DR v GR

In this case, DR v GR and Others (Financial Remedy: Variation of Overseas Trust), the wife applied for the variation of a post-nuptial settlement to recover money owed by her husband. The settlement was a discretionary Jersey trust with total assets worth over £2.5m.  The settlement owned a Liberian company, which owned a UK company, and these two UK companies owned two retirement villages in Lincoln and Gainsborough.

Each company had been joined to the proceedings. The issues for the court to consider were:

• whether the structure of the settlement (with the trust and the retirement villages held via wholly owned companies) prevented the court ordering the disposal of the retirement villages
• if trustees and/or underlying companies should be joined as a respondent in variation of settlement cases; and
• the award that should be made to the wife.

The companies argued that the effect of the judgment in the Court of Appeal 2012 case in Petrodel v Prest provided that the court could only order a variation to the holdings of the Liberian company (because it was held directly by the trust). As a result, the companies asserted that Mostyn J could not deal with the assets held in the intervening companies.

However, Mostyn J held that a family company that “under an arrangement makes some form of continuing provision for both or either of the parties to a marriage is capable of itself of amounting to a variable nuptial settlement whether or not the company is owned by a trust of which the spouses are formal beneficiaries”.

Therefore, Mostyn J held that the entire structure comprised a variable post-nuptial settlement and the court was entitled to deal with the underlying assets directly.

Settlement cases

The second issue considered was the practice of joining trustees and/or underlying companies to proceedings in variation of settlement cases. The trustees had not participated in these proceedings, and the underlying companies made their own application to be disjoined from proceedings.

Mostyn J applied a number of principles: that the joining of trustees and/or underlying companies is not a pre-condition to the validity of the variation of a settlement order; and that if trustees and/or underlying companies are to be joined, the Family Procedure Rules 9.26B must all be satisfied.

He ruled that in a variation of settlement case, the trustees and/or underlying companies should be served with notice but not automatically joined to proceedings. Once served, the trustees and/or underlying companies can then file a response and decide whether to appear as a witness or be represented in proceedings.

Mostyn J held that there was no separate dispute between the wife and the trustees or underlying companies, and the companies were successful in being disjoined from proceedings.

The judge stated that when making an award he would need to consider the interests of all beneficiaries as well as the fact that the trust was a “plainly agreed part of the financial architecture of this marriage”.

The wife was awarded 49 per cent of the settlement assets to meet her needs. The husband was able to retain the retirement villages, and was given two years in which to raise the £391,000 that was due to his wife, which was secured on the settlement assets.

This ruling supports the decision of the Family Division judges in Petrodel v Prest that separate legal corporate personalities should not be ignored in divorce proceedings.

The fact that this was a nuptial settlement, however, meant that the court could vary and deal with the underlying assets.

This ruling also provides a helpful reminder of the practice of joining trustees and/or companies to the variation of settlement cases.

Jonathan Riley is a partner at Michelmores

He writes regular case updates for Private Client Adviser