Log on
Browse content

Shield v Shield [2014] EWHC 23 (Fam)

Legal Materials Copyright Statement & Disclaimer

A preliminary hearing in a high value financial provision case which had to decide if the shares held by H, and according to him held on trust for the parties' son on his death, formed part of the assets to be divided on divorce. The judge ruled that there was no binding agreement, still less a trust, in respect of the shares and as such the H's shares remained the H's. Unless otherwise dealt with, they would remain available to any creditors and they would form part of his estate on his death. Accordingly the claim for a declaration that the shares were held on trust for the son failed.

  • Neutral Citation Number: [2014] EWHC 23 (Fam)

    Case No: FD12D04076

    Royal Courts of Justice

    Strand, London, WC2A 2LL

    Date: 17th January 2014

    IN THE HIGH COURT OF JUSTICE

    FAMILY DIVISION

    Before :

    Mr Nicholas Francis QC

    Sitting as a deputy High Court Judge

    - - - - - - - - - - - - - - - - - - - - -

    Between :

    SUSAN JENNIFER SHIELD (Applicant)

    - and -

    RICHARD ARTHUR SHIELD (Respondent)

    - and -

    CHRISTOPHER RICHARD FRANCIS SHIELD (Intervenor)

    - - - - - - - - - - - - - - - - - - - -

    - - - - - - - - - - - - - - - - - - - - -

    Philip Cayford QC, Mark Studer and Lynsey Cade-Davies (instructed by Payne Hicks Beach) for the Applicant

    Nigel Dyer QC and Peter Duckworth (instructed by Shakespeares LLP) for the Respondent

    Christopher Wagstaffe QC and Amber Sheridan (instructed by Shakespeares LLP) for the Intervenor

    Hearing dates: 25th, 26th, 27, 28th, 29th November, 2nd, 3rd, 4th December 2013

    - - - - - - - - - - - - - - - - - - - - -

    JUDGMENT
    Mr Nicholas Francis QC:

    Introduction

    1. On the 5th March 2013 District Judge Hess ordered the hearing of the following preliminary issue within Financial Remedy proceedings:

    "Whether the Respondent and/or the Applicant's shareholdings in R A Shield Holdings Limited are held on trust for the Intervenor, and if so on what terms".

    The time estimate was four days. Given that, by the time of the hearing of the preliminary issue, there were 11 trial bundles and I was to hear oral evidence from 8 witnesses, this was plainly an inadequate time estimate and at the pre-trial review before Holman J on the 1st November, the time estimate was extended to 9 days, to include 2 reading days and 2 days for preparation and delivery of the Judgment. In the event, the hearing lasted 8 days, not including reading or Judgment writing/delivery days, hence it was necessary for me to reserve Judgment.

    2. The parties in this matter are the Applicant, Mrs Susan Shield (to whom I shall refer as "the Wife"), the Respondent, Mr Richard Arthur Shield (to whom I shall refer as "the Husband") and the Intervenor, Mr Christopher Richard Francis Shield, the parties' son (to whom I shall refer as "Christopher"). I shall refer to R A Shield Holdings Ltd as "RASH", as it has been called during the course of these proceedings.

    3. Initially, the Husband appeared by his Litigation Friend Mr S, a solicitor. However, in circumstances which I shall recite in the course of this Judgment, I discharged Mr S as Litigation Friend on the third day of the hearing, the 27th November. The Husband has been represented by leading and junior counsel but did not attend court at any stage of the hearing and so I have not had the benefit of his oral evidence, although he has filed some limited written evidence.

    Background

    4. The Husband is aged 72 and the Wife is 69. They were married in 1969 and have four children: Alexandra (40), Nicola (39), Christopher (36) and Fiona (30). The Husband and the Wife separated in July 2012. No one could fail to observe, and to be dismayed and saddened, by the fact that, after 43 years of marriage, this couple’s divorce has involved not only themselves but their adult children, with two of the daughters giving evidence in support of their mother’s case and the son Christopher giving evidence in support of his father’s case, and more importantly, in support of his own case as Intervenor. It is, in fact, the Wife and Christopher who stand to gain or lose in respect of this preliminary issue, since the Husband does not contest Christopher’s case that he holds his RASH shares on behalf of Christopher. I am satisfied that the polarised positions that many family members have taken has caused them on occasions to lose sight of the material issues in the case and, from time to time, to allow them to give evidence which is inconsistent with the truth. Certainly, there are occasions, as I shall recite during the course of this Judgment, where family members have jumped to the wrong conclusion. This is in part, I am sure, because the Husband, as all agree who know him well (from whom I have heard), has a tendency to say one thing to one person and something else to another. In the light of these factors, I have paid particular attention to the contemporaneous documents. I made it clear to the parties that I would find it difficult to attach substantial weight to the Husband’s written evidence, untested as it was by cross-examination, unless that evidence was corroborated by other oral or documentary evidence.

    5. The Wife issued a divorce petition on the 24th August 2012. An answer was filed by the Husband on the 19th October 2012. That Answer was in due course withdrawn and Decree Nisi was pronounced on the 4th June 2013.

    6. The Wife issued her application for a financial order in Form A on the 22nd August 2012 (it was subsequently amended on the 28th November 2012 and the 2nd July 2013). Her Form E is dated the 1st November 2012. In that document she stated that she holds 1,660 "B" shares in RASH. Perhaps unsurprisingly, she stated in her Form E that she was not at that stage able to state the value of her shares. She made no reference to any trust, agreement or understanding that she held those shares for Christopher.

    7. The Husband's Form E is dated the 30th October 2012. In that document he stated as follows:

    "I own 50.22% of the "A" ordinary shares in RASH. For the reasons stated at box 4.3 below, I consider these are held on trust for Chris at my death."

    In box 4.3 the Husband said:

    "The impressive growth of RASH in the past 10 years is almost entirely due to the efforts of Chris and is not, I believe, something to which either Susan or I can or should lay claim.....

    In 2001, Susan and I began discussing the future of the business with our four adult children and with my sister, Jill Graham and her children. As it happened, Chris was keen to take the business on, although its future was far from secure. The arrangement reached in 2003, with the benefit of tax advice, was threefold. First, the company would buy out the shares of the Graham family. Secondly, our daughters' interest would be converted to loan notes and paid out on my death. Thirdly, Chris would receive the gift of some shares but would be primarily motivated by the prospect of inheriting my 50.22% shareholding on death. Likewise, he would receive Susan's shares on her death."

    8. The positions which the Husband and the Wife each respectively adopted in their Form E would have come as no surprise to the other since the issue had already been canvassed between the parties' solicitors in correspondence.

    9. In his Form E, the Husband acknowledged, sensibly after such a long marriage, that "the marital assets themselves should be divided equally between us and that Susan has made an equal contribution to our long marriage".

    10. Although there has been no attempt to put a precise value on RASH for the purposes of this preliminary hearing, it has been put by both sides at several tens of millions. Although there are some other significant assets in this case, RASH is without doubt the most substantial. If the Husband succeeds in his case that he holds his shares in RASH for Christopher, then those shares will not be available to the court when it comes to exercise its dispository powers.

    11. It was in these circumstances that Christopher intervened. The statement prepared in support of his application to intervene was dated the 26th February 2012. At paragraph 3 of his statement Christopher stated:

    "I seek permission to intervene because as I understand it my mother is pursuing a claim to shares in the family company R A Shield Holdings Limited. These are held in my father's name but are subject to my interest in them, which arises in the circumstances I set out below. In a nutshell, pursuant to the agreement and understanding I reached with my father some years ago my father holds only a life interest in those shares, following which the shares will become my absolute property."

    Christopher did not, and does not, seek any declaration in relation to the small number of RASH shares in his mother's name.

