Family Law Hub

Norris v Norris [2002] EWHC 2996 (Fam)

  • Neutral Citation Number: [2002] EWHC 2996 (Fam)

    Case No FD00D05701

    IN THE HIGH COURT OF JUSTICE

    FAMILY DIVISION

    Royal Courts of Justice

    28 November 2002

    Before:

    MR JUSTICE BENNETT

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    Alan John Norris

    Petitioner

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    Penelope Catherine Norris

    Respondent

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    MR NICHOLAS MOSTYN QC and MR NICHOLAS CUSWORTH appeared on behalf of the PETITIONER

    MR TIMOTHY SCOTT QC and THE HON. MISS CLARE RENTON appeared on behalf of the RESPONDENT

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    JUDGMENT

    MR JUSTICE BENNETT:

    1. Mrs Norris (“the wife”) seeks a lump sum on the basis of a clean break in ancillary relief proceedings against Mr Norris (“the husband”). The wife is 49 years old and the husband is 60. In the autumn of 1972 when the wife was 19 and the husband was 30, the parties met. In March 1973 they started their relationship and in June 1975 they married. They had no children until Oliver was born on 28 June 1982. He is therefore now 20 years old and is well provided for.

    2. In October 1998 the parties separated. In October and November of 2000 the wife attempted to issue a petition for divorce, but it was incorrectly drafted and was not issued by the Divorce Registry. On 30 November 2000 the husband issued his petition for divorce based upon the grounds of the wife's adultery. The wife responded by filing an answer and cross-prayer, but on 20 April 2001 by consent the wife's petition was dismissed. The husband's prayer was stayed and the suit proceeded undefended on the wife's answer and cross-prayer. A decree nisi was pronounced in 7 August 2001 and the decree was made absolute on 18 April 2002

    3. The present position of the parties is simply stated. The wife remains living in the former matrimonial home, Lovelands Mead, which is an attractive property near Kingswood and Tadworth in the North Downs. She is the sole owner of that property and has been so since January 2000 when the husband transferred his half-share in it to the wife. The wife's assets are, including Lovelands Mead, either £3,618,588 or £3,669,088 if the chattels that she inherited from her family are added back in. The wife is friendly with a Mr Richard Kent, a neighbouring farmer, and it would appear from the wife's evidence that she sees that relationship as long term.

    4. So far as the husband is concerned, by the time of the separation the husband was having an affair with Juliet Quartermain, with whom he now lives. In December 1998 a girl, Genevieve, was born to Miss Quartermain, of whom the husband is the father. In July 2000 a son, Elliot, was born to Miss Quartermain and the husband. The husband and Miss Quartermain live in Woodlands House in Kingswood, not far away from Lovelands Mead. That property was purchased in October 1999 in the joint names of the husband and Miss Quartermain. The husband contributed £867,671 and Miss Quartermain £20,000 towards the purchase of that property. The husband has spent about £170,000 on improvements. He accepts that he should be treated as the sole owner of Woodlands House. The husband's assets are said to be £3,395,374 or, if the value of his pension fund is included, £4,129,363. In addition to that there is a dispute about whether or not the jewellery which the husband gave to Miss Quartermain valued at £30,000 should also be added back in, and if so, the husband's total assets are approximately £4,160,000.

    5. One might have thought that with each party possessing the size of the assets which I have indicated settlement of this dispute would have been easy and rapid. However, it has not proved to be so. It is thus necessary for me to adjudicate in the matter. I must first undertake a brief history of their marriage and of their backgrounds.

    6. The wife left school with O-levels but no A-levels. She became a secretary and by the time of her marriage she was an editorial assistant in a publication called Albright News. Upon marriage she gave up that work and has not worked since. In 1960 the husband joined Alcan as a student trainee and progressed through various companies until in 1973 he became assistant and programming manager at United Glass. In 1976 he joined Computer People as a senior sales representative earning about £19,000 per annum. At the time the parties were married they were living in the husband's home in Chiswick. In April 1977 the flat at Chiswick was sold and a house at Cronks Hill Road in Reigate was purchased in the joint names of the parties for £32,000. The net proceeds of sale from Chiswick, i.e. £13,000, was put into Cronks Hill Road and the husband took out a mortgage for £20,000 which he paid.

    7. In August 1978 the parties moved to Lovelands Mead which was purchased in their joint names for £87,000. It was financed as follows: £32,500 equity from Cronks Hill Road, £25,000 mortgage and £32,664 from the wife's family trust. Over the course of time improvements were done to Lovelands Mead and it is accepted by the husband that the wife put in £90,000 of her own money. The husband also put in a substantial sum of money, either £48,500 according to the wife or £55,000 according to the husband. The house was remortgaged in accordance with the contents of a document at Bundle B1, page 2. In July 1984 the mortgage of £25,000 was increased to £30,250 in order to pay off the husband's overdraft. In October 1984 the mortgage was increased to £60,500 in order to fund the purchase of a property at 34 Wilmotts Close for the husband's mother.

    8. In December 1986 the mortgage was increased to £100,932 for a purchase which is unclear, but which may have been connected to the shares in a company called Gatton, to which I will come in due course. In May 1996 there was a remortgage in the sum of £120,000 to the Cheltenham & Gloucester Building Society. A further sum may have been added to the mortgage in order to purchase a paddock adjoining Lovelands Mead. Accordingly I am told that the amount outstanding on the mortgage at the time the marriage broke down was a total sum of £120,932. In January 1999 the husband paid off that in its entirety. It is common ground that throughout the marriage it was he who serviced the mortgage.

    9. During the marriage the wife was in receipt of considerable sums first from family trusts and secondly an inheritance from her mother. There were three trusts, details of which are set out in the wife's affidavit of 29 April 2001 at page 70. There is no dispute that she received net of CGT a total sum of £72,389 by the time Lovelands Mead was bought. In August 1991 the wife's mother died. The wife inherited £298,539. She spent £80,000 in buying out her sister's interest in a box at the Royal Albert Hall and £140,000 in the purchase of property in London at 14a Kensington Place. In addition she inherited various armour, antique furniture, jewellery and works of art and a second-hand Rolls Royce car.

    10. The husband's skill was in IT recruitment. In about 1979 a company called Gatton Computer Group Limited was set up. The husband has explained in his affidavit of 11 September 2002 (see A/96) that in December 1978 there was a meeting at which were present himself, the wife, Mike Singleton, Chris Gibbs and Martyn Nicholls, all of whom were employed by Computer People. This was obviously a highly confidential meeting, because everybody other than the wife were employed by Computer People and the intention was to leave that company and set up a rival. In the early part of 1979 Gatton was duly set up. The percentage shareholding was as follows: husband 30 per cent, wife 30 per cent, Martyn Nicholls 20 per cent, Chris Gibbs 20 per cent and Mike Singleton 10 per cent.

    11. The husband said that in January 1979 he approached Lloyds Bank with a business plan and asked for a loan of £100,000. It was to be secured on Lovelands Mead and Martyn Nicholls' flat. The bank agreed to lend the new company that sum, to be made available in tranches of £25,000. The wife also agreed to lend Gatton £10,000 of her own money to enable the husband to purchase a Rover 3.5. That sum was repaid in full in December 1979, when similar cars were purchased for the other directors. The husband said that the bank facility of £100,000 was never fully called upon. The most the company borrowed was £50,000 and by 1983 the borrowings had been fully repaid. In 1984 the shareholdings changed as a result of an option agreement. The husband's shareholding became approximately 27.5 per cent and the wife's 15 per cent. The shareholdings of Nicholls, Singleton and Gibbs became 22.5 per cent, 17.5 per cent and 17.5 per cent respectively.

