MIOKO SAKURADA LOUVET v. LOUIS ARISTIDE CHARLES LOUVET AND OTHERS

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HEADNOTE

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APPLICATION FOR AVOIDANCE OF DISPOSITION ORDER - PERSON SERVED WITH NOTICE THEREOF BECOMING A PARTY THERETO BY TAKING ADVANTAGE OF RULE 74(4) OF THE MATRIMONIAL CAUSES RULES TO FILE AN AFFIDAVIT IN ANSWER.

ATTEMPT TO EXTEND THE SCOPE OF A BARE LIBERTY TO APPLY CONTAINED IN A CONSENT ORDER BY RELIANCE ON, AS PART OF THE FACTUAL MATRIX, A RESERVATION IN A LETTER WRITTEN WHEN THE BARGAIN EMBODIED IN THE ORDER WAS BEING NEGOTIATED.

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JUDGMENT

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Bokhary J.:

1. This is the judgment of the Court. We allowed the appeal at the conclusion of the hearing; and we now give our reasons.

2. The appeal is from an Order of Mr Justice Barnett dated August 6, 1990. That Order was made in divorce proceedings which had been commenced in September 1988. It was a wife's petition. When the petition was presented, there were three parties to the suit : the wife, the husband and a woman named. Now there are four. A company named Modern China Development Ltd has come in as an applicant. We will refer to it as "MCD". Before us the wife is the appellant, and MCD is the respondent.

3. The marriage is over. It was dissolved early last year. But the question of money is far from over. The wife's claim for financial provision remains outstanding. It is accompanied by her application to set aside a disposition which she says was made with the intention of defeating such claim - which application is likewise outstanding. The disposition was of $4.6 million. It was made in February 1988 by the husband in favour of his two daughters by a previous marriage and his daughter by the woman named. We will refer to it as "the daughters' settlement". Naturally, we will avoid saying anything which might prejudice the hearing of the outstanding matters.

4. Towards the end of 1987 the husband had realised $8.1 million from the sale of a stock option which he had been given by his former employer in lieu of a pension. Out of that sum he - as he put it - "bestowed" $4.6 million on his three daughters, reserving the income thereon to himself. All that - it would seem - was done in this way : he acquired a shelf company of Liberian registration, Melanic Inc. Then he transferred all the shares in Melanic to his three daughters. The two by his previous marriage each got 43% of such shares, while the one by the woman named got the remaining 14%. If anyone is expecting to hear that the $4.6 million was then paid to Melanic, he will be disappointed. Not one cent of it was. Rather $4.6 million was paid by a company controlled by the husband named China Concept Ltd to MCD. Next came a loan agreement dated February 9, 1988, between MCD and Melanic. Under that agreement MCD was treated as having borrowed that sum from Melanic for a period of 2+ years with interest at 10% per annum, payable monthly in arrears. It seems that such interest was to be, for the duration of the loan, the income on the $4.6 million reserved to himself by the husband. MCD does not appear to have made any repayment of principal or any payment of interest. Unfortunately it appears to be insolvent. It is a licensed money lender. We have been shown its balance sheet as at February 28, 1990 - which does not appear to have been audited. It contains a provision of $20.13 million on loans receivable. And it shows : net current liabilities totalling $20.18 million; fixed assets totalling only $1.18 million; a retained loss of $19.27 million brought forward; a profit for the period of only $221,795.88; and a loss of $19 million carried forward.

5. We turn now to the Order made by Mr Justice Mayo on February 6, 1990. It was made upon the wife's application. We are concerned with paragraphs 2, 3 and 5 of that Order. Paragraph 2 is a Mareva injunction against the woman named and MCD. The ceiling set was $5.8 million plus the 10% interest on the $4.6 million. It would seem that the $5.8 million was arrived at by adding to the $4.6 million a sum of $1.2 million owed by MCD to China Concept. Paragraph 3 is an order that the woman named and MCD pay the 10% interest into a special account. Paragraph 4 is an order that the woman named and MCD provide within one month an up-to-date statement of the company's financial position. By paragraph 7 express provision was made for the automatic discharge of paragraphs 2, 3 and 5 upon the woman named or MCD providing security to the extent of $5.8 million.

6. The woman named appealed against Mayo, J. 's order. MCD did not. Her appeal was heard before another division of this Court on June 12-14, 1990. Judgment was reserved.

