Exercising the Thwaite jurisdiction: Kicinski v Pardi [2021] EWHC 499 (Fam)

This hearing was the latest stage in long running litigation between Antje Kicinski (“W”) and PeterPaul Pardi (“H”). W appealed a decision of Recorder Allen QC (“the Judge”) dated 16 July 2020 (a summary of which can be found here). Although only the matter of whether a stay should be granted to W, to allow her not to transfer certain monies from a Swiss account pursuant to the order under appeal, was listed to be considered at this hearing, the parties agreed that both the stay and the outstanding points on appeal should be determined, and Lieven J felt it was just and proportionate for her to deal with both matters.

Background

The parties had married in November 1991 and had two adult children. W was a German national, and H a dual Italian and US national.

One part of the financial dispute between the parties concerned c. €8m in cash and securities in four Swiss bank accounts in W’s sole name. The funds in those accounts had been transferred during the marriage from H’s uncle and aunt (“U&A”) to W. U&A executed notarised deeds of gift and made gift declarations when donating the funds to W. There had been various tax problems regarding those funds, but W eventually reached a settlement with HMRC.

In December 2018, W had been served with a notice of claim instituted by U&A in Italy for W to return the Swiss funds to them. U&A instructed an Italian lawyer, Avv Grisanti, in those proceedings, and W instructed Withers (in Italy), with Withers also acting for her in the English proceedings at that point.

The parties reached an agreement on the morning of the last day of the final hearing of the financial remedies proceedings in October 2019. Heads of Terms were agreed, and the Judge made a Rose order. Those Heads of Terms set out that (among other things):

• There would be a tripartite binding agreement between H, W and U&A.
• H, W and U&A had agreed a full and final settlement of U&A’s claims against H and W.
• U&A would withdraw the Italian proceedings against W.
• H, W and U&A would enter into a deed in Switzerland and in Italy in which H and U&A would undertake not to commence, pursue or entertain any further proceedings against W or Withers.
• W would retain c. £1.6m of the monies in the Swiss accounts, and the rest of the balances would be transferred to H.

However, after the Rose order had been made, the drafting became contentious and draft orders went back and forth between the parties’ lawyers. In February 2020, W made an application (pursuant to the Thwaite jurisdiction) for an order for H to provide indemnities in relation to any liability of W and/or Withers arising from U&A commencing, pursuing or entertaining any further proceedings of any nature against W or Withers.

At the hearing of that application, the Judge refused to make the indemnity sought, and refused W’s application for the costs of the hearing. W then appealed the Judge’s order. When she sought permission to appeal, W had argued that the Judge should have ordered H to indemnify Withers, but W no longer pursued that argument and at this hearing argued only that an indemnity should have been provided to her in order to cover any liability if U&A sued Withers, and Withers then pursued her.

The deeds between H and W had been signed, but the draft deeds between U&A and W had not been finalised. However, the Italian proceedings brought by U&A had been rejected by the Italian court and the time for appeal had expired. U&A had not agreed not to start proceedings against Withers, but did offer in the Italian proceedings to waive any claims against W.

The Judge’s decision

Lieven J thought that the Judge was correct when he said that a Rose order should be treated as a final and binding order, notwithstanding that it still requires perfection and sealing. She commented that ‘[t]he point of a Rose order is precisely that it is a court order rather than a Xydhias agreement’ [18].

In deciding whether the Thwaite jurisdiction should be applied, the Judge firstly considered whether the Rose order remained executory. He concluded that it did, as elements of the order had not been complied with (e.g. W had not transferred the funds in the Swiss accounts to H).

He secondly considered whether there had been a material change in circumstances that would trigger the Thwaite jurisdiction. He concluded that the fact that the two tripartite agreements had not been executed did not represent a change in circumstances, and nor did the fact that U&A had not withdrawn the claim against W in Italy.

Thirdly, he considered whether it would be inequitable to hold W to the terms of the Rose order, and concluded that it would not be. He was not prepared to find that H was the architect of W’s difficulties in the Italian litigation because it was not open to him to find that U&A were the ‘puppet’ or ‘creature’ of H, and equally he could not find that W had been the cause of the problems since the Rose order was made. He rejected H’s argument that it was not open to W to argue that it was unconscionable for her to be held to the terms to which she had originally agreed. He therefore refused to exercise the Thwaite jurisdiction.

He then considered whether he would have granted the indemnity sought by W. Although those parts of the judgment were obiter, they had some relevance to the appeal in that if Lieven J found that the Judge was wrong to refuse to exercise the Thwaite jurisdiction, she would then have to consider whether the indemnity should be ordered. The Judge found he did not need to determine the issue of whether H could be ordered to give an indemnity to Withers in respect of any actions that U&A might choose to bring against them, but said his provisional view was that the court did not have jurisdiction to order a party to the marriage to indemnify a non-party in respect of actions by another non-party.

W’s position

W argued that the Rose order had been intended to create a complete end to all proceedings relating to her, and that that was the fundamental nature of the agreement which she had entered into. An end result of the litigation which left her with a potential liability to Withers, if U&A chose to sue them, was therefore fundamentally outside the terms to which she had agreed, and amounted to a significant change of circumstance.

She submitted that the Judge was wrong to find there had been no significant change between what had been agreed in the Rose order and the position before him on 16 July 2020. It had been a clear term of the agreement, and the basis of the order, that U&A would enter into the deeds, both releasing W but also Withers from any possible future liability. In plain contradiction of the agreement, U&A chose neither to withdraw proceedings against W, nor to enter into the deeds. The indemnity sought on behalf of W had always included protection from any claim by Withers. The Thwaite jurisdiction was clearly engaged, and the Judge was wrong to find otherwise.

