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B v S (Financial Remedy: Marital Property Regime) [2012] EWHC 265 (Fam)

Financial remedies case including an analysis of matrimonial property regimes and more helpfully a straightforward analysis of the law relating to periodical payments.

The parties were married for 14 years and had two children aged 10 and 12.  One of the issues in the case was the weight to be attached to an alleged agreement between the parties that they had adopted a matrimonial property regime of separate property that was made when they married in Catalonia.  In addition, there was a further express separation of property agreement made in another country but the need for anonymity in the reporting of the case restricts the helpfulness of the comparison.

However, Mostyn J does provide a helpful review of the type and form of pre-nuptial agreement with consideration of the Law Commission Consultation Paper No. 198 "Marital Property Agreements".  In addition, the judge reviews his summary in Kremen v Agrest (No.11) (Financial Remedy: Non-Disclosure: Post-Nuptial Agreement) [2012] EWHC 45 (Fam) of the effect of Granatino v Radmacher [2011] AC534, SC.  Additional consideration of V v V [2011] EWHC 3230 (Fam), Z v Z (No. 2) [2011] EWHC 2878 (Fam) and reproduction in the judgment of a critique on Catalan law leads the judge to a conclusion that the court may depart from the default position where it would be unjust to implement it and likely to be so when economic imbalance exists between the parties.

In considering the applicable principles relevant to capital division, it is held that the principles of sharing and need are likely to be the most applicable and compensation is restricted to exceptional cases as exemplified in McFarlane v McFarlane [2006] 2 AC 618.  Mostyn J concludes, however, that the law relating to an award of periodical payments is not so clear.  In analysing the approach to such an award he states that simplicity and clarity are needed in this area just as much in the field of capital division.  Save in the exceptional kind of case exemplified by McFarlane, a periodical payments claim should, the judge held, be adjudged (or settled), generally speaking, by reference to the principle of need alone.

Summary by Richard Tambling, barrister, 1 Garden Court


_________________

This judgment is being handed down in private on 17 February 2012. It consists of 90 paragraphs and has been signed and dated by the judge.

The Judge hereby gives leave for it to be reported in its anonymised form as B v S (Financial Remedy: Marital Property Regime).

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


Case No: FD09D06007
Neutral Citation Number: [2012] EWHC 265 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17/02/2012

Before :

MR JUSTICE MOSTYN
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Between :

B Applicant

- and - 

S Respondent

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Mr Valentine Le Grice QC (instructed by Family Law in Partnership) for the Applicant
Mr S  appeared in person as the Respondent

Hearing dates: 6 -14 February 2012
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Judgment
Mr Justice Mostyn:
This is the approved anoymised version of this judgment. The anonymisation has been agreed between by the parties and approved by me. Among other things the nature and location of the husband's business has been obscured, and the names of the children changed.

1. This is my judgment on the claim by Mrs B ("W") for financial remedies following divorce against Mr S ("H"). Her Form A is dated 10 June 2010.

2. W was born in Spain on 13 May 1968 and is therefore 43. H was born in Country A to Country X parents on 30 January 1969, and is therefore 42. He has dual Country A-Country X nationality. H and W married in Spain (Catalonia) on 2 September 1995. There are two children of the family, Ruth who is twelve years old and Esther who is ten years old. Since June 2004 the family has lived permanently in England. The marriage foundered in February 2006 but H and W remained living under the same roof sharing domestic life until W brought divorce proceedings in December 2009 with Decree Nisi being pronounced on 30 July 2010. On 3 August 2010 W brought an application for leave to remove the children from England to live in Spain. That application was heard by Miss Recorder Ball QC in July 2011 and was dismissed.

3. W was represented by Mr Le Grice QC. H, who is intelligent and articulate, has represented himself both charmingly and competently, although perhaps not with the firmest of grips on all the nuances of the applicable principles.

The matrimonial property regime
4. An important issue in this case is the weight, if any, to be ascribed to an alleged tacit agreement by the parties to adopt a matrimonial regime of separate property made by them on their marriage in Catalonia on 2 September 1995, bolstered by an express separation of property agreement made by them in City A, Country  A on 14 September 2000, which is governed by Country A's law, but which was plainly intended to deal with a specific property being bought in W's name at that time which would otherwise have been governed by the default Country A community of property regime. The reason I have described the first agreement as "tacit" is because almost uniquely among civil jurisdictions Catalonia has separate property as its default matrimonial property regime.  (I say "almost uniquely" as Croatia has also been mentioned in this context).

5. In my judgment there is a marked difference between a negotiated pre-nuptial agreement which specifically contemplates divorce and which seeks to restrict or influence the exercise of discretion to which the law gives access, and an agreement made in a civil jurisdiction which adopts a particular marital property regime. The key features of a civil law marital property agreement are described exceptionally clearly, and in terms on which I cannot improve, in The Law Commission Consultation Paper No 198 "Marital Property Agreements" (11 January 2011). In para 4.6 it states:

"…the vast majority of European countries operate marital property regimes. These share three features. One is that they are systems of rules for the division of property on death, divorce or bankruptcy. That division is equal unless a couple have made it otherwise by contract. Another is that they are not concerned with what is usually referred to in the European context as maintenance, or income provision for spouses and children after divorce. The third is that they all involve the facility for couples to opt for a change of regime, before or after marriage, by contract." 

6. The text then goes on in paras 4.7 – 4.15 to examine these features in detail which I attempt to summarise as follows:

i) Civil marital property regimes can be divided into two groups namely (i) immediate and (ii) deferred systems of community.

ii) Immediate community involves automatic joint ownership of the community property and liabilities from marriage onwards (e.g. the Netherlands). Deferred community of property means that the two spouses keep their separate ownership of property during marriage, but that on death, bankruptcy or divorce their property is pooled and regarded at that point as a community, which is then divided equally (e.g. Scandinavia).

iii) Within each group one can distinguish systems of total community from communities of acquests. In a system of total community, all the property of the couple is, generally speaking, jointly owned (e.g. Netherlands and Scandinavia). In a community of acquests, property acquired before marriage or by gift or inheritance afterwards is excluded from the community (e.g. France, and, up to a point, Germany). 

iv) Thus one can see the great variety of default regimes in operation. In the Netherlands it is immediate and total; in Scandinavia it is deferred and total, in France it is immediate and acquests; in Germany it is deferred and acquests.

v) The regimes prescribed by law in civil countries do not proclaim themselves as the only fair solution. They are simply the arrangements that the law of any particular jurisdiction prescribes in the absence of any other arrangement made by a marital property agreement between the spouses.

vi) Generally speaking a marital property agreement is binding and there is little or no scope for the court to go behind it. Every country with a community regime allows a couple to contract into another regime. The range of choice of alternative regime differs from country to country; in France, for example, there is almost unrestricted choice, but that is not the case everywhere.

vii) There are a number of reasons, other than divorce, for contracting out of the default regime. An obvious example is (in a regime of immediate community) the avoidance of joint liability for debts where one of the parties runs his or her own business. Retirement may provide a reason for changing regime: a French couple, for example, may contract so as to change the proportions in which their property will be divided when the community is brought to an end by death, for example by providing that the survivor will take the whole of the other's property. Where the default regime is a system of total community couple may contract into a regime of community of acquests, so that any pre-acquired property is kept out of the community. It is also possible in some systems for a gift to one member of a couple to be kept outside the community if the giver so specifies.

viii) Germany apart, civil law marital property agreements cannot concern maintenance. Entitlement to maintenance varies from country to country in terms of the level of periodical payments available and the period for which they can be paid. Maintenance is the provision of income although in some jurisdictions a capital payment is available by way of compensation for losses sustained as a result of the marriage (e.g. France, Belgium and Spain). Only Germany allows couples to deal with maintenance by contract. The rest set a clear demarcation between the couple's property regime – which is determined by default or by contract – and the availability of maintenance, which cannot be the subject of contract. 

7. The paper concludes its analysis of the civil law systems in these terms (at para 5.38): 

"The European analogy is flawed, as will be clear from a reading of Part 4, because agreements in those jurisdictions are made against the background of a default matrimonial property regime and operate as a choice to adopt another regime. We have no equivalent of immediate community of property, such as is the default regime in France or the Netherlands for example, or of deferred community such as that of the Scandinavian countries. In none of these cases is anyone opting out of a discretionary regime and into certainty; instead, they are opting for different sets of rules."

8. It can therefore be seen that a civil law matrimonial property agreement is different in character and objective to a "common law" pre-nuptial agreement which seeks to abrogate or influence the right to invoke a statutory discretion to redistribute fairly (or equitably) all the resources of the spouses following their divorce.

