Gowers v Gowers [2011] EWHC 3485 (Fam)

Case No FD08D02760[2011] EWHC 3485 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
Venue The Royal Courts of JusticeDate Wednesday, 9 th November 2011
Strand
London
WC2A 2LL
Before
THE HONOURABLE MR JUSTICE HOLMAN
Between
GowersClaimantGowersDefendant
B E T W E E N:
NOVA KAREN GOWERS
and
BENJAMIN DANIEL GOWERS
and
CITY DOCS LIMITED
Transcript from a recording by Ubiqus
Venue Cliffords Inn, Fetter Lane, London EC4A 1LD
Tel: 020 7269 0370
MISS ANN HUSSEY QC appeared on behalf of the Wife
MR CHRISTOPHER MCCOURT appeared on behalf of the Husband
MR PETER SHAW appeared on behalf of City Docs Limited
JUDGMENT

The issue and essential facts

[1]During financial proceedings between a husband and a wife, a company, with which the husband and is very closely connected but does not own, paid £500,000 into court. District Judge Gibson later ordered that that sum shall be paid out directly to the wife as the first instalment of a total lump sum of £900,000. The question is whether the district judge could, or should, have done so. The facts are complex but I intend to summarise them as briefly as possible. I will omit much detail and lack some precision, but the following account is sufficiently accurate for the purpose of what I need to decide.[2]Both parties are now aged around 40. They co-habited from 1990, married in 1996 and separated in 2008, when the husband moved in with another woman with whom he now has a settled relationship and another child. The parties themselves have five children, now aged between 17 and 4. All the wealth was generated during the marriage.[3]A company called City Docs Limited (CDL or ‘the company’) was incorporated in December 2000. Its main business was and is to supply photocopying, document storage and associated services to large firms of solicitors and similar businesses. The husband was clearly the founder of, and main driving force behind, the company. He was formerly its chairman and, although currently personally bankrupt, is still employed by the company. The actual corporate structure is as follows. In 1998 the husband, as settler, established in the United Kingdom the Melvin Isaacs discretionary settlement (‘the trust’). The discretionary beneficiaries are the husband himself and any children of his. The current trustees are Mr John Nugent, a partner in a firm of solicitors, Gisby Harrison in Cheshunt, Hertfordshire; and Mr Christopher Hindley, FCCA, who is also the accountant to the company. At paragraph 6, line 15 of her judgment dated 16th September 2010 (which I will call her ‘first judgment’), now at bundle page 20, District Judge Gibson said, ‘There is no evidence of the trust distributing monies.’[4]The trust owns 100 % of the issued shares in Peach Holdings Limited (‘Peach’). Peach owns 70% of the currently issued shares in CDL. A man called Mr Paul Barker, who was, and remains, a director of the company, owns 15% of the issued shares. A man called Mr Richard Doye owns the remaining 15%. Mr Doye was formerly a salesman for the company and a director, but is now in litigation with the company.[5]The former managing director of the company, Mr Paul Mankoo, claimed to have certain share options in the company which would, if exercised, reduce the above percentage shares. The finding of the district judge in relation to Mr Mankoo at paragraph 28, lines 10 and 11 of her first judgment, now at bundle page 41, was that ‘...Mr Mankoo has a source (sic, but query cause) of action against the company rather than at the moment he has an actual share holding in (it).’ The company owns or owned certain subsidiaries, but the only one of any importance or significance to this case was Trilantic International Limited (‘Trilantic’).[6]CDL owned 100% of the issued shares in Trilantic, but a number of people had, or claimed to have had, share options. Mr Nigel Murray claimed 30% and Mr Michael Favelle claimed 3%. It was said that a further 17% remained to be assigned between various individuals involved in the running of CDL and Trilantic, including the husband himself. The overall conclusion of the district judge on this aspect, at paragraph 36 of her first judgment, now at bundle page 47, was, however, that ‘...It is rather more definite in relation to this 33% [viz the claimed shares of Murray and Favelle]’ but ‘In relation to the rest of the staff it is simply too vague.’ She therefore clearly treated CDL as owning 67% of Trilantic and being entitled to 67% of the net proceeds of the sale of Trilantic.[7]For several years CDL was highly successful and profitable, and it is clear that the husband both worked very hard to develop and drive the company forward and also drew considerable sums from it. He was never a shareholder in it and such sums could only ever lawfully have been paid, either as salary or advances of salary and other emoluments, or as loans. The district judge said at paragraph 43 of her first judgment that the company ‘was to a degree a cash cow.’ She found, at paragraphs 20, line 13, now at bundle page 34, and 42, lines 16 and 17, now at bundle page 52, that the husband had borrowed £370,000 from the company, none of it yet repaid. At paragraph 38, line 15, now bundle page 49, she gave the different figure of £345,000 but seems, at that point, to have overlooked a further £25,000 loan. Either way, the overall sum was considerable.[8]But the district judge also found, and it is not in issue, that recently CDL has faced rising costs and stiff competition and its situation is much more precarious, see paragraph 21 of her first judgment, now at bundle pages 34 and 35. CDL currently employ about 80 people and continue to trade, but the district judge said at paragraph 43, now bundle page 53, that ‘...The accounts show that the profit margins have been eaten away and that it is not in a very good position...you cannot get blood out of a stone...’ However, CDL did have one very valuable asset in its shares in Trilantic. These were sold at arm’s length in October 2010 for US$10 million, payable as to US$6 million in October 2010 and US$2 million in each of October 2011 and 2012.[9]At paragraph 10, lines 15 to 18 of her first judgment, now at bundle page 25, the district judge said, ‘...The major areas of dispute are whether the husband will benefit from, and to what extent, the sale of Trilantic. This will determine if a lump sum ... order is appropriate because both parties agree there is no other substantial capital.’ As to this, the district judge made the following crucial findings in her first judgment: At paragraph 38, now bundle page 49, she said:
‘As I have found in effect the husband is CDL in the sense that he seems certainly to be able to deal with the finances in a very haphazard manner, obtaining loans. He is no longer a director but it still seems that monies for tax and monies direct to his landlord have been paid even into Miss Coetzer’s account [Miss Coetzer being the lady with whom he now lives]. He was, of course the founder of the company and he is, of course, also the chairman. I think overall it worked out as £345,000 he had had off CDL. It would be inexplicable to have this level of lending and a level of payment to third parties were he to be an employee. But it seems as chairman and founder that he has been able to do this.’
