England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
FAMILY DIVISION
MR JUSTICE HEDLEY
LOWER COURT No: FD04D05320

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/10/2008

Lord Justice Wilson:

SECTION A: INTRODUCTION

1. With permission granted by myself at an earlier hearing, the "wife" (as I will describe her notwithstanding a decree absolute of divorce) appeals from orders for ancillary relief made against her in favour of the "husband" by Mr Justice Hedley in the High Court, Family Division, Principal Registry, on 30 November 2007. She contends that for various reasons the award was plainly excessive.
2. On the basis that the former matrimonial home in Northolt, which the wife continues to occupy and which I will describe as the "home", should become her sole property beneficially as well as legally, the judge ordered her to transfer to the husband, subject to mortgage, her joint and equal interest in an investment property in Kensington and to pay him a lump sum of £130,000 in full and final settlement of all their mutual claims for ancillary relief. The judge also ordered her to pay a contribution of £40,000 towards his costs. The reasoning behind the award of part of the lump sum, namely £50,000, is clear in particular from the transcribed exchanges in court which followed the judge's judgment. But, other than in general terms of fairness, he did not spell out his reasons for having alighted upon the figure for the balance of it, namely £80,000; and although, with the aid of the balance sheets provided to him in the course of submissions by Mr Wise on behalf of the husband and by counsel then appearing on behalf of the wife, the judge will no doubt have compiled a balance sheet of each party's visible net assets and of the effect of his orders thereon, he did not incorporate it into his judgment, which he delivered orally on the fifth day of the hearing.
3. The parties are by ethnicity Iranian but have lived in England throughout their marriage, which was celebrated in 1975. The wife is now aged almost 67 and the husband is now aged 59. They have three adult children, who appear to continue to live with the wife in the home. In 2002 the parties began to live separately albeit under that same roof; in 2007, at around the time of the grant of the decree absolute, the husband vacated the home.
4. The judge, although not complimentary about the evidence of the husband, was particularly critical of that of the wife. He found that she had undertaken two dishonest manoeuvres, which I will describe in [5] and [7.2] below, in order to reduce her exposure to the husband's future claims against her for ancillary relief. He also found her guilty of litigation misconduct in the form of extensive non-compliance with interlocutory orders made in the course of the proceedings, by which she had both thwarted their efficient despatch and increased their cost. Furthermore he found that, in addition to four pieces of real property in Tehran which she had eventually disclosed, she might well have rights of ownership in relation to a further property there and probably also had cash resources there, albeit probably not particularly large in size. These findings, unchallengeable in this court, make the wife's appeal extremely difficult. It is sometimes even said that a finding of undisclosed resources against a party in proceedings for ancillary relief makes it in practice impossible for him to appeal to this court save when he can argue that, on the evidence, it was not open to the court to make the finding. Such is, of course, an exaggeration; but, by a party's failure of disclosure, which almost always renders the court unable to quantify the extent of his undisclosed resources, he certainly places substantial obstacles in the path of his appeal.

