US v SR

Introduction

This matter has a lengthy, and depressing, history in terms of its journey through the courts as a piece of matrimonial litigation. Since October 2013, when I dealt with the initial fact-finding enquiry, the case has absorbed more than 24 days of court time. It returned to me in circumstances I shall describe on 7 March 2018. On that occasion it was agreed that there was insufficient time to enable me to deliver a judgment at the conclusion of the case. This is my reserved judgment in what I hope and intend to be the final occasion on which the court will be called upon to consider the financial repercussions of these highly acrimonious divorce proceedings.

The issue before the court is the extent to which it is now necessary to revisit the means by which value is to be extracted for each of the parties from the matrimonial assets pursuant to an order which I made as long ago as 1 May 2015 (“the original mainframe order”). Before setting out my conclusions about these matters, I propose to deal briefly with the background to these proceedings. I shall then set out the basis on which I have jurisdiction to make the changes which both parties seek in terms of structure and implementation. Finally, I shall set out my conclusions.

I shall continue to refer to the parties as “the husband” and “the wife” notwithstanding the fact that their marriage was dissolved over five years ago in February 2013.

The background

The husband is 67; the wife is 52 years old. He has remarried and now has a seven year old daughter. Together they have three daughters each of whom is now a young adult in tertiary education.

Much of their married life was spent in Russia where the husband worked in the oil and gas industry. During the marriage, properties were acquired in Moscow as investment vehicles. The husband was earning a substantial income and was able to accumulate savings. By the time they separated in mid-2010, their assets amounted to more than £6 million. In the context of the marital breakdown, each made serious allegations about the other in terms of litigation misconduct. As I was subsequently to find after a ten day fact-finding hearing in October 2013, each had behaved reprehensibly in terms of their obligations to one another and the court to make full and frank disclosure of their financial circumstances. The husband had failed to disclose the existence of an offshore bank account which held US$850,000. His non-disclosure was aggravated by the fact that he forged bank statements which would otherwise have revealed the extent of his fraud. For her part, the wife had undertaken a series of property transactions without the husband’s permission which resulted in a financial loss to this family of c. £1 million. To add insult to injury, by the time of what was anticipated to be the final hearing in July 2014, their combined costs bill stood at some £1.25 million.

By the time of the final (distribution) hearing in July 2014, the global assets available for division were agreed to be just in excess of £5 million. Of that sum, £1.76 million was tied up in pension funds which were already being drawn by the husband who had effectively retired from paid employment. As I found, their combined (unpaid) costs bill then amounted to just under 40% of the remaining liquid resources which were needed to provide homes for each of them, an income stream for the wife and the discharge of a significant raft of debt which she had built up. As I said then,

“In this context, it is a staggering figure. The near financial ruin which these proceedings have inflicted on this family is compounded by the fact that, even now, each continues to spend significant further sums on various private detection agencies doggedly pursuing the other in terms of their mutual suspicions that each has still to make full and frank disclosure of their finances. They are sums which this family cannot afford …..”.

That bleak vista has not improved over the last four years. What had been transformed into a needs-driven case in 2014 remains a case informed by ongoing needs in circumstances where the resources available to meet those needs are likely to be even further stretched as a result of the near collapse of the Russian property market over the intervening months and years.

For some time, neither party has had the resources to instruct lawyers. The wife is now being sued by her previous solicitors who have already obtained a partial default judgment against her in respect of unpaid legal costs. The husband is still living in rented accommodation in Edinburgh with his young family. He accepts that his aspirations in respect of a future housing fund will inevitably be much more modest than he (and the court) had originally envisaged. Whilst the wife appears to have been dividing her time between England and Russia, she continues to occupy the former family home in Berkshire whilst she is in this jurisdiction. Although she is not paying rent, there is a mortgage on that property of just under £300,000. Under the terms of the original order, that liability is for her account.

For the purposes of the current hearing before me in March this year, the husband was able to secure the services of his previous counsel, Richard Sear, on a pro bono basis. The wife was unrepresented. However, I am entirely satisfied that her knowledge and understanding of this case and the issues which have arisen, together with my own detailed knowledge of the background, meant that she was not at any disadvantage in the presentation of her case.

My conclusions at the end of the July 2014 hearing and the order made on 1 May 2015 as a result of the husband’s subsequent Barrell application

My judgment in respect of the original distribution exercise is reported as US v SR (No. 3) (Adverse Inferences/costs order reflecting litigation misconduct) [2014] EWHC 24 (Fam). In respect of the available assets I made the following findings:-

I recorded the net effect of my decision in relation to distribution in paragraphs 81 to 83 of my earlier judgment.

“81.

Assuming a sale at US$3.5 million, W will be left with readily realisable assets of c.£2.316 million. She will be clear of debt, save for the FC mortgage of £290,000. Mr Ewins’ calculations in relation to the Duxbury fund she requires to top up her income over and above the [Property A] rental is predicated on a figure of £860,000. That sum will be available to her subject to any decisions she makes in relation to restructuring.

82.

The husband will have cash of c.£1 million depending on the extent to which he chooses to deplete his existing capital between now and a sale of [Property R]. He, too, will be clear of debt and will retain intact the entirety of his pension. He will be able to re-house himself and his family for the figure of £750,000 to £800,000 (which is the figure suggested to me by Mr Sear in closing submissions) or, if he chooses, he can buy a more expensive property. I accept that he wishes to make provision for his youngest daughter and he will need to decide how best that provision can be carved out of the available resources. Including the value of his pensions, the husband’s net overall position will be significantly better than the wife’s in thathe will retain assets worth c. £2.744 million (or 54.22% of the total available resources).

83.

In percentage terms, the difference between what the wife will retain (47.78%) and what the husband will retain (54.22%) is not far short of 10%. On the basis of the global asset base (just over £5 million), that difference in their respective shares is a proper reflection of the wife’s misappropriation of the husband’s half share of the £1 million loss incurred on the sale of Property B. That is not the route by which I have reached my conclusions as to distribution and extraction but it is a useful cross-check nonetheless as to the overarching fairness of the award on a needs basis.

84.

It is axiomatic that these figures will increase in direct proportion to any increase which can be achieved in the sale price of [Property R]. However, proceeding on the basis of the best evidence available to me, I am satisfied that, even at US$3.5 million, needs are met on both sides.”

As to overall fairness, I reached these conclusions :

“85.

Is it fair in all the circumstances that the wife should receive less than 50% ? My answer to that question is: undoubtedly, yes. I cannot ignore the impact of her conduct in selling Property B at such a substantial undervalue. The notional reattribution is properly anchored to this departure. I bear in mind, too, that in terms of Wells sharing, she is receiving predominantly liquid (or at least realisable) assets. That should provide her with a degree of financial autonomy in terms of her future decision-making which will not necessarily be available to the husband in circumstances where a substantial percentage of his share of the assets will remain tied up in pension. Furthermore, in terms of overall fairness, I am satisfied that the award which I have made properly reflects the existence of non-matrimonial property acquired by the husband prior to the marriage which represents an unmatched contribution by him.”

The husband’s Barrell application dated 25 November 2014 and the subsequent hearing on 1 May 2015 resulting in the “mainframe order” made on that date

The judgment which I handed down on 25 July 2014 did not halt either of these parties in their litigation tracks. Before a draft order had been placed before the court, the husband issued an application whereby he sought to reopen matters on the basis that, in the immediate aftermath of the hearing – and entirely contrary to the court’s expectation – the wife left England with the parties’ youngest child and moved to Moscow with the apparent intention of renting out the former family home in England. As a result, the mortgage on Property FC was not being paid and the husband was informed that their daughter had been enrolled at a new school in Moscow. He later learnt that their eldest daughter had also moved to live and work in Moscow.

