Jersey Unreported Judgments

[2007]JRC109

royal court

(Family Division)

1^st June 2007 

Advocate M. St J. O'Connell for the Petitioner.

Advocate D. S. Steenson for the Respondent and Third Party.

judgment

bailiff:

1.        These are applications by Mr O'Connell on behalf of the Petitioner for orders that the Respondent and the Third Party should be condemned to pay, jointly and severally, on an indemnity basis, (1) her costs of and incidental to the Preliminary Issue fixed by the Court on 10th April 2006 and (2) the reasonable costs of the witnesses from Royal Bank of Scotland International ("RBSI") and the States of Jersey Planning Department of and incidental to a summons heard by the Deputy Bailiff on 2nd May 2007.  The Deputy Bailiff left over the question of costs in relation to that summons to be determined by the trial judge.

2.        The applications follow a concession made by the Respondent and the Third Party two days before trial that they would not oppose the making of orders in the terms of the Prayer to the Petitioner's Points of Claim.  That order was duly made.  On ordinary principles costs would follow the event, and an order for costs in favour of the Petitioner should prima facia be made.  Counsel submits, however, that the costs should be paid on an indemnity basis because the conduct of the Respondent and the Third Party has been tantamount to an abuse of the process of the Court.  That application is contested by Mr Steenson on behalf of the Respondent and Third Party.  A number of authorities were cited, but it seems to me axiomatic that, if Counsel for the Petitioner can establish conduct which is tantamount to an abuse of the process of the Court, an order for indemnity costs should follow.

3.        The background can for these purposes be shortly stated.  The Respondent is a successful builder and property developer who has been in business with his brother, the Third Party, for some twenty years.  When the Respondent admitted an affair with the Co-Respondent, he made it clear to the Petitioner, according to her affidavit of 5th April 2006, that if she pursued divorce proceedings "he would make life very difficult for [her] and in fact had indicated ... that he would ensure that [she] would get nothing".    The slow progress of these ancillary proceedings tends to suggest that that was not an empty threat. 

4.        On 20th March 2006 the Court ordered that the Respondent should provide a valuation of a flat in Carteret jointly owned with the Third Party by 20th May 2006.  On 10th April 2006 the Court ordered that the Respondent should pay £15,000 to the Petitioner as a contribution towards her accountancy costs.  The Respondent did not comply with the Order relating to the valuation of the flat, nor did he comply with the Order in relation to accountancy costs.  Despite repeated requests from the Petitioner's legal advisers, there was prevarication until 23rd October 2006 when I ordered at a Directions Hearing that, if the Respondent failed to pay the sum of £15,000 within seven days, the matter should be referred to the Court as a question of contempt.  Even then, it was not until a summons had been issued in December 2006 that the Respondent paid over the amount in question.  On 9th January 2007 he was admonished for his contempt.

5.        What is an issue in these ancillary proceedings is the extent of the Respondent's assets.  Only when those are known, can an appropriate order for the fair division of family assets be made.  The Petitioner was aware that a particular development involving Field 1218 was expected to be very profitable.  The Respondent and Third Party told RBSI that they expected to make profits in excess of £7m.  The Respondent had been talking about this prospective development for some time and stating that the profits would essentially make the family's fortune.  Negotiations for the acquisition of the field, and discussions with the Planning Department, RBSI and others were ongoing during 2002 and 2003.  In April 2004 the parties separated and the Petitioner began divorce proceedings in June 2004.  On 3rd June 2004 a company called Marett Homes Limited ("MHL") was incorporated by Mr Michael Cushion, an accountant who has worked for the Respondent and for the Third Party for many years.  According to Mr. Cushion's affidavit, the Company was incorporated for the Third Party alone.  Two shares have been issued.  One is held by the Third Party and the other is held by Mr Cushion as nominee for the Third Party.

6.        In correspondence between the Parties' legal advisers it was asserted by the Respondent that he had no beneficial interest in MHL and that the profits from the development of Field 1218 would go to the Third Party alone.  The Petitioner did not accept these assertions.  On 10th April 2006 I ordered that the question whether the Respondent had any beneficial interest in MHL should be determined as a preliminary issue, such preliminary issue to include an enquiry into any rights of the Respondent to an equal sharing of profits from the development with the Third Party.  On 23rd October 2006 I ordered that the Third Party be joined as a third party to the proceedings.

7.        Affidavits were filed both by the Respondent and by the Third Party.  By his affidavit sworn on 5th April 2006 the Respondent stated:-

"That I am not a Director of Marett Homes Limited and I do not hold any shares in Marett Homes Limited.  Nobody holds any shares in Marett Homes Limited as my nominee or on my behalf in any capacity.  I have no financial interest in Marett Homes Limited of any kind save for via my relationship with J F Marett and Son Limited and the benefit that company will receive by virtue of the building contract that they hold with Marett Homes Limited.

That although historically I have always been in business "jointly" with my brother, Stephen James Marett as detailed above I have no interest of any sort in the company Marett Homes Limited which as I understand is owned solely by my brother."

By his affidavit sworn on 18th May 2007, the Respondent again repeated the assertions set out above and added:-

"That J F Marett and Son Limited is a company that the Third Party and I have taken over from our father and grandfather and which we own jointly, although I am not familiar with the precise shareholdings in the company.  There are four directors of J F Marett and Son Limited being myself, the Third Party, the Petitioner and the Third Party's wife."

8.        By affidavit also sworn on 18th May 2007, the Third Party asserted that:-

"That this deal was mine, and the Respondent would only benefit to the extent that I would use J F Marett and Son Limited to undertake the construction work."

