Nautilus Fiduciary (Asia) Ltd
(the trustee of the New HuertoTrust)
- and -
LCAL Anthology Inc
Mr Richard Bates (instructed by Sears Tooth Solicitors) for the Petitioner Wife
Mr Martin Pointer QC and Mr Nicholas Wilkinson (instructed by DWFM Beckman) for the First Respondent Husband
No representative appeared for either the Third or the Fourth Respondent
Hearing dates: 27 to 31 October, 3 to 7 November, 2 and 3 December 2014, 17 and 18 June 2015 ____________________
Between 27 October and 7 November 2014 I heard evidence over what was intended to be the final 10-day hearing of this long-running financial remedies application by Mrs Nichola Anne Joy (W). Although I had made provisional provision for the application to continue into the following week that was frustrated by the unavoidable commitments of counsel in the case, and their written final submissions orally supplemented could not be concluded until 2 and 3 December. On 26 February 2015 I distributed this judgment in draft form to Mr and Mrs Joy and by mid-May the process of sifting proposals for revision was completed. I heard further submissions in relation to the form of the order, costs and Mr Joy's appeal permission application on the earliest available dates, 17 and 18 June. My conclusions on those issues are appended to the main judgment which I now hand down. I impose no embargo on publication of this judgment which, I suggest, should for ease of identification be cited as Joy v Joy-Morancho and others (No 3)to differentiate it clearly from my two interlocutory judgments in March and April 2014 which have been published respectively as  EWHC 455 (Fam) and  EWHC 3769 (Fam).
Between December 2014 and February this year I considered carefully the extent of the issues and evidence necessary to establish my conclusions on the principal issue of fact I have to decide. That is whether or not the situation described by Mr Joy (H) is accurate so that he is in truth and in fact able for the foreseeable future to pay only modest periodical payments to W and their three children, but nothing whatever by way of capital award. That proposition and that outcome depend upon whether H really faces the financial ruin he maintains overwhelmed him as a result of what he describes as the day of reckoning imposed on him by the trustees of the New Huerto Trust (NHT). Those trustees now pursue him and all those assets to which he can lay claim (and more), so he will be left without substance. His debts therefore exceed by far any assets available or likely to become available to him. His case is moreover that he has been permanently and irrevocably excluded from any potential future benefits from NHT.
NHT is a trust H (as settlor) established in the British Virgin Islands (BVI) in December 2002. The trust had until recently as its trustee a Hong Kong based management company Royal Fiduciary Group (RFG) of which Tim Bennett (TB) is a director. RFG has merged with or been acquired by the Third Respondent, another offshore trust corporation of which TB has become a director, but there is no need to distinguish between the two for present purposes. TB does very clearly emerge as the human face and mind of the trustees, taking the lead in speaking for them and in informing and forming RFG's decisions in relation to NHT and H. I do not believe I will in practical terms commit any error if for shorthand I refer to the trustee of NHT either as RFG or as TB: and do not refer again by name to the Third Respondent which has come but latterly on the scene. The protector of the trust is a long-standing Dubai-based friend of H, Mr Richard Smith (RS).
Neither the NHT Trustees nor TB nor RS have responded to these proceedings by participating in them as parties or directly as witnesses. TB on behalf of RFG has however made available some, and withheld much other, information and documentation.
Only after resolving where I believe the truth lies on that primary issue of fact – whether H's plight is genuine or a contrived facade - can I proceed to consider the by no means straightforward question what capital provision, if any, in the context of a global award should be made for W; and then how she may be able to receive it if, as seems inevitable in the circumstances of this case, payment is not facilitated by those who may seek to delay or to thwart her.
The documentation prepared for this hearing was voluminous and extended by its conclusion (including some supplemental bundles from an earlier hearing for which I myself had asked) to over 20 ringbinders. The conduct of the case would have been more comfortable for all if I had required one or even two core bundles to be prepared, and I blame myself for not including a pre-trial direction to that effect. My purpose in mentioning this is not to rail but simply to explain how it is that to make sense of the rival contentions on what I have described as the primary factual question there are many issues which might be construed to point in one direction or the other. But there are others, more limited in their number, which seem to me to be incongruously inconsistent with what might be expected. It is upon the latter that I will concentrate. I will quote rather more extensively from transcripts of evidence and from documents than is normal in a judgment such as this, because so often the flavour of what is written and was spoken has contributed to my overall sense of what is credible and what is not.
