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B v B [2013] EWHC 1232 (Fam)

Judgment in financial remedy proceedings where agreement had been reached in respect of all but one of the more important assets but not in respect of less important ones.

The parties had broadly agreed that the assets in the case of £40m should be split as nearly as possible in half.  However, there remained issues as to which party should retain the castle, how the husband's interest in three private equity funds should be shared, the valuation of a yacht and how the lesser assets, including cars, should be dealt with.  Upon determination of those issues, a balancing payment would be due to the wife; in addition, periodical payments for the benefit of the children required determination.

The marriage lasted for 20 years and the parties had two teenage children.  The wife was now almost 54 and had been a solicitor when the parties married and then brought up the children from 1995.  The husband, now almost 57, was a fund manager in a private equity investment house and had worked there for nearly 30 years.

The parties' wealth had allowed them to purchase properties in the UK (including the castle) and in Verbier.  They owned a yacht and mooring In Palma said to be worth £600,000 and owned several luxury cars, private number plates and enjoyed a high standard of living.

In his judgment, Coleridge J provides an illuminating insight into the workings and structural makeup of the operation of the private equity investment house and helpfully sets out his approach when the court has to decide which party should retain a much loved asset.

However, Coleridge J goes on to make remarks that practitioners will need to keep in mind when dealing with what the judge described as 'the lesser issues and assets'.  This is particularly so, because Coleridge J notes that the President had seen and approved of his remarks in paragraph 54 of the judgment.  The judge commented that the parties were to be applauded for achieving agreement on many of the major issues and were not to be criticised for the disagreement over the apportionment of the private equity funds.  However, it was appropriate to issue a mild rebuke about their approach to the lesser assets. The small differences (as a proportion of the pot) in the value of the yacht, the approach to cars and to the credit cards and the like, did not merit the time (and costs) spent on them.

Coleridge J goes on to state that the rules are clear and that proportionality is the 'name of the game' when costs are so high and court time is at a premium.  The judge notes that a much more rigorous approach to case management (especially in the field of the employment of experts) is being introduced in other areas of the family justice system to save time and money and that this type of high value litigation cannot expect to be immune.  Parties should therefore expect to be confronted more and more by a refusal by the court to participate in disputes over lesser assets and where in each case the difference is around 1% of the net value of the pot or less. The approach that the court will start to take is that assets falling into that category should be bundled up together and an overall value for them all agreed. Otherwise, the court is likely to apply that system in a broad and rough and ready way.

Summary by Richard Tambling, barrister, 1 Garden Court Chambers
______________________________

This judgment is being handed down in private on 21 May 2013. It consists of 15 pages and has been signed and dated by the judge. The judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.

Case No: FD11D01872
Neutral Citation Number: [2013] EWHC 1232 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 21/05/2013

Before :

THE HONOURABLE MR. JUSTICE COLERIDGE
- - - - - - - - - - - - - - - - - - - - -

Between :

B Applicant

- and - 

B Respondent
- - - - - - - - - - - - - - - - - - - - -

Mr Martin Pointer QC and Mr Nicholas Yates (instructed by Hunters) for the Applicant
Mr Lewis Marks QC
& Mr Simon Webster (instructed by Boodle Hatfield) for the Respondent

Hearing dates: 23, 24, 25, 26 April 2013
- - - - - - - - - - - - - - - - - - - - -

Judgment
Mr. Justice Coleridge:

Introduction, the agreed position and the five remaining issues.

1. The principle that the marital acquest (i.e. the wealth generated by the parties' joint efforts during the marriage) should, on divorce, be split equally between them is now both uncontroversial and normally the starting point for determination of financial remedy proceedings, at least in so far as they involve the distribution of capital assets. However, the actual process of achieving that equal split can, in all but straightforward cases, be fraught with complex argument even when, as in this case, the parties have managed by sensible negotiation to agree the percentages, values and precise distribution of almost all of the major existing and future assets.

