Cooper-Hohn v Anthony Hohn

The parties own three properties in London, Jamaica and Connecticut (United States). For convenience, their (unmortgaged) values have been converted into US dollars. The London property (which was purchased in September 2011 and has been, and remains, the subject of a complete re-build) was valued at US$17,716,650 as at May 2013. The husband has spent in the region of £9 to £10 million on work which has already been undertaken at the property (Footnote: ³). During the course of evidence, it was suggested to him that he has actually lost money on the development, in part as a result of the insolvency of the first firm of builders which worked on the property. Whether or not that is the case, the parties have agreed the value of this property for the purposes of the computation exercise. It is agreed that the husband will have the London property.

The husband has a substantial home in Jamaica where he remains domiciled. Significant sums of money have been spent on work to this home. A value of US$6.5 million is the agreed figure on completion of those works. This property, too, will be retained by the husband at the conclusion of these proceedings.

The third property is the American home which the parties maintain in Connecticut. That property was worth US$2.7 million in August 2013 and it will be transferred to the wife as part of her overall award in these proceedings.

Thus, the real estate in the case is worth just under US$27 million and the parties are agreed upon how it is to be divided at the conclusion of this case.

The husband has cash deposits held in various different bank accounts in the total sum of US$524,270. In addition, he has lent money to a friend and a family member and expects repayment of neither loan. Insofar as the smaller sum is concerned (some £36,400 for educational fees), I accept it is an immaterial figure in the context of this particular case. As to the loan of £4 million to a close family member, I heard some evidence about this transaction and accept that the figure can properly be ignored for the purposes of the computation exercise. Whilst a significant sum, it was paid out prior to the break down of the marriage. The wife does not seek to challenge the ‘write down’ to nil and, in the context of the wealth available to this family, I take the view that the husband should be entitled to benefit close family members in this way if that is what he chooses to do.

The husband maintains three pension plans which together have a value of just over US$93.4 million. The bulk of the value (some US$93 million) is maintained in an offshore plan in respect of which there will be tax implications should he choose to remit funds onshore whilst he is resident in the United Kingdom. The tax ‘risk’ is agreed to be c. £29 million. I shall deal with the likelihood of this tax materialising as a hard liability when I consider the wider implications for this couple of the tax consequences of their separation and divorce.

I have already referred earlier in this judgment to the structure of the TCI Fund, the various management entities which support its operation and the manner in which management and performance fees are fed back through structure. It is an agreed fact in this case that, because his personal assets are held within the Fund, they essentially track the value of the Fund (and they are currently compounding at 24% per annum). As part of the financial disclosure which the husband provided in March 2014, I was taken to a schedule which demonstrates clearly the changes in the underlying value of the TCI Master Fund from 28 February 2007 to 28 February 2014 [C/F:94-95]. From a low point of just under Euros 9.5 million (Footnote: ⁴), the Fund reached a highpoint of US$19.75 billion in May 2008 before falling to US$9.5 billion over the last few months of that year as a result of the global collapse in world markets. It continued on a downward trend hitting a low point of US$4.3 billion in May 2012. Over the next two years there was steady incremental growth to a position of US$8.112 billion as of 28 February 2014.

The husband’s personal assets in the Fund are agreed to be worth US$1,177,274,972 and are held directly in his own name, or through other entities he controls directly or indirectly, or through the Children’s Investment Fund LP (in round terms, a total of slightly less than US$1.2 billion).

That much is agreed. There is an issue as to whether he will be required to meet a tax liability in the event that the UK companies within the TCI management structure are wound up. Again, I propose to deal with this when I come to consider wider issues of tax.

There are essentially two ‘pools’ of money under the effective management of this husband. First there is the TCI Fund which consists of the husband’s personal assets and those of his external and institutional investors whom he selects to join the Fund. These investors pay both management fees and contingent incentive fees. Secondly, there is the US$4.5 billion of assets held by Talos Capital on behalf of the UK and US Foundations. At this point, it must be recalled that neither the UK nor the US Foundation has any assets directly invested in the TCI Fund. This has been the case for the last three years. As referred to earlier in this judgment, in April 2009, all of the assets which were previously invested by the Foundation in the TCI Funds were moved into a separate entity (Talos) and managed by an Irish company, Talos Capital Limited. The husband is not a director of that company. There is nevertheless a management agreement in place between TCI (UK) LLP (the investment manager) (owned 100% by the husband) and Talos Capital under the terms of which the entirety of the US$4.5 billion held within the UK Foundation is placed under the active management of the husband. It is a 90 day notice agreement and the husband charges no management fees to Talos, although an incentive fee of between 7% and 10% is payable if the investments pass a hurdle rate of 3% to 6%. He receives no further or additional remuneration from the Foundation notwithstanding the value of the funds under his active management.

Thus, the assets under the management of the investment manager now consist of his own capital and that of private and institutional investors, including Talos Capital.

Under this heading there are seven potential corporate entities which make up the group management entities. To these, the husband attributes a value of $111,551,314, being the value of the underlying assets they hold without any allowance for goodwill on a sale. In their closing submissions, Mr Pointer and Mr Kingscote accept that it is not open to the court to ascribe a particular figure to the value of the business. That consequence flows inevitably from the court’s refusal to give the wife permission to adduce expert evidence on the subject. Notwithstanding that concession, it remains part of the wife’s case that she should share in any eventual gain on realisation of these entities. The wife invites me to proceed on the basis of a Wells sharing of any proceeds which may be realised in the event of a future disposal by the husband. By her open proposals dated 11 June 2014, she seeks a 50% share of any excess over and above US$200 million in the event that I were to decide that the management companies have a value over and above that sum. In the event I were to conclude they were worth a figure which was more than US$111 million but less than US$200 million, that value should be aggregated with the other assets and divided so as to increase the lump sum to be paid to her by the husband to bring her up to a full 50% share of the matrimonial assets.

In seeking to persuade me that there is future value in these management entities over and above their underlying assets, Mr Pointer and Mr Kingscote point to six years of very substantial profits under the husband’s stewardship of the funds. Mr Marks and Miss Clarke, on the other hand, rely upon the arguments which were accepted by Coleridge J at first instance and by Ryder LJ in the Court of Appeal. Fundamentally, they argue that any attempt to value goodwill is nothing more than an attempt to capitalise the husband’s future income stream. On behalf of the wife, it is said that this misses the point, since any valuation of a trading company involves a computation of the current market value of a future income stream.

Taken in isolation, I accept that point. I also bear in mind that the observations of Ryder LJ which I have set out above in paragraph 96 were made in the context of an assumption that the business would be sold on the basis that the husband would no longer be involved. Mr Pointer seeks to persuade me that the whole purpose of factoring in the key man discount was to make provision for the husband’s prospective departure.

The fact that the husband has no immediate plans to sell the management entities is not per se a factor which prohibits a consideration of potential value. Section 25 of the 1973 Act requires me to have regard to ‘assets available in the foreseeable future’. That said, I need to look at where the evidence in this particular case takes me.

The husband’s evidence in cross-examination was that, were he to leave the Fund, he was 100% certain that the substantial income stream generated by the TCI Fund would disappear because his investors would wish to redeem their investments, as they would be entitled to do under the terms of their contracts. That view was based upon ‘every single one of my investors making it crystal clear that the day I am not there, they are not there…. It is a performance-driven business. It is a talent business. When the talent is not there, these funds get liquidated all the time.’ He told me about a similar exodus which had occurred when he left Perry Capital in 2003. He was then running a fund of US$1 billion. When he gave notice of his intention to leave, the parent fund attempted to replace him with another fund manager but, as he put it to me, the investors ‘fled’. Each investor was given the option to remain in the fund despite the fact that the ‘key man’ clause was triggered. According to the husband’s evidence, ‘every single investor’ (apart from a de minimis number who did not return the form) opted to redeem and the entire fund was liquidated. Their unanimous voice was resoundingly heard. As he put it : ‘we backed Chris rather than the fund’.

Mr Pointer in his closing submissions sought to persuade me that the husband had overplayed his role in relation to the performance of the TCI Fund. He submitted that the husband’s depiction of his team of analysts and partners as mere ‘support staff’ who only worked with the ideas he ‘came up with’ was misleading. He pointed to the fact that five or more of his previous partners over the years had left to become investment managers in their own right. He pointed to the very significant sums which the analysts had earned as bonus or incentive payments over the years. All these factors, said Mr Pointer, contribute to a clear impression that this ‘team’ adds significant potential value to the TCI business, with or without the husband at the helm.

Having listened carefully to the husband’s evidence about the structure and operation of the TCI Group and, in particular, his aggressively focused control over virtually every aspect of the decision-making process, I am not persuaded that the team of analysts and partners, without the husband driving the process, would add much – if anything at all – to the value of the TCI entities from the perspective of a potential purchaser. Although at various points during the course of his evidence, the husband referred to ‘we’ and ‘our’ when he was describing his modus operandi and the manner in which decisions were taken, I am entirely satisfied that no decisions of substance are taken in that business without his ‘say so’ and express approval. It seems fairly obvious from the evidence which he gave that the husband has controlled the decision-making process from bottom to top. It is he who selects, hires and (in some cases) fires the individual members of the team of analysts and partners which support the commercial operation of the Fund. They have their roles to play, and I have no doubt that they are important roles. The husband told me, for example, about a dedicated team responsible for liaising and maintaining relations with the individual investors. In much the same way, I have no doubt that the analysts whom the husband employs are all extremely clever and able individuals who provide him with the best background due diligence available. He does not strike me as a man who suffers fools gladly. With TCI UK LLP (the investment manager entity) generating an annual turnover on its own of almost £100 million in the last year, it would be wildly naïve to believe that any one individual could maintain a ‘hands on’ role in relation to every aspect of its day to day operation. The husband has surrounded himself with a handful of key personnel and, further down the chain, backroom support staff all of whom have a role to play. He no doubt employs the best and they are handsomely rewarded for what they do. Nevertheless, without him at the centre of operations as the ‘ideas man’, making the investment decisions, driving aggressively forward the activist management strategy which has brought such significant rewards for the Fund and its investors, I accept that very few of his investors would be prepared to stay on board.

He was asked about the possibility of selling the TCI business to an investment bank on the basis that there was evidence of such sales having occurred on previous occasions. The husband told me that he had never consulted any investment bank about a potential sale of TCI and he was only aware of one significant and similar transaction when Goldman Sachs took a stake in Schumway Capital. The bank invested approximately US$100 million. Within a matter of months, the fund manager, Chris Schumway (who had been at business school with the husband), retired. The fund was liquidated and more or less the entire investment lost.

When it was put to him that Goldman Sachs had in fact taken a stake in a number of smaller hedge funds, the husband drew a distinction between those where investment decisions were tracked by computers (‘black boxes’ as he called them) and those where investment decisions were taken by an individual strategist who makes all investment decisions as an individual performer.

Rather than an election to retire, Mr Pointer suggested to the husband that he might wish to enter into a service contract with a fund management company for a term and then sell the business, or a share in the business, to a bank. To that suggestion, the husband’s response was this:-

I had a very good opportunity to assess this husband in the witness box over a significant period of time. There is no doubt in my mind that he is virtually ‘unemployable’. I accept his evidence that he has no present or future intention to work for someone else. In circumstances where he has a proven track record of giving away the vast majority of his wealth, I am satisfied that he is unlikely to be drawn by the lure of significant financial remuneration into giving up the total independence which he now enjoys as a fund manager. The scenarios posed by Mr Pointer as possible ‘exit’ routes, whilst entirely acceptable as hypotheses, are, in my view, entirely unrealistic when looked at in the context of the individual with whom I am concerned. It was suggested in closing submissions that he is unlikely to pass up the opportunity in future to make significant financial returns on the ‘sale’ or other disposal of the TCI entities were the opportunity to arise. I take a contrary view. This man may be a wealth creator par excellence but I do not get the impression that he is motivated solely by money for its own sake. Of course, that is in one sense an easy position to take in circumstances where his personal fortune, on any view, runs to over US$1 billion. Just as I referred during the course of the hearing to the Foundation being the wife’s raison d’etre, I take the view that the TCI Fund and the structure within which it operates are very much his, to the extent that since their inception it is accepted that, once set up, the wife has played no part in the wealth creation function they have performed. To this end, I find it difficult, if not impossible, to conceive of circumstances in which this husband would surrender the autonomy he presently enjoys in order to make money for someone else, whatever financial inducements might be put on the table. For the reasons expressed above, I am equally persuaded that it is unlikely that investors would wish to stay in a fund in which the husband no longer exercised that autonomy of control over investment decisions.

In the event that TCI as a structure open to external investors is collapsed at some point in the future, I am persuaded that it is highly probable that the vast bulk of the husband’s personal assets will thereafter be managed ‘in house’ from a family office from which he will continue, I suspect, to do much the same as he does now, albeit with more limited resources to deploy.

For these reasons, I do not propose to attribute to the TCI management entities any present or future value over and above that which can properly be attributed to their underlying assets. Thus, in this aspect of the dispute as to computation, I propose to adopt the presentation put before me by Mr Marks and Miss Clarke. In other words, I shall take the value of the TCI entities as being US$111.5 million.

Before leaving TCI, I make this point. The fact that I have declined to accede to any Wells sharing of the hypothetical future value of the Group does not mean that the income which it generates for the husband is irrelevant in terms of the consideration of the fairness of any award which I make in this case. I am satisfied that, for so long as the structure exists and for so long as the Fund continues to perform in the way it has done, this husband will continue to receive a very substantial personal income as a result of his ownership of the structure, directly or indirectly. Whether or not he chooses to give that income, or part of it, away is entirely a matter for him. The fact that he has such an earning capacity is nevertheless one of the circumstances which I shall need to consider in due course.

The husband maintains personal investments in three property owning entities. There is no issue about these save in respect of his investment in IREO, an investment in Indian real estate private equity. Whilst a figure of just under US$26.5 million is uncontroversial, he has, since separation, invested a further US$11.8 million (which includes an allowance for tax). This additional investment, says Mr Marks, represents post-separation accrual and should be excluded from the overall computation process in terms of the assets in which the wife is entitled to share.

Mr Pointer and Mr Kingscote contend that, since funds were paid to TCI Management Ltd for investment in this real estate, those funds (less the tax) should be aggregated to form part of the overall assets. For these purposes, they allow a figure of £8 million (or US$13.6 million). To the extent that this investment falls for consideration as one which falls outside the sharing principle, I shall return to record my specific finding once I have dealt with the wider issue of post-separation accrual.

Into this category also fall (i) the unallocated profits which the wife contends are likely to be allocated to the husband, and (ii) the incentive fees which have been notionally earned but are yet to crystallise.