There was a hearing on 25 November 2014 when many of these issues, and those concerning the lack of progress in selling Property R, were ventilated. The matter was listed for a further hearing on 1 May 2015 which was the earliest date on which I could accommodate the substantive Barrell review.

The basis of the husband’s application to revisit the terms of the proposed order was self-evident. Had the wife informed the court in July 2014 that, within a matter of less than a month, she would have removed their child from her local school in Maidenhead and relocated to Russia, he would have sought the sale or transfer of Property FC. As this was the only property within the jurisdiction of the court, he feared that the wife would have even less incentive to comply with the court’s order to sell Property R and he would thereby be deprived of the means of enforcing a significant element of the financial award which I had made. In terms, he would have no means of purchasing a property for himself and his family. In essence, with Property FC no longer required as a home for the wife and/or any of the three children of the family, the husband sought an amendment to the terms of my order which would enable him to retain the property on the basis that the wife would thereafter be entitled to deduct the agreed equity from any sums he would otherwise be entitled to receive from the sale of Property R.

By the time of the hearing on 1 May 2015, the wife had issued an application for permission to extend the mortgage on Property FC so as to settle her outstanding liability of approximately £95,000 to her former solicitors.

Both parties appeared as litigants in person on 1 May 2015. James Ewins of counsel was present for a brief part of that hearing. He attended in order to bring me up to speed with the position in relation to the wife’s outstanding costs liability to her former solicitors. The hearing was listed in order to finalise the terms of the order reflecting my final judgment delivered at the conclusion of the July 2014 hearing and to consider what, if any, consequential relief was required in respect of the husband’s subsequent Barrell application. The wife told me that she was still resident in Moscow with their youngest daughter but she intended to return to England in August 2016. She claimed that she had returned to Russia in order to establish residence there so as to enable her to take advantage of some tax saving on the sale of the Russian properties. Significantly, by that stage there had still been no progress in relation to the marketing or sale of Property R.

At the conclusion of the hearing on 1 May 2015, I drew a composite order which (i) reflected the terms of my substantive judgment as to distribution of the matrimonial assets, and (ii) included a new provision in relation to the husband’s Barrell application following the wife’s unexpected move to Moscow.

In relation to the sale of Property R, I was told that there had been a problem in securing vacant possession of the property because of the tenant’s apparent entitlement under local domestic law to extend his tenancy to enable his children to complete their education at local schools until the completion of the current academic year. In my order I provided a long stop date of 30 August 2015. Should the tenant still be in occupation after that date (with the result that the sale of the property would be effectively blocked throughout the whole of the summer marketing period), various default provisions in the order would be triggered. Essentially, the husband would be entitled to retain the legal ownership of the English property and account to the wife for her interest in the equity by way of a set off from his share of the Property R sale proceeds. I made it very clear to the wife at the hearing on 1 May 2015 that she must ensure that she secured vacant possession of Property R by the due date if she was to preserve her entitlement to a transfer of the English property.

To reflect the practical realities of the situation on the ground, and with the agreement of the parties, I directed that the husband should be entitled to rent out the Property FC property in the short term in order to generate income which would be used to cover the mortgage payments. Once the wife returned from Moscow, and on the basis that the sale of Property R would then be underway, the liability for the principal mortgage debt would revert to her.

The order was drawn and sealed. It should have concluded the proceedings. Sadly, it did not.

Events following the making of the mainframe order on 1 May 2015

Over the course of the next few weeks, the wife issued three further applications. The first, dated 28 August 2015, sought additional financial provision for their youngest daughter (then 15 years old) including the private school fees which the wife was incurring in Moscow. The second, dated 3 September 2015, sought permission to appeal my decision reached at the conclusion of the July 2014 hearing and now reflected, with the Barrell provisions, in the mainframe order dated 1 May 2015. The third, dated 20 October 2015, concerned an application that she should be released from her obligation to pay the mortgage on the English family home which had been transferred to her as part of my earlier judgment.

Perhaps unsurprisingly, the husband issued two further applications by way of response. By the first, dated 14 September 2015, he sought enforcement of the wife’s obligations under the mainframe order of 1 May 2015. By the second, dated 7 December 2015, he sought an order for the sale of Property FC with the division of proceeds as envisaged by the default terms inserted as a result of his Barrell application.

Throughout 2016 very little progress was made in dealing with these matters because the wife’s application to the Court of Appeal for permission to appeal out of time my original decision in relation to distribution remained pending. On 16 January 2017, Lord Justice Lewison refused her application. Every ground relied on was dismissed. Three days later, on 19 January 2017, I made an order listing a further hearing before me in order to consider what further steps were required in order to implement my original order and (insofar as it was necessary) to deal with the subsequent applications which the wife had made.

Almost immediately upon the Court of Appeal’s refusal of her application for permission to appeal, the wife took steps in Russia to transfer the legal title of one of the Russian properties, Property A, into the name of D, her 20 year old daughter who was living with her in Moscow at the time. Under the terms of my order, that was a property which she was to retain in order to provide her with a rental income.

On 21 May 2017, the wife sent to the court a further ‘witness statement’ which she had prepared. It was clear from that document that she was seeking a further rearrangement of the terms of the mainframe order. Property R had still not been sold and, on the wife’s case (disputed entirely by the husband) was now unoccupied with various expenses accruing for the wife’s account. The Russian property market, as described by the wife, was “in crisis” and the property was very unlikely to achieve a price of US$3 million to US$3.5 million as had been envisaged at the time of the hearing in July 2014. The absence of a sale meant that the husband’s final payment to her matrimonial solicitors on account of his liability for her costs had not been paid and the unpaid balance was attracting interest at 18% per annum. Locked into the Property R equity were the payments of £100,000 (the children’s education fund) and the further £30,000 in respect of their capitalised maintenance costs. In relation to Property FC, the property had never been let but she had by this stage resumed payments for the mortgage and thus the provisions of the Barrell clauses in the mainframe order of May 2015 had not been engaged.

What the wife now sought was a further review of the order whereby Property A (the second Russian investment property) was transferred to the husband in substitution for any entitlement he might have to share in the Property R proceeds. She would thereafter retain Property R to sell or rent out as she saw fit. There were various other requests for reimbursement of expenses including a request for interest on the unpaid element of the costs order. Appended to her witness statement was an informal valuation of Property R produced by one of the local Russian property agents which suggested that the property was then worth approximately US$2.35 million.

At a further hearing on 8 June 2017, the wife’s former solicitors applied to be joined to the proceedings in order to enforce their costs order. There was a concern that, in circumstances where the husband was now seeking a sale of the English property and a distribution of the equity, they would be left to enforce against the wife in Russia without any ability to register a charge against either of the two remaining Russian properties.

At the conclusion of the hearing on 8 June 2017 (for which a half day had been allowed), I made a number of case management directions which were designed to inform the court as to precisely what steps had been taken in relation to the marketing of Property R and (insofar as it was possible) to establish who was responsible for the lack of progress. Notwithstanding the collapse of the local housing market in Moscow, each party had made a number of allegations against the other seeking to attribute blame for the delay. We were able to identify three days in March 2018 when both Mr Sear and I could accommodate a further hearing. I advertised my intention to use that time to deal with as many aspects of the outstanding applications as possible. Amongst these was a subsequent application issued by the husband dated 26 February 2018 whereby he sought from the wife a lump sum payment of £1 million (or its US dollar equivalent) in full and final settlement of his entitlement to part of the Property R sale proceeds.

Prior to this hearing, I dealt with a further hearing on 7 February 2018 when I set aside a default judgment which the wife’s solicitors had obtained against her in the sum of £107,360 in respect of unpaid costs. I substituted an interim judgment in the sum of £69,906 which was the element of the costs to which she accepted they were entitled. A separate three day hearing has been listed for October 2018 before a different judge, Mrs Justice Gwynneth Knowles, when that issue will be resolved. The husband has no effective role in those debt recovery proceedings which concern the wife and her former solicitors.