To put these issues into context it is necessary for me to describe a good deal of a convoluted and complex history, both of the marriage and of events since its failure, which I will attempt to do as succinctly as is practicable. But before I recite salient aspects of the procedural history and the sequence of developments which have emerged I will attempt a thumbnail of the nature and range of the dispute.
The Parties' aspirations
As formulated at the conclusion of submissions, W sought a lump sum pitched at £27m for a clean break, on the basis that the matrimonial acquest was at least £54m.
In order to assist her in collecting such a sum she asked me to declare that a collection of vintage and other collectable motorcars (which I shall refer to as the Car Portfolio) is beneficially owned by H rather than by the Fourth Respondent, a BVI company, LCAL Anthology Inc (Anthology) which is wholly-owned by NHT. As an alternative route to the same destination W at a very late stage of pre-trial preparation (indeed shortly after the pre-trial review in September 2014) applied to set aside pursuant to section 37 of the Matrimonial Causes 1973 what she asserts were dispositions of cars within the Portfolio made in favour of Anthology by H. It was for the purposes of the avoidance of disposition application that the trustees of NHT and the company Anthology were joined as respondents, but neither was represented at the hearing nor actively participated in the proceedings. The value of the Car Portfolio on the open market has not been established, but seems likely to be of the order of £20m. If a section 37 order were made W would then seek orders for the transfer or the sale of the relevant cars; and would give credit against her lump sum award for any proceeds of sale she might realise.
With the same objective, to facilitate satisfaction of the lump sum award, W invites me to make an order securing it, subject to existing encumbrances, against what were referred to as the London Properties, namely 4-6 Milner Street and 32 George Street, both registered as owned by GPH Ltd, a BVI company which is also wholly-owned by NHT. Milner Street was, it seems, acquired in November 1999 and may have a negative equity; George Street was acquired in 2010. The residual value of these two properties might be of the order of £4.5m. No representative of GPH Ltd attended the hearing nor did that company participate in the proceedings.
W has not abandoned her attempt to demonstrate that NHT (or components within its structure) are susceptible as ante-nuptial settlements to variation pursuant to section 24(1)(c) of the 1973 Act.
The polarisation between the spouses' positions could not be more extreme. H's proposal is that a nominal spousal maintenance award is the only financial remedy W should receive, leaving it open to her to apply to the court for variation as and when H resumes employment.
From that account of the parties' aspirations I turn to an outline of the course of their relationship, highlighting along the way some of the disputed financial and other factual issues.
H is now 56 and W 48. They first met in the spring of 2001 at a point when H had been living for some months in Bequia, an idyllic island in the Grenadines. Both his first childless marriage, his morale and his finances were at a low ebb. Although the state and the extent of H's relationship with his first wife Bobbie (W1) became the subject of some dispute before me in the context of the issue when it was that H and W's relationship became serious enough for marriage to be in contemplation, documents establish that W1 instituted divorce proceedings in England in March 2001 and that decree absolute dissolved their marriage and a clean break financial order was made in October of the same year.
After some years of living together (W says since 2001, with commitment even when apart from early on: H maintains intermittently only and not exclusively until 2003) they married in February 2006 but separated permanently in December 2011. Their home was primarily in Bequia but since about mid-2010 in the South of France. They have 3 sons ranging in age from 9 to 4. H still occupies the château (Château T) which was their final matrimonial home, a sumptuous 6-bedroom luxury residence on which much has been expended since its purchase. W lives nearby in rented accommodation, and the children have been spending time with them both as directed by extensive litigation concerning them which has taken place in the French courts, and which continues.
W commenced divorce proceedings in London on 25 July 2011. H's response was to challenge the jurisdictional basis on which she relied, namely that they were both at that date domiciled in this jurisdiction. H's case as to his domicile in its final manifestation was that he had acquired a domicile of choice in Spain, and for that purpose it was for him to show by clear and cogent evidence that he had forsaken the country of his domicile of origin, ultimately conceded by him to be England, for Spain. That, if it had been found to be the case, would have deprived the English court of jurisdiction to hear the divorce proceedings and to embark upon the determination of financial remedies.