SECTION B: RESOURCES AND NEEDS

5. The home is vested in the wife's sole name. Net of costs of sale at 3%, its value was taken as £450,000. In February 2002, five months after her issue of proceedings against the husband in Tehran, the wife, by her Iranian lawyer, entered into what the judge found to be a collusive arrangement with her brother, who resides there, in relation to the home. The brother had apparently sued her there for US$10,000; and their arrangement was that he should withdraw his claim in consideration of her transfer to the three children of the family of one half of the beneficial interest in the home in equal shares. The wife's former counsel wisely forebore to argue to the judge that she had thereby succeeded in alienating any part of the home to the children; and the judge readily found that its beneficial ownership lay with both parties in equal shares.
6. 1. The Kensington property comprises four flats, is held in the joint names of the parties and was agreed to be owned in equal shares. The value placed upon it by the agreed valuer was £850,000 if sold as a single unit or £1,000,000 if sold as four separate flats. Although the wife's former counsel seems, like Mr Wise, to have commended the former figure to the judge, I see no reason to reject the median, namely £925,000, from which costs of sale at 3% and the mortgage outstanding on it, namely £83,000, fall to be deducted. So its net value is £814,000.
7. 2. The parties face a CGT liability on their disposal of their interests in the Kensington property; indeed, under the judge's order for transfer to the husband, the wife would have to meet her liability in effect forthwith. On a disposal at a total gross value of £925,000, the CGT liability of each party would be £62,000.
8. 1. The wife has, or was taken by the judge to have, three inherited properties in Tehran. Either she directly inherited them from her family or she bought them with money which she had inherited from it. Their total value, according to a jointly instructed valuer, is equivalent to £474,000; and the wife has not been permitted in this appeal to seek with fresh evidence to demonstrate that any of the three constituent valuations is excessive. The judge did not allow for costs of sale, as to which there was no evidence; but in this court Mr Wise rightly concedes that there must be costs of selling real property in Tehran and that, in the absence of evidence to the contrary, they should be taken at the percentage nowadays conventionally taken in respect of the sale of real property in England and Wales, namely 3%. That leaves £460,000.
9. 2. In July 2003, i.e. following both her issue of proceedings against the husband in Tehran and her separation from him, the wife purported to transfer each of the three inherited properties to each of the three children. In relation to the properties, however, she reserved not only a power of attorney to act on behalf of the children but also - and at first sight more significantly - a "life interest" in the properties. The evidence given to the judge by the jointly instructed expert in Iranian law, apparently accepted by him, seems to have been that, in the particular circumstances including of the power of attorney, the effect of the "life interest", unlike in English law, was that, until her death, the wife retained absolute ownership of the properties. One of the wife's original grounds of appeal, on which I had refused her permission to proceed, was that the expert - and thus the judge - had erred in that regard.
10. 3. At the substantive hearing of the appeal Mr Mahmood on behalf of the wife made a further application to be permitted to proceed on that ground and to support it with fresh evidence from a second expert in Iranian law; Mr Mahmood accepted that, were it to admit the evidence, the court would be confronted with such controversy in relation to it that it would be likely to remit the husband's substantive application for re-hearing. We rejected his application on the basis that the time for the wife to attempt, with whatever degree of difficulty, to challenge the evidence of the jointly instructed expert was prior to the judge's judgment. We also observed however that, in addition to accepting that during her lifetime the wife in effect still owned the properties, the judge had in effect given an alternative reason for ascribing their value to her. For he found - inevitably - that the wife's purported transfer of the properties to the children was made without consideration at a time when she knew that the marriage was in serious difficulty; and he noted, apparently with approval, the husband's contention that she had effected it in order to obstruct his claims. Even when not asked under s.37 of the Matrimonial Causes Act 1973 to order the setting aside of a transfer by a respondent spouse by which she (or he) intended to obstruct an applicant's