Derek Marshall

A warning to delinquent company owners and directors: Sevilleja v Marex Financial Ltd

It is the ultimate pyrrhic victory in civil litigation against an incorporated Defendant to win the case but find yourself holding a worthless piece of paper, a judgment against an insolvent company which has been asset-stripped by its directors, especially when you find yourself in a queue of other creditors with equally worthless claims.  The Insolvency Act regime is designed to achieve fairness between the creditors and the controlling minds of the company will seek to avoid direct liability for the losses by arguing that the claims against them (if any) belong not to the creditor but to the company.  The principle of  “no claim for reflective loss” has long prevented wronged shareholder creditors from pursuing directors (Prudential Assurance v Newman Industries [1982] Ch 204) and this was given wider currency by the decision in Johnson v Gore Wood [2002] 2 AC 1.

The Supreme Court has now tackled head on the iniquity of a wronged non-shareholder creditor who has ended up with an empty judgment as a result of the owners of a company deliberately asset-stripping it to avoid paying up.   In Sevilleja v Marex Financial Ltd [2020] UKSC 31 an application had been made to Knowles J to set aside an order giving permission for service of proceedings on Mr Sevilleja out of the jurisdiction. One of the arguments advanced by Mr Sevilleja in support of his application was that Marex did not have a good arguable case against him because the losses it was seeking to recover were reflective of loss suffered by two companies which had concurrent claims against him. The judge held that Marex had a good arguable case that its claim was not precluded by the “reflective loss” principle and therefore dismissed Mr Sevilleja’s application but the Court of Appeal disagreed and held that only 10% of the Marex claim was not precluded by the reflective loss principle.  Since the original judgment was for 5.5 million US dollars this represented a very big loss.  Marex had been put into liquidation by its owner in what was described as “a device to thwart enforcement of a $5m judgment against the companies that Marex won in the courts of England and the most blatant effort to hinder, delay and defraud a creditor this Court has ever seen.”   Marex therefore pursued a direct claim against Mr Sevilleja in the law of tort.

The stage was thus set for a full (seven judge) panel of the Supreme Court to discuss at length the principles and objectives of company law and the rules against double recovery.  Underlying the decision however must surely have been the Court’s distaste for the activities of the owner of this company and the obvious need to avoid an injustice to the creditor without inflicting serious injury on established law.  By a convoluted route the Court held that whilst a shareholder’s loss in respect of a diminution in share value was not separate and distinct from the damage suffered by the company (and therefore unrecoverable), the rule in Prudential did not apply in the instant case since it did not concern a shareholder. Accordingly, Marex was entitled to pursue the entirety of its claim. 

The following extract from the judgment of Lord helps to explain the Court’s thinking: “The reflective loss principle as stated in Prudential is a flimsy foundation on which to build outwards into other areas of the law……..Marex was not a shareholder in the companies, but their creditor……a creditor of a company has not chosen ………to follow the fortunes of the company in the same way as a shareholder. Subject to the company having sufficient assets, whether the creditor gets paid or not does not depend on the decision of the directors, as payment of a dividend to a shareholder does: when armed with a court judgment the creditor can execute it against the assets of the company. Moreover, there is a clear mechanism available to meet the problem of possible double recovery against the defendant in respect of the loss suffered by Marex and the loss suffered by the companies. To the extent that Marex sues Mr Sevilleja and obtains recovery from him for the judgment sum, Mr Sevilleja can be subrogated to Marex’s rights against the companies or allowed a right of reimbursement in respect of them.  If Marex’s debtor had been an individual and Mr Sevilleja had stolen all his assets with a view to preventing him paying the debt due to Marex, it would be possible for Marex to bring a…claim against him…..”. 

The lesson for delinquent directors is obvious for all to see.

Derek Marshall is the Head of College Chambers and Head of the Chancery and Commercial team there.  He is a very experienced civil practitioner, an Arbitrator and Civil Dispute Mediator and sits as an LQC on the Police Conduct Panel.  To instruct Derek please contact Clerks@college-chambers.co.uk

Further thoughts on mediation - trustees and the Mexican stand-off!

It is not uncommon for trustees to disagree on how a trust should be dealt with especially when one of them has an interest as a beneficiary, but what is to be done when there is deadlock between them?

An obvious solution would be to remove the problematic trustee, especially if it is clear that one person is being “unreasonable” but this is easier said than done. The Courts try to avoid involvement in trusts and this includes deciding whether or not a trustee should be replaced. Even the test under section 41 of the Trustee Act 1925 shows a reluctance to intervene. The Court will only make an order to substitute a trustee if it is “inexpedient, difficult or impractical” to substitute or appoint an additional trustee without the aid of the Court. This is a high threshold to pass. The Court’s inherent jurisdiction is not much easier to invoke either. Mere disagreement is not enough. The point has to have been reached whereby the administration of the trust itself is threatened.

For this reason, it is vital to try to avoid litigating the matter and risking costs for an application with a real risk of failure. What can be done instead? As with so many disputes the answer is likely to lie in mediation.

