Royal Courts of Justice
Strand
London
WC2A 2LL
BEFORE:
Mr Nicholas Mostyn QC
BETWEEN:
W PETITIONER
and
W RESPONDENT
Appearances:
Howard Shaw (instructed by the The Family Law Partnership) for the Petitioner (Wife)
Lewis Marks QC and Mark Saunders (instructed by Hughes Fowler Carruthers) for the Respondent (Husband)
Dates of Hearing: 8 – 11 July, 8 September 2003
JUDGMENT
In my decision of GW v RW [2003] 2 FCR 289 I made some observations about the responsibility of a party when filling in a Form E. There a husband had ascribed zero values to certain share options that were highly likely to eventuate above their strike price, but had included as hard liabilities loans he had taken out to buy the options. Even though the husband referred to the existence of the options in the text of his Form E I was critical of his presentation. I said at Paragraph 16
The very point of Form E is to give an honest and conscientious estimation of the true net worth of the party at the time of swearing it. For these purposes sensible and fair figures have to be attributed to unrealisable or deferred assets. The maker of the Form E is fully entitled to qualify those figures in the narrative part of the section. But a proper figure has to be put in. It is unacceptable, in my view, that simply because an asset is not realisable on the day that the Form E is sworn, but is assuredly realisable, or likely to be realisable, at some future date, for a zero figure to be inserted.
The consequence of the husband’s presentation in that case was an example of what I have referred to during argument in this case as Newton’s Third Law of Motion, namely that every action produces an equal and opposite reaction. There the wife immediately instructed a forensic accountant who valued the husband’s options on an entirely incorrect basis at £6m, when the correct figure, net of tax was about £640,000. The case then moved to accusation and counter-accusation which took a great deal of time and costs to sort out. A great deal of this would have been avoided had the husband realistically and carefully filled in his Form E in the first place.
The theory behind the new procedure is that it should be possible, if the Forms E are filled in truthfully, carefully and fully, and are accompanied by all the prescribed essential documents, for the case to be tried without further inquiry or disclosure. Of course, it is idealistic to think that this actually happens in practice and in the majority of cases further inquiry is authorised. But that does not mean that the ideal is not something to be strived for. For this reason the Form E has an almost numinous status, and where it is found that a party has deliberately filled in a Form E falsely or has misrepresented facts then he must expect judicial censure and penalties in costs.
In this case the husband (H), who is a Chartered Accountant, has filled in a Form E dated 18 March 2002 which I find to be deliberately false and misrepresentative. At trial he accepted primary responsibility describing the Form E as shoddy, unprofessional, something of which he was not proud, and a “cock-up”. But he has sought to turn the blow by blaming his previous solicitors (to whom I shall refer as Z partners), specifically a part-time assistant solicitor in that firm (to whom I shall refer as X) for the manner in which the Form E was finally prepared. He explicitly said that X did not follow his instructions. He has opened up the privileged solicitor and own client file and a considerable time in court has been spent scrutinising parts of it.
In fairness to Z partners I directed that a statement setting out the gist of the allegations should be served on them; that X should be permitted to file a statement in response; that she should be allowed to give oral evidence; and that Z partners could make representations to me in their defence. Such statements were duly filed and I have heard submissions on behalf of Z partners from Mr Philip Moor QC.
The background to this case
H was born on 7 August 1944, and is therefore 59. In 1964 he began his professional career as an articled clerk with Coopers and Lybrand. On 19 February 1966 he married W, who was born on 13 August 1942, and is therefore 61. They have two children: R, who is 37 and who is a consultant anaesthetist and married with a family, and J who is 27 who still lives with W, and who plans to become a journalist. According to W, R and J each intend to emigrate in the near future to New Zealand and Australia respectively. H disputes this.
In 1987 H and W separated, after a marriage of 21 years. They were divorced by Decree Absolute on 4 December 1987. The final ancillary relief order was made by consent in the Epsom County Court on 9 January 1989. A Mesher order was made in respect of the final matrimonial home in Leatherhead. An order for spousal maintenance was made in the sum of £27,173 less tax. There was an order for child maintenance and school fees. The spousal maintenance order was expressed as a variation of an earlier interim order so that it qualified for the purposes of tax relief as an order made before 15 March 1988, when tax relief was severely restricted for orders made after that date.
The final ancillary relief order provided in a recital that W could earn up to £7,500 without triggering a variation application.
H left this marriage with some considerable debts, a deferred 30% interest in the marital home, and over £120,000 of pensions. His income at that time was about £144,000 gross, £89,000 net. W left with 70% of the home, the use of the other 30% on Mesher terms, child maintenance, and a maintenance order for herself which after tax gave her £20,769 to spend.
H’s life since
In 1987 H commenced cohabitation with a lady to whom I shall refer as W2, who was born on 23 May 1951, and who is therefore 52. She also worked for Coopers and Lybrand, and went on to become one of the first female tax partners of that firm. They married on 10 September 1988. In that year they purchased a property in Wimbledon.
Following the final ancillary relief order in January 1989 H moved to Ernst and Young, where he became managing partner of that firm.
The income of H (and of W2) has risen spectacularly since the date of the final ancillary relief order. The following table, prepared by W’s forensic accountant, Mr Levitt , sets out his gross income in the period of separation (some of these figures have been estimated)
Year ending 5 Apr | H | W2 |
1989 | 143,947 | 116,167 |
1990 | 255,000 | 116,167 |
1991 | 255,000 | 116,167 |
1992 | 255,000 | 116,167 |
1993 | 273,201 | 201,667 |
1994 | 292,703 | |
1995 | 313,596 | |
1996 | 335,980 | |
1997 | 364,122 | |
1998 | 514,649 | |
1999 | 578,542 | |
2000 | 655,864 | |
2001 | 628,683 | |
2002 | 474,072 | |
2003 | 683,856 |
As this table shows W2 gave up work with Coopers and Lybrand in 1993. Since then she has not worked remuneratively, and has been supported by H. Whatever is now in the name of H and W2 derives very largely from savings made from H’s income.
In 1996 H and W2 purchased their present home, also in Wimbledon. They have undertaken major works on it. It is now worth about £2m.
In 1998 H was appointed to a senior position in the consulting division of Ernst and Young. In May 2000 the consulting division was sold to Cap Gemini. H moved over to Cap Gemini in an important role. The terms of the sale gave H shares in Cap Gemini but were “strange” (the word used by his expert) in that the CGT payable exceeded the proceeds of the shares initially sold. This was because CGT was levied on the gain on goodwill and because large amounts of the proceeds of sale of the shares were retained by Ernst and Young to pay the costs of the sale. I was told that this was at the behest of the American partners who were indifferent to the interests of their foreign partners. That said, H retains shares in Cap Gemini some of which are restricted for a further period of time. Between the hearing in July 2003 and the final submissions on 8 September 2003 the price of these shares moved from €28.70 to €40.95, so that the value of these shares increased by about £100,000.
According to his evidence given in July 2003 H will retire on his 60th birthday in August 2004. He told me on 8 September 2003 that recent developments may mean that he will be made redundant before that date. He produced no documentary evidence to support this contention. Doing the best I can, I conclude on the balance of probabilities that he will stay in his job, and receive his income and bonuses until his planned retirement date. From the date of his 60th birthday he will receive an annuity from Ernst and Young of £73,000 gross for four years. This annuity was not mentioned in his Form E, and was not disclosed until January 2003. H said he had forgotten about it. Along with his annuity H has other pensions, which I will detail below, including one from Scottish Widows worth £177,000 and which also was not mentioned in his Form E, because, so H asserts, his pension advisers at Ernst and Young did not know about it.
H told me in his evidence in July 2003 that after his retirement he intends, if they present themselves, to take up two or perhaps three non-executive directorships, at £15,000 - £20,000 each per annum. On 8 September 2003 he gave me more pessimistic evidence based on conversations with three head-hunters. Again he produced no documentary evidence to support his contentions. I consider it to be more probable than not that he will achieve some income in the future from non-executive directorships, although the amount and duration is uncertain. W2 has no plans to engage in any further remunerative employment.
W’s life since
The maintenance order has never been varied. It continued to be paid less tax until 5 April 2000 when the tax relief was withdrawn, following the announcement in the 1999 Budget. Since then it has been paid gross.
W found that she could not afford to keep up payments on the mortgage on the matrimonial home. In 1990 she sold it. She received £105,319 from the proceeds of sale. H received £49,446. W then bought her present home in Dorking for £140,000, with a £40,000 mortgage. This is very small, with a tiny garden (which is her principal hobby). She says that it is suitable accommodation for the rest of her life.
In, I think, 1996 W received an inheritance from her mother of about £130,000. She used it to pay off the mortgage and to buy a car. The remainder has all been spent on the costs of these proceedings. W’s only capital now is the value of her home, about £260,000.
