Financial Remedies
October 2022
Wife’s appeal against a final financial remedies order
- The Appellant Wife (‘W’) appealed against the judgment and final order of HHJ Farquhar dated 5 July 2022. W had put forward extensive grounds of appeal but permission to appeal was granted on two grounds only by Sir Jonathan Cohen. It was also suggested by Sir Jonathan Cohen that an additional ground be considered relating to the Respondent Husband’s (‘H’) director’s loan account and the valuation of the business.
- The appeal came before Mostyn J. Mostyn J firstly dealt with the ground relating to H’s business.
- Mostyn J concluded that the first instance judge had erred in two respects when calculating H’s business interests:
- 1) H’s director’s loan account of £239,500 had been wrongly omitted as an asset from the calculation of the value of H’s business interests. Mostyn J sets out the calculations for this at paragraphs 12-13 of the Judgment.
- 2) the judge erred in his dealing with the percentage discount applied in the valuation of H’s interest in the companies. The accountant had applied a discount to the valuation because of the ability to sell the company due to the lack of overall control. The accountant had applied a 20% discount but the judge at first instance was uncomfortable with this as H’s businesses were described as a quasi-partnership where if certain conditions were met, no discount needed to be applied. The judge at first instance provided a discount which was less than that proposed by the accountant (15%). Mostyn J considered that looking at the evidence it was not possible for the Judge to find there were any likely circumstances in which H would sell his shares other than in conjunction with his fellow 50% shareholder. Therefore looking to the future, when asking himself whether it was more likely than not that a discount would be suffered, the answer would be no. If the Judge was satisfied that the business was run as a partnership and if satisfied that no discount would be suffered on any disposal then the judge should not have made a middle choice. The issue was a binary one, either the discount applies or it doesn’t. There was no room for a third way as adopted by the judge at first instance. The discount would be disapplied.
- These findings of Mostyn J resulted in a revised calculation of the value of H’s business interests. This showed that H’s business interests were under-valued by £249,534. To achieve equality a transfer of £136,026 was required from H to W which would be adjusted from the percentage each party would receive from the proceeds of sale of the former matrimonial home.
- The second ground related to whether the sum awarded for maintenance, capitalised or not, should be higher than £26,000 p,a. Mostyn J considered this was too low.
- Despite being granted permission to pursue this ground, W showed little interest in it. This raised the question for Mostyn J about how much encouragement should the Court give to a litigant in person to take the right points and to eschew the wrong ones. Mostyn J concluded that in a financial remedy case, the court exercises a quasi-inquisitorial function. It would be a dereliction of its inquisitorial duty if it allowed a case to be decided which prevented a just decision being rendered on a particular set of facts because a litigant in person has chosen not to advance the relevant arguments applicable to those facts.
- Mostyn J considered that a Duxbury fund should be provided for W, aged 60, which would provide W with an income of £48,000 annually for life. This was a reasonable income level for W having regard to her age, length of the marriage, marital standard of living and H’s budget of £115,000. This would be achieved by W receiving the whole net proceeds from the sale of the former matrimonial home as well as her private and state pensions. This would result in a departure from equality (54.5%/45.5%) but was justified given W’s needs and that H’s needs were already met.
- The final ground permitted was whether W should receive a minimum sum rather than a percentage from the proceeds of sale of the matrimonial home. This no longer required determination given W would be receiving the entire proceeds of sale.
- The appeal was allowed on the two grounds and the first instance order was to be set aside and replaced by confirming W’s sole ownership of the marital home.
Husband’s application to set aside a pension sharing order following the Wife’s death prior to implementation of the pension sharing order
- On 25 January 2021, the Husband (‘H’) and the Wife (‘W’) settled their financial remedy proceedings by way of a consent order. This provided for a reasonably equal split of the capital and a pension sharing order in favour of W of 51% of H’s Shell pension which had a CETV in excess of £1 million.
- The Decree Absolute and pension sharing order had been served on the pension company but the pension share had not been implemented.
- Tragically on 3 August 2021, W died from cancer. W was not aware at the time of the consent order of this diagnosis and only became aware in late June 2021.
- On 4 and 5 August 2021, H applied for the pension sharing order to be set aside and to appeal against the consent order. The executors of estate for W (the parties’ children) opposed the application.
