B. G. D. Blair, Q.C., Commissioner, sitting alone.
IN THE MATTER OF L (MATRIMONIAL)
Advocate C. R. Dutot for the Petitioner.
Advocate I. C. Jones for the Respondent.
1. This is an ex-tempore judgment that is being recorded, at the culmination of a hearing conducted by video-link between London and Jersey. The husband's application today is for the modification of an undertaking which, it is fair to say, I extracted from him on 15th August, the terms of which are as follows:-
"I B [etc] undertake not in any way to dispose of, deal with, charge and/or diminish the value of any assets held by me personally or in which I have a direct or indirect interest including assets which I hold in my capacity as the sole trustee of the Rozel Trust and whether in my own name or not and whether solely or jointly owned and wherever situate same and so far as such disposition or dealing otherwise as made in accordance with the pattern of my ordinary everyday expenditure excluding legal fees."
2. The husband's case is that funds should be released, first, to enable him to pay certain arrears of income tax in the sum of approximately £40,000, secondly, to facilitate the repayment of a loan to a Mrs S in the sum of £200,000 and, thirdly, to discharge his currently outstanding legal fees in the sum of approximately £117,000. The relief he seeks would, he contends, conform with the elementary principles (i) that a litigant should not be at the wrong end of a freezing procedure which prevents him from discharging debts incurred in the ordinary course of business or indeed everyday expenditure, or from financing the legal costs which are necessary if he is to be represented in defending the proceedings brought by the wife against him; and (ii) that the freezing injunction or undertaking is not designed to be punitive and must therefore be proportionate and strike a fair balance between the parties, having regard, inter alia, to the prejudice which would be caused to either of them depending upon the order made by the Court.
3. I immediately express my concurrence with these last-mentioned propositions. It is not merely usual to allow release of funds to a litigant for the purposes mentioned, including a litigant in matrimonial proceedings: there would have to be exceptional circumstances to justify a departure from what is without question the norm, as a perusal of the authorities, whether in Jersey or in England and Wales, clearly demonstrates.
4. I add by way of introduction that in my view Advocate Dutot for the wife sought in her written submission to make too much of the authorities which establish that there is a heavy burden on a party seeking variation to prove that it is necessary, and to demonstrate a change of circumstances which renders the undertaking unjust. On 15th August I gave the husband little choice but to proffer an undertaking. In short, I was unwilling to entertain the possibility of his accessing the equity currently locked in the property "Tall Trees", of which there will be more later in this judgment, without further and clear evidence from him relating to the genesis of the liabilities asserted, the history of their payment (and non-payment) and the precise reasons why he contends that he is justified in looking to the equity in Tall Trees for what he says are the requisite funds. He has now put before me an explanatory Affidavit and produced certain schedules; and I shall reach an overview upon the merits and, in doing so, see whether in my view there are exceptional circumstances which influence my decision.
5. The case consisting of the re-hearing of the wife's application for ancillary relief is part heard, the forensic process having thus far occupied the court's time for three days, that is, between 13th and 15th August. That, for the avoidance of doubt, is not to mention innumerable previous court appearances over many years, the court history of which will need to be recounted in due course in final judgment. The re-hearing to which I refer is due to resume on 6th October, when several more days will be required; but, one way or another, the case already started, and sub judice, will finish, absent unexpected circumstances, in October. On the afternoon of 15th August, following Advocate Dutôt's opening on behalf of the wife, the wife's oral evidence and the oral evidence of two expert witnesses addressing the wife's state of health and the issue of her earning capacity, various directional issues were advocated and determined. One centred upon the question raised by me whether, and the extent to which, the husband's assets (such as they are, he would say) and in particular his beneficial interest in Tall Trees should be preserved pending the Court's ultimate decision. I raised this issue with Advocate Dutôt by an enquiry, initially, whether any injunction freezing the husband's assets remained in force. Yes, she said, she understood that this was indeed the case: an injunction activated by an application by the wife in the Royal Court's trust jurisdiction held good. I queried whether this was necessarily correct. In practical terms the trust proceedings, of which there will be further mention as the case proceeds, have been dormant, if not formally terminated, for some three years or more. I sought Advocate Jones' view. No, he said: his understanding was that no injunction remained in force.