The parties’ written positions prior to this hearing

Both parties have filed updated disclosure for the purposes of this hearing. The wife claims that the value of the Property R property is no more than its local cadastral value of £500,000. She makes no reference to the value of Property A. Her cash savings have reduced to just over £2,000 and she lists a number of liabilities totalling £545,000. These include the Property FC mortgage and various loans which she has taken out to reduce her outstanding legal costs. The figure also includes a sum of £75,000 which relates to the future and ongoing costs of maintaining the two younger children in university accommodation for the remainder of their tertiary education.

The husband’s financial position has been further eroded by the ongoing costs of the litigation. He describes his financial reserves as “negligible”. In the three years since the July 2014 hearing he has had to sell more or less the entirety of his shares. He, too, is in debt and has incurred a personal loan from two friends in addition to a £20,000 bank loan. He continues to rent a small two bedroom studio apartment in Edinburgh for which he is paying £1,300 per month in rent. His only income is his pension which produces some £35,200 net per annum. His financial predicament and his frustration with the lack of any discernible progress in relation to the sale of Property R underpin his current application for an order for the sale of Property FC. From those proceeds, he seeks payment of £1 million (his anticipated entitlement at the time of the original hearing from the Property R sale) in order that he can now purchase a home for himself and his family.

In terms of her written presentation, the wife resists that course and seeks the transfer of Property FC into her name notwithstanding the absence of a sale of Property R. She accepts that Property R should be sold and asks the court to appoint an individual or an “independent agency” to conclude that sale. Notwithstanding the fall in its value, she, too, seeks her full share of the net sale proceeds in accordance with my mainframe judgment and order. She contends that the husband should bear the liability for any local sales tax from his share of the proceeds. In addition to various other transactional reimbursements related to the two properties, she sought to enlarge her original financial claims to include a share of the husband’s pension fund. This is her case notwithstanding the fact that if her proposals in relation to Property R were to be implemented, the husband would receive nothing at all from the sale. Her proposals were silent as to how he should rehouse himself and his family in circumstances where she is to retain Property FC.

That was where the battle lines were drawn when the case commenced. By the time we reached closing submissions after more than two days of evidence, each party had modified his/her proposals. However, before turning to consider the merits of their respective applications, I propose to set out the law which I must apply in circumstances where there has been a final order in the financial remedy proceedings. In circumstances where it is acknowledged that significant elements of the order have not been implemented, what jurisdiction does this court have to disturb the terms of the mainframe order and/or to provide for a different outcome which each now seeks ?

The Law

On behalf of the husband, Mr Sear submits that the husband’s primary application for a sale of Property FC can be achieved within the overarching scheme of the 2014 judgment by two routes:-

He relies principally upon the executory nature of certain elements of the mainframe order. He does so on the basis that there can be no serious dispute either that the order remains executory or that there has been a significant change of circumstances since the order was made. Two obvious changes are (i) the wife’s removal to Moscow and her vacation of Property FC within weeks of the July 2014 hearing, and (ii) the collapse in the Russian property market. Whilst property values were agreed for the purposes of the final hearing, that latter event, he submits, fundamentally undermines many of the financial calculations which informed the court’s judgment. He accepts that any attempt to engage the Barrell provisions will inevitably result in a detailed and lengthy investigation into whether the wife is in breach of her obligations under the terms of the order. Such an enquiry is unnecessary if the court decides to exercise its powers under the Thwaite jurisdiction or under section 24A of the 1973 Act.

The Court of Appeal has recently confirmed that the court retains the power to make a new or varied order in the light of new evidence whilst an order remains executory: see Bezelianasky v Bezelianskaya [2016] EWCA Civ 76 approving Thwaite v Thwaite [1981] 2 FLR 280. In that latter case Ormrod LJ said this:

“The learned judge was entitled, in his discretion, to make a new order for ancillary relief in favour of the wife, notwithstanding the refusal of the wife to consent to his doing so. His jurisdiction arose, not from the liberty to apply as he held, but from the fact that the wife’s original application for ancillary relief was still before the court and awaiting adjudication. It had not been dismissed since the conveyance had never been executed, so that that part of the order …., by which her application was dismissed, had never come into effect.”

In the later case of L v L [2006] EWHC 956, [2008] 1 FLR 26, Munby J (as he then was) considered the court’s power in respect of executory orders. At para 67 his Lordship said this:

“Merely because an order is still executory the court does not have, any more than it has in relation to an undertaking, any general or unfettered power to adjust a final order – let alone a final consent order – merely because it thinks it just to do so. The essence of the jurisdiction is that it is just to do – it would be inequitable not to do so – because of or in the light of some significant change in the circumstances since the order was made.”

Both of these authorities were considered in early 2016 by the Court of Appeal in Bezelianasky v Bezelianskaya. That appeal concerned orders made in the context of the working out and enforcement of orders for financial provision made at the conclusion of divorce proceedings between wealthy Russian individuals who were residing in this jurisdiction at the time of their divorce in 2009. After four years of ongoing litigation, a final consent order was made by Holman J in the Family Division in January 2013. Two years later, in March 2015, Moor J made an order which substantially varied the capital provision contained in the original 2013 order.

The dispute in that case concerned the allocation of three residential properties in Monaco, Moscow and Paris. Under the terms of the original order made by Holman J, the wife was to retain the Monaco and Moscow properties with the husband retaining the French property. None of these transfers had been effected by the time the matter came back before Moor J two years later. The judge found that the husband bore a very considerable measure of responsibility for the failure to arrange for the transfer of two of those properties. However, in relation to the Moscow property, the husband advanced a number of reasons why it had been impossible to make progress. In fact, as the judge found, the husband had agreed to sell the property to one of his business associates without advertising his intention to the wife or her advisers. That transaction was combined with a loan of some €3 million which was paid to the husband. Because the loan remained unpaid, the lender was able to secure an order in the Russian courts for a transfer of the legal title of the Moscow property into his name. That transaction had effectively prevented the simultaneous transfer of all three properties as envisaged by the terms of Holman J’s original order.

Moor J was satisfied that he had jurisdiction to vary or set aside the capital elements of the original consent order and that such a course was supported by the merits of the wife’s case. He put in place a mechanism for delivering value to the wife in respect of the Paris property which was held in the name of an offshore company. That value reflected a sum which was equivalent to the value of the equity she should have received from the Moscow property.

In support of his appeal, Mr Bezeliansky had argued that Thwaite dealt solely with the court’s jurisdiction to refuse to enforce a consent order and that it was not authority for the proposition that there was jurisdiction to set aside the original consent order. That argument was roundly rejected by Lord Justice McFarlane who delivered the leading judgment in the Court of Appeal.

His second ground of appeal concerned the analysis of the law undertaken by Munby J in L v L. The appellant submitted that the test for varying or setting aside a consent order (namely that it would be inequitable to do otherwise in the light of a significant change in circumstances) is ‘a constant across the board in relation to each of the various mechanisms available by which a consent order may be varied or set aside’. He argued that the fact that a particular order may be “executory” does not alter or in any way dilute the position. In dismissing that submission, McFarlane LJ listed the five circumstances which could trigger a review of a final financial remedy order:

“(i)

if there has been fraud or mistake;

(ii)

if there has been material non-disclosure;

(iii)

if there has been a new event since the making of the order which invalidates the basis, or fundamental assumption, upon which the order was made;

His Lordship continued:

“The ‘test’ for determining whether one or more of these five circumstances may exist in a particular case will differ. For example to establish (i) it is necessary to prove ‘fraud’ or ‘mistake’, whereas to establish (iv) or (v) it is only necessary to establish that there is an undertaking or that the order remains executory. With respect to cases where there is an undertaking or an order that is still executory the approach to determining whether or not to set aside or vary the order is, as the appellant submits, based upon it being inequitable to hold to the terms of the original order in the light of a significant change of circumstances. Given that this is a case about an executory order, it is not necessary to engage any further with the Appellant’s wider submission regarding the test where the jurisdiction may arise in other circumstances. In any event I agree with Mr Chamberlayne that the circumstances justifying intervention are likely to be met where an order remains executory as a result of one party frustrating its implementation.”

