The High Court recently made the largest financial award in a divorce case. With such large figures, many divorce practitioners may have expected the judgment to contain guidance on, and perhaps new interpretation of, the principles with which we often grapple to justify a departure from equal sharing, including the ever-controversial special contribution argument. Unfortunately, the decision does not do this but it does explore English law as it stands, applying it to an interesting case with eye-watering levels of wealth.
The wife (AAZ) and the husband (BBZ), both of Eastern European origin, met in 1989 and married in 1993, before relocating to London. Two sons were born, in 1993 and 1996, and the family moved to Surrey. BBZ was a very successful businessman, thriving in the oil and energy sector through his Russian company, whilst AAZ was a 'hands-on' mother who cared for and brought up the children on her own, together with another child of BBZ from his first marriage. In 2012, the husband sold his shares in the Russian company amounting to US$1.375 billion.
The marriage sadly broke down and the wife petitioned for divorce in 2014, applying also for financial orders against the husband. There were two other Respondents to the application, joined in the proceedings at the earlier Pre-Trial Review:
C Ltd - a Cypriot registered company of which BBZ was the sole director, which was also the trustee of a Bermudian discretionary trust; and
P Ltd - a Panamanian company argued by BBZ to fall within the Bermudian trust.
AAZ argued that by the time of separation, this date itself being contended and argued as 2004 by BBZ and 2013 by AAZ, the total net marital wealth amounted to just over £1 billion. She contended this was all marital acquest by virtue of the parties’ equal contributions to the welfare of the family, and subject to equal division.
Perhaps fundamental to Mr Justice Haddon-Cave’s approach, and the outcome, BBZ, C Ltd and P Ltd were not represented at the final trial. BBZ’s solicitors had earlier come off the Court record shortly before the start of the hearing.
The court did not simply comply with the wife’s requests in the husband’s absence. It had a duty to investigate the facts before making a decision. This is true whatever the wealth level if a party plays no part in the proceedings. It was ascertained from the husband’s previously-lodged documents that there were several contentions he would in theory have made in defence of the wife’s claim.
These were that:
part of the marital acquest was pre-marital
he had made a special contribution through his work in the oil and gas sector
the marriage had broken down in 1999 or 2004 (well in advance of the sale of his Russian shares), and
the wife had overstated the value of the assets as of their separation (in particular the Russian shares), the majority of which were held in a trust of which BBZ was a mere discretionary beneficiary.
The court had to consider several significant principles to make a factual assessment of the arguments put forward in order to fairly distribute the available marital assets:
the proper categorisation of assets as marital or non-marital
The judgment does not quite live up to those expectations but may prove useful to practitioners looking for a clear summary of the court’s approach.
Summary of the law
Taking sections 23 to 25 of the Matrimonial Causes Act 1973 (MCA 1973) as the statutory basis for financial orders available to the Court, the judge explained that there is a two-step analysis to undertake: computation to ‘assess the available assets‘(paragraph 24) before they can then be distributed in whichever form and using whichever financial orders the court finds appropriate in the circumstances of the case.
The judge explained that case law provides that equal sharing may only be departed from where there are good reasons for it. There is comprehensive reference to the House of Lords’ judgment in
Miller v Miller; McFarlane v McFarlane  UKHL 24 as reiterated in Charman v Charman (No 4)  2 FLR 1246, in light of the White v White  2 FLR 981, with the overall objective of achieving fairness of distribution.
Special contribution, a highly topical matter in the wake of the Court of Appeal’s recent judgment in Gray v Work  EWCA Civ 270, is given particular attention. It is also noted that only three reported cases, Sorrell v Sorrell  EWHC 1717, Charman v Charman  EWCA Civ 1606 and Cooper-Hohn v Cooper-Hohn  1 FLR 745, have included a successful argument of special contribution. These are also cases where huge sums of money had been generated by the husband, although often in combination with other and less controversial departure factors such as post-separation accrual of assets.
Whilst implying that several important principles would be considered, the judgment unfortunately has no real developments in their application.
Looking at pre- and post-separation accrual, Mr Justice Haddon-Cave found that BBZ failed to support his assertions of having contributed pre-acquired assets to the marriage and further found that, even if BBZ had made a contribution (alleged to be £700,000 towards the FMH), this fell into its own unique category. This contribution would rightly be classified as marital. Post-separation accrual was further considered.
The judge accepted that the marriage had been through rocky patches, with an affair on AAZ’s part in 1999, followed by a purported Russian decree of divorce obtained by BBZ, but it was clear that there had been a reconciliation between the parties since then. Mr Justice Haddon-Cave accepted that the couple remained married until October 2013, especially as they were considered to be an ‘international’ family, this kind of arrangement has been seen increasingly in recent times. This is a clear indication that the court will no longer be persuaded by arguments of an earlier marital breakdown simply because the parties have been based internationally across different countries over an extended period of time.
BBZ had argued that his contribution to the family was so significant that it should be considered ‘special or stellar’ thus justifying a departure from equal division. Mr Justice Haddon-Cave was not persuaded by this. BBZ had 'clearly worked very hard to create wealth' and had been 'resourceful', but the judge found his evidence to fall short of the exceptionality test contained in the relevant case law.