W has worked as a French teaching assistant in a local school. She earns about £500 per term. Both sides agree that I should ignore this. She receives a state pension of just over £4,000 per annum.
W is in poor health. She suffers from bad arthritis in her hands and feet. She has a gastric disorder. She presented as nervous, fragile and insecure. Her children may be emigrating to the other side of the world. If they do, she will be living her old age alone, save when she can visit them or vice versa. She is desperately anxious that my award should not expose her to financial worry in the future.
The litigation
On 4 July 1996 the Family Law Act 1996 received Royal Assent. By Schedule 8 Paragraph 16 there were inserted into s31(7) Matrimonial Causes Act 1973 subsections 7A-F, permitting capitalisation of an existing periodical payments order. These provisions were brought into effect by Statutory Instrument SI 1998 No. 2572 on 1 November 1998.
In October 2001 W’s solicitors wrote the letter before action. She applied for variation of the order on 7 December 2001. Although her Form A does not say so everyone knew, and has proceeded on the basis, that she was applying for capitalisation. It is agreed between the parties that this is how the application should be disposed of. W seeks a once and for all sum (which will also extinguish her rights under the Inheritance (Provision for Family and Dependants) Act 1975) of £700,000. Mr Marks’ figure in his final submissions was £325,000.
On 8 March 2002 W swore her Form E. It stated the value of her house, car, her remaining inheritance, her state pension and a budget of £37,116. There was nothing remotely controversial about it.
H’s Form E is dated 18 March 2002. Given the criticisms I have made, and will make, of it, it is necessary for me to set out certain findings relating to its genesis.
In summary the Form E stated as follows
House in Wimbledon | 750,000 |
Banks, PEPs, ISAs* | 88,411 |
Shares, including restricted Cap Gemini | 343,202 |
Cap Gemini Options | 0 |
Premium bonds | 100 |
2 Cars | 19,000 |
Contingent claim against W2 by Barings | (2,000,000) |
Contingent claim against H by Equitable Life | (500,000) |
CGT | (29,000) |
Pensions* | 764,916 |
TOTAL | (563,371) |
* as corrected on 26 Mar 02 |
It can be seen that H presented himself as insolvent, with liabilities exceeding assets by over £½m. In order to understand this it is necessary to work through the Form E.
The figure that H put for his 50% interest in the house in Wimbledon was £750,000, i.e. he asserted that the property was worth £1.5m. He told me he did so because he and W2 had offered £1.35m in July 2001 for a property in St Mary’s Road which was on the market for £1.6m. On its own that would have been a slender basis for valuing his property, in a different street, for £1.5m in March 2002. But he had been telling his solicitors in December 2001 that his home was worth £2m. I am satisfied that H used an unduly low figure for the value of his home as part of a strategy of presenting his assets in the worst possible light.
The figure for banks, PEPs and ISAs was calculated by taking 50% of the figures in joint bank accounts together with 100% of the figure for the PEPs and ISAs. In fact the Form E as sworn accidentally omitted the figure for PEPs and ISAs, but this was corrected by letter on 26 March 2002 and the backing schedule was appended to the Form E itself. So there is nothing particularly objectionable about this.
What is wholly objectionable is the omission as part of H’s assets of a 50% share in a fund of about £450,000. This was mentioned in Box 4.6 as part of W2’s assets. This fund had been held in the joint names of H and W2 for a long time. It derived from H’s earnings. Suddenly on 4 March 2002, 14 days before the Form E was sworn, it was put by W2 into an account of hers that had hitherto been dormant, and thence onto treasury deposit in her sole name. The explanation given was that H and W2 were belatedly reacting to advice given to H by his tax accountant at Ernst and Young as long ago as 17 November 2000 that this would be a sensible move to save tax on the interest. As I will explain below on 4 March 2002 H and W2 purported to suggest that they then believed that W2 was at serious risk of being held liable for £2m arising out of the Baring’s action brought against Coopers and Lybrand. If this fear was true (and as I will explain, it was not) it would therefore have been madness for assets to have been moved into the sole name of W2.
The explanation of H and W2 is unacceptable. It was another example of the strategy to which I have referred above.
The next significant items are the liabilities referred to in Box 2.12 of the Form E. I shall set out exactly what was printed and sworn to by H:
2.12 Give details of any liabilities you have. Exclude mortgages on property dealt with above. Include money owed on credit cards and store cards, bank loans, hire purchase agreements and any overdrawn bank or building society accounts
Liability (i.e total amount owed, current monthly payments and term of loan/debt) | Current amount | Total current value of your share of the liability |
Major contingent against wife's assets. Full details under 4.5. Real probability of claim of up to £2 million faced by both me and my wife |
| £2,000,000 |
|
|
|
Further contingent liability regarding litigation with Equitable Life. Real possibility up to £500,000 |
| £500,000 |
|
|
|
| Total value of all your liabilities | (C1) £2,500,000 |
In Box 4.5, when dealing with financial circumstances that may affect the financial provision, H stated
The great uncertainty that we both face is the outcome of the ongoing litigation between Ernst and Young against Coopers & Lybrand (in which my wife was a partner) in common with the Barings Group action. Accounting partners have to pay for litigation substantially out of their own capital and income and we face the possibility of a huge liability when this case is decided. If that litigation is unsuccessfully defended by Coopers and Lybrand any debt will attach to my wife’s assets. If her liability exceeds those assets I would regard it as my moral duty, to say nothing of practical wisdom not to see her go bankrupt, which will have a devastating effect on our finances.
In addition to this, Ernst and Young is currently being sued in respect of the Equitable Life problems. At the moment the impact of the case looks serious and the implications for me (as I was a partner at Ernst & Young) are unknown, but extremely worrying
In Box 4.6 (which deals with W2’s assets) H stated
Please note: the contingent liability re litigation against Coopers & Lybrand re Barings plc (up to £2,000,000) faced by both me and my wife – detailed at Section 2.12 (and) 4.5 above
It is to be noted that although the contingent liabilities are expressed as variously “a real probability” or “a real possibility” they are put down as hard debts, as hard as an overdraft owed to the bank. What this should mean is that H and his advisers must have been satisfied that on the balance of probabilities it was more likely than not that the liabilities would eventuate. I will return to this later.
What then were the facts that underpinned these various assertions? I will deal first with the Barings litigation. As is well known between 1992 and February 1995 Nick Leeson in effect gambled away almost all of Barings’ money, which then collapsed. Barings then sued Deloittes as the auditors of the Singapore company and Coopers and Lybrand as the auditors of the whole Barings Group for not spotting this.
W2 told me that in about 1993, after she had left Coopers and Lybrand, she bumped into a former colleague at Wimbledon Station. They started chatting and he told her that he was part of a special team set up to review the Barings audit files and that they were “a disaster”. From that point onwards she told me that she assumed that Coopers and Lybrand would be vulnerable and that the professional indemnity insurance cover would be insufficient to meet any claim. I am not sure that W2 can be right about the date given that Leeson’s conduct was not discovered until 1995.
The next event was a letter sent to W2 by PriceWaterhouseCoopers (PWC) on 31 January 2000. This stated that Barings had issued a writ in 1996, which was served on and acknowledged by one of the partners in the firm. Barings then reissued the writ and wanted to serve it on all the partners of the firm at the relevant time. They applied to the court for an order that the firm disclose the names of all these partners. PWC invited W2 to allow the firm’s lawyers, Barlow Lyde & Gilbert, to accept service on her behalf and to represent her. They stated that they believed that the firm had a strong defence to the claim and that “any claims … will be dealt with in the usual way under the terms and conditions of the firm’s insurance arrangements”.
W2 did not consent to be represented by Barlow Lyde & Gilbert. And she was never subsequently served with a writ.
Apart from these two events the only other information W2 had was what she read in the newspapers. From this she was aware that the case was in some form or another being heard in Court before Mr Justice Evans Lombe at the time that the Form E was sworn.
On this slender, almost non-existent, foundation H came to swear a Form E that attributed to him as his debt £2m. No further inquiry was made by W2, or H, or H’s legal advisers, about the status of the claim. Instead a hard debt of £2m was inserted into the Form E. This is an astonishing state of affairs. Had even the most cursory inquiries been made then H and W2 would have discovered that in October 2001 the claim against Coopers and Lybrand had been settled on terms that involved no liability for the firm. The claim against Deloittes remained outstanding, and Coopers and Lybrand remained involved as a third party, but any resultant liability on their part would be covered by an arrangement with the liquidators. It was this aspect that was being heard at the time that the Form E was sworn.
