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G v B [2013] EWHC 3414 (Fam)

Application by wife for financial remedies where the main assets were the former matrimonial home and the resources available to the husband from a Liechtenstein foundation. Periodical payments order made.

In this application for financial remedies made by the wife, the main assets were the former matrimonial home and the resources available to the husband from a Liechtenstein foundation set up by the husband's father.

The wife was 46 years of age, and the husband 62. They had one child aged 9 years. The husband had three children from his previous marriage, all in their twenties. One feature of this case was that the husband had been entirely financed by his father throughout his life. The husband's father died in 2005. A foundation was set up in Liechtenstein and the husband's father's assets were transferred into it.

The husband had accepted that the assets held by the Liechtenstein foundation were "financial resources" within the meaning of s. 25(2)(a) MCA 1973. However, there was a dispute over the date on which the foundation had been established. The wife had sought to rely on a manuscript note which the husband wrote. Blair J found that the wife had found this note by looking through the husband's papers, and not accidentally as she claimed. The husband did not raise Hildebrand type issues.

The wife contended that the husband had failed to fully disclose his assets. In particular, the wife alleged that on the death of his father the husband had inherited more money than he disclosed, and that his undisclosed assets were in the order of £1.5m to £2.5m.

The husband had admitted non-disclosure, and had disclosed further bank accounts and investments subsequent to the filing of his Form E. Adopting the approach set out by Mostyn J in NG v SG (Appeal: Non-Disclosure) [2011] EWHC 3270 (Fam), [2012] 1 FLR 1211 in respect of adverse inferences, Blair J reviewed the history of the husband's disclosure. The learned Judge found that the disclosure history in itself did not tend to the conclusion that there were further assets which had still not been disclosed. Further, having heard the parties and reviewed the evidence, he concluded that extensive cross-examination of the husband had not produced material sufficient for the court to make findings of further non-disclosure, or draw adverse inferences.

In his assessment of the available assets, Blair J found that the husband did not have any appreciable earning capacity of his own, and this was therefore not a case of someone amassing large amounts of money personally. The finite amount of money that existed all came from the husband's late father.

On behalf of the husband it was argued that although inherited assets are available to meet a needs claim, their derivation was nevertheless a consideration in determining both needs and overall fairness. While the wife acknowledged that the wealth emanated from the husband's father, her proposals did not reflect that fact. The husband's position sought to take into account the intention of the foundation to benefit his three children from his first marriage, which he argued the court must take into consideration in determining what was a fair outcome between the husband and the wife. The wife disagreed.

Applying the authorities, the learned Judge found "that the derivation of the funds is a factor to be given some but not great weight". He considered that in "achieving an outcome fair to both parties, recognition has to be given to the position of the other grandchildren as beneficiaries of the foundation...The question is how to achieve a fair overall outcome."

The above was reflected in the lesser amount made available to the wife to cater for her housing needs.

An order for periodical payments was made to be met from the principal and income of the foundation assets and the proceeds of sale of the former matrimonial home. The judge declined to make an order for the benefit of the child which extended beyond his secondary education, on the basis that the Husband had supported his three children from his previous marriage without having been ordered to do so.

The judge declined to make an order, sought by the wife, for security in the sum of £1m to run the entire duration of the maintenance order. Too large a proportion of the assets would have been tied up and such order would likely make the other financial provisions unaffordable. On the facts, Blair J found that a deferred clean break as sought by the husband was inappropriate.

Summary by Katy Chokowry, barrister, 1 King's Bench Walk
_______________________

Neutral Citation Number: [2013] EWHC 3414 (Fam)
Case No: FD12D02043

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 07/11/2013

Before:

MR JUSTICE BLAIR
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Between:

G Applicant

- and - 

B Respondent
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Mr Ian Cook (instructed by Bircham Dyson Bell) for the Applicant
Ms Rebecca Bailey-Harris
(instructed by Miles Preston) for the Respondent

Hearing dates: 21, 22, 23, 24, 25 October 2013
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Judgment
MR JUSTICE BLAIR
This judgment is being handed down in private on 7 November 2013 It consists of 17 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.

Mr Justice Blair:
1. This judgment follows the hearing of the wife's application for financial remedies.  The main assets are the former matrimonial home, and resources available to the husband from a Liechtenstein foundation.  Both parties approach her claim as a needs case.  The principal issues for decision are the quantum of her housing fund, the quantum of periodical payments for her and the child of the marriage, and the duration of the spousal maintenance component.  The main factual dispute has been as to the extent of the husband's resources, the wife's case being that he has failed fully to disclose his assets.

2. In her s.25 statement, the wife made a considerable number of evidential points, which I have taken account of even if not expressly referred to below.  The hearing took place over four days.  Both wife and husband gave evidence.  There was other evidence before the court in the form of reports from various experts, which were not the subject of challenge.  The case for the respective parties was set out in concise written arguments, and the court was much assisted by a schedule of assets that (subject to the wife's non-disclosure case) was largely agreed for the purposes of this hearing.  The husband's skeleton argument valuably contained references to the authorities, which were not in dispute.

History

3. The husband is now aged 62.  His family moved to the UK when he was a child, though he is not domiciled here for tax purposes.  He is described in the agreed chronology as a property investment manager, but he has never worked in what might be described as a conventional sense.  His life appears to have been largely financed by his father who was described by Connell J in proceedings arising out of the dissolution of the husband's previous marriage as an astute business man with a successful track record.  He had three children of that marriage who are now aged 25, 23 and 21. 

