Family Law Hub

SR v CR [2008] EWHC 2329 (Fam)

  • This judgment is being handed down in private on 3rd October 2008. It consists of 84 paragraphs and has been signed by the judge. The judge hereby gives leave for it to be reported.

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

    Mr Justice Singer

    Neutral Citation Number: [2008] EWHC 2329 (Fam)

    Case No: FD05D05347



    Royal Courts of Justice

    Strand. London. WC2A 2LL


    B e f o r e :






    - and -



    (ancillary relief: family trusts)


    Mr Nicholas Mostyn QC and Mr Timothy Bishop (instructed by Payne Hicks Beach) for the Petitioner

    Miss Lucy Stone QC and Miss Sarah Phipps (instructed by Alexiou Fisher Philipps) for the Respondent

    Hearing dates: 9 to 13 June




    Crown Copyright (c)

    Mr Justice Singer:

    1. The spouses (H and W) are in their mid-forties. They were both born in South Africa and lived there until H settled in London in 1985. They had met in 1983 and became engaged in December 1985, shortly before W came to live in England with H. They married on 9 October 1988 and lived successively in three homes in north London. They have three children; girls aged nearly 15 and seven, and a son who will shortly be 13. H was actively engaged in a property development business via a company called RCo. From about 2003 onwards his life was increasingly affected by an addiction to substance abuse, and by depression. This led to inattention to his business affairs and to great strains in his domestic relationship and was no doubt ultimately a major contributor to the breakdown of the marriage. W instituted divorce proceedings in September 2005 and at the end of October 2005 H left their home and moved into rented accommodation. There has been a decree nisi but as yet no decree absolute pronounced. W and the children remained living in their home in Hampstead until they too moved to rented accommodation when the house was sold for £12m in January 2008. This then was a relationship which endured 20 years from committed engagement to separation.

    2. This judgment relates to the resolution of W's financial claims in the context of the divorce, and should be cited if reported as SR v CR (ancillary relief: family trusts). The ancillary relief proceedings, commenced in October 2005, have been long coming to trial. The critical obstacle in the way of any negotiated settlement (which must surely have been preferable to the overall expenditure on costs so far incurred by the parties and by the trusts of about £1.65m) is the fact that the assets directly remaining available to the parties of between about £7.25m and £7.88m are inadequate to maintain the separated family either in accommodation of the standard to which they have become accustomed, or in their lifestyle which (certainly in the latter years) was costing of the order of £lm annually.

    3. The broad picture of the assets personally available to the parties can be summarised as follows:

    Total H W W 
    Joint Funds 988,979 494,489 494,489 
    W Funds    
    Bank accounts 116,372  116,372 
    Liabilities (5,187)  (5,187) 
    H Funds    
    Proceeds home sale 7,621,184 7,621,184  
    Bank accounts 2,194,670 2,194,670  
    Other assets 121,835 121,835  
    Liabilities: offshore banks (2,946,894) (2,946,894)  
    Other liabilities (207,485) (207,485)  
    Total current assets 7,883,473 7,277,799 605,674 
    Unpaid litigation costs (409,662) (429,436) (429,436) 

    4. W has had no work outside the home since about 1992. H who has overcome his addiction and who has become free of or at least less prone to depression is engaged in a course of study and training which will preclude him for about 2 1/2 years from re-establishing himself in any full-time occupation or business, with an unpredictable earning capacity once he has qualified.

    5. H comes from a wealthy family. His father MR, now aged 72 and in reasonable health, made his fortune in South Africa and since his arrival in England has invested in a variety of enterprises, including property development, with overall success. He established a number of offshore trusts from 1983 onwards, collectively known as the FGroup. The corporate trustees are TrustCo, a Swiss company. It is unnecessary for present purposes to give any detailed account of the individual trusts, which fall into three groups. Since 1990 W has not been within the beneficiary class of any of the trusts.

    6. First are what have been called the 'Rump Trusts'. The class of discretionary beneficiaries has remained unchanged since their creation. They include MR and his spouse (H's step-mother), H and his three siblings/half-siblings, and their issue.

    7. Next are (currently) three trusts which have been described as the 'Excepted Trusts'. From these for fiscal reasons MR and his spouse were irrevocably excluded in 1996. The remaining beneficiaries are as for the Rump Trusts. Arguably MR's spouse if she survives him might again become a potential beneficiary in the capacity of MR's widow.

    8. There is in addition a grandchildren's educational settlement, also endowed by MR, which makes substantial contributions to the school fees of his grandchildren. In fact there is currently a shortfall in relation to H and W's three children and (unless the fund is replenished, as it seems it may be with funds from the other trusts) distributions from this trust will cease before they have completed their schooling.

    9. The assets within the Rump Trusts and the Excepted trusts were valued as at October 2006, and are as follows:

    10. No allowance has been made for income or for any capital growth since October 2006. As can be seen, these trusts predominantly hold liquid assets and realisable investments, totalling together $170m.

    11. MR as settlor of the FGroup trusts has made his aspirations concerning their method of operation known to TrustCo by means of a series of Letters of Wishes, of which the latest is dated 30 June 2006. MR's primary wishes relevant to this application are:

    During my Lifetime

    3. Subject to [requests relating to his current spouse] I will ask you to distribute capital or income to me or the other beneficiaries of the trusts as I request and I would also ask you to consult with me on all matters concerning the management and administration and investment policy of the various trusts.

    After mv Death

    7. Subject to paragraphs [dealing with provision for his current spouse if she survives him, and for the education of his grandchildren] I wish you to deal with the remainder of the assets in the trusts... as set out in paragraphs 8 to 14 below.

    8. In asking you in the following paragraphs to make a division of assets between members of my family, it means that you will need to liquidate assets. In the case of most assessors will not be difficult but there are certain assets (with which you will be familiar) that will require more careful handling and I ask you to ensure that the liquidation of those assets is handled in a proper and orderly fashion.

