FD01D0472
Neutral Citation Number: [2003] EWHC 611 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
18 March 2003

BETWEEN
- - - - - - - - - - - - - - - - - - - - -
GW
Petitioner

and

RW
Respondent
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -
Martin Pointer QC and Justin Warshaw for the Petitioner (Wife) instructed by Seats Tooth
Lewis Marks QC and Duncan Brooks for the Respondent (Husband) instructed by Manches & Co

Dates of hearing: 14 - 17 January 2003
- - - - - - - - - - - - - - - - - - - - -
JUDGMENT

Introduction

1.	The husband (“H”) is aged 44. He was born in Cleveland, USA. The wife (“W”) is aged 43. She was born in Sydney, Australia. They were married in Australia in April 1989. Prior to the marriage they lived together for about 18 months. Their cohabitation, both before and after marriage, has been in England. W presented her first petition for divorce in November 1995. The parties had by then separated. They were reconciled and the petition was dismissed in May 1997. In February 1998 their son Taylor was born. He is now 5. In July 2000 their daughter Lauren was born. She is now 2½. In July 2001 W petitioned for divorce for the second time. This time there was no reconciliation. Decree Nisi was pronounced on 28 December 2001. On 30 April 2002 W returned with the children to live in Australia permanently. This is the judgment on her application for ancillary relief.

2.	H and W now have net assets of about £12m. This fortune derives entirely from H’s remuneration as a City worker. This is not a case where one party has had a clever business idea which he has later sold for a fortune. It is a case where a fortune has been built up from savings made from H’s compensation package. W seeks an order granting her half of the assets.

3.	The parties met and began their relationship in December 1986. At the time that they began to live together in 1987 H was already well established as a financier. He was then aged 29. He had been working for a well-known American bank since 1981 and had been made a Vice-President of it. He had moved to England with the bank in April 1986. He told me that at the time of the marriage in April 1989 he had net assets of “$500,000, maybe a little bit more” and was earning, inclusive of bonuses, on average $400,000 p.a. W agreed that he had an income of this order, but asserted that his net asset position at the time of the marriage was about $250,000. The evidence in this regard is not supported by any documentation. In his skeleton argument Mr Marks QC asserted that H had “about $1 m by the time of marriage”. The explanation for this was that this figure included the bonus that H received shortly after the marriage. Even if the bonus was a substantial part of his remuneration of $400,000 I do not understand how $1m was arrived at. Now, in an affidavit dated 29 January 2003 (filed with my permission after the conclusion of speeches in order to deal with a different point that arose late in the case) H asserts that his pre-marital net worth was $700,000 to $800,000. The affidavit was not supposed to address the question of H’s pre-marital net worth. I find that H’s pre-marital net worth amounted to $500,000, as stated by him in the witness box. It is reasonable to assume that a significant part of this sum was built up during the period of pre-marital cohabitation.

4.	At the time of the commencement of the relationship W was working for the same American bank. Following the marriage she stopped working, by agreement with H, and has not worked in remunerative employment since.

5.	In June 1994 H left the bank and began to work for a substantial international corporation which I shall call X Corp. His compensation package, while extremely lucrative, is also, to use the words of Mr Pointer QC, fiendishly complex. In November 2002 H was effectively made redundant by X Corp. For the whole of 2003 H will continue to be paid a salary by X Corp at the annual rate of $300,000 unless, before the end of the year, he finds employment elsewhere.

The accretion of wealth

6.	H is a meticulous man. Since 1994 he has prepared annual spreadsheets of the family wealth. This enables me to have an understanding of when and at what rate assets were accumulated. It is agreed by all that the spreadsheets are inaccurate inasmuch as they omit latent taxes on the assets; but provided that I am satisfied (which I am) that the omission is maintained consistently it does not alter the accuracy of the picture of accretion. H entered the marriage in 1989 with $500,000. With that datum I am able to plot a graph of the accretion of wealth for the entire marriage. The figures must be adjusted for the effect of inflation so that values are compared in the value of money today. The figures are as follows:

	$,000s	Adjusted for 
inflation	
Apr-89	500	781	
Apr-94	1,063	1,316	
Feb-95	1,762	2,141	
Apr-96	2,542	2,973	
Feb-97	4,733	5,451	
Jan-98	8,303	9,292	
Mar-99	14,902	16,210	
May-00	15,804	16,526	
Dec-01	24,877	25,609	

7.	An issue in the case is how I should treat funds accumulated during the period of estrangement in 1995-1997. The parties are agreed that the period of separation was about 15-18 months. This is the same as the period between the date of the first petition and its dismissal, although the two periods will not have been exactly coincidental. The rate of accretion of wealth is demonstrated by the following graph upon which is marked the period of estrangement:

GRAPH NOT INCLUDED

This graph shows that approximately $5m (in the value of money today) was accumulated during the period of estrangement. This was a period of steep accretion of capital. The amount accumulated is about 20% of the total gross assets as recorded in the final spreadsheet. Of course H cannot claim sole credit for money accumulated in the period of separation as some of the increase will be attributable to natural capital growth of existing funds. I will deal below with how this should affect my award. At this stage I am only establishing the facts.

The assets and their presentation

8.	A significant component of H’s wealth is in deferred stock and option plans in X Corp or in companies in which X Corp has invested. They have been denoted in the documentation by obscure acronyms, which do not require explanation here. For some of these deferred rights H borrowed money in order to invest in them. The terms of entitlement are extremely complex. When W went to see her solicitor for the first or second time she took with her the December 2001 spreadsheet of the family wealth which she had printed off the family computer. This showed that the family fortune was $24.877m, or £16.5m. W prepared her Form E and declared £4.4m. She exchanged it for H’s Form E and saw that he declared £3.6m. Part of that total was the value of a loan made by H to W (for US tax reasons) in the sum of £1.4m. Ignoring that, H was declaring assets of £2.2m. The two Forms E totalled £6.6m, about £10m less than the document prepared by H which was now in W’s solicitor’s possession.

9.	Even allowing for the omission of latent tax from the spreadsheet there was still an enormous discrepancy. The reason was that although H had identified all the elements of his deferred entitlements and options in Section 2.17 in his Form E (entitled “Capital: other assets”), and had attributed values to them as part of his narrative text, he replaced those values by nil values for all except those immediately realisable when it came to filling in Box G, where the actual value to be attributed to those assets is meant to be put. That figure in Box G is then amalgamated with the figures in the other boxes to give a statement of overall net wealth. It is to be noted that in Section 2.12 of his Form E H included the full amount of the loans for investment participation. But he attributed zero value to the investments themselves when it came to doing the computation of net wealth.

10.	Mr Pointer QC (who appears for W) has criticised this presentation forcefully. He says it was misleading and unfair. Mr Marks QC has defended it equally forcefully. He says that the way in which the figures were presented was approved by his previous solicitor and Leading Counsel. He says that the items and their values were not concealed - they were there to see on the face of the Form E. He says that whatever number had been inserted in Box G would have been wrong: that had H tried to attribute a fair value to it he would have been “strangled” with it later by Mr Pointer QC. Basically he says that his client was faced with Hobson’s choice.

11.	Whatever the rights and wrongs of the way in which H and his team put forward the figures, the presentation has had unfortunate consequences. The complexity alone of H’s compensation structure was such that the employment by W of a forensic accountant was inevitable. But given that W had in her hand a document prepared by H a few months earlier which stated that they were £10m richer than stated in Forms E it was obvious that the accountant was going to be instructed to undertake a rigorous process of investigation and verification. Once this process started things went from bad to worse, for in their preliminary report dated August 2002, the accountants instructed by W unfortunately made an elementary error in their calculation of the value of H’s option rights. They calculated them without taking into the account the option price which H would have to pay to acquire the assets. They attributed over £6m to these options when the correct figure, net of tax, would have been only about £640,000. Thus they stated that H had understated his assets by some £11m, when the correct figure, when bringing into account the true value of the deferred assets, was nearer £5.3m.