The key to every mediation process is preparation from the parties. The focus should not be on why the trustee should be removed or replaced but how to reach a decision on the administration of the trust to look forwards and not back and then to find the compromise that informs that decision. The process involves tackling the underlying issue rather wasting time on recrimination.

Success is not guaranteed of course but if you don’t try it then as previous articles have said, stand by for some criticism from the Court. Even if the matter is not resolved at mediation the cost of preparing will not be lost as statements of needs and resources and documents in support will have been prepared, and the real points of difference isolated and narrowed. The use of a third-party mediator may be enough to reach a conclusion but if not an early neutral evaluation focuses minds on the outcome and the parties may agree to be bound by this.

College Chambers offers remote services to help your client resolve disputes during these challenging times.

We are able to offer your clients the following remote services:

• IFLA Family Finance Arbitrators
• IFLA Children Act Arbitrators
• Chartered Civil Arbitrators
• Private FDRs
• Accredited Mediators
• Private Pre-Trial Settlement Hearings
• Civil Dispute Determination

To speak to us in more detail about these services please contact us on 023 8023 0338.

You can contact all of our barristers directly by e-mail on initialsurname@college-chambers.co.uk.

Head of Chambers, Derek Marshall, is a qualified Civil Disputes Mediator and has been involved in resolving hundreds of disputes through mediation. Derek is also an IFLA Arbitrator and is an accredited Family Finance Arbitrator.

Derek can be contacted at DMarshall@college-chambers.co.uk

Judge's Bite Over Failure to Engage in Mediation

“If a party wants to fight over every blade of grass when there is a perfectly sensible offer of mediation then they can sing for their costs so far as I’m concerned!” So said the Adjudicator in the Lands Tribunal to the winner in a boundary dispute Derek Marshall fought out several years ago (Derek was for the aggrieved loser) but it is only more recently that the Courts have such a robust attitude to a failure to engage constructively in mediation.

Two recent decisions illustrate the point. In DSN v Blackpool Football Club Ltd [2020] EWHC 670 the Claimant sought damages for historical sexual abuse by a scout previously employed by the club and made several settlement offers including a proposal to enter into negotiations. He was met with a blank refusal on the grounds that the Defendant believed it had a strong defence. (The underlying case is also interesting on the law of vicarious liability). The Defendant also failed to comply properly with a directions order to consider resolution by mediation or to file a sufficient statement explaining why it would not do so: It simply filed a statement standing by its confidence of success in defending the claim.

Mr Justice Griffiths was singularly unimpressed. It ought to have been clear that the Claimant was not motivated by money but was primarily concerned to receive an acknowledgment of what had happened to him. The Judge thought that no defence, however strong, by itself justifies a failure to engage in mediation. Disputes may often be resolved satisfactorily to all parties this way and settlement allows solutions which are potentially limitless in their ingenuity and flexibility even if they do not necessarily require an admission of liability or a payment of money. The failure to engage amounted to litigation (mis)conduct and justified an indemnity costs order from shortly after the direction to consider mediation.

Two weeks before that decision, Mr Justice Chamberlain was similarly concerned with the Defendant’s failure to engage in mediation in BXB v Watch Tower & Bible Tract Society [2020] EWHC 656. This was another abuse case where the Defendant had neglected to engage with an order to consider mediation. No real effort was made to try to settle the case. In making an indemnity costs order for part of the proceedings, the judge reminded himself of His Honour Judge Waksman QC’s observations in Garritt-Critchley v Ronnan [2014] EWHC 1774 that an unreasonable refusal to engage in ADR may justify an award of indemnity costs to a claimant even where the Claimant recovers very substantially less than originally claimed because “parties often don't know whether in truth they are too far apart unless they sit down and explore settlement”.

In these Covid times we may expect more decisions like these and the impetus for mediation has never been greater.

College Chambers offers remote services to help your client resolve disputes during these challenging times.

We are able to offer your clients the following remote services:

• IFLA Family Finance Arbitrators
• IFLA Children Act Arbitrators
• Chartered Civil Arbitrators
• Private FDRs
• Accredited Mediators
• Private Pre-Trial Settlement Hearings
• Civil Dispute Determination

To speak to us in more detail about these services please contact us on 023 8023 0338.

You can contact all of our barristers directly by e-mail on initialsurname@college-chambers.co.uk.

Head of Chambers Derek Marshall is a qualified Civil Disputes Mediator and has been involved in resolving hundreds of disputes through mediation. Derek is also an IFLA Arbitrator and is accredited Family Finance Arbitrator.

Derek can be contacted at DMarshall@college-chambers.co.uk

Sales And Leaseback Schemes A Cautionary Tale

If a deal looks too good to be true it probably is. This is the lesson learned by a group of householders in Hampshire and in the Newcastle area who signed up for a scheme whereby they sold their homes to an investment company which promised them an income and a life interest in their own home if in return they were to invest the sale proceeds with that company. Of course, the scheme only works on a rising market, especially when the investment company promptly mortgages the property to a lending institution and (in the case of the Hampshire scheme) fraudulently pretended to the lender that this was a normal domestic sale to one of the members of the company. When the instalments of mortgage went unpaid and possession proceedings followed, the lenders and the householders found out about each other for the first time. Since both are innocent victims of the scheme, who should lose out?