4. The wife, now aged 46, is Russian.  She graduated from Moscow State University with a degree in mathematics in 1991.  She moved to Sweden, where she was employed in the insurance industry.  She was married in Sweden, but divorced 2 years later.  She is now a Swedish national.

5. The parties met in 1999, and in 2000 the wife moved to London.  They disagree about when they started to live together, but it was at some point between 2000 and 2003, probably closer to the former.  They lived in the husband's rented 3 bedroomed flats in Mayfair.  They were married on 20 February 2004, and on 16 March 2004 their son M was born.  Later that year, the parties moved to what is described in the evidence as a 3 bedroom penthouse at a rent of £1400 per week.

6. The husband is an only child, and a feature of this case, as in the previous case before Connell J, is his financial dependence on his father, Mr MB.  This appears to have gone beyond simple finance.  Connell J records him as saying that "my father is my brother, my God, my friend".  The father had been a successful businessman in the property field, and lived the last 25 years of his life in Monte Carlo.  While he lived, father and son talked on the phone daily. 

7. With his father's support, the couple were able to enjoy a very good standard of living.  It does not appear to be disputed that some £200,000 p.a. was drawn from the foundation by the husband.  There is an issue as to the extravagance of their lifestyle.  It is not in issue that the wife became friendly with a circle of wealthy Russians, and had an active social life.  It was apparently suggested at an earlier hearing that they lived a "sub-oligarch" lifestyle.  Whoever the wife's friends may have been, I am satisfied that the evidence does not support the view that their lifestyle came anywhere near the level of wealth implied by this term.

The establishment of the S foundation

8. By 2004, the husband's father was very poorly.  He died on 27 January 2005.  Over the period 2004 to 2005, a Liechtenstein foundation called the S Foundation was formed, and his father's assets were transferred into it. 

9. There was considerable dispute at the hearing as to the timing of this process.  In short, the husband says that the foundation was formed and the assets transferred prior to his father's death.  The wife says that the assets were transferred after his father's death, and though the foundation had been formed in 2004, it was acquired posthumously as a vehicle "off the shelf" at the suggestion of his advisers.

10. However, to quote the husband's skeleton argument it is "fully acknowledged by him" that the assets of the foundation are 'financial resources' within the meaning of MCA s. 25(2)(a).  As was made clear on behalf of the wife in closing, the issue goes to credibility, her case effectively being that he is lying about it.

11. Since both husband and wife gave evidence, counsel are agreed that I must set out my appraisal of them as witnesses.  By way of a late request, the wife gave evidence initially through an interpreter, but was able after a while to give evidence in English with the occasional assistance of the interpreter.  English is her third or fourth languages, and she speaks it very well, though not perfectly.  She kept a diary throughout the marriage, and was able to cite dates of events which she considered important. 

12. The husband claimed that she pried into his records to establish his financial position.  In the case of the only document of which there was evidence in this respect at the hearing (a manuscript note with some figures which he wrote on the notepad of the New Midi hotel in Geneva), I am satisfied that she found this by looking through his papers, and not on the floor where it had accidently fallen as she claimed.  However counsel took a pragmatic approach, and did not raise Hildebrand type issues.

13. In her evidence, she expressed her view that financial provision should be made which would enable her, their son and her mother (who came to stay with the parties at some point) to live in Kensington or Chelsea.  She rejected any suggestion that she might live in Battersea close to her son's school, describing the borough as "rife with crime".  She was reluctant to accept that the husband had obligations towards his three eldest children by his previous marriage.

14. On his part, the husband has not complied with previous court orders in two respects.  He was in breach of an undertaking not to visit the former matrimonial home between the hours of 8pm and 8am, although he explained that he did so in order to let M into the house in his wife's absence.  He has not been complying with an order to make periodical payments by standing order, instead doing so by cheque, the most recent of which has not been provided.  It is accepted on his behalf that he was voluble and emotional, and I would add that his evidence was imprecise and unfocused.

15. I am sure that the manner of both parties' evidence was largely due to the stress of the proceedings, and I mean no disrespect to either husband or wife in saying that I consider that neither of them was particularly reliable as a witness.  However it does not follow that their evidence was untruthful, and in some important respects, when assessing it against other evidence where available, I have accepted the evidence of one or other of them.

16. With that in mind, I turn to the establishment issue.  The material concerning the establishment and governance of the  S Foundation that I have seen is not extensive.  Statutes have been produced which show that the foundation was established on 30 March 2004.  However, there is no indication as to who the beneficiaries may have been, if indeed there were any at that stage.  This document proves nothing as to when the father's assets were transferred into the foundation.

17. The funeral of Mr MB took place on 3 February 2005.  On 20 February 2005, husband and wife travelled together to Geneva where his late father's advisers and bankers were based.  A letter dated 19 February 2005 was typed by the wife to the effect that, in the absence of a will, her husband expected an equal allocation between his two families, that is, his wife and M, and the three children of his previous marriage.  It is pointed out on behalf of the wife that the list of contacts given in the letter includes no reference to the foundation or any officer of the foundation. 

18. The wife's case is that the suggestion of a Liechtenstein foundation as a vehicle for holding his late father's assets were made by the advisers at that time.  She says that her husband was excited by this proposition, and duly reported it to her. 

19. In her s. 25 statement dated 3 October 2013, the wife says that she "…was with  [the husband] at the time the Foundation was set up and the documents were back dated in order to have[the husband']'s father's funds transferred to the foundation".  In her oral evidence, however, she said that she was in Chamonix, not Geneva, at the material time.