claims, the court can notionally reattribute to her such property as she has thus transferred, just as it can notionally reattribute to her funds which she has (recklessly) dissipated. Sometimes, however, a notional reattribution to a respondent of property transferred in such circumstances will be insufficient to serve the forensic purposes of the applicant, who will in that event need to go further and to apply, on notice to the transferee, for an order setting aside the transfer and thus actually restoring the property to the respondent. In [20] below I will explain my conclusion that a notional reattribution to the wife of the inherited properties would not have been a sufficient foundation for the orders made by the judge and thus that, in this area of the appeal, it is of crucial importance that he found that, by virtue of her life interest, she in effect still owned the properties.
11. The wife owns another property in Tehran, namely 2 Kavousi Street. These are office premises which she did not claim to have inherited and which she let to a tenant. According to the joint valuer, its value, net of costs of sale at 3%, was equivalent to £109,000. The wife contended, however, and the judge appeared to accept, that at the outset of the tenancy the tenant had paid her a refundable deposit equivalent to £30,000, so it may be convenient to take the net value of the property as equivalent only to £79,000. She also told the judge that she had given the deposit to one of her children and that, if at the end of the tenancy she was unable to repay it to the tenant, she might forfeit the property to the tenant. At the hearing of the appeal Mr Mahmood placed before us documents which we considered de bene esse and which appear to record the terms of a consent order made between the wife and the tenant by the Dispute Settlement Council of Tehran in December 2007. The terms indicate that, in the light of the wife's failure to repay the deposit equivalent to £30,000, the property became forfeit to the tenant on payment of its value and that, in that its value was agreed to be equivalent to £38,000, the tenant was required to pay a further sum equivalent to £8,000 to the wife in consideration of the forfeiture of the property. Mr Wise contends that the wife's alleged inability to repay the deposit is contrived, that the allegedly agreed value equivalent to £38,000 is derisory and that this is a third example of a collusive manoeuvre on the part of the wife in Tehran to appear to rid herself of assets for the purposes of these proceedings. I have no doubt that we should adhere to the imputation to the wife of £79,000 as the net value of the property.
12. The proceedings in Tehran which the wife issued against the husband in 2001 culminated in a judgment entered in her favour against him in 2004 referable to mehr, or her marriage portion, in a sum taken by the judge to be equivalent to £50,000. The husband has not paid any part of it to the wife; and the evidence was that, were he to enter Iran, he would be arrested unless it were by then to have been paid.
13. The husband alleged that he had debts amounting to £72,000. The judge found that "soft debts … form a not insignificant amount of what is contended for by the husband." Mr Wise says that the judge's finding can relate only to the husband's debt of £27,000 to his brother. He also submits to us that to describe a debt as soft, i.e. as not likely to be enforced with the vigour apt to a commercial debt, is not to deny that it exists. I agree with him; nevertheless I consider that for present purposes it would be safer to take the husband's debts at a figure of £45,000 than of £72,000.
14. The judge accepted that, in respect of outstanding costs, the wife owed £42,000 and the husband owed £82,000.
15. The husband seems to have made a full contribution to the marriage by way of income from business ventures, particularly in the sale of fast food such as pizza. The judge seems to have found that the wife made an equally significant contribution as a mother and home-maker. He found that their standard of living had been modest but comfortable.
16. The judge found that neither of the parties had an obligation to house other than themselves and that each had a need for accommodation costing £350,000. It follows that the judge did not regard the wife as needing to continue to occupy either the home or any other property of equivalent value. He seems to have accepted the submission of Mr Wise that each had a recurrent future spending need of £25,000 p.a. in terms of the current value of money and that, in the light of the difference in their ages, such a need would be reflected, on a capitalised Duxbury basis, in figures of £304,000 for the wife and of £373,000 for the husband; but he declined to accept the latter figure in full on the basis that it made no allowance for the husband's modest future earning capacity.

