England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/03/2012

Mr Justice Mostyn:

This is the approved anoymised version of this judgment. The anonymisation has been agreed between by the parties and approved by me.

1. This is an appeal against a wasted costs order made by District Judge Bassett-Cross on 20 July 2011 against the solicitors for the claimant wife in financial remedy proceedings.
2. The final hearing of the wife's claim was listed before District Judge Bassett-Cross on 23 May 2011 with a time estimate of 5 days. It was adjourned. The District Judge found that the wife's solicitors were responsible for the adjournment and that their fault was of such a nature and degree that it amounted to "improper, unreasonable or negligent conduct" within the meaning of s51(6) Senior Courts Act 1981 justifying an order that they should pay the costs thrown away by virtue of the adjournment of both the respondent husband and of the wife of his uncle, the second respondent. Those costs, together with the costs of the hearing about the wasted costs, have been estimated at over £100,000, although the bills have not yet been assessed by a costs judge. The wife was also ordered on a joint and several basis to pay the costs thrown away by the adjournment, but as a legally aided litigant, those costs were not to be enforced save by a further order of the court.
3. I shall refer to the solicitors as "FM", to the claimant wife as "W", to the respondent husband as "H", and to the second respondent aunt as "R2".
4. Permission to appeal was granted by Parker J on 12 October 2011.
5. W's financial remedy claims were compromised by consent orders made on 13 December 2011; a term of the settlement was that it expunged her liability for costs.

Narrative of the background facts

6. I shall set out as shortly as I can only those background facts which are needed to be stated for the purposes of the disposal of this appeal.
7. In May 1998, three years before the marriage between H and W, a property company ("the Company") was incorporated. H, then a 21 year old university student, was allocated one-third of the issued shares. There is no suggestion that he paid for them. Two of his first cousins were each allocated similar shareholdings.
8. The reasons given by H in his s25 affidavit made on 27 April 2011 for the shares being put in the names of him and his cousins were as follows:

"I am informed by my uncle that various properties previously owned by my family were acquired on or around May 1998 as part of an agreed property sale agreement effected between the administrators of HMRC and court appointed receivers (consent of the High Court obtained) with the benefit of loans from my uncles in Canada. My uncle was also finishing his custodial sentence and was not released from prison until 16 August 1999. I believe that I was made a shareholder and. a director of [the Company] due to the convictions of my uncle. At this time it was my uncle S H who was principally running the company and the shares were put into my name purely as a nominee."

The uncle referred to is AH.

9. It is accepted that at no time prior to the separation of H and W on 20 June 2009 did H ever assert his nomineeship to anyone, whether in writing or otherwise. To the outside world he was both the legal and beneficial owner of the shares.
10. Shortly before the separation in June 2009 (according to W; as will be seen, both H and R2 say 2 June 2008) H transferred his shareholding to R2. She is the wife of AH.
11. On 21 October 2009 W filed her divorce petition; Form A; and an application under s37 Matrimonial Causes Act 1973 seeking a reversal of the share transfer to R2 and her joinder. On that day on an ex parte hearing District Judge Malik joined R2, and restrained her from dealing with the shares. He also ordered that both H and R2 make affidavits which inter alia had to specify why and when the shares were transferred by him to her.
12. Those affidavits were made on 27 October 2009. They are very short and obviously have the same authorship. H stated that "I have never regarded myself as the beneficial owner of the shares. I believe that the shares were transferred to more accurately reflect the beneficial ownership. The shares were transferred on 2 June 2008". In the affidavit H identified the beneficial owners as his uncle AH "and/or" his uncle's brothers. The use of "and/or" is a masterpiece of ambiguity. In her affidavit R2 stated "I do not know why the shares were transferred to me. I believe the shares were transferred to me on 2 June 2008". She did not assert that she had any beneficial ownership of the shares.
13. On 22 June 2009 HHJ Hughes QC considered an application made by W that day. She refused to order joinder of the Company. She granted an order that H be orally examined as to his contention that he has no beneficial interest in the Company. This was, presumably, an order for an OS v DS type of hearing.
14. On 8 April 2010 District Judge Bassett-Cross ordered that the oral examination be listed for directions at the FDR on 12 May 2010 with the intention that there would be a preliminary issue as to the beneficial ownership of the Company heard at the final hearing of W's claims. No party, nor the Court, raised the question of the joinder of any third parties.
15. The FDR was then twice adjourned on account of deficiencies in H's replies to W's questionnaire.
16. On 12 November 2010 the FDR and directions hearing took place before District Judge Gordon-Saker. She ordered that by 25 March 2011 the parties were to serve a list of witnesses who would give evidence; that s25 affidavits and statements from the witnesses were to be filed by 8 April 2011; and that the final hearing do take place over five days commencing on 23 May 2011 with the first two days being designated for disposal of the preliminary issue. Again, no party, nor the Court, raised the question of the joinder of any third parties.
17. On 25 March 2011 H's solicitors signified that the only witness for H would be H himself. Remarkably, he did not intend to call any family members as witnesses in relation to the preliminary issue.
18. On 27 April 2011 H filed his s25 affidavit which contained a narration about the acquisition by him of the shareholding in the Company, from which I have quoted above at para 8.
19. On 28 April 2011 W's solicitors FM wrote to A H as follows:

"As you may be aware the final hearing in our client's application for financial relief is listed at the above court on the above date.

