Trusts of Land: Constructive and Resulting Trusts Arguments
The court was satisfied that BCO did not hold the adjacent Kensington properties on resulting or constructive trust for H.
The court considered the law with respect to 'common intention' constructive trusts: '[a]ll those involved in the agreement, arrangement or understanding must have the same intention. What is abundantly clear from the evidence is that none of the company, H, his mother and/or his sister intended that 100% of the beneficial interest (or any other percentage) should enure for his exclusive benefit' (para ).
Secondly, there was no detrimental reliance by H. The fact that H was the point of contact for the purchase of the properties did not constitute detrimental reliance. Neither did the payment by H, with his own funds, of utility bills, service charges or costs of alterations. For 13 or 14 years the family had occupied the property rent-free, and this 'in all probability conferred on H and W a benefit rather than a detriment'. BCO benefited from the capital appreciation.
The problem with the resulting trust argument was that the funds made available to the company were in the form of formal loans from pooled funds in which H had only a one third share. The fact that the loans were unsecured and interest-free did not point towards a sham arrangement and in any event were W to be alleging this, it should have been pleaded formally, pursuant to the guidance from Munby J (as he then was) in A v A  EWHC 99 (Fam),  2 FLR 467
(paras  and ). Various contemporaneous documents, including minutes from board meetings and a letter from a trust, supported the loans as being genuine.
Furthermore, 'That [BCO] was intended to hold the legal title and the beneficial interest in the properties which it acquired is also apparent not least because, if it did not, its (entirely legitimate) tax avoiding and tax saving purpose would fail' (para ). The court considered Lord Sumption’s judgment at para  of Prest v Petrodel Resources Ltd & Others  UKSC 34,  2 FLR 732
, and stated that the 'principle obstacle in W’s path … is that … H neither owned nor controlled the company' (para ).
Nuptial settlement arguments
H bemoaned the fact that W’s application formally to amend Form A came more than a year and a half after the application had been issued (para ).
Nonetheless, the court considered the seminal authority of Lord Nicholls judgment in Brookes v Brookes  2 FLR 13
, and cited with approval the road-map which appears at para  of Ben Hashem v Al Shayif  EWHC 2380 (Fam),  1 FLR 115
The court agreed with W that the nuptial element for 18SPM '[arose] from the common intention to live there after marriage' (para ). But, 'the 'nuptial settlement' is … the grant of the licence itself at the time when the parties took up occupation of the property'. It 'made some form of continuing provision for both or either of the parties to the marriage, with or without provision for their children' (para ).
As for 18A, according to W this 'became part of our family arrangements and was an overspill property for Flat 18, with staff, family members and the children spending time there both during the day and overnight. It was never formally rented out to anybody else'. That statement, agreed the court, 'appears to impress upon the arrangement a sufficiently nuptial element to bring it within the scope of s 24(1)(c)' (para ).
The court concluded that as 18A was acquired by BCO 'during the marriage', and was 'acquired precisely because of its proximity to 18SPM and the opportunity it provided the family to 'expand', those factors alone provided the nuptial element' (para ). The granting of the licence to the family to occupy 18A was therefore a further nuptial settlement capable of variation.
'Having found that the legal and beneficial interests in both 18SPM and 18A lie with the company, it must follow that the subject matter of both settlements is a licence to occupy the properties.' (para )
The court devoted some considerable time to quantification of the assets, arriving at a figure of c. £8.9m (or between £12.4 and £15.7m if H’s one third interest in the beach villa in Jeddah was included) as representing H’s one third share in H’s wider 'family arrangement', H holding a further sum of £1.6m liquid capital. Joint liquid funds of £40,000 also existed.
The court 'left him to negotiate his own arrangements in relation to the liabilities he claims to owe to his brother-in-law … and [to] a close friend' (para ).
Why precise quantification did not matter
Despite provision some months prior to the hearing for an updating valuation of the BB Road property and beach villa in Jeddah, neither party had expedited this. An 11th hour valuation was deficient, and based upon 'a selection of Google earth images rather than a personal visit' (para ).
The court was less concerned about the BB Road valuation as 'the difference which separates the parties is unlikely to impact materially on an overall assessment of H's resources in a non-sharing case' (para ).
