KENNETH McDonald WOOD v JAYNE PATRICE ROST
| Jurisdiction | England & Wales |
| Judge | Peter Hughes QC |
| Judgment Date | 04 June 2007 |
| Neutral Citation | [2007] EWHC 1511 (Fam) |
| Docket Number | Case No FD 248 of 1996 |
| Court | Family Division |
| Date | 04 June 2007 |
[2007] EWHC 1511 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
Mr. Peter Hughes QC
Case No FD 248 of 1996
Approved Judgment
James Turner QC and Richard Scarrett (instructed by Crisp & Co) for the Applicant/Respondent
Mr Wood in person
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version may be treated as authentic.
This judgment is being handed down on 18 th June 2007. It consists of 105 paragraphs and has been signed and dated by the judge. Its release has been authorised by the judge.
Mr Peter Hughes QC:
Introduction
If Charles Dickens were alive today, the twists and turns of this litigation, conducted at vast expense, would provide him with ample copy for a 21 st century sequel to Bleak House.
The proceedings concern the interpretation and enforcement of an agreement to compromise ancillary relief proceedings, which was incorporated into an order of the court approved by Singer J. as long ago as the 28 th November 2001.
The parties were at one time husband and wife, and, for ease of reference, I will continue to describe them as such, although they are now divorced. They were married in 1979, and have two children, both of whom are grown up and independent. Following the breakdown of the marriage divorce proceedings were commenced eleven years ago, in 1996. At one stage the proceedings were contested and there were cross petitions, but eventually the divorce was resolved and attention moved on to the ancillary relief proceedings.
The parties were equal shareholders in a computer software business carried on through various companies, known collectively as the MIS Group (MIS). It specialised in providing software programmes to the banking industry. In 2001 MIS sold the assets of the business and the intellectual property rights to its software programmes to Thompson Financial Ltd (TFL). The date of completion of the sale was the 26 th June 2001. MIS was thereafter to be wound up and dissolved, save for one holding company which was to be retained for pension purposes.
The final hearing of the ancillary relief proceedings was fixed for November of the same year. The parties were to be represented by eminent members of the Family Bar specialising in “big money” cases; the wife by Nicholas Mostyn QC and Richard Scarratt, and the husband by Lewis Marks (now QC).
The proceedings had been hard fought, and there was a degree of mistrust, particularly on the wife's side, of the husband. An FDR hearing before Bennett J. had failed to achieve a settlement. In the days leading up to the final hearing various proposals and counter-proposals were made, and Mr Mostyn and Mr Marks had discussions to try and narrow the differences between them.
Mr Mostyn, fortified by the decision of the House of Lords in White v White [2001] 1 AC 596 was seeking to achieve an equal distribution of the assets. A particular bone of contention between the parties concerned certain secondary consideration to which the husband might become entitled from TFL. This was contingent on him continuing to work for TFL and on the trading performance of the MIS product after the sale. The wife sought a share of this secondary consideration, and the husband was trying to resist it, his stance having, apparently, received some support from remarks made by Bennett J. at the FDR.
From the discussions between counsel emerged the bones of an agreement which each felt able to recommend to his client. Mr Mostyn prepared a draft agreement and order which underwent some revisions and refinements before finally being accepted and presented for approval to Singer J.
The present proceedings were directed to three areas of the agreement – the first concerning the terms of the lump sum provision for the wife, the second the terms of a provision for residual assets or liabilities on dissolution of MIS to be shared equally, and the third the terms of the reapportionment of the parties pension rights. Happily, I have not been burdened with the third issue, as it was resolved during the hearing.
The Agreement and Consent Order
The document setting out the agreement and order, which Singer J. was asked to approve extends to over six pages. It contains a definition section, a preamble setting out the agreement, and the order itself. It is, therefore, a carefully constructed and detailed document. I do not propose to quote it in full and will set out only those parts that are relevant to the issues in these proceedings.
(a) The first issue
Paragraph 3 of the order provided —
“The husband to pay to the wife three lump sums as follows
a. £100,000 from the Bryan Cave Fund, such sum to be paid within 7 days of the date of this order;
b. Subject to agreement 5 above £200,000 from the first tranche to be paid within 14 days of receipt;
c. Subject to agreement 5 above £200,000 from the second tranche to be paid within 14 days of receipt.”