    12. The application to intervene was allowed by consent at the first appointment which (having been adjourned in the Autumn by DJ Malik) was heard by DJ Hess on 5 March 2013. On that occasion, DJ Hess gave detailed directions for the resolution of the issue arising on the intervention as a preliminary issue prior to the FDR (which has been listed for the 20th January 2014). These directions included appropriate timetabling for Christopher to file and serve Points of Claim on the preliminary issue and for the Husband and the Wife each to file and serve Points of Defence. Directions were also given for the filing of witness statements.

    13. It is accepted by Christopher that the burden of proof lies upon him.

    The pleaded cases

    14. Christopher's Points of Claim run to 5 pages. By his Points of Claim he seeks:

    a) A declaration that 15,108 ordinary "A" shares of £1.00 each in RASH registered in the name of the Husband are held by the Husband on trust for himself as to a life interest and for Christopher as to the remainder interest;

    b) Alternatively, a declaration that the Husband is estopped from denying Christopher's entitlement to such shares on his death;

    c) All necessary consequential orders and directions; and

    d) Costs.

    15. Christopher asserts that, in or about 2002, RASH had been in declining economic health for some time. At that time, he says, it was widely agreed and understood by all of the shareholders in RASH that the Group and its constituent companies were more than likely to fail and go out of business. Accordingly, he asserts that, following family discussions, he and the Husband agreed in principle that he (Christopher) would resign from his then current employment and would take over the running and management of the Shield Group, on the basis of the future growth of the business would be for his benefit. He says that it was further agreed that the Husband would retain an ongoing role within the Group.

    16. Mr Wagstaffe QC for Christopher made clear in opening that it was not his case that the Husband made an express declaration of trust. He says that Christopher and the Husband had a contractually imperfect agreement and he asserts that "equity will step in" to give effect to their agreement. It would, he contends, be unconscionable not to do so.

    17. The Husband's Points of Defence concede that "Chris is entitled to the declaration he seeks, subject only to clarification of what is meant by Richard's prior 'life interest'". For the Husband, Mr Dyer QC expanded on the legal basis advanced by Mr Wagstaffe and asserts that Christopher is to be treated as already having a vested remainder, a future interest with a postponed right of enjoyment.

    18. In her Points of Defence, the Wife denies that there were any formal discussions with her regarding Christopher joining RASH. She pleads that Christopher was going to work for RASH and "have some of the profits of that business", that in 2002 when the agreement is alleged to have been made she was only 57 and the Husband only 60 and that "neither of them had any intention of retiring or giving their money away".

    19. Furthermore, the Wife places substantial reliance on the tax advice which was given at the time, to the effect that "any proposed bequest by the Respondent to the Intervenor of his shares should not form the subject of any agreement between them but should remain a matter of intention only".

    The Husband's Litigation Friend

    20. The Husband has suffered ill health in recent years and, on the 24th July 2012, he was sectioned under the Mental Health Act and admitted to the psychiatric ward of Glenfield General Hospital. The Husband is now cared for at the former matrimonial home, Queniborough Lodge. His capacity to participate and provide instructions in these proceedings has been questioned throughout. I must make clear, however, that (contrary to what appeared in some press reports following the hearing before Holman J on the 1st November 2013), there is no suggestion that the Husband lacked capacity or suffered from any relevant ill health at the time of the company reorganisation between 2002 and 2005 and, in particular, at the time of the disposition of shares to Christopher and the alleged agreement with Christopher to leave the balance of his shares to Christopher in his Will.

    21. On the 25th January 2013, the Wife applied for the appointment of a Litigation Friend to act for the Husband. On the 5th February 2013, by order of DJ Malik, Mr S, a partner in a firm of solicitors, was appointed as the Husband's Litigation Friend. Mr S's appointment has been extremely controversial. He is a long-standing friend of the Husband and was the Husband's choice of Litigation Friend. He has also for many years been a friend to the Shield family. There have been occasions in the past when he has acted for the Wife in relation to private client matters. He is a partner in the firm of solicitors which represents Christopher. Thus it is that Mr S found himself in the following confluence of circumstances:

    a) The Husband's Litigation Friend;

    b) A family friend known as such by each of the Husband, the Wife and Christopher, as well as Christopher's three sisters, two of whom gave evidence in support of the Wife's case;

    c) A solicitor who once acted for the Wife;

    d) A witness in the claim by Christopher against the Wife;

    e) A partner in the same firm that represents Christopher.

    In evidence, Mr S conceded to me that "you are right to criticise me" and he apologised to the court more than once for the position that he had put himself in. I accept his evidence, however, that he was concerned for the Husband's welfare and that he was trying to do what he thought was best. I also accept that he took advice from his firm's compliance officer.

    22. I am aware that there is considerable jurisprudence surrounding the issue of conflict and, for the purposes of this Judgment, it is neither necessary nor proportionate for me to have resolved the issue. Counsel suggested to me that it would have added at least a day to the hearing, which was already overrunning. Some time earlier, the Wife's advisors had prepared a detailed skeleton argument in support of an application to discharge Mr S on the ground of conflict and they had hoped to persuade Holman J to hear this application when the matter came before him on the 1st November. Unsurprisingly, the Judge decided that the application had been left too late, that there was insufficient time and he was unable to deal with it at that time.

    23. Importantly, Mr S was not involved in any way in the central issues to this case, namely the company reorganisation that took place between 2002 and 2005, although he was responsible for drafting an important change that the Husband made to his Will in 2010, to which I return later in this Judgment. However, in the light of Mr S's apology and his recognition of the situation that he was in, I feel able and indeed bound to express the view that Mr S allowed himself to be placed in a most difficult position and, however well intentioned, he probably should not have done so. It would have been difficult enough, in the circumstances, for him to have assisted the Husband in the background, but to appear for him as his Litigation Friend was, as he recognised in evidence, putting himself into a most awkward position.

    24. I have had the benefit of a number of medical reports concerning the Husband's condition which it is neither necessary nor appropriate for me to detail in this Judgment. I have already made an order forbidding any press reports regarding the details of any medical reports relating to the Husband. Suffice to say that, on the third day of the hearing, the 27th November, I discharged Mr S's appointment as Litigation Friend on the basis that it was clear from the medical evidence that the Husband had re-gained the capacity to conduct the proceedings. Once the medical evidence had been received, no one opposed my suggestion that I should discharge the Litigation Friend. However, Mr S did still give oral evidence and I deal with that evidence later in this Judgment.

    25. I should also note that I afforded Mr Dyer and Mr Duckworth the opportunity of asking for time to enable them to visit the Husband (again) at home and canvassed with counsel the possibility of taking oral evidence from the Husband at his home, or such other location as may have been appropriate. In the event, no application was made and so the case continued without interruption.

    The company structure

    26. The Husband, along with his sister, Jillian Graham, had inherited the family company from their father. The Husband spent many years working hard for the company, as did the wife, albeit to a lesser extent. This caused some resentment within the family as the Husband took the view that his sister and her family benefitted as shareholders from his hard work whilst doing little for the company themselves.

    27. Prior to 2002, shares in RASH were held by the Husband, the Wife, the Husband's sister, Jillian Graham, Christopher, and 3 family trusts respectively known as the R A Shield Settlement, the Grandchildren's Settlement and Mrs JAE Graham's Settlement. The interest then directly held by Christopher equated to only about 0.05% of RASH.

    28. Christopher is now the Managing Director of RASH which is the parent company of a number of companies (the Shield Group), the principal trading vehicle being an engineering company called Shield Engineering (Syston) Limited, of which Christopher is also the Managing Director.

    29. The current allocation of shareholdings in RASH is as follows:-

    a) 15,108 ordinary "A" shares of £1.00 each are held by the Husband;

    b) 1,660 ordinary "B" shares of £1.00 each are held by the Wife; and

    c) 17,011 ordinary "B" shares of £1.00 each are held by Christopher.

    30. Whilst Christopher's shareholding constitutes 50.36% of the company's issued share capital, the position with regard to the shares are such that the "A" shares have enhanced voting rights which effectively gives the Husband a controlling interest in the Company. I deal with the re-restructuring below.