Before dealing with these items in turn, it may be helpful to make some general remarks about the structure and component elements of the TCI profit / income figures. There are currently fifty-four employees within the Group, between seventeen and nineteen of whom have an entitlement to profit share (Footnote: ⁵) although none are equity partners in the sense of owning shares in the Group (all of which are held by the husband). Their contracts entitle them to a minimum percentage share of the Group’s profits on either a one or three year rolling basis, subject to various conditions. Over the history of the TCI Master Fund, a varying percentage of the profit pool has gone to the analysts and the remainder has been retained by the husband, much of which has been diverted into the Foundation.

In each accounting year, the Group (principally TCI UK LLP, as the investment manager) receives both management fees and crystallised incentive fees. The management fees are relatively straightforward. Depending upon the share class in which an investor places its funds, a standard (or set) percentage fee is charged, usually between 1% and 1.5%. In addition, each investor becomes liable to pay an incentive fee which is performance based and depends upon the achievement of an identified hurdle rate of growth in the underlying investment over a specified period of time. From a schedule which the husband has disclosed, it is apparent that the shares are divided into eight classes (A – H) which require from investors a commitment period of between one, two, three and five years. There is also a quarterly class share (D) which enables investors to withdraw their funds quarterly. The various classes attract an incentive fee of between 13.5% and 16.5%. These incentive fees crystallise and become immediately payable at the end of an investor’s lock in period. That period will depend upon the class of share to which the original investment subscription is made. When the lock in period ends, the investor redeems his investment at which point, if the hurdle has been achieved, the incentive fee crystallises and becomes immediately payable. In the event that the hurdle is not reached, no fee or a reduced fee is payable. In the case of the quarterly share class, the incentive fee calculation period is the end of a three year cycle following issue. The hurdle rate varies according to the class of share but is typically LIBOR plus 2% or 300bps.

Incentive fees which remain contingent are not provided for in the formal company accounts or for tax purposes. However, in terms of running accounting records for management purposes, and in order to provide information to both its investors and its partners on an ongoing basis, the accountants responsible for the preparation of the TCI Group accounts adopt the practice of making a hypothetical allowance in the balance sheets for the contingent incentive fees which may become payable at a future date. These are calculated by reference, in the main, to actual performance as compared to the specified hurdle return and are based upon the current net asset value of the TCI Fund. The hypothesis is based upon an assumption that hurdle rates will be met but, unless and until they are, the sums allocated are no more than accounting figures. There is no ‘crystallisation’ or contractual entitlement to receive those sums allowed for, or any other. Neither the husband nor his partners in the Fund have any call on the funds until the point of crystallisation. In this sense, they do not represent ‘real’ money or ‘earned cash’. The reason why the numbers exist at all is to enable investors to know what the value of their fund units may be at any given point in time if they were to withdraw them net of fees payable.

We see an example of this in part of the husband’s most recently updated disclosure in the months leading up to the final hearing.

On 23 April 2014, the husband’s solicitors wrote to the wife’s solicitors with information extracted from the draft unconsolidated management accounts for all TCI entities as at their year end, 28 February 2014. In that letter they confirmed that the profit available to the husband to keep or allocate to other members at his discretion was £64,748,865, less amounts due from members (£25,022,394 (Footnote: ⁶)), a sum of just under £40 million gross. A draft balance sheet accompanied that letter. The analysts/partners employed by the husband have a contractual entitlement to a percentage of the profits. From time to time, in addition to that fixed entitlement, the husband has paid out from his own share of the incentive fees further sums to individual analysts, either to incentivise or to retain them as part of his working team. These additional ‘bonus’ or ‘incentive’ payments are made entirely at the husband’s discretion in terms of both their size and destination. I heard some evidence about quite significant sums being paid out to individual analysts over the course of the years. These payments fall within the overarching discretionary management strategies which the husband controls as part of his operation of the TCI Group as a whole. He selects the individuals with whom he wishes to work; he agrees their remuneration structures; he ‘lets go’ the individuals who do not perform; and he decides who benefits financially at the Group’s year end over and above their contractual financial entitlement.

Following questions from the wife’s team, the husband’s solicitors wrote again on 30 April 2014. That letter contained further information about how the year end profit had been calculated. Of some £97 million (representing the turnover for TCI UK LLP, the investment manager), the crystallised incentive fees (converted to sterling) amounted to just under £39 million and the management fees a further £53.8 million. Those sums, together with a de minimis sum representing some recharged expenses, made up the annual turnover of the UK LLP (Footnote: ⁷). Of the crystallised incentive fees (c.£39 million), part was earmarked for the analysts. From the balance available to the husband for distribution as he saw fit, 47% is deductible in respect of tax and national insurance.

The husband subsequently produced for me during the course of the hearing a revised allocation schedule showing how the profits for the 2013/2014 year had been applied and how much remained unallocated. That schedule showed a provisional allocation to him from all TCI Group entities excluding one of the UK entities (which provided a nil return) of £25 million (which he told me was in fact rounded up from £24.7 million). In terms of unallocated profits for the 2013/2014 year, his revised schedule confirmed the figure of £40 million gross, which figure is now reflected in the latest set of (2014) accounts which were produced during the course of the hearing. In relation to this sum, the husband’s evidence was that he was entitled to take this money but that he might decide to allocate from it payments to third parties (such as his team of analysts) in order to retain or incentivise them over and above their contractual entitlement to the minimum percentage of the profits. He did not tell me about any decisions which he had made in relation to distributing funds out of the £40 million gross and he accepted that I could treat this fund (£21.25 million net) as money which was notionally earmarked for him. I take on board his point that this profit (or income in his hands) was generated during the second year after which the parties separated (ie. in the year March 2013 to February 2014), and I shall come back to this point in deciding how to deal with it insofar as the sharing of post-separation accrual is concerned. However, this unallocated profit represents an asset which I consider should be included (less tax and the share allocated to the analysts) at a figure of £21,247,360 (US$35,850,672) in the global balance sheet of assets available for division between these parties.

The other aspect of computation which can conveniently be dealt with here is the suggestion that a sum of c. US$12 million (£7.136 million) was paid out to the husband in May or June 2014 which is not represented in his most recent presentation of the Net Asset Register. This flows from the representation set out in the husband’s solicitor’s letter of 30 April 2014 to the effect that a sum of approximately £18 million had been paid out to the husband as part of a global figure available for distribution to members of the LLP in a total sum of £25 million. (It will be recalled that this sum represents, in effect, ‘drawings on account’.) In the most recent set of accounts for the year ended 28 February 2014, these global sums have not been allocated to any specific individual and that allocation will only take place by the end of January 2015. Of the £18 million paid out to the husband on account of his 2013/2014 entitlement, his solicitors confirmed in their letter of 30 April 2014 that the £18 million paid out to the husband was captured in full by the most recent net asset statement. That much is confirmed as an ‘advance’ to the husband in the most recent accounts [C/F:421].On behalf of the wife, Mr Pointer and Mr Kingscote submit that, because the letter was written on 30 April 2014, I can infer that the difference of £7.1365 million was paid out to the husband in May or June 2014. Since it does not feature in the mainframe asset schedule as cash, it needs to be added back.

I find myself unable to accept that submission. The letter of 30 April 2014 is clear : the cash payments out to members of the LLP (including the husband) will only be allocated at the end of January 2015 [C/F:173]. All drawings actually received by the husband on account of his eventual allocation (some £18 million) are reflected in the mainframe asset schedule. His expenditure for the year ended 28 February 2014 has been calculated in round terms by his ‘in house’ financial team (signed off by his CFO as part of his presentation to this court) as £19 million broken down as to £9 million spent on the house renovation, £8 million paid in tax and £2 million paid to the wife on account of her legal costs [C/F:402]. The husband told me during the course of his oral evidence that all sums which he had received from TCI had been ploughed into the costs of the housing renovations, the maintenance of his own and the family’s general living expenses (including the wife’s not insubstantial rent) and legal costs. At the present time, in addition to the wife’s rent of £418,000 per annum, he is paying interim support of £60,000 per month (or £720,000 per annum). For these reasons I decline to draw the inference that the husband has under-disclosed his assets by a figure in excess of £7 million and I propose to make no allowance for it on the final balance sheet.

The figures in relation to the contingent incentive fees which have not yet crystallised are not in issue as between the parties in conceptual form. They have been disclosed in the written evidence and forensically examined during the course of the oral evidence. Over a four year period from 28 February next year (2015) to 28 February 2018, there may be a further gross sum of just under US$290 million receivable by TCI from this source. If the analysts’ share of the ‘take’ is increased on a discretionary basis above their minimum percentage, that sum will reduce pro tanto. If compounded hurdles are not met, some – or all of it – may never materialise.

Mr Pointer and Mr Kingscote invite me to take a view as to whether or not this falls to be considered as what they describe as ‘a comparatively modest figure’ in the context of this case, such that it can fairly be aggregated with the other assets as a fixed sum certain. They point to the inherent improbability of these fees being lost through underperformance given the husband’s track record over the last 15 years (which he himself accepts is 24% compounded on the basis of annual gross gain).

It seems to me that the following points need to be borne in mind:-

In the context of the performance of the Fund, the husband told me during the course of his oral evidence how this pattern had emerged. He said,

Looking at the table of crystallisation referred to in the husband’s solicitors’ letter of 30 April 2014 (paragraph 139 (ii) above), it is clear that about one quarter of the fees which might be received (some US$25 million net in the husband’s hands) will fall in during 2015 and 2016 (respectively three and four years after the date of the wife’s divorce petition). The major block of contingent fees is likely to crystallise in 2017. That would represent c. US$45 million net in the husband’s hands and would come to him (if it does) some five years after the effective demise of the marriage. According to the husband’s evidence, as at that date (ie. the end of the marriage), he was still in the process of clawing back all the losses made after the financial crash in 2008. The recovery which began in 2013 was a financial regeneration, on his case, achieved during a period which post-dates their decision to end the marriage. Of course, that – in itself - is not an answer to the wife’s case to an entitlement to share in these assets because a continuum of trading in volatile market conditions is part and parcel of what this husband has done from the outset.

In an attempt to separate out those investors who were ‘in’ and those who were ‘out’ of the fund at the point of separation, I heard much during the husband’s cross-examination about the composition of the various classes of investor. The husband produced for me various tables as his evidence unfolded over the days he was in the witness box. It appears to be agreed that only 1.3% of the Fund’s investors are contracted to a five year ‘lock in’. That represents a very small percentage of the US$290 million which may, or may not, crystallise in 2018. If the ‘rump’ of the five year lock in funds can be expected to be withdrawn by investors in 2018 (at which point they will pay whatever crystallised funds are due), it follows that there must be some of this class of investor contributing to the payments hypothetically due in the years 2015 to 2017. However, these investors represent only 1.3% of the total fund value.

The largest number of the underlying investors in the Fund are in Class D (45.1%) which is the quarterly class share. These investors can withdraw funds at will without penalty on a quarterly basis. All the rest, apart from Class H (3 year lock in and 18.7% of the Fund) and the management shares (ie. the husband, whose holding is 15.8%) represent significantly less than 10% of the global investment in the TCI Fund. Class D, the majority, represents predominantly ‘old’ investors who have ‘rolled over’ from their previous ‘lock ups’ into quarterly money after the financial crisis because of their unwillingness to commit to a position of comparative illiquidity in new ‘lock ups’.

On behalf of the wife, Mr Pointer and Mr Kingscote contend that nothing in the schedules which the husband produced will assist me to determine the question of ‘who was out and who was in at the date of separation?’. They point to the fact that the husband said during the course of his evidence that the information which would answer this question was available and had been analysed and that it would be produced. It was not, at least not in the form in which it had been requested as at two specific dates in March and December 2012. They say that, absent the provision of proper analysis from the husband as to the structure of the investors who are liable for the contingent incentive fees, the totality of the sums due should be regarded as part of the assets generated up to the date of trial and available for distribution. Thus, they invite me to include in an adjusted asset schedule a ‘hard’ figure of just over US$113.6 million.

In contrast, on behalf of the husband, Mr Marks and Miss Clarke submit that, in terms, it does not matter when the investors came in or how long the husband has been managing their underlying investments within the Fund. What matters is when the work was done to generate the profit which gives rise to the potential entitlement to the contingent incentive fees. That line can be clearly drawn because the evidence establishes unequivocally that the Fund only went into profit in the latter part of 2013. They say that it would be quite impossible on the state of the evidence before me to draw a ‘bright line’ in order to determine how much of the, as yet, uncrystallised fees fall pre-separation and post-separation. On the basis of the evidence I do have, I can safely assume that these fees were predominantly generated after the breakdown of the marriage and consequently the asset schedule needs no further adjustment to reflect what is an uncertain, future and contingent receipt.

What Mr Marks and Miss Clarke accept I can properly do in the exercise of the wide discretion which I have in considering these matters under section 25 of the 1973 Act is to bear the contingent fees in mind when looking at a fair distribution of the assets and the overall percentage of the funds which are ‘already in the pot’. As Mr Marks put it,

The law in relation to post-separation accrual

Before setting out my conclusions in relation to the treatment of the contingent incentive fees in the context of computation, this will be a convenient point at which to consider the law in relation to post-separation accrual and the treatment of assets which might be said to fall outside the ambit of the marital acquest.

Before doing so, two important points need to be made. First, it is important in this context to distinguish clearly between (i) the contingent incentive fees which fall to be considered as income or earnings elements of the underlying financial matrix; and (ii) the underlying growth in the value of the TCI Fund since separation. They are different elements of the accretion of wealth in this case, albeit that both result from contributions made by this husband both pre- and post- the separation which led to the demise of the marriage.

Subject to what I shall say below about post-separation accrual and the entitlement of a party to share in assets created after the breakdown of the marriage, I need no persuading that the law requires me to consider the value of the assets as they stand as at the date of trial. That much is clear from numerous authorities including Cowan v Cowan [2001] EWCA Civ 679, [2001] 2 FLR 192, Rossi v Rossi [2006] EWHC 1482 (Fam), [2007] 1 FLR 790, S v S (Ancillary Relief After Lengthy Separation) [2006] EWHC 2339 (Fam), [2007] 1 FLR 2120and Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] 1 FLR 1186. The relevance of the date of separation and/or the effective demise of the marriage lies in the interruption of the spousal contributions which each of the parties has been making up to that point in time. I shall need in due course to consider in greater detail the issue of contribution insofar as it relates to the welfare of the family for the purposes of section 25(2)(f) of the 1973 Act. The particular resonance of the date of separation in this case is its impact upon the wife’s entitlement to an equal share in an asset pool which has seen exponential growth in value since that date.