As for the beach villa, the valuation report itself stated that it was 'not a self-contained comprehensive valuation report to estimate the fair market value' (para ). Matters were further complicated when the court, whilst finalising judgment, was informed by the valuer via H’s solicitors that a 'significant mistake' had been made as to the size of the plot being valued (para ).
The court concluded that: '[t]he reality is that it is just not possible at the present time to settle upon any reliable figure … and this is not a failing which can be laid solely at H's door' (para ).
Furthermore this was 'inherited wealth', it was 'an illiquid share in a property which is not going to be sold', and, 'W's case is advanced squarely on the basis of need', so the court’s lack of confidence in any of the valuation figures 'does not change [the court’s] view whatsoever about the appropriate outcome' (para ).
The court stated that it was 'entirely persuaded' that H’s revised offer was 'the right answer' (para ): ie W and the children could continue to occupy the adjacent Kensington apartments on a rent-free basis. The court would ensure that the legal documentation which would be needed to be put in place was 'sufficiently tightly drawn to reflect the underlying intention which underpins these orders' (para ).
The outcome 'carries the full support of H's mother and sister. It represents a significant detriment to their personal financial interests. Absent W's occupation, the two apartments would attract a significant rental return in the central London market which would provide BCO with a valuable income stream. That, in turn, would ultimately benefit the shareholders. Their support for the current proposal effectively blocks any future income yield from these corporate assets'. (para )
The payment of the lump sum of £2m to W (the income fund) would 'effectively exhaust [H’s] own capital resources' (para ). However, H 'himself accepts that, once this litigation is over, he is likely to earn sums equivalent to his former income in excess of £300,000 per annum' (para ).
The court agreed with W that child maintenance of £15,000 per child per annum was appropriate, and H had by the end of the trial agreed to meet school fees.
The court envisaged that counsel would agree the arrears of maintenance which W claimed (para ).
The parties were granted an 'opportunity to consider and reflect', and were invited to agree costs (para ).
The key points that arise from this judgment are as follows:
(1) A party – the husband – who had advanced little documentary evidence prior to the hearing to support his contention as to the structure of a family financial arrangement was able to succeed, by virtue of the persuasiveness of his witnesses’ oral evidence, on what at first blush would have appeared to be an ambitious and tricky argument.
(2) The court will respect legitimate third party interests in property, despite one spouse arguing that the ownership of various assets by the other is in reality not as has been presented to the court.
(3) The ownership of property - particularly the matrimonial home - by a company should not automatically be assumed to be a device to undermine a claim for a financial order: such arrangements can have entirely legitimate tax-avoidance purposes, or investment purposes for a spouse’s wider family.
(4) The case is a reminder that the court will apply the same trust principles as the civil courts in determining beneficial interests in allegedly matrimonial property, and it is only through joinder of third parties that such a determination is (usually) possible.
(5) The nuptial settlement argument enabled W and the children, on terms, to remain in the matrimonial home, in circumstances where W had been unable to establish that H had a beneficial interest in the matrimonial home, which was owned by a company which itself was neither owned nor controlled by H.
(6) The court will permit an amendment to Form A if fairness and necessity so dictate some considerable time after issue.
(7) In a situation where there is not enough liquid capital to rehouse a spouse in a manner which reflects the standard of living during the marriage, the court may be able to find an alternative solution to the liquidity problem – through use of a formal licence.
(8) Where the provenance of most of the available wealth is inherited funds, the court will readily accede to arguments that the outcome should be decided on a needs, rather than a sharing basis.
(9) The court will take account of wider family wealth to meet elements of a spouse’s stated requirements, if these are beyond the spouses’ needs: here the court assumed that W’s wealthy father may 'step into the breach' to provide a second property for W (paras , ).
(10) Where a spouse, in this case H, is required to look to third parties for provision of funds to pay the other spouse, if the court is persuaded upon hearing evidence from those third parties that they will assist, then 'judicious encouragement' (as described in Thomas v Thomas  2 FLR 668
) will be unnecessary.
(11) This case turned on the impression made on the court by the family and professional witnesses. If a party is running an argument that there is a secret agreement to defeat her claim, then there is always a risk that it will not be established following cross-examination of the alleged parties to the agreement.
(12) If you are alleging a 'sham' then you need to plead it formally!
Gwyn Evans is a barrister at Tanfield Chambers. Follow him on Twitter @GwynforLaw.