It is part of our client's case that the shareholding currently held by your wife, P H is to be rightly attributed to your nephew, the 1st Respondent J H. We note that you are not being called as a witness by the 1st Respondent despite the nature of his evidence on the issue. If you wish to consider intervening in the proceedings and seeking permission from the court to file your own evidence in these proceedings relating to that issue that must be a matter for you to consider but we should be grateful to receive notice of any intention to do so.

You may wish to consult your own independent legal advisors elsewhere before responding."

20. On 17 May 2011 A H replied to this letter, and declined the invitation to intervene. It did not explain why he had not applied to intervene earlier.
21. On 18 May 2011, that is just two clear business days before the hearing, R2's solicitors wrote to W's solicitors stating "in line with our client's ongoing duty of disclosure we enclose herewith further documents that our client will be relying on at the hearing on 23 May 2011 … Please note that elements of the disclosed documentation have been redacted and only items that are seen as relevant are being disclosed". There were 123 pages of documents enclosed which related to events in 1998 when the company was formed. They had indeed been very heavily redacted. One document was an affidavit from K H, H's father then imprisoned in HMP Brixton, made in what appear to be confiscation proceedings under the Criminal Justice Act 1988. About 95% of the text had been obliterated. No-one could have derived any meaningful knowledge from what was left.
22. On Saturday 21 May 2011 the skeleton argument of Mr Geraint Jones QC for R2 was prepared and emailed. Given that this was not a business day it is to be treated as being served on Monday 23 May 2011, the first day of the hearing. That document did not state that R2 asserted a beneficial interest in the shares of the Company. To my clear recollection of the submissions made to me on the hearing of the appeal such an assertion was not made until much later, in or about October 2011, pursuant to a further order of District Judge Bassett-Cross^[1]. The language of the skeleton was uncompromising. It described the steps taken by W's solicitors as "astonishingly inept and inappropriate". It asserted that it was "incumbent on W to join the beneficiaries", relying on a number of authorities including a decision of my own: TL v ML [2006] 1 FLR 1263. It asserted that "W cannot ask this court to make any findings/rulings concerning the beneficial interest(s) in the 334 shares. This is because her solicitors have failed to join the appropriate beneficiaries into the action". Interestingly, in relation to the s37 application against R2 (which was of course the only relevant application with which she was concerned) it was stated "whether the Court does or does not [set the transfer aside] is largely a matter of indifference to R2, given that only the bare legal title was vested in H". It concluded by suggesting that the application against R2 "such as it is" should be dismissed with indemnity costs against W, coupled with a wasted costs order against her solicitors FM.
23. It is said to me by Mr Jones QC that on the morning of Monday 23 May 2011 counsel for W, Nicholas Bennett, arrived at Court with a draft order which included provision for an adjournment. Mr Brett says that there is no evidence to this effect, and that evidence should not be given to me from the Bar in this way. I agree.
24. When the matter was opened by Mr Bennett to District Judge Bassett-Cross he stated this:

"MR BENNETT: This was supposed to be the final hearing of two applications by my client, who is the wife. Firstly, to set aside a transfer of shares in the [Company], which was transferred by the husband to his aunt, P H, the second respondent in these proceedings, at some point in 2008 or 2009, and then the final hearing of her application against him for ancillary relief. … I say "supposed to be the final hearing" because in the days leading to this trial we were provided with 125 pages of additional information, and a clarified position within Mr Jones's skeleton argument, which means that I have to accept that this hearing ought to be adjourned. Why do I say that? It is because Mr Jones's point is that, even if you were to agree with our application, to set aside the transaction and transfer these shares back from PH to the husband, that would not affect the beneficial ownership of that shareholding, because it is held for persons who are yet to be specified."

25. Later, Mr Jones QC stated:

"Sir, we say it is a proper case for, albeit to be adjourned, to be adjourned on payment of costs. Other than that what we would propose by way of an order, that it be adjourned."

26. In his judgment the District Judge stated:

"2. The matter that the court is being asked to decide now arises from an application by all parties for an adjournment of this final hearing, notwithstanding that the proceedings have been pending for some 18 months, and this hearing, no doubt, fixed for at least the last six months, if not longer than that.

…

15. Mr Jones, on behalf of the second respondent, and Mr Perrins, on behalf of the first respondent, agreed to the adjournment but on the basis that it must be the wife who pays the costs thrown away by this adjournment. They both further seek a wasted costs order against the solicitors instructed on behalf of the wife for the very reasons to which I have already referred."