12.	It has taken a great deal of work and costs to sort out all the various misrepresentations, misunderstandings and mistakes, W’s accountants have charged her over £90,000. However when the matter was opened it was apparent that apart from a dispute about what levels of discount (if any) should be applied to assets realisable over time, there was, little material dispute between H and W over the figures. That said both parties were demanding in their respective skeletons condemnation of the other and vindication of themselves. When W went into the witness box she stated

“I have felt at times he has been dishonest. I believe assets have been concealed; I don’t believe we have found all of them”.

13.	This view received a degree of justification late in the case when Mr Pointer QC extracted from H during his cross-examination a draft severance agreement concerning H’s recent termination of his employment. This showed that the evidence given by H in a recent affidavit that terms had been conclusively agreed was economical with the truth. Worse still, the suggestion that the loans for the investment program were immediately payable to a commercial bank was misleading: The loans had been taken over by X Corp, and H was negotiating that they should be repaid by him over time.

14.	In his final speech Mr Pointer QC made submissions as to the content of this draft agreement. Essentially he submitted that a proper construction of its terms was that the loans would in fact be forgiven rather than deferred. Moreover he submitted that a proper interpretation of the agreement was that H would be $1.2m better off than had otherwise been thought. I directed that H should file further affidavits dealing with this, notwithstanding that the case had otherwise concluded. An affidavit from H and two witnesses, both of whom are chartered accountants, were duly produced. Having read them I am satisfied (although the matter is not entirely free from doubt) that H is not going to be any better off as a result of his negotiations with X Corp other than in respect of deferment of the loans.

15.	I can understand why Mr Pointer QC made his submissions. The problem would not have risen had H produced the agreement voluntarily before the commencement of the trial, as he should have done. The terms of Paragraph 4 of H’s recent affidavit appear to amount to an admission that he deliberately suppressed this document.

16.	In my judgment it was a mistake for H to have presented his assets in his Form E in the way that he did. He accepted that the representation that he was only worth £3.6m was unfair. The very point of Form E is to give an honest and conscientious estimation of the true net worth of the party at the time of swearing it. For these purposes sensible and fair figures have to be attributed to unrealisable or deferred assets. The maker of the Form E is fully entitled to qualify those figures in the narrative part of the section. But a proper figure has to be put in. It is unacceptable, in my view, that simply because an asset is not realisable on the day that the Form E is sworn, but is assuredly realisable, or likely to be realisable, at some future date, for a zero figure to be inserted.

17.	Moreover, when a person’s financial affairs are complicated it is incumbent on him, as part of the duty of full, frank and clear disclosure to give a presentation that is immediately understandable by a solicitor of average financial sophistication. It is no good to present very complex material in such a way that only an accountant of enormous financial acumen can understand it. As it happens in this case H did make such a clear presentation, but only in response to W’s accountants’ preliminary report. It would have been altogether better had that presentation formed part of his Form E. From that point onwards I am satisfied that H cooperated fully and clearly with W both in the disclosures made between solicitors and in his direct meetings with W’s accountants. It is a pity that he should have sullied that impression of clear and honest cooperation by suppressing the draft severance terms which I am clear he should have produced as part of his continuing duty of full and frank disclosure. It cannot be emphasised often enough in these cases that a party’s obligations of disclosure are not confined to providing the information and documents prescribed by Form E and as ordered by the Court in response to a questionnaire. There is a continuing duty to provide, without being asked, new information and documents that may affect the exercise of the statutory discretion.

18.	I am satisfied that notwithstanding these various difficulties I have had a full disclosure of all the assets. This is not a case where I should draw inferences about the existence of undisclosed assets from the defensive posture adopted by H. Nor have the various defaults in disclosure by H been anywhere near the scale of gravity so that it should affect my substantive award (see M v M (Financial Provision Party Incurring Excessive Costs) [1995] 3 FCR 321, FD). Thus the issue of H’s defaults in disclosure goes only to costs (see P v P (Financial Relief: Non-Disclosure) [1994] 2 FLR 381, Tavoulareas v Tavoulareas [1998] 2 FLR 418, Young v Young [1998] 2 FLR 1131), and in particular to the question of W’s accountants’ costs.

19.	As I have indicated above the only material dispute between the parties as to the size of the assets related to the question of whether a discount should be applied to H’s deferred assets to reflect the payment of them to him over time. This issue is only live if I am to order a cash payment to W payable now referable to those deferred assets. I am going to order a specific sharing by W of those assets in accordance with Wells v Wells [2002] 2 FLR 97 and G v G (Financial Provision: Equal Division) [2002] 2 FLR 1143. The issue therefore disappears.

20.	The following table sets out the parties’ respective contentions as to the extent of the assets, the difference between them, and my findings. All figures are expressed net of costs of sale, and taxes where applicable. Although the Surrey and Sydney properties are jointly owned they are treated as being owned by H and W respectively, for it is agreed that transfers will be made to achieve this effect. Similarly, the small amount of money in joint bank accounts is treated as belonging solely to H, and those accounts will be made over to him. In relation to the disputed items I do not propose to give reasons for my findings where the difference is £10,000 or less. Otherwise my findings are set out in the Notes that follow the table.

£,000s	per H	per W	Difference	finding		
H’s assets - immediately realisable, or treated as such						
Surrey property	2,436	2,436		2,436		
New York property	83	83		83		
South Carolina property	922	930	8	922		
Insurance policy	81	81		81		
Money at banks (including joint accounts)	70	70		70		
Money in US pensions	80	130		130	Note 1	
Golf club membership	64	64		64		
US tax	(192)	(192)		(192)		
US tax on forgiven loan	(45)	(45)		(45)		
other liabilities	(30)	0	30	(30)	Note 2	
costs paid	130	133	3	133		
X Corp						
GAM shares	510	510		510		
DGS shares	268	268		268		
DIP 2003 shares	1,002	1,002		1,002		
PIP cash	280	280		280		
Tax	(795)	(795)		(795)		
X Corp loan (formerly JP Morgan) 2003	(1,191)	(326)	865	(326)	Note 3	
Discount on tax and loans	97		(97)		Note 3	
	3,770	4,629		4,591		
W’s assets - immediately realisable, or treated as such						
Sydney property	1,130	1,057	(73)	1,130	Note 4	
Money at banks	1,592	1,591	(1)	1,591		
Stocks	68	68		68		
costs paid	290	290		290		
	3,080	3,006
		3,079		
Total	6,850	7,635		7,670		
						
H’s unrealisable or deferred assets (undiscounted)						
X Corp loan (formerly JP Morgan) 2004-2006	0	(866)	(866)	(866)	Note 3	
DIP 2004-2007	2,072	2,073	1	2,073		
TOP	944	944		944		
PIP	1,655	1,656	1	1,656		
MOG & POG	642	642		642		
Total	5,314	4,449		4,449		
						
Grand Total	12,163	12,084		12,119		

Note 1:	I take the value of H’s US pensions at the figure of £130,000, which is now agreed. Mr Marks QC argues that this should be reduced by £50,000 being the tax that would be payable if H were to withdraw the money. I do not propose to do so. I am persuaded by the argument of Mr Pointer QC that this would be wrong in principle. He states, and I agree, that the court would not discount the CETV of a UK pension to reflect the tax that would be payable once the pension comes into payment. In Norris v Norris (28 November 2002) Bennett J declined to discount the value of a pension to reflect its illiquid nature, and I believe that the same principle should apply in relation to asserted tax liabilities on the funds once they came into the beneficiary’s hands. My researches reveal that the New York Courts would adopt a similar approach to a US pension fund. In Reidy v. Reidy, 136 A.D.2d 614, 523 N.Y.S.2d 860 (2nd Dept 1988), the appellate court rejected a husband’s claim that, because a large portion of the assets he received consisted of tax-deferred IRAs and employer-funded pension funds, he had in fact received less than half of the marital assets. Rather, the court found that the value of those assets would grow considerably by the time that the husband began to receive taxable income from them, and therefore any taxes incurred upon his future receipt of those benefits would be more than offset by the increase in their value.

Note 2:	Mr Pointer QC argues that I should disregard H’s other debts as being of a “revenue” nature. There is some merit in this but I do not propose to do so. A debt is a debt. However I shall bear this in mind when I allocate the assets between the parties.