9. Unsurprisingly, given the diversity of different default regimes, and the variations in the rights to make by contract different agreements, the European Commission has embarked on a project of harmonisation. Thus on 16 March 2011 a proposal was advanced for a Council Regulation on "jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes". This would allow spouses to choose the law applicable to all the property covered by their matrimonial property regime, regardless of the nature or location of the property. Where no applicable law is chosen the Regulation would introduce harmonised conflict-of-laws rules to establish the applicable law a on the basis of a scale of connecting factors. The first criterion would be the first common habitual residence of the spouses after marriage; the second, the law of the spouses' common nationality at the time of their marriage; the third, the State with which the spouses have the closest links. Once the applicable law is established, this will apply even if it is not the law of a Member State in which the dispute is being heard. 

10. It is important to note that the UK is not participating in this Regulation and therefore there is no prospect in a future case of the application of a foreign law in determining rights under a civil law marital property agreement. I consider that the Court must guard against the introduction of applicable law rules by the back door.

11. Therefore the issues in this, and indeed in every, marital agreement case are governed exclusively by English law. The only possible relevance of foreign law is to evidence the intentions of the parties at the time of the formation of the agreement (see Granatino v Radmacher [2011] AC 534, SC at paras 74 and 118).

12. In my decision of Kremen v Agrest (No.11) (Financial Remedy: Non-Disclosure: Post-Nuptial Agreement) [2012] EWHC 45 (Fam) I sought to summarise the effect of the decision of the Supreme Court in Granatino v Radmacher. At para 72 I stated:

"In Granatino v Radmacher [2011] AC 534 the Supreme Court gave definitive guidance as to the treatment of a nuptial contract in proceedings for ancillary relief following a domestic divorce. The guidance contained in the judgment of the majority delivered by Lord Phillips of Worth Maltravers PSC can be summarised as follows:

i) The court should give effect to a nuptial agreement which is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement (para 75).

ii) In determining whether an agreement has been "freely entered into by each party with a full appreciation of its implications" there is no absolute black and white rule for full disclosure or independent legal advice. Rather, the question is whether in the individual case there is a material lack of disclosure, information or advice. Each party must have all the information that is material to his or her decision that the agreement should govern the financial consequences of the marriage coming to an end. An absolute rule would only be necessary if the agreement were to be contractually binding, but this is not the case as there is a safety-net of (un)fairness (para 69).

iii) The presence of any of the standard vitiating factors of duress, fraud or misrepresentation will negate any effect the agreement might otherwise have (para 71). Further, unconscionable conduct such as undue pressure (falling short of duress) will likely eliminate the weight to be attached to the agreement (ibid). Other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, will reduce or eliminate the weight to be attached to the agreement (ibid). The court may take into account a party's emotional state, and what pressures he or she was under to agree, as well as their age and maturity, and whether either or both had been married or been in long-term relationships before (para 72). The court may take into account foreign elements to determine whether or not the parties intended their agreement to be effective (para 74).

iv) In determining whether "in the circumstances prevailing it would not be fair to hold the parties to their agreement":

a) The agreement cannot be allowed to prejudice the reasonable requirements of any children of the family (para 77).

b) Respect should be accorded to the decision of a married couple as to the manner in which their financial affairs should be regulated particularly where the agreement addresses existing circumstances and not merely the contingencies of an uncertain future (para 78). This is likely to be so where the agreement seeks to protect pre-marital property (para 79). By contrast it is less likely to be so where the agreement leaves in the hands of one spouse rather than the other the most part of a fortune which each spouse has played an equal role in their different ways in creating (para 80). If the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned (para 81).

c) Is likely to be unfair to hold the parties to an agreement which leaves one spouse in a predicament of real need, while the other enjoys a sufficiency or more (para 81). However, need may be interpreted as being that minimum amount required to keep a spouse from destitution. For example, if the claimant spouse had been incapacitated in the course of the marriage, so that he or she was incapable of earning a living, this might well justify, in the interests of fairness, not holding him or her to the full rigours of the ante-nuptial agreement (para 119)."

13. At para 73 I ventured this opinion:

"It seems to me that it will only be in an unusual case where it can be said that absent independent legal advice and full disclosure, a party can be taken to have freely entered into a marital agreement with a full appreciation of its implications. After all, almost every common law country that has legislated in this field has as a key pre-condition these requirements as well as a safety-net where the agreement is judged to be "unfair" (e.g. British Columbia) or "unjust" (e.g. New Zealand) or "unconscionable" (e.g. Australia). It would surely have to be shown that the spouse, like Mr Granatino, had a high degree of financial and legal sophistication in order to have a full appreciation of what legal rights he or she is signing away. Equally, it seems to me that there would have to be clear evidence of significant economic capacity on the part of the claimant spouse before the assessment of needs was suppressed to that minimal level imposed on Mr Granatino. There would surely have to be an equivalent finding to that in para 119 viz "on the evidence he is extremely able, and has added to his qualifications by pursuing a D Phil in biotechnology". I have noted that in the recent decision of Z v Z (No. 2) [2011] EWHC 2878 (Fam), which concerned a French pre-nuptial agreement, Moor J generously assessed the wife's needs to include the outright ownership of valuable property and a Duxbury fund to provide a high level of income for the remainder of her life. There was no question of imposing on her an arrangement akin to an award under Schedule 1 Children Act 1989."

14. In Granatino itself the agreement itself was made four months before the marriage when the parties were living in London. They intended their marriage to be lived in London. The notary drawing the agreement specifically advised that English advice be taken about it. The agreement was a bespoke agreement for that marriage which went much further than a mere prescription of a particular property regime. It declared that the statutory default matrimonial regime was to be excluded, and that each party was to manage his or her assets entirely independently. It excluded the equalisation of pension rights. Each party irrevocably waived a claim for maintenance even should they face a situation of direst want. It contained a waiver of the statutory right to a portion of the estate of the first one of them to die. Mr Granatino did not take the opportunity in the four month period following the formation of the agreement of taking legal advice about it anywhere. 

15. That was an agreement which has much more in common with a bespoke "common-law pre-nup" than a routine choice of matrimonial property regime contract. It specifically and deliberately addressed the financial relief that might otherwise be sought on divorce.

16. In V v V [2011] EWHC 3230 (Fam) the husband was Italian and the wife Swedish. It would appear that at the time of the marriage the parties were living and intended to live in England. The agreement was essentially made three months before the marriage and was specific to this marriage. It provided that all property "now owned by the husband shall be his private property, and the wife has consequently no right to marital property in this property" and that "all property that any one of us may inherit or receive from a will, or as a gift shall be the inheritor's / the receiver's private property", but otherwise "all other property that any one of us acquires during the marriage shall be marital property". It stated that Swedish law should apply to the agreement. While not as prescriptive as the agreement in Granatino this agreement too was not a routine choice of marital property regime, but rather in a way that wittingly or unwittingly reflected developments in English law concerning the characterisation of matrimonial and separate property, sought to influence the exercise of any discretionary power anywhere in relation to the distribution of the resources of the parties on divorce. Charles J held that the fact of the agreement should lead the Court to ordering that W's needs based award for a home should be on Mesher terms rather than awarded outright.

17. In Z v Z (No. 2) [2011] EWHC 2878 (Fam) the agreement in question was made about a week before the marriage and was a choice of separate marital property regime, no more. In paras 42 – 44 Moor J sets out the relative perceptions of the parties when entering into this agreement:

"42. In France, as in many other European countries, every married couple is subject to a matrimonial property regime, either by express agreement or by default. The default regime is community of goods but agreements that provide for separation of goods are very common. In this particular case, the agreed evidence was that both parties' parents and the majority of their friends entered a separation of property agreement prior to their marriages. In effect, this was the norm for these families and it would, in my view, have been very surprising if they had not entered such an Agreement.

43. The Husband tells me that he would not have married the Wife had she not agreed to do so. I accept this evidence. He would have viewed it as bad faith if the Wife had not agreed. At one point, Mr Scott put it to him that he wanted to share his life with the Wife but not his money. That is, of course, true but it is true in virtually every case where there is such a regime and is certainly not considered "bad form" in France, even if it might be so considered here.

44. The Wife told me that she was told that the only reason for the Agreement was to protect her assets from creditors in the event that the Husband went into business on his own account and the business failed. It is of course true that Article 5 of the Agreement provides her with protection from such debts and that there would have been no such protection without the Agreement. I accept that the Husband mentioned this to her but I do not accept that it was the overriding reason for the Agreement. The Wife may well have since justified it to herself on this basis but I believe that, at the time, she knew that entering such an Agreement was what was expected and she went along with it. I do not accept that the Husband told her before she signed that he would not rely on the Agreement if they separated. This did not feature in her written evidence and is, in my view, erroneous recollection based on her perception of what is fair."

18. In his judgment Moor J held that "I therefore reject all the arguments raised to say that it would not be fair for me to uphold the Agreement in so far as it excludes sharing. It might have been very different if the Agreement had also purported to exclude maintenance claims in the widest sense but the Agreement does not, of course, do so" (para 64). It is to be noted that all the assets in that case, amounting to £15m, were characterised as matrimonial property which would, but for the agreement, have been equally shared (see para 31). But on account of the agreement W was confined to her needs, generously assessed at £6m.