2. Thus the parties in this case agree that the overall value of the presently available assets is of the order of £40 million and that in principle that sum should be divided, as nearly as possible, in half. And they agree about the destination of all but one of the important assets and many of the less important ones. There remain however 6 issues about which they cannot agree and where the court is required to adjudicate. They are:

i) Who should keep Falkirk Castle, Dunfermline, a small 16th century Scottish castle about 30 minutes drive from Edinburgh Airport. Both parties want it;

ii) How should the "co-investment" and "carried interest" elements of the husband's interests in three private equity funds in which he is heavily involved be shared. There is a significant difference between the parties which may involve many millions of pounds;

iii) The value to be attributed to the sailing yacht Nibali which it is agreed the husband will keep. The parties are about £600,000 apart;

iv) Whether lesser assets including some cars should be included in the precise calculation of the division. The wife says they should, the husband that they are de minimis in the context of this case;

v) The overall balancing lump sum payable to the wife dependant upon the outcome of these issues. And finally….

vi) The rate at which periodical payments should be paid to the wife for the children. The difference is £15,000 pa per child, a total, given there are two, of £30,000.

3. The hearing lasted (with reading time) five days. I had available thirteen lever arch files of documents (mercifully and practically reduced to a core bundle). I also heard oral evidence from the parties and one forensic accountant. Both parties were palpably honest witnesses doing their best to recall past events and trying to be reasonable to the other side's case consistent with advocating their own. I found the husband's recall was however a little more reliable. In addition I had written (and oral) arguments of the highest quality both at the beginning and end of the case. And many schedules from both sides.

Background and chronology
4. For convenience I shall call the parties husband and wife. They have in fact been apart since November 2010, and the decree nisi was pronounced on 1 September 2011. The essential facts are few, not significantly controversial and can be shortly stated. Both sides have produced a written chronology.

5. The Wife is almost 54. She describes herself as a 'full-time mother'. At the time of the marriage she was a fully qualified solicitor working as a commercial property lawyer. She continued in that employment until shortly before the birth of her first child in 1995. The husband is now almost 57. He describes himself as a 'fund manager'. He is a Partner of MaisonBlau Capital Partners ("MaisonBlau"), a prominent Private Equity Investment house where he has worked for almost 30 years – i.e. since before the marriage.

6. The parties began living together in 1988 and married in mid-1990. The marriage broke down in the late summer of 2010 from which time the parties had separate bedrooms, and in November of that year the husband left the matrimonial home. This is therefore a marriage of just over 20 years, although preceded by a period of cohabitation extending it, for these purposes, by two years.

7. There are two children; Natalie born on 3 October 1995 (so now 17½ and in her last two years at St Augustine's School) and Abigail born on 8 November 1999 so now 13. She is in her second year at St Augustine's. Both are 'based' with the wife in the former matrimonial home in NW1 ("the Primrose Hill property"), but spend time with the husband in his new home in Chelsea.("the Chelsea property").

8. The family have enjoyed a very high standard of living – especially during the latter years of the marriage – generated from the husband's very high remuneration from his position as a senior member of MaisonBlau.

9. The final matrimonial home was in Primrose Hill, bought in 2002. They also had a country property near Horsham , an apartment in Verbier 'La Chalet' (bought in 2005) and, latterly, the "disputed castle" in Fife, Scotland; 'Falkirk Castle' bought in 2007.

10. They also own a sailing yacht 'Nibali', and a mooring in Palma, as well as three other smaller sailing boats (sailing is the husband's particular recreation). They have had, and continue to have, luxury cars, personalised number plates and a generally high material standard of living. The cars include a Bentley Continental, an Aston Martin, three Range Rovers, two Land Rover Discovery, an E-Type Jaguar and a Cadillac Escalade.

11. The total current assets, excluding anticipated future MaisonBlau receipts, are almost exactly £40 million. Including those anticipated future receipts to which a value can presently be ascribed the total is about £52m.