    9. In making a division of assets between my four children as set out in paragraph 10 below there are two important matters that you should bring into account before making those divisions. The matters are: -

    (a) please bring into account the notional account balances for each of the children with which you are familiar

    (b) ...

    10. Subject the points I make above I wish you to make a division of the assets in the trusts equally between my four children... Please be guided by the wishes of each child in relation to each one quarter part of the trust funds and I wish you to deal with the relevant assets in the manner that each of them indicates. If one or more of the children wishes part or all of his or her part of the trust funds to be distributed to or for his or her benefit then please act in accordance with these wishes but equally if one or more of the children wish the trusts to continue in relation to his or her part then please establish a separate fund or funds within the trust structures and act in accordance with that child's wishes.


    15. I have made provision in my Wills for my estate to pass to the MR Will Trust which was established some years ago and the funds you receive after my death in that trust should be treated as part of the overall trust funds available for the beneficiaries.

    16. For the purposes of considering the wishes set out in this Memorandum I would ask you as far as possible to treat all the trusts as a single family trust and the wishes I have expressed in his Memorandum are intended to cover all the assets in the various trusts including the MR Will Trust but subject to the special provisions relating to the [grandchildren's education trust].


    19. The above notes are set out as a guide to my wishes. I stress that this Memorandum does not created any legally binding obligation but is a note to you of my wishes in relation to these trusts.

    10. Miss Stone QC and Miss Phipps represent H. They evaluate the assets personally owned by H and W at £7.25m, rather than the £7.88m postulated by Mr Mostyn QC and Mr Bishop for W. The principal difference in treatment which largely accounts for this discrepancy is that H's balance sheet deducts outstanding but unpaid costs, whereas W's shows them below the line. I prefer the latter presentation, but of course bear in mind that from the means available to them in the light of my award each spouse must pay their broadly comparable outstanding costs, subject to any liability or recovery flowing from any costs order I may make.

    11. The analysis on each side assumes that steps can be taken by the spouses and the relevant trust or trusts legitimately to avoid liabilities to UK tax of up to as much as £880,000 which might otherwise arise in certain circumstances. Both H and W are non-domiciled in the UK for tax purposes.

    12. H's proposal is that the £7.25m should be equally divided between the parties, so that W (including the value of assets already in her name) would have of the order of £3.625m at her disposal. This would enable her to purchase suitable housing for herself and the children within the budget of £2m which H suggests.

    13. On a Duxbury basis the £1.625m balance would produce for W an income net of tax of about £69,500 (source: @eGlance, 2008-2009 edition). I have assumed, when quoting Duxbury results, that W's return on the Duxbury fund, both as to income and any capital gains, will attract UK tax. H offers to augment her income by submitting to a court order for child periodical payments totalling £15,000 p.a. per child. W would thus have available about £115,000 net for herself and the children in the first year on which H asserts she would have to make do in their now straitened circumstances, whatever their past expenditure has been. Neither party suggests that W has any relevant earning capacity.

    14. For his part H would hope within the same £2m budget to be able to buy a home for himself and where the children will stay with him. He recognises that the child maintenance burden will necessarily be met from his capital resources until his income is sufficient to meet it, which is an incalculable and potentially enduring period to be measured in years rather than months. He recognises that the budget which he proposed for himself of about £115,000 p.a. (in his March 2006 Form E, not including maintenance provision for the children or the current balance of their education expenses) is a far cry from the family's past lavish expenditure.

    15. W sets out a much larger store for herself. She asks for a housing budget of £4m. In lieu of periodical payments for herself she seeks a capitalised maintenance fund of £3.75m to effect a clean break. On a Duxbury basis (amortising also £116,000 of her own assets) her initial net income receipt would be about £151,500 p.a. With the child periodical payments totalling £60,000 which she asks me to award, that would bring her available income to £211,500 in the first year.

    16. Mr Mostyn and Mr Bishop describe this total award of £7.75m as 'the very bottom of the reasonable bracket in this case'. And so it is by comparison with W's initial aspiration to sustain a total budget of £300,000 which would require a Duxbury fund in excess of £6.4m or thereabouts. But she acknowledges that she will need to plan her budget and her economy carefully.

    17. Each case is put on the basis that H will meet the children's educational fees to the extent that there is a shortfall from the educational trust.

    18. An award of £7.75m to W would subsume the total of the assets currently available to the parties in their own names. Indeed there would be a shortfall of over £730,000 once one or other or both spouses have met their outstanding litigation costs. However even ignoring the incidence of costs H would be left with no capital and, for the moment and for some time, no income. From this void, on W's case, he should nevertheless find and pay £60,000 annual child maintenance payments, the shortfall in educational costs, and any tax which may arise in implementing the order.

    19. He also owes £1.07m under a personal guarantee in respect of an irrecoverable loan made to RCo by one of the FGroup companies. H accepts that this guarantee will not be enforced against him in present circumstances, while asserting that it will have to be repaid in due course. It is difficult to see how he will achieve this save by distribution from FGroup, or by gift from MR.

    20. Thus the central issue is as so always, what are the resources available to these parties and the court to meet the reasonable needs of the spouses, and of their children to whose welfare while minors first consideration must be given? It is important not to risk distorting by paraphrase the factors which, amongst all the circumstances of the case, fall to be blended into an award which is fair to both spouses, and so I do not think it is superfluous to set out the salient words of the governing section 25 of the Matrimonial Causes Act 1973:

    Section 25

    (1) It shall be the duty of the court in deciding whether to exercise its powers ... and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.

    (2) As regards the exercise of the powers of the court under section 23(l)(a), (b) or (c), 24, [24A or 24B] above in relation to a party to the marriage, the court shall in particular have regard to the following matters-

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

    (b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

    (c) the standard of living enjoyed by the family before the breakdown of the marriage;


    (f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family; ...

    21. In this case nothing turns on the age or state of health of the parties or their conduct, nor is the loss of prospective pension entitlement relevant.