19. The interesting features of this decision are that Moor J plainly found that the wife in that case entered into the agreement with "a full appreciation of its implications" and that it was fair to implement it to the extent and with the consequence that H retained for himself alone assets valued at £3m, to the creation of which W had played an equal role.  The former finding was perhaps unsurprising as it would appear that this was conceded by the wife (see para 45). Mr Le Grice QC has argued, with some force, that the persuasive influence of this decision must be affected by a concession which appears to have been wrongly made.

20. In my judgment the requirement of "a full appreciation of its implications" does not carry with it a requirement to have received specific advice as to the operation of English law on the agreement in question. Otherwise every agreement made at a time when England and Wales was not on the horizon would be discarded. But in order to have influence here it must mean more than having a mere understanding that the agreement would just govern in the country in which it was made the distribution of property in the event of death, bankruptcy or divorce. It must surely mean that the parties intended the agreement to have effect wherever they might be divorced and most particularly were they to be divorced in a jurisdiction that operated a system of discretionary equitable distribution. I have respectfully suggested in Kremen v Agrest No. 11 that usually the parties will need to have received legal advice to this effect, and will usually need to have made mutual disclosure.

21. In this case, as I have stated, the default matrimonial regime in Catalonia is separate property. H says that this was well understood by both of them and represented what they wanted. He says they specifically talked about this. W's evidence was less emphatic and more equivocal.

22. In his skeleton H argues:

"The Petitioner and Respondent are part (sic) to not one, but two nuptial agreements. Both these agreements have essentially the same purpose, which is to establish that all property in the marriage is held by each party individually, and that in the event of a break-up, the parties to the agreement expect it to be a the binding criteria (sic) in deciding the distribution of our property"

23. In his s25 affidavit H stated:

"Although conversations about money were not at the forefront of our relationship, they happened with what I would describe as reasonable frequency. This was especially so after our marriage became a certainty in early 2005. There were conversations about religion (even though I am agnostic, I agreed to marry by the Catholic church), there were conversations about the wedding ceremony (I could not afford one, but her mother was keen to have one so W could get the benefits of her mother's many decades attending her friends children's weddings and giving them nice gifts), and of course there were conversations money. This last issue was conveniently dealt when we agreed we would marry in Catalonia, where we both knew we would de adopting a "separation of property" regime for our marriage from the outset. We discussed several times that Catalan Law provides for separation of property and that therefore W's inheritance as well as the rest of our property would be held by each of us individually, and not on a shared basis."

24. Within the papers is a lengthy, lucid and learned report on Catalan law by Prof Dr Miquel Martin-Casals and Dr Jordi Ribot of the University of Girona. They explain that the applicable rules are to be found in the State Act No. 40 of 1960 on the Compilation of the Special Civil Law of Catalonia. The matrimonial property regime established by the Compilation is the separation of property although this is "balanced" by pre-nuptial agreements. The Compilation was amended by State Act No. 8 of 1993 which among other things introduced "correctives into the default matrimonial property regime to prevent possible situations of inequality at the moment of its dissolution".

25. As to these correctives the authors give a lengthy and very interesting critique, which I do not apologise for reproducing fully:

"When the regime is dissolved on the grounds of annulment, divorce or legal separation and one of the spouses has worked for the household or for the other spouse without payment in exchange, or with insufficient payment, the dissolution of the regime entitles him or her to receive, from the private assets of the other spouse, economic compensation if this fact has produced "a situation of inequality between the patrimonies of both spouses which implies an unjust enrichment" (Art. 41 para. 1. in fine Catalan Family Code). This compensation award is paid in money "unless the parties agree, or the judge, on justified grounds, authorises payment to be made with assets of the debtor" (Art. 41 para. 2 Catalan Family Code). Payment must be made in cash, unless the parties agree on, or the judge authorises, adjourned payment or payment by instalments, which will yield interests for the creditor and will not exceed three years

Case law has interpreted the conditions required for obtaining this compensation in a manner that is very favourable to the interests of the applicant spouse. In fact, legal doctrine points out that there is a tendency to attribute to this right the function of a sort of participation in the acquisitions instead of the strict function of restitution of the enrichment of one spouses brought  about by the impoverishment of the other. In this sense, it is worth emphasising the following aspects of this case-law:

a) In spite of the fact that work for the household is recognised by the law as a means of fulfilling the duty to contribute to family expenses that rests on both spouses (see Art. 5 para. 1 Catalan Family Code), case law has rejected that the right to economic compensation requires the petitioning spouse to furnish proof of any sort of "over contribution" on his or her part. Higher court case law rejects the idea, suggested by some lower courts, that the ordinary household work is not sufficient to give rise to compensation and that it requires something more, a plus, either because its has been specifically arduous or burdensome or because it has simultaneously entailed work for the household and work in the economic activity of the other spouse. This case law stresses, in fact, that "it has no bearing that the work for the household has been greater or small, full-time or part-time", and considers that in awarding compensation it is irrelevant, for instance, whether during marriage a spouse had domestic service or enjoyed the assistance of other persons in the household chores, or that the petitioning spouse sporadically combined household with gainful employment. The only case that it clearly excludes is where both spouses have carried out gainful activities or have been employed during marriage, regardless of whether the distribution of roles in the household has been balanced or not and whether the household chores have substantially fallen upon one of the spouses (typically the wife).

b) The required situation of imbalance in the patrimony of the spouses at the time of the marital breakdown has also been understood in a very lax way that also favours the award of the economic compensation. Although it was contended initially that compensation is justified by the fact that "since both spouses have contributed to meeting family expenses... there is no reason why, in plain words, one should remain rich and the other remain poor", in many subsequent decisions sheer comparison with the patrimonies of both spouses has prevailed. Thus, compensation has been awarded if there was a serious imbalance, in spite of the fact that the applicant spouse enjoyed a sound financial situation, albeit clearly worse than his or her spouse's. When assessing the imbalance between the patrimonies of the  spouses, however, case law has never applied, either by analogy or as guidance, the rules of the regime of participation in the acquisitions (Art. 55 and 56 Catalan Family Code).

c) The condition establishing that the situation of imbalance must entail an unjust enrichment that has its origin in the work for the household or for the other spouse has been watered down by case law to the extent that it has made it utterly superfluous. Thus, although the legislature included this requirement in 1998 in the Family Code as a novelty, case law contended from the outset that "it does not mean that the work of the wife has given rise to her husband's enrichment and to her impoverishment", stressing that "in general, one could always say that whenever one spouse works without pay he or she will incur an enrichment in favour of the other". These assertions have been subsequently expanded by saying that the exclusive work for the family and the household ... is essential for the other spouse to be able to devote all his efforts, without any disturbance to the generation of wealth", or that "already by the fact that one of the spouses drops the possibility of working outside the home or, by devoting his or her efforts to the business of the other, enables the other spouse to obtain an enrichment, since he knows that the household and, if this is the case, his or her children will be well looked after or that his or her business in the hands of a stalwart collaborator"

d) The moment which is relevant to starting an evaluation of the work for the household or for the activity of the other spouse does not necessarily coincide with the coming into effect of the matrimonial property regime, since if the spouses have lived together before marriage the period of time of prenuptial cohabitation will also be taken into account when determining the right to economic compensation and its amount, as well as the assets acquired by both spouses during this period.

The spouses may agree on the amount of the economic compensation. If there is no agreement, however, the amount is fixed by the judge. In this respect case law has rejected the adoption of general standards and has confined itself to pointing out that the judge will decide, at his or her discretion, case by case, in sight of the proofs furnished during the proceedings. It rejects applying a market value to work carried out, and more specifically making recourse to the average salary of a housemaid when evaluating work for the household. According to case law such a standard would "mix terms beyond comparison". On the other hand, although establishing the amount of economic compensation according to a standard that entails a share or a participation in the patrimony of the debtor spouse is also rejected, the difference between the patrimony of the spouses and the importance of the economic resources of the debtor are usually decisive in the assessment of the amount of the economic compensation Therefore, legal writing underlines the idea that case law does not value the work in itself but takes into account the gains or the financial resources of the debtor spouse.

When assessing the amount of economic compensation many decisions still make recourse to the factors contained in the prior regulation (see Art. 23 Catalan Civil Law Compilation 1984) that were left out of the new regulation of this institution in the Family Code, i.e., the duration of marriage, the importance of the activity of the petitioning spouse in the family or the scope of the imbalance in the patrimonies of the spouses. At any rate, when determining both the existence of the right to obtain economic compensation and its amount, acquisitions of the creditor spouse that have been financed with funds coming from the debtor spouse must also be taken into account.

Legal scholarship is very critical with the solutions adopted by case law. It contends that by emphasising patrimonial imbalance, case law has made of the economic compensation a device by which it attributes to one spouse an undetermined share of the acquisitions of the other spouse during marriage (and even during prenuptial cohabitation). However, since the courts do not have the power to turn the separation property regime into a regime of participation in the acquisitions or into a differed community, by refusing to evaluate the work of the spouse according to independent standards, case law has given rise to a situation of great uncertainty. This acts as a disincentive to settlements, increases the litigation costs and comes to the advantage of the more powerful spouse, since he or she has more resources to afford court proceedings that can be very expensive."

