The stuff of life
1 September 2003
17 June 2013
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22 August 2013
In Re C (a Bankrupt) BVIHC 0080/2013: common law recognition of a foreign bankruptcy trustee in the BVI
24 March 2014
No, this is not another article about White v White, the landmark House of Lords case which decided that the starting point for the division of assets on divorce was equality. Instead this article will examine whether the courts should in any circumstances impose trusts to aid the implementation of financial orders made in divorce proceedings. The question is, perhaps, of less general interest than that discussed in White v White. It does, however, raise difficult issues when, as occasionally happens, bankruptcy intervenes between the time at which an order is made and when it is carried out.
Three separate situations, stretching back more than 100 years, have now been considered by the courts. An order for secured periodical payments under Section 23(1)(b) of the Matrimonial Causes Act 1973, an order for the transfer of property under Section 24(1)(a) and, most recently, an order for the payment of a lump sum under Section 23(1)(c).
As long ago as 1897, the Court of Appeal in Maclurcan v Maclurcan held that an order for periodical payments to be secured on identified property, with provision for the security to be completed by the execution of a deed in appropriate form, has the effect of creating an immediate equitable charge over the property pending the completion of the security in accordance with the order.
Last year, in Mountney v Treharne, the Court of Appeal held (albeit, so far as Lord Justice Laws was concerned, somewhat reluctantly) that the Maclurcan line of authority was also applicable to an order for the transfer of property. The effect of this is that, as soon as the order is made, "the beneficiary" of the order becomes entitled to an equitable interest in the property ordered to be transferred.
Most recently, on 1 August 2003, Her Honour Judge Coates, sitting in bankruptcy in the Brighton County Court, extended those decisions to a lump sum order. In that case the order had provided that the respondent pay the petitioner one half of the lump sum to be received by him under each of certain named pension policies. She held that the effect of the order was to make the respondent trustee of his pension lump sum entitlement pending receipt of the pension lump sum. (That decision is currently the subject of a pending appeal on various grounds, including that the pension policy prohibited assignment of the lump sum, and therefore no valid equitable interest in the lump sum could be created in any event.)
The effect in each of those cases was that, although the respondent had become bankrupt before the order had taken effect, the property that was, so to speak, the subject matter of each of the orders did not vest in the trustee, or if it did so, it vested in him subject to the trusts found by the courts.
The reasoning in Maclurcan and Mountney was that, in each case, the order created in favour of the 'beneficiary' a right analogous to that of a purchaser under a specifically enforceable contract for sale of land. Leaving aside whether that is a proper analogy to draw, it is difficult to extend it to the situation of a lump sum order, as did Judge Coates. As Judge Butler-Sloss (as she then was) held in Burton v Burton (1986): "There is no doubt that if it was an order under Section 23(1)(c) - that is an order whereby either party to the marriage shall pay to the other such lump sum or sums as may be so specified - it is an order to the party to pay, and that is a payment in the future. That cannot, in my judgement, transfer the beneficial interest at the moment of the order. It is an order for money, and the wife is entitled to enforcement of that order, but it does not vest in her at the moment of the order."
Judge Coates declined to follow that obiter dictum, and while it is true to say that a further obiter dictum in the same case was disapproved in Mountney (that is to say that the same was true of a transfer of property order), it is respectfully submitted that the view of Judge Butler-Sloss is to be preferred.
There are several reasons for this. The first is that an order for a lump sum is more analogous to a statutory debt than a statutorily enforceable obligation to transfer or charge specific property. Further, the statute gives a specific power to provide security for periodical payments but none for lump sums. Yet further, there is a specific power under Section 24(1)(b) for the court to make an order for the settlement of property to which the respondent is entitled in possession or reversion. It seems clear that Parliament did not intend the court to have, by effectively a back door, the power either to create security for a lump sum order or the power to order the settlement of property to be acquired in the future.
Leaving the correctness of the decision concerning lump sum orders aside, however, it must also be at least questionable whether equity has any part to play in the enforcement of orders made in matrimonial proceedings at all.
In his judgment in Mountney, Judge Laws did not consider the result satisfactory. He considered that the Maclurcan decision, by which the court had held itself bound, assumed or implied what seemed to him to be a very doubtful proposition - that is to say, equity might be called in aid of a statute or, more accurately, an order made under a statute. It is also striking that before Mountney, not only had Judge Butler-Sloss decided (without having been referred to the Maclurcan line of authority) that matrimonial orders had personal effect only, but Lord Justice Parker had also done so in Beer v Higham (1997), and Judge Burnton had done so in the Mountney case itself. Given the tone of the judgment of Judge Laws in particular, it is likely that had the Maclurcan line of authority not existed, the courts would have decided the Mountney case differently.
Parliament has created many statutory rights, some that arise automatically and others by virtue of orders made pursuant to statutory powers. Some of those rights concern property. If equity can come to the aid of orders made in matrimonial proceedings, then it is difficult to see why it could not come to the aid of orders made or rights created under other statutes.
Quite apart from the general objection to equity intervening to aid the operation of a statutory order, there is the specific problem that arises in matrimonial proceedings. It is by no means unknown that parties in a divorce, when faced with the pending bankruptcy of one or other of them, will seek to obtain court orders with the aim of making sure that assets in the name of the insolvent party are transferred into the hands of the solvent party. That practice is encouraged if such orders have effect in equity immediately on their being made rather than having to await decree absolute or the execution of the order. In general, the courts ought to discourage what in other cases has been termed an unseemly scramble by different parties to obtain advantage once a person is facing bankruptcy.
In summary, it is respectfully submitted that there should be no place for equity in divorce (in this sense) and in particular that the views of Judge Butler-Sloss are to be preferred, both in respect of lump sums and property transfer orders. If that is right, then the same result would apply in relation to orders for secured provision.
Simon Edwards is a barrister at 39 Essex Street