It is the husband’s primary submission in this context that the facts here are more than superficially analogous to those in Bezeliansky. Mr Sear submits that deployment of the court’s ability to adjust the executory mainframe order made in May 2015 could only result in an order for sale of the Property FC property. Given the court’s determination that the wife should retain the Property A property in Moscow for the purposes of income generation and the difficulties encountered over more than two years in the attempt to realise any liquidity from a sale of Property R, the English property is the only candidate for an immediate sale.

Before considering that submission, I need to mention a further decision which has been reported since the hearing concluded. On 23 March 2018 Mostyn J delivered judgment in SR v HR and SC (his trustee in bankruptcy) [2018] EWHC 606 (Fam). The facts of that case can be simply stated. In 2012 a deputy district judge made property adjustment orders by consent in respect of three Welsh properties. Some seventeen months later in 2013, and by consent, he rearranged certain aspects of his orders but without any alteration to their underlying proprietary or economic effect. Those substantive orders were not implemented. Three years later, in 2016, the wife appealed the second “implementation” order. The substantive appeal was heard by a circuit judge in 2017. The judge found that the substantive orders remained executory. Given that they were “at the very edge, if not already beyond, any effective period of implementation in [their] terms”, he found he had jurisdiction to discharge the substantive orders and replace them with a new order. That new order significantly altered the economic impact of the substantive orders made in 2012 and 2013. The effect of his order was to reduce by 50% (from 70% to 20%) the husband’s share in one of the three properties. In practical terms, that represented a reduction of c.£46,000. A matter of weeks prior to the making of the new order, the husband was adjudged bankrupt. The effect of the new order was that there was only a sum of some £3,000 available for the benefit of the husband’s unsecured creditors.

Mostyn J concluded that the new order made by the circuit judge sitting in an appellate capacity was made without jurisdiction and must be set aside. His Lordship’s analysis of the position as a matter of law proceeded on the following basis.

Section 31 of the Matrimonial Causes Act 1973 contains the statutory powers to vary and discharge orders. Parliament was careful to keep these powers tightly confined. Save in the case of “some very rare outliers”, the only capital award that could be varied was a lump sum payable by instalments. An order for sale under section 24A could be varied but not the underlying capital award to which it was attached: see para 8. He continued thus:

“9.

However, it is an iron rule that aside from a lump sum payable in instalments, and aside from a set aside on traditional grounds as discussed below, a capital award cannot be varied, or, a fortiori, discharged, by a court of first instance. That an order has, in the usual way, a “liberty to apply” clause certainly does not entitle a court to rewrite non-variable capital awards and to make different ones. Equally, the fact that a dismissal clause does not take effect until there has been full compliance with certain transfers and payments plainly does not entitle a court to replace an executory order with a new one. The judge referred to the decision of Thwaite v Thwaite [1982] Fam 1. In a recital to an order made on 13 July 2016 he stated:

“In accordance with the authority of Thwaite v Thwaite the court may consider the order and refuse to enforce the order if it is inequitable to do so. Where such outcome is determined it is open to the court to determine the matter afresh.”

10.

I have to say that I do not agree with this. In Thwaite, at page 9, Ormrod LJ stated:

“Where the order is still executory, as in the present case, and one of the parties applies to the court to enforce the order, the court may refuse if, in the circumstances prevailing at the time of the application, it would be inequitable to do so: Mullins v. Howell (1879) 11 CH D 763 and Purcell v. F.C. Trigell Ltd. [1971] 1 QB 358, 366, 367. Where the consent order derives its legal effect from the contract, this is equivalent to refusing a decree of specific performance; where the legal effect derives from the order itself the court has jurisdiction over its own orders: per Sir George Jessel M.R. in Mullins v. Howell (1879) 11 Ch D 763,766.””

Having observed that neither of the two cases above supported the proposition that a court, in exercising its equitable jurisdiction in the context of enforcement, had power to make a completely new order, Mostyn J concluded that both cases had to be seen in the limited context of the court’s power to “control” interlocutory orders. Mullins v Howell involved an undertaking which was in any event subject to the court’s power to discharge it in full. The Purcell case was one in which the court refused to discharge an earlier interlocutory order requiring one of the parties to respond to interrogatories. On this basis his Lordship concluded that “any application under the principle in Thwaite should be approached extremely cautiously and conservatively”.

His Lordship went on to consider the court’s power to set aside an order on the grounds of fraud, mistake or a supervening event (the Barder jurisdiction). Pursuant to FPR 2010 rule 9.9A and PD9A para 13, an application to set aside all or part of a financial remedy order or judgment must be made to the first instance court and not by way of an appeal. Para 13.5 of PD9A makes it clear that the grounds on which such an order may be set aside are, and will remain, decisions for judges although the grounds include fraud, material non-disclosure, certain limited types of mistake and a subsequent event, unforeseen and unforeseeable at the time the order was made, which invalidates the basis on which the order was made. Mostyn J considered that, whereas the door had been left open in theory to expand the classes of cases where a set aside might be sought, “mere delay in implementing a routine property adjustment order could never amount to a ground for a set aside under rule 9.9A”.

There is no reference in SR v HR to the Court of Appeal’s decision in Bezeliansky v Bezelianskaya or to Munby J’s decision in L v L.

It seems to me Munby J’s decision in L v L and the observations which he made about the exercise of the so-called Thwaite principle represent both a “cautious” and “conservative” approach to the re-opening of an order where there has been both a failure to implement its terms and some material change in the basis on which the original order had been made. His Lordship was careful to contain the principle by his reference to the absence of “any general or unfettered power to adjust a final order … merely because it thinks it just to do so”. He confirmed that the essence of the jurisdiction is that “it would be inequitable not to [vary its terms] because of or in the light of some significant change in the circumstances since the order was made”.

That was a proposition of law with which McFarlane LJ, in Bezelinsky v Bezelinskaya, agreed. In that case, the Court of Appeal upheld Moor J’s intervention and his subsequent revision of the terms of the original order. Had that step not been taken, the wife would in effect have been left without a remedy in terms of her ability to secure value from the court’s original order, the terms of which were now impossible to implement as originally envisaged.

The present case has returned to me as the first instance judge in similar circumstances. Here, the original order was made not by consent but following a five day fully contested distribution hearing and the delivery of a formal judgment. The wife’s application for permission to appeal that order was rejected by the Court of Appeal. Whilst there has been no formal application constituted under FPR 2010 r. 9.9A by either party, each of the parties - acting as litigants in person - has made a plethora of applications designed to achieve a variation or rescission of the 2015 mainframe order in circumstances where they both accept that the failure to sell the Property R property requires the court to revisit the terms of its original order. The case management directions which I have made since January 2017 when the Court of Appeal refused the wife’s application for permission to appeal have been tailored to the provisions of rule 9.9A. This hearing has been the effective rehearing envisaged by rule 9.9A(5) in terms of the invitation which both parties extend to the court to rehear the financial remedy proceedings or “otherwise make such other orders as may be appropriate to dispose of the application”.