    22. How then should I evaluate the extent to which, if at all, I should have regard to the FGroup assets of which H is a discretionary beneficiary? I must examine the relevant case law and apply it to the evidence in this case in due course, but the polar extremes of the propositions advanced by the parties in this case can be readily established at the outset by consideration of two of the reported cases.

    23. The first is now of some antiquity. In Howard v Howard [1945] P 1 the headnote reads:

    On an application for reduction of the maintenance granted to a wife when she divorced her husband, the court, in fixing the reduced maintenance, has no jurisdiction to make an order that would leave the husband without sufficient to live on with a view to putting pressure on trustees, holding a trust fund on discretionary trusts, to exercise their discretion in favour of the husband as an object of the discretionary trust. It is only when the husband is receiving regular payments from the trustees under the discretionary trust that these payments can be taken into account as part of the husband's means.

    24. At page 4 Lord Greene MR said:

    [Counsel] informed the court that seemingly the basis of the learned judge's decision was that he took the view that if he made an order of this kind the effect would be to bring pressure on the trustees to make to the husband an allowance out of the settlement income. If that was the object of this order, it was, in my opinion, entirely wrong in principle. Trustees who have a discretion are bound to exercise it, and if they do so nobody can interfere with it. In my opinion there is no jurisdiction in the Divorce Court to make an order which will leave the husband in a state of starvation (to use rather picturesque language) with a view to putting pressure on trustees to exercise their discretion in a way which they would not have exercised it but for that pressure.... What has to be looked at is the means of husband, and by 'means' is meant what he is in fact getting or can fairly be assumed to be likely to get. I must not be misunderstood. It is, of course, legitimate (as was done in this case) to treat a voluntary allowance as something which the court can, in proper circumstances, infer will be likely to continue and make an order on that basis.

    25. It is correct, as Miss Stone pointed out, that the question there was the means of the husband to pay maintenance, which is variable: whereas a capital order as sought here is not. But as will be seen the scale of trust support for H and this family came by way of an irregular series of large capital payments rather than as a periodic and regular allowance. The principle that regard can be paid to past payments as a guide to the likelihood of future benefit is well established.

    26. At the other end of the spectrum falls Thomas v Thomas [1995] 2 FLR 668, a family company not a trust case, where H had a minority shareholding. In his judgment Glidewell LJ treated the situation as analogous to that where a payer is a discretionary beneficiary of a trust, because to achieve a change in the company's dividend and remuneration policy would require the assent of the other shareholders. From that case derives the distinction between 'improper pressure' as described in Howard and the concept of permissible 'judicious encouragement'. The latter phrase connotes making an ancillary relief order which will leave the payer in a situation where his needs are such as to encourage the trustees/other shareholders to act to allay them.

    27. At page 670 Waite LJ stated as a principle that:

    ... where a spouse enjoys access to wealth but no absolute entitlement to it (as in the case, for example, of a beneficiary under a discretionary trust or someone who is dependent on the generosity of a relative), the court will not act in direct invasion of the rights of, or usurp the discretion exercisable by, a third party. Nor will it put upon a third party undue pressure to act in a way which will enhance the means of the maintaining spouse. This does not, however, mean that the court acts in total disregard of the potential availability of wealth from sources owned or administered by others. There will be occasions when it becomes permissible for a judge deliberately to frame his 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 of the case. There are bound to be instances where the boundary between improper pressure and judicious encouragement proves to be a fine one, and it will require attention to the particular circumstances of each case to see whether it has been crossed.

    28. Glidewell LJ at page 677 described:

    ... the guidance to be derived from the various authorities to which Waite LJ has referred. Those which are the most helpful in this case are, in my view, the decisions of this court in O'D v O'D [1976] Fam 83, B v B (1982) 3 FLR 298 and Browne v Browne [1989] 1 FLR 291. From these authorities I derive the following principles:

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

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

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

    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.

    29. In that case the lump sum order (which the Court of Appeal approved) left the husband with inadequate liquid resources to secure his indebtedness without obtaining alternative funding or security (which he had not established he could not do). He would therefore be in serious difficulty unless his co-directors and close family members changed the policy of the company. That case has a close affinity with this.

    30. The court can of course only make an order with that effect if it anticipates that the requisite assistance will in fact be forthcoming when push comes to shove, notwithstanding what may be quite strenuous expressions of disinclination or indeed refusal on the part of the trustees/other shareholders to adopt a generous response.

    31. The tension between the court and (in this case) the trustees can only be resolved ex post facto, and so a key component of the court's role is to determine on whatever evidence is available how the trustees are likely to exercise their discretion in the situation postulated by the award which the court has it in mind to make. That balance involves an exercise in both fact-finding and prediction, and therefore necessarily a large element of uncertainty.

    32. In B v B (financial provision) (1982) 3 FLR 298 Booth J's first instance award to that husband could be met from the wife's own resources, but would leave her with next to no free capital beside her home unless the trustees of settlements she had herself endowed exercised their power to make advances in her favour. The evidence of one of the trustees was strongly that they would not. On appeal Ormrod LJ described the position in this way (at page 303):

    Both settlements are potential sources of capital for the wife and are, therefore 'other financial resources', though not under her absolute control. Some assessment must be made of the worth of these potential sources of capital to her, not necessarily in valuers' terms, but in terms of the practical realities of life, or in terms of reasonable expectations. As Lord Merrivale said in 7Vv7V(1928) 44 TLR 324, p. 327, the ecclesiastical courts 'showed a degree of practical wisdom. . . . They were not misled by appearances . . . they looked at realities.' Much the same was said by this court in O'D v O'D [1976] Fam. 83, p. 90. Looked at in this way the potential of the 1951 settlement may be small, but that of the 1965 settlement is great. The wife herself was the settlor, settling her own money on herself for life, for her own purposes, and retaining a power of revocation subject only to the consent of the trustees. It is not to be supposed that the trustees would withhold their consent if the wife wished to free capital for any reasonable purpose, more especially when the other beneficiaries are already amply provided for.

