The Hon. Mr Justice Moylan :
- This judgment follows the hearing of the Wife's ancillary relief application
- The Wife is represented by Mr Pointer QC and Miss Bangay QC and the Husband by Mr Marks QC and Mr Cook.
- I have heard oral evidence from the Wife, the Husband and the jointly instructed expert accountant, Mr H. I have read those parts of the bundles to which I have been referred. I have also received comprehensive written and oral submissions. I have taken all the matters raised by them into account when reaching my decision.
- During the course of the hearing, the stress of the proceedings was palpably evident on the parties and particularly the Wife. It brought home to me yet again the benefits of an agreed settlement and the emotional as well as the financial cost of contested litigation. The impact of the latter are often, in my view, underestimated at the early stages of proceedings.
- The Wife's case, in summary, is that she should receive broadly half of the current wealth. It is contended that this represents a fair share of that wealth and that her needs would not be met if she received any lesser amount. In total the Wife seeks approximately £9.6 million based on total resources, put by her, at approximately £19.5 million. The latter figure includes a number of contingent deferred assets and includes assets in employee benefit trusts at their gross value.
- The Husband's case, also in summary, is that the Wife's award should reflect the fact that a significant part of the current wealth is non-marital as it has accrued since the parties separated. He puts the marital wealth at approximately £8.8 million net (£10.8 million gross) and the non-marital wealth at approximately £4.5 million net (£6.8 million gross). The net figures are after deduction of a significant tax charge potentially payable if the funds in the employee benefit trusts were distributed. He proposes that contingent assets (included within these totals) should be shared in kind (in differing proportions) so that the amount each party receives reflects the actual value received rather than an estimate. The Husband states that his offer would provide the Wife with £5.2 million from the accrued assets and with over £6.1 million if the contingent assets materialise. It is contended that the Wife will be able to meet her needs even if none of the contingent assets are received.
- I will further explain the differences in the totals contended for by each party, and their respective positions, later in this judgment.
History
- The Husband was born in England and is now aged 53. He moved to live in South Africa in 1975 and is domiciled in that jurisdiction.
- The Wife was born in South Africa and is now aged 52. She remains domiciled in South Africa.
- The parties married in South Africa on 20th December 1980. They signed a conventional ante-nuptial contract in South Africa on 25th November 1980. Sensibly neither side has contended that it has any relevance in these proceedings. The parties separated briefly in 2002 but the marriage effectively came to an end when the parties separated finally in March 2005. Measured to that date it was a 24 year marriage.
- There are three children: A (aged 23); B (aged 21) and C (aged 18). A is in full-time employment in South Africa. The younger two children are still in full-time education.
- The Husband has spent his career in financial services. The precise details are not relevant. His career started in 1980 when he joined a firm of stockbrokers in South Africa. Since then it has progressed and developed as he has moved up the corporate ladder and as, through the businesses where he has worked, he has been part of the mergers and acquisitions which have been a feature of the financial services industry over the last 25 years. Between 1991 and 1997 he, and the family, lived in the USA where the Husband had been transferred. In 1997 they moved to live in England when the Husband was transferred here. He remains employed in England at Company Z.
- As with many careers, the financial rewards received by the Husband have not followed a steady pattern. In the course of his evidence, the Husband said that most of the resources now represented in the Schedule of Assets were received in the recent past. This is not unusual. It is not unusual for financial rewards to increase substantially during the later part of a person's career. This might be predictable, reflecting the work done and experience gained during the earlier years, but can also be unpredictable as it might reflect external factors such as the state of the global economy or the flotation or sale of a business.
- As the Husband's career has developed so has the standard of living enjoyed by the family. In 1998 property K , the family's home in England, was bought for £1.9 million. The property was then refurbished. It is now valued at £3.5 million. Also in 1998, a plot of land was purchased, and a house subsequently built, in Plettenberg Bay, South Africa. This has been the family's holiday home which they have used largely at Christmas and Easter. It is now valued at R21.5 million (approximately £1.5 million). In 2004 a London property, property D, was bought. This was bought for £1.8 million and a very significant additional amount was spent of refurbishing and furnishing the property (in total approximately £1 million). It is now valued at £3.5 million.
- It is clear that the family have enjoyed a very good standard of living in other ways. Their holidays have been expensive and they have been able to afford other luxuries. In the course of his evidence the Husband referred to a "£200,000 event" as though this was not an event worthy of significant comment.
- The Husband gave evidence that he intends to leave his present employment at some stage in the course of the next 3 to 6 months. He will join a new venture called S. This is a business set up by former colleagues of the Husband's and will focus on his specialist area, natural resources. He anticipates having to invest up to £1.5 million for an interest of up to 50%. In his written Skeleton, Mr Marks submitted that this is a "risky venture" and that the Husband will take a huge drop in income. Whilst I accept that the Husband's income will drop from its very high current level, I do not agree that this can be described as a risky venture. In his oral evidence the Husband estimated that his income with S would, over time, build up in line with his "normal" Z incentive award. He also gave no indication that he viewed his investment in the company as "risky". Indeed, the company has been trading for over a year and appears to be doing reasonably well. The Husband did not specifically address this in his oral evidence, but in his Affidavit of 28th September 2007 he refers to the bonus pool which the company has achieved in its first year's trading (to be split between 5 people).
- The Husband first informed his current employers at the end of 2005 that he was proposing to leave. In a letter from the Husband's solicitors dated 25th October 2005 it was said:
"It is my client's intention to leave Z in January 2006 with a view to returning to South Africa and setting up his own business. If and when my client leaves Z, his income will then be uncertain and in all probability minimal for at least the first year or two of the business.
At the moment, my client's plans are in their early stages, although he has already indicated his intention to resign to Z so as to forewarn them".
- In his Affidavit of 27th January 2006 the Husband said: "my intention is to return permanently to South Africa in the near future" and "I have not yet made a decision about whether I will leave Z. I did inform them that I would be resigning before the end of 2005 but do not yet know whether I will leave Z at this stage". He has explained the content of letter of 25th October as being his solicitors, at his request, flagging up this point.
- In the event the Husband was persuaded not to leave Z at that time. He agreed to stay and was granted additional deferred shares realisable on 28th February 2008 and 9th June 2010 as an additional incentive to stay with Z.
- The position was updated in a letter from his solicitors dated 14th June 2007.
"Prior to the FDR, it was my client's intention that he would be leaving Z shortly after the payment of his bonus in February or March of this year. My client is still at Z and it has taken him longer to leave than he had envisaged. It is still the case, however, that he intends to leave Z and he expects his departure to be finalised within the next few weeks. His intention is to take a well-deserved rest over the summer before commencing work at S".
- In his Replies to Questionnaire dated 10th September 2007 the Husband said that he had continued to have discussions about the timing of his departure. This had been delayed in part because he "wishes to leave Z on good terms and this has necessitated his seeing to completion a number of transactions on which he has been advising".
- The Husband remains at Z. In his oral evidence he said that he still intends to resign and join S. He says that he has tested the goodwill of his prospective new partners by delaying his moving to them for as long as he already has. However, he also intends to manage his departure from Z so that it is as least disruptive as possible. He remains involved with a number of deals which have not yet completed. Ideally, he would like to be able to have a foot in each camp but he doubts whether this will be possible. An added feature is that he has heart problems.
- The Husband estimates that he will be leaving Z in about 3 to 6 months: i.e. between about the end of January and the end of April 2007. The Husband will seek to negotiate the "capture" of as many of his deferred shares as possible. However, it seems clear that the negotiating process has not even started. At present, the Husband says he has discussed it with colleagues but not with his boss.
- It would hardly be surprising if, against that background, the Wife challenged the Husband's assertions that he will leave Z. However, she does not. She believes that he will indeed leave within the near future.