12. There have been detailed asset schedules produced by each side and updated as the case progresses. A broad summary is in the table below. I agree with Mr Lewis Marks QC when he says in his opening note "However, in the context of a case with assets (on any view) of around £40m and where the bulk of that figure is comprised of estimates – albeit in many cases agreed estimates – of values of real properties which are to be retained and investments in private companies, we submit that any attempt at 'precision' is artificial, disproportionate and illusory". I would add "and unnecessary".

Primrose Hill property

9.07m

Sussex property

1.26m

Falkirk Castle

3.54m

Verbier

2.23m

Chelsea property

10.43m

 

 

Banks

3.37m

Investments

1.41m

Plates/Mooring/Beachhut

1.37m

MBC/Ermine St/Escher

0.46m

Escrow Cash

1.54m

Liabilities inc. Tax

2.95m

Bank Pension

2.00m

Other Pensions

0.19m

Total

39.83m

13. There is no dispute that those assets are to be shared broadly equally although, as already mentioned, there is an issue about whose share is to include Falkirk Castle. At the outset of the hearing there was a separate dispute about the value (if any) to be ascribed to the planning potential uplift on the Primrose Hill property if the basement was to be developed. However the husband, very sensibly, abandoned that point having heard the wife's evidence and an early judicial hint. The valuation of planning gain is even more speculative than usual and to have gone down that route would have, I think, been a step too far.

14. Nothing more need be said about the background. The principles governing the decision are those contained in The Matrimonial Causes Act 1973 (as amended) and the many cases since 2000 when the court's approach was refashioned to establish the principle that wealth jointly built up during marriage should be equally shared. The aim is to achieve overall fairness taking into account all the facts and figures, precedents and arguments. The exercise is essentially a discretionary one.

15. Fairness however is not necessarily a product of precise arithmetic. It is more, I think, the product of the court giving due recognition to reasonable arguments on both sides.

The assets, liabilities etc.
16. Both sides have produced very detailed schedules. There is very little between them. I shall work from the husband's only because I find it a little clearer. The total, as I say, is a few pounds short of £40 million for the presently available assets. On the basis that the husband keeps Falkirk Castle and I accept his valuation for the yacht (and I ignore the cars) equality is achieved by the payment of a lump sum to the wife of £5.35 million or £5.89 if she receives her share of the Ermine Street/Escher loan money now. If the wife keeps Falkirk (at her lower valuation) the equivalent figure for the lump sum is £3.093 million.

The income and earning capacity of each party
17. The wife now has none although she once was a city solicitor. On the other side of the balance sheet the husband has an enormous earning capacity which he can deploy for some years yet. For the past three years his post tax income has been between just under £3million and £3.7m per annum. At one time he was talking of retirement but he has now abandoned that idea. Although nobody has ever suggested that this (or for that matter any) huge earning capacity can or should be valued as such, it is, I think, in all fairness, a factor in the equation. This is an inalienable ability to continue to amass huge wealth way above the husband's strict need for income. Although the deployment of the ability would post date the separation, the ability, was nevertheless largely acquired and honed during the marriage. In other words he keeps the money making engine and, in fairness, in this case at least, it cannot just be ignored, in my judgment.

Contributions and needs
18. No one has suggested that there is any difference in the parties' respective different contributions to the marriage and the family. They both played a full part. I decline altogether to consider the parties' financial needs beyond saying that both can amply meet their expected and respective very substantial, though in the context reasonable, financial needs out of what it is agreed, on either case, each should keep. Beyond that, this part of the debate becomes sterile.


The special arguments on the main issues

The destination of Falkirk Castle
19. This is not the most significant issue in terms of value but it is I think in terms of the parties' hopes and wishes for the future. Both are desperate to keep it. So much so that the husband is prepared to accept a much higher value than the wife (£3.6m as opposed to £2.2m) if he retains it by way of a demonstration of his strong feelings for the place. It is a 16th century castle bought in 2007 and said to be in very good condition. Both spoke movingly in evidence about their love of the place. The wife says she sees herself moving there to live full time one day.

