An extraordinary element of personal antagonism: S v C [2020] EWHC 2127 (Fam)

Background

S and C were 50 years old and had previously been married for five years. In 2013, S gave birth to a daughter, A, who was 6 years old. The parties separated in 2015, and divorced in 2016. A consent order regulating the financial consequences of their divorce was approved by the court in May 2016. That order gave effect to a clean break between them.

A had been diagnosed with a serious genetic chromosomal disorder shortly after her birth, as a result of treatment that S had received, and medication she had taken, during her pregnancy for chronic neck pain. In 2016, four months after the consent order was approved, S and C brought a claim in the Queen’s Bench Division of the High Court, in which they sought damages for the additional costs of bringing up a disabled child. In January 2019, the professional negligence insurers of S’s obstetrician agreed to pay a lump sum of £5m to S and C. Those funds were held by the parties’ solicitors, Kingsley Napley.

This application was brought by S for a financial remedy order in respect of A. Roberts J had to determine the question ‘to what extent should this court exercise its jurisdiction under section 23 of the Matrimonial Causes Act 1973 so as to impose conditions on the release to the parties of a frozen fund of some £3.74 million?’ [2]. It had been agreed that each party had an entitlement to 50% of the frozen funds held by Kingsley Napley, and an order was made authorising the payment out of the Kingsley Napley funds into accounts set up by S and C. Pending the resolution of this application, each party had agreed to preserve their respective funds. Both S and C accepted that this application had to be seen through the prism of A’s future needs, since the clean break settlement the parties reached in 2016 deprived the court of jurisdiction to hear any claims by S for extended or enlarged provision for herself in any event.

Early on in her judgment, Roberts J noted that the parties’ ‘relationship as parents has completely broken down and the proceedings have been infected with an extraordinary element of personal antagonism which should have no place in a forensic arena where their child stands at its centre’ [14].

The assets

The parties had agreed a schedule of assets, which gave a bottom-line figure of £4.646m in total. That included the net equity in the former family home in Fulham, retained by S as part of the divorce settlement, which totalled £1.48m (the property was subject to a first mortgage of just over £900,000, and a second mortgage of just under £300,000). It also included liquid cash funds which totalled £2.073m for S and £1.826m for C (including the Kingsley Napley funds released to each party). The parties had minimal pension provision, with the combined value of their respective funds amounting to slightly over £300,000.

Each party had considerable liabilities. C’s substantial raft of debt consisted of various overdrafts and credit card debt, in addition to legal costs owed to Stewarts in respect of unpaid costs from the parties’ divorce proceedings. His debts came to a total of c. £453,000 (ignoring a loan from his mother). S had liabilities of c. £529,000, including significant tax debts owed to HMRC in the sum of c. £483,000.

Since the parties’ divorce, C had been living in rented accommodation, although he intended to purchase a property for himself as soon as he was in a position to do so. Indeed, ‘[t]he issue which dominates these proceedings is his ability to choose a home of his own, subject to mortgage funding, and the extent to which he should have access to his own funds to complete that purchase’ [20].

Income

S had previously had a successful career as a financial broker for a leading international brokerage firm, and had earned up to £500,000 pa. However, following some surgery in 2010 to try to resolve the problems with her neck and spine, she was unable to work, with the result that she had not been in receipt of any earned income for a decade. She had, however, been receiving £95,000 pa from a private health insurance policy, although that had stopped in March 2020 when she turned 50.

C was self-employed and was the founder and majority shareholder in the V Group of companies, which operated in the world of motor sports and powerboat racing. The business owned three power boats which C described as ‘the equivalent of Formula One on water’, and which he said had a net asset value of c. £1m [32]. However, C said that within a matter of weeks of the hearing, the Group would conclude an external funding exercise which would provide the business with an equity injection of £20m. He said that if that investment was concluded, he would be entitled to withdraw £500,000 from the company, or to convert that sum to an increased shareholding on preferential terms. For the first three months of 2020, H had had an £80,000 pa consultancy agreement with his potential investors, but that came to an end as a result of the Covid-19 pandemic and lockdown. C recognised that he would have to seek employment if the completion of the investment into the V Group did not go ahead.

Trust interests

At a late stage of the proceedings, and contrary to the disclosure which S had provided in her Form E, it came to light that both S and A were discretionary beneficiaries of an offshore trust |(“the S Trust”) which was settled in April 2002, some eight years before the parties’ marriage. The underlying value of the trust was agreed at £4m. In reality, the beneficiaries were S, her brother, her parents and A. The trust accounts for the 2019-20 tax year revealed that a loan had been made by the trust to S of c. £283,000, although in her Form E, S presented the second charge on her Fulham as ‘a liability due to my father’, and there was no reference at all to the S Trust or to her, or A’s, status as a beneficiary of that trust [26]. C was ‘incensed by this omission in her disclosure’ [26].