20. In his oral evidence, the husband maintained that the assets had already been transferred, and that the reason that the letter of 19 February 2005 makes no reference to the foundation is that for all practical purposes his father's assets were held in the accounts of three companies, to which reference was made.  These companies were (and are) three Panamanian companies established by his father some 30 years ago, namely FI, ER, and FN.  The assets of these companies were (and are) held at a Swiss bank, Union Bancaire Privée ("UBP").

21. Leaving aside the backdating allegation, which as I understand it is not pursued and which I would in any event have rejected, either of these versions of events is plausible.  There is a letter which casts some further light on the matter.  This is dated 15 October 2013 and was sent by AT AG (a Lichtenstein trust company) which together with Mr K appears to form the council of the foundation.  The letter can be read with an earlier letter on the notepaper of S Foundation dated 29 March 2013. 

22. AT's letter reads as follows:

"We, the undersigned foundation council hereby confirm that the [S] Foundation was established on March 30, 2004 and that it is a discretionary and irrevocable foundation.

The [S] foundation was set up by Mr. [X] on behalf of Mr [MB]who is considered as the effective founder pursuant to Liechtenstein Law.

The potential beneficiaries are all descendants of Mr [MB].

The directors of [S] Foundation have to have regard to the discretionary Beneficiaries appointed now or in the future.…….."

Mr  X was a long standing friend of Mr MB , and was his executor.

23. On the basis of all the evidence, it seems likely to me that Mr MB would have given thought to the disposition of his assets after his death.  I doubt that the Liechtenstein foundation was an idea that came from his advisers after his death.  The AT letter is consistent with the husband's case on this issue rather than the wife's case, and on balance, I prefer the husband's case which I accept on this issue.  As I say, the issue only goes to credibility.

24. After the Geneva meetings, the husband sent a "Letter of Wishes" to the council of the foundation dated 22 March 2005.  He indicated that after his death he would like the assets of the foundation to be made available as to 50% to his three children by his first marriage, and as to the remaining 50%, in favour of the wife and their joint children.  Since the parties separated, he has indicated that after his death his assets should be divided equally between his four children.

Subsequent events

25. In August 2006, a home was purchased in Kensington, London, for £4m.  The purchaser was a BVI company beneficially owned by the husband called OSI.  It is not in dispute that the proceeds of sale of the house are available assets to fund the wife's needs in this case.  It was purchased in part by a loan of £1.18m to OSI from the S Foundation via FI, and as to about £3m by way of an interest-free mortgage by Barclays, Isle of Man. 

26. In early 2012, the wife indicated that she wished to have a divorce.  The decree nisi was pronounced on 30 August 2012, and the husband moved out of the matrimonial home shortly afterwards.  It is now occupied by the wife, her mother, and M.  The husband lives in rented accommodation nearby.

The wife's non-disclosure case
27. Subject to some issues relating to tax, and the price likely to be achieved on the sale of the former matrimonial home, the parties are agreed as to what assets are available.  This however is subject to the wife's non-disclosure case.  Since this goes to computation, it is appropriate to deal with it first (Charman v Charman (No4) [2007]1 FLR 1246 at [67]).

28. The ambit of the dispute is as follows.  The husband's case is that, other than the former matrimonial home, the extent of his resources is that which is available to him in the foundation.  These are the assets held by the three companies mentioned earlier, FI, ER, and FN .  The assets are predominantly made up of short-term bonds with a current value of £4,025,605, a figure which is not as such disputed.  

29. The wife's case is as follows.  The husband, she submits, has failed to give full, frank and clear disclosure of his financial circumstances to the court.  He told her at the time of his father's death that he had inherited between £7 - 8m, and that was an accurate figure.  The largest combined balance on the companies' UBP bank accounts was £5,562,000 as at 1 January 2006.  The husband inherited assets in excess of the combined balances in the order of £1.5m to £2.5m. The excess assets were probably held within accounts in the name of Mr MB at CFM Monaco, AMEX London and HSBC.  The parties' standard of living was funded in part by significant amounts of cash, probably in the region of €30,000-40,000 p.a.  The amount of the excess assets is unascertained, but given the contents of the manuscript note on the New Midi hotel notepad (see above), it is likely that they are held in undisclosed accounts in the name ofFI , possibly with Charles Stanley & Co.  In short, the wife's case is that husband has undisclosed assets in the order of £1.5m to £2.5m. 

30. The court's approach to non-disclosure issues and, where the court is satisfied that a party's disclosure is materially deficient, the drawing of adverse inferences, was recently explained by Mostyn J in NG v SG (Appeal: Non-Disclosure) [2011] EWHC 3270 (Fam), [2012] 1 FLR 1211, where he refers to earlier authority.  I have approached the issue in accordance with this decision.  The points that have been raised are as follows.

31. The husband has admitted non-disclosure.  The further disclosure he has made is as follows:

(1) In his Form E, he did not mention the existence of a bank account held with Leumi Private Bank in Switzerland.  His explanation for not disclosing this earlier is that the account was only a conduit, though the Rawlinson & Hunter report of 8 February 2013 shows that in recent years, as well as the placement of funds on fiduciary deposit, the account was also used to invest in bonds.

(2) On 3 October 2013, he disclosed an account of FI at Leumi Private Bank.  He said he was told about it while visiting the bank in August 2013 at which time the balance was US$513,207.  I agree with the submissions on the wife's part that his evidence as to how the account came to light, and why it was disclosed so late, is not convincing.  On the other hand, the wife did not accept that this account was the same as an earlier account held at Bank Safdie.  On the third morning of the hearing, confirmation was obtained from Leumi that the accounts were the same, and had been renumbered following the merger of the two banks, which was the explanation the husband had already given.

