Background
This case concerned a long marriage of 25 years, with two children of the marriage aged 10 and 25. The parties separated in November 2017 and decree absolute was granted on 3 June 2019.
During the marriage the parties set up a successful ducting business in the UK (‘X’). A significant part of X’s business was with customers in the EU and it transacted on a tariff-free basis. At the time of the final hearing X was valued at approximately £13.8 million, with the trading aspect of the company valued at just under £4 million. The parties also owned an international portfolio of properties in London, Gibraltar and Dubai built up throughout their marriage.
In November 2018, the husband resigned as a director of X and stopped working for the company in 2019. Another ducting company (‘AB’) was incorporated in February 2019 and the husband’s father and two of his close friends were the shareholders. AB was in direct competition with X.
AB was loaned significant sums of money by a company incorporated in Dubai (‘TT’). At the same time, the husband had loaned equivalent sums to TT, having generated some of this money from the sale of matrimonial property in Dubai.
The court found the husband to be the real owner of AB. Approximately £900,000 that he had loaned to TT was added back to the matrimonial pot for division with the wife.
Impact of Covid-19 and a no-deal Brexit
Given that a significant part of X’s business was across the EU, if no trade agreement is reached between the UK and the EU by 31 December 2020, it was found that there would be adverse financial consequences for X.
The court was also asked to consider the impact of the global Covid-19 pandemic on X given that X provided ducting to a wide range of customers in the construction, transportation and other industries adversely impacted during the immediate crisis and afterwards in the predicted recession.
Mostyn J noted that the issue was novel for the court but was likely to become a reoccurring feature in future cases. He found the appropriate discount to be 10% to the trading element of the business only which accounted for the impact of Covid-19 and a no-deal Brexit. He did not agree that any discount should be applied to the non-trading element of X.
Litigation Conduct
Mostyn J said that the husband’s conduct in concealing a number of the Dubai transactions and the loans to TT was ‘not only dishonest but futile and frankly inexplicable’. When asked why he had conducted himself in this way, the husband had no answer. Mostyn J inferred that ‘it was pure bloody-mindedness engendered by the toxic aftermath of the breakdown of the marriage and the confrontational personalities of each of the husband and the wife’.
The husband’s litigation misconduct not only encompassed sustained non-disclosure but extended to him altering an email to suggest that the wife had agreed to sell the company when she had said the opposite.
However, the wife was also criticised for failing to negotiate openly and in a reasonable way after the financial picture had become largely clear. Mostyn J reminded practitioners of the revised paragraph 4.4 of FPR PD28A - ‘ It is important that I enunciate this principle loud and clear: if, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs. This applies whether the case is big or small, or whether it is being decided by reference to needs or sharing.’
In assessing the husband’s conduct, Mostyn J provided an overview of four types of conduct:
1. Gross and obvious personal misconduct which will be considered only rarely and only where it had a financial impact;
2. Add-back where one party has wantonly and recklessly dissipated assets;
3. Litigation misconduct which should be penalised in costs; and
4. Non-disclosure from which the court is able to draw inferences as to the existence of assets.
The wife argued that the entire value of X should be discounted by 40% due to the husband setting up a competitor business in AB. Mostyn J found that the appropriate discount was 30% of the trading aspect only.
Mostyn J considered that the departure from equality sought by the wife was disproportionate (she was seeking 2/3 of X for herself) and if granted, would amount to a discount based on morality. He asserted that the court should only apply sanctions for conduct where it is financially measurable.
The husband was penalised for his conduct when considering the wife’s legal costs. Mostyn J ordered that the husband should pay £278,00 of the wife’s legal fees of £617,127. He applied a discount of £50,000 to account for the wife’s unreasonable approach to the negotiations once the financial landscape had become clear.
Due to the length of the marriage and the matrimonial nature of the assets in this case, if conduct was not considered, the equal sharing principle would have applied. The overall departure from equality was £869,741. Mostyn J stated that this sum was the price the husband had to pay for his conduct in setting up a competitive business and conducting the litigation so abysmally. He warned future litigants tempted to behave in the same way that his judgment should serve as a lesson.
Sarah Musgrave
Solicitor, Katz Partners