Rapp v Sarre (Formerly Rapp)

Mr Shaw QC has represented the wife throughout, both in front of Judge Everall and on the appeal. He produced to the judge a schedule of capital assets which showed the total of the property owned by both parties to be worth just over £13.5m. The judge found the assets to be as set out on that schedule.

Real property accounted for just under £7m of the £13.5m. It comprised:

The husband’s investments were shown on the schedule as worth £1,920,702. They comprised shares in Stars and Bars (a restaurant business in Monaco) estimated as being worth approaching £1m, plus shares in two other businesses together worth £½m, and an investment in another venture estimated to be worth £ ½m. The husband was shown as having credit card debts of £53,000 but no other liabilities.

Leaving aside money in bank accounts (approximately £19,000), the wife’s investments were shown as worth £6,531,660. They were arranged by the husband and Mr Huggins and the wife had only a limited knowledge of them. The larger assets included in this category were:

There were tax liabilities in relation to the French properties of nearly £1.7m which were taken into account in the £13.5m calculation as liabilities of the wife. The sum was therefore as follows:

By way of a footnote to this resumé of the capital position, I should perhaps explain one or two of the details about the assets and liabilities:

The judge found that it was not reasonable to expect the wife to work now and that, in any event, given her lack of work experience, her earning capacity would be very low.

As for the husband, the judge found that he had, in the past, been a very successful oil trader, and that when not affected by his addictive behaviour, he has a substantial earning capacity. However, he accepted that the husband did not appear to have overcome his addictive behaviour and, unless and until he could do so, would be unlikely to find employment in the oil trading industry. He found that the husband was nevertheless able to conduct his life effectively for most of the time and remained a shrewd and knowledgeable business man with many good contacts. He had been able to invest in a number of successful business ventures and was continuing to look for investment opportunities. In September 2014, he had told the wife that he was looking at the possibility of investing in a gold trading platform. The judge found that the husband’s addiction was not likely to interfere with his management of his finances or his investment in businesses in the future (paragraph 104 of the judgment) and that he was likely to continue to invest successfully in business ventures (paragraph 89).

In his Form E, dated April 2012, the husband anticipated a continuing investment income based on his investments at that time, forecasting that he would receive £389,000 in the following 12 months, comprising £250,000 from shares in Tullett Prebon and £139,000 from Stars and Bars.

I have mentioned the monthly sums of money provided to the parties by Mr Huggins since the separation. These were intended to cover general living costs, including in the husband’s case rent of £14,000 per month. The husband gave no indication that he wished to change his accommodation. It is a two-bedroomed flat with a living room, a dining room, a staff room, and a view over the sea. The judge found that it was likely that he would continue to live there and that it would meet his needs. The wife wanted to remain living in the London flat and the judge found this was a reasonable wish and affordable.

As far as other income needs were concerned, the parties had enjoyed a very high standard of living during the marriage. The judge accepted the wife’s evidence that the husband still stays in expensive hotels when he comes to London.

The husband had provided no indication of his current needs. The judge took into account that he would need to pay for any rehabilitative treatment that he chose to undergo, which could be expensive. The wife produced a budget with her Form E which was based on the parties’ actual expenditure during the year of separation and it amounted to a yearly figure of nearly £280,000. She trimmed this in due course to approximately £205,000 per annum, of which nearly £35,000 was to maintain the St Tropez properties, leaving a residual budget of approximately £170,000 per annum. The judge considered that given the standard of living during the marriage, and the assets available to the parties, this was a reasonable budget although, considering the levels of expenditure on items such as clothing and footwear, beauticians, entertainment, hobbies and holidays, it could be trimmed a little if necessary.

The judge proceeded upon the basis that the husband had $1m when the parties married and that everything else had been created by him during the marriage. However, he found that both parties had made full and equal contributions to the welfare of the family, the wife as homemaker and social hostess and by looking after their properties.

The husband now complains that the judge was mistaken in proceeding upon the basis that he was worth only $1m at the time of the marriage because, he argues, that was actually what he was worth when the parties met, not when they married several years later. In the absence of assistance from the husband, I do not see how the judge could have taken any other figure. The judge’s overall approach was, in any event, unlikely to have been affected by adjustments to the $1m figure. He did not consider that what the husband brought to the marriage required special treatment. As he validly pointed out, the husband had not sought that in his Form E nor yet engaged in the proceedings with a view to advancing such an argument. In any event, given the length of the marriage and the particular circumstances of the parties, I think there would have been difficulties in the husband’s path had he attempted to persuade the judge to single out his contribution in some way.