    Balancing the financial resources of each party and their respective needs, giving full weight to the wife's exceptional needs, particularly in the future, it is impossible to regard a lump sum of £50,000 as an unreasonable sum for the purposes of ss. 23 and 25 of the 1973 Act.

    The next question, and it is often the crucial question in these cases, is practicability. It is at this stage that the court has to consider such problems as liquidity, the cost of raising money on mortgage or overdraft, the effect on a business of withdrawing a substantial capital sum and so on. These are practical matters and must be approached realistically, 'penetrating to the underlying realities' (O'D v O'D (above)), and 'not being misled by appearances' (N v N (above)).

    In this case the question is, 'Is it practicable for the wife to raise the sum of £50,000?' To start with she has £28,300, plus accumulated interest, from the sale of 9 Clumber Crescent North on deposit or in cash. There remains a balance of £21,000. In a case such as this it is distasteful, and ought to be unnecessary, to look at the wife's personal possessions, but the attitude of her trustees make it unavoidable. She could, undoubtedly, but painfully, raise such a lump sum from her stamps (which in this case are real assets, if not investments) and her jewellery, or she could borrow it (at great and unnecessary expense) by way of mortgage. Alternatively, she could withdraw a relatively small part of the 1965 settlement fund with the consent of her trustees. The consequent loss of income would not be significant, and could be made good by reinvesting part of the fund which will, or may, involve some capital gains tax.

    The judge concluded that the trustees would, reluctantly no doubt, give their consent to enable her to comply with the order, but it is pointed out by Mr Jackson that one of the trustees gave evidence before the judge which indicated that the trustee's policy was not to consent to the withdrawal of any more funds from the settlement. This produces a somewhat invidious situation which becomes positively embarrassing when the trustee in question is also acting as the wife's solicitor in bitterly contested matrimonial proceedings. It makes it difficult to know what weight to attach to his expression of intention. One might expect that the trustees would wait to see the outcome of the proceedings before exercising their discretion under the settlement.


    The result is that we think the judge was right on the question of practicability. The wife can raise the balance of £21,000 and it would be unjust to the husband to make him bear the consequences if the trustees refused to permit the wife to raise the required sum out of the settlement fund.

    and after referring to the facts of Howard, Ormrod LJ concluded:

    The judge at first instance [in Howard] had made an order for periodical payments against the husband, apparently expressing the intention of putting pressure on the trustees to exercise their discretion in the husband's favour, and fixing a rate of payment which left the husband with little or nothing to live on if the trustees did not apply the income of the trust-fund by paying it to him. Not surprisingly, this court expressed strong disapproval of such an exercise of discretion by the judge below. Had the court had to consider the factual situation with which we have to deal, the judgments might have been expressed in less uncompromising language. We do not think that the judge was putting or attempting to put pressure on the trustees; on the contrary it could be said that the trustees were attempting to put pressure on the court. She was dealing in practical terms with the realities of the case and refusing to be misled by appearance.

    33. The balance is made more delicate if as here the trust funds in question derive entirely from an external settlor, MR, to whose wishes the trustees will very properly pay regard, although they are not bound by them. The trustees have as primary obligation to exercise what is their own discretion in favour of the whole class of beneficiaries, weighing the impact of what is proposed for one against its effect on the interests of the others.

    34. A factor in considering the likely reaction of trustees is a history of any previous distributions. In this case H, and indirectly W as a member of his family and household, have received benefits from FGroup, and also by way of direct gifts from MR. The question is not, as it seems to me, the extent to which, if at all, the beneficiary, or indeed the settlor or protector of the trust, 'controls' the trust's operations, for the discretion in a genuinely-operated trust (such as these are) is the trustees' and no-one else's. As Wilson LJ put it at paragraphs [12] and [13] of Charman No 1 [2005] EWCA Civ 1606, [2006] 2 FLR 422:

    [12] There has been some debate at the hearing of this appeal as to the nature of the central question which, in this not unusual situation, the court hearing an application for ancillary relief should seek to determine. Superficially the question is easily framed as being whether the trust is a financial "resource" of the husband for the purpose of s. 25(2)(a) of the Matrimonial Causes Act 1973, "the Act of 1973". But what does the word "resource" mean in this context? In my view, when properly focused, that central question is simply whether, if the husband were to request it to advance the whole (or part) of the capital of the trust to him, the trustee would be likely to do so. In other cases the question has been formulated in terms of whether the spouse has real or effective control over the trust. At times I have myself formulated it in that way. But, unless the situation is one in which there is ground for doubting whether the trustee is properly discharging its duties or would be likely to do so, it seems to me on reflection that such a formulation is not entirely apposite. On the evidence so far assembled in the present case, as in most cases, there seems no reason to doubt that the duties of the trustee are being, and will continue to be, discharged properly. In his written argument in this court Mr Pointer Q.C. on behalf of the wife at one point referred to the possible "unity of interest" between the husband and Codan; and in his written argument before the judge he tentatively described Codan as "quasi-agents" of the husband. Both phrases imply that Codan is not asserting, or would not assert, the independence that its duties require of it; and in my view, on the present evidence, it was wise of Mr Pointer in oral argument to withdraw them. A trustee - in proper "control" of the trust - will usually be acting entirely properly if, after careful consideration of all relevant circumstances, he resolves in good faith to accede to a request by the settlor for the exercise of his power of advancement of capital, whether back to the settlor or to any other beneficiary.

    [13] Thus in effect, albeit with one small qualification, I agree with the suggestion of Butler-Sloss L.J. in this court in Browne v. Browne [1989] 1 FLR 291 at 239 d - e that, in this context, the question is more appropriately expressed as whether the spouse has "immediate access to the funds" of the trust than "effective control" over it. The qualification relates to the word "immediate". In that case the trial judge knew that, if he was to proceed also to order the wife to pay the husband's costs, she would be unable to comply with his orders for her swift payment of a lump sum and costs without recourse to the off-shore trusts over which he found her to have "effective control": see 295 b - c. So the question in that case was whether her access to their funds was immediate. In principle, however, in the light of s.25 (2)(a) of the Act of 1973, the question is surely whether the trustee would be likely to advance the capital immediately or in the foreseeable future.