7. On June 20, 1990 - while that judgment was pending and while the wife's application by a summons taken out on April 3, 1990, for the appointment of receivers of MCD was also pending - the suit came before Barnett, J. It came before him upon the joint application of the wife, the woman named, MCD and a company controlled by the woman named called Elegant Court Ltd. They sought an order by consent. Barnett, J. made one. Under that Consent Order dated June 20 1990, paragraphs 2, 3 and 5 of Mayo, J.'s Order were discharged upon undertakings by MCD and Elegant Court to provide security in the sum of $4.6 million plus interest accruing thereon by way of a second mortgage of a house on the Peak by Elegant Court in favour of the wife's solicitors on appropriate trusts. Paragraph 4 of the Consent Order provides "that the parties be at liberty to apply".

8. Later that month - on the 27th - judgment was given in the woman named's appeal against Mayo, J.'s Order. Save for paragraph 1 - which has to do with service upon the woman named, MCD and Melanic of the wife's application to set aside the daughters' settlement - the whole of that Order was set aside.

9. Nine days later, on July 6, 1990, the second mortgage was executed by Elegant Court pursuant to its undertaking in the Consent Order. On the same day, July 6 , 1990, MCD's solicitors wrote to the wife's solicitors saying that the security was "given without prejudice to MCD's right to apply to discharge [Mayo, J.'s Order of February 6, 1990] and set aside [the Consent Order] so that the security will be released and discharged".

10. Three days after that, on July 9, 1990, MCD took out a summons returnable before Barnett, J. on Aug. 6, 1990, seeking the unconditional discharge of Mayo, J.'s Order and the setting aside of the Consent Order, with a release of the undertakings it embodied and a reassignment of the house mortgaged pursuant to such undertakings.

11. On Aug. 6, 1990, Barnett, J. acceded to MCD's application ordering the discharge, setting-aside, release and reassignment it sought. That is the Order from which this appeal arises.

12. Before turning to the learned Judge's reasons, we should note the terms of a letter dated June 15, 1990, from MCD's solicitors to the wife's solicitors. The letter reads:-

"       We refer to the telephone conversation between your Miss Ser and our Mr. Lee this monring.

 

        We are still contacting our client for instructions on your proposal that your firm will act as the sole Mortgagee. In the meantime and to save time, we send for your comments your draft Consent Summons amended by us in case your proposal aforesaid is acceptable to our client. You would note that we insert Clause 4 in the Consent Summons as which, if signed, is however without prejudice to our client's right to make relevant application to Court as a result of the outcome of the appeal by the 2nd Respondent against the Order of Mr. Justice Mayo dated 6th February 1990.

 

        If you find the amendments acceptable, please let us have the engrossment as soon as possible. We are amending the draft Mortgage in the meantime in case instructions are received."

What the letter calls "Clause 4" is the provision "that the parties be at liberty to apply".

13. The learned Judge's process of reasoning appears to run along these lines: First, that the factual matrix in which the Consent Order is to be construed includes the letter of June 15, 1990. Secondly, that on the true construction of the Consent Order - construed in its matrix of facts which includes that letter - the liberty to apply contained in the Order permitted an application to vary it or even discharge it altogether without any requirement that there be "grounds for such an application". Finally, that it "follows" from the decision allowing the woman named's appeal that the Consent Order "must" also be set aside as against MCD.

14. The learned judge based his approach on what he considered to be "the combined effect" of three decisions of the Court of Appeal in England, namely, Cristel v. Cristel [1951] 2 KB 725, Chanel Ltd v. F.W. Woolworth & Co. Ltd [1981]1 WLR 485 and Butt v. Butt [1987]1 WLR 1351.

15. What did those cases decide? Here the starting point is of course the rule that generally a consent order can only be set aside on grounds which would justify the setting aside of a contract.

16. Cristel v. Cristel (supra) concerned a consent order under which possession of the former matrimonial home occupied by the deserted wife and children was granted to the husband who wished to sell it with vacant possession, but was suspended until the husband provided the wife and children with suitable alternative accommodation in the form of a two- or three-bedroomed house or bungalow. The order gave liberty to apply. Subsequently the husband secured a two-bedroomed flat, and then applied for the variation of the order by the insertion of the words "or flat" after the word "bungalow". The Court of Appeal held that the liberty to apply referred prima facie to the working out of the actual terms of the order, and that it did not permit a variation of those terms there having been no change of circumstances, it being left open whether a change of circumstances would permit a variation.

