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Resources and Section 25 of the Matrimonial Causes Act 1973

Joseph Rainer and Thomas Haggie, barristers of Queen Elizabeth Building, consider third-party assets and their bearing on the court’s assessment of resources in financial remedy cases.

Joseph Rainer, barrister, Queen Elizabeth Building

Thomas Haggie, barrister, Queen Elizabeth Building

 

 

 

 

 

 

 


Joseph Rainer and Thomas Haggie, Barristers, Queen Elizabeth Building

  

 The concept of 'resources' in s25 of the Matrimonial Causes Act 1973 arises at s25(2)(a) of the Act. In coming to a fair order, the court must have regard to:

(a) 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…

Given 'financial resources' are distinguished from 'property' in the sentence, they have been taken as a separate class of asset.

In this article, we aim to:

• Delineate common scenarios whereby an asset owned by a third party might bear on the court's assessment of resources and consider their appropriate legal taxonomy.

• Highlight the dangers of running what we describe as 'pure Thomas cases'.

We hope that this article assists practitioners in analysing third-party resource issues in financial remedy cases, and encourages the practice of legally exact pleading when those issues arise. We believe this approach minimises the risk of the Family Court unfairly interfering with the rights of third parties (themselves frequently non-parties) to a claim, and minimises the risks that the 'look to the reality' approach poses to the interests of all parties concerned.

Common scenarios

In this article, we will discuss three subcategories of commonly occurring scenario, which we have named in shorthand:

 Beneficial interest dispute – An asset in which it is asserted a party has a beneficial interest, but that assertion is disputed. The most common such scenario is a dispute over a party's interest in property owned by a third party, often another family member.

• Trust-type Thomas cases – A resource to which a party has some beneficial nexus, but there is a dispute as to whether that asset would be made available to said party on request. This category covers a beneficiary to a discretionary trust. The right the party enjoys is to be considered for appointments under the trust. The party does not have an interest in possession/reversion in the trust property per se. The court must assess the evidence and determine whether it is fair and reasonable to make an order judiciously encouraging the trustee (or other analogous party) to make resources available to the spouse.

• Pure Thomas cases – A resource to which a party to the marriage has no strict legal or beneficial nexus but has nonetheless formed part of 'the picture' of the parties' financial life. A common example is voluntary provision made to a party by a family member. These are frequently referred to as 'Thomas resources', after Thomas v Thomas [1995] 2 FLR 668. As above, in such cases the court must decide whether to frame an order so as to judiciously encourage the third party to make further provision.

• Cases in which a nuptial settlement might arise – These are outside the scope of this article.

Beneficial interest disputes

This describes those scenarios involving a question of whether a party has a beneficial interest in property legally owned by a third party, or vice versa. These scenarios, strictly speaking, are not really about 'resources' at all. We are reminded in Prest v Petrodel Resources [2013] UKSC 34 that "property" in the context of s.24(1)(a) of the Matrimonial Causes Act 1973 delineates an entitlement to the property in question either in possession or reversion – i.e. a proprietary right, legal or equitable. In plain English, if a party has a beneficial interest in property, it is their property, not a more nebulous 'resource'.

The legal and procedural framework applicable to beneficial interest disputes can mostly be found in TL v ML  [2005] EWHC 2860 (Fam) and is clear as day. In short:

• The Family Court is able to adjudicate a dispute between a spouse and a third party as to the beneficial ownership of a property. It can make a declaration of beneficial ownership but cannot make a property adjustment order over the third party's beneficial interest.

• That being said, the court can order the sale of a property in which a third party has a legal/beneficial interest, subject to the provisions of s.24A(6) of the 1973 Act which requires the court to give the third party an opportunity to make representations and have regard to them in the discretionary exercise. Obviously, the third party's share of any net sale proceeds falls outside the court's redistributive powers.

• 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. The court's redistributive discretion and overarching goal of fairness is effectively suspended during adjudication of the beneficial interest dispute.

• It must be properly pleaded. Whilst there is no import of the CPR, Mostyn J is of the view that:

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 burden of proof lies on the person seeking to assert that beneficial ownership diverges from legal ownership, as was made clear in Fisher Meredith v JH and PH [2012] 2 FLR 536. Insofar as the order of pleading is concerned, this party stands in the shoes of 'claimant' and must go first1.