20. There are no precedents or practises which assist the court in this sort of exercise and there is little to choose between the parties' arguments. In the end the court is no more likely to achieve objective fairness than if the parties had agreed to draw lots or toss a coin.

21. However, having thought about the competing merits carefully, I have come down in favour of the husband for two main reasons.

i) The agreement/assumption between the parties since separation has been that the wife should keep the matrimonial home and the husband Falkirk. The documents make it clear that they have worked on that assumption until the wife relatively recently, and as she candidly admits, changed her mind. She was never pressurised into her earlier position but I accept that it was in the immediate aftermath of the separation and she was not thinking very clearly about her long term future. On the basis of the agreed assumption the husband has cared for the place and visited it when he can, consistent with the demands of his work and the other leisure activities attendant upon owning the Verbier chalet and the yacht. To deprive him of it now without good reason seems to me unfair. What the parties once agreed was fair is more likely to be as fair as any decision to the contrary now imposed by the court;

ii) The wife is keeping the former matrimonial home in Primrose Hill, a £9m property. On the basis that it is usually a fair approach for each party to a marriage to depart with a significant item of matrimonial hardware (not just money) of their choice I think the husband is entitled to pick Falkirk where the Horsham property is not wanted (although also much loved) by either side. The other lesser assets do not signify so much to either side. The wife says she has to keep the former matrimonial home because of her parental duties but for whatever reason it is by far the most valuable piece of real property and the one the parties have owned longest. It too must be steeped in memories;

iii) Accordingly the wife should transfer her interest in Falkirk to the husband but she should retain the benefit of the CGT tax loss for the reasons set out in Mr Marks QC's note.

The issues around the husband's MaisonBlau interests
22. The resolution of these issues involves a difference between the parties of many millions of pounds and unsurprisingly they have dominated the proceedings. They are far from straightforward and the arguments advanced on each side are powerful and well reasoned. Many pages of written argument (with supporting schedules and charts) have been submitted in support of each party's position as well as many minutes of oral expansion. I am not going to repeat or even attempt to summarise all the points made. I have thought about them carefully.

23. There are two elements to this part of the wife's claim to share in the future fortune generated by the husband's involvement in this private equity firm. The co-investment element and the carried interest element. The husband's counsel in their opening note set the scene in fair and simple terms and I borrow heavily from it to provide a basic explanation of the issues:

MaisonBlau
24. MaisonBlau is a prominent private equity house in the UK..

25. MaisonBlau's modus operandi is the de facto standard private equity model:

i) (exclusively institutional) investors are invited to commit monies to an investment fund;

ii) once the commitments have been received the fund managers, typically led by the husband, then seek out existing and established businesses to acquire – normally a controlling ownership interest;

iii) having acquired a business MaisonBlau inserts board members, typically a chairman and typically the husband, and runs the newly acquired business with the primary strategy of adding value to the business;

iv) at an opportune moment in the cycle of the market but, more importantly, the business itself, the business is sold and the investment in it liquidated – hopefully at a profit. Sometimes there may be a partial sale and, obviously in such a high-risk enterprise, occasional disasters.

26. MaisonBlau has raised a number of funds since its inception. As each fund nears full investment (i.e. the commitments to the fund have been almost exhausted in acquiring businesses), a new fund is 'opened' seeking investors to make fresh commitments. The current funds in existence are designated A, B and C. All earlier funds have been fully realised and the proceeds distributed to the investors and to MaisonBlau.

27. Equally, the business model of MaisonBlau follows the familiar pattern:

i) the fund is debited with fees (generally 1.5% p.a. reducing to 1% p.a. after a fixed period, typically 5 years), paid to MaisonBlau, which fund the overheads including remuneration for the partners and staff for running the fund by way of salary and bonuses – these fees are not directly performance related;

ii) the individual investment executives, including partners, are required to 'co-invest' with the outside investors into each business into which the fund invests, so that they have 'skin in the game', and the values of those co-investments will vary proportionately with the success or failure of the businesses into which the investment has been made; and

iii) for the purpose of this case most significantly, the investment executives are entitled to a 'carried interest' (or 'carry') in the fund overall, so that provided that the monies returned to the outside investors include a positive return exceeding the contractual 'hurdle' rate, they will retain 20% of the profits made. If that 'carry' has been earned by the clearing of the hurdle, it is divided in pre-determined proportions between the individual partners, including the husband.