The judge’s division of the assets was based upon the needs of the parties and the objective of sharing the assets fairly between husband and wife. The order that he made followed an open proposal made by the wife. The finer details of it do not matter for the purposes of the appeal and what follows is a broad summary.

The assets were divided as to 54.5% to the wife and 45.5% to the husband. The judge worked on the basis that the husband would not engage constructively in the working out of the order and that the wife needed to be in control of the disposal and distribution of the assets. The St Tropez properties were to be sold forthwith (although the judge accepted the wife’s evidence that they may take up to two years to sell). From the proceeds, various debts would be discharged, namely costs of sale and tax associated with the properties, and the wife would be reimbursed for certain sums expended in relation to the property. The husband was to have 63% of the balance and the wife 37%. So far as other assets went, each was to keep their own, save that the wife was to pay the husband £950,000. There was to be a clean break, the judge having concluded (paragraph 66 of the judgment) that it was neither reasonable nor practicable for the parties’ financial affairs to remain intertwined. He took the view that things had worked so far only because of Mr Huggins’ assistance and Mr Huggins, now in his seventies, could not be expected to assist indefinitely. Furthermore, he considered that the husband could not be relied upon to co-operate with the wife or to behave reasonably in the future.

The judge set out the net effect of his order on each of the parties in his judgment. As he saw it, the husband would continue to live in his flat and would have assets totalling just over £6.2m, made up of his share of the net proceeds of the St Tropez properties (£3,385,654 less a sum for the property maintenance costs incurred pending distribution), his own investments of £1,920,702, and his lump sum of £950,000 from the wife. He assumed that the husband would continue to receive the sort of income from Stars and Bars that he had mentioned in his Form E, namely £139,000 per annum. He observed that if the husband’s other capital were to be deployed as a Duxbury fund, it would produce an income of approximately £200,000 per annum (paragraph 120). This, he considered, would meet the husband’s needs apart from rent (which it seems he assumed would be largely covered by the Stars and Bars income. He also observed that, in his judgment, the husband would be “able to continue his investments and business opportunities” (paragraph 123).

The wife would have assets of just over £7.4m, made up of the London flat (£3,395,000), her share of the St Tropez proceeds (£1,988,400 less any unrecovered costs of maintaining the St Tropez properties pending sale), her remaining investments (£2,027,813) and her bank accounts. Excluding the value of the London flat, she would have a fund of just over £4m which would provide, on a Duxbury basis, an income of about £160,000 per annum. This would fall short of the wife’s budget of £171,000 per annum. The judge considered it reasonable to expect her to trim back her expenditure thus far but, given the standard of living during the marriage and the fact that the husband’s needs were “amply met by the capital with which he will be left”, no further (paragraph 126).

The judge explained, starting at paragraph 127 of his judgment, why he considered it fair to the parties to depart from an equal division of the assets. The first reason was that it was necessary in order to cater for the wife’s needs and would still leave the husband with sufficient to meet his needs. The second reason was the husband’s conduct, which the judge accepted had led to “the reckless frittering away of family money”. The judge did not adopt the sort of approach adopted in Norris v Norris [2003] 1 FLR 1142 and Vaughan v Vaughan [2008] 1 FLR 1108, notionally re-attributing dissipated sums to the spouse responsible, because he did not think it was possible. However he accepted the wife’s submission that it was appropriate to adjust the distribution of the assets from a 50% division in order to take account of this factor. He proceeded on the basis that in the 12 months to November 2014, the husband had received £168,000 more than the wife by way of income from the investments (in addition to the extra sum that he required to pay his rent), noting that Mr Huggins had told the wife that he believed the sums paid to the husband had been excessively large and were in part due to the husband’s addiction issues. The judge calculated that if the same occurred in each of four years since separation, that alone would amount to over £600,000 and there was in addition an unquantified waste of money during the marriage. He also took into account the distress caused to the wife by the husband’s conduct and concluded that “it would be inequitable to disregard the [money] wantonly expended and the distress to the wife of the husband’s addictive behaviour” which, along with the need factor, he considered justified “the modest departure from equality” in his order (paragraph 135).