- The application for permission to appeal had remained active to prevent the pension sharing order taking effect but it was agreed that the application would proceed as an application to set aside the pension sharing order (under FPR 9.9A) and the appeal application would be dismissed once this had been determined. The set aside application would be considered under the Barder test.
- The consent order did not contain the standard wording seen in relation to pension sharing orders which apply if the receiving party pre-deceases the other. The Judge did not consider the failure to do so as fatal to H’s application.
- There were complications around the trust deed and pension regulations. The Judge determined, having considered the arguments from both parties and information from the pension company, that even with W’s death there would be a presently undefined benefit to W’s estate under the consent order. This was presently undefined as it would be at the discretion of the trustees.
- Having determined this, the Judge went onto consider the Barder test. When considering the Barder test, the Judge determined as follows:
- The new events occurred within a relatively short time: The Judge was satisfied W’s death happened within a sufficiently short time to come within the Barder test. This was not contested by W’s executors.
- The application to set aside should be made reasonably promptly: H’s application was made within one day of W’s death. This point was not contested by W’s executors.
- No prejudice to third parties: this was not a point taken by W’s executors.
- The final issue was whether W’s death invalidated the basis, or fundamental assumption, upon which the order was made. The Judge stated that it cannot be automatically assumed that a pension sharing order was entered into for the purposes of ensuring each party has an income and that the death of one of the parties would necessarily mean the fundamental assumption was invalidated. The nature of a pension can be flexible and there will be cases where the pension is treated in the same way as capital.
- The Judge stated that it is incumbent on the Court to understand the reasoning behind the pension share in order to consider whether this limb of the Barder test is met.
- This case was determined by a consent order and consequently there was no judgment setting out the rationale behind the order that was made.
- The Judge considered the PODE report and solicitor correspondence concerning the agreement. The Judge was satisfied that the thrust behind the pension share was to ensure that the parties had sufficient income during their retirement. On this basis, the Judge was satisfied that all of the Barder criteria were met and the order must be set aside.
- Neither party suggested there should be any further hearing in this matter and it was suggested that final orders should be made. The Judge determined that all of the information required to make a final decision was before the court and was satisfied the Court was in a position to substitute the order for an alternative order.
- W’s estate argued that the appropriate approach was one of capital equalisation given W had earned an equal share following a long marriage. H argued that because the purpose behind the pension share was to meet W’s income needs that there should now be no pension share at all.
- The Judge was satisfied that given the hybrid nature of pensions that both arguments were correct.
- The Judge determined that the correct level of pension share would be 25% to W. This would reflect W’s earned share whilst providing a discount for the many years over which income will not be required for W. The Judge felt this order balanced the competing arguments as to the nature of the pension asset in a way that fairly meets H’s income needs and provides a fair sum for the estate of W.
Final hearing in which Mostyn J determined an application for financial remedies and the implementation of a Pre-Nuptial Agreement
- Mostyn J’s judgment considered the applications by the Husband (‘H’) for financial remedies against the Wife (‘W’), the notice to show cause why the Pre-Nuptial Agreement (‘PNA’) should not be made an order, applications by W for certain financial remedies against H and for secured child periodical payments.
- H is 62 and is a highly successful real-estate developer and investor. W is 47 and left her career in the early days of her relationship with H as H’s lifestyle was and remained one of constant travel. The parties were married in 2012 and separated in 2020. There were two children of the marriage, aged 6 and 14. The children lived with W in the family home. There was an order for H to spend time with the children which would develop to alternate weekends in term-time and 8 weeks a year in school holidays. H disclosed in the schedule of the PNA and within proceedings to have assets over $1bn. Mostyn J found that the parties lived a billionaire lifestyle during their marriage and described it as not a common-or-garden big-money case; this is a case of the super-rich who are truly different to you and me.
- The parties executed the PNA in accordance with the law of the State of New York on 2 March 2012 (six weeks before the marriage). The parties signed a modification agreement on 23 March 2014.
- W accepted that the terms of the modified PNA were binding in nature. The parties did not agree on the interpretation nor what level of child support should be awarded.
- The PNA was governed by New York law but the parties agreed that this court should interpret it by reference to the ordinary meaning of words, common sense, and the intentions of the parties, what the agreements, properly interpreted, provide for W. Mostyn J used the notional voice of the ordinary person as the Commuter on the Bronx Subway. Mostyn J described this as his mental image of the New York equivalent to the Man on the Clapham Omnibus.
