By Gill Rivers, partner, Collyer Bristow, London


High-value wives

'Will any Jack Rag or Tom Straw among ye buy my goods?'

'Who'll say a guinea?'

'Good Lord, why she's cost me fifty times the money, if a penny.'



The wretched Wessex wife from Thomas Hardy's Mayor of Casterbridge was finally sold at auction for five guineas. The arrival of the Matrimonial Causes Act 1973 has brought a sophistication to the 'disposal' of wives since Hardy's writings, but the uncertainty as to the 'price' of a wife in the quantification of ancillary relief claims is a question that remains unanswered.



Last year, the long-awaited decision in Miller v Miller, McFarlane v McFarlane [2006] 2 WLR 1283 (see [2006] Gazette, 8 June, 24) did not see the House of Lords seizing on the opportunity to provide any clear guidelines. The three main principles that can be drawn from the two leading speeches of Lord Nicholls (paragraphs 10-16) and Baroness Hale (paragraph 144) are needs, compensation and sharing. Did the Lords intend this as a deliberate shift away from Lord Hoffman's dicta in Piglowski v Piglowski [1999] 2 FLR 763? The received wisdom, as underpinned by Lord Hoffman, was that the criteria in section 25 of the Matrimonial Causes Act 1973 (laying down the basic guidelines in the settlement of matrimonial assets and financial matters) should not be applied in any degree of priority. Are we now to apply the three-strand test before an application of the remaining criteria - or perhaps only in short-marriage, big-money cases?



In Charman v Charman [2006] EWHC 1879 (Fam), Mr Justice Coleridge took a definitive view - section 25 of the Matrimonial Causes Act 1973 rules the day.



Mr and Mrs Charman met when at school and married while in their 20s. In November 2003, the parties separated. At the time of the separation, the husband had generated £150-160 million of wealth. The wife held approximately £6 million in her sole name and £25-30 million was held in a trust for the parties' two adult children. The remaining £125 million or so was either in the husband's ownership (about £56 million) or in a trust, settled by the husband in 1987, called the Dragons Holdings Trust

(£68 million).



The wife sought a capital award, in round terms of £59 million, that would bring her fortune up to at least 45% of the total value of all the assets. She was prepared to accept a 45:55 split in recognition of the husband's special contribution of the generation of the wealth. The husband sought to compromise his wife's claims in the total sum of £20 million.



The wife advanced her case on the basis of a long marriage in which the wealth was accumulated from scratch and in which she played the full role of wife and mother. As the children grew, she developed outside interests in the community, which included her appointment as a magistrate.



The husband said throughout the case that he was not seeking to rely on conduct (see section (25)(2)(g) of the Matrimonial Causes Act 1973). The wife suggested that he was making a back-door attempt arising out of her alleged failure to support him in his business activates and her failure to move to Bermuda. The husband had relocated to Bermuda in 2003 and, in so doing, made a tax saving of £20 million.



The husband sought to defend the wife's application on all fronts. Firstly, he maintained the Dragon Holdings Trust should not be taken into account. He claimed it was dynastic of nature for the benefit of yet unborn members of the family (the children having been already provided for by their own trusts). Mr Justice Coleridge concluded that the husband's argument failed both on facts and principle.



The husband did not accept a 50:50 starting point/cross-check. He also, following arguments put forward in Miller/McFarlane, questioned whether all the assets in the case really fell into the same category for allocation between the parties, asserting that the business assets should be looked at differently.



The husband also stated that the wife's calculation of the wealth took no account of proper discounts that should be applied to the valuation of his assets. Finally, he asserted his special/stellar contribution should lead to a special bonus in the division of assets.



This was a long marriage case where the parties started with nothing and all the wealth was generated during the subsistence of the marriage. However, it fell within the small category of cases where, exceptionally, the wealth created is of extraordinary proportions from extraordinary talent and energy (see Sorrell v Sorrell [2005] EWHC 171 (Fam), [2006] 1 FLR 497, and [2005] Gazette, 10 November, 27; Lambert v Lambert [2003] Fam 103; Miller and McFarlane).



In fact, Mr Justice Coleridge had already written the conduct section of his judgment in the present case before the decision in Miller and McFarlane was handed down. He saw no reason to amend it in the light of the House of Lords' decision. The Lords were clearly of one mind and did not consider that fairness required a consideration of the parties` conduct save where, exceptionally, the position was otherwise and section (25)(2)(g) ought to be relied on. Mr Justice Coleridge, in line with the House of Lords, would not allow insignificant conduct to be taken into account.



The judge found that the assets amounted to £131 million and awarded £48 million (36%) to the wife. He also made a reversionary contingent lump sum provision in the event the husband was required to make specified payments to Revenue & Customs. The husband appealed. The Court of Appeal decision of Sir Mark Potter, Lord Justice Thorpe and Lord Justice Wilson was handed down on 24 May ([2007] EWCA Civ 503).