26. Much of the jurisprudence thus described has the ring of familiarity to an English family lawyer. The court may depart from the default position where it would be unjust to implement it. Injustice is likely to be present where there is a serious economic imbalance between the estates of the spouses at the end of the marriage. The Courts have interpreted the provisions generously and unscientifically which has led to a situation of legal uncertainty increasing the likelihood of costly litigation.

27. Taking H's case at its highest it is impossible for the parties to be fixed with the mutual intention which he asserts. It must have been their mutual understanding that if they were to divorce in Catalonia the default position would be subject to lax judicial discretionary adjustment to effect compensatory redress for resultant economic inequality. And their mutual understanding cannot, at least at that point, be taken to extend to the consequences of a divorce outside Catalonia, let alone in an equitable redistribution jurisdiction such as England and Wales. The newly married couple did not intend to live in Catalonia. Immediately following the ceremony they went to live in Milwaukee, Wisconsin, USA where H had been posted by Global Grain. Six months later they moved to Chicago and in 1996 they moved to London where they stayed until 2000 when they moved to City A, the city of H's birth (although there had been much travel throughout the area beforehand).    

28. In his affidavit H describes how they chose City A. He stated:

"At the time I had no material business in City A. Almost all my business activity was concentrated in Country X and Country Y. However, City A, the City of Gold, has always held a dreamlike hold on the imagination of Spaniards. I could understand W's decision. In contrast, to me City A had always seemed rather backward and hazardous compared to the relatively modern and "European" life one could lead in City X, or City Y. Professionally speaking Country X or City Y are only about a 90 minute flight from each other, which makes made living in either city a very convenient base to do business in the other. In comparison, City A is a good four hours flight from either one. However, this was a family decision, and it was very important for me to know that my wife would be leading a happy life somewhere of her choice. We moved to City A in March 2000 after we found a beautiful apartment overlooking the sea and surrounded upstairs and downstairs by the apartments of a Noble prize laureate."

29. After their arrival H decided to buy a splendid apartment at 196 Brennan Street, Seaview, City A ("Apto Brennan"). As he put it, "it has all the charm of a proper 19th-Century noble residence". He decided to gift it to W, in recognition of her having had their first child. In his affidavit H explained how they consulted a lawyer Mr. Y, and:

"We told the lawyer we were married with separation of property as per Catalan law, and that it was my intention to give W the apartment as a gift in recognition of her having had our first child. Mr. Y explained that if we wanted W to be the sole owner of the property, we would need to sign an additional separation of property agreement in Country A for that status to be recognized by Country A law. Neither of us objected on the basis that we both perceived this to be the regime that was already in place from the time of our marriage in 1995. Mr. Y went on to explain that signing this kind of agreement is a solemn matter due to its implications over the property of the signatories both in the present, and in the event of a future breakdown in the marriage. He made it very clear that if the marriage were ever to break up, each of us would be left with the property we had in our own name, and would have no claim over the other one's property"

30.  In a statement Mr Y confirms this. He stated:

"Mr  S and his wife, Mrs B, are foreign citizens who were living in Country A in 2000. They had married in Catalonia, Spain, under the rules of separate matrimonial property. Mr S wished to make a gift to his wife of a property consisting of the third and fourth floors at no 196 Brennan Street, Seaview, City A. I explained to both the spouses that, for Country A law to recognise that the property would belong exclusively to Mrs B under the rules of separate matrimonial property to which the spouses' assets had been subject since their marriage, it would be necessary to sign a property partition agreement in Country A ("the Agreement"), which would have the effect of reconfirming the validity of the pre-existing rules of matrimonial property both in and outside Country A. It was in these circumstances that both spouses, acting jointly, instructed me. Firstly to formalise a property partition agreement in accordance with Country A law, and thereafter to draw up and advise on a property transfer minute with the object of acquiring the said property in the name of Mrs B  …. Inasmuch as a property partition agreement is a contract to which both parties must consent, the more so because it has property implications for both spouses, I took special care to meet with both spouses and explain to them the consequences of signing an agreement that would result in the abandonment of the rule of joint after-acquired matrimonial property and the adoption of the rules of separate matrimonial property. Thus I made it very clear to both Mr S and Mrs. B that with effect from the signature of the Agreement all property acquired by each of them would be that person's sole and exclusive property, which the owning spouse would be entitled to use, enjoy and dispose of without the other spouse's consent. I further explained to both of them that the signature of a property partition agreement had irreversible permanent consequences as regards the right of each of them to the other's property. I therefore explained that in the event of a future separation or divorce, neither of the parties would have any claim to the other's property. This type of practice of simultaneously explaining the implications of this type of agreement to both spouses is my usual professional practice and I have done so in every similar case in which I have been instructed".

31. The parties asked a notary Ms.  C to prepare the escritura which would contain but a single clause which stated:

"Mr S and Mrs B, who contracted marriage on the second day of September one thousand nine hundred and ninety five, before the municipal authorities of the province of Girona, Republic (sic) of Spain, agree by virtue of the present instrument to elect the matrimonial regime of separation of property, in accordance with Articles two hundred and ninety-five, three hundred and twenty-seven and three hundred and twenty-eight of the Civil Code, each of them retaining ownership, management and the right to dispose of their present and future property, and the yields and proceeds of such property"

32. In his affidavit H goes on to explain that Ms. C herself gave advice to W:

"As is normally the case in Country A, Mr. Y arranged for a trusted Notary Public to come to our home to witness the signing of the agreement, to seal it, and to make it official so it could be raised to the public registry. I remember this event with particular clarity because Mr. Y's preferred notary public was an accomplished young woman called Ms C. Female notary publics in City A are rare. It is even more unusual for them to be charming women in their 30s. Ms. C was very energetic and was not afraid to speak her mind. What struck me the most about her was that she was very vocal about the fact that she had recently gone through a divorce herself. She told both W and I that she wanted to make sure W understood the full implications of signing a separation of property agreement in the event of a breakup. I had no objections to this.  Ms. C then took each of us aside separately and gave us an explanation of what the agreement meant for us at the time as a couple, and what it would mean for us as individuals in the event the marriage broke down. When W came back from her session with Ms. C, W seemed satisfied and after Ms. C read the text of the agreement out loud in our presence, W signed the Agreement in the presence of Ms. C, Mr. Y, and me. I signed at the same time.

33. In her oral evidence W confirmed that Ms. C stated to her "are you sure you want to do this as you will have no claim over his assets". But to her mind the property was to be jointly shared. It was a family asset.

34. My conclusions about this agreement are:

i) H and W did not intend by it to alter their mutual understanding of the effect of the law of Catalonia under which they were married, which was, as I have explained, of separate property albeit subject to flexible discretionary judicial variation.

ii) They entered into the agreement in order to subject Apto Brennan to the same set of rules, for if they had not done so it would fall into the default Country A's regime of community.

iii) Although Sr Y is technically correct when he says that the effect of the agreement was to "reconfirm the validity of the pre-existing rules of matrimonial property both in and outside Country A", I am certain that the entire object of the exercise was to prevent Apto Brennan from falling into Country A community in the event of death, divorce or bankruptcy.

iv) I am equally sure that there was no discussion at all as to whether the agreement was intended to be influential, let alone, binding, were the parties to divorce in either England, from where they had recently come, or the USA where they had spent the first year of the marriage. Certainly there was no advice from anyone as to whether the agreement was intended to fetter a right to seek the exercise of the statutory discretion were there to be a divorce in an equitable distribution jurisdiction.

v) I therefore conclude that neither party entered into this agreement "with a full appreciation of its implications" in the sense described by Lord Phillips PSC in Granatino.

35. Accordingly I place no weight on either the default matrimonial regime under which these parties married, or on the Country A agreement of  14 September 2000, and I discard them from my assessment of what is a fair award to W.

History of the marriage
36. In 1996 H left Global Grain and came to London to work for Juniper Investments. H frequently travelled on work and W normally went with him. In 1999 H and W were living mainly in Country X. On 21 September 1999 Ruth was born. In February 2000 H and W went to Country A as H had acquired his own business distributing widgets. He extended the business to City A's main port. On 14 September 2000 the marital property agreement was executed in City A, and on 19 September H purchased Apto Brennan for $700,000 and gifted it to W. They expected that they would live in Country A for some time.

37. In 2000 W's mother bought a property in Catalonia, Mas Menos, with inherited money. She gifted it to W and her sister. The house was renovated over the next year at a cost of about £180,000 which was borrowed on mortgage. H later paid this off.

38. On 9 March 2001 Esther was born (10).

39. In 2001 H and W's mother found a further property in Catalonia "Mas Fuertes" which was a ruin but in a good location. H purchased it free of mortgage in W's name. H's plan was to improve Mas Fuertes and to sell W's interest in Mas Menos. W's mother wanted to keep Mas Menos and said she would buy W's interest.  In 2001 -2002 H paid off the mortgage on Mas Menos.

