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Charitable Donation or Matrimonial Asset…?

Charitable Donation or Matrimonial Asset…?

Monday 14th August 2017

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Charity & Social Enterprise News - Issue 23 - August 2017

The recent case of Quan -v- Bray and Others [2017] EWCA Civ 405 examines a situation whereby significant assets donated to a charitable trust became the subject of protracted and complicated matrimonial litigation.

The wife, Li Quan and the husband Stuart Bray met in 1989 in Pennsylvania, USA when they were both studying towards their MBAs. Each worked separately around the world in the early 1990s whilst they were developing their careers.

The husband became extraordinarily successful in finance (global structured transactions) and the wife became the Head of Licencing for Gucci.  In 1997 the wife left her employment and moved into the husband’s property in London. 

By the time of the marriage on 1 August 2001 the husband had already amassed assets of over £18 million. The couple did not have any children.

In the late 1990s the wife became “interested and knowledgeable” about wildlife conservation and particularly the endangered South China tiger. On 6 April 2000 she set up a UK based charity called Save China’s Tigers UK (SCT UK) along with the husband and a third party. Her plan was to work closely with the Chinese Government to promote ecotourism to support wildlife; a model which had been tried and tested in South Africa. It was the intention to breed the tigers in South Africa and “re-wild” them in China.

In July 2001 the husband’s employment was terminated by the bank he worked for as Global Head of the Structured Transactions Group. This happened in difficult circumstances which resulted in the husband bringing libel action against his employers. 

On 18 November 2002 the Chinese Tigers South African Trust (CTSAT) was set up with SCT UK as its sole beneficiary.  A Framework Agreement followed on 26 November 2002 detailing the interaction between the entities and the charity’s aims and objectives.

The libel action initiated by the husband following the termination of his employment was settled on 17 July 2009 with the Bank donating £19.8 million into SCT UK.  This was surrounded by a draconian confidentiality clause with the damages for breach of the same being set at £19.8 million.

By 2010 the marriage was in difficulty and it broke down completely in April 2011. The suggestion made during the case was that the wife was threatening to name the bank that was involved thus breaching the confidentiality clause surrounding the libel case which raised grave concerns as the level of damages was so high.

On 2 August 2012 the wife was removed from the Board of SCT UK and she issued divorce proceedings shortly thereafter on 15 August 2012. On 18 August 2012 CTSAT wrote to the wife informing her of her removal as a trustee from CTSAT and she lodged a financial remedy application at court 3 days later on 21 August 2012.

Interestingly, she did not make any application for a variation of a post-nuptial settlement in that initial application. At the First Directions appointment on 27 November 2012 the wife asserted that she was seeking a guarantee that the funds within the charity would continue to be used for the intended charitable purposes only.  She said that she had some concerns that the donation had been made to the charity by the bank at the husband’s instigation to either avoid tax or to avoid any claims she may make on divorce.  If this was the case she was seeking a fair share of those assets.

By saying this the wife was effectively alleging that the donation of these funds (which were technically brought into the marriage by the husband) amounted to a post-nuptial settlement which would therefore be open to variation.  Subsequently on 17 July 2013 (almost a year after her financial application) she amended her application to include a claim to vary CTSAT as a post-nuptial settlement.

Complex and lengthy proceedings followed.  The final hearing commenced on 11 December 2013 and ran to 20 December 2013.  It was adjourned until 23 June 2014 (during which time the Trial Judge retired and had to return from retirement to finish this case) and then ran to its conclusion on 8 July 2014.

The Judge made it clear that the answer to the central question 'what is the purpose of the CTSAT' would turn on his evaluation of the credibility of the husband and wife. 

In his Judgment he found that “the wife had been beside herself with grief and anger at the way that she had been, as she saw it, unjustifiably removed from SCT UK”.  The Judge found the husband’s evidence to be clear, detailed and consistent and he commented that, “in contrast with the wife's evidence, I found his [the husband’s] evidence bore all conventional hallmarks of honesty and accuracy."

The Judge went on to set out the law in respect of post-nuptial settlements and concluded that the donation to the charity in this case was not one and thus not capable of being “invaded by court order” i.e. he found that the charity was a true charity and that the funds therein were dedicated charitable purposes.

The wife appealed the Judgment on the basis the Trial Judge had not properly dealt with the questions he set himself at a pre-trial review on 3 October 2013 in his Judgment namely:-

  • The circumstances under which the China Tiger trusts were set up;
  • The purpose of those trusts;
  • Whether those trusts were nuptial settlements;
  • The availability of funds within those trusts to the parties;
  • Whether the funds within those trusts could only be utilised for tiger conservation.

The Court of appeal found that, whilst the Trial Judge had not dealt with these exact questions in his final Judgment he summarised his findings sufficiently and dealt with the key questions in a different but satisfactory way.

They went on to endorse his findings that the donation to the charity was not a post-nuptial settlement and therefore not capable of variation.

The wife also ran an alternative argument at the Court of Appeal arguing that, pursuant to the Thomas v Thomas [1995] 2 FLR 668 line of cases, the court could assume that the trustees would respond favourably to a request by the husband for funds to be released to him from CTSAT in order to satisfy any order the court might make in her favour.  The Judge held that CTSAT could not be regarded under section 25 Matrimonial Causes Act 1973 as a 'resource' available to the husband.

Whilst the wife in this case was unsuccessful in asserting that the funds held within the charity were matrimonial assets available for distribution on divorce the Family Courts do have wide powers and a broad discretion when dealing with assets on divorce.

There are complex rules surrounding what is matrimonial and non-matrimonial property and financial transactions, business structures, trusts, gifts, inheritances and, in this case, charities are often open to scrutiny by the Family Courts on divorce.

In this case the charity and the husband were protected by the fact that the charity was well established and its foundation, aims and objectives were well documented but it serves as a salient reminder that if you are considering establishing a charity or a trust within a marriage you should take appropriate legal advice at the outset.

Natalie Hargreaves is an Associate Solicitor in the Family team at Brabners LLP. If you would like to discuss any of the points raised in this blog or you have any questions concerning family matters please do not hesitate to contact Natalie on the details provided below.

Natalie Hargreaves

Tel: 0151 600 3093
Email Natalie