R v B & Ors
| Jurisdiction | England & Wales |
| Judge | MOOR J |
| Judgment Date | 17 March 2017 |
| Court | Family Court |
Financial remedy – Conduct – Mismanagement of inherited family business – Failure to pay tax and borrowing to fund lifestyle – Whether being victim of fraudster conduct.
The wife’s grandfather established a London-based property business, buying his first property in 1946. The wife’s father joined the business and grew it substantially. By the time of the marriage between the wife and the husband in 1993, 75 per cent of the current property portfolio had already been purchased.
When the husband and wife moved to London in the late 1980s, they lived in the wife’s property, purchased with money given to her by her father. The husband quickly became involved in the wife’s family property business and with the administration of the wife’s grandfather’s estate and the setting up of various discretionary family trusts. In keeping with the husband’s general policy of not paying tax and avoiding ownership of assets, he refused either a salary in the business or a share in one of the family businesses. He ensured that his own family was housed and to some extent supported by the wife’s family business.
In about 2002 a very substantial property was purchased in southern France (BGL) for just over £1 million on the husband’s initiative; the husband subsequently claimed this was done with his own money; the wife claimed that this was done using funds from the family business. About £6.5 million was then borrowed against the family’s property portfolio to develop the property as a luxury hotel.
The couple had two children, born in the mid-1990s. The marriage then got into difficulties, but even after the separation in 2005, the husband continued to be involved in the wife’s family business, becoming, after the wife’s father retired, the key decision maker. Neither the wife nor her three siblings had any real interest in running the business and after the death of the wife’s father in 2010, the husband was in effect able to do as he wished. It later emerged that during this period very substantial loans were taken out, secured on property owned by the family business and on property purchased by the wife using family money; the money was used to fund the husband’s spending, in lieu of salary.
In the meantime, the wife had become involved with a man who defrauded her of very significant sums (about £7.5 million); only about £2 million was recovered in subsequent legal proceedings.
In 2010, the wife presented a divorce petition on the grounds of five years’ separation and decree absolute was granted in February 2011.
In 2013 the new chief operating officer of the family business discovered that the business had borrowed a total of £22 million, of which £13.5 million had been spent by the husband on his own projects; there were also £500,000 of unpaid creditors. The officer contacted the family to inform them that the business was being run to the brink of financial ruin. Shortly afterwards the husband was dismissed and had no further involvement with the business.
Within months the husband’s mother, who was the protector of some of the wife’s family trusts, purported to remove the trustees and replace them with a new trust company. The wife began proceedings in Jersey, seeking a declaration that the original trustees should remain. Costly litigation relating to the trusts continued for three years, culminating in an order that the husband’s mother withdraw as protector and that a third set of trustees take over the running of the trusts.
In 2014, the husband applied for financial relief from the wife, including interim maintenance of £160,000 pa and costs of £20,000 pm. He was awarded £50,000 pa in interim maintenance, plus rent-free accommodation; his initial litigation funding was £1.25 million, supplemented subsequently with a further £648,000. The husband’s final litigation bill was almost exactly £3 million, much of it relating to very substantial satellite litigation that he had initiated. The wife had paid for her own litigation costs and met the husband’s litigation funding award in part by selling a property that she had purchased with family money in 1993.
It had emerged that, as a result of the husband’s approach to tax, the wife and the family business now owed very large sums to HMRC, including penalties; on the advice of specialist accountants the business had made voluntary disclosure to HMRC. Taking into account the husband’s expenditure on BGL, his borrowings, the tax due, and the costs associated with the husband’s satellite litigation, the net valuation of the family business was in the region of £65 million. Taking out those elements owned outright by either the wife’s siblings or the children, there was about £52 million, most of it held in the family trusts of which the wife was only one of a number of beneficiaries. The business’ financial issues had reduced the wife’s income from the business to just under £100,000 pa net.