6. The precise position in this respect has been the subject of further dialogue today between myself and counsel and remains uncertain; but all of us agree that, were the injunction still to be in force and the issue raised with a Judge in the trust jurisdiction of the Royal Court whether it should continue, it is virtually certain that the Judge now, years after the trust proceedings effectively drew to a close, would defer to myself as the Commissioner presiding over the matrimonial proceedings on the question of whether that injunction should, whether in its precise form or with some variation, be continued.
7. Asked whether the husband was willing to give an undertaking not to dispose of, charge or otherwise deal with his assets during the currency of the trial, Advocate Jones said on instructions that he was, but followed this general statement by saying that this was subject to the husband's intention to charge Tall Trees for a further £350,000 borrowing to achieve the purposes to which I have already referred. This was news to the Court and to the wife, the intention not having being previously mentioned in solicitors' correspondence, in sworn evidence or in counsels' documentation.
8. Why, it may be asked, did the Court raise this issue on its own initiative? The case has a long and tortuous history. The answer has to be stated reasonably briefly for current purposes, but suffice it to say as follows.
9. The marriage having taken place in 1994, the husband and the wife separated in 1998. They have two children, Charlie aged 16 and James aged 15. The marriage was dissolved in 2001. On 14th January, 2002, no less than 12½ years ago, Registrar Obbard made what purported to be a final ancillary relief order in favour of the wife. More than 7 years later, on 5th May, 2009, the Royal Court, the Bailiff presiding, set aside that order for material non-disclosure on the part of the husband and directed that the wife's application for ancillary relief be re-heard. In those circumstances, says the wife, the Court should be cautious indeed as to the husband's bona fides and credibility. Indeed, in opening Advocate Dutôt was heavily critical of the quality of the husband's disclosure and what she asserts has been his determination to shrink the size of the asset pool to which the wife might lay claim. She has cited such cases as Al Khatib v Masry  I FLR 1053 in support of the potential forensic assertion in closing, presumably dependent upon the evidence of the husband, that an adverse inference to the effect that the husband has undisclosed financial resources would be justified.
10. Now, more than 5 years after the set aside in 2009, the Court over which I preside has the task of determining the award to the wife which in fairness and in law will be appropriate. The merits are, predictably, keenly contested. It goes without saying that they cannot be determined nor should any undue preconception be formed until full evolution of the evidence, including that of the husband, who is still to be cross-examined, and counsel's closing submissions. But it is relevant today to consider what is known of the husband's financial position both as to capital and to income and to consider, even preliminarily, what might be termed his financial strategy over the last decade. The wife's case is that both her and the Court's awareness of the husband's means, whether historical or current, is markedly insufficient. Whether that contention will be made out at trial remains to be seen, but what now follows is beyond dispute.
11. In 2005 the husband knew with virtual certainty that later that year his core business interest would be realised for a consideration of between £2.3 and £2.4 million. With the sole or at least substantial intention of distancing that prospective windfall from a financial claim which he feared, despite Registrar Obbard's order of 2002, would be mounted by the wife, the husband settled the relevant shareholdings in a Jersey trust of which he was the sole trustee; and his then co-habitee and their one daughter were named as the sole beneficiaries. The co-habitee was C, who has made a contribution in writing in reaction to a subpoena duces tecum and may or may not give evidence in October. It is probable that the nature and the quality of the relationship between her and the husband in and after 2005 will come under some scrutiny at trial. C has volunteered that it was what she terms an abusive relationship, whilst the husband for his part stated in an affidavit - I think it was an affidavit sworn in the trust proceedings - that over some years there were occasions when C had him leave their home and there were thus short separations. Be that as it may, according to the husband the vast majority of the trust funds have been distributed to C.
12. Certainly, nothing appears to be available from that source to satisfy any award which may now be made in favour of the wife. As to the consideration of £2.3 - 2.4 million, the husband has on his own case deliberately left himself with nothing. The position, however, according to the husband, is even worse than that, as per the recent presentation of his means embraced within his Affidavit of 6th February, 2014, and to some extent expanded by various answers to questionnaires and schedules of deficiency.
13. There is much for the wife to investigate in cross-examination of the husband, but two propositions are certain. The first is that, according to the husband's disclosure, he has a net deficit of liabilities over assets. Secondly, if he is to be believed, his only capital asset of substance is the Tall Trees property. It is occupied by nonagenarian parents who have an entitlement to occupy the property for the remainder of their lives, as one would expect. Their occupation ignored, the market value of the property is said to be £715,000. Currently the only encumbrance over the property consists of a bond in favour of Mrs. S, who apparently, in October 2012, lent the husband £200,000. In his section 25 statement of July 2014 the husband said that the loan was "for the purpose of enabling him to settle certain income tax affairs". From the schedule produced at my direction from abroad last week, it seems that the husband in fact used about 75% of the loan for the stated purpose, parting with around £151,000 in November 2012, thus that just under £50,000 is at the moment not expressly accounted for.