To show the existence of a trust of land, one must prove:

i. An express trust, which must either be signed in writing per s.53(1)(b) of the Law of Property Act 1925 subject to the rule in Rochefoucauld v Boustead [1987] 1 Ch 196, which blocks a party from relying on s.53(1)(b) if they know that a property was conveyed to them subject to an oral agreement to hold it on trust for another; or

ii. An implied trust, so either:

1. A resulting trust, which is implied where a property is purchased in the name of the legal owner with the money of the beneficial owner, or more commonly;

2. A constructive trust, which requires the usual ingredients of common intention (whether expressly stated or implied from conduct), detrimental reliance and the unconscionability of denial of relief.

If a party asserts that a spouse has, with dishonest intent, intentionally contrived with a third party (or parties) to mask the true ownership of an asset with a document or arrangement that purports to create different legal rights/obligations to those actually intended by the culprit spouse and third party, then a pleading of sham might be considered. More on this later in this article.

If a party claims that the other spouse has transferred their interest in an asset to a third party in order to defeat or reduce their claim (i.e. divested themselves of assets as a protection strategy), the court has the power to reverse such a disposition by way of s.37 of the 1973 Act. This is not a beneficial interest dispute per se – s.37 reversals are designed to rectify situations where a spouse's interest in an asset has actually been transferred to a third party, not those where it is asserted that  the transfer was illusory and said spouse still retains an interest2. Section 37 applications are made by way of the part 18 procedure, and do not necessarily require points of claim and defence.

It is very important to understand the distinction between s.37 scenarios, beneficial interest disputes, and situations where sham might be alleged. We discuss the overlap between these concepts and the danger of 'stacking' them in the alternative from paragraph 23 below.

We have encountered a common practice where parties decide to put off Mostyn J's procedural steps until after the FDR, with witness statements from the parties and a third party directed beforehand, and the third party being invited to attend the court building at FDR in the hope that the wheels of settlement can be greased. This alternative to the strict approach espoused by Mostyn J is radically different from anything contemplated by civil procedure. It is often framed as being more pragmatic and cost effective. We would agree with this view if the disputed asset forms a relatively modest portion of the pot. In those circumstances it may be proportionate, and consistent with the overriding objective (which specifically enjoins the court to save expense) to hold off costly and time-consuming dispute about it until after the broad-brush indication and negotiation possible at FDR. We are more concerned by this scenario when it is driven by one or both parties' belief that an FDR judge is likely to gloss over the distinction between a proprietary interest and a resource owned by a third party which might be advanced to a spouse with a bit of judicious encouragement – what we will refer to as a 'pure Thomas case' and discuss further below. We believe the court and the parties – and particularly the one whose asserted rights/obligations to another are in dispute – should be vigilant against this sort of elision. After all, at this stage, the third party may not have been joined and, as the spouses experience the costs and stress of getting a case as far as FDR, may come under completely unwarranted pressure from one or both spouses to increase the matrimonial pot. This is all the more unsatisfactory when the FDR tribunal – as it is wholly entitled to do – decides it cannot opine on outcome without prior resolution of the third-party issue and restricts itself to commenting that it has been let down by the procedural steps taken to date. Trying to soft-soap a third-party issue can prove to be a disastrously expensive false economy.

Finally, beneficial interest disputes are free from the 'no order as to costs' rule in FPR rule 28.3. The losing party is thus at risk of being ordered to pay potentially two other parties' costs referable to the issue.

So-called Thomas cases – general principles
 
There are a handful of cases which set down the legal parameters for where the court will look at resources that might be provided by a third party. We have tried to summarise the principles:

a. Generally, in cases where the court is faced with the question of provision being made by third parties, the court can frame 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 in the case', although this must not stray into 'improper pressure' (Thomas v Thomas [1995] 2 FLR 668).