There thus followed an extremely complex and expensive jurisdictional issue which I heard over about five days at the end of 2012 and resumed in April 2013 with the advantage (in terms of distinguishing reality from presentation) of the production of previously strenuously resisted documentation from H's accountancy and taxation files gathered from a variety of advisers over a number of years. One of those advising H was TB. He had since some date in the early 90s (and thus for a considerable period before NHT was created) been one of H's tax and trust advisers and was much engaged in and was an active contributor to the discussions which over many years attended H's flexible and fluid rehearsal for presentations of his residence and domicile position to HMRC.
That phase of this case came to an end when H abandoned his pretence that he was domiciled in Spain. Decree nisi has since been pronounced.
I note in passing that it is only under the last indent to article 3(1)(a), and under article 3(1)(b), of the Brussels II Revised Regulation that the United Kingdom and Irish concepts of domicile become relevant when divorce jurisdiction is in question in a Member State of the European Union. No doubt there were what seemed sound reasons not to adopt the test which elsewhere prevails, where nationality (for these purposes) concludes any issue in a way which must be comparatively far faster and immensely less expensive to establish.
H in the course of that contest demonstrated a very significant lack of integrity and honesty in relation to their subject matter. The overall costs of the exercise were estimated to be of the order of £600,000. Since then financial issues have consumed the parties' and the court's time and much further expense.
The substance of the wealth in this family's background derives from H's business activities commenced since these parties first met and continued (if not indeed, as W would have it, commenced) during the period of cohabitation and marriage. The bulk of it originally came from operations conducted through an offshore company LCAL Inc (LCAL), the shares in which (TB noted) TB told Sofia Moussaoui (SDM, the partner at Beckmans who acts for H) at a meeting (their second, in Hong Kong in April 2014) had always been registered with RFG as trustees for NHT, and never in H's name.
LCAL was incorporated in June 2004 as the vehicle through which H conducted (as the driving force, albeit initially with outside investors) an innovative and in due course very lucrative commercial airline leasing business. H's case is that it was not until about 2007 that the company began to make significant amounts of money. In May 2013 H estimated the value of the NHT assets to be £70m, subject to over £21m of contingent liabilities in respect of borrowing facilities with EFG Private Bank (EFG) which since about 2007 and still at that point were available to H.
Between 2004 and 2007 the family's home remained in the West Indies, and in October 2007 they first leased and then in 2008 purchased a property, Alta Vista, on Bequia. The purchase was made with NHT funds and taken in the name of a St Vincent company, Blue Orchid, wholly-owned by NHT. There appears to have been no formal agreement whereby the family had that property available to them, which they did until H's relationship with TB and the trust became (one would have thought, in the light of TB's actions) terminal in November 2013. TB, H maintains, in effect ordered him to go there for a week over the Christmas period in 2013 to clear the property of what was left of the family's possessions. W suggests that the property is worth US$4m, having been acquired (she maintains) for US2$m. However accurate these figures may be, Alta Vista is clearly a substantial property whether as a primary or (as latterly) just a secondary home. In May 2013 H maintained that he needed the ability to draw €3,000 per month for expenses related to Bequia.
Also in 2008 when H and W were contemplating making their home in Switzerland and for that purpose acquired residence there, H purchased land in Zermatt intending to develop it by building a home for them there. The funds for this were drawn down by H from a separate EFG facility, again backed by an NHT guarantee in turn supported by the back-to-back deposit of cash and/or securities. The property was purchased in his own name. It cost CHF2.6m. A contract for its sale for CHF2.55m was made on 28 September 2012 but with completion of the transaction ultimately deferred until 31 December 2014. In the events which have happened the entire net proceeds will go to NHT. In order to maintain his Swiss resident status H still retains the tenancy of a 4-bedroom flat in an apartment block at Leukerbad at a monthly rental of CHF2000, about £16,000 annually. He only very occasionally and for weekends stays there.
Until January 2009 H received a monthly salary from LCAL. His employment was then terminated but he continued to receive his salary for a further year until January 2010 despite that fact. His case is that, that salary of about £120,000 annually and unspecified bonuses apart, he has received nothing, ever, by way of distribution from NHT or any of the companies or businesses within its structure. His evidence was "I have never taken a distribution from the trust ever. I have only worked for the companies and got bonuses in relation to my work."
