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Charman: Sharing in the face of the Dragon

David Hodson assesses what impact the recent judgment in Charman has on ancillary relief cases at all levels

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David Hodson

Summary impact assessment

Introduction
On Thursday 24 May 2007, the Court of Appeal, comprising England's three most senior family law finance judges outside the House of Lords, handed down judgment in the case of Mr and Mrs Charman (Charman v Charman [2007] EWCA Civ 503). Apart from White and Miller (referring throughout this article to the conjoined appeal with MacFarlane) in the House of Lords, it had been the most awaited decision for many years. Primarily this was due to the confusions and ambiguities throughout the Miller judgments. Just as the Miller judgment was itself eagerly awaited in the hope that it would clarify some dramatic contradictions in the higher court decisions, so practitioners across the country had again looked for help.

It cannot be a proper and responsible way to run a national family law resolution industry when its practitioners lurch from reported case to case desperately seeking guidance and clarification. At risk are the very many in our society affected by marital breakdown with the attendant costs, delays and uncertainties which arise with the greater difficulties in settling cases. Some cynics even assert misguidedly that the judges are in cahoots with practitioners to maximise legal costs. The reality is that practitioners are in revolt against the very uncertain state of affairs of family finance law in England.

Fortunately, a judgment has been handed down by the Court of Appeal which realistically is aware of the impact of its judgment on practitioners across the country, and outside the super wealthy cases. It analyses some of the contradictions between their lordships in Miller in the House of Lords. It straightens out semantic, but also litigious, differences since White. It answers head-on the debate about tariffs and starts a constructive debate on percentages. Over very many paragraphs and indeed pages it gives straight and blunt responses to incredibly complex points of appeal and legal argument. Finally it flags up from the Court of Appeal what practitioners, academics and others have been saying for many years, namely the need for a wholesale review of our financial provision law.

Whereas much of the Miller judgment was quite readable, the Charman judgment is in places incredibly dense. However this is mostly in the area of the impact of trusts. For practitioners rarely dealing with such issues, paragraphs 29 - 58 can be safely ignored. The rest is readable and should be read.

This article, written within two weeks of the judgment being handed down, does not seek to be the definitive final analysis. The intention is to guide family law specialists and practitioners dealing with medium asset and reasonably wealthy asset cases across the country. Although indications are given where the judgment is intended to be confined to the super wealthy cases, this is not the primary subject of this article. Equally, practitioners with cases involving trusts, especially offshore trusts, must read the relevant paragraphs of the judgment in much detail.

Background to the Court of Appeal hearing itself
The final ancillary relief claims had come before Mr Justice Coleridge at first instance in February 2006. Judgment was delayed until after the House of Lords decision in Miller and was finally given in late July 2006. The appeal was by the husband alone and heard by the Court of Appeal in March 2007. The appeal was dismissed.

This is however the tip of the iceberg of the proceedings, which had twice before gone up to the Court of Appeal to resolve interlocutory matters and had involved proceedings abroad.

Nevertheless it is important to note immediately that there was only one judgment by the Court of Appeal, given by Sir Mark Potter, President of the Family Division, the other two judges notionally giving their agreement. They were Lord Justice Thorpe, who has been judicially involved in almost every major family law finance case over the past decade, and Lord Justice Wilson, recently appointed to the Court of Appeal but a leading family finance lawyer for the past two decades. It is clear that each of the other two judges was highly involved in the judgment, almost certainly writing key parts.

This was a combined and outwardly unanimous judgment. How refreshing! How great a contrast to the House of Lords in Miller in which there had been two principal speeches by Lord Nicholls and Baroness Hale and one other significant contribution by Lord Mance. Although Lord Nicholls and Baroness Hale clearly agreed on a number of important and jurisprudential matters and had clearly been aware of what each was intending to say, they were very distinctive on some important aspects without giving any help at all to the profession on how those differences could be resolved to benefit the family law clientele of England and Wales. Lord Mance said he agreed with both, then expressed preference for Baroness Hale's approach in specific respects and then proceeded to offer his own distinctive ideas. At the highest level of the judicial system in England and Wales in a case in which everyone was seeking clear guidance in a state of great uncertainty, some would say it was judicial indulgence in the name of judicial independence.

If the Law Lords in Miller could not agree what should be the family law of England and Wales then what hope, then, for judges at lower levels adjudicating on cases, for solicitors and barristers advising clients, and for mediators striving to bring about a settlement and, crucially, for clients trying to work out what was fair?. The cost in litigation and argument arising in these past 12 months from these differences between the judicial lordships has been high. Undoubtedly, the House of Lords gave considerable assistance in clarifying certain key elements of the law where the Court of Appeal and High Court had created uncertainty. Undoubtedly, the House of Lords gave considerable assistance in developing the jurisprudence on what should be a fair settlement. However by failing to agree amongst themselves, and in effect putting it back to the Court of Appeal and the High Court to resolve very many issues, they did a disservice to the profession.