Note 3:	Initially I was minded to include the whole of this interest free debt as a current liability and then to add back a discounting figure to represent the benefit to H of the deferral over time. But I am persuaded by Mr Pointer QC that it is better to include only as an immediate liability the element of the debt payable in 2003, and to insert the balance into the section of H’s assets designated as unrealisable and deferred.

Note 4:	I take the value of the Sydney property as A$3.03m, and use the exchange rate of A$2.60 to £1 (being the exchange rate on 28 February 2003).

Contributions and Duration of the Marriage

21.	Mr Pointer QC puts his case simply. He says that since Lambert v Lambert [2002] 3 FCR 673, [2003] 1 FLR 139 it is impermissible and discriminatory to adjudge the contributions made by the parties as anything other than equal, and that therefore the assets should be divided equally.

22.	Mr Marks QC disputes this on three grounds:

22.1.	He says that the assumed equality of value of financial and domestic contributions as proclaimed in Lambert only applies to cases of substantial length and not to a case such as this where the duration of the marriage was about 12 years.

22.2.	He says that H brought assets into the marriage which have to be considered differently as indicated by Lord Nicholls of Birkenhead in White v White [2001] AC 596. Moreover he says that H not only brought assets into the marriage, but a fully developed career and earning capacity, which itself amounts to a pre-marital resource. And he says that W cannot claim equality of contributions in respect of assets made during the period of estrangement.

22.3.	He says that his client has greater needs than W, justifying an unequal division.

23.	Mr Pointer QC dismisses these arguments as forensic make-weights. He says that at the directions phase of the FDR only one reason for departure from equality was identified by H, namely his “special contribution”. That argument bit the dust with the decision in Lambert and H is now, says Mr Pointer QC, “scrabbling around, late in the day” for other arguments to justify an unequal division.

24.	H has abandoned his case on special contribution in the light of the decision in Lambert. That was inevitable. The class of case where a special contribution can now be taken into account must be very narrow indeed. In paragraph 46 of Lambert Thorpe LJ stated

However for the present, given the infinite variety of fact and circumstance, I propose to mark time on a cautious acknowledgement that special contribution remains a legitimate possibility but only in exceptional circumstances. It would be both futile and dangerous to even to attempt to speculate on the boundaries of the exceptional. In the course of argument I suggested that it might more readily be found in the generating force behind the fortune rather than in the mere product itself. A number of hypothetical examples were canvassed ranging from the creative artist via the superstar footballer to the inventive genius who not only creates but also develops some universal aid or prescription. All that seems to me to be more safely left to future case by case exploration.

25.	In Lambert it was argued that a special contribution should only be capable of being found where one party brings to the marriage a spark of genius which generates great riches. In this way the genius can be equated to separate or pre-marital property. It seems to me that Thorpe LJ in referring to “the generating force behind the fortune” was sympathetic to that argument. Certainly, the mere fact of making a large amount of money cannot of itself demonstrate the existence of a special contribution, a fortiori where, as here, the fortune has been made by savings from remuneration.

26.	Thus H had no real choice but to abandon his special contribution case. I do not accept that merely because his present arguments were not previously articulated means that they are therefore devoid of merit. Obviously their late arrival means I must examine them with especial care to see if they are rooted in forensic opportunism.

27.	There is no scope in this case for any misunderstanding of the reasoning in Lambert. I appeared for Mrs Lambert. Mr Pointer QC (W’s counsel here) appeared for Mr Lambert. Lady Ward (H’s solicitor here) was instructed by Mr Lambert. So everyone here knows exactly how the case was argued.

28.	Lambert was argued in the Court of Appeal expressly on the basis that where a marriage was long, which for the purposes of the argument was set at no less than 20 years, it would be discriminatory to value the money-making contribution of one party during that span higher than the home-making or child-caring contributions of the other. Reliance was placed (admittedly on rather scrappy material) on the practice in New York where, under a similar statute to ours, the courts routinely divide the marital assets equally after a marriage of 20 years or more. Reliance was also placed on the decision of the Full Court of the Family Court of Australia in Figgins v Figgins [2002] FamCA 688. This was highly influential on the decision in Lambert. In his judgment Thorpe LJ cited Paragraphs 57 and 131-134 of the judgment of Nicholson CJ. Paragraphs 129 and 130 were also cited to the Court of Appeal. They read:

129.	In cases such as this one, involving short marriages and a substantial imbalance of financial contribution, equality of division is again likely to produce substantial injustice. Its value as a starting point is therefore highly questionable.

130.	It really only has value in cases involving long marriages like White (supra), where there are substantial assets and contributions on both sides. In such cases we consider that courts usually arrive at just and equitable results in any event. If they do not, errors can be corrected on appeal.

29.	The length of the marriage in Lambert (23 years) was emphasised repeatedly during argument, sometimes at the behest of the Court itself.

30.	There was no debate in the Court of Appeal as to whether the principles that were being argued for should apply to a marriage of much shorter length.

31.	Indeed, there has been no case since White where the principles established by the House of Lords have been tested against a marriage of around 10-12 years. Indeed all the reported big money cases since White have involved marriages of great length.

32.	Before I set out my findings on these arguments I propose to deal with my assessment of the “duration of the marriage”. There are two points here: First, should the pre-marital cohabitation be equated to marital cohabitation; and second, should the period of estrangement be excluded in assessing the length of the marriage?

33.	In assessing the duration of the marriage the court has always looked at the position de facto rather than de jure. For example, the end of the marriage is always taken as the date of separation rather than the date of decree absolute. It is true that in Foley v Foley (1981) 2 FLR 215 the Court of Appeal said that there is a distinction to be drawn between years of cohabitation and years of marriage. Eveleigh LJ specifically relied on public opinion at that time (at p220):

In the great majority of cases public opinion would readily recognize a stronger claim founded upon years of marriage than upon years of cohabitation.

That decision is now nearly 22 years old. The case of White has emphasised that the law in this area is not moribund but must move to reflect changing social values. I cannot imagine anyone nowadays seriously stigmatising pre-marital cohabitation as “living in sin” or lacking the quality of emotional commitment assumed in marriage. Thus in my judgment where a relationship moves seamlessly from cohabitation to marriage without any major alteration in the way the couple live, it is unreal and artificial to treat the periods differently. On the other hand, if it is found that the premarital cohabitation was on the basis of a trial period to see if there is any basis for later marriage then I would be of the view that it would not be right to include it as part of the “duration of the marriage”. This was the finding made in the recent case of F v F (14 January 2003) by Hartmann J in the High Court of Hong Kong, which decision contains some valuable insights on this and other aspects of the law of ancillary relief. There is no basis for such a finding in this case, and I therefore include the 18 months of pre-marital cohabitation here as part of the “duration of the marriage”.

34.	By the same token I am of the view that it is equally unreal to characterise the 18 month period of estrangement, conducted under the umbrella of a divorce petition which alleged the irretrievable breakdown of the marriage, as counting as part of “the duration of the marriage”. In my judgment a period of estrangement where there has been a formal separation should not count as part of the duration of the marriage.

35.	It can be seen that fortuitously these two periods are the same and so neutralise each other. I therefore take the duration of this marriage to be one of 12¼ years.

36.	Therefore the fundamental question is: does the principle in Lambert of assumed equality of contributions justifying equality of division apply to a marriage of 12¼ years? Mr Pointer QC says emphatically that it does. Indeed with characteristic frankness he says it does not make any difference whether the money was made over a 20, 10, 5 or even 2 year marriage. If the money was made in the span of the marriage, why he asks, should it make any difference as a matter of logic how long the marriage was?

37.	Mr Marks QC responds by saying that to disregard the duration of the marriage is to shut one’s eyes to Parliament’s prescription that this factor should be taken into account. He relies on an article of John Eekelaar entitled “Asset Distribution on Divorce - The Durational Element” (2001) 117 LQR 552, published after White but before Lambert. The Court of Appeal in Lambert was not referred to this article. In it John Eekelaar says (at 556)

The length of the marriage is relevant, in and of itself (as distinct from being an element of some other feature, such as extent of contributions) to the amount allocated because it is defensible to hold that parties who share their lives together earn a share in one another’s assets relative to the length of time they have shared their lives (his emphasis)

He relies on the view of the American Law Institute which has a “target period” (at which full entitlement would be assumed) of about 20 years, and then goes on to suggest a discounting formula for marriages of shorter length.