- I accept that the Husband intends to leave and probably will leave Z. However, he clearly will not leave prior to the date on which he becomes entitled to receive his bonus for the year 2007. In his final submissions Mr Marks estimated the cash element of this award at £1.66 million gross (approximately £1 million net). This is more than the Husband estimated in his oral evidence but in my view better reflects the likely level of his award. In recent years, this element of the Husband's bonus has been paid gross into an employee benefit trust.
- Further, the Husband will become entitled to realise deferred shares on 25th January, 28th February and 1st April 2008. On current values these will produce net, £212,000, £430,000 and £350,000, a combined total of £992,000. The Husband would have to stay at Z for approximately 5 months to receive these sums. I gained the clear impression from the Husband that he was hopeful of receiving a far greater proportion of his deferred shares than just these. However, at the very least, I would expect him to stay at Z until he has become entitled to his 2007 bonus and these deferred shares, giving a combined net total of approximately £2 million (or, if he leaves earlier, that he will negotiate the receipt of these sums).
- In his opening note Mr Pointer submitted: "Following the breakdown of the marriage and the institution of proceedings H set out to make life difficult for W". A number of matters are then relied upon in support of this contention. The financial matters relied upon were not explored during the hearing. I am not, therefore, in a position to deal with them. The other matters I will deal with further below. However, in any event, this allegation amounts largely to an allegation of conduct and neither party has sought to raise conduct as a substantive issue which should impact on my decision in this case.
- The Wife also relies on the manner in which the Husband (both personally and through Trusts) has been spending money since the separation. The P Trust has recently purchased an apartment in a property in Cape Town. It cost R34 million (approximately £2.4 million). The Husband accepts that this property was purchased by the Trust at his request. He went to view it with the sons of the marriage. Although the Husband says that it has been purchased as an investment, it is also clear from his evidence that he intends to use it as his home in South Africa. This was based on his assumption that the Wife would be retaining the property in Plettenberg Bay. He has arranged for the property to be fully furnished and equipped. The Husband will stay there when he is in South Africa and will have to pay rent to the Trust for the benefit.
- Other examples relied upon by the Wife are the fact that the Husband bought three Rolex watches (for himself and for the two sons) at a cost of £5,000 each; that he has been paying significant sums (albeit part by way, he says, of loan) for his ex-girlfriend; that he is currently spending approximately £79,000 per year in the purchase or leasing of cars; and that he, A and B are participating, through the P Trust, in a racing car project.
The Trusts
- During the course of the marriage a number of Trusts were established under the Husband's direction. They were established for the perfectly conventional and legitimate reason of seeking to protect the family's wealth. It is also clear from the oral evidence, and contrary to what is set out in parts of the written evidence (from both parties), that this wealth has been viewed as being available to meet the needs of the Husband and the Wife, including their obligation to meet the needs of the children whilst in education, but has not been viewed as being available to meet the independent needs of the children. I have already given the example of the purchase by the P Trust of an expensive property for the use of the Husband in South Africa. As I have described, it is clearly viewed by him as being effectively his home in South Africa. In addition, the Husband gave evidence that, when a property was very recently purchased in South Africa for the eldest child A, he was surprised that it had been bought through the P Trust. He had expected it to be bought through A's own trust, notwithstanding the fact that A is a beneficiary of the P Trust. This clearly supports the conclusion that the Trusts are viewed as being, at the very least, primarily available to meet the needs of the Husband and Wife, whose needs now that they are separated are inevitably much greater than when they were together.
- There are five trusts, all of which are clearly post-nuptial settlements as defined in the Matrimonial Causes Act 1973:
(a) The T Trust established in Jersey on 29th October 1992. The beneficiaries are the Husband, the Wife and the children. The trustees are a trust company, the Regent Trust Co. Ltd. The Trust contains very wide powers. By a letter of wishes dated 2nd November 1992, the Husband requests the trustees to be guided by him (and following his death by the Wife) as to the investment of the trust's assets and to comply with his requests as to distributions of capital and income;
(b) The P Trust was established in South Africa on 13th June 1996. The Trustees include a former colleague of the Husband's. The principal beneficiaries, by a Deed of Amendment, are the Wife and the children. This Trust also contains very wide powers;
(c) The P Family Life Interest Trust ("PFLIT") established in Jersey on 26th November 2003. The Trustees are the Royal Bank of Canada Trustees Ltd. The beneficiaries are the Husband (as primary beneficiary), the Wife (as secondary beneficiary), the children (as tertiary beneficiaries) and the Husband's remoter issue. The primary beneficiary is entitled to the income of the Trust for life with the trustees having the power to advance the whole of the capital of the Trust to him.
(d) The L P Dependant Funds (J1385 and J10199). These are sub-funds of Employee Benefit Trusts set up by the Husband's employers. In each year, beginning in 2003, the cash element of the Husband's annual incentive award has been paid into these Trusts. The former (J1385) holds the cash element of the Husband's incentive compensation award for years up to and including January 2006. The amount awarded in January 2006 was £1.425 million. The latter (J10199) holds the cash element of the Husband's award for 2007 (£2.846 million including interest).
- I will deal with the assets held by these Trusts when dealing below with the parties' resources. None of the trustees of the above trusts have been joined to these proceedings. In her Form A, the Wife simply gave notice of her intention "to apply for a variation of settlement order". None of the trustees were formally notified by the Wife of the proceedings until the very end of July 2007 when letters were sent to the trustees of the T Trust and of the PFLIT. They responded that they would be seeking the approval of the Royal Court of Jersey of their intention not to participate in the English proceedings save for the provision of information.
- At the outset of the hearing I raised the point that any order I made in respect of any of the Trusts or their assets would, at least in the first instance, have to be implemented through the home jurisdiction of the relevant Trust. Neither party appeared to consider that this would present any significant difficulty. Mr Marks accepted on behalf of the Husband that the trust mechanism could be safely ignored except "to the extent that (a) the arrangements have tax consequences and (b) the children are also beneficiaries of the trusts". The former is clear and is, largely, an issue of fact. The latter raises a broader issue. I can and should, of course, take this factor into account, but neither the Trustees nor the children are represented before me and I cannot presume that the Royal Court will follow my decision. Comity is a powerful but not overriding force as the Royal Court has recently reiterated.
- This area has been considered by Holman J in Mubarak v Mubarak and Others [2007] 2 FLR 364. He was referred to the Royal Court's (unreported) decision of In the matter of the B Trust [2006] JRC 185. In its judgment in the latter case the Royal Court (Sir Philip Bailhache, the Bailiff of Jersey, and two jurats) said:
"It would, in our view, avoid sterile arguments, and expense to the parties, if the English courts were, in cases involving a Jersey Trust, having calculated their award on the basis of the totality of the assets available to the parties, to exercise judicial restraint and to refrain from invoking their jurisdiction under the Matrimonial Causes Act to vary the trust. Instead they could request this Court to be auxiliary to them … we can see no reason why the trustee or one or more of the parties before the English court as the case might be, should not be directed to make the appropriate application to this court for assistance in the implementation of the English court's order. It appears to us that this would be a more seemly and appropriate approach to matters where the courts of two civilised and friendly countries have concurrent interests. It would furthermore be more likely to avoid the risk of the delivery of inconsistent judgments".
- Ultimately, this is the approach which the parties have invited me to adopt. The relevant Trusts, in respect of which substantive changes are sought, are the L P Dependant Funds ("the LPDFs") and the PFLIT.
- Dealing first with the LPDFs.
- To arrive at the total in his asset Schedule, Mr Marks has deducted the tax potentially payable on an assumed distribution of the entire funds. The Husband's open proposal was, and remains, that there should be a proportionate division of the gross value of the LPDFs, with the Wife's share being transferred into a new sub-fund of which she will be the beneficiary.
