thus Jeeves Group's joinder was appealable.

Thorpe LJ expressed scepticism as to the necessity of such 'elaborate pleading in 'commonplace' cases where 'during the husband's maturity, he entered into sophisticated financial arrangements to put his assets offshore' [2] such as the instant case. Thorpe LJ stated:

The points of claim are a very elaborate document, runnig to some 13 pages and seeking a declaration against the Jeeves Group of extraordinary length and comprehensive character… [2]

Now I cannot myself see the need for this elaboration. It amounts to the creation of a Chancery claim by the wife against the Jeeves Group for declaratory relief. It seems to me that that only risks augmenting what are already horrific costs raised by this complex litigation and it donates to Mr Howard the argument that these are Chancery proceedings for convenience allocated to a Family Division Judge and therefore subject to the provisions of CPR 6.36 and impossible to characterise as family proceedings…

It may be high time that this Court considered this elaboration which has apparently recently become fashionable in the Family Division. How should the Family Division handle these commonplace situations procedurally? Is it really apt to introduce the elaboration of an independent claim by the wife against the asset holders, a Chancery claim seeking relief against them, when all she really wants is relief against her husband. [sic] [6 to 8]

Notwithstanding Thorpe LJ's misgivings, the Court found that it was 'impossible to say the submission from Mr Howard', i.e. that the proceedings should be treated as chancery proceedings subject to the CPR, was 'unworthy of referral to the full Court' [7]. Therefore the permission application was adjourned for an oral hearing on notice with appeal to follow if permission granted.

The substantive appeal (Goldstone No. 2)
At the hearing on notice permission to appeal was granted.

Charles Howard QC amplified his previous submissions that the matter was a chancery claim which, for convenience, had been allocated to a judge of the family division and was therefore subject to r. 6.36 of the CPR which ensures that a foreign defendant may not be served with points of claim without the court's permission. Barry Singleton QC, for W, argued that Hedley J was correct in his conclusions for the reasons which he gave [see 26 to 28]. 

In Goldstone (No. 2) the Court, following the lead judgment of Thorpe LJ, dismissed H and Jeeves Group's appeal against the judgment of Hedley J. The court concluded that the proceedings were family rather than chancery proceedings [32]. This was because:

In its essence the claim remains a claim by the wife against her husband. Ultimately it is a claim for discretionary relief. In this, as in many cases, there must be a preliminary issue trial to establish extent of the assets over which the discretion is ultimately exercised. Here, as in many cases, the preliminary issue trial determines the claims and the rights of third parties. The preliminary issue trial is pendent on the originating application. It has no independent existence. [39]

The preliminary issue did not alter the character of the overall application's status as 'family proceedings' [32]. Hooper and Hughes LLJ agreed [at 47, 48 and 59].

As such, as Hughes LJ went on to state, the applicable procedural rules were the FPR 1991. Any 'topic not covered' in those rules was to be 'made good' by the default application of the RSC [52]. To hold otherwise (i.e. that the preliminary issue could only be tried in accordance with procedure rules applicable in the Chancery Division) would be to:

…tend towards a reversion to the forms of action and the days before the court unification accomplished by the Judicature Act 1875. [66]

Joinder of Jeeves Group was governed by RSC Order 15 r. 6(2); RSC Order 11 governed the service of the proceedings outside the jurisdiction. It followed that the joinder of Jeeves Group had been compliant with the correct procedural rules. The rules permitted the court to join a third party if to do so was in the interests of justice ([51-61], [64-65]). Hence H and Jeeves Group's appeal was dismissed.

The Court also explicitly approved the case management order of Charles J of 25th March 2010 which had followed the guidance stated above from TL v ML (Goldstone (No. 2) [38]). Whereas at the permission to appeal stage Thorpe LJ has been sceptical as to the value of 'elaborate' points of claim, at the substantive appeal he confirmed that the order of Charles J directing the service of detailed points of claim was 'wise and well-founded on authority' and had 'precisely met the circumstances and requirements of the case.' [35, 38].

Thorpe LJ did, however, express disquiet at and question the proportionality of W having pursued the joinder application against Jeeves Group in the first place, given that the husband was alleged to be 'worth about £ 24 million', £ 8 million of which was in his name: 

I ask, rhetorically, is her case enhanced or extended by the steps that have been taken in and after February 2010?