W said that it would be inequitable if she were to be left exposed to a liability in respect of Withers, where that was plainly not what she had thought she was agreeing to. The order was a ‘clean break’ order, which meant that W would be left with no ability to be reimbursed for any future liability to Withers.

W accepted that she could argue that U&A entering into the deed was a condition precedent to the agreement, and that their failure to do so voided the agreement and the Rose order. However, W submitted that would undermine the thrust of the case law, which was to ensure that parties in financial remedies litigation cannot wriggle out of agreements by saying that certain parts have subsequently not been agreed, and therefore the entire agreement has been voided. It would be unfair on W if she had to unravel the entire deal and effectively start again, because of H’s refusal to give the undertaking sought. A stay should be granted so that W was not required to transfer the Swiss funds unless and until she knew she was free from any liability by reason of actions by U&A.

H’s position

H argued that the Judge was right to find there had been no significant change and that the Thwaite jurisdiction was not engaged. U&A had agreed not to pursue W, and therefore the only potential action they could bring was against Withers, and any potential liability on W’s part could only arise via Withers. However, H said that that was not the indemnity which W had sought before the Judge, and it would be unfair, and outside the scope of Thwaite, for the court now to impose a liability on H in a different form from that sought, and in respect of actions by U&A over which H had no control.

H also submitted that the terms between U&A and W were not fully agreed, and that W was fully aware that there were ‘known unknowns’ in the Heads of Terms. That U&A might not sign the deeds was therefore not an unforeseen event. There could not be said to have been a significant change of circumstances when U&A did not withdraw the Italian proceedings and did not enter into deeds, because these were all foreseeable when the agreement was entered into. H submitted that the appropriate relief for W to seek was to ask the court to hold that the agreement was void. It would be inequitable to force H to provide an indemnity in respect of any actions that U&A might take, because U&A were entirely independent actors whom H did not control and for whose actions he was not responsible.

H further argued that there was no ground to stay W’s obligation to transfer the Swiss funds to U&A. H was having to support U&A from his own funds because they had no money (all of it being in the Swiss accounts). This was causing prejudice to him and to U&A, and therefore no stay should be granted.

In his Respondent’s Notice, H had submitted that the Judge should have made findings of fact based on W’s oral evidence, which would have strengthened his conclusions. Lieven J thought this argument was ‘misconceived’, and said it would only be in ‘the most exceptional cases’ that it could be appropriate for a judge to make findings of fact in a case when the trial was aborted because the parties reached a compromise [45].

Lieven J’s decision

Lieven J understood the case law to say that the first question in deciding whether to exercise the Thwaite jurisdiction is whether there has been a significant (and necessarily relevant) change in circumstances since the order was entered into, and that the second question is whether, if there has been such a change, it would be inequitable not to vary the order.

The conclusion reached by Lieven J was that the Judge had been wrong to say both that the Thwaite jurisdiction was not engaged and that there had not been a significant change in circumstances. At the time of the hearing on 16 July 2020, W was in a very materially different position to that she had bargained for on the day the agreement was reached. When she agreed the Heads of Terms, she believed that she was accepting a capital payment and releasing the Swiss funds on the basis that that would be a complete end to proceedings concerning the financial position between her and H, and that there would be a clean and complete break, with no outstanding contingent liabilities.

She based that understanding on the fact that she believed, and H had supported her belief, that U&A would withdraw all proceedings against her and would enter into the deeds in respect of her and Withers. However, that did not happen, and although U&A had agreed not to pursue W, they had not so agreed in respect of Withers. The fact that U&A had not agreed to enter into the deed in respect of Withers, and that H had not agreed to indemnify Withers, or W for any liability from Withers, showed that the risk perceived by W could not be considered fanciful.

It was ‘wholly reasonable’ for W to have placed full reliance on U&A abiding by what W and H had agreed given that H gave every indication that he was proceeding on the basis that U&A would enter into the deeds, and given the relationship between H and U&A (not just in terms of their being relatives but also the mutual financial support between them) [50]. It is not part of the Thwaite tests that the significant change must be wholly unforeseen.

There was a clear understanding in the Heads of Terms that U&A would waive any liabilities, and that was a fundamental part of the deal that had been made. It was not realistic to suggest that the agreement that was reached on H’s behalf did not involve him having an absolutely clear understanding of U&A’s position, and, in effect, speaking on their behalf. Otherwise, he was making an agreement that U&A would forgo a very large amount of money without their agreement, which Lieven J did not find to be a credible position. There was, therefore, a significant change of circumstances.

Considering the second question, Lieven J concluded that it would be inequitable not to vary the order as sought by W, and that the Judge was wrong to find otherwise. It was ‘plainly inequitable to leave the Wife exposed to a contingent liability in circumstances where she is entering into a clean break settlement’ and therefore would have no ability to recover any money she had to pay to Withers [61]. If U&A had no intention of suing Withers, then H’s liability did not arise, and it could be that the fact of H giving the indemnity would reduce the prospect of U&A pursuing Withers.

It was appropriate to take into account the very closely intertwined financial relationship between H and U&A in determining whether it was equitable to require H to give the indemnity. Although it was not possible to make findings about the degree to which U&A acted independently of H, the fact that H had sought to recover funds effectively on their behalf, was said to have been supporting them financially while their Swiss funds were frozen, and was apparently their principal legatee could be taken into account.

Henrietta Boyle, Barrister at 1 Hare Court