LS v PS

JurisdictionEngland & Wales
CourtFamily Division
JudgeMrs Justice Roberts
Judgment Date23 December 2021
Neutral Citation[2021] EWHC 3508 (Fam)
Docket NumberCase No: LV16D01012

[2021] EWHC 3508 (Fam)

IN THE FAMILY COURT

SITTING IN THE ROYAL COURTS OF JUSTICE

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

THE HONOURABLE Mrs Justice Roberts

Case No: LV16D01012

Between:
LS
Applicant
and
PS
Respondent

and

Q Company (a Litigation Lender)
Intervener

Richard Todd QC and Edward Benson (instructed by Paradigm Family Law) for the Respondent

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

Approved Judgment

Mrs Justice Roberts
1

This is an application by an intervener in financial remedy proceedings for disclosure of material and information which is currently subject to ‘without prejudice’ privilege. The intervener, Q, is a corporate entity which provides litigation funding to parties involved in family and probate proceedings. It has lent funds to LS, the applicant wife in these financial remedy proceedings. Her debt to Q with accrued interest currently stands at almost £1 million. For these purposes the precise figure matters not although it represents a significant debt in the context of the financial remedy case which was agreed to be informed by an assessment of the wife's needs as opposed to a full sharing claim.

2

Q is a party to these proceedings having been joined on 18 February 2021 by order of Newton J. It has issued an application to set aside a consent order which was sealed on 16 March 2021 having been approved by Mr Nicholas Cusworth QC, the Deputy High Court judge allocated to this case, on 3 March 2021. There is a four day hearing listed in March 2022 at which the court will determine whether or not to set aside that order. Q already has in its possession some of the privileged material (including without prejudice offers) which was generated in these proceedings and, in particular, for the purposes of a private FDR hearing which was conducted in February this year before a retired High Court judge. It was that hearing which provided the platform for the settlement which was reached by the husband and wife (as I propose to refer to them).

3

At the heart of this dispute is an allegation by Q that the settlement which resulted from those negotiations was deliberately structured by the parties so as to leave the wife with no assets or entitlement to property or liquid funds from which her debt to Q could be met. As a legitimate creditor, Q's case is that it was effectively “bypassed” and the wife, with the husband's encouragement and support, has been left without the means of satisfying her debt. Q already has access to some of the financial disclosure generated during the financial remedy proceedings. It wishes to use that material, together with the privileged material, in the set aside application pursuant to FPR 9.9A to prove its case in relation, inter alia, to claims for relief under ss 423 to 425 of the Insolvency Act 1986.

(i) The context of Q's claim in the extant set aside proceedings

4

Q's case, in essence, and the arguments which it will be advancing before the court in relation to the set aside application is that the agreement which the parties reached, and the order which reflected that agreement, are vitiated by the following:-

(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.

5

Section 423 of IA 1986 concerns ‘Transactions defrauding creditors’. It enables the court to set aside a transaction on the suit of a creditor where a person has entered into a transaction at an undervalue for the purpose of putting assets beyond the reach of creditors. For these purposes, Q relies on established principles of matrimonial law as explained in the well-known case of Hill v Haines [2008] 1 FLR 1192. Thorpe LJ held in that case that money and property received by a party under the terms of a financial remedy order is prima facie the measure of the value of the rights he or she has given up. However, this principle only applies in the absence of a vitiating factor such as fraud, collusion, mistake or misrepresentation: see paras 35, 46 and 47. At paras 46 and 60, his Lordship said this:

“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.”

6

More recently, Knowles J has considered the relevance of the “purpose” test in s. 423 of IA 1986 in Akhmedova v Akhmedov & Others [2021] EWHC 545 (Fam) at para 77. She held that there is no necessity or requirement that the sole or dominant purpose of the transaction should be to defraud the creditor. In order to establish the motive or “purpose” of the transaction under review, it is not enough for a creditor to show that its claim is likely to be defeated if the transaction is left to stand. However, the court can infer that a transaction was entered into for that specific purpose (i.e. to put assets beyond the reach of a creditor) if the evidence establishes that a party or parties to that transaction foresaw that the result would achieve that purpose and that he or she desired to achieve that result: see para 83, and see the decision of the Court of Appeal in JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176.

7

Thus, applying these principles to this case, Q will seek to prove in the set aside proceedings in March next year that, for the purposes of its engagement of s. 423 of IA 1986, (i) the result of the transaction ( the agreement between the husband and the wife to conclude the financial remedy proceedings) was to defeat its claims as a creditor of the wife; (ii) the husband and the wife foresaw that this would be the consequence; and (iii) they wished to achieve this result. In this way, Q will argue that the court may be placed in a position to infer that this was the ‘purpose’ of the transaction for the engagement of s. 423 and the relief available to Q as a creditor pursuant to s. 425.

8

It is for these purposes that Q now seeks the court's permission to admit as evidence in the set aside proceedings the without prejudice offers and the materials (including counsel's position statements) from the private FDR which it asserts will prove that the elements set out above in (i) to (iii) are established.

9

It is important to stress at the outset that I am not in this judgment considering the underlying merits of Q's claim under s. 423 of the 1986 Act or the likely outcome of the set aside application. These are matters which will be fully argued on the basis of a forensic scrutiny of the evidence by the judge at the full hearing in March next year. I am only concerned today with the disclosure application which Q now makes that, included within that evidence, should be the privileged material which informed the settlement negotiations at the private FDR which was held on 12 February 2021.

(ii) The litigation background which preceded the private FDR on 12 February 2021

10

The litigation funding provided by Q to the wife concerns a second round of financial remedy claims. Following the breakdown of the marriage in 2016, she had launched her initial claims which were finally adjudicated by Parker J in July 2018. She was represented in those proceedings by Mr Martin Pointer QC. Mr Todd QC represented the husband, as he does in these proceedings. By this stage the parties' marriage had been formally dissolved. The wife was living with the two children of the marriage at the former matrimonial home. The judge delivered her judgment at the conclusion of a four day contested trial during the course of which there were several allegations about the extent to which the husband had discharged his obligations to make full and frank disclosure of his financial circumstances. The court received oral evidence from both parties. In addition there was before the court expert evidence in relation to the value of the husband's company interests which included a portfolio of commercial property investments.

11

As a result of the award made by Parker J, the wife was to receive a lump sum of £3 million. That capital award was based upon an assessment of her future needs in the light of a finding by the judge that the husband's resources were...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT