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18 DEC 2017

Detecting assets in financial proceedings (Richardson-Ruhan v Ruhan)

Detecting assets in financial proceedings (Richardson-Ruhan v Ruhan)

Family analysis: In Richardson-Ruhan v Ruhan the court was concerned with assertions that assets belonging to the husband were held for him by a nominee, related commercial proceedings and arguments as to sham. Michael Chapman, partner, and Holly Tootill, senior associate, both from JMW, who acted for the wife in this case, answer some questions on this complicated and extensive decision.


Original news

Richardson-Ruhan v Ruhan [2017] EWHC 2739 (Fam), [2017] All ER (D) 84 (Nov)

In the wife's financial remedy proceedings against the husband, the Family Division rejected the husband's contention that he was insolvent as to £2m as a result of some £200m having been stolen from him. In  particular, it found that the husband had had a nominee who had not had a valid claim against him.

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What is the background to this case?

It is revealing when a judge begins his judgment apologising for its length. Later in the judgment, Mostyn J recommended a ‘careful reading’ of eight other judgments in (unfinished) commercial litigation involving the husband. This gives some idea of how complex and fact-specific this case is.

In essence, the husband claimed that he was insolvent as to £2m, following the theft of £200m by a convicted fraudster and two of the husband’s former associates. The wife claimed that this was false, and that the husband remained a rich man who was entitled to very large sums which were held on his behalf by a nominee, and that there was the prospect of substantial development value coming his way in the event he was successful in a forthcoming arbitration.

What is the significance of this case? Why is it important for practitioners?

There are many striking features to this case. Without delving too deeply into the factual complexities (which are considerable) some points of general application emerge:

Two-stage process

When the parties have such radically different accounts of the family’s assets, it is perhaps sensible to argue for the type of two-stage decision-making that was adopted in this case. This will naturally prolong the uncertainty for both sides. However, it would have been virtually impossible to make meaningful submissions as to the distributive process when the parties were so very far apart on what is actually available for distribution. As it happened, neither party objected to this approach.

Service of documents from the financial remedy proceedings and interaction with commercial proceedings

The wife’s financial remedy application began in January 2014. Elements of the commercial litigation involving the husband only commenced in June 2016. The judge rejected the husband’s request that the proceedings be adjourned until after the conclusion of the commercial litigation, which could have been many years into the future.

Unusually, the judge sat in public. To avoid ‘the prospect of inconsistent judgements, and the vice of duplicative proceedings generally’, he ordered that various documents from the family court be served on parties to the commercial litigation, and other interested parties, and permitted them to intervene. Without settling definitively the question of how his findings would impact on the Commercial Court proceedings, the judge quoted, with approval, Lord Bingham in Johnson v Gore-Wood & Co [2001] 1 All ER 481, when he said, inter alia (at para [31]):

‘The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.’

In other words, those parties served with the documents from this litigation were warned to speak up now or risk being stuck with the family court’s findings. This case does not set out guidance for how to deal with similar cases, but it provides a useful example of an appropriate way to proceed when similar factual issues are being litigated across different sets of proceedings.

Whether a third party was acting as the husband’s nominee

£92m was transferred to Legion Management Corporation in 2012. The shares in this company were subsequently transferred to a third party. The ‘fundamental question’ was whether that third party was acting as the husband’s nominee. The court had to decide whether the third party’s role as nominee constituted a protective measure by the husband to safeguard his assets from the litigation against him.

The court found that the third party was indeed the husband’s nominee. There were several points of evidence that led Mostyn J to this conclusion, including the husband’s habitual use of nominees for his business dealings and in his personal life, the timing of the transfer (within a week of the issue of proceedings that the husband appeared to seek protection from), the ‘highly significant’ failure of the third party to defend his ownership of the relevant assets by not taking part in the proceedings, and certain verbal admissions made by the husband to the wife before separation, for example ‘he’s got all our money’.

Deciding that all but around £12m of the £92m had been spent, Mostyn J found that the husband should be treated as having that sum available to him for distribution within the financial remedy proceedings. There were other sums that the court agreed were no longer within the husband’s reach having been appropriated by his nominee. The court also found that no one other than the husband (apart from the wife) had a valid claim to a payment of £73.75m and a 50% share in a property-owning company, which the husband had agreed in order to bring litigation to an end between himself and his nominee. This the judge described as ‘the consensual recovery achieved by the husband of his own money’.

The evidence that the husband had a nominee was cogent and overwhelming. The case is illustrative of the variety and depth of documentary and oral evidence that may be required to achieve such a finding.

Sham

It followed from the judge’s finding that the third party was the husband’s nominee and that documents proclaiming the nominee ‘or his creatures’ to be genuine parties to various agreements were shams. The judge declared that the test for a sham was fully met and cited his own summary of the law in the case of Bhura v Bhura [2014] EWHC 727 (Fam), [2015] 1 FLR 153. The key features of a sham include:

  • a document intended to give the appearance of rights and obligations different from the actual rights the shammer(s) intend(s) to create;

  • an expressed common intention amongst the ‘shammers’ not to create the rights and obligations created by the alleged sham document;

  • just because a document (or the arrangement it reflects) is uncommercial or artificial does not necessarily mean it is a sham;

  • the test for a sham is a stiff one, as dishonesty is involved there is a very strong presumption that parties intend to be bound by the provisions of agreements into which they enter.


To read the full analysis, see LexisPSL Family here (subscription required). Click here to request a free 1-week trial

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