[10]At paragraph 45, now bundle page 55, the district judge said, ‘In terms of the resources, the capital relates to the sale of Trilantic and to my finding that CDL is in fact an alter ego of the husband, but the money available, I think, should first of all be used to discharge the liabilities [viz of the company].’ At paragraph 50, on bundle page 59, the district judge said:
‘It is also clear to me that as the major shareholder, the chairman of CDL and the founder of the company, the husband has been able to obtain monies from CDL and I think that he will be able to obtain some of the proceeds from Trilantic...’
[11]Those findings were made and the first judgment was given on 16th September 2010, after a hearing lasting several days. At that date, however, the sale of Trilantic had not actually been finalised; and as the above passages and account indicate, the district judge recognised that other debts and liabilities (including considerable corporation tax) would need to be paid, and that the actual amount receivable by the company or through the corporate structure by the husband was at that stage unclear. She said at paragraph 52, now bundle page 60, ‘So in relation to the order, I do not think I can make lump sum orders for specific amounts because I do not know what amounts will come in...’ Her decision at that date was in effect to adjourn or defer actual quantification of the lump sum until the amount received, or receivable, by the husband was more clear.[12]The sale of Trilantic was in fact completed during October 2010 and a substantial cash sum was about to be received by CDL. It was actually received on 4th November 2010. The wife’s solicitors were very concerned to preserve this, and during October and November 2010 there was a considerable exchange of correspondence, now in a separate correspondence bundle, between Ashley Wilson, the solicitors on behalf of the wife, and Gisby Harrison in Cheshunt. At that time Gisby Harrison acted as the solicitors both for the husband personally in his matrimonial affairs and also for the company. It is said that there was a ‘Chinese wall’ between Mr Nigel Tatum, the partner acting on behalf of the husband in the matrimonial affairs, and Mr David Goldberg, the partner acting on behalf of the company.[13]Unfortunately the roles became blurred and in many parts of the correspondence letters from Gisby Harrison which were clearly written by Mr Tatum (see his reference initials and his personal email address on many of the letters) made statements or commitments on behalf of the company. Indeed an ‘undertaking’ signed on behalf of the company by Mr Paul Barker, a director, on 6th October 2010, now at correspondence bundle page 77, was countersigned or witnessed by Gisby Harrison in the handwriting, as I was told, of Mr Tatum.[14]The correspondence got bogged down and Ashley Wilson clearly became increasingly anxious once the money for the sale of Trilantic had actually been paid. On 11th November 2010, whether justifiably or not, counsel for the wife applied, without notice, to Mrs Justice Baron for a freezing order. It is clear from the solicitor’s note of that hearing, now in tab 4 of the present ‘intervener’s bundle’, that Baron J had considerable misgivings about the whole situation. At one stage she observed that the conclusion of District Judge Gibson’s first judgment, namely that money could pass from the company via Peach to the husband, ‘appeared to be a leap of faith.’[15]She did, however, join the trust, Peach and the company as parties to the proceedings, and did make a freezing order of very limited duration for one week only until a return date which she fixed for 18th November 2010. Essentially, she froze £500,000 of the proceeds of the sale of Trilantic, which were actually held at that date by Gisby Harrison in a client account. The order gave a usual liberty to apply and also provided at paragraph 7 (2) that ‘The order will cease to have effect if the respondents [by now there were four of them] provide security by paying the sum representing £500,000 to be held to the order of the court...’[16]The essential position of CDL was, and is, that the proceeds from the sale of Trilantic and the assets of the company generally belong to the company and not to the husband; that he has no claim to them; and that the court in the matrimonial proceedings has no power over them. That being so, the company could have attended on the return date, argued that position, and opposed any renewal of the freezing order in so far as it affected the company or the proceeds from Trilantic. Instead, Mr Paul Barker, a director of CDL, wrote a letter dated 12th November 2011 to Gisby Harrison, now at correspondence bundle page 144A, authorising them, on behalf of City Docs Limited, to pay £500,000 into court from the money held by Gisby Harrison, to be ‘...distributed pursuant to a further order of the High Court or the Principal Registry of the Family Division’ and ‘thereafter to release the remaining £500,000 to City Docs Limited.’[17]That letter was forwarded by Mr David Goldberg of Gisby Harrison to Ashley Wilson under cover of a short letter also dated 12th November 2011. On 16th November, Ashley Wilson wrote to the reference number of Mr Goldberg that, ‘If you provide security by paying the sum of £500,000 into court to be held to the order of the court, then the freezing injunction will cease to have effect.’ On 17th November, Gisby Harrison simply sent a cheque for £500,000 to the Accountant General with the briefest of covering letters. The formal ‘Form 100 - request for lodgement’ now at correspondence bundle page 162, does not specify the reason why the money was being paid into court but leaves the relevant box blank.[18]Mr Peter Shaw, counsel on behalf of the company before me, said that the company paid the money into court in the belief, shared, I understand, by all parties at that time, that the district judge would be finally resolving the case only a few weeks later on 21st December 2010; that the £500,000 would accordingly only be tied up for a short time; and so as to obtain meantime the urgent release of the balance of the sale proceeds from Trilantic without a costly appearance at the return date. In the event, the district judge only finally resolved the case by what she called a supplemental judgment, dated 8th March 2011 and distributed by an email from her on 11th March 2011.[19]In that judgment, which I will call ‘the second judgment,’ she began, now at bundle page 73, ‘In my original judgment, [I] found that CDL was beneficially entitled to 67% shareholding in Trilantic and that CDL was the husband’s alter ego.’ At bundle page 75, District