On 16 April 2002 H served notice of change of solicitors to Hughes Fowler Carruthers. At the first meeting with their new solicitor John Nicholson (which occurred a few days before the notice of change) H and W2 were rightly advised that the status of this liability had to be resolved immediately. Thus W2 wrote a letter to the Office of General Counsel of PWC on 15 April 2002 asking what the status of the litigation was. She asked “is it settled, and will all payments … be covered by the firm’s professional indemnity insurance?”. This phraseology betrays a certain knowledge that was not reflected in the Form E.
On 21 May 2002 a reply was received from Mr Owen Jonathan, the UK General Counsel of PWC, which stated that the case had been settled out of existing funds of the firm and insurance and that although the firm remained potentially liable in the third party proceedings “arrangements exist with the liquidators which are intended to hold C & L harmless in respect of any adverse judgment”. This letter was disclosed by H in a reply to questionnaire on 11 July 2002.
W2 told me that the figure of £2m was calculated on the basis that the claim was for £1 billion and there were 500 partners so each partner was looking at £2m. She admitted that this calculation assumed zero insurance cover.
I now turn to the contingent liability in respect of the Equitable Life claim put down as a hard debt of £500,000. This arose from the adverse decision against Equitable Life in the House of Lords in 2000 whereby they were required to keep their promises to their guaranteed annuitants. Equitable Life later sued Ernst and Young as auditors for failing to spot this liability in the accounts and for failing to give proper advice about it. In particular Equitable Life claimed that the business could have been sold for £2.9 billion if Ernst and Young had offered proper advice on the true cost of guaranteed annuity rate policies.
As at the date of Form E, 18 March 2002, a claim by Equitable Life had not even been announced, let alone started. The newspaper cuttings in the trial bundle announcing the decision to sue are dated 16 April 2002. I do not know when the proceedings were started, but when they were Ernst and Young immediately applied to strike them out as unarguable. They largely succeeded before Mr Justice Langley on 10 February 2003, who in particular struck out the “lost chance of sale” claim. An appeal was mounted. That appeal was substantially allowed on 25 July 2003 (after the evidence was heard in this case, but before submissions), and so the position is (subject to any further appeal by Ernst and Young to the House of Lords) that a Court is going to have to decide whether or not Ernst and Young is liable to pay damages to Equitable Life. I understand that the case will be heard in the autumn of 2004.
The Court of Appeal held that Mr Justice Langley should have been more cautious, particularly in a complex case, about claiming to foresee, especially at the very outset of proceedings, a clear path to the summary dismissal of the case. Similarly, I should be equally cautious in claiming to foresee that Equitable Life will prevail in its claims against Ernst and Young.
I do not know how the figure of £500,000 was calculated by H. His evidence on this subject was very difficult to understand. Certainly he does not seem to have made any inquiry at all about professional indemnity insurance cover. It is impossible for me to find as more probable than not that (a) Equitable Life will prevail in its claim against Ernst and Young; (b) that H’s aliquot share of the damages will exceed his share of the professional indemnity cover; and that therefore (c) he should be treated as having a hard debt in this regard of £500,000, or indeed any other figure.
My conclusions in this area are, I regret, severe. I start first with general principles. Where there exists in a case a contingent liability it should certainly be mentioned in the Form E, as part of the narrative. But a figure should only be inserted in the computational box that forms part of the calculation of overall net worth if the deponent and his legal advisers are satisfied by credible evidence that on the balance of probabilities the liability is more likely than not to eventuate. Solicitors advising the makers of Forms E have, as Officers of the Court, an important responsibility to ensure that true and realistic figures are inserted in a Form E. And deponents have a greater responsibility to ensure that their Forms E are truthful and honest. The rubric at the beginning of the Form, warning of the consequences of falsehood, is not mere window-dressing.
I find that H and W2 must have known that on the evidence available to them at the time of the swearing of the Form E there was no real likelihood of either of these claims materialising. They were falsely inserted in order to frustrate W’s claim.
Even if there had been a probability of claim against W2 by Barings it is beyond belief that it should have been inserted in the Form E as a 100% liability of H. The argument seems to be that he and W2 were in effect operating a community of property and so her debts were his debts. But it is to be noted that H only inserted half the value of their home as his and omitted entirely any ownership of the fund of £450,000 transferred to W2 a few days before the Form E was sworn.
I now turn to the final aspect of H’s Form E, namely his pensions. The first omission was a Scottish Widows policy worth £177,000 deriving from H’s work at Coopers and Lybrand. This did not appear in the schedule of pensions produced by his pensions advisers at Ernst and Young that was appended to his Form E. Neither did it appear in earlier annual statements. H said he had not spotted the omission. It was then discovered and disclosure was made in answer to questionnaire in May 2002.
The second omission was the four year annuity from Ernst and Young payable at the rate of £73,000 per annum gross. H told me he had known about this in the past but had forgotten about it when he came to fill in the Form E. He told me that he was reminded about it in December 2002 when talking to colleagues and that he then made inquiries which led to disclosure being made in January 2003.
In view of my findings about H’s credibility I find these explanations of lapse of memory hard to accept. I find that H did know about these pensions but that since they did not appear on the pensions schedule he thought he would get away with not mentioning them. Only as a result of being pinned down by the tenacious questioning of W’s advisers did he have to come clean. His objective at the time of Form E was to present his financial position in the worst possible light so as to avoid having to pay a lump sum by way of capitalisation.
That this is so is demonstrated in a without prejudice letter dated 26 March 2003 (the privilege of which was waived at the first appointment). H’s solicitors wrote
Our client has very few liquid assets from which to pay any sort of lump sum, and he would only be able to do so by borrowing, unless he was to sell his present property, which is something that the court is most unlikely to regard it as appropriate for him to be required to do.
This letter was used to try to secure an adjournment for a number of years to abide the outcome of the Barings and Equitable Life litigation. This application was dismissed by District Judge Million on the first appointment. Of course by then the Barings litigation had ended and the Equitable Life litigation had not even begun. The suggestion that H had few liquid assets was quite untrue. This letter says a lot about H’s attitude to this litigation.
H’s blame of Z partners
In his skeleton argument Mr Marks QC stated
It is, to say the least, unfortunate that H’s Form E in these proceedings was not a clearer and more reliable presentation. While he has to take some of the responsibility for that, the blame can also be laid, to some extent, at the door of his former solicitor (H having changed solicitors and consulted counsel only after his Form E had been sworn).
I have been shown a number of entries in the privileged solicitor and own client file intended to support the allegation that Z partners actively advised H to present his assets in his Form E in the way he did, and indeed, at the eleventh hour, in fact disobeyed his instructions as to what should go in it. Mr Marks QC was candid enough to say that he was embarking on this dangerous course in order to show that his client was “less of a cad” than I might otherwise consider him to be.
It is relevant to record that during the relevant period (January – March 2002) H’s principal solicitor, to whom I shall refer as Y, was often unavailable as a result of family illness. So often the day to day management of H’s case fell to X, an assistant solicitor recently returned from leave of absence who worked only one day each week. It is also relevant to record that X only met H on one occasion. On 25 January 2002 X sent H a blank Form E and asked him to prepare the first draft. There is nothing objectionable about this. I have seen one page from the draft as prepared by H in his hand in which he states that there exists a “major contingent liability against joint assets … up to £2m .. (to discuss)”. Thus it can be seen that the genesis of this liability is H. On 28 February 2002 Y raised certain questions on this draft, but none related to the presentation of this liability. On 4 March 2002 H attended at the offices of Z partners and had a meeting with another partner in the firm. He left him certain notes. On 7 March 2002 Y wrote to H and said that having been through the notes she wanted the Ernst and Young (sic) liability to be put in Box 2.12 and “if you can put a figure to both liabilities so much the better”. She also stated as regards the Coopers and Lybrand liability (sic) “Are you saying you might have a possible liability yourself if Coopers and Lybrand are successful? If so, I think we should say so. In other words, you would have a liability either way”.
On 14 March 2002 H travelled to New York on business. On that day W2 wrote a detailed letter to Z partners. She enclosed a heavily amended version of the Form E. I have seen a colour copy of this document. W2’s amendments are written in blue ink. The amendments that she sought to make included
In relation to bank accounts, that 50% of the fund of about £450,000 should be shown to be H’s.
In relation to contingent liabilities that only 50% of the £2m Barings claim should be shown as H’s share. W2 wrote “I know that the other side are highly likely to rebut this”.