9.        Counsel for the Petitioner has submitted that the Respondent and the Third Party have been dilatory in their obligations to disclose information, and have failed in their duty of full disclosure.  On the basis of those alleged failures the Petitioner was granted orders on 2nd May 2007 by the Deputy Bailiff addressed to RBSI and to the States of Jersey Planning Department.  Documents obtained from those sources revealed that the Respondent and Third Party had indeed been highly selective in their disclosure of documentation.  By way of example, thirteen letters addressed by RBSI to the Third Party alone on the subject of the development of Field 1218 had been disclosed; none of the correspondence addressed by RBSI jointly to the Third Party and to the Respondent had been disclosed.  Mr Steenson accepted that the Third Party and the Respondent bore responsibility for this serious failure.

10.      On 10th April 2007 a further twist in the tale emerged when the legal advisers to the Respondent and to the Third Party wrote to the Petitioner's legal advisers to state that MHL had in fact made a loss on the development of Field 1218.  By letter of 13th April 2007 it was suggested that in view of that loss it was no longer important whether or not the Respondent had an interest in the company.  The legal advisers of the Petitioner expressed some surprise that a predicted profit of over £7m could have turned into a loss.  In his affidavit of 18th May 2007 the Third Party sought to explain that dramatic change of fortune in terms which I do not find particularly persuasive.

11.      Whatever the position may be, however, it terms of the profit or loss made or incurred by MHL, the papers leave me in little doubt that the concession made by the Respondent and the Third Party at the eleventh hour was realistic and prudent.  The concession was said to have been made "for commercial reasons".  The case for the Petitioner seems to me to have been extremely strong, and I have little doubt that she would have succeeded had the matter gone to trial.  I find that there is compelling evidence, quite apart from the matter to which I refer in paragraph 12 below, that MHL is and was beneficially owned by both the Respondent and the Third Party and that they have been playing procedural games with a view to wearing down by attrition the will of the Petitioner.

12.      Counsel for the Petitioner relied upon one other factor which to my mind is decisive of these applications.  On 3rd June 2004, very shortly after the Petitioner and the Respondent had separated, a legal adviser to the Marett brothers attended a meeting at the offices of Mr Cushion with the Respondent and the Third Party.  The meeting had been convened at the request of the Respondent and the Third Party.  The legal adviser made a file note of the discussion at that meeting.  It is not clear to me exactly when this file note was disclosed, but it was fairly recently.  The legal adviser's note records that "the main aim of the meeting was to discuss Johnny's [the Respondent's] matrimonial affairs and how it [sic] might impact upon him and Steve [the Third Party] and their business enterprises".  The agreement was to proceed with the development of Field 1218 through MHL.  The legal adviser records that she "explained on many occasions that this would not prevent Johnny's wife from arguing that Johnny does indeed, or should indeed have an interest in this particular company...".  The file note concludes "Mick [Mr Cushion] and I also pointed out the obvious risk to Johnny in the 1218 Project being done through Steve should Johnny and Steve fall out, or should Steve have matrimonial difficulties of his own".  

13.      No evidence was placed before me on behalf of the Respondent or Third Party as to the discussion which took place on 3rd June 2004.  Mr Steenson very properly conceded that the file note was inconsistent with the affidavits sworn by the Respondent and the Third Party.  In my judgment the only reasonable inference to be drawn from that file note, and from the last sentence quoted above in particular, is that the Respondent and the Third Party, in collaboration with Mr Cushion, put together a scheme whereby the development of Field 1218 would be undertaken through MHL, and that the purported sole ownership of MHL by the Third Party was nothing but a sham designed to prevent the Petitioner from sharing in the Respondent's profits of the enterprise.  I have no hesitation in concluding that the Respondent and the Third Party have engaged in conduct which is, at the very least, an abuse of the process of the Court. 

14.      Counsel for the Respondent and the Third Party submitted that an order for indemnity costs should not be made on the ground that it would send out the wrong message and discourage parties from making concessions "on a commercial basis".   I do not accept that submission.  Having found that the Respondent and the Third Party have abused the process of the Court, there is only one appropriate order in relation to costs.  Counsel also submitted that, if I were nonetheless minded to make an order against the Third Party, that he should be ordered to pay costs only with effect from 23rd October 2006, that is the date from which he was joined as a party to the action.  I also reject that submission.  The Court has full power to determine by whom and to what extent the costs of any proceedings are to be paid, and the fact that a person is not a party to the proceedings does not prevent the Court from making an order against that person.  It is clear from the file note of 3rd June 2004 that the Third Party was fully engaged in the scheme to disguise the true beneficial ownership of MHL long before the Court ordered the trial of that discrete issue.  I accordingly order the Respondent and the Third Party, jointly and severally, to pay the costs of the Petitioner of and incidental to the trial of the preliminary issue on an indemnity basis.  I also order them, again jointly and severally, to pay the reasonable costs of the witnesses from RBSI and the States of Jersey Planning Department of and incidental to the summons heard before the Deputy Bailiff on 2nd May 2007.

15.      As a postscript, I am bound to express my concern that, notwithstanding the apparent knowledge of one partner of the firm of Crills (now Walkers) that a scheme had been hatched by the Respondent and the Third Party to disguise the true position relating to the sharing of profits in MHL, another partner of the firm was advancing arguments to the Court on their behalf which were entirely inconsistent with that state of affairs.  It may be of course that there is an innocent explanation.  It seems to me, however, that the matter cannot be left in the air.  I will accordingly refer the matter to the Law Society for investigation so as to determine whether any professional misconduct has taken place.

No Authorities