The Court of Appeal has re-established the English spirit of family law, of a collaborative approach and of a practical analysis of how to help clients towards understanding what is a fair settlement. Wisely, they have flagged up areas where more certainty is needed but they have thought inappropriate to deal in this particular judgment. The Court of Appeal judgment in Charman should be a model for all higher court decisions, including the House of Lords, where the profession and its clients are waiting for help and guidance.

The three judges are strong minded, independent, jurisprudentially thoughtful and no doubt had their own views on some of the aspects in the judgment in the case. Nevertheless by subsuming them within one unified judgment, they have served the profession very well and are to be congratulated.

Facts of the case
Although the sums involved were colossal, the facts and the issues, except for those involving trust law, are relatively straightforward and typical of cases argued daily before district judges.

The husband and wife are both 54 years of age. There are two children, aged 20 and 24, independent financially. The couple met when they were 17 and at sixth form at school. They became engaged three years later and married after three more years, in 1976. Like many couples marrying at that time, before the substantial wealth created from the Thatcher years and handed down to many marrying now, they started with nothing financially. The wife worked for a number of years as a civil servant until 1982 when she stopped for the first child and in effect has not returned full time to the workplace.

The husband's career deserves utter admiration for his business acumen, brave and bold approaches, commercial foresight and ability to come back after unexpected business setbacks. The description at paragraphs 15 to 20 of the judgment reads like a novel: a story of outstanding business success.

In 1971, at the age of 18 and unqualified, he started working as a junior clerk at an underwriting agency in Lloyds. His career developed incredibly. He worked in increasingly senior capacities in the underwriting industry. Within 15 years of leaving school and starting from the bottom, he had purchased an underwriting agency which was in disarray and within a decade had turned it into the largest and most profitable agency at Lloyds. It was during this time that a significant amount of his personal wealth was put into an offshore discretionary trust known as The Dragon Holdings Trust. This was a significant feature of the case. Despite the major difficulties then facing Lloyds, he was one of the few with the drive, ingenuity and courage to bring the institution and its companies through to financial success. Feeling frustrated by the restrictions of those then managing Lloyds, he sold his business to become part of a global insurance company and in turn his work became international. The value of his interest in the company, including in trust, was about $130 million. But soon there were differences within the new company and he left it. Importantly at this time when the husband suffered a setback in his business career and as the judge at first instance found, the parties grew close and the wife gave the husband considerable emotional support.

The husband embarked on plans for a new global specialist insurance business. Ironically, the 9-11 terrorist attacks helped to accelerate and enlarge his plans. The timing was fortunate for him. Within six months of the new business being set up, it had investment of $2.5 billion. The company continued to grow. This was its position at the time of the divorce. An outstanding story of incredible hard work, the very best business acumen, bravery and boldness, overcoming setbacks and just a little bit of luck of timing! His story and efforts demand complete admiration.

Throughout the marriage, the couple's home had been in England. However for many years, the main company had been based in Bermuda. Mr Charman became UK non-resident in January 2003. He urged his wife in 2002 to move to Bermuda to be with him as he was now restricted in the time he could return to England for tax reasons. She was reluctant. Their younger son, then 15, needed help with his education in England. Her elderly parents lived nearby and needed her support. She was reluctant to move. However the wife was concerned about the impact on the marriage and in October 2003 proposed to move to Bermuda in order to save the marriage. Sadly, by now, the husband had commenced another relationship and the marriage came to an end. It had lasted almost 28 years.

Background to the proceedings
The admiration for this husband in his business career ends with his approach to a fair resolution of this case. He has fought at every possible stage and in almost every possible fashion to prevent what the majority of family law practitioners would consider to be a fair and reasonable outcome after a long marriage with no premarital assets, namely an outcome at or a little way below equality. The judgment does not state the level of costs. In one previous interlocutory hearing, it seemed as if the husband was incurring costs at the rate of £100,000 per month. The case has occupied very many weeks of judicial time. At the Court of Appeal, each party had Chancery leaders and juniors as well as family law leaders and juniors. There were proceedings in Bermuda. The matter had been to the Court of Appeal twice on interlocutory issues before the appeal on the substantive financial outcome. Before the Court of Appeal hearing, the husband had engaged on a highly publicised media campaign criticising the law and specifically the family law process.

