Quan v Bray
| Jurisdiction | England & Wales |
| Judge | MOSTYN J |
| Judgment Date | 20 December 2018 |
| Neutral Citation | [2018] EWHC 3558 (Fam) |
| Court | Family Division |
Financial remedies – Trust – Not post-nuptial settlement – No other significant capital assets – Deriving benefit by employment by trust – Inferences as to benefit drawn following brazen non-disclosure and contemptuous attitude – Gross litigation conduct – Capital claims adjourned – Joint lives award.
The husband and wife lived together from 1997, and married in 2001. For many years the husband and wife worked together on the reintroduction of tigers into wild reserves in China, committing very large sums of money to a charity they set up called ‘Chinese Tigers South Africa Trust’ (CTSAT).
In 2002 the husband purchased 33,000 hectares of land in South Africa for the project, for approximately £2.5 million. From that point until 2009 (when £20 million was provided from the settlement of some litigation) the project generated about £3 million a year from its commercial activities, primarily from structured finance, a field in which the husband was an acknowledged expert. The husband negotiated the borrowing of vast sums, billions of dollars, which were traded for a short time, making a modest (relative to the principal) profit, and then returned to the lender. The husband was a partner in, and the beneficial owner of, JAS Financial Products LLP, the operational, financial and marketing advisor to CTSAT. Very large fees were paid to JAS by CTSAT; indeed, JAS had no other source of income, being, essentially, a service company for the receipt of fee income paid to the husband as remuneration for his role as financial and investment adviser to the project. In 2005 fees of £533,000 were paid by CTSAT; in 2006, £636,000; and in 2007, £600,000. In 2008, the year of the financial crisis, only £80,000 was paid, but in 2009 £545,000 was paid; in 2010, £1.53 million, in 2011, £900,000 and in 2012, £950,000.
Disagreements over the future policy of the charity led to a deterioration in the couple’s relationship and in July 2012, the wife was removed as director of the charity. In August 2012 she filed a divorce petition.
By this stage the CTSAT had assets worth about £25 million, but there were almost no other assets available to the family. In 2008, the husband had sold the family home to a finance company owned by CTSAT, and thereafter the husband and wife had lived in the property without paying any rent. The wife sought to establish that the intention had always been that the CTSAT settlement would provide financial benefit and support for the husband and wife personally, as well as for the purposes of the charity. The husband disputed this. A number of other parties were joined to the wife’s financial remedy proceedings over time, including the charity, the trust and the wife’s sister-in-law and brother.
A judge determined as a preliminary issue that the charity was not a post-nuptial settlement capable of variation under the Matrimonial Causes Act 1973, s 24, or a ‘resource’ in the more broad sense, available to the husband to meet the wife’s claim and that, accordingly, it would be wrong in principle for a UK court to make a lump sum order against the husband in the hope and expectation that he would be provided with funds by CTSAT to fund payment of the order.
Pending the wife’s appeal, a different High Court judge renewed a freezing order and made a consequential order requiring the husband, the trust and the finance company to demonstrate with documents the cash position of the trust on specific dates. The husband failed to comply with this order for the eight months during which it remained in place.
The Court of Appeal eventually dismissed the wife’s appeal against the finding that the sole and continuing purpose of the trust was to benefit the Chinese Tiger Project, confirming that CTSAT was neither a post nuptial settlement nor a resource. The freezing order then fell away.
The case then returned to the Family Division for the final hearing before a different judge. In April 2018, the husband applied to vary the existing maintenance pending suit, which had been set at £1,500 pm. The order was varied downwards to £1,000 pm. However, the husband refused to pay any sum from then on and by the hearing date £10,000 of arrears had built up.
Shortly before the trial the wife reached an agreement with the charity and a finance organisation owned by CTSAT, concerning the former matrimonial home. The wife agreed to abandon her claim that the husband was the sole beneficial owner of the property, conceding that it was beneficially owned by the finance organisation. She agreed to vacate the property by 5 March 2019 or on the payment of a lump sum to her of £10,000, if that happened later. The agreement was in full and final settlement of any claims the wife might have against the charity, the finance organisation or the trust and in it the wife explicitly accepted that neither she, nor the husband, had any beneficial interest in any assets legally owned (directly or indirectly) by CTSAT.