This case is very far from one where there has been “mere delay in implementing a routine property adjustment order”: per SR v HR. For what it is worth, I agree with Mostyn J that the latter scenario could never amount to a ground for a set aside under rule 9.9A. The net effect of my adjudication in terms of extraction and distribution at the conclusion of the contested 2014 hearing was carefully set out in my judgment. I explained exactly what I anticipated each party would receive on the basis of the best evidence available at the time. That took the form of evidence from the various agents instructed locally in relation to the value of the Russian properties. I factored into my judgment how those receipts would meet needs on both sides of the case and the basis of the departure from an equal division of the assets which I found to be justified on the facts of this case. No one anticipated that, some four years later, Property R would remain unsold and/or that its sale would produce a sum very significantly below the agreed value of US$3 million to US$3.5 million. Given the amount which had been spent on legal costs by that point, the equity in Property R was a very substantial element of the underlying matrimonial balance sheet.

It is essential in this case that steps are now taken to resolve the current impasse. For the reasons explained above, I have reached the clear conclusion that I have jurisdiction in this case to revisit the terms of the mainframe order which I made in 2015. I accept, following SR v HR, that any such revision must be contained and, so far as possible, should reflect the underlying intention of the original extraction route embodied in the 2015 mainframe order. That is a jurisdiction which I am exercising with the consent of both parties although I do not need such consent in order to exercise it. It is a jurisdiction which flows both from the Thwaite principle (contained, as explained above) and from the jurisdiction conferred on the court pursuant to the FPR 2010.

The parties’ respective cases by the conclusion of the hearing

It is common ground that the wife should retain Property R. Given the manifest difficulties which have been encountered in selling the property since 2015, this appears to be the only sensible way to deal with matters. Mr Sear realistically concedes that the evidence will not support a finding that the wife deliberately frustrated a sale by standing in the way of attempts to market the property. She has breached her undertaking not to let the property following the termination of the last formal tenancy granted to Mr K. The wife’s evidence (disputed entirely by the husband) was that the current occupants did not have the benefit of a formal lease, although they have nevertheless paid in advance some form of ‘licence fee’. Those funds have been paid by the wife to her former solicitors in order to reduce her liability for outstanding legal costs. Mr Sear does not rely upon that breach as triggering the full provisions of the Barrell clauses in the original mainframe order. He does not need to since both parties are in agreement that the Property FC property will be sold. To her credit, the wife accepts that the husband needs a home and that a sale of the former family home will inevitably be required to produce funds which they will both need for these purposes.

Whilst my original order did not contemplate a sale of Property FC, I am satisfied that the needs of the children for a home with their mother will diminish over the course of the next few years. C is now 23 years old and will graduate in January 2019. The husband accepts that she is psychologically frail and still experiences “bad days” when she needs additional support from her mother. D, now 22, has one more year at university. I am told that she is on course for a first class degree. The wife’s expectation is that she will wish to work abroad and has already investigated several international internships including one in Hong Kong. S, now 18, has left school and is about to start university. Depending on whether she undertakes a three or four year course, it is reasonable to assume that she, too, will be working in full-time employment at the conclusion of that course of study.

Whilst there were solid grounds for the wife’s retention of the former matrimonial home in 2015, I can see no basis now for avoiding a sale and this is the course which the parties have agreed. The husband agrees that a sale should be deferred until March 2019 in order to accommodate the children’s ongoing educational needs.

I am told that a similar neighbouring property is being marketed for sale at an asking price of £1.45 million. It is agreed that I should proceed on the basis of a gross sale price of £1.4 million for Property FC. This is Savills’ recommended marketing figure. After allowing for the mortgage and costs of sale, the net equity is likely to be £1,068,000 (Footnote: ¹). The husband proposes that this should be divided between the parties on an 85:15 basis in his favour. From his share of £907,800, he will discharge his remaining costs liability (£69,906) and the sum which I ordered him to pay as his contribution to the children’s education fund (£50,000). That would leave in his hands a fund of just under £788,000.

The wife seeks a 60:40 division of the net proceeds in her favour on the basis that he forgoes any entitlement to receive his share of the sale proceeds from Property R. On her case this would enable him to use his share of Property FC (just over £427,000) to buy “a nice home in Scotland”. If he wishes to spend more, she suggests that his wife (who is 31 years old) could take on a mortgage on the basis of her current earning capacity of £16,000 per annum. That is what the husband told me she earns from a part-time job. On the wife’s case there would be no deductions from his 40% share on the basis that all his liabilities under the original mainframe order, together with other sums which she alleges are due to her, will be set off against his assumed 50% interest in Property A.

Property A is currently let. The tenancy will come to an end in January 2019. The wife’s case is that she relies on the rental income to meet D’s current accommodation costs at university. Those costs will shortly come to an end. I have no evidence but it appears that the rental income has reduced from £27,000 per annum (paid in 2014/2015) to a sterling equivalent of £12,000 per annum.

The parties are not agreed on the value to be attributed to Property A. Mr Sear has worked on the basis of an assumed value of US$665,000 (c.£500,000). That represents a reduction of some £113,000 from its 2014 value of US$1.05 million (then c.£613,000). The wife attributes to the property a gross value of £456,000. The property is mortgage free. For the purposes of my original judgment, I accepted the wife’s evidence that the costs of sale would be in the order of 4%. There will be an additional local sales tax which the husband has calculated on the basis of a 6% deduction. The wife contends for a figure of 30% for this tax liability. The issue turns on her tax status as a Russian national. I remind myself that her rationale for moving back to Russia shortly after the final hearing in 2015 was to establish residence in Moscow in order to mitigate what she regards as “the family’s tax liability”. I have no up to date evidence as to what this particular liability will be and I suspect the position will not crystallise until the property has been sold. On the husband’s case, Property A has a net value of £450,000. Applying a 30% tax deduction, and on the wife’s case, this would produce a net equity after both taxes of just under £306,500.

As is clear from her open proposals, the wife is not contending that the value of the Property A property should be left out of account notwithstanding her transfer of the legal title into D’s name on a date prior to January 2017. She accepts that the transfer was a unilateral decision on her part and that the husband was not consulted or informed prior to the transfer. I know not why that step was taken in the midst of these proceedings and I do not propose to make any findings in relation to the wife’s motives. However, it was an inappropriate step and, even without the wife’s concession, I propose to treat Property A as an asset which remains available to her. Under the terms of the original mainframe order, it was agreed that the wife would retain the property as an investment vehicle which she would utilise to generate funds towards her future income needs. She proposes that 50% of its net value (which she calculates to be £150,000) should be assumed to be the husband’s entitlement but should be set off against the sums which she alleges he owes to her in respect of expenses she has incurred on the children and the Property FC mortgage since 2015. She proposes to sell Property A in 2019 once D has graduated and to apply the net proceeds (or whatever sum is then required) towards discharging the raft of debt she has incurred over the course of the last three years.

She no longer pursues her application for a share of the husband’s pension.

As I have said, it is accepted that the wife will retain Property R to meet her future income needs. Whether she retains it and lets the property or continues in an attempt to sell and invest the proceeds elsewhere will be a matter for her. For the purposes of testing what is fair and equitable to both parties in terms of an outcome, I have to factor in a value for Property R. I accept that, absent a sale or any recent offers, any value attributed to the property has an element of speculation. There is no formal updated expert evidence before the court. In the light of what I know about the attempts over the last three years to market the property, I suspect that even evidence from one or more of the international estate agents who have previously expressed an opinion as to value would be of doubtful weight in terms of a reliable prediction as to value. The thrust of the advice which has been given to both parties since 2015 by the Moscow agents is that they must simply offer the property for sale and see what offers are received.