27. I mention this as it is now stated to me by Mr Jones QC (who now represents both H and R2) that in fact neither H nor R2 in fact consented to an adjournment; rather, they did not oppose W's application therefor. He says that the District Judge wrongly recorded the positions of H and R2 in his judgment. I am not prepared to accept that. I proceed on the basis that the judgment accurately reflects a unanimous accord that the matter should be adjourned.
28. On 23 May 2011 District Judge Bassett-Cross ordered that:

i) By 27 May 2011 R2 was to set out in a list the persons whom she believed were the beneficial owners of the Company.

ii) By 3 June 2011 H was to signify whether he accepted that list.

iii) W was entitled to apply on paper to District Judge Bassett-Cross to join those persons whom she believed were beneficial owners of the shareholding 28 days after receipt of the list and H's response thereto.

iv) Upon joinder W was to serve points of claim and H was to serve points of defence.

v) The preliminary issue was to be fixed with a time estimate of three days.

vi) W was to pay the costs of H and R2 "thrown away by reason of the adjournment", such order not to be enforced without a further order of the court (as she was in receipt of legal aid).

vii) W's solicitors FM were to show cause at a hearing to be fixed with a time estimate of 2 hours why they should not pay the costs "thrown away by reason of the adjournment".

29. On 20 July 2011 the wasted costs hearing took place. District Judge Bassett-Cross ordered that:

i) W's solicitors FM were to pay the (standard) costs thrown away by reason of the adjournment of the final hearing fixed for 23 May 2011 together with the costs of the wasted costs hearing on 20 July 2011.

ii) FM were to pay £15,000 on account within 21 days.

iii) R2, having given her list of names by email on 11 July 2011, was to supply addresses and certain other information by 28 July 2011. H was to supply his acceptance or non-acceptance by 28 July 2011.

iv) FM's application for permission to appeal was refused.

30. I shall examine the judgments of District Judge Bassett-Cross given on 23 May and 20 July 2011 later in this judgment.

Some preliminary observations on the sequence of events

31. R2 has been a party to the application for a financial remedy from the start. Although she was not represented at the hearings on 8 April 2010 and 12 November 2010 when the preliminary issue was first mooted and then ordered, she could have been. Plainly, she was well aware of the orders which had been made. H, of course, was represented at all those hearings other than those heard ex parte.
32. R2's affidavit of 27 October 2009 was misleading by omission inasmuch as she failed to state in it, or indeed at any time prior to 11 July 2011, that she claimed to be a beneficial owner (with others) of the shares of the Company.
33. I have recorded above that as at 23 May 2011 R2 had not asserted any beneficial interest in the shares. She had stated that she had no idea why they had been transferred to her. The explanation for the transfer given by H in his affidavit of 27 October 2009 was hardly consistent with his affidavit of 27 April 2011. In relation to the actual application which R2 was facing (a reversal of the transfer of the shares to her by H in either 2008 or 2009) she was "indifferent" (as Mr Jones QC put it). The statutory presumption of an intention to defeat W's claim in s37(5) Matrimonial Causes Act 1973 was engaged. It is therefore hard to see on the available evidence that any order could or should have been made other than to grant the application. For the purposes of my analysis of the law and the facts which follows it must be right that I should regard the shares as having been standing in H's name at all relevant times.

The law concerning wasted costs applications

34. s51(6) and (7) Senior Courts Act 1981 provide:

(6) In any proceedings mentioned in subsection (1), the court may disallow, or (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court.

(7) In subsection (6), "wasted costs" means any costs incurred by a party—

(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or

(b) which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay.

35. In Ridehalgh v Horsefield [1994] Ch 205 [1994] 3 All ER 848, CA the Court of Appeal gave definitive guidance concerning these provisions and held that the meaning of the words 'improper, unreasonable or negligent' was well-established and not open to serious doubt. 'Improper' covered any significant breach of a substantial duty imposed by the relevant code of professional conduct, as well as conduct which would be improper according to the consensus of professional opinion, whether it violated the letter of a professional code or not. 'Unreasonable' described conduct which was vexatious, designed to harass the other side rather than advance the resolution of the case, and it made no difference that the conduct was the product of excessive zeal and not improper motive, since the acid test was whether the conduct permitted of a reasonable explanation. 'Negligent' was to be understood in an un-technical way to denote failure to act with the competence reasonably expected of ordinary members of the profession. I highlight three passages from the judgment of Sir Thomas Bingham MR (as he then was) for the court:

"Improper, unreasonable or negligent

… In adopting an untechnical approach to the meaning of negligence in this context, we would however wish firmly to discountenance any suggestion that an applicant for a wasted costs order under this head need prove anything less than he would have to prove in an action for negligence

…

Causation

As emphasised in Re a Barrister (wasted costs order) (No 1 of 1991) [1992] 3 All ER 429, [1993] QB 293, the court has jurisdiction to make a wasted costs order only where the improper, unreasonable or negligent conduct complained of has caused a waste of costs and only to the extent of such wasted costs. Demonstration of a causal link is essential. Where the conduct is proved but no waste of costs is shown to have resulted, the case may be one to be referred to the appropriate disciplinary body or the legal aid authorities, but it is not one for exercise of the wasted costs jurisdiction.