    12. From about 1980 or 1981, the husband's income from Gatton rose from £24,000 to a high point in 1984 of £70,000. His income then decreased to a low of £64,000 in 1989, but by 1991 it was £102,000. The figures for the last years are: 1992 £69,000, 1993 £35,000, 1994 £137,000, 1995 £118,000, 1996 £107,000 and 1997 £114,000.

    13. In the early part of the 1990s the recession struck and affected the profitability of Gatton. The husband asked the wife to assist the company in 1992 and 1993 by formally lending to Gatton various sums of money. On 24 July 1992 the wife lent Gatton £70,000 which was repaid within a week. On 22 February 1993 the wife lent £75,000 which was repaid within just over two weeks. On 18 March 1993 the wife lent £100,000 to Gatton which was repaid with interest over six weeks. On 13 May 1993, three days after the repayment of £100,000, the wife again lent £100,000 and that was repaid by September 1993, i.e. a period of four months.

    14. The wife said that she therefore lent Gatton £345,000 and I am satisfied that she is mistaken. The most that she ever lent at any one time was £100,000. Furthermore, although they were formal loans and the monies that the wife used were taken from her resources and in particular from a bank deposit account which was paying an interest rate of only 4 per cent, the company agreed to pay the wife interest on her loan at 10 per cent. Accordingly, the wife received not only all her capital back but interest thereon at a rate of 10 per cent.

    15. In addition, between May 1993 and September 1993 the wife made further loans, this time to her husband and Mr Singleton. The total amount was £40,000. The company was in a cash-flow crisis and the salaries of the husband and Mr Singleton could not be paid without assistance from the wife. Accordingly in May, June, July, August and September the wife loaned £20,000 each to the husband and Mr Singleton for the purpose of paying their salaries. The total sum of £40,000 was again repaid with interest at 10 per cent.

    16. Between 1993 and 1998 the turnover of Gatton rose dramatically. In 1992/1993 the turnover was £8.06 million. By 1996/1997 it was £27.43 million. In the year 1997/1998 the turnover leapt to £41.50 million. By Christmas 1997 it was felt that the time had come to sell Gatton. It took almost a year to sell the company. By December 1998 a deal had been struck and the shares of Gatton were sold for £21,261,479 and in addition the purchaser took Gatton's debts of £6 million. The husband received net of CGT £4,550,000 for his holding and the wife £2,225,000 for her shares. The husband had settled a parcel of his shares on Oliver in 1997 and so net of Oliver’s shares, i.e. £465,723, the husband received £4,078,000.

    17. Contributions

    In her affidavit of 29 April 2002 the wife, unwisely in my view, sought to diminish the husband's role in bringing up Oliver and thereby enhancing her own. This then led to a long response from the husband in his affidavit of 11 September 2002, between paragraphs 32 and 35, all with several sub-paragraphs. In her cross-examination the wife was pressed by Mr Mostyn, QC, for the husband, that the husband's contribution was broadly similar, both in respect of bringing up Oliver and in respect of the home. The wife would not have it. My assessment of the position during the marriage was that the wife was the home-maker and the husband the breadwinner. The husband also did his bit in the home and was a devoted father as the wife was a devoted mother. But often where the wife stays at home and does not work and the husband is a busy and creative businessman, such as this husband, the greater responsibility falls on the wife to care for the family including the child or children.

    18. Prior to Oliver’s birth the husband did contribute in the various homes by way of DIY. The wife's especial interest was in doing up the family home, particularly Lovelands Mead. Her description of working on the interior and exterior of Lovelands Mead and the grounds in paragraph 12 of her affidavit of 29 April 2002 is broadly accurate. After Oliver's birth hers was the major responsibility in bringing Oliver up. At the age of 10 Oliver was at boarding school, but I have no doubt that the wife played her part to the full and no more could have been expected of her. I do not accept Mr Mostyn's submission that from that point on her child-caring function ceased or diminished. Nor should the wife's contribution be decried because she was only looking after one child and not more. As she put it in her evidence, looking after even just one child can be more intensive.

    19. Financial contributions

    The wife's case under this head is two fold. First, although she does not claim to have been one of the prime movers behind Gatton, nevertheless she was a director from start to finish and has contributed valuable ideas and general input to its success. In her evidence she spoke of initiating ideas such as decorating the office premises, suggesting that graduates should join Gatton and generally relating to employees' welfare. Christmas lunches were her idea. However, on her own evidence she attended no more than 30 meetings, of which 20 were annual general meetings of Gatton which she, as a shareholder, was entitled to attend anyway. Mr Portsmouth, Gatton's financial director from 1991 until its sale in 1998, told me in evidence that he was not aware of any initiative by the wife. Mr Singleton, an executive director from 1994 to 1998, said that she was not actively involved in the company. That, too, was the tenor of Mr Tyler's evidence. I was not impressed by the wife's case on this point. I think that she has misled herself into believing that she made a significant contribution in this respect when she did not. Secondly, it is submitted on her behalf that what puts the wife's contribution in an “exceptional” category is that over and above her domestic contribution she has made financial contributions from her inherited assets, which have been of critical importance in this family's economy. I take each in turn.

    20. Lovelands Mead could not have been bought without her contributions which came from her inherited assets and the improvements which have enhanced its value could not have been carried out.’ At face value that is true, as the husband acknowledged in his evidence. In April 1977 when the home in Chiswick in the husband's name was sold, the net equity was £13,000. The whole of that was put into Cronks Hill Road. The husband took out and serviced the mortgage. When Cronks Hill Road was sold the net equity was £32,500, largely as a result of the husband's investment in that property. The wife, it is accepted, contributed from her own inherited resources £32,000 for the purchase of Lovelands Mead and thereafter spent £90,000 on it from her inherited resources. However, it is also true that the wife by herself could not have financed the purchase and subsequent improvements on Lovelands Mead from her resources alone. Lovelands Mead could not have been bought without the husband servicing the mortgage and spending £48,000 (the wife's figure) or £55,000 (his figure) on improvements. Thus both contributed essential finance to the purchase and improvement of Lovelands Mead. Without their respective contributions neither the husband nor the wife could have bought and improved it.

    21. ‘Oliver’s private education was largely paid for from the gift of £25,000 by his grandmother, the wife's mother, in June 1983.’ Such a gift was made. The money was invested in a Save & Prosper bond. By the time the bond was exhausted, £82,000 had been paid out to various schools for Oliver's fees. What is rather peculiar is that between 1988 and 1995 the total fees paid were £41,914, of which the husband paid £30,913 and the bond produced £11,001. The husband's gross salary before tax in those years was about £64,000, £66,000, £102,000, £69,000, £35,000 and £137,000. By contrast from 1995 to 2000 the total fees were £72,533, to which the husband only contributed £736. The fund paid for the rest. In 1995, 1996 and 1997 his gross salary from Gatton was £118,000, £107,000 and £14,000 respectively and in early 1999 the husband received in excess of £4 million from his shares in Gatton. The bond thus saved him from spending from his own resources £71,797 in school fees.

    22. ‘Gatton could not have been set up unless the bank had both the security of Lovelands Mead and the comfort of knowing that the wife had private funds.’ The husband accepted that in 1979 Lloyds Bank, Gatton's bankers, took a charge over Lovelands Mead and over Mr Nicholls' flat for a loan of £100,000 to Gatton. The facility was never fully called upon. The maximum amount borrowed was £50,000 and by 1983 the borrowings were repaid. I do not accept the wife's case that the bank had the comfort of knowing that the wife had private funds. The wife based her case on the documents at Bundle B1, pages 63-65, i.e. a letter written by the wife and the husband to their personal bank managers at NatWest and Lloyds respectively to the effect that if the company which they were about to form was unable to pay the rent of the premises in London, SW1, then the wife from her shares would pay that. The letter further said that the respective landlords would be writing to the banks for a reference and the husband and wife requested their banks to give a satisfactory one. On 30 January 1979 (see B1/66) NatWest responded to the wife and husband positively in that respect. Gatton's bankers were in fact Lloyds branch at Fenchurch Street. The husband's bankers were Lloyds branch at Newport in Gwent. There is no documentary evidence that Lloyds at Fenchurch Street ever took into account the wife's personal finances in deciding whether to fund Gatton in 1979.