    The "Mackie deal" and the company decline

    31. During the period 1998 to 1999, the Husband was engaged in detailed negotiations to sell RASH to a company called Mackie. (At that stage RASH was essentially an engineering company and did not own the properties then held within Shield Properties Ltd.) It is clear from all the evidence that I have heard that the failure to conclude that deal at a price acceptable to the Husband was a bitter blow and, to adopt the language used by Mr Graham, had "rather knocked the stuffing" out of the business.

    32. Christopher gave evidence, which was not contested and which I therefore accept, that one of RASH's largest customers, Perkins, had heard about the abortive Mackie deal and was unhappy about it. He said that there was a real risk that the Perkins business would be lost altogether and that the business could have been looking at closure by 2003. It is Christopher's case that the combined effect of the failed Mackie deal and the waning fortunes of the company gave rise to the restructuring that followed and which is at the heart of this dispute. Christopher says that his mother particularly wanted to take the pressure off his father and wanted to have more spare time and enjoy their lives without the constant pressure of the business. The Wife now denies this and says that neither the Husband nor she was ready to retire at that time.

    33. Mr Wagstaffe opened the case on Christopher's behalf by saying that "the company was at that time going down the drain". His skeleton argument opened thus: "In 2001 the company known as Richard Arthur Shield Holdings Ltd (RASH) was failing. Profits were falling at an alarming rate. As a going concern it was losing value to the point where it was becoming effectively valueless". Whilst standing back from the hyperbole present in Mr Wagstaffe's presentation, I accept that the combined effect of the failed Mackie deal and the falling turnover and profit led the Husband to become disillusioned and to consider his future.

    34. The following table of company performance extracted from the company's historic accounts is informative and lends credence to the suggestion that the company was in financial difficulties by 2002, for in that year the net profit was barely more than £3,000.

    Company Accounts

    Year Ending Turnover Profit before tax Net Profit 
    31.10.01 13,883,836 276,521 148,987 
    31.10.02 11,287,010 69,709 3,025 
    31.10.03 14,674,572 795,450 589,594 
    31.10.04 15,905,008 1,010,331 727,199 
    31.10.05 22,048,741 1,965,243 
    31.10.06 24,450,261 3,934,882 3,326,318 
    31.10.07 36,377,062 11,827,171 10,252,340 
    31.10.08 49,154,155 6,186,758 4,634,535 
    31.10.09 28,362,503 1,872,803 594,729 
    31.10.10 39,126,626 4,532,547 3,579,901 
    31.10.11 75,990,774 7,880,557 5,715,641 
    31.10.12 71,665,331 3,932,158 2,832,999 

    35. The table also ably demonstrates the extent to which the company has recovered and flourished under Christopher's stewardship (it was explained that the exceptional profit in the year ending 31st October 2007 includes the proceeds of sale of a property).

    The company restructuring

    36. In trying to establish the truth, it is helpful to start by looking at what is objectively verifiable by reference to agreed or readily established facts. Once that framework is in place it becomes easier to distill the competing accounts of what was intended and why it happened. It is a matter of record that, as a result of restructuring that took place between 2002 and 2005, Christopher's shareholding was increased from about 0.05% to 50.36%, albeit with control remaining with the Husband because of the voting rights referred to at paragraph 30 above. The reason for this is hotly disputed. It is Christopher's case that his parents asked him to move to Leicestershire to take over the running of the company. He says that, in discussions with his parents, he made it clear that if he was to return to Leicestershire to run the family business he would not want the benefits of turning the business around to be shared with those who had no interest in the business. He said that he was aware that his Aunt, Jillian Graham, still retained a significant interest in the Shield Group even though she had no involvement whatsoever in the day-to-day running of the business. He said that his mother often referred to this and resented the fact that her sister-in-law had a shareholding in the Shield Group without actually providing input into that business.

    37. Christopher says that he made it clear to his parents that if he and his then partner (now wife) Emma were to "give up their lives and careers in London" to move back to Leicestershire, he would have to have control of the business and its shares together with the benefit of any increase in value which would be attributable to the hard work needed to turn around the company and the sacrifices required by both Emma and himself in so doing. Emma and he were aware, he says, of the risks of this decision which would involve them giving up their friends, their careers and their flat to move back and run a business which potentially had no realistic future. This reliance is central to his case based on estoppel.

    38. Christopher says that his parents understood and fully agreed with this and, as a consequence, following discussions with Emma, he agreed to take on full time involvement with the business with a view to taking over its running, initially on a trial basis, with Emma remaining in London. He says that, following these discussions, what was needed was to put the structure in place with the benefit of tax/accountancy advice. The kernel of the deal, he says, was that the minority shareholders were to be bought out (with the exception of his mother) so that in future he, Christopher, would own about half the company and his father the other half, save for his mother's tiny holding, with his father having control through the mechanism dealing with voting rights.

    39. I heard evidence from Christopher's wife Emma Shield and she corroborated his account. She said that she was present at the important meetings and that the Husband and the Wife were in agreement as to what was happening; Christopher was getting 50% as soon as possible and the other 50% on his father's passing. Emma said that the Wife expressed no objection to this course, indeed that she was extremely encouraging.

    40. In her Points of Defence, the Wife made no admissions as to the scheme outlined by Christopher. She says that "there were no formal discussions with the Applicant concerning the Intervenor's joining RASH, and that as far as she was concerned he was going to work for Shield Engineering (Syston) Limited and have some of the profits of that business". She continued that "whatever decisions were made in respect of the companies' future, the business would have to provide the Respondent and the Applicant with distributions of capital, as well as with proper salaries, rents, dividends and bonuses for them to live on, their pensions being insufficient to fund their lifestyle".

    41. It was clear to me from what I was told by the Wife that she and the Husband operated a traditional marriage whereby he was in charge of the business and business decisions and she ran the home, as well as working from time to time in the business. Having said that, it was also clear to me that they did discuss important business issues and that the Wife was very much a "sounding board" for the Husband's ideas. I am sure that the Wife would have been present during the principal discussions about the restructuring and I accept the evidence from Christopher and Emma that she was, and that she agreed with the principle that Christopher and Emma would move to Leicestershire from London, that Christopher was to receive about half of the shares in the company and that he would take a significant role in running it. I do not need to decide whether it was agreed that Christopher would take over immediately, or in due course, and I can well see that it would be sensible for there to have been a handover period. Christopher was young and untested, albeit that he had worked in the company as a youngster from time to time.

    42. I heard evidence from Christopher's two sisters, first Alexandra ("Alkie", as she is known) and then Nicola. Alkie appeared to me to be angry and frustrated and when I asked her if she thought that it was fair for me to describe her as angry, she told me that she was "cross" with Christopher for upsetting their father so much. Having heard her evidence, I am quite satisfied that she was doing her very best to tell the Court the truth, but that there was a considerable amount that she had not herself been told. It is evident from all that I have heard that the Husband is an old-fashioned patriarch, who wanted his son, and not one of his daughters, to take over the reins of the business. Alkie was quick to point out what she regarded as Christopher's failings. For example, she detailed how it was that Christopher had "been failed" in his university finals and that, but for her intervention with a long written submission on his behalf, he would not have been awarded his degree. This may well be true; there are very many successful business people who have had unsuccessful academic careers but who went on to show great entrepreneurial skill. Both Alkie and her sister Nicola are highly qualified and successful professionals, and I dare say that they each considered themselves better placed to run the family business than their younger brother. Alkie explained to me that she had shared a house with engineering graduates and she knew that she would not need to be an engineer to run the company. Even when confronted with the obvious financial success of the business under Christopher's stewardship, she was reluctant to give Christopher credit for this. She was dismissive of her brother's evident success, saying that at the time when he moved up to Leicestershire from London he had just been "larking about with the lads" on a job where he was "just paid commission".

    43. Nicola was similarly unable to afford much credit to Christopher for the success of the business. She explained that she had discussed with her father the possibility that she would come up to Leicestershire to run the business. She said that her father had told her that he might "train Christopher up and give him a go".

