Hope (aka Lewis, Formerly Krejci) v Krejci & Ors [2012] EWHC 1780 (Fam)

“If the trust is a nuptial settlement then notwithstanding that the assets are legally held by third parties as trustees, and that yet further third parties may be beneficiaries along with the husband, the trust assets fall within the court’s dispositive powers under s24(1)(c) Matrimonial Causes Act 1973. This power to vary is one of the oldest in the canon finding its origin in s5 Matrimonial Causes Act 1859. The trustees are entitled to be heard (FPR 2010 rule 9.13(1) and (4)) and any children beneficiaries must be represented (rule 9.11). The variation powers extend to making outright provision to the applicant, and may even be exercised where the trust is offshore, although, following well-established principle, the court will be unlikely to make a variation order where both the trust and its assets are overseas unless it is satisfied that the order would be implemented by the court exercising effective control over the trust (Goff v Goff [1934] P 107, Hamlin v Hamlin [1986] Fam 11). If, however, the Court is satisfied that the variation order will be effective against the husband in personam, then the order is more likely to be made (Razelos v Razelos [1969] 3 All ER 929).”

“Dealing first of all with the post-nuptial settlement, the first consideration is the welfare of the children, and the second consideration, in my judgment, is that I should not interfere with it more than is necessary for the purposes of s. 25. At the moment the wife is a discretionary beneficiary of a settlement in which the discretion can only be exercised with the consent of the father. He will certainly not exercise it in favour of the wife. It is appropriate, therefore, that some portion of that settlement should be removed and made into a fund for the wife. The net value of the settlement is just over £1m subject to any claims that the father may make on the trustees. It is appropriate, in my judgment, under s. 25, that £250,000 should be pulled out of the trust and made into a separate fund for the wife. It would be right, in my judgment, although the Official Solicitor has made submissions to the contrary, that some of that should be given absolutely to the wife and some should be settled. I propose that £50,000 should be given absolutely to the wife and the balance of £200,000 should be settled on her for life with the remainder for the children. That fund, of course, will be taken away from the powers of the protector. The remainder of the fund will remain on trust for the husband and the children. It would be right, in my judgment, to remove the father as protector of that fund too and to arrange the fund in such a way that the balance will be available so far as it is needed to provide a home for the husband and the children.”

“The time estimate for the appeal is two days and it will be heard by the same constitution as has determined the permission applications today. My Lords have read into the case, and it is simply a saving of resources if we maintain the same constitution. It is also important that there should be a very significant Chancery contribution to the argument on the main point, the piercing of the veil.”

“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, Connell J) and Mubarak v Mubarak [2001] 1 FLR 673 (Bodey J). To these authorities are now added the recent observations of Mostyn J in Kremen v Agrest [2010] EWHC 3091 (Fam); [2011] 2 FLR 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 ‘puppet’ 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.”

“Fifth, there remains a question as to whether, even if founded on mistaken reasoning, Gramsci and Alliance anyway represent a principled development of the law that this court should adopt. We have said enough to show that we consider that they do not. The “veil piercing” cases show that the principle is, in its application, a limited one, which has been developed pragmatically for the purpose of providing a practical solution in particular factual circumstances. The reported authorities certainly proceed on the basis that (in the usual case) the puppet company and the controlling puppeteer are to be closely identified, an identification that will or may be regarded as justifying the grant of a judicial remedy against the puppet as well as the puppeteer, if only on the basis that it will be just and convenient to do so. They do not, however, go to the length of treating the puppet company as other than a legal person that is formally distinct and separate from the puppeteer; and, were they to do otherwise, they would wrongly be ignoring the principles of Salomon. Consistently with that, they do not provide any basis for the proposition that the puppeteer should be regarded as having always been a party to a contract to which it or he plainly was not a party. ”

“In summary, therefore, in my judgment the answer to the question of whether an asset held in the legal name of a company is property which falls within section 24(1)(a) depends on the facts of the case. It is right, of course, that as a matter of company law a shareholder only has a right of participation in accordance with the terms of the Articles of Association and has no right to any particular item of property. But, what if the shareholder is, in fact, able to procure the transfer to them of a particular item of company property, such as a matrimonial home, as a result of their control and ownership of the company and the absence of any third party interests. Am I to ignore the reality that the shareholder is able to procure the transfer to them of that property for the purposes of deciding whether it is property to which they are entitled? ”