28. So it is that the husband's potential future receipts from MaisonBlau comprise (or, at least, depending upon the success of the underlying businesses, may comprise):

i) salary and bonuses (it is not suggested by the wife that these will be shared going forward) which are paid from MaisonBlau fund management profits;

ii) any realisations of existing co-investments (whether made during the marriage or since the separation);

iii) any 'carry' received by the husband (whether from investments in businesses made by the funds before or after the separation, or in the future, and whether or not the 'success' of those businesses is achieved before or after the separation or in the future).

29. This case is about the extent to which those last two categories of potential future receipt should be the subject of a 'sharing claim'.

Co-investments
30. In relation to the co-investments the disagreement is two-fold:

i) The wife wishes to have a 50% share in "all sums received by [H] in respect of co-investment in the three live funds at the date of the final hearing", whereas the husband says that she should share in the co-investments in Funds A and B and the three co-investments made in Fund C prior to the separation (only two remain, the first having been realised), but that she should not share in the new co-investments made in Fund C since the separation; and

ii) The husband proposes that the wife should, to the extent that she is to share in the potential upside of co-investments, be required to contribute equally to any further calls made in relation to those co-investments, whereas the wife seeks "the option" to do so, which for obvious reasons is unacceptable to the husband unless it carries the sanction that (as with his own position) were she to decline to make such a further contribution she would forfeit her right to the existing co-investment. In the event the wife has now conceded that she will make any necessary contribution.

31. The substantive dispute is therefore whether the wife should be entitled to share in the co-investments made since the separation.

32. At the date of the separation the husband had, held at MaisonBlau, a fund of €1.84m being part of what would otherwise have been his remuneration (and on which he had suffered income tax) being his retained future co-investment fund. The husband accepts that this should be shared equally with the wife and proposes that in addition to the lump sum of £ 5.3m he should pay to the wife:-

"a half share of any co-investments (when realised) in underlying investments existing at the date of the separation – in practice this means all co-investments in Funds A and B and the two remaining pre-separation co-investments in Fund C."……..

33. He should not, he says, have to share with the wife either (i) co-investments made in the other four current underlying businesses in Fund C all of which long post-date the separation, or (ii) the balance now held at MaisonBlau for future co-investments all of which is 'post-acquired' or represents his half of the balance existing at the date of the separation.

34. On that basis the wife would therefore get the proceeds of:-

i) 50% of all co-investments in Fund A (net of tax);

ii) 50% of all co-investments in Fund B (net of tax);

iii) 50% of the co-investments in two of the early underlying investments in Fund C (made before the separation, again net of tax);

iv) and a cash sum of about £700,000.

35. The husband would retain the proceeds of:-

i) The other 50% of the co-investments in Fund A (net of tax);

ii) The other 50% of the co-investments in Fund B (net of tax);

iii) All of the co-investments in C apart from 50% of the co-investments in two of the early underlying investments;

iv) The potential benefit of the remaining locked up 'co-investment fund' of €2.19m (all of which is post-separation accrual) – as against which, of course, he will have to pay the wife £700,000 being €825,000.

36. The justification for the disparity, says the husband, is that it represents a part of the husband's post-separation remuneration in which the wife is not, he submits, entitled to a share, and in particular there is no logic in allowing her to share in co-investments in companies acquired by MaisonBlau long after the breakdown of the marriage and to which she has made no conceivable contribution.

37. However the real issue is in relation to the sharing of any 'carry' received in the future.

Carry
38. The husband's final proposal is that the wife should receive, on a Wells basis, 25% of the net carry that he will eventually receive from the remaining investments in Fund A, 20% of any carry from Fund B and 4% of any carry from Fund C.