    44. I am satisfied that neither Alkie nor Nicola were told by their father very much of the detail of what he had discussed with Christopher. The fact that half of the shares were put into Christopher's name makes it clear that something very important had happened. I find that this is one of a number of examples of the Husband saying one thing to one person and something else to another, or perhaps simply withholding information which he did not wish others to know. I therefore attach particular importance to the documentary evidence, to which I shall shortly turn.

    45. The Wife said in evidence that the Husband agreed with her that the company was "our life's work". She says that he told her that he would keep control of the holding company and that he would always have the right to do what he wanted with the shares, that no one could ever out-vote the Husband and that there was no mention of a trust between the Husband and Christopher in respect of the balance of his shares. I accept her evidence, and so find, that the Husband said that he would retain control of the company. This is not in effect an issue, for the voting arrangements do indeed mean that the Husband has overall voting control. The issue is as to the balance of his shares and what would happen to those shares on his death.

    46. In respect of what should happen to the Husband's shares on his death, this case takes on a distasteful and somewhat macabre nature, with detailed consideration of the Husband's Wills, Codicils and testamentary intentions and I am quite sure that, but for the divorce, the issue would not have arisen until the Husband's death. As things presently stand, and I return to this issue later, Christopher stands to inherit his father's shares on his death and the daughters stand to inherit loan notes. The key issue for me to determine, of course, is whether those shares are available as a resource of the Husband's within the Financial Remedy proceedings, or whether they are already irrevocably committed to Christopher.

    47. In her oral evidence, the Wife told the court that she accepted that Christopher would inherit the Husband's RASH shares "but that their value on the date of his death was the question to be asked". She asserted that the Husband had always intended to have access to the value in the shares, in other words he could leave the shares to Christopher in his Will but they could by that stage have a greatly reduced (and presumably, no) value. I observe that this is inconsistent with her pleaded case that there was "no agreement" that Christopher was to receive the shares. In her Points of Defence, she says that the making of a bequest of the shares to Christopher in his Will was "merely one element of possible estate planning". She said that she thought it likely that Christopher was being opportunistic in supporting the Husband's case that he would leave his shares to Christopher. She said that "I guess that Richard [the Husband] does not want me to have any money and so says he has given it all to Christopher".

    "Project Regeneration"

    48. I heard evidence from Ross Graham, the Wife's brother-in-law, married to the Husband's sister, Jillian Graham who, as I set out above, was a shareholder until the restructuring. Mr Graham struck me as transparently honest, indeed he had in fact been recruited later in this saga (as I shall detail below) by the Shield sisters to try and resolve the family conflict. Whilst, of course, I did not hear anything about the discussions to attempt resolution, I am satisfied that Ross Graham was regarded by most in the family as an "honest broker", although the Wife certainly would distance herself from such a description.

    49. Mr Graham is an experienced businessman and he was significantly involved in the restructuring that took place back in 2002-2005. He corroborated what Christopher had said about the failing fortunes of the company and the need to do something to secure its long-term future. He said that he discussed with the Husband the possibility of Christopher taking over the running of the business. He wrote a letter to the Husband dated 15th November 2001, in which he said that Christopher "is fully aware of the pitfalls, but wants to have a go nonetheless". He wrote that "it is going to be a long hard graft with potentially little reward at the end of the exercise". These statements lend substantial contemporaneous support for the view that the company was in severe difficulties, rather than just the "cyclical downturn" which the Wife asserted in her evidence.

    50. The aforementioned letter dated the 15th November 2001 attached a letter to Mr Pridding, a chartered accountant specialising in audit and accounts who had acted for the Shield family and the Shield Group since 1982. In that letter, Mr Graham recounted that he had met with Christopher "to assess issues that need to be addressed prior to his deciding whether or not to take on the management of the Shield Group". At the end of the first paragraph of the letter to John Pridding he wrote the following:

    "Without his full time involvement, at least for a period of five years, Chris believes (and I agree with him) that the group is likely to have to close down with the only value being the auction prices which could be achieved for the plant and machinery etc."

    This lends further substantial support to the proposition that the company was in serious, and possibly terminal, decline. This also corroborated Christopher's case that he was being recruited to take over the reins of the company and puts into context the attempts by his mother and his sisters to describe him as "an apprentice". I am satisfied that, however young, inexperienced and untested he may have been, Christopher was chosen by his father to take on the mantle of "rescuer", indeed that is precisely the word that is used by Ross Graham in his letter to John Pridding.

    51. Ross Graham stated in his letter to John Pridding that Christopher had made it clear that if he was to take over the engineering business, he wanted to structure the ownership of shares in the Shield Group in such a way that he would be recognised as benefitting from the gain in that business and that "he is not shackled with the burden of having to service the family's interest in the shares as well as his own. In short, he would like things structured so that whatever he achieves is recognised as profit for him rather than others".

    52. On the 26th November 2001, Mr Graham wrote to the Husband with a plan as to "how Chris might take on the mantle of the operating businesses". Whatever view the Wife and the daughters may now express about Christopher's then lack of experience, I find ample corroboration from, inter alia, Mr Graham's letters of the fact that there was a clear and settled intention that Christopher should move up to Leicestershire not just as some sort of apprentice but as the person to run the business. Enclosed with that letter Mr Graham sent the Husband what he described as his "first crack at the plan d'attack", which he named "Project Regeneration". This is an important document.

    53. The second paragraph of Project Regeneration reads as follows:

    "The past few years have witnessed challenging trading conditions. Relationships with key customers, particularly Perkins, have been strained and Richard himself is at an age where he wishes to wind down and retire. The only viable options for the business are accordingly either to close down RASH or to find someone prepared to fight the good fight and continue with it."

    The document continued:

    "In respect of the year to the 31st October 2001, the business is likely to have operated at or around break even, after a large chunk for depreciation and having made appropriate provision for directors' remuneration etc. Turnover will have amounted to some £17m, but all the indications are that the prospective business from Perkins and Cummins is of a falling trend and this will continue without serious work being done on the customer relationships."

    As the table above demonstrates, turnover for the year to 31st October 2001 was, in fact, below £14m, with net profit below £150,000.

    54. If further reliable and independent corroboration were needed of the difficulties facing the Shield Group in around 2001, it is to be found in Mr Pridding's statement. He refers to the difficulties with Perkins when they found out about the abortive sale to Mackie.

    55. It may now suit the Wife's case to assert that the Husband was nowhere near retirement at that time and that the business was doing nothing more, or less, than it had previously done in terms of cyclical trading conditions, but I find myself far more assisted by contemporaneous letters than by her evidence 11 years later at a time when her relationship with the Husband has completely broken down. I am also struck by the fact that the retained tax advisor, Stephen Bartlett (about whom I say more later in another context) gave evidence that the Wife was present at many meetings where "the discussions centred on Chris Shield taking over the Shield business".

    56. I do not suggest that Alkie or Nicola were being deliberately dishonest in their evidence. I am confident that the reality is that they had not seen much of the documentation that I have seen, that they are doing their best to support their mother and that they genuinely believe that, at the time when his appointment was being discussed, Christopher was plainly not up to the task in hand. I dare say that their father told them little, if anything, of his planning. It is also likely that, with the benefit of hindsight (i.e. having regard to its substantial value today), they regret that Christopher already owns half the value of the group.

    57. The first finding of fact that I am asked to make by Mr Cayford QC on behalf of the Wife is that "in 2001 the Shield business was entirely viable". Whilst both Ross Graham and Christopher each agreed that the business was a cyclical one, I am sure from what I have read and heard that the company's position in 2001 was far more serious and that its very existence was under threat. I agree with the case advanced by Christopher and on behalf of the Husband that, following the abortive Mackie deal, the engineering company was in serious decline.

