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England and Wales High Court (Family Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Family Division) Decisions >> NR v AB & Ors  EWHC 277 (Fam) (22 February 2016)
Cite as:  EWHC 277 (Fam),  1 FLR 1030,  Fam Law 445
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Strand, London, WC2A 2LL
B e f o r e :
|- and –
Richard Todd QC and Max Lewis (instructed by Grosvenor Law) for the 1st Respondent
Lewis Marks QC and Marcus Lazarides (instructed by Wiggin Osborne Fullerlove) for the 2nd, 3rd and 4th Respondents
Hearing dates: 17th November 2015 to the 25th November 2015
Crown Copyright ©
"We can in fact give a reference for that company as we have acted for it and the family for a number of years."
"BCO is a company controlled by AB and his mother and sister who are highly respectable Saudi Arabian residents."
H's Form E
(i) those corporate nominees held the BCO shares as to 58.33% for H by virtue of the fact that this was his fixed entitlement to his late father's estate under Saudi Arabian law; and
(ii) H held 100% (or such other proportion as the court should determine) of the beneficial interest in the two properties under a constructive or resulting trust.
She claimed to be entitled to such declaratory relief on the basis that it was agreed, intended and understood by H, his mother, sister and the company that those two properties would be held exclusively for his benefit. She relied on the fact that H had always told her that he was the owner of the flats and had shown her 18SPM shortly before their engagement when it was presented to her as the home in which they would live once married. By that stage, H had disclosed some thirteen lever arch files of documents containing a significant amount of material which had been extracted from APS's conveyancing files. Various extracts and pieces of information were relied on in W's pleading as substantiating her case in relation to the existence of a constructive or resulting trust.
(i) the beneficial ownership of the properties ("the beneficial ownership issue");
(ii) whether there is a nuptial settlement capable of variation in relation to either of the properties at 18SPM or 18A ("the nuptial settlement issue"); and
(iii) W's substantive application for ancillary relief.
W was given permission on that occasion to amend her Form A to include an application pursuant to s 24(1)(c) of the Matrimonial Causes Act 1973 to vary a nuptial settlement.
The parties open positions as the final hearing commenced
C. Computation of the assets
(i) Does the "family arrangement" which is said to exist as between H, his mother and his sister constitute what Mr Peel described as a "family store room" into which H can dip at will and, specifically, for the purposes of meeting a lump sum award in W's favour ?
(ii) What is the extent of H's interest in the pooled inherited funds held within the family arrangement ?
(iii) What is the true position as a matter of fact and law in relation to the beneficial ownership of 18SPM/18A ?
The "family arrangement" and H's interest in the pooled funds
The beneficial interest issue
18SPM and 18A
'A resulting, implied or constructive trust – and it is unnecessary for the present purposes to distinguish between these three classes of trust – is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.'
'be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been.'
'In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it may have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as to the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.'
' Accordingly, in my judgment, where there are unequal contributions, the resulting trust solution is the one to be adopted. However, it is no more than a presumption, albeit an important one. Lord Nicholls of Birkenhead said in Royal Bank of Scotland plc v Etridge (No 2)  UKHL 44,  2 AC 773,  2 FLR 1364, at para , that the 'use of the term "presumption" is descriptive of a shift in the evidential onus on a question of fact', and that the 'use … of the forensic tool of a shift in the evidential burden of proof should not be permitted to obscure the overall position'. Although said in the context of undue influence, those words apply equally to the resulting trust presumption, in my opinion.
 In many cases, there will, in addition to the contributions, be other relevant evidence as at the time of acquisition. Such evidence would often enable the court to deduce an agreement or understanding amounting to an intention as to the basis on which the beneficial interests would be held. Such an intention may be express (although not complying with the relevant formalities) or inferred, and must normally be supported by some detriment, to justify intervention by equity. It would be in this way that the resulting trust would become rebutted and replaced, or (conceivably) supplemented, by a constructive trust.'
"Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company."
Is there a nuptial settlement which is capable of variation under s 24(1)(c) of the Matrimonial Causes Act 1973 ?