Whilst it can 'encourage', it cannot compel provision from a third party3. (A v A  [2007] EWHC 99 (Fam), paragraph 95). This is a strict line. Insofar as it hints at a novel form of pressure on a third party, the phrase 'judicious encouragement' was specifically disapproved as being unhelpful and misleading by the Chief Justice of Hong Kong in KEWAS v NCHC [2010] HKCFA 10, paras 36-53 cited with approval as 'the most comprehensive and clear exposition' of the law in this area by Mostyn J in Villiers v Villiers [2021] EWFC 23.

b. In cases where a question arises over the likelihood of capital/income being advanced to the beneficiary of a discretionary trust, the court should ask itself the so-called 'Charman question' – 'if a discretionary beneficiary were to request the trustee to advance the whole or part of the capital to him, would the trustee be likely to do so now or in the foreseeable future?' (Charman [2005] EWCA 1606 (Civ), [2006] 1 WLR 1053.)

c. When answering the Charman question, the court is not tasked with making a positive finding about the future but making an assessment of likelihood (Whaley v Whaley [2011] EWCA Civ 617, paragraph 113).

d. In all such cases, 'the question is not one of control of resources: it is one of access to them' (Whaley, paragraph 113).

e. Whatever the nature of the trust (including whether it is dynastic or settled by a spouse), the issue is always approached by asking the Charman question. When answering that question, the court will have regard to the circumstances of the particular trust such as how it came into being, who the beneficiaries are, what duties the trustees have, what other relevant terms there are, how it has been administered in practice and so on (Whaley, paragraph 54, AF v SF, paragraph 56, Charman v Charman [2007] EWCA Civ 503, paragraph 50).

f. Where the requests made of trustees are reasonable in the context of all the circumstances, it should be the exception rather than the rule to refuse such requests. Whether a request is reasonable will depend on the nature of the request, the interests of other beneficiaries and all the surrounding circumstances (Re the Esteem Settlement [2004] WTLR 1, paragraph 60).

g. An order framed on the assumption the trustees would have to make provision for a beneficiary who is the paying party would not amount to 'undue pressure' if the interests of the other beneficiaries would not be appreciably damaged, and the court decides it is reasonable for the paying party to seek to persuade trustees to release more capital to enable proper provision to be made for the other party (Whaley, paragraph 114, AF v SF [2019] EWHC 1224 (Fam) paragraph 56).

h. A distinction arises in such cases where a spouse is both a beneficiary and settlor of a trust. The court will generally treat a refusal by trustees of a request by a settlor with circumspection, because in the majority of cases a settlor would be acting reasonably in the interests of themselves and their family (Re the Esteem Settlement, paragraph 166, Charman paragraph 53).

i. The 'judicious encouragement' approach is not confined only to scenarios where a spouse is a beneficiary of a discretionary trust but is of wider application where a spouse 'enjoys access to wealth but no absolute entitlement to it' (Thomas).

j. However, there is a distinction between scenarios where a spouse is a beneficiary under a discretionary trust and other scenarios where such a beneficial nexus is absent (e.g. a family member providing funds through generosity). In the former 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), whereas in the latter case the spouse has 'no more than a mere spes of bounty which may, at the election of the provider, reasonably or unreasonably be withheld' (TL v ML, paragraph 86).

k. Unlike a trustee, a non-obliged purveyor of bounty to a spouse is not held to a standard of 'reasonableness' in their response to a request for funding. For a mere donor, it is their 'prerogative to be unreasonable, if that is their inclination'. If the court is satisfied on the evidence that such a third party will provide money to meet or facilitate an award, then an award can be made 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' (TL v ML, paragraphs 88, 101).

l. In 'judicious encouragement' cases, there is a difference between those where an award is sought in the expectation that a third party will 'backfill' a paying party to compensate for a share of visible assets/income swallowed by a court order, and those where an award is sought that exceeds the visible assets/income and can only be met with recourse to 'fresh money' made available by the third party. 'Fresh money' cases are rare and unusual (AM v SS [2014] EWHC 865 (Fam) paragraph 39, TL v ML).

m. Finally, whilst at least a partially semantic distinction, in some cases the court will be able to make findings that third party resources are likely to be made available to a spouse without the need for any judicious encouragement. For example, in Browne v Browne [1989] 1 FLR 291, the trial judge found that the wife in that case had 'effective control of trusts in that the trustees had historically always been responsive to her wishes. Mostyn J considered that Browne was thus not a case of judicious encouragement at all, but 'rather a case of determining the true extent of the wife's resources'. We think AAZ v BBZ [2016] EWHC 3234 (Fam) and, ironically, Charman probably fall into this category. (TL v ML, paragraph 93).