In May 2016, Knight Frank advised the husband that Property R was worth a minimum of US$1.5 million. He was advised to commence a marketing trial on the basis of offers in the region of US$2 million. By May 2017, he was advised by the same agents that the market was “very slow” but that “the market price is 1.8-2 mln USD”. The wife’s current proposals assume a value of US$1.8 million and that is the figure I propose to adopt for these purposes. Deducting costs of sale at 4% (US$72,000) and local sales tax at 30% (US$540,000) leaves a net equity of US$1.188 million, or c.£900,000.

On the basis of the husband’s proposals, the wife would receive a total of just over £520,000 from the sale proceeds of Property FC and Property A, the majority of which would come from the sale of the Russian property. In addition she would retain Property R (c.£900,000) free from any further claims by the husband. He would take the majority of the cash from the sale of Property FC and a smaller share of the Property A proceeds leaving him with a housing fund of just under £850,000. He would retain his pension intact.

The wife’s proposals would give her £640,800 from the sale of Property FC. The husband’s entitlement would be some £220,000 less in round terms, i.e. £427,200. That would be the only cash available to him for his housing needs although it would come clear of any of the deductions for which I provided in my mainframe order of 2015 since these would be set off against his notional share of the Property A equity. In addition to her share of £640,800, and subject to any (then) outstanding liabilities, the wife would retain at least £300,000 from a sale of that property. Thus, she would have assets of approximately £940,000 plus a further £900,000 in Property R. I do not have an up to date capital value for the husband’s pension fund which was worth £1.76 million in 2014. Its value has already been diluted by his earlier election to carve out a dependant’s pension for his (much younger) wife after his death. In my judgment that was not a choice which should attract any criticism: it was plainly a sensible course given the age of his wife and their dependent child. However, even if for illustrative purposes one offsets his pension against the Property R funds, on the basis of each of the parties’ proposals there is still a significant imbalance in the cash funds which will be available to each to meet future housing needs. The wife has liabilities. I bear in mind she also has the land at K which was valued at £14,000 in 2015. She maintains this is now worth very little and secures a debt which is owed to her family. I am conscious that she has a residual liability for her legal costs over and above the contribution of some £70,000 odd which the husband has still to make and I propose to return to this aspect of her needs shortly.

I have already found that the needs of both parties in terms of their future housing requirements are broadly equal. However, whilst the wife will always wish to offer their three girls a home base, the fact is that within a relatively short period of time all three will be leading independent lives. Notwithstanding C’s particular difficulties in the past, there is no evidence that she will not be able to lead her own life as a young adult. Any order I make will, in any event, enable the wife to purchase a home where C can live if that is what she chooses to do. The husband needs to put a secure roof over the head of his family which now consists of a young child who will probably be living with her parents for the best part of fourteen years or more.

I can see no reason why the wife’s housing fund should be almost double that of the husband’s. Such an outcome does not reflect my findings in 2015 that each should depart from the marriage with a broadly equal share of the available wealth. On any objective view it is difficult to see how the wife can justify her present position. I suspect that her approach continues to be informed by her apparently unshakeable belief that the husband has assets which he has yet to disclose to this court. She told me during the course of the course of this hearing that she continues to believe he has property in Astana, Kazakhstan.

If fairness is to be achieved in terms of outcome, it is also important that risk is shared. I can well understand why the husband seeks to secure the majority of the value of his award from the English property. He does not trust the wife to deal fairly with any future sale transaction in Russia. There is also, in my judgment, a greater risk of Property A not achieving its assumed value than any shortfall in the Property FC sale price.

By his proposal the husband has accepted that he cannot secure the entirety of his award from the equity in Property FC. The wife’s evidence is that she will need a fund of approximately £600,000 to purchase a property in or around the area where she currently lives. I do not expect the husband to have to spend any less if he remains in the Edinburgh area. He told me that the value of the small studio apartment which he currently rents is c. £400,000. That property is clearly unsuitable as a long term proposition. I reject the wife’s suggestion that his wife’s mortgage capacity should be taken into account for the purposes of assessing the husband’s future housing needs. Apart from the fact that she works part-time, she does not presently have indefinite leave to remain in this country although she does have a resident’s visa. I doubt that she would secure a mortgage but, even if she did, it is unlikely to be in a sum which would make very much difference to the housing budget which I have found is reasonable in this case.

Whilst the wife points to the security which the husband’s pension fund offers, I accept Mr Sear’s submission that it should be possible for the wife to maximise the income yield from Property R over and above the licence fee she has been able to extract from the current occupants. There is evidence from Knight Frank in Moscow that, as at July 2016, the property could be let for US$12,000 per month. Even if that figure is discounted, Mr Sear contends that the property should be generating at least US$4,000 per month. To the extent that Property R is not available for commercial letting until the end of this year, that is the result of the wife’s decision to accept an ‘up front’ occupation or licence fee from the present occupants to reduce the burden of her ongoing costs liability. If she decides to sell, she will have the best part of £1 million to invest as a Duxbury fund. This will leave her with a more or less comparable income to that generated by the husband’s pension. On any view, and whether or not she decides to sell the property, I am satisfied that her future income needs will be met on the basis that she retains the Property R property.

In terms of her liabilities, by and large these have been incurred since the 2015 final hearing. She maintains that she has fallen into debt largely as a result of the husband’s failure to make a proper contribution towards the children’s costs and the Property FC mortgage payments. I accept that the failure to sell Property R as envisaged by my original mainframe order has had financial repercussions for both parties. The husband has had to continue to pay rent and additional legal costs. The wife has not had the benefit of his contribution of £80,000 towards the children’s education and maintenance costs. The Property FC mortgage was always for her account on the basis that she was retaining the property. Whilst I attempted to address the issue of the mortgage payments during her absence in Moscow by allowing the husband to let the property, this did not happen. The husband maintains that he could not secure vacant possession as their elder daughter was living at the property. The wife contends he failed to make alternative arrangements for her accommodation. It seems to me that is now water under the bridge. However, it does not displace the fact that I determined the husband should be relieved of any future liability for mortgage payments.

Drilling down into the underlying reality of the wife’s presentation in relation to her liabilities, she has a bank loan of £7,000 which she has used to fund C’s education costs. She confirmed that she used the remaining funds dispersed from the children’s paternal grandmother’s trust to pay the mortgage in 2015. These she appears to have apportioned as debts which she must repay the children. Together these account for over £30,000 of her stated liabilities. She has borrowed £25,000 from her sister for legal fees. She also includes as a liability the £40,000 licence fee which she paid to the solicitors acting for her former matrimonial solicitors in the debt recovery proceedings. I confess that I do not understand how this sum can be considered an extant liability. In relation to the so-called ‘family’ debts (some £55,000), it will be a matter for the wife to arrange her financial affairs so as to discharge her indebtedness, both “soft” and “hard”. For example, in terms of funds which she says she must return to the children, it may well be that – with their ongoing education costs being met in part as a result of the capital contribution which the husband will be making – she can defer that obligation with the children’s consent. Her sister may also be prepared to wait for repayment. The balance of the liabilities appear to represent the capitalised costs of the children’s university education and the annualised maintenance charges of Property R and Property FC.

I am aware that the university and accommodation costs of their youngest daughter, S, will need to be covered for the next three or four years together with the remaining year of D’s course and what appears to be the final term of C’s course. Those costs will be met in part, albeit on a deferred basis, by the £80,000 which the husband is due to pay from his share of the Property FC sale proceeds.

In my original judgment, I said this in relation to the cost of the children’s education:-

“50.