….

Discretion

It was submitted, in our view correctly, that the jurisdiction to make a wasted costs order is dependent at two stages on the discretion of the court. The first is at the stage of initial application, when the court is invited to give the legal representative an opportunity to show cause. This is not something to be done automatically or without careful appraisal of the relevant circumstances. The costs of the inquiry as compared with the costs claimed will always be one relevant consideration. This is a discretion, like any other, to be exercised judicially, but judges may not infrequently decide that further proceedings are not likely to be justified. The second discretion arises at the final stage. Even if the court is satisfied that a legal representative has acted improperly, unreasonably or negligently and that such conduct has caused the other side to incur an identifiable sum of wasted costs, it is not bound to make an order, but in that situation it would of course have to give sustainable reasons for exercising its discretion against making an order."

36. In Medcalf v Mardell [2003] 1 AC 120, HL, Lord Bingham of Cornhill stated at para 23:

"The court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so. This reflects the old rule, applicable in civil and criminal proceedings alike, that a party should not be condemned without an adequate opportunity to be heard. Even if the court were able properly to be sure that the practitioner could have no answer to the substantive complaint, it could not fairly make an order unless satisfied that nothing could be said to influence the exercise of its discretion. Only exceptionally could these exacting conditions be satisfied. Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is (a) satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order and (b) that it is in all the circumstances fair to make the order."

37. It is not suggested in this case that FM's conduct was either improper or unreasonable in the sense described by Sir Thomas Bingham MR, nor could it be. The case they face is squarely an allegation of negligence. Therefore it seems to me that the applicable principles that governed this application were (and are) as follows:

i) R2 and H have the burden of showing that FM failed to act with the competence reasonably expected of ordinary members of the solicitors' profession. R2 and H have to prove as much as they would have to prove in an action for negligence against FM.

ii) The demonstration by R2 and H of a causal link between FM's conduct and the wasted costs, and only to the extent of the wasted costs, is essential.

iii) Even if these conditions are satisfied H and R2 have to persuade the court to exercise its discretion to make a wasted costs order.

iv) Where the respondent lawyers are precluded by legal professional privilege from advancing a full answer to the complaint made against them the court should only make an order for wasted costs exceptionally where (a) it is satisfied that there is nothing the lawyers could say, if unconstrained, to resist the order and (b) it is in all the circumstances fair to make the order.

The allegation faced by FM

38. This can be shortly stated, and is encapsulated in para 7 of Mr Jones QC's skeleton for the hearing on 20 July 2011:

"R2 contends that no reasonably competent solicitor could possibly have thought that the real issues in the case could be dealt with properly on behalf of [W], without the beneficial owners of the 334 shares being parties, so that they would be bound by any decision in the case."

39. R2 and H allege that FM failed to comply with my suggested discipline in TL v ML, recently approved by the Court of Appeal in Goldstone v Goldstone [2011] 1 FCR 324 at paras 36 and 66, and in Edgerton v Edgerton & Anor [2012] EWCA Civ 181 at paras 52 - 53. In TL v ML I stated at paras 35 – 37:

"[35]   Mr Brett makes the valid complaint that this issue has never been properly defined, pleaded or particularised. At no stage since the first appointment has this discrete issue been the subject of any case management, notwithstanding that the parties have been before the court on numerous occasions.

[36]   In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:  

(i) The third party should be joined to the proceedings at the earliest opportunity;

(ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

(iii) Separate witness statements should be directed in relation to the dispute; and

(iv) The dispute should be directed to be heard separately as a preliminary issue, before the financial dispute resolution (FDR).

[37]   In this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place. It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided. It is a great pity that none of these steps took place in this case. Had they happened, I believe that a great deal of the costs would have been saved." 

40. It can be seen that nowhere in that passage did I address the question upon whom should fall the obligation to take steps to achieve the joinder, nor was this aspect addressed in either Goldstone v Goldstone or Edgerton v Edgerton. Mr Jones QC submits that on the facts of this, and I think every, case the obligation falls on the claimant.
41. It is fair to say that while this discipline is, generally speaking, the right way of proceeding, it is by no means a mandatory prescription. Thus in A v A [2007] 2 FLR 467 Munby J, as he then was, stated at para 23, when speaking of TL v ML:

"[23]   The deputy judge recorded, at para [35], the complaint of counsel in that case that the issues had never been 'properly defined, pleaded or particularised' and went on to suggest, at para [36], how such issues should in future be handled by way of appropriate case management. I am sympathetic to the approach being suggested by the deputy judge, though I would not wish to be quite so prescriptive as he appears to be. Vigorous judicial case management in such cases is vital, but the appropriate directions to be given in any particular case must reflect the case managing judge's appraisal of how, given the forensic realities of the particular case, the issues can best be resolved in the most just, effective and expeditious manner."

