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Ezair v Ezair [2012] EWCA Civ 893

Appeal concerning a lump sum order in favour of the wife which had been inflated to include a substantial sum by way of a costs penalty for the husband’s litigation misconduct.

The husband appealed the order of HHJ Booth at the conclusion of ancillary proceedings where the husband was ordered, inter alia, to pay an additional £178,000 in a lump sum which sum was, in effect, ordered to penalise the husband in costs.

The Court of Appeal held that the correct approach should have been to assess the lump sum with regard to all of the section 25 criteria and thereafter, to make a distinct costs order to mark the litigation misconduct.

The appeal was allowed and the quantification in respect of costs was remitted to HHJ Booth.

Summary by Richard Tambling,  barrister, 1 Garden Court

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Case No: B6/2011/2674

Neutral Citation Number: [2012] EWCA Civ 893
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER COUNTY COURT
(HIS HONOUR JUDGE BOOTH)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 31st May 2012

Before:

LORD JUSTICE THORPE
LORD JUSTICE RIMER
- and –
LADY JUSTICE BLACK

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JACOB EZAIR  
Appellant
 
- and –
 
SHEILA EZAIR 
Respondent
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(DAR Transcript of
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Mr Simon Charles (instructed by CGW Law) appeared on behalf of the Appellant Husband

Mr Paul Isaacs (instructed by Betesh Partnership Solicitors) appeared on behalf of the Respondent Wife.
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Judgment

(As Approved by the Court)

Crown Copyright©

Lord Justice Thorpe:
1. This is the husband's appeal from an order made at the conclusion of ancillary relief proceedings, which were tried in the Manchester County Court by HHJ Booth.  The case comes to us as a result of permission granted by Ward LJ to the husband, who was in person before Ward LJ and who was in person at the trial.

2. Now, the brief background is that the parties are in their late sixties and their marriage of over 30 years' duration produced four children and was seemingly harmonious until the early years of the previous decade.  There was a return to harmony but then a complete breakdown, divorce and ancillary relief proceedings.

3. The husband is a successful businessman, and investment property has been the seat of his business activities.  The case was unusual in that the very considerable complexities had all been reduced to comparative simplicity by the endeavours of two highly experienced forensic accountants.  As the judge recorded in his subsequent judgment, a process of discussion and reciprocal concessions had resulted in agreed schedules, which in the view of the judge were entirely sensible and which accorded with the determinations to which he would have come had he had to decide any difference in their respective opinions.

4. The family assets were easily divided into two categories.  The first category contains the business assets, that is to say assets which are held by either companies or trusts, most of which are under the husband's direction.  The value of the business assets was agreed between the two accountants at £2.637 million.

5. The other category was the family assets that were outside corporate ownership, and by and large they were equally owned by the parties, and the value of those assets, which were again property assets in the main, was £2.04 million.

6. The judge had therefore the sound foundation of agreed expert evidence which established what was available for division.  He also had the advantage of agreement between the parties that they should exit from their shared financial engagements with equal net worth.  It was a 50/50 case; that was not in dispute.  So the judge's sole task was to decide how the 50 per cent share of each should be achieved by a redistribution of assets, both the business assets and the private assets.

7. At the beginning of his judgment he recorded the husband's submission that the privately owned assets should be sold and the proceeds equally divided, whilst the business assets should be equalised by a transfer of shares between the parties to ensure that the wife had an equal number.

8. The wife's contrary case was that she should get all the privately owned properties and in addition a lump sum to equalise the difference in value between the private and the business assets.  So it is not surprising that the judgment in this otherwise complex case was brief and, I would say in tribute to the judge, extremely lucid. 

9. He had to reach a decision on four disputed areas, which he itemised as: issues as to a Jersey trust, first; second, issues in relation to a remortgage application form; third, issues relating to a property development known as the Ice Plant, and fourthly, the investment that the husband had uncharacteristically made in a trading venture, which was nothing to do with property but all to do with waste disposal technology.

10. It was necessary for the judge to deal with one of these issues in particular, in order to probe the credit of the husband in business dealings.  For the simple issue in relation to the remortgage application form was: had he forged the wife's signature on the document in order to short-circuit the problem of gaining her co-operation in the application?  The judge reached a clear conclusion that the signature had been forged and, accordingly, he answered the question which he had posed at the outset of the judgment: was the husband trustworthy in his future dealings with the wife?  He answered that question in the negative.  So if the husband was not to be trusted to play fair with the wife in the future, then it would obviously be dangerous to give him absolute control of the business assets, given that the wife's future financial security would rest in substantial part on her equal ownership of the company shares.

11. The quantum of the lump sum that the wife needed in order to bring her to equality on the basis that she was to take the private assets and the husband the business assets was straightforward: it was mathematically undeniable that £322,000 would be needed.  Unfortunately, at the close of judgment, the judge said:

"The lump sum required to provide equality, as I have already identified, is £322,000.  In order to reflect the other matters and, in particular, the husband's misconduct in relation to the proceedings, the order I am going to make is for a lump sum of £500,000."