By the time the family moved to France in 2010 he had US$2.1m of his own funds deposited in an account with EFG against which he had a drawing facility of an equivalent amount. This arrangement, it should be noted, would thus make it appear to the casual observer (and perhaps, if enquiries were made, to the French fiscal authorities) as though he were living on overdraft so far as he drew down in reliance on that facility, whereas in fact the underlying funds were positive and were his. The plan was to hold half that fund to meet contingencies, and to draw down over the anticipated seven years of their French sojourn for the family's day-to-day living expenditure at the rate of €25,000 per month, the amount transferred to H's French banking account.
In October 2009 H paid £395,000 to acquire a 1928 Bentley tourer. It is indubitably the case that this vehicle was until very recently owned personally by H, was kept at Château T, and was maintained in roadworthy condition and used by H. The Bentley has been the subject of intensive litigation within these proceedings, to be described later.
It was in January 2010 that Château T was acquired in the name of a French property-holding company known as an SCI at an initial cost of €2.7 million. This came in part from H's own capital reserves and in part by way of drawdown from the EFG facility. The money spent by H has been treated as an interest-free loan (standing currently at some €2.5 million) to the SCI for a fixed period till May 2030. When their youngest son was about nine months old, in June 2011, the shareholding of the SCI was varied so that the three children between them own 90% and H only the remaining 10%. W has never held any shares in the SCI. If the property were now to be sold at the value which H attributes to it of €3.6 million it can be calculated that after the expenses of sale H's 10% would only produce something under £50,000. The amount owed to him by way of loan would he says be swallowed up in the claim which, in the circumstances which have arisen, NHT is pursuing against him and all the assets available to him for the formidable sum of US$7,060,000. And indeed it does seem that very recently Swiss lawyers acting for NHT have confirmed that NHT intends to pursue the entirety of H's (and it would seem also the children's) interest in the property.
Although no copy of the NHT trust deed as executed was made available within these proceedings it seems, from what can be deduced from references to its provisions, that W has never been within the class or classes of discretionary beneficiary. H remained a potential beneficiary (with their children) of NHT until the move to France. Fiscal considerations (about which TB amongst others advised H at a time when what he described as the 'French roadmap' was being charted) dictated that he (and indeed the 3 children) should be excluded from benefit, initially for a fixed (although revocable) period until 2017. He and they would thus be temporarily distanced from the trust and so should receive no benefits from NHT while that disentitlement remained operative. Planning for this was on the basis that H's sabbatical would be not for one year in seven, but for a full seven. The family's living costs would ostensibly be covered by monthly payments of €25,000 into a French banking account.
The payments into the French account and the overwhelming bulk of other expenditure were met over the years from the funds made available for H to draw upon at EFG. His overdraft at the bank (some £18m at the critical date at the end of 2013) was for the main part secured by the back-to-back deposit of NHT funds and assets, with a stipulated limit on drawings of CHF25m (increased from CHF20m on 20 January 2012 at a time when H and RFG apparently remained confident that his case on domicile would succeed and the threat of English financial remedy proceedings evaporate).
Having launched her divorce petition here in July 2011 W then instituted proceedings in France alleging domestic violence against H and seeking orders in relation to the children and in particular that he should leave Château T. W failed in this attempt and indeed (so I have been told) the French court determined that her allegations were unfounded and dismissed her application. In December 2011 she moved to live in rented accommodation nearby and the parties have since then not lived under the same roof. In January 2012 divorce proceedings instituted by H in France were stayed by the French court, no doubt to await the outcome of H's challenge to the English jurisdiction. For much of the rest of that year the parties engaged in largely parallel proceedings concerning interim financial provision and provision of legal fees, and the French court ordained that the children should spend equal time with each of them.
I have already described above the nature and the outcome of the jurisdiction challenge which I part-heard in December 2012 and, after an adjournment during which the accountancy and taxation files were gathered and considered, which resumed in April only to be abandoned by H.