SECTION C: ANALYSIS OF THE JUDGE'S ORDERS

17. In my view it was obvious that, as the judge decided, the husband's interest in the home should be transferred to the wife in case she wished – even though she did not need – to continue to reside there and that the wife's interest in the Kensington property should be transferred to the husband. The real issue in this appeal relates to the lump sum of £130,000 which the judge ordered her to pay to him.
18. 1. As I have said in [2] above, the judge's reasoning behind part of his lump sum award, namely £50,000, is clear. It relates to the judgment equivalent to that sum obtained by the wife against the husband in Tehran referable to mehr. The text of the judge's judgment identifies the lump sum payable by the wife as only £80,000; and the provision for the further £50,000 was added to it only during exchanges in court following judgment. The explanation for this unusual course is now clear to me. In their final submissions counsel for both parties had contended that a clean break was appropriate. In that context counsel then appearing for the wife had realistically accepted that it would be desirable that, as part of the final settlement to be achieved by the judge, the husband's outstanding debt to the wife in Iran in a sum equivalent to £50,000 should be eliminated; and in his final submissions counsel told the judge that he hoped to obtain clear instructions from the wife that she would discharge the debt in a manner effective under Iranian law, namely by her attestation of an appropriate document at the Iranian embassy in London. When surveying the judge's judgment for the purpose of the application for permission to appeal, I had been concerned at his express exclusion of the debt of £50,000 from consideration at that substantive and, in principle, compendious stage. I now realise, however, that he did so at the request of the wife's counsel. When, following judgment, counsel told the judge that he had failed to obtain the instructions for which he had hoped, the judge, without protest by counsel, added £50,000 to the lump sum payable by the wife in order in effect to eradicate the debt which she was insisting should continue to be owed to her by the husband under Iranian law and which, on pain of arrest, he would have to pay to her if (as he claimed) he aspired to return even temporarily to Iran.
19. 2. In granting permission to the wife to appeal, albeit on limited grounds, I had also expressed initial surprise that the judge had not provided, by way of recital to his order, that, of the lump sum of £130,000 payable by the wife to the husband, the sum of £50,000 should be the subject of a set-off against the judgment equivalent to that sum obtained by her against him in Tehran and thus did not have physically to be paid in cash by her. But that initial reaction on my part betrays, I fear, a want of thought. Had the wife's judgment against the husband been entered in the courts of England and Wales, rather than of Iran, a recital which provided for such a set-off would have provided the husband with a complete defence against any subsequent attempt on her part to enforce it. But provision for a set-off in an order of our courts would cut no ice in Iran. The course taken by the judge was the only way of achieving, in effect, the eradication of the debt.
20. 3. At the hearing of the appeal Mr Wise has made clear that the husband remains prepared to waive his right to enforce payment of the extra £50,000 which the judge added to the lump sum in the event that the wife were duly to secure the discharge of the judgment debt against him by attestation of an appropriate document at the Iranian embassy. Even were the husband to change his mind in that regard, the wife could in principle apply to the judge - under the "liberty to apply as to implementation" which is implied in all orders for ancillary relief - for such rearrangement of the parties' respective obligations in a supplementary order.
21. As, however, I have observed in [2] above, the judge did not explain the calculations which underlay his conclusion that, as the primary component of the lump sum, a figure of £80,000 should be paid by the wife to the husband. Only weeks prior to the hearing before him this court had stressed, in Vaughan v. Vaughan [2007] EWCA Civ 1085, [2008] 1 FLR 1108, at [44], the need for the court, when giving judgment on an application for ancillary relief (or, as in that case, on an appeal against such an order), to proffer a balance sheet of the parties' visible net assets and of the effect of the orders which it proposes to make. It seems to me that, even when a judge is in the course of delivering his judgment orally, he may find it convenient, at any rate where there are more than a few figures to be included in the balance sheet, to distribute it to the parties on paper as part of the judgment; and it can be incorporated in any future transcript of it. In my view proper application of the sharing principle, irrespective of whether it is in the circumstances to result in equality, requires the court to compile and articulate such a balance sheet. With diffidence apt to the very high regard in which Hedley J. is held in this court, I consider that he made a mistake in not proffering a balance sheet and in failing otherwise to explain why he favoured a payment of £80,000; and that this court's consideration of the wife's appeal thus requires it to proffer a balance sheet of its own. I collect it into the table which follows.

22. Para. above	Description	W	H	Aggregate
    		£000	£000	£000
    5	Home	225	225	450
    6.1	Kensington Property	407	407	814
    6.2	CGT thereon	(62)	(62)	(124)
    7.1	Inherited Properties	460	Nil	460
    8	2 Kavousi St.	79	Nil	79
    9	Mehr	50	(50)	Nil
    10	Debts	Nil	(45)	(45)
    11	Outstanding Costs	(42)	(82)	(124)
    	TOTAL	1,117	393	1,510
    EFFECT OF JUDGE'S SUBSTANTIVE ORDERS	EFFECT OF JUDGE'S SUBSTANTIVE ORDERS	EFFECT OF JUDGE'S SUBSTANTIVE ORDERS	EFFECT OF JUDGE'S SUBSTANTIVE ORDERS	EFFECT OF JUDGE'S SUBSTANTIVE ORDERS
    	Home	225	(225)	Nil
    	Kensington Property	(407)	407	Nil
    	Lump Sum	(130)	130	Nil
    	REVISED TOTAL	805 (53%)	705 (47%)	1,510 (100%)
    EFFECT OF JUDGE'S ORDER FOR COSTS	EFFECT OF JUDGE'S ORDER FOR COSTS	EFFECT OF JUDGE'S ORDER FOR COSTS	EFFECT OF JUDGE'S ORDER FOR COSTS	EFFECT OF JUDGE'S ORDER FOR COSTS
    	Contribution to H's Costs	(40)	40	Nil
    	ULTIMATE TOTAL	765 (51%)	745 (49%)	1,510 (100%)

