Bj v Mj Hsbc Trustees (ci) Ltd (as Trustees of The Mj No.1 Settlement) (and Further as Trustees of The Mj No.2 Settlement) (2nd and 3rd Respondents)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MOSTYN,Mr Justice Mostyn |
| Judgment Date | 27 October 2011 |
| Neutral Citation | [2011] EWHC 2708 (Fam) |
| Docket Number | Case No: FD09D03782 |
| Court | Family Division |
| Date | 27 October 2011 |
[2011] EWHC 2708 (Fam)
IN THE HIGH COURT OF JUSTICE FAMILY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Mostyn
Case No: FD09D03782
and
Mr Jonathan Southgate (instructed by Kingsley Napley) for the Applicant
Mr Richard Castle (instructed by Withers) for the Respondent
Hearing dates: 17–21 October 2011
The central question that arises in this case is how trusts should be treated in the division of assets following divorce. Trusts have always aroused controversy in this exercise. This is because assets held in trust are not legally owned by either party. They are owned by third parties—the trustees.
An interest under a trust may be fixed or discretionary. A spouse who is a beneficiary may have an indefeasible life interest, a fixed interest in remainder or he may be a discretionary object of capital and/or income. In the former instance, the spouse has identifiable property which belongs to him, is capable of being valued and included in the pool of assets to be divided, without further consideration of the position of the trustees. In the latter instance the spouse has no more than the right to be considered by the trustees in the exercise of their discretion.
Analysis of the authorities shows that the Family Division has always brought to these cases a "a judicious mixture of worldly realism and of respect for the legal effects of trusts, the legal duties of trustees and, in the case of off-shore trusts, the jurisdictions of off-shore courts" (per Sir Mark Potter P in Charman v Charman (No.4) [2007] 1 FLR 1246, CA at para 57).
I will now examine the various types of trusts which are commonly encountered in proceedings for a financial remedy following divorce.
Cipher trusts
If the trust is obviously a "Dear Me" trust (an aphorism memorably and aptly coined by the late Mr James Comyn QC when at the Bar), that is to say a purportedly "discretionary" trust set up by a spouse where the trustees (either because the settlement is a sham, or because they act in breach of trust, or because the trust is the husband's alter ego) have historically been totally compliant to his wishes and where he has had unfettered access to the capital and income of the trust in a way indistinguishable to assets in his direct ownership, then the assets are properly to be regarded as his, and the trustees to be seen as mere ciphers. Here the court simply ignores the trust structure. An example of this phenomenon is Minwalla [2005] 1 FLR 771.
Trusts of land
Equally, when the trust is a fixed trust such as a trust of land (or an old "trust for sale"), where the parties are the only beneficiaries and their interests are defined, the task for the Court is uncomplicated. Examples of such cases include Brown v Brown [1959] P 86 and Smith v Smith [1970] 1 All ER 244, [1970] 1 WLR 155, CA where the husband had deserted the wife and gone abroad to work; the sole asset was the matrimonial home which was in joint names, and which constituted a post-nuptial settlement. The Court of Appeal varied the settlement by extinguishing the husband's interest in the house as if he were then dead and the wife had survived him, but ordered that she should forego any claim to future maintenance, lump sum, or secured provision. The trust asset (as one would expect with a trust of property in joint ownership) was to all intents and purposes in the direct ownership of the parties.
Nuptial settlements
For bona fide trusts, a key distinction is between nuptial and non-nuptial settlements. If the trust is a nuptial settlement then notwithstanding that the assets are legally held by third parties as trustees, and that yet further third parties may be beneficiaries along with the husband, the trust assets fall within the court's dispositive powers under s24(1)(c) Matrimonial Causes Act 1973. This power to vary is one of the oldest in the canon finding its origin in s5 Matrimonial Causes Act 1859. The trustees are entitled to be heard (FPR 2010 r9.13(1) and (4)) and any children beneficiaries must be represented ( r9.11). The variation powers extend to making outright provision to the applicant, and may even be exercised where the trust is offshore, although, following well-established principle, the court will be unlikely to make a variation order where both the trust and its assets are overseas unless it is satisfied that the order would be implemented by the court exercising effective control over the trust ( Goff v Goff [1934] P 107, Hamlin v Hamlin [1986] Fam 11). If, however, the Court is satisfied that the variation order will be effective against the husband in personam, then the order is more likely to be made ( Razelos v Razelos [1969] 3 All ER 929).
