In the Court of Appeal (Civil Division)

Neutral Citation Number: [2012] EWCA Civ 195

Case No: A3/2011/0172

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Mr Justice Peter Smith

HC08C03132

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 28th February 2012

Before :

LORD JUSTICE LLOYD

LORD JUSTICE PATTEN
and

LORD JUSTICE TOMLINSON

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Between :

INDEPENDENT TRUSTEE SERVICES LIMITED / Claimant/
Appellant
- and -
GP NOBLE TRUSTEES LIMITED & OTHERS / Defendants
- and -
SUSAN MORRIS / Respondent

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Mr Richard Spearman QCand Jonathan Hilliard(instructed by Taylor Wessing LLP) for the Appellant

Mr James Lewis QC, Andrew Twigger QCand Miss Anna Dilnot(instructed byBlick & Co Solicitors) for the Respondents

Hearing date : 5th October 2011

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Approved Judgment

Judgment Approved by the court for handing down. / Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors

Lord Justice Patten :

Judgment Approved by the court for handing down. / Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors / Independent Trustee Services Ltd v GP Noble Trustees Ltd & Ors

Introduction

Each of the parties to this appeal is the victim of a fraud. Between August 2007 and April 2008 a total of some £52m was misappropriated from various occupational pension schemes by their UK corporate trustees, GP Noble Trustees Limited (“GPN”) and BDC Trustees Limited (“BDC”). Following a trial in May 2010 Peter Smith J held that the frauds had been orchestrated by Mr Anthony Morris who set up a number of offshore companies into which the bulk of the trust assets were transferred. He also directly received a total of £4.89m of the misappropriated funds.
The appellant, Independent Trustee Services Limited (“ITS”), was appointed as trustee of the pension schemes by the Pensions Regulator in July 2008 and in November 2008 commenced proceedings against Mr Morris and 17 other defendants for the recovery of the trust assets. Judgment was handed down by Peter Smith J on 1st July 2010 in which he held that Mr Morris wasliable for £52m plus interest for dishonest assistance and was liable to account for the £4.89m which he had knowingly received. A full account of the fraud and of Mr Morris’s participation in it is contained in the judgment (see Independent Trustee Services Limited v GP Noble Trustees Limited & Ors [2010] EWHC 1653 (Ch)) but no further detail is necessary for the purposes of this appeal.
In September 1988 Mr Morris had married the respondent, Mrs Susan Morris. There are three children of the marriage. Mr and Mrs Morris separated in December 2003 and Mrs Morris commenced divorce proceedings in November 2004. A decree nisi was pronounced on 10th February 2005.
In April 2001 Mr Morris had set up a company (The Money Portal PLC (“TMP”)) which had been capitalised by a loan raised on the security of the matrimonial home. Mr Morris owned about 27% of the issued share capital of the company which in March 2003 he placed into a Gibraltar-based settlement (the JVK Settlement) in favour of himself, his wife and their children. Following the breakdown of the marriage, Mrs Morris (and later the children) were excluded as beneficiaries and MrsMorris believed that her husband was taking steps to dispose of the TMP shares. A freezing order was therefore obtained from Singer J in the ancillary relief proceedings on 14thSeptember 2005 which prevented Mr Morris from disposing of or dealing with the shares in TMP or any monies received from the company.
Theancillary relief proceedings were eventually compromised following negotiations between solicitors which culminated in the signing of minutes of order in January 2007. On 11th February 2007 District Judge Black made an order which embodied the agreed terms and which recited that Mrs Morris accepted the provision made by the order in full and final satisfaction of all claims for lump sum, property adjustment and pension sharing orders which she might be entitled to bring against her husband. The order transferred the matrimonial home to Mrs Morris; directed Mr Morris to pay to Mrs Morris £300,000 by 31st March 2007 and a further £900,000 by 31st December 2007; and provided for periodical payments to Mrs Morris (including for the benefit of the children) together with the payment of school fees.
The decree absolute was pronounced on 12th February 2007.
Later that year Mrs Morris saw a document which disclosed the transfer of significant sums of money between accounts held by Mr Morris in Switzerland. She was also told by her children that their father (who, by now, was living in Australia with his new partner) seemed to enjoy a standard of living which was inconsistent with his financial position as disclosed in the ancillary relief proceedings. Her evidence is that Mr Morris also told the children that he was about to sell his shares in TMP for £70m. What MrMorris had not disclosed in the ancillary relief proceedings was the receipt of some £5.1m from the JVK Settlement in 2006. In April 2007 he received a further £9.8m from the same source.
On 1st February 2008 Mrs Morris issued an application in the Family Division in which she sought an order that the order of DJ Black of 11th February 2007(“the 11th February order”) be set aside and that there should be a re-hearing of her application made on 15th September 2005 for ancillary relief. The grounds of the application were that her former husband had failed to make full disclosure of his assets in his form E and form M1 or of any significant changes in his financial position between the service of the form E and the making of the 11th February order.
By now (unbeknown to Mrs Morris) the misappropriation of assets from the pension funds had begun. £30m was extracted on 14th August 2007 followed by a further £22m in April 2008. As of then Mr Morris had still not paid the lump sums due under the 11th February order by 31st December 2007 and there were also significant arrears in the periodical payments. By 10thJuly 2008 the total amount due, inclusive of interest, was £1,481,012.
On 14th July 2008 Mrs Morris applied to Hedley J and obtained a worldwide freezing order against Mr Morris up to a limit of £25m which included his house in Australia and the monies held in his bank accounts wherever situate. On the same day MrMorris paid to Mrs Morris’s solicitors the sum of £1,481,920 in respect of the arrears due under the 11th February orderusing money held by Glencalvie Limited, one of his companies. In his judgment against Mr Morris and the pension fund trustees referred to earlier, Peter Smith J held that these monies were traceable out of the £52m extracted from the pension funds and that is common ground on this appeal. It is, however, also common ground that the source of the funds was unknown to either MrsMorris or her solicitors at the time.
By July 2008 the misappropriation of the £52m was the subject of a criminal investigation and on 7th October 2008 a restraint order was made against MrMorris pursuant to s.41 of the Proceeds of Crime Act 2002. In the meantime, the freezing order granted by Hedley J in the ancillary relief proceedings wascontinued until further order. Finally, on 6th November 2008 ITS commenced its own proceedings in the Chancery Division against MrMorris and the former pension fund trustees having obtained a freezing order against Mr Morris in the sum of £52mon 4th November.
Mrs Morris’s application to set aside the order of 11th February was heard by Moylan J on 28th April 2009: see [2009] EWHC 2156 (Fam). He decided that she should be given permission to make the application out of time and that there had been significant and material non-disclosure of assets by Mr Morris including the receipt by him of the £5.1m in late 2006 after the service of his form E statement of assets.
As the judge himself explained, an order for financial provision will only be set aside for material non-disclosure if it can be said that the non-disclosure complained of has led the court to make an order substantially different from the one which it would have made had the disclosure been given. But Moylan J was satisfied that this condition was met in the present case. He said that:

“61.I am satisfied that the disclosure made by the husband was deliberately and materially deficient. I am also satisfied that, if he had made proper disclosure the court, on the facts available to me today, would have been very unlikely – or I think I can go as far as to say – would not have made the order which was made, because the wife would have had, applying the law pursuant to the recent House of Lords decisions of White v. White and Miller v. Miller, an expectation that she would receive up to or approaching half of the total family wealth. The total wealth, including the sum paid in April 2007, was of the order of £16m.

62.I appreciate that arguments might be deployed as to the extent to which some of that wealth accrued after the date of separation. However, I have no doubt at all in concluding that the court would have made an order which was very materially or substantially different from the terms of the consent order made by District Judge Black.

63.So, in conclusion, I propose to give the wife permission to apply to set aside the order of District Judge Black, notwithstanding the fact that her application was not issued until 1 February 2008. I also propose to set aside the consent order of District Judge Black.”

His judgment was given effect in an order finally drawn up on 9th June 2009. This provided in paragraph 2 that:

“The order of District Judge Black dated the 11th February 2007 be set aside save to the extent that the provision therein for periodical payments of maintenance do remain in force on an interim basis until the final hearing, and there shall be a rehearing of the Petitioner’s application dated the 15th September 2005, together with her application dated the 4th February 2008 for variation of periodical payments.”

On 7th October 2009 Mr Morris applied to adjourn the hearing of the ancillary relief application until after the determination of the claim by ITS in the Chancery Division (“the Chancery Action”) and the criminal prosecution. The application was refused by Holman J who directed a hearing to take place on 13thJanuary 2010 preceded by a directions hearing on 26th November 2009. He also ordered Mrs Morris to give notice of her renewed application for ancillary relief to ITS and the SFO and gave them permission to intervene in the proceedings if so advised. They were to attend the directions hearing but ITS was enjoined in the meantime from taking any steps to obtain judgment against Mr Morris in the Chancery Action.
At the directions hearing on 26th November some of the issues which arise on this appeal began to emerge. Mr Spearman QC on behalf of ITS submitted to the judge that his client wished to trace its claim to the trust monies misappropriated from the pension funds into the £1.481m received by MrsMorris on 14th July 2008. ITS would contend that the rescission of the order of District Judge Black enabled it to assert a claim to those monies free of any defence which Mrs Morris might otherwise have that she had received the payment as a bona fide purchaser for value under the terms of the agreement to compromise her claim for ancillary relief. By the same token MrMorris would not be entitled to credit in respect of the £1.481m against any higher sum which he might be ordered to pay when the ancillary relief application was re-heard. As trust money belonging to the pension funds, the £1.481m could not be brought into account either as part of the assets of the marriage or as a payment on account. On this basis ITS sought an order either that the hearing of the ancillary relief application should be postponed until after judgment in the Chancery Action or, alternatively, that Mrs Morris should not be permitted to take enforcement proceedings which were adverse to the ITS claim. In any event it sought the discharge of the injunction of 7th October 2009 which prevented it from pursuing MrMorris to judgment.
What Mr Spearman therefore proposed and Holman J approved was that the parties should attempt to reach an agreement under which ITS would have its claims to beneficial ownership of the £1.481m determined in the Chancery Action but MrsMorris would be able to pursue her claim for ancillary relief without waiting for the Chancery Action to be disposed of. The solution achieved was embodied in a consent order made by Holman J on 13th January 2010. After reciting the various applications I have referred to and the response of each party to them, the order provides that :

