B e f o r e :
Lewis Marks QC and Duncan Brooks for the Respondent (Husband) instructed by Manches & Co
Dates of hearing: 14 - 17 January 2003
Crown Copyright ©
The accretion of wealth
This graph shows that approximately $5m (in the value of money today) was accumulated during the period of estrangement. This was a period of steep accretion of capital. The amount accumulated is about 20% of the total gross assets as recorded in the final spreadsheet. Of course H cannot claim sole credit for money accumulated in the period of separation as some of the increase will be attributable to natural capital growth of existing funds. I will deal below with how this should affect my award. At this stage I am only establishing the facts.
The assets and their presentation
"I have felt at times he has been dishonest. I believe assets have been concealed; I don't believe we have found all of them".
|£,000s||per H||per W||Difference||finding|
|H's assets - immediately realisable, or treated as such|
|New York property||83||83||83|
|South Carolina property||922||930||8||922|
|Money at banks (including joint accounts)||70||70||70|
|Money in US pensions||80||130||130||Note 1|
|Golf club membership||64||64||64|
|US tax on forgiven loan||(45)||(45)||(45)|
|other liabilities||(30)||0||30||(30)||Note 2|
|DIP 2003 shares||1,002||1,002||1,002|
|X Corp loan (formerly JP Morgan) 2003||(1,191)||(326)||865||(326)||Note 3|
|Discount on tax and loans||97||(97)||Note 3|
|W's assets - immediately realisable, or treated as such|
|Sydney property||1,130||1,057||(73)||1,130||Note 4|
|Money at banks||1,592||1,591||(1)||1,591|
|H's unrealisable or deferred assets (undiscounted)|
|X Corp loan (formerly JP Morgan) 2004-2006||0||(866)||(866)||(866)||Note 3|
|MOG & POG||642||642||642|
Note 1: I take the value of H's US pensions at the figure of £130,000, which is now agreed. Mr Marks QC argues that this should be reduced by £50,000 being the tax that would be payable if H were to withdraw the money. I do not propose to do so. I am persuaded by the argument of Mr Pointer QC that this would be wrong in principle. He states, and I agree, that the court would not discount the CETV of a UK pension to reflect the tax that would be payable once the pension comes into payment. In Norris v Norris (28 November 2002) Bennett J declined to discount the value of a pension to reflect its illiquid nature, and I believe that the same principle should apply in relation to asserted tax liabilities on the funds once they came into the beneficiary's hands. My researches reveal that the New York Courts would adopt a similar approach to a US pension fund. In Reidy v. Reidy, 136 A.D.2d 614, 523 N.Y.S.2d 860 (2nd Dept 1988), the appellate court rejected a husband's claim that, because a large portion of the assets he received consisted of tax-deferred IRAs and employer-funded pension funds, he had in fact received less than half of the marital assets. Rather, the court found that the value of those assets would grow considerably by the time that the husband began to receive taxable income from them, and therefore any taxes incurred upon his future receipt of those benefits would be more than offset by the increase in their value.
Note 2: Mr Pointer QC argues that I should disregard H's other debts as being of a "revenue" nature. There is some merit in this but I do not propose to do so. A debt is a debt. However I shall bear this in mind when I allocate the assets between the parties.
Note 3: Initially I was minded to include the whole of this interest free debt as a current liability and then to add back a discounting figure to represent the benefit to H of the deferral over time. But I am persuaded by Mr Pointer QC that it is better to include only as an immediate liability the element of the debt payable in 2003, and to insert the balance into the section of H's assets designated as unrealisable and deferred.
Note 4: I take the value of the Sydney property as A$3.03m, and use the exchange rate of A$2.60 to £1 (being the exchange rate on 28 February 2003).
Contributions and Duration of the Marriage
22.1. He says that the assumed equality of value of financial and domestic contributions as proclaimed in Lambert only applies to cases of substantial length and not to a case such as this where the duration of the marriage was about 12 years.