Order in the chaos – subcategorising 'resource' cases

It should be obvious that these third-party resource cases are ranged across a spectrum of speculation. Insofar as it is useful to do so, we would typify them as follows:

a. Cases involving discretionary trusts or other similar resources with some beneficial nexus to a spouse, where the court is able to answer the Charman question in the affirmative and frame an order to judiciously encourage the trustees to provide funds to either 'backfill' a paying party, or more rarely, one that is premised and dependent on 'fresh money' being advanced by trustees. We will refer to these as 'trust-type Thomas cases'.

b. Cases involving provision from third parties with no beneficial nexus to a spouse where the court finds it is safe to frame an order to judiciously encourage a third party to 'backfill' a paying party or (very rarely) provide 'fresh money' necessary to meet an award. We will refer to these as 'pure Thomas cases'. We are not aware of any reported 'fresh money' case (it is of course possible that divorces are solved by a payout from a bounty provider, but the nature of the relationship this implies means such cases are unlikely to get to the stage of reported judgment post litigation).

These terms are our own shorthand, not approved judicial terminology. 


Trust-type resource cases

Despite our shorthand, these cases don't have to involve a trust. As mentioned above, here we are talking about cases where despite legal ownership of a resource lying with a third party, there is some kind of beneficial nexus between a spouse and the resource. Discretionary trusts are just the most obvious instance of this scenario.

Thomas did not concern a trust. It involved a family business, of which Mr Thomas was a joint managing director and shareholder. The other shareholders were his mother and brother. At first instance, the judge made an order for child periodical payments and school fees that swallowed up almost the entirety of the monthly income Mr Thomas received from the family business but made a finding that this award would nonetheless be affordable and fair because Mr Thomas would, on the balance of probabilities, be able to procure changes in the dividend/management remuneration structure so as to provide a greater level of income for himself. To do this, he would need the cooperation of his mother and brother.

The Court of Appeal upheld the first instance judge's approach. Glidewell LJ said:

'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 relation to the facts of the present case, I would apply these principles to the family company as if it were a trust, and the shareholders (the husband, his mother and brother) the trustees.'

So in the factual context of Thomas, the phrase 'judicious encouragement' meant making an order that would be something of a financial squeeze for Mr Thomas without the assistance and cooperation of his family members, when the evidence indicated that it would be fair and reasonable for them to come to his aid. It is interesting that Glidewell LJ felt able to substitute 'trust' for 'family company' in this way, because as a matter of law, the fiduciary obligations of shareholders to each other are not akin to those of a trustee to a beneficiary. Having said that, he did make clear that this analysis was fact-specific. 

Because a trustee owes a duty to consider a beneficiary, and to exercise their powers reasonably, a court is not bound by evidence from the trust of disinclination to assist tendered in proceedings. It is entitled to have regard to a wider canvas of what would be reasonable, and the historic pattern of arrangement between the trust and the beneficiary spouse. In SR v CR (Ancillary Relief: Family Trusts) [2008] EWHC 2329 (Fam), [2009] 2 FLR 1083, Singer J did not consider himself bound by the ipse dixit of the witness, and instead had regard to the fact sensitive picture of his historic receipts from the trust, and the relationship between H, the trustees, and the settlor. This nexus of being obliged to test the position of the trustees against reasonableness (in the context of the trust, and its historic behaviour), makes life considerably easier for a claimant spouse than a 'pure Thomas' situation, to which we now turn.


Pure Thomas cases

Here we discuss those cases where there is no beneficial nexus between the spouse and the resource being relied upon. These are the cases most commonly associated with the Thomas label, and they are an oddity. It is very unusual for the law to sanction interference with the property and rights of persons who are not party to the litigation.

We think this notion, unique to Family Law, has emerged as a result of a difference in judicial focus between financial remedy applications and areas of civil law. As Glidewell LJ put it in Thomas, in financial remedy applications the court is concerned not to be 'misled by appearances' and to 'look at the reality of the situation'. It can be distasteful to a particular notion of justice if a munificent extended family decide to withdraw that generosity at the moment of divorce, to broker an outcome which may financially prejudice the non-related spouse.