- The Wife's position in respect of the LPDFs has changed significantly since the conclusion of the hearing. At the hearing, the Wife sought a lump sum calculated by reference to the "totality of the assets", including the gross value of the LPDFs. By a supplementary note from her counsel dated 12th November 2007, the Wife now agrees to there being a proportionate division in trust of the assets held by the LPDFs. It would then be a matter for each party how they chose to deal with their respective shares.
- There remains a difference between the parties as to the proportion which the Wife should receive, which I deal with later. However, the method by which the wealth within the LPDFs will be distributed between the parties is agreed and it is also agreed that the necessary application to the Royal Court should present no difficulties.
- As to the PFLIT, the parties seek what might appear to be very different outcomes. The main asset held by the PFLIT is property K. The PFLIT effectively owes the T Trust (through a company owned by the Trust called B Ltd) an amount equal to almost the entire the equity in property K.
- In the Husband's open position, it is proposed that he be excluded from the PFLIT with the Wife becoming the primary beneficiary in his place. She would be entitled to the income for life and to capital advances at the discretion of the trustees but the children would remain as subsequent beneficiaries. The Husband would also procure the repayment or discharge of the sum due to the T Trust.
- The Wife seeks the transfer to her of property K free of trust. On the basis that she was the primary beneficiary, this would clearly be within the power of the trustees who would have the power to advance all the capital to her. There are two principal reasons why the Wife seeks such an order. First, it is submitted on her behalf that unless she receives a significant amount of free capital she will have insufficient resources to meet her needs. In this respect, in the supplementary note from Mr Pointer dated 12th November 2007, it is recognised that the Wife could make arrangements for her share of the LPDFs to buy property K (although this would, presumably, have other cost/tax consequences). Secondly, the Wife was concerned at a conversation she had with the two elder children. It was clearly a very regrettable conversation which took place at a time when their relationship with the Wife was, to put it neutrally, not good. The children said that property K was "our home", meaning that they had an interest in it. The middle son has since apologised. The Wife has not seen the elder son for about three years.
- I have already made it clear that the Trusts were set up with the intention of protecting the family's wealth and of providing primarily for the needs of the Husband and Wife. Of course, if not required for their needs during their lifetimes, then the Trusts provided convenient and sensible vehicles for benefiting the next generation. In this respect, although, as I have said, the parties by their open positions might appear to be seeking very different outcomes, this is not an accurate reflection of the evidence. In his oral evidence the Husband expressly agreed, in his evidence in chief, that the Wife should have "control" of the PFLIT (and of property K) and should be able to do with it "as she wishes".
- Accordingly, whether property K stays in or is transferred out of the Trust, there is no suggestion from either the Husband or the Wife, that the children should be viewed as having any claim or right to any part of the PFLIT. I return to this issue later when I address the structure of my order.
The Proceedings
- The Petition is dated 7th March 2005. Decree Nisi was pronounced on 1st February 2006. The Wife's Form A is dated 15th March 2005. This indicates that the Wife intends to apply for all forms of ancillary relief including for a variation of settlement order. The Form does not specify any particular trusts.
- On 19th January 2006 the Wife applied for a freezing injunction. A Consent Order was made by DJ Cushing. This was followed by a more extensive Order made also by Consent by Coleridge J on 10th February 2006. Each party gave undertakings. The Husband undertook to use his best endeavours to ensure that the Trusts' assets were not disposed of, charged or placed in any different trust but without placing any restriction on the trustees to apply the assets of the trust in such a manner as they consider beneficial to the beneficiaries. He also undertook not to dispose of or place in trust his interest in the M Provident Fund.
- On 24th February the Wife also applied for maintenance pending suit. This was resolved by agreement on 24th May 2006 when the application was listed for determination before Coleridge J. The Husband agreed to pay the Wife £275,000 on account of the Wife's financial claims, without prejudice to either party's contentions as to the appropriate level of maintenance pending suit whether for general maintenance or for legal costs.
- The Wife's application for maintenance pending suit was restored. On 13th February 2007 Coleridge J ordered that, in default of the Husband paying £320,000 by 6th March 2007, there would be a maintenance order at the global rate of £40,000 per month (£10,000 by way of general maintenance and £30,000 by way of legal costs). The Husband paid the sum of £320,000.
- The parties have filed a number of affidavits and have provided extensive replies to questionnaires, all of which I have read.
- The Wife's total costs are £570,000 of which she has paid £535,000. The Husband's total costs are £388,000 of which he has paid £237,000. This is, on any view, a depressingly large sum to have spent on litigation.
Issues
51. Non-disclosure
It has been contended on behalf of the Wife that the Husband has failed to comply with his obligation to make full and frank disclosure. It is argued that I should be sceptical about or have a degree of reservation about the quality and completeness of the Husband's disclosure. In her oral evidence the Wife made plain her belief that the Husband has very substantial undisclosed wealth including valuable shareholdings in several companies. She based this assertion largely on the content of telephone conversations the Husband had had during the marriage and which she had heard. In his closing submissions, Mr Pointer relied on a number of factors:
(a) The failure of the Husband to be frank about his/the P Trust's involvement in an apartment in Cape Town;
(b) The refusal of the Husband to accept the reality of the way in which the family Trusts are directed;
(c) The transfer by the Husband of the M Provident Funds to the P Trust in breach of his undertaking and despite his Solicitors writing and saying the monies would be preserved;
(d) The (not credible) contention by the Husband that he did not know the way in which the purchase of the property in M Road had been structured;
(e) The Husband's failure to disclose the investment in a racing car;
(f) The failure of the Husband to make proper financial provision for the Wife following their separation and his conduct in respect of her solicitors.
- I will deal briefly with each of the above items but, before I do, I make plain that I consider I need to be very careful before accepting a submission that my substantive decision should be based in part on an alleged need to treat a party's disclosure with "scepticism" or a "degree of reservation". I can, of course, when deciding whether there has been full disclosure apply a critical scrutiny to a party's case. It may be that this is all Mr Pointer has invited me to do. To go further would, in my view, create a risk that my decision might be influenced by what could be termed merely prejudicial matters or pure suspicion rather than a conclusion on whether there had or had not been full disclosure.
- (a) The failure of the Husband to be frank about his/the P Trust's involvement in an apartment in Cape Town;
(i) I accept that the Husband was not clear in the evidence he gave about his or one of the trust's involvement in another apartment. When first asked whether he had made an offer on another property, either in his own name or through a trust, he said no. He said that he had been investigating other apartments but had not yet proceeded. Overnight, the Wife's lawyers made further enquiries and established that an apartment had been purchased by a company. The Husband accepted that the P Trust has a third interest in this company. He explained his previous answer first by saying that he was not sure whether the transaction had been completed and then by saying that he had understood the previous questions had been confined to his personal involvement. Documents were rapidly obtained in order to try and explain the true position.
(ii) I am satisfied that the Trust has in fact only made a very small financial outlay in this investment which outlay (as at 31st August 2007) is reflected in the Trust's accounts to that date. I am also satisfied that, ultimately, this does not represent any significant failure on the part of the Husband to make full and frank disclosure. However, it provides an example of how lack of clarity can only serve to fuel distrust. The Husband's apparent evasiveness on this issue naturally fuels suspicion that he is seeking to hide something substantial.
- (b) The refusal of the Husband to accept the reality of the way in which the family Trusts are directed.
As I have already made clear, Mr Marks has accepted that the Trusts' assets should be taken fully into account as part of the parties' overall wealth (subject to the two caveats I have mentioned). In general, I do not consider that, in his evidence, the Husband was either being evasive on this issue or seeking to distance himself from the Trusts. However, although I accept that the purely administrative elements of the Trusts could be conducted without reference to the Husband, I do not accept that significant investment decisions would be made without his approval nor that requests by him for the Trust funds to be used or invested in a certain way would be likely to be refused. These were Trusts that were available to meet his and the Wife's financial requirements.
- (c) The transfer by the Husband of the M Provident Fund (SAR 8 million) to the P Trust in breach of his undertaking and despite his Solicitors writing and saying the monies would be preserved.