Mr Molyneux (who represented the husband on appeal although not, of course, below) argues that the judge’s order was unfair to the husband and wrong for a variety of reasons. I have considered his arguments in full but not found myself persuaded by them. I will deal with the principal ones below, starting with two grounds concerned with the identification/quantification of the parties’ assets.

Mr Molyneux argues that the judge failed sufficiently to take account of the assets that were already in the husband’s possession when the parties met and that, notwithstanding that the sum in question was, he concedes, “well and truly mingled” with the resources accumulated during the marriage, this factor should at least have balanced out the wife’s arguments about the husband’s dissipation of the assets. I alluded to this aspect of the case earlier (paragraph 25 above) and it will be clear from what I have already said that, in my view, the judge was entitled to take the approach to it that he did. I would add that, as I will shortly explain further, I agree with Mr Shaw that although the judge gave two reasons for his departure from equality, the result could have been justified on the basis of need alone; in these circumstances, Mr Molyneux’s argument about balancing out the dissipation of the assets cannot carry him anywhere.

It is also argued that the judge quantified the assets wrongly because he failed to take into account a liability of the husband to the US tax authorities. This argument revolves around a debt in the region of $400,000 which the husband is said to owe by way of US tax. The husband did not refer to this at all in the information that he provided for the ancillary relief proceedings. It is said, however, that the court should have been alerted to the existence of the liability by what he said when he attended court on 11 December 2014 seeking an adjournment. The transcript shows that one of the reasons he put forward to justify an adjournment was that he was “about to do a deal with the [US] Department of Justice”, and this, Mr Molyneux argues, was enough to put the court on enquiry. I do not agree. I do not consider that this passing reference, in a submission made (after the effective conclusion of ancillary relief hearing) in support of an application for an adjournment, can be relied upon as evidence of a liability which the court should have taken into account.

Although ground 3c of the grounds of appeal also focusses upon the value of the parties’ assets, being concerned with the values attributed by the judge to the London flat and the properties in St Tropez, it is more conveniently despatched in conjunction with the husband’s Wells v Wells argument with which I deal below. I therefore turn now to the complaints made about the judge’s division of the assets between the parties, which Mr Molyneux criticises on a number of grounds.

I will start with Mr Molyneux’s criticism of the judge’s treatment of the question of need. It is argued on behalf of the husband that the parties’ needs should have been treated as identical (leading to an equal division of capital assets) and also that, in any event, 50% of the assets in this case must be sufficient to satisfy the reasonable needs of the wife and her budgetary calculations could not possibly justify more.

I am not persuaded by this argument. I consider that the judge’s approach to need was open to him. It is well established in the authorities that “need” is a flexible concept and that the assessment of a spouse’s “needs” includes a consideration of the way in which the parties led their lives whilst together. When approaching the wife’s budget, the judge was entitled to take account, as he did, of the parties’ high standard of living during the marriage. The wife had taken the trouble to itemise her budget, which the judge considered critically, deciding that she could reasonably be expected to trim it a little more, but no further. The husband had provided no budgetary information at all, leaving the judge to do the best he could to forecast what his needs might be and to ensure that his order would leave the husband with sufficient for them.

It was reasonable for the judge to suppose, in approaching the husband’s needs, that the husband would continue to rent accommodation, given his choice to remain living in the flat since the separation without taking any steps towards purchasing a property. A considerable proportion of the rent would be covered by income from the husband’s investment in Stars and Bars, which it was fair to assume would continue to produce returns of the level predicted by the husband in his Form E. The rest of the husband’s capital, used as a Duxbury fund, would produce approximately £200,000 per annum. There was nothing unreasonable in assuming that an income of this sort would cover the balance of the husband’s needs. Accordingly, Judge Everall could make provision for the wife’s trimmed budget whilst also providing properly for the husband’s needs.