The colour copy of the Form E as amended by W2 reflects these changes. In Box 2.3 W2 had inserted £225,588 as half of the fund. In Box 2.12 W2 had changed what had been printed to advert to a real probability of a claim of up to £2m, but had left the printed figure in the computational box at £1m, being a 50% share of it. Under Box 4.6 W2 had written in relation to her own assets “contingent liability re litigation against Coopers & Lybrand re Barings plc – up to £2,000,000”
On Friday 15 March 2002 X set about the task of taking in the numerous amendments. On the colour copy of the Form E her amendments are in red and (in one instance) black ink. She did not follow the instructions in W2’s letter of 14 March. She deleted the reference to 50% of the £450,000 fund as part of H’s bank accounts and instated them wholly as part of W2’s assets. She says that she made a bona fide decision here in circumstances where she had not been aware that the money had very recently been in the joint names of H and W2 (even though earlier attendance notes showed this to be the case). Her view was that if the money was in W2’s name then no part of it should appear as H’s asset. She changed the figure for H’s share of the Baring’s liability from £1m (being a half) to £2m. She accepts this was a mistake and suggests that she had not read very carefully W2’s letter of 14 March 2002 on this point. In relation to this claim she added to W2’s words in box 4.6 “faced by both me and my wife”. Having made these amendments, which were of course wholly at variance with W2’s instructions, she then engrossed the Form and sent a copy to W’s solicitors. She sent the engrossed version to W2 for H to swear on his return. In the covering letter she explained that she had overridden the instruction as to the treatment of the £450,000 fund because “it is in your sole name”. She did not give any explanation as to why she had included £2m rather than £1m, as instructed, for the Baring’s claim.
H swore the document as amended by X on 18 March 2002. He obviously went through it carefully as he made some amendments which are not of any consequence. He accepted that he knew of the contents of W2’s letter to Z partners of 14 March 2002. He swore the document notwithstanding that the instructions given in W2’s letter had not been followed.
I find that X made an error of judgment. Of course a solicitor has a duty fearlessly to represent her client to the best of her ability. But there is a clear line between fulfilment of that duty and advising a presentation that is misleading, especially where the client is seeking, indeed instructing, a presentation that is closer to the truth (but still misleading and false). X crossed that line, but I believe that she did so by mistake, mistakes borne of (a) her limited involvement and understanding of the case, and (b) undertaking the correcting exercise in too much haste. I accept the submission of Mr Moor QC that the errors I have identified were unintentional.
I believe that H must have been delighted to swear the Form E in the way X had amended it since he must by then have believed that his solicitor was advising that it was a full, frank and fair presentation.
I find that the mistakes of X do afford some, but not much, mitigation to H. Had the Form E been completed in accordance with W2’s amendments it would have shown a positive net worth of £662,187 rather than the negative figure of £563,371 as sworn. Given that his net worth is in fact about £2.7m, its can be seen that the better presentation would still have been highly misleading.
I have considered carefully whether in this judgment I should name X, Y and Z partners. I have decided that I should not, for the obloquy that would ensue would in my judgment far outweigh the defaults for which they were responsible. Nor do I regard the degree of default as being of a scale that warrants a wasted costs order against Z partners.
Events after the Form E
Predictably, the service of this Form E caused Newton’s Third Law of Motion to come into play. W instructed a forensic accountant. He was instructed in effect to audit the entire period of the separation, to see what, on certain assumptions, H and W2 should have accumulated in savings. I do not criticise W for instructing him, nor Mr Levitt for his work. It is true that his first report was flawed but his second report was (probably more by luck than anything else) uncannily prescient in its findings.
W had to serve no less than four questionnaires to get to the bottom of H’s circumstances. The tone of H’s answers became increasingly truculent. He told me that by the time of the third he had “got the hump”. Mr Marks QC has produced a helpful Schedule in which he charts the progress of most of the various corrections and disclosures. In summary they are as follows:
The true value of H’s home was established by a valuation disclosed in the first replies (16 May 2002)
Similarly the correction of the ownership of the £450,000 fund was corrected in the reply to the first questionnaire
As was the Scottish Widows pension
As was the Barings claim
The Ernst and Young annuity was not disclosed until the third replies in January 2003
The Equitable Life claim was only abandoned after Mr Justice Langley’s decision in February 2003, but now faintly reasserted
The partners’ information document in relation of the sale to Cap Gemini, for which W had been pressing for a long time, was not disclosed until the pre-trial review on 6 June 2003.
In the schedule of assets attached to his skeleton argument dated 4 July 2003 Mr Marks QC presented H’s assets as amounting to £1.902m. He calculated this by treating all assets as jointly owned with W2 whether or not they were in fact so held. Thus he reduced by 50% assets held solely by H, such as his shares and pensions. He justified this by arguing that if H and W2 to divorce W2 would have “a virtually unanswerable claim to 50% of the total – including a 50% pension share”. This is a perfectly respectable argument, but I do not agree with it. Whether or not W2 would get 50% on a divorce (which it is agreed has no likelihood of occurring) is debatable. But that is not the point. H’s assets are what they are. What Mr Marks has in effect done is to reduce H’s assets by inchoate claims that may be made against him in a divorce from W2. This is, I suggest, as impermissible as the inclusion of liabilities in his Form E of contingent claims against W2. There is however a great difference between an advocate’s trial schedule and a sworn Form E, and I want to make clear that I am not criticising Mr Marks QC in any way for putting forward his initial schedule. In a way I would have expected nothing less from him.
Mr Marks QC therefore produced on the fourth day of the hearing an amended Schedule which shows H’s (and W2’s) assets as they actually are. He amended this for the purposes of final submissions. In the following table I set out the three different presentations of assets made by H in this case
| Form E 18 Mar 02 as corrected on 24 Mar 02 | Skeleton 4 Jul 03 | Day 4 of trial 11 Jul 03 (as amended for final submissions)
| |
|
|
| H | W2 |
House in Wimbledon | 750,000 | 946,000 | 946,000 | 946,000 |
Banks, PEPs, ISAs | 88,411 | 345,000 | 342,000 | 347,000 |
Shares, including restricted Cap Gemini | 343,202 | 123,000 | 236,000 |
|
Increase in value in Cap Gemini shares | 100,000 | |||
Cap Gemini Options | 0 | 0 | 0 |
|
Premium bonds | 100 | 0 | 0 |
|
2 Cars | 19,000 | 0 | 0 |
|
Contingent claim against W2 by Barings | (2,000,000) | 0 | 0 |
|
Contingent claim against H by Equitable Life | (500,000) | 0 | 0 |
|
CGT | (29,000) | 0 | 0 |
|
Pensions | 764,916 | 487,000 | 854,000 | 120,000 |
Ernst & Young annuity (gross) | 280,000 | |||
unpaid costs |
|
| (73,633) |
|
TOTAL | (563,371) | 1,901,000 | 2,684,367 | 1,413,000 |
Thus it can be seen that H’s assets amount to just under £2.7m, and W2’s assets to just over £1.4m. Between them they have just under £4.1m.
By contrast W has only her house worth £260,000 and a debt of unpaid costs of about £12,500.
It will be seen that I have not applied the Leadbeater v Leadbeater [1985] FLR 789 technique of adding back the paid costs of each party, and have instead subtracted their debt of unpaid costs. I am here being consistent with my decision in GW v RW. The Court of Appeal criticism of my costs decision in that case in Norris v Norris, Haskins v Haskins [2003] EWCA Civ 1084 (28 July 2003) did not extend to disapproval of my suggestion that the Leadbeater technique should be abandoned. Certainly it is a matter for my discretion whether I should adopt it (see Wells v Wells [2002] 2 FLR 97). I decline to do so. H here is at risk of an order to pay all or part of W’s costs referable to his gross litigation misconduct. It would not be much of a penalty if the effect was to add back the amount of such costs as part of W’s assets and then for those same costs to be used to reduce pound for pound H’s lump sum liability.
The costs are extremely high. H’s are £127,108 and W’s are £101,460 (up to the first day of the hearing). They are disproportionate to the issues in the case. Had H filled in a true and fair Form E this case should have been capable of trial over 2 days with only one bundle at a cost, I would estimate, at no more than £50,000 for each side.
Capitalisation
In the recent decision of Pearce v Pearce [2003] EWCA Civ 1054 (28 July 2003) Thorpe LJ set out the principles which should apply on an application such as this. He stated at Paragraphs 37 and 38
37. … Both as a matter of principle and as a matter of good practice, in my opinion the judge had to decide three questions in the following sequence. First he had to decide what variation to make in the order for periodical payments agreed in 1997. An increase was inevitable given inflation and the husband’s overall increased prosperity despite the decline in his income. The judge’s second task was to fix the date from which the increased order was to commence. That would dispose of the past and present account between the parties. Then, and only then, should he have moved to the future, substituting a capital payment calculated in accordance with the Duxbury tables for the income stream that he was terminating.
38. Of course I do not seek to put the trial judge in a straightjacket. He exercises a broad discretion at the first stage. Equally at the third stage he exercises a discretion, albeit a narrower one, in departing from the mathematics of the Duxbury tables to reflect special factors which individual cases will regularly generate.
Thorpe LJ summarised his conclusions at Paragraph 45 in the following terms
There are advantages and possible dangers in attempting in a paragraph to summarise the message of this judgment. What follows is therefore not intended to be a substitute for a full reading where necessary. But my essential general conclusions are:
(i) On dismissing an entitlement to future periodical payments the court’s function is not to reopen capital claims but to substitute for the periodical payments order such other order or orders as will both fairly compensate the payee and at the same time complete the clean break.