That being said, we are of the view that 'pure Thomas cases' are conceptually and practically problematic and should rarely be argued. Here is why:

Availability of other more disciplined routes to the same conclusion

We think that there are other more rigorous legal analyses that might capture the outcome of a Thomas argument. In our experience, all too often pure Thomas arguments are wrongly used to suggest obliquely that an asset does, or should, belong to a spouse. If camouflaged ownership is being asserted, then that is what should be pleaded. 

Consider this example: upon separation, a party discovers to their horror that what they had believed to be the ample assets of their spouse are actually all owned by members of their spouse's family. Throughout the marriage, our hypothetical applicant believed that the family home and two investment properties belonged to the respondent. The respondent's Form E asserts that the family home is actually owned by his father, and the two investment properties belong to his brother. Legal title supports this contention.

The applicant is adamant that these assets really belong to her husband. It should go without saying that before so much as thinking about Thomas, an applicant would first need to carefully consider other more obvious options:

• Section 37 of the Matrimonial Causes Act 1973. This is the primary route to correcting the position where a party has transferred their own assets to a third party to deliberately put them beyond the reach of their spouse's claim.

• Beneficial interest. Where there has been no obvious divesting of assets to frustrate a claim, but it is nonetheless asserted that a spouse has a beneficial interest in assets apparently owned by another – this should be a beneficial interest argument. This is the territory discussed in the first part of this article, which should be resolved by the TL v ML procedure. In this case, the duty to plead falls on the applicant.

• Sham4.  Sham may be considered where it is asserted that a document that appears to confer legal rights and/or obligations (such as a trust deed) was actually entered into with dishonest intent, and all parties to it intended a different outcome. The evidential hurdle to succeed on sham is high. However this may often be the correct legal descriptor for a finding often made by the Family Court: that a document (particularly a liability) is a 'fiction' and does not in reality mean what it purports to mean. This is often the real allegation lurking round the less aggressive sounding discussion of the 'softness' of a loan ('softness' is not otherwise a concept known to law)5.  We think this is often unprincipled: a loan either carries the right to repayment, or it does not. It is not for a Family Court to assume a third-party creditor does not intend to rely on their rights in the absence of a clear finding that those rights are either fraudulently asserted, the terms need rectifying to give effect to the actual deal, or the creditor is in fact a 'pure Thomas' third party who will not insist upon repayment. Although it is case specific, and a costs-risky option, we consider there may be tactical merit in the party asserting the liability forcing the other party to make an allegation of sham, in default of which they are deemed to accept the reality of the loan.

• Nuptial settlement. The facts might support an argument that either the family home itself, or at least a licence to occupy it, constitutes a nuptial settlement capable of direct variation by the court under s.24(c) of the 1973 Act. As flagged at the outset of this article, nuptial settlements are beyond the scope of this article.

What often happens in practice is that these different routes are argued in the alternative, in a mix and match fashion (as in TL v ML). Care needs to be taken in doing so.  There is a high risk of running a case that is muddled at best and internally contradictory at worst. In A v A [2007] EWHC 99 (Fam), Munby J (as he then was) described the wife's dual-pronged presentation of sham and a trust-type Thomas argument in the alternative as involving 'diametrically different assertions'. He witheringly appraised her position thus:

'[Counsel] is, of course, entitled to put his case in this way, but it must be appreciated that the two cases he seeks to make are quite inconsistent with each other. The first proceeds explicitly on the basis that the trusts are both shams. The second proceeds on the basis that trusts are not shams, in other words that they are genuine' (paragraph 27).

Whilst it is theoretically possible to run a case in this way, it is often hard to present the alternatives attractively. Advancing one point often undermines the other, which was exactly what befell the wife's case in A v A.

A similar approach was deployed in ND v SD & Ors [2017] EWHC 1507 (Fam) – there the wife argued sham, with s.37 as a fallback position. Those two propositions are happier bedfellows, not least because both are characterised by a flavour of impropriety. Nonetheless – the internal contradiction is still there – a s.37 argument assumes a disposition is genuine, sham asserts the opposite. 

A v A and TL v ML are both illustrative of how flimsy Thomas arguments look when advanced as fallback positions. There is something inherently unattractive about spending the bulk of a case arguing that property does belong to a spouse (beneficial interest/sham), but when on the ropes, changing tack and arguing instead that it should be given to said spouse in future.