(3) In his Form E, he did not disclose investments that he made in a real estate project in Bulgaria though a company called S.  His wife was aware of the project, because he visited Sofia frequently for a while, and I agree with her submissions that the way he dealt with this investment in answer to her questionnaire was inadequate.  However, he says (and I accept) that he lost his personal investment in the project of €10,000 (and he says that ER lost €400,000).  A letter of 16 July 2013 is to the effect that the real estate company currently has no activities, and I see no reason not to accept that.

(4) There were two relatively small sums repaid from a JP Morgan fund in February and December 2007 which were not disclosed in the Form E, but this are not greatly material.

32. Without excusing any non-disclosure, I do not think that the disclosure history in itself tends to the conclusion that there are further assets which have still not been disclosed.  For completeness, I should mention that the wife also did not disclose a Santander Bond she held valued at £16,700 until 6 October 2013.

33. In terms of evidence, the wife places reliance on two matters in particular.  First, she says that her husband told her at the time of his father's death that he had inherited between £7-8m.  This is contested by the husband, who says that it was about a year ago that he estimated his inheritance at this amount.  I do not think that I need resolve that issue of fact.  Even on the wife's evidence, he told her that he did not know exactly how much he had inherited, but he estimated it was between £7-8m.  Whilst evidence from one party as to things said to by the other party can be significant evidence (see NG v SG at [8]), in context I do not think that this is significant evidence.  The husband's explanation is that he was working backwards and his figure was taking account of the substantial expenditure that had been made out of the inherited money, and that seems plausible.

34. The wife also relies on the husband's manuscript note on the New Midi Hotel notepad that I have already referred to.  This contains jottings as regards the assets of the three companies.  Under the heading FI, among other jottings appears "£6.8".  The wife says that this means that FI's assets amounted to £6.8m.  It is submitted that it is likely that these assets are held in undisclosed accounts in the name of FI, possibly nominee accounts with Charles Stanley& Co.

35. Charles Stanley & Co is a financial services firm which is referred to in a letter of 19 February 2005.  The telephone number given is a UK number.  There is no evidence that the husband was holding millions of pounds with Charles Stanley in the UK or elsewhere.  However, this possibility was not explored in the evidence, because (as was accepted in closing) this suggestion was not put to the husband in cross examination.

36. The husband's explanation of "£6.8" was that this constituted the holdings of all three companies and by mistake he had jotted down the sterling symbol instead of the US dollar symbol.  This is broadly consistent with the other evidence as to amounts, and on balance, I accept his explanation in that regard.

37. Further, I do not accept that there is evidence to support the proposition that the parties' standard of living was funded by significant amounts of cash in the region of €30-40,000 p.a.  The husband agreed that he (and his wife) had brought cash back from Geneva on occasion, but I accept his evidence that it was nowhere near this amount, and that he drew it down from foundation funds. 

38. Further, I do not accept the wife's case that the parties' expenditure during the marriage can only be explained on the basis that cash of this order was being used.  Given that the mortgage and school and university fees were paid for separately by the foundation, the parties' lifestyle could have been accomplished within the money passing through the husband's account with Coutts which has been disclosed.  Overall, the evidence supports the conclusion that the husband's funding over the relevant period came by drawing down on the foundation's assets.  This was done pursuant to loan agreements with FI and ER both dated 4 May 2004 and each providing him a £2m facility.  Whether or not these were commercial loans or simply a means of providing him with access to the funds is not something that falls for decision in this judgment. 

39. A final point on the evidence concerns the Barclays mortgage for the purchase of the house in 2006.  When considering renewing the five year mortgage term in July 2011, Barclays wanted a personal guarantee from the husband.  They wanted some comfort from UBP, which was provided by a letter dated 27 July 2011.  Production of this letter was requested by the wife on the third day of the hearing, and produced on the final morning.  The letter states among other things, "at the present date his net assets on our books exceed GBP 3m".

40. As explained earlier, this was the amount of the mortgage, so that this was the sum for which Barclays was seeking comfort.  UBP held the accounts of the three companies, and there was in excess of this sum in those accounts.  It was submitted on behalf of the wife that it was unlikely that as between banks a reference would be made to "his" assets, when the bank was referring to the foundation's assets.

41. If that submission is right, it would follow that the husband has (or more precisely had in July 2011) personal assets held with UBP in excess of £3m in addition to the assets of the three companies.  There is no evidence to support such a conclusion.  The more likely explanation, which I accept, is that in referring to "his" assets, the bank was simply referring to assets available to the husband to service the mortgage.  The husband says that he has had no personal accounts with UBP, and I accept that. 

42. In conclusion on this point, I note that the husband does not have any appreciable earning capacity of his own.  Whatever efforts he may have made, he has been dependent on his father's wealth.  This is not a case, therefore, of someone amassing large amounts of money personally (Al-Khatib v Masry [2002] 1 FLR 1053 at [96], Munby J).  A finite amount of money existed when the foundation was established, and a finite amount of money was transferred into it.  This all came from the late Mr MB.

43. A substantial amount of the husband's cross examination was (understandably) addressed to the non-disclosure issue.   The husband strongly denied having any undisclosed assets, and having regard to the rest of the evidence, I accept what he says in that regard.  It would be wrong to draw inferences that the husband has assets which, on an assessment of the evidence, I am satisfied that he has not got (E v E (Financial Provision) [1990] 2 FLR 233 at 241-242, Ewbank J, cited in NG v SG at [6]).  I agree with the submissions on his behalf that extensive cross-examination did not produce material sufficient for the court to make findings of further non-disclosure, or draw adverse inferences.  Consequently, I reject the wife's case in this respect.