The week before the first instance decision, Mr Charman announced his retirement from his company, a matter the judge found both reasonable and irrelevant to outcome. The Court of Appeal specifically commented on his "indignation" at the wife pursuing her claim and of the award at first instance, where the judge found the husband was genuinely "bemused" that an offer of £20 million out of total assets of £131 million was anything other than reasonable or generous. The consequence of his indignation had created "hard fought litigation at every turn".

The judges involved in this case, particularly Mr Justice Coleridge, are to be hugely congratulated for stalwartly standing up to many legal arguments and applications against a fair outcome.

Equally, Mrs Charman's legal team, Manches and Co and Martin Pointer QC, must be highly commended for their perseverance, determination and legal resourcefulness in fighting this all the way to a fair outcome. When sometimes parts of the family law profession seem almost afraid of litigation and more concerned for a settlement than client representation, her legal team have shown the traditional skills and classic attributes of family law representation through litigation.

After the wife initially issued for divorce in England, the husband issued for divorce in Bermuda and applied to stay the English proceedings. He was ordered by Mr Justice Coleridge not to take any further steps with the Bermuda proceedings until the stay application in January 2005, which was then dismissed. The husband argued that the primary vehicle for his Dragon trusts were in Bermuda and governed by Bermudan law. These represented approximately one half of the husband's total wealth. However the wife very wisely said that she would not be seeking provision from these Bermuda trusts although of course alleging that they were a section 25 resource. In doing so, the English court did not therefore have to consider in detail the circumstances in which it might be possible to enforce directly against Bermuda trusts or nuptial settlements. The judge came to the view that this was a case "as English as Tunbridge Wells".

The financial proceedings continued. The husband now alleged that the trusts were not a resource available to the court because they were held for the benefit of his issue as yet unborn and constituted a dynastic trust. The Dragon trust was therefore not a resource for the family court. The wife through her advisers decided that they needed documents regarding the trust in order properly to investigate and advise. She applied to the English court for an order for a letter of request to the Bermuda court to require a director of one of the trust companies to produce certain documents. There have been a series of cases both in England and abroad in which this procedure has been commended as a way of reaching disclosure. However the husband opposed the application for the letter of request. Mr Justice Coleridge granted it. The husband appealed to the Court of Appeal which appeal was dismissed, [(2006) EWCA Civ 1606].

The letters of request went across to Bermuda but very surprisingly, and contrary to what would normally be expected, the Supreme Court of Bermuda did not allow a full hearing of the letter of request. The decision was strongly condemned by the English Court of Appeal, describing it as unexpected especially as the courts of England and Bermuda have similar principles on financial provision and disclosure by a third party. There was no time for the appeal in Bermuda before the final ancillary relief hearing in England in February 2006. After the hearing itself, it was agreed that judgment would be delayed for the House of Lords decision in Miller. There was then further submissions on the effect of Miller, and judgment given in July 2006.

At the time of the hearing, the wife had assets of £8 million inclusive of the matrimonial home which was agreed to be transferred to her. The husband had personal assets of £55 million, with an additional £68 million held in the Dragon trust. A total asset base of £131 million. The judge ordered the husband to pay the wife £40 million. This provided her with a total of £48 million representing approximately 36.5% of the total assets inclusive of those in the Dragon trust. The rationale for the departure from equality was the special contribution of the husband together with an element, to a maximum of 3%, as he was taking the higher risk assets.

The husband appealed. He had been ordered to pay £12 million of the £40 million by the end of August and the court adjourned the question of payment of the balance until October. The husband failed to pay the full £12 million. The matter came back before Mr Justice Coleridge who required him to pay the full amount of the £12 million by mid-November, which he did although a couple of days late. Mr Justice Coleridge ordered the balance to be paid by 1st March. The husband appealed this decision to the Court of Appeal. The wife understandably said that as the husband and most of the assets were out of the jurisdiction, he should pay the full amount either to her or into court as a basis for being able to appeal. The husband managed to avoid this order being made and a reading of the Court of Appeal judgment, [(2006) EWCA Civ 1791], indicates that he was somewhat lucky to be able to do so. He was ordered to pay costs of the appeal into court as security but the remaining £28 million remains wholly or predominantly offshore.

Grounds for the appeal
The husband had primarily three grounds for his appeal. First, the method by which the judge arrived at the outcome of a payment of £40 million was wrong. He made insufficient allowance for the husband's special contribution and had approached it in the wrong way. In doing so, therefore, he raised fundamental questions about contribution under section 25 and the role of equality. The second ground of the appeal was that the £68 million held within the offshore discretionary trust should not have been treated as a resource for a number of reasons. Thirdly, and in a very minor fashion, the judge had wrongly approached a question of outstanding tax.