17. What the Chanel case (supra) decided may be taken from Nourse, L.J.'s judgment in Butt v. Butt (supra) where the learned Lord Justice said at pp. 1353 F-G:-

"In my judgment what this court decided in the Chanel case was that where, upon an application for an interlocutory injunction, the respondent chooses not to seek an adjournment of the application, but instead accepts that it should be dealt with and disposed of then and there by offering undertakings until trial or further order, there must be good grounds before the respondent is able to apply to discharge or modify the undertakings. Good grounds can consist of a significant change in circumstances or a becoming aware of new facts which could not reasonably have been known or found out before the undertakings were given."

18. The facts in Butt v. Butt (supra) itself can be taken from the headnote which tells us that:-

"The plaintiff obtained an ex parte injunction against the defendant in the course of an action concerning the proceeds of sale of a coal yard. By the terms of the injunction the defendant was restrained from disposing of the net proceeds of sale of his former matrimonial home. On 16 September 1986, at an inter partes hearing, the motion seeking the injunction was adjourned generally on the defendant's undertaking, inter alia, not to sell his former matrimonial home save at a fair market price. The order contained an express liberty to apply, and the judge said, in the course of giving judgment, that counsel for the defendant had indicated that the defendant might apply to discharge the undertaking at a later date. On 14 November the defendant did so apply. The judge held that the defendant. could not show good grounds for seeking discharge of the undertakings and declined to consider the merits of the application."

The defendant appealed; and his appeal succeeded. The principal ground on which he succeeded was as we see from Nourse L.J.'s, judgment at p. 1353H - that "the motion was not, as in the Chanel case, stood.over to the trial of the action, but was adjourned generally". As his Lordship pointed out at p.1354B, when one speaks of something being adjourned, the "very expression contemplates that there may thereafter be an application for the status quo to be reopened and for the matter to be dealt with in some other way before trial".

19. The "liberty to apply" point was, it seems, of secondary importance. This is what Nourse, L.J. said about it (at p.1354C-D): -

"[Counsel for the defendant] also relies on the fact that the order contains an express liberty to apply, albeit not an express liberty to apply to vary or discharge the order. In the Chanel case there was no such express provision in the order' although it was held that an undertaking 'until trial or further order, necessarily imports a liberty to apply in appropriate circumstances.It may be that if the order in the present case had been silent on the question of an adjournment, the express liberty to apply would not have added anything. But it seems to me that the express collocation of the two must, if anything, show that it was intended that there should be a liberty to apply to re-open the matter in certain circumstances- not necessarily in Chanel circumstances. I do not myself regard this as a very significant point, but I do not think that it is one which can be against the defendant."

20. Finally, it has to be borne in mind that - as Nourse L.J. pointed out (at p.1354F-G) - it would in any event have been wrong to prevent the defendant from making the application since he had, when giving the undertakings, expressly indicated that he might thereafter apply to be discharged from them on the ground that there had been material non-disclosure when the plaintiff applied ex parte.

21. In resisting the appeal before us, Mr Robert Tang Q.C., who leads for MCD, makes two principal submissions on its behalf.

22. The first is that the decision in the woman named's favour in her appeal is in effect determinative in MCD's favour of its position also. He concedes that the present appeal must be allowed if that decision is not thus determinative.

23. The second runs along these lines: The liberty to apply contained in the Consent Order has to be construed in a factual matrix which includes the letter of June 15, 1990, and the provision in Mayo, J.'s Order of February 6, 1990, that "there be liberty to apply to vary or discharge [the] Order on giving two days' advance notice to all other parties". Thus construed it takes on a meaning which goes beyond the normal meaning of a bare provision for liberty to apply - the scope of such a provision being on its face confined to the working out of the actual terms of the order. The extended meaning which it thus acquires permits the making of, among other applications, one for the setting aside of the order in which it is contained. Mr Tang concedes that the letter is vital to his case so that the present appeal must be allowed if he is unable to rely on it in the way in which he seeks to rely on it.

24. Taking the first submission first, we are of the view that the decision in the woman named's appeal is not determinative of MCD's position.

25. In that appeal, the division of this Court which heard the appeal said (at p.10 of its judgment): -

"We are not aware of any occasion where a Mareva has been directly imposed upon a person not defendant to the litigation. To do so would be a novel extension of the jurisdiction and we see no justification for taking that step in this instance."

Earlier on in the judgment (at p.7 thereof) one finds a reference to rule 74(4) of Matrimonial Causes Rules - which provides that "any person served with notice of an application under [the] rule may, within 14 days of service, file an affidavit in answer" - and then this statement:-

"The permissive aspect of Rule 74(4) in particular indicates that a person served under the rule could only be a party thereto if advantage was taken of the subsection."