In terms of the education fund, I have not allowed the full £200,000 or which the wife contends. I recognise the shortfall in terms of the protection it would otherwise provide throughout secondary and tertiary education, but I do not consider an additional £100,000 is affordable if other direct needs are going to be met. I have already remarked during the course of this hearing that private education might well have been a casualty of this litigation and the stances which these parents have adopted in terms of their failure to reach an acceptable accommodation one with the other so as to halt the haemorrhage of legal costs. ….. educational costs which continue to arise [over and above the funds from the Will trust] will need to be met through a combination of means. Student loans and holiday jobs are a feature of most young students’ lives. If the wife feels she needs to divert part of her free income or capital towards topping up the fund or paying expenses directly, that will be a matter for her. But in circumstances where needs dominate and a total of £2.25 million has been lost to the family as a result of the litigation costs and the sale of property B, I do not regard provision over and above £100,000 to be reasonable.”

It seems to me that little has changed since then save that the demands on dwindling resources are now even more acute. It is one of the sad features of this case that the litigation conduct of both parties has impacted directly on their children. Whilst I would wish to have provided these children with a full financial safety net to see them through to the end of their tertiary education, the funds are no longer there if the basic housing needs of each of their parents are to be met.

I am aware that the outcome of the extant debt recovery proceedings launched by her former solicitors remains unresolved. A significant element of that claim represents rolled up interest on the original unpaid balance of just under £70,000. That balance was due to be paid by the husband from his share of the Property R sale proceeds. He has accepted that his remaining contribution to the wife’s costs bill should be paid from his share of the Property FC sale proceeds. There is an issue between the wife and her former solicitors as to whether or not there was an express or implied waiver of future interest charges when she re-engaged them to represent her at the final hearing in 2015. I am no longer involved in the adjudication of those debt recovery proceedings although I have encouraged both sides to explore the possibility of settlement to avoid any further escalation of costs. The wife represents herself in those proceedings but her former solicitors have instructed commercial solicitors and counsel to represent their interests.

I do not know what the outcome of that litigation may be and I cannot speculate. Mr Sear reminds me that I made a full costs award of £300,000 against his client albeit that I allowed him to defer a small part of that liability until he received his share of the Property R proceeds. That award brought his total contribution to the wife’s costs to some £423,000. I made it plain that there was a significant element of financial penalty reflected in that award because of his litigation misconduct. The wife has always felt aggrieved that he did not liquidate his remaining shares to discharge those costs on an accelerated basis when it became clear that Property R was not going to be sold within the time frame which had originally been envisaged. I had allowed him to defer that final payment on account of his costs liability because I found that he would need his remaining capital to subsidise his living costs in the interim. That is exactly what has happened: he has now had to sell more or less all his remaining shares.

In the context of this hearing, I have not been asked to determine responsibility for the delay in selling Property R. As I have said, Mr Sear accepts that the evidence will not support a finding that the wife was deliberately frustrating a sale so as to trigger the Barrell provisions of the original mainframe order. I accept that the fundamental cause for the delay to date has been the collapse of the Russian property market which began at the end of 2015.

Because this is essentially a needs case, it seems to me that it would be unfair on the wife to expect her to absorb the full impact of any finding which might be made by another court that her former solicitors should be entitled to claim interest on the unpaid sum of £69,906. At the time of my original judgment in 2014 we were all operating on the assumption that Property R would be sold; no one expected a delay of more than four years. Accordingly, I propose to make a contingent lump sum order in the wife’s favour. In the event that she is adjudged liable to pay interest to her former solicitors, the husband will pay to her from his share of the matrimonial assets a lump sum equal to 50% of that interest element. I know not what might happen in relation to costs in the debt recovery proceedings. The wife is a litigant in person but, as I have said, her former solicitors will have incurred costs in pursuing their claim. It may be that they will seek costs in the event that their claim succeeds. Whatever the outcome of that litigation, I propose to limit the husband’s exposure to 50% of the interest element if it is found to be due and payable. He has not been involved in those proceedings. I have already extracted from his share of the assets a costs penalty which properly reflects the extent of his litigation misconduct in concealing assets from the court. To go further and to require him to contribute towards the costs of parallel litigation in which he has had no involvement or representation would be a step too far in my judgment.

My conclusions

In my judgment, the only feasible and practical way forward is to leave Property R in the wife’s hands as a resource earmarked for future income generation. She is the person who is best placed to determine whether, and when, to sell the property. I am satisfied that there is sufficient equity in the property to meet her future income needs whether she retains it as a commercial rental investment or in the event that she decides to sell and reinvest elsewhere. Whilst I appreciate the husband’s concerns about extracting cash from Property A, it seems to me that in circumstances where both parties are intending to purchase new homes in this jurisdiction, it would not be fair to the wife to restrict her entitlement to the Property FC proceeds to £160,200 which is the basis of the husband’s present proposal. I accept that this sum would not be sufficient to enable her to begin her search for an alternative property. Pending the sale of Property A, she will be in a position where she has to rent a property and I suspect, given past history, that she would deplete these funds to the extent that receipt of the balance of her award in due course would still leave her with a shortfall. Whilst renting might be acceptable on a short-term basis, as she herself accepts, the husband’s proposal will leave her with virtually all the risk in liquidating Property A as a cash fund. I am also concerned that the husband’s proposals leave her with a cash fund of c.£520,000 as a housing fund whilst he retains liquid assets of c. £850,000. I am aware that the wife will also have the benefit of any value in Property R but, as I have already explained, that property is earmarked for future income generation and she has now (sensibly, in my view) abandoned any claim to a share in the husband’s pension funds.

My objective is to interfere as little as possible with the outcome and net effect of my original mainframe order whilst finding a solution for each of these parties to the practical difficulties of realising value in the underlying matrimonial estate.

On the basis that the wife’s intention is indeed to purchase a property in this jurisdiction as a home for herself and the three children (for so long as they need it), my starting point is to test an outcome whereby each of the parties received an equal share of the net proceeds of sale from Property FC. Such a division would provide each with an initial fund of £534,000. Under the terms of my original mainframe order, the husband is due to account to the wife for a further sum of £150,000 (Footnote: ²). She proposes that this sum is offset against his potential interest in Property A which I have found to be worth £300,000 net of sale and tax costs. The husband’s proposals in relation to Property A would produce in his hands no more than an additional £60,000 to apply towards his housing costs.

I am conscious that the wife’s former solicitors are a party to these proceedings although they have taken no part in this hearing. They have a legitimate expectation which flows from my original order that the husband’s liability for their outstanding costs will be met from the realisation of the only asset in this jurisdiction. I do not regard it as appropriate to disturb that position. Accordingly, the sum of £69,906 must be met by the husband from his 50% share of the Property FC proceeds. That would reduce his notional half share to £464,000 (rounded).

The wife asks me to leave Property A in her hands as the quid pro quo for expunging the sums which she claims to be due and owing from the husband. Leaving aside the costs liability which will come from his share of the Property FC proceeds, she is due to receive a further £80,000 as his contribution towards the children’s expenses. There is a difference of some £150,000 between the parties in relation to the value of Property A. That difference has the potential to make a more significant impression on the overall financial landscape than it did when there was in excess of £5 million available for division.

Looking back at my original conclusions as to the overall fairness of my original award in 2014, I said this:-

“81.

Assuming a sale [of Property R] at US$3.5 million, W will be left with readily realisable assets of £2.316 million. She will be clear of debt, save for the FC mortgage of £290,000. Mr Ewins’ calculations in relation to the Duxbury fund she requires to top up her income over and above the [Property A] rental is predicated on a figure of £860,000. That sum will be available to her subject to any decision she makes in relation to restructuring.

82.

The husband will have cash of c. £1 million depending on the extent to which he chooses to deplete his existing capital between now and the sale of property R. He, too, will be clear of debt and will retain the entirety of his pension. He will be able to re-house himself and his family for the figure of £750,000 to £800,000 (which is the figure suggested to me by Mr Sear in closing submissions) or, if he chooses, he can buy a more expensive property. …. Including the value of his pensions, the husband’s net overall position will be significantly better than the wife’s in that he will retain assets worth c. £2.744 million (or 54.22% of the total available resources).