The answer to my rhetorical question may ultimately emerge. In the interim an undeniable consequence has been the reservation of 3 days for the joinder challenge, 7 days for the preliminary issue trial and 10 days for the trial hearing. This luxury is to the cost of other cases in the overloaded Family Division lists. [44, 45]

Rationes Decidendi
I. Appropriate practice in cases where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party.
Despite the initial scepticism shown by Thorpe LJ and the Court towards elaborately pleaded points of claim in what Thorpe LJ described as 'commonplace cases' where a husband 'enters into sophisticated financial arrangements to put his assets offshore' [2] in Goldstone (No. 1), the judgment on appeal in Goldstone (No. 2) approves the previous High Court case law emanating from TL v ML (see: paragraphs [36] to [38] of Goldstone (No. 2)).

Therefore, the procedure laid down in TL v ML [34 to 36] will continue to be the ordinary practice in ancillary relief where there is a dispute as to the ownership of property between a spouse and a third party. The claim against the third party should (inter alia) be heard as a preliminary issue and be pleaded fully by points of claim and defence.

No further guidance was given as to the manner of pleading such preliminary issues. Given the absence of guidance specific to the Family Division on the drafting of such pleadings it is presumed that no particular formal requirements apply, although recourse may be had to guidance obtaining in other courts.5 

II. Clarification of which rules concerning joinder of parties and service out of the jurisdiction currently apply.
The Court confirmed (in the judgment of Hughes LJ) that the RSC apply to joinder of third parties to family proceedings. Specifically, RSC Order 15 r. 6(2) applies to applications for joinder and r. 11 to applications to serve proceedings out of the jurisdiction. Both rules 'are designed to enable the court to resolve connected issues at the same time, and to avoid multiplicity of proceedings, provided that it is just to do so.' ([52], [55], [59] and [61]).
III. (Obiter) Comment upon which rules will apply upon the coming into force of the FPR 2010 on 6th April 2011.

Hughes LJ appended a useful but obiter postscript to the judgment in Goldstone (No. 2) concerning what the situation might be with regard to joinder after the coming into force of the FPR 2010. The FPR 2010 remove the default application of the RSC to family proceedings. However, the CPR continue to have little direct application to family proceedings.

In the opinion of Hughes LJ, joinder of third parties to family proceedings would from 6th April 2011 be governed by the broad discretionary case management powers in r. 4.1 of the FPR 2010, the overriding objective in r.1.1 and the court's duty to manage cases in r. 1.4(1). The latter rule specifically provides that the court has a duty to actively manage cases, including:

identifying at an early stage-

(i) the issues; and

(ii) who should be a party to the proceedings;

(r. 1.4 (2) (b) FPR 2010)

Since the new rules are silent about the 'principles on which the joinder of third parties (onshore or offshore) should be exercised', Hughes LJ thought it likely that analogy would be struck with rules 19.2 and 6.36 of the CPR (with its Practice Direction 6B). However, he left the ultimate decision on the point for another case.

This raises the spectre of what will happen if gaps or ambiguities are found in the FPR 2010 in absence of the habitual fall-back of the RSC. It appears likely that in such situations recourse will be had to previous procedural decisions on the CPR in order to fill any lacuna in the FPR 2011. This is likely to necessitate further familiarisation with developments in civil procedure by family law practitioners.

Conclusion
Goldstone (Nos. 1 and 2) neatly illustrate a tension between a claim for ancillary relief and a preliminary or 'pendent' claim against an asset which a spouse contends to be matrimonial which is in the hands of a third party. It contains an endorsement of the law as stated in TM v ML preserving the integrity of the preliminary proprietary claim as against the third party. It establishes also that ancillary relief proceedings with a preliminary chancery element are subject to the procedural rules then applicable in family proceedings.

Goldstone (No. 2) also foreshadows the procedural uncertainty that may accompany the removal of the default application of the RSC in situations where a topic is not covered by the FPR. It is to be hoped that the FPR 2010 are a truly comprehensive document; if not, a bi-product of the new rules could be increased procedural wrangling of the type which Hughes LJ's postscript to the judgment contemplates.
_______________________
Footnotes

[1] Heard on Monday 6th December 2010; handed down on 28th January 2011.
[2] Heard on 13th October 2010; available in a DAR Wordwave International transcript.  
[3] For convenience throughout this article Goldstone v Goldstone and Others [2010] EWCA 1326 (the judgment on the application for permission to appeal) is referred to as Goldstone (No. 1) and Goldstone v Goldstone and Others [2011] EWCA Civ 39 (the judgement on the substantive appeal) is referred to as Goldstone (No. 2).
[4] As revised.
[5] E.g., guidance akin to the Practice Direction to r.16 of the CPR or Annex II to the Chancery Guide.