42. In my judgment there is a clear distinction to be drawn between the state of affairs where a claimant is saying that a property held in the name of a third party is the property of the respondent; and the situation (as here) where the respondent says that property to which he has legal title is beneficially owned by a third party.
43. In the former case I strongly endorse my discipline. In such a case there is a clear obligation on the claimant to apply to join the third party at an early stage and to seek to invoke the discipline in TL v ML. Only in this way can the pool of assets over which the dispositive powers of the court ranges be established and an effective FDR take place.
44. In the latter situation, which is the case here, the duties are by no means so clear cut. If an asset is (say) in the name of the respondent husband then in my judgment the starting point, or prima facie position, is that it belongs to him both legally and beneficially. In my judgment this cannot be seriously disputed in the light of Stack v Dowden [2007] 1 FLR 1858, HL where Baroness Hale of Richmond stated at para 56:

[56]   Just as the starting point where there is sole legal ownership is sole beneficial ownership, the starting point where there is joint legal ownership is joint beneficial ownership. The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest.

See also para 61.

45. Mr Jones QC very strongly disputes that this statement by Baroness Hale as to where the burden or onus lies is of general application. Rather, he argues, it is to be confined to the situation where a domestic home is held by one cohabitant but where the other is claiming a beneficial interest in it. He says that were I to find otherwise I would be violating centuries of learning in the Chancery Division where the position is as here, when the trustee (in this case H) agrees with the putative beneficiaries (in this case at that time incompletely and ambiguously identified) that the beneficial ownership lies with them. He submitted that were I to take the view that the statement of Baroness Hale was of general application then I would be "fundamentally wrong".
46. Mr Jones cited no authority in support of his argument. Surprisingly, there does not seem to be that much case law on the subject anyway. In Seldon v Davidson [1968] 2 All ER 755, CA, the plaintiff paid to the defendant, who was then her chauffeur-handyman, sums totalling £1,550 to buy himself a house, which he did. Subsequently the plaintiff demanded repayment of the money, the defendant refused, and the plaintiff brought an action in the county court to recover it. In his defence the defendant admitted receipt of the money but alleged that it was a gift, alternatively that it was not repayable at the date of issue of the writ. The issue was on whom lay the burden of showing that the advance was a loan or a gift. In the Court of Appeal Edmund-Davies LJ stated:

"Since the advancement of loans and the making of gifts have been common transactions amongst mankind for many centuries, there is a remarkable paucity of authorities as to on whom the burden lies of distinguishing the one type of transaction from the other."

47. In that case it was concluded by him that:

"There being no blood relationship, no husband-and-wife, no father-and-child, no adoptive-parent and adopted-child relationship between the plaintiff and the defendant, counsel for the defendant was forced to concede that in those circumstances, which accordingly gave rise to no presumption of advancement, the house must prima facie be regarded as being held by the defendant by way of a resulting trust for the benefit of the plaintiff. But, although that is conceded, it is nevertheless said that it is for the plaintiff to prove that the money was advanced by way of a loan and not as a gift.

…

Accordingly, one is really driven back to consider this matter without the assistance of authority; and, being so unassisted, I ask myself what is to be inferred as to the nature of the transaction when the simple payment of money is proved or admitted between strangers. I entirely agree with Willmer LJ that on that bald state of affairs, proof of payment imports a prima facie obligation to repay the money in the absence of circumstances from which a presumption of advancement can or may arise."