In the Hampshire cases we pleaded a series of defences, including fraud and overriding equitable interest but the cases were all stayed by consent whilst the High Court in Newcastle struggled with similar issues in the North East Property Buyers Litigation. There had been conflicting decisions of County Courts in similar situations, including Redstone Mortgages v Welch [2009] EGLR 71 which favoured the interest of the householders over the innocent mortgagees and Abbey National v Cann [1991] 1 AC 56 in which the interest of the mortgagees prevailed.

Now the Court of Appeal North East Property Buyers [2012] EWCA 17 has given us the definitive answer, in upholding the decision at first instance against the householders. The Court held that there was no moment in time between the leaseback contract and the mortgages in which an equitable interest could arise, and in any event the rights granted to the householders by the investment company were personal at best and could not over-ride the interests of the mortgagees. Moreover, the effect of s63 of the Law of Property Act 1925 was that occupiers could not rely on pre-completion equitable interests. Registration by the mortgagees completed the legal interest in their favour which prevailed over the householders. Prior to the registration of the transfer the grant of any lease took effect only in equity and did not fall within the Land Registration Act 2002 s.29.

As the Court said, the problems that had arisen for the householders could have been avoided if the contracts for sale had given details of the precise contractual arrangements that were to operate in relation to their occupation after completion. In the Hampshire cases, this did not happen due to the fraud of the investment company but it was always going to be difficult to visit this upon the mortgagees, who were innocent of any wrongdoing. It must have come as small comfort to the Hampshire householders that the businessmen behind the investment company in their cases received long sentences of imprisonment for fraud.

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Contributory Cause - Latest Word from the Law Lords

We all learned at University the problems of proving negligence where there are several possible causes of the injury, especially where they do not occur simultaneously so that the Defendant is able to argue that some intervening act breaks the chain of causation. This is a particular problem in clinical negligence cases where a complex chain of events will often be involved, leading up to the death or avoidable injury of the patient. This was the problem which the Privy Council had to tackle in the recent case of Williams v The Bermuda Hospitals Board [2016] UKPC 4.

The facts are shortly set out in the judgment of Lord Toulson. Mr Williams went to the emergency department of the King Edward VII Memorial Hospital in Bermuda, complaining of abdominal pain. He was suffering from acute appendicitis. Later that day he had an appendectomy, but there were complications. He was seriously unwell for a period of weeks, but he finally made a full recovery. He sued the appellant hospital board, which is responsible for the management of the hospital, for damages for his pain and suffering, medical expenses and loss of earnings. He
alleged that the complications were the result of negligent delay in his treatment. The trial Judge had found that there had been negligence but that Mr
Williams had not proved that the culpable delay caused the complications. He awarded Mr Williams $2,000 in damages for his extra suffering during the period of culpable delay prior to the operation. The Court of Appeal reversed the judge's decision on causation and remitted the case to the trial judge for a fresh assessment of damages. Hellman J increased the award to $60,000 excluding interest. By the time the matter came before the House of Lords, Mr Williams had donated his damages to charity and the Hospital Board stated that they would not be asking for them back even if
they won but pursued the appeal because of the important point of principle at stake. They said that the trial Judge had got it right first time around in limiting the period additional pain and suffering for the short period of delay prior to the operation and that the Court of Appeal should not have intervened so that Mr Williams got his damages on the basis of the entire period.

The Privy Council disagreed. In their judgment, the "material contribution" approach to causation was not confined to cases in which the timing of origin
of the contributory causes was simultaneous. As a matter of principle, successive events were capable of each making a material contribution to the
outcome. The Court of Appeal had over-ruled the trial judge because he had "raised the bar unattainably high" in his finding that Mr Williams had failed to prove his case in full. The proper test of causation (according to the Court of Appeal) was not whether the negligent delay and inadequate system caused the injury but rather, whether the breaches of duty had contributed materially to the injury. The Privy Council had to reconsider this through the prism of the venerable authority of Bonnington Castings Ltd v Wardlaw [1956] AC 613 in which the Claimant had contracted pneumoconiosis
from the inhalation of dust, containing minute particles of silica, in the course of his employment at a foundry. Most of the dust originated from the
operation of pneumatic hammers, but some of it escaped from swing grinders. The former involved no fault on the part of the employers, but the latter resulted from a breach of statutory duty in failing to intercept and remove that part of the dust. The multiple causation factors were therefore simultaneous in time rather than successive.