(ii) In surveying what substitute order or orders should be made first consideration should be given to the option of carving out of the payer’s pension funds a pension for the payee equivalent to the discharged periodical payments order
I therefore turn to the first stage and determine the level to which the present order should be varied. W’s annual budget is £37,116. Of this £3,600 is designated as “savings”. H objects to this. On its face this may be a valid objection. But W only allowed £1,200 each year for the replacement of household items. She allowed nothing for car depreciation. She produced in her evidence a list of items in her home that needed replacement or refurbishment. It was extensive, although she will be able to address these over time. Therefore I am satisfied that her budget of £37,116 is reasonable, both now and for the long term future.
It is agreed that I should order a lump sum in substitution for her maintenance. The investment income produced by her Duxbury fund will be taxed. The program tells me that her marginal tax rate will always be the basic rate. Her pension will therefore be taxed at that rate of 22%. It is £4,056 per annum gross. After tax it will net down to £3,164 per annum. Therefore her need is for a net annual income derived from a Duxbury fund of £33,952.
The original order made in January 1989 was for £27,173 less tax. The tax would have been then £6,404. Thus her original net spendable income under the order was £20,769. This is the equivalent now (using the RPI) to £33,960.
Her present net need and the present day spending power of the original order therefore both point directly to a figure of £34,000. This is the figure to which I will vary the existing order for spousal maintenance and which I will then capitalise.
I now turn to the second stage. I propose to back-date the new figure of £34,000 to 7 December 2001 being the date of the application for variation. The present order is for £27,173. I propose to terminate the varied order on 1 October 2003, on which date the lump sum by way of capitalisation will be paid. I calculate the arrears that arise under the new order to be £12,473.
I therefore turn to the process of capitalisation. Pension sharing is not available in this case. The exercise requires me simply to fix a lump sum.
A preliminary question arises as to the period over which capitalisation should be calculated. Mr Marks QC argues that as the order for maintenance was a joint lives order it should be to the shorter of H’s and W’s life expectancies. He relies on Harris v Harris[2001] 1 FCR 68 for this proposition. But in that case the wife’s claims under the Inheritance (Provision for Family and Dependants) Act 1975 claims had been dismissed. Here they remain alive. Had the maintenance order remained in being then on H’s death W would have had, in my opinion, an unanswerable claim in proceedings under the 1975 Act for a capitalisation of her maintenance at the time of H’s death. Thus it is right that I should capitalise W’s claim for the remainder of her life expectancy.
A Duxbury calculation, done on the present industry standard of 3.75% net rate of return, does not guarantee that the fund will in fact supply this net annual income of £34,000, inflation proofed, for the remainder of the subject’s life. It will only do so if all the assumptions as to yield, tax and life expectancy are met. If yields do not meet the assumptions, or if the subject lives longer than predicted, then the money will run out.
The question of the unpredictability of life expectancy was considered by Singer J in A v A (Elderly Applicant: Lump Sum) [1999] 2 FLR 969. There the applicant was the husband, aged 79. Singer J held that it would be unfair to do a straight Duxbury calculation in his case, based on a remaining life expectancy of 8 years (under the more optimistic life table PMA80). He stated
Of a Duxbury fund it has been said by its originator Mr Lawrence that the only thing about it of which one can be certain is that it is a mistake to believe that life will work out like that. So can the same be said of the mortality tables. It is a mistake to suppose that the actuarial figure for life expectancy will be the actual length of life experienced by any particular individual.
Neither do the life expectancy tables purport to show the average number of years and months which an individual of their particular population at a given age would have an average (in the sense of an even) chance of exceeding. It is not the case that they suggest that half the given class will die before the life expectancy watershed, and the other half survive it.
Rather, they take the mean view, aggregating for the whole of that sample the years and months which statistical data show them to survive, and deriving thus a prediction of the average of the period that they will live thereafter. For some samples more than half may predictably die before that point. For others the majority will surpass it.
In fact (for so I am informed by Mr Adrian Gallop of the Government Actuary's Department who has done his best to protect me from heresy as I have prepared this part of this judgment), the age at which an ELT group of men aged exactly 78 would reduce by exactly half is 84.4 years, which is a little lower than the 85.2 years which that table declares as their life expectancy. According to the mortality data upon which the table is based, more than one half of men aged exactly 78 can therefore expect to die before having lived for the period of time which is equal to the expectation of life at their age. As against that, the same data show that there is a 25% probability that a person aged 78 will live for at least a further 10.5 years, to age 88.5. For other ages and with other characteristics different conclusions will be just as predictable for the group in question, and predictably as accurate.
Actuaries, therefore, do not presume to foretell any particular individual's human span. To suppose otherwise would be to demonstrate lunacy deserving of the straitjacket, and would lead into as much fallacy as blinkered and unthinking adherence to Duxbury calculations alone.
An important consideration which flows from an understanding of what life expectancy tables do and do not mean, and of the way they are constructed, can be shown with ease and now regimented to one decimal point by table 23 of the 1999/2000 edition of At A Glance. For if a member of the battalion of men aged 78 (of an age where life expectancy according to ELT 15 is 7.2 years, and as was the husband at the date of the first instance hearing) marches on to age 85, the table gives a revised life expectancy of 4.8 years for the reduced company who arrive at that age. The platoon who then survive to 89 (and have thus already climbed well past the ridge envisaged when they were only 78) would be greeted with an extended vista of 3.7 years as the life expectancy offered by the table, beyond even which new horizon a squad of their number can indeed expect on to slog. Survival can thus be described as a continuously encouraging and refreshing process: each year the individual survives along the way increases the statistical chance that he will meet and perhaps survive what was the preceding year's prediction of his life expectancy.
The foregoing exercise is not to decry nor to diminish the validity of these tables, but does no more than parade how much individual uncertainty rules. The tables with great statistical accuracy reflect what for a proportion of their population is the prospect of accident or ill health claiming earlier deaths so that as actuarial exercises they are not at all confounded by the personal disadvantage to the individual for whom the risk of such premature death materialises. But it would be a cruel disadvantage of another sort to outlive a Duxbury fund. These are conventionally calculated upon a basis that does not take the subtlety of these progressively revising expectancies into account, nor the additional complexity that actuaries can also project the rate of future improvements in mortality experience. For most part and at most ages the effect of more sophisticated computations on the outcome would be marginal, and would still firmly relate to the group rather than to the individual. Moreover, that extra sophistication might of itself tend to encourage another illusory expectation, that Duxbury is some alchemical touchstone rather than a rule (if at all) only of thumb.
In this case W’s “life expectancy” is 24 years. Singer J’s erudite analysis demonstrates that this datum does not mean that it is more probable than not that she will live for another 24 years. What it means is that based on mortality statistics for women of her age W has a 50% probability of dying within the 24 year period, and a 50% probability of outliving it. On the in-built assumptions in the Duxbury program the fund will run out in 24 years time. In White v White [2000] 2 FLR 981 Lord Nicholls of Birkenhead described the operation of a Duxbury fund it in this way (at 993-994):
A Duxbury type fund is intended to provide money for living expenses but not more. The amount of the Duxbury fund is calculated on the basis that the capital as well as the income will be used. The calculation assumes that nothing will be left when the wife dies. This was put graphically by Peter Singer QC in a challenging paper presented to the Family Law Bar Association in May 1992. The Duxbury fund calculation involves using income and ultimately exhausting the capital at the theoretical point when the wife would down her last glass of champagne and expire as predicted by the life tables.
It can be seen that if the latter probability to which I have referred above in fact eventuates W will suffer disastrous consequences.
I turn now to the yield assumptions.
In GW v RW I suggested that the new industry standard suggested by the Duxbury Working Party of 3.75% should be adopted, and ventured the opinion that even that rate might be distinctly optimistic in present market conditions. The rate of 3.75% is gross for the purposes of income tax, but is expressed net of an assumed figure of 3% for inflation. The true actual gross rate of return is 6.75%. It would be very difficult for any investor in present market conditions to achieve that anywhere. It is pertinent to observe that with inflation presently running at 3% a higher rate tax payer must achieve at least 5% interest if he is not to lose money on his investment. But there is not a single account available in the UK that presently pays 5%. It is arguable that over the remaining 24 years of W’s life expectancy an overall rate of 6.75% may be achievable. But as Lord Lloyd of Berwick pointed out in Wells v. Wells [1999] 1 AC 345 (at 367B)“every long period starts with a short period”. Thus the imposition of a Duxbury rate of 3.75% on a claimant exposes her to a considerable risk of the money running out.