Those cases should be read as the warnings that they are. If you are arguing that legal ownership of a third-party asset veils true ownership/benefit by a spouse, then select the appropriate legal concept to express that assertion, as discussed above. Thomas is not a particularly useful 'backup' in such situations.

Central reliance on a challenging factual finding

As we have set out above, Thomas cases do not exist in an evidential vacuum. The court cannot frame an order in reliance that a third party will make resources available to a spouse unless it is able to find, on balance, that an award so framed would achieve that end. A lot then turns on the evidence of the third party.

The third party needs to be asked whether they will provide the resources sought to justify the court's contemplated award. A non-obliged third party stands in a totally different position from a trustee, and the difference is starkest in the attitude to reasonableness they are entitled to take. A non-obliged third party may decline to assist, and they do not have to justify that position to a standard of reasonableness. They owe no fiduciary duty to the spouse.

In the majority of contentious Thomas cases, that refusal to assist is probably the central forensic dispute in the case.  Given the absence of a 'reasonableness' criterion, the odds at trial are stacked in favour of the non-obliged third party. When faced with a negative answer, there is 'precious little the court can do about it6 ', aside from find that the third party is not being truthful in their evidence. But that finding itself is tricky, because the court cannot impute an intention based on its own view of what is reasonable: that is not the standard to which the third party is held. Evidence of historic provision may not count for much in the context of separation, where the familial dynamic may have dramatically changed and the third party (frequently a family member) may genuinely baulk at the prospect of making provision for an ex-spouse.

A cautionary tale comes from Luckwell v Limata [2014] EWHC 503 (Fam). Luckwell is best known as a pre-nup case. It was a case where the source of the matrimonial wealth was the wife's father. The father (Mike Luckwell) bought his daughter a sizeable property which became a family home, paid her an allowance and met the children's school fees. The wife's wealth (provided by Mike) was protected by a pre-nup. Mike's position at trial was that if the husband received a penny more than provided for by the pre-nup, not only would he not provide the funds to facilitate such an award, but he would effectively pull the carpet out from under his own daughter and terminate her allowance and the children's school fees.

Mike Luckwell was cross-examined at trial and stuck to his guns. His position was described by the wife's lawyers as inherently implausible, lacking logic, irrational and holding a pistol to the head of the court'. Holman J summarised the dilemma he was faced with:

'It could, of course, be tempting simply to call Mike's bluff; and in any event I could and would not yield to a mere threat or pistol to the head of the court. I must, however, make a finding whether Mike does or does not mean what he says and intend to carry it out.' (paragraph 95).

Holman J identified and avoided the temptation to impute a criterion of reasonableness and 'call the bluff' by reference to it. He correctly identified that his task his task was to make a finding on whether the third party was being truthful. He found that Mike Luckwell was. Having heard witness evidence from multiple parties about Mike's character ('determined, hard, inflexible'), and having reviewed the consistency of Mike's position throughout the litigation, Holman J concluded that 'he has the will power to carry his threat out… I must conclude on a balance of probability that he will do so', before adding 'It is not for me to make any comment or moral observation upon the decision and intentions of Mike' (paragraph 99).

Luckwell is a warning for those contemplating running pure Thomas cases. The stark reality is that if a third party says 'no', the court cannot frame an order that relies on their support unless persuaded that they will not really follow through. There may be the evidence to support such a conclusion. But it is a big gamble to take.

So we think perhaps the biggest problem with pure Thomas cases is that they are reliant on a factual finding (that a non-obliged third party will make provision), and self-defeatingly so because the very question being asked will probably evoke a negative answer. At that point, the case hinges on one's prospects of being able to persuade a court that a third party will not abide by their words.

Hard to advise on, hard to settle

It is hard to advise on the likelihood of a third party who does not need to be reasonable coming up to proof, or being disbelieved by a judge. This is unlike a beneficial interest dispute (see above), where strengths and weaknesses are visible in the pleadings and evidence.  It follows that they are harder to settle, and harder for an FDR tribunal to opine on ahead of the evidence.