22.2. He says that H brought assets into the marriage which have to be considered differently as indicated by Lord Nicholls of Birkenhead in White v White  AC 596. Moreover he says that H not only brought assets into the marriage, but a fully developed career and earning capacity, which itself amounts to a pre-marital resource. And he says that W cannot claim equality of contributions in respect of assets made during the period of estrangement.
22.3. He says that his client has greater needs than W, justifying an unequal division.
However for the present, given the infinite variety of fact and circumstance, I propose to mark time on a cautious acknowledgement that special contribution remains a legitimate possibility but only in exceptional circumstances. It would be both futile and dangerous to even to attempt to speculate on the boundaries of the exceptional. In the course of argument I suggested that it might more readily be found in the generating force behind the fortune rather than in the mere product itself. A number of hypothetical examples were canvassed ranging from the creative artist via the superstar footballer to the inventive genius who not only creates but also develops some universal aid or prescription. All that seems to me to be more safely left to future case by case exploration.
129. In cases such as this one, involving short marriages and a substantial imbalance of financial contribution, equality of division is again likely to produce substantial injustice. Its value as a starting point is therefore highly questionable.
130. It really only has value in cases involving long marriages like White (supra), where there are substantial assets and contributions on both sides. In such cases we consider that courts usually arrive at just and equitable results in any event. If they do not, errors can be corrected on appeal.
In the great majority of cases public opinion would readily recognize a stronger claim founded upon years of marriage than upon years of cohabitation.
That decision is now nearly 22 years old. The case of White has emphasised that the law in this area is not moribund but must move to reflect changing social values. I cannot imagine anyone nowadays seriously stigmatising pre-marital cohabitation as "living in sin" or lacking the quality of emotional commitment assumed in marriage. Thus in my judgment where a relationship moves seamlessly from cohabitation to marriage without any major alteration in the way the couple live, it is unreal and artificial to treat the periods differently. On the other hand, if it is found that the premarital cohabitation was on the basis of a trial period to see if there is any basis for later marriage then I would be of the view that it would not be right to include it as part of the "duration of the marriage". This was the finding made in the recent case of F v F (14 January 2003) by Hartmann J in the High Court of Hong Kong, which decision contains some valuable insights on this and other aspects of the law of ancillary relief. There is no basis for such a finding in this case, and I therefore include the 18 months of pre-marital cohabitation here as part of the "duration of the marriage".
The length of the marriage is relevant, in and of itself (as distinct from being an element of some other feature, such as extent of contributions) to the amount allocated because it is defensible to hold that parties who share their lives together earn a share in one another's assets relative to the length of time they have shared their lives (his emphasis)
He relies on the view of the American Law Institute which has a "target period" (at which full entitlement would be assumed) of about 20 years, and then goes on to suggest a discounting formula for marriages of shorter length.
Where the marriage is of long duration, and where neither party entered the marriage with assets and both became full and contributing marital partners, the division should be made as equally as possible
This principle has been reiterated since by the Appellate Division, see, for example: Granade-Bastuck v Bastuck (1998) 671 NYS 2d 512 and Meza v Meza (2002) 743 NYS 2d122
A distinction must be drawn between an assessment of equality of contribution and an order for equality of division. A finding of equality of contribution may be followed by an order for unequal division because of the influence of one or more of the other statutory criteria as well as the over-arching search for fairness.
I must also mention briefly another problem which has arisen in the present case. It concerns property acquired during the marriage by one spouse by gift or succession or as a beneficiary under a trust. For convenience I will refer to such property as inherited property. Typically, in countries where a detailed statutory code is in place, the legislation distinguishes between two classes of property: inherited property, and property owned before the marriage, on the one hand, and 'matrimonial property' on the other hand. A distinction along these lines exists, for example, in the Family Law (Scotland) Act 1985 and the (New Zealand) Matrimonial Property Act 1976.