    23. ‘Gatton would not have survived the problems in the early 1990s without loans from the wife.’ During the 1980s the audited accounts of Gatton show a steadily increasingly healthy financial position. For the year ending March 1989 the turnover was £8.7 million giving pre-tax profits of £133,691. In 1990 the turnover increased to £10.5 million but the company made a pre-tax loss of £82,000. The company then changed its year end to September. Thus for the 18-month period ending 30 September 1991 the company had a turnover of £13.7 million and a loss of £291,000. For the year ending 30.9.92 the company made a turnover of £8.3 million and a profit of £1,978. For the year ending September 1993 the figures were £8 million and £10,963 respectively. In 1994 the corner was turned. The turnover was £12.6 million and the pre-tax profits were £204,198. However, the pre-tax profit for the years ending September 1993 were massaged. The company did not pay £40,000-worth of salary to the husband and Mr Singleton, the wife did. The effect was, as the husband has accepted in evidence, that the true position of the company for that year was one of making a loss on the profit and loss account.

    24. Mr Portsmouth, the financial director of Gatton from 1991 onwards, described the cash-flow crisis of the company as “quite serious”. Mr Tyler, who joined the company in 1992, described its position in 1993 as “dire”. What was happening was that the subcontractors of Gatton required to be paid no later than five days after presentation of invoice. There thus was a huge outflow of cash at a particular time in any one month. To have failed to pay them on time would have damaged the company's credibility and thus additional finance, in fact provided by the wife, was required. Although monies owed to the company by its clients were being factored - that is to say, the debt due to Gatton from the clients would be sold to a factoring company for a sum of between 80 to 90 per cent of the debt - that did not prevent a cash-flow crisis.

    25. The husband accepted in cross-examination that the increasing periods of the wife's loans in 1993, i.e. from two to six weeks to four months, indicated the severity of the cash-flow crisis. In fact, the loans from February to September 1993 were virtually continuous. The loans that the wife made to Gatton were unsecured and she was at risk of not being repaid if the company defaulted. Further, her loans to the husband and Singleton to pay their salaries in the summer of 1993 relieved Gatton of its responsibility to pay their salaries and thus enabled a false picture to be presented to the outside world that Gatton was not in such a poor position.

    26. I was told that in January 1992 the company's overdraft may have been close to £300,000 and, indeed, may have risen at one point close to £600,000. At that time the net equity in Lovelands Mead was about £550,000, i.e. £675,000 less the mortgage of £120,000 and costs of sale. It seems that on 11 June 1990 the bank took an all monies charge over Lovelands Mead. Mr Singleton, too, had charged his house to the bank. The husband agreed in cross-examination that the bank probably had security from both houses in the region of £759,000. Gatton had no reserves at this time.

    27. The high point of the wife's case is the letter written to her by her husband on 11 March 1994, which is to be found in Bundle B1 at page 107. The relevant parts read as follows:

    “Loan to A J Norris and M R Singleton - Repayment status

    As requested I am writing to set out the position with regard to the loans you made to Mike and myself of £20,000 each (total £40,000), from May to September 1993. The Loan Agreement states that you would not demand repayment before 1 October 1993 but does suggest that repayment might be made on 1 January 1994.

    Purpose of the Loans

    The loans enabled Mike and I to forgo our salaries from May to September inclusive and this saved the Company over £60,000. As a result of this, and other savings made, we were able to make a profit in Financial Year 1992/93 (Year Ended 30 September 1993) of £10,963. This was vitally important in order to secure the continued support of the Bank.

    Financial Year 1993/94 (1 October 1993 to 30 September 1994)

    We presented our draft accounts for 1992/93 and Budgets for 1993/94 to Gilbert Richards of Lloyds Bank on 2 November last. He was pleased with our positive result for 1992/93, which he regarded as `break-even', but said that to receive continued support from the Bank we must make good profits this year.”

    A little later in the letter the husband wrote:

    “You can therefore see that our position is getting very much better and, whereas it would have been impossible to pay you back earlier, it should be possible to pay you around £20,000 in April, after we have the March results.

    This will enable us to make the £50,000 profit promised to the Bank, after paying out £20,000. We are looking at ways of paying you, as to get £20,000 into your hands requires the company to pay out £30,000 before tax, which could still be a bit tight”.

    Further, so far as is significant, he wrote:

    “Interest

    Interest is accumulating at 9?% on a daily basis and I have asked Doug to compute the amount currently due. We will pay it to you in April if possible, and thereafter quarterly. The final payment will also include the agreed fee”.

    Then at the end of the letter he wrote:

    “I hope that this letter explains to your satisfaction why we have not been able to repay you yet, and the reasons behind me saying that we should be able to repay you about a half by April, and the balance in one or two instalments by October, with interest and consideration fee”.

    Then in his own hand the husband has written:

    “Mike and I appreciate your forbearance in this matter, in continuing to make funds available to us”.

    28. Mr Richards became Gatton's bank manager in early 1993 and continued as such until the shares in Gatton were sold in late 1998. The bank he told me were not approached for further loans in 1993. Had it been, the bank would have considered the request. Whether further loans would have been made he could not say, but the tenor of his evidence was that it would not have been ruled out. He agreed that losses of the group in 1990 and 1991, if added to a break-even position in 1992 and a loss in 1993 instead of a modest profit, would have been, as he put it, “a troubled scenario”. The bank would have wanted to know if told, which it was not, why loans were being made personally to the husband and Mr Singleton. He thought it unlikely that he said to Mr Singleton in 1995 that if he had known about the loans he would have “pulled the plug” on Gatton.

    29. Doing the best I can, I do not accept that Mr Singleton's recollection was accurate in that respect. However, I accept that in 1993 the company's position was “dire”, being the description given by Mr Tyler. He joined Gatton in 1992 as the chief executive of the UK division of Gatton's subsidiary, namely, Gatton Consulting. In 1993 he was promoted to managing director but did not have responsibility for the whole group until 1996. By April 1993 Mr Tyler told me Gatton was in a bad financial position and worse than it had been. Gatton had a negative balance sheet.

    30. Doing the best I can on the evidence which I have heard, I think that there was a real risk of Gatton foundering in 1993, but it is impossible to say that the wife was the lifeboat which saved the day. Her loans to the company and to the husband and Mr Singleton were very important and considerably lessened the risk of Gatton foundering, but to say that without her money the company must have foundered is to overstate the position considerably.

    31. I now turn to other matters in dispute.

    32. The paddock

    The paddock is an area of about 4.5 acres adjoining the garden of Lovelands Mead. It is jointly owned by the wife and the husband. It was purchased together with the orchard for either £25,000 according to the husband or £15,500 according to the wife. The husband transferred his interest in the orchard to the wife at about the time he transferred his interest in Lovelands Mead. However, he has refused to transfer his interest in the paddock. The wife's case is that it is wrong for the husband to maintain an interest in the land adjoining her home. I have seen photographs taken from the garden of Lovelands Mead of the paddock and the views across it towards the North Downs. The husband told me in evidence that he accepted that there is no immediate prospect of planning permission being granted on it but it should stay in joint names so that he can share in any future development. He told me that he would not force a sale.