39. Until receipt of the wife's open proposal it had been understood by the husband that the wife's case was to be that since the husband's 'entitlement' to share in the carry arose once the commitments had been received from the investors at the inception of the fund and the fund 'closed' (with only the quantum of that entitlement in monetary terms to be determined by events thereafter) it was in the nature of an existing investment (by him) which may or may not produce a profit down the line. Consequently, it was said, if it does, she should share in it.

40. But in fact 'carry' vests over a period of time after the 'first closing' of the fund, and although it is accepted by the husband that both Fund A and Fund B were fully 'vested' during the marriage, Fund C had its first closing in October 2008 so by the time of the separation, in November 2010, 40% of the husband's eventual entitlement to carry had vested. It has all vested now.

41. Up to a point the husband accepts that analysis (i.e. that the husband has an 'existing investment') in relation to Fund A where the carry hurdle had already been cleared during the marriage, and a current 'value' of the husband's future entitlement to carry from the remaining investments can be quantified by reference to the current valuations. But in relation to both Funds B and C the possibility of any future carry is, according to the husband, entirely speculative, as the current value of the 'carry' is nil. However, in all cases, the husband is actively participating in the management of the funds so continuing to contribute to their value – if any.

42. Fund B while largely invested is very substantially short of clearing the hurdle.

43. Fund C is not even half invested yet (and was barely invested at all at the time of the separation). The suggestion that the husband has (or had at the time of the separation) an existing 'investment' in businesses not yet even identified, let alone acquired is, maintains the husband, far fetched to say the least.

44. In the end says the husband, this court is not concerned with some technical analysis of the nature of 'carry', but rather in a search for overarching fairness. Through the husband's endeavours during the marriage he had created, by ordinary standards, a substantial fortune in the region of £33m (and to which he has already added considerably following the separation, so that there is now in the region of £40m). It may or may not be that his future endeavours will bring forth further fruit, and the issue is, he says, the extent to which any such future fruit will be consequential upon the joint endeavours of the parties during the marital partnership, and the extent to which it is the product of the husband's post separation endeavours.

45. The husband accepts that it could be said that so far as Fund A is concerned it has a present value (which could be calculated by discounting from the present value to allow for delay in anticipated receipt) which is capable of being shared (even equally) with the wife, ignoring the fact that the husband will in practice continue to work to increase the value of the investments.

46. The husband further asserts that the application of that (conventional) approach would be that as there is presently no value to be attributed to the 'carry' in Funds B and C, and apart from the hypothesis that there will eventually be value generated (i.e. the product of post-separation endeavours by the husband and others), there is nothing for the wife to share.

47. However, the husband acknowledges that his future 'carry' might be characterised as something of a hybrid – partly product of endeavours during the marriage, partly product of endeavours post-separation and that therefore a hybrid approach to sharing may be appropriate.

48. His proposal is therefore that in respect of those investments (and co-investments) made during the marriage, prior to the separation in November 2010, it would be fair for the wife to share in (i) the value of the co-investments as they are realised, and (ii) the 'carry' (if any) eventually received in respect of the element of the work done during the period of the marriage.

49. What the husband is not prepared to agree to share is (i) co-investments or (ii) carry in respect of work undertaken since the separation and, in particular and most obviously, investments made since the separation or in the future.

50. The wife has now herself proposed a rather differently tapered approach to sharing in carry: she seeks 50% of carry from Fund A, 40% from Fund B and 25% from Fund C. She has not disclosed by what means she has arrived at those percentages – but it seems that she must be accepting, to some extent, that the husband is right when he points to 'post-separation endeavour' as a reason for her receiving less than an equal share.