Instead, Mr Justice Haddon-Cave found this to be a case where both the husband and wife had contributed equally to the family in their different roles, aside from how the money was accumulated. His analysis was limited, falling short of the thorough assessment which might have been anticipated given the significant extent of the assets, but this was perhaps to be expected given the little evidence available to the judge in support of this argument. It would also have been inappropriate for him to make a finding of a special contribution here, justifying a departure from equality, where the husband had not actively sought it at trial and where the benchmark for such cases is so high.
Mr Justice Haddon-Cave found that the husband had failed to present a case justifying departure from equal division (a summary of these findings is at paragraph 57).
Addressing computation of assets, the wife’s case that the value of available assets to be divided equally stood at a total of £1,092,334,626 was accepted.
Trust aspects were considered. There were several strands to AAZ’s arguments in respect of the different companies and the Bermudian trust, the most significant of these being that the entirety of the trust and company assets were held for the benefit of the husband and were resources available to him for the purpose of proceedings, by applying principles from Prest v Petrodel Resources  UKSC 34 and  EWCA Civ 1395.
BBZ was the settlor, principal beneficiary and protector of the trust, as well as sole director of C Ltd. As the primary beneficiary, he was able to ask himself, as director of C Ltd, for a distribution which he, as the trust’s protector, would then consider whether or not to meet. In this way, the trust allowed him to pay money to himself whenever he wished, termed a ‘Dear Me’ trust by Mr Justice Haddon-Cave, which gave BBZ direct and unrestricted access to trust funds. Therefore, he found it right to categorise the trust assets as available financial resources from which the husband could meet the wife’s financial award.
The properties held on trust by the companies in the proceedings, registered in various offshore jurisdictions, were also found to be held for the benefit of BBZ. Therefore, the companies could be directed to transfer the trust property to AAZ for the purpose of satisfying the financial award, aided by the finding that disposals of assets by the husband should be set aside under section 37 of the MCA 1973; it was fair to presume that the intention of doing so had been to defeat or impede AAZ’s claim, and an order under section 423 of the Insolvency Act 1986 to reverse a disposal of shares deemed to have been at an undervalue to reinstate the status quo. The judgment should be applauded for its clarity in explaining the court’s approach to trust matters in similar cases.
Considering how to distribute the marital assets, Mr Justice Haddon-Cave could find no reason to depart from a 50:50 split. However, taking account of the open offers presented by the wife in the course of the proceedings, he eventually made an order in favour of the wife for 41.5 per cent of the marital assets - the total value of her claim, amounting to just over £453 million. It is a matter of speculation why the wife did not ask for 50 per cent; perhaps the discount was to account for some fairness in recognition of various factors of the marriage? Maybe she was alerted to the bigger picture of enforceability based on needs? The judge followed the open position, as many judges will, even though a higher order could legitimately have been justified.
Mr Justice Haddon-Cave also dealt with some ancillary matters relating to proper service of proceedings. BBZ and the companies had been properly served and given proper notice of the trial. Matters of service and the particular requirements set out in FPR Part 6 and PDs 6A, 6B and 6C should be noted as they may be less familiar to practitioners.
The judge looked at how the wife could enforce the order under the Lugano Convention 2007, an apt consideration given the husband’s failure to participate and his failure to comply with an order. Many of his assets were in Switzerland, a signatory to the Lugano Convention, similar to the EU Maintenance Regulation, and of which the UK is a signatory. Only orders concerned with '‘'maintenance' (i.e. needs) can be enforced under the Lugano Convention, and the judge, taking into account the wife’s income needs schedule, found that her 'needs' were just over £224 million of the total sum awarded to her as the wife suggested in her schedule.
Practitioners should be aware of the problem of enforcement, and make sure that clients are aware of this risk in cases where the assets are internationally-based, particularly in any of the EU or Lugano Convention nations. To make the process of enforcement easier under these instruments, they should ensure that orders are drafted explicitly to state in the recitals the extent to which the award comprises of maintenance.
The judgment did not grapple considerably with emerging legal principles such as special contribution. It did not need to. The husband’s decision to bow out of the proceedings prevented the court from fully engaging with arguments for departure from equality. The judge would have undoubtedly come under criticism if he had made findings such as special contribution without this having been pleaded substantively by BBZ. Special contribution did nonetheless get a mention; its re-appearance after inclusion in a number of other widely-reported cases perhaps paves the way for it to be claimed again in the near-future. In the meantime, we will have to wait for another case dealing with special contribution - perhaps in the form of an appeal from Mr Work to the Supreme Court.
About the author - Fatimah Farag
Fatimah Farag is an assistant solicitor with the
International Family Law Group LLP, a specialist practice in London, serving the interests of international families and their children. Fatimah undertakes a varied caseload but primarily deals with financial issues arising from the breakdown of a relationship. As well as managing her own caseload Fatimah regularly works as a team member in complex financial cases and those with cross-jurisdictional issues. She is particularly sensitive when acting for clients for whom religion and culture plays a significant part in family life.