At the hearing the wife argued that the husband might nonetheless benefit from the trust in future, through employment by the trust. The husband did not dispute that it would be open for CTSAT to employ him for a commercial reward but argued that the scale of such reward would be modest in circumstances where the type of financial trading which he had orchestrated in the past was now obsolete, and where his skill-set was now redundant. The husband had failed to provide any information about the activity of JAS since 2013, claiming that the trust was refusing to supply the relevant documents, without any specific evidence that this was the case.
The husband was himself pursuing an inchoate claim for $2 million, with respect to two apartments in China, which had been purchased in the name of the wife’s brother in 1999 with funds provided by the husband. The wife’s evidence was that initially her brother had held the properties as a trustee or nominee for her, but that in 2004, following the marriage, she had gifted the beneficial interest to her brother. Since then, her brother had become mentally incapacitated and the properties had been transferred into his own wife’s name. The wife accepted that if she returned to China and was in need, she would expect her brother and sister in law to look after her. The husband had not in fact made a direct formal claim in respect of the properties.
Held – (1) The judicial conclusion that CTSAT was not a post-nuptial settlement meant that no direct provision could be made for the wife from the CTSAT assets. However, it was important to note that, applying Whaley v Whaley[2011] EWCA Civ 617, when considering a beneficial interest in a trust in the context of the resources which each party was ‘likely to have in the foreseeable future’, the law did not require something close to a certainty that the trustees would come up with funds, but contemplated a finding on the balance of probabilities that the trustees were likely to comply with what was requested of them. Quoting KEWS v NCHC [2013] 2 HKLRD 314, (2013) 16 HKCFAR 1, ‘it would be better if the term judicious encouragement’ were no longer to be used; the term was liable to give rise to irrelevance and confusion (see [6], below).
(2) The fact that neither the husband nor the wife could become beneficiaries of the trust and no benefit could be given to one or other of them gratuitously did not mean, however, that CTSAT could not reward the husband for services rendered on a full commercial arms-length basis, as had happened in the past. The husband, in collusion with CTSAT, had been seeking to hide something highly material in the finances of the trust which, if revealed, would be significantly to his disadvantage. From the husband’s brazen nondisclosure, coupled with his arrogant and contemptuous attitude, the court drew the inference that since the separation the trust had continued to be successful commercially, with the husband continuing as before to act as rainmaker, but that he had arranged for his commercial reward to be deferred until these proceedings were safely concluded. Having regard to the history of fees paid to JAS, and this inference, the court took the view that the husband had the capacity to receive very significant fee reward, on a fully commercial arms-length basis, for financial advisory work for CTSAT. Alternatively, given his skills, he could earn comparable fee remuneration working for other clients. On the evidence, such reward would be on top of the provision of free accommodation and other financial benefits (see [7], [39], [40], below).
(3) Had the husband made a direct claim against the wife’s sister in law and brother, it would plainly have been time-barred under the Limitation Act 1980. Further, applying Penn v Lord Baltimore (1750) 1 Ves Sen 443, an English court would not entertain an action involving the title to foreign realty based on contract, trust or fraud unless the defendant was within the jurisdiction, or had submitted to the jurisdiction of the court, and thus might be subjected to personal process. The wife’s sister in law and brother were not within the jurisdiction and had expressly not submitted to the jurisdiction of this court. The court in any event rejected the husband’s claim relating to the flats, accepting the wife’s evidence. As there was no formal claim there was nothing for the court to dismiss. However, were such a claim to be made in the future it should be struck out as an abuse of process under the rule in Henderson v Henderson (1843) 3 Hare 100, as the claim should have been made in these proceedings and there was no good reason why it had not been. Nonetheless, the husband could validly argue that the value of the flats in China represented a resource which could be taken into account if the court was satisfied that the wife’s sister in law and brother would, if asked, make them or their profits available to the wife (see [18]–[21], below).
(4) The husband had been guilty of various...
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