Litigation history

The consent order made in 2016 was predicated on the basis that S would retain the Fulham property subject to the two loans secured upon it. However, at this hearing, S conceded that she intended to approach the trustees of the S Trust (with the assistance of her father) to invite the waiver of the second loan on the property, which would increase the equity in it by c. £300,000.

Under the 2016 consent order, C agreed to restrict his capital claims to a sum of £250,000 in total. He agreed to pay S a sum of £48,000 for A’s benefit, together with child maintenance at £2,500 pcm (rising to £3,000 pcm), in addition to which he agreed to pay A’s nursery and school fees. S, on the other hand, was entitled to a nominal spousal maintenance order (to cease on A’s 18^th birthday), and she agreed not to make a claim on C’s business assets.

At the end of 2017, S had issued enforcement proceedings because C was nearly £6,000 in arrears of maintenance payments for A. S said she was concerned for A’s future financial security in the context of C’s financial position, and her solution was ‘to require the protective wrapper of a detailed trust arrangement around the vast majority of the funds which are now available to C’, under which he would be ‘required to alienate his assets for all time by transferring them to trustees’ [29]. Those proceedings were compromised at the beginning of 2018.

In June 2018, an order was made in Children Act proceedings which set out how A was to divide her time between her parents’ homes. Roberts J got the impression that A would spend one third of her time with C, and the remainder of her time with S.

S’s position

S submitted that an open proposal she had made in May 2020 remained the right outcome in the case. Under that proposal, a total of £1.5m would be transferred by each party into two separate trusts, of which £1m would be used to discharge the mortgage on the Fulham property (to be reflected as A’s interest). C would have up to £1m for his housing needs, but he would not be permitted to use any part of that sum as collateral for further borrowing. The remaining £500,000 was to be released to each party on the basis that C could choose to use 50% of that sum (i.e. £250,000) towards the purchase of a property, or in repayment of his debts. From the remaining 50%, he would have to establish a ring-fenced fund of £150,000, which would be preserved as a maintenance fund from which A’s maintenance payments would be met at £2,000 pcm. Thus, the only free capital which would be made available to C outside this agreement would be £350,000, less any further sum up to £250,000 which he chose to invest in property. S, however, would have the free use of £350,000, but would ring-fence a fund of £150,000 to cover nanny and other costs for A.

Under S’s proposal, the trustees would retain the ability to consent to, or refuse, any request to move house, and in the event of either party forming a new relationship with a different partner, that individual would be expected to sign an appropriate waiver in respect of any rights of occupation. S had produced property particulars of, in her view, potential homes for C, which ranged in price from £950,000-£1.25m. However, Roberts J thought that ‘they are certainly not on a par with the Fulham property in terms of space or amenity’ [46].

C’s position

C’s open position at the start of the hearing was that the court should not make any orders in respect of the Kingsley Napley funds, but should leave them in the hands of each of A’s parents on the basis that they can and should be trusted to look after her needs, both now and in the future. In cross-examination, C appeared to accept that, in principle, he would agree to at least £1m being held for A’s benefit, but the issue was how that money could be used. C accepted, on the basis of his open offer, that a smaller fund should be carved out of the Kingsley Napley funds for capitalised maintenance for A in accordance with the sums stipulated in the 2016 consent order.

A’s needs

There was no evidence before the court as to A’s future needs. Both parties agreed that they would each need a full-time nanny while A divided her time between them. S had identified a local authority funded school placement for A which appeared to meet most, if not all, of her educational needs at the time of the hearing. There was specialist support within that school setting for which neither party would have to make any additional financial contribution.

Roberts J’s findings

Roberts J found that S had ‘allowed her distrust and evident dislike of A’s father to colour her judgment and approach to the way she has presented him and her evidence to this court’ [70]. She could not accept S’s evidence that she knew nothing about the existence of the S Trust, since she had signed a deed in 2017, when the second charge on the Fulham property had been assigned to a BVI property holding company. Roberts J did not accept that S was ‘sufficiently financial naïve to have signed something like this without reading its contexts. It concerned her home and her indebtedness to her father. It is simply not credible to think that she would not have asked him what this was about and how it might affect her’ [74]. In addition to S not being an ‘entirely reliable witness’ in relation to her knowledge of the trust arrangements, Roberts J did not have the impression that S was an ‘entirely transparent witness’ in relation to units she held as a result of her employment, and various transactions between her and her father in the context of loan repayments [75-76].