48. In stark contrast is the old decision of George v Howard (1819) 7 Price 646. There a doting uncle had 18 months before his intestate death placed £1,300 Navy 5% Bank Annuities in the joint names of himself and the husband of his niece. Was it a gift, or was there a resulting trust in favour of his estate? Although the evidence clearly showed an intention to make a gift, Richards CB in judgment uttered a clear statement of general application namely: "if I deliver over money, or transfer stock to another, even though he should be a stranger, it would be prima facie, a gift". To like effect Garrow B stated: "a man purchasing stock may have reasons for its not standing in his own name, but where he transfers stock already in his name into that of another person, it is quite a different thing, and generally proceeds from an intention to benefit the person into whose name it is transferred".
49. These statements are completely consistent with the statement of Baroness Hale 188 years later. I accept Mr Jones's submission that there cannot be different rules in different Divisions. I believe that the statement of Baroness Hale is of general application. However, I need only base my decision on the facts of the case before the court. In the second class of case referred to by me at para 42 above (i.e. where the asset in dispute is held in the sole name of the respondent to the claim) it is my opinion that the duty to bring the claim of the non-legal-owner third party before the court lies primarily and equally on the respondent to the application and on the non-legal-owner, and not on the claimant.
50. That is not to say that the Claimant may wish to take this step herself. It would depend on how her claim is framed. Let me give an example. Say that there are assets worth £500,000 in the names of the parties about which there is no dispute that they are beneficially owned by the parties (Pool A), and a further £500,000 of assets in the name of the respondent but which he says is owned by his uncle (Pool B). The claimant might take the view that she is not going to go to the expense of joining the uncle, but will rather argue, in reliance on the starting point or prima facie position, in a trial between her and the respondent alone, that Pool B beneficially belongs to the respondent. Assume further that the uncle does not exercise his undoubted right to apply to intervene. The court is obliged to decide in the exercise of its statutory inquisitorial function under s25(2)(a) Matrimonial Causes Act 1973 which assets belong to the respondent. It decides on the evidence, giving due weight to the starting point, that Pool B belongs to him alone and awards all of Pool A to the claimant on the application of the equal sharing principle. Certainly, the finding that Pool B belongs to the respondent does not bind the uncle, but it certainly binds the respondent. The claimant can collect her full award from Pool A without any difficulties involving the uncle.
51. In this scenario it can be seen that there is no reason for the claimant to join the uncle. Further, a FDR can certainly take place without the uncle being a party, the court giving its early neutral evaluation as to the ownership of the assets of the parties on the evidence before it.
52. Now let me change the facts of the example somewhat. Assume that Pool A comprises only £100,000 and Pool B £900,000. The Court awards £500,000 to W. She can collect £100,000 from Pool A but has to enforce £400,000 against Pool B. She may well face in enforcement proceedings a claim by the uncle that he owns beneficially Pool B, although in those proceedings the uncle would have to answer the hard question why he never sought to intervene in the original proceedings to defend his asset. In this scenario the claimant may very well decide that it would be wise to apply to join the uncle into the original proceedings in order to ensure effective enforcement or at least in order to avoid mess and chaos in later enforcement proceedings. But in my judgment she is under no obligation to do so.
53. A good example of a case in the second scenario described by me in para 42 above is Gourisaria v Gourisaria [2010] EWCA Civ 1019 (decided on 13 August 2010, well before the hearings in this case on 23 May 2011 and 20 July 2011), where, as it happens, I gave the first instance decision under appeal. In that case the assets lay in the bracket of £7m - £12m. Of these assets the husband always contended in the ancillary relief proceedings that the money in Swiss bank accounts and the equity in two English properties (the majority of the assets) were held by him on behalf of his extended family under the arrangement which is known as the Hindu Undivided Family ("HUF"), which is a form of co-ownership or a form of trust. In October 2009 proceedings were begun in Calcutta, brought by the husband's Indian brother against both the husband and the wife. In them, the brother claimed that substantially all the assets which were apparently in the name of the husband were in fact held in the HUF not only for the brother and his immediate family alone, but also for a number of other family members. An invitation to the brother to intervene in the ancillary relief proceedings was made and declined, or at any rate not taken up. The wife did not seek to join the brother to the proceedings; nor did she take any of the steps referred to in the discipline in TL v ML. The issue I had to decide was whether the trial of the wife's claim should be adjourned pending the outcome of the Calcutta proceedings. I declined to do so, and held that:

"I reiterate my view that if a third party is aware that there are ancillary relief proceedings between husband and wife, and wishes to make a claim to the subject matter of those proceedings, then, in my opinion, the only proper procedure, in order to avoid the spectre of inconsistent judgments, and to ensure that all disputes are resolved in one fell swoop, is for him to apply to intervene in the ancillary relief proceedings."

54. In the Court of Appeal Hughes LJ held, when dismissing the appeal, that:

"19. I have no doubt that, ordinarily, intervention, if it is accepted, is much the best means of achieving a decision on all material matters in a manner which binds not only the spouses but also any third party. If that can be achieved and if it is truly necessary, rather than simply an exercise in finding out whether there is a claim elsewhere, I am sure that that ought to be undertaken and that is what the cases to which the judge referred, including TL v ML (Ancillary Relief: Claim against assets of extended family) [2006] 1 FLR 1263 and Rossi v Rossi [2007] 1 FLR 790, say.

…

22. It is plain to my mind, equally, that Mostyn J, in the passage which I have cited, in his reference to "the only appropriate procedure" was not to be taken as having meant any universal proposition for every case. He undoubtedly meant that it was the only proper course, as he saw it, in this case, given the advanced stage of the proceedings.

23. Accepting as I do the general proposition that it is highly desirable that issues between a third party and spouses should be resolved at the same time as the issue between the spouses, there will be some cases in which it simply cannot be done and there will be others where it could be done only at the cost of a price which ought not to have to be paid."

55. It can be seen that neither at first instance, nor in the passages in the judgment of Hughes LJ which I have cited, was there the faintest suggestion that the wife was under a duty to apply to join the brother, let alone any criticism that she did not take such a step. She made the strategic decision to proceed with her claim without joinder, and, so far as I am aware, that duly happened. The gravamen of the judgments both at first instance and on appeal was that inasmuch as there was a duty to bring the brother's claims before the court, it lay on the husband and the brother, and not on the wife.
56. I therefore fundamentally disagree with the central proposition advanced by Mr Jones QC, which was accepted in almost all its aspects by the District Judge. In his judgment of 23 May 2011 the District Judge stated:

"11. Turning to the matter that I have to decide this afternoon, and that is whether there should or should not be an adjournment, it is quite clear to me that the matter has to be adjourned. Whilst the wife still contends that this husband and/or the second respondent has a legal and beneficial interest in these shares, the fact of the matter is that the proper procedure with regard to bringing those other parties who have a beneficial interest before the court has not been proceeded with. I do not disagree at all with Mr Jones's submissions on behalf of the second respondent in respect of this matter.