In the immediate aftermath of the collapse of the domicile case, on 1 May 2013 I made an unopposed order which (in summary) restrained H and others with whom he is connected (including TB) from diminishing his worldwide assets below £35m, while allowing him to withdraw £145,000 monthly (to include payments to be made to W and the children, and up to £30,000 for his legal fees). On 12 June 2013 I ordered him to pay €14,700 per month to W for herself and the children for their general maintenance and rent (to include a French maintenance order in favour of the children for €3600 monthly), and provided moreover that he should pay £15,000 monthly for 8 months (a total of £120,000) to enable her to engage legal services. The intention was that this would enable W to fund her case through to FDR. W owns no assets of significance and does not have any income of her own. On the information that was available H's ability to meet these payments depended upon the continuation of his arrangements with NHT and EFG.
When in early July 2013 H served his Form E it annexed no documentation in relation to NHT. In relation to its historical and current assets, and in relation to all but some documentation provided very recently by TB, that remains the position. H asserts that he has no such documentation in his possession, power or control. It was not until receipt of H's answers to questionnaire in mid-January 2014 that W's advisers learned that RFG had (on an application to which RFG was the only party) on 28 June 2013 obtained from Bannister J who sits in the Commercial Division of the Eastern Caribbean Supreme Court an order absolving them of any obligation to provide H with any documentation in relation to the Trust, and moreover determining that "the settlor of the Trust, [H], has no present entitlement, either in possession or reversion, to any asset of the Trust; and … has no right to require that any such entitlement be conferred upon him."
On 19 September 2013 a firm of Guernsey lawyers acting for EFG notified H that the bank regarded RFG as being in default of the trustee's guarantee of the facility afforded to H in that "RFG have now informed EFG that you were, in fact, excluded as a discretionary beneficiary of the Trust by way of a Deed of Appointment dated 31 August 2010, and that the effect of that Deed is that you are currently not a beneficiary of the Trust and have not been since 31 August 2010." The letter pointed out to H that neither he nor RFG had notified the bank of his changed status until 19 August 2013, and in particular that EFG was not informed of it when it entered into a guarantee dated 22 December 2011 whereby RFG guaranteed H's liabilities up to CHF25m nor when it agreed on 20 January 2012 to increase the facility from CHF20m to that higher amount.
The Declaration of Trust, as the Guernsey lawyers pointed out and quoted in the letter, "contains limitations on the powers of RFG as Trustee in applying NHT assets. Specifically, clause 7(f) of the Declaration of Trust provides that: 'The Trustee shall until the Vesting Day have the following additional powers … (f) Power to make any property comprised in the Trust Fund available as security for any third-party advance or loan to any Beneficiary.'" RFG, the letter continued "no longer have 'full power and authority' to pledge the assets of NHT for the purposes of lending to you." From this it seems clear that the reasons why at that point EFG saw themselves as entitled to call in the loan were the trustees' failure to notify the bank that H had ceased to be a beneficiary in August 2010, with the necessary consequence that using trust assets to guarantee and support facilities of up to CHF25m to continue to be made available to H would constitute a breach of trust on the part of RFG/TB.
Each party castigates the other for the steps the other took, each counter-asserts, which precipitated that Notice of Event of Default. I have little doubt that it is correct that service on the bank of the restraining injunctions I made on 1 May and 12 June would have unsettled EFG and led them to conduct a review of their security position (as indeed H was informed they would by Mr Stocker, his relationship manager of long standing at EFG and at previous of his bankers). Nothing to my mind for present purposes turns on this, but the fact is that the Guernsey lawyers' letter highlights what that review established, irregularities in the management of the trust.
Later, on 18 October, that firm again wrote to H to confirm that EFG had withdrawn the Notice "following confirmations provided by RFG" and had reactivated the facility "subject to compliance with the limits set by the English law Freezing Injunction Order of Sir Peter Singer dated 12 June 2013." That shows that, at least at that point, the limitations imposed by my orders were no longer a cause for concern to EFG.
Whatever the nature of RFG's "confirmations" they were not amongst the information revealed by TB to this court, but clearly they were at least temporarily effective to allay the bank's anxieties. However, the order to which EFG refer, and H's undertakings to like effect by which the order was later replaced, would immediately highlight that they authorised provision for payments from trust-guaranteed funds to non-beneficiaries: W as to €14,700 maintenance and £15,000 for legal costs each month; and H himself as to £115,000 per month (on the face of it "to meet his ordinary living expenses") plus a like amount "on his legal advice and representation."