“Rationalisation of approach Ideally the Family Division and the Chancery Division should plainly apply a common approach. However, the fact remains that different considerations do frequently pertain: the company approach, on the one hand, being predominantly concerned with parties at arm’s length in a contractual or similar relationship; the family approach, on the other hand, being concerned with the distributive powers of the court as between husband and wife applying discretionary considerations to what will often be a mainly, if not entirely, family situation. I would echo the experience referred to by both Cumming-Bruce LJ and Connell J (above) as regards lifting the veil in the Family Division when it is just and necessary. In practice, especially in ‘big money’ cases, the husband (as I will assume) will often make a concession that company/trust assets can be treated as his, whereafter the case proceeds conveniently on that basis. It is pragmatic, saves expense and usually works. Problems such as have arisen in this case are rare and anyway can be avoided where there are other assets against which the lump sum order can be enforced. 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. The reason for my including the latter two categories will become apparent later in this judgment. I adopt the rationalisation of this offered by Mr Hunter, that it would amount merely to a short-circuiting of the full company law route, namely the declaration of a dividend to the husband comprising the company asset concerned (eg the matrimonial home) enabling him and/or the court then to transfer it onwards to the wife. It would amount to his property for the purposes of s 24 in the same sense that the law may look on that as done as ought to be done; whilst the mechanics of the order would be along the lines adopted by Connell J in Green v Green [1993] 1 FLR 326 at 341G: ‘… the respondent do sell, or cause G Ltd to sell, four plots of the blue land to …’. 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.”

“Thus, as can be seen from Nicholas v Nicholas [1984] FLR 285, 287E, 292F, and Green v Green [1993] 1 FLR 326, 337C, 340B, where property is vested in a one-man company which is the alter ego of the husband, the Family Division will pierce the corporate veil, disregard the corporate ownership and, without requiring the company to be joined as a party, make an order which has the same effect as the order that would be made if the property were vested in the husband. Indeed, the court can and will adopt this approach even where there are minority interests involved if they are such that they can for practical purposes be disregarded. Moreover, as Thorpe LJ’s forthright observations in Purba v Purba [2000] 1 FLR 444, 446F—H, and Khreino v Khreino (No 2) (court’s power to grant injunctions) [2000] 1 FCR 80, 85a—e, show, the court will not allow itself to be bamboozled by husbands who put their property in the names of close relations in circumstances where, taking a realistic and fair view, it is apparent that the recipient is a bare trustee and where the answer to the real question — Whose property is it? — is that it remains the husband’s property. Again, in such cases there is no need for the third party to be joined. As Purba v Purba [2000] 1 FLR 444 shows, where a transfer has been made post-separation to a close relative in order to defeat a wife’s claims, the court can and will act without going through the formality of joining the third party or making setting aside orders under s 37. And as Khreino v Khreino (No 2) (court’s power to grant injunctions) [2000] 1 FCR 80 shows, the court can and in appropriate cases will grant Mareva injunctions against both the husband and his offshore company and the relative who holds the bearer shares in the company without requiring either the company or the relative to be joined as parties. Nothing that I say should be taken as intended to water down in any way the robustness with which the Family Division ought to deal in appropriate cases with husbands who seek to obfuscate or to hide or mask the reality behind shams, artificial devices and similar contrivances. Nor do I doubt for a moment the propriety and utility of treating as one and the same a husband and some corporate or trust structure which it is apparent is simply the alter ego or creature of the husband. On the other hand, and as Nicholas v Nicholas [1984] FLR 285 itself demonstrates, the court does not — in my judgment cannot properly — adopt this robust approach where, for example, property is held by a company in which, although the husband has a majority shareholding, the minority shareholdings are what Cumming-Bruce LJ at 287G called ‘real interests’ held by individuals who, as Dillon LJ put it at 292G, are not nominees but business associates of the husband.”