23. Although at the end of the above table I have included reference to the effect on the parties of the judge's order for costs as well as of his substantive orders for capital provision, I am clear that the focus of the court should be upon the effect only of the substantive orders. The husband's application was made prior to 3 April 2006 and so was not subject to the current provisions in respect of the costs of proceedings for ancillary relief contained in Rule 2.71 of the Family Proceedings Rules 1991 as amended. Under the former principles, to which these proceedings were subject, the existence of circumstances (in particular, as in this case, the revelation of a well-judged Calderbank offer and of the absence of a well-judged response to it) which militated in favour of an order for costs against a party usually precipitated the making of such an order even when, in the light of the substantive orders already made, it could be considered to endanger the overall viability of that party's economy or at any rate to undermine the financial position in which, by those orders, the court had intended to leave him; indeed, even though the former principles had some virtues, such was their main perceived vice. Wisely the wife has not even sought permission to appeal against the order for costs itself; and it is not open to her to argue that, in the light of that order, made so as to reflect her responsibility for the proliferating expense to the husband of funding the proceedings, the ultimate burden on her is so great that the size of the substantive orders made against her should be reduced.
24. Thus the focus of this appeal is upon whether orders which increase the husband's assets to as much as £705,000 (being 47% of the parties' assets), and which thus reduce the wife's assets to as little as £805,000 (being 53% of them), are plainly wrong.
25. We should note at the outset that the orders do not offend the needs principle. The judge had assessed the husband's needs as something less than £723,000 (£350,000 plus £373,000). In that we may reasonably suppose that in that regard he had in mind a discount of more than £18,000, which would have been de minimis, the orders give to the husband rather more than he needs. Equally, however, and subject to one caveat, they leave the wife with substantially more than her assessed needs of £654,000 (£350,000 plus £304,000). The caveat is that she can meet those needs, assessed on the agreed basis that she would continue to live in England rather than return to live in Iran, only if, as I will explain in [22] below, she can discharge some of her liabilities in England with some of the capital represented by her assets in Tehran and only if she can apply towards her recurrent future spending needs in England a substantial amount of the balance of that capital and, in particular, of the income reasonably to be generated therefrom. We can now see why the judge's finding that, by virtue of her life interest, the wife in effect still owned the inherited properties is of crucial importance. For a notional reattribution to a spouse of property which he (or she) has dissipated, or has transferred in order to obstruct the other's claims, "does not extend to treatment of the sums reattributed to a spouse as cash which he can deploy in meeting his needs": Vaughan v. Vaughan, cited above, at [14]. Thus the judge's alternative treatment of the inherited properties, namely his notional reattribution of them to the wife, would be an insufficient foundation for a conclusion that his orders left her in a position to meet her needs.
26. When I gave permission for the appeal to proceed, I was concerned that the judge had made no reference to the ease or otherwise with which, under Iranian law, funds can be removed from Iran. My instinct was that the wife might face problems in that regard. It now appears that the judge did not refer to the point because no reference had been made to it by or on behalf of either of the parties in their evidence or at all in the course of the hearing. Mr Mahmood argues that, in the absence of evidence that the wife could without difficulty remove funds from Iran, the judge should have proceeded on the basis that she could not do so. Mr Wise argues to the contrary and I agree with him. My view is that, unless in proceedings for ancillary relief the court considers it to be its duty under s.25 Matrimonial Causes Act 1973 to enquire into the matter for itself, it is for the owner of property to establish, if such be the case and unless it is self-evident, that its value cannot be realised (which includes being borrowed against: Newton v. Newton [1990] 1 FLR 33 at 44) or, if realised, that its proceeds cannot be transferred to the place at which it is suggested that they can be deployed.