This distinction is a recognition of the view, widely but not universally held, that property owned by one spouse before the marriage, and inherited property whenever acquired, stand on a different footing from what may be loosely called matrimonial property. According to this view, on a breakdown of the marriage these two classes of property should not necessarily be treated in the same way. Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it. Conversely, the other spouse has a weaker claim to such property than he or she may have regarding matrimonial property.
Plainly, when present, this factor is one of the circumstances of the case. It represents a contribution made to the welfare of the family by one of the parties to the marriage. The judge should take it into account. He should decide how important it is in the particular case. The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered. However, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant's financial needs cannot be met without recourse to this property.
 Likewise in the final section of general guidance headed 'Inherited money and property', Lord Nicholls of Birkenhead explains, at 994E-F/1583F:
'...Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it.'
Mance LJ made similar comments at Paragraph 156
62. A useful recent discussion of inheritance is to be found in the decision of the House of Lords in White in the judgment of Lord Nicholls (at 13-14).
63. His Lordship refers to a view that inherited property, whenever acquired, should stand on a different footing from other matrimonial property. According to this view, the spouse to whom it was given should be allowed to keep it. Conversely, as a consequence of such a view, the other spouse has a weaker claim to it.
64. Lord Nicholls entirely rejects the above proposition. The substance of what his Lordship said after referring to that view, is as follows:
• When present, the factor of an inheritance is one of the circumstances of the case;
• It represents a contribution by one of the parties;
• The Judge should take it into account and decide how important it is in the particular case;
• The nature and value of the property and the time that it was acquired are among the relevant matters to be considered;
• However, in the ordinary course, this factor carries little weight, if any, in a case where the claimant's financial needs cannot be met without recourse to the property.
65. We note in passing that Thorpe LJ in the later case of Cowan  3 WLR 684;  2 FLR 192 at 212 appears to have treated Lord Nicholls' statement as supportive of a view that we think that Lord Nicholls rejected, that it is appropriate to "quarantine" an inheritance. Inheritance was not an issue in this case and this matter does not affect the substance of the decision.
Applying the words of the statute, in my judgment the court is required to take into account all property of each party. That must include property acquired during the marriage by gift or succession or as a beneficiary under a trust. Thus, what comes in by statute through the front door ought not, in my judgment, to be put out of the back door, and thus not remain within the court's discretionary exercise without very good reason. In my judgment, merely because inherited property has not been touched or does not become part of the matrimonial pot is not necessarily, without more, a reason for excluding it from the court's discretionary exercise.
And at paragraph 67
In this case, if the inherited assets of the wife are to be taken into account as part of her contribution to the marriage and the family, which in my judgment they must, then there is no reason to exclude them from the wife's assets when performing the discretionary exercise. For to do so would mean the wife could have her cake and eat it. She gets credit for her contribution from the inherited assets and further credit if the value of the inherited assets are deducted from the total of her assets before division. That would be tantamount to double counting and thus unfair.
The structure of the award
In principle it seems to us that the separation of the family does not terminate the sharing of the results of the company's performance. That is easily achieved in any case in which the wife's dependency is met by continuing periodical payments. It is less easy to achieve in a clean-break case. In that situation, however, sharing is achieved by a fair division of both the copper-bottomed assets and the illiquid and risk-laden assets.
|W receives 40% of divisible assets||3,068|
|W has already||3,079|
|Sum notionally to be paid by W to H||11|
|W receives 40% of deferred assets||1,780|
|Overall sum to W||4,848|
|Overall sum to H||7,271|
|H receives more than W||2,424|
In the light of my findings concerning the reasons for departure I am satisfied that it is fair to leave H with £2.424m more than W. It goes without saying that £4.848m is more than sufficient to meet W's reasonable needs.
'... in the shadow of the CSA. All parties will know that either parent can turn to the CSA in future, and that it will therefore be sensible to determine child maintenance broadly in line with CSA assessment rates.'