38.	I have stated above that in the Court of Appeal in Lambert reliance was placed on the practice of the New York courts of dividing the marital acquest equally after a marriage of long duration. The statute there is similar to ours, save that the court’s dispositive powers are confined strictly to “marital property”. No cases were cited to the Court of Appeal in Lambert: reliance was placed on mere assertion as appearing on the web-sites of certain New York lawyers.

39.	The cases show that these assertions were right. In Suydam v Suydam (1994) 610 NYS 2d 976 Weiss J stated in the Appellate Division of the Supreme Court of New York

Where the marriage is of long duration, and where neither party entered the marriage with assets and both became full and contributing marital partners, the division should be made as equally as possible

This principle has been reiterated since by the Appellate Division, see, for example: Granade-Bastuck v Bastuck (1998) 671 NYS 2d 512 and Meza v Meza (2002) 743 NYS 2d122

40.	I do not shrink from saying that this is a difficult issue. The logic deployed by Mr Pointer QC has obvious force. But on the other hand it seems to me that to adopt it requires me to put a blue pencil straight through the statutory criterion of the duration of the marriage. The failure of the judge in Lambert to give sufficient weight to this factor was specifically criticised by the Court of Appeal. It seems to me that the assumption of equal value of contribution is very obvious where the marriage is over 20 years. For shorter periods the assumption seems to me to be more problematic. I am not attracted to a formulaic solution, as suggested by John Eekelaar, but I do in essence accept his proposition that the entitlement to an equal division must reflect not only the parties’ respective contributions but also an accrual over time.

41.	Mr Pointer QC reminds me that the children in this case arrived late in the marriage and that W therefore has many years ahead of her of “looking after the family”. This is true, but H will be making his paternal contributions as well, in particular by paying maintenance and all of the educational costs. The underlying rationale of White and Lambert is that the fruits of a long marital partnership should be divided equally where the parties have given their all in their respective spheres. Here W’s contributions to the upbringing to the children, made after the end of the marital partnership, do not enhance whatever entitlement to its fruits that has accrued in her favour by the time of its ending.

42.	Even I am wrong about this, and I am required (subject to the other arguments of Mr Marks mentioned in Paragraph 22 above) to find equality of value of contributions during this 12¼ year marriage, this does not necessarily lead to equality of division. In Lambert Thorpe LJ stated at Paragraph 38

A distinction must be drawn between an assessment of equality of contribution and an order for equality of division. A finding of equality of contribution may be followed by an order for unequal division because of the influence of one or more of the other statutory criteria as well as the over-arching search for fairness.

43.	I have to say that whatever intellectual route is adopted I find it to be fundamentally unfair to be required to find that a party who has made domestic contributions during a marriage of 12 years should be awarded the same proportion of the assets as a party who has made the domestic contributions for a period in excess of 20 years. I think it is for this reason that Nicholson CJ expressed himself in the way that he did in Figgins, and that the New York courts have adopted the principle to which I have referred.

44.	I therefore propose to allow some departure from equality under the first argument advanced by Mr Marks.

Non-marital assets

45.	I now turn to Mr Marks’ second argument, which focuses on the famous passage in Lord Nicholls’ judgment in White under the heading “Inherited money and property”. This reads

I must also mention briefly another problem which has arisen in the present case. It concerns property acquired during the marriage by one spouse by gift or succession or as a beneficiary under a trust. For convenience I will refer to such property as inherited property. Typically, in countries where a detailed statutory code is in place, the legislation distinguishes between two classes of property: inherited property, and property owned before the marriage, on the one hand, and ‘matrimonial property’ on the other hand. A distinction along these lines exists, for example, in the Family Law (Scotland) Act 1985 and the (New Zealand) Matrimonial Property Act 1976.

This distinction is a recognition of the view, widely but not universally held, that property owned by one spouse before the marriage, and inherited property whenever acquired, stand on a different footing from what may be loosely called matrimonial property. According to this view, on a breakdown of the marriage these two classes of property should not necessarily be treated in the same way. Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it. Conversely, the other spouse has a weaker claim to such property than he or she may have regarding matrimonial property.

Plainly, when present, this factor is one of the circumstances of the case. It represents a contribution made to the welfare of the family by one of the parties to the marriage. The judge should take it into account. He should decide how important it is in the particular case. The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered. However, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this property.

46.	The way in which Lord Nicholls has expressed himself has caused some controversy.  In the second paragraph of the passage he sets out the view “widely but not universally held” that inherited assets should in effect be identified and excluded from the pool of assets to be divided. In the third paragraph he sets out his conclusions. In so doing is he to be taken as agreeing with the view identified by him earlier, or not? In Cowan v Cowan [2002] Fam 97 the Court of Appeal obviously thought that he did. Thorpe LJ stated (in a comment that did not form part of the ratio of the decision):

[51]	Likewise in the final section of general guidance headed ‘Inherited money and property’, Lord Nicholls of Birkenhead explains, at 994E-F/1583F: 

‘...Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it.’

Mance LJ made similar comments at Paragraph 156

47.	On the other hand Nicholson CJ in Figgins at Paragraphs 62-65 thought that Lord Nicholls meant quite the opposite. He stated

62. 	A useful recent discussion of inheritance is to be found in the decision of the House of Lords in White in the judgment of Lord Nicholls (at 13-14).

63. 	His Lordship refers to a view that inherited property, whenever acquired, should stand on a different footing from other matrimonial property. According to this view, the spouse to whom it was given should be allowed to keep it. Conversely, as a consequence of such a view, the other spouse has a weaker claim to it.

64. 	Lord Nicholls entirely rejects the above proposition. The substance of what his Lordship said after referring to that view, is as follows:
• When present, the factor of an inheritance is one of the circumstances of the case;
• It represents a contribution by one of the parties;
• The Judge should take it into account and decide how important it is in the particular case;
• The nature and value of the property and the time that it was acquired are among the relevant matters to be considered;
• However, in the ordinary course, this factor carries little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to the property.

65. 	We note in passing that Thorpe LJ in the later case of Cowan [2001] 3 WLR 684; [2001] 2 FLR 192 at 212 appears to have treated Lord Nicholls’ statement as supportive of a view that we think that Lord Nicholls rejected, that it is appropriate to “quarantine” an inheritance. Inheritance was not an issue in this case and this matter does not affect the substance of the decision.

48.	In the case of Norris v Norris (unreported 28 November 2002) Bennett J preferred the view of Nicholson CJ. At paragraph 64 he stated

Applying the words of the statute, in my judgment the court is required to take into account all property of each party. That must include property acquired during the marriage by gift or succession or as a beneficiary under a trust. Thus, what comes in by statute through the front door ought not, in my judgment, to be put out of the back door, and thus not remain within the court’s discretionary exercise without very good reason. In my judgment, merely because inherited property has not been touched or does not become part of the matrimonial pot is not necessarily, without more, a reason for excluding it from the court’s discretionary exercise.

And at paragraph 67

In this case, if the inherited assets of the wife are to be taken into account as part of her contribution to the marriage and the family, which in my judgment they must, then there is no reason to exclude them from the wife’s assets when performing the discretionary exercise. For to do so would mean the wife could have her cake and eat it. She gets credit for her contribution from the inherited assets and further credit if the value of the inherited assets are deducted from the total of her assets before division. That would be tantamount to double counting and thus unfair.

49.	This analysis cannot be challenged. I therefore propose to treat all the arguments advanced by Mr Marks QC on his second point as impacting on the question of contributions. It must be an artifice and contrary to the express words of s25(2)(a) Matrimonial Causes Act 1973, as Bennett J has pointed out, to exclude the non-marital assets from the pool of assets to be divided.

50.	H here brought into the marriage assets with a value in money today of $781,000. This was a substantial contribution by him, unmatched by any comparable contribution by W, although its impact is lessened by the consideration that some part of the pre-marital wealth would have been accumulated during the period of pre-marital cohabitation, which I have included as part of the duration of the marriage.