    33. In my judgment there are a number of valid objections to his stance. First, the parties want a clean break. It is therefore undesirable that they should be tied into an asset together. Second, I can well understand the wife's fears. She wants peace of mind that Lovelands Mead will not be devalued in amenity or value by a prospect of future development. Third, I am satisfied from the evidence including the letters from the planning authority that there is no likelihood of planning permission being given for that parcel of land in the foreseeable future. I am afraid I have to say that the husband is unreasonably digging in his toes. In my judgment the husband's interest in the property should be transferred to the wife absolutely so that she becomes the sole owner.

    34. Customer Behaviour Dynamics Limited

    After the sale of the shares in Gatton the husband made some very shrewd investments in the stock market. Until about March 2000 he rode the crest of the dot.com boom. He made profits in the year ending April 2000 of the order of £2 million. Since then he has made losses, particularly from his interest in an enterprise investment scheme start-up company, Customer Behaviour Dynamics Limited. It was a company that designed and built computer software for telephone call centres. On 28 November 2000 the husband purchased 25.1 per cent of Customer Behaviour Dynamics Limited's shares for £475,000. Four days earlier he had become the company's chairman and a director.

    35. Prior to his investment the company commissioned a report into Customer Behaviour Dynamics Limited from Baker Tilly, the well-known firm of chartered accountants. Baker Tilly reported in writing dated 12 October 2000 (see D1/200-270). At page 201 Baker Tilly wrote:

    “In accordance with your instructions we have carried out limited financial due diligence on Customer Behaviour Dynamics Limited. Our review consisted of spending some four hours”

    and then three people are named.

    “We discussed the company's main activity and spent some time in gaining an appreciation of the market in which the company operates. Ian Paterson gave the company's standard presentation and explained various aspects of the business.

    As you will appreciate in the limited time available and owing to the limited nature of our work we have had to rely on the company's figures as presented. We have not undertaken any work to verify the existence accuracy or otherwise of the information supplied to us and we are therefore unable to express any opinion on the results of our due diligence”.

    A presentation was made to Baker Tilly and they commented that it had presented a useful insight into the company, its objectives and perceived strengths. However, when commenting upon the company Baker Tilly said at page 202:

    “It would appear that at present Customer Behaviour Dynamics Limited does not have a strong customer base. In fact it only has one major customer, Alliance & Leicester, although there are several potentials in the offing. Some confusion arises as the directors have many contacts and customers from previous jobs that appear to have been treated as the customer base. Whether any of these previous customers have any loyalty towards Customer Behaviour Dynamics Limited will only become clear in time.

    Threats and weaknesses

    (i) The main threat is the entry into the market of competitors …

    (ii) The company requires funding.

    (iii) The company lacks good management skills”.

    When commenting upon the balance sheet and profit and loss accounts Baker Tilly recorded at page 209, “The company is technically insolvent”. Finally, at page 210 Baker Tilly pointed to the two profit and loss accounts from the accounting records. The first period covered from commencement of trading to 10 October 2000 and the second period from 1 April 2000 to 10 October 2000. They pointed out that the accounts show losses of £223,745 and £138,326 respectively.

    36. The husband said that this investment is worth no more than £2,291. He has produced a letter of 14 October 2002 from a chartered certified accountant, Mr G W Davison (see D1/274). Customer Behaviour Dynamics Limited has not paid a dividend nor made a profit since its inception. On the basis of the balance sheet as at 30 September 2002 the net asset value is £9,162 of which a 25 per cent holding would produce £2,291. As the husband explained in his answers to the wife's questionnaire (see C8), the husband must hold his shares for three years in order to qualify for tax relief or for relief from any capital gain that might be made. So by November 2003 he will be free to dispose of his shares.

    37. In a letter of 1 November 2002, Messrs Beveridge Milton, solicitors acting on behalf of the husband, upon instructions made further explanation as to Customer Behaviour Dynamics Limited. They wrote:

    “Customer Behaviour Dynamics Limited has perhaps not been totally `mothballed', in the sense that it still acts for one client. It has one employee who is contracted out to a company called Avocado. The employee, Mr Sean Pierce, receives a salary of £3,000 per month, of which £1,000 is paid by Customer Behaviour Dynamics Limited. One director has been contracted out to Barclays Bank for 6 months since 1st August and, we are advised, is likely to be contracted out for a further six months beyond that. The other director takes no salary. He has sold his house and is spending time looking for possible mergers. As at 12 September, there was £3,000 in the bank. Our client advises us that the only possible future is by way of a merger. That would involve further capital input and really we can say little more. You have already seen the valuation in the sum of £2,291.”

    38. When the wife's case was opened, it was said that it would be quite unfair to take the value of the husband's involvement in Customer Behaviour Dynamics Limited at £2,291. The husband is an experienced investor and he would not have invested unless he was satisfied as to its prospects. It was therefore said that the court should take a view as to its likely worth in, say, five years' time. However, in his closing submissions Mr Scott, QC on behalf of the wife changed his tune and argued that in the light of the financing of the investment , that is to say, at the time of the divorce petition by the husband on 30 November 2000 and shortly after the House of Lords decision in White v White was reported , and in the light of the negative Baker Tilly report, the investment of £475,000 was cynical or reckless. The husband knew that the money would be all used up in Customer Behaviour Dynamics Limited within a year.

    39. The husband's case is that he invested believing that Customer Behaviour Dynamics Limited would be profitable by the end of 2001 or the end of 2002, but that the downturn in the telecommunications sector of the market and the withdrawal of support by Teletec, Customer Behaviour Dynamics Limited's only customer which was instrumental in developing the software, completely altered the picture. Further, his understanding is that although he rolled over gains from the stock market by investing £475,000 into Customer Behaviour Dynamics Limited and then deferred paying CGT of £260,000, he is nevertheless liable to pay that CGT when he realises the shares in Customer Behaviour Dynamics Limited. The gain on the shares in Customer Behaviour Dynamics Limited, if such there be, will not be liable to CGT.

    40. I do not accept that the husband was either cynical or reckless. His investment into Customer Behaviour Dynamics Limited must be looked not in isolation but as part and parcel of the totality of his investments following the sale of Gatton. Mr Lobbenberg, the well known and much respected forensic accountant, has compiled a report on behalf of the husband dated 24 October 2002. In it he said that in the year 2000 the husband made gains of just over £2 million. He has not been successful in unquoted investments. He invested £715,000 in such investments, including £475,000 in Customer Behaviour Dynamics Limited. The total of his unquoted investments are now worth £25,531, including that in Customer Behaviour Dynamics Limited. His quoted investments are now worth £313,387 compared with their cost of £1,225,026. In summary, since the sale of Gatton the husband has realised gains of just over £2 million and unrealised losses of £1.6 million. By way of comparison, Mr Lobbenberg pointed out, the FTSE-100 index and the FTSE All-Share index showed a 25 per cent and a 22 per cent drop between October 1998 with the sale of Gatton and 18 October 2002 respectively, which translated into money would indicate a loss of £1 million if the husband had invested in conventional investments.

    41. Thus Mr Lobbenberg concluded as follows (see A/162):

    “It is therefore plain that by any standards Mr Norris has done significantly better than might have been expected had his funds been under conventional management or invested in index tracker funds. Indeed, ignoring extraneous factors such as discharge of mortgage and normal living expenditure, it is only the incidence of capital gains tax on his realised gains that has depleted his investment resources at all. Were it not for that, he would be showing a significant net gain overall, notwithstanding the collapse of certain of his retained holdings, in contrast to the severe falls that have prevailed generally in the stock market.”

