Lawyers in Glass Houses (or, indeed, Cubicles)

Paris Hotel de Ville ready for a visit by George V and Queen Mary. From the Universite de Caen collection on Flickr Commons.

Paris Hotel de Ville ready for the state visit of George V and Queen Mary in April 1914. From the Universite de Caen collection on Flickr Commons.

Not long ago, I visited two very different solicitors’ offices in the space of the same week. The first was a stone-built Victorian warren of rooms in a rural Derbyshire market town. The firm had been in the same premises since at least the mid-nineteenth century, and it showed: from the faded posters advertising farm auctions that had taken place before the first world war, to the massive walk-in safe which was itself literally big enough to accommodate a meeting, it was testimony to the part that the firm had played in the local economy, and the ties that bound the two together. It was also dark and gloomy, badly organised for modern business needs, and I suspect the winter heating bills are tremendous. On the other hand, it had character by the bucketload.

The same week I visited the offices of another firm. The office building itself dated from the 1920s, but the designers had been given free play over the interior. Open-plan ruled. The old dividing walls between rooms had been swept away, and glass partitions now divided the working areas, including the meeting rooms. One particularly striking feature was the design of two meeting rooms on the ground floor, which had full-height windows on the street side, and full-height glass partitions on the interior side. If the window blinds had been raised, the effect would have been pretty much as if you were holding a meeting in a terrarium, with the added feature that any stray passer-by could stand and watch you (and presumably peer at the documents on the table if they felt so inclined). Understandably, therefore, the window blinds remain permanently lowered, at least on the street side. It seemed an odd place to put a meeting room, but perhaps the exigencies of the building demanded it.

These offices were light and bright and, I imagine, much more cheerful and pleasant to work in; but they seemed much less connected to the local community and the local economy. They also have far less character: I visit more or less the same office in different parts of the country all the time. Something always seems to get lost when the designers get going; and there are other dangers in glass walls, as  S v J & Ors [2016] EWHC 586 (Fam) demonstrates.

S v J is an interesting decision, which will feature in the upcoming edition of Family Property News. Ms S sought (and obtained) declarations under the MWPA that she owned substantially more of the equity in two properties than her partner, Mr J. There will be more detail on the trusts of land aspects of the case in FPN, but one other feature was that Ms S claimed that she had been placed under considerable pressure by Mr J to enter into a mortgage re-financing deal which was very much to her disadvantage. Mr J was described as having a volatile temperament, and Ms S’s evidence was that she was “walking on eggshells” during the time that the deal, which was his pet project, was being put together. She was caring for one child of less than a year old and was pregnant with their second child, and in the circumstances felt extremely vulnerable.

When Ms S attended the solicitors’ office to execute the charges and receive independent legal advice about her position, the meeting took place in a glass-walled room. Mr J was outside the room throughout the meeting, waiting in the reception area. The Judge (Roberts LJ) noted that “throughout the course of this one to one meeting, the applicant told me that she could see the respondent through the glass wall. He was sitting in the reception area looking at her”. It is not expressly said that this situation was at the very least stressful for Ms S, but given that she specifically mentioned it in her evidence, it is likely that it was.

In fact, Ms S was at that moment being given very clear (and very sensible) evidence not to enter into the charges, but one suspects that the impact of that advice on her was substantially decreased by her being under observation by Mr J throughout. Matters cannot have been made any easier by her awareness that the solicitor was telling her the opposite of what Mr J, who was directly in her eyeline, had been telling her about the whole arrangement.

As it happens, Ms S did not claim that she was entitled to set aside the charges as against Mr J because of his undue influence; the facts of her case did not support it. But it’s clear that this situation could well arise in cases where there is either real or presumed undue influence, and the fact that the oppressor was able, throughout a crucial interview, to glare at the oppressed might be important. It’s all too foreseeable in such circumstances that a client might well come back to the solicitor and complain that her interests were not properly prioritised, and that she should not have been put in a position where her oppressor was able to fix his eye on her in an intimidating manner through a glass partition.

At the very least, ensuring that the client has a safe space, where she can hear and respond to independent advice away from the gravitational pull of the person who wants her to enter into the transaction, is good client care. It’s good care even if you have no reason to believe that there is any possibility of undue influence; the whole point of the “independent legal advice” requirement is to get the client to focus, unimpeded, on her own interests and position, and the requirement to give that advice arises when she is proposing to enter into an agreement to her disadvantage, not when there is any suspicion that undue influence may be at work.

In other words, when you give independent legal advice in a glass-walled office, lower the blinds. Better still, ensure that the client is given advice well away from the person who will benefit from the transaction, and certainly not within his field of vision.

In this respect at least, the antiquated offices in Derbyshire — with its massive panelled doors and gargantuan Victorian furniture — would have suited the purpose better than the light, bright city offices. It would hardly be possible to imagine a safer space, although it would certainly be possible to imagine a more comfortable one. The old ways are not always the worst.