12. It is a woeful disregard for normal procedures and it is as if those who are instructed on behalf of the wife have no regard to the procedures of the court, and particularly when those have been so clearly set out in the judgment of Mr Nicholas Mostyn QC, as he then was, in TL v ML as long ago as 2005. They knew in 2009 that the beneficial interest in these shares was asserted not to be held by the husband, and not by the aunt, the second respondent.

13. No question, as I understand it, was asked of them as to who then holds the beneficial interest. No application was made to this court for directions in respect of that, and the joining of the beneficiaries, or indeed for the husband to disclose those beneficiaries. As Mr Jones has pointed out, an application could have been made in the Chancery Division for a representation order, as indeed it could be, I understand from Mr Jones, in this Division. None of that was done until some four weeks ago when a letter was written, both to the company itself, for reasons that escape me, and also to one of the known beneficiaries. I say 'known because that is in the evidence, it is quite clear, and it is in the wife's evidence that the company was run by this gentleman. She knew right from day one.

14. What is also surprising because an application was made by Her Honour Judge Hughes in 2010 for the company to be joined to the proceedings, which she rightly dismissed. No thought seems to have been given to how they were going to ensure that any order they were seeking from this court could be enforceable against third parties who were not parties to these proceedings

…

16. It is, in my judgment, quite astounding that this aspect of the application was not properly attended to. It is exactly the same position where you have to serve notice in Form A on mortgagees. It just seems to me to be unbelievable that this has not been picked up and dealt with properly prior to this.

17. Therefore, it seems to me, there can be no question that the adjournment is caused solely by reason of this. Obviously consequential directions will need to be given to ensure that this matter is better prepared before it comes back before the court. That must be on the basis that the wife must pay the costs thrown away by the first and second respondent by reason of the adjournment. She being in receipt of public funding, those costs obviously will have been to be the subject of a detailed assessment, and cannot be enforced without further leave of the court.

18. In so far as the wasted costs order is concerned, I have to give the solicitors the opportunity of being represented before this court. Of course I give that. It will be apparent from all that I have said, that I think they have a very hard hill to climb, unless there is something that I have not been told today."

57. And in his judgment of 20 July 2011 he stated:

"8. The solicitors Fisher Meredith, have the conduct of this application. They have a duty of care to their client. They also have a duty to the court to be able to put forward and ensure that the proceedings proceed in an orderly and proper fashion to enable the court to adjudicate upon the matters they have invoked the jurisdiction of the court. It seems to me that it is an unhelpful argument to suggest -- because this is a matrimonial suit -- that each party is the Applicant and is seeking orders from the court and that by reason of the overriding objective, as I have already indicated, that the parties should provide evidence to support the other party's case. There is a very simple tried and tested method in this Division of discovery -- which I personally disagree with -- but that is by way of questionnaires, because the questionnaires are usually lengthy, do not assist the court in large part, but the fundamental question must be asked and that question, as I have said before, has not been asked, and if it were asked and not answered, the court has other powers whereby an application could be made for the alleged beneficiaries to attend on a production appointment, and professionals can be also equally ordered and, of course, there is the method of an oral examination of third parties and things like that. None of that was done in this case.

9. But my fundamental point is that the adjournment arises solely out of the failure to ask that question throughout the lengthy proceedings, and that resulted directly in the adjournment which I granted, and it seems to me that there can be no question other than that the wasted costs order should be made, because I am not satisfied from the evidence that [the solicitor with conduct of the case] has supplied that the negligence is anybody else's but his. There is no reference to client's instructions or anything like that, it is down to him not asking that question and that is my judgment."

58. In my judgment the findings and criticism made against FM are wholly untenable. All of W, H and R2 had assented either expressly or tacitly to the preliminary issue being determined without joinder of other members of H's family. If this was the wrong decision then in my judgment the blame falls primarily and equally on (i) H for not inviting other members of his family to intervene, (ii) R2 for not suggesting the same to her husband and other family members and (iii) the family members for not intervening to protect their (alleged) property. I acquit FM of any negligence, in the sense described by Sir Thomas Bingham MR.
59. Plainly costs were wasted by the adjournment and I have been concerned to understand why Mr Bennett sought an adjournment rather than pushing on with the claim on the tramlines which had been defined by the earlier case-management orders. But there are three valid responses to this concern:

i) Given the extraordinary nature of the heavily redacted 123 pages of documents received only two working days before the hearing, an adjournment would probably have been needed anyway, not least so that W could be allowed to see a sufficiency of the documents so they actually made sense to her and her advisers. In this regard the responsibility for the wasted costs must fall on R2.

ii) I am not prepared to accept that the adjournment was at the sole behest of W. Rather, as the District Judge accurately found, it was a joint decision.

iii) We cannot know what passed between Mr Bennett, FM and W which led to the decision to seek an adjournment, as it is covered by legal professional privilege. For all we know W may have insisted on it in the teeth of advice to press on. Therefore following Medcalf v Mardell, it is impossible to rely on that decision for the purposes of deciding if FM were negligent.