Mr Marks sought to raise an issue of public policy in this context. He says that the problem with computing assets at the date of trial is that it provides an incentive to a claimant to delay settlement if he or she believes that assets will increase. I have to say that I am not persuaded by that argument as a principle, but in any event the law is clear. Furthermore, there is no evidence in this case that the wife delayed the litigation or that she was unwilling to engage in settlement discussions following the unsuccessful conclusion of the FDR hearing. Whilst I have not been made privy to the content of such discussions for obvious reasons, I am aware that they have taken place.

As to the facts, the wife first sought legal advice in the summer of 2011 from a US attorney called Mr Dontzin. Her Petition seeking dissolution of the marriage was served on the husband by her English solicitors on 6 April 2012. The date of separation in the agreed chronology is put at ‘March 2012’. The point of physical separation occurred in late April or early May of that year when the wife and children moved out of the former matrimonial home into nearby rented accommodation. On behalf of the wife, Mr Pointer and Mr Kingscote submit that the service of the Petition did not signal the end of this marriage. As I have said, from that point until a date in November or December 2012, the parties were exploring the possibility of saving the marriage in the context of marriage counselling. I heard about some four or five sessions, at the conclusion of which both parties appear to have accepted that divorce had become inevitable. As I pointed out during the course of argument, it is often difficult to define the precise point at which a marriage has irretrievably broken down. In many cases, if not the majority, parties will engage in some form of formal or informal counselling in an attempt to salvage a relationship, particularly where there are children involved in the family breakdown. They may often reconcile for a period of time before reaching a final conclusion that neither wishes to continue to share a life with the other. I have no doubt that each of these parties was genuine in his and her attempts to explore the possibility of a reconciliation. In terms of considering the wife’s entitlement to a fair share of the matrimonial assets, I do not propose to draw any clear line under the asset base as it stood on 6 April 2012. That is not what the law obliges me to do and it is not in any event what Mr Marks, on behalf of the husband, contends I should do. He and Miss Clarke do not seek to quarantine the post-separation growth, nor the husband’s post-separation income (other than unallocated profit and the second stage IREO investment, both of which fall very far into the separation). His case is that assets accrued or earned since the date of separation have to be considered in a different way in terms of any entitlement which the wife may have to a share because the nature and extent of their respective contributions during that period of time is different from what it was during the marriage. In other words, the husband does not seek to argue that the wife has no share in these post-separation assets; rather that she has a lesser share than that which she can expect to receive from the marital assets.

Mr Pointer reminds me that each of the parties has continued to discharge their respective roles throughout the period since March 2012 or December 2012 to the present time. The husband has continued to engage in his wealth creating activities at TCI. The wife has continued her active involvement in the Foundation and her role as mother to their four children. Until the implementation of the recommendations of the Board following the Bridgespan report, she performed her role as Chair and CEO of the Foundation until September 2013. Her replacement as CEO does not mean a reduced workload, a fact which I accept. Thus, says Mr Pointer, quite apart from the fact that she has not been paid out her share of the assets for her to deploy separately, there has been no actual cessation of the work during the marriage it was their respective roles to perform. He says that the only thing which has in fact changed is that there is no longer any spousal support between the two.

That is as maybe, but the absence of spousal support is a significant factor to be taken into account, as the authorities demonstrate. Since the decision of the House of Lords in Miller and McFarlane, the courts have expressly acknowledged the important distinction which needs to be drawn between matrimonial and non-matrimonial property. In this case, where the wealth available to these parties is vastly in excess of any conceivable anchor to needs, wealth accrued after the effective end of the marriage (at a time when spousal contribution from the wife had ended) will necessarily fall to be considered differently in the context of an entitlement to share, whether equally or in some other fair proportion. In relation to some assets, that entitlement may be nil. In relation to others, it may be 50% or something between 50% and nil.

Each case is necessarily fact specific. In relation to one of the two conjoined appeals in Miller and McFarlane, the House of Lords had to consider the treatment of post-separation accrual in the context of a relatively short five year childless marriage. Lord Mance, at paragraph [174] on page 1230 said this:-

I accept that there is no question but that there is post-separation accrual in this case, whether the starting date is taken to be April 2012 or December 2012. Because of the manner in which disclosure has progressed in this case, I have before me a very clear snapshot of the extent of the wealth held by the husband in the months immediately prior to the wife’s divorce petition and at various points up to and including April 2014. That insight is collected from the various incarnations of the Net Asset Register which have been produced by the husband as part of his voluntary disclosure. (Helpfully, the framework of the assets has not changed in the interim.)

In this context, it is instructive to revisit the figures. As at 31 December 2011 (some months after the wife first sought legal advice in relation to the marital difficulties but just over three months before the service of her divorce petition), the total assets stood at just under US$700 million (the equivalent of c. £446 million on the prevailing fx rates as at March 2012) [C/F:100]. As at 30 November 2012, a date by which Mr Pointer would accept the separation had become permanent, the assets had increased to US$889 million without any allowance for tax. By 30 April 2014 (the date of the mainframe asset schedule from which we were working during the final hearing), the gross assets had increased to US$1.436 billion (US$1.354 billion net of tax on the husband’s case or US$1.4 billion net if the unallocated profits and IREO investment is included). That represents an increase over 17 months of some 62%. On Mr Pointer’s and Mr Kingscote’s final computation schedule, the global available assets are now in excess of US$1.6 billion.

Whilst I do not have precise figures for March 2012 (save for the sterling equivalent on that date of the US$700 million / December 2011 figure), Mr Marks and Miss Clarke produced as part of their written presentation a graph which demonstrates the almost linear increase in the total assets from 31 December 2011 to 30 April 2014. Assuming straight line growth from 31 December 2011 [C/F:100] to 30 November 2012 [A/D:1], the figure in March 2012 would have been about US$690 million, although Mr Marks tells me that their informal assessment is that the figure could be closer to US$750 million. That, of course, is not a sufficient evidential platform for proceeding from that base line figure. It seems to me that the fairer approach to measuring the extent of the post-separation accrual, in the absence of a specific snapshot for March 2012, is to look either to the equivalent value of the December 2011 figure applying the exchange rates as at the end of March 2012 (US$700 million), or to take the 30 November 2012 figure of US$889 million. In both cases, there is no specific allowance for tax on realisation. Whichever figure is adopted, the subsequent increase is exponential.

On the basis of the husband’s case that a figure of between US$700 million and US$750 million is the fair quantification of the marital assets (being the wealth generated prior to the breakdown of the marriage), the increase has been of the order of US$600 million to US$650 million, or 93%, or, as Mr Marks put it, ‘just short of double’. On that basis, he invites me to consider the scale of the post-separation accrual here as being equivalent to three times the total wealth which was available to Mr and Mrs Charman. That extraordinary level of wealth creation in the aftermath of marriage breakdown should not be treated, as Mr Marks and Miss Clarke submit, as part of the marital acquest.

In contrast, Mr Pointer and Mr Kingscote contend that it is only in cases where there has been an extended period of separation that the court will utilize some earlier figure for the assessment of an award. They cite three reasons why this is so:-

This is often referred to as the Cowan principle of ‘trading with a party’s undivided share of the assets’. It emanates from a passage in the judgment delivered by Thorpe LJ. At paragraph [70], of Cowan v Cowan, his Lordship said this:-

Of that contribution made by Mr Cowan, Thorpe LJ had earlier said this at page 216:-

I shall return to the separate issue of special contribution shortly. For present purposes, and in the context of an evaluation of post-separation accrual in this case, I take on board the fact that the period during which Mr Cowan was continuing to trade with Mrs Cowan’s undivided share in the business was 6 years. Here, the period is significantly shorter and no more than a maximum of 2 years even on Mr Marks’ case.

The majority of the increase in the underlying value of the assets is represented by growth in the value of the TCI Fund (just under US$550 million). The balance of some US$48 million (the IREO investment and the unallocated profits) represents surplus income or profits generated from the receipt of management and crystallised incentive fees.

On behalf of the wife, Mr Pointer contends that the increase in value represented by the growth of the Fund is caught squarely by the Cowan principle. The husband was, in effect, trading with the wife’s undivided share of the assets and she is entitled to share in the results of his investment activities. To Mr Marks’ riposte that the husband had no choice in the absence of agreement as to the size of her settlement award, Mr Pointer argues that there was nothing to prevent him from making a substantial voluntary payment at the outset. He points to the husband’s unwillingness to relinquish control over the money, as borne out by his earlier refusal to pay to the wife a sum of £5 million on account of her claims. I heard evidence from the husband on this point. He was keen to point out that substantial funds had been made available to the wife in respect of her legal costs (some US$2 million) as soon as she had requested them. Furthermore, after some initial debate about the extent of her annual budget, there was early consensus between their respective legal teams as to the interim financial provision which should be put in place. It seems to me that a more substantial point is the tax issue. Had the husband liquidated a significant part of the TCI Fund in order to make an accelerated payment to the wife, because of their non-domiciled status it would have given rise to a significant tax liability in the event she remitted all or part of those funds for which he would have been responsible. In that event, it may well be that the wife would have elected to stay in the Fund not only to avoid an overall reduction in the asset pool in which she was to share but also to take advantage of the very significant returns which the husband was generating. Because his personal wealth was increasing on the back of his management shares (which attracted no fees), the wife was potentially sharing in a level of return on their ‘joint’ investment in the Fund which was not even open to the other Fund investors, regardless of their share class.

Mr Pointer argues that there is no reason to believe that, had the wife received her share in 2012, she would not have achieved as good a return as the husband has done. He points to the fact that, because of the circles in which this couple moved, she has many contacts in the investment fund world. Whilst there was no hard evidence before me to substantiate this argument, I am sceptical about placing much reliance on it. I accept that the husband is one of only a handful of investors in the world who can demonstrate the track record of performance which is borne out by the undisputed figures in this case. Whatever connections the wife might have been able to exploit, I am not persuaded that there was any guarantee she would have matched the returns which have been achieved by remaining in the TCI Fund. In no small part, these returns have been achieved, as I find, by the activist investment strategies deployed by the husband in relation to the underlying Fund assets.

I accept that, given the scale of the assets under management, there would have been some passive growth in the Fund regardless of any decisions taken by the husband. I heard evidence from him (which was not challenged) about comparative returns available to an investor in MSCI World Global Equities (Footnote: ⁸). Such an investor might have expected to double his money over a ten year period had he invested on 1 January 2004. By comparison, investors in the TCI Fund saw a return, net of fees, of 19% over a similar period resulting in an almost five times greater profit (Footnote: ⁹).

Mr Marks and Miss Clarke produced as part of their final submissions a table and a graph in order to demonstrate the returns which the wife might have achieved in alternative investment vehicles. In addition to the MSCI Global Equity Index, I was provided with figures for both the FTSE and the Dow indices over similar periods of time. The FTSE produced an average return of 4.14% and the Dow an average return of 4.42%. In contrast a fee paying TCI investor saw an average return of 18.9%, whereas holders of management shares achieved an average return of just over 24%. As Mr Marks puts it, ‘[The husband’s] point about compounding is that 24% (TCI) for 10 years is 15x more profitable than 4.14% (FTSE) for 10 years, and almost twice as profitable as 18.9% (TCI investors) for 10 years’.

When these figures are transposed into the table demonstrating investment return over a ten year period from March 2004 to March 2014, it is possible to see that, for TCI investors (within and without the management share class which pays no fees), the clear majority of the present value in the fund has been generated by active growth over and above the typical investment return achievable from any of the FTSE, Dow or MSCI indices. Whilst I accept that the table in itself is no more than a forensic tool designed to give some graphic depth and colour to the figures on which Mr Marks relies, it is nevertheless useful as a context in which to set the point he seeks to make.

Mr Pointer ably meets this point by reminding me that, without an accurate breakdown as to which of the current investors were in the Fund in 2012, it is impossible to analyse out the different constituents of the success which TCI has enjoyed so as to show (i) what proportion of the fees that have been earned may be regarded as a product of a pre-existing business; and (ii) what proportion are properly to be considered as a result of the husband’s extra-marital endeavour.

As Mr Marks himself accepts, there has been a massive amount of ‘churn’ within the Fund as a result of the money being actively worked but, overwhelmingly, as he submits, the money is being generated through new ventures. Whilst the overall structure of the TCI entities represents a continuum, it is not the structures in themselves which are generating the wealth. Wealth creation on the scale achieved by the husband comes about by his ability to identify a new investment opportunity and make it work, either by driving internal change to increase value or by creating change in the commercial environment in which the company works.

I bear well in mind that the skills and financial insight which this husband brings to all his investment decisions were precisely the same skills he was exercising to a greater or lesser degree in Perry Capital. They are doubtless skills which he has been honing ever since. Mr Marks accepts that there is some ‘tailback’ into the marriage but his case is that there is now a new element, and a significant new element, which is the extent to which he deploys his skills in activist investing. As he put it, ‘an activist investor cannot stand still. [He has] to be constantly looking for the next challenge’.

I accept that every case turns on its own facts. However, in Rossi, a case decided in the immediate aftermath of Miller and McFarlane, Nicholas Mostyn QC (as he then was, sitting as a deputy Judge of the Division) identified the issue of post-separation accrual as one which was then in a state of development. At page 794, he said,

Having conducted a thorough review of the law, including the passage from Thorpe LJ’s judgment in Cowan quoted earlier in paragraph 161, the judge proceeded to draw together the various threads from which he deduced the following principles:-

In relation to the observations made by the judge in para 24.3, Mr Marks submits that assets acquired, created or enhanced in this case post-separation arise by virtue of the husband’s personal industry, although he accepts that, up to a point, that position (particularly as it applies to the increase in value in the fund units) has been achieved through his use of an asset which was created during the marriage. He contends that different considerations apply in relation to items or assets acquired through use or application of post-separation earnings or profits.

The passage from Rossi which I have set out above was cited with approval by Singer J some three months later in S v S [2006] EWHC 2339 (Fam), [2007] 1 FLR 2120.

The following year, Charles J had to grapple with the issue of when and where to set dates and draw lines in the context of assets accrued or earned post-separation. The assets in that case were substantial bonus payments received by the husband both after separation and after divorce. In H v H [2007] EWHC 459 (Fam), [2007] 2 FLR 548, he said this:-

In H v H, Charles J was dealing with a husband’s very substantial earning power and the properties and investments acquired as part of his income. The key question in that case was the rationale for an award in respect of the husband’s future earnings through a share in post-separation bonus receipts. However, what his Lordship had to say in relation to setting time lines is relevant to the case with which I am dealing. He said this at page 578:-

In relation to subsequent, but unsuccessful, attempts at reconciliation, Charles J said this:-

His Lordship was also to part company with the judge’s observations in Rossi in relation to the ‘grace period’ of one year post-separation as qualifying a bonus for matrimonial treatment with the possibility that it might nevertheless attract an application of the yardstick of equality. Charles J took the view that, aside from being arbitrary in its application (as the judge in that case had himself acknowledged), it failed to reflect the reality of the relationship between the parties which was essentially no longer ‘matrimonial’ in character or essence.