It has been said that the court will exercise caution before making a variation order. The authorities were summarised by Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115:
[290] 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 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 sides, looking to the effect of the order considered as a whole.
(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 while, to be for their benefit or, at least, not to their disadvantage.
The statement in (iv) is surely of wider application than cases about variation of settlement alone. A respondent's property rights obviously should not be interfered with by way of lump sum or property adjustment order in favour of a claimant further than is necessary to achieve a fair and just result. So I do not read this proposition as importing an extra degree of caution specifically for variation of settlement cases.
The statement in (v) must surely be read in the light of the new distributive régime mandated by the House of Lords in White [2001] 1 AC 596 and Miller and McFarlane [2006] 2 AC 618. If the court has decided that the assets of a nuptial settlement amount to matrimonial property which falls to be shared then that sharing may very well be in the form of outright provision which deprives a contingent or discretionary beneficiary down the line of the chance of benefit. In Charman the Dragon Trust's beneficiaries from its inception in 1987 were the spouses, their now adult children, the future children of the husband, his remoter issue, such charitable objects or purposes as the Trustee may determine from time to time, and, finally, such other person(s) or class of persons added under the relevant power to the class of beneficiaries. Accordingly, the class of beneficiaries was not closed. The Trust Period lasted until 2067. There was no protector of the Trust, albeit Mr Charman retained a fiduciary power (subject to the usual strict duties) to remove and appoint new or additional trustees. In 2004 the trustee resolved to appoint the income of the trust for life to Mr Charman. His wife was "relatively fortunate" in that she could make her claim against the non-trust assets (see the discussion about off-setting below). It was argued on behalf of Mr Charman that had she in fact been forced to apply for a variation of settlement she would not have been awarded more than a life interest in part of Dragon, so as not to disturb the rights of other beneficiaries, and that therefore her sharing right to the assets of the trust should be limited to the capitalised value of such a life interest. This was firmly rejected, Sir Mark Potter P stating at para 56(b):
Fifth, we see no reason to accept that, just because after the breakdown of the marriage Codan formally assigned to the husband a life interest in Dragon, the result of an application to vary it would have been provision for the wife only of a life interest, albeit presumably subject to a power in her trustees to...
To continue reading
Request your trial
-
BP (Petitioner) v KP NI (1st Intervener) OI (2nd Intervener)
...on which the agreement was formed at the final trial in support of her add-back argument. Add-b ack 31 In my decision of BJ v MJ (Financial Order: Overseas Trust) [2012] 1 FLR 667 I attempted to summarise the law concerning the technique of add-back at paras 50 and 51: 50. On 1 July 2009 H ......
-
Dr v Gr (1st Respondent) A.B.C Trust Company (Jersey) Ltd (2nd Respondent) Oakleaf Ltd (3rd Respondent) Deerpark Enterprise Centre Ltd (4th Respondent) Summer Ltd (5th Respondent) Summer International Ltd (6th Respondent)
...of the settlement under s24(1)(c) of the Matrimonial Causes Act 1973. In my decision of BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) [2012] 1 FLR 667 I attempted to set out the principles to be derived from the authorities concerning applications of this nature, and I......
-
Ankita Goyal v Amit Goyal
...trust owns property sited in this jurisdiction. I examined this in my own decision of BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) at [7], [20] – [21], and [23] but I recognise that I did not address the question of the presumption against extra-territoriality and whet......
-
B v S
...with worldly realism it is appropriate, having regard to the applicable legal test (see BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) at paras 15 – 17 where I attempted to summarise the authorities), to attribute its assets to H as part of his resources for the purposes......
-
To Join Or Not Join: The Role Of Trustees In Family Proceedings
...had extensive experience in dealing with these issues and have represented parties in BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) and Tchenguiz v Imerman [2012] EWHC 4277 (Fam) where the issues of joinder and disclosure by third parties were addressed. The questions o......
-
Judgement Summary: Offshore Assets And The Divorce
...v MJ and Others [2011] EWHC 2708 (Fam) This is an English High Court (Family Division) case involving a Jersey proper law trust whereby Mostyn J examined the treatment of a Jersey trust in divorce proceedings and made an interesting comment about a Jersey trustee's potential involvement in ......
-
The Decision In BJ v MJ And Others [2011] EWHC 2708
...decision of BJ v MJ and Others [2011] EWHC 2708 (Fam) again examines the treatment of offshore trust interests in the context of financial remedy proceedings on divorce and is essential reading for all those involved in such The parties married in 1980 and were both aged 65. They had one ad......