40. At about this time H and W abruptly left Country A in the circumstances described in his affidavit:

"In April of 2000 (sic, recto 2003) W and I took the decision to move our yearly season in Spain forward by month in order to avoid the negative attention and potential dangers brought about by a campaign in the Country A yellow press aimed at discrediting me personally by accusing me of monopolizing the supply of widgets to the country. It emerged this was not perceived to be nearly as contrary to the public interest as the fact that I happen to be a Country X national. This had serious repercussions in Country A's popular psyche. This is a nation brought up under the shadow of a humiliating defeat to Country X which cost it two years of occupation by Country X forces and the loss of a whole province in the South. Several Country A congressmen spoke of the parallels between Country X control of the Country A widgets industry and German control of the Czech Republic's energy sector in the years before the invasion of the Sudetenland. As with any other high profile cases, the Country A Congress was quick to organize hearings to investigate the matter of the state-owned National Widget Company's supply practices. I was invited to present my testimony as a witness, and I did. No charges were ever brought against me nor was there any legal investigation into the matter. It was all just a political show. …  Unfortunately the fact that there was no truth to the allegations in the press this did not make the experience any less traumatic for me and my family. In the end, one can take some comfort from the fact that the accusations left as quickly as they had arrived. Unfortunately, though, when the smoke had cleared, the life of our family had been irretrievably affected. The more jingoistic of the newspapers involved had printed pictures of our house, given out our address, and written of hundreds of millions of dollars that I had presumably accumulated during my control of the country's widgets sector. The fact was that my profile in City A, a city where drive-by kidnappings are common, had been raised to a level where it would have been irresponsible not to employ full-time security for me and my family. Rather than doing this to our girls, W and I decided not to go back to live in City A for the foreseeable future, and to stay in Europe instead. We spent between May 2003 and December 2004 thinking about where to live. Madrid was fun and inexpensive, but England, although probably the most expensive place to live in the World, provided the best long term environment to educate our girls in. The girls' education was our main priority, and that meant we would probably end up in the UK sooner rather than later. So we made it sooner – little over a year after arriving as exiles to the Spanish countryside, the family moved to London."

41. As H describes in June 2004 the family moved to London. In September they began to rent Flower Farm, Dumbleside and a house in Holland Park.

42. In 2004 Green Widget (BVI) Ltd was formed and H's business begins to trade as Green Widget. I will deal with Green Widget separately below.

43. In 2005 H and W ceased renting the house in Holland Park and rented a flat in Chelsea for a year. In that same year H and W intended to take out a mortgage to renovate Mas Fuertes. H then told W that there was a purchaser who was prepared to pay four time their purchase price for the property in its existing condition. The property was sold shortly afterwards for about £875,000. W received all the proceeds. During the course of the hearing at H's behest I required W to give a clear account of their disposal. I am satisfied that they have all been accounted for and none remains salted away.

44. On 19 December 2006 H purchased Acre House, Worcestershire for £2.5m. The family all moved there although the relationship between H and W was fractured. I will deal with this aspect of the case later. On 4 April 2008 H purchased 75 acres of land adjacent to Acre House for £472,650.

45. On 19 November 2009 H obtained a prohibited steps order restraining W from leaving England with the children. On 16 December 2009 W issued her divorce petition.

Green Widget
46. It is not necessary for me to describe H's business career as a widgets merchant prior to 2000. In that year H established Green Widget Ltd ("Green Widget"). The following year H established Green Widget Trading (BVI) Ltd ("Trading"). In 2006 H transferred 90% of the shares in Green Widget and Trading to the Green Widget Trust, a BVI trust, retaining 10% of the shares in his name. In 2010 the name of the Trust was changed to the Siena Trust. The Trustee is a BVI company, Siena (PTY) Ltd, which is owned by the Siena Purpose Trust which, in turn is owned by the Quadrangle Trust Company (BVI) Ltd.  The reason for establishing the trust was to mitigate tax and to avoid probate difficulties (including publicity) on H's death.  Since 2009 the trust has been fully discretionary, and H, W and the children are beneficiaries. H has the effective power to replace the trustees. It is a nuptial settlement and therefore potentially variable by this court. Given its terms and looking at it with worldly realism it is appropriate, having regard to the applicable legal test (see BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) at paras 15 – 17  where I attempted to summarise the authorities), to  attribute its assets to H as part of his resources for the purposes of this application. H has not seriously sought to argue otherwise. Similarly it is not appropriate to look at the elements of the structure separately; rather it is apt to look at Green Widget as a composite whole.

47. On 26 September 2011 H was asked to resign as a director of Green Widget Services Ltd, a subsidiary of Green Widget, and on 4 October 2011 he was asked to resign as a director of Green Widget. H has resigned as a director of both companies. Given that H effectively owns Green Widget I was not able to understand the reason for this, and H, normally so articulate, was not able to give me a coherent explanation.

48. Mr Le Grice QC has put in pages from Green Widget's website.  These give a reasonable thumbnail picture of the company and its activities:

"ABOUT GREEN WIDGET
Green Widget specialises in finding unconventional sources of widget products to create more competitive and reliable chains of supply. We are also recognised as a major participant in the domestic distribution of widgets in various countries.

Our supply strategy is based on identifying significant changes in the relationships between the supply and demand of widget products worldwide and to anticipate where the best opportunities are to be found. This is how a decade ago, Green Widget's core team pioneered the supply of West Coast widget demand from the Far East.

Our distribution strategy is to seek markets with considerable widget manufacturing shortages. We achieve differentiation from our competitors by offering better-priced products and improved services, which result in greater market share.

Green Widget Limited was founded in January 2004. We are a privately held British Virgin Islands company, and controlled by our management and employees.

We employ over 100 people worldwide, in offices in seven countries. Our commercial operations are financed by top-ranked banks.

GROUP HISTORY
The group was born out of the long-term collaboration of a team of traders, operations and finance experts that have been supplying widgets to various countries for over a decade.

In our early days, we worked as a unit in a joint venture with a medium-sized widgets trading company which concluded in December 2003. During this four year relationship, our team operated most of the widget  cargos that were imported into Country X, Country A, and Country E, as well as a large proportion of the widget by-poducts exports.

Green Widget was created in 2004, and has since supplied widget cargos from the Far East to various countries.

The group began taking its first steps into domestic distribution after taking control of the Tavo port on the Western coast of  Country H in June 2005. Today, Green Widget Country H is responsible for approximately 22% of the supply of the widget shop market and 15% of the total widgets market in the country.

MANAGEMENT TEAM
 … Mr S is the group's founder. He has operated his own trading businesses in various countries since 2000. He has set up joint ventures with a number of partners including a large Japanese trading house and a major US financial institution. His career started with the proprietary trading group at JP Morgan New York and London before moving to Juniper Investment where he was responsible for the development of the South African business. Mr S graduated from an Ivy League  University in 1991 …

FINANCIAL OVERVIEW
The group generated average revenues in excess of USD $800 million between 2007 and 2009. These volumes are expected to consolidate and continue growing in 2010 and beyond.

As a privately owned company, Green Widget restricts access to its detailed financial information. Prospective clients and suppliers who would like to learn more about Green Widget's market position and finances can contact us at contact@greenwidgetgroup.com.

VISION and STRATEGY
We believe that the next few years will see a major reorganisation of the widget trade in the company's principal trading area.

Our vision is to join our experience in the international markets with our knowledge of the domestic markets to lead the consolidation of logistic and distribution assets in the region.

Our short-term plans include the opening of offices in the Far East, and the building of widgets terminals and distribution businesses in Northern and Southern regions of Country X.

Long-term, we are creating a consolidated network of terminals and distribution businesses that will generate supply and investment synergies with multiple sources of value for our shareholders

We believe in achieving this through a steady growth strategy, underpinned by robust relationships with our clients, trading partners, financial institutions, and governments."

49. In the SJE report of Deloitte dated 9 February 2012  it is stated:

"Business activities of the Green Widget Group
3.6  Green Widget generates its revenue from two primary activities: supplying and distributing widget products as well as trading in widgets opportunities.

3.7  The primary distribution outlet for Green Widget's supply and distribution activity is Country H via wholly owned subsidiaries, Green Widget SA ("BWSA") and TAVO.

3.8  The Company leases a terminal in Country H from an individual and distributes its supply of widgets from its port by truck to independent retailers via contractual and other customer relationships.

3.9  I understand, from discussions with Mr H, that the individual from whom the terminal is leased is currently imprisoned for tax fraud. As a result, the rent is deposited into an account which is controlled by an administrator for the Country H government.

3.10  Green Widget supplies two types of widget by-products.

3.11  The Company itself does not own widget shops with the exception of a single shop outside its leased port.

3.12  Green Widget also generates profit from trading opportunism through its supplier and customer contacts and its hedging activities. The profit stream is unpredictable depending on the hedge position taken by the Company, the length of time it is in a trade and the quantum by which widgets prices fall relative to the Company's hedge position."