Judge Gibson said:

‘The freezing order was compromised before the return date by CDL paying into court £500,000 to discharge the order including the disclosure provision. In closing submissions wife’s counsel asserted that, "That is the clearest demonstration of the true control and ownership of the TIL proceeds, bearing in mind that the husband resigned his directorships within the group in January 2010 but retained control and ownership of the group through the majority shareholding in CDL." That statement in the wife’s closing submissions was not challenged in the husband’s reply. A letter from Gisby Harrison (who act both in relation to CDL and to the husband’s matrimonial affairs, with a Chinese wall in place) dated 11th November 2010 indicated that, "We are instructed that CDL should be in a position to cope if £500,000 were released from the £1 million retention." ...I accept the submission made by the wife that it is entirely practicable to award the wife the £500,000 which has been paid into court.’
[20]The district judge went on to say that, ‘The £500,000 already paid into court to be transferred to the petitioner no later than 28 days after the date of service of this order...’ The final sealed order, dated 11th March 2011 but amended on 7th April 2011, and now at bundle page 80, now provides that:
‘...2. The £500,000 paid into court shall be paid out to the petitioner’s solicitors 28 days after the date of service of this order, and a copy of this order (and the judgment, if requested...) shall be served on City Docs Limited, Peach Holdings Limited and the trustees of the Melvin Isaacs settlement by the petitioner so that they can take any action within the 28 days. 3. The respondent shall pay or cause to be paid to the petitioner a lump sum of £900,000 in the following amounts by the following dates: (i) £500,000 as provided for in paragraph 2 above; (ii) £200,000 by 30th November 2011; (iii) £200,000 by 30th November 2012.’
[21]That order was served upon CDL on 8th April 2011; and within the 28 days provided for in paragraph 2 they issued the present application which seeks that paragraph 2 be set aside and the £500,000 in court be paid out, not to the wife, but to the company. Concurrently, the husband himself is appealing from the substantive order for a lump sum. His appeal has now been fixed for hearing during March 2012, but by paragraph 2 of the order dated 18th July 2011 Mr Justice Mostyn identified certain preliminary issues which were listed for hearing before me. They are:
‘(a) That the court had no jurisdiction to make the order that the sum of £500,000 held in court be paid out to the respondent; (b) If (contrary to (a)) the court had jurisdiction to make paragraph 2 of the order, by reason of the supervening bankruptcy of the appellant, the respondent has no entitlement to a lump sum; (c) Whether as a consequence of sub paragraphs (a) and/or (b) paragraph 2 of the order should be set aside.’
[22]CDL had not been put on notice that the wife would seek, or the district judge would make, an order in the terms of paragraph 2 and they were not present or represented at the hearings before the district judge. Indeed the phrase, ‘so that they can take any action within the 28 days’ at the end of paragraph 2 of the order of the district judge appears to be a form of express liberty to apply. The actual application notice issued by CDL, dated 5th May 2011, is not an appellant’s notice and does not use the language of appeal, and no one has suggested that it is procedurally incorrect or inappropriate. I accordingly stress that at the present hearing and in this judgment I am not exercising any appellate powers. Rather, I am exercising the original powers of the court to vary or discharge an order on an application made by a person or body who was not on notice that such an order was applied for.[23]The powers could have been exercised by District Judge Gibson herself but were, on 27th June 2011, transferred by her to this court.