The open proposals for settlement
44. In summary, the open proposals for settlement are as follows.

45. The wife seeks a £2.1m housing fund, periodical payments for herself during joint lives at the rate of £78,000 p.a. (RPI linked) and for the benefit of M at the rate of £20,000 p.a. until the end of secondary education (a total of £98,000 p.a.) and at the rate the rate of £10,000 p.a. thereafter until the end of tertiary education.  The husband is to guarantee payment of M's school fees insofar as they are not paid by the  S Foundation.  She seeks a fund as security of the balance of the proceeds of sale of the FMH or £1,000,000, whichever is the less.

46. The husband offers a housing fund of £1m, periodical payments for the wife until M reaches 18 at the rate of £36,000 p.a. with a bar on any application to extend the term (s. 28(1A) Matrimonial Causes Act 1973) and for the benefit of M at the rate of £12,000 p.a. until he reaches 18 (a total of £48,000 p.a.).  In addition, he will meet M's school fees and agreed extras.

Section 25 factors

47. Section 25 Matrimonial Causes Act 1973 requires the court to consider all the circumstances of the case, first consideration being given to the welfare of M. In considering the circumstances, the court is directed to have particular regard to the matters listed in s. 25(2).  The court's objective is to achieve an outcome which is fair to both parties (White v White [2000] 2 FLR 981, Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186).  The position as to the s. 25(2) matters is set out below (and elsewhere in this judgment where relevant).

Financial resources

48. In the light of my finding on non-disclosure, the assets are as set out in the agreed schedule.  The wife accepts that the small difference between the parties is explicable by reference to the amounts in particular accounts, and the husband's numbers are agreed.  The two principal resources from which the wife's claim can be met are (a) resources held within the S Foundation, and (b) the proceeds of sale the former matrimonial home.  Both parties also have some cash.  The main issue on the numbers is the value of the FMH, and the impact of potential tax liabilities. The parties agree that other respective liabilities are to be undisturbed, save that the wife seeks payment of half of Rawlinson & Hunter's fees for their Report (see below), in the sum of £11,450.

(a)  S Foundation

49. As a matter of law, the funds owned by the S Foundation are not the property of the husband within the terms of MCA s.25(2)(a).  As noted earlier, it is however fully acknowledged by him that they are 'financial resources' within the meaning of that subsection, as funds on which the husband can be expected to call in future as in the past according to the test propounded in Charman v Charman [2006] 2 FLR 422 at [12] and [13], Whaley v Whaley [2012] 1 FLR 735 at [40], and RK v RK [2013] 1 FLR 329 at [60].  The evidence amply justifies this concession, and it was not a matter which was in dispute between the parties.

50. On this basis, it is agreed that the value of the funds held by the  S Foundation is £4,025,605.  The husband says that these are reducing as expenditure exceeds investment return.  In opening, the wife cited the Duxbury tables to suggest that a combined investment return of 6.75% could be expected.  The husband cites the Duxbury calculations to the effect that average real returns of 3.75% are more realistic over the long term, and I agree that this is more realistic.  In the wife's s.25 statement, there are agreed valuations of the funds held by the foundation for 1 January in successive years.  The figures fluctuate, but show a decline in value from 1 January 2008 (£4.451m) to the present (£4.026m).  Different comparisons can be made, but I am satisfied that at present levels of expenditure the funds are gradually being depleted, and that whilst spending is currently running at a particularly high level because of these proceedings, this will likely continue.

51. Apparently prompted by the wife's previous solicitors, HMRC is currently inquiring into the husband's tax affairs.  It is not in dispute that the uncertainty of the eventual outcome does not prevent the court from arriving at a fair outcome now (the hearing was delayed for three months to see whether more certainty could be achieved).  Rawlinson & Hunter have produced a report dated 8 February 2013 for the wife, which is effectively agreed.  R&H estimates overall payments due (including penalties and interest) on best, mid and worst-case scenarios as between £207,790 – £597,306.

52. The wife argues that the court should accept the mid-case scenario at £254,593 by effectively deducting this sum from the available resources.  The husband argues that the court is not in a position to determine which of the three scenarios is most likely to eventuate, and that in the interests of finality, he is prepared to assume the risk, and that in fairness that must be reflected in the overall settlement.  He says that his assumption of tax risks must be recited on the face of the Order to avoid the possibility of subsequent litigation (see generally Judge v Judge [2009] 1 FLR 1287).  Insofar as a number must be taken into account at this stage for practical reasons, he suggests the worst case number.

53. Generally, I prefer the husband's approach on this issue, though a notional number must be adopted to reflect the quantum of the liability (see paragraph 13 of his skeleton argument).  I have taken the mid point between the parties' cases, which is £425,000.  The reason is as follows.  As was pointed out on behalf of the wife, the main contributor to the worst-case scenario would be if HMRC was to treat the loan to OSI in connection with the house purchase as an income distribution.  R & H may well be correct that this is not the expected outcome, but it seems to me that a notional number representing the risk has to take account of the possibility.

54. The parties do not agree as to the position of the husband's three other children.  The husband says that it would not be fair or proper for the court to fix the wife's award at such a level so as to deplete the resources of the foundation to an extent which deprives the other three children of future support.  Though separate, this is a question which is linked to the derivation of the funds as a factor to take into account under s.25(2)(f), and for convenience I deal with it there.