In those cases where a Duxbury calculation is relevant it is considered appropriate to expect most wives, and especially those in their 40s, to assume this risk (as well as the risk of living longer than “life expectancy”). After all, during their marriages they often lived in a risky environment where the family’s fortunes depended on the entrepreneurial skill of the husband. An older wife who is seeking a capitalisation after many years of maintenance dependency should not, arguably, have to assume such risks. W here is particularly nervous and vulnerable. She will be living the rest of her life alone. She has no prospect of generating an independent income of any significance. This application is the only arrow in her quiver. She deserves greater security than the standard Duxbury calculation.
One way in which she can be given greater security is by doing a Duxbury calculation on a lower rate of return. The lower the return, the greater the resultant sum, and the more security is gained.
In Dharamshi v Dharamshi [2001] 1 FLR 736 Thorpe LJ held that there could be no warrant for introducing the Ogden tables into ancillary relief; that the Duxbury tables had had the court's approval for many years, and, although of limited utility now, would continue to be the industry standard for ancillary relief capitalisations. Schiemann LJ stated that he had some unease about different branches of the High Court adopting different approaches to the task of capitalising a sum which represents annual needs. I will obviously not be using the Ogden tables for the purposes of calculating my award. That will be done solely by reference to the Duxbury methodology. But it is instructive to look at an Ogden calculation if only for the purpose of comparing the differing levels of security supplied by the alternative methods.
Personal injury claimants are expected to receive a high degree of security. For this reason the damages discount rate is set by the Lord Chancellor at 2.5% by the Damages (Personal Injury) Order 2001 (SI 2001 No.2301) made under s1(1) of the Damages Act 1996. This is a rate net of an arbitrary amount of 15% allowed for tax (see Wells v. Wells at 374E – 375G, per Lord Lloyd of Berwick). The gross rate is therefore 2.94%. Duxbury rates are expressed gross. It can be seen that there is therefore a considerable gap between the current standard Duxbury rate of 3.75% and the gross damages rate of 2.94%.
According to the reasons published by the Lord Chancellor the damages discount rate of 2.5% rate reflects, amongst other factors, the going rate of index-linked Government stocks, which are regarded as supplying a high degree of security. But the average yield on such stocks is at present about 2% gross or 1.7% net, after deduction of the 15% tax allowance. I understand that some personal injury practitioners are disquieted by the discrepancy, and argue that damages calculated by reference to the present rate are selling claimants short. That said, attempts to depart from the damages rate are almost invariably rebuffed: see Warriner v Warriner [2003]3 All ER 447 CA. The rate is more or less set in stone in order to promote certainty and to enable cases to be settled with confidence.
The only way in which copper-bottomed security can be achieved is by the purchase of an annuity. Annuity rates at present are extremely low. They track base rates which are now at their lowest since 1955. Nobody in their right mind would buy an annuity at present, unless he or she was forced to do so (for example a pensioner reaching the age of 75).
The following table shows the capital sums necessary to produce £34,000 per annum net that are produced by calculations done on the various bases mentioned above:
Duxbury (Footnote: 1) | |
at 3.75% | 535,000 |
at 3.5% | 549,000 |
at 3.25% | 564,000 |
at 3% | 579,000 |
Damages per Ogden tables at 2.5% net (Footnote: 2) | 595,000 |
Annuity (Footnote: 3) | 807,000 |
In my judgment the appropriate figure for capitalisation in this case, subject to the questions of step-down and affordability, which I address below, is £560,000. This corresponds to a Duxbury calculation on a rate of return of just over 3.25%. An alternative view is that it corresponds to a conventional Duxbury calculation together with a further sinking fund of £25,000 for the exigencies of life, death and markets.
This figure is well short of the figure thrown up by an Ogden calculation and a mile away from the annuity figure. I mention these in order to show that even by using a lower Duxbury rate W here will have to assume significant risks and will be denied the sort of security that personal injury claimants and annuitants are afforded.
If W does recover an order for costs then the income from such refund of costs paid that may be made to her will be a justifiable windfall. It cannot be otherwise, for as I have explained, any reduction in W’s budget by reference to income on assets recovered under an order for costs would directly benefit H and remove the element of penalty on him.
Step-down
Mr Marks QC argues that the Duxbury calculation should reflect the likelihood (so he asserts) that if the Court did not have capitalisation powers and the varied order continued indefinitely H would, after his retirement, certainly succeed in a further hypothetical application for downward variation. Therefore he says that a “stepped” Duxbury should now be performed to reflect such a downward variation. I do not accept this hypothesis. If the court was considering at some stage in the future whether to vary downwards my new award of £34,000 it would look to the totality of H’s resources in assessing his ability to pay, and not merely at his pension and investment income, and would, in my opinion, conclude that he had the resources to continue to discharge my award.
Affordability
Mr Marks QC argues that if a lump sum award is made of £560,000 then H and W2, after H’s retirement, will be left with an insufficient income on which reasonably to live. His argument is supported by some characteristically detailed and impressive spreadsheets. It is based on certain assumptions namely that
H and W2 will live in their £2m home until the day the survivor of them dies;
H will only earn £15,000 p.a. for 4 years in non-executive directorships; and
W2 will never earn again.
I regard these assumptions as unrealistic. I do not believe that I have to descend into great detail here. If H has to pay a lump sum of £560,000 then he and W2 will be left with about £3.54m. H will also have, for some years, a capacity to earn perhaps up to £40,000 p.a. in non-executive directorships.
It is not necessary to do any sophisticated mathematics to demonstrate that H and W2 can live comfortably for the rest of their days on these resources.
The difference between Mr Marks’ figure of £325,000 and my figure of £560,000 is £235,000. The loss of interest (after tax) to H and W2 on this difference is a mere £5,290 per annum. Mr Marks’ spreadsheets do not take account of the recent rise of £100,000 in the Cap Gemini shares (see Paragraph 15 above). That money is at least notionally available to generate a net investment income of £2,250 p.a. to off-set the loss of interest, which therefore falls to £3,040 p.a. This is the measure of the impact on the residual net income of H and W2 (on the assumptions in Mr Marks’ spreadsheets) between my award and his proposal. It is insignificant and makes me wonder why this case is being disputed so furiously.
I therefore award a lump sum of £560,000 in substitution for the varied order for periodical payments. This sum will be paid on 1 October 2003 together with the sum of £12,473 in respect of back-dated arrears.
Following the distribution of the judgment in draft written submissions on consequential matters were received from Counsel
Three consequential matters arise namely (a) anonymisation, (b) costs and (c) permission to appeal.
Anonymisation
When I distributed my draft judgment I indicated my provisional view that the judgment may be reported in the form handed down and that no further anonymisation was required. Mr Marks QC submits that I should change that view and provide for full anonymisation so that the identity of H, W, W2, H’s employers and W2’s former employers are all obscured. He argues that
H would probably be prejudiced in his applications for non-executive directorships were he to be so identified (and could possibly even prejudice his continuing employment at Cap Gemini). Not only would this amount to excessive punishment but also would undermine one of the findings (namely that H had a capacity to earn £40,000 from such directorships) that underlie the judgment. A similar point could be made about the findings of a future earning capacity for [W2].
W’s position on this issue is neutral, and she has made no submissions on it.
I am not aware of any prior ancillary relief case in which this issue has arisen directly, save for the decision of Bennett J in Norris v Norris [2003] 1 FLR 1142. There the only child was over 18, and there was no finding of non-disclosure. Bennett J overrode the parties’ agreement (expressed in the agreed draft order submitted to the court) that the judgment should be reported anonymously. It is fair to say however that no argument was addressed to the court on the issue of anonymisation.
The starting point must be, as Dame Elizabeth Butler-Sloss P pointed out in Clibbery v Allan [2002] 1 FLR 565, a recognition of the importance of the principle of open justice. At Paragraph 16 she stated
The starting point must be the importance of the principle of open justice. This has been a thread to be discerned throughout the common law systems:
'Publicity is the very soul of justice. It is the keenest spur to exertion and the surest of all guards against improbity. It keeps the judge himself while trying under trial.' (Bentham)
In Scott v Scott [1913] AC 417 the House of Lords was emphatic that earlier judgments in that case declaring that the suit for nullity should be heard in camera, and that Mrs Scott was guilty of contempt for publishing a transcript of the proceedings, could not be allowed to stand. Lord Shaw of Dunfermline stated (at 484)
If the judgments …. were to stand, then an easy way would be open for judges to remove their proceedings from the light and to silence forever the voice of the critic, and hide the knowledge of the truth. Such an impairment of right would be intolerable in a free country, and I do not think it has warrant in our law. Had this occurred in France, I suppose Frenchmen would have said that the age of Louis Quartorze and the practice of lettres de cachet had returned.