Jurisdiction

[24]By section 23(1) (c) of the Matrimonial Causes Act 1973, the court may order ‘either party to the marriage’ to pay a lump sum to the other. Obviously CDL was not a party to the marriage. Section 24A makes further provisions, when the court does make an order for a lump sum under section 23, for a further order for the sale of specified property and a payment out of the proceeds of sale of that property. Section 24A can no doubt be applied also in relation to the proceeds of sale of a property which has been, or is being, voluntarily sold. But by section 24A (1) the property must be, ‘...property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion.’[25]Although much elaborated over many pages of written skeleton argument and in his attractive oral submissions, the short point of Mr Peter Shaw on behalf of the company is very simple. The husband did not have, and does not have, any beneficial interest, either in possession or reversion, in either CDL or Trilantic or any of the proceeds of sale of Trilantic from which the money in court directly derives. Although the husband was indeed asserting some claim against Trilantic or a share of the proceeds of sale, he fell within the category of people whose position the district judge had described in paragraphs 33 and 36 of the first judgment as, ‘very unclear’, ‘nobody’s interest was really settled’ and ‘simply too vague.’[26]Even if, as District Judge Gibson found (and CDL do not challenge her findings of fact for the purpose of the argument before me), the husband had historically exerted, and may still be able to exert, much control over CDL including causing it to lend him considerable sums of money, that does not give him any beneficial interest in CDL or its assets, including the proceeds of sale of shares owned by CDL in Trilantic. At the most, submits Mr Shaw, the husband is a discretionary beneficiary in the trust (which itself, as the district judge found has never distributed any money) which owns the shares in Peach which owns 67% of, but not all of, the shares in CDL. Mr Shaw observed that neither of the written submissions, dated 13th December 2010 and 14th February 2011, submitted by counsel then acting for the wife (Mr Mark Johnstone) to District Judge Gibson between her two judgments, cite any authority for the proposition that the district judge could make a direct order for the payment to the wife of the £500,000.[27]Perhaps for that reason, District Judge Gibson herself did not cite any authority in her second judgment. In the passage of that judgment already quoted above, she merely lifted from Mr Johnstone’s written submissions, first, that the payment in was ‘the clearest demonstration of the true control and ownership of the Trilantic proceeds’; and second, that, ‘it is entirely practicable to award the wife the £500,000 which has been paid into court.’ As Mr Shaw submitted, practicability is not the test or a basis of jurisdiction.[28]Mr Shaw himself cited two very short passages in the judgment of Lord Justice Dillon, in Crittenden and Crittenden [1990] 2FLR361 at 364 G to H and 365 A to B where he said that while section 24A of the Matrimonial Causes Act can relate to, and bite upon, shares in a company (if the party to the marriage has an interest in them), ‘It cannot relate to the assets of’ the company.’ Dillon L J said that the provisions in an order pursuant to section 24A (2) ‘must be provisions which are consequential or supplementary to the sale of property which belongs to one or other of the spouses, and not supplementary to the sale of the company’s assets.’[29]Amongst many other authorities, Mr Shaw also cited a passage at paragraph 76 of the reserved judgment of the Court of Appeal Criminal Division in R v Seager [2009] EWCA Crim 1303 where that court said, ‘It is "hornbook" law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders... A court can "pierce" the carapace of the corporate entity and look at what lies behind it only in certain circumstances. It cannot do so simply because it considers it might be just to do so. Each of these circumstances involves impropriety and dishonesty. The court will then be entitled to look for the legal substance, not just the form.’[30]Mr Shaw submitted that in the present case there has been no allegation, still less any finding, of ‘impropriety and dishonesty’ in relation to the company or the husband’s dealings with it, and the carapace or corporate veil remains intact.[31]On behalf of the wife, Miss Ann Hussey QC, (who has not previously acted, or been involved in these proceedings) sought to support the decision and approach of the district judge in two separate and distinct ways to which I now refer.