83.

In percentage terms, the difference between what the wife will retain (45.78%) and what the husband will retain (54.22%) is not far short of 10%. On the basis of the global asset base (just over £5 million), that difference in their respective shares is a proper reflection of the wife’s misappropriation of the husband’s half share of the £1 million loss incurred on the sale of Property B. That is not the route by which I have reached my conclusions as to distribution and extraction but it is a useful cross-check nonetheless as to the overarching fairness of the award on a needs basis.

……

85.

Is it fair in all the circumstances that the wife should receive less than 50% ? My answer to that question is: undoubtedly, yes. I cannot ignore the impact of her conduct in selling property B at such a substantial undervalue. The notional reattribution is properly anchored to this departure. I bear in mind, too, that in terms of Wells sharing, she is receiving predominantly liquid (or at least realisable) assets. That should provide her with a degree of financial autonomy in terms of her future decision-making which will not necessarily be available to the husband in circumstances where a substantial percentage of his share of the assets will remain tied up in pension. Furthermore, in terms of overall fairness, I am satisfied that the award which I have made properly reflects the existence of non-matrimonial property acquired by the husband prior to the marriage which represents an unmatched contribution by him.”

In terms of extraction, both parties are in agreement that it is no longer feasible to regard Property R as the vehicle for generating liquid cash funds. Instead, the wife will retain it as a means to meet her future income needs. They are also agreed that the liquidity which each will need for their future house purchases will have to come, in part, from the sale of Property FC.

For present purposes I propose to treat the current value of the husband’s remaining pension funds as broadly equal to the equity which the wife will retain in Property R. I leave both out of account for the purposes of the assets to be shared between them. In terms of Property A, I am not in a position without formal valuation evidence to determine whether the available equity is £300,000 (on the wife’s case) or £450,000 (on the husband’s case). In my judgment the only fair way of testing the net effect of the parties’ positions is to assume a mid-point valuation. On that basis, the remaining assets available to these parties can be distilled thus:

An equal division of those assets would give each of the parties £721,500. Deducting his liability for costs (which I assume will be paid directly to the wife’s solicitors) and the children’s expenses, the husband would be left with £571,500. The wife’s entitlement would be increased by £80,000 leaving her with £801,500. Adopting the rationale for the departure from an equal division in the husband’s favour which I found to be justified in my original judgment, this would not be a fair outcome. I appreciate that the wife has liabilities to discharge from any funds she recovers but these will be met, in part, by the husband’s contribution to the children’s expenses. This contribution was already reflected in the original uplift in his favour.

In exercising the jurisdiction which I have to revisit the terms of my original order I am obliged to consider needs. Needs were the driving factor in my original decision and, as one of the section 25 factors, they remain pivotal to the outcome of this hearing. Despite the apparent convenience of leaving the two Russian properties in the wife’s hands, there is insufficient equity in the English property to enable both parties’ housing needs to be met from that source. An equal division of the Property FC equity will not enable either to purchase suitable accommodation and the unequal distribution which the wife seeks would produce a result which is unfair to the husband given the value she would be retaining in Property A. I can see no alternative but to sell Property A. That property must be sold as swiftly as possible. The wife will need to realise the equity in that property to rehouse in England. In order to incentivise her to make progress with the sale, I propose to allow the husband to make his contribution of £80,000 towards the children from his share of the proceeds. His costs liability must come from the sale of the English property. I am also going to weight the division of the English sale proceeds in his favour. In circumstances where the balance of the wife’s capital will be coming from the sale of the Russian property, she will be best placed to conduct the sale and ensure it is transacted as swiftly as possible. I know not whether the transfer of the property into D’s name will delay matters but, if it does, this is a situation which is wholly of the wife’s making.

From the sale proceeds of Property FC, I intend that the husband should receive 70% (the equivalent of just under £750,000). This will leave him with c.£680,000 once he has paid the final instalment of his costs liability. The wife will receive 30% (the equivalent of £320,400).

From the sale proceeds of Property A, the wife will recover from the husband’s share the sum of £80,000 which represents his contribution to the children’s past and future costs. I accept that she is likely to have to apply those funds towards the discharge of debt. The remaining equity (£295,000) will then be available as an accretion to her share of the Property FC proceeds. This will give her £615,400 in total.

Whilst it is not possible to reproduce the calculations which underpinned my original judgment, I test the fairness of this outcome by comparing the value of the parties’ respective housing funds. From total liquid reserves earmarked for rehousing (£1,295,400), the husband will receive £680,000 (c.52.5%) and the wife will receive £615,400 (c.47.5%). Whilst that represents a smaller uplift in his favour than my original judgment provided, it is as close to it as I can get in the context of this case whilst still meeting needs. The only further adjustment to these figures will be the payment by the husband to the wife of the contingent lump sum award in respect of the outstanding third party claim for interest. Should that claim succeed, he will be liable for 50% of any interest element which is due and payable. I am conscious that any such liability will impact upon the potential housing funds of both parties. In circumstances where it is not possible on the evidence to attribute blame for the delay in selling Property R squarely at the feet of the wife, I regard it as the only fair way of sharing this liability.

I am aware that the wife will not be in a position to buy a new home for herself until the sales of both properties have been completed. I take on board the fact that the Russian property market may be a more difficult commercial environment in which to market real estate but I have tried to manage that risk by adopting a lower value for the property than that contended for by the husband. In the event that Property A sells for more than my assumed mid-point valuation, the wife will retain any uplift. That factor will, I hope, operate as an additional incentive in her efforts to market the property. I appreciate that she will be receiving less than the husband to buy a house but I bear in mind that she will be retaining another property worth nearly £1 million. Whilst that property has been earmarked for income generation in the future, she could, if she chose, sell Property R and divert part of the proceeds into a more expensive home in England. There would then be scope later on in life for her to release equity from her English home for the purposes of supplementing her retirement income. These are all decisions for her. The husband will continue to receive his pension but that fund gives him no flexibility in terms of any further release of capital. It may be that the wife will be in a position to borrow against the security of the equity in Property R if she can demonstrate to a lender its commercial viability as a rental investment.

I am aware that the wife will say that she has the ongoing responsibility for the three (now adult) children of the family. I have taken into account that for the next four years at least one of their daughters will be studying at university. S will doubtless wish to spend some time at home during vacation periods. I am also conscious of the fact that all three children will wish to have a home base with their mother for some time to come. However, at least two of the girls are on the verge of leading independent lives. C may well need additional support as she makes her way in the world and I have already taken into account the fact that she may wish to live at home with her mother once she leaves university. I am satisfied that the provision which I have made for the wife will enable her to meet her own (and the children’s) ongoing housing needs albeit that the resources in this case are now sufficiently stretched to the point where expectations on both sides will need to be contained in terms of housing aspirations.

In terms of timing, the husband’s proposal was for a marketing exercise of FC commencing in March 2019. In my judgment the parties need to concentrate on selling both properties as quickly as possible. Without a sale of Property A, the wife will be in a position where she has to rent. Those interim arrangements need to be put in place for as short a period as possible.

Thus, in terms, the substance of my order will need to reflect the following revisions to the original mainframe order:-

In terms of drafting, there will clearly need to be revisions to the terms of the original mainframe order including the discharge of various undertakings. I hope that these can be agreed. My intention is that this should be the last hearing in this litigation.

Since handing down a draft of my judgment to the parties, I have been advised that the best offer which has been received to date for Property FC is £1.18 million. The lack of interest from purchasers to date at the agreed valuation of £1.4 million may well be the result of the general uncertainty in the property market (the national Brexit effect) and/or the prospect of some local development in the vicinity of a golf course. The husband is concerned that any reduction in the price