50. As can be seen from what I have set out above the business is predominantly in Country H. H told me that in that country about 60% of the widget shops are independent and only 40% are owned by the "majors" such as United Widget and  World Widget. Green Widget has about 30% of the independent sector, amounting to about 500 customers, to whose widget shops he supplies widget products. H told me that these were in places which you would be unlikely to visit as a tourist. Being a widgets merchant in Country H is replete with risks. The country itself is not without its problems. As H wrote in his affidavit "no amount of preparation will eliminate the main risk surrounding Green Widget's distribution business, which is the fact that Country H is the most dangerous country on Earth that is not in an open state of war. Several international organizations have already declared Country H a failed state, and the reality is that in Country H, might makes right."

51. H has already experienced two acts of serious criminality. In April 2010 the Tavo port was invaded and occupied by an armed gang at the behest of the now imprisoned owner of the site whose assets had been sequestered by the Government. Only by dint of robust action by former SAS and US Special Forces operatives was H able to prevent seizure of the widgets in the warehouses themselves. In June 2010 a cargo of  faulty widgets was delivered by a grasping middleman. As H wrote "the cargo was fully discharged before we started getting phone calls from our clients saying there were lines of customers outside their shops demanding their money back in return for the broken widgets ". H has described 2010 as his "annus horribilis".

52. In addition to the risk of political instability and crime H explained that he faced other risks. In times of economic recession the demand for some widget products (as opposed to others) is highly elastic. When times are hard people just do not buy as much. In addition there is the ever present risk that the manufacturers will seek to undercut his market position and drive him out of business. This happened in neighbouring Country J where Green Widget's activities there were effectively destroyed. The risk of this happening depends on the political complexion of the Government of the day. To add to all this is the fact that  Country H, unlike Country J, has a weak currency and so Green Widget is exposed to currency fluctuations between the US $ (in which it buys the widgets) and the currency in country H(in which it sells it)

53. Trading in widgets is highly leveraged and the margins are very small. Green Widget tries to mitigate this by hedging its positions but nonetheless the accounts show wild fluctuations in turnover, margins and profits. The figures since  2008 are set out in the following table:

Green Widget Profit and Loss

 

 

 

 

US$ 000

2008

2009

2010

2011 (to Aug)

Turnover

1,053,170

369,625

445,275

384,242

Gross Profit

34,828

42,151

12,695

5,449

margin

3.3%

11.4%

2.9%

1.4%

Expenses etc

(21,548)

(32,285)

(16,802)

(9,760)

Net profit

13,280

9,866

(4,107)

(4,311)




54. It can be seen that in the last two years substantial losses have been incurred; before that the picture was the opposite.  In a document dated 1 November 2011 provided by H it is stated "it is very hard to give accurate forecasting due to the implications of worldwide demand and the aggressive actions of competitors to maintain their market share, but management believes that a relatively conservative breakeven to US$2m net profit is a reasonable trading objective for 2012."

55. In order to trade Green Widget has to borrow very large sums, mainly from Banque X. As collateral it has to put up a large sum in cash. The accounts show that as at August 2011 there was nearly $8m in cash; the figure is now $9.5m. This, together with the widgets owned by Green Widget (whether as bills of lading, at sea, or in the terminal) is held as collateral for the loans which as at August 2011 were $85m.  The balance sheet as at August 2011 is as follows:

Green Widget Balance sheet

 

US$ 000

 

Fixed etc assets

320

Cash

7,803

Inventory (widgets)

48,564

Trade receivables

31,439

other current assets

16,320

Bank loans

(85,133)

other current liabilities

(9,770)

 

9,543



56. H argues, correctly in my judgment, that to view Green Widget as having net available assets of $9.5m is fallacious. It is an illusion. When looking at the value of an asset the court generally, but not invariably, deducts notional costs of sale and latent taxes (see White v White [2001] 1 AC 596, HL). But here the notional positive balance sheet figure depends on the widget shop owners paying all their debts. In his affidavit H wrote:

"I have said in the past that exiting the widgets distribution business is nearly as difficult as breaking into it in the first place. This is particularly true of our Country H operation. The reason is that many of the expected business practices which permit the liquidation of a business in the Western World to be a relatively orderly process, are not present in Country H. First and foremost, many clients are not reliable payors. Of course we have our blue-chip clients, but the great majority of our clientele are small shop-owners who see a company such as Green Widget as a multinational with deep pockets. It would not faze any of these clients to stop paying for their product if they thought that Green Widget was exiting the market. There are two things that keep our clients paying on time. First, the notion that if they honour their payment commitments, then they will get good prices and better credit terms in the future. The second is an unwritten rule amongst Country H distributors that nobody will sell to a client who has unpaid bills with another distributor. In a country such as Country H where there is no state company to act as a supplier of last resort, if shop is not allowed to buy from distributors, it needs to shut down. these two factors results in a very significant incentive for clients to keep up to date on their bills. If one were looking to wind up the distribution operation, it would be most advisable to keep it secret. However, this is unrealistic because almost any unusual action will serve as a signal to the market of one's true intention. In  Country H it is extremely unlikely one would be able to stop sales and to collect substantially all the debts that are still outstanding at the time."

57. It can be seen that if, in a liquidation, recovery of trade debts fell below 70 cents in the dollar then, quite apart from any other expenses of liquidation, there would be no positive recovery.  Mr Robinson, the SJE from Deloitte, agreed that in a liquidation not all debts would be recovered. In relation to a number a "haircut" would have to be had.

58. There is also the obvious point that the positive figure of $9.5m is proximate to the collateralised cash of $7.8m (or $9.5m today). So even on a non-break-up basis there is no scope for viewing any part of the assets of Green Widget as currently extractable. This is not to say that Green Widget is valueless or that W is not entitled to share in its value in the future. In my disposition below I will explain how this should happen.

59. H has had the benefit of large amounts of money from Green Widget. Rather than receive taxable emoluments his benefit has derived from "loans" which no-one seriously expects him to repay. The loans have been as follows (the loan were made in dollars but I have given also the sterling equivalent):
 

 

$

£

2006

3,567,240

1,938,402

2007

1,900,000

949,506

2008

1,661,386

904,990

2009

3,290,000

2,026,343

2010

1,808,000

1,170,336

2011

1,931,117

1,204,109

 

14,157,743

8,193,686



What is notable is that the pattern of loan benefit does not track the profitability of Green Widget. To my mind this signifies that H regards the travails of 2010 and 2011 as temporary, and this was borne out by statements made on his behalf in solicitors' correspondence; by admissions made both to Miss Recorder Ball QC and to me, which culminated in his statement "I would not be flogging a dead horse"; and by the profit forecast for 2012 referred to at para 54 above. My clear vision is that H will in the future derive substantial benefit significantly in excess of his present net drawings of £22,000 per month.

60. In his opening submissions Mr Le Grice QC floated the possibility that of the loans mentioned above, some £4,192,597 was unaccounted for. During the course of the case H worked extremely hard to produce schedules cross-references to bank statements which conclusively demonstrated that all the money had been spent either on living, making investments, providing sums by way of collateral for the existing  mortgages, or on costs. H also has produced a schedule where he has analysed how the loan advances were apportioned between cash collateral, legal costs, payments to W, and payments used by him, as follows:

 

Total loan

Collateral

Costs

to W

to H

2006

1,938,402

880,000

 

1,000

1,057,402

2007

949,506

 

 

36,388

913,118

2008

904,990

49,025

130,746

 

725,219

2009

2,026,343

412,660

385,500

 

1,228,183

2010

1,170,336

 

202,615

53,462

914,259

2011

1,204,109

 

405,393

110,792

687,924

 

8,193,686

1,341,685

1,124,254

201,642

5,526,105


61. In the extracts from the website referred to above an ambition is expressed of "building widgets distribution businesses in Northern and Southern regions of Country X". H explained that plans for Southern Country X had fallen by the wayside, but that his one big wish is to build a port in Country X, which he described as the area which had the largest developing infrastructure in the world. A Memorandum of Understanding has been signed to lease land for 20 years and the plan is to build this port which will cost around $20m. Green Widget has already invested $2.3m in this plan. The construction costs would be raised via private equity investors and H expects to sell annually $200m worth of widgets through it. H stated that "I have to believe that this story is compelling enough".

62. If H can nurse the  Country H business back to health (as I believe he will) and if this Country X project takes off (as I believe to be probable) then, coupled with his other ventures, I foresee that H will likely amass considerable riches in the future. I sensed that he certainly expects to do so. He is not lacking in confidence in his own abilities.

