CR v - And -

In determining beneficial ownership of property held through an offshore company, the court must examine the parties’ true intention and the transaction’s surrounding circumstances. Legal title in a company does not by itself establish that the company holds the beneficial interest. Relevant matters include the purpose of the structure, contributions, liabilities, representations to third parties, and the absence or presence of genuine third-party involvement. Documents created or relied on to give a false picture of ownership may be shams. In a preliminary ownership dispute involving a third party, costs ordinarily follow the event. Indemnity costs may be ordered where the unsuccessful case was advanced through deceptive conduct and sham documents.

The applicant wife sought determination of two preliminary issues directed by Holman J: the beneficial owner of the former matrimonial home in Belgravia and, if a company owned it beneficially, the beneficial owner of that company’s shares. The property had been acquired in the name of IU Limited, an offshore company, after initially being intended for purchase in the spouses’ joint names. The husband and his father asserted that the father beneficially owned the shares and property. The wife disputed that case. The court considered the conveyancing and mortgage documents, the parties’ financial contributions, and later documents said to record the father’s beneficial ownership.

1. Sham documents. The court accepted the approach in Snook v London & West Riding Investments Ltd [1967] 2 QB 786 and A v A & St George Trustees Limited (Interveners) [2007] 2 FLR 67. The nominee shareholders’ agreement, management service provider agreement and later director services agreement were created to present a false picture that the husband held the shares for the father. They were therefore shams.
2. Beneficial ownership. The court rejected the father’s alleged beneficial interest. It placed weight on the absence of a clear tax advantage, the personal liabilities assumed by the husband and wife, the wife’s brother’s loan, the absence of consideration for any transfer, the original intention to buy in the spouses’ names, the husband’s representations that he owned the company, and the absence of genuine third-party involvement. The beneficial interest had not passed to IU Limited.
3. The property was beneficially owned by the husband and wife. The court distinguished the tax-saving rationale in Ben Hashem v Ali Shayif [2009] 1 FLR 115 and noted the difficulty of reconciling the authorities, including Sekhon v Alissa [1989] 2 FLR 94, Lavelle v Lavelle & Ors [2004] 2 FCR 418 and Prest v Prest [2011] EWHC 2956 (Fam).
4. Costs followed the event because this was a preliminary issue involving a third party. Indemnity costs were justified by the finding that the husband and father had advanced a false case and relied on sham documents. The wife was awarded £150,000 on account, payable within 14 days.