(b) The former matrimonial home
55. The former matrimonial home in Kensington is a Grade II listed Georgian 4-5 bedroom house with views over a square.  A number of floor plans have been produced for the property by agents which put the floor area at between 3,789 and 4,007 square feet.  Although the property is held in the name of OSI, no issue on Prest v Petrodel Resources Ltd [2013] UKSC 34 arises.  It is not in dispute that the husband is the ultimate beneficial owner and that the proceeds of sale will be dealt with accordingly.  The costs of sale are agreed on a range of sale prices.

56. The main issues that arise in this regard are the likely price at which the house can be sold, the incidence of CGT, and whether the wife should handle the sale in future in place of the husband.

57. The factual position is that house went on the market at £8m, but languished.  There have been no firm offers, and the asking price has been reduced.  The wife blames this on the husband for placing it with a multiplicity of agents.  Pursuant to the order of Eleanor King J at the PTR, valuations have been produced by a partner of Knight Frank, and the Head of Flat Sales at Hamptons.  The former expresses the view that the house has limited appeal due to the fact that it has no rear garden and backs on to a goods yard.  He suggests an asking price of £5,950,000.  The latter recommends that the current asking price be reduced to £6,500,000.  The Knight Frank report is better reasoned, and accords with sales experience to date.  Clearly the better the marketing of the property, the better the chances of a speedy sale at a good price.  On the evidence, I consider that the likely value of the house is £6m, sale costs being agreed at £150,000.

58. CGT will be payable on the sale, because the property is held by the company.  A suggestion was made that this could be avoided by a sale of the shares in the company.  The parties' tax experts were not enthusiastic about this proposition.  Having regard to their agreed evidence, and on the basis of a sale price of £6m, the tax payable will likely be £463,429.

59. Whoever handles the sale, the view of both Knight Frank and Hamptons is that the property should be withdrawn from the market and then placed back on it with a single agent.  I suggested in the course of the hearing that the wife will be better placed to show the property since she lives there, but perhaps understandably the husband did not agree.  I am not presently inclined to make an order that she should have conduct of the sale, and the parties should try to reach agreement.
(c) Income and earning capacity

60. Connell J found that it was unlikely that the husband would ever earn any worthwhile income independent of his father.  Subsequent events have confirmed that finding.  Since his father's death, the husband has maintained himself by drawing down on the foundation.  At the age 62, it is extremely unlikely that anything will change.  The wife has worked intermittently, and I consider this further below in relation to the husband's "clean break" submission.

(e) Conclusion on financial resources
61. Based on my findings and the agreed schedule the best estimate of the parties' financial resources is as follows:

Estimated sale price of FMH

£6m

Barclays mortgage

(£3,030,000)

Costs of sale

(£150,000)

CGT

(£463,429

Estimated net sale proceeds of house

£2,356,571

Assets in S Foundation

£4,025,605

Net in W's bank accounts etc

£83,034

Net in H's bank accounts etc

£117,832

Potential HMRC tax liability

(£425,000)

TOTAL NET ASSETS

£6,158,042

Total net assets if potential tax liability is not quantified and risk of potential liability placed on H

£6,583,042

 

Financial needs and obligations
62. It is not in dispute that needs is the "magnetic factor" (Gordon (formerly Stefanou) v Stefanou [2011] 1 FLR 1583 at [22]) in this case.  As it is put on behalf of the wife, what a party can be said to "need" must be measured against (i) the standard of living during the marriage and (ii) affordability, meaning not only that the claimed needs can be met but that they can be met whilst being fair to the other party.  On the other hand, it was accepted on behalf of the wife that the proposals in her open offer were only feasible if I accepted her case on non-disclosure, which I have not.  Otherwise, it is accepted that there is not enough money to meet them.

63. As regards housing needs, the wife says that sufficient allowance should be made to enable her to continue to live in Kensington & Chelsea (or at least centrally in London).  She says that she has always lived in that borough, and her son's friends live there.  Her mother is used to living there, and would find it difficult to adjust to a different part of London.  M is aged 9, and is currently at school in Battersea.  In four years time, he will move schools elsewhere.  He is not an academic child, and the tuition the wife arranges in Russian and English, his acting skills, and aptitude for football are all best served by a home in central London.

64. The husband provided property particulars of flats and a house around the £1.1m mark in Battersea within easy reach of M's school.  She had visited these, she said in her evidence, but she found the area to be rife with crime, the houses box-like, and upsetting for her son.  I do not accept her evidence.  There is no compelling reason why she, M and her mother need to live in the most expensive area of central London.  Her objections to Battersea were exaggerated.  I am satisfied that she does not need anything like £2.1m to find a suitable property for the three of them.

65. So far as the husband is concerned, as I have indicated, he is currently living at a rented flat close to the former matrimonial home.  He lives there with his youngest son by his first marriage.  It is not in dispute that an equal allowance should be made for both parties' housing needs.  As to where he will live, he denied that "he would not himself be seen dead in Battersea".  Nevertheless, I am satisfied that he too would prefer to continue to live in central London, but that he too will have to adjust his expectations now that two homes have to be provided out of the diminishing funds.  As to the future, he has said that he will rent until he recovers from the divorce proceedings, and will then find a place to buy. 

66. As regards income needs, I proceed on the basis that an award of maintenance should be based on the principle of need (B v S (Financial Remedy: Marital Property Regime) [2012] 2 FLR 502 at [79]), which is not in dispute.

67. As indicated above, the wife seeks £78,000 p.a. for herself and £20,000 p.a. for M, a total of £98,000 p.a. When M is in tertiary education (to include a gap year) she seeks £10,000 p.a. for him.