    42. In my judgment the husband is a talented entrepreneur. He takes risks, sometimes big ones. Some pay off, others do not. I reject the suggestion that the investment into Customer Behaviour Dynamics Limited was either a cynical ploy or a reckless investment. The fact is that it is unlikely to be resuscitated until the market improves and nobody can predict when that will be. I cannot possibly put a figure on its future worth.

    43. Mr Mostyn tried to persuade me to include as a liability of the husband the figure of £260,000 for deferred capital gains tax. The husband said in evidence that he understood that he would have to pay the deferred CGT whether or not he makes a profit on the sale of his shares in Customer Behaviour Dynamics Limited. This evidence really only emerged in the husband's re-examination. Mr Mostyn had never included it as a liability in the husband's schedule of assets at any stage in the proceedings. The wife has had no opportunity to investigate and take skilled tax advice. In my judgment it is far too late to take such a point, as I believe Mr Mostyn implicitly accepted in his final submissions.

    44. Juliet Quartermain’s jewellery

    The husband has spent lavishly on jewellery for Juliet Quartermain to the tune of £30,000, including a ring for £19,500. The husband has already accepted that Woodlands House jointly owned by him and Juliet Quartermain should be treated as his, similarly to Juliet Quartermain's premium bonds. One might ask - and why not the jewellery? Why should that be put into a special category, bearing in mind that it was bought at a time after the marriage had broken down? Why give her such expensive jewellery when he could have spent far less and thus depleted his assets less? In my judgment there is no answer to the argument that the jewellery at £30,000 should be put back into the husband's assets.

    45. Obligations to Juliet Quartermain and their two young children

    Of course, the husband does have these obligations. However, in this case there is more than enough money on the husband's side, even if he has to pay a lump sum to his wife, for him to comfortably support Miss Quartermain and their children. The husband chose to enter into that relationship and to have children. To say to the wife that after such a long marriage she must be at risk of taking less out of the marriage because the husband, a wealthy man, has chosen to incur the responsibility of living with and supporting another woman and their children is, put simply, unfair.

    46. Having evaluated and found the substratum of fact, I now turn to my assessment. Were the wife's financial contributions as I have found them to be, when taken with her domestic contributions, such as to put her into an exceptional category? Mr Scott has submitted that the quality of the totality of her contributions merits such a description and thus ought to lead to an award in her favour of a lump sum which could bring her assets to more than half of the joint assets.

    47. Section 25(2)(f) of the Matrimonial Causes Act 1973 as amended imposes a duty on the court to have regard to all the circumstances of the case and amongst other particular matters, to:-

    “the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family”.

    That would appear to be a factual exercise for the court to undertake. Having undertaken the fact-finding exercise, the court takes the facts as to contribution into account when standing back and looking at all the circumstances of the case.

    48. But in that discretionary exercise, is there any room for the claimant spouse, and I choose those words deliberately, to use the sword of “exceptional contribution” to claim a share greater than equality of division would otherwise give her/him, when now under Lambert v Lambert the responding spouse is severely circumscribed in using his or her “exceptional” (or “Stellar”) or whatever the appropriate adjective might be - contribution as a shield to limit the claimant spouse to less than equality of division would otherwise give him/her? No answer to that question is given within section 25 itself, other than that Parliament has given the widest possible discretion to the courts to make such orders as are fair in all the circumstances of the case. In White v White [2000] 3WLR 1571, Lord Nicholls of Birkenhead said at page 1578:-

    “Self-evidently, fairness requires the court to take into account all the circumstances of the case. Indeed, the statute so provides. It is also self-evident that the circumstances in which the statutory powers have to be exercised vary widely. As Butler-Sloss L.J. said in Dart v Dart [1996] 2FLR 286, 303, the statutory jurisdiction provides for all applications for ancillary relief, from the poverty-stricken to the multi-millionaire. But there is one principle of universal application which can be stated with confidence. In seeking to achieve a fair outcome, there is no place for discrimination between husband and wife and their respective roles. Typically, a husband and wife share the activities of earning money, running their home and caring for their children. Traditionally, the husband earned the money, and the wife looked after the home and the children. This traditional division of labour is no longer the order of the day. Frequently both parents work. Sometimes it is the wife who is the money-earner, and the husband runs the home and cares for the children during the day. But whatever the division of labour chosen by the husband and wife, or forced upon them by circumstances, fairness requires that this should not prejudice or advantage either party when considering paragraph (f), relating to the parties' contributions. This is implicit in the very language of paragraph (f): “the contributions which each … has made or is likely … to make to the welfare of the family, including any contribution by looking after the home or caring for the family”. (Emphasis added) If, in their different spheres, each contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the home-maker and the child-carer. There are cases of which the Court of Appeal decision in Page v Page (1981) 2FLR 198 is perhaps an instance, where the court may have lost sight of this principle.

    “A practical consideration follows from this. Sometimes, having carried out the statutory exercise, the judge's conclusion involves a more or less equal division of the available assets. More often, this is not so. More often, having looked at all the circumstances, the judge's decision means that one party will receive a bigger share than the other. Before reaching a firm conclusion and making an order along these lines, a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination.

    This is not to introduce a presumption of equal division under another guise.”

    49. I turn next to Figgins v Figgins [2002] Fam CA 688, a case decided by the Full Court of the Family Court of Australia. At paragraph 57, Nicolson CJ and Buckley JJ said,

    “We are troubled that in the absence of specific legislative direction, courts consider they should make subjective assessments of whether the quality of a party's contribution was ‘outstanding’. It is almost impossible to determine questions such as: Was he a good businessman/artist/surgeon or just lucky?, Was she a good cook/housekeeper/entertainer or just an attractive personality? We think it invidious for a judge to in effect give ‘marks’ to a wife or husband during a marriage. We think that this doctrine of ‘special contribution’ should, in an appropriate case be reconsidered. We think that the decision of the House of Lords in White v White gives force to these concerns.”

    50. I now turn to the case of Lambert v Lambert (Neutral Citation) [2002] EWCA Civ 1685. This decision was given by the Court of Appeal on 14 November 2002. Thorpe LJ gave the leading judgment and having reviewed a number of authorities both in this country and in Australia, his Lordship said at paragraph 27:

    “From these authorities in this and related jurisdictions two consistent themes emerge. First it is unacceptable to place greater value on the contribution of the breadwinner than that of the homemaker as a justification for dividing the product of the breadwinner's efforts unequally between them. Second both the practicality and the value of the exercise of marking the parties to a failed marriage on their respective performances is questioned. Some judges understandably regard it as a distasteful exercise. In this jurisdiction, both in the judgment of District Judge Million and in the judgment of Coleridge J are clear warnings that the excess commonly seen in the litigation of the issue of the applicant's reasonable requirements has now been transposed into disputed, and often futile, evaluations of the contributions of both of the parties. Additionally, the decision of the full court in Figgins v Figgins clearly supports Coleridge J's distaste for special contributions and suggests the need for this court to return to the relevance of an asserted special contribution and to reconsider its impact upon the section 25 exercise.”