(See paragraph 25 of the White Paper: A New Contract for Welfare: Children's Rights and Parent's Responsibilities. [1999 Cm 4349]). If a child maintenance order, whether made by consent or after a contest, is markedly at variance with the calculation under the new regime then there will be a high temptation for one or other party after the order has been in force for a year, and after giving two months notice, to approach the CSA for a calculation. Quite apart from the obvious acrimony that this would engender, a calculation in a different amount to the figure originally negotiated or awarded may cast doubt on the fairness of the original ancillary relief settlement between the parties, leading to further litigation. These spectres should be avoided at all costs.
77.1. I am satisfied that there should be some increase on the starting point of the maximum CSA calculation that would be applicable here. The husband has an income well in excess of the canned amount of £2,000 per week. I am also of the view that where a proportionate division of the main assets has been effected then that proportion should inform the division of the child maintenance costs. 60% of the child maintenance costs would come to A$82,464. I therefore award general maintenance of A$40,000 per child per annum payable quarterly in advance, first payment to be made immediately but to take effect from 1 March 2003, to continue until each respective child attains 18 years of age or completes full time tertiary education if later. Such payments to be indexed annually on the 1st of March in each year by reference to the movement in the Australian retail price index for the most recent 12 month period for which data is available. Once a child enters tertiary education the payments will be made, as H has suggested, as to two-thirds to the child direct and one-third to W.
77.2. In addition H will pay all the educational costs of the children, to include reasonable extras until the conclusion of full time tertiary education.
77.3. H will also pay all the costs of travel for contact, to include the cost of an accompanying nanny until the younger child's seventh birthday.
Following distribution of the judgment in draft on 28 February 2003 written submissions on costs were received from counsel
2.69 Offers to settle
(1) Either party to the application may at any time make a written offer to the other party which is expressed to be 'without prejudice except as to costs' and which relates to any issue in the proceedings relating to the application.
(2) Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the court, except in accordance with rule 2.61E(3), until the question of costs falls to be decided.
2.69B Judgment or order more advantageous than an offer made by the other party
(1) This rule applies where the judgment or order in favour of the applicant or respondent is more advantageous to him than an offer made under rule 2.69(1) by the other party.
(2) The court must, unless it considers it unjust to do so, order that other party to pay any costs incurred after the date beginning 28 days after the offer was made.
2.69D Factors for court's consideration under rule 2.69B
(1) In considering whether it would be unjust, or whether it would be just, to make the order referred to in rule 2.69B, the court must take into account all the circumstances of the case, including-
(a) the terms of any offers made under rule 2.69(1);
(b) the stage in the proceedings when any offer was made;
(c) the information available to the parties at the time when the offer was made;
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated; and
(e) the respective means of the parties.
(1) Order 38 of the County Court Rules 1981 and Order 62 of the Rules of the Supreme Court 1965 shall not apply to costs in family proceedings, and CPR Parts 43, 44 (except rules 44.9 to 44.12), 47 and 48 shall apply to costs in those proceedings, with the following modifications -
(a) in CPR rule 43.2(1)(c)(ii), "district judge" includes a district judge of the Principal Registry of the Family Division;
(b) CPR rule 44.3(2) (costs follow the event) shall not apply.
44.3 Court's discretion and circumstances to be taken into account when exercising its discretion as to costs
(1) The court has discretion as to -
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including-
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and
(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).
(Part 36 contains further provisions about how the court's discretion is to be exercised where a payment into court or an offer to settle is made under that Part.)
(5) The conduct of the parties includes -
(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;
(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.
(6) The orders which the court may make under this rule include an order that a party must pay -
(a) a proportion of another party's costs;
(b) a stated amount in respect of another party's costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date, including a date before judgment.
(7) Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c).
The surviving rule 2.69B is incomprehensible. It is impossible to divine what the draftsman had in mind. Very often in a case such as this the order ends up between the offers - in which case, under the rule, both parties pay "the costs".
It is, therefore, clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in RSC Ord. 62, r. 9 (and the equivalent CCR Ord. 11, r. 10) for the court to take account of Calderbank offers, and, by analogy, open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter, the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her/his position clear and indicate in figures what she/he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make the attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod LJ said in McDonnell (above at p. 38), the Calderbank offer should influence, but not govern, the exercise of discretion.