Mr Marks relies upon those passages in support of his submission that the same reasoning applies in this case to the IREO investment, the unallocated profits, the crystallised incentive fees and the contingent incentive fees. In relation to each, he argues that the matrimonial character of those assets weakens over time with the result that they do not fall to be shared, and certainly not on an equal basis.

Some three and a half years later, Wilson LJ (as he then was) scrutinised several of these passages in Rossi, S v S and H v H when he came to deal with an appeal from another decision of Charles J, Jones v Jones [2011] EWCA Civ 41, [2011] 1 FLR 1723. Having endorsed the propositions advanced by the judge in Rossi as ‘helpful’ and ‘accurate’, Wilson LJ added this (page 1738, para [46]) in relation to his consideration of passive growth post-separation:-

It seems to me that an analogous approach is just as apt in relation to passive growth as contrasted with contributions (ie activity undertaken by one of the spouses but not the other) made after the marriage has effectively come to an end.

Thus what I have to decide is whether and to what extent the new work and new investments created by the husband in the period after the parties separated falls to be considered in the character of matrimonial property in which the wife should be entitled to a share or whether some or all of it falls at a point too distant from the essential character of the matrimonial partnership to qualify.

The husband’s evidence in relation to the underlying composition of the investment turnover during the last two or three years was that more than 100% of the entire TCI portfolio had been ‘churned’ (or reinvested) into new investments. I have already given several examples of these in my extraction of the husband’s evidence at paragraph 51. Thus, regardless of any lack of forensic clarity over precisely where lines can be drawn in relation to the different investor pools or share classes at any one point in time, the evidence demonstrates, as I find, that the present composition of the TCI portfolio is very substantially different in terms of its makeup from its composition as at 2012. Does that make any difference? On the one hand, it might be said that ‘investment churn’ is part and parcel of what an activist investor aims to achieve. Having listened carefully to all that the husband told me about his business model, it seems to me that very little of the TCI investment business could be labelled ‘static’ or ‘long term’. His particular talent (some might call it financial genius) lies in his ability to identify particular ideas or commercial opportunities, to take significant and often very high risk positions within a limited number of entities, to ‘work’ them (often from the ‘inside out’) and to ‘exit’ on behalf of his investors at the optimum moment for maximum return. It is precisely the opposite stratagem to conservative, long term investment. His investment eye, coupled with his appetite for massive risk and sheer intuitive ‘nous’ as to how to push through a change-for-profit agenda, has given rise to very significant levels of investment return and created, in its wake, the lengthy ‘wait list’ of investors all eager to jump upon his very lucrative coat tails. In answer to the question I posed above, the relevance of the high turnover of different investments in the Fund matters, in my view, because it shows the extent to which the Fund is constantly being ‘worked’. It represents active and ongoing contributions by the husband to the continuing generation of wealth at a time when the marital partnership has long since ceased to exist.

I accept that, in making these contributions, the husband is using as his commercial vehicle the TCI Fund which might be said to be a creature of the marriage. However, in this case, the Fund and the wealth invested within it is only one component part of the wealth generating vehicle. Its engine and driving force is the husband’s investment eye coupled with his ability to drive change and so achieve levels of profit which are demonstrably in excess of any conventional rates of investment return. Whilst it was not part of the wife’s case that the husband’s earning capacity should be treated as an asset in itself and brought into account for the purposes of the sharing principle (other than in respect of arguments as to his ability to recapitalise his position in fairly short order whatever the extent of her award in these proceedings), it seems to me that to take account of assets created in the Fund long after the point of separation risks an invasion of that territory. Following the decision of the Court of Appeal in Jones v Jones (supra), it is territory into which I cannot venture (see paras [21], [226]-[29] and [66]).

Having weighed all these arguments carefully in the light of the evidence and the submissions made, I have reached the clear conclusion that a fair outcome in this case has to reflect some departure from equality of division in order to reflect the contributions made by the husband in the two or more years since their separation. In other words, whilst I propose to look at the totality of the value of assets available to these parties as at the date of trial, I do not consider that it would be fair to treat the wealth creation after the breakdown of the marriage as simply part and parcel of the marital acquest in which the wife should be entitled to an equal share.

For these purposes, I propose to take March 2012 as both the date of separation and the date when the parties ceased to operate as a partnership qua spouses. Without doubt, their respective roles as parents to their four children continued uninterrupted as did the routine of their daily working lives within TCI and the Foundation. However, to the extent that the husband went on outside the marital partnership to claw back the very significant losses made after 2008 and thereafter, predominantly from 2013 onwards, to generate wealth on an exceptional scale, in my judgment fairness requires me to take account of that contribution as one which created wealth which falls outside of the marital acquest. I do not regard the parties’ subsequent attempts to explore the prospects of repairing the marriage as part of the continuum of its course. The separation in March 2012 was not a temporary separation but a permanent one. In the eight months between March and November 2012, I heard about nothing which might persuade me that the marriage was continuing to operate in its essential character as a partnership between spouses.

In my considered view after weighing all these matters carefully in the balance, I have reached the conclusion that the following specific classes of assets fall outside the ambit of the marital acquest and into that category of assets which, for the most part, represent the income or earnings element of post-separation accrual in this case:-

In terms of post-separation accrual, the more difficult question in this case is the extent to which the underlying value of the units representing the husband’s shares in the TCI Fund can be segregated into component elements representing marital acquest and post-separation accrual. The manner in which Mr Marks and Miss Clarke have approached their analysis in terms of the overall increase in the asset base since separation is a reflection of the increase in the totality of the funds available for distribution (ie including properties, pensions and liquid investment/cash held outside TCI). I do not criticise them at all for that approach. But it does not assist me in terms of an analysis of the husband’s interest in the Fund itself.

In strict numerical terms, it is possible to collect from the various versions of the Net Asset Register at [A/D:1-4] that there is very little fluctuation in the underlying value of the TCI Group entities (US$103.6 million as at 30 November 2012; US$101 million as at 30 April 2013; US$109 million as at 31 December 2013 and US$111.5 million as at 30 April 2014). Those figures represent the net asset value of the individual entities making up the Group without any goodwill, which I have found to be the proper basis for valuing these entities. They have nothing to do with the value of the TCI Master Fund itself which was being actively managed by the husband through the TCI Group entities.

As to the value of the husband’s holding of shares in the Fund itself, those same Net Asset Registers show the following:-

Thus, the increase from the earliest point in the year of separation for which I have figures to the date of hearing is in the order of US$512.7 million. It is both unrealistic and overly simplistic to take that figure as being the ‘bright line’ between what falls into the marital acquest on one side of the line and what falls into post-separation accrual on the other. The scale of the increase is self-evident. The more difficult issue is how far the ‘tail piece’ of the marriage should be reflected in the final reckoning.

I am reinforced in this view by the observations made by Moylan J in SK v WL (Ancillary Relief: Post-Separation Accrual) [2011] 1 FLR 1471. In that case the judge was dividing a matrimonial estate, including business assets, worth about £16.25 million. The wife sought an equal division of the assets, notwithstanding the significant post-separation accrual represented by the sale of a business some three and a half years into the separation at the end of a 19 year marriage. The husband contended that she should receive no more than about 28% of the total wealth, justifying this substantial departure primarily by reference to post-separation accrual but also on the basis that, whilst the company he had sold had been in existence prior to the breakdown of the marriage, it was wholly external to the marriage and its eventual sale price had been achieved due to his endeavours alone. In awarding the wife some 40% of the total assets (including some Wells sharing of deferred assets), Moylan J observed that there was no statutory or other requirement to separate out the two ‘classes’ of assets into matrimonial and non-matrimonial before proceeding to determine a financial award. As counsel for the husband in that case (Mr Nicholas Mostyn QC) submitted, the degree of specificity required in any case is a matter which lies in the discretion of the judge.

In this case, I have figures which I am able to extract from the various incarnations of the Net Asset Register which are not challenged by the wife in terms of their accuracy at each relevant point in the relevant time line, apart from the actual date of separation in March/April 2012. In SK v WL, the position was somewhat different in that the judge was being asked to conduct the segregation exercise in the context of business valuations produced by accountants instructed on either side which were based upon a series of artificial and hypothetical assumptions so as to create the sharp line in the figures as at the date of separation. That approach was criticised by Moylan J as of doubtful utility in guiding him to a fair award. His lordship reached his own conclusion of what that award should be by settling on a figure of just over 40%. That was, in his view, a departure which was a fair reflection of the degree of weight to be attached to the husband’s post-separation endeavours (to which he found the wife had given insufficient weight) and all the other s25 factors, including the length of the marriage and the fact that the husband had, since separation, been trading with the wife’s notional share of the family wealth.

In this case, and in relation to the argument that the husband was throughout ‘trading with the wife’s undivided share of the assets’, I have reached a clear conclusion. I accept that the wife was on risk in relation to further losses in the Fund. The fact that I am not drawing any valuation line other than as at the date of the hearing means that her entitlement to benefit from the subsequent uplift and share in the Fund’s recovery (reflected in the husband’s personal holding of units) will be reflected in the share she will receive from those funds which represent both marital acquest and post-separation accrual. Whilst I shall come on to the precise figures once I have considered the issue of overall computation and special contribution, it is not my intention that this wife should receive no share of the assets which fall outside the marital acquest in this case. She will receive a share and that share will form part and parcel of the overall award which I will make on the basis of fairness to both parties. There is no question of her entitlement to any element of post-separation accrual being triggered by a ‘needs’ argument but I take the view that, notwithstanding the exponential increase in the growth of the Fund post-separation, its genesis as a matrimonial asset is a factor of considerable significance. That factor must, in my view, find its reflection in the overall quantum of the financial award she will receive at the conclusion of these proceedings. It goes to the heart of what I consider to be fair in the overall context of the case.

In terms of the facts, however, I am not persuaded that, had the husband been minded to settle a large sum on her at the outset, this wife would necessarily have elected to leave the Fund. We are dealing in hypotheses to an extent because (a) he did not, and (b) I know not whether in these circumstances she would have been entitled to leave ‘her’ funds invested under his management. However, she knew far better than most the extraordinary success which the husband had achieved over the life of the Fund and there was no evidence put before me that she would have been likely to replicate his investment returns on her separated funds elsewhere and to the same extent. Indeed, the evidence which I do have suggests the contrary. The fact that she moved in circles where she had social connections with other wealthy investors and money-makers does not to my mind lead to such a conclusion. Further, for so long as she remained within the TCI Fund, she had the unique opportunity to earn returns without paying any management fees at all. That opportunity represented a very significant saving (running into tens of millions of dollars) which she would not have achieved as an external investor in another fund. Significantly, it also meant that for so long as she remained invested with her undivided ‘share’, the husband was effectively making significant returns for her for no consideration at all at a time when, on any view, their marital partnership with its mutual obligations had long since come to an end.

I am also sceptical as to whether she would have wished to risk the tax consequences and, by implication, an overall reduction in the assets ultimately available for division even if she had received a payment on account. Theoretically, she could have left the funds offshore and thereby avoided a tax charge but I have no doubt that, in the event of a significant payment on account, the husband’s financial support of the wife in her home in London would have been very significantly reduced from its current level, and properly so. It is difficult to see how, in these circumstances, she would have been able to avoid bringing funds onshore.

Tax

Perhaps not surprisingly given the complexities of this case, there are several issues relating to tax which require a resolution. On these, I had the benefit of hearing submissions from specialist tax counsel. Mr Stephen Brandon QC and Mr Oliver Marre were instructed on behalf of the wife and Mrs Emma Chamberlain on behalf of the husband. Helpfully, discussions between tax counsel were ongoing as the hearing progressed in an attempt to narrow the issues. I shall come to where matters stood when I heard from them on the 7^th and 8^th day of the final hearing.

Before dealing with the substance of these issues, it is important to bear in mind that they fall into two separate and distinct categories. The first concerns what are essentially hypothetical tax charges in respect of which the husband is seeking specific indemnities from the wife. The second relates to (as yet) unascertained and unquantified risks for which he seeks a general indemnity. The wife has agreed to give a specific indemnity for those tax charges which are perceived to present an actual risk, notwithstanding that her evaluation of that risk (and those who advise her) is small. The sums involved are significant and she accepts that, if she is to receive a percentage of the available assets, it is only fair that she should bear an equivalent percentage of any actual tax which might have to be borne by the husband. She offers no such indemnity in respect of the majority of the potential tax charges which the husband has identified because (i) these are not perceived as solid risks, or, as Mr Brandon put it, they vary from ‘the highly unlikely to the fanciful’; and (ii) they relate to future events within the husband’s control and should not in any event be taken into account in the assessment of what is now available.

In carrying out the evaluation process, I bear in mind that these purported charges all relate to years during which the husband has filed full tax returns. He has, quite properly, paid all taxes and national insurance due on his partnership profits. His overseas wealth (ie. his interest in the TCI Master Fund) is retained and invested abroad. His accountants, PriceWaterhouseCoopers (PWC), are widely acknowledged to be amongst world leaders in their field.

It is accepted by both parties and their respective teams of advisers that I am not being asked to deal with tax risks arising as a result of the extraction of funds to meet any award I make at the conclusion of this case.

In relation to these contingent or potential liabilities and to the extent that the wife has agreed to provide the husband with an indemnity, the parties have agreed a mechanism which involves setting up an escrow account into which a percentage of the wife’s award will be paid. She accepts that, if and insofar as there is some tax to be paid, she should share that risk with the husband to the extent of her entitlement. Thus, on the basis that she succeeds in securing 50% of the available assets, she bears 50% of the tax. However, matters are not quite that simple because, as it transpired, there is no agreement on the ambit of the risk in which she will be sharing.

The general point is also made on behalf of the husband that the funds which will be left in his hands are ‘clogged’ to the extent that he will have virtually no ‘clean’ capital because any remittance by him (for which no tax allowance has been made) will trigger a further liability to tax. In contrast, the funds which the wife will be receiving post- Decree absolute will be entirely clean. This, says Mr Marks, is a further consideration to be weighed in the scale when assessing the fairness of any percentage division.