14. As to income, it seems that the husband, who is self-employed, has been earning in the region of £550,000-£650,000 gross over about the last three years. These figures are an approximation and may require some refinement, but one is talking of a net income either side of half a million pounds per annum.
15. As to expenditure, his principal presentation is embraced in a one-page spread sheet which he exhibited to his section 25 statement, produced in July 2014. As to its compilation, his approach was to take the period from the 1st July - 31st December of that year, during which his expenditure was stated to amount to £277,945. In order to reach an annualised presentation he simply doubled that figure to £555,890. Now he says that his expenditure is even greater because certain adjustments have to be made, by far the most prominent of which is to the effect that, whereas previously he was paying only interest on the mortgage which encumbers Fauvic House, the home where he resides with his current wife D, the mortgage is now discharged on a mixed-interest and re-payment basis, thus to increase his overall output on borrowings relating to the property from some £70,000 to a little less than £135,000 per annum.
16. It is a trite proposition that the husband has known for more than five years of the threat, the wife would like to say the certainty, that he would have to confer some further capital settlement upon the wife, whether in combination with or possibly partly in commutation of her entitlement, if any, to maintenance. One pauses to consider in those circumstances whether he has been at least mindful of his potential liability to the wife when conducting his financial affairs; and, for example, whether he has accepted that Tall Trees is, to put it neutrally, a target at which she is entitled to aim, and which should possibly therefore be preserved by way of interim measure. Today is not the moment for detailed analysis, still less for ultimate conclusion; but it does look very arguable that the answer in both instances is in the negative.
17. The wife through Advocate Dutôt criticises the husband for the way in which he has managed and ordered his affairs, not planning for future payment of, for example, income tax. She would say the same about costs. Advocate Jones retorts that on the contrary the husband has planned; and it has always been his intention to pay by raising, on the security of Tall Trees, the necessary funds. That, however, is entirely to ignore whether his plan to that effect has been reasonable and, on the facts of this case, realistic.
18. To turn specifically to the husband's tax exposure, I have read of course certain correspondence between him and the Comptroller of Taxes and I have examined the schedule which I directed last week should be produced by the husband, explaining the incidence, quantum, timing and payment of income tax since 2010. To come to the point, I have no hesitation in rejecting the husband's application when, in now 17 working days' time, he can explain himself on oath in oral evidence on a myriad of issues relevant to this area of the case.
19. At this stage it is striking that he has not sought to justify his failure to act in the manner to be expected of what I would term a normal and prudent self-employed businessman, (a fortiori, it may be suggested, a man not only with a professional qualification in accountancy, but fully cognisant of the wife's claim against him). Such a man would be expected to make such savings from his gross fee income, net of business expenditure, as would enable him to finance the payment of income tax (at only 20% let it be said), referable to that income.
20. It is notable that in 2012, the husband and his current wife D, who I understand to have an income in her own right of more than £50,000 a year, (it has historically been more and I have no doubt she works very hard for it) saw fit to co-operate in the purchase, by D, in her sole name, of Fauvic House, at an acquisition price of £1,850,000 of which £1,225,000, if I recall correctly, was the sum raised on core mortgage. The equity in the property is according to the husband owned exclusively by D, and that may very well be true. But the husband deemed fit to take on an annual liability of initially much less than, but now up to, £135,000 per annum in respect of that mortgage alone. His other stated categories of annual expenditure include, simply by way of example, £45,000 on holidays and £22,000 on clothes. Just under £90,000 on what is described as "housekeeping and general", whatever precisely they may mean, is totally unparticularised. But all this will be investigated very shortly.