51. In support of the wife's position in relation to these issues her counsel have equally compelling points to make. I quote direct from their written argument:

"1. In this situation the returns that are received:

a.  are a direct consequence of H's being a partner in MaisonBlau;

b.  insofar as they are co-investments are nominally in the nature of capital gains;

c.  insofar as they are carried interests go hand-in-glove with the co-investments i.e. a partner will not get the first, the carried interest, without also making the second, the co-investment;

d.  are the product of both the investment of capital and endeavour over a number of years;

e.  require hard work by H (he being an active partner) and;

f.  are also the product of industry on the part of others (both partners and salaried employees).

This does not assist in their categorisation; but does illustrate their multifarious provenance.

2. Nor is it necessarily helpful to analyse the investment/work return process temporally, for:

a. the co-investments are made or committed to at the outset of the fund launch;

b. the scale of the co-investment is fixed at the closing of the fund (the partners are obliged to pay by way of co-investment 1.5% of the commitment made by the investors and H has to pay his aliquot share (9.49% in the case of fund C));

c. the carry is consequential upon and dependent on the co-investment;

d. the evidence shows that the contributions to the different phases are not of equivalent value; and

e. in respect of the individual companies, the phases are anyway of different and (prospectively) indeterminate duration.

CO-INVESTMENT
3. It is agreed that W should share in the co-investments as to 50%. This is entirely appropriate, for the co-investments that have been made have been funded from undivided resources.

4. As was opened, the only argument is whether or not there should be a cut-off date as at November 2010.

5. The court enquired as to the quantum involved in this particular dispute. We have computed this below…….

 

Carried interest share attributable to H for 4 post-November 2010 purchases

1,884,930

Additional cash held for co-investments

545,828

Aggregate

2,430,758

50%

1,215,379

Conversion to GBP

£ 1,037,899

CARRIED INTERESTS
6. This is an important issue. H has been very dismissive of W's forensic accountant but has adopted his figures (Mr Marks QC's note) where it has been perceived to serve his purposes. Importantly, it is agreed that the hurdle will be cleared for B and C so having answered that binary question in the positive it is not a question of "whether" but of "when" and "how much"(measured in tens of millions net - see Mr Marks QC's Schedule H) which applies to carry. Neither the size of the sums involved nor the difficulty in arriving at a definitive figure for these interests should be allowed to distract the court from the principle of achieving fairness to both parties."

52.  I hope I have done justice to both side's ingenious arguments. Huge efforts were expended on the husband's side to demonstrate how much time and which periods of time were involved in the generation of these very valuable assets both before and after the parties' separation. The arguments were reduced to a chart entitled "MaisonBlau Funds Timeline" which was the husband's attempt to display graphically his arguments. It was, in my judgment, and on any view, a conscientious attempt to be fair to the wife as he saw it. Of course the wife refutes it because she says this is about more than merely analysing the problem temporally. The product of the husband's efforts is from a continuum which stretches back into the marriage (especially if the important fundraising part of the process is fully included) and forward into the future. As I say dozens of pages of fascinating and at times somewhat abstruse evidence and written argument have been devoted to this aspect of the case. I have weighed it fully.

53. In the end on these MaisonBlau issues I have come to the following conclusions:

i) Fairness is what I am trying to achieve and both sides make sound points. Fairness (the somewhat diluted offspring of justice) is not just about arithmetic and precision of calculation but a broad recognition by the court, after considering all the factors, of the value of the claimant's (in this case the wife's role) in the whole marital partnership;

ii) The industry standard/general rule that the date of trial is the date when both the categorisation of the pot and its value is assessed, should not easily be circumvented. The proposition that merely because an asset comes into existence after the date of separation it should be excluded is far too simplistic and is not appropriate when, as here, a respondent's efforts are merely a seamless continuum of similar pre-separation activity and there is no obvious delay in the proceedings. It is as if the husband is banking his surplus income during the time between separation and trial;

