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You are here: BAILII >> Databases >> England and Wales Family Court Decisions (High Court Judges) >> LS v PS (Rev1) [2021] EWFC 108 (23 December 2021) URL: https://www.bailii.org/ew/cases/EWFC/HCJ/2021/108.html Cite as: [2022] 4 WLR 19, [2022] WLR(D) 38, [2022] 1 FCR 691, [2021] EWFC 108 |
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SITTING IN THE ROYAL COURTS OF JUSTICE
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
LS |
Applicant |
|
- and |
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PS |
Respondent |
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- and - |
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Q COMPANY (a Litigation Lender) |
Intervener |
____________________
Jonathan Southgate QC and Simon Calhaem (instructed by Keystone Law) for the Interveners
The Applicant wife did not appear and/or take any part in the proceedings
Hearing dates: 29 November 2021
____________________
Crown Copyright ©
Mrs Justice Roberts :
(i) The context of Q's claim in the extant set aside proceedings
(i) a fraud on Q as a creditor within the meaning of s 423 of the Insolvency Act 1986;
(ii) fraudulent and material non-disclosure on the part of the parties by their failure to inform the judge who approved the order that Q had been joined to the proceedings for the purposes of its application to be heard on the question of whether or not the court should, in these circumstances, approve the order;
(iii) fraudulent and material non-disclosure of the husband's and wife's true financial circumstances and the wife's potential exposure to bankruptcy as a result of the agreement they had reached as a means to avoid the debt;
(iv) a breach of its article 6 rights. Q seeks to argue that the consent order should not have been approved without it first having been afforded an opportunity to be heard on these issues. It further argues that, without being informed of the true facts, the court was not in a position to consider whether this was a 'consent' order which, exercising its independent jurisdiction under s 25 of the Matrimonial Causes Act 1973, it should have made.
"Plainly, if the ancillary relief order was the product of collusion between the spouses designed to adversely affect the creditors the trustee [in bankruptcy] would intervene in the ancillary relief proceedings and apply for the order to be set aside."
..
"I believe it can be said that in the 21 years since the enactment of the Insolvency Act 1986, practitioners on either side of the boundary between insolvency and ancillary relief law have assumed that the principled approach taken by the courts in Re Pope and Re Abbott held true. Between the two systems of law there needs to be a fair balance which, on the one hand, protects the creditors against collusive orders in ancillary relief and, on the other, protects orders justly made at arms-length for the protection of the applicant and the children of the family."
(ii) The litigation background which preceded the private FDR on 12 February 2021
(iii) Some initial observations on the 'fraud' or 'iniquity' exception to the principle of privilege
" .Even if the test is correctly dishonesty and not merely iniquity, it does not follow that the actual decision in Eustice was wrong. In the course of an illuminating discussion, the authors of Thanki (ed), The Law of Privilege, ed 3, para 4.48, fn 116, say this:
"In so far as the decision confirms that privilege is overridden in proceedings for declarations under section 423 [of the Insolvency Act 1986] there can be no objection. However, the dicta in the case go further in extending the scope of the fraud / crime exception generally."
Given the decision in Williams v Quebrada Railway, Land and Copper Company [1895] 2 Ch 751, which, so far as I am aware, has never been questioned, it is not easy to see why the actual decisions in Eustice in relation to section 423 of the Insolvency Act 1986 and in C v C (Privilege) [2006] EWHC 336 (Fam), [2008] 1 FLR 115, in relation to section 37 of the Matrimonial Causes Act 1973, should be questioned, whatever criticisms there may be of some of the reasoning."
" for the purpose
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make."
"Does legal professional privilege attach to documents containing or evidencing communications between the transferor and his legal advisers relating to transactions entered into by the transferor at an undervalue for the purpose of prejudicing the interest of persons making a claim against him ?"
" we start here from a position in which, on a prima facie view, the client was seeking to enter into transactions at an undervalue the purpose of which was to prejudice the bank. I regard this purpose as being sufficiently iniquitous for public policy to require that communications between him and his solicitor in relation to the setting up of those transactions to be discoverable."
"[35] the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection for the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties to speak freely about all issues in the litigation
[36] Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers sitting at their shoulders as minders."
(i) Where the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible;
(ii) Evidence of what transpired during negotiations is admissible to show that an agreement made in those negotiations 'should be set aside on the ground of misrepresentation, fraud or undue influence'.
(iii) One party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other 'unambiguous impropriety'.
"In order for the FDR appointment to be effective, parties must approach the occasion openly and without reserve. Non-disclosure of the content of such meetings is accordingly vital and is an essential prerequisite for fruitful discussion directed to the settlement of the dispute between the parties. The FDR appointment is an important part of the settlement process. As a consequence of Re D (Minors) (Conciliation: Disclosure of Information) [1993] 2 All ER 693, [1993] Fam 231, evidence of anything said or of any admission made in the course of an FDR appointment will not be admissible in evidence, except at the trial of a person for an offence committed at the appointment or in the very exceptional circumstances indicated in Re D."
(i) each party's written submissions and asset schedules prepared for the FDR hearing (some 44 pages in all);
(ii) the transcript of the submissions made by each counsel at the FDR hearing (60 pages);
(iii) the transcript of the "indication" given by the FDR judge (4 pages);
(iv) copies of his counsel's notes of the FDR hearing (54 pages);
(v) copies of his counsel's notes of the FDR judge's oral indication (5 pages); and
(vi) copies of notes by his legal representatives of the without prejudice discussions which took place after the FDR concluded (24 pages) and copies of the correspondence following the FDR which led to the consent order which both parties eventually signed and submitted to the court for approval (65 pages).