27. In the course of the hearing of the appeal there has been discussion about the extent of the burden on the wife of realising capital with which to meet the liabilities cast upon her by the judge. The major liabilities are the lump sum of £130,000 payable to the husband and the CGT of £62,000 payable by her as a result of her transfer to him of her interest in the Kensington property. They total £192,000. But, as Mr Wise points out and as Mr Mahmood concedes, the wife can, and if she is sensible she should, secure the reduction of the lump sum from £130,000 to £80,000 by playing her part in achieving the effective discharge of the judgment for mehr; so the relevant total is £142,000. Were one also to include – as provided in the above table, although such was always an area of controversy under the old principles –her liability of £42,000 in respect of her own costs (albeit not also the liability of £40,000 ultimately cast upon her in respect of the husband's costs), the total would rise to £184,000. The judge found that, whereas the home to be awarded to her has a value of £450,000, her need is for accommodation of a value only of £350,000. It follows that, towards her need to raise £184,000, she can apply £100,000 out of such of the proceeds of sale of the home as are surplus to her need for accommodation. The judge's orders therefore in effect require her to pay the balance of £84,000 by transfer of funds from Iran. I have already explained why, in the light of the state of the evidence, I regard it as having been open to the judge to reach a conclusion that it was practicable for her to do so.
28. 1 Lastly I come to the area of the appeal which has caused me the greatest difficulty. The question is whether, in the light of the fact that the three properties in Tehran were inherited by the wife, the judge's orders, in particular his basically unexplained order for a lump sum of (in effect) £80,000, offend against the sharing principle. The effect of his orders is to bring the husband's share of the parties' visible assets up, somewhat beyond the level of his needs, to 47% in circumstances in which 30% of such assets (460/1510) represents property inherited by the wife. In the course of his judgment the judge observed that, in that the wife had inherited them, the three properties in Tehran "may need to be considered on a rather different footing" from that appropriate to the other assets. But did he carry his recognition of that special feature into his conclusion sufficiently or at all? For there is no doubt that "the [sharing] principle 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": see the decision of this court in Charman v. Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246, at [66]. I should add that, from the wife's personal perspective, that proposition in no sense goes far enough. The fierce resentment of herself and apparently also of the children to the judge's orders seems to stem from their belief that Iranian law would exclude her inherited wealth from all consideration in proceedings analogous to the present. I find it hard to imagine that in Iran there would be proceedings analogous to the present; but, that point apart, I fear that the wife has not even yet been able to accept that the proper approach to the despatch of the husband's application, even insofar as she has assets in Iran, is governed by English rather than Iranian law.
29. 2 Different judges who might hypothetically make different allowance for the wife's inherited wealth could nevertheless all be regarded as having exercised their discretion reasonably. Thus there is a spectrum of reasonable responses to it; and Mr Mahmood's task is to persuade us that the judge's response fell off one end of it. But for one factor he would have so persuaded me. That factor is the wife's undisclosed assets in Iran. The figure of 47% reflective of the award to the husband, which seems to cry "too high!", is misleading. In the light of the wife's undisclosed assets, the real figure is lower than 47%; but she has disabled us from perceiving the extent to which it is lower. Forced in effect to guess at the broad scale of the wife's undisclosed assets, the judge spoke in fairly cautious terms. To my mind, however, this factor has in the present case its oft-found, albeit not its inexorable, effect. For it disables the court from concluding that the judge's award fell off the end of the spectrum. So it becomes irrelevant that, had I personally been in his shoes, I would, even in the light of the wife's undisclosed assets, have awarded the husband a lump sum only of £40,000, rather than of £80,000, in order to give greater value to the fact that a significant part of their wealth was inherited by her.

SECTION D: CONCLUSION

30. I would dismiss the appeal.

Lord Justice Rimer:

31. I agree.

Lord Justice Rix:

32. I also agree.