There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation; for instance (as I have already indicated earlier) material non-disclosure of documents. Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court's discretion. It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate, and possibly be thought to constrain in any way, that wide exercise of discretion. But the starting-point in a case where there has been an offer is that, prima facie, if the applicant receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it. That seems clear from the decided cases, and is in accord with the Rules of the Supreme Court and County Court Rules requiring the court to have regard to the offer. I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court. In the latter case, prima facie, costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position.
In this case, the wife was obliged to make the application for ancillary relief, and was obliged to go to court and pursue her application to its conclusion over 9 days in order to obtain a lump sum of £400,000 in excess of the last offer of the husband.
This is a submission that is often made: "the wife has had to come to court to get her money". But surely the husband has equally had to come to court to get his? Each party has had to come to the Court to obtain an order which fairly disposes of the issues between them.
94.1. Failure to give full and frank disclosure;
94.2. Other culpable conduct of the litigation such as the unreasonable and unsuccessful pursuit of a particular issue or other meritless tactical posturing;
94.3. The failure to negotiate or the adoption of a manifestly unreasonable stance in the Calderbank correspondence.
The incidence of legal aid, the inadequacy of the financial assets available, for instance, to house both parties or even one spouse and the children, are major circumstances which may affect or even distort an order for costs that would otherwise have been expected to be made. In the vast majority of cases, where one party is, or both parties are, legally aided, and where the assets are insubstantial or at least inadequate for the needs of the family, the question of who pays the costs may be academic.
The lesson of this case, which litigants and lawyers alike must recognise and give effect to, is that just because ancillary relief applications have to be conducted and prepared in the fraught emotional atmosphere that so often and understandably exists after marriage and its breakdown, nevertheless that does not mean that common sense and commercial realities can be allowed to fly out of the window. A spouse who does not respond constructively to a Calderbank offer, whether a good offer as in this case or only one that is bad or indifferent, stymies whatever chance there is of settlement. Such a spouse cannot with impunity expect immunity from responsibility for that ...
I agree with every word of this passage. The husband's conduct in that case can be characterised as manifestly unreasonable. The FDR procedure requires the parties to "use their best endeavours to reach agreement on the matters in issue between them" (FPR 2.61E(6)). I believe that this obligation extends outwith the ambit of the FDR. If a party refuses to negotiate in Calderbank correspondence, or adopts a manifestly unreasonable stance, then he or she can expect to be penalised in costs.
Finally, we record MR Posnansky's supplemental submission that the judge should not have added back the costs spent, applying the practice established in Leadbeater v Leadbeater  FLR 789 (Leadbeater). The practice was introduced on the premise that the assessment of an applicant's needs without both adding back payments made and disregarding liability for unpaid costs incurred and to be incurred, would effectively anticipate the costs order that would eventually be made. However, in this modem world of time costing and departmental targets, few if any, litigate on credit. In reality solicitors require to be put in funds either in advance of each step along the litigation road or soon thereafter. There is therefore an artificiality in the practice and judges must be careful not to lose sight of the reality. In the husband's case the money was spent and was most unlikely to be his to spend again. In the wife's case the money was spent and might be recovered in whole or in part dependent on negotiations that might have been conducted in Calderbank correspondence. That of course was only the wife's due if she had been pushed all the way to trial by the husband's failure to negotiate realistically. In the present case we are quite satisfied that Wilson J never lost sight of these realities and we therefore reject the submission. However the adoption of the Leadbeater mechanism should never be automatic. It is probably more useful in cases where one party has paid money out and the other has obtained credit by offering security or where the court suspects some element of contrivance or artificiality in the arrangements which one party has set up.
Application of these principles to the facts of this case
|Percentage as calculated by
|Percentage as calculated by
Nicholas Mostyn QC
18 March 2003
This written judgment may be treated as authentic and no further transcript need be taken.