I shall come on to the quantum of the potential liabilities shortly. The issue arises in this way. The figures which appear on the mainframe Net Asset Register and which make up the cumulative total of US$1.436 billion are (on the husband’s case) the assets available to the parties without allowance for further tax liability.

In terms of mechanics, and in order to give both parties the security of knowing that funds will be made available in the event of a future tax demand, it is agreed that a proportion of the wife’s award will be held in escrow up to a limit of 40%. The wife’s agreement to provide the husband with an indemnity backed by the escrow to secure her share of the potential tax is limited to the period from 6 April 2012 to 5 April 2014. In respect of the general indemnity which the husband seeks over and above those specific risks, the wife’s position is that the evidence put before the court does not justify any further security from her; in other words, those risks are negligible if, indeed, they exist at all. She will not give any indemnity which involves her exposure to a personal liability in excess of the monies held in the escrow account. I am therefore going to need to form a view in relation to two issues relating to tax points:-

It is accepted that all future liabilities arising out of assets which may be acquired by the husband from this point onwards or arising from decisions he may take in relation to his personal or financial circumstances will not fall within the ambit of either the escrow or the indemnity. Nevertheless, it is his position that she should share in any risk, however remote, in respect of the existing assets.

There are two other aspects in relation to the tax position which are reflected on the mainframe Net Asset Register. The first is the prospective charge to tax which will arise in the event that any of the pension proceeds are remitted onshore. That liability has been assessed in the sum of c. £29 million. The second is the tax which will be incurred in the event that the husband collapses the TCI Group structure and realises the fund investments held by the various entities that he controls, including the UK companies.

In relation to these two specific matters, the wife’s position is this. In relation to the pension, she contends that no allowance for tax should be made. The pension scheme which holds the bulk of the value, some US$93 million, is not an approved scheme and therefore falls to be taxed under the employer financed retirement benefits rules (EFRBS). Since the husband is employed in the UK, any income flowing from the pension is prima facie taxable under ITEPA 2003 (Footnote: ¹¹), s 394. However, the EFRBS code provides relief for the husband provided that he maintains his foreign domicile. This is because the fund is held by Jersey trustees and is thus classed as a ‘foreign pension’. In these circumstances, and as a non-UK domiciled taxpayer, the husband will be taxed on a remittance basis : s 573 ITEPA 2003. Thus, if the income is paid to him over a ten year period after the age of 50 whilst he is resident in the United Kingdom, the receipt will be tax free unless he chooses to remit the funds onshore.

The wife also points to the fact that he has throughout been a highly sophisticated individual in terms of tax planning and is unlikely to take steps which create a tax penalty where such can be avoided perfectly legitimately. Further, she says that he is sufficiently wealthy not to need to bring funds onshore and thus it would be wrong to deduct tax which will never be paid by him. For the purposes of this judgment, and having recorded the wife’s case, I wish to make it clear that the husband’s unchallenged evidence to this court was that he has never undertaken, or participated in, any tax avoidance schemes. In terms of his personal tax arrangements, he has done no more than retain his foreign domicile which has enabled him, quite legitimately, to pay tax on a remittance basis whilst retaining much of his wealth offshore.

Mr Brandon raises one further point of qualification. If the husband were to defer taking his pension until he is resident in Jamaica, he might then be subject to tax deduction at source, as a non-UK resident, although in this instance there may well be provision under a Jamaican tax treaty for double taxation relief. His alternative may be to take up residence in another country with such a tax treaty. If, however, he takes his pension from the scheme before he leaves the UK, he can leave the money abroad without incurring any tax penalty. On this basis, argue Mr Brandon and Mr Pointer, there is no valid reason for deducting any tax in respect of his rights under the pension scheme.

In relation to the potential tax flowing from any future winding up of the TCI Group entities, Mr Pointer in closing submitted that there was agreement between tax counsel that the tax could be properly avoided if the husband deferred any winding up until he is no longer resident in the United Kingdom. That is not quite the position. If the asset is eventually realised, it appears to be accepted that tax will be payable. The issue for the wife is that this is a future contingent tax risk which the husband can take appropriate steps to avoid. She should not be responsible for those future tax risks when, perhaps many years from now, he will be in a position to make decisions regarding tax mitigation.

In terms of my treatment of these tax liabilities, s 25(2) of the 1973 Act requires me to have regard both to the property and financial resources and to the financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future. Mr Pointer invites me to assess the likelihood of such tax liabilities arising on the balance of probabilities and in the light of all the evidence. In this context, he relies upon the well-known decision of the House of Lords in Re B (Care Proceedings : Standard of Proof) [2008] UKHL 35, [2008] 2 FLR 141. That case concerned the standard of proof in finding the facts necessary to establish the threshold in care proceedings under section 31(2) of the Children Act 1989. In the context of financial remedy proceedings, he also points me to the decision of Bodey J in K v L (Ancillary Relief: Inherited Wealth) [2010]EWHC 1234 (Fam), [2010] 2 FLR 1467. In that case, the judge had to determine how to treat latent capital gains tax (CGT) arising on the disposal of shares held by the wife offshore. Those shares were worth slightly less than £60 million as at the date of trial. It was accepted by the wife in that case that she could readily meet her outgoings out of dividends (which were regularly remitted to this jurisdiction and taxed here) without touching the capital. Her evidence was that she intended to leave the shares in specie to her children. Mr Pointer appeared for the claimant husband in that case and argued that, in the light of this evidence from the wife, no deduction should be made for tax. The wife’s counsel argued that CGT should be deducted as is entirely conventional in these cases. The wife should be entitled to access her resources as and in such manner as she might choose. In the event of a future remittance, CGT would inevitably become payable and thus fairness dictated a comparison of like with like after deduction of CGT.

Bodey J considered the passage of Lord Nicholls of Birkenhead’s judgment in White v White where, at [2001] 1 AC 596, page 612, he said:

The solution settled upon by the judge in K v L was this. Given the wife’s clear evidence about her wishes and intentions regarding the shares, coupled with the modest way in which she had lived her entire life, he found that the likelihood of her ever having to pay out significant amounts of CGT was extremely modest. Nevertheless, he accepted that in the fullness of time she might wish to bring some of her wealth onshore, thus attracting CGT. Having held that there was no way of approaching the issue in an informed way, his lordship took a broad brush approach and deducted latent CGT on what he accepted was an arbitrary £10 million worth of her shareholding. He justified that decision in the following way at page 1482, para 60 :

The Court of Appeal left that decision undisturbed when the case subsequently made its journey to that court on appeal (Footnote: ¹²).

In K v L, it was accepted that, in the main, this wealth had been segregated entirely from the family’s general domestic economy. It was also an agreed fact that the family had spent very little during the course of their marriage given the extent of the resources which were available to the wife. The husband was awarded a lump sum of £5.3 million. Whilst it was not a special contribution case, the wife had brought to the marriage her pre-existing and inherited wealth. The judge found that both parties had given of their best in the non-financial sense to the welfare of the family. At para 55, Bodey J said this:

That passage is important because it reflected the judge’s approach to the case. He was not dealing with the computation of top and bottom line figures or the selection of some particular percentage around or discounted from the yardstick of equality. In that event, his decision as to the deduction or not of the CGT in the context of the available assets in that case might well have been expressed in more specific terms. As it was, he settled on his figure of £5.3 million as one which fairly met the husband’s reasonable requirements fully and generously assessed : see para 56 on page 1481. The exercise on which I am embarking in this case is very different. All of the wealth has been built up over the course of a long marriage. Each of the parties relies upon significant contributions to the accretion of that wealth and, in the husband’s case, on a special and unmatched contribution. In these circumstances, I take the view that, if and insofar as the wife receives anything less than a full 50% share (and I shall have to calculate what that 50% share might otherwise be), she is entitled to know why there has been a departure from a position of equality. That said, I respectfully agree entirely with Bodey J that each case simply has to be looked at on its own particular facts and fairness achieved by the exercise of judicial discretion based on those facts, informed by the s 25 exercise with all the guidance which the higher courts have provided.

There are, thus, two categories which I shall need to consider in relation to the tax exposure in this case. First, there is tax that is said to be payable or latent in a particular asset. Secondly, there are speculative liabilities which have not yet arisen and, on the wife’s case, may never emerge. In respect of the former, I shall need to consider the probability of the liability arising from the foot of the evidence before me. It is Mr Pointer’s case on behalf of the wife that it is only the pension which falls into this category and that any tax which might be payable is entirely avoidable because the husband has complete control over timing and thus the liability. All other taxes, he submits, fall into the second category of speculative taxes, including the winding up of the TCI Group.

In relation to these, the wife accepts and acknowledges that, where the exposure is significant, she should share the liability proportionately even if the risk is small. This position informs her willingness to give the indemnity backed by the escrow for certain risks arising. In respect of the speculative liabilities, she contends through Mr Pointer that whether or not there should be an indemnity is dependent to an extent upon the inter-relationship of the level of her award, the duration of the indemnity, the extent of the risk and the level of exposure should the risk crystallise into a hard liability. He and Mr Kingscote provided me with an example in their closing written submissions (para 81) :

In terms of my jurisdiction to require the wife to provide the husband with an indemnity, and in the event of her unwillingness to do so, we are in the territory of contingent lump sums. The statute will not permit me to achieve that outcome by any other means. In terms of the escrow, Mr Pointer contends that my jurisdiction is limited to requiring the wife by means of an injunction to retain a proportion of the award which she receives so that it is preserved intact until the determination of any future liability which the husband may incur.

By the time we came to closing submissions, the wife’s position broadly was that she agreed to provide an indemnity backed by an escrow fund to secure her aliquot share of the tax payable in the event of certain tax risks materialising for the tax periods from 6 April 2012 to 5 April 2015. In the event that there were to be an enquiry during that period, then the time frame would be extended until the conclusion of any such enquiry. This concession was given on the basis that the normal enquiry date for all periods prior to 6 April 2012 has now expired.

The request for a general indemnity is not agreed and not on offer. On behalf of the wife it is submitted that the degree of risk identified by her tax counsel, Mr Brandon QC, is negligible and the level of exposure small. The duration of the indemnity sought by the husband (to 2021) is too long and prolongs unreasonably the financial nexus between this couple to a date some 9 years after the effective demise of the marriage. Notwithstanding that submission, Mr Pointer and Mr Kingscote accept that, if the wife were to be awarded a full 50% share of the available assets (which is her case), they might be in difficulty in resisting a general indemnity, notwithstanding the statutory imperative in s 25A(1) of the 1973 Act.

In relation to the indemnity which she offers, her case is that it should be ‘capped’ at 40% of her award. This would be the maximum amount to be held back within the escrow. Over and above that sum, she would have no liability to contribute to any future tax liability out of her personal assets. That proposed ‘cap’ only comes into play if the tax liability turns out to be at the upper end of the range in relation to the risks which have been identified. Thus, even on a ‘doomsday’ scenario in relation to tax, she would be secure in the knowledge of receiving 60% of whatever award I make.

In relation to the indemnity cap, tax counsel have provided me with a formula for computing at what level of tax the ‘cap’ comes into play. I quote from Mrs Chamberlain’s written submissions at Appendix 2:-

The husband’s general position on the tax issues is this. Mrs Chamberlain referred in her submissions to ‘the complexity of the taxation of offshore funds in particular and … the structure through which [the husband] has accumulated his wealth and the labyrinthine remittance code which was introduced in 2008’. All these factors, she submits, have resulted in uncertainty. The quantum of the hypothetical liabilities, on his case, could extend back to the tax year 2008/2009. For this reason, he seeks an indemnity from the wife which will cover all and any taxes which may turn out to be due for earlier years (ie. an unlimited and unquantified general tax indemnity).

In terms of the specific reach of the indemnity sought, when the case was opened to me, he was seeking from the wife protection which extends beyond the amount of the funds which will be held in escrow. In other words, she would be required to make up from her personal wealth any shortfall between the maximum assessed liability of any and all tax risks and the value of the escrow account. Her exposure, on his case, should not be limited to tax arising between 6 April 2012 and 5 April 2015 but should cover all tax years from 6 April 2008. He was seeking to extend the protection of the escrow account until April 2021 which is a year after the last date by which any relevant enquiry must have been commenced. It was, indeed, a blanket densely woven.

By the time of closing submissions, Mr Marks made it clear that the husband’s position had moved in this respect. Given that the purpose of the escrow account was both to provide security for the husband and to save the wife having to ‘gross up’ any funds which she might otherwise be required to contribute to the discharge of any future liability, the husband would agree to releasing funds in that account by January 2017 rather than April 2021. The down side from the wife’s point of view is that thereafter she would have to accept the risk of ‘grossing up’ if she required the husband to release the funds from the escrow account in January 2017 or on completion of the enquiry if later. In other words, he was still seeking a general indemnity in relation to all and any tax risks and, insofar as the wife was required to use personal funds to meet her share of the husband’s tax bill and she had not chosen to allow the escrow fund to be retained until April 2021, she should bear any additional tax liability arising on the husband as a result of grossing up that might thereby arise. If, however, the original escrow had been fully deployed in paying tax then any grossing up issue arising out of the wife paying an additional share of the husband’s tax should be borne pro rata to the award.

My findings in relation to the known tax risks

In terms of the specific tax issue which arises in relation to the US$93.5 million held in the offshore pension funds, the husband proposes what he calls an ‘obvious’ solution which is to share the fund by means of a pension sharing order. That suggestion was raised quite late in the day and I was taken by Mrs Chamberlain to a letter written by the Jersey Trustees of the main pension fund (Appendix 4) [5/47] tax bundle. That letter did not set out in express terms the trustees’ agreement to implement an English pension sharing order; it merely stated that the trustees would seek independent legal advice. It continued,

On behalf of the wife, Mr Pointer neither embraced nor rejected the principle of pension sharing. The wife had simply not had the opportunity to take specific advice which, as a US citizen taxable on her worldwide income, she required.

Of the three funds held by the husband, almost the entire value is held within a Jersey Pension Plan (some $93,053,098 of the $93,420,995 which is available). Mrs Chamberlain’s estimate of the tax payable is between $42 million and $49 million.

From the age of 50, the husband will be entitled to draw an annual pension which the trustees have said they will pay over a minimum period of 10 years. As set out above, provided that he continues to pay tax on a remittance basis in each year in which the pension is paid, he will pay no tax provided that he does not remit any pension income to the UK. In other words, for so long as he is a UK resident and a remittance basis user, he will be able to keep those funds offshore and pay no tax on them.

In essence, the point being pursued by Mrs Chamberlain on behalf of the husband is that if he retires and takes the pension and he is still in the UK, he will find it difficult to justify using the remittance basis in which case his pension will be taxed in the normal way.