The Privy Council approved the academic analysis of the decision in Bonnington by Sarah Green (Causation in Negligence, Hart Publishing, 2015, Chapter 5, p 97) who said this: "It is trite negligence law that, where possible, defendants should only be held liable for that part of the claimant's ultimate damage to which they can be causally linked ... It is equally trite that, where a defendant has been found to have caused or contributed to an indivisible injury, she will be held fully liable for it, even though there may well have been other contributing causes ......." . That begs the question however, "What
about successive causes, and where does that leave the principle of intervening actions?" Lord Toulson's answer was this: "The parallel with the present case is obvious. The Board is not persuaded by (Counsel for the Hospital Board) that Bonnington is distinguishable because in that case the inhalation
from two sources was simultaneous, whereas in the present case the sepsis attributable to the hospital's negligence developed after sepsis had already
begun to develop".

That is not the end of the matter however because as Lord Toulson conceded, the sequence of events may be highly relevant in considering as a matter of fact whether a later event has made a material contribution to the outcome or conversely whether an earlier event has been so overtaken by later events as not to have made a material contribution to the outcome, but those are evidential considerations. As a matter of principle, successive events are capable of each making a material contribution to the subsequent outcome. A claim will still fail if the most that can be said is that the Claimant's injury is likely to have been caused by one or more of a number of disparate factors, one of which was attributable to a wrongful act or omission of the Defendant, but it will succeed where there are successive linked events incrementally leading to the Claimant's injury in which the Defendant's negligence materially contributed to that outcome.

The conclusion to be drawn from this important decision is that the principle having been
established to the dissatisfaction of the hospital boards, the battle lines will switch to the conventional issue of whether the "material contribution" has been so overtaken by later events as to make no difference.

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

â??Unlock the equity in your propertyâ? scams Final word to the Supreme Court

Two years ago we published an article on this subject. Now the Supreme Court has given its definitive word on the law, in North East Property Buyers Litigation [2014] UKSC 52 (28th October 2014)

A group of householders in Hampshire and in the Newcastle area signed up for a scheme whereby they sold their homes to an investment company, which promised an income and a life interest in their own home in return for the investment of the sale proceeds with that company. Of course, the scheme only works on a rising market, especially when the investment company promptly mortgages the property to a lending institution and (in the case of the Hampshire scheme) fraudulently pretends to the lender that this was a normal domestic sale to one of the members of the company. When the instalments of mortgage go unpaid and possession proceedings follow, the lenders and the householders find out about each other for the first time. Since both are innocent victims of the scheme, who should lose out?

In the Hampshire cases we pleaded a series of defences, including fraud and overriding equitable interests but the cases were all stayed by consent whilst the High Court in Newcastle struggled with similar issues in the North East Property Buyers Litigation. There had been conflicting decisions of County Courts in similar situations, including Redstone Mortgages v Welch [2009] EGLR 71 which favoured the interest of the householders over the innocent mortgagees and Abbey National v Cann [1991] 1 AC 56 in which the interest of the mortgagees prevailed. All of the cases in Newcastle were lost at first instance and in the Court of Appeal.

The Supreme Court had to struggle with the same issues of fairness and the need for clarity in the law that everyone else did. Their Lordships agreed with the Court of Appeal that there was no moment in time between the leaseback contract and the execution of the mortgages in which an equitable interest could arise, and in any event the rights granted to the householders by the investment company were personal at best and could not override the interests of the mortgagees. Whilst on the face of it, the promises by the investment company to grant a continuing right of occupation bore the hallmarks of an equitable estoppel, the question was whether this could be an interest in land before the promisor became the legal owner. This in turn fed into the question of whether the completion could be divided from the grant of the mortgage, or whether there was one indivisible transaction.

Lords Collins and Sumption were clear in their conclusion that the completion and mortgage were an indivisible transaction, and Lady Hale and Lords Wilson and Reed thought that even if there were equitable rights in favour of the householder at the point of completion, the mortgage would still take priority over them. The argument that the combined effect of sections 29, 116 and 132 of the Land Registration Act 2002 was to create a proprietary interest in favour of the householder was rejected. Although the Court was unanimously in favour of the lenders however, there was a sharp division as to their reasoning. Lady Hale in particular disagreed with Lord Collins about the “indivisible transaction”. She pointed out that just as in Williams & Glyn’s Bank v Boland [1981] AC 487, the householder was in actual occupation at the time of the transaction(s) so why should there not be an overriding interest as was upheld in that case? Moreover, the lender is not a party to the sale transaction so why should the two transactions be considered as one? In the end, she managed to square this circle by concluding that a purchaser cannot create any proprietary interest in land before he actually completes on it, but she confessed to some “uneasiness” about that conclusion, with which I entirely agree. The argument we ran in the Hampshire cases was essentially to say that to look at the problem from the point of view of the lender was to put your eye to the wrong end of the telescope: the key question was to ask “how can a borrower create more of a right that he already has for himself?”