    58. I am also completely satisfied that, although the Husband had been the driving force behind the company for very many years, the Husband, with the Wife's encouragement, wanted to take a lesser role and hand over the reins in due course to his son Christopher. I have no doubt, though, that the Husband had no intention of relinquishing control of the company to Christopher for some years to come; it was to be a gradual process. After all, the reorganisation meant that control of the company remained with the Husband.

    59. It was an important part of Mr Graham's Project Regeneration plan that the properties were held separately from the trading parts of the company. Towards the end of the document Mr Graham stated:

    "Within this framework, all the activities and risks associated with the on-going business are being properly separated out and kept away from the properties, thereby ensuring, insofar as possible, if the operation does not succeed, then value is preserved for the family".

    60. Mr Graham had good reason to want to keep the properties separate from the trading side: if the trading company went down, the value of the properties would still be separately preserved, whereas if the properties were subsumed into the trading company then their value would be available to the company's creditors in times of difficulty. Moreover, of course, Mr Graham would have wished to ensure that the value of his wife's shares in the properties was preserved.

    61. Mr Pridding corroborates the initial desire to keep the properties out of the restructuring.

    Tax

    62. The Husband wanted advice about how best to mitigate the tax consequences of the proposed reorganisation. Mr Pridding made it clear that his expertise was in audit and accounts, not tax. The Husband consulted Stephen Bartlett, a former Revenue trained tax advisor who went on to set up his own business called Tax Solutions UK Limited. I had the benefit of his written and oral evidence. In his written evidence he confirms Christopher's insistence that "he wanted to gain the benefit of what would be the turnaround of a business which I understand was not performing very well at the time". He also refers to a letter which Ross Graham sent to him dated the 8th April 2002 which referred to the "potential liquidation of the company".

    63. Mr Bartlett confirmed that Mr Graham had a strong preference to keep the properties outside the reorganisation. However, Mr Bartlett's view was that "there was a significant exposure to Inheritance Tax by continuing to keep the property company and trading companies separate". He continued that "to overcome this, I considered it necessary to merge the then three companies, namely Shield Holdings Limited, Shield Properties Limited and Twingear Limited, under a single holding company". He explained that "the reason for this is that relief against Inheritance Tax and the value of shares held in Shield Properties Limited would only be available if the properties were held within a structure that incorporated the trading business". It was his advice that the acquisition by RASH of the shares in Shield Properties and Twingear not only facilitated the buy-out of Mrs Graham's interest in all three companies, it "potentially secured business property relief for the shares in the then umbrella company RASH".

    64. Mr Bartlett states that it was "discussed and agreed that Chris would have his father's shares when his father died but there was an acceptance for the tax reasons outlined above in the short term a mechanism would be required for Richard Shield to retain control of the business so as to maximise relief against Inheritance Tax available on death both on his shares and loan notes". He commented that the Husband was "particularly keen to implement any saving of tax that might be available to him".

    65. I do not need to go into particular detail about the new scheme which was arranged but, in short, the three companies were now to be merged under one umbrella in accordance with Mr Bartlett's advice. Mr Graham's desire to see the properties kept outside the trading structure was not to be fulfilled. Instead, the mechanism was the issuing of loan notes to the Husband in respect of part of his shareholding in Shield Properties Ltd. The loan notes were to attract interest and would become payable on the Husband's death. The shares belonging to the smaller shareholders (except for the Wife, who would maintain her shares) were either purchased by the company at a discount or transferred to Christopher, with the share split now being as set out at paragraph 29 above.

    66. Following the reorganisation, the balance sheet of Shield Properties Ltd (and Twingear Ltd) were combined with the balance sheet of RASH, with the issue of loan notes in favour of the Husband of £1.56m. The impact on RASH of the introduction of these companies was a significant increase in the balance sheet by some £4.33m (Shield Properties Ltd) and £2.344m (Twingear Ltd) less the loan notes of £1.56m - net £5.114m.

    67. Accordingly, the sisters, the trusts and the Graham shareholders were now all taken out of the company and the Husband held loan notes. Mr Bartlett advised that the risk of "an unwanted tax charge" was minimal, provided the Inland Revenue gave clearance to the transaction. In short, by introducing the properties into the company, business property relief would be available and would offset the Inheritance Tax that would otherwise have been due. I make it clear that the proposed tax arrangements were intended by Mr Bartlett and, I am sure, by the Husband, to be entirely lawful.

    68. Christopher denied that the introduction of the properties into the equation came late in the day. The Wife said that they were a last minute introduction. It is clear to me, and I so find, that Christopher had already agreed to move to Leicestershire to start to take over the company before the decision was made about the properties. The decision about the properties was driven by tax considerations when Mr Bartlett advised on how best, from a tax perspective, to give effect to the agreement. I do not accept that Christopher insisted that the properties were introduced to strengthen the company balance sheets. I do not accept that the then 23 year old and relatively inexperienced Christopher had such thoughts, although doubtless such a benefit was obvious to him once the strategy had been changed.

    69. Mr Graham continued to have reservations about the plan to introduce the properties into the group. On the 8th April 2002 he wrote to Mr Bartlett saying that "we should all be cognisant of the bigger picture and not be driven to do something purely for tax reasons". Mr Bartlett's response was that Project Regeneration might give rise to some unwanted tax liabilities.

    70. On the 25th September 2002, Mr Bartlett sent a draft clearance application to tax counsel for his input/approval. The instructions detail the narrative to which I have already referred in outline above and, in particular, confirm the fact that both the Husband and the Wife intended that Christopher should take a more active role in the company and that the sisters should in due course be given the benefit of the Husband's loan notes in order to take them out of the company. The instructions confirm that the scheme would give Christopher the "comfort that his sisters' interests in the business had been capped during his father's lifetime".

    71. The instructions state at page 9 that:

    "Richard's intention is to retain the shares and loan notes in Newco during his lifetime. On his death the loan notes and shares would pass to his daughter's (sic) and Chris respectively with an uplifted base cost. Chris would then arrange to repay the debt to his sisters without any charge to capital gains tax.

    On the assumption that 100% business property relief would be available against both the value of the shares and the loan notes no inheritance tax would be payable."

    72. The clearance application that was eventually sent to the Inland Revenue was dated the 30th July 2003. The letter contains some important passages, including these:

    "Richard (aged 62) and Jill (aged 58) wish to take a less active roll (sic) in the businesses so that they may enjoy their retirements"

    "...both Richard and Jill agree that he [Christopher] should be given the opportunity to manage the business."

    "Richard's and Susan's intention is that Chris should eventually have a controlling interest in Shield".

    He [ie the Husband] will still wish to retain overall control of Shield."

    "Richard and Susan will bequeath their shares to Chris, if not already gifted to him during their lifetime with the loan notes in turn passing to Richard's three daughters after his death".

    73. Unsurprisingly, it was not suggested to me that the clearance application to the Inland Revenue was a false or dishonest account. Christopher told me in terms, and I accept it as true, that he "wouldn't want to do anything illegal regarding the Revenue". Tellingly, Christopher said in evidence that "whilst it was agreed that the shares were transferred, you cannot be overly explicit about it". I have to infer from this that there could not be any transfer of the beneficial interest in the shares, nor any binding agreement about them, for the tax reasons put forward by Mr Bartlett. The only alternative would be to infer that Christopher intended to say one thing to the Revenue and another to his parents. As I have found, Christopher's intentions were entirely honest, and so the latter alternative would be inconsistent with the evidence. The clearance letter to the Inland Revenue was on the basis that the proposed company reorganisation was an independent step in itself and not part of a wider transaction.

    74. Had sufficient attention been paid to the clearance letter, the instructions to counsel and the correspondence from Mr Bartlett and Mr Graham, I do not think that the Wife, Alkie or Nicola could have given much of the evidence that they did. It could not in my judgment be clearer that what the Husband and Wife intended was a scheme whereby half of the value of the company would go to Christopher now, the Husband would retain control of the company through the enhanced voting rights attaching to his shares, and the daughters would be given the benefit of the Husband's loan notes (in due course) as well as payment for their shares. In due course, it was anticipated that Christopher would inherit his mother's and his father's shares.