(i) The Husband undertook not to dispose of his interest in the M Provident Fund and not to place it in trust. He did not abide by this undertaking as the Fund was transferred to the P Trust, albeit in part satisfaction of monies owed by the Husband to that Trust. The Husband accepts this and seeks to exculpate himself by saying that he was not aware this was happening. He believed the money was being loaned and did not realise it was being treated as repaying his liability.
(ii) I accept the Husband's explanation but consider that he should have been far more careful to ensure that he did not act in a way which was in breach of his undertaking. An undertaking creates a heavy obligation on a party to comply with its terms and not to act in breach of it, even by omission. Further, the Husband should not have allowed his solicitors to write the letter of 14th June 2007 which was not accurate. This also can only serve to fuel distrust. There is no overall change in the Husband's financial position, save as to the level of the liquid resources in the Husband's hands (by reducing them by approximately £575,000).
- (d) The (not credible) contention by the Husband that he did not know the way in which the purchase of the property in M Road had been structured.
I do not consider this a point of any significance save for the insight it gives as to the purpose of the Trusts.
- (e) The Husband's failure to disclose the investment in a racing car.
Again, I do not consider this a significant point apart from its reflection on the Husband's approach to expenditure and his ability to influence the management of the Trusts.
- (f) The failure of the Husband to make proper financial provision for the Wife following their separation and his conduct in respect of her solicitors.
(i) I have dealt with the former part of this allegation earlier in this judgment.
(ii) As to the latter part, there are two aspects to this allegation. The first is based on what is set out in a letter dated 9th March 2006 written by a former solicitor for the Wife to the Husband's solicitors. This matter was not dealt with in oral evidence and I am not therefore in a position to make any determination about the accuracy of the allegation.
(iii) The second aspect derives from a fax sheet dated 22nd December 2006 from one of the Wife's previous solicitors to the Wife. The Husband has circled the name of the person at the firm who had sent the fax and written "Deep dive please + family history". Mr Marks accepted, on the Husband's behalf, that this was a misjudgement. In contrast, in the course of his oral evidence the Husband was clearly of the view that it was perfectly natural to undertake an investigation to establish who he was dealing with. This is confirmed by his solicitors' letter of 24th July 2007. He says that it was not an instruction to anyone else and that in fact he conducted no significant investigation. The Husband's explanation might be a reasonable one save for the content of the note. It carries with it the possible interpretation that information was being sought which might then used in some way against the individual concerned. The Husband should realise not only that it was a very bad misjudgement but also that a court will act decisively to protect those involved in the administration of justice from improper interference.
- The Husband denied that he had any undisclosed shares as alleged by the Wife. He said that under FSA rules he would have been unable legitimately to acquire shares in companies in respect of which he was advising.
- The Husband was cross-examined about a number of other issues, including the circumstances in which he had paid a sum of £100,000 to an individual about six years ago, certain entries in his bank accounts, an inaccurate answer in replies to questionnaire in respect of shares held (by the T Trust) in a company called LO Ltd and the monies invested in the SB project. I have taken all these matters into account.
- Mr Marks submits that this is not a case of non-disclosure. He relies on the fact that no significant undisclosed asset has been discovered during the course of over two years of contested litigation and during which there have been very extensive questionnaires with the disclosure of reams of documents. The Husband initially gave voluntary disclosure by letter dated 25th October 2005. This included a summary by way of a schedule of assets. Mr Marks has analysed the difference in the total given in that schedule to the current total. He accounts for the difference by reference to changes in the values of assets and by the receipt of additional resources (in particular the Husband's 2006 and 2007 bonuses).
- Taking all the matters which have been raised into account, I do not consider that the Husband has failed to make proper disclosure. The allegations made against him do not, when objectively assessed, amount to anything significant. Yes, in certain aspects he could have been clearer in the explanations he gave, but I did not gain the impression that he was seeking to hide anything of substance. Indeed, I found him, largely, to be doing his best to assist the court in his evidence.
63. The LPDFs
As a result of the post-hearing development referred to earlier in this judgment, there is no longer an issue as to the manner in which the LPDFs should be allocated, although there remains an issue as to the appropriate proportion that the Wife should receive. This removes, to a very large extent, the need to determine the issues canvassed during the hearing, being the tax potentially payable by the Husband and the Wife on obtaining any benefits from the LPDFs and the value which should be ascribed to the LPDFs – should it be the gross value of the assets or the value of the assets net of the tax potentially payable on a distribution. Although this is no longer a critical part of my decision, I, nevertheless, propose to summarise the evidence very briefly when I deal with the LPDFs under financial resources below.
64. Other Issues:
The main other issues, of fact and approach, identified by the parties are:
(a) The extent to which the Wife's award should reflect the fact that a significant part of the current wealth has been earned by the Husband since the parties separated;
(b) The extent to which the Wife's award should reflect the Husband's future earning capacity;
(c) Whether the contingent deferred assets (and certain other assets of uncertain value) should be shared in kind;
(d) The level of award required to meet the Wife's reasonable needs;
(e) Should the Wife receive property K in trust or free of trust;
(f) Disputed items in the Schedule of Assets.
I will deal with these issues in part when considering the section 25 factors and in part later in this judgment.
Section 25 Factors
65. Financial Resources
Since the hearing concluded, I have been provided with a further Schedule of Assets. This is agreed save for a number of disputed items, which result in the Wife contending for total resources of approximately £19.5 million (without deduction of the potential tax on the LPDFs) and the Husband for £17.6 million gross and £13.3 million (net of the tax on the LPDFs). The biggest element in this difference of £6.2 million is potential tax on the LPDFs of £4.3 million.
- Since the parties separated in 2005 the Husband has received his bonuses for the calendar years 2005 and 2006. The former consisted of gross cash of £1.4 million and deferred shares worth net £1.65 million; the latter consisted of gross cash of £2.85 million and deferred shares worth net £954,000. The cash element of both bonuses has been paid into the LPDFs.
- I now turn to deal with the issues arising out of the Schedule of Assets.
- (i) Options
The Husband is entitled to a number of options. On current values they would produce £99,000 net. In his final written submissions, Mr Pointer submits that this value is the minimum figure and that this is a resource which is likely to become worth more to the Husband in the future. I do not have the evidence on which I can conclude that these options are likely to produce any significantly greater figure for the Husband. Further, even if a projected, prospective calculation was carried out to seek to establish the value of the options which are currently "under water", the resultant value would remain speculative. Very few assets are a one way bet and I do not regard these share options as sufficiently likely to be worth more to justify me including them at a higher figure.
- (ii) Deferred Shares:
(a) The Husband is entitled to a number of deferred shares. In total they have a combined net value in excess of £2.8 million. The Husband proposes, as he does in respect of most of the contingent assets, that they should be shared in kind. By this route, the Wife would receive a proportion of whatever the Husband in fact receives. The Wife objects to there being any proportionate sharing. She seeks the inclusion of these assets at their full estimated value prior to the calculation of her award. I will, clearly, need to return to this issue when determining the level of the Wife's award and its structure.
(b) In my view, I need to be careful in ascribing a specific value to an asset when that value is necessarily speculative as it depends on what the Husband is able to negotiate. The Husband hopes to "capture" as many of the deferred shares as possible. I have already decided that he will receive the value of the shares which become exercisable in January, February and April 2008 (totalling £992,000). Although, as I have said, I gained the clear impression that the Husband is optimistic that he will do much better than this, I am not in a position to decide what specific additional amount he will receive in respect of the balance of the value (£1.825 million) of his deferred shares. This does not mean that I ignore the prospect that he might receive some of this latter value. It simply means that I cannot, in fairness, ascribe to it a firm value.