21. However, on the current state of the evidence and argument, and having regard to the exceptional circumstances of this case, and that is no hyperbole, I am unpersuaded that the release of capital by way of diminishing the equity into Tall Trees in justified in connection with the liability for income tax, or even at this stage, necessary. I do concur, and the Court will be very mindful of this factor in October, that it is in no one's interest that the husband should face litigation at the hands of the Comptroller of Income Tax, but I do not believe, certainly there is no evidence to this effect, that that scenario would arise in a meaningful way in the very narrow space of just over three weeks before we meet again, especially since the husband, I am sure, will convey to the tax authorities the fact that I have stated, which I now do, that the Court is fully conscious of this fiscal debt and will address and focus upon its existence when assessing the overall merits and the evidence and finally giving judgment. But the point is that, with the impending completion of the hearing, and with the crucial cross-examination of the husband so proximate, followed then by forensic argument, the continued short term refusal of funds to pay tax is in my judgment fully justified.
22. As to the Mrs S loan, it is not payable until the 26th October in any event. The entirety of the circumstances of that loan and its repayability, and possible substitution by some other loan, can easily be assessed without the slightest prejudice to the husband at the adjourned hearing earlier in October.
23. Now much of what I have stated is of relevance in the context of the discharge of the husband's costs. The relevant schedule shows that the husband started with Carey Olsen, having previously been with Hansen Renouf, in April 2012. Between August 2012 and July 2014 he paid Carey Olsen £50,272. There are now three outstanding invoices dated end of month in April, June and August 2014, in the sums of £30,325, £26,806 and £60,000 precisely, respectively, in aggregate £117,131. Advocate Jones cites the Jersey case of Whitesmith Limited v Papyrus Limited & Grozkowska  JRC 140 as authority for the proposition that it would be, as he puts it, unusual, if not unprecedented, for injunctive relief to deny a litigant access to funds with which to pay his legal fees. Actually, in that case, the Deputy Bailiff, addressing the genre of non-proprietary claims, merely observed that the Court will "often allow the Defendant access to the relevant funds". Nevertheless, I fully accept that on the great preponderance of overall authority the denial of access to funds to finance legal fees in defence of a claim before the Court is very unusual and, to repeat, would only be justified in exceptional circumstances.
24. Key questions in this area which immediately occur to one are whether Carey Olsen can be expected or would be willing to continue in the litigation without further substantial funding, at least on account; and whether, on the bottom line, there should be full or partial or no relaxation at all in the undertaking, so as to provide funds for the purpose of paying legal costs. It is, as I say, normal to facilitate payment of litigants' costs, but the problems, certainly with entire release of the sum requested in the instant case, are to my mind several fold. In the first place, different, I mean as compared with normal, considerations will apply when either the applicant for the release of funds has assets other than those which the respondent seeks to keep frozen, or, as in this case, the respondent argues that, and there is accordingly a triable issue whether, by the drawing of proper adverse inferences the Court should find that such assets exist, even if it may prove impossible to identify their location. It is obvious that, if the husband achieved the full release of funds and such a finding or something similar were later made by the Court, then the earlier decision would have caused the wife, or might have caused her, grave injustice.
25. All this is apparent from one of a number of authorities citied by counsel, Jameel v Zerrouk 2003-2004 GLR which Advocate Dutôt has drawn to the Court's attention and is perhaps the most helpful of the decided cases to which counsel have referred me. The facts need not be recited. It is sufficient for the current purpose to cite the first paragraph of stated rationale of the Court,
"Held, ruling as follows: The first and second respondents would be ordered to provide full and frank disclosure of all their assets, including any outside Guernsey. Mareva injunctions were not to be used as instruments of oppression and it was a long-established principle that living expenses could be taken from frozen assets, provided that no other assets were available for that purpose. However, the court also had to take into account the applicant's interests, since the fundamental purpose of Mareva injunctions was to protect assets from being removed from the jurisdiction and, as a result, to ensure that any subsequent judgment could be satisfied as best as possible. Here the applicant had shown ground to believe that there was prima facie a conflict with that purpose: The respondents had failed to explain the discrepancy between statements about the total funds in the Guernsey bank accounts, and they had only stated - not shown - that they had no further assets available, which suggested that they might be concealing assets elsewhere."
It is apparent from that recital that the facts of Jameel v Zerrouk were of course different to the facts of this case, but it is easy to discern how by analogy the principles that can be distilled from that short quotation are relevant to the instant case.
26. In addition Advocate Dutôt draws fairly upon the authority of Compagnie Noga D'importation Et D'exportation SA & Anor v Australian and New Zealand Banking Group & Ors  EWHC 602 (Comm) (24 March 2006) decided by Mr Justice Christopher Clarke, paragraph 9 v:-
"If the question is whether or not the Mareva should be varied so as to allow frozen monies to be used to fund a defence it may be necessary to show that there are no other funds or sources of payment which should as a matter of objective fairness be used for that purpose in preference to the frozen funds. The same principle must apply if what is sought is to fund the giving of a recognizance in favour of another."