    75. Tax counsel advised on the 7th December 2004. He stated, inter alia, as follows:

    "It will be noted that I have said nothing in the Share Acquisition Agreement, or indeed in the above narrative, as regards the further proposed steps, including the transfer of Mrs Graham's shares and so on. This is because the reorganisation should demonstrably be an independent step in itself in my view and not part of a wider transaction. Only on this basis is it truly in keeping with the clearance application. Although the Revenue are aware for the purposes of the clearance application that the shares held by Mrs Graham are to be transferred by way of gift to Chris, this is a matter of intention not agreement, along with the other proposed courses of action mentioned in the clearance letter such as the proposed appointment to Chris from the R A Shield Settlement and the proposed bequest by Richard and Susan to Chris of the Shield shares and to their daughters of the Shield loan notes and so on." [emphasis supplied]

    76. As I have recorded above, nobody has suggested to me that the clearance letter was other than an honest submission to the Inland Revenue. Indeed, given the apparent propensity of the Husband to do all that he could to avoid tax, I am certain that he would not have wanted to do anything inconsistent with that ambition. Mr Bartlett told me in his evidence, which I accept, that the clearance letter "tells the whole story".

    77. The execution of new Wills by the Husband and the Wife bequeathing their shares to Christopher was recognised by the Wife in her annotations to a letter from Marrons dated the 30th June 2005, where she writes "All done except RAS'S will", and by Christopher in a letter to Stephen Bartlett, dated the 12th December 2005 where he describes this as the "final piece of the jigsaw". It is clear that both the Husband and the Wife gave instructions to the family solicitors Harvey Ingram effecting this intention. On the 9th March 2007, the Husband wrote to Mark Dunkley (the Wills specialist at Harvey Ingram) indicating in terms that he wished to leave his shares in RASH to Christopher. At a meeting on the 4th February 2008, the Wife gave instructions to Mr Dunkley that her own shares in RASH should also be left to Christopher.

    The law applied to the facts of this case

    78. What no one, of course, had anticipated back in the period 2002 to 2005 was what would happen if there were some other intervening event, such as divorce.

    79. Mr Wagstaffe in his skeleton argument correctly stated that the court will need no reminders of the long and clear line of authority to the effect that where this sort of issue arises (whether it falls to be resolved at the final hearing or, as here, by way of a preliminary issue) it must be dealt with on exactly the same basis as if it had been litigated in the Chancery Division. It is axiomatic that I must apply the same legal principles in the Family Division as would apply in any other division of the High Court.

    "All that is required for the creation of a constructive trust is that there should be a common intention that the party who is not the legal owner should have a beneficial interest and that that party should act to his or her detriment in reliance thereon."

    80. The principal argument deployed by Christopher is that the Husband’s shares in RASH are held subject to a common intention constructive trust in favour of the Husband as to the life interest and to Christopher in remainder. The common intention constructive trust, says Mr Wagstaffe, is “the tool by which equity gives effect to an imperfect agreement between C and D that C will have a beneficial interest in D’s property where C has acted to his detriment in reliance upon that agreement and D seeks to renege upon it”. Mr Wagstaffe referred me to the Judgment of Peter Gibson LJ in Drake v Whipp [1996] 1 FLR 826 at 830B:

    “All that is required for the creation of a constructive trust is that there should be a common intention that the party who is not the legal owner should have a beneficial interest and that that party should act to his or her detriment in reliance thereon.”

    81. Although I have been referred to a great many authorities and listened carefully to much legal argument, I believe that this statement of the law from Peter Gibson LJ succinctly sets out the applicable principles which enable me to determine Christopher's claim based on constructive trust. In my judgment, there was an agreement to which the Husband, the Wife and Christopher were all party; that Christopher would take over the running of the company, that he would receive half of the value of the company now and that it was anticipated that he would receive his parents' shares by their Wills in due course. What is also clear is that they absolutely did not reach any express and binding agreement regarding the receipt of shares by Will, for the clear advice from Mr Bartlett and tax counsel was that they should not reach such an agreement. They could not say one thing to the Revenue and another thing to each other. It is clear that the beneficial interest in the Husband's shares remained with the Husband.

    82. I did consider at an early stage of this case whether it would be necessary to have an opinion from tax counsel as to whether Mr Bartlett and his instructed tax counsel were correct (and that is not to suggest that anyone has said that they were incorrect). However, now that I have heard the case, I am quite satisfied that what matters is what the parties agreed, and I have already found that there was no express agreement that Christopher would receive the shares on his parents' death. Indeed, on the advice of Mr Bartlett and tax counsel, they agreed that they had an understanding that fell short of agreement. If there were any doubt at all about this, and I were required to imply the terms of their agreement, I would without doubt imply the terms that were advised and intended by Mr Bartlett, namely that there is to be no binding agreement about the transfer of the shares. I have no doubt at all that Mr Bartlett intended that the beneficial interest in the shares remain with the Husband. He did not consider what would happen in the event of divorce, or indeed bankruptcy. However, he was eventually forced to concede in his evidence that if the Husband had become bankrupt then his RASH shares would pass to the trustee in bankruptcy. This helps to provide a clear answer to the issue which I have to determine in this case. Further, Mr Pridding conceded in cross-examination that he understood that there was no legal restriction as to what the Husband could do with the shares, albeit there was "a moral one". He added that "as far as I was aware there was no formal agreement, there was an understanding. I can envisage that if there had been a catastrophe the Husband could use the shares to meet it".

    83. Mr Bartlett conceded during the course of cross-examination by Mr Cayford that "Richard could have changed his mind at any time" in respect of the intention to leave his shares to Christopher. Tellingly, Mr Bartlett also conceded that the Husband could not have gifted the shares to Christopher during his lifetime for tax reasons. He said that "for tax reasons it had to be a matter of intention not agreement". He conceded in cross-examination that the Husband could have sold or charged his shares during his lifetime had he wanted to. He said that "for tax purposes it had to be intention not agreement. The agreement had no status as a matter of law. For tax law purposes there would still be a condition, namely that the Husband had to die. There was always the possibility that the assets could have gone elsewhere." These are important statements indeed, especially coming as they do from the very person that devised the scheme now under such analysis.

    84. Moreover, Mr Pridding conceded that the Husband's shares would be available to his creditors were he to fall into financial difficulty. In answer to a question from me as to what might have happened had the Husband, for example, been a Name at Lloyd's (which he was not) and a call been made on him for substantial funds, Mr Pridding told me that of course the value of his shares would be an available resource. He added that there was "no reason why he [the Husband] couldn't charge his shares as security for a loan".

    85. There cannot be one rule in respect of potential creditors and another in respect of the Wife in the event of divorce. The shares are owned by the Husband. When he dies they will, unless he has previously disposed of them, form part of his estate. I entirely accept that it was expected, at the time of the reorganisation, that the shares would go by Will to Christopher and would, in the circumstances that I have related, be subject to business tax relief which would offset the Inheritance Tax that would otherwise be due.

    86. It is one of the many ironies in the case that it was the Husband's obsession with avoiding tax that has led to so many of the difficulties that have arisen and helped to tear this family apart.

    87. The alternative formulation of the Husband’s case put by Mr Wagstaffe relies on the doctrine of proprietary estoppel. Unlike other pleas of estoppel, he says, proprietary estoppel operates as a cause of action not simply a defence. Proprietary estoppel arises most commonly when an owner of property encourages another to act to his detriment in the belief that he will obtain an interest in that property. The underlying principle is that it would be unconscionable for the maker of the assurance not to give effect to his promise. Mr Wagstaffe referred me to Gillett v. Holt [2001] Ch 210 where Robert Walker LJ said:

    “(I)t is important to note at the outset that the doctrine of proprietary estoppel cannot be treated as subdivided into three or four watertight compartments. Both sides are agreed on that, and in the course of the oral argument in this court it repeatedly became apparent that the quality of the relevant assurances may influence the issue of reliance, that reliance and detriment are often intertwined, and that whether there is a distinct need for a “mutual understanding” may depend on how the other elements are formulated and understood. Moreover, the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine. In the end the court must look at the matter in the round.”