Issues of trust law
On any basis, the background to the offshore trusts is complicated. This article cannot possibly do it justice. However once one stands back from the very considerable detail and complexity of arguments, the stripped away facts are abundantly clear. These trusts assets were a resource of the husband and should be brought into the section 25 equation. The Court of Appeal judgment on this aspect is dense as to the various facts. However ultimately it found certain facts by which it came to the conclusion that it was a resource.

The Court of Appeal considered the following, namely:

Very shortly before the Court of Appeal hearing, the husband put forward yet further submissions with the assistance of accountants and Chancery Counsel about the trust which the Court of Appeal found to be inconsistent with his original case and had the effect of weakening his argument that this was not a resource available to the family court for consideration.

In considering this aspect of the case, the Court of Appeal drew attention to the important change since White. Previously, when determining the reasonable requirements of an applicant, there was sometimes no need to make an exact computation of resources. However, with division at 50% or another relatively close proportion, it is fundamental for the court to know the total resources available within the family, including trust funds.

In a ringing endorsement of the English family courts' powers of disclosure, the Court of Appeal said it was essential for the court to bring "a judicious mixture of worldly realism and of respect for the legal effects of trusts, the legal duties of trustees and, in the case of offshore trusts, the jurisdictions of offshore trusts" (para 57). In the circumstances of the present case, it would have been a "shameful emasculation of the court's duty to be fair if the assets which the husband had built up in the Dragon trust during the marriage had not been attributed to him" (para 57).

Thus, there was no need for the wife to establish that the trust was a sham, to have it set aside or to claim an interest in it. It was simply necessary to show that it was a resource, which she did. And so would any district judge have held, knowing these stripped away facts and in cases with only 1% of the assets of Mr Charman.

Section 25 and equality
The decision becomes of much greater relevance to practitioners when the Court of Appeal turned to the appeal regarding the first instance judge's treatment of special contribution. The judge had gone back to section 25, saying that despite endless judicial glosses, it was always best to start and end with that section. The judge had gone through the various s25(2) factors. Specifically he had looked at the question of contribution. He had decided that the husband's remarkable abilities, his energy and wealth creation amounted to contribution which was wholly exceptional and justified a departure from equality. However he had also noted that the House of Lords in Miller had been "completely silent on how to apply these principles into figures", yet this was the "more difficult part of the exercise" for practitioners. He decided that if any departure from equality was appropriate, it should be "meaningful and significant and not a token one".

The Court of Appeal looked at the statutory guidelines. They said they wanted to be "loyal to the spirit as well as the letter of guidance" of the House of Lords in White and Miller especially as "under that guidance the House of Lords had left much for the courts to develop", but also they wanted to express themselves as "clearly and simply as the subject allows" (para 63).

They looked first at what had been described in White as the yardstick of equality of division. This had caused much debate in the post-White years. What was the specific nature of the yardstick? It was not a presumption. It had been described as a check against, for example, discrimination. Was it a guideline? Was it a starting point? The Court of Appeal found that there had been a significant movement since White. Whereas it might originally have been a yardstick, it was now definitely in the form of a starting point or principle. The Court of Appeal said that it was clear that the court's consideration of the sharing principle is that property "should be shared in equal proportions unless there is a good reason to depart from such proportions; departure is not from the principle but takes place within the principle". References to yardsticks and checks are no more. Equality is now the starting point principle. In practice, this is the way in which many solicitors and barristers have operated but it is now wholly clear.

Non-matrimonial property
In this area, the Court of Appeal gave guidance that differed from the way in which many practitioners had operated in the past 12 months since Miller. The Court of Appeal asked to what property the sharing principle operated. As to matrimonial property, it is clearly applied. However, regarding non-matrimonial property, there was a view that the sharing principle did not apply or not apply so strongly. The Court of Appeal said that this view was consistent with several references by Baroness Hale in Miller. However they thought that the proper answer was that "the principle2 of equality of sharing "applies to all the parties' property but, to the extent that the property is non-matrimonial, there is likely to be a better reason for departure from equality" (para 66). This was, they said, the approach in White and the approach of Lord Nicholls in Miller.

This is subtly different from what has been happening in some cases in the past 12 months, both in first instance decisions before district judges but also at reported High Court level. Whilst matrimonial assets had been subject to almost automatic equal division when in excess of needs, the non-matrimonial assets had been treated as being more likely to be equally divided or divided in proportions approaching 50% if there was a long marriage, significant contribution, especial mingling and mixing and similar. Several reported cases included detailed debates between eminent family law counsel about the process of bringing non-matrimonial assets into the family law resources division. Chief among them is S v S [2006] EWHC 2793.

It is probable that paragraph 66 of the Court of Appeal's judgment in Charman will attract the most attention by practitioners. The Court of Appeal is not treating matrimonial assets and non-matrimonial assets alike. It is clear that in respect of non-matrimonial assets the court will have a better reason to depart from equality. But by how much and why?