    51. I next turn to the passage in the judgment of Thorpe LJ under “General conclusions”. At paragraph 37 he set out the court's duty in relation to taking into account contributions. In paragraph 38 he continued:-

    “How then is the court to approach that duty in the light of the judicial debate revealed by recent authority? The language of the subsection certainly does not suggest any bias in favour of the breadwinner. Lord Nicholls could hardly have expressed more clearly or more forcefully the need to guard against gender discrimination in this as in all areas of the trial judge's assessment. There must be an end to the sterile assertion that the breadwinner's contribution weighs heavier than the homemaker's. It is easy to criticise with hindsight and I do not mean to do so by suggesting that even in October 2001 Mr Mostyn should have had the courage of his convictions. Perhaps more realistically his strategy was driven by the need to respond to the husband's special contribution riposte to the case for equal division. Hereafter there is much to be said in favour of the straightforward presentation of the homemaker's case on this issue unencumbered by unrealistic and strategic claims to significant contribution to the accumulation of wealth. As Robert Walker LJ succinctly said in Cowan the nature of the contributions is intrinsically different and in incommensurable. Each should be recognised as no less valuable than the other. Whilst I accept Mr Pointer's submission that the judge has a duty to assess each and every one of the section 25(2) criteria that bear on outcome and equally that judges of the Family Division have great expertise in making value judgments, I do not accept that the duty requires a detailed critical appraisal of the performance of each of the parties during the marriage. Couples who cannot agree division are entitled to seek a judicial division without exposing themselves to the intrusion, indignity and possible embarrassment of such an appraisal. I fully agree with Coleridge J that any other approach encourages a vain endeavour to recreate historic situations, choices and failings which in the context of a long marriage can never be recaptured fully or accurately. I share the views of District Judge Million cited by Coleridge J in H-J v H-J at 412A. I fully agree with the views expressed by McLaughlin J in the case of M v M. I do not consider that the approach which has been adopted by Coleridge J amounts to an impermissible judicial stride towards a presumption of equality. 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.”

    Later at paragraph 41 Thorpe LJ continued:-

    “Equally the warnings which he, [Coleridge J] as an experienced specialist amongst specialists expresses in paragraph 34 of his judgment in G v G must be heeded. Where a family has accumulated a fortune almost too large to dissipate, it might be thought that an expensive and contentious trial would be an unlikely necessity. But all who specialise in this field know that it is not so and accordingly there is a tendency for the case to escalate as it proceeds, each tactical development attracting at least another in response. Therefore if the decision of this court in Cowan v Cowan has indeed opened what Coleridge J describes as a forensic Pandora's box, then it is important that we should endeavour to close and lock the lid.”

    52. Thorpe LJ then turned to special contributions, and at paragraph 45 and onwards said:-

    “Having now heard submissions, both full and reasoned, against the concept of special contribution save in the most exceptional and limited circumstance, the danger of gender discrimination resulting from a finding of special financial contribution is plain. If all that is regarded is the scale of the breadwinner's success then discrimination is almost bound to follow since there is no equal opportunity for the homemaker to demonstrate the scale of her comparable success. Examples cited of the mother who cares for a handicapped child seem to me to be both theoretical and distasteful. Such sacrifices and achievements are the product of love and commitment and are not to be counted in cash. The more driven the breadwinner the less available will he be physically and emotionally both as a husband and a father. There is also some justification in Mr Mostyn's emphasis on the extent to which the homemaker frequently sacrifices her potential to generate assets by undertaking the domestic commitment to husband and children. At the same time she risks the outcome of failure and so earns her entitlement to share in the successful outcome.

    46. In sum I am much more wary of the issue of special contribution than I was in writing my judgment in Cowan. Perhaps Chief Justice Nicolson, who seemed poised to banish the phenomenon, may have found a better path. The circumstances set out in paragraph 43 above allow this court to re-evaluate the whole issue. However for the present, given the infinite variety of fact and circumstance, I propose to mark time on a cautious acknowledgment 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. … All that seems to me to be more safely left to future case by case exploration.”

    53. Thorpe LJ then turned his attention to what he described as “exceeded expectations” and in particular to a passage in the judgment of Mance LJ in Cowan at paragraph 161 and the judgment of Mr Peter Hughes, QC in H v H. At paragraph 50 Thorpe LJ said:-

    “However all that may be I reject the interpretation and approach adopted by Mr Hughes. There is an understandable desire for tests and mechanisms to strengthen judicial confidence in the rationality of the discretionary outcome. But the danger is over-sophistication and complexity that ends up by perverting the statutory task. The concept of special contribution is first formulated and then the concept of exceeded expectations is deployed to demonstrate special contribution. Each provides an opportunity to win a point over the other party. Furthermore the concept of exceeded expectations invites exactly the sort of exchanges that raise the emotional temperature and augment the costs. The exchanges are of questionable relevance to the essential objective assessment of fairness. In any marriage of considerable duration evidence as to what the young couple at the outset of their married life each thought, felt, intended, expected or aspired to is likely to be more imaginative and self-serving than realistic.”

    May LJ agreed with the judgment of Thorpe LJ.

    54. Bodey J at paragraph 69 said: -

    “I agree that it is not possible to define once and for all, by way of some formulaic label, the precise characteristics of the fortune-maker (or fortunate-making) required in the paradigm case such as this, in order that when the proposed distribution of the resources is checked against the ‘yardstick of equality’, the fully contributing homemaker should receive a lesser share of the wealth than the fortune-maker.

    70. However, those characteristics or circumstances clearly have to be of a wholly exceptional nature, such that it would very obviously be inconsistent with the objective of achieving fairness (ie it, would create an unfair outcome) for them to be ignored.

    71. I do not accept Mr Pointer's submission that to state the position in this way represents an ‘impermissible judicial gloss’ on one of the section 25 statutory criteria (ie the requirement to consider the parties' contributions). It is rather to apply the guidance of the House of Lords in White v White, recognising that where - in the paradigm case like this - the homemaker has given of her (or his) utmost, then any weighting of the impact of contributions in favour of the fortune-maker is almost always going to be unfair, since ex hypothesi the pure homemaker neither has the opportunity to create wealth, nor in the nature of things the ability to have any meaningful comparative ‘value’ accorded to her (or his) particular contributions to the welfare of the family.”

    55. The answer to the question that I posed is, I believe, “Yes, in theory, but in practice only in very limited and quite exceptional circumstances”. Otherwise in my judgment the courts will run the risk of opening, or encouraging the opening of, a claimant spouse's Pandora's box, when the Court of Appeal in Lambert has shut the Pandora's box of the responding spouse.

    56. Is, then, this a case where the totality of the wife's contribution, domestic and financial, can be characterised as exceptional? The answer I give is a firm “no”. The contribution by the wife was as full as it could have been, but her contributions to Lovelands Mead cannot begin to be described as exceptional. Many wives who are financially able to contribute to the purchase and improvement of the marital home whatever the source of their funds. It is part and parcel of marriage. So, too, is the contribution to Oliver’s school fees. Grandparents when they are able to do so often make contributions to their grandchildren's education. It must of course be borne in mind that the contribution enabled the husband to be relieved of his obligations to pay the fees in the latter part of the marriage. Further, it is not exceptional for spouses who are financially able to do so, out of loyalty and/or love for the other spouse to make available funds to the company which he or she runs if needs must, just as a spouse would do if the breadwinner became ill or incapacitated and thus was unable to earn a living to support the family. Here, of course, the wife was a shareholder, and so it was also in her own interests to assist Gatton and the husband.

    57. In this case the wife has had her husband's interest in Lovelands Mead transferred to her and she has received a very good price for her shares. In respect of both the house and her shares the husband himself made his contribution, which I have already set out. So far as Gatton is concerned, it was the husband's idea to leave Computer People to start a company in competition. It was the husband together with his business associates from Computer People who drove Gatton forward over 20 years. It was the husband who in the mid to late 1990s freed of the day-to-day management became the front man but remained responsible for the strategic decisions. Finally, it was the husband once the decision had been taken in late 1997 to sell all the shares in the company who was the driving force throughout 1998 in obtaining an exceptionally good price per share. As Mr Tyler said in his evidence, it was the husband's drive and stubbornness which achieved that.