    88. In Crabb v. Arun District Council [1976] 1 Ch 179 the Court of Appeal set out the rationale underlying claims based on proprietary estoppel. The case concerned a dispute over a right of access that had been promised by the defendants to the claimant. The defendants subsequently reneged on their promise leaving one section of the claimant's land land-locked and thus impossible to sell. Lord Denning MR said [187E]:

    "The basis of this proprietary estoppel - as indeed of promissory estoppel - is the interposition of equity. Equity comes in, true to form, to mitigate the rigours of strict law. The early cases did not speak of it as 'estoppel'. They spoke of it as 'raising an equity'. If I may expand what Lord Cairns LC said in Hughes v. Metropolitan Railway Co. (1877) 2 App Cas. 439, 448: 'It is the first principle upon which all courts of equity proceed', that it will prevent a person from insisting on his strict legal rights - whether arising under a contract, or on his title deeds, or by statute, when it would be inequitable for him to do so having regard to the dealings which have taken place between the parties."

    89. It is clear to me, however, that the Husband and Christopher cannot have it both ways. Either, as I have found, they accepted and acted upon the tax advice that they received, and did not reach any binding agreement about the Husband's shares, or they reached an agreement, which they did not disclose to the Inland Revenue. When I say that "they did not reach any binding agreement", it is not simply that there was no concluded agreement, and I accept that there are of course circumstances where equity will intervene to give effect to an incomplete agreement. Here, in fact, I have found that they expressly agreed not to agree, for this is what they were advised to do. I am quite sure that, had anyone at the time asked them as to the terms of their agreement if they were in any way unclear, they would have said that they were acting just as Mr Bartlett had advised.

    90. Mr Dyer QC for the Husband contends that constructive trusts "can address rights in the future". He says that Christopher's proprietary interest is in remainder; that at present he does not have a proprietary interest but will acquire one on the Husband's death. He contends that the Husband is not a bare trustee but a constructive trustee of a common intention trust that was intended to pass the shares, with value, to Christopher on his death. Mr Dyer says, and with this I agree, that it would "be absurd if Christopher obtained a different outcome from the Family Division as an Intervenor in 2013 in the divorce proceedings from that which he could later obtain in the Chancery Division if he brought a claim against the estate of his father". I have already said, as is obvious, that I am applying exactly the same principles and the same law as that which would pertain in the Chancery Division. I accept that the parties believed, as is probably the case, that if the Husband left his shares by Will to Christopher they would qualify for business property relief which would offset the otherwise payable Inheritance Tax. That is not the same as saying that the Husband was bound to leave them to Christopher, or that he could not have sold, charged or otherwise dealt with them during his lifetime. The moment it is accepted, as I do, that the Husband was free to deal with the shares during his lifetime, or that they are available to creditors during his lifetime, then the case as to constructive trust and proprietary estoppel falls away.

    91. Mr Wagstaffe seeks to answer the point by arguing that the trust asserted by Christopher and acknowledged by the Husband is that the shares in RASH belong beneficially to the Husband during his lifetime but pass, under the trust, to Christopher on the Husband's death (and not before). He argues that the constructive trust, unlike proprietary estoppel, connotes an equitable interest which arises at the point of creation, the interest is an interest in remainder and exists subject to the Husband's prior life interest. In this regard I have been referred to paragraph 9-001 of Megarry & Wade's Law of Real Property and, in particular, the discussion regarding interests vested in possession, or future interests. This does not, however, remove the difficulty that in this case the agreement was to do all that could legally be done to avoid tax, and that included not making any binding agreement about leaving the shares by Will. Mr Wagstaffe opened his case thus: "This case concerns a relatively straightforward issue of fact. Either there was an agreement, which equity gives effect to, or we don't get there." I agree with him. In spite of the days of legal argument that I have heard and the files of case law that I have read, it comes down to the issue of fact as Mr Wagstaffe told me from the outset, and for the reasons that I have given, Mr Wagstaffe has failed to get home on this issue of fact.

    92. Mr Dyer, for the Husband, seeks to have it both ways. On the one hand, he says, the clearance letter to the Revenue was entirely correct. On the other, he contends that "there is a restriction on the persons to whom the Husband can transfer the shares". He continues that "in conscience, he cannot sell the shares, raise money on the security of the shares, or transfer them to a third party without Christopher's consent". If, as I have found, the shares would be available to a creditor, then this proposition fails. I note that Mr Dyer is silent on the issue of what would happen were a third party creditor to seek value from them.

    93. I have of course been referred to the seminal case of LLoyds Bank v Rossett [1990] AC 107. The case makes clear that a claimant in a constructive trust case can demonstrate the relevant common intention in one of two ways: by reference to conduct, or via evidence of express discussions. Where a finding that the parties reached a meeting of minds (an "agreement, arrangement or understanding") is based on evidence of express discussions ("however imperfectly remembered and however imprecise their terms") then it will only be necessary for the party asserting a claim "to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement" to give rise to a constructive trust. In the light of the findings that I have set out above, the principles clearly enunciated in that case take the matter no further.

    94. Mr Dyer asks, rhetorically, "why would Christopher have agreed to a situation where the rug could be pulled out from underneath him at any time?" I find that the answer to this is straightforward: this was a family situation. He trusted his father to do what he had said he would do, to leave him his shares by Will. His father could not and did not enter into a binding agreement to do this, for the tax reasons discussed. Christopher had not, of course, contemplated the possibility that his parents would divorce, theirs had been a long marriage that seemed sure to continue. Moreover, and in any event, the 23 year old Christopher was now in a position of substantial income and capital security having been gifted 50% of the shares.

    95. I can deal briefly, therefore, with the case that has been advanced in respect of detriment. I have already found that there was no agreement, no common intention trust and no proprietary estoppel, and so I do not actually need to address the issue of detriment, but I do so as a great deal of time has been spent on it. I have paid tribute to the success that Christopher has achieved. I have criticised those family members who have not been prepared to recognise his significant achievements. I have accepted more of what Christopher has told me than I have of any of the other family members that gave evidence. However, I do not accept that Christopher's case as to detriment is made out. This is because, in 2001, Christopher was aged 23. He had no significant track record of business or employment success. Yes, he had a home in London and a partner who was employed there. But what he secured from the reorganisation was half of the value of the company there and then with the strong prospect of the rest to follow on his father's death. He secured good employment at a salary which would have been the envy of most 23 year olds. Then, later in the deal, he secured significant value from the introduction of the properties into the arrangement. This was not originally going to be part of the deal but, for the reasons which I have recounted, they were introduced. It is clear from what I have heard that the properties were introduced at an advantageous price in at least some cases. By this, I mean that there is cogent evidence to support the proposition that the value put upon the properties on their introduction into RASH represented exceptional value for the company. Christopher, now the owner of half of the company's assets, gained one half of every pound of under-value.

    96. Moreover, the rate of interest on the loan notes was also most advantageous to the company, for it could not possibly have secured commercial borrowing at such a rate.

    97. In my judgment, Christopher's claim as to detriment, in the sense required by the doctrine of proprietary estoppel, is not made out.

    The Husband's evidence

    98. For the reasons already set out above, the Husband did not give oral evidence. However, I have of course read his Form E (and referred to the salient parts above) and had the benefit of his short statement dated the 29th October 2013. The statement does little more than confirm what he had already said about his shares in his Form E, and assert the truth of the Points of Defence settled on his behalf in May 2013.

    99. It was urged upon me by Mr Dyer and Mr Duckworth for the Husband that the court should concentrate on the events in 2002 -2003, and in broad terms I agree. However, much time was spent on issues surrounding the Husband's Will, and a later codicil, which I deal with below.