For policy reasons no doubt, their lordships disagreed. As Lord Collins said in the leading judgment, it would be impossible not to feel sympathy for the householders, many of whom had been victims of fraud by the investors and unscrupulous behaviour by solicitors. However the Court was also concerned that there are more than 23 million registered titles in England and Wales and the Land Registry may handle up to 75,000 house sales each month, most of which are financed by secured loans. The implications for the housing and lending market if the householders had succeeded could have been massively serious.

The problems that had arisen for the householders would of course have been avoided if the contracts for sale had given details of the precise contractual arrangements that were to operate in relation to their occupation after completion. In the Hampshire cases, this did not happen due to the fraud of the investment company but it was always going to be difficult to visit this upon the mortgagees, who were innocent of any wrongdoing.

The businessmen behind the investment company in the Hampshire cases received long sentences of imprisonment for fraud but the real mischief in these cases was the risky nature of sale and leaseback schemes. The Financial Services Authority recommended that this should become a Regulated Activity under Section 19 of the Financial Services and Markets Act 2000, because the schemes were almost always unaffordable or unsuitable, and this has now been brought into effect, with the result that the sale and leaseback market is now almost non-existent. The problem for householders involved in these historic schemes remains.

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Cycle Helmets, Contributory Negligence And Diffuse Axonal Injury

Although the wearing of helmets on bicycles is not compulsory as it is with motorbikes, the law nevertheless says that a failure to wear a helmet may amount to contributory negligence if the rider is injured in a collision: Smith v Finch . In fact, the Defendant failed to achieve a reduction in damages for contributory negligence in that case because the evidence showed that the wearing of a helmet would have made no difference to the Claimant’s injuries given the speed of the collision and the mechanism of the accident, but the principle is well-established.

The point was revisited in Reynolds v Strutt and Parker in which the Claimant’s damages were reduced by as much as two thirds, although this was only partly due to his failure to wear a helmet. The Claimant had forced the collision by trying to ease a competitor in a scratch race off the course. The most recently decided case on the subject, Pethean-Huble v Coles concluded that the lack of a helmet had not contributed to the injuries suffered by the rider, although the trial Judge reviewed the literature and concluded that it was generally a wise thing to wear one. The British Cycling Federation certainly recommends it.

The type of head injury suffered in these cases may be critical to the outcome of whether contributory negligence is a factor. Diffuse axonal injury (DAI) is one of the most common and devastating types of traumatic brain injury, and arises where damage occurs over a more widespread area than in a focal brain injury. DAI, which refers to extensive lesions in white matter tracts, is one of the major causes of unconsciousness and persistent vegetative state after head trauma. It occurs in about half of all cases of severe head trauma and also occurs in moderate and mild brain injury.

Unlike brain trauma that occurs due to direct impact and deformation of the brain, DAI is the result of the traumatic shearing forces that occur when the head is rapidly accelerated or decelerated, as may happen in car accidents, falls, and assaults. It usually results from rotational forces or severe deceleration. Vehicle accidents are the most frequent cause of DAI but it is sometimes seen in serious cycle accidents where the Claimant is thrown up into the air by the impact and lands obliquely on the road surface. Even a properly fitted helmet will not prevent the rider from a DAI or rotational brain injury. A cycle helmet is only protective of linear impact injury. Unfortunately, in many of these cases the Claimant has no memory of the accident and cannot describe what happened.

Where a Claimant cyclist was not wearing a helmet therefore and the issue of contributory negligence is indicated therefore, practitioners need to give careful thought to the following factors:

• The period of unconsciousness
• The period of loss of memory
• Eye witness evidence as to the movement or flight of the cyclist after impact
• The trauma team’s report as to the mechanism of injury and the immediate view as to the type of injury suffered

Expert evidence will normally be required in the form of

• A consultant neurologist’s report on the nature of the injury
• An engineering report which calculates the first probable point of impact between bicycle/cyclist and vehicle, the movement of the cyclist immediately after impact and the height from which the cyclist fell onto the road surface
• A psychology report and usually, psychometric testing
• It may be necessary to call for an MRI scan specifically to check for DAI

Claimant's advisors should not accept too readily a defence of contributory negligence without thorough investigation but Defendant’s advisors should remember that where DAI is indicated, it is not necessarily an “all or nothing” condition. There may still be a significant element of direct impact brain injury which is unaffected by the DAI issue. The injuries might still have been reduced had a helmet been worn.

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Lifting The Veil Of Incorporation

Important lessons for civil and family lawyers from the Supreme Court’s decision in Petrodel

The widely reported case of Prest v Petrodel Resources [2013] UKSC 34 contains important material which goes beyond the application of the law of family finances. At base, the Supreme Court had the difficult task of squaring the circle of reconciling over a hundred years of company law since Salomon v Salomon (which may be regarded as the cornerstone of British commerce) with the justice of Mrs Prest’s case and the Court’s reluctance to allow dishonest directors to use their companies to thumb their nose at matrimonial awards.

The question for the Supreme Court was:

Whether it is open to the court in ancillary relief proceedings to treat the assets of a company of which a spouse is the sole controller as being assets to which that spouse is ‘entitled’ for the purposes of s 24(1)(a) Matrimonial Causes Act 1973.