    58. Thus in my judgment to describe the fullest contribution the wife could and did make to the marriage and the family as “exceptional” is not just inaccurate or wide of the mark but plainly wrong. Further, where a spouse has in respect of such loans received her money back together with a commercial rate of interest, has had transferred to her absolutely all her husband's share in Lovelands Mead, and through the husband's effort has received a very good price for her shares in Gatton, to say that her contribution merits the epithet “exceptional” is in my judgment to discriminate against the husband. For he had a major share in increasing the value of Lovelands Mead, and it was he who was responsible for the running of Gatton and getting a good share price and thus overall making a substantial contribution to the wife's present wealth, as well making an important domestic contribution to the marriage and the family.

    59. Quarantining the wife’s inherited assets

    The wife's assets at Kensington Place, the box at the Royal Albert Hall and the chattels are in all valued at £373,500. It must be remembered that all of them were acquired from monies which the wife inherited from her mother in 1991, save, of course, the chattels she inherited in specie. The monies were first used by her to make loans to Gatton and to the husband and Mr Singleton and towards Lovelands Mead's improvements.

    60. Mr Scott submitted that all these assets should be taken out of the equation, that is to say, deducted from the total of the wife's assets, when the court is considering how to divide the parties' assets. Mr Scott submitted:

    (i) there is no single or absolute rule about the treatment of inherited assets;

    (ii) in big money cases fairness will often require that with things being equal a significant contribution by way of inherited assets will lead to departure from equality;

    (iii) in cases such as H v H (Financial Provisions: Special Contribution) [2002] 2FLR 1021, where there are identifiable inherited assets, it may be appropriate to take those assets out of the equation before dividing the remaining assets;

    (iv) the reason why inherited assets are to be treated differently is because they come from outside the marriage. Everything which accrues during the marriage, whether income or capital, will normally be treated as the product of the marital partnership. Inherited assets are demonstrably the product of one party.

    61. Mr Scott further submitted that the passage in the speech of Lord Nicholls in White about inherited property supported his submissions at page 1583. Lord Nicholls said:-

    “Inherited money and property:

    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 a 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.”

    62. Mr Scott further relied on passages 42, 51, 155 and 157 in the judgments of Thorpe LJ and Mance LJ in Cowan which I do not propose to set out but which I have read and taken account of.

    63. I turn to the case of H v H. In that case the husband inherited during the marriage £379,333 in the United States from his grandmother and great-aunt. It was submitted that that sum should be left out of account as it has never been used as an asset of the marriage. The learned Deputy Judge decided to disregard it and said at paragraph 60:-

    “In my judgment, there is a clear distinction between the two inheritances. The wife's forms part of the parties' resources which it is fair to take into account in deciding how they should be split. The US inheritance, in my judgment, should not and I propose to disregard it in my calculations, as I am satisfied that without it I can still strike a balance that is fair to both the parties.”

    The learned judge relied upon the passage in the speech of Lord Nicholls in White which I have just cited.

    64. In my judgment, under section 25(1) of the Matrimonial Causes Act 1973 as amended, the court is under a duty to have regard to all the circumstances of the case and under section 25(2) to various particular matters, one of which is:-

    “(a) … property … which each of the parties in the marriage has or is likely to have in the foreseeable future”.

    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. But the crucial question is does that part of the speech of Lord Nicholls in White lead to the conclusion that inherited property ought to be excluded when the court, having determined the assets of each party, comes to make its assessment of what relief it should order? In answering that question it is helpful again to look at the Australian case of Figgins.

    65. At the time of the Figgins' marriage, their only substantial asset was $4,000-5,000 equity in an inherited property. Two weeks after the marriage in 1994 the husband's father and stepmother were killed in a helicopter accident. The husband and his sister inherited estates in the order of $28m, including the Figgins Group. At the date of the hearing in the proceedings the husband's net worth was $22,800,000 and the wife's assets were $38,200 with a liability of $63,000. The trial judge awarded the wife a total sum of $1,100,000. The wife appealed to the full court which increased the award to $2,500,000. In the course of the judgment, Nicolson CJ and Buckley J said:-

    Her Honour’s Treatment of the Inheritance

    59. We also think that, while the fact of the inheritance was entitled to be given considerable weight, her Honour gave it such overwhelming importance that she fell into error. We have already criticised her treatment of it as a “special” factor, which appears to have been partly responsible for this, but we also think that generally, she appears to have applied an incorrect test in considering it…..

    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.

    66. We consider that the view rejected by Lord Nicholls appears to be reflected, consciously or unconsciously in Carter J’s judgment and that this also led her into error. We think that she gave the inheritance such prominence, that she treated it in precisely the manner criticised by Lord Nicholls….

    The Role of the Inheritance

    101. We note that it was central to her Honour’s findings that an award of $1.1m to the wife was a just and equitable result.

    102. In doing so she again cited the overwhelming effect of the inheritance as justifying such a result. She thus gave great significance to the inheritance in determining contribution, s75(2) factors and in the “fourth step” of determining whether her award was just and equitable. We think that this emphasises the validity of our criticism that she gave it too much weight.”

    66. Mr Mostyn submitted that the sentence in Lord Nicholls' speech taken by Mr Scott into paragraph 43 of his skeleton argument is not the ratio of Lord Nicholls' speech. It was part and parcel of his account of a certain view or opinion “widely but not universally held”. The ratio, it is submitted, is the third paragraph i.e.:-

    “It [inherited property] represents the contribution made to the welfare of the family by one of the parties in the marriage and the judge should take it into account”.

    Further, Mr Mostyn relied upon the dicta of Nicholson CJ and Buckley JJ in Figgins.

    67. In my judgment, the arguments of Mr Mostyn on this point are to be preferred to those of Mr Scott. If I am wrong and Lord Nicholls did enunciate a guideline that in general inherited property ought to be excluded, then in my judgment he was not saying that it was an immutable or fixed principle. Whether the guideline should be applied in any particular case must depend upon the facts and upon the court's assessment of fairness in each case. 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.

    68. Furthermore, the wife was able to deploy the balance of her inherited monies after improvements to Lovelands Mead and making the loans to Gatton, her husband and Mr Singleton into Kensington Place, the box at the Royal Albert Hall and to keep the chattels because the husband was earning a very good income which maintained the family. There was therefore no need for recourse to her inherited funds. So far as the wife's chattels which she inherited from her mother are concerned, it may be that the wife does regard herself as custodian of them for Oliver. But they are hers absolutely and they are capable of being turned into money should she so choose. The wife is free to sell them if she wants. Accordingly, in my judgment they should be taken into account.

    69. Pension Fund

    The husband has a pension fund, not yet vested, valued at £733,989. Mr Scott's schedule of assets included the pension fund at that value under the husband's assets. Mr Mostyn's schedule initially completely excluded it from the husband's assets. However, in his revised schedule, put in in his closing submissions, he put in a figure of £500,971. That figure was arrived at by taking away from £733,989 25 per cent, which can be withdrawn as a lump sum, and calculating that the remaining 75 per cent would now purchase an annuity of £31,246 per annum gross or £25,595 net. To produce that income stream for the remainder of the husband's expected life span using the Duxbury tables, there would be needed a capital sum of £317,474 which added to the lump sum of £183,497 totals £500,971.

    70. Mr Scott responded that the fund has not vested and need not do so for another 15 years when the husband is 75. In the meantime the assets of the fund can appreciate and no CGT is payable. Further, Mr Mostyn's submissions are flawed because the calculation is based on purchasing an annuity now rather than by 75 at the latest. The husband has the opportunity to draw down income, before having to vest, 75 per cent of the fund by 75 at the latest.