60. There is nothing in the judgment of 20 July 2011 to suggest that the District Judge performed the discretionary second stage of the decision making process as he was required to do. The judgment is wholly silent on this point, and in my judgment this is a further fatal defect.
61. In my judgment, for all these reasons, the decision of the District Judge was plainly wrong and his judgment and award against FM are set aside in their entirety. The £15,000 paid on account to FM will be repaid to them.
62. Finally, I refer to para 71 of Goldstone v Goldstone where Hughes LJ stated:

Postscript; the Family Procedure Rules 2010

It should be recorded that with effect from 6 April 2011 the rules position will change with the introduction of the new Family Procedure Rules 2010 in place of the existing Family Proceedings Rules 1991. The 2010 rules remove the default application to family proceedings of the RSC. They are plainly modelled generally on the CPR, and include a re-statement (in slightly different terms) of the overriding objective, but the CPR continue not to apply directly to family proceedings. After 6 April 2011, the provisions of RSC O11 and O15 r 6 will therefore not be applicable to a case such as the present, and nor will CPR 19.2 or 6.36 and its associated Practice Direction. It appears that the new 2010 Rules contemplate that the joinder of parties be accomplished according to the broad discretionary case management powers contained in the overriding objective, viz: 1.4(2) (b)(ii) which makes clear that that objective includes the duty to decide an early stage who should be a party to the proceedings; see also 4.1(3)(o) and Part 18. Since the 2010 rules say nothing about the principles on which joinder of third parties (onshore or offshore) should be exercised, it may be that courts will have recourse by analogy to the principles contained in CPR 19.2 and 6.36 with its Practice Direction 6B. The final resolution of that issue must however await a decision on the point.

63. This case was operating under the new rules, and indeed a joinder was duly made of a number of family members after 23 May 2011. Under the old RSC O15 r6(2)(b) the court had power to order any person to be added as a party:

i) whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

ii) between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.

64. Very clear definitive guidance as to the considerations in play on a joinder application was given by Wilson J (as he then was) in T v T and Others (Joinder Of Third Parties) [1996] 2 FLR 357.
65. CPR 19.2(2) provides:

"The court may order a person to be added as a new party if –

(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue."

66. Plainly, the power to order joinder is present under FPR 2010 rule 1.4(2)(b)(ii)^[2]. In my judgment the differences between RSC O15 rule 6(2)(b) and CPR rule 19.2(2) are purely linguistic. The two limbs or grounds should remain the basis of any order for joinder in financial remedy proceedings and any application therefor should be adjudged with the guidance of Wilson J in T v T firmly in mind.
67. I will hear the parties as to costs and as to the form of the order. My provisional view is that H and R2 should be jointly and severally liable for FM's costs both here and below, to be assessed on the indemnity basis.

LATER

68. I have been asked to award interest on the sum of £15,000 which is to be returned to FM pursuant to para 61 above. Interest at the statutory rate of 8% is claimed. I am sure that I have a discretionary power to compensate FM for being kept out of their money. However, the statutory interest rate bears no relationship to interest rates which are commercially available. I judge that FM should receive simple interest at 2% from the date which they paid the money until the date it is returned. If this is not agreed then the parties must work out and agree a later date from which the interest at the statutory rate shall run so that the amount of interest received at that rate corresponds to 2% from the date that the sum was originally paid by FM.
69. I have received submissions as to costs. I have been referred to the decision of Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810, CA where Simon Brown LJ (as he then was) stated as follows:

"[12] …To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Pt 44 (unlike one made under Pt 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory. The indemnity costs order made on the principal appeal in McPhilemy's case was certainly of that character. We held ([2001] 4 All ER 361 at [29]) that the appeal involved an abuse of process on the footing that 'to have permitted the defendants to argue their case on perversity must inevitably have brought the administration of justice into disrepute among right thinking people'."

70. On reflection, having regard to the very high threshold established by this authority, and having regard to the competing submissions made to me in writing, I conclude that my provisional view was wrong and that the correct order is for H and R2 to be jointly and severally liable for FM's costs both here and below, to be assessed on the standard basis.

Note 1   I have been informed since this judgment was distributed in draft that a document containing a representation to this effect was provided on 11 July 2011.    [Back]

Note 2   Since this judgment was distributed in draft I have become aware of the proposed amendments to the FPR 2010 to take effect on 6 April 2012 which will insert at rule 9.26B(1) a rule which is indistinguishable from CPR rule 19.2(2).    [Back]