The nuptial settlement issue
"In the Matrimonial Causes Act 'settlement' is not defined, but the context of s 24 affords some clues. Certain indicia of the type of disposition with which the section is concerned can be identified reasonably easily. The section is concerned with a settlement 'made on the parties to the marriage'. So, broadly stated, the disposition must be one which makes some form of continuing provision for both or either of the parties to a marriage, with or without provision for their children. Conversely, a disposition which confers an immediate, absolute interest in an item of property does not constitute a settlement of that property. The statutory provision is concerned with an order varying the terms of a settlement. This would not be an altogether apt exercise in relation to property given out-and-out and belonging to one of the parties to the marriage as his or her own absolute property. The context does not require that outright gifts of this nature should fall within the scope of the variation provision. In such a case, the appropriate order on the dissolution of the marriage, if an order is needed in respect of the property, is a property transfer or property settlement order.
Beyond this the authorities have consistently given a wide meaning to settlement in this context, and they have spelled out no precise limitations. This seems right, because the approach accords with the purpose of the statutory provision. Financial provision that is appropriate so long as the parties are married will often cease to be appropriate when the marriage ends. In order to promote the best interests of the parties and their children in the fundamentally changed situation, it is desirable that the court should have power to alter the terms of the settlement. The purpose of the section is to give the court this power. This object does not dictate that 'settlement' should be given a narrow meaning. On the contrary, the purpose of the section would be impeded, rather than advanced, by confining its scope. The continuing use of the archaic expressions 'ante-nuptial' and 'post-nuptial' does not point in the opposite direction. These expressions are apt to embrace all settlements in respect of the particular marriage, whether made before or after the marriage. In this connection, it should be noted in passing that a settlement may be made in respect of a particular marriage even though in certain circumstances the wife or husband by a subsequent marriage might be the person to take."
"One feature of the power of the court under the section is to be noted. The section gives the court power to vary a settlement. Inherent in this provision is the notion that the court's jurisdiction extends to all the property comprised in the settlement. Thus it includes any interest the settlor himself thenceforth may have in the settled property by virtue of his own settlement. Further, the court's power is not confined to varying the interests of the parties to the marriage under the settlement. The power includes, for instance, the interests in the settled property of children or, more widely, of others under an old-fashioned protective trust. Blood v Blood  P 78 is an example of the former, and Marsh v Marsh (1877) 47 LJP 34 of the latter. Conversely, it is also implicit in the section that the court's power does not extend to property which is not part of the settled property. In some cases, of which Dormer v Ward  P 20 is an example, nice questions may arise over whether property is or is not brought into the settlement."
"My task is to consider what the real substance of the arrangement was which governed this property. The authorities make it clear that I should consider the question broadly and ask myself whether or not it was an arrangement which made ongoing provision for the husband, wife and/or the child in those capacities. Motive is irrelevant."
"Once Flat 18A was habitable, it 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." [C:79]
" Surveying all this learning, identifying what is of enduring significance whilst ruthlessly jettisoning what has become more or less irrelevant in modern conditions, I can perhaps summarise matters as follows:
(i) The court's discretion under s 24(1)(c) is both unfettered and, in theory, unlimited. As Miss Parker put it, no limit on the extent of the power to vary or on the form any variation can take is specified, so it is within the court's powers to vary (at one end of the scale) by wholly excluding a beneficiary from a settlement, to (at the other end) transferring some asset or other to a non-beneficiary free from all trusts. She points to E v E (Financial Provision) and C v C (Variation of a Post-Nuptial Settlement: Company Shares) as illustrations of property held on trust being transferred free from any trusts to the applicant, in E v E a sum of £50,000 and in C v C shares in a Cayman company.
(ii) That said, the starting point is s 25 of the 1973 Act, so the court must, in the usual way, have regard to all the circumstances of the case and, in particular, to the matters listed in s 25(2)(a)-(h).
(iii) The objective to be achieved is a result which, as far as it is possible to make it, is one fair to both side, looking to the effect of the order considered as a whole. [my emphasis]
(iv) The settlement ought not to be interfered with further than is necessary to achieve that purpose, in other words to do justice between the parties.
(v) Specifically, the court ought to be very slow to deprive innocent third parties of their rights under the settlement. If their interests are to be adversely affected then the court, looking at the wider picture, will normally seek to ensure that they receive some benefit which, even if not pecuniary, is approximately equivalent, so that they do not suffer substantial injury. As Sheldon J put it in the passage in Cartwright which I have already quoted: 'if and in so far as [the variation] would affect the interests of the child, it should be permitted only if, after taking into account all the terms of the intended order, all monetary considerations and any other relevant factors, however intangible, it can be said, on the whole, to be for their benefit or, at least, not to their disadvantage.'
