Property – Variation of settlement

DR v GR and others: Family Division: 10 May 2013

The husband and wife married in 1976 and separated in 2009. At the time of the proceedings the wife was aged 68 and the husband aged 69. The couple's assets totalled just over £2.5m. Of those assets just over £1.3m were held in a post-nuptial settlement (the trust) created in January 1986. It was a discretionary Jersey trust. The trust owned a Liberian company, S International Ltd (the sixth respondent), which in turn owned a UK company, S Ltd (the fifth respondent), which in turn owned two UK Companies, O Ltd and D Ltd (the third and fourth respondents) (together the companies). There were a total of 11 beneficiaries of the trust at the time of the proceedings (see [45] of the judgment).

The wife applied for a variation of the settlement under section 24(1)(c) of the Matrimonial Causes Act 1973 (the 1973 act). In June 2012, the trustees of the trust were joined as parties. In March 2013, all the companies were joined also. In neither case was an application made for joinder, and neither the husband nor the trustees nor the companies had any notice of the application to join. The trustees had not participated in the proceedings. The companies made an application to be dis-joined.

In Petrodel Resources Ltd & Ors v Prest & Ors [2013] 1 All ER 795 (Prest), the Court of Appeal had held that the previous authority as to the scope of section 24(1)(a) of the 1973 act had been wrong. The companies contended that the effect of Prest was that the view taken in Hope v Krecji [2012] All ER (D) 215 (Jul) as to the scope of the section 24(1)(c) powers was wrong also. They contended that respect for the corporate personalities meant that the variation powers were confined only to adjustments in the shareholdings of the Liberian company and nothing more. Specifically, interposition of the companies meant that the court could not directly deal with the assets at the bottom of the tree. Consideration was also given to: (i) the application for dis-joinder and r 9.26B of the Family Procedure Rules 2010, SI 2010/2955 (the 2010 Rules); (ii) the husband's premarital wealth; and (iii) the variation of the trust in the instant case.

The court ruled: (1) If the companies' argument as to the effect of Prest was right, the jurisdiction would be almost totally emasculated. That was because it was only in rare cases that the settlement directly owned the underlying assets. In the great majority of cases there was an interposed company and it was usually offshore. Further, the language of the two sub-sections was completely different and the decision in Prest was squarely based on the language of section 24(1)(a) of the 1973 act. The test for what comprised a nuptial settlement could be expressed as 'any arrangement which makes some form of continuing provision for both or either of the parties to a marriage'.

If under an arrangement 'some form of continuing provision for both or either of the parties to a marriage' (which would include, on the authorities, the provision of accommodation) had been made from assets held by a group of family companies, then the entire set up, when viewed as a whole, was capable of amounting to a variable nuptial settlement. If the top company was owned by a trust of which the spouses were formal beneficiaries then the position was a fortiori (see [6], [8], [18] of the judgment).

Prest v Prest [2013] 1 All ER 795 distinguished; Hope v Krejci [2012] All ER (D) 215 (Jul) applied; Brooks v Brooks [1995] 3 All ER 257 considered; N v N [2005] EWHC 2908 (Fam) considered; Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam) considered; BJ v MJ (Financial Remedy: Overseas Trusts) [2011] All ER (D) 213 (Nov) considered.

(2) Joinder either of trustees or of the underlying companies was not an essential pre-condition for the validity of a variation of settlement order. However, it was mandatory for beneficiaries under the age of 18 to be joined unless the court could say that the proposed variation did not adversely affect the rights or interests of any such child. The court had the power to modify that requirement but should be very sparing in its exercise.

Failure to comply with that rule would not nullify any order later made. The applicant, respondent, and the trustees and/or companies themselves could apply for joinder, but in each instance both the substantive terms of, and the procedure prescribed in, r 9.26B of the 2010 Rules had to be carefully complied with. The applicant for joinder had to show either: (a) that there was an existing matter in dispute which required for its resolution the joinder of a new party, or; (b) that there was a matter in dispute between a party and the proposed new party which was connected to the main matters in dispute between the parties and that it was desirable to resolve all the issues together (see [35] of the judgment).

In the instant case, there was no good reason why either the trustees or the companies had been joined. Quite apart from the failure to comply with the prescribed procedure, neither limb of r 9.26B was engaged. The substantive application for variation did not require the joinder of the proposed new parties in order that it could be effectually resolved. There was no separate dispute between the wife and either the trustees or the companies which it would be desirable to determine alongside the variation application. There was no evidence that enforcement of any variation order would be better achieved if the trustees or companies were joined (see [36] of the judgment). The companies succeeded on their application to be dis-joined (see [37] of the judgment). T v T (joinder of third parties) [1997] 1 FCR 98 considered; IMK Family Trust, Re; Mubarak v Mubarak [2009] 2 FCR 242 considered.

(3) In the circumstances, the only fair way of dealing with the husband's premarital wealth was to identify those assets which actually existed at the time of the commencement of the relationship and those which existed at the time of the instant proceedings and which remained in the husband's direct sole ownership. The court was not prepared to make any adjustment in the application of the sharing principle beyond designating the specifically identified assets as non-matrimonial property. The inheritances received by the parties during the marriage were also designated as non-matrimonial property (see [41], [42] of the judgment).

(4) Applying established principles, the court was required to have regard to the interests of the other beneficiaries when exercising its powers as well as to the fact that the creation of the trust was plainly an agreed part of the financial architecture of the marriage. The wife agreed that the object of the trust was to benefit all members of the family. On the other hand the assets of the trust were the product of the joint endeavour of the parties each making the fullest possible contribution in their different ways and were quintessentially matrimonial property.

The fairest way of balancing those two considerations was not to allow the full value of the trust as matrimonial property. On the facts of the instant case the entire structure comprised a variable post-nuptial settlement and the court was empowered to deal directly with, and to make orders in respect of, the trust assets owned by the companies (see [47], [48] of the judgment). Subject to the question of need, the matrimonial property ought to be divided equally giving each party £1,098,442. The wife's overall needs were calculated as £1,106,000 which corresponded closely to her sharing entitlement. With her non-matrimonial property the wife would leave the marriage with £1,229,965, which was 49% of the total assets (see [54], [58], [70] of the judgment).

Jonathan Southgate QC (instructed by Irwin Mitchell) for the wife; Jayne Mullen (instructed under direct access) for the husband; The trust did not appear and was not represented; Matthew Haynes (instructed under direct access) for the companies.