The effect of the payment in and the status of the monies in court

[32]First, she relies upon the fact of the payment in by CDL and the history and circumstances surrounding it. As Miss Hussey correctly says, paragraph 2(a) of a freestanding undertaking signed by Mr Paul Barker, a director of CDL, on 6th October 2010, now at correspondence bundle page 77, refers to Gisby Harrison holding a balance of the net proceeds of sale of Trilantic, ‘in their current account pending the agreement of [the wife]... or an order of the court as to distribution of that fund’ (my emphasis). Paragraph 7(2) of the later order of Baron J refers to the order ceasing to have effect ‘if the respondents provide security by paying’ £500,000 into court (my emphasis).[33]The letter from Mr Goldberg of Gisby Harrison (acting on behalf of the company), dated 12 November incorporates the “attached” letter from Mr Barker also dated 12th November 2010, now at correspondence bundle page 144A, which again agrees to £500,000 being paid into court ‘and distributed pursuant to a further order of the High Court or the Principal Registry of the Family Division’ (my emphasis). Miss Hussey particularly stresses that these documents were created and the money paid into court after the ‘in principle’ first judgment dated 16th September 2010. She cites a passage in the judgment of Lord Justice Buckley in Cretanor Maritime Company Limited v Irish Marine Management Limited [1978] 1WLR 966 where he said that a Mareva Injunction does not operate as a ‘pre-trial attachment’ and that ‘under such an injunction the plaintiff has no rights against the assets.’[34]However, Buckley L J continued, ‘He may later acquire such rights if he obtains judgment and can thereafter successfully levy execution on them but until that event his only rights are against the defendant personally.’ Here, submits Miss Hussey, it was already after the first judgment that the freezing order was made and the money later paid into court. She submits that the husband ‘procured’ the funds from a third party (viz CDL) for the settlement of his liability and that ‘the company by agreeing to the money being held into (sic) court are standing as a third party guarantor or have agreed to indemnify the husband.’[35]Miss Hussey continues, ‘At a time when there had been a judgment, the fact of the payment in from any sources concedes that the money so held can be paid out in satisfaction of the judgment.’ She draws an analogy with a bank guarantee or bond. Miss Hussey’s bald and bold propositions that by agreeing to the payment in the company are ipso facto standing as a guarantor or have given an indemnity; or that the fact of payment in ‘concedes’ that the money so held can be paid out in satisfaction of the judgment, are not supported by any authority and indeed are not consistent with Tradegro to which I am about to refer.[36]In my view this issue is essentially one of construction of what CDL were intending and agreeing to when they made the payment in. In the recent case of Tradegro (UK) Limited v Wigmore Street Investments Limited [2011] EWCA Civ 268 the Master of the Rolls, with whom Laws and Arden L J J agreed, said at paragraph 36:[37]‘...the courts are not too ready to hold that, where A and B agree an arrangement whereby A’s money is held in a specific account, or by a third party, to protect B’s prospective claim, the money is to be treated as held on trust for B, or as security for B’s claim. Clear words are needed to show that this was the intention of the arrangement before the court will hold that that is its effect.’ (my emphasis) Lord Neuberger went on at paragraph 38 to quote a passage from the judgment of Lord Wrenbury LC, giving the opinion of the Privy Council in Palmer v Cary [1926] AC703 and 706 where Lord Wrenbury said:
‘It is necessary to find, further, that an obligation has been imposed in favour of the creditor to pay the debt out of the fund.’
[38]In the present case are there, in the context, clear words to show that CDL intended their money to be held on trust as security for the wife’s claim such that an obligation was imposed in favour of the wife to pay the lump sum out of the money paid into court? It is perfectly true that paragraph 7 (2) of the order of Baron J referred to providing ‘security’ by paying £500,000 into court and that the documents signed by Mr Barker on 6th October and 12th November 2010 each refer to ‘distribution’ pursuant to a further order of the court. But by a letter dated 23rd September 2010, now at correspondence bundle pages 41 to 43, Ashley Wilson had sought an undertaking that, ‘the sale proceeds (viz from Trilantic) will be first used solely for the purpose of paying Mrs Gowers her entitlement under the terms of the order to be made by District Judge Gibson...’ and that ‘such sale proceeds will be paid to Ashley Wilson or as they may direct.’ (See paragraphs 4 (3) and (4) on bundle page 42).[39]An undertaking in those terms was never offered by CDL and never given. The eventual undertakings were all, not undertakings to ‘pay’ but to retain. Most significantly, the basis upon which counsel for the wife applied for and put the application for a freezing order in so far as it applied to CDL is clearly spelled out in paragraph 30 of the ‘summary on behalf of the applicant’ actually prepared by Mr Mark Johnstone on 23rd September 2010 but still used by him before Baron J on 11th November. That clearly explained why Mr Johnstone considered the trust, Peach and CDL needed to be added as parties, namely, ‘It is desirable to join all [three] entities because the lump sum award will be paid through a capital distribution from the trust or a dividend payment from [Peach] on receipt by CDL of the sale proceeds of TIL.’ (my emphasis)[40]The proposition that there might be a direct payment of the funds of CDL (the proceeds from Trilantic) directly to the wife was never even suggested. Further, page 2 of the solicitor’s note of the hearing before Baron J expressly records the following:
‘The judge enquired how the money was to move from CDL to Peach. Counsel replied that it was assumed to be by way of dividend but that DJ Gibson had made no finding as to the mechanics.’
At which the judge is recorded as observing it appeared to be a leap of faith. Counsel continued that, ‘he wanted to secure the safety of the retention of the appropriate amount of sale proceeds for his client...’ (my emphasis). The note of the actual judgment of Baron J makes clear that the reason why she was willing to make a freezing order was simply to protect against the possibility of Gisby Harrison being disinstructed, in which case the existing undertakings did not give ‘full security’.[41]There is nothing to suggest that Baron J contemplated that the court might order a lump sum to be paid directly to the wife out of company assets, and every reason to suppose that she did not contemplate this. It was not even the way the application had been put to her. The whole purpose was to keep £500,000 secure from dissipation so that it was available to be paid to the wife if - a big if - it properly could be. In my view the course of the subsequent correspondence between the date of the order of Baron J and the actual payment in contains nothing to suggest that CDL or its directors were agreeing or intending to put the company under some different or greater obligation than that imposed by the freezing order. The payment in was simply agreed to and made in order to put the money in an absolutely secure place, free from any continuing argument about the scope of undertakings or the authority of, or instructions to, the solicitors. In my view Miss Hussey’s argument based on the fact of the payment in and the status of the money in court, although most attractively developed by her, must fail.