- (iii) Monies due from/spent on Ms G
The parties do not agree whether Ms G owes the Husband £31,200 (per the Husband) or £46,800 (per the Wife). The difference between these two sums (£15,600) would have no effect on my decision. The Wife also seeks to add back other payments made of £25,765. I can see no justification for adding back these payments.
- (iv) T Trust private equity investments
The Wife values these at £1.9 million and the Husband at £630,000. The difference arises from the differing values given to the shares owned by the Trust in Company X. The Husband accepts that this is a company which has very good assets. He regards it as a high risk company which may ultimately be worth nothing or a "phenomenal" amount. Again, he proposes that the value be shared, if and when it is realised. Again, the Wife rejects this proposal, contending that there would be no assurance that the Wife would in fact receive her due proportion. It is submitted that the Husband would be able to manipulate the position. The value advanced on behalf of the Wife is based on the value at which shares were acquired under a rights issue in August 2005. In evidence, the Husband said that this value (£3.25 per share) did not reflect the true market value of the shares. It was simply designed to raise a fixed level of capital for the company. I accept the Husband's evidence on this point. These shares might be worth a great deal in the future but, at present, this is entirely speculative. I propose to include these investments at £630,000. This does not mean, however, that I do not also take into account the Husband's evidence that the Company X shares might become worth a great deal more.
- (v) Liabilities to the P Trust
These total £90,000. I accept the Husband's evidence that they are legitimate existing liabilities.
- (vi) Chattels at property D
(a) The Wife seeks to include in the Schedule of Assets the value of chattels at property D and owned by the LPDF. The sum sought to be included is £227,000, being the value appearing in the latest LPDF (Property Ltd) accounts as "artwork, antique furniture and fittings". Some of the items purchased are listed in an invoice dated 2nd December 2004. They are clearly high quality items.
(b) The Husband meets this point by submitting that either all chattels should be included or all excluded.
(c) There is an issue as to whether property K has any valuable chattels. In the Schedule prepared by the Husband in October 2005 he valued the property K contents at £200,000 (and in his Form E at £180,000). He also valued the Wife's furnishings in South Africa at £129,000. In addition, in the Husband's Form E he gave a value of £80,000 for art and antiques in property D not owned by the Trust. The Wife in her Form E gave no value for the contents of property K or property D stating "to be valued" and does not refer to contents in South Africa (apart from a sculpture)
(d) In her evidence, the Wife agreed that the contents of property K are insured for £750,000 but said they were worth very much less. Nor did she accept the value ascribed to the South African chattels in storage in a schedule in the papers (of some £90,000). She contended that the property D chattels were worth much more.
(e) I do not propose to include the property D chattels in the Schedule. It would not be right to include only some of the chattels. Having regard to the figures given for the other chattels, I am not in a position to decide that the property D chattels are worth much more than the chattels the Wife will be retaining. No direction was sought or given in respect of chattels. Further, it must be a rare case in which it is justifiable to include chattels by reference to value in a schedule of assets.
(vii) The value of the shares held in SS.
Their value could be nil or could be approximately R4 million (£310,000) depending on whether a debt does or does not become payable. They are owned by the P Trust. It is a matter of pure speculation as to whether the debt will or will not be called in. Accordingly, I do not include the value in the Schedule as though it was an available resource but I take into account the possibility that the debt might not be called in.
- I do not propose to deal with the minor difference over the sale costs of Melville Road. I appreciate that minor differences can add up to significant differences but it is well recognised that the court is undertaking a broad assessment.
- (vii) Tax on the LPDFs:
In Mr Marks' "summary and over simplified" presentation of the assets in this case he deducts all the tax potentially payable in the event of the funds presently held within the LPDFs being distributed. He contends that this accords with the need to compare like with like as stated in White v White [2001] 1 AC 596. In addition, I remind myself, that Lord Nicholls also said that there could "no hard and fast rule". I deal with the evidence on this issue later in this judgment. However, I agree with Mr Marks that, when considering whether my award meets the parties' respective needs, I should principally have regard to the resources in the LPDFs net of this potential tax charge. If I did not, there would be a consequent risk that my award might not in fact meet those needs.
- The Wife contends that I should take the gross value of these funds and make no deduction for potential tax at all on the basis that this tax will never become payable. I have already explained my concern if I were to follow this approach. Further, in assessing the effect of my award, I must have regard to the differences between the different types of asset. However, this does not mean that I ignore the ability to benefit from the deferred tax retained within the LPDFs.
- As I have already said, the importance of this issue has been significantly reduced, if not eliminated, if I make a proportionate distribution of the LPDFs, as is now agreed. Further, as Mr H agreed, it is not possible to ascribe a specific value to the benefits which can be obtained from the deferred tax element of the Funds, as there are a number of variables involved in the calculation. This is not, of course, the same as saying there is no value.
- Mr H has prepared a report dated 17th October 2007, a letter dated 25th October 2007 and gave oral evidence. The ultimate outcome of his evidence is that the position in respect of tax on the Funds is complicated and uncertain. It depends both on a number of factual issues which are uncertain and, potentially, on legal issues to which there is no clear answer.
- The first factual issue is the Husband's residence status on the last day of his employment. If he is not a UK resident on the last day of his employment, the Funds will not subsequently be subject to UK tax. In the present case, this is additionally complicated by the fact that the Husband's employer within the Group formally changed in April 2006. The second factual issue is the residence of the recipient of the distribution at the time it is received. Different rules will apply depending on whether the recipient is resident in England, South Africa or in another jurisdiction. Mr H also referred to issues of law and Revenue interpretation which make predicting the outcome particularly difficult.
- Mr H helpfully set out the financial reasons behind EBTs. The main reason is that it represents a tax deferral vehicle. The funds are invested on a gross basis and roll up tax free. Secondly, there is the benefit of being able to access the funds through the use of loans which would incur a relatively small tax charge on the notional interest. There is also the possibility of obtaining the funds tax free and the fact that on death they become tax free funds. Mr H did not consider it possible to give a value for £1 inside an EBT as against £1 outside an EBT.
- On the evidence in this case, it would not have been possible for me to arrive at a clear conclusion on all the issues involved in determining the likely tax position in respect of the LPDFs. However, I can and do decide that the Husband is likely to be UK tax resident on the last day of his employment. If 2006 is a relevant date, and according to Mr H it could be in respect of J1385, the contrary cannot be argued. I also consider the Husband likely to be UK tax resident when he ceases his employment with Z in 2008. (If I am wrong about this, both parties will share in the resultant benefit as a result of the proportionate division I include as part of the Wife's award). In addition, Mr H pointed to one clear differential between the parties, namely that, if subject to UK tax, outright distributions to the Husband would bear tax at 53.8% while outright distributions to the Wife would bear tax at 40% (assuming gross rate tax).
- One other matter I must address is the manner in which I should take into account the sum of £595,000 owed by the Husband to the LPDFs. This sum is undoubtedly a debt. If it is not repaid, there is, currently, a tax or interest charge. In the agreed Schedule it is included as a liability of the Husband's and as an asset of the Trust. However, this is not a liability which has to be repaid in the near future and, accordingly, the Husband has the use of this additional sum which I bear in mind when structuring my order.
- In summary, in the light of my conclusions as set out above, the resources can be broken down as follows:
(i) Liquid Assets (available now and over the course of the next few months) totalling £2,790,000. The Wife's net assets (Plettenberg Bay less her liabilities) are £1,250,000. The Husband's net assets (including the deferred shares and 2007 bonus together totalling £2 million, as referred to in paragraphs 25 and 26 above) are £1,540,000;
(ii) Deferred shares with a notional contingent value of £1.825 million but in fact of an unquantifiable value. This does not mean that they have no value; it simply means that any value I sought to ascribe to them would be speculative;
(iii) Assets in Trust (excluding the EBTs) of £5.83 million; as I have already made clear, the Trusts' assets, including those of the P Trust, are resources available to the parties. I also take into account that the P Trust, as a South African trust, is in a different position to the other Trusts;
(iv) Assets in Trust (the shares in Company X and SS) which might be worth more than set out above but which additional value is also a matter of speculation and not capable of specific determination or calculation by me;
(v) Assets in the LPDFs of £7.74 million gross (this might overlook the sum of £77,000 listed as a liability of the Husband's in respect of rent);
(vi) Pensions of £392,000.