Double Indemnities … and Exoneration

“Equity of exoneration”. It’s not exactly a phrase that whets the appetite, is it? Nonetheless, you should read on, because  it’s sometimes a weapon of considerable power in advising a client who has acted as a guarantor or surety. A recent case, Day v Shaw & Shaw [2014] EWHC 367 (Ch) (on BAILII here) has extended an existing line of thought that it’s a weapon of particular strength and force when considering “husbands and wives”.¹


When the principle is correctly applied, the difference to the surety (and also to the disappointed creditor) can be huge. In Day v Shaw, Mrs Shaw’s share of the net proceeds of sale doubled from approximately £22,000 in round figures to about £45,000. Nor was that all. In spite of the fact that there was sufficient equity in the property to repay his debt, a creditor [Mr Day], who had his judgment secured on the property under a charging order, got nothing at all.

Perhaps, therefore, it’s fairer to say that exoneration is an equity with a dull name, but interesting results!

The Facts

On a wide-angle view of the case, Mrs Shaw had acted as a guarantor of the debts of a business run by Mr Shaw and their daughter, Mrs Shergold. Mr Shaw and Mrs Shergold were directors of the company. There was some evidence at trial that Mrs Shaw owned shares in the company, though that point was never seriously pursued.

The story starts back in 1997, when Mr Day loaned a sum of money [not specified in the judgment] to Mr Shaw and Mrs Shergold. The loan was unsecured. No more is said about it than that, but we can assume it was loaned to them for the purposes of the business; it would seem, however, to have been loaned to them personally and not to the company. The repayment date was in 2007.

In 2002, Avon changed its business bankers from RBS to Barclays. On the same day in March 2002, Mr Shaw and Mrs Shergold executed personal guarantees to the Bank in respect of all debts owed by the company, and Mr and Mrs Shaw executed a second mortgage over their home. Avon was also a party to that second charge.

The terms of the charge referred to Avon as “the Principal Debtor” and to Mr and Mrs Shaw jointly as “the Mortgagor”.

The terms identified by Morgan J as material were:

  • Avon covenanted with Barclays that it would repay all monies on demand;
  • Mr and Mrs Shaw covenanted that they would pay to Barclays the sums due from Mr Shaw [including those due from him as guarantor];
  • This covenant expressly applied to any liability of Mr and Mrs Shaw jointly whether “entered into solely or jointly with any other person and whether as principal or surety”;
  • Mr and Mrs Shaw charged the property with the payment of all monies and liabilities covenanted to be paid under the charge whether by the Principal Debtor or by the Mortgagor.

As is fairly common, the Bank was (at least) doubly protected: it had a double indemnity in the personal guarantees of the directors, and it had security for Avon’s debt and any debt of Mr Shaw’s by way of the mortgage.  Continue reading

Variation of Settlements Revisited — and Don’t Bypass the Trial Judge!

She's off to the Court of Appeal, but she stopped at the trial judge first. From that State Library of New South Wales on Flickr Commons.

She’s off to the Court of Appeal, but she stopped at the trial judge first. From the State Library of New South Wales on Flickr Commons.

Mostyn J’s judgment in AB v CB & Trustees of the X Trust [2014] EWHC 2998 (Fam) [on BAILII here] is interesting for all sorts of reasons. The reason that has been most commonly reported is his very firm best–practice steer that applications for permission to appeal should always be made to the first–instance judge first and not directly to the Court of Appeal, and I’ll come back to that in a moment.

However, he also maintained the correctness of continuing to use the phrase “ancillary relief” rather than “financial remedies in divorce”; he returned again to the question of variation of settlements under MCA s. 24(1)(c) and in particular the question of what property or rights are included within a nuptial settlement; and he came up with an interesting variation of a nuptial settlement in this particular case, where the total amount of the fund was fairly modest.

All this, and he was also reported by the Mail as advising divorcing women to “keep away from new romances while battling their husbands for cash” [news flash: he didn’t]. So you probably need to know a bit about this one!

Don’t Bypass the Judge

The most important best–practice guidance related to appeals. What had happened in AB v CB was that the X Trustees had applied for permission to appeal directly to the Court of Appeal without making an application to Mostyn J on the day, or during the period afterwards when the parties were attempting to agree on transcription of the judgment. Mostyn J found this out via “a cryptic reference … in one of the emails” and directed that the application should come back before him as the first instance judge.

He was characteristically forthright about the principles involved, including a reminder that CPR 52.3(2) and the Practice Direction set out five reasons why the application should be made to the first instance judge first of all. You can see them in full at paragraph 52.3.4 of the White Book or in the judgment itself, but in essence they boil down to reasons of efficiency and economy. Asking the trial judge does no harm to either side; it reduces costs; and if the potential appellant fails, s/he can always have another “bite at the cherry” in the Court of Appeal.