- There were 10 separate issues of interpretation that Mostyn J was asked to determine in relation to the agreement. In his judgment, Mostyn J goes through each of these issues in turn and provides his conclusion. This summary shall only deal with those issues of particular relevance.
- One of the issues related to latent tax where there was US capital gains tax on two properties. H proposed that these liabilities should be shared when calculating the net proceeds of sale. W argued that H would never pay such taxes because he has millions of dollars of unused losses which he will be able to apply to extinguish the tax liability. H’s response was that a tax loss was no different from cash in the bank. Mostyn J set out cases which considered this issue (paras 65-68). Mostyn J determined that the taxes are real and H would have to pay them with money or with other assets in the shape of tax losses. There is no difference in principle or substance between H paying a tax debt in cash or eliminating it by deploying a loss. The latent tax figures were therefore taken into account in the calculations of the net proceeds.
- There were provisions in the PNA for H to pay up to $750,000 of W’s legal fees. There was also a provision that if either party commences an action to set aside or vacate the PNA or for spousal support then that party shall be responsible for paying all of the other party’s reasonable legal fees.
- H paid £2.3m of W’s legal fees in the children act proceedings. H argued that he should be reimbursed for the amount over the $750,000 cap.
- Mostyn J held that the $750,000 cap was arbitrary and has the potential to be extremely unfair. There was also nothing in the agreement to prevent H paying W’s legal fees on a voluntary basis above the cap and this is what Mostyn J found H had done and it would be grossly unfair to require W to reimburse H for these costs and Mostyn J declined to do so.
- H also sought for W to repay the amount H had paid for her financial remedy costs and to pay his financial remedy costs both at about £2.1m (minus the costs orders made by the Court at enforcement hearings against H).
- Mostyn J considered that, having regard to the general rule of no order as to costs, that W should not pay H’s costs and concluded this was not required under the PNA. However, Mostyn J could not see any good reason for W not to pay her own costs with credit for the costs orders she had obtained.
- Following distribution of this judgment, W’s legal team had informed Mostyn J that there were further costs not captured for the hearings where Mostyn J had made costs orders against H. There was no explanation about why these costs had been omitted and Mostyn J was not prepared to enlarge H’s liability based on this late submission. The Form N260 should have been accurate.
- W sought £750k as a refurbishment fund for the family home, €300k compensation for stolen jewellery and £450k as a parachute payment to ease her transition to a standard of living several levels below what she had enjoyed hitherto. Mostyn J found these applications were misconceived and in plain breach of the terms of the PNA which W accepted as binding.
- Following the decisions of Mostyn J on the PNA, W would be entitled to approx. £37m. Mostyn J considered whether following W’s capital needs being met there was a sufficient Duxbury fund to meet W’s ongoing needs. Mostyn J considered what this would provide for W.
- W sought to have money to leave to her testamentary beneficiaries but Mostyn J held that this was not a reasonable need for the purposes of s25(2)(b) Matrimonial Causes Act 1973 but the Court may grant an enhanced award enabling her to do so on the application of the protean criterion of fairness. Mostyn J did note that given his calculations there would, in any event, be a fund which W could bequeath.
- W sought child maintenance and Mostyn J set out the applicable legislation and case law at paragraphs 113-138. Mostyn J drew the threads together at paragraph 129.
- The parties prepared various budgets for W. Mostyn J determined W’s needs which was a 15% cut of W’s proposed household budget and calculated what would be personal expenditure, what she could pay from her own resources and treated the remaining balance as a Household Expenditure Child Support Award. This was a monthly award of £23,100 per child CPI index linked until the child is 18 or completes full-time tertiary education. H to pay school fees and extras. H’s liability to pay for nannies to be capped at £100k per annum, CPI index linked.
- Mostyn J was satisfied that the child maintenance award should be secured. Firstly, because H has deliberately disobeyed orders for maintenance pending suit necessitating enforcement proceedings on two occasions. Secondly, if it was not secured it would come to an end on the death of H. This security would be as a guarantee by a reputable London bank. The mechanism is described at paragraph 155.
- Payment of the mortgage on the family home would be pursuant to an undertaking therefore the mortgage repayments did not need to be included within the order for security as this would carry a potential two-year prison sentence for contempt of court if breached.
- Given the security offered, Mostyn J did not award W a contingent lump sum as a fighting fund.