"In September 1998, when AB and I were engaged, he took me to see the property at 18SPM. He told me that he had just bought this property and that it would be our family home."
The computation issue
"[W]'s father is a man of huge wealth. Following the death of his father ([W]'s grandfather), he is head of the R family, who are very long-standing industrialists in Saudi Arabia. They are a family of equivalent standing to the Rothschilds in this country, deriving their wealth originally from RCO, Saudi Arabia's oldest organised commercial enterprise dating back to 1845. Books have been written about them, and there is a website which lays out the vast range of their enterprises. The top holding-company is Z investments, which holds a variety of subsidiary industrial and chemical companies, including maritime services, jewellery, tourism, commercial supply (particularly engineering oils), packaging and real estate. When the Kingdom of Saudi Arabia introduced the principle of company registration, the very first company so registered was ARCO in honour of their contribution to the Saudi state; not least their installation of the very first broadcasting station in Jeddah in the 1940s. The family holiday home is a chateau in the South of France, conservatively valued at US$25m. They have significant financial interests in this country, with a dedicated liaison office managed by E Ltd in London." [B/C:107]
BB Road, Jeddah and the Beach Villa in P District
Orders in relation to valuation evidence; The Beach Villa
"The current position is that pursuant to paragraph 7 of the order of the 27 July 2015 the value of the properties prior to the FDR is to stand, absent a Single Joint Expert. As far as we are concerned that value at the FDR was SAR 3,000,000 for one (BB Road) and SAR 6,000,000 for the other Saudi property (the P Beach Villa). That is recorded in the agreed asset schedule. So far as we are concerned those valuations now stand. But – unless your client has had a Damascene change of mind – we expect you will wish to assert the FDR values were the ones you advanced – i.e. of SAR 6,580,000 and SAR 115,462,500 (for the Beach Villa). How on earth do you expect the Judge to be able to bridge a gulf of more than £18 million in the valuations ? Similarly how could she possibly undertake an enquiry of what passed at the FDR ? The answer must be as provided for by the two orders – a single joint expert to guide both her and the parties."
"13.7 (Sensitivity Analysis)
The dispersion ration for the Land evaluation is 5% as identified in the below table and it will also the sensitivity rate which can also be measure the risk factor. A narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. If there are interrelationships between those inputs and other unobservable inputs used in the fair value measurement, an entity shall also provide a description of those interrelationships and of how they might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement."
"5 Scope of the Report
The valuation report is performed on a limited scope basis; the report is not a self-contained comprehensive valuation report to estimate the fair market value for the Property in Time of valuation." [my emphasis]
Initially I had wondered if this was a typographical error. However, having referred back to the earlier valuation reports prepared in 2014, I see exactly the same wording. It is all very unsatisfactory and does not help me in my search for a firm forensic footing in relation to a proper understanding of value.
Two remaining properties in Jeddah occupied by H's mother
The French apartments
Liquid funds in the Family Arrangement
Property portfolio H's 33.3% share
BB Road (mid-point) 275,675
Beach Villa, P District £3.5m/£5.575m/£6.775m ? ??
BS property (mid-point) 135,610
D Road (W's valuation) 345,000
2 apartments in South of France (mid-point) 338,000
Liquid funds (cash and shares) 4,381,630
or 12.42m / 14.5m / 15.7m with 33.33% of Beach Villa
|H's interest under Family Arrangement||[12.42m/14.5m/15.7m]|
|all inherited funds|
|(dependant on value of his 33.33% interest in the Beach Villa)|
|H's personal liquid funds||1,600,000|
|Joint funds (H and W)||40,000|
|HSBC € account|
|Subject to o/s costs and W's debt to her father|
|No allowance made for H's alleged liabilities to PR / CD|
D. W's claims in this application: what is a fair outcome ?
The "Thomas" issue
"We would say that we are all agreed that it is a needs case. In assessing those needs, we have to look at the total that is available to meet those needs and that does not mean just looking at the resources of the husband. That means looking at all the resources that might be available. Indeed, the husband is deploying resources which are strictly his sister's and his mother's in order to be able to assist the wife. So it is all hands to the wheel." [Transcript: 17 November 2015: page 46].