The Bryan Cave Fund referred to a sum of US$700,000 held by the solicitors who had acted for MIS on the sale to TFL. It represented part of the primary consideration paid under the sale agreement. The first and second tranches referred to two further instalments of the primary consideration to be paid by TFL under the sale agreement.
Clause 5 of the agreement, referred to in paragraph 3 of the order, provided –
“The liability of the husband to make the lump sum payments referred to in paragraph 3(b) and (c) below is dependent upon him receiving the first and second tranches. If the husband does not receive the full amount of the first and/or second tranches then his liability shall be rateably reduced.” [the italics are mine]
The husband's entitlement to the first and second tranches was governed by the sale agreement. The primary consideration to which he was entitled came to US$2,700,000. By reason of clause 4(2), it was payable in three stages –
(i) US$1,200,000 on conclusion of the sale agreement (the 26 th June 2001);
(ii) US$1,000,000 on the 26 th June 2002 [the first anniversary]; and
(iii) US$500,000 on the 26 th June 2003 [the second anniversary]
Under an associated service agreement, provision was made for the husband to be employed by TFL on a 2 year contract at a salary of £200,000 per annum [i.e. until the second anniversary of the sale], but terminable by him on three months notice.
Clause 4(3) of the sale agreement provided –
“In the event that Ken Wood:
(a) has terminated or given notice to terminate the Service Agreement; or
(b) has been dismissed for a reason set out in clause 15.1 of the Service Agreement,
then any part of the Consideration which has not become due and payable shall never become due and payable.” [the italics are mine]
The reasons set out in clause 15.1, covered, as one might expect, circumstances such as gross misconduct, fraud and dishonesty.
Clause 1 of the agreement provided for the wife to receive 20% of any secondary consideration the husband might receive, net of tax. The secondary consideration was a sum of, potentially, up to US$6,000,000 payable over a period up to December 2005 on an “earn out” basis in accordance with a formula set out in the sale agreement.
(b) The second issue
Clause 8 of the agreement provided –
“In the event of any net surplus arising on the MIS liquidation, such is to be divided equally between the husband and the wife. In the event of a shortfall arising, for which the husband and/or the wife is or are personally liable, then they shall contribute equally thereto. The husband and wife hereby warrant to each other that neither has given any guarantee(s) which may give rise to any such personal liability and the husband warrants that he knows of no such liability of a substantive nature which he has not previously disclosed to the wife.” [again the italics are mine].
“The MIS liquidation” is defined in the definition section of the agreement to mean “the liquidation presently being undertaken of the subsidiaries of MIS Holdings Ltd and of the Honk Kong MIS Banking Systems Ltd.”
(c) The third issue
Clause 2 of the agreement provided for £139,000 from the husband's share of the pension funds to be transferred to the wife's share. This was in the days before it became possible to make pension sharing orders. The intention behind the provision was to re-allocate the pension assets 60/40 in favour of the husband, who is older than the wife, and £139,000 was the amount required to achieve this at the date of the order.
What happened – perhaps inevitably – was that there was delay in implementation, by which time £139,000 was no longer the right figure to achieve a 60/40 re-allocation. The transfer of the £139,000 was only made in July last year. What has been agreed after interminable correspondence and much to-ing and fro-ing is the obvious, sensible, and fair solution that the amount transferred should be further adjusted to ensure a 60/40 re-allocation as at the date of transfer.
The hearing before Singer J.
The hearing was relatively brief, and typical of such occasions, where an agreement, carefully negotiated and set down in writing by highly experienced practitioners, is put before a judge for approval.
The judge was provided with a schedule setting out the assets and the proposed distribution and percentage effect. Mr Mostyn QC took him to that document, and, as the transcript records, said —
“So your Lordship can see that … all the liquid assets in this case, excluding pensions, are being divided 50–50, so the parties have just under a million each…..The pensions are being divided 60–40, that is what the 139 does. So the totality of the assets excluding secondary...
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