Enforcement difficulties

This is less of an issue in 'backfill' cases, but a serious impediment to 'fresh money' cases. In a 'backfill' case, an award might be made that gives a recipient spouse the vast majority of the parties' assets on the understanding that a judiciously encouraged third party will replenish the paying spouse. That order can be enforced against the parties' assets, and the fact that the order was made on the basis of judicious encouragement does not per se add any extra layer of enforcement difficulty.

Not so for a 'fresh money' order: what happens if the fresh money spring never arrives? One cannot enforce against assets that have not been found to belong to one of the parties. As Mostyn J commented in TL v ML, it could 'hardly be said that the payer is in wilful default justifying a penalty under the Debtors Act 1869', so coercion via a committal application is out of the question. As said above, we have not found a single reported 'fresh money' case , and there is probably good reason for that. Of course, enforcement is easier when the claim is suited to a pleading of a constructive trust, or a finding of sham against the documents evidencing the third parties' interest: as that party would be joined to the proceedings, they would accordingly be bound by the judgment.

For all these reasons discussed above, we think that pure Thomas cases should be very rare and should argued only when (1) the third party agrees that they will make provision, or (2) there is very strong evidence to support that proposition. Practitioners should be clear from the outset that if a third party says 'no', the evidence to the contrary will have to be compelling enough to persuade the court to go against the third party's word.

Conclusion

Most situations that arise in the Family Courts between a spouse and a third party are capable of being pleaded as legally recognisable claims without reliance on 'Thomas' type arguments. The stricter legal arguments are almost always a preferable claim to make. If Thomas arguments need to be utilised, they should be pleaded consistently with alternative contentions (if possible), and should generally be a counsel of last resort, given the forensic and legal difficulties in procuring a satisfactory outcome from them.

 

Footnotes

1. We have encountered some confusion about the order of pleading in practice and have oft seen directions made for the alleged beneficial owner spouse 'go first'. That is wrong. The burden is always carried by the person asserting divergence between beneficial and legal ownership. Those who assert must prove, and thus 'go first'. The slight complexity discussed in Fisher Meredith relates to where a spouse holds legal title, and the alleged beneficial owner is a third party to the marriage: in that case the duty to bring the claim lies equally on the legal-title holding spouse, and on the third party whose interest is asserted. The obligation does not lie on the other party to the marriage (who is entitled to rely on equity following title). However, all these observations are subject to the comments of Lord Sumption in Prest v Petrodel Resources [2013] UKSC 34 at [45] regarding the duty on the economically dominant spouse regarding disclosure: though the burden of proof lies on the claimant, an inference to be drawn from non-disclosure against an economically dominant respondent husband is much more powerful in family proceedings than it would be in equivalent civil process. 

2. Sometimes an 'add-back' argument will be a more appropriate and economical way of rectifying a party's divestment of assets if the assets disposed of to third parties represent a comparatively modest proportion of the matrimonial pot – see Mostyn J at paragraph 87 of OG v AG [2020] EWFC 52.

3. Ignoring variation of nuptial settlements and enforcement. 

4. A detailed discussion of the law on sham documents and arrangements is beyond the scope of this article. By 'sham', we refer to the broad legal concept capturing situations when a document/arrangement is entered into but is intended by all the executing parties to give the appearance of creating legal rights and/or obligations different to those which the parties actually intended to create. For sham to be found, all parties to the document must have subjectively intended the divergence between apparent and actual rights/obligations and to give the false impression of said rights/obligations to others. See Roberts J's useful summary of the law in ND v SD & Ors [2017] EWHC 1507 (Fam) from paragraph 176 onwards.

5. The Family Court does come to sham-like conclusions, even if unpleaded. In R v K [2018] EWFC 59 e.g., where no pleading of sham was made, a finding of sham was more or less exactly what Baker J held at [189] … the loans alleged to have been made to C finance are a fiction. The truth is… that he has procured the assistance of his acquaintances and offshore associates to try to create evidence to defeat the wife's claim'. Whilst the shape of the husband's case in K v R only became clear on the morning of the trial, meaning there was not time for formal pleadings, it would normally be proper to plead such an allegation as a sham. NB in this case there was not a written loan agreement – instead emails and oral evidence – which would have presented an additional (though probably not insuperable) complexity to a sham pleading. 

6. TL v ML, paragraph 101

 28/04/21