51.	H also brought to the marriage a developed career, existing high earnings and an established earning capacity. I cannot see why this should not be treated as much as a non-marital asset as the provision of hard cash. In argument I suggested that H here was in terms of his career “fledged” at the time of the marriage, rather than being the fledgling, which is so often the case. Mr Marks QC stated that his client was far more than fledged: he was fully airborne. I tend to agree, and in this aspect also I find that H made a contribution unmatched by any comparable contribution by W.

52.	I have already found that during the period of estrangement the assets grew by a not insignificant amount: it would seem to be about £2.4m of the £12m. It is impossible to gauge what proportion of this amount is referable to natural capital growth and what was derived from savings made from work done by H when the parties were separated. But certainly to some significant extent H made during this period a contribution unmatched by any comparable contribution by W.

53.	I therefore propose to allow some departure from equality under the second argument advanced by Mr Marks QC.

Needs

54.	Mr Marks’ third argument is that H’s needs are greater than those of W and that this requires a departure from equality.

55.	Each party requires a home and an income. W has no earning capacity. Her income must therefore derive from an investment fund. Nobody has sought to argue that this should be calculated other than on the Duxbury or amortising basis (even though this was one of the successful grounds of appeal in Lambert).

56.	Both sides have produced Duxbury calculations utilising a 3.75% net rate of return. This rate was recommended by the Duxbury Working Party, a self-appointed body of which both myself and Mr Marks QC are members, in April 2002.  The reasons are explained by Mr Marks QC in an article entitled “Duxbury-— The Future? Episode II” [2002] Fam Law 408. Essentially the fall in world markets demanded a downward revision of the existing industry standard of 4.25%. The working party suggested a half-point reduction to 3.75%. That half-point revision reflected a similar revision to the damages discount rate, now set by the Lord Chancellor at 2.5%. The paper makes clear that the revision is merely a suggestion pending judicial approval and it is for this reason that At A Glance has published tables on both the 3.75% and 4.25% rates.

57.	It might seem hubristic of me to approve in my capacity as a Deputy High Court Judge a rate recommended by me (among others) in my capacity as a member of the Working Party. But it is blindingly obvious that as between 4.25% and 3.75% the lower figure is right. Indeed present market conditions might suggest that 3.75% is distinctly optimistic. If by making this statement I can help to avoid some needless controversy about rates of return in some future case then I consider it will have been justified.

58.	I recognise that in F v F (ibid) Hartmann J declined to use 3.75% and adhered to 4.25%. It may be that this reflects prevailing economic conditions in Hong Kong. Notwithstanding that persuasive indication I maintain the strong view that 3.75% is the right rate to use in this and future cases.

59.	W’s budget for herself, excluding expenses referable to the children as I find them reasonably to be in paragraph 72 below, their transport, and typographical errors amounts to A$186,000 or £71,500. A Duxbury calculation for her based on UK tax rates (no-one has attempted to produce Duxbury calculations based on Australian tax rates) produces a figure of £1 .676m.

60.	W’s needs her home in Sydney, valued at £1.13m. This needs repairs, which she told me would cost about A$800,000 or £308,000. Therefore W needs £3.11m.

61.	H says that he needs a more valuable property and a higher spending requirement, bearing in mind that London is more expensive than Sydney. The difficulty with his argument is that he declined to give any details of his needs whether for capital or income in his Form E. The first time the argument saw the light of day was in Mr Marks’ skeleton argument. The second difficulty is that any argument about H’s income need must factor in his earning capacity. Although H has been recently made redundant, and although times are hard in the City, I have no doubt at all that H has a substantial earning capacity, such that he does not need an investment fund to meet his income requirements in the period prior to his normal retirement. Thus I am completely satisfied that H needs no more than W to meet his needs.

62.	Therefore each party needs about 26% of the assets to meet his/her needs. There is a substantial surplus of assets over needs. Mr Marks’ third argument is therefore not made out.

The structure of the award

63.	As I have indicated above there was a dispute before me as to whether and if so what discount should apply to H’s deferred assets to reflect risk and payment over time. This was a peculiarly arid dispute since a specific sharing of those assets pursuant to Wells v Wells and G v G would make the controversy disappear. In Wells Thorpe LJ stated at Paragraph 24

In principle it seems to us that the separation of the family does not terminate the sharing of the results of the company’s performance. That is easily achieved in any case in which the wife’s dependency is met by continuing periodical payments. It is less easy to achieve in a clean-break case. In that situation, however, sharing is achieved by a fair division of both the copper-bottomed assets and the illiquid and risk-laden assets.

64.	That this was the only viable route became plain during the evidence. Both W’s accountant and H agreed that it was impossible to attribute anything other than a wild guess to the value of H’s options. H would extend this uncertainty to the rest of his deferred assets. It therefore follows that a Wells sharing is the only way of achieving fairness. Indeed it would seem to me that this should become standard fare where a case has a significant element of deferred or risk-laden assets. For why should one party receive most of the plums leaving the other with most of the duff?

65.	I have explained above that the adoption of a Wells sharing eliminates the controversy over the discount to apply to H’s deferred assets to reflect risk and payment over time. Discounts crop up in a number of areas when the valuation of assets is undertaken in ancillary relief proceedings. They arise in relation to the valuation of minority shareholdings in private companies; in the valuation of substantial blocks of publicly quoted shares, where it is said that a sale would drive down the price; and, as here, where it is said that the assets are illiquid, risky or deferred. Although the technique has a respectable pedigree it must be recognised that it is one that is devoid of any science, and is never more than a guess by the expert valuer of what lesser price than face value a hypothetical purchaser would pay for the asset in question. And it is almost invariably the case that the expert will align his guess with his client’s interests, so that the expert for the owning party will almost always suggest a higher discount than the expert for the claiming party. So the court is asked to choose between less than disinterested guesses. Here H argues for a discount of 25%. W says it should be 15%. How and by reference to what considerations can I possibly decide this dispute? It is impossible, and any decision made by me would almost certainly be wrong. It is for this reason that I am clearly of the view that a Wells sharing is particularly appropriate where the asset in question is the subject of a dispute about discounts.

The award

66.	In my judgment the factors I have identified above collectively warrant a departure from equality of 10%. Thus W will be awarded, on the clean break analysis, 40% of the realisable assets and 40% of the deferred and risk-laden assets and liabilities. This requires W to pay H £11,000. However bearing in mind the “revenue” nature of some of H’s debts (referred to in Note 2 to the asset schedule above) I will not require W to make this payment. The calculation is as follows:

	£,000s	
W receives 40% of divisible assets	3,068	
W has already	3,079	
Sum notionally to be paid by W to H	     11	
		
W receives 40% of deferred assets	1,780	

67.	W will receive 40% of those assets and liabilities identified in the Schedule of Assets above as “H’s unrealisable or deferred assets in X Corp (undiscounted)”, calculated above at £1.78m. There will be a calculation made for each calendar year and W will receive 40% of whatever H received net in that year from these assets and liabilities. If in any given year H has to pay more in debt than he receives in assets then W will pay 40% of the deficit to him. I leave it to Counsel to agree a suitable form of words for inclusion in the order.

68.	The parties are agreed that arrangements will be put in place along the lines set out in Mr Marks’ closing submissions to ensure that W gets her money and receives full disclosure about the realisation of the assets. I agree with the suggestion that H should pay for an independent accountant to administer the arrangement.

69.	In M v M [2002] NIJB 47, [2002] Fam Law 49, McLaughlin J suggested that where a departure from equality was ordered a judge should test the fairness of the result by calculating the ratio of the parties’ final positions. A 60:40 split obviously means that H ends up 50% richer than W. In monetary terms the figures are

	£,000s	
Overall sum to W	4,848	
Overall sum to H	7,271	
H receives more than W	2,424	

In the light of my findings concerning the reasons for departure I am satisfied that it is fair to leave H with £2.424m more than W. It goes without saying that £4.848m is more than sufficient to meet W’s reasonable needs.

Child Maintenance

70.	I have full jurisdiction to make awards for child maintenance as W and the children are habitually resident in Australia. In such circumstances the CSA does not have jurisdiction to make a calculation, and the court’s powers remain intact: see ss8(1), (3) and 44(1) Child Support Act 1991.