I am conscious that the wife has not yet had the opportunity to take advice in relation to the consequences of a pension sharing order but it seems to me that this is the fairest way to deal with the division of this asset. I am encouraged by the stance which the Jersey pension trustees have taken and what I propose to do in relation to the pension is to invite the trustees to carve out of the Jersey Plan a pension credit in the wife’s favour equal in value to the proportion of the award which I propose to make in relation to her overall share of the assets at the end of this judgment. This will obviate any need to make a specific (but notional) reduction in respect of tax on the pension.

I propose to adopt the route which was taken by Moylan J in P v P (Post-Separation Accruals and Earning Capacity) [2007] EWHC 2877 (Fam), [2008] 2 FLR 1135. In that case, the judge was dealing with trusts established in Jersey and elsewhere. The Jersey trustees were not a party to the proceedings and had indicated that they would be seeking the approval of the Royal Court of Jersey for their decision not to participate in the English matrimonial proceedings other than for the purposes of providing information. Moylan J had raised with counsel the point that any order which he made in respect of the trusts or their assets would, at least in the first instance, have to be implemented through the home jurisdiction of the relevant trust. Quoting from the Royal Court’s (unreported) decision of Representation of Mourant and Co Trustees Limited In the matter of the B Trust [2006] JRC 185 (unreported) 8 December 2006) (per Sir Philip Bailhache, the Bailiff of Jersey), he said :

Both parties agree that this is an approach I can take in relation to the pension. It will then be for each of the husband and the wife to make his or her own decisions as to how they will deal with their own individual pension pots or sub-funds, assuming that the trustees will implement the division which I propose. The issue of tax therefore falls away in terms of a pre-division deduction of some £29 million odd. I take the view that this is the fair way to deal with the pension because (i) it reflects a fair division of the non-liquid resources in circumstances where the balance of the wife’s award will be made up more or less entirely of ‘clean’ cash (save for the Connecticut property); and (ii) it acknowledges the principle of personal financial autonomy which each of the parties will have going forward to choose the manner in which they live their lives and regulate their finances. Whilst Mr Marks would no doubt add to those reasons a submission in relation to the ‘clog’ on the husband’s remaining assets, and whilst acknowledging that as a feature to be borne in mind, it must be counter-balanced by the fact that the TCI entities will continue to drive the income engine in this case. I accept that a significant part of the husband’s wealth is offshore and he has only limited ‘clean’ capital in this jurisdiction but he has the ability, which the wife does not, to re-establish a capital base in relatively short order, a factor that I shall be returning to later in this judgment.

If and insofar as there is a problem with achieving a pension sharing order in the terms I propose, and if and insofar as the parties agree that a lump sum in lieu has to be paid by the husband to the wife as an accretion to the sum which will be payable to her as her share of the ‘pot’, I can foresee arguments as to whether that sum should be paid net or gross of tax. My provisional view is that the husband is likely to arrange his affairs in such a way as to minimise, if not extinguish altogether, any tax consequences of drawing his pension. But there remains the argument as to whether or not there should be some discount in the cash sum paid in lieu to the wife to take account of the fact that £1 (or US$1) of pension value is not the same as £1 (or US$1) of cash. In the hope and expectation that pension sharing will not prove to be an issue, I am not going to say any more about a fall-back position. If I have to make a further adjudication on this discrete point, so be it. I shall do so as and when each of the parties has had an opportunity to make further submissions. As I say, I hope and expect that we shall not reach that point.

I have already recorded the wife’s position in relation to this tax. She contends that this represents a future liability and one in which she should not be expected to share.

On behalf of the husband, Mrs Chamberlain has set out in her written submissions the basis on which such tax arises, or may in future arise. The tax has been assessed at just under US$33.7 million (or £19.9 million).

What the tax actually represents is the tax which is likely to be payable on the ultimate extraction of value from TCI Fund Management (UK) Ltd (referenced ‘K’ on the corporate organogram). To put the position as simply as I can, the value in the UK company which is a partner in and board member of the Investment Manager (TCI FM (UK) LLP) is represented by its Fund holding in a Jersey partnership. Since it is a UK company, the likely ‘exit’ route on a liquidation or winding up would be extraction of value by way of payment of a dividend. Because this is UK sourced income, UK tax would be payable. Because the dividend rate is 30.56% and the company is based within the UK, the remittance basis would have no application for the husband in terms of his tax position in this event. Further, the husband has has accumulated no clean capital which he can bring onshore and spend in the UK without incurring tax because the vast bulk of his overseas wealth has been generated whilst resident in the UK. To the extent that he remits funds to spend in this jurisdiction (including any funds he may need to bring onshore to discharge tax liabilities), those remittances are taxable.

On behalf of the wife, Mr Brandon’s primary position is that such tax as may arise is a future event, possibly many years, if not decades, off. It does not represent a present tax liability and thus no deduction should be made in terms of net asset values. To say that the TCI Group is presently worth US$111.5 million less US$33 odd million is, says Mr Brandon, a misconceived valuation. He also argues that, as and when a decision may be taken at some point down the line to wind up the TCI Group (if, indeed, this decision was ever to be taken by the husband), provided he was non-UK resident, he could avoid tax altogether. Mrs Chamberlain agrees with that proposition. However, whilst this is probably more the territory of Mr Marks, she says that if one is looking at net values now in terms of division, the tax which would be payable if the Group was wound up now is something which I should take into account. She makes the point that the court does not normally follow the route of saying, in effect, ‘you can save tax on the disposal of a company by emigrating and therefore the tax that is inherent in the UK structure should not be taken into account’. That is as maybe, but here it seems to me that we are back in the territory identified in White and considered again by Bodey J in K v L. I have to look at the underlying reality of the situation. I have Mr Brandon’s point about the conceptual difference between a present commercial valuation of a company, or a group of companies, and a future liability which may occur at some point down the line if the asset remains in the husband’s hands until he decides to collapse the structure or otherwise withdraw value. But, here, I suspect that the approach conventionally taken by the Family Court may be slightly different from a ‘black letter’ approach to valuation in commercial cases. In striving to achieve a fair result as between these parties, I have to anticipate insofar as I can the underlying realities of the situation both as it is now and as it is likely to be. That is why s 25(2)(a) and (b) of the 1973 statute refers to both ‘present’ and ‘future’ resources and obligations. The present resources will usually be capable of more or less precise forensic analysis. Future obligations and needs are confined to those which are foreseeable. That inevitably requires a consideration of what is likely to happen at some point in the future. That there will probably come a time when the husband will wish to extract value from the TCI Group seems to me highly likely. The issue which then arises is whether or not he can structure his arrangements in such a way as to mitigate any potential tax consequences.

In terms of timing, I bear in mind that, in the event of a shortfall in terms of any general tax indemnity from the wife, and if the ‘doomsday scenario’ in relation to tax were to surface, the husband will in all probability need to extract cash from the TCI Group in order to meet a substantial tax bill. However, this is part and parcel of my assessment of the risk of the hypothetical taxes arising as crystallised liabilities.

In part because of the view that I take about the tax risks (see below), and because I think it more likely than not that the husband will be unlikely to collapse the TCI structure until he is in a position to mitigate any tax consequences, I have decided that the fair way to deal with this issue is to make an allowance on the Net Asset Register for approximately 50% of the tax as a deduction against net asset value. I propose to substitute for the figure of £19,966,088 a figure of £10 million. I accept that, on one view, it may seem arbitrary simply to make an allowance for one half of a potential liability but it reflects my view of the likely risk of (a) the tax being incurred, and (b) the allowance I should properly make for the risk (albeit unlikely) that other tax risks may crystallise which are not covered by the indemnity/escrow offered by the wife in respect of which the husband may need to liquidate funds within the TCI Group. In this event, he will not have available to him the tax free route which is presently open in terms of liquidating funds to meet the matrimonial award in these proceedings.

Consideration of the individual tax risks (known and hypothetical) in respect of which the husband seeks a general indemnity

I turn, now, to the position in relation to the hypothetical tax risks and to the submissions made to me by tax counsel in relation to the substance of the tax position. I should say at this point that I am grateful to them for the enormous thought and industry which has so obviously gone into the lengthy written submissions which they produced. Those submissions were accompanied on each side by a substantial bundle of tax authorities to which reference was made at various points. I cannot hope in this already lengthy judgment to do full justice to the breadth and range of their submissions but I have carefully considered all that I heard and all that I read in reaching my conclusions about these matters.

At Appendix 1 of Mrs Chamberlain’s written submissions, she produced a table which sets out certain itemised tax risks. That template was helpfully taken up by Mr Brandon who elaborated the document to include extra columns to show comments and the hierarchy of risk in respect of each category from the wife’s position. He made it clear to me, on behalf of the wife, that the quantum of the potential liabilities relate to figures produced by the husband’s advisers. He does not take issue with the underlying methodology of their calculation but the wife’s team has not had access to all the material which would enable them to perform their own calculations by way of specific cross-check.

Together, the written tax skeletons run to 52 pages. As I made clear during the course of argument, it is not my intention to make specific findings in relation to each category of risk over and above a general assessment of the likelihood of future exposure. Far less can I seek to quantify the potential tax exposure were the risks to crystallise into a liability. Happily, neither side asks me to do that and I take the view that it would be an impossible exercise to perform in any event (Footnote: ¹³). What I must do, however, is form a view as to the overall picture so as to inform my conclusions in relation to the ultimate award, in all its component elements, which I make in favour of the wife, and my decisions in relation to how to achieve an appropriate escrow/indemnity position.

Mrs Chamberlain points out that if, after the normal enquiry window of one year has closed, HMRC takes the view that the return for a relevant year is insufficient, it can make a ‘discovery assessment’ at any time up to four years after the end of the tax year in question. In this event, there does not need to have been any careless or deliberate behaviour on the taxpayer’s part. That time limit is extended to six years if the taxpayer or his agent has been careless.

Thus far, there have been no assessments raised by HMRC in respect of the husband’s returns for previous years. Mrs Chamberlain told me during the course of the hearing that in fact negotiations have now been opened with the Revenue as a result of recent contact initiated by the husband’s advisers as a result of the wife’s remittance of some $200,000 of funds paid to her by the husband on account of her legal costs. This remittance will necessitate the filing of an amendment to his last year’s tax return. As a result, his file has been transferred to the high net worth unit.

Various tax risks were enumerated in the course of proceedings including the point that tax can be charged not only on remittances made by non-domiciled foreign residents (i.e. the husband himself) but also on remittances made by ‘relevant persons’. Both cash payments and the remittance of assets in specie are caught. For these purposes, a ‘relevant person’ in relation to the husband would include the wife (until Decree absolute), his children, any trust of which he is the beneficiary or of which the wife and their children are beneficiaries, and any close company in which any of the above participates. Both counsel agreed that the likelihood of any tax actually being due was low or in the wife’s counsel’s contention “negligible” but Mrs Chamberlain reiterated the complexity of the legislation for foreign domiciliaries.

Conclusions in relation to computation

In summary, and in the light of my conclusions set out above, the resources available to these parties can be broken down as follows:-

The combined total of just under US$1.5 billion (or £870 million) is necessarily crude to some extent since it includes a number of different types of assets, including the pension funds in respect of which I have made no allowance in respect of tax for reasons I have already explained. I have taken the exchange rate as at 30 April 2014 which was the basis for the calculations on the working mainframe schedule. Whilst some of the sterling figures which appeared on Mr Pointer’s and Mr Kingscote’s final corrected schedule (in abbreviated format) appear to have been calculated by reference to the prevailing fx rates at the end of the trial, it seems to me that to undertake a wholesale recalculation would only add confusion at this stage. For the most part we were working in US dollars throughout the final hearing and, importantly, for the purposes of the closing submissions which I heard in relation to the quantum of the wife’s final award. In order to compare values as at 30 April 2014 and within a few days of the date when this judgment will be handed down, I have referenced the sterling equivalent (just under £919 million) at the foot of the adjusted schedule. It is axiomatic that exchange rates will fluctuate either up or down between now and the point at which the wife is able to extract the full value of her award. With figures as great as these, it is equally obvious that even small fluctuations in the underlying rates have the potential to create significant changes to the base line figures. That said, it seems to me that I need to keep in mind the earlier figures since these were the basis of the open offers which the parties made and these were the figures from the foot of which the parties made their closing submissions. Whilst the approach adopted by Mr Pointer and Mr Kingscote has the clear advantage of being simple in its presentation (ie. 50% of whatever I find the total assets to be), the route to their conclusion as to outcome adopted by Mr Marks and Miss Clarke followed a much more detailed and formulaic approach. I shall deal with the final figures in terms of the global US$ award when I set out my conclusions in relation to the wife’s entitlement. For present purposes, I am working with a final figure of just under US$1.5 billion. It will be apparent from this figure that I have declined to include within the total a ‘hard’ figure representing an allowance for the uncrystallised contingent incentive fees. For the reasons set out in paragraphs 139 and 188(iii) of my judgment, I have concluded that it would be wrong to introduce those future and uncertain sums into a baseline total when they can more appropriately be factored into my overall approach to fairness and percentage division.

There is one final aspect to which I now need to turn before setting out my conclusions and that is the issue of special contribution.

Special contribution

Section 25(2)(f) of the 1973 Act requires me to take into account ‘the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family’.

I have described earlier in this judgment the history of this marriage and the roles which each of the parties took on as it unfolded over the years. There is no doubt in my mind that each of these parties has made a full contribution in terms of their respective roles. The husband has generated what, on any view, must be regarded as an extraordinary amount of wealth during his working life. In all, a total of some US$6 billion has been generated, much of which has by common consent been donated to the Foundation for deployment in philanthropic enterprise. Notwithstanding, the scale of the personal wealth available to this family is still considerable and significantly in excess of that available in any reported case to date. Some eight years have elapsed since Coleridge J recognised the principle of special contribution (conceded by the wife to the extent of a 5% departure from equality) as justifying an award of 36.5% to Mrs Charman. Ten months later, his award was upheld in the Court of Appeal. The assets in that case were just over £130 million, including some £68 million held in an offshore discretionary trust which the husband had created.

Because it is central to my determination in this case, I set out below the relevant passages from the judgment delivered in the Court of Appeal by the then President, Sir Mark Potter. At [2007] 1 FLR 1280, the President said this:-

Later, at para [87] on page 1284, the President said this:

During the course of his closing submissions, Mr Marks took up that last passage and suggested that what Coleridge J had actually done in reaching his conclusions in Charman was to start from a mid-point in the Court of Appeal’s subsequent departure bracket (39%) and thereafter apply a further discount to reflect the fact that some of the assets which Mr Charman was retaining were laden with greater risk than those being diverted to Mrs Charman. Whether or not that was what he did (the discount of 3% was no more than Mr Singleton’s surmise), I accept that there appears to have been an element of further discount to reflect an element of illiquidity. The final resting point of the judge’s award reflected his overall view about fairness to both parties and no doubt reflected a number of different factors which he had weighed to reach his conclusion.