The judge is criticised for requiring the husband to live off his capital, with an attendant risk that he would run out of money for his needs at some point in the future. However, it is clear that, whilst the judge used the Duxbury model as a tool to test out the sufficiency of his award to the husband, he did not consider that the husband would actually have to deploy (and use up) his capital in this way. On the contrary, he found that the husband remained a shrewd and knowledgeable businessman and was likely to continue to invest successfully in business ventures (paragraphs 89 and 123 of the judgment). This finding was not challenged in the grounds of appeal and Mr Molyneux’s attempt in oral argument to dislodge it made no headway. It is an important part of the foundation for the judge’s whole approach. On the judge’s findings, whereas marriage had left the wife with no effective earning capacity and constrained to rely on a Duxbury fund, the husband was not confined to conservative investment of his capital but would be able to make it work for him. This was something that the judge was entitled to take into account in sharing the assets between them.

Complaint is made about the nature of the assets that each party would take from the marriage by virtue of Judge Everall’s order, it being argued that the husband has been left with the illiquid and risky assets, whereas the wife will have cash, quoted shares and London property. Reliance is placed on the well-known case of Wells v Wells [2002] EWCA Civ 476 [2000] 2 FLR 97. There should have been a more equal sharing of the less desirable assets, says Mr Molyneux. He not only focuses on the business investments but also contrasts the St Tropez property unfavourably with the London flat in terms of saleability.

Mr Shaw’s answer to this complaint, in so far as it concerns investments rather than real property, is to point out that the assets which are now said to be illiquid and risky are those in which the husband invested. He argues that it would have been quite unfair for the wife, who is not financially astute, to be given a share in those assets; they should continue to belong to the husband, and he and Mr Huggins will manage them for their mutual benefit. Mr Shaw is right, it seems to me. The husband is the spouse with the business acumen, who (with Mr Huggins) has invested the parties’ capital, knows where it is and how to make the most of it. He has not seen fit to provide the wife or the court with the sort of detail that might have enabled the judge to consider the practicalities of a different allocation of the assets between the parties. Should it be said that Mr Huggins knows about the assets and could manage them for the wife, that is no answer because, as the judge said, he cannot be expected to continue doing so indefinitely.

I do not consider that there is any unfairness in the judge’s treatment of the French property either. An agreement as to its value for ancillary relief purposes had been made between the parties and, as the husband did not seek to go behind that, the judge was entitled to base his decision upon it. I do not accept that he was obliged, of his own motion, to require a more up to date valuation of it (or, indeed, of the London property which also had an agreed value). As for the potential waiting period pending sale, the judge was well aware that it might take two years to sell the French property. It was not necessary for the husband to have immediate recourse to the capital tied up in it. Excluding Stars and Bars, he would have nearly £2m to tide him over whilst he waited for it.

Finally, in so far as the judge’s substantive order is concerned, I turn to Mr Molyneux’s argument that the judge erred in his approach to the husband’s addictive behaviour. As I have already said (paragraph 32 above), in my view the order that the judge made was justified on the basis of the wife’s needs alone. It follows that even if the husband were to succeed in establishing, as he seeks to do, that the judge placed undue weight on the husband’s behaviour and its consequences for the family finances, this court would not interfere with his order, because the view that he took of the addiction aspect of the case was not a necessary part of the justification for it. In these circumstances, I do not propose to consider further the interesting and challenging question (recently considered by Moor J in MAP v MFP [2015] EWHC 627 Fam) of whether behaviour such as the husband’s should be reflected in the court’s ancillary relief order, and if so, how. It seems to me undesirable to engage with this issue in a case where there has not been a full exploration of it at first instance, involving evidence and submissions from both parties.

There remains the argument that the judge was plainly wrong to have refused to adjourn the proceedings at the husband’s request. It is argued, for example, that he should have permitted the husband an opportunity to place further medical evidence before the court to explain his non-participation in the hearing and/or to get legal advice so that his arguments could be adequately deployed.

The husband had not produced medical evidence to the court that would justify an adjournment, particularly against the background of the delays in the proceedings so far and his failure to participate in them as he should. It was relevant, as the judge noted, that the husband had said earlier in the proceedings that he was going to instruct Mishcon de Reya but had not done so, and also that he had known of the date of the ancillary relief hearing since March 2014. The judge was entitled to conclude, as he did, that if he were to adjourn, it was very unlikely that the husband would instruct solicitors or produce further medical evidence or generally engage any better in the case than he had done so far and that the likely course was that the husband would simply seek to delay matters again. His decision to refuse an adjournment cannot possibly be classed as plainly wrong and I would dismiss the appeal against it.

For all these reasons, I would also dismiss the appeal against Judge Everall’s ancillary relief order.