71.	Mr Marks QC argues that the figure should be approximately the same as the maximum liability under the new child support regime, introduced on 3 March 2003. That would be 20% of £104,000 or £20,800 (or US$33,000 or A$54,000). He recognises that were the matter to be dealt with under the new child support rules H would be liable to a “top-up”, but argues that no such extra liability should be imposed, not least because H will be paying all the children’s educational costs.

72.	W’s budget for the children, excluding educational costs, is A$77,440. Of this A$58,740 relates to the cost of a nanny. The figure does not include an apportionment of those household and holiday costs referable to the children. Mr Marks QC says that these should be taken at A$25,560. Mr Pointer QC says they should be taken at A$75,000. Thus Mr Pointer QC says that the total cost of the children (excluding school fees) is A$152,440. Mr Marks QC says that they are A$103,000.

73.	It is to be recognised that the calculation of the apportioned element of household and holiday expenses is an arbitrary exercise. This is demonstrated by Mr Pointer’s use of crude percentages: 30% of household expenses and 60% of holiday expenses. I assess the costs of the children as follows:

	A$	
Household expenses	 30,000	
Holiday expenses	 30,000	
Direct expenses	 18,700	
Nanny	 58,740	
	137,440	

74.	When dealing with this aspect of the case I identify three principles. First, I am of the view that the appropriate starting point for a child maintenance award should almost invariably be the figure thrown up by new child support rules. The Government’s express policy in making awards of child maintenance susceptible to abrogation and replacement by a maintenance calculation by the CSA (see s4(10)(aa) Child Support Act 1991) was that child maintenance orders should be negotiated

‘... in the shadow of the CSA. All parties will know that either parent can turn to the CSA in future, and that it will therefore be sensible to determine child maintenance broadly in line with CSA assessment rates.’

(See paragraph 25 of the White Paper: A New Contract for Welfare: Children’s Rights and Parent’s Responsibilities. [1999 Cm 4349]). If a child maintenance order, whether made by consent or after a contest, is markedly at variance with the calculation under the new regime then there will be a high temptation for one or other party after the order has been in force for a year, and after giving two months notice, to approach the CSA for a calculation. Quite apart from the obvious acrimony that this would engender, a calculation in a different amount to the figure originally negotiated or awarded may cast doubt on the fairness of the original ancillary relief settlement between the parties, leading to further litigation. These spectres should be avoided at all costs.

75.	The second principle is that notwithstanding that the income of the parent with care is disregarded in the calculation of child support under the new rules it is reasonable to expect the parent with care who has received a substantial share of the parties’ assets to contribute to the support of the children: see Parra v Parra [2003] 1 FCR 97. It should be noted that the Government justified the omission of the parent with care’s income in the new formula on the ground that she would from her own resources be making a substantial contribution to the support of the children.

76.	The third principle is that where, as here, the children are living abroad it would usually be proper to express an award of child maintenance in the currency of the payee, so that the children are not exposed to the risk of currency fluctuation.

77.	Having regard to these principles my decision is as follows:

77.1.	I am satisfied that there should be some increase on the starting point of the maximum CSA calculation that would be applicable here. The husband has an income well in excess of the canned amount of £2,000 per week. I am also of the view that where a proportionate division of the main assets has been effected then that proportion should inform the division of the child maintenance costs. 60% of the child maintenance costs would come to A$82,464. I therefore award general maintenance of A$40,000 per child per annum payable quarterly in advance, first payment to be made immediately but to take effect from 1 March 2003, to continue until each respective child attains 18 years of age or completes full time tertiary education if later. Such payments to be indexed annually on the 1st of March in each year by reference to the movement in the Australian retail price index for the most recent 12 month period for which data is available. Once a child enters tertiary education the payments will be made, as H has suggested, as to two-thirds to the child direct and one-third to W.

77.2.	In addition H will pay all the educational costs of the children, to include reasonable extras until the conclusion of full time tertiary education.

77.3.	H will also pay all the costs of travel for contact, to include the cost of an accompanying nanny until the younger child’s seventh birthday.

Following distribution of the judgment in draft on 28 February 2003 written submissions on costs were received from counsel

Costs

78.	I now turn to consider the issue of costs. Mr Pointer QC submits that H should pay all of W’s standard costs. Mr Marks QC submits that there should be no order as to costs up to 22 May 2002 and that W should pay H’s standard costs thereafter. He also submits that W should reimburse to H “overpaid” maintenance pending suit in the sum of £51,145.

The law

79.	Since 24 February 2003, by virtue of amendments made by the Family Proceedings (Amendment) Rules 2003 (SI 2003 No. 184), the relevant provisions of the FPR 1991 relating to costs in ancillary relief proceedings are as follows:

2.69 	Offers to settle

(1) 	Either party to the application may at any time make a written offer to the other party which is expressed to be ‘without prejudice except as to costs’ and which relates to any issue in the proceedings relating to the application.

(2) 	Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the court, except in accordance with rule 2.61E(3), until the question of costs falls to be decided.

2.69B Judgment or order more advantageous than an offer made by the other   party

(1)	This rule applies where the judgment or order in favour of the applicant or respondent is more advantageous to him than an offer made under rule 2.69(1) by the other party.

(2)	The court must, unless it considers it unjust to do so, order that other party to pay any costs incurred after the date beginning 28 days after the offer was made.

2.69D 	Factors for court’s consideration under rule 2.69B

(1)	In considering whether it would be unjust, or whether it would be just, to make the order referred to in rule 2.69B, the court must take into account all the circumstances of the case, including-

(a)	the terms of any offers made under rule 2.69(1);

(b)	the stage in the proceedings when any offer was made;

(c)	the information available to the parties at the time when the offer was made;

(d)	the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated; and

(e)	the respective means of the parties.

10.27 	Costs

(1)	Order 38 of the County Court Rules 1981[5] and Order 62 of the Rules of the Supreme Court 1965[6] shall not apply to costs in family proceedings, and CPR Parts 43, 44 (except rules 44.9 to 44.12), 47 and 48[7] shall apply to costs in those proceedings, with the following modifications -

(a)	in CPR rule 43.2(1)(c)(ii), “district judge” includes a district judge of the Principal Registry of the Family Division;

(b)	CPR rule 44.3(2) (costs follow the event) shall not apply.

80.	The former Rules 2.69A and C have been repealed with effect from 24 February 2003.

81.	The relevant parts of the CPR governing costs in ancillary relief proceedings at first instance are as follows

44.3	Court’s discretion and circumstances to be taken into account when exercising its discretion as to costs

(1)  	The court has discretion as to -

(a)	whether costs are payable by one party to another;

(b)	the amount of those costs; and

(c)	when they are to be paid.

(4)	In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including-

(a)	the conduct of all the parties;

(b)	whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c)	any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention (whether or not made in accordance with Part 36).

(Part 36 contains further provisions about how the court’s discretion is to be exercised where a payment into court or an offer to settle is made under that Part.)

(5)	The conduct of the parties includes -

(a)	conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

(b)	whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c)	the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d)	whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

(6)	The orders which the court may make under this rule include an order that a party must pay -

(a)	a proportion of another party’s costs;

(b)	a stated amount in respect of another party’s costs;

(c)	costs from or until a certain date only;

(d)	costs incurred before proceedings have begun;

(e)	costs relating to particular steps taken in the proceedings;

(f)	costs relating only to a distinct part of the proceedings; and

(g)	interest on costs from or until a certain date, including a date before judgment.

(7)	Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c).

82.	The former Rule 2.69C contained provisions as to how the court should exercise its discretion where each party had made a Calderbank offer. They were unworkable and had been subject to much criticism - see for example the judgment of Connell J on costs in Lambert (unreported 5 December 2001). At the suggestion of the Costs Sub-Group of the President’s Ancillary Relief Advisory Group that rule has been removed as an interim measure pending a more substantial overhaul of the ancillary relief costs rules at a later date.

83.	Thus we are left only with Rule 2.69B which appears to contemplate the position where one party alone has made a Calderbank offer. Where the position is (as here) that each party has made such an offer, the rule becomes unworkable. I agree with Mr Marks’ submission that

The surviving rule 2.69B is incomprehensible. It is impossible to divine what the draftsman had in mind. Very often in a case such as this the order ends up between the offers - in which case, under the rule, both parties pay “the costs”.