iii) There is no absolutely right or wrong answer or methodology to be applied in this situation. To achieve fairness it is necessary to recognise fully the tension between the fact that the wealth was in part generated by the use of expertise built up during the marriage and in part by the expenditure of effort after the separation. Both elements are important. I do not think this part of the case can be analysed precisely either by reference to the time involved in each phase of the process and/or its relative importance. It is a product of both to some extent. But I make the general observation that the further into the future, post separation, the asset is created or achieves ascertainable value the less, it seems to me, it can be sensibly categorised as "matrimonial". Beyond that drilling down into the deepest subterranean springs of the arguments adds nothing to the achievement of fairness;

iv) There is a distinction between the co-investment funds and the carried interests. The former are in the nature of capital saved out of annual income. The latter is in the nature of a bonus for effort earned for generating a super profit and is only ascertainable at the very end of the investment management process. Further, in this case there is a distinction to be drawn between the three funds;

v) So far as Fund A is concerned, both elements are either in the bag or at least mostly so. The same can be said for the co-investments in B and C but not the carry. In both these funds the hurdle rate is yet to be achieved and so in each case the carry has not yet been earned and is presently of nil value;

vi) In the end, weighing all the arguments (and not forgetting the disparity in their earning capacities as explained above) I consider the fair outcome is for the wife to have 50% of all the co-investments (including cash and the undistributed escrow funds) in all three funds as at the date of trial. On the wife's projections that should amount to some £5 million approximately;

vii) She should also have, as at the date of trial, 50% of the carry in Fund A and 20% in Fund B as and when it is received. But so far as Fund C is concerned, the carry may not be established or ascertained ever or at least for many, many years and so her entitlement to share in it is, I consider, miniscule. In any event in so far as she may have some small entitlement to a share in the carry of that fund I have, as suggested by Mr Marks QC, taken it into account in the shares in the other two funds;

viii) On the available broad projections of the carry she is to receive, the amount which may be achieved for the wife is of the order of a further £12.5million but it may be much more.

The lesser issues and assets
54. Although the parties are to be applauded for achieving agreement on many of the major issues and certainly cannot be criticised for the disagreement over the apportionment of the MaisonBlau funds, a mild rebuke is justified over their approach to the lesser assets. The small differences (as a proportion of the pot) in the value of the yacht, the approach to cars, the credit cards etc, etc does not merit the time (and costs) spent on them. As the rules now make clear, proportionality is the name of the game when costs are so high and court time is more and more at a premium. A much more rigorous approach to case management (especially in the field of the employment of experts) is being introduced in other areas of the family justice system to save precious time and money. This type of high value litigation cannot expect to be immune and parties to it can expect to be confronted more and more by a refusal by the court to participate in these disputes over the lesser assets and where in each case the difference is around 1% of the net value of the pot or less. Assets falling in this category should be bundled up together and an overall value for them all agreed. If not the court is itself likely to apply that system in a broad, even rough and ready, way. As Mr Marks QC observes the pursuit of precise accuracy is a spurious and vain endeavour where the figures are in most cases derived from professional valuations and opinion and assets are not being sold anyway.

55. Paragraph 54 above has been seen and approved by the President.

56. Adopting that approach here (especially as the husband has anyway made a generous concession over the value to be attributed to Falkirk) leads me to adopt his figure for Nibali and ignore the cars and credit cards.

57. I shall not tinker further with the precise arithmetic and the lump sum I shall award to the wife will be £5,400,000. The half share in the Ermine Street/MaisonBlau money will be paid over upon receipt by the husband as the wife has no pressing need of it over and above the lump sum, which is itself having to be borrowed.

Periodical Payments for the children
58. There is every justification for the children continuing to benefit from the husband's huge annual income even if the wife will not. £30,000 per child is therefore reasonable, to run until the children have ceased tertiary education. The extent to which part of that should be paid to each of them directly whilst at university is, I am sure, something the parties can and should agree at the time depending on the circumstances then existing but in the absence of agreement not less than 30% should be paid to the wife.

59. I hope this award fairly recognises the parties' matched contributions, financial and non financial, to the family. That is my intention.

60. The parties have already made considerable strides in the drafting of what is a less than straightforward order. If there remain any drafting disputes I shall be happy to resolve them, if necessary, when they have been precisely identified.