Considering S’s future situation, Roberts J had ‘no clear idea’ of how S intended to manage financially in the future [77]. It was ‘reasonably clear that she will never earn again at pre-2010 levels’, but Roberts J noted the support S had received from her father in the past, and the fact that S was a beneficiary of a trust fund worth £4m [81]. In terms of A’s financial future, Roberts J could not ignore the existence of the trust fund ‘as a potential future resource of this child, notwithstanding that the primary responsibility for her care lies with her parents. The fact that the trustee appears to be considering a request to waive almost £300,000 of secured borrowing for the benefit of S and A speaks for itself’ [77].

In relation to C and his expenditure, Roberts J noted that he had stopped paying child maintenance for A at a time when he had received a lump sum of £250,000, which he could have set aside. In response to C’s argument that he had had to pay rent in order to keep a roof over his, and A’s head, Roberts J was satisfied that C could have found cheaper accommodation, given that nothing was being generated by way of income from his business at the time. She suspected that it was C’s ‘unshakeable optimism that he would deliver on the commercial investment opportunity and his wish to live in a comparable home to that which A shared with her mother which have influenced his decisions about his housing over the last few years’ [79]. She also bore in mind that C had a ‘certain brand to promote in the context of his current business endeavours’ [79].

Conclusions and award

Roberts J did not accept C’s argument that she should make no order at all in relation to the Kingsley Napley funds, and should simply leave each of the parties to apply them as they saw fit. She thought that there needed to be a formal mechanism ‘for ensuring that A continues to benefit from at least a significant element of those funds’ [83]. She could not believe that C thought he was going to benefit personally from the award made by the insurers of S’s obstetrician. However, she said there was nothing inherently objectionable about the reality that A’s parents would benefit personally from the fact that A’s own needs required her to have a secure roof over her head. Indeed, ‘it is much for A’s benefit to live with each of her parents in a home they have chosen and in which they feel happy, comfortable and secure’ [83].

The best method was to have ‘some tax efficient ring-fencing of the settlement monies’ which each party held [84]. It was not appropriate to require C to alienate his ownership of the funds, or the majority of them, into a specific trust vehicle where their value to him would be expunged entirely. Roberts J felt that ‘such a Draconian outcome would require evidence of an egregious course of deliberate financial misconduct before it could be justified’ [84]. She was satisfied that on liquidation of C’s business interests, he would see a financial return, although she could not determine the extent of that. She felt that ‘if needs must, he must return to the employment market and do what he can to secure a job, just as S will’, although she noted the limitations on S’s earning capacity because of her medical issues [84].

The suggestion by a solicitor who had advised the parties, and who had experience of working as a professional deputy and trustee in cases where children had suffered catastrophic brain injuries, of a disability trust under section 89B(1)(a) of the Inheritance Tax Act 1984 was rejected. Roberts J thought that it would be disproportionately expensive to administer, that there would be a high level of conflict over the administration of the funds for as long as one party retained the right to object to the use by the other of their deployment, and that it would be unfair to C if he were to be denuded of what might be the only significant capital he would hold going forward.

C had Article 8 rights, just as S had her own entitlement to a family life with A, free from unnecessary restrictions, and his rights included the peaceful occupation of a family home he would share with A. Roberts J said that ‘[f]inancial considerations will undoubtedly dictate to an extent the type of property he can buy for himself and A but, subject to that principle, so far as possible the choice of that home should be his’ [88]. It would be an ‘inappropriate interference’ with the parties’ Article 8 rights to family life if either of them had to seek the permission of trustees to permit a future cohabitee or spouse to share a trust property, in circumstances where that course of events was avoidable [88]. The award was a ‘middle way through this impasse which provides sufficient security to address S’s concerns whilst affording C the autonomy which he seeks’ [89].

The order

Roberts J ordered:

• Child maintenance to be paid by C at the rate of £2,000 pcm, to be index-linked on an annual basis.
• From C’s share of the settlement funds, £150,000 would be set aside as a secured maintenance fund. C would be entitled to draw down from that fund at the rate of £24,000 pa until A’s 18^th birthday in order to meet child maintenance payments. The sum would not cover that entire period, but by the time it was exhausted, C’s means were likely to be such that he would be in a position to pay child support from his income, or to secure a top up fund.
• £900,000 would continue to be preserved until C was in a position to purchase a property of his own. Any property would be held in his sole name and would be subject to a charge in A’s favour. He would be permitted to raise mortgage finance to acquire a property, but the value of A’s charge could not be reduced below £900,000.
• S could use funds from her share of the settlement monies to redeem her existing mortgage on the Fulham property. S would have similar obligations to A as C did in terms of her property.
• Any surplus held by either party from their shares of the settlement monies would be theirs to deal with as each saw fit.
• Each party was to put in place an acceptable form of life assurance in an agreed sum, with A to be the beneficiary of the policies. Roberts J wanted to see at least £1m in terms of life cover for each party (such that A would receive £2m if both parents predeceased her during the life of their respective policies).

Henrietta Boyle, Pupil at 1 Hare Court