The starting point is not strictly the sharing principle but must always be the computation of the overall level of the resources of the parties. Only once this has been done can the court look at what is a fair distribution. Future income must always be appraised even in the clean break case. English law therefore has a two stage process, namely:

  1. working out what are the appropriate level of assets and then
  2. deciding on the appropriate division and distribution according to what is fair and based on s25 and case law.

This two-stage process has been adopted since White. It is curious to contrast this with the Australian process in which

  1. the first stage is identical, namely working out the level of resources
  2. the second stage is an analysis of contribution in percentage terms and then
  3. the third stage is an analysis of needs as and if appropriate.

It is these second and third stages in the Australian process, the interrelationship of contribution and needs, to which the Court of Appeal next turned.

It looked at the principle of compensation, the financial disadvantage which on divorce some parties face as a result of decisions they took for the benefit of the family during the marriage, for example in sacrificing or not pursuing a career. However the Court of Appeal said that the principle was wider. At paragraph 71 it looked at different aspects of compensation. This is very helpful. The Court of Appeal comes to the aid of the House of Lords by showing how the compensation element of fairness had already exhibited itself in other aspects of ancillary relief provision law. It concludes by saying that "the application of the principle of compensation is an appropriate contribution to the fair result" (para 71).

On sharing, this is dictated by the contributions to the welfare of the family and also the duration of the marriage. Conduct might be a reason to depart from equality although it is unnecessarily confusing to present contribution as a positive type of conduct.

In Miller, Lord Nicholls and Baroness Hale had engaged in a debate on whether one of the three strands of fairness (needs, compensation and sharing) predominated. Where needs produce a result greater than that produced by sharing, the principle of needs should prevail, held the Court of Appeal. This has been obvious to most practitioners across the country from Miller notwithstanding the rather ivory tower debate contained within the judgments.

Where needs are satisfied by sharing and compensation, the latter should prevail. These comments at paragraph 73 very helpfully confirm the position.

On behalf of the husband it was argued that the courts should build an incremental approach to the claims of one party, looking at each of the s25 (2) factors and building them up, rather than necessarily starting at equality and deciding how much to depart from it. This approach was roundly dismissed. In the non-needs cases, the sharing principle predominates. Having started with this principle, it was appropriate to look at whether there was an appropriate departure. Arguments of discount were simply arguments of departure by another name. It was further said on behalf for the husband that the court should look at providing for the needs of the parties and then decide on the appropriate proportionate distribution of the residue. This was also roundly condemned. The Court of Appeal felt that this would be the worst of both worlds.

Special contribution
Special contribution survived Miller. It is a special section 25 (2) factor. The court has to look at past contributions and not necessarily give all contributions equal weight. However the House of Lords in Miller had heavily circumscribed the situations in which special contribution might lead to a departure. In this regard the House of Lords was stated to be unanimous, a somewhat ironic retort by the Court of Appeal.

The Court of Appeal keenly stated that special contribution had to be non-gender discriminatory. It could be non-financial as well as financial. It could be by a spouse whose role had been exclusively that of homemaker. Nevertheless, thus far special contribution had only arisen in cases of substantial wealth generation through business acumen. What else could be substantial contribution? But was it the level of wealth alone which made the contribution substantial? In some cases the level of wealth might be so extraordinary as to allow an exceptional departure from equality. But the level of wealth is not alone sufficient. There will have to be a quality to the contribution, whether in business or some other field. Sometimes the level of wealth will be simply a windfall and not the product of special contribution. So the level of wealth itself cannot alone be the criterion.

The Court of Appeal drew attention to the debate provoked by Baroness Hale's reference to the contributions needing to have been referable to the welfare of the family. This reference had created much litigation. It was said that she had articulated a refinement to contribution as not being generally attributable to the wealth but specifically directed to the welfare of the family. Help was needed from the Court of Appeal to stop this line of litigious introspection. The Court of Appeal firmly said that "a party's resources would not fall outside the courts' redistributive powers just because it was not a product of contribution" directly to the welfare of the family (para 81). The Court of Appeal described the relevant passage in the speech of Baroness Hale as "difficult". Practitioners might less diplomatically say confusing, unhelpful and an encouragement to litigation.

Next was reference to the observations by Baroness Hale that the sharing principle would not apply to non-business partnership, non-family asset cases where one party alone had substantially worked on the business. This had also produced much debate amongst family lawyers and costs in litigation over the past 12 months. The Court of Appeal hastened to correct what they said was a "serious misapprehension at the heart of this submission". They said Baroness Hale put forward this distinction as applicable only in cases where the marriage was short. In addition, it might also be appropriate in cases of a dual career family. She did not specifically commend its distinction for use in other cases. To do so would be "deeply discriminatory and would gravely undermine the sharing principle" (para 83). Practitioners will be pleased at the Court of Appeal's intervention on these issues raised in the various judgments in Miller which have caused confusions.