The other assets
63. These can be easily stated, and are tabulated at para 64 below. I make the following observations:

i) H has made a number of private investments in companies run by friends. He states that some are now worth rather less than his Form E figures or are illiquid. I do not adjust the Form E figures, as I take the view that subsequent fluctuations must be at H's risk.

ii) W's 50% share in Mas Menos is non-matrimonial, but H paid off £180,000 of mortgage on it. Therefore I have allowed £385,166 of its value to be designated as non-matrimonial property. H has claimed since this judgment was distributed in draft to have spent €160,000 in renovations to this property. I do not adjust my apportionment of value between matrimonial and non-matrimonial as I have no evidence that the renovation costs enhanced the value of the property.

iii) W has a 31.2% interest in a company called M which has a highly r restaurant in Barcelona and an apartment where her mother lives. Of this 19.2% was given to her before marriage, and is therefore non-matrimonial, and 12% was acquired during the marriage. W advanced no valuation in her Form E, but Mr Le Grice QC ascribed in his asset schedule £299,520 as the value of W's interest, although this appears to be based on a transaction which occurred seven years ago, the relevance of which to today I could not follow. There are accounts, in Spanish, in the bundle to September 2010 which shows net assets of the company of €86,663 and post-tax profits for the year of €214,472. I have no evidence as to what multiplier should be used to achieve an earnings valuation. I therefore take the net assets as the basis of value, giving a figure of £22,388 as the value of W's interest of 31.2%, but of this I designate 19.2% as non-matrimonial property. W has had money from this business paid to her in cash as unofficial and unrecorded dividends. This practice has stopped. In the absence of any evidence from her I take the profit figure of €214,472 as the basis of my estimate of her future income net of Spanish tax. A straight 31.2% of the profit figure would correspond to £55,684 gross. Allowing for tax, and retention of some profit by the business, I take a figure of £36,000 p.a. or £3,000 net per month as a reasonable future net income for W from this source.

iv) According to her affidavit W has borrowed £437,000 from her mother to fund her costs both of these and the leave to remove proceedings. This was revised in final submissions to £494,000 inclusive of £22,221 interest. Mr Le Grice QC has not included this, or any part of it, as a debt on his asset schedule, accepting that it is a (very) soft family loan. This is a fair concession, especially as it is not completely unadjacent in value to the sum I will  designate as non-matrimonial property. Put another way, it is fair to leave this costs debt off the ledger of matrimonial assets, and to regard them as being notionally payable out of non-matrimonial assets, if they ever are in fact repaid, which I doubt.

64. Subject to these points the other assets are:


H's assets

 

 

 

Acre House

 

2,125,000

 

Costs of sale

 

(63,750)

 

Mortgage

 

(1,760,000)

 

 

 

301,250

A

 

 

 

 

Shares

 

270,419

 

Insurance policy

 

12,144

 

Boogie Woogie loan

 

20,000

 

The Brand Distillery

 

105,851

 

South West Energy

 

32,788

 

Ringside Production

 

47,872

 

Pericles Art Fund

 

167,675

 

Latitude Brands

 

100,025

 

Overdraft, credit cards

 

(27,000)

 

 

 

729,774

B

 

 

 

 

Total

 

1,031,024

A + B

 

 

 

 

W's assets

 

 

 

Mas Menos

 

1,165,290

 

Costs of sale

 

(34,959)

 

 

 

1,130,331

 

50% interest

 

565,166

C

 

 

 

 

Apto Brennan

 

879,838

 

Costs of sale

 

(26,395)

 

 

 

853,443

D

 

 

 

 

Money at bank

 

5,000

 

Shares

 

2,761

 

Marasa 94

 

22,388

E

 

 

30,149

F

 

 

 

 

Total

 

1,448,757

C+D+F

less non-matrimonial element of C and E

(398,943)

 

Adjusted total

 

1,049,815

 



65. It can be seen that the net asset positions of the parties, disregarding Green Widget on H's side, and W's non-matrimonial property and the debt to her mother, is roughly equivalent.

The date of separation 
66. The marriage fell on hard times in 2006 and from that time a cold (and sometimes not so cold) war has prevailed. H points to the fact that on six separate occasions in formal legal documents W accepted that they separated in 2006, namely her divorce petition; her Form E; her solicitor's letter containing instructions to the mediator; her affidavit in the leave to remove proceedings; the chronology prepared for her in November 2010; and her counsel's PTR Note of 14 December 2011. Mr Le Grice says these were lawyers' errors which were continuously perpetuated by her previous lawyers and which were erroneously adopted by him in his PTR Note. There has been no change of story by W; her account of how they lived has been consistent.

67. From 2006 the parties continued to live under the same roof and shared domestic services, They moved into  Acre House together, and H made W a beneficiary of the Siena Trust. They entertained at  Acre House and went with the children on holiday together. They were certainly not separated in the Santos v Santos [1972] Fam 247 sense. It is invidious to try to anatomise a marriage by reference to the contentedness of the parties in order to attribute an arbitrary date to its ending. I take this marriage as having continued until December 2009 when W commenced proceedings. During its 14 year span each contributed fully and equally in their respective spheres, and W can claim to have contributed equally, in her own way, to the formation and success of Green Widget. But she cannot make the same claim for the future work which H will have to undertake to improve it from its present state.

Standard of Living
68. As can be seen from para 59  above very large sums have been available to H, which have largely been spent. In his Form E H described the family standard of living as "good, particularly in the latter years of the marriage". This was an understatement. In cross-examination Mr Le Grice QC demonstrated a standard of living of a very high order, with regular stays in the best hotels in London, New York, Paris, Zermatt and St Moritz.

The parties' respective proposals
69. W's claim is that she retains the assets in her name and is awarded a lump sum of £3m which is half of the balance sheet net asset value of Green Widget of $9.54m. In addition she seeks a joint lives periodical payments order of £175,000 per annum and child periodical payments of £7,500 per child per annum, with H meeting the school fees.

70. In her s25 statement W states that she wishes to rent a property in Worcestershire and to buy a property in London for £1.7m - £1.9m. She produced a budget for herself and the children in the annual sum of £193,944 (or £16,162 per month). This is to be contrasted to the sum of £8,000 per month awarded to her as maintenance pending suit on 2 November 2010, but that was on the footing that H would pay the outgoings of  Acre  House. Within her budget is £2,500 monthly rent for a house in the country and £1,134 per month for expenses on a purchased house in London.

71. H's proposal is that the assets should lie where they fall. There should be no lump sum referable to Green Widget. He should pay periodical payments to W of £100,000 per annum. There should be no separate order for child periodical payments in circumstances where the children spend precisely half their time with him, and where he pays school fees and more than 50% of the child care costs.

72. The parties are agreed that I should have jurisdiction to make an award, if appropriate, of child maintenance.

The applicable principles 
73. The capital division in this case will be determined by application of the familiar distributive principles of sharing and need. The principle of compensation is not applicable, and, as I have observed before, is likely only to be applicable in the exceptional kind of case exemplified by McFarlane v McFarlane [2006] 2 AC 618, HL.

74. In S v AG (Financial Remedy: Lottery Prize) [2011] EWHC 2637 (Fam) I strove to summarise all the authorities about sharing and concluded at para 7:

"Therefore, the law is now reasonably clear. In the application of the sharing principle (as opposed to the needs principle) matrimonial property will normally be divided equally (see para 14(iii) of my judgment in N v F). By contrast, it will be a rare case where the sharing principle will lead to any distribution to the claimant of non-matrimonial property. Of course an award from non-matrimonial property to meet needs is a common place, but as Wilson LJ has pointed out we await the first decision where the sharing principle has led to an award from non-matrimonial property in excess of needs." 

75. The law relating to an award of periodical payments is not so clear. I have already observed that a compensation based award is only likely to arise exceptionally. This applies equally whether the claim is in relation to the division of capital or is for periodical payments. But an aspect of controversy is whether the sharing principle applies to a claim for periodical payments. In McFarlane v McFarlane [2006] 2 AC 618, HL at para 154 Baroness Hale stated:

"The main family asset is the husband's very substantial earning power, generated over a lengthy marriage in which the couple deliberately chose that the wife should devote herself to home and family and the husband to work and career. The wife is undoubtedly entitled to generous income provision for herself and for the sake of their children, including sums which will enable her to provide for her own old age and insure the husband's life. She is also entitled to a share in the very large surplus, on the principles both of sharing the fruits of the matrimonial partnership and of compensation for the comparable position which she might have been in had she not compromised her own career for the sake of them all."

This would, taken by itself, suggest that the sharing principle as well as the compensation principle justified an uplift over needs. But earlier in the same paragraph Lady Hale stated:

"If capital has been equally shared and is enough to provide for need and compensate for disadvantage, then there should be no continuing financial provision. In McFarlane, there has been an equal division of property, but this largely consisted of homes which can be characterised as family assets. This was not enough to provide for needs or compensate for disadvantage. "

This would suggest that the only factor that would ever justify an uplift over need would be compensation. This accords with the view of Lord Nicholls who stated at para 93:

"Clearly in this situation the wife is entitled to a periodical payments order in respect of her financial needs. She needed money to live in the former matrimonial home which was to be the continuing home for her and the children. But it would be manifestly unfair if her income award were confined to her needs. This is a paradigm case for an award of compensation in respect of the significant future economic disparity, sustained by the wife, arising from the way the parties conducted their marriage."