Given the inherited nature of so much of the wealth, it was accepted that this was not a sharing case, although the husband relied heavily on his contributions to the business. Both the husband and the wife were asserting that conduct should make a difference to the final award; the husband argued that the assets that the wife had given away to a fraudster should be taken into account; the wife argued that the husband had created unnecessary liabilities by his conduct and that he had been guilty at the very least of culpable financial mismanagement.
The husband, now 56, had virtually no assets of his own and no significant earning capacity. He was asking for a joint lives maintenance order of £110,000 pa; in terms of capital he was arguing that BGL (currently valued at €5.5 million on the basis that various planning disputes could be resolved) should be transferred to him and that in addition he should have a housing fund of £3.4 million plus a property (TC) worth about £1.5 million; he was also asking for £1.35 million to discharge his liabilities.
The wife’s open offer involved the husband retaining about £4.33 million, made up of: the £1.5 million TC property, free of mortgage; two French properties with a combined value of about £1.5 million; a lump sum of £1.25 million, of which £250,000 was designed to deal with his debts and £1 million was to capitalise his periodical payments claim on a Duxbury basis. Under her proposal each party would be responsible for their respective tax liabilities, and BGL and another French property would be sold to repay some of the debts owed to the wife’s family. It was possible that meeting the terms of this offer would require the wife to sell her own home to the family trust.
Held – (1) This was the worst example of how not to deal with the division of finances following marital breakdown that this court had encountered, a situation made more striking by the fact that, so far as the litigation was concerned, the court absolved the wife of virtually all responsibility. The beneficial ownership of just about every property connected to these parties had been in dispute at the beginning of the litigation, entirely because of the irresponsible way in which the husband had conducted the family finances. A person who owned property should ensure that the ownership structure was transparent and legitimate and a person who earned money or had a financial benefit must declare it to HMRC and pay the tax (see [1], [2], [176], below).
(2) The court did not accept that conduct was relevant only in a sharing case or that it could not reduce a party’s needs. Conduct featured in s 25(2) without a gloss. When conduct was so serious that it prevented the court from satisfying both parties’ needs, the court must be entitled to prioritise the party who had not been guilty of such conduct. A court could undoubtedly reduce the award from reasonable requirements generously assessed, to something less, applying Clark v Clark[1999] 3 FCR 49. It might be that, unless there was no alternative, a court should not reduce a party to a ‘predicament of real need’ (see Radmacher v Granatino[2010] UKSC 42) but that was not being suggested in this case (see [85], below).
(3) Very unusually, the court had come to the clear conclusion that this was a case where s 25(2)(g) of the Matrimonial Causes Act was engaged, namely there had been conduct that it would be inequitable for the court to disregard. The husband’s substantial contributions had been largely offset by the financial catastrophe that he had brought down upon this family as a result of his behaviour. He still had needs but they must be assessed in the light of what was available because of what he had done and the effect it had had on everyone concerned. The husband had raided the wife’s family finances with no consideration to the fiscal consequences of doing so (see [3], [141], below).
(4) The court did not agree that the husband’s litigation debts formed part of his needs and that any court order must satisfy all his needs, including such debts; that would be to give a licence to anybody to litigate entirely unreasonably. There was no such thing as free litigation. Financial remedy litigation itself was one thing. Satellite litigation was entirely another. It was clear from M v M (financial provision: party incurring excessive costs)[1995] 3 FCR 321 that extreme litigation misconduct could sound in the award rather than merely in costs. Most importantly, the court must balance one party’s needs against the other party’s ability to pay (see [86], [161], below).
(5) The court approved the wife’s open offer and made an order in those terms, in full and final settlement of all claims. The lump sum would not be paid until the husband had vacated BGL, which must remain in good condition (see [176], below).
Statutory provisions referred to
Matrimonial Causes Act 1973, s 23, s 24, s 24(1)(c), s 25, s 25(2), s 25(2)(g).
Cases referred to
Charman v Charman (No 2)[2006] EWHC 1879 (Fam), [2007] 1 FCR 33, [2007] 1 FLR 593...
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