The Court of Appeal then looked at the sharing principle when property had been generated during a short marriage. They accepted that in this area "the members of the House of Lords were in substantial disagreement". They said that the approach of Lord Nicholls was the more logical. The approach of Baroness Hale and Lord Mance was more pragmatic. The Court of Appeal favoured that of Baroness Hale in relation to dual career families. Where "both parties had worked throughout the marriage, had pooled some of the assets built up by their efforts but had chosen to keep other such assets under their separate control, the latter although unequal in amount were unilateral assets which might not be subject to the sharing principle" (para 86). They said this concept should be "closely confined" but they predicted a "movement in the law towards a more frequent distribution of property on divorce in accordance with what, by words or conduct, the parties appear previously to have agreed". This is at one level commendable as it is consistent with cohabitation law in many regards and respects marital actions and wishes. However at another level in some cases it is deeply problematical. What may be the manner in which a number of couples, especially those moving from the classic separation of resources in cohabitation relationships, deal with their resources during marriage may then not be a fair outcome on divorce.

Tariffs and equations
The Court of Appeal considered carefully the postscript to the judgment of Mr Justice Coleridge in which he wondered aloud whether there might be a threshold of wealth at which the court might consider, perhaps on the bases of a tariff, it was appropriate automatically to depart from equality. Leading counsel for the husband and wife could not agree on what this figure should be. What would be the level of wealth at which the departure from equality would occur? One said £40 - £50 million. One had said in the case of Lambert five years earlier that it should be £10 million, which is now frequently regarded as a reasonably big money case but certainly not a super big money case. The Court of Appeal found itself unable to identify any figure as a guideline threshold for special contribution and felt it would be dangerous to do so. It might discourage a court from discerning special contribution at a lower level of wealth. It might mean that a departure from equality was inevitable above that level of wealth. The Court did not consider such an approach to be useful.

Nevertheless, although declining to identify a threshold for the application of the principle of special contribution, the Court felt that it would be helpful to give guidance on the appropriate percentage range of adjustment in cases in which there would be departure. At the lower end, they agreed that an adjustment should be significant as distinct from token. It should not be less than 5%. However they felt that it would be unlikely to be more than 16.6% namely a differential of one-third to two-thirds.

It must be pointed out that this range of 55% to 66.6% is referable only to special contribution. It does not relate to other departures, such as pre-marital wealth or gifts or inheritances.

The Court of Appeal added that a further departure from equality might lie when one party was taking assets with a much greater level of risk. This was the outcome in the Charman case and it was accepted that this departure percentage was a maximum of 3%. Therefore, of Mr Charman's 63.5% of the assets, 3% reflected the fact that Mrs Charman had safe, secure assets. If this 3% departure is ignored, the outcome would have been 60.5% / 39.5%. Many family law cases at district judge level are perfectly fairly settled at approximately 60:40. Despite the colossal assets, Charman has proved no different.

Unquantified debts at the time of the final hearing
A minor, subsidiary issue for the court was that the husband had a potential tax liability. It is not unusual at final hearings for there to be possible outstanding claims. How should this be dealt with? The Court of Appeal ruled that the wife should be responsible for the percentage of the debt, when quantified and due, in accordance with the percentage that she received from the overall level of assets. An entirely pragmatic and fair outcome. This scenario occurs quite frequently at trial and this guidance is helpful.

A very subsidiary issue arose regarding the husband's bonuses after the date of separation. This issue has been the subject of several High Court decisions after Miller. The Court of Appeal felt that this case was not a suitable one to review the merits and demerits of those decisions and in any event the amount (the bonus was £1 million) was not so substantial as to affect the outcome.

Changing the law
Perhaps with the lack of any highly controversial content of Charman, testimony to the sensible and practical approach adopted by the three judges, it is the judgment's postscript on changing the law which has attracted more general attention. It starts by a careful exposition of the history of family finance law, looking at the 1969/1973 changes in statute and fundamentally at the direction led by cases such as Preston (1982) which concentrated on the needs of the family. Needs became reasonable requirements in middle class and bigger money cases. This methodology produced predictability and clarity, and greatly assisted in settlements. It also prevented the extravagance of high awards as found in some American states. It was the model of settlements of a generation from the mid-1970s until 2000.

However there was increasing dissatisfaction with the needs/reasonable requirements law. It produced great unfairness in some cases. This dissatisfaction was in part overcome by the reforms to procedural law, especially case management. This became the new ancillary relief procedure.