(iv) The circumstances in which the parties' agreement following the private FDR on 12 February 2021 was approved and converted into an order
(v) The hearing before Holman J on 19 March 2021
"1. Provide the Lender with any information it reasonably requests in relation to my legal proceedings and my financial situation, including assets that I may hold and the settlement that I may receive;"
.
"4. Use all reasonable endeavours to ensure that repayment of all sums due under the loan agreement(s) with the Lender are provided for within the terms of any court order made in respect of my legal proceedings;
5. Notify any relevant third party who will be making payments using the proceeds of the proceedings and/or disposal proceeds that I am entitled to in relation to any properties, to ensure payment is made into your client account. I waive my right to confidentiality in this regard.
6. Subject to your own compliance with applicable anti money laundering regulations, receive the proceeds of the Proceedings (and the disposal proceeds that I am entitled to in relation to my properties (if any)) into your client account and use such proceeds to settle all outstanding sums under the Loan Agreement(s) as the first priority before being used for any other purpose".
"I irrevocably waive, in favour of the Lender, any right of privilege and/or confidentiality I may have in relation to the Proceedings throughout the duration of the Loan Agreement(s)."
(i) all without prejudice correspondence since 19 July 2018;
(ii) all offers to settle the proceedings since 19 July 2018; and
(iii) a copy of the Zoom recording of the FDR on 12 February 2021;
The Legal Arguments in relation to the Disclosure Application
(a) Q's submissions as advanced by Mr Southgate QC and Mr Calhaem
(b) The husband's submissions as advanced by Mr Todd QC with Mr Benson
(i) It is not dishonest for a husband to put forward proposals which a third party unsecured creditor does not like, far less does it propel that party into the category of fraud. The wife accepted that proposal but that acceptance does not establish fraud on her part.
(ii) Q has not properly pleaded its case against either the husband or the wife in relation to dishonesty or, against the husband, in relation to conspiracy.
(iii) Q had a debt action at the time of the parties' settlement. They still have one. Whilst they were entitled to hope that the wife would recover sufficient capital to meet her debt in respect of the litigation loans, they were not a secured creditor. In the event that the husband had died or become bankrupt before the resolution of the financial remedy claims, they would have been exposed.
(iv) Simply put, there are now no proceedings to join: this case is over.
Discussion and analysis
"26. It is important to remember that the FDR is entirely a creature of statute, being part of the statutory process for dealing with proceedings financial remedy proceedings brought under the Matrimonial Causes Act 1973 which are themselves entirely a creature of statute. So far as concerns the FDR, the relevant provisions are in FPR 9.15(4), 9.17 and PD9A, para 6. For present purposes, two aspects of the FDR process are significant. The first is that the FDR is compulsory and both parties must personally attend: the parties cannot themselves contract out of it, though they can pre-empt the FDR by embarking upon a 'private' FDR: see President's Circular: Financial Remedies Court Pilot Phase 2, 27 July 2018, paras 7 to 11. The other is the obligation of the parties to hold nothing back at the FDR and, indeed, to put forward their best offers. Moreover, it is fundamental that the FDR is a confidential process, differing from other types of family hearings in two significant respects: first, journalists are not permitted to attend the FDR: FPR 27.11(1)(a); secondly, the judge hearing the FDR must have no further involvement with the case: FPR 9.17(2).
27. This explains the language of PD9A, para 6.2, which is at the heart of this case:
"In order for the FDR to be effective, parties must approach the occasion openly and without reserve. Non-disclosure of the content of such meetings is vital and is an essential pre-requisite for fruitful discussion directed to the settlement of the dispute between the parties. The FDR appointment is an important part of the settlement process. As a consequence of Re D (Minors) (Conciliation: Disclosure of Information) [1993] Fam 231, evidence of anything said or of any admission made in the corse of an FDR appointment will not be admissible in evidence, except at the trial of a person for an offence committed at the appointment or in the very exceptional circumstances indicated in Re D."
Re D, to repeat, is concerned with child protection and is therefore not relevant here."
"33. But, not least given its wholly statutory context, how can it be said that para 6.2 is wrong in law ? It is, as it seems to me, entirely consistent with the remainder of the statutory provisions providing for and regulating the FDR. And I cannot identify any respect in which it might otherwise be said to be wrong in law. If the law regulating the FDR is thought to be unsatisfactory, then the remedy lies with the relevant lawmakers: in the case of the FPR the Family Procedure Rule Committee and, in the case of a Practice Direction, the President of the Family Division. They, after all, are in a much better position than a judge to decide if change is needed and, in particular, if it is, to decide what form that change should take. Indeed, were a judge to embark upon the latter task, the judge would no longer be acting as a judge but arrogating to himself the function of a legislator."
"54. . Public policy now recognises that it is desirable, in order to facilitate access to justice, that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation."
"Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other "unambiguous impropriety" (the expression used by Hoffmann LJ in Forster v Friedland (unreported), 10 November 1992; Court of Appeal (Civil Division) Transcript No. 1052 of 1992."
Footnote
Order accordingly
Note 1 It is right to record from the Defence filed by the husband in the civil proceedings that there was an issue between the parties as to whether the wife also had her own inheritance prospects (c.£1 million). She had also been the beneficiary of c.£140,000 from the sale of a Spanish property and a further £83,500 in respect of relief from costs she would otherwise have been expected to share. [Back] Note 2 for reasons which I set out in a short preliminary ruling [Back] Note 3 Because this was a private FDR, I do not accept that this was in fact a Rose order: see para 80 of my judgment. [Back]