There are two stages to consider in respect of a case involving special contribution. First, has the party claiming to have made a special contribution unmatched by the other made out his or her case on the facts and within the law? Secondly, if the answer to that question is yes, what is the range of extent of the departure from a position of equality?

Dealing with the first question, there is no doubt that the accretion of significant wealth can constitute a special contribution for these purposes: see para [80] per Sir Mark Potter P in Charman (No 4) above. If, with the blessing of the Court of Appeal, Mr Charman fell into the category of ‘special contributors’ because the amount of wealth which he had generated was ‘so extraordinary as to make it easy for the party who generated it to claim an exceptional or individual quality which deserves special treatment’, can there be any argument some seven years later in relation to this husband when the sums involved can be expressed not in millions of pounds but in sums in excess of a billion dollars? The fact that, with the wife’s agreement (and she would say at her suggestion), most of the US$6 billion earned has been diverted for charitable purposes does not, in my view, detract from the relevance of the enormity of the total fortune. Even the retained wealth of just under US$1.5 billion is more than six times greater than Mr Charman’s own fortune.

In a recent first instance decision (which was not cited in argument), Moor J had to consider the issue of special contribution. In SK v TK [2013] EWHC 834 (Fam), the court was dealing with a long marriage which had produced two children. The wife was 52 and the husband 49. The husband had recently sold a company and was claiming to be entitled to an enhanced share of the assets as a result of his own special contribution. Moor J said this :

I shall need to say something more about whether or not the husband in this case can be classed as a financial ‘genius’ but it is difficult to imagine how personal wealth in excess of $1.5 billion (with a further $4.6 billion generated from the same source ploughed into the Foundation) would not be seen as ‘truly vast wealth’, even by today’s standards.

In their written closing submissions, Mr Pointer and Mr Kingscote said this of the husband’s contribution :

In this context, it is the wife’s case that to suggest that the husband’s role in the generation of wealth should attract the label ‘special’ is a step too far.

That submission goes to an examination of the nature or quality of the contribution which it is said the husband in this case has made. Before dealing with that question, I need to turn to Mr Pointer’s first and fundamental submission which is that the entire concept of special contribution is wrong and discriminatory. He submits that its application will inevitably lead to the unfair treatment of wives because, as the authorities demonstrate, it will usually be the husbands who have procured the generation of substantial wealth. If and insofar as the court continues to permit derogation from the principle of equality by reference to disparate contributions, the policy objectives laid down by the House of Lords in White will not be carried into effect.

For my part, if and insofar as Mr Pointer seeks to say that the policy objectives of non-discrimination between husbands and wives in their respective roles as explained in White requireequality of treatment notwithstanding the presence in the case of significant wealth generated by a husband, I would respectfully disagree. As their lordships made very clear, fairness requires the court to take into account all the circumstances of the case and the circumstances in which the statutory powers have to be exercised will vary very widely ‘from the poverty stricken to the multi-millionaire’ : per Lord Nicholls of Birkenhead at page 989C. ‘If in their different spheres, each contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the home-maker and the child-carer’: page 989F.

That said, the House of Lords was quite clear that there was no presumption of equal division. Having stated the principle that there should be no bias in favour of the money-earner and against the home-maker and child-carer, Lord Nicholls went on to say this at pages 989G to 990E:

That the principle of a departure from equality on the basis of a special contribution has survived the decision in White is clear from the later decisions in Cowan, Lambert, Miller and McFarlane and Charman (No 4). In Cowan, the Court of Appeal reiterated the important point of principle that the rationale of the judgments in White was not equality but fairness. Whilst the reasons justifying a departure from equality would inevitably prove too many and too varied to permit of listing or classification, they did include acquisition of wealth through the exercise of some special individual skill and effort. At para [67] on page 216, Thorpe LJ said this :

In Lambert, some 18 months later, Thorpe LJ considered the issue of ‘special contributions’ at some length. It is clear that the intervening passage of time and the very full and reasoned argument which preceded the judgments in Lambert had led his lordship to a more conservative approach to the circumstances in which special contribution would provide a legitimate reason to enhance the share of the contributor. It was his lordship’s view, referred in the President’s judgment in Charman (No 4), that care had to be exercised in allowing in the concept of special contribution on the basis of the scale of the fortune generated alone since, in this event, discrimination was almost bound to follow. Marking time on the concept, his lordship nevertheless gave a ‘cautious acknowledgment that special contribution remains a legitimate possibility but only in exceptional circumstances’. Whilst he declined to even attempt to speculate upon what those circumstances might be, he suggested that it might more readily be found in the ‘generating force behind the fortune rather than in the product itself’ : para [46].

In Miller and McFarlane, I accept that the principle of special contribution did not arise and thus the remarks made by the House of Lords in that context were plainly obiter. It is also true that in Charman, special contribution was conceded as a justification for a departure from equality, albeit that Mrs Charman’s concession was limited.

However, Mr Pointer and Mr Kingscote accept that the decisions in Cowan and Lambert are both squarely directed to the concept of special contribution and are binding on me in holding that special contribution is indeed available in an appropriate case. Thus, if there is to be any further development in the law on the basis of inherent discrimination simpliciter, absent an amendment to the statute itself by Parliament, that must be an argument for another day and I have little doubt that few advocates will argue that case before a different court as ably as Mr Pointer.

In support of the wife's contention that special contribution should not influence my award in this case, three separate grounds are advanced:-

I can dispose of the first and second of these grounds in fairly short order. As to the first, I accept that the modern approach to computation as demonstrated in many of the recent cases which have been litigated in this Division and beyond is moving towards an assessment of the nature and character of the assets and a consideration of their quality as within or outside the reach of the marital acquest. However, that approach does not seem to me to preclude or avoid the need to consider as of overarching importance the factors listed in s 25 of the 1973 Act. Contributions to the welfare of the family are one such factor and the law in relation to special contributions continues to apply, as Mr Pointer and Mr Kingscote accept.

As to the second, and so far as I am aware, neither of these parties has at any stage of their partnership (either before or after the celebration of their marriage) discussed, far less elected to enter into, a nuptial agreement regulating what was to happen to their assets in the event of a separation or divorce. In the circumstances, I do not consider the absence of such an agreement to have any bearing on the impact of the law as it applies to special contributions in this case.

It is really the third point which goes to the heart of the case which is being advanced on behalf of the wife. Given the extent of her involvement with the Foundation (which I have already described earlier in this judgment); her obvious devotion to and prioritisation of the family’s needs – a family of four children which included triplets; her role as homemaker and co-ordinator of all the children’s social and other needs; what more, asks Mr Pointer, could she have done? What more should she be expected to have done in order to qualify for equal treatment with the husband in terms of financial outcome? As he rightly reminds me, she was not simply a ‘working’ wife; she was a wife who was fully engaged in fulfilling her role in the joint objective which had underpinned the marriage from its very inception. Her role in the Foundation demanded of her the skills and qualities which would have been needed in any CEO at the top of an organisation. Until the time came when the ‘job’ grew too big for any one individual, she performed that role without remuneration and entirely for the benefit of the beneficiaries of its grants and programmes. I thought it slightly churlish on the husband’s part to say, as he did, that he did not seek to control the amount of time which she spent at work and she more or less devised her own working programme around the needs of the home and the children. I am quite satisfied that there was not a spare moment of this wife’s waking day when she was not actively engaged either in discharging her role in the home or working for the Foundation. I heard, and accept, her evidence that her day would often start in the early hours to coincide with calls which needed to be made in different time zones. She was frequently still working in her study at home after midnight when the children no longer needed her attention.

I am alive to the fact, as are the wife’s advisers, that I am required under the statute to have regards to the contributions which the wife made ‘to the welfare of the family’. How do these words square with her work in the Foundation? It seems to me that, had she secured remunerative employment in an equivalent organisation, no one could possibly have contended that her contribution as a working mother fell outside the parameters of s 25(2)(f). Why then should the fact that she volunteered her services for philanthropic causes without remuneration take her contributions outside that sub-section? The CH Foundation started its life as a creature of this family. Both parties accept in their evidence that neither could possibly have foreseen the manner in which it would grow over the intervening years. The wife described it to me on more than one occasion in her oral evidence as ‘a fairy tale’. Together they conceived of this objective at a time when their own personal needs for financial security were already met. Together they discharged their respective responsibilities towards it.

However, in this context, and on the basis of the evidence which I heard, I do not think it is either fair or accurate to describe the husband’s role within the Foundation as simply that of money-maker or finance generator. I accept entirely that this was a central and vitally important function. As he said, without the means to fund the good causes, they are no more than laudable aspirations. But, having listened carefully to him, I was left with the clear impression that he was much more involved in the work of the Foundation than the wife’s presentation might appear to suggest. I have set out in paragraphs 78 to 82 of this judgment the account he gave me of the work he has done for the Foundation. As I said then, I am not able to accept that there was some clear line of demarcation between the respective contributions which the husband and the wife were making vis à vis their roles in the Foundation. The wife may have had a very much more ‘hands on’ role in terms of the day to day administration of the Foundation. She may have spent more time meeting and liaising with various dignitaries and government ministers than the husband, but I am satisfied that he was not excluded from this operational role within the Foundation. Like the wife, he has made a significant personal investment in the choice of causes which the Foundation supports. He was a regular attender at Board meetings and has quite clearly involved himself in the identification and selection of high profile candidates for appointment as trustees. I was struck by the contents of one of the emails to which I was taken. It was exhibited to the wife’s narrative statement at [A/C:22]. It was written to the parties jointly by Lord Malloch-Brown, one of the trustees of the Foundation, on 13 January 2013. It concerned the selection of a replacement CEO following the Board’s acceptance of the recommendations of the Bridgespan report. Having identified a short list of three potential candidates for the role, the email continued,

To put it simply, I was not left with the impression that TCI and the wealth generation was “his” exclusive role or domain, whilst the Foundation was “hers”.

That does not in any sense diminish the wife’s overall contribution. It was, as I have said, a full one. The question is whether or not the husband has made some further contribution, over and above that made by the wife, and unmatched by her in terms of their joint endeavours within the partnership which was their marriage. In terms of the way in which it was put by the Court of Appeal in Cowan, is there evidence that the husband was exercising some special skill and effort which is special only to him, and, if so, is it of such a quality or nature that his rights to the fruits of that inherent quality survive as a material consideration despite the partnership or pooling aspect of marriage?

I am conscious that in this case, as in so many, outcome is not simply a question of numbers or money. The court is asked to embark upon the exquisitely difficult task of assessing how different types of contributions should find expression in qualitative assessment. If special contribution in this case is to be reflected in a departure from equality of outcome in the husband’s favour, is it not inevitable that the wife will feel that she has in some way been judged to be an inferior partner in the marriage partnership? Can it ever be a legitimate answer to such a case for a wife to highlight the more difficult aspects of married life with a ‘stellar’ or ‘alpha’ achiever? Can she point to the pressures placed on her role as wife and supporter occasioned by the quality traits often observed in individuals who achieve this level of success? Is it feasible for her to point to an increased burden in terms of family and domestic life whilst such a husband traverses the globe several times a month and works through special family anniversaries, birthdays or holidays?

All these factors simply bear out the often insurmountable difficulties of trying to quantify that which is often unquantifiable.

I am satisfied that each of these parents has played, and will play, a full part in their children’s lives as parents. That does not diminish the importance of the wife’s role as their day to day carer. Each was an equal partner in the marriage for so long as it endured. I am equally satisfied that the wife could not have done more in terms of her contribution to the home and to her work within the Foundation. I reject any suggestion that poor performance on her part was the catalyst for the recruitment of the new CEO during 2013. (To be fair to the husband, that was not where the oral evidence in the case took us.)

I am satisfied, too, that the husband’s role in terms of his own involvement in work for the Foundation was a substantial one. I accept, of course, that he was balancing that work against the heavy responsibilities he carried for his external investors in TCI. Whilst it may not have matched the wife’s role in terms of him being an almost daily presence in the Foundation’s London offices or travelling abroad on frequent trips (as she was), he was nevertheless, as I have found, much more than the ‘money-maker’ in the equation.

I cannot, and do not, discriminate between their fundamental roles as wife, mother and homemaker on the one hand and wealth-generator on the other. But I then ask myself, as I am required to, was this husband’s contribution ‘exceptional’ and deserving of some special treatment in this case? I am not prepared to embark in this judgment upon the definition or boundaries of what might constitute an exceptional contribution. But I ask myself these questions in the light of all the evidence I have heard and read :

To each of these questions, my answer is ‘yes’. Is it necessary for the purposes of ‘special contribution’ for me to find that the husband possessed the quality of ‘genius’? Mr Pointer relied to an extent upon the fact that Mr Marks’ case on his client’s behalf relied simply on the extent of the wealth created to establish the special nature of the contribution he made. There are various definitions of the word ‘genius’ but all seem to suggest that, in order to qualify for this sobriquet, a person must have some exceptional natural capacity or intellectual or creative power or other natural ability which finds reflection in the exercise of an exceptional skill in a particular area of activity. Applying that definition to this husband, I take the view that he qualifies as a financial genius in his particular field of financial investment. If he does not, who could? In these circumstances, I find that, on any view, there has been a special contribution made by the husband in this case and that such contribution should and will be reflected in a departure from equality in terms of the overall award which I propose to make.

The much more difficult question in the case is the extent of such a departure. I am extremely conscious of the need to ensure that this wife’s contributions are properly reflected in the share of the assets she receives. I bear in the mind the limits of the Charman bracket and it would be invidious to embark upon a comparison of the different qualities and roles which this wife took on by way of a comparison with any undertaken by Mrs Cowan, Mrs Charman or Mrs Lambert. The fact of the matter remains that I have found that she could not have done more in terms of her role as wife, mother and homemaker. She applied herself to her work within the Foundation with assiduous enthusiasm, determination and commitment. By the time the marriage had come to an end, she was effectively CEO and Chair of one of the largest charitable foundations in the world. I think there is much in the submission made by Mr Pointer and Mr Kingscote that their joint endeavour flowing from the ‘pact’ or agreement which these parties made to devote their time and energies to philanthropic causes makes this union, of itself, a special partnership. From that partnership flowed obligations and responsibilities and each performed his and her part in discharging those responsibilities to the fullest extent possible. Just as the wife’s effort was not rewarded by any financial benefit, so, too, the husband’s work in managing the significant investment maintained by the Foundation in the TCI Fund was given freely and without any charge for management fees.