68. The husband proposes (after the sale of the house) £36,000 p.a. for the wife for a non-extendable term until M is 18, and £12,000 p.a. for M, a total of £48,000.  He accepts that the court can make an order for global maintenance which is subject to a future CMS calculation. There is no issue as to M's school fees and expenses, which will continue to be met separately by the foundation.

69. If the court approaches the case on the basis that £2.1m is allowable to each of the parties for housing, the wife estimates that free capital would be left amounting to £2.2m.  The application of a Duxbury figure of 6.75% to that sum (she submits) would produce an investment return of £148,000 p.a.  As I have said, I do not accept that this is the correct rate.  (If it was, her proposal envisages global maintenance of £98,000 p.a., which would be nearly two thirds of the total investment income available.)

70. In closing, it was proposed on behalf of the wife that larger sums could be made available on the basis that the foundation funds were drawn down in toto over of a period corresponding with the husband's actuarial life span.  I do not think that this is the right approach, because it takes no account of the fact that the foundation is intended to benefit all four of the grandchildren of Mr MB as well as his son.

71. The wife's Form E monthly income needs are calculated at £18,680 (£224,160 p.a.).  However major items such as the mortgage liabilities of £9,000 per month and legal fees of £2,000 per month will cease when the order takes effect.  I agree with the husband that food at £1,500 per month, a nanny at £800 per month (when the wife's mother continues to live with them), and £3,200 per month for holidays, is considerably more than is reasonable.  As to the latter item, a much lesser sum can amply provide for M's love of skiing.  The husband (or more precisely the foundation) pays the school fees and will continue to pay agreed extras relating to M's educational needs including school trips.

72. The husband's Form E budget was £198,600 p.a., of which most was accounted for by property outgoings (£107,000) and expenditure on the children which is largely made up of school fees relating to M (£30,100).  In his witness statement of 14 October 2013, he says that he provides financial support for his other three children in an amount of £56,000 p.a.  These children are now in their twenties, but he said (plausibly enough) that the current disadvantageous jobs market for young people means that he has to continue to support them.  No evidence of actual expenditure was produced however, and whilst I accept that he reasonably gives such support, I do not accept his figures.

Pre-breakdown standard of living

73. By ordinary standards, the parties had a high standard of living prior to the breakdown of the marriage.  They enjoyed expensive foreign holidays.  The wife became friendly with a circle of wealthy Russians.  She had some modest means of her own, having sold her flat in Stockholm in 2006 for £120,000. She had an active social life, spending, she estimates £10,000 to £15,000 p.a. from her own money on new clothes.  Her husband would also buy her expensive clothes and designer handbags and shoes.  He gave her £6,000 towards diamond earrings for her birthday in 2011.  She has been a member of Annabelle's since February 2003, and is also a member of Aspinalls Casino. 

74. She has worked intermittingly, as and when circumstances allowed.  In 2009 she began working at a jewellery shop on Bond Street effectively to bring her friends along as potential customers.  For about 16 hours a week work, she received a salary of £15,000 per annum plus a bonus of £2,000.  She worked full time in 2011 as a personal assistant to a Russian businessman at an annual salary of £40,000, but she was not able to continue in this job for more than a few months because of the strains it imposed on her looking after M in the context of these ongoing proceedings.

75. Though it was very comfortable, I consider that the opulence of the parties' lifestyle has been exaggerated.  The main items of spending were on the house, on holidays, and on the needs of the children.  The limitations on their spending power are shown by the fact that the parties each had (and have) modest cars which are over ten years old.  It was put to me in argument that this was not a case where the parties chose to spend their money on cars like Maseratis.  The reason they did not do so, however, is plain in my view.  The available resources did not permit that kind of expenditure.  Their spending requirements had and still have to be met out of a finite, diminishing and (in terms of the comparisons that have been made in this case) relatively modest pool of funds.

Contributions
76. Each of the parties has made a full contribution during the marriage and will continue to do so while M continues with his education.

77. However, there is what Connell J described as the "unusual feature" of the case.  It is common ground that (leaving aside the wife's own financial resources which as stated were limited) the entirety of the resources in the marriage emanated from Mr MB, either directly while he lived, or the assets he left after his death.  The husband's case is that although inherited assets are available to meet a needs claim, their derivation is nevertheless a consideration in determining both needs and overall fairness.  While the wife acknowledges derivation from Mr MB as a fact, she does not reflect it in her proposals.

78. The parties do not agree either as to the position of the husband's three other children.  As I have found above, each of the four grandchildren of Mr MB is a beneficiary under the foundation.  The husband's position is that the sums he expends on the children of his first marriage is a consideration which the court must take into account in determining what is a fair outcome between husband and wife. The life savings of Mr MB were intended to benefit his grandchildren as well as his son, and it would not be fair or proper for the court to fix the wife's award at such a level so as to deplete the resources of the foundation to an extent which deprives the other beneficiaries of future support.

79. I take as my starting point the fact that assets of Mr MB were clearly intended to benefit not only his son (that is, the husband/respondent in these proceedings), but also his three grandchildren from his son's previous marriage, as well as M, his grandchild from this marriage.  There are therefore two distinct issues to take into account.  One is the derivation of the financial resources, and the other is the call that the other grandchildren may fairly be seen to have on those resources.

80. In White v White [2000] 2 FLR 981 at 994C-G, Lord Nicholls discussed the difference between what might loosely be described as "matrimonial property" and money inherited by one of the parties.  He said that, when present, the fact that inherited property comes from a source wholly external to the marriage is one of the circumstances of the case, which the judge should take into account, deciding how important it is in the particular case.  In the ordinary course, this factor can be expected to carry little weight, if any, where the claimant's financial needs cannot be met without recourse to the property.  In the context of much greater amounts than in the present case, the subsequent authorities were summarised by Baron J in Y v Y (Financial orders: Inherited Wealth) [2013] 2 FLR 924 at [28] and following.

