Michael v Michael [2024] EWFC 463

Judgment date: 12 August 2024

https://caselaw.nationalarchives.gov.uk/ewfc/2024/463

HHJ Hess, sitting as DCHJ, is concerned at final hearing with the validity of several trust structures set up by H.

Introduction

W was 57. H was 56. The parties were both of Greek Cypriot heritage and lived in England most of their lives. They met in 1999 and began cohabiting in 2000 before marrying on 29 April 2006. There were two adult children of the marriage.

From 2010, the family lived together at a property in North London (purchased in joint names in 2005). By May 2017, the marriage was experiencing difficulties. W issued her divorce petition on 9 May 2022. Having received W’s petition via a letter from her solicitors, H sent W the following text message:

‘Pls remember. I’ve got nothing on my name. All in trust. Because I always knew this day was coming, because you told me so.’

W’s Form A was issued on 24 June 2022. The case was allocated to HHJ Hess at HCJ level who dealt with all interim hearings, including an MPS/LSPO application granted in favour of W. H unsuccessfully attempted to appeal this order and in any event did not comply with it. At the time of final hearing, an enforcement application in respect of this was still live.

At a final hearing over 12 days in July/August 2024, there were five major computational issues to be determined:

The STMA issue – a dispute over the corporate value of STMA Developments Limited.
The Astute Capital Investments Limited issue (‘Astute issue’) – whether the transfer of W’s 100% shareholding should be respected and whether the consequent debt from the transferees to W of £46,000 should be recorded on W’s side of the asset schedule or set aside under s 37 MCA 1973 such that her 100% shareholding be reflected in the asset schedule.
The Michael Bros Limited issue (‘MBL issue’) – whether H owned his one third shareholding outright or on trust (and therefore worth £0 on the asset schedule).
The AB Trust issue (‘ABL issue’) – whether this asset was held on trust for certain beneficiaries (not H or W) or whether the assets within that trust were in reality owned by H such that its full corporate value should be recorded on the schedule.
The HMRC tax issue.

HHJ Hess determined the Astute issue, the MBL issue and the ABL issue in Michael v Michael (No 1). The remaining issues concerning corporate values were dealt with at a later date in Michael v Michael (No 3) due to the absence of corporate valuation reports at the final hearing.

Evidence

The majority of the issues considered in the course of the final hearing turned on whose view of the complicated transactions HHJ Hess preferred.

A consistent theme throughout the proceedings was H’s controlling and menacing presence in W’s lives and the lives of the wider Michael family. The judge was satisfied that the entirety of the substantial wealth in the family existed because of H’s efforts. However, hand in hand with that, HHJ Hess found that the husband was a fundamentally dishonest man prepared to lie to the court and to forge dishonest documents.

MBL issue

Discussion

The MBL issue refers to Michael Bros Limited, a property development company essentially run by H who held a 34.375% shareholding. His two brothers divided the remaining shareholding broadly equally. For a significant period of time prior to this, MBL was held in equal shares between H and only one of the two brothers.

A Declaration of Trust was executed in 2017 and declared that, whatever the shareholding, the shares in MBL were held on trust for the three brothers in equal shares.

In his Form E, H’s presentation of his one-third MBL shareholding was that he held it on trust for his two sisters pursuant to a Declaration of Trust executed in 2009. H’s position was that his interest in MBL was zero.

Held

W’s case was that the MBL Trust of 2009 was either a sham or had been superseded by the 2017 Declaration of Trust. Her position was that the 2009 Declaration of Trust document was a fake and had been recently invented by H as a result of the financial provision proceedings. HHJ Hess agreed and found that the true shareholding of MBL was as set out in the 2017 Declaration of Trust: one third each between the three brothers.

Astute issue

Discussion

The Astute issue concerns W’s family who owned four properties in North London between them, all four of which were subject to mortgages. In 2008, concerned about borrowing, members of W’s family set up a scheme (Astute Capital Investments Limited) with H whereby the legal title of the four properties would remain with W’s family but the beneficial title would be acquired by W. It was H’s advice that the equity in the properties be acquired for a price that did not reflect the true value of the property but would be enough to get past a potential Trustee-in-Bankruptcy if challenged. H’s scheme also involved a separate secret agreement which would allow W’s family to buy back the equity in the properties for the price the scheme had paid for it.

In 2011, Declarations of Trust were drawn up over the four properties and the price for transferring the equity to W was £48,000.

The scheme was put in doubt when a Trustee-in-Bankruptcy was engaged in 2015. Reflecting the separate secret agreement reached between W and her family, W transferred her shareholding in Astute to a member of her family for £50,000, representing £48,000 base and a notional interest figure of £2,000. Only £4,000 was paid and so at the time of final hearing £46,000 remained outstanding. H applied to set aside this transaction under s 37 MCA 1973. W’s position was that H’s application was a blackmail attempt. If W defended the s 37 application, the existence of the separate secret agreement would have to be revealed and W could face potential criminal proceedings. The judge agreed with W.

H’s position at final hearing was that the scheme was of W’s making and that he only played a small role in it. He denied the existence of any separate secret agreement.

Held

After giving himself a Lucas direction, HHJ Hess preferred W’s evidence and found that her shareholding was sold for valuable consideration and was in good faith, finding that the position was entirely consistent with H’s motives to shield assets, present throughout the litigation. H’s application under s 37 was dismissed.

AB Trust Issue

Discussion

The court addressed husband’s shareholding in a limited business and an offshore structure referred to as the ‘AB Trust’. The wife argued that the husband shielded significant assets in a sham trust which should form part of the overall matrimonial assets to be shared on divorce.

The husband’s case was that a large portion of the assets in the case (to which the judge attributed an ‘indicative value’ of £38,000,000) were held beneficially for others and not him, under the AB Trust. The wife’s case was that this arrangement was a sham and that these assets were really owned by the husband.

Held

In a significant decision, HHJ Hess determined that the Trust set up by the husband was indeed a sham and in reality, the husband controlled the Trust assets at his sole discretion. The judge rejected the husband’s evidence that he held shares on trust for his sisters, finding instead that he retained the beneficial interest and that he had ‘conducted the issue in an egregiously dishonest way’; [99]. The judge, finding that the husband was the true beneficial owner of the assets, held at [126] that ‘the situation was designed to mislead and the ‘trust’ and its documents were a sham’.

Held

As a result of the judge’s findings in relation to the Astute, MBL and AB Trust issues outlined above, H’s side of the asset schedule totalled c.£30m. W had -£160k and there were joint assets of c.£2.2m.