All that said, as to the husband's legal fees, the ratio of costs already paid to Carey Olsen, in round figures £55,000, to those unpaid of £117,000, is properly to be regarded, at least on one view, as unconscionable. I stress, as was confirmed in dialogue with counsel, that the £117,000 unpaid is for work done to August. Further substantial fees will have been incurred since and will continue to be incurred. It may be said and there could be more detailed analysis of this question later, or that Carey Olsen could and should have been more articulate and forceful in insisting to the husband that, as time passed, they would require more prompt payment of fees and, they knowing his finances, that he should resort to a greater extent to his income to discharge such fees, but I am bound to say that, looking at the broad arithmetic, I would concur with Advocate Jones that, whereas the husband could have resorted more substantially to income to discharge legal fees, it has not been realistic for him to discharge the sort of legal fees to which we are referring, having regard to the other liabilities, by any means entirely out of income. If that be right, some resort to capital is justified.
27. It may be that Carey Olsen should have had some greater recognition of the wife's looming assertion that the husband's financial strategy has been transparent and that the management of his financial affairs generally is vulnerable for criticism, all of which is going to be investigated in cross-examination no doubt in three to four weeks' time. But, all that said, to repeat, the arithmetic I have mentioned is striking. Advocate Jones, who, I have acknowledged in dialogue with him, is very candid about Carey Olsen's policy on the matter, conveyed to me that, in summary, the firm's view as to legal fees is what I would call comparatively liberal. As I said to him, and he agreed, it is familiar to find a situation where at trial a litigant's, say a husband's, legal fees total £X, of which £Y has been paid, leaving £Z due and owing. It is not often that all fees have been paid up front. But, as to percentage, it is in one's experience in this kind of case, with the financial complications which arise, infrequent for a situation to arise such as where the husband and Carey Olsen walk into court in October, with of the husband's legal fees £55,000 paid, £117,000 outstanding to the end of August and, say, another £30-40,000 still to be incurred, a total of £202,000 - £212,000 of which, in round figures, just over a quarter had been paid. So, Advocate Jones says to me, the firm is not - this is my turn of phrase - holding a pistol to the wife's, or more importantly, the court's head, and saying that, if it does not get such and such out of this application, it is going to pull out of the case. But he says, the firm is naturally extremely discontent at the prospect of its vulnerability if no release is made at this stage. I think Advocate Jones was conveying to me that the firm's position would then have to be continuously under consideration.
28. Many firms in the current commercial world would, to use an inelegant turn of phrase, have pulled the plug at this point in time absent further contribution, at least, towards payment of legal costs, Carey Olsen are not in that position yet. Striking a balance between the parties when it comes to the overall merits, including the question of prejudice, I think that it is right that some money should be available to the husband to pay a further contribution towards Carey Olsen's legal fees, in accordance with ordinary principle as modified and the view taken by me of the exceptional circumstances of this case.
29. Balancing all factors I am going to allow a variation of the undertaking to the effect that the husband shall be permitted to deal with his assets in such a way as to pay Carey Olsen a further £50,000. That will make £105,000 paid and, if one takes that as a percentage of £174,000 (only in respect of the work done until August), in broad terms it is about 60%. Of course the whole question of costs will then be subject to very close and careful scrutiny in October, as, plainly, will the matter of tax. What is then owing to the husband's legal representatives will be a very real debt,
30. Now, if the variation is to the effect that the husband be permitted by way of exception to draw down £50,000 against his resources, it is a matter for him how he does it. It seems that on his case he will continue to hold to the position that there is only one way he can do it, that is by a borrowing against Tall Trees. I will just state that, if the husband does choose to make inroads into the equity in Tall Trees, thus reducing it on current figures to something in the region of £450,000, and, if it were to transpire, when it comes to final judgment, that there is a finding of other assets, whether identifiable or held to exist by way of inference, he should expect a degree of judicial disenchantment: indeed, for disenchantment should probably be read wrath. He can expect no less. I am stating the obvious in thus putting that shot across his bows.
31. Costs will be reserved.
Al Khatib v Masry  I FLR 1053.
Whitesmith Limited v Papyrus Limited & Grozkowska  JRC 140
Jameel v Zerrouk 2003-2004 GLR