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A Modern Day Jarndyce; or, Keeping it Simple: Read v Panzone & Anor [2019] EWCA Civ 1662

10th November 2019

"Mr. Kenge," said Allan, appearing enlightened all in a moment. "Excuse me, our time presses. Do I understand that the whole estate is found to have been absorbed in costs?"

"Hem! I believe so," returned Mr. Kenge. "Mr. Vholes, what do you say?"

"I believe so," said Mr. Vholes.

"And that thus the suit lapses and melts away?"

"Probably," returned Mr. Kenge. "Mr. Vholes?"

"Probably," said Mr. Vholes.

- ‘Bleak House’, Charles Dickens

The Court of Appeal recently gave judgment in Read v Panzone & Anor [2019] EWCA Civ 1662, an appeal concerning s37 of the Matrimonial Causes Act 1973. The Court gave significant warnings to first instance judges about the dangers of making findings of fact on alternate bases: although judges may be tempted to take this ‘belt and braces’ approach, it may simply muddy the waters and confuse the issues for the parties. The court was also highly critical of the costs that the parties had incurred during the litigation, with the Court’s judgment beginning ‘this is yet another case where a highly educated couple with young children has engaged in lengthy, destructive and disproportionate legal proceedings.’ Following the initial proceedings and two appeals, the costs were said to be in excess of £500,000 – this in a case where the only real asset of value was a property worth just £300,000.

The husband (‘H’) and wife (‘W’) were married in 2002, and separated in 2014. The parties had two children together, who at the time of the hearing were aged 9 and 13. Both H and W had been high-earners during the marriage, enjoying successful careers in the City and as a solicitor respectively. However, in 2008, H was made redundant and by the time the financial remedy proceedings came to a final hearing in 2017, his income had decreased to under £50,000 per year. Similarly, by the time of the first appeal in 2018, the stress of proceedings had caused W to leave her employment as a solicitor, where she was paid over £100,000 per year, and become a support lawyer.

Despite being high-earners, H and W always lived in rental properties during the marriage. The only substantial asset that was potentially available for distribution between the parties was a property in Panama. Although the funds for the purchase of the property had come exclusively from H during the marriage, the legal ownership of the property was vested in a company (‘the company’) of which H’s mother, Mrs Anne Read, was the sole shareholder. Mrs Read was accordingly joined to the financial remedy proceedings as second respondent.

At the conclusion of the final hearing, the trial judge declared that at all material times, H had been the sole beneficial owner of the Panama property. He also set aside H’s purported transfer of the property to the company, and ordered H to pay to W a lump sum of £150,000.

H’s mother appealed against that order; her appeal was dismissed by Parker J. This hearing was therefore the second appeal by H’s mother – this time supported by H. H’s mother appealed against the totality of the order, and claimed that there was a serious procedural irregularity inherent in the making of the order. Specifically, it was submitted that (i) at no time prior to judgment had any party applied for or considered an avoidance of disposition order, (ii) the judge had been wrong in law to make such an order and further, (iii) the judge had been wrong in law to make a declaration that the husband is and was at all material times the sole beneficial owner of the Panama property.

Lady Justice King first considered the factual history of the purchase of the Panama property. H purchased the property in 2007, and paid the first instalment of $38,000 towards the purchase price of $385,000. Under the contract terms, H was entitled to transfer his rights under the contract to a company owned by a member of his immediate family without incurring a penalty (if the company was owned by a third party, the penalty fee payable to the developer would be 5% of the purchase price.) H was also entitled under the contract to "subscribe the Public Deed of Sale for the purchase of (the property) using a stock corporation".

On 4 February 2010, the company was incorporated with share capital of one hundred shares each with a nominal value of $100. According to a set of minutes that H had disclosed, a meeting took place in Panama on 19 February 2010, attend by both H and W in their respective roles of chairman and secretary. At this meeting, the company was authorised to acquire the Panama property for $385,000. At trial, W denied having attended any such meeting. H further disclosed documents recording board resolutions concerning the issue of all 100 shares in the company to H’s mother; the appointment of H, W and H’s mother as corporate officers; and the authorisation of the company to acquire the Panama property and H to "take delivery of the above property and sign the deed and other associated paperwork". The resolutions appeared to be signed by all three directors, although W claimed that she had not in fact signed. H accepted at trial that the signatures may have been scanned onto the documents, rather than physically signed. The “resolutions” were sent to the developers in Panama, who acted on them.

A share certificated dated 28 May 2010, signed by H and his mother, recorded H’s mother as holding all 100 of the company shares. At trial, W initially accepted that the share certificate was valid, but later informed the judge that having had more time to consider her evidence, she had doubts about its veracity. The next day, W provided to the court a so-called ‘conspiracy statement’ in which she expressed her reservations about the authenticity of the documents that H produced.

King LJ summarised H’s case at trial thus: ‘he had given his mother, by way of a gift, the funds which she had used to buy the Panama property although the funds had not in fact been transferred to her in advance of the purchase of the property. H’s case on paper was that, as a consequence the Company, and therefore Mrs Read as the sole shareholder, did not hold the property on resulting trust for him. During the trial it became clear that at no time had the husband given Mrs Read any money and that the entire transaction, including payment, had been conducted by him as had been accepted by Mrs Read in her statement.’ H argued that his mother was the sole legal owner of the Panama property, and that the beneficial title ‘presumptively flows’ from the legal title. W’s position at trial was that there had been no suggestion made during the course of the marriage that the Panama property was to be a gift to H’s mother. W’s case was that the beneficial ownership of the property was held jointly by H and herself.