Nevertheless, I cannot ignore the extent of the very significant post-separation accrual in this case. That factor, taken together with what I have found to be a special contribution on the husband’s part during the marriage, leads inevitably to a departure from equality of outcome. I bear in mind the law which obliges me to reach a result which reflects not simply a nominal departure but a departure which recognises and properly reflects the full extent of the unmatched contribution which I have found he has made. The Charman guidelines provide a bracket within which I can properly commute between an award of 33.3% and 45% of the assets. The scale of the wealth in this case makes that a significant bracket in terms of outcome for both parties.

I bear well in mind the submission made by Mr Pointer that, throughout the period of separation, the wife continued to discharge her roles as mother and homemaker to the children, as well as her function at a senior level within the Foundation. So too, the husband’s role as their father continued uninterrupted, as did his work within TCI and the Foundation. Does the full extent of the departure in this case then fall to be quantified on the basis of the absence of a spousal relationship between the parties coupled with the element of post-separation accrual? If that is the correct approach, how does one value each element of that equation? Do I adopt the precise and formulaic approach embraced by Mr Marks and Miss Clarke in their closing submissions and award the wife a certain percentage of the marital acquest as my baseline and only one half of that percentage of the separation accrual in addition? If that is the right approach, how then do I go on to reflect in my overall award a value or discount for the fact that for over two years in the post-separation period the wife and husband have not been providing the mutual love, comfort and support which was a feature of their married lives together?

It seems to me that, whilst having the attraction and rigour of intellectual logic, the approach which is illustrated on the ‘case on a page’ document which Mr Marks produced for the purposes of his final submissions may have the consequence of leading me into a ‘straight jacket’ approach which itself falls into the trap of attributing to the element of post-separation accrual the very ‘bright line’ figures which everyone accepts it is impossible for me to extract in this case.

I bear in mind also that, in my quest for a result which is fair to both parties, there are a number of other factors which need to be reflected in my ultimate award. These include the following.

First, I am very conscious of the fact that the wife’s financial position will inevitably crystallise as a result of the award which I make at the end of this case. She may well achieve a substantial measure of investment return on her capital once she has had the benefit of specialist advice, but it is difficult to see that she will in future match the returns which are likely to be generated by the husband within his share of the TCI Fund for all the reasons I have explained earlier in my judgment.

Secondly, whilst he will continue to receive a very substantial income from his role as the effective investment manager, I find that it is more likely than not that the wife will not seek remunerative employment in the future. That is not to say that she would not be well qualified to seek a senior position. Rather it is a reflection of my view of her as someone who will continue to devote much of her life away from the children to charitable causes and philanthropic endeavour. She will certainly not have any financial imperative to seek paid employment.

In terms of the husband’s future income stream, part of this will find reflection in the uncrystallised contingent incentive fees which will flow in over the next four years. I have not made an allowance for these in the adjusted Net Asset Register for reasons which I have explained (see paragraphs 137 to 139 and 188 (iii)). Whilst it is true that they reflect a significant amount of post-separation endeavour and new investments represented by the husband’s unmatched contribution, they are nevertheless likely to fall in (in whatever sums eventually become payable) as a significant accretion to the substantial income he generates through receipt of his share of the management fees. In that sense they are, in my view, more properly categorised as a quasi-income receipt rather than a capital receipt. Because of the impossibility of drawing an accurate ‘bright line’ in determining what value should properly be attributed to the ‘marital’ element of this category of receipts, I have decided that the fairer way of dealing with this aspect of the case is to reflect the husband’s far greater future income as one aspect of my determination in respect of the overall fairness of the percentage division which the wife will receive.

As Mr Pointer submitted so persuasively during the course of his closing submissions, the income which will be available to the husband over the course of the next two or three years is likely to be very significant. In my view, it can properly be described as being stratospheric in comparison with the sums this court is used to seeing, even at the upper end of the scale in ‘big’ money cases. From the husband’s disclosure, Mr Pointer was able to extract his income figures for the last three years; there was no challenge from Mr Marks to the accuracy of his calculations. These are reflected in the table below.

This has a direct bearing on the ability of the husband to re-trench in capital terms. On the basis of the husband’s evidence that he can make a 24% return for himself, Mr Pointer’s maths demonstrate that, on the basis of his current offer to the wife, he will be back where he is now in capital terms within a 12 month period. If he were to retain less than US$1 billion for himself (the figure which represents the net effect of his current proposal), it might take him slightly longer. But the point remains a valid one, in my view. His potential to earn back (and thus restore) within a relatively short period any sums he has to pay to the wife at the conclusion of these proceedings is self-evident on the basis of his track record to date. In my view there is no likelihood of his ‘ceasing operations’ in the foreseeable future. In order to achieve a fair outcome at the end of this marriage, I therefore find that I can properly reflect in my award to the wife an element of the likely disparity in their wealth going forward, both as a result of the capital appreciation and income generation which will be achieved by the husband on his share of the assets but not by the wife on her share.

Thirdly, my view of the outcome in terms of the tax indemnity and escrow issues have played a part in my overall conclusions in relation to the extent of the departure from equality in this case. These conclusions I propose to set out in the final section of my judgment when I compute the award and the terms of the order I am proposing to make. They are based upon my assessment (where such assessment is possible on the known facts) of the degree of risk that each of the various categories of tax risk will materialise into a hard tax liability which the husband will have to meet. These I have already dealt with at paragraphs 249 to 251 of my judgment.

Quantum of the wife’s award

As will be clear from my judgment, I have had very much in mind throughout my analysis the various sub-sections of section 25 of the Matrimonial Causes Act 1973. I do not intend to rehearse these individually for a second time. By way of summary, I say only the following.

I am obliged to give first consideration to the needs of the parties’ four children, none of whom has yet reached the age of 18 years. I consider that their needs will be well met by each of their parents and I need say nothing further about them in this context.

I have dealt comprehensively with ‘income, earning capacity, property and other financial resources’ (s 25(2)(a)) as well as ‘needs, obligations and responsibilities’ (s 25(2)(b)). In each case I have considered the position both now and in the foreseeable future. I should say only this in terms of the wife’s obligations. Her future within the UK Foundation will be the subject of a future determination by the board of trustees. During the course of the hearing, I asked Mr Pointer whether it was any part of his client’s case that, in the event of her ceasing to be involved, she ‘needed’ provision as an element of her award to enable her to continue with her philanthropic work. There is already over US$140 million in the US Foundation of which she is a trustee with three others. Mr Pointer made it clear that he was not seeking to elevate this aspect of the wife’s case to a separate head of ‘need’, although he asked me to bear well in mind that she clearly feels a moral obligation to those in respect of whom she has already made commitments. I take the view that the award she will receive will be sufficient to enable the wife to continue with her philanthropic causes if that is what she wishes to do. It is no part of my function to seek to influence the UK board of trustees one way or the other, and I do not do so. The Foundation’s assets form no part of the resources which I am being asked to divide in these matrimonial proceedings. I merely record at this juncture that the evidence which was before this court suggests that the wife has been one of the Foundation’s most valuable assets in the past ten or twelve years. Her complementary role to the husband’s work in the Foundation and his generation of the substantial wealth which has funded its operations has been significant.

The ‘standard of living enjoyed by the parties before the breakdown of the marriage’ (s 25(2)(c)), ‘age of the parties and duration of the marriage’ (s 25(2)(d)), and ‘the contributions which each … has made or is likely in the foreseeable future to make to the welfare of the family’ (s 25(2)(f)) have been well traversed already. Neither party has any physical or mental disability which I need to take into account. ‘Conduct’ for the purposes of s 25(2)(g) only becomes relevant if I take the view that it would be inequitable to disregard it. To the extent that ‘conduct’, for these purposes, can be considered as one element of the contribution which each has made, I have already taken it into account in my analysis of the husband’s ‘special contribution’. It has no further relevance per se in this case.

I have thought long and hard about this case. For the reasons which I have given, this is a case where a significant departure from equality in the husband’s favour is entirely justified by the compounding factors of post-separation accrual and special contribution. The husband’s proposal is too low and does not properly acknowledge the extent of the contributions which the wife has made in her own right to this marriage. The conclusion which I have reached having taken everything into account is that the wife should receive an award of US$530 million from the available assets of just under US$1.5 billion. That sum represents approximately 36% of the global resources (36.12%). On the basis of current fx rates, it converts to a sterling sum of c. £330 million. From that sum, the wife will bear her share of any of the contingent tax risks which materialise and she must also make provision for the escrow which will be established in respect of the tax indemnity. In my judgment, an award at that level properly reflects her contributions and her entitlement to a fair share of both the marital acquest and the post-separation accrual in this case. It is a result which I consider, with the orders I shall make in relation to the tax indemnity and escrow, is fair to both parties. It reflects my considered view of the weight and relevance which I should attach to each and every aspect of the case, the totality of the evidence put before me, and the submissions (both oral and written) which were made by leading and junior counsel on both the tax and matrimonial issues.

I test my conclusion about the fairness of this award against the framework of the distribution schedule which Mr Marks and Miss Clarke produced for the purposes of their final submissions. We have used different computational bases. Nevertheless, my percentage figure as a share of the global assets is not very different from the 33% and 16.6% applied in relation to the computation of the husband’s final position in relation to his primary case. It seems to me reasonable to proceed on the basis that I can properly assume that a sum of approximately US$700 million is a fair representation of the value of the marital acquest as at March 2012, being the date of separation. (It will be recalled that this figure emanates from an application of the March 2012 fx rates to the original Net Asset Register produced by the husband as at December the previous year.) It was only in 2013 that the TCI Fund went back into profit and it has achieved exponential growth of just under US$550 million since then. No one has attempted to quantify the extent of the value of the matrimonial ‘tailpiece’ which can properly be traced into that growth and I take the view that formulae or the application of random percentages do not assist me. To the extent that Mr Marks and Miss Clarke accept that there is inevitably a degree of arbitrariness in their approach of applying a 50% discount to the headline percentage award in terms of calculating the wife’s entitlement to the post-separation accrual, I do not seek to criticise their approach. Nonetheless, in striving for the fair result, it seems to me that it does not provide the definitive answer when one considers the breadth of the discretion which section 25 of the 1973 Act bestows upon courts faced with the difficult task of achieving overall fairness in cases where needs do not predominate but a departure from a position of overall equality is justified by factors specific to the individual case.

In this context, I bear in mind (and respectfully agree with) what Moylan J said in P v P when he was dealing with the difficult issue of drawing lines in relation to post-separation accrual. At [2008] 2 FLR 1135, his Lordship said this:-

Nevertheless, if the wife were to receive 36.12% of US$700 million and roughly 18% of the increase in the value of the assets since then, her award would be in the region of US$252.84 million plus c.US$138 million, a total of just under US$400 million. In my considered view, that sum does not do sufficient justice to the extent of her very considerable contributions to this marriage. It is for that reason that I have looked at the broader picture and determined her share (which must be less than 50% on the basis of my findings) on an overall appreciation of the value of her claims in the light of everything which I now know about this case.

Whilst I recognise that, in abandoning any attempt at a strict formulaic approach to calculating the wife’s award, I might lay myself open to the criticism that I have adopted an arbitrary or ad hoc approach, my answer is a principled one when assessed by the cross-check of overall fairness; that cross-check is an essential part of my reasoning. In this context, see para [52] of the judgment of Wilson LJ and para [64] of the judgment of Arden LJ in Jones v Jones [2011] 1 FLR 1723 at pages 1739 and 1741.

Of the award of US$530 million, I propose to round up the value of the Connecticut property which she will retain to US$3 million. That is the figure which Mr Marks has taken for the purpose of his calculations and it seems to me to be appropriate to make an allowance for some uplift from the August 2013 valuation of US$2.7 million. Together with the share of the pension which she will receive from the Jersey fund (US$33.74 million (Footnote: ¹⁴)), the cash adjustment to be paid by the husband will be in the round sum of US$493,250,000. It will paid in US dollars abroad in such manner as the parties shall agree on the basis that there is no application for Decree absolute prior to the release of those funds. The wife will undertake for these purposes that she will not remit the funds onshore until after Decree absolute.

In terms of my decision in relation to the tax indemnity and escrow issues, I have decided that:-

The drafting of the order which I make will necessarily take time and consideration. In terms of the timescale for payment of the lump sum to the wife, the parties had agreed that it should be paid within six months of the date of the order. Because the husband had already put in place various (tentative) steps to liquidate some of his units in the TCI Master Fund by the conclusion of the hearing, and in view of the fact that my judgment was reserved, it may be that there will be agreement between the parties that she should receive her entitlement sooner. At the conclusion of the case, Mr Pointer sought on behalf of the wife an advance payment of US$10 million which he said could and should be paid within 14 days. If this interim payment can be the subject of agreement, it will obviously need to be paid to the wife offshore where it must remain until after Decree nisi has been made absolute by order of the court. Such an interim payment is likely to have consequences in terms of the wife’s current interim funding regime. If there is to be a lengthy delay of some months between the date of any interim payment and the receipt by her of the balance of the award, she may well be put in a position where she needs to bring funds onshore to meet her living expenses (including the rent on the home she is currently occupying with the children). In these circumstances it seems to me that the preferable course is to ensure that she receives the totality of her award as soon as it can be made available to her. I would hope that the parties and their advisers will now be in a position to agree these matters. If they are not, I shall make such order as may be necessary in relation to timing and/or an interim payment on account but, for these purposes, I shall need brief written submissions as to time lines and the up to date position in relation to the husband’s proposed liquidation of some of his units in the TCI Master Fund.

If and insofar as there may be a need for me to embark down the road of contingent lump sums, I will do so. But I would hope and expect that the wife, once she has received appropriate advice, will feel able to agree to whatever mechanisms need to be put in place to ensure the full implementation of my order.

The timing of the clean break as between the husband and the wife will need to be factored into a draft order. I am confident that this is something which will be agreed with the assistance of the parties’ legal teams.

Financial support for the children appears to be agreed in the sum of £30,000 per child per annum together with all their educational costs until each finishes tertiary education. The full terms of the order in respect of child support will doubtless be agreed in its detail to include, if necessary, any provision for their medical insurance cover and/or related expenses. I did not hear specific submissions on this point and propose to leave the drafting in the very capable hands of the experienced teams on both sides of the case.

These will be the terms of my order. In the event that issues arising need to be resolved, I shall deal with them on paper or in the context of a further hearing, as may be appropriate.