There is no suggestion that the woman named took advantage of the sub-rule - which must be what is meant by the reference in that passage to "the subsection" - to file any evidence in answer. But MCD has. On April 23, 1990, it filed an affidavit. The affidavit is one by its general manager. He says that it is made in relation to the wife's application to set aside the daughters' settlement, pointing out that it is part of the application that MCD should pay the $4.6 million involved into court once the daughters' settlement is set aside, stating that it is in relation to that part of the application that his affidavit is made, and going on to indicate why MCD says that it should not be made to pay the money into court.

26. In such circumstances, we do not accept that MCD would have been regarded by the division of this Court which heard the woman named's appeal as "a person not defendant to the litigation".

27. Furthermore, MCD's position differs from that of the woman named in that it - unlike her - did receive the $4.6 million. This distinction was in terms made part of items (i) and (iv) of the woman named's first ground of appeal.

28. It is also to be observed that- as also appears from that ground - in seeking to free herself from Mareva restraint, the woman named positively relied upon the existence of such restraint against MCD as rendering such restraint against her unnecessary. Item (vii) of that ground argues that "[the wife] is adequately protected with orders being made against [MCD] and in so far as may be necessary served on [the woman named] as a director of [MCD]".

29. Whether one takes a narrow view of the decision in the woman named's appeal or a broad view of that decision, it cannot be viewed as determinative of MCD's position. The broad picture which emerges is this: the person (the woman named) who controls - and was "taken" by the division of this Court which heard her appeal "as one and the same as" - the company (MCD) appealed against the Mareva restraint against her whereas the company which she controls did not appeal against the Mareva restraint against it. In the course of her successful appeal, she stressed the fact that she had not received the money although the company had, and urged that the Mareva restraint against the company, which had not appealed, made such restraint against her necessary. Added to all of that is this specific consideration : the company has filed evidence in the litigation whereas she appears to us - and, more importantly, appeared to the division of this Court which allowed her appeal - not to have done so.

30. That is sufficient to dispose of this appeal in the appellant wife's favour. Nevertheless, we feel it right to deal with the "liberty to apply" submission. The implications of the submission are far-reaching. It is no small matter to say that the scope of a provision in a consent order has been extended by correspondence exchanged when the bargain embodied in that order was being negotiated.

31. Assuming that a letter forming a part of the negotiations which results in a consent order can form part of the factual matrix in which that order is to be construed, the question which would then arise is this: is a reservation in such a letter of a right to make application capable of converting a bare liberty to apply contained in the order into a liberty to apply for even the discharge of that order? Assuming that it is, the question then becomes whether the reservation does indeed effect that metamorphosis. In our judgment, it could not possibly do so - even on those assumptions - unless it is so utterly free from ambiguity that the recipient cannot reasonably be taken to have entered into the consent order save on that basis.

32. Is that the position here? In our view, it is not. The letter of June 15, 1990, does not achieve that degree of clarity. Indeed, we do not consider it clear by any standard.The right which it reserves or purports to reserve is "to make relevant application to Court as a result of the outcome of the appeal [by the woman named]." That could mean an application if she loses. After all, she was - in her attempt to free herself of Mareva restraint - relying on the fact of such restraint being in place against MCD, which she controls. If she were nevertheless to lose,MCD would have no reason or at least one less reason for not seeking to free itself of Mareva restraint. The letter -it might be added -- was written on the very day after the hearing of her appeal concluded. In any event, the reservation is generally vague. And the letter in which it is contained is only one of six letters passing between MCD's solicitors and the wife's solicitors on that day, June 15, 1990 - four of which were written by the former and two of which were written by the latter. On top of that, its vagueness is to be contrasted with the clarity of MCD's solicitors' letter of July 6, 1990 - a date on which only one letter seems to have passed between them and the wife's solicitors.

33. Mr Tang concedes that he cannot successfully resist this appeal if he cannot rely on the letter of June 15, 1990, in the way in which he seeks to rely on it. In our view, he cannot. So on that basis too the appeal must be allowed.

34. It is for the foregoing reasons that we allowed the appeal, set aside Barnett, J.'s Order of August 6, 1990, (execution of which had been stayed pending appeal) and ordered that MCD pay to the wife her taxed (or agreed) costs here and below. In fairness to the learned judge with whom we are differing, it should perhaps be acknowledged that some at least of the points which arise in this case may have received less emphasis in the course of the argument before him than they received in the course of the argument before us.

35. Before parting with this appeal, we wish to thank counsel on both sides for their assistance, and to say that the balanced and reasonable (as well as skilful) way in which they conducted their cases provides a model of how matrimonial cases in particular should be conducted.