81. The husband places reliance on B v B (Assessment of Assets: Pre-Marital Property) [2012] 2 FLR 22 at [89] (applying N v F (Financial Orders: Pre-acquired Wealth) [2011] EWHC 586).  It is submitted that assessment of need is not an insulated metric, and the presence of pre-marital property may lead to a more conservative assessment of need.  Essentially, the approach on behalf of the husband was to take the derivation of the funds and the position of the other beneficiaries together, and propose, as it was put, a modest housing allowance for both husband and wife (£1m each).   Another approach, though not one which the parties argued for, would be to take a percentage of the assets as matrimonial property (DR v GR [2013] EWHC 1196 (Fam) at [47]). 

82. Applying the authorities, I consider that that the derivation of the funds is a factor to be given some but not great weight.  However, I consider that in achieving an outcome that is fair to both parties, recognition has to be given to the position of the other grandchildren as beneficiaries of the foundation.  It would not be fair to adopt the proposal advanced by the wife, which would in effect apply the foundation assets in a way which excluded them.  The question is how to achieve a fair overall outcome.

Conclusion

83. As explained, the assets of the foundation and the sale proceeds of the former matrimonial home have to provide a home for the wife and M (and her mother) and a home for the husband (and his second son from his first marriage) and provide for the needs of the wife and M.  The husband has not worked and will not work in the future.  Nothing further will be added to the foundation funds, and though growth can be expected on the investments, the realistic outcome is that they will be run down over time. 

84. On this basis, the order the court will make will give effect to the following.  The former matrimonial home is to be placed on the open market for sale.  Despite the submissions that have been made to the contrary, I consider that the husband should continue to have the conduct of the sale, because in effect the risk of delay lies on him.  The proceeds of sale are to be applied first to pay off the Barclays' mortgage and the reasonable costs of sale.  The sum of £1.6m is to be paid directly to the wife by the conveyancing solicitors to provide her with a housing fund.  This amount is somewhat less than might have been ordered had there been no other beneficiaries to take account of, but I am satisfied that it is sufficient to provide her and M with a home in a good location putting M's interests first.  The balance is to be paid to the husband who will meet any liability for tax.   The wife and M are to continue to have occupation of the house until the property is sold.

85. Periodical payments will have to be met from the principal and income of the foundation assets and the proceeds of sale of the FMH.  From the date of the order the husband is to make payments to the wife for the benefit of M on a monthly basis at the rate of £10,000 per annum, and periodical payments for her on a monthly basis at the rate of £55,000 p.a.  This makes a total of £65,000 p.a., and it is to be paid by standing order.  Though this is considerably less than she has sought, I am satisfied that the remaining funds after the parties are re-housed will not generate nearly enough investment income to avoid drawing down the capital.  As regards M, the order will continue until he completes full-time secondary education or attains the age of 18, whichever is the later.  The husband has supported his other three children following completion of their secondary education without any order, and I see no reason why this will not apply in the case of M.  I will not make a further order in relation to his tertiary education.

86. So far as M's school fees are not paid by the foundation, they are to be paid by the husband.  The cost of any residential school trips is to be paid by him provided that he has agreed to the trip in advance, and subject to a maximum of £1,500 per academic year.  The costs of M's school-organised educational activities is to be paid subject to a maximum of £2,500 per academic year.

87. That leaves two principal points for decision.  The first is the wife's claim for security.  In opening, this was put before the court in unarticulated form, but in closing it was submitted that £1m should be transferred from the proceeds of sale "to a 5 year bond in this country with a neutral third party financial institution to be agreed between the parties.  The funds shall be renewed at the end of the 5 year term (and each term thereafter) and shall run the entire length of the maintenance ordered".

88. I do not think that an order for security is appropriate in this case.  The husband is subject to enforcement by the court should he breach the order.  To tie up nearly a sixth of the total available assets on an indefinite basis would, in my view, be unacceptable, and further would likely make the other financial provisions unaffordable.

89. Second, the court is under a duty under MCA s. 25A(1) to consider whether it is appropriate to impose a clean break, which includes a deferred clean break. Section 25A(2) requires the court when deciding to make a periodical payments order to consider in particular whether it would be appropriate to require those payments to be made only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.  I have considered the position accordingly.  The husband seeks an order for spousal maintenance for a fixed non-extendable term under MCA s. 28(1A) until M reaches 18.  The husband's case in this respect relates to the wife's earning capacity.  He submits that she has a "modest earning capacity of £20,000 pa".

90. It is clear that the wife is well qualified and capable.  In her evidence she made it clear that she would like to work, if at all possible.  However, she also emphasised that her priority will be to look after M, and she has concerns about her mother's ability to assist in that regard as she gets older.  M is now aged 9, so that the clean break proposed by the husband would take effect in 9 years time.  I consider that whilst the wife has in many ways a significant employment potential, the positions that she may realistically be expected to fill are likely to be quite limited, and probably similar to those in which she has worked in the past.  Given current uncertainties, including in the jobs market, I do not think that this is a case for a deferred clean break.  (Nor have I taken her earning capacity into account as regards periodical payments.)

91. The husband is to pay £11,450 towards the costs of the Rawlinson & Hunter report, which is likely to be of value to him.  I am grateful to the parties for their assistance.  There may be matters to be addressed following this judgment, and I will hear them as to any such consequential matters.