The Facts on appeal to the Supreme Court were as follows:

The appellant wife brought financial proceedings ancillary to her divorce from her husband Michael Prest. The husband was ordered to pay a lump sum of £17.5m to the wife, which he has (still) not paid. The respondents were all Isle of Man companies under the control of the husband. The wife obtained an order that real property held by the respondent companies should be transferred to her so as to reduce the lump sum order.

The respondents successfully appealed to the Court of Appeal against that order.

The husband was an extremely wealthy man due to his substantial ownership of a number of companies which themselves owned a very extensive property portfolio of luxury houses (including the matrimonial home) and other assets in various locations across the world.  The husband was running all family expenditure through these companies.

In 2011 the wife succeeded in convincing the Judge that in reality, the properties were owned, managed and effectively therefore the property of her husband. He was ordered to transfer over 17 million pounds worth of the property to her.

The problem for Mrs Prest was that having been awarded such a large sum of money, she was unable to enforce the order (apart from in respect of the family home which the trial judge found as a fact was being held on trust for the family) because all of the family wealth was tied up in offshore companies, including Petrodel Resources Limited. The Court never managed to get to the bottom of the beneficial ownership of the shares because the husband refused to cooperate with the Court, so the trial Judge had looked straight through the companies to the only director - Mr Prest - and assumed that he was actually the beneficial owner of the underlying assets of the company. Mr Justice Moylan thought that the provisions of the Matrimonial Causes Act gave him the power to do that.

The Court of Appeal disagreed, and in emphatic terms. Lord Justice Patten said I wish particularly to support Rimer LJ's criticism of the dicta in Nicholas v Nicholas [1984] FLR 285 and his view that these cannot be relied upon as a correct statement of the law following the decision of this court in Adams v Cape Industries plc [1990] Ch 433 . They have led judges of the Family Division to adopt and develop an approach to company owned assets in ancillary relief applications which amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law. That must now cease.

In the Court’s view, it was axiomatic that the assets of a company do not belong to their shareholders or directors. They belong to the company. The shareholders merely own the shares.

Mrs Prest’s victory in the Supreme court has been hailed in some sections of the press as restoring London to being the divorce capital of the world for wealthy wives, and a setback for business, but in reality it was nothing of the kind. Whilst Mrs Prest was successful in her appeal, almost everything said by the Court of Appeal remained untouched. All of her arguments in front of their lordships failed save one about the assets being held upon resulting trust, which had not been successfully pursued in the first place. In the leading judgment of Lord Sumption, a retrospective analysis of the facts was carried out, and the Court held that actually, when one looked at the source of the company’s assets (some of which had been acquired by the company from Mr Prest for £1), this was all very suspicious and since he (and the company) had deliberately refused to give any explanation about these dealings, the Court was entitled to assume that the assets were actually held upon trust for him personally.

Thus did the Supreme Court perform the tricky task of reconciling 100 years of company law since Salomon v Salomon with the obvious injustice of letting Mr Prest get away with his dishonest dealing.

The general law of lifting the veil of incorporation however took a battering. Lord Sumption made clear that the only basis of looking behind the corporate identity was that the basis of all legal reasoning is that people must deal honestly. Where there is fraud the Courts will not allow dishonest dealing to defeat the claim. Only fraud and agency and (in the almost unique factual circumstances of Petrodel assets impliedly held on trust by the company) could lead to a claim against the operator of a company personally, and the doctrine of lifting the veil will only be of any application

"where a person who is under an existing legal obligation deliberately evades responsibility by interposing a company under his control".

This is what happened in two of the previous leading cases, Gilford Motor Co v Horne1 and Jones v Lipman2. Mr Horne tried to get out of a restrictive covenant by forming a company to engage his services in competition with his previous business, and Mr Lipman sold his property to his own company to try to avoid the consequences of an agreed sale to the Claimant. The only other type of case is where the company can truly be said to be the agent of its directors, as in the (almost one-off) case of Wallersteiner v Moir3. Mr Wallersteiner’s companies were held by Lord Denning to be mere puppets for his personal activities and were set up to avoid personal liability. In each of these cases the company was in effect set up for a nefarious purpose.

Lord Neuberger in Petrodel went further. He said this

The history of the doctrine over 80 years of its putative life (taking Gilford Motor as the starting point) is, therefore, at least as I see it, a series of

decisions, each of which can be put into one of three categories, namely:

i. Decisions in which it was assumed that the doctrine existed, but it was rightly concluded that it did not apply on the facts;

ii. Decisions in which it was assumed that the doctrine existed, and it was wrongly concluded that it applied on the facts;

iii. Decisions in which it was assumed that the doctrine existed and it was applied to the facts, but where the result could have been arrived at on some other, conventional, legal basis, and therefore it was wrongly concluded that it applied (see para 62 above).

