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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Thomas v Thomas [1995] EWCA Civ 51 (02 May 1995) URL: https://www.bailii.org/ew/cases/EWCA/Civ/1995/51.html Cite as: [1996] 2 FCR 544, [1995] EWCA Civ 51, [1995] 2 FLR 668, [1995] Fam Law 672 |
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1995] EWCA Civ 51 |
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COURT OF APPEAL (CIVIL DIVISION)
1995 |
B e f o r e :
____________________
THOMAS | ||
v | ||
THOMAS |
____________________
Christopher Wood (Rupert Bear & Co (Nottingham))
HEARING-DATES: 2 May
1995
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
value
which would normally have been available, after discharging a conventional home loan mortgage, to provide a source of capital for the wife) was committed to the guarantor bank as security for the contingent liability which would arise by way of indemnity in the event of the guarantee being enforced and for the actual liability which had already been incurred in respect of the Lloyds losses loan. The husband claimed to be unable to offer any alternative security acceptable to the bank for either of those liabilities. If he was right, the residual equity in the family home after satisfying those charges would have been wholly inadequate to support the rehousing needs of the wife and children. The second difficulty arose from the restraints imposed upon the husband's primary source of immediate income — the family business of which he was joint managing director — resulting from the pursuit by that company of a policy of ploughing back profits and paying relatively modest salaries to the directors, while at the same time making
very
generous provision for them by way of pension contributions.
view
being expressed by the judge that the deficiency was one which the husband could and should make good by procuring changes by the company in its policy towards the payment of dividends and/or the remuneration of its management. The husband now appeals against that order, claiming that it exceeded the proper bounds of discretion within which the court normally acts when exercising its matrimonial jurisdiction — wide though he acknowledges that discretion to be.
The law
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.
view
to be deduced from the authorities to which Mr Duckworth (for the husband) and Mr Wood (for the wife) referred us in the course of their clear and able submissions — namely Howard
v
Howard [1945] P 1, Donaldson
v
Donaldson [1958] 1 WLR 827, J-PC
v
J-AF [1955] P 215 per Sachs LJ at p 227, O'D
v
O'D [1976] Fam 83, B
v
B (Financial Provision) (1982) 3 FLR 298, Nicholas
v
Nicholas [1984] FLR 285, Browne
v
Browne [1989] 1 FLR 291, Crittenden
v
Crittenden [1990] 2 FLR 361, Green
v
Green [1993] 1 FLR 326, and H
v
H (Financial Provision: Capital Assets) [1993] 2 FLR 335.
The family history
The family resources
| Family home: | £250,000 |
| Insurance policies: | £13,394 |
| Cash (Lloyds reserve): | £7,987 |
| Securities (Lloyds reserve): | £25,000 |
Pension funds (estimated value at age 60: £1.3-2.8 m) current fund value: | £394,000 |
| 25.2% shareholding in the company (minimum): | £600,000 |
| Interest under policies written on life of his mother: | £82,867 |
| Mortgage to Midland Bank: | £78,000 |
| Lloyds losses loan from Midland Bank: | £43,000 |
| Liability to Midland Bank under his indemnity supporting the bank's guarantee to Lloyds: | £100,000 |
| Personal overdraft: | £8000 |
The first three of those liabilities are secured on the family home. The mortgage is a home loan in the conventional sense; the second and third are existing and contingent liabilities linked with the husband's membership of Lloyds.
Sources of income
(A) The husband
(B) The wife
The company
'. . . it is clear . . . that he and his brother have effective control of the day-to-day management of the company and are the people who can take decisions on the future direction of the company. Thus the company is considering opening a satellite franchise business in the north of the city and is contemplating an outlay of £1m which it hopes to be able to make without bank borrowings. Indeed the company has run throughout the recession without bank borrowings. The profits of the operating company have been ploughed back into the holding company and the assets of the holding company now approach £2m without considering thevalue
of the operating company. The holding company is in effect acting as the banker for the operating company. The fairly recent division of the company into a holding company and operating company does enable a
view
to be taken of the success of the operating company and although it has incurred a loss in two recent years, it is once again a profitable company. It has, however, on only one occasion paid a dividend of £10 per share. That was under pressure from the Inland Revenue in order to settle a dispute between the company and the Inland Revenue. On other occasions the company has made
very
substantial payments to the pension funds of the brothers . . . One effect of the apparent unwillingness to pay dividends is that there has been no income receivable by the trustees of the children's trust fund and thus they have not accumulated any funds to pay for the children's schooling.'
The family home
The wife's needs
The children's needs
The expert evidence at the hearing
The costs of the litigation
very
liability which principally gave rise to it -- namely the £100,000 required by the husband to support his Lloyds guarantee. A further unsatisfactory consequence is that a once-and-for-all capital settlement has ceased to be an objective commendable merely on human and family grounds but is now dictated as an absolute necessity by the need to pay off the lawyers' and accountants' fees.