Special contributions

The husband's first ground of appeal was that the first-instance judge made insufficient allowance for his special contribution. He argued that it was wrong to start on the assumption that the assets should be divided equally and then factor in his special contribution by way of a discount. The husband's contention was that the better approach was to allow for his special contribution to be considered in the mandatory statutory application of section 24 of the 1973 Act, and then to apply the yardstick of equality. If this exercise had been carried out, the award to the wife would have been in the region of £20-28 million.



The wife's concession that the husband had made a special contribution which should lead to a modest departure from an equal division of the assets had been expressed to be conditional on the outcome in Miller. This notion survived and this lead to detailed consideration of the outcome in Miller referable to the issue of special contributions and conduct.



Although the Court of Appeal declined to identify a threshold for the application of the principle of special contribution, it did offer guidance on the appropriate range of percentage adjustments to be made in cases where a departure from equality is appropriate. However, 'neither in its method nor in its result do we regard the judge's treatment of the husband's special contribution as vulnerable to appeal'.



The Dragon Trust

The husband's second main ground of appeal was that the judge erred in computing the total assets, within which the judge had included the 'dynastic', offshore, discretionary trust known as the Dragon Holdings Trust. On the husband's case, the trust should not have been considered as a financial resource for the purposes of section 25(2)(a).



Both parties had given oral and written evidence as to whether the trust was truly dynastic. The wife averred that the trust was a family trust out of which she, her husband and the boys had a continuing interest and that the assets in the trust were never beyond the husband's control. By contrast, the husband averred that the trust was intended to be a legacy for future generations of his family.



On appeal, the primary argument in relation to the trust, however, related to the issue of advancements from the trust. This had not been forensically tested at first instance as it had not been separately identified on behalf of the husband. Nevertheless, on appeal, it was accepted that the judge should have satisfied himself as to whether, if so requested by the husband, advancements from the trust would have been made. The judge had turned to Re the Esteem Settlement [2004] WLTR 1, which was a decision from the Royal Court of Jersey, as containing a helpful analysis of a complex discretionary trust.



At paragraph 54, the President of the Family Division, Sir Mark Potter, stated: 'It would be difficult for the husband at any stage of the proceedings convincingly to have raised a spectre that, even if approached, the Bermudian court or Bermudian counsel would find reason to frustrate a proposed advancement to him.



'But there is another reason why we should draw a line across this argument: it was never raised before the judge; the evidence of foreign law was never placed before him; he made no reference to the argument; it does not figure in the pleaded grounds upon which the husband has secured permission to appeal nor even in the skeleton argument in support of them; and it was raised in a supplementary skeleton argument dated 11 working days prior to the hearing of the appeal. In short the argument is brought too late in any event.'



On a 'judicious mixture of worldly realism and of respect for the legal effects of trusts, the legal duties of trustees and, in the case of off-shore trusts, the jurisdictions of off-shore courts' (paragraph 57), the Court of Appeal determined that the assets held within the Dragon trust, which had been built up during the marriage, should be attributed to the husband. This decision was reached notwithstanding the husband's attempts to persuade the court that, 'to do so, would send a message to the offshore world that, in family cases, trusts do not matter'.



The husband's appeal was dismissed.



Law reform

In his conclusions at first instance, Mr Justice Coleridge deliberated on the concept of the use of tariffs as a fairer means by which money cases could be disposed of. He noted that the discretionary nature of the field is such that it is difficult for parties to be given any guidance that will assist them in negotiating a settlement. Recognising that a tariff system could be crude, leading perhaps to an erosion of principles contained within section 25, he nevertheless doubted that their use would produce a less fair result than any other unscientific exercise of judicial discretion.



The Matrimonial Causes Act 1973 was a consolidation of section 5 of the Matrimonial Proceedings and Property Act 1970 which, in its turn, was the companion to the Divorce Reform Act 1969. The change in the law gave rise to a statutory and judicial approach that led to a change to the way in which acrimonious disputes were resolved. Bitterly fought divorces that were characteristic of the law of divorce prior to 1969 were not to been seen again in the arena of the court.



Attempts, most notably in 1998, have been made to bring about a reform of section 25. The report delivered by a committee appointed by the Lord Chancellor influenced the reform proposals set out in the White Paper, Supporting Families, published in the autumn of 1998. However, the apparent urgency to bring about reform died along with the White Paper.



The social change, consideration of schemes in other countries and the recognition of globalisation, particularly with the ultra-rich, led to their Lordships acknowledging the need for a review of these matters. It was also noted that if our system of asset distribution on divorce is to be regulated by the principles of needs, compensation and sharing, the parties to the marriage should at least have the opportunity to order their own affairs by way of pre-nuptial agreements.



Significant support for a change in the law in this area can be found in Supporting Families, as well as a report prepared by the family lawyers group Resolution in 2005 and the European Commission's own Green Paper on Conflict of laws in matters concerning matrimonial property regimes, including the question of jurisdiction and mutual recognition.



Their Lordships concluded the appeal by lending their weight to the call for a review of these matters by the Law Commission.