"Family trusts are a well known possible device for trying
to place assets ostensibly beyond the reach of
creditors...."
For some years, it has been feared that the English matrimonial
courts are prepared to bend over backwards to assist applicants in
their endeavours to access assets held within trust structures but
this rather 'world weary' quote comes from a recent Court
of Appeal decision in North Shore Ventures Ltd v Anstead Inc [2012]
EWCA Civ 11. This case shows that it is not just the judges
of the Family Division who are prepared to assist litigants seeking
to get at trust assets.
North Shore Ventures was a rather extreme case and the Court of
Appeal had this to say:-
"The circumstances surrounding the appointment and behaviour
of the trustees were undoubtedly suspicious. For a wealthy
man....to make himself a pauper, with the genuine intention of
disposing of his money to his last dollar irrevocably and with no
ability to control what was to happen to it, is an unlikely
scenario."
North Shore Ventures does, nevertheless, provide guidance on
the question issue of what constitutes 'control' of
relevant documents. Where documents are in the possession of
a third party (such as a trustee) who is connected to one of the
parties to the dispute, and the court determines that the third
party has the documents as 'agent' for the litigant, then
the court may well make an order for disclosure of those
documents. This 'long arm' principle also seems to
operate where the documents are held outside the
jurisdiction.
The background
North Shore was owed a sum in the region of $35m by Mr Fomichev and Mr Peganov under a judgment debt which they sought to enforce. Mr Fomichev and Mr Peganov responded by swearing affidavits, according to which they had no assets worth mentioning. Both said that they had disposed of virtually all their property to 'off shore' discretionary trusts. Accordingly, North Shore attempted to obtain information about the trusts. In particular they asked to be provided with:-
- The trust deeds
- Any letters of wishes
- All documents relating to the settlement of asssets on trust
- All documents identifying the assets settled on or held by the trustees
- Various other documents including minutes of meetings of the trustees.
Floyd J heard the application and ordered Mr Fomichev and Mr
Peganov to produce the documents. That order was then
appealed to the Court of Appeal. The appellants argued that
they did not have possession or control of the documents.
Under CPR 71.2, the Court may order a judgment debtor to attend
court to provide information about his means or any other matter
about which information is needed to enforce a judgment. CPR
71.2(6)(b) provides that when a judgment debtor attends court he
'must produce at court documents in his control which are
described in the order'.
CPR 71.2 does not define 'control' but the same term
appears in CPR 31, which deals more generally with disclosure and
inspection of documents. CPR 31.8 provides:
- A party's duty to disclose documents is limited to documents which are or have been in his control.
- For this purpose a party has or has had a document in his
control if
(a) it is or was in his physical possession;
(b) he has or has had a right to possession of it;' or
(c) he has or has had a right to inspect or take copies of it'.
Before the Court of Appeal it was argued that Floyd J got it
wrong because he wrongly took the view that an order could properly
be made in respect of documents that were outside the
appellants' control, provided that they were in a position to
obtain them; or he misdirected himself as to the meaning of
control, wrongly equating the ability to obtain documents with
having the documents in their control. The appellants argued
that a document which is not in the physical possession of a party
is not within in his control unless he has a currently enforceable
legal right to its possession (or to take copies of it). They
relied on the words of CPR 31.8 and earlier decisions of the House
of Lords and the Court of Appeal.
It was said that a beneficiary under a discretionary trust has no
immediately enforceable right to possession or to take copies of
trust documents. All the beneficiary had was a right to ask
the court to order the trustees to allow him to take copies of
trust documents, and that was a matter for the discretion of the
court - Schmidt v Rosewood Trust Ltd [2003] AC 709.
North Shore's also relied on Schmidt v Rosewood and its
response was that the judge was entitled to conclude that the
appellants were in fact in control of the relevant documents.
It was argued that the trustees had not acted as independent
trustees but rather to fulfil the appellants' wishes, and as
beneficiaries or former beneficiaries under the trusts the
appellants had sufficient legal right to give the court
jurisdiction to make the order which it did.
The decision
Toulson LJ considered the factors which could be taken into
account when assessing whether the appellant had 'control'
of the relevant documents. He also analysed the particular
relationship between the appellant and the trust and considered
that "the circumstantial evidence gave reasonable ground
to infer that there was, in truth, some understanding or
arrangement between the appellants and the trustees by which they
were to shelter the appellants assets, consistent with the
appellants' real aim, and that the nature of that understanding
and arrangements were such that trustees would take whatever steps
the appellants wished in the administration of the
trusts". Toulson LJ therefore concluded that the
close relationship between the trustees and appellants meant that
Floyd J was entitled to make the order which he made.
The test set out by Toulson LJ was:
"In determining whether documents in the physical possession
of a third party are in a litigant's control for the purposes
of CPR 31.8, the court must have regard to the true nature of the
relationship between the third party and the litigant. The
concept of "right to possession" in CPR 31.8(2)(b) covers
the situation where a third party is in possession of documents as
agent for a litigant. The same would apply in my view if the
true nature of the relationship was that the litigant was to be the
puppet master in the handling of money entrusted to him for the
specific purpose of defeating the claim of a creditor. The
situation would be akin to agency. But even if there were, on
a strict legal view, no "right to possession", for
example because the parties to the arrangement caused the documents
to be held in a jurisdiction whose laws would preclude the physical
possessor from handing them over the party at whose behest he was
truly acting, it would be open to the English court in such
circumstances to find that, as a matter of fact, the documents were
nevertheless within the control of that party within the meaning of
CPR 31.8(1). CPR 31.8(2) states that, for the purposes of CPR
31.8(1), a party has or has had the document in his control if the
case falls within paragraphs (a) to (c). It does not state
that a party has or has had a document in his control if, but only
if, the case falls within one of those paragraphs".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