At one stage it looked as though he was going to re-write the law:

I was initially strongly attracted by the argument that we should decide that a supposed doctrine, which is controversial and uncertain, and which, on analysis, appears never to have been invoked successfully and appropriately in its 80 years of supposed existence, should be given its quietus. Such a decision would render the law much clearer than it is now, and in a number of cases it would reduce complications and costs: whenever the doctrine is really needed, it never seems to apply.

He drew back from this, and concluded (with Lady Hale and Lord Wilson) that

....it would be wrong to discard a doctrine which, while it has been criticised by judges and academics, has been generally assumed to exist in all common law jurisdictions, and represents a potentially valuable judicial tool to undo wrongdoing in some cases, where no other principle is available. Accordingly, provided that it is possible to discern or identify an approach to piercing the corporate veil, which accords with normal legal principles, reflects previous judicial reasoning (so far as it can be discerned and reconciled), and represents a practical solution (which hopefully will avoid the problems summarised in para 75 above), I believe that it would be right to adopt it as a definition of the doctrine.

Having read what Lord Sumption says in his judgment, especially in paras 17, 18, 27, 28, 34 and 35, I am persuaded by his formulation in para 35, namely that the doctrine should only be invoked where "a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control".

We may conclude therefore that as the law now stands, fraud unravels everything, and the corporate veil may be lifted in very limited circumstances, but only where a person who is under an existing legal obligation uses a company in dishonest circumstances to avoid his obligations such that the Court is entitled to conclude that the company is a sham and is no more than his creature or puppet and/or that the assets of that company truly belong to him and not the company. It remains to be seen whether any of the residual class of cases mentioned by several of the judges will lead to an extension of the very narrow doctrine now laid down by the Supreme Court.

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Radmacher Radical Or Repetition?

In a light-hearted article in a previous newsletter I speculated that the Supreme Court was unlikely to make major changes to the law of pre-nuptial and post-nuptial agreements in their long awaited decision in Granatino v Radmacher [2010] 3 WLR 1367. We now have that report and it changes everything we know about ancillary relief: It also changes nothing. Insofar as the case makes new law, we have the majority decision of the court, that "..the old rule that agreements providing for future separation are contrary to public policy is obsolete and should be swept away" and that "this should not be restricted to post-nuptial agreements. If parties who have made such an agreement, whether ante-nuptial or post-nuptial, then decide to live apart, we can see no reason why they should not be entitled to enforce their agreement".

Lady Hale, a former Law Commissioner gave a dissenting judgment in which she disagreed with the view that ante-nuptial agreements should be regarded as legally enforceable contracts, thought that it was not open to the court to hold that they were and disputed the conclusion that in policy terms there were no relevant differences between agreements made before and agreements made after a marriage.

She is plainly right about the last point, and it is difficult to fault her logic that these are all matters properly for the Law Commission followed by legislative intervention. However, as she rightly says the conclusions of the majority, which so radically change the law, were "mercifully" obiter to the decision itself, which concluded that the court could take into account (and in a proper case and subject to safeguards such as there being no "unworthy" conduct) only take into account, the agreement which the parties had themselves entered into either prior to the marriage or as part of the arrangements for their parting.

How does this differ from the existing legislation, which requires the Judge to take into account "all the circumstances of the case"? How does it change the common law position, as exemplified in the famous passage in Edgar [1980] 1 WLR 1410 where Lord Justice Ormrod sets out the sort of conduct which might vitiate a post-nuptial agreement but says that it is important that parties should not be allowed to go back on a properly constituted agreement without good reason? In my view, not at all. The court is still going to examine these agreements with great care to see that they have not been forced on the weaker party, that they are not intrinsically unfair (even if different from the solution the court may have imposed) and that they have not been overtaken by events. For almost all but the very richest litigants before the family courts the Radmacher decision makes no practical difference and the Supreme Court has therefore also changed nothing!

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Supremes Stop! In The Name Of Love

By the time this article is published, the long awaited decision in Radmacher v Granatino [2009] EWCA Civ 649 may be scorching a hole in your desk as you try to get to grips with whether the Supremes have gone for Love over Gold or just Money Money Money? Will prenups bind parties to a marriage no matter how much their only thought at the time was that Nothing Compares To You? Or will the Ch- Ch-Changes of married life mean whatever was agreed at the outset, all of that was just Yesterday? And what of post-nups and separation agreements? Will judges find themselves Stuck In The Middle With You?

There has been a Long and Winding Road to this point. Ancillary relief cases in the eighties and nineties were dominated by the choice between doing just about enough to look after the children, (the Mesher approach - Lets Stick Together) and asking the question, what does the wife need, and if there is anything left over, the husband should think himself lucky (the Martin cases - Whatever You Want).

In the noughties, we started to ask ourselves, let's work out what half is and then try to think of a good reason why that should not be the answer - not so much White but Black is Black. Come the early twenty-tens and a more nuanced approach is evident from J v J: Needs generously interpreted then fairness and sharing, having regard only to the way the parties had organised their lives. A sharing of the misery - Everybody Hurts.