    35. I adopt that formulation. But in evaluating the evidence and assessing the extent if at all to which H's available resources may properly be regarded as including an expectation that he will be assisted from the FGroup I do not lose sight of the cautionary words of Mr Mostyn when as a deputy High Court judge he gave judgment in TL v ML (ancillary relief: claim against assets of extended family) [2005] EWHC 2860 (Fam), [2006] 1 FLR 1263.

    36. There it was part of the wife's case that because of a pattern of past financial support from her husband's parents his available capital should be assessed on the basis that there would be future bounty. The headnote encapsulates Mr Mostyn's response:

    This was not a case in which it was appropriate to make an award outside the assets and income of the husband. Funds belonging to the husband's parents could not, on the evidence in this case, be included in an assessment of the husband's resources under s 25(2)(a). If the court were satisfied, on the balance of probabilities, that an outsider would provide money to meet an award that a party could not meet from his own absolute property, it could make an award that applied pressure on persons who had historically provided bounty. But, if it were clear that the outsider, being a person who had historically supplied bounty, would not, whether reasonably or not, come to the aid of the payer, the court would not make such an award.

    37. Having cited at [83] the passages from the judgments of Waite LJ and Glidewell LJ in Thomas (both reproduced above), and paragraphs [163] to [166] of a clear and helpful description of the relationship of trustee and beneficiary in a discretionary trust given by the Royal Court of Jersey in Re the Esteem Settlement [2004] WTLR 1 at 60 (which I have considered carefully), Mr Mostyn commented at [88]:

    This [the Esteem] exposition sets out with clarity the very different nature of, on the one hand, the relationship between a fiduciary and his beneficiary; and, on the other, that of mere donor and donee. If the court makes a reasonable request of trustees to make funds available to meet an ancillary relief award then it can assume that ordinarily the trustees will accede to such a request. The same cannot be assumed of a request of a mere donor, for it is his prerogative to be unreasonable, if that is his inclination.

    and at [101] (in relation to what would in this case be MR's bounty from his own resources) he added:

    The correct view must be this. If the court is satisfied on the balance of probabilities that an outsider will provide money to meet an award that a party cannot meet from his absolute property then the court can, if it is fair to do so, make an award 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.

    Mr Mostyn's final word on this issue is at [109] and [110]:

    I do not believe that it would be proper or principled of me to make an award that ranges outside the assets or income that are H's as of right. So far as H's income is concerned I take the entitled figure to be £83,000, even though this is dependent on his father's generosity. Nobody has suggested that this is going to be altered.

    The question is whether it would be proper to appropriate the entirety of his entitled assets and income on the footing that CL and Mary will provide his support for income and housing from their resources. I do not believe that this would be proper. This would be improper pressure on CL and Mary.

    38. Deputy High Court Judge Mostyn accepted in TL v ML that the relatives would not provide more than they were prepared to contribute from their own resources: and that was the end of the matter as far as they were concerned. Before me Mr Mostyn advocated that I should not accept that the stated unwillingness of, in effect, MR to facilitate further trust provision for H was genuine, and that having regard to the pattern and scale of past provision further support would more likely than not be forthcoming if needed.

    39. Miss Stone argued that a crucial distinction arises from the fact that in Charman (and other cases) the trust assets derived from the settlor who remained a primary beneficiary, whereas here H has never contributed to the FGroup. But that seems to me to approach the situation from the wrong end: once the assets have been placed in trust they are the trustees' for them to deal with in accordance with the trust deed and in the interests of the beneficiaries.

    40. Miss Stone also points out of course that the effect of an award in line with W's aspirations here would indeed amount to appropriating the entirety of the assets to which H is entitled, and more than his income. Whether that would be unprincipled in this case, and whether the court would be going beyond permissible judicious encouragement of the trustees is, I repeat, a balance to be struck in the light of the relevant evidence to which I now turn.

    41. During the course of the marriage H received the following subventions from the following sources:

    o In 1988, shortly before their marriage, MR gave about £320,000 with which their first owned home was purchased

    o Between October 1995 and May 1996 MR gave H £1.7m Between October 1996 and about June 1997 MR lent £150, 000, and between December 1997 and March 2000 another £400,000 to develop the parties' Spanish holiday home (which loans H repaid)

    o Between January 1999 and March 2000 H received $10m, $6.6m of which was a distribution from a number of the FGroup trusts (of which £3.7m was paid into DTrust, as to which see below); and $3.4 m from MR

    o From these monies in March 2000 H repaid the £400,000 loaned by MR, as well as repaying a commercial loan of £433,700 also utilised on the Spanish holiday home In January 2002 FGroup advanced £2m outright to DTrust

    o In December 2004 MR gave H £150,000 in lieu of salary when he undertook the task of day-to-day monitoring of the FGroup, and indeed of MR's personal finances In February 2006 MR made H a gift of £250,000

    42. Furthermore, an FGroup company made successive loans to RCo between November 2002 and October 2005 (the month when the parties separated) which at one stage reached £6m. Initially there was no security, but at MR's request in January 2006 H entered into the third-party guarantee already mentioned.

    43. It is clear that by no means all these trust distributions and gifts were used for business purposes, as both MR and the trustees have stated was the intention. Substantial funds (i.e. millions of pounds) were paid from the trusts into another entity, DTrust, established offshore by H in January 1999 to receive distributions and which, it is conceded, H has used indiscriminately including to meet holiday and general living expenses.