In 1998 the government announced, suddenly and unexpectedly, an initiative to reform s25. Favourable reference was made to the Scottish model and a number of judges, solicitors, barristers and academics spent a weekend in Scotland with Scottish lawyers analysing it. The verdict was an unanimous rejection but no real alternative. The government then brought forward, again unexpectedly and within a White Paper directed to supporting families, a number of aims for a financial provision law together with endorsement of pre-marriage agreements. There was a mixed response and no unanimity. No further legislation came forward.

The decision in the House of Lords in White got rid of reasonable requirements and produced the yardstick of equality. The decision reflected social change, recognising marriage was now viewed as a partnership of equals with interchangeable gender roles.

However, as the Court of Appeal notes, major changes were simultaneously occurring in society. England in general and London in particular had become home to many couples of very considerable wealth, some national and many from abroad. Their wealth was specifically not handed down from previous generations; it was new money. Favourable tax regimes, competitive capital markets, closely linked offshore structures, attractive lifestyles, changes in the European Union and numerous other factors resulted in many families of very dramatic wealth living in England or with a base in England. The White decision, eradicating the ceiling of reasonable requirements, accelerated the increase in the awards of the English family courts. White has more than doubled the levels of divorce awards. The Court of Appeal stated that London had become the divorce capital of the world for aspiring wives. Few would doubt this. The combination of the change in the law and the attraction of London as a finance and residence centre has produced many large family law outcomes.

The Court of Appeal went on to state that White did "not resolve the problems faced by practitioners in advising clients" upon the terms of settlement (para 117). This may be true. What is even more true, but predictably not stated, is that several subsequent decisions of the High Court and Court of Appeal had made settlements much more difficult in average cases. Although the Court of Appeal is right to analyse the need for a change in the law, they fail altogether to appreciate that solicitors across the country in the immediate aftermath of White stunningly reappraised rapidly what was the new sense of fairness and simply got on with settling their clients' cases according to this new fairness. A good amount of the need for change arises because judge-made law has created a lack of clarity, certainty and predictability.

The Court of Appeal is however bold enough to admit that "specialist practitioners have not received the House of Lords' decision in Miller as one that introduces the benefit of predictability and improvement of the prospect" for settlements (para 120). They refer to the excellent editorial by Andrew Greensmith, then chair of SFLA/Resolution in Family Law magazine (2007) Fam Law 203. The Court of Appeal says that "if this is so, it is highly unfortunate".

It is not simply a question of "if" it is so. Why will not the higher judiciary listen to solicitors across the country? Why will they not simply accept what is written by a leading provincial solicitor, highly regarded as well as being a deputy district judge, who had spent the previous 12 months as chair of the family law solicitors profession travelling the country and listening to what solicitors were saying about the state of family finance law? At times higher court judges seem cocooned and exposed only to those solicitors and barristers undertaking the very big money cases. A daily diet of Charman does not give an appreciation of the bulk users of the family law finance resolution system, clients struggling to pay privately yet striving to reach a settlement, the middle-class disputes across the whole of England. These clients and their solicitors have suffered badly at the hands of the disputes, contradictions and conflicts between the senior judiciary of this country. Even now, in the postscript to Charman, there is no unequivocal recognition of the difficulties experienced by specialist practitioners.

The Court of Appeal stated that arguably the Matrimonial Causes Act is in need of modernisation in the light of social and other changes as well as in the light of experience.

The Court of Appeal went on to emphasise the importance of an awareness of the law of other jurisdictions. Amongst the internationally wealthy families, a number of possible forum/jurisdictions may apply. London is attractive for applicants. Outside the European Union, with its first to issue principle which itself is utterly unfair and against the best interests of mediation and marital counselling, forum disputes are decided on discretionary criteria. These often result in high costs which are disproportionate to the parties and their means. The Court of Appeal drew attention to expensive costs incurred in recent forum cases of Bentinck and Moore.

It is however particularly problematical when England still applies its own local law whereas most of Europe applies the law of the country with which there is the closest connection, known as applicable law. Moreover, within Europe there is a fundamental distinction between issues of maintenance and property regime. This distinction is almost entirely unknown within England. Moreover across much of Europe, pre-marriage agreements, even without financial disclosure and separate legal representation, are binding whereas in England they are not even a section 25 factor. Reference was made for the need to consider again the status of these agreements.

Throughout it has not been helped by the fact that the European Commission has seemed wholly incapable of understanding English family financial law.

The Court of Appeal called for review of English financial provision law on divorce.

Conclusion
Although much awaited, the Court of Appeal decision in Charman is, in fact, very uncontroversial. It confirms the outcome that many would have expected, but many expected the actual outcome in Miller and McFarlane anyway! Several recent high profile appeals have only confirmed what the vast majority of practitioners had considered anyway to be the correct outcome. But no doubt the appellants were not listening to the advice of the vast majority of practitioners.