(Pausing there, I have given some thought to some conclusions which it does seem to me are more likely than not to be well-founded, although I should make it clear that they were not voiced during the hearing before me and thus that I have not had the advantage of any contrary observations which Mr Pointer might make for H on the existing state of the evidence. Subject to that important reservation, this is what seems to me to be the dilemma which arises when one considers what stance and what observations TB/RFG could have advanced as a result of which EFG (albeit temporarily: see below) restored H's facility:
On 12 October 2013 TB in an email to H and to Jonathan Stocker, H's longstanding friend and personal banker at EFG, wrote that he (TB) "personally hand-delivered RFG's letter ["with the information they required in order to cancel EFG's suspension of the Facility"] last Friday 04 Oct in Guernsey." Logically one might expect that letter to maintain either that the trust provisions were not breached because all payments to H or made on his authority were in his capacity as NHT/Anthology's agent/representative and so not for his benefit; or would have explained how any irregularity would be corrected.)
Third thoughts however soon prevailed, as indeed understandably they might for EFG in light of the terms of the English order, and on 28 October 2013 the Guernsey lawyers wrote on behalf of EFG that "as advised in our second letter of 18 October 2013 the freezing order made on 1 May 2013 by the High Court of Justice of England and Wales (as further extended on 12 June 2013) has placed the Facility into default… You were advised in that letter that EFG fully reserved its rights in respect of such Event of Default," that H's facility to make further drawings had ceased, and all amounts were immediately repayable and demanded forthwith
In the letter of 31 October 2013 with which they sent W's then solicitors Withers a copy of that latest letter from Guernsey H's solicitors wrote that he was enquiring with EFG to ascertain whether an order discharging the injunction would be sufficient to convince the bank to continue the facility. In a later letter of 8 November 2013, in effect on the eve of the next hearing, they relayed that "there have been informal discussions between our client and Mr Stocker of EFG to see if the loan facility can be revived. As a result of the default Mr Stocker does not presently have the authority to restore the facility, however, he has indicated that if the injunction is discharged the bank is likely to reverse its call on the loan and allow drawings to continue to be made." It was H's case at the 11 November hearing that the position remained as stated in that letter, and that no further elucidation or confirmation had been or could that day be obtained. H at no point in the course of that hearing represented it as guaranteed that the previous arrangements would be reinstated. Thus it is that the order whereby I substituted H's undertakings for the freezing injunction was based "on the assumption that EFG will reinstate the loan facility."
By the date of that next hearing, 12 November 2013, H had not met the requirements of the 12 June order. He paid from the beginning of September onwards only €3600 (thus remaining compliant with the French child maintenance order) and the rent; and after two £15,000 instalments none whatsoever in relation to the legal services order. That remained the position, and by the beginning of February his outstanding liabilities in relation to both elements of the June 2013 order amounted to some €60,000 and to £90,000. There then followed hearings in February, March and April 2014 into the detail of which I need not descend. Their upshot was that I suspended any enforcement applications by W in respect of arrears and at the same time suspended without discharging or varying H's liabilities to her under the English orders for maintenance pending suit, including legal services provision.
Meanwhile however on 15 November 2013 EFG determined not to reinstate the facility but rather to enforce the bank's security. In the process they took the US$2.1m deposited as back-to-back security in H's own name. Beckmans notified Withers of this by letter dated 26 November 2013 in which they stated that H's liabilities "have been reduced by approximately £12m and the trust assets had been reduced by the same amount."
Two days later Withers were forwarded by Beckmans a letter from TB also dated 26 November by which they and W became aware of steps taken very promptly by the trustees on the same day as EFG (as RFG in that letter described) "proceeded to set off against your liabilities certain assets provided by the Trust as security for your obligations to EFG." The letter also provides the first formulation of the loss to NHT and of the method used for its calculation in these terms:
"These events have unfortunately led to serious loss to the Trust in the amount of approximately US$18.9m. Further, as the Trustees understand it, the extinguishment of your personal liabilities without recourse to any of your own non-cash assets has in effect improved your own personal asset position by approximately US$7.06m. We will have to proceed to implement our back-to-back security charged over those assets immediately."