"The discretionary powers conferred on the court by the amended ss 23-225A of the Matrimonial Causes Act 1973 to redistribute the assets of spouses are almost limitless. That represents an acknowledgement by Parliament that if justice is to be achieved in between spouses at divorce the court must be equipped, in a society where the forms of wealth-holding are diverse and often sophisticated, to penetrate outer forms and get to the heart of ownership. For their part, the judges who administer this jurisdiction have traditionally accepted the Shakespearean principle that 'it is excellent to have a giant's strength but tyrannous to use it like a giant'. The precise boundaries of that judicial self-restraint have never been rigidly defined – nor could they be, if the jurisdiction is to retain its flexibility. But certain principles emerge from the authorities. One is that the court is not obliged to limit its orders exclusively to resources of capital or income which are shown actually to exist. The availability of unidentified resources may, for example, be inferred from a spouse's expenditure or style of living, or from his inability or unwillingness to allow the complexity of his affairs to be penetrated with the precision necessary to ascertain his actual wealth or the degree of liquidity of his assets. Another is that where a spouse enjoys access to wealth but no absolute entitlement to it (as in the case, for example, of a beneficiary under a discretionary trust or someone who is dependent upon the generosity of a relative), the court will not act in direct invasion of the rights of, or usurp the discretion exercisable by, a third party. Nor will it put upon a third party undue pressure to act in a way which will enhance the means of the maintaining spouse. This does not, however, mean that the court acts in total disregard of the potential availability of wealth from sources owned or administered by others. There will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court's 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."
Note 1 Although paragraph 23.c of the Points of Defence refers to “W’s sister” as the intended occupant of 18SPM, this is clearly a typographical error. [Back] Note 2 By this stage, H accepted that his interest in the “family arrangement” properties should find reflection in one-third of the net value of the properties once allowance had been made for costs of sale. He no longer restricted the value of his share to one-third of the outstanding loans made to BCO to fund the original purchases. However, whilst his interest in the three London apartments and the BB Road (Jeddah) property were included as part of his share of the value in the “family arrangement”, there was nothing in the figures appearing in his column to represent any interest in either the sea front beach villa or the two apartments in the South of France. [Back] Note 3 OS v DS (Oral Disclosure: Preliminary Hearing)  EWHC 2376 (Fam) [Back] Note 4 In relation to the value of any substituted property, I accept that there will be deductions from any sale proceeds, most notably in respect of tax. However, H, his mother and sister have subsequently confirmed to me that the net proceeds of flat 18SPM would be deployed to purchase a reasonable alternative acceptable to W subject only to it being an appropriate investment (ie. not a very short lease).
[Back] Note 5 It is right to record that W disputed this valuation of the French château when she was cross-examined by Mr Todd. [Back] Note 6 Thomas v Thomas  2 FLR 13 [Back]
Note 1 Although paragraph 23.c of the Points of Defence refers to “W’s sister” as the intended occupant of 18SPM, this is clearly a typographical error. [Back]
Note 2 By this stage, H accepted that his interest in the “family arrangement” properties should find reflection in one-third of the net value of the properties once allowance had been made for costs of sale. He no longer restricted the value of his share to one-third of the outstanding loans made to BCO to fund the original purchases. However, whilst his interest in the three London apartments and the BB Road (Jeddah) property were included as part of his share of the value in the “family arrangement”, there was nothing in the figures appearing in his column to represent any interest in either the sea front beach villa or the two apartments in the South of France. [Back]
Note 3 OS v DS (Oral Disclosure: Preliminary Hearing)  EWHC 2376 (Fam) [Back]
Note 4 In relation to the value of any substituted property, I accept that there will be deductions from any sale proceeds, most notably in respect of tax. However, H, his mother and sister have subsequently confirmed to me that the net proceeds of flat 18SPM would be deployed to purchase a reasonable alternative acceptable to W subject only to it being an appropriate investment (ie. not a very short lease). [Back]
Note 5 It is right to record that W disputed this valuation of the French château when she was cross-examined by Mr Todd. [Back]
Note 6 Thomas v Thomas  2 FLR 13 [Back]