84.	The Court is therefore thrown back to first principles, informed by the decision in Gojkovic v Gojkovic No 2. [1991] 2 FLR 233. That case was decided in 1991, many years before the decisions in White, Cowan and Lambert. It was decided in the era of “reasonable requirements”, now comprehensively condemned as discriminatory. In that case Butler-Sloss LJ stated

It is, therefore, clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in RSC Ord. 62, r. 9 (and the equivalent CCR Ord. 11, r. 10) for the court to take account of Calderbank offers, and, by analogy, open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter, the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her/his position clear and indicate in figures what she/he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make the attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod LJ said in McDonnell (above at p. 38), the Calderbank offer should influence, but not govern, the exercise of discretion.

There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation; for instance (as I have already indicated earlier) material non-disclosure of documents. Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion. It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate, and possibly be thought to constrain in any way, that wide exercise of discretion. But the starting-point in a case where there has been an offer is that, prima facie, if the applicant receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it. That seems clear from the decided cases, and is in accord with the Rules of the Supreme Court and County Court Rules requiring the court to have regard to the offer. I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court. In the latter case, prima facie, costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position.

85.	It is very easy to see why in an era where the wife’s claim was perceived to be against the husband’s money for a sum necessary to meet her reasonable requirements, costs should, prima facie, follow the event. Her position was comparable to that of an ordinary civil claimant. It is much more difficult to apply the analogy in the post-White era where the court’s function is (per Thorpe LJ in Cowan v Cowan [2001] 2 FLR 192 at Paragraph 70) to determine the parties “unascertained shares” in the pool of assets that is the fruit of the marital partnership.

86.	In this case I have ascertained W’s share in this pool to be 40% and H’s to be 60%. In such circumstances what is the event that the costs are supposed to follow? It is an intellectual concept with which I find it hard to grapple. In Gojkovic No 2 Butler-Sloss LJ stated

In this case, the wife was obliged to make the application for ancillary relief, and was obliged to go to court and pursue her application to its conclusion over 9 days in order to obtain a lump sum of £400,000 in excess of the last offer of the husband.

This is a submission that is often made: “the wife has had to come to court to get her money”. But surely the husband has equally had to come to court to get his? Each party has had to come to the Court to obtain an order which fairly disposes of the issues between them.

87.	There are further objections. First, I agree with Mr Marks’ submission that a presumption that the husband (for it is almost always him) should pay the costs until and unless he has protected himself with a Calderbank letter backed by full disclosure must be discriminatory.

88.	Second, it seems to me that the present system in effect forces the parties to engage in a mandatory form of spread betting. The parties are required to guess the outcome of the case and to take a position. If they have guessed correctly then they win a large amount; if they have not then they lose. But there is one significant difference to a spread bet. With a spread bet the amount the gambler wins or loses is the difference between the result and the position-maker’s spread. If he has bought and the result is higher than the top of the spread he wins; if it is lower he loses. If he has sold and the result is lower than the bottom of the spread he wins; if it is higher he loses. The closer the result is to the position-maker’s spread the smaller the amount the gambler wins or loses. The orthodox Calderbank theory in ancillary relief proceedings is however different in that it does not reflect the closeness of the litigant’s call. Instead, the mere fact of beating his guess by even a tiny amount entitles the maker of the offer to call for payment of the entirety of his costs from 28 days after the date of his offer. Similarly if his guess is a fraction less than the result, then the other party can call for all her costs to be paid by the maker of the offer. So it can be seen that vast sums can swing on even the smallest failure to guess accurately. And there is no premium for guessing really well.

89.	Here W’s costs are £345,490 and H’s are £229,803. Mr Marks submits that for the period between 23 April 2002 and 2 July 2002, and from 10 December 2002 to trial, H offered W slightly more than the result I have ordered. He says, according to his calculations (which Mr Pointer does not agree), that in the first period H offered W 40.7% and in the second 40.2%. He says that as a result of H’s prescient guessing for these periods W should pay most of his costs. I estimate that he is seeking about £150,000. If one takes a rough mean of H’s offers at 40.5% it can be seen that he is in effect asking to be treated as a spread-better who has wagered about £300,000 per percentage point.

90.	Even the most reckless gambler would blench at taking such a risk; yet this is what the orthodox Calderbank theory ordains. Thus it can be seen that the form of betting ordained by the Calderbank system is infinitely more terrifying than that assumed by voluntary spread-betting gamblers.

91.	This system of betting is regarded as appropriate for civil litigation. But it seems to me to be utterly inapt for the resolution of what may be a substantial financial liability at the sad end of a marriage. What I have to say is confined exclusively to ancillary relief proceedings, and has no bearing on other civil proceedings where differing considerations arise.

92.	In my judgment, a safer starting point nowadays in a big money case, where the assets exceed the aggregate of the parties’ needs, is that there should be no order as to costs. That starting point should be readily departed from where unreasonableness by one or other party is demonstrated. This approach is I believe consistent with the spirit of the judgment of Butler-Sloss LJ in Gojkovic No 2 when due allowance is made for the seismic shift in the law since that decision was given. It reflects the terms of CPR 44.3(5). It also reflects the dis-application by FPR 10.27(1)(b) of the general rule within CPR 44.3(2) of the unsuccessful party paying the costs of the successful party.

93.	It may also reduce the extent of satellite costs assessment litigation, which itself can be protracted and acrimonious, and which prolongs the agony between the parties.

94.	Unreasonableness may encompass the following:

94.1.	Failure to give full and frank disclosure;

94.2.	Other culpable conduct of the litigation such as the unreasonable and unsuccessful pursuit of a particular issue or other meritless tactical posturing;

94.3.	The failure to negotiate or the adoption of a manifestly unreasonable stance in the Calderbank correspondence.

95.	This is not intended to be an exhaustive list. There may be other instances of unreasonableness.

96.	I should emphasise that the opinion I am offering is confined to the big-money case where there is an identifiable pool of assets the creation of which is referable to the contributions, both financial and domestic, of each of the parties. It would not apply where the wife’s claim is specifically needs based, for instance where all, or the majority, of the assets are “inherited”; or where the marriage is short. In such a case I can see that the claiming wife can be more closely compared to an ordinary civil litigant, and that therefore the orthodox theory should perhaps more directly apply. Nor should anything I say be taken to apply to the smaller case where the aggregate of the parties’ needs exceeds the available assets. In such cases, which will, as Butler-Sloss LJ has pointed out in Gojkovic No 2, be the majority that come for trial, the impact of costs will have to be factored into the needs based award made to each of the parties. She said

The incidence of legal aid, the inadequacy of the financial assets available, for instance, to house both parties or even one spouse and the children, are major circumstances which may affect or even distort an order for costs that would otherwise have been expected to be made. In the vast majority of cases, where one party is, or both parties are, legally aided, and where the assets are insubstantial or at least inadequate for the needs of the family, the question of who pays the costs may be academic.

97.	Nor should anything I have said be interpreted as diluting the positive duty to negotiate. This duty is enunciated by Gojkovic No 2 and by A v A (Costs Appeal) [1996] 1 FLR 14 where Singer J said

The lesson of this case, which litigants and lawyers alike must recognise and give effect to, is that just because ancillary relief applications have to be conducted and prepared in the fraught emotional atmosphere that so often and understandably exists after marriage and its breakdown, nevertheless that does not mean that common sense and commercial realities can be allowed to fly out of the window. A spouse who does not respond constructively to a Calderbank offer, whether a good offer as in this case or only one that is bad or indifferent, stymies whatever chance there is of settlement. Such a spouse cannot with impunity expect immunity from responsibility for that ...

I agree with every word of this passage. The husband’s conduct in that case can be characterised as manifestly unreasonable. The FDR procedure requires the parties to “use their best endeavours to reach agreement on the matters in issue between them” (FPR 2.61E(6)). I believe that this obligation extends outwith the ambit of the FDR. If a party refuses to negotiate in Calderbank correspondence, or adopts a manifestly unreasonable stance, then he or she can expect to be penalised in costs.