    71. I have had paragraph 69 of Cowan drawn to my attention by Mr Mostyn, together with Maskell v Maskell [2001] EWCA Civ 858. Cowan is distinguishable, in my judgment, because the fund had vested. In Maskell the fund had not vested, the husband being only 41 years old, so that his prospect of receiving either capital or income from that fund was obviously a deferred if not a distant prospect. At paragraph 3 Thorpe LJ said:-

    “I find that order very difficult to understand against the background that there were three children of the family, born respectively in 1987, 1989 and 1992, who were in the shared care of their parents, alternating week and week about with each. That situation had been in being, seemingly to the benefit of the children, since the wife’s departure from the matrimonial home in June 1995. The only other asset that was within the district judge’s assessment was a pension, which had a CTV of about £31,000 or £32,000 at that date. Mr Maskell was at that time 41 years of age, so that the prospect of him receiving either capital or income from that last fund was obviously a deferred if not a distant prospect.”

    I also refer to paragraphs 5 and 6:-

    “Where the judge went fundamentally wrong, in my opinion, was in reassuring himself that District Judge Pearl’s order was conventional and therefore correct. He said that:

    “If one looks at this as a comparatively long marriage … one could then see £26,000 and the £6,000 endowment policies, £32,000, going to the mother. Father has his £40,000 pension fund, plus the £4,000 endowment, so £44,000, less the debts of about £8,000, so that brings him to £36,000. So there is a rough equivalent.”

    6. That passage seems to be fundamentally flawed, for the judge is making the seemingly somewhat elementary mistake of confusing present capital with a right to financial benefits on retirement, only 25 per cent of which maximum could be taken in capital terms, the other 75 per cent being taken as an annuity stream. He simply failed to compare like with like. I have grave anxiety that the District Judge made the same mistake. We cannot know for sure because we do not have the written evidence before the District Judge. There is no note of her judgment and even counsel’s submissions in writing for Mrs Maskell on 29th October, which were before Judge O’Brien, are not before us today. So Mr. Simison, who has done his best, is in a difficult position in trying to remove the fundamental anxiety that there has been an injustice in this case.”

    72. I agree with Mr Scott that Maskell is distinguishable. It is a long way removed from the facts in the instant case. In my judgment on the facts of this case it would not be unfair to the husband to include the full value of the pension fund in his assets.

    73. In the light of this finding it is strictly unnecessary to go into whether the husband was indulging in tactical manoeuvring by issuing his petition on 30 November 2000 and thus depriving the court of jurisdiction to split his pension fund. But as the husband was attacked for cynical manoeuvring, I record that I find to the contrary. During October and November the wife was intending to file her own petition. She almost succeeded. If she had, the husband would not have filed his own and the court would have had no jurisdiction to split the pension fund. The wife could therefore hardly complain if the husband filed his petition on 30 November in such circumstances.

    74. The husband’s expenditure

    Mr Scott and his junior, Miss Renton, undertook a careful analysis of the husband's income and expenditure for a 12-month period from 1.7.00 to 30.6.01 and a further 12-month period from 1.10.01 to 30.9.02. No analysis of the months of July, August or September 2001 were possible due to the absence of the relevant records. The analysis was submitted to Mr Mostyn and his junior, Mr Cusworth. The figures were very largely agreed. Where there was disagreement it was de minimis.

    75. In the first period the husband overspent by £151,525 or £12,627 per month. In the second period he overspent by £171,174 or £14,264 per month. These figures come from the schedule put in by Mr Scott headed “Analysis of income and expenditure”. For the first period his expenditure (ignoring Customer Behaviour Dynamics Limited, CGT and investment in shares) was £348,000 and his income gross was £129,463. In the second period the figures are £265,984 and £49,665 respectively. He thus maintained broadly his rate of expenditure against a falling income. I agree with Mr Scott that it is reasonable to assume that he overspent in the months of July to September 2001. Thus, in a little over two years and at a time (post November 2000) when ancillary relief proceedings were on foot, he overspent by at least £322,699. Taking into account the unanalysed three months, I agree with Mr Scott that a total overspent of £350,000 is about the right figure for the period 1.7.00 to 30.9.02.

    76. The husband asserted in his evidence that the overspend was financed by dipping into his capital. I accept that. But what he could not explain was the scale and extent of the overspend. He said that the money went on living expenses and partly on Oliver. He said that he spent money on constructing a wall around the swimming pool at Woodlands House. He and Miss Quartermain have had expensive holidays. But in my judgment that does not answer the criticism levelled by Mr Scott. His attitude to expenditure generally is illustrated by his ordering a Ferrari motor car in March or April 2000 at a cost of £115,000. He has paid the deposit of £5,000 and must take delivery of it next spring. Further, the scale of his expenditure must be seen against the backdrop of him investing £475,000 in Customer Behaviour Dynamics Limited in November 2000 and that money having been spent in supporting that company by the end of 2001 at the latest. Further, in December 2001 the husband spent £1 million to buy the Hotel Caprice in Wengen (of which no criticism is made by Mr Scott).

    77. The overspend, i.e. the expenditure over income of £350,000 in a little over two years, at a time when he was about to and then did enter into protracted litigation with the wife, can only be classified as reckless, and particularly at a time later on when the dot.com and the stock market collapsed. A modest overspend in the context of a rich man would be understandable and could not be classified as reckless. But in the circumstances of this case, as I have set them out, in my judgment the scale and extent of the overspend was reckless. I do not think it appropriate to add back the entire overspend, but I do not consider it unfair to add back into the husband's assets the figure of £250,000. In my judgment there is no answer that the husband can sensibly give to the question, “Why should the wife be disadvantaged in the split of the assets by the husband's reckless expenditure?” A spouse can, of course, spend his or her money as he or she chooses, but it is only fair to add back in to that spouse's assets the amount by which he or she recklessly depletes the assets and thus potentially disadvantages the other spouse within ancillary relief proceedings.

    78. Needs

    Each party has more than enough capital resources to provide sufficient income to live on. Each is properly housed. The amount of each party's income will depend not just on how they deploy their capital but also on how the capital is invested so as to produce the appropriate income. However, in this case some reflection should be made of the disparity in the parties' ages and hence in their expectation of life. Applying actuarial tables the wife has a further span of 35 years, whilst the husband has a further span of 21 years.

    79. Mr Mostyn helpfully put in a schedule in his closing submissions which set out the parties' assets and liabilities in eight separate columns, based on various possible findings by the court. In the light of my findings, column D is with some adjustments the appropriate column. The figure of £20,000 must be substituted for £10,000 against the paddock under the wife's assets, since I have decided that the husband's share in it must be transferred to her. The chattels’ value is also included. So far as the husband is concerned, £10,000 must be deducted, but £30,000 for Miss Quartermain's jewellery and £250,000 for the overspend must be added back in. The figure of £733,989 for the pension fund is included in column D, under the husband's assets. No figure for deferred CGT is included.

    80. If those adjustments are made, the wife's assets are £3,679,198 and the husband's assets are £4,399,363. There is therefore a difference of £720,255. What, then, should I order? In my judgment the right order in all the circumstances of this case is an order that the husband should pay the wife a lump sum of £360,000. Each party will then leave the marriage on terms of financial equality.

    81. Before I am asked to adjudicate on costs and thus read the Calderbank correspondence, it is perhaps noteworthy that the total of the combined assets is a little over £8 million. The wife asked me to order a lump sum of £700,000-750,000. The husband contended for no lump sum at all, or at least Mr Mostyn did not mention any. The wife has recovered a sum which represents approximately 4.5 per cent of the total assets. It will be interesting to read what separated the parties and why a settlement could not be achieved in a case which from the beginning would appear to have been ripe for settlement.

    [Discussion as to costs followed]

Judgment, published: 28/11/2002

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Published: 28/11/2002

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