    44. W gave her evidence clearly and thoughtfully. She described occasions when H would say that they had more money than they could spend in several lifetimes. H said he could not remember saying this. So far as she could tell there were no actual restraints on their spending as a family. She conceded that from time to time H would say they must rein in, but he seemed never to put this into practice, whether during cohabitation or in the earlier phase of their separation. She assumed funds to replenish their pot were available on demand because that is how H behaved and talked. Their lifestyle was lavish and their expenditure ran at the rate of £lm a year for a number of years prior to separation.

    45. H in his evidence claimed that his expectations of receiving bounty during MR's lifetime were now dead. He had always regarded the trust funds as MR's in practical terms, whatever the true legal position, and that continues to be his perspective even in relation to the Excepted Trusts. As a result of 'painful' conversations held with MR in recent times it was now clear to him that his father is dead set against further money coming his way in any shape or form, unless it be the occasional use of fringe benefits such as his accommodation on board the prestigious boat 'The World' where MR has a cabin (if that description does the accommodation justice). Indeed as recently as May 2007 he had enjoyed a week's holiday there with the children, paying SFr 7,000 from his own pocket for the second suite necessary to accommodate the party.

    46. He had not, however, referred to these distressing conversations in any of his affidavits filed in the proceedings, the most recent of which was sworn on 10 April 2008. They are a far cry from what Miss Stone had told Charles J at a hearing on 7 July 2006 when she said (at page 32 of the transcript):

    ... really the only point which my client wanted me to get across forcibly today is, he understands the position he and his wife are in, that they have a pot of resources. In fact he is not contributing to it any longer and it is therefore dwindling. He knows, and he knows that his wife knows, that their continued prosperity is going to depend to a good degree on the goodwill of his father.

    47. As to his spending, both before and after separation, H attributed its continuance to a combination of being in the grip of his addiction, and burying his head in the sand. The alternative proposition is that at that time and until (at least) latterly he believed the money tree would continue periodically to produce fat fruits. How he behaved speaks louder than the words of restraint he may occasionally have voiced but not, until well into these proceedings, followed through.

    48. Thus, he took delivery post-separation of a Ferrari (albeit ordered in 2001 and since sold). He would presumably have been able without difficulty or financial loss to dispose prior to delivery of a marque so much in demand had he wished to curb his expenditure by £100,000 or so at that time. He did not until comparatively recently cut back his expenditure on his hobby of Porsche motor racing conducted through a quasi-partnership company with a friend. His own estimate of the cost him of this indulgence was of the order of £100,000 per season. He has retained his racing car for sentimental reasons. H accepts that he spent over £5m over five years. He now regards as 'self-evidently unaffordable' a Bermuda holiday the family (plus nanny) took shortly before the 2005 separation, at an estimated cost of over £40,000. In 2005 their elder daughter's Batmitzvah was celebrated at a cost of £80,000. In 2006 his own travel costs were £37,000 and in 2007 £31,000. During the last two years of cohabitation the payroll for domestic staff ran at an annual rate of £80,000 to £82,000.

    49. That ('self-evidently unaffordable') is how he described expenditure on the Bermuda scale in his Answers to Questionnaire dated 27 June 2006. In the three days leading up to the signing off of the Answers his credit card debits show he spent just under £5,000 in casinos in Malaga. In November 2006 he was gambling in Arizona. In his words, he was still not taking on board the reality of the situation as articulated in the pleadings. He says that he has since controlled his gambling. He says that he has now curbed his personal expenditure so that for 2006 and 2007 it has been around £150,000 in each year.

    50. Any earned income derived by H in the years since its incorporation must have come from RCo. That company's accounts show profits only in the years 1995, 1998-99 and 2001. H produced a table showing its cumulative profits/losses. By that measure the company last showed overall profitability in 2002. By June 2007 its cumulative losses stood at over £2.2m. H prays those results in aid when he asserted in his most recent affidavit that 'effectively all the funds which we retain now emanate from the various distributions and gifts received by me during the marriage, rather than from any money earned by me'.

    51. It must have been apparent to H and to those able to survey the company's progress that it was in dire trouble: hence indeed, say H and MR, the request for a personal guarantee. Yet H maintains that never once did TrustCo's representatives warn him of the yawning abyss towards which the family's expenditure was lemming-like careering. TrustCo managed DTrust for him and held its and his offshore bank accounts. It is true that when Mr N of TrustCo came to give evidence he said that there were such warning conversations, though none were noted in the extensive documentation produced.

    52. I do not overlook the fact that W's expenditure since separation, until serious constraints were applied last December, has also continued at a high level.

    53. MR is very much the head of the family. He retains day-to-day involvement in the financial affairs of FGroup and I accept that TrustCo takes no investment decisions without his say-so. His attitude is that he made the money, and controls and administers the trusts. He too does not see any distinction in practice between the Excepted and the Rump Trusts although he concedes that he does regard the Excepted Trust assets as belonging to the beneficiaries 'at some point in time'. His philosophy is that he will assist his children (via the trusts and by his own generosity) to create a livelihood through their individual business endeavours. But he draws the line at funding their lifestyles. He cannot however have failed to appreciate, over the years, that in this last respect and in regard to H that line has been breached. It is hard to imagine, for instance, that he was unaware of the source from which H repaid his second £400,000 Spanish villa loan (and, if he knew about it, the even larger commercial loan): the $10m distribution/gift.

    54. His current attitude, he says, is that as H has not made a success of his business which all fell apart he will not give him more money and would be totally opposed to any distribution to him from the trusts. He says this is in H's own best interests to finish his education and training, to adjust his lifestyle, to get a job and stand on his own two feet. H, he says, is in no doubt about his attitude, and he has made it clear to him that he must not expect anything.

    55. MR would visit the extravagances of the parents and the business failure of H on their children. He would be opposed, he says, to these three of his grandchildren being maintained out of the trusts as this would set a bad precedent. He would prefer H to pay the maintenance out of his own capital.