RFG's letter then announced that by deed of that date the trustees had excluded H from being a beneficiary of the trust on a permanent and irreversible basis. I propose to incorporate the major part of the rest of this letter in this judgment as it sets out the reasons given by RFG for the decision permanently to exclude H from benefit under the trust:
"The Trustees are obliged to act to protect the trust assets and in particular to safeguard them for all of the beneficiaries. The unwelcome developments of the recent past mean that the Trustees have no option but to consider whether to take measures to protect the trust assets from further losses which might arise as a result of the matrimonial proceedings.
In particular, it is clear from the drafting of the freezing order (even though it has now been discharged) that your wife and indeed possibly the Family Division of the English High Court also, appear to take the view that certain assets which are assets of the Trust are either 'your assets' or in some way available to you. That view is entirely incorrect, but the Trustees are also concerned that the Family Division of the English High Court may continue to try to take this approach.
In fact, we have always understood that your clear intention, at all times from the establishment of the Trust, has been that capital was not to be distributed to you (albeit the Trustees might have regard to any income requirements you might have) but was instead to be kept for the benefit of your children, and in due course your grandchildren.
We have considered the recent developments carefully, and our duties as Trustees, and have taken appropriate professional advice. The Trustees have had regard to the following:-
1. your intentions as stated above;
2. the desirability of safeguarding the assets of the Trust, and indeed the duty of RFG as Trustees to do so;
3. the fact that you currently have, as a result of the actions of EFG referred to above, enjoyed an approximately US$7.06m improvement in your own net non-cash asset position;
4. that in any event you are presently excluded from receiving benefit under the Trust until at least 2017 (due to tax considerations arising from your residence in France); and
5. that you appear to intend to continue to reside in France indefinitely, such that the present exclusion will in all likelihood be extended beyond 2017.
Accordingly RFG as Trustees have determined that you should now be permanently and irrevocably excluded from benefit under the Trust. The minimal detriment that this may cause to you is outweighed by the benefit to the other beneficiaries under the Trust from your own exclusion. The Trustees have therefore executed a deed of appointment (a copy of which is enclosed) which has the effect of excluding you, as from the date hereof, from all benefit under the trust.
We hope that you will understand the reasons for this decision, even though it may be unwelcome to you, and we would be happy to discuss the reasons further should you wish. However, the execution of the deed is irreversible, and accordingly there is no question of undoing the exclusion.
It was only some time later that it came to light that the plan to oust H permanently from all benefit from the trust was not rapidly hatched in the immediate aftermath of the EFG foreclosure. In mid-December 2013 Withers ceased to act and at the turn of the year Sears Tooth (ST) agreed to act for W. In March 2014 on the internet ST happened upon a judgment of Bannister J, sitting in the Commercial Division of the Eastern Caribbean Supreme Court, who, following an application (to which, again, RFG was the only party) heard submissions from counsel for the trustees on 16 October 2013 seeking approval for a proposed deed designed to exclude H permanently and irrevocably from any benefit under NHT. On 8 November 2013 Bannister J refused permission, but his judgment concluded: "If the Trustee considers that the reasoning in this judgment is fallacious, there is nothing to prevent it from executing a deed in the form of the draft and arguing for its effectiveness as against any party concerned to attack it. If it succeeds, no harm will have been done by this Court's refusal of sanction." Within 3 weeks of that determination RFG did just that on 26 November, executing a deed to the same effect but in somewhat amended form from the one of which Bannister J had disapproved.
On 3 December 2013 H and SDM attended a meeting convened in Hong Kong with representatives of RFG (led by TB) and with NHT's Protector RS. Withers were sent a copy of TB's redacted note of that meeting on 16 December 2013, together with a copy of a further letter to H from RFG dated 6 December. The letter, and indeed the meeting notes, reflect the same stance as to the trust's loss and H's enrichment …
"… by approximately US$7.06m, represented by the following free assets in France (and in Switzerland):
your 10% holding in the [Château T SCI] and the related Loan Account with the SCI;
your Bentley car;
the Piper Archer Aircraft (in France); and
your land in Zermatt, Switzerland (or the future proceeds of sale thereof)."