“2.Any ancillary relief order that the Court may make on the rehearing of the Wife’s ancillary relief application of 15 September 2005 (“the Ancillary Relief Order”) currently due for final hearing on the 13th January 2010 is to be made on the following bases:-

(a) As between the Wife and the Husband, the Husband is not entitled to take credit for the payment to the Wife of the lump sum payment of £1,481,920.53 (“the Lump Sum Payment”) made on or around 14 July 2008 pursuant to the order of District Judge Black dated 11 February 2007;

(b) The Wife will not seek to contend that any of the assets to which ITS has asserted proprietary claims in the Chancery Proceedings at the date of the Ancillary Relief Order form part of the financial resources of the Husband for the purposes of Part II of the Matrimonial Causes Act 1973; and

(c) As between the Wife and ITS, the Ancillary Relief Order will be made without prejudice to the contentions of either of those two parties as to who is beneficially entitled to the Lump Sum Payment.

3. The injunction contained in paragraph 7 of the order dated 7 October 2009 is discharged with immediate effect on the 13th January 2010.

4. In the event that the Wife succeeds in enforcing against the Husband the full amount awarded to her, and becoming the full beneficial owner thereof, under the Ancillary Relief Order together with satisfaction of all orders for costs made in these proceedings in her favour, she will forthwith pay the amount of the Lump Sum Payment into Court to the credit of the Chancery Proceedings (with the intention that in that event the entitlement as between ITS and the Husband to the Lump Sum Payment should be determined in the Chancery Proceedings).

5. Each of the Wife and ITS shall have liberty to apply to either the Chancery Division or the Family Division of the High Court in relation to the determination of which of them is beneficially entitled to the Lump Sum Payment, provided that such application shall not be made by the Wife if she has succeeded in enforcing against the Husband the full amount awarded to her under the Ancillary Relief Order, and becoming the full beneficial owner thereof, or by ITS if its solicitors have been informed in writing by her that she has so succeeded and complied with Paragraph 4 above.

6. In the event that it is determined in the Chancery Proceedings that the Lump Sum Payment paid to the Wife did not comprise trust assets to which ITS would have had a proprietary claim, then as between the Wife and the Husband, the Husband shall be entitled to claim appropriate credit for the payment of the Lump Sum Payment to her (whether in diminution of his outstanding liability to the Wife or with the effect that the Wife is required to make a repayment to the Husband). The amount of such credit shall either be determined as part of the Order made in the substantive proceedings for ancillary relief by this Court or deferred for further consideration by this Court (or agreement of the parties) in the event that any entitlement to credit pursuant to this Paragraph later arises.”

The substantive hearing of the ancillary relief application then proceeded, and on 19th January Holman J gave judgment and made a new order that MrMorris should pay a lump sum of £6m by 1st April 2010 and £68,100 in respect of the arrears of periodical payments and school fees. By paragraph 2 of his order he also directed that the orders for periodical payments and school fees contained in paragraphs 3 and 4 of District Judge Black’s order should continue until payment of the lump sum of £6m and any accrued interest.
In his judgment (see [2010] EWHC 575 (Fam)) Holman J outlined the history of the matrimonial proceedings and the circumstances giving rise to the order of Moylan J setting aside the original order for ancillary relief made by the District Judge. He then described the competing claims to the £1.481m and the agreed order which arose out of the directions hearing:

“33.The order was finally made by consent of all parties – except of course the husband, who was neither present nor represented. It is complex but nevertheless, Ihope, self-explanatory when read with care. The factual basis of the order dated 13 January 2010 is as follows. It is not alleged by the SFO or ITS that there was any criminal offending or misappropriation of pension funds before August 2007. Neither of them suggests that any of the assets owned by the parties during or at the end of the marriage are in any way tainted by crime. Neither of them suggests that the sums totalling £14·9million which the husband received from the JVKSettlement in 2006 and April 2007 are in any way tainted by crime. Neither of them suggest that the wife (who was by then divorced) had any knowledge of, or was in any way involved or implicated in, the alleged misappropriation in 2007 and 2008. But the SFO and ITS do both say that the actual money with which the husband paid the sum of £1,481,920·53 to the wife in July 2008 is directly traceable as part of the alleged misappropriated pension funds.