For my part, I doubt that we have reached the end of this Long Road To Eden. If pre-nups and post-nups are the end of the story then there wouldn't be much point in keeping the Matrimonial Causes Act 1973. I suspect that the Supremes will Do Right By Your Woman. But then what do I know - I am just Dazed and Confused!

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Mesothelioma Hidden Killer Continues To Trouble The Law

There is currently a series of radio advertisements aimed at tradesmen who may encounter asbestos dust - the "hidden killer" as it is rightly called. Asbestos dust was first identified as unhealthy for human beings well over a hundred years ago, but the years 1931 (when the Asbestos Industry Regulations were passed into law) and 1945 (when the Circular Letter from H.M. Inspector of Factories was published) are generally recognised as being the key dates when the law recognised the damage this material caused to workers' health.

The law has now moved on to deal with the even more insidious implications of the invariably fatal condition of mesothelioma. This is an aggressive form of cancer strongly associated with exposure to asbestos fibre but with a very long period of latency. The problem for claimants in these cases lies in proving which of several potential defendants is responsible for the condition. The proximate cause of the condition is the mutation of cells in the lung, but this can be caused by exposure to very low levels of fibre: Indeed it used to be thought that a single fibre could be enough.

Since many occupations give rise to a small increase in environmental exposure, it is difficult for an employee to prove that this period of employment and this employer caused the condition. A man who has worked in the docks, the railways and the building trade during his working life is going to find it nearly impossible to show which (if any) of his employers directly caused his condition.

For this reason, the House of Lords in the landmark decision of Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 created an exception to the general "but for" rule of legal causation, so that it was sufficient if the claimant could show that the tortious exposure had made a "material contribution" to the risk of developing the disease. In the very recent case of Willmore v Knowsley MBC [2009] EWCA 211 (19 November 2009) an attempt was made to cut this principle down, with the argument that it was necessary for the Claimant to show that the defendant had at least doubled the risk of her exposure to asbestos over and above that which is prevalent in the environment anyway. The attempt was resisted by the Court of Appeal, who held that since the trial judge had identified likely exposure from two specific sources in the Claimant's workplace, that was enough to establish that there had been a significant and material increase in the risk, in that there had been "more than minimal" exposure, because there is no "safe" dose of asbestos. The case nevertheless demonstrates that claimants will have to be wary of identifying likely causes of asbestos if they are to establish their claims, and defendants will want to be on the lookout to ensure that they have done so. A claimant who merely says that he "must have" been exposed to asbestos by a particular employer is not likely to succeed in the claim.

Please note any article published on this website is not intended as legal advice and is to be considered to represent the opinions of the author at the time of publishing only. If you require legal advice, you are encouraged to contact a solicitor, complete the Direct Access Questionnaire or complete our ‘Contact Us’ form.

Legal 500

Very experienced in Inheritance Act claims.

First and foremost, Derek Marshall is a first-class Barrister and my impression is that he is most definitely a cut above the rest. Having Derek on your side, you instantly feel you have an advantage over the other side. It is obvious Derek is well learned, but he is also very approachable and will always listen to what you have to say and give you an objective, constructive and clear answer. If I ever need to use a Barrister in the future, I would most definitely want to have Derek on my side.

Legal 500

Derek Marshall offers a different angle to the team, with a substantial practice as both a mediator and arbitrator.

You worked really hard and managed to achieve a settlement when perhaps others would have given up.

Kevin Richardson, Solicitor

As a result of his seniority, Derek attracts complex and unusual cases. He is always my first port of call when I have those cases. He has a wealth of knowledge and expertise as well as being an excellent advocate. 

Derek always uses his considerable litigation experience in providing sound guidance.  I particularly like the fact that if late in the day the parties are still apart, he gives his view on matters having first obtained the parties consent to do this. I believe this always gives him an advantage over non-lawyer mediators and is one of the reasons why I always choose him as my preferred mediator.

Derek is a specialist in dispute resolution matters including commercial disputes, chancery and contested wills and probate disputes. I would not hesitate in recommending Derek to colleagues and fellow professionals as an advocate or indeed as a mediator. 

I have used Derek for over 10 mediations during the last 3 years, he has been excellent throughout and I am pleased to say that in all of them there has been successful outcome. Some have been very difficult indeed with very difficult people.

Derek can think outside the box and uses his abilities as an advocate and mediator to resolve cases and where possible reach sensible outcomes for clients thereby avoiding the risks ane costs of a trial.

Derek is at the top of my list of Civil Mediators.  He invariably and unerringly is able to identify the core issues which are of greatest concern to the parties (which are not always the legal issues). He brings to the mediation arena sufficient gravitas, where required, but also empathy and understanding. That coupled with his ability to address in clear terms the risks of litigation and to explore constructive and sometimes novel solutions make him in my view the ideal Mediator.

Your relaxed but still focused approach was impressive, as was your persistence, notwithstanding by late afternoon a settlement still seemed unlikely. From my perspective, the mediation was a positive and ultimately successful experience.