“218. Dealing first with the issue of impropriety, has the wife established that the company structure has been used to avoid or conceal liability? In my judgment the company structure in this case was set up and has been used for conventional reasons including wealth protection and the avoidance of tax. Mr Todd is right, for example, to point to the reference in the annex to the husband’s Form E to his transferring his shares in PRL Nigeria to the Nevis company because he was involved in litigation. However, this does not result in the company structure being used to conceal or avoid liability. It is seeking to provide a degree of protection for the wealth, which may or may not be effective depending on the nature of the rights retained by the husband. He is also right to point to the company structure effectively being the husband’s money box which he uses at will. This might be contrary to accounting or company law principles but any disregard of those principles does not, in my view, mean that the structure is being used to avoid or conceal liability. From the husband’s perspective the wealth and the corporate structure is and remains his but at the same time he is able to take advantage of the tax and other benefits of holding it within a corporate structure. 219. I also do not accept Mr Todd’s submission that the undoubted use by the husband of the corporate structure to seek to deny that the companies or their assets are his resources or are assets available to him amounts to impropriety as that word is used in the authorities. It is simply a husband giving false evidence. Accordingly, I do not consider that the wife has established impropriety in this case.”

“Damsonetti Holdings limited (“DHL”) is the sole trust "asset" and there is a proposal to acquire for £1 the assets and liabilities of DHL. Assets include certain properties held directly and the participations in (1) Damsonetti (UK) limited which owns certain properties and (2) Damsonetti Construction Limited, together with all borrowings secured on such properties, whether owned by DHL or Damsonetti (UK) Limited. The offer comes from certain investors and we readily disclose that Mr Krecji has introduced them. It is not known whether he will benefit personally from the proposed transaction However this aspect is we suggest not relevant since BOTH any success is at best uncertain (see our discussion below) AND Mr Krecji remains, until released, bound by any freezing injunctions, which your client has secured and maintained. Acceptance of the offer will however allow the trust to be closed JTC will not benefit from this proposed transaction, as neither its outstanding professional fees will be paid through it happening, nor will it recover its legal costs incurred in the various proceedings However, closure has a value, as it will prevent these matters from taking up further time and energy, which are plainly better used on other (productive) matters. “ iii) On 11 June 2012 H produced an email sent by him to Mr Melendez of Castner on 4 December 2011. By this point, as I have mentioned above, the offer had altered to extend to DUK and Damsonetti Construction Limited, but not DHL. In the email H stated “we have option to buy land next to railways with current planning for 9 flats plus 4 flats is no need for 106 agreement, we also have option on land located on south side of river with river views, possibility to build over 100 flats, we also have land available to offset for social housing in different locations”

“she is hopeless. Her offer is worthless. It is a joke.”

“The Respondent has refused to provide the documents to the Applicant. The Applicant believes that the Respondent has willfully (sic) misled the Family Division Courts from the commencement of her ancillary relief proceedings (FD00D13664) until the Final hearing of her application in July 2011 regarding her bankruptcy. The disclosure is necessary in order to establish sufficient grounds to plead fraud against the Respondent”

“6. Throughout the ancillary relief litigation the Respondent instructed her legal team that she was bankrupt right up to July 2007 and as a result was not able to make her application for ancillary relief. In a rebuttal statement dated 26th June 2011 prepared to rebut my Section 25 statement the Respondent admits that she might have been discharged from bankruptcy on 13th August 2000. Whatever is the truth, the fact is that on 10th August 2001 she made an affidavit in support of her application to lift the suspension of her discharge. There appears no reason at all why she should wait for almost 6 years to annul her bankruptcy. The suggestion that the presence of a tenant in her property at 10 Boleyn Road (sold on 12th August 2004) in some way delayed her annulment and/or discharge just cannot be true. 7. It is my honestly held belief that the Respondent has always known when she was discharged and has wilfully misled the Court and possibly her lawyers as to the actual date. It may be that her lawyers also knew the date but I presently have no way of making good such an accusation and do not make it at present”

“There is no good reason for W’s delay of nearly 7 years following her discharge from bankruptcy. W must have known that the effect of her discharge was to enable her to pursue an ancillary relief claim. She had specialist bankruptcy and divorce solicitors acting for her. I believe that she only mounted her claim on becoming aware of the vast improvements in Damonsetti UK’s financial position as revealed in the 2007 accounts available in April 2008. W was not able to give me any sensible explanation for her delay”

“The court’s inherent jurisdiction to protect its process from abuse, however, has always existed, and has been preserved side by side with the powers conferred on it by the Rules, but it would be a very rare case in which a judge could rely on the inherent jurisdiction in an area which appeared to have been comprehensively covered in the rules”