When Civil met Family: how to deal with TOLATA claims in Financial Provision cases

The Family Court is seeing an increasing number of cases where property is (or is asserted to be) owned by a third party.  As more parents assist children with purchasing a home or friends buy with friends, it is ever more likely that a financial provision case will involve consideration of who owns what.  Here are some tips on how to approach such a case.

  1. Involve counsel at the earliest opportunity

Cases involving third parties can be complicated and involve a number of different disciplines.  It is often helpful to involve counsel early, and to ensure that they have experience of both trusts law and financial provision cases. It is likely that detailed pleading will be required and therefore an early conference can be very helpful.

  1. Computation before distribution

The starting point of every inquiry in an application for ancillary relief is the financial position of the parties… [That] inquiry is always in two stages, namely computation and distribution” (per Sir Mark Potter P in Charman v. Charman (No 4) [2007] EWCA Civ 503).  The court must first determine the size of the pot before it can consider how to share it. ‘Who owns what’ is therefore a necessary question to ask at the first stage, right at the start of proceedings and certainly by the FDA.

  1. Is it domestic?

In determining beneficial interests in property, the applicable law depends on the nature of the relationship between the (alleged) co-owners.  While those living together or who purchased in a domestic context would rely upon constructive trusts, financial assistance from family members who did not live together, or purchases with friends, would usually be considered under the law of resulting trusts.  The two approaches are very different, as are the tests to be applied and the likely outcomes.

Pleading the correct law is vitally important:

“I wish to…make the point that, even in the Family Division, a spouse who seeks to extend her claim for ancillary relief to assets which appear to be in the hands of someone other than her husband must identify, and by reference to established principle, some proper basis for doing so. The court cannot grant relief merely because the husband’s arrangements appear to be artificial or even ‘dodgy’.” Munby J, A v. A & St George’s Trustees Ltd (No 2) [2008] 1 FLR 1428 (emphasis added).

  1. Which procedural rules apply?

Is it the FPR 2010 or the CPR 1998?  The question was answered in Baker v. Rowe [2010] 1 FLR 761: TOLATA issues considered within existing financial provision proceedings are family proceedings.  The governing rules are therefore the FPR 2010.

  1. Who should be joined?

A party can be added where it is “desirable…so that the court can resolve all the matters in dispute in the proceedings, or there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings and it is desirable to add the new party so that the court can resolve that issue” (FPR rule 9.26B(1)).

The application must be made under the Part 18 procedure and, “unless the court directs otherwise, must be supported by evidence setting out the proposed new party’s interest in or connection with the proceedings” (Rule 9.26B(5)).

Once a third party has been joined, the family court can make a declaration as to ownership which is binding on them (Mostyn J in DR v. GR & Others (Financial Remedy: Variation of Overseas Trust)(Rev 1) [2013] EWHC 1196 (Fam).

  1. What is the procedure for considering a TOLATA claim within an FP claim?

Nicholas Mostyn QC, then sitting as a Deputy High Court Judge in TL v. ML [2006] 1 FLR 1263, set out clear guiding principles for how such a case should run.  He emphasised the fact that, despite being heard within family proceedings, a dispute with a third party should be approached in exactly the same way as if it were being determined in the Chancery Division.  At paragraph 36 he set out the following helpful propositions:

“In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:

i) The third party should be joined to the proceedings at the earliest opportunity;

ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

iii) Separate witness statements should be directed in relation to the dispute; and

iv) The dispute should be directed to be heard separately as a preliminary issue, before the FDR.

37.In this way the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place. It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided.”

   7. What are the costs rules?

Again, Baker v. Rowe is the leading authority.  That case considered the costs rules as between interveners, who had applied for competing declarations regarding beneficial interests in a property in circumstances where, unusually, the spouses had resolved their issues.  The Court of Appeal held that the ordinary FPR rules did not apply as between interveners, as they were not involved in “ancillary relief” proceedings for the purposes of that rule.  However, costs following the event also didn’t apply as the proceedings were family and not civil.  The position was therefore that no general rule was applicable and that the judge starts with a “clean sheet”.  It was noted that, even where no general rule applied, the fact that one party had been unsuccessful and would ordinarily be responsible for the costs would often be a decisive factor in the exercise of the judge’s discretion.

It is hoped that the Family Procedure Rules will be amended to specifically deal with TOLATA proceedings appearing within family cases.  For now, it is an area that should be approached with caution.

The Family Finance team at Becket Chambers is experienced at representing interveners and spouses involved in litigation with third parties.  Please contact the clerks for more information: clerks@becket-chambers.co.uk or on 01227 786331.