The combined crude total (crude, because I am adding assets of different types), and taking the gross value of the LPDFs, is approximately £16.8 million plus £1.825 million in respect of the balance of the deferred shares and the other potential resources which I have identified.
- It is convenient, at this stage in the judgment, to compare these figures with the totals advanced by each of the parties as set out in the Schedule of Assets.
- The total advanced by Mr Marks is £13.3 million net (and £17.6 million if the notional tax on the LPDFs is added back). This includes all the deferred/contingent assets totalling £2.8 million; which I have divided into £990,000 included in 83(i) and £1.825 million in 83(ii), but excludes the Husband's 2008 bonus (for 2007) which I have included in my total.
- The total advanced by Mr Pointer is £19.5 million. I have excluded the chattels (£227,000) and the other payments to Ms G (£26,000). I have also not included in my total the additional value of £1.3 million ascribed to the Company X shares nor the value of the interest in SS of £313,000. The other differences are those referred to in paragraph 85 above.
- Income:
The Husband's income in recent years has derived very substantially from his annual discretionary award which has included deferred shares. He has received very substantial awards. His total gross income in 2005 and 2006 (including deferred shares) was respectively £2.5 and £4.5 million. The Husband says, and I accept, that his recent earnings have been at a peak. The Husband's future income, after his move to S, is uncertain. However, although the quantum is uncertain it is clear that the Husband has a very substantial earning capacity and has the ability to generate both income (and capital). As I have said, in evidence, the Husband estimated that over time his income from S would build up in line with his "normal" Z income (at current exchange rates, and taking the gross figures for 2002 and 2003, approximately £1.4 million gross).
- Standard of Living.
To select an epithet to describe a standard of living always runs the risk of reflecting no more than a subjective view. I confine myself to describing the parties as having had an extremely good standard of living especially in the last decade of the marriage.
- Contributions
Each of the parties fully contributed during the course of the marriage.
90. Financial Needs and Obligations
(a) Capital:
The Wife wants to remain living at property K. She described it as a compact house and says she has established a settled life here, with supportive friends. She has no current intention of going to live in South Africa. She considers that she has no reason to return there. Although she did acknowledge: "Who knows what I'll do in the future", she wants to retain property K as her home. She also wishes to retain the property in Plettenberg Bay as a holiday home. As I have described, the family would use the property conventionally at Easter and Christmas. These properties have a combined value (net of sale costs) of approximately £4.8 million.
- The Husband contends that housing at this level is far in excess of the Wife's reasonable needs. Property particulars have been produced (albeit only during the hearing) showing what is perhaps only self-evident, namely that properties could be purchased near to both properties for considerably less. The question I have to decide is what level of housing represents a fair assessment of the Wife's current and long-term need.
- The Husband is prepared to concede that the Wife should keep the property at Plettenberg Bay but on the basis that he is given a "first refusal" option to buy it. He wants to keep it within the family. It is, therefore, very difficult for it to be argued that the Wife should not be able to retain it indefinitely, although the Husband might say that the longer term plan would be to use it more as a main home rather than simply a holiday home. The Husband gave evidence that during the marriage he and the Wife always had it in their minds that they would at some point return to live in South Africa.
- One further difficulty for the Husband is that there is no suggestion that, at least for the time being, he will not continue to have the use of property D as his London home and, as I have described, he has bought a very expensive flat in Cape Town as a South African home. This is in addition to the P Trust developing the B property.
- I have no doubt that in the context of this case it is reasonable for the Wife to have both a main home and a holiday home; one in the UK (or elsewhere) and one in South Africa. Ultimately, how the Wife chooses to use her resources is a matter for her. However, when considering whether my award is such as to enable the Wife to meet her needs I have to determine what those needs are. Assessed on a broad basis, I consider that it is reasonable for her to have long-term housing at a combined level of approximately £3.5/4 million: i.e. £1.4 million at Plettenberg Bay and approximately £2.4 million in another property.
- The Husband's long-term housing needs are undoubtedly similar to the Wife's. In addition, he needs to invest up to £1.5 million in S.
- (b) Income:
The Wife's Form E budget totalled approximately £180,000, excluding school fees and other items specifically for the children, but including £24,000 for the cost of maintaining the property in Plettenberg Bay. In her oral evidence she stood by this estimate. The Wife also accepted that she would be able, if she chose to do so, to cover most if not all the expenses of this property by renting it out. Although the Wife appeared not to have undertaken any specific investigation of this possibility, I accept that it is an option, and a reasonable option, open to her.
- The Husband contends that a reasonable budget for the Wife is £120,000 per year. Mr Marks sensibly confined his cross-examination of the Wife to certain aspects of her budget to seek to demonstrate that its overall level was excessive.
- Broadly assessed, I consider that the Wife's current income needs are in the region of £150,000. However, in the longer term I consider that it would be reasonable for this to reduce, to give a bracket of between £120,000 and £150,000. Capitalised, from now, this bracket equates to a Duxbury fund of £2.7 to £3.4 million or a non-amortising fund of £3.1 to £4 million (assuming UK tax rates). I propose to take the sum of £3.5 million as the income fund which I should use to test whether my award meets the Wife's needs.
- The Husband's long-term income needs are similar to the Wife's.
- One of the sad features of this case is that the Wife's relationship with the children has suffered following the breakdown of the marriage. There is an issue between the parties as to the extent of this, save that it is agreed that the Wife and the eldest adult child are presently estranged. I have, rightly, not been informed of the circumstances. It is to be hoped that this will not continue and that everyone will do all they can to ameliorate the position. At one point, it appeared that this factor was being viewed as relevant to the Wife's needs. I made it clear during the course of the hearing that my award would not be influenced by the current state of the relationship which either parent has with the children. If a family's resources are limited, the extent to which one parent is bearing an additional financial burden might inevitably have an effect on the outcome of the case. This is not such a case. Further, I consider that each parent is entitled to be in a similar position to assist the children financially (even perhaps on occasion to indulge them). In my judgment it would be wrong for children to see one parent being advantaged or the other disadvantaged solely on the basis of their relationship with that parent. If anything, this would militate against rather than in favour of any significant financial disparity.
Discussion
- The essence of the case advanced by Mr Marks is that the post-separation accrual justifies a significant departure from equality in the Husband's favour. He also submits that the deferred/contingent assets (and other assets of uncertain values) should be shared in kind, on the conventional ground that the risk that these assets might not materialise should be fairly shared.
- The Husband's proposal is based, broadly, on the Wife receiving 50% of the marital wealth, 33.33% of the Husband's 2006 bonus (for 2005) and 25% of his 2007 bonus (for 2006). The net effect is that, on the Husband's figures, the Wife will receive approximately £5.2 million net (£5.85 million gross) with the potential to receive up to an additional sum of approximately £900,000 from the contingent/deferred assets (totalling £2.8 million). On the Husband's figures as set out in the Schedule (£13.3m. net), and if the Wife did receive £6.1 million, this would represent approximately 47% of the total net wealth (and 38% of the gross wealth). If the contingent assets are not received, this would give the Wife approximately 50% of the net wealth. Mr Marks contends that such an award would meet the Wife's needs.
- Mr Pointer in his opening Skeleton submits succinctly that: "the whole of the assets should be treated as subject to the presumption of equal division". The Wife should receive property K free of trust, retain Plettenberg Bay and be paid such lump sum as would achieve "equality of the totality of the assets". The Wife's needs are put at a total of £9 million net (housing of £5 million and a Duxbury fund of £4 million).