76. The reason that the sharing principle is sometimes advocated as being applicable to a periodical payments claim is to reflect the theory that post-separation earnings derive from an earning capacity built up during the marriage which is, in some intangible way, a piece of matrimonial property there to be equitably or fairly shared. The high point of that theory is the dictum of Lady Hale which I have quoted above viz "the main family asset is the husband's very substantial earning power, generated over a lengthy marriage". As a theory it is problematic, because at the end of the day the only reason there is income after separation is because of  work done after separation. A footballer who earns £100,000 per week earns that because he is on the pitch playing football. Certainly, the skills he was born with, and the development of those skills (which may well have happened during his marriage), are all reasons why he can command his salary, but he will not get paid it unless he plays football. The footballer has to fill the unforgiving minute with sixty seconds' worth of distance run after the marriage. 

77. I turn to consider the decision of Hvorostovsky v Hvorostovsky [2009] 3 FCR 650, CA. In that case HHJ Horowitz QC varied an existing periodical payments order to £120,000 annually to the wife and £12,500 to each of two children. The wife relied on the sharing and compensation principles to seek an uplift above her assessed needs. In the Court of Appeal the reliance on the latter principle was described as a "departure from reality" by Thorpe LJ at para 38. But the award was increased to £140,000 and £17,500 for each child. In his judgment Thorpe LJ at para 37 specifically commended this dictum of Charles J in Cornick v Cornick (No.3) [2001] 2 FLR 1240 at para 106:

"the court should not rely on the judicial concept of 'reasonable requirements' as a determinative or limiting factor in cases where a payer has, or acquires, an ability to pay more than the payee's financial needs even when they are interpreted generously and called 'reasonable requirements'"

But he went on in the same paragraph to commend equally this dictum from Sir Mark Potter P in VB v JP [2008] 1 FLR 742 at paragraph 59:

"Second, on the exit from the marriage, the partnership ends and in ordinary circumstances a wife has no right or expectation of continuing economic parity ('sharing') unless and to the extent that consideration of her needs, or compensation for relationship-generated disadvantage so require"

78. Moreover at para 33(iii), Thorpe LJ commended the utility of a percentage comparison between the original order and the order on variation, which would seem to suggest some kind of sharing approach. In this regard I note that the well-known and binding decision of Lewis v Lewis [1977] 3 All ER 992, [1977] 1 WLR 409, CA was not referred to in judgment, where Ormrod LJ specifically disapproved such an approach and stated that "the court should have as unfettered a discretion as possible to deal with the situation as it is when the matter comes before it."

79. In my judgment simplicity and clarity are just as much needed in this part of the field as in the part designated "division of capital". Simple and fair guidance is needed so that the majority of cases can be settled. Settlement is almost always better than adjudication for a divorcing couple. And the functioning of the family justice system depends on a high rate of settlement of these cases. Save in the exceptional kind of case exemplified by McFarlane a periodical payments claim (whether determined originally or on variation) should in my opinion be adjudged (or settled), generally speaking, by reference to the principle of need alone. Of course needs are elastic in concept and there is much room for the exercise of discretion in their assessment. But to allow consideration of the concept of sharing to intrude in the assessment of a periodical payments award seems to me to be based on a doubtful principle, and is replete with problems of quantification by any sure standard. The sharing principle in relation to matrimonial property is simple enough: it is usually 50/50, because in the division of the marital acquest equity (or fairness) is (usually) equality. But if the concept of sharing is going to uplift above the assessment of need a periodical payments award which will be paid from post-separation earnings how does a judge set about doing it? Is it a third? Or 40%? Or 20%? There are not even any signposts along the road to a fair award.
 
My disposition
80. In relation to the division of the other assets referred to at para 64 above I make no further adjustment as the parties are already in a position of near equality.

81. I accept that a fair figure to take for the value of Green Widget is £6m. As I have found that money cannot be immediately extracted, and that H will need much time to raise the lump sum awarded by way of application of the sharing principle to this asset, I do not deduct notional liquidation costs. I see no reason to depart from equality. There will be a lump sum of £3m payable in instalments of £1m on 1 June 2013, 1 June 2014 and 1 June 2015. This prolonged payment schedule should enable H to raise the sums without impairing the steps necessary to resolve Green Widget's present problems.

82. A lump sum payable by instalments is variable under the terms of s31(2)(d) MCA 1973.   The quantum will only be variable in exceptional circumstances, but the timing of the instalments is variable on an unfettered basis: see Westbury v Sampson [2002] 1 FLR 166, CA at para 57. Therefore H can apply to extend the dates I have set; W can apply to accelerate payment.

83. The instalments will not carry interest. W will be compensated for being kept out of her money by the generous award for periodical payments which I will make.

84. I turn to the question of W's capital need. I do not accept that W needs to own a house in London as well as to rent a house in the country. It is reasonable for her to retain her share of Mas Menos. She needs, in due course, to buy a property in this country. It can be in London or the country. I fix £1.8 - £1.9m for this purpose. When W receives the first instalment of £1m on 1 June 2013 she will, with that money and the proceeds of Apto Brennan, be able to buy such a property.

85. I turn to W's budget. Subject to what follows it is reasonable. As I have stated I allow only the rent on a country property and therefore remove the claimed London property expenses. I strip out the costs of the children as I will deal with this separately. I then deduct the income from the  restaurant. On this basis the budget can be re-expressed thus:

monthly budget, as claimed

16,162

less London expenses

(1,134)

less children direct

(1,343)

less children indirect, say

(500)

 

13,185

less restaurant  income

(3,000)

 

10,185



I round this figure to £10,000 per month. An order will be made for H to make periodical payments in this monthly sum in advance from 1 March 2012.

86. On 1 June 2013 H will pay the first instalment of £1m. At that point, as I have explained, W will be able to buy a property. It is therefore appropriate to remove the rent element of £2,500 per month. Thus from the date of payment by H of the first instalment the spousal periodical payments will fall to £7,500 per month.

87. On 1 June 2014 and 1 June 2015 H will pay the second and third instalments. Each instalment will supply a Duxbury income of approximately £3,200 per month, on the basis of preservation (or non-amortization) of the capital (a variant available within the Capitalise program, which I have applied when making this calculation by that program 1). This method of capitalisation is reasonable and appropriate on the specific facts of this case where the lump sum of £3m has been assessed by reference to the sharing principle, and where H will continue to be a big earner long into the future. Therefore on payment of the second instalment on 1 June 2014 the periodical payments will fall to £4,300. On payment of the third instalment on 1 June 2015 the periodical payments ought, strictly speaking, to fall to £1,100 per month, but the sum is comparatively small and ought to be capitalised at that point. I calculate the appropriate figure to be £344,000. On payment of that further amount the spousal maintenance will be discharged and a clean break effected. As Sir Mark Potter P stated in VB v JP [2008] 1 FLR 742 at para 59 "a clean break is to be encouraged wherever possible". The payment schedule can be expressed thus:

 

lump sum instalment

monthly pps

1 March 2012

 

10,000

1 June 2013

1,000,000

7,500

1 June 2014

1,000,000

4,300

1 June 2015

1,344,000

0


88. H is presently living in a fine country house which he rents for £5,000 per month. With the resources available to him I am wholly satisfied that after meeting his obligations to W which I have awarded he will be able very comfortably to meet all his needs for housing and living expenses. Whether he chooses to buy a home or to carry on renting will be a matter for him.

89. I turn to the question of child maintenance. In circumstances where the children exactly divide their time between the parents; where H is paying more of the child care costs; and where he will pay all of the school fees I do not judge it fair or reasonable for him to be required to pay a separate allowance for the children. W is not a "primary carer" or a "residential parent" any more than H is. W will have throughout a monthly spendable net sum from all sources of £13,000, and it is reasonable for her to pay the expenses of the children in her time with them from that income.

90. I will hear the parties as to costs and as to the form of the order.

________

Note 1   Since the judgment was distributed in draft Mr Le Grice QC has made a written submission which he says "may or may not be within Paulin v Paulin and Cativo Ltd [2009] EWCA Civ 221" in which he states "neither party addressed the Court on the quantum of a clean break lump sum. W would wish to make submissions on whether the 3.84% return net of tax assumed in paragraph 87 of the judgment is a non-amortising percentage. She would say it is not." It is a completely false supposition that in a non-amortizing capitalisation the initial sum remains untouched and the only relevant return is the net of tax interest generated by it. On the contrary, on a non-amortizing calculation the program's algorithms apply exactly the standard Duxbury rates of income yield, capital growth, inflation, rate of capital disposal ("burn") and reinvestment ("churn"), income tax and CGT. The only difference to a standard calculation is that the final figure in the final year instead of being zero is the same figure which you started with. But it is not the very same money as you actually started with.