Piercing the corporate veil

[42]So Miss Hussey must fall back on her separate and discrete argument that the money in court is in reality the money of the husband anyway, and this requires the piercing of the corporate veil. Miss Hussey naturally placed great reliance on several passages of the judgments of District Judge Gibson which I have already quoted. At paragraph 43 of her first judgment, the district judge said, ‘Even if the company is his alter ego...’ That is not, at that stage, a finding that it is his alter ego. At paragraph 45 she said, ‘In terms of the resources, the capital relates to the sale of Trilantic and my finding that CDL is in fact an alter ego of the husband...’ That paragraph does not itself make the finding, but appears to refer back to an earlier finding, and it seems to me that the key paragraph and finding must be that in paragraph 38.[43]It is, however, very important to see just what the district judge did say in paragraph 38. She said:
‘As I have found in effect the husband is CDL in the sense that (my emphasis) he seems certainly to be able to deal with the finances in a very haphazard manner, obtaining loans... He was of course the founder of the company and he is of course also the chairman...’
Later at paragraph 50 the district

judge was to say that:

‘It is also clear to me that as the major shareholder, the chairman of CDL and the founder of the company, the husband has been able to obtain monies from CDL...’
[44]Pausing there, although the district judge there refers to being able ‘to obtain’ monies from CDL, she had previously clearly used the language of borrowing or loans. The key words in paragraph 38 are the words, ‘in the sense that’ which I have emphasised above. Clearly, on the district judge’s findings (and not challenged at this hearing) the husband has been able to borrow considerable sums, whether £345,000 or £370,000, from the company. So the district judge was able to say that ‘in that sense’ he is the company and had been able to control it. Nowhere did she say that he owns it.[45]Both counsel made considerable reference to the seminal judgment of Mr Justice Munby given in September 2008 in Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam); [2009] 1 FLR 115 which exhaustively cites from much previous authority, much of it of the Court of Appeal and House of Lords, and also the earlier matrimonial authorities of Green v Green [1993] 1FLR 326 (ConnellJ) and Mubarak v Mubarak [2001] 1FLR 673 (Bodey J). To these authorities are now added the recent observations of Mostyn J in Kremen v Agrest (2) [2010] EWHC 3091 (Fam); [2011] 2FLR 490. In essence, and drawing on much previous higher authority, Munby J was insistent in Ben Hashem that the corporate veil cannot be pierced unless, as well as “control” there is some “impropriety” which is ‘linked to the company’s structure to avoid or conceal liability.’[46]He said in summary at paragraph 163 of his judgment, ‘...It follows from all this that if the court is to pierce the veil it is necessary to show both control of the company by the wrongdoer(s) and impropriety, that is, (mis) use of the company by them as a device or facade to conceal their wrongdoing.’ This is echoed in the passage in the reserved judgment of the Court of Appeal Criminal Division in the later case of Seager already quoted above:
‘A court can pierce the carapace... only in certain circumstances... each of these circumstances involves impropriety and dishonesty.’
[47]At paragraphs 172 to 173 of Ben Hashem Munby J clearly had ‘great difficulty’ with the decision of Connell J in Green in which there had been no impropriety. At paragraph 218 of Ben Hashem Munby J made clear that he did not accept a submission by Miss Judith Parker QC that Bodey J had not considered ‘impropriety’ to be an essential requirement in Mubarak, but opined that if Bodey J had not done so he would have been wrong. Munby J ended that part of his judgment in Ben Hashem at paragraph 221 with the comment:
‘Reported cases in any context where the claim (to pierce the veil) has succeeded are few in number and striking on their facts.’
It is worth stressing that in Mubarak itself Bodey J did not pierce, but rejected an application to pierce, the veil.[48]Few people have had greater recent experience of practice in ancillary relief cases than Mr Nicholas Mostyn QC. So his observations as Mostyn J in Kremen v Agrest are striking, although plainly obiter. In that case he did find ‘ abundant evidence’ of wrongdoing if that was required: See paragraph 48 and paragraphs 6 to 9 where he described certain transactions as ‘ a complete sham’. But at paragraph 44 he said:
‘It certainly came as some surprise to those who practised in ancillary relief cases to discover that a positive finding of impropriety or ‘mask’ or ‘facade’ or ‘sham’ or ‘creature’ or ‘public’ was needed before the corporate veil could be disregarded and a direct order made against the property made by the company. The understanding had been for years that where the company was wholly owned by one party, or where minority shareholdings could realistically be disregarded, then a direct order could be made against the underlying asset. After all, a strong Court of Appeal in Nicholas v Nicholas had said precisely that... Connell J made precisely such an order in Green v Green... and I have to say that I do not share Munby J’s ‘great difficulty’ with this decision. There is a strong practical reason why the cloak should be penetrable even absent a finding of wrongdoing.’
[49]Mostyn J then quoted passages from the judgment of Bodey J in Mubarak which had also been quoted by Munby J in Ben Hashem including the following:
‘The difficulty remains in defining those situations when lifting the veil is appropriate by way of enforcement following such a concession in ancillary relief proceedings. I would suggest that the Family Division can make orders directly or indirectly regarding a company’s assets where (a) the husband (as I am assuming) is the owner and controller of the company concerned and (b) where there are no adverse third parties whose position or interests would be likely to be prejudiced by such an order being made. I include as third parties those with real minority interests in the company and (where relevant on the facts) creditors and directors.’
[50]It should be stressed that the context of those observations by Bodey J is where the husband has already made ‘ a concession’ that company/trust assets can be treated as his ‘whereafter the case proceeds conveniently on that basis’ (Bodey J in Mubarak page 682 D). No such concession has ever been made by the husband in the present case and indeed he has always strenuously asserted and argued to the contrary, and still does do so. The passage from Mubarak continues:
‘I would add that lifting the veil is most likely to be acceptable where the asset concerned (being the property of an effectively one-man company) is the parties’ former matrimonial home, or other such asset owned by the company other than for day to day trading purposes.’
[51]At paragraph 47 of his judgment in Kremen v Agrest Mostyn J immediately continued by saying, ‘Experience shows that a great many of what I might call single purpose vehicles are incorporated in off-shore havens. So a transfer of a single share in a BVI incorporated company would leave the claimant with the prospect of registering in Tortola the share transfer ordered by this court and then either taking steps to dividend out to her property and/or to take steps to wind out the company in the BVI. This may prove to be a tortuous and expensive process simply to get into her name what may have been the former matrimonial home in Surrey.’[52]In my view it is not necessary for me in this case to add to the jurisprudence on this topic, still less to take a position as between the four distinguished first instance judges I have mentioned (Connell, Bodey, Munby and Mostyn JJ) all of whom were/are highly experienced in matrimonial finance. In my view the present case comes nowhere near any situation in which a court has pierced, or will or may pierce, the veil or carapace. If a finding of impropriety or dishonesty is required, none was made by the district judge. It is of course true that she considered that the husband had treated the company as a ‘cash cow’ (a finding which I fully accept) but she also, in the critical passage at paragraph 38 of her first judgment, clearly treated the money which the husband had extracted from the company to have been loans. Even if (which I do not need to decide) a less strict approach may be applied in the case of matrimonial ancillary relief, there is still a world of difference between the facts and circumstances of the present case and any of the formulations of Connell, Bodey or Mostyn JJ.[53]CDL is most certainly not a ‘single purpose vehicle incorporated in an off-shore haven’ (Kremen at paragraph 47) and the assets and business of the company are far removed from merely owning the former matrimonial home or other matrimonial properties. As I have already observed, there had been no ‘concession’ in the present case. The husband is unquestionably not the sole owner of the company concerned, and there are significant third party interests whose position might be prejudiced by the order made. Bodey J expressly used the phrase ‘third parties’ to include not merely minority shareholders but, where relevant on the facts, creditors and directors. Further, Bodey J said that lifting the veil is most likely to be acceptable where the asset concerned is owned by the company ‘other than for day to day trading purposes.’ CDL actively daily trades.[54]In the case of Green v Green as summarised by Munby J at paragraph 172 in Ben Hashem, the issue related to some land owned by a company in which the husband owned 100% of the shares and ‘the whole background to the litigation’ had been that the husband had ‘effective control over that land via the company in which he owns all of the shares.’ That is far removed from the present case.[55]In the present case there are, on any view, significant minority shareholders, Mr Barker and Mr Doye, owning 30% between them. The company is a trading company. It employs about 80 people including a hardworking but non shareholding director, Mr Peter Lawson, all of whose livelihoods depend on the continuing trading and prosperity of the company. It has clients or customers, and it has creditors. The district judge found that the company had already lent to the husband a great deal of money and, implicitly, more than it should have done. The essential proposition behind her order is that it should now be forced, by a direct order of the court against it, to lend him even more.[56]The target of the district judge’s order is, of course, specifically the money received from the sale of the Trilantic shares. But so far as any direct interest by the husband in that money was concerned, the district judge had expressly said at paragraph 36 of her judgment that, ‘in relation to the rest of the staff [which included the husband] it is simply too vague.’[57]In my view, paragraph 2 of the order of 11th March 2011 was made without any power or jurisdiction and is indeed exorbitant and must be set aside. If that seems critical of the district judge, I wish to stress at once that she was lulled by the very persuasive written submissions of Mr Johnstone on behalf of the wife in December 2010 and February 2011. However, those submissions cited no authority and in fact, as I have already said, went much further than the way Mr Johnstone had put the case to Baron J on 11th November 2010, when he clearly contemplated (at best, from the wife’s and Mr Johnstone’s point of view) the voting and payment of a dividend by CDL to Peach followed by a discretionary distribution by the trustees of the trust.