The Judicial Proceedings (Regulation of Reports) Act 1926 was passed by Parliament in order to curtail the salacious reporting of suits heard in open court. It was prompted by the press frenzy generated by the famous case of Russell v Russell heard in 1922. The Act severely limited the details of the proceedings which could be reported. However by s1(b)(iv) no limitation was placed on the publication of the summing up of the judge, the finding of the jury, or the judgment of the court. In Clibbery v Allan [2001] 2 FLR 819 Munby J at first instance held that the 1926 Act covered ancillary relief proceedings. In the Court of Appeal no argument was addressed on this although the President expressed the view (at Paragraph 71) that “this may be the case”.
In his judgment in Clibbery v Allan Thorpe LJ describes the historical evolution of the practice of hearing ancillary relief proceedings in chambers. Section 1 of the Matrimonial Causes Act 1858 provided that it was lawful for the Judge Ordinary to sit in chambers for the despatch of such business as in his opinion, and for the advantage of the suitors, should be heard in chambers. In a text book published at the turn of the 20th century it was stated that the type of business that was fit to be heard in chambers was that of “trifling importance”. This was the status of ancillary relief proceedings at that time.
It was only in 1968 that the rules introduced for the first time a positive obligation to hear ancillary relief proceedings in chambers: see r81(2) Matrimonial Causes Rules 1968. This is now expressed in r2.66(2) FPR 1991.
Clibbery v Allan explains how a combination of that rule, the obligation of full and frank disclosure, and the implied undertaking imposed on a party receiving disclosure extracted under compulsion, creates an obligation of confidentiality such that an unauthorised publication of any part of the proceedings would amount to a contempt.
This does not answer the question of what principles should be applied in deciding whether a judgment in ancillary relief proceedings should be anonymised.
In the civil case of Forbes v Smith [1998] 1 FLR 835 Jacob J stated
These matters all strongly suggest that the status of a chambers' judgment should not depend upon questions of administration but on something more fundamental. The concept of a secret judgment is one which I believe to be inherently abhorrent. Only in cases where there is a cause for secrecy, such as in a trade secrets' case, can it in general be right that a judgment should be regarded as a secret document. Even then it may be only a part of the judgment needs to be secret. I conclude, in the absence of binding authority to the contrary, that when judgments are given in chambers they are not to be regarded as secret documents. There is in principle all the differences between a judgment given in camera (ie a judgment which the judge has specifically ordered, for cause, to be treated as secret) and a judgment given in chambers merely for administrative reasons.
I consider that an anonymised judgment has many of the characteristics of a secret judgment.
Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 provides that
In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interest of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice.
It can be seen that the Article permits an exception to the principle of the hearing being in open court inter alia where “the interests of juveniles or the protection of the private life of the parties so require”. There is, on the face of the article, no equivalent exception in relation to the obligation to pronounce the judgment publicly.
In B v UK, P v UK [2001] 2 FLR 261 the European Court of Human Rights considered complaints by applicants in proceedings for residence orders in respect of their sons. The applicants complained that Article 6 had been violated inasmuch as the proceedings had not been held in public and that there had been no public pronouncement of the judgments. As to the second issue the court held
B. Right to public pronouncement of judgment
[42] In addition, the applicants complained that the county courts' residence judgments were not pronounced publicly.
[43] The Government submitted that to pronounce the judgment in public would invalidate the purposes for holding the hearing in private. In response to a question put at the hearing, counsel for the Government told the Court that orders and judgments in child cases usually included the names and other details of the parties and children and were private documents, although interested third parties might apply for leave to consult the full text or obtain a copy. Judgments of the Court of Appeal and of first instance courts in cases of special interest were routinely published, with the omission of the names and personal details of the individuals concerned.
[44] The applicants pointed out that the provision in Art 6(1) of the Convention requiring the public pronouncement of judgments was expressed in unqualified terms and that the Court in the above-mentioned Campbell and Fell judgment (op cit, para 90) had rejected an argument that this right was subject to any implied limitation. While the Government might enjoy a margin of appreciation in respect of the method chosen to publish the judgment, there was no discretion to decide to keep it entirely confidential. At the hearing the applicants expressed the opinion that it would not be sufficient to comply with Art 6(1) to publish the court order but that the full judgment would have to be made public. The first applicant conceded that, where appropriate, names and other identifying details could be removed, although he considered that this should be decided on a case-by-case basis. The second applicant was of the view that, although it should be possible to waive the right under Art 6(1) to the public pronouncement of judgments, if either party wished for the judgment to be public, the full, unanonymised text would have to be made available.
[45] The Court recalls its long-standing case-law that the form of publicity given under the domestic law to a judgment must be assessed in the light of the special features of the proceedings in question and by reference to the object and purpose of Art 6(1) (see the above-mentioned Sutter judgment, para 33). Thus in the Sutter case, for example, it found that the publicity requirement under Art 6(1) was satisfied by the fact that anyone who could establish an interest could consult or obtain a copy of the full text of judgments of the Military Court of Cassation, together with the fact that Court's most important judgments were published in an official collection (ibid, para 34).
[46] The Court further recalls its above finding that, in view of the type of issues requiring to be examined in cases concerning the residence of children, the domestic authorities were justified in conducting these proceedings in chambers in order to protect the privacy of the children and the parties and to avoid prejudicing the interests of justice. It agrees with the Government that to pronounce the judgment in public would, to a large extent, frustrate these aims.
[47] The Court notes that anyone who can establish an interest may consult or obtain a copy of the full text of the orders and/or judgments of first instance courts in child residence cases, and that the judgments of the Court of Appeal and of first instance courts in cases of special interest are routinely published, thereby enabling the public to study the manner in which the courts generally approach such cases and the principles applied in deciding them. It is noteworthy in this respect that the first applicant, despite his desire to share information about his son with the child's grandparents, never made any application either for the grandparents to be present in the County Court or for leave to disclose the residence judgment to them.
[48] Having regard to the nature of the proceedings and the form of publicity applied by the national law, the Court considers that a literal interpretation of the terms of Art 6(1) concerning the pronouncement of judgments would not only be unnecessary for the purposes of public scrutiny but might even frustrate the primary aim of Art 6(1), which is to secure a fair hearing (see, mutatis mutandis, the above-mentioned Sutter judgment, para 34).
[49] The Court thus concludes that the Convention did not require making available to the general public the residence judgments in the present cases, and that there has been no violation of Art 6(1) in this respect.
It seems to me that the effect of this judgment is to apply the exception to which I have referred equally to the issue of publication of the judgment and to the question of anonymisation. Thus I must weigh the principle of open justice against the wish of the parties to have protected the details of their private lives.
In my opinion where an ancillary relief case involves consideration of financial arrangements to be made for minor children the court would almost invariably seek to anonymise the judgment. Where no minor children feature in the case then the question of anonymisation will have to be considered on a case by case basis where the competing considerations will have to be weighed.
In this case I have already decided that the identities of X, Y and Z partners should be obscured, for the reasons I have given at Paragraph 67 above.
The arguments in favour of anonymisation advanced by Mr Marks, referred to at Paragraph 107 above have to be considered against his application for permission to appeal. Were permission to appeal to be granted then the appeal itself would be held publicly and the judgment pronounced in open court. I cannot recall any ancillary relief case (as opposed to a child case) where the Court of Appeal has held the proceedings in secret or has anonymised its judgment. This fact shows that the question of publicity in an ancillary relief case depends entirely on the arbitrary consideration of whether or not the case is appealed.
While I am prepared to acknowledge the possibility that the effect of publication of this judgment may have the consequences contended for by Mr Marks, it seems to me that there are, in principle, powerful considerations pointing towards full publication. I have been highly critical of H’s deliberately false disclosure in his Form E. Non-disclosure is a bane on the conduct of business in the Division. Its causes vast amounts of work, great wastage of costs and the consumption of a large amount of judicial resources. It stymies the prospects of settlement. It frustrates the overall objective for the resolution of these cases.
While it is likely that there will always be litigants in the Division who fail to comply with the obligation of full and frank disclosure I believe that the prospect of public condemnation in the event that the default is exposed will act as a deterrent and so reduce the incidence of such misconduct.
I recognise that in S v S (Inland Revenue: Tax Evasion) [1997] 2 FLR 774 Wilson J took a different view. He stated
…it is greatly in the public interest that in proceedings for ancillary relief the parties should make full and frank disclosure of their resources and thus often of aspects of their financial history. Were it to be understood that candour would be likely to lead - in all but the very rare case - to exposure of under-declarations to the Revenue, the pressure wrongfully to dissemble within the proceedings might be irresistible to a far bigger congregation of litigants than is typified by the husband in these proceedings, who of course resolved not to be candid in any event. False presentations by respondents in ancillary proceedings have two repercussions, both seriously contrary to the public interest: (a) either the judge remains deceived, in which the case the award is likely to be inaptly low, or he perceives the deception, whereupon he may draw necessarily broad inferences of hidden wealth which, depending on their scale, could make the award inaptly high or indeed leave it still inaptly low; and (b) applicants are seldom minded to compromise their claims on the basis of presentations which they believe to be materially false and their stance, if justified by the court's findings, will often be upheld in relation to costs. Yet the family justice system depends upon the compromise of all but a few applications for ancillary relief.