The order made by the judge
(1) the sale of the family home; and after completion
(2) payment by the husband to the wife of a lump sum of £158,000;
(3) the extinguishment thereafter of all capital claims by each spouse against the other (or the other's estate);
(4) payment by the husband to the wife of periodic maintenance for the children at the rate of £1500 per month;
(5) payment by the husband of the school fees for each of the boys;
(6) payment by the husband of the wife's costs.
The judge's reasons
very
much in the future and by an adjustment in his financial arrangements [the husband] can certainly meet it'. Then later, in connection with the directions for sale of the family home he said:
'There is no real evidence that the guarantee will be called in. The husband has continued to be a member of Lloyds and considers it is still a sound investment. If the house is sold the [husband] will have to substitute an alternative guarantee which is acceptable to the Midland Bank or whoever guarantees his liability to Lloyds. There are other securities available such as the shares in the company or the pension policies which have at present an actualvalue
of £374,000. There may be other ways also of overcoming the problem. I am not satisfied that they have been investigated by anyone skilled in these financial matters.'
Although in that passage the judge speaks of substitute security being found only for the Lloyds guarantee it is clear from the context of the judgment generally — and in particular from a section (which I need not quote) in which he calculates what he regards as the available equity in the family home — that he intended his remarks to apply equally to the obtaining of substitute security for the Lloyds losses loan.
'I assume that the company has been run in this conservative manner because it was the combinedview
of the family as advised by their financial advisers that this was the most beneficial way from the point of
view
of the family and the company to run it. However, the financial adviser to the company did seem to indicate that the company had been run in this way because it was the decision of the family rather than that it was the advice of the financial advisers. It seems to me that [the husband] has got to the stage in his life where he has to consider what is in the best financial interests of his children over the next 10 years and try to convince his co-directors and shareholders that that interest is also the interest of the company.'
The argument on appeal
(1) The lump sum award
view
of the case there was material on which the judge was entitled to reach the conclusion he did as to the potential availability of alternative security to support the Lloyds guarantee and the Lloyds losses loan and thereby release the primary equity in the family home from those charges; and that it was legitimate for the judge to expect the husband to improve his income and capital position by arrangements which he could
very
easily make with his brother and mother.
(2) The income award
Conclusion
view
justified in making the order that he did in respect both of capital and of income. The evidence was in a state which entitled him to draw inferences as to the availability of funds to provide alternative security for the guarantee and for the Lloyds losses loan, and thus liberate the primary equity in the family home to provide a lump sum appropriate to the rehousing needs of the wife and children and of sufficient scale to justify shutting her out from any future capital relief. I do not accept the submission that having decided to draw those inferences it was his duty to adjourn the proceedings to provide the husband with an opportunity either of rearranging his affairs or of demonstrating that he was being asked to perform the impossible. It was common ground between the parties that although a final settlement was not yet feasible as regards income payments, any order made by the judge in respect of capital should be a final order extinguishing all future claims on either side. Against that background, and with due regard to the demands of finality in a case where the parties had accumulated costs already on an alarming scale, the judge cannot in my
view
be faulted for acting as he did on the material presently available to him. He was also entitled to draw the inference that capital relief on the scale he was ordering would not leave the husband homeless. His family circumstances (which it is unnecessary to describe in detail) would justifiably have left the court in no doubt that — during what will undoubtedly be a difficult transitional period for him while he awaits receipt of income from his Lloyds membership and adjusts his affairs generally for the future — he will be at no serious risk of being without a suitable base, even though he may be obliged to live for a time in rented or borrowed accommodation.
view
fully entitled to regard independent school education as a luxury which the husband would either have to forgo altogether if his circumstances are indeed as constricted as he claims, or else achieve with help from his brother and mother. The judge's order certainly involved a powerful inducement to the extended family to come to the husband's assistance, but the provision of that incentive fell, in my judgment, within the bounds of judicious encouragement and lay well short of the kind of order that is condemned in the authorities as placing improper or undue pressure on third parties. The judge therefore acted within the proper limits of his discretion and his decision is not one with which this court could interfere.
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.
'. . . the financial adviser to the company did seem to indicate that the company had been run in this way because it was the decision of the family rather than that it was the advice of the financial advisers. It seems to me that the respondent has got to a stage in his life where he has to consider what is in the best financial interest of his children over the next 10 years and try to convince his co-directors and shareholders that that interest is also the interest of the company.'
vote
in the interests of the children, eg when considering whether to declare a dividend which would put the trust in funds to pay for the children's education.
view that there were ways in which the problem created by the charges securing the Lloyds loss loan and the Lloyds guarantee could probably be overcome by a man with the husband's potential financial resources, and that he was not satisfied that the possible solutions had been properly investigated. Applying the principles to which I have referred, we cannot say that he was wrong so to conclude.