A Thomas v Thomas order

[58]Miss Hussey alternatively submits that the district judge was, or may have been, exercising, or could have exercised, the well known power of the court in matrimonial cases on the authority of Thomas v Thomas [1995] 2FLR 1263 and the earlier cases referred to therein. Thomas and those cases, however, provide no support at all for making an order directly against a trustee, company or other entity with which the payer spouse (usually, but not necessarily, the husband) may be closely connected. Rather, they support that in certain circumstances it may be a permissible exercise of the court’s power and discretion to make an order against the spouse himself (or herself) so as to ‘afford judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court’s view of the justice of the case.’ (Per Waite L J in Thomas at pages 670 to 671).[59]But Waite L J expressly says in the same paragraph of his judgment that, ‘the court will not act in direct invasion of the rights of, or usurp the discretion exercisable by, a third party.’ Paragraph 2 of the order in the present case does exactly that. Whether or not the figures in paragraph 3 of the order, which requires the husband himself to pay a lump sum, are capable of justification on a Thomas v Thomas basis is a quite separate issue which may fall for consideration at the hearing next March of the husband’s own substantive appeal. But paragraph 2 of the order cannot possibly be justified or upheld by invoking Thomas v Thomas.

The husband’s bankruptcy

[60]On 19th April 2011 the husband became bankrupt. Mr Shaw and Miss Hussey made some reference to this supervening event in their written skeleton arguments. It may become very relevant to enforceability of the lump sum order against the husband and to his substantive appeal. But in my view paragraph 2 of the order of 11th March 2011 should not have been made for the reasons I have already given, and the later bankruptcy of the husband does not impact on my decision that paragraph 2 must in any event be set aside.

Payment out and undertakings

[61]The £500,000 which CDL paid into court almost exactly a year ago in the belief that it would only remain tied up for a few weeks must now be paid out forthwith to CDL, who may do whatever they lawfully wish with it subject to the following. From first to last, the position of CDL and the submissions of Mr Shaw are firmly predicated upon, and rooted in, the proposition that the husband has no entitlement to that money and that CDL want it for the legitimate purposes of the company. It would be to cheat the wife, and indeed to have deceived me, if CDL now made any part of that money available to the husband except as part of his continuing salary and emoluments or transparent loans as advances against salary, or by declaring and paying a dividend to Peach.[62]Mr Shaw accepts that, and accordingly CDL have freely offered to give, and do give until further order, the undertakings which were discussed at the hearing and will form the preamble to, and basis of, that paragraph of my order which provides for payment out of the whole £500,000 and the accrued interest thereon to CDL forthwith.

The preliminary issues

[63]I accordingly answer the preliminary issues identified in paragraph 2 of the order of Mostyn J made on 18th July 2011 as follows:(a) The court had no jurisdiction to make the order that the sum of £500,000 held in court be paid out to the wife;(b) is not relevant in the light of the answer to (a);(c) As a consequence of sub-paragraph (a), paragraph 2 of the order should be set aside. End of judgment.

Cited in 1 later judgment