The Court of Appeal is to be commended hugely for producing a single judgment by these three leading judges. This must be the model for the future to avoid remarks and judicial dissensions which only produce litigation, confusion and increased costs.

The Court of Appeal has rightly admitted the several difficulties from remarks made in Miller by Lord Nicholls and Baroness Hale and have done their best to provide a sensible and practical solution.

There is one primary area where some uncertainty has arisen. Should non-matrimonial assets become more like matrimonial assets with the length of marriage, amount of contribution and the amount of mingling so that they are increasingly likely to be equally shared? Alternatively, as now stated by the Court of Appeal, should those assets start as matrimonial property for the principle of equal sharing but then be subject to departure according to what is fair? Arguably, there should be no different outcome. Probably the result is that there will be a lesser departure under the second test than the first. This may mean more outcomes where all of the assets are closer to a 50% division.

The Court of Appeal has confirmed the increased status of equality division, not just as a yardstick but now a principle. Where sharing cannot meet needs, the needs principle prevails. Where sharing answers needs, the sharing principle prevails. There is no level of wealth at which there should be an automatic departure from equality. Nevertheless special contribution is unlikely to be other than between 55% and 66.5% uplift from departure.

There is no new law on trusts but the Court of Appeal has demonstrated in the face of complex arguments of Chancery leading counsel and top accountants how judges should analyse and then strip back the facts to show, where necessary, that trust assets under English law can and should still be treated as the resource of one party.

English financial provision law has a two-stage approach, namely ascertaining with a degree of precision the level of the assets and secondly deciding on whether and if so what departure is needed from equality if needs are met.

Where there are unquantified debts at the time of the final hearing, fairness will often dictate that they are met in the proportion in which the other marital assets resources of the parties are divided.

The Court of Appeal has stated that the current law needs revision, that judge made reforms alone are enough but that this has to be in the context of the family law of neighbouring jurisdictions, specifically within Europe.

And Mr Charman lost convincingly: on the facts of the case he should have done. What will puzzle most family law solicitors and mediators is how the matter progressed so far. A very long marriage, no premarital wealth, emotional support by the wife to the husband, and assets well in excess of needs. Under what circumstances could anyone then consider it was fair that Mrs Charman should have £20 million, as he had offered, out of a total wealth base of £130 million? He would never have satisfied the LSC's merits criteria to pursue such a case on legal aid. It was only his fortune that enabled him to do so. The first instance judge got it absolutely right. The Court of Appeal judges endorsed it. They have refused him leave to appeal to the House of Lords. Apparently he is going to appeal direct. With wealth, he can try to do so. All concerned about a sense of fairness in marriage will hope that he fails.

Curiously, he is in stark contrast to Mr Miller. Despite Mr Miller having an affair which quickly brought an end to the marriage, the sympathies of many practitioners are with Mr Miller. No one has been able logically to produce an explanation for why Mrs Miller received one third of the marital acquired wealth of the very short marriage, specifically as the seed corn for that wealth was sewn prior to the marriage. None of the judges in the Court of Appeal or the House of Lords endorsed the award of £5 million, merely upholding it because England has such limited, and increasingly unreasonably limited, range of opportunity to appeal successfully. Within a week of the Charman judgment being handed down, it was announced that Mr Miller was appealing to the European Court of Human Rights against the House of Lords decision on the basis that the level of discretion to judges under English family law makes the law so uncertain, unclear and unpredictable as to breach his property rights. Many practitioners might well endorse Mr Miller's petition. From some Court of Appeal decisions after White through to the House of Lords decision in Miller, practitioners have been given a succession of higher court judgments which have been unclear and uncertain, moreover confusing and creative of litigation and destructive of prospects of settlement. One primary need for reform has been to overcome these.

The good news is that the Court of Appeal decision in Charman starts to reverse this unhappy trend. More such decisions, unanimous when by way of more than one judge, may provide clarity, certainty, predictability and resolution encouragement to English family law finance. Perhaps at last the Court of Appeal has realised that English family law practice has been staring into the mouth of a dragon. It is still time for the Court of Appeal and the High Court, as evidenced by the judgments in Charman of Mr Justice Coleridge, to help the profession bring about a clear, predictable, workable and settlement-orientated family law finance resolution system.

David Hodson
© June 2007
dh@davidhodson.com

David Hodson is a solicitor and mediator, an Australian solicitor and mediator, an arbitrator and sits as a deputy district judge at the PRFD, London. He is a regular author and writer on family law matters. He is a consultant at The International Family Law Group, Covent Garden, London.