98.	Similarly, nothing I say should be taken as giving any encouragement to a party to misbehave in the litigation safe in the knowledge that the starting point will be no order as to costs. The Court should be astute to discern meritless tactical posturing, such as filibustering, exorbitant demands for disclosure, or the taking of obviously bad points. When such conduct is demonstrated, it will be characterised as unreasonable and the delinquent party can expect to be penalised in costs. I would hope however that at the First Appointment, the directions phase of the FDR, or the pre-trial review the Court will be able to identify any such incipient unreasonable conduct and quash it.

99.	If my suggestion is to be adopted then there will have to be a reconsideration of the Leadbeater v Leadbeater [1985] FLR 789 technique of adding back the costs expended by the parties into the Schedule of Assets. It can be seen that I have done this, with the parties’ assent, in the Schedule of Assets at paragraph 20 above. The logic of Leadbeater cannot be gainsaid, namely, that not to add back costs paid, and not to deduct costs outstanding, effectively pre-empts the Court’s decision as to costs. But it is plainly an artifice, for the costs paid are gone and the costs outstanding will assuredly be recovered by the parties’ solicitors. Costs paid do not exist as an asset, and costs outstanding are as much a debt as a debt due to any other creditor.

100.	In Wells v Wells Thorpe LJ casts doubt on the Leadbeater technique. He said at Paragraph 31

Finally, we record MR Posnansky’s supplemental submission that the judge should not have added back the costs spent, applying the practice established in Leadbeater v Leadbeater [1985] FLR 789 (Leadbeater). The practice was introduced on the premise that the assessment of an applicant’s needs without both adding back payments made and disregarding liability for unpaid costs incurred and to be incurred, would effectively anticipate the costs order that would eventually be made. However, in this modem world of time costing and departmental targets, few if any, litigate on credit. In reality solicitors require to be put in funds either in advance of each step along the litigation road or soon thereafter. There is therefore an artificiality in the practice and judges must be careful not to lose sight of the reality. In the husband’s case the money was spent and was most unlikely to be his to spend again. In the wife’s case the money was spent and might be recovered in whole or in part dependent on negotiations that might have been conducted in Calderbank correspondence. That of course was only the wife’s due if she had been pushed all the way to trial by the husband’s failure to negotiate realistically. In the present case we are quite satisfied that Wilson J never lost sight of these realities and we therefore reject the submission. However the adoption of the Leadbeater mechanism should never be automatic. It is probably more useful in cases where one party has paid money out and the other has obtained credit by offering security or where the court suspects some element of contrivance or artificiality in the arrangements which one party has set up.

101.	It seems to me that if the starting point is no order as to costs then the Leadbeater technique should be abandoned. Costs paid should not be added back, and costs outstanding should be included as a debt in the Schedule of Assets.

Application of these principles to the facts of this case

102.	In the light of my views about Leadbeater it is necessary for me to recast my findings as to the assets, so as to replace the positive figure of costs paid by H of £133,000 with a negative figure of costs outstanding of £77,000. For W, I replace the positive figure of costs paid of £290,000 with the negative figure of costs outstanding of £55,000. This gives new figures for realisable assets of £4.381m for H, and £2.734m for W; a total of £7.115m. 40% of this is £2.846m. Thus on these new figures H should pay W a lump sum of £112,000.

103.	The following table shows the parties’ respective contentions as to the effect of the Calderbank offers. It shows the percentage of the assets, as found by me, either being offered by H to W, or sought by her. The reason that there is a dispute between Mr Pointer’s and Mr Marks’ calculations is, first, that Mr Marks has used the US$/£ exchange rate as it has varied from day to day, while Mr Pointer uses a constant figure of US$1.60 to £1; and, second, that Mr Marks has reduced the overall value of the assets as found by me by a discount to reflect the fact that while some of H’s assets are deferred, he was offering hard cash now.

		Percentage as calculated by 
Mr Pointer	Percentage as calculated by 
Mr Marks	
H offer	28-Jan-02	29.1%	31.8%	
W offer	8-Mar-02	54.3%	58.5%	
H offer	24-Apr-02	36.5%	40.7%	
H offer	5-Jul-02	35.2%	38.3%	
H offer	31-Jul-02	33.9%	36.8%	
W offer	4-Dec-02	52.2%	56.3%	
H offer	15-Nov-02	35.7%	38.7%	
H offer	10-Dec-02	38.1%	40.2%	

104.	I do not believe I have to choose whose calculation is correct, for my findings would be same whichever way I decided. There is some merit in Mr Marks’ position for his client was offering hard cash now out of deferred and risky assets. The table shows clearly that from 24 April 2002 H was making sensible offers close to the award I have made of 40%. By contrast, W’s position was always unrealistic. She at all times sought in excess of 50% of the assets. Her stance was founded on her initial erroneous estimation of the size of the assets, as I have explained in my main judgment. This arose from H’s unwise presentation of his assets coupled with her accountant’s mistake. But she maintained her stance even when the position had been made clear. She ignored numerous entreaties from H’s solicitors to engage in a dialogue leading to compromise. Her conduct made the case unsettleable, and amounts to unreasonable conduct for the purposes of deciding the issue of costs.

105.	Mr Pointer argues that on his figures H has never offered as much as I have awarded and that therefore the orthodox theory requires me to make an order for costs in his client’s favour. He says nothing about his client’s stance at all. Why it should be, where even on Mr Pointer’s case, H was guessing the result much more accurately than his client, that H should have to pay all W’s costs is beyond me. If one wanted to devise an even-handed betting system for ancillary relief proceedings then surely the party who has guessed closest should win the costs? I only have to pose this question in order to confirm to myself that a system of betting in ancillary relief proceedings is quite inappropriate.

106.	H too has been guilty of unreasonable conduct. He failed to give a full and frank disclosure in his Form E. This gave rise to the unnecessary incurring of costs by W particularly in the instruction by her of forensic accountants. H suppressed important information concerning his terms of severance, which led to costs being wasted. I do not regard his misconduct as being as serious as W’s, for the initial misrepresentation of his means was cleared up pretty quickly, and the latter default did not cause, in the overall context, a particularly large wastage of costs.

107.	In my judgment H should be awarded 50% of his indemnity costs to reflect W’s unreasonable stance in the Calderbank correspondence. This leads to a liability of £115,000 in his favour. W should be awarded 25% of her indemnity costs to reflect H’s unreasonable conduct of the litigation. This leads to a liability of £86,000 in her favour. Netting off the liabilities gives a costs liability from W to H of £29,000.

108.	Putting this costs liability of £29,000 in H’s favour against the additional lump sum liability of £112,000 leads to a residual liability in W’s favour of £83,000.

109.	I now deal with Mr Marks’ submission that H has overpaid maintenance pending suit in the sum of £51,145. It is completely meritless. It is often the case that the interim regime, which is supposed to reflect the yardstick of the parties’ marital standard of living, is more than that ultimately achieved at trial. F v F (Ancillary Relief Substantial Assets) [1995] 2 FLR 45 was just such a case. There the wife was awarded maintenance pending suit of £360,000 per annum, together with rent, school fees, medical expenses and the cost of a nanny to be paid direct. At trial W’s budget was found to be £300,000. The wife was not required to repay the £60,000 per annum “overpaid” as maintenance pending suit.

110.	I agree with Mr Pointer’s submission that if W had not received the £51,145 that it is alleged H has overpaid, her bank accounts would be that much lighter; and in order for her to achieve the percentage that has been adjudged her due, there would have to be a lump sum order in her favour in the same amount. Moreover, I agree with him that it is far too late now for H to be making this application. This issue should have been raised as an integral part of Mr Marks’ closing submissions. It is not a point that it can be said arises only and necessarily from the main judgment.

111.	There will therefore be no order as to costs; an additional lump sum to be paid within 14 days by H to W of £83,000; and no reimbursement of maintenance pending suit.

112.	Finally, I would say that the question of costs in this and similar cases is important and deserves to be considered by the Court of Appeal. Therefore if either party wishes to have permission to appeal my decision on costs, he or she shall have it.

Nicholas Mostyn QC
18 March 2003
This written judgment may be treated as authentic and no further transcript need be taken.