    56. Mr N, a director of TrustCo, came to give evidence at the last minute as it had been H's intention simply to rely upon TrustCo's letters as sufficient indication of the trustees' past and future approach to the discharge of their responsibilities to each trust's beneficiaries, which he of course accepted was their primary duty. He clarified an apparent inconsistency emerging from a very recent letter from the trustees (and MR's) solicitor. Although there it was written that 'when it comes to exercising their discretion [the trustees] are invariably guided by MR, Mr N explained that this did not inevitably or automatically mean that his guidance was followed. He was always consulted, and indeed he usually was the person who initiated the consultation. No distribution had ever been made against his wishes.

    57. Nevertheless Mr N clearly envisaged that the trustees might benefit H notwithstanding MR's currently stated stance. He anticipated that the personally guaranteed RCo £lm debt to the trusts 'will be taken off H's apportionment ... from any future allocations the trustees may decide to make to him.' Similarly, he anticipated that the costs incurred by TrustCo in these proceedings (which he put at over £280,000) would be debited to H's notional account balance, informally maintained by the trustees to ensure parity between the beneficiaries. Furthermore he conceded that it would be naive to maintain that the trustees would do nothing for H if he found himself in desperate circumstances. But he envisaged that their support would be 'exceedingly modest' as H had shown himself not to be responsible with money. A rented apartment and a modest living allowance might be provided, for instance, even if in doing so the trustees disregarded MR's veto. Mr N accepted that he had known that H had spent money from DTrust, derived from FGroup supposedly to fund H's business, to finance family holidays and other personal expenditure.

    58. What inferences should I draw from the written evidence in the case and from the oral evidence in particular of H, MR and Mr N? I see this as essentially a question of fact. I do not accept that a judge must simply accept the ipse dixit of a person in the position of MR, or indeed of the trustees, as to what will or will not come H's way if an award leaves him with limited resources. Is it correct as Mr Mostyn invites me to conclude that MR and H are engaged in a deliberately duplicitous complicity and that the truth is that it is more likely than not that trust assets will be released to H, one way or the other, to supply rather more than the needs of a student lifestyle?

    59. I therefore now address the factors which lead me to the conclusion that H, albeit that he in no sense controls trust dispositions, has a reasonable expectation of further largesse in the short to medium term such that its prospect is foreseeable and that it is a resource which I can and should take into account.

    60. There has always been a strong feeling in H's family, led by MR, that W should not benefit from family wealth. Days before their wedding took place in South Africa she was presented with an ante-nuptial agreement, which she signed. I find unbelievable H's suggestion that the document was prepared at her request. She agreed that in the event of divorce their 'marital accrual' should be shared. Excepted from division were any funds accruing to the parties by virtue of any will or trust. H, realistically, did not seek to rely on this agreement.

    61. The parties agreed in their evidence that when they separated H asked W to abide by three 'golden rules'. One was that she should not lay claim to any of the family wealth. In a very real sense, of course, all they now have derives from H's family' wealth, but to protect it from the scale of what W claims is a needs-based award to her of more (indeed far more) than half what they retain, H, MR and TrustCo put up and persisted in the argument that TrustCo would be in breach of trust if money were made available to H that he then used to fund an award to W, she not being within the class of beneficiaries. By extension, it is suggested that if meeting W's needs leaves H with barely enough, or insufficient, to meet his own then the trustees would in some way be inhibited in making advances to him. There is nothing in the trust deed (nor indeed in the Letter of Wishes) thus to inhibit them. The argument is reminiscent of that advanced for the husband in Charman v Charman (No 4) [2007] EWCA Civ 503 at [53] which the court dismissed as 'chop logic of the most specious kind'.

    62. Such a desire to protect family wealth from invasion in the throes of a divorce is perfectly understandable. But a protective attitude may lead to an artificial presentation of the underlying reality, to which I must attempt to penetrate.

    63. There is here in my judgment clear evidence of deliberate misrepresentation sufficient to persuade me that I cannot accept the proposition that H's pot will not be replenished, even if not so munificently as in the past. I will list the salient ingredients as succinctly as I can.

    64. In H's Form E and in a written statement from MR which accompanied it, they omitted (in the sense that they both committed themselves to an obviously materially incomplete failure to explain) that MR and his wife (at least during his lifetime) can no longer benefit from the Excepted Trusts. I am satisfied that they thereby hoped that W and her advisers would fail to penetrate to the underlying reality, that in relation to those trusts H was and is now in the front rank of beneficiaries, with an expectation of receiving a quarter of their substance on MR's death.

    65. In the pre-hearing documentation there again emerges the unfounded suggestion that on MR's death the 25 per cent share of the entire FGroup (and indeed of a will trust which is to come into being on MR's death) should as the trustees' first option remain settled rather than be distributed. The Letter of Wishes states the reverse: H and MR spoke with one erroneous voice on this. Yet MR in his first statement wrote:

    '_. ultimately (after the death of me and my wife) it is my intention that each of my four children (and their children) should benefit equally. This does not mean that I would expect the Trustees to distribute the assets to my four children but rather hold them for the benefit of those children and their issue.'

    66. This presentation was formulated before disclosure of the Letter of Wishes but after at least two formal meetings between H and his legal advisers, MR and TrustCo specifically arranged to put together the response to questions raised on this topic. Yet MR told me T can't say I considered the terms of the statement very carefully'. I cannot accept that H and MR 'did not decide to put it like this', as MR claimed in cross-examination.

    67. There is obvious inconsistency between the 'the tap is firmly closed' suggestion, and the accepted reality that the defunct RCo's £lm debt will be repaid by H from advances made to him (much as has happened in past, for instance in relation to the Spanish villa). The evidence of Mr N came closest to reality when he opened a chink in the otherwise impenetrable wall by accepting that it would be naive to suppose that H will get nothing if he is in need. MR volunteered the observation that it would be more tax-efficient for him to lend H money (I presume from onshore funds available to MR) rather than to make trust distributions which would suffer tax when remitted here: that will be a matter for him if (or rather, as I believe, when) H has met his obligations to W.

