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England and Wales High Court (Family Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Family Division) Decisions >> B v S (Rev 2) [2012] EWHC 265 (Fam) (17 February 2012) URL: http://www.bailii.org/ew/cases/EWHC/Fam/2012/265.html Cite as: [2012] 2 FLR 502, [2012] EWHC 265 (Fam) |
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FAMILY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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| B |
Applicant |
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| - and - |
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| S |
Respondent |
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Mr S appeared in person as the Respondent
Hearing dates: 6 -14 February 2012
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Crown Copyright ©
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.
The matrimonial property regime
"…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."
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.
"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."
"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)."
"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."
"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."
"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"
"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."
"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."
"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."
"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"
"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".
"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"
"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.
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.
History of the marriage
"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."
Green Widget
"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 [email protected].
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."
"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."
| 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) |
| 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 |
"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."
| $ | £ | |
| 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.
| 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 |
The other assets
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 regarded 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.
| 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 |
The date of separation
Standard of Living
The parties' respective proposals
The applicable principles
"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."
"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."
"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"
My disposition
| 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.
| 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 |
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.
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