- In his closing Submissions, the lump sum that the Wife should receive is quantified at £5 million. This would give the Wife total resources of approximately £9.6 million free of trust. In addition, Mr Pointer resists the suggestion that there should be any Wells sharing of assets, submitting that my primary focus should be the satisfaction of the Wife's needs.
- The two main legal issues raised in the present case are:
(a) The effect of the fact that a significant part of the current wealth has been earned by the Husband since the parties separated;
(b) The effect of the Husband's future earning capacity.
- These issues reflect the continuing debate about, in particular, the effect of the House of Lords' decision in Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186 and of the subsequent decisions in the lower courts. At present we are engaged, in my view, in an incremental search for a consistent pattern in the application of the principles identified by the House of Lords. This is unlikely to happen quickly. It needs to be incremental because of the risk that broad statements about the application of these principles can overlook their effect in different factual situations not then before the court. Consequences can also become evident in the long as well as the short term. It was, after all, many years before the adverse consequences of Mesher orders were fully appreciated, when Ormrod LJ referred to the chickens coming home to roost.
- In this search, there is a well recognised tension between predictability and flexibility in approach and outcome. A too ready reliance on the former at the expense of the latter can easily result in unfairness (Lord Hope's harshly frank appraisal of the effect of the law in Scotland, as capable of "producing very real injustice", provides a clear demonstration of this point). On the other hand, complete flexibility leads to a consequent lack of predictability (and exposes parties to the costs of litigation referred to by me at the outset of this judgment).
- Further, in RP v RP [2007] 1 FLR 2105 Coleridge J, at [58], identified the dangers inherent in treating the speeches in Miller as though they had replaced section 25:
"They (the speeches or rationales highlighted in the speeches) are very helpful in ensuring the court achieves a fair result and does not become stuck or formulaic in its approach as it has done from time to time in the past … However, care needs to be taken to ensure that these passages are not treated as some kind of quasi-statutory amendment".
- Charles J made the same point in H v H [2007] 2 FLR 548 when he referred, at [41], to the parties seeking to treat the guidance given by the House of Lords "as if it were a series of statutory tests and that a pass or a failure of those tests led to particular and set results".
- In the present case, Mr Pointer submits that there can be no hard and fast rule about the treatment of post-separation wealth. He specifically submits that it would not be right in this case to seek to compartmentalize the current resources because the parties have only been separated for 2½ years, the Husband has been spending extravagantly during that period and because of the level of the Wife's financial needs.
- Mr Pointer also submits that the high level of the Husband's prospective income, a "vexed issue", can be taken into account in a number of different ways.
(a) By a periodical payments order;
(b) By an additional lump sum payable in instalments over, say, three years;
(c) By cancelling out the Husband's argument on post-separation accrual;
(d) By justifying an award that fully meets the Wife's needs.
He relies upon CR v CR (19th June 2007), an unreported decision of Bodey J.
- Mr Marks submits that a distinction must be drawn between wealth accumulated up to and that accumulated after the date of separation. He acknowledges that the dividing line is very fact specific and is a discretionary matter for the judge to decide in each case. He accepts, of course, that post-separation wealth is not excluded and remains "the subject of the discretionary exercise including sharing". He relies in particular on H v H in which the wife received a diminishing proportion of the husband's post-separation income for three years, including the year of separation..
- Mr Marks does not accept that the Wife has any additional entitlement based on the Husband's prospective earned income both by reference to the facts of this case and by reference to extracts from the speech of Baroness Hale in Miller. He seeks to distinguish the decision of CR v CR.
- In Miller, Baroness Hale said at [144]: "In general, it can be assumed that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or compensation". These are powerful words of general application. In the search for predictability, I am attracted to this general proposition, which also reflects the fact that a clean break has been recognised as an "object of the modern law" since at least Minton v Minton [1979] AC 593 and even more so since the 1984 reforms. In RP v RP Coleridge J also noted that: "clean breaks seem to be becoming more difficult to achieve … as claimants attempt to build up their entitlement by aggregation". I agree, and also agree that this would be, as he says, a "very undesirable consequence".
- It might have been assumed, if the marital partnership is treated as coming to an end on separation, that this general proposition creates, in all cases, a clear dividing line as from that date. This is not so. It is plain from Miller that it is not necessary to draw a "clear and precise boundary" between matrimonial and non-matrimonial property. At [26], Lord Nicholls draws attention to the dangers and difficulties inherent if such an approach were to be adopted. Not only can it be an illusory search, but as he says, the greater the emphasis placed by the courts on the need to identify what is and is not marital property, the greater the amount that the parties will be willing, indeed encouraged, to spend on seeking to value assets at the start and at the end of a relationship.
- In a recent case before me, the main focus was on (a) the date on which the parties' relationship had started (between 15 and 20 years previously) for the purpose of identifying when marital property began to accrue and (b) the extent to which the Husband had a developed business at that date, again for the purpose of defining what was marital property. In RP v RP Coleridge J also referred to applications for costly valuations at different times during a relationship in pursuit of an alleged entitlement to a "share" of the "matrimonial property". I have no doubt that these sorts of enquiries were specifically not intended by the House of Lords.
- To be fair to Mr Marks and Mr Pointer, they both recognise that we are engaged in the application of guidance to the exercise of the statutory discretion. We are not engaged in the rigid application of any specific formula with a requirement to find clear and precise boundaries. Apart from agreeing that any award must meet the Wife's needs, neither submits that the issues referred to in [105] above point to a particular result as a matter of principle. They agree that these issues are matters which should be taken into account as part of the discretionary exercise although they clearly differ as to the weight they should be given.
- In Charman v Charman the Court of Appeal, at [103] and [104], declined to address an argument belatedly advanced that the husband's post-separation bonus should have been treated differently. However, the decision makes plain, at [66], that the sharing principle is not confined to matrimonial property. It applies to all the parties' property "but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality".
- I mention, in passing, one concern as to a possible effect of this approach. I have referred to Mr Pointer's submission that all the wealth in this case "should be treated as subject to the presumption of equal division". In other cases I have heard the view expressed that, as all property at the date of a hearing is included within the (equal) sharing principle, it is in the interests of the applicant spouse to delay the determination of their application if in the meantime that property is likely to increase significantly. This is based on an expectation or belief that the property which exists at the date of the hearing is more likely than not to be divided equally. This is not in the interests of justice. Further, although an award might be differently constructed, the court's approach should be the same whenever the application happens to be determined.
- I have already referred to the passage in Baroness Hale's speech at [144]. This is repeated at [154] where she again states: "If capital has been shared equally and is enough to provide for need and compensate for disadvantage, then there should be no continuing financial provision". This is followed in [154], which is dealing specifically with the case of McFarlane, to the passage which the Court of Appeal in Charman refers to as being "said to permit argument that a party's earning capacity is itself an asset to which the other has contributed and which might to some extent be subject to the sharing principle".
- Baroness Hale is not, in my view, qualifying her previous remarks when she refers to Mrs McFarlane as being entitled to a share of the husband's surplus income "on the principles both of sharing … and of compensation". An issue had been raised in that case (see the Court of Appeal's decision: Parlour v Parlour; McFarlane v McFarlane [2004] 2 FLR 893) as to whether periodical payments could only be awarded to meet needs. The Court of Appeal decided that there was no such limitation. In that context, it is not surprising to read that, if an equal share of the capital is not sufficient to provide for need and compensate for disadvantage, the principles identified by the House of Lords (including sharing) continue to apply and can continue to apply to "surplus" income. For example, in Parlour the husband's future income was shared not on the basis of need nor of compensation.
- In CR v CR, Bodey J decided that it would not be fair to ignore the husband's "very substantial" future earned income, which he regarded as a "financial continuum". However, ultimately, his award gave "primary recognition" to the Wife's needs with the husband's future earnings being a "subsidiary factor". In H v H it is made abundantly clear by Charles J that he was not adopting or applying a formula.