    68. I conclude therefore that MR and H are marking time, and that the trustees are seriously unlikely to disregard MR's wishes when (as I find is more than likely) he reformulates them in H's favour. Yet I do not rule out that they may decide that to alleviate H's situation is consistent with their obligations to him and not inconsistent with their duties to other beneficiaries, even if MR is opposed to that course. The other beneficiaries are protected by the hotchpot provision in the Letter of Wishes, after all. In short, I do not believe H and MR have been frank with the court either in pre-hearing presentation or in their oral evidence.

    69. What form help to H may take, and its extent, are beyond even guesstimate. The trustees might, it was suggested, invest in a property in which he could reside. There may be a taxation charge if he is to pay a reasonable rent from remitted funds, but in the context of this case I would expect the trustees, balancing H's interests with those of the other beneficiaries, not to be put off by that even if it is anathema to MR.

    70. W has three categories of need: a home, an income-producing fund, and child maintenance.

    71. The documentation and the discussion over housing for W and the children were wide-ranging both geographically and financially. She contends, as I have noted, for a £4m budget to include purchase and any refurbishment costs. H maintains that £2m should be adequate for the purpose, and points to properties that are or have recently been available on the market. They are further from what W regards as the focal point of her recent life, the Hampstead area. She accepted that in practical terms, with adjustments, she could establish domestic and school travel routines in districts further north. She was able to comment cogently on what she saw as the drawbacks of the five properties (out of an original 15) which H concentrated upon.

    72. As in other areas, precise analysis is impossible. When W knows the full extent of her award she may choose to make adjustments, spending less than I build into the award and/or compromising on area for greater space. Or she may choose to spend more and to have a smaller income-producing fund.

    73. The final family home cost over £5.5m to build (including the cost of the site). It achieved £12m on recent sale. I am satisfied that W with a budget of £3m all in will be able to acquire an agreeable well-situated and reasonably spacious home which she would choose with care to meet the children's needs. In arriving at this figure I have not simply selected the mid-point between the rival contentions, but have borne in mind that as a cash buyer W is likely in the current climate of the housing market and over the coming months to research and select a suitable home, which should have a significant investment potential if the market has recovered by the time she might wish to live somewhere smaller. That she may trade down in the long-term to boost her available capital (for instance when or after the child maintenance payments slacken and then cease) is one factor I have taken into account when considering what income-producing fund she reasonably requires now.

    74. As to this, and taking into account what this will leave H in terms of immediately available capital (subject always to some imponderables on each side including costs outstanding and as may be ordered) what I regard as fair is a sum of £3.25m.

    75. This would produce for W (on a Duxbury basis, and putting in £116,000 of her own, as before) an initial income of £133,000 net in the first year. W may choose to spend more or less than £3m on her home, which will affect this hypothetical income figure (as Duxbury calculations are but an inevitably uncertain guide). In any event she will either need to curb her outgoings substantially and/or eat into the capital.

    76. This would leave about £1.6m for H. I assume that he will not be pursued under his £lm guarantee. I assume also that his motor-racing friend and partner will be content to wait some while for repayment of the £88,000 odd H has borrowed from him on an unsecured basis. And, I repeat, there are costs uncertainties of no mean scale to be met in amounts yet to be decided.

    77. The outcome in terms of simplistic values is £6.25m to W and £1.6m to H. This is a significant departure from equality, whether that is a yardstick or something nearer to a rule. But a variety of factors lead me to diverge, and sharply, from equal division of what currently stands in these spouses' names. In doing so I have borne firmly in mind that the funds standing in their names almost in their entirety derive from H's side of the family.

    78. I feel confident that one day in the not too distant future (even though for the bulk of it H may have to await MR's death) H will most likely have released to him or otherwise derive very significant benefit from one quarter of an ample fund. That proportion, based on the October 2006 valuation of the Excepted Trusts alone, is worth at least $23m.

    79. At present, and for reasons which I certainly do not intend to criticise, H has chosen to follow a lengthy course of professional training which may lead to no very significant income reward at the end of it. That is his choice: indeed he regards it as his destiny. But in more down-to-earth terms he is a man in his mid-forties who has now conquered the disability of his addiction and who clearly has a not inconsiderable income-producing capacity given his experience of property development. He has degrees in commerce and land management, and is an associate of the RICS. He is also the father of their three children to whom he has responsibilities for day-to-day maintenance and (insofar as there is a shortfall from the educational trust) for or towards their schooling. To his credit he proposes to contribute towards their maintenance from capital. These though have been his choices. I propose to adopt his proposal to contribute £15,000 p.a. per child. The parties having during the course of the hearing agreed to consent to a nominal periodical payments order in favour of each child (which order I made on 13 June 2008) I have jurisdiction to make that order.

    80. I find that it is very unlikely, on the balance of probabilities, that H will not receive help from the FGroup trustees in the near or at least foreseeable future. Meanwhile he will not be in the position of an average albeit mature student with over £1.5m (subject to costs orders and any tax which arises) to utilise to house and maintain himself and the children. If needs be he will have to find rented accommodation in the interim at an annual rental of less than the £80,000 he now pays (and I do of course appreciate that W's rent is considerably more at present). If he chooses to spend over £100,000 a year (before the children's maintenance and any school fees) then he will be able to do so for quite some years. In all the circumstances of this unusual case W's projected income for herself and the children of about £178,000 does not seem unreasonable: indeed I would not make this order if I did not believe it to be fair to both parties, albeit unpalatable to H and MR.

    81. There does not appear to be any liquidity problem in meeting the order. The way in which that is to be managed has been the subject of debate between the accountants, which will most likely continue. I propose that any unavoidable tax liability arising from implementation should be equally shared between H and W.

    82. I have today approved a form of order which the parties have agreed, so that in the event no costs issues fall for determination.

Judgment, published: 03/10/2008


See also

Published: 03/10/2008


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