News

This is the latest hearing in financial remedy proceedings that began shortly after the parties separated in 2011. The court’s decision is notable because it is one of the rare instances in which it has declined to effect a clean break between divorced spouses, despite the statutory requirement that it should do so.

The clean break principle

The statutory requirement that the court seek to achieve a clean break between divorced parties is imposed upon it by s.25A of the Matrimonial Causes Act 1973. What is meant by this, is that the court will seek to terminate the parties’ financial obligations towards one another as soon after the issue of the decree absolute as possible without causing undue financial hardship. The underlining policy was clearly articulated by Lord Scarman in the 1979 case of Minton v Minton, when he said, “An object of the modern law is to encourage [the parties] to put the past behind them and to begin a new life which is not overshadowed by the relationship which has broken down.”

Background to the 2019 hearing

At the date of the 2019 hearing, the husband was aged 60, and the wife 52. They had begun co-habiting in 2003, married in 2006 and separated in 2011. There were three children of the relationship, aged 13, 12 and 8, and who split their time between boarding school in England (in the case of the eldest) and their parents in France.

The wealth that had supported the family’s lifestyle came primarily from the Husband’s business activities in commercial airline leasing. This was largely carried out through a BVI company, LCAL Anthology Inc (LCAL), incorporated in 2004. LCALS’s shares had, on the Husband’s case, always been held by a Hong Kong fiduciary company, RFG, as trustee of a BVI discretionary trust, NFH, which was settled by the Husband in 2002. Both Husband and the three children had, until 2010, been potential beneficiaries of the Trust. The trustee irrevocably excluded the Husband from benefit in December 2013. The Wife had never been a beneficiary, potential or actual.

The Wife’s financial remedy claim came before Sir Peter Singer in 2015. At that hearing the Husband asserted that it was not until about 2007 that LCAL had begun to make significant profits. The decree nisi was not pronounced until May 2013, at which date the Husband had estimated the value of NHT’s assets to be £70m with about £21m of contingent liabilities. The Wife sought a lump sum of £27m and periodical payments. At the 2015 hearing, the Wife had argued that the Trust was a nuptial settlement and should therefore be varied, either on the basis that it had been nuptial since its inception in 2002 or, alternatively, that it had subsequently become nuptialised. Sir Peter Singer declined to do so. On the facts, he found that the Trust had not, in 2002, been established in view of the marriage and therefore was not ante-nuptial. More controversially, he also held that a non-nuptial trust could not subsequently become nuptialised (a point about which there are now conflicting decisions at first instance). He did however take the view that the Husband’s exclusion from the Trust was a deliberate device to try to defeat the Wife’s capital claims, and he was confident that when the time was “ripe”, the Husband would be able to re-establish access to the funds in the Trust, possibly by way of an employee’s salary. The Wife’s capital claims were therefore adjourned and the Husband was ordered to make payments to the Wife of £120,000 per annum, as well as £334,263 towards her costs.

The Wife’s adjourned capital claims were heard again by Sir Peter Singer in December 2017. Sadly, Sir Peter Singer passed away before giving judgment, so the case was reheard by Cohen J in June 2019.

June 2019 decision

At the time of the hearing, the Wife was in a difficult financial position. The Husband was in arrears with periodical payments, and he had not paid the costs order. The Wife also had enormous debts. Indeed, her circumstances were so dire that her home was without water or heating for much of the winter prior to the hearing. The Husband argued that (despite dividing his time between his chateau in France, in which he proposed to keep living, and his sister’s flat in Belgravia) he too was in a difficult financial position. He had lost his employment in November 2017, he had massive loans (EUR 342,000, which he stated that he would repay by June 2022) and the description of his lavish lifestyle had been exaggerated. He argued that the Wife’s capital claims should now be dismissed, as there was no evidence that the Trust would provide him with any money (as he had not received anything from the Trust for nearly four years) and a further adjournment would be contrary to the clean break principle and would fly in the face of the body of authority on adjournment. He argued instead that the Wife’s claim to capital could be met by capitalising her maintenance award (the periodical payments) as and when she chose and when he had the means to pay it.

Cohen J dismissed the Husband’s argument that the Wife’s capital should be limited to the capitalisation of her periodical payments. In support of his arguments that to grant a further adjournment of the Wife’s capital claims would contradict the principal of finality in litigation, the Husband cited eleven authorities on adjournment and Cohen J also made reference to the then-recently decided case of Quan v Bray and Others [2019]. Cohen J noted that none of these cases, with the possible exception of two, involved serious misconduct by the payer (as was the instant case) but rather involved the expectation of either an inheritance or a bonus or gratuity, and two arguably involved deferred payment rather than adjournment. Nevertheless, Cohen J clearly felt that, in light of these cases, that he did have the jurisdiction to order a further adjournment of the Wife’s capital claims.

In dealing with the Husband’s argument that he had not for the past four years received anything from the Trust, and there was no indication that he would, Cohen J referred to Sir Peter Singer’s 2015 judgment. Sir Peter Singer stated that at some stage, it must make commercial and pragmatic sense for the Wife to offer to accept a more modest sum than the £27m she was seeking, and for the Husband and the trustee to find a means to make that available so as to be free to dismantle the “cumbersome and no doubt distracting protective façade which has been erected.” In dismissing the argument, Cohen J also made reference to Sir Peter Singer’s remarks that the children remained potential beneficiaries of the Trust and if, as the trustee asserted, their welfare was its prime concern, then it would be entirely normal for trustees to provide some allowance or contribution to assist with the care of the children.

In conclusion, Cohen J said that dismissing the Wife’s capital claims would be a last resort and he was not so pessimistic about the Husband’s ability to receive funds that he was prepared to take that step. The Wife’s capital claims would be adjourned for a further three years (to 31 July 2022, likely in light of the commitment the Husband had given to repaying his loans by then), albeit that they would be dismissed if an application to restore them had not been made by then.

Comment

Sir Peter Singer found, and Cohen J apparently agreed, that this was a hard case that fell into a narrow category of decisions in which fairness and justice should prevail over the usual desire for finality in litigation, and the conduct of the Husband and the trustee came in for significant criticism. The trustee was fortunate in that Sir Peter Singer came down against the possibility that non-nuptial trusts can in principle be nuptialised, although even if he had not, the Wife would no doubt have faced significant enforcement difficulties in BVI, one of the offshore jurisdictions which has enacted so-called firewall legislation. Thus far, the trustee would seem to have succeeded in defending the Trust assets against attack by the English Family Division, but in twice rejecting the Husband’s arguments in favour of the clean break principle, the Court has indicated that it is prepared to enter into something of a war of attrition; for how long will the Husband’s admittedly generous friends (who to date had gifted him amounts totalling some EUR 850,000 as well as the loans of EUR 342,000) be prepared to bank-roll him?

From the Wife’s point of view, one hears regularly about the dearth of protections afforded to co-habitees as opposed to spouses; one wonders whether, had the parties married, rather than co-habited in 2003 Sir Peter Singer might have reached a different view of the non-nuptial nature of the Trust. Further, given that the recent UK Supreme Court authority demonstrating that nuptial agreements may be relevant to the exercise of the Court’s discretion as to financial provision for divorcing spouses is also likely to be persuasive in BVI, one also wonders whether a nuptial agreement in this case might have assisted the Wife.

Joy v Joy [2019] EWHC 2152 (Fam)

Joy v Joy-Morancho & Others (No 3) [2015] EWHC 2507 (Fam)