- In summary, on the first issue, whilst I adhere to Baroness Hale's general proposition, namely "that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or compensation", this does not require me to define what is and is not matrimonial property. Further, the weight to be given to the fact that some of the resources have accrued through the Husband's earnings since the separation is a matter for my discretion.
- As to the second issue, while I, again, adhere to the general proposition, this does not, indeed it could not, lead me to ignore future earning capacity when it is one of the express factors listed in paragraph 25(2) of the Matrimonial Causes Act. I referred earlier in this judgment to the Husband's evidence that most of the resources now represented in the Schedule of Assets were received in the recent past and to the fact that different careers have different patterns in the way rewards accrue. In my view, a fair outcome might not be achieved unless the court takes into account the different times and the different forms in which financial resources can accrue during the course of a career.
- In reaching my decision, therefore, I take into account both the fact that a significant part of the wealth has been earned by the Husband since the separation and the fact that he has a very significant earning capacity.
Conclusion
- It will be plain from my analysis of the Wife's needs, that the Husband's proposals do not provide the Wife with sufficient to meet her needs. In a case such as the present, the application of the sharing principle cannot be used to justify an award which does not meet needs (and I do not understand Mr Marks to contend otherwise).
- The Wife's offer would provide her with more than required for her needs. However, in my judgment, her position at trial failed to recognise (a) that some of the assets in the Schedule cannot be valued with any certainty and (b) that the assets in the LPDFs cannot be treated as having the same value as the assets held in other forms.
- Both Mr Pointer and Mr Marks acknowledge that my award must meet the Wife's needs. Indeed, Mr Pointer submits that my primary focus should be on the Wife's needs. In this analysis he does not seek on behalf of his client any Wells sharing in respect of contingent or uncertain assets. When addressing needs, I understand this point. If I were to include them when addressing needs, I would run the risk of making an award that did not enable the Wife to meet her needs (or left the Husband with insufficient to meet his needs). However, to my mind, the Wife seeks, unfairly, the best of both worlds when she includes the (speculative) contingent and uncertain assets when seeking a share of the wealth but then proposes that her share comes only from the certain assets.
- Having dealt with the relevant section 25 factors and the other issues referred to above, I propose to address first needs and then sharing, neither party having submitted that this is a case in which compensation has any application. When addressing needs, I will focus on the available resources.
- The Wife will retain Plettenberg Bay, worth £1.4 million. For the reasons given above, I do not regard any part of the value of this property as being available to provide the Wife with any income, save to the extent that she rents the property to cover its costs. She will, therefore, have debts of £183,000. I also do not consider it appropriate to give the Husband a right to buy the property if the Wife decides to sell the property. This is not necessary to achieve fairness and it runs contrary to effecting a clean break.
- In addition, the Wife clearly, as is accepted, requires the transfer to her of property K. The issue is whether this should be in trust or free of trust. Despite the concerns expressed by the Wife and the submissions made on her behalf, I consider that this should remain in trust. I have already made it clear that the Trusts were set up with the intention of protecting the family's wealth and of providing for the needs of the Husband and Wife. I have also referred to the Husband's oral evidence when he expressly stated that the Wife should have "control" of the PFLIT (and of property K) and should be able to do with it "as she wishes". I have also already made plain that I intend the capital in this trust to be available for the Wife as she may require, including by means of capital advancement. In my view, it should be possible for the Wife's position to be properly protected when this matter is dealt with by the Royal Court of Jersey.
- The Wife would therefore have £3.4 million in trust. When added to Plettenberg Bay, this will give the Wife capital of £4.8 million (excluding her debts). As I have assessed her long-term housing need at £3.5/£4 million, this will provide the Wife with, taking the average, approximately £1 million in excess of that need.
- The Wife needs an income fund in the region of £3.5 million. How is this need to be met? Deducting the £1 million referred to above, leaves a balance of £2.5 million. This has to be found from the liquid assets and the LPDFs. Precision in this case is not possible because of the tax uncertainties surrounding the LPDFs. I have considered the effect of varying proportions of each category of asset. Ultimately I have decided that the Wife should receive £1.8 million (after the payment of her debts) from what I have called the Liquid Funds. This would give her additional free capital of approximately £400,000, leaving a balance to be found for the income fund of £2.1 million.
- This balance will have to be met from the LPDFs. How am I to test what she requires in order to meet her needs? In my view I should, initially at least, test this by reference to the sum net of tax which could be obtained by means of a distribution. The evidence has given me no other mechanism by which to carry out this test. It is also the approach advanced by Mr Marks. If the Wife receives just under 40% of the LPDFs (and the value of the pension fund) this would provide her with a gross fund of £3.2 million. If this was distributed whilst subject to UK tax (after the Husband had retired) it would produce (net of 40% tax) just under £1.9 million. This would provide the Wife with an income fund of £3.3 million. This is just short of the sum of £3.5 million. I consider that this will be made up by the Wife having access to the tax deferred sum of £1.28 million and/or by a more flexible use of her overall resources. The Wife also has the current advantages that result from being non-domiciled.
- The effect of this would be as follows:
(a) The Wife would have £1.8 million (65%) from the Liquid Funds. This will require the Husband to pay her a lump sum of £600,000 (from which the Wife will pay her debts of £184,000). The Husband will retain just under £1 million (35%) and will, if he chooses, continue to have the use of the sum of £595,000 lent to him by the LPDF;
(b) The Wife will receive £3.4 million (58%) from the Trusts, excluding the LPDFs, with the Husband retaining £2.4 million (42%);
(c) The Wife will receive £3.2 million (40%) from the LPDFs (and the pension) and the Husband will retain £4.9 million (60%) plus his pension fund.
- Applying crude totals (which I have criticised counsel for doing) gives the Wife £8.4 million and the Husband £8.3 million. If the highest potential tax payable on distributions from the LPDFs is taken into account, the assets are divided as follows: the Wife has just over £7 million plus a deferred tax fund of £1.28 million; the Husband has £5.9 million (including his pension fund) plus a deferred tax fund of £2.4 million. In addition, for the purposes of this comparison, the Husband retains any additional benefit he receives from the other assets.
- I must also consider whether my award gives both parties a fair share of the resources. In my judgment, subject to one point, it does. I acknowledge that the Wife is receiving a significant proportion of resources which have accrued since the separation and, accordingly, a far greater share of what might be termed the marital wealth. I also acknowledge that the Wife (by reference to net wealth) is receiving more than half of the current wealth as assessed by me. In my judgment this is justified by reference to her needs and does not give her an unfair proportion having regard to the Husband's overall financial position. I also acknowledge that in this exercise I have taken into account not only accrued wealth but also the prospective receipt by the Husband of deferred shares which vest in the period up to April 2008 and of his prospective bonus for 2007.
- Having regard to all the matters referred to in this judgment, I do not consider that the Wife has any claim, in order to achieve a fair result, to any further share of the wealth. In reaching this conclusion, I have taken into account all the resources, including the assets with uncertain values. Even if the Husband were to receive the full value of the other deferred shares and the interest in SS, which I consider unlikely, he would have an additional £2 million. This imbalance in sharing in his favour would be justified in the circumstances of this case; in particular having regard to the post-separation wealth and the proportion of the available resources awarded by me to the Wife.
- The one point relates to Company X. The Husband says that this investment might become worth a very, very large amount. If this were to happen this could render my award unfair. Having regard to the amount the Wife is receiving under my award, and in particular the extent to which this includes a proportion of assets which have accrued since the separation, in my judgment the Wife should receive 1/3rd of the net amount received from the investment in Company X in excess of the value currently ascribed to them by the Husband (net of any additional capital invested). This will be paid to the Wife, at her election, but subject to her paying any tax arising from the manner in which payment is made to her or for her benefit.
