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

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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.