This decision was considered by Charles J in A v A, B v B [2000] 1 FLR 701. He stated (at 728)
The temptation referred to by Wilson J in S v S
However, as mentioned above, I accept that there is force in the point made by Wilson J that some litigants might well find the temptation to provide incomplete information irresistible if they thought that full disclosure would lead to disclosure to, and subsequent action against them, by the Revenue. However, in my judgment the possible solution to this, namely that the court will not (or will not generally) initiate, or give leave for, disclosure to the Revenue gives rise to considerable difficulty particularly in ancillary relief proceedings.
In such proceedings a starting-point to the exercise of the approach laid down by the Matrimonial Causes Act 1973, s 25 is to ascertain the assets of the parties. This entails the identification of their present and contingent liabilities. So liabilities to the Revenue would be taken into account. For present purposes the question arises as to how the court is to take into account liabilities to the Revenue arising from tax evasion, or the non-payment of tax. If the court is satisfied that there has been tax evasion the consequence is that it is satisfied that there are liabilities to the Revenue and one of the litigants has acted in breach of his statutory obligations and, in my judgment, dishonestly. Additionally, if the court is for other reasons satisfied that there has been an underpayment of tax it will also be satisfied that there is a tax liability.
Can the court proceed on the basis that those liabilities (or potential liabilities) do not exist, and thus either on the basis (a) that the evasion will not be discovered and possibly that it will continue, or (b) that the liability will not be met? In my judgment, in the absence of a compelling public interest that it should do so, it would not be right, or just, for the court to take either course.
Additionally, if the court took this course it would be accepting that it should do nothing about either (a) illegality which it is satisfied exists, or (b) the non-payment of a sum which it is satisfied is lawfully due to the Revenue. In my judgment, in the absence of a compelling public interest to the contrary, it would not be right for a court to close its eyes to such illegality or non-payment. Further, in ancillary relief cases by doing so the court would be acting on the assumption that such illegality or non-payment was likely to continue, and in my judgment, in the absence of a compelling public interest to the contrary, it would not be right for a court to take this course which can be said to be one which condones such illegality or non-payment.
If the court finds that such liabilities exist they reduce the assets lawfully available to the parties. In my judgment the court can, and should, take them into account. But if it does take them into account, in my judgment, in the absence of a compelling public interest to the contrary, it would not be right for the court to do so on the basis that the evasion or non-payment will continue, or will not be discovered.
Recent developments reinforce Charles J’s view, with which I agree. In the vast majority of cases the wife will have some suspicion, whether derived from the possession of Hildebrand documents or other material, that the disclosure is inaccurate. And so she will embark on an exhaustive process of discovery and interrogation to get to the truth. She will not settle until and unless she and her advisers have been given a truthful account. That stage is very often not reached until a full trial has been conducted. At some stage the wife and her advisers will have a real suspicion that the husband’s assets include untaxed monies. They will then have an obligation to report their suspicions to NCIS under Part 7 of the Proceeds of Crime Act 2002. NCIS will in turn report the suspicions to the Inland Revenue. And so it is inevitable in an ancillary relief case, where tax evasion is alleged and exposed, for the Revenue to be informed.
I therefore consider that in principle I should reject Mr Marks’ application for further anonymisation. However he makes a further point which I consider to be valid. He says that the rubric at the beginning of Form E contains dire warnings about the consequences of false disclosure, but that those warnings do not extend to the prospect of public censure. He says that if such a consequence was in prospect H, and certainly W2, should have been warned about it. He says that H and W2 did what they did in the belief that the case would be heard in private; and that any judgment, if reported, would be anonymised. He has pointed to a number of cases heard at first instance where very bad conduct by a party has been found, but where the case was nonetheless reported on an anonymous basis.
Whether H and W2 would have acted any differently, had they thought that the consequences of their malfeasance would have been exposed in a fully public judgment, is hard to judge. Maybe they would. It is this consideration that has persuaded me, exceptionally, to obscure their identities in this judgment. But no future non-discloser should expect, at least from me, such an indulgence.
Costs
At Paragraph 75 above I recorded that W’s costs were £101,460 up to the first day of hearing. This was in accordance with the Form H handed to me at the hearing. I have now received a further costs schedule in which her costs are stated to be £135,000 to the conclusion of the case, including implementation of the order. The increase has derived largely from the costs of the trial after the first day and the late introduction of Z partners into the case. About £6,000 is referable to the costs of implementation. £35,000 of W’s costs is unpaid.
I have received a final Form H from H’s solicitors that increases the figure for costs I was given at trial from £127,108 to £146,280. It can be seen that these parties have therefore spent between them £281,000 in costs arguing about a difference between them at trial of £375,000.
I have estimated above (Paragraph 75) that had H made a true disclosure then this case should have been capable of despatch at a cost to the parties of not more than £50,000 apiece. I shall refer to these as the natural costs. To this I shall add the figure of £6,000 for the costs of implementation, giving a total figure for the natural costs of £56,000.
The Court of Appeal has recently delivered guide-lines for the adjudication of costs in these cases: Norris v Norris, Haskins v Haskins [2003] EWCA Civ 1084 (28 July 2003). Dame Elizabeth Butler-Sloss P stated
[25] In my judgment, therefore, rules 2.69B and 2.69D can be managed and, where the court considers it unjust to apply rule 2.69B, it can make a different costs order to reflect the justice of the case. Mr Pointer QC, in his thoughtful and comprehensive skeleton argument, sets out in a bar chart a series of permutations arising from a court order to a wife of £1 million. I take one hypothetical situation. If a husband offers £800,000 and the wife asks for £1,200,000, neither has achieved the figure of the order and each is wide of the mark by the same amount. In broadly comparable situations, not tied to exact percentages since each case must be decided on its own facts, the result might be termed, as Mr Cusworth for Mr Norris suggested, a draw. In my view, in some offer and counter-offer cases, the proper approach might well be, under the present procedure, to make no order as to costs and leave each party to pay his/her own costs.
[27] The current procedure on costs in family financial disputes is regulated by the two statutory codes, the CPR and the FPR, each of which gives the judge or district judge a broad judicial discretion. I have had the opportunity of reading the judgment of Thorpe LJ in this case, and would respectfully agree with paragraph 61 of his judgment in which he says that the harmonious integration of the separate codes is to be best achieved by treating CPR 44.3 as covering all cases. The exercise which the court undertakes under CPR 44.3(4) requires consideration of all the circumstances, including the parties’ respective conduct and success and, under subsection (4)(c), any offers made. In so far as the court is looking at a Calderbank type case, the exercise under subsection (4)(c) is better dealt with under the fuller provisions to be found in FPR rules 2.69, 2.69B and 2.69D. Reading the two sets of rules together, the court has a general and wide discretion to depart from the starting point of 'winner takes all'.
The relevant Calderbank offers in this case were as follows:
On 6 August 2002 H offered £253,000 plus standard costs.
On 2 October 2002 W offered to accept £868,000 (rather higher than her open position before me) plus standard costs.
On 3 October 2002 H offered £325,000 plus standard costs.
On 7 July 2003 (the day before the commencement of the trial) W offered to accept £450,000 plus £90,000 towards her costs.
Mr Marks argues that I should ignore this final offer by W for the purposes of weighing its efficacy under the Calderbank principle. I agree.
It can be seen that my order lies almost exactly in the middle of W’s offer of 2 October 2002 and H’s offer of 3 October 2002 (the mid-way point is in fact £597,000, and my award including backdating is for £572,473). I therefore have no difficulty in concluding that so far as the Calderbank negotiations are concerned the result has been a draw and that there should be no order as to the natural costs of the case.
In my judgment W’s costs over and above the natural costs have been incurred as a result of H’s misconduct. I am obliged to take such misconduct into account under CPR 44.3(4) and (5). In principle H should pay these on the indemnity basis.
Both parties ask me summarily to assess H’s liability. I shall do so and for this purpose shall use the rule of thumb of a 90% recovery on an indemnity taxation. This leads to a liability of £71,100 calculated as follows
W's costs | 135,000 |
less natural costs | (56,000) |
Costs to be paid by H | 79,000 |
90% thereof | 71,100 |
This sum is to be paid within 14 days of the date of handing down of this judgment.
Permission to appeal
I decline Mr Marks’ application for permission to appeal.
Nicholas Mostyn QC
Deputy High Court Judge
9 October 2003
I direct that this judgment may be treated as authentic and that no further transcript need be taken