H’s mother attended the first two days of the trial, but was told by the judge’s clerk on the third day that her attendance was not necessary. She therefore left the court building, and was not present when judgment was delivered.

At the conclusion of the trial, the judge made several findings of fact concerning the Panama property, concluding that H had been the sole beneficial owner of the property at all relevant times. He went on to state that ‘either [H and H’s mother] are making up, or backdating a contemporary intention that the property should be held by [H’s mother], or the husband was gifting matrimonial assets to his mother without the knowledge of his wife at some time since 2010. […] I do not think that the board meeting in 2010 actually happened or that the wife was aware of it. However, I do find that this was his property and it is at least possible that he subsequently formed the intention to give it to his mother and caused this to be entered into the share register. It may well be, in fact I think it is the case, that he prefers his mother to have it than for his wife to have a share. If so he has behaved in an underhand way.' Later, the judge stated that although there was no application before him under s37 MCA 1973, if there were, this would be a case for the avoidance of the disposition. He stated that ‘whether I need to deem an application to be made, or an application is made at this stage, my intention is that this disposition should be set aside so that the property shall be treated as being in the ownership of H.

Following the final hearing, a further hearing was held to clarify some matters in the judgment. In particular, H sought to clarify whether the judge did or did not intend to make a finding that, at a time on or after 26 June 2010, H - having bought the property for himself - thereafter disposed of it to his mother by way of a gift. The judge’s answers made it clear that he considered that H had always retained the beneficial interest. Nevertheless, an order was drawn up which stated that ‘The purported transfer by H to the Company dated on or about 26 June 2010 is hereby set aside; if some other disposition of the Panama property to the [H’s mother] occurred after 26 June 2010 that disposition is hereby set aside.’ The order also provided for W to receive a lump sum of £150,000; representing half of the value of the Panama property.

Both H and his mother appealed the judge’s order. Before Parker J, they argued that the judge had not been entitled to make an order under s37(2) of the MCA given that an application had not been made, and H’s mother had not been aware of any such possibility until the judge raised it in his judgment. The appeal was dismissed: Parker J concluded that the trial judge had been entitled to make such an order, and that the court had the power to make the order even without a formal application. H’s mother was not considered to have been prejudiced by her absence at court when the avoidance of disposition order was made. Permission was then granted to H’s mother to appeal to the Court of Appeal.

King LJ allowed the first ground of appeal, finding that the decision of the trial judge was unjust because of serious procedural irregularities. Neither H nor his mother had had the opportunity to make submissions concerning the order made under s37(2) of the MCA. Indeed, the issue had not been raised at all prior to the judge giving judgment. Although the lack of an application was not fatal, and the court had the power in particular circumstances to allow an oral application or to deem that an application had been made, the fact that H and his mother had not had the opportunity to make representations on s37, and that H’s mother had not been present at court when the judgment was given (through no fault of her own) amounted to serious procedural irregularities. An unjust outcome had arisen as a result.

Further, King LJ allowed the third ground of appeal, finding that Parker J had been wrong in law to find that the trial judge was entitled to make an avoidance of disposition order as he did. The trial judge had made a clear finding, on the proper evidential basis, that at all times, H had retained the beneficial interest of the Panama property. It was also clear that H had never held the legal interest to the property: it had passed directly from the property developers to the company. As such, there had been no disposal that was capable of being set aside. The trial judge had erred in doing so.

However, in relation to the second ground of appeal – that Parker J had been wrong in law to find that the trial judge’s order declaring that H is and was at all material times the sole beneficial owner of the Panama property was one he was entitled to make – the appeal was refused. Counsel for H and his mother argued that the totality of the order made by the trial judge should be set aside. King LJ declined to do so. She concluded that the trial judge’s clear finding that H was the beneficial owner of the Panama property meant that there was sufficient basis for H to be ordered to pay W a lump sum of £150,000.

The court was critical of the trial judge’s approach, stating at paragraph 107 that ‘the judge's "belt and braces" addition of an avoidance of disposition order "just in case" has, unhappily, served significantly to muddy the waters in this case but has not, in any way, undermined the District Judge's fundamental and, it may be thought, completely predictable finding on the evidence, that the husband has at all times held the beneficial interest in the Panama property.' The lump sum order remained in place, and it was a matter for H whether he required his mother to sell the Panama property to raise the money for this sum, or raised it in some other way.

The final word should go to Lord Justice Leggatt, who concurred with King LJ that the s37 order was unjust, but described it as a ‘red herring.’ He shared King LJ’s view that the judge had been clear that the beneficial interest had always remained with H, and so there was no disposition to be set aside. He concluded: “when this overlay is stripped away, the financial outcome of the case remains the same, except – and it is a big exception – for the incurrence of substantial legal costs on two appeals. There is a lot to be said for keeping things simple.”

Kate Strange, Barrister, 1 Hare Court