12. Permission having been given by Ward LJ, Mr Simon Charles has been instructed to present us with the husband's case in this court and he has settled an admirably clear skeleton argument to which Mr Isaacs, who appeared below, has responded.  Mr Charles has advanced his case on four grounds.  First, he says that the decision was wrong in law, or was an erroneous exercise of discretion in that the wife received all the copper-bottomed assets and the husband all the risk-laden assets.  Secondly, he says that it was equally wrong in law or erroneous in the exercise of discretion, because the wife received all the liquid assets and the husband all the illiquid assets.  His third ground is that the judge was wrong to state that there was no affected net change in consequence of a bank call on a personal guarantee, after which the husband was paying out of net income interest on the sum called, whereas, prior to its failure, interest had been paid by one of his companies.  Mr Charles's fourth point is, understandably, an attack on the quantification of the lump sum, with the uplift of £178,000 from the figure necessary to achieve equality, an uplift which is hardly explained in the judgment.

13. Mr Charles is entitled to criticise paragraph 9 of the judgment in which the judge, in relation to copper-bottomed and risk-laden assets, says this:

"In this case, that distinction is simply not appropriate.  The husband's business is that of property developer and property ownership and management.  None of his businesses are trading companies or manufacturing companies.  The value of the underlying assets in his business can go up and down as can the value of the properties that the parties own privately.  Insofar as his businesses are supported by bank lending, then interest rates can go up and down.  There may be times when property that is rented out may not have a tenant.  That would not affect the value of the businesses, as the valuations I have been asked to work from are based on the value of the assets owned by the business.  In other words, all the assets in this case, whether they be the privately owned assets or the business assets, are copper-bottomed."

14. That citation is sound to the extent that the agreed value of the business assets at £2.637 million assumes a liquidation of the corporate property portfolio over a realistic period of time and with a realistic discount to reflect the necessary duration of realisation.  The paragraph is open to criticism insofar as it makes no express reference to the husband's recent investment in the waste disposal technology.  The company in question is Oaktech Limited and the husband's investment in this seemingly speculative venture was no less than £3.8 million.  However, that investment rested in a separate forensic issue compartment, in that it was the wife's case that the husband had been putting money into a company that was really only some sort of conduit to enable him to transfer money to Israel for a possible future retirement.  That case had to be abandoned at a late stage, and in its stead the wife asserted that the investment was simply reckless.

15. The husband refuted that and succeeded to the extent that the judge concluded in paragraph 30:

"In my judgment, the economic collapse made the husband look for a way to quickly re-make his fortune.  He thinks he may have found it.  He still thinks the waste management project has the potential to yield great profit.  I am prepared to accept his judgement on that and I am prepared to let him keep the benefit of anything he makes."

16. So, having announced his conclusions in paragraph 45, inferentially to show that he was being fair to both, he said in relation to the husband:

"The order that I have made allows the husband to keep his business interests intact and to retain his eventual success with the waste management business.  If that turns out to have been a losing gamble, then it is right that he takes the hit.  If it succeeds, it is only fair that he keeps the profit."

17. It seems to me that Mr Charles's submissions on his first and second points fail, quite simply because the view that the judge took was justified on the agreed evidence of the two experts.  The only asset within the business assets that was not a property investment was brought in by the accountants at an agreed nil figure. 

18. Mr Charles accepted that his third ground really only bore as a makeweight in support of his first and second grounds.

19. The final ground is the one ground on which I am persuaded by Mr Charles that the judge fell into error.  There can be no doubt that the judge was fully entitled to have regard to the strong submissions of Mr Isaacs that the husband's conduct of the case, as a litigant in person, had inflated the wife's solicitor and client bill above what it otherwise would have been.  It was perfectly open to the judge, in the application of Rule 28.3 of the Family Procedure Rules 2010, to conclude that this was not a case that fell comfortably within the general rule that there should be no order for costs at the conclusion of an ancillary relief trial.  It was perfectly open to the judge to find that, within the codified exceptions, he could penalise the husband and compensate the wife for that element of wasted costs, but in my view, it was unorthodox simply to inflate a lump sum in the way that he did.  It produces the mathematical result that the wasted costs order comes out at £178,000, but that was simply a mathematical consequence rather than a considered and reasoned quantification.

20. In circumstances like this, the safe and orthodox approach is to make an assessment of the lump sum having regard to all the s.25 criteria, and then to make a distinct costs order that marks the litigation misconduct of one party and quantifies it in a reasoned manner.  It seems to me that the order made by the judge is unfortunately impossible to support as a matter of principle, and for absence of clear reasoning.  I would therefore propose that the lump sum order be rewritten in the sum of £322,000 but that we should add to the order below an order that the husband pay to the wife the costs that she has unnecessarily incurred in consequence of the husband's misconduct.

21. The quantification of that is essentially one for the trial judge, and I would remit the quantification to HHJ Booth, asking him to have regard to the fact that the husband was a litigant in person in complex ancillary relief proceedings and that, at various interlocutory stages, he had been condemned in costs incurred.  It was therefore important to ensure that there was no double penalty in the combination of the interlocutory orders and the final order. 

22. The judge also has to have regard to the fact that the wife's bill is only, as advanced, solicitor and own client, and has not been the subject of any summary assessment or any detailed assessment by a costs judge.  The obvious likelihood is that the bill at the full extent of £416,000 would shrink if subjected to a process of assessment.  So, to that extent only, I would allow the appeal.

Lord Justice Rimer:
23. I agree.

Lady Justice Black:
24. I also agree.

ORDER: Appeal allowed in part.