It is clear that the plan to oust H from potential benefit from NHT was initiated by RFG before EFG withdrew facilities and set about enforcing its guarantees against H (in relation to his own US$2.1m deposits) and against the trust. The motive for that was transparently (and indeed was patently described by TB to H and SDM at that Hong Kong meeting in December) to protect trust assets from any risk of successful attack by W or invasion by English court order. The actions of EFG allowed RFG to go in effect one considerable step further, and for NHT itself pre-emptively to pursue those assets in H's name to protect them from similar attack or invasion.
It is a necessary inference that neither H nor SDM at that meeting told TB of the defensive barrier which they had already cast round the Bentley: as to which see the next section.
The 6 December letter also enclosed a copy of what was described as "a formal counter-indemnity letter whereby you undertook to reimburse the Trust any and all amounts that may at any time in the future be paid to EFG by virtue of their enforcement of the Trust's guarantee of the Facility." The counter-indemnity letter describes the Facility as "the banking facility previously granted to me in [EFG's] facility letter dated 30 March 2010." TB's letter gave notice that RFG "will be instructing lawyers in both France and in Switzerland to seek immediate saisie conservatoireand to commence formal recovery ('poursuite')proceedings." The enclosed counter-indemnity bears the date 30 August 2010 which I observe is the day before the date of the deed of appointment (referred to in the preamble to the November 2013 exclusion deed) whereby the Trustees are said to have "revocably declared and appointed that the Settlor [H] (as "Class A Beneficiary") ceased to be eligible to receive benefits from the Trust for the period of seven years from [31 August 2010]." The counter-indemnity could thus plausibly be seen to fit into the rearrangements made to avoid exposure, on the family's move to France, to French wealth tax, the impôt de solidarité sur la fortune.
What the counter-indemnity does not do is to distinguish between "any and all amounts that may at any time in the future be paid to EFG by virtue of their enforcement of the Trust's guarantee of the Facility" (which RFG put at US$18.9m); and any lesser amount calculated as due from H after deducting any elements of the loan account used not for his own personal benefit but for the purposes of NHT, such as to purchase vehicles on behalf of the trust with funds from the facility or to make payments for other expenditure on behalf of NHT from that source. But it is on any view impossible, it seems to me, to construe the document as imposing on H liability to pay the trust a sum calculated by the suggested value of assets owned by him but purchased with funds from that source: as were those assets in France and in Switzerland which had become free of encumbrance to EFG as a result of the loan accounts being called in and the facility being discontinued.
H was able to salvage only €80,600 from the wreckage at EFG, and transferred those funds to his French banking account. His position was that he would continue so long as he could to pay the €3600 monthly representing the amount of the French child maintenance order, and the rent on their home. At the end of November 2013 H was said to be "now taking steps to find liquidity and will revisit the issue of maintenance again at that point. Unless your client agrees this interim position our client will have no other option than to make an application for a variation of the MPS order." I observed in passing in a judgment I handed down on 5 March 2014 that, if as H in correspondence and in his most recent filed statement suggested, he was down to his last few euros then it was hard to see how he would be able for long to afford life at Château T without recourse to extraneous resources. But who can say what TB and NHT will achieve in pursuit of the avowed intent to clear H out, if they can, of the £2.07m which the schedule shows as the combined worth of his 10% share in the SCI and his loan account with the company? As at the end of October 2014 his (negative) asset schedule includes borrowings from friends, acquaintances and family totalling some €162,000 for whom repayment, on the face of it, would seem far distant if ever to be achieved.
To date, so far as I am aware, ST have received nothing from W in respect of their costs and disbursements. Her total legal cost liabilities now stand at a sum in excess of £500,000 (to include both sums outstanding to Withers and fees in relation to the French proceedings, near or as at the commencement of the hearing before me). As will be seen H, on the face of it equally indigent in cash flow terms, has been largely able to fund the bulk of his legal fees, certainly in this jurisdiction, although it seems to me that they are likely to have been substantially greater in total than W's. His asset schedule amongst his debts shows £166,000 as his outstanding indebtedness in respect of legal costs at the commencement of the hearing before me. Since the EFG/NHT tap was turned off in November 2013 the only source of significant liquidity available to H of which I am aware has been his 1928 Bentley. This is the point in the narrative where I should divert to describe what has happened to the vehicle.