    100. The Husband is now aged 72 and, although he has recovered capacity to conduct the proceedings, I am sure that the divorce, and these proceedings, have extracted a heavy toll on him. I am sure that both he and the Wife are desperately sad to see their family torn apart, and their children pitted against each other in such a public and ugly fashion.

    Wills and the 2010 Codicil

    101. It took some time for the Husband and the Wife to make Wills giving effect to the expectation that they would each leave their RASH shares to Christopher by Will. The Husband eventually executed his will on the 17th November 2008, whereby he left his RASH shares to Christopher and the loan notes to his daughters. The Wife executed her will on the 26th May 2010, leaving her RASH shares to Christopher. These Wills were consistent with the understanding that I have found they reached, but are not proof of any binding agreement. Moreover, Wills can of course be changed at any time.

    102. Unfortunately, in 2010, the Husband was seriously ill and he was told that he had no more than two years to live. Then, in May of that year, he collapsed at work. The Husband says in his Form E that he had been put under great pressure by the Wife to change his bequest of shares. Meanwhile, with their father’s ill health, Nicola and Alkie had made enquiries about the family situation and learned to their evident fury that Christopher was to be the beneficiary of his parents’ shares. They blamed Christopher for much of what had happened and gave little credit to Christopher for turning the company around, with Alkie describing that claim as “a sob story”.

    103. Christopher said that he believed over a period of time that the Husband had been under some pressure to create more value for other members of the family. The evidence given by the family members about this aspect of the case reveals the extent of the family split and I have no doubt that they felt it necessary to “vent their anger” about what had happened, but in my judgment the circumstances surrounding the codicil are of only marginal relevance to the issues that I have to decide.

    104. On the 27th May 2010, the day after he collapsed at work, the Husband executed a codicil to his Will in the presence of the Wife, Nicola and Alkie, whereby he revoked the bequest of shares to Christopher. The codicil was prepared by Mr S. Given that Mr S was not a party to the company reorganisation, the fact that he was the draftsman of a codicil changing the bequest of shares does little to inform me of what actually happened and what was agreed, or not agreed, at the time of the company reorganisation. It was Mr S’s unchallenged evidence that he knew nothing at the time of the tax advice that had been given as part of the 2002-2005 reorganisation and that he only learnt of this in 2012. Mr S said that the Husband explained to him that he wanted to deal with the shares differently from what was in his Will “as a buyback was on the cards”. I am not able to make much of this piece of evidence, either way. It is conceivably some evidence in support of the proposition that the Husband knew that he was free to change his Will at any time. However, given the Husband’s evident difficulties at that time, and since, and given the fact that the Husband has not given oral evidence and had a chance to explain, or be questioned about these events, I do not attach much weight to them. As it happens, given my conclusions, I agree that the Husband was legally free to change the bequest of shares in his Will. I agree with the submissions of Mr Dyer and Mr Duckworth, for the Husband, that the evidence about what happened when the codicils were executed in 2010 and 2011 is not very relevant to the issue which I have to determine, namely whether the Husband’s shares are held in trust for Christopher. What is clear to me is that the whole position surrounding the Wills and the codicils has created untold misery and mistrust within this family.

    105. The Husband executed a second codicil on the 10th October 2012 revoking the first codicil and restoring the position under his Will. Mr S said that he has seen a great deal of the Husband since the breakdown of the marriage and that the Husband’s position is that he considers that his RASH shares are committed to Christopher, but that he wanted to “create more equality” among the children and that “he was saying different things to different people”. I am clear that I cannot, and I do not, base the findings that I have made in this case on the evidence of the Husband alone.

    My conclusions summarised

    106. In summary, my findings are as follows:

    a) RASH was in serious decline following the abortive Mackie deal and the Husband’s enthusiasm and stamina had been dented by it. Although he was not ready to retire and hand over control of the company, the Husband and the Wife agreed with Christopher that Christopher would start to take over its running.

    b) The Husband played a far greater part than the Wife in this reorganisation.

    c) The Husband did not tell his three daughters much of what was going on at the time of the reorganisation.

    d) Christopher was young and inexperienced at the time of the reorganisation. He discussed the position carefully with his partner and they agreed to make the move to Leicestershire towards a gradual takeover of RASH in exchange for half of the company shares being given to Christopher. Additionally, Christopher would receive a substantial salary and, if he turned the company around, dividends on his substantial shareholding.

    e) There was a non-binding expectation that Christopher would receive his mother’s and his father’s shares in due course by their Wills.

    f) Both the Husband and the Wife eventually executed new Wills to give effect to this expectation.

    g) The Husband, in particular, was especially keen to do all that he could legitimately to avoid tax. Mr Bartlett devised a scheme to give effect to this desire.

    h) The scheme devised by Mr Bartlett involved merging the properties into the group in order to secure tax relief which would offset the Inheritance Tax that would in due course fall to be paid.

    i) The other shareholders, and the daughters, would receive value for their shares and in due course the daughters would receive the value of the Husband’s loan notes. Both the Husband and the Wife had always been particular in ensuring that their children were treated fairly and equally.

    j) A crucial ingredient of the scheme was that there was no binding agreement, still less a trust, in respect of the shares.

    k) Neither the Husband nor Christopher would have done anything to fall foul of the Inland Revenue or the steps that they were advised needed to be taken for the scheme to work. Christopher was happy to leave the detail of the scheme for his father to sort out.

    l) The Husband’s shares remain the Husband’s. Unless otherwise dealt with, they would remain available to any creditors and they will form part of his estate on his death.

    m) Accordingly, Christopher’s claim for a declaration that the shares are held on trust for him fails.

    107. I know that this is of course not the end of the matter, it is simply the end of the preliminary issue. I observe that, especially within the context of a family squabble, it is a matter of deep regret that a scheme could not have been agreed whereby Christopher would be rewarded in due course with the shares that he expected to receive, whilst providing his parents with resources during their lifetime. I note that the success of the company since the reorganisation appears to be substantially due to Christopher and it is a matter of regret that his sisters have so resented, or failed to recognise, his success. Had Christopher failed to save and re-build RASH, then this phase of this bitter litigation would not of course have occurred, for there would have been no shares to argue over in the divorce between the Husband and the Wife.

    108. I note that there was no FDR in relation to the preliminary issue. Whilst, as been made clear in a number of cases, an FDR will not necessarily be appropriate to the resolution of a preliminary issue, I express the view that consideration should at least be given to the possibility of an FDR prior to the hearing of a preliminary issue. It may well have been the case here that the input of an experienced FDR judge might have helped to save this family from the course which it has taken.

    109. It must be hoped that, having passed through this preliminary issue, the family can yet find a way to resolve the dispute without further bitterness and haemorrhage of costs, for they have already now spent more than a million pounds in costs.

    110. I would expect that counsel will readily be able to agree on the form of the order which I should now make and invite them to submit an agreed document. If this cannot be done then of course the matter can be restored to court.

    111. I would like to end by thanking all counsel and their instructing solicitors for the immense help that they have given to the court and in the way that they have all conducted this case.


Published: 24/01/2014

Bookmark this item




Copyright 

Copyright in the original legal material published on the Family Law Hub is vested in Mills & Reeve LLP (as per date of publication shown on screen) unless indicated otherwise.

Disclaimer

The Family Law Hub website relates to the legal position in England Wales and all of the material within it has been prepared with the aim of providing key information only and does not constitute legal advice in relation to any particular situation. While Mills & Reeve LLP aims to ensure that the information is correct at the date on which it is added to the website, the legal position can change frequently, and content will not always be updated following any relevant changes. You therefore acknowledge and agree that Mills & Reeve LLP and its members and employees accept no liability whatsoever in contract, tort or otherwise for any loss or damage caused by or arising directly or indirectly in connection with any use or reliance on the contents of our website except to the extent that such liability cannot be excluded by law.