To these, Mostyn J added the further reason that the first instance judge may very well be a specialist in the field. AB v CB had in fact been listed for hearing before a District Judge in Swansea before being moved into Mostyn J’s list; and, with no disrespect intended to that District Judge, it would hardly be possible to have obtained a more specialist first instance judge.

He remarked furthermore that the “increasingly beleaguered” Court of Appeal finds the rulings of first instance judges on applications for permission to appeal to be extremely helpful in identifying the merits or otherwise of that application. While this sounds to me like a double–edged development, the summation of the issues by an unyielding first–instance judge will at least mark out the area of battle and whether or not a death–blow was struck in the court below.

Because of these three combined elements – the existing guidance under CPR 52.3(2), the fact that some first-instance judges have a high degree of specialism, and because a formal refusal of an application for permission assists to some extent with the efficient administration of justice — Mostyn J noted that it was his “clear view that in the future, in the field of ancillary relief at the very least, an application for permission to appeal must always be made to the judge at first instance before an approach is made to the Court of Appeal” [77]. [my emphasis.]

The Return of Ancillary Relief

Note the use of the phrase “ancillary relief”. Yes, it has made a comeback; in fact, as Mostyn J notes, it never went away. “Ancillary relief”, he notes, is still the heading to Part 2 of the MCA 1973. Since we are all basing our claims on that statute, he implies, we are all able to call our claims “ancillary relief” rather than “financial remedies on divorce”, which is so cumbersome that it has been customarily shortened to “financial remedies”, a phrase so meaningless as to be entirely unhelpful. He is certainly calling them “ancillary relief” claims, as we see.

Of course, the objection to “ancillary relief” was that it was also a meaningless phrase. The main arguments as I understand them were (1) there are all sorts of claims which are ancillary to principal or main claims, and so “ancillary relief” did not inevitably connote divorce; and (2) lay clients found the phrase difficult to understand – a particular issue when so many of them are now representing themselves.

For myself, I’m not sure that swapping one relatively meaningless phrase for an even less meaningful phrase was the way to go; and in fact “ancillary relief” has become strictly entwined with the financial elements of divorce over the past 40 years. At least when you said “ancillary relief” all the lawyers in the room knew what you meant; when you say “financial remedy” you could just as well be talking about damages in tort. For the same reasons, I think it is even more confusing for the litigant in person.

Bravo, therefore, to Mostyn J for restoring some clarity of expression and enabling us to point out, if we wish to do so, that the use of the phrase “financial remedies in divorce” is not, in fact, mandatory.

Variation of the Nuptial Settlement under s.24(1)(c) MCA 1973

The variation of settlement aspects of the judgment were not quite so eye-catching, but they were of interest because this was a creative solution for a relatively small settlement fund: the total value was no more than £320,000.

This settlement was a trust: in fact it was a reasonably straightforward trust of land by which the former matrimonial home, a farmhouse, had been held for the benefit of the husband by three trustees: one trustee was CB’s father but the others were not family members. Mostyn J re-affirmed the definition of a marriage settlement as being “any arrangement which makes some sort of continuing provision for both or either of the parties to a marriage”. This is a deliberately broad definition and can, if the circumstances are right, include companies and their assets, as he had already made clear in DR v GR & Ors (Variation of Overseas Trusts)although that was not this case.

AB v CB was a case in which the matrimonial assets were very small, but the husband’s family background was one of considerable wealth. The couple owned no property together, and had very little in the way of joint investments. Contrary to reports in the press, the husband had not inherited anything from the family, although like Pip he clearly had great expectations. The FMH farmhouse was held by the three trustees on trust for the husband as principal beneficiary and for his children or remoter descendants. There was a power of appointment, which had not been used. The trust fund (which was comprised solely of the farmhouse) and its income was to be paid to CB during his lifetime and there was a power of advancement of the whole or part of the fund to CB. On the expiry of the trust period, the capital and income were to be held by the trustees for CB’s brother. As I have already noted, the farmhouse was worth £320,000 at the most.

Although this was all that was set out in the deed itself, correspondence contemporaneous with the creation of the trust indicated that the settlors had intended CB and AB to be able to occupy the farmhouse for their lives, and that thereafter the property would return to being part of the overall (very large) family landholding.

AB and CB then occupied the farmhouse rent-free for about five years, until their separation in 2012.

At trial, the Trustees argued that the trust did not constitute a nuptial settlement — or that if it did, the only nuptial element which the Court could vary was CB’s lifetime right to occupy. On the basis of the wide definition of “settlement” in DR v GR, Mostyn J was in no doubt that this was a nuptial settlement. The more troubling question for the Judge was whether the settlement extended to the property itself or simply to CB’s right to occupy, and here he gave some helpful indications of how what is, as I have said, a relatively common trust of land is to be approached.

It was the existence of the power to advance the whole of the property to CB which convinced the Judge that it was the property itself, and not simply CB’s right to occupy it, which was the subject of the settlement. He noted that if that power had not been there “I might have reached a different decision, it would then have been more borderline”. Obviously all of these cases turn on their own particular facts and it’s dangerous to lean too heavily on a single judgment. However, this type of “no–frills” trust of land crops up frequently, so it’s interesting to see the pivotal importance that the Judge placed on the express power of advancement of the whole fund.

Having reached these conclusions, Mostyn J was able to vary the settlement by dealing directly with the property: but how? His solution was to balance “the sharing principle in relation to the core element of the matrimonial property” and the existence of the trust and its purpose. He was clearly influenced by the abiding intention that the farmhouse should fall back into the family landholdings. On this basis he found that the wife, AB, was entitled to a further award out of the trust, but not on an outright basis: she would have a life interest in one-half of the fund. It seems from the report that the solution of a life interest was suggested by the Judge on the first day of the hearing rather than being advanced by any of the parties.

An award of a life interest in one-half of the fund would generally bring about a sale of the property as night follows day, but in this particular case, given the husband’s family background, there was a possibility that his family might step in to rescue the farmhouse in some way while meeting AB’s award.

This was one of the bases on which the trustees appealed the first instance judgment, asserting that “improper pressure” had been put on them by the judgment to satisfy the order. They failed in that assertion, as well as on a further assertion that the trustees did not have the assets available to make the provision; which, otherwise than by selling the farmhouse, appears to have been strictly correct. On the other hand, the background was that the extended family had really significant wealth, and CB’s father was one of the three trustees of the farmhouse trust of land.

On a practical note, the trustees had not particularly assisted their cause by calling evidence at trial that the farmhouse would be needed in due course for a herdsman, then on appeal reverting to an argument that CB needed the farmhouse to live in with his new family.

Mostyn J rejected the contention that the trustees had no access to other assets by pointing out that their legal costs, in the sum of £50,000 for the trial, were being met by CB’s father. As for improper pressure, he was robust: “I did nothing of the sort. I have given [the husband’s family] choices, that is true, but I have not put any pressure on this father, DB, or his brother, EB, to satisfy this award. If they want to satisfy the award and avoid the sale of the property that is up to them. If they choose not to then the property will be sold and the property will be converted into cash. In White v White, in the Court of Appeal, Lord Justice Thorpe memorably stated that the only difference between real property and cash is the sound of the auctioneer’s hammer. In this case, if the family do not rescue, the property will be sold.” [90].

This passage raises a number of intriguing points, among them whether this is a correct interpretation of Thorpe LJ’s comments in White, and indeed if so, whether Thorpe LJ was right. Whatever the answer to those questions,  the trustees failed on these grounds to obtain permission to appeal from Mostyn J; it will be interesting to see if they renew their application to the Court of Appeal.

One final point: the trustees also argued that by in effect ordering a sale of the farmhouse, the Judge had failed to take into account the interests of the other beneficiaries of the trust, including of course CB’s brother. This contention was rejected on the basis that the other beneficiaries retained their interests in the whole of the fund, including AB’s half, which would revert to the estate after death.

All in all, an interesting case to bear in mind as variation of settlement applications become more frequent.

Form JO – Law Society Issues Practice Note

Mr Jaggers: No nonsense about joint ownership in his day.

Mr Jaggers: No nonsense about joint ownership in his day.

Following the publication by the Land Registry of Form JO, which I covered in my previous post here, the Law Society has now issued a practice note advising conveyancing solicitors on a number of matters to be taken into account when dealing with joint purchasers. It’s all good, sensible stuff and can be found here. Of course there are some problems that Form JO cannot solve, most notably the concealed or phantom purchaser and the “ambulatory trust” whose existence was confirmed in Kernott. But it’s a start.

Amin v Amin: Chancery’s Approach to a Property Tangle

by Tina Manthorpe on Flickr; all rights reserved

The case of Amin & Another v Amin & Others [2009] EWHC 3356 is now up on Bailii here and looks like an interesting read. In many ways it is exactly the kind of case this blog was set up to pick up on, since it is a family property case par excellence. “Others” is something of an understatement: there were no fewer than 18 defendants. There are company law issues, but it is said (I haven’t had a chance to read it through properly yet) that it sets out some very useful guidelines to the Chancery Division approach in dealing with complex family arrangements involving multiple properties/multiple ownership. If you want to find out for yourself you can read it on Bailii (you have been warned: there are no fewer than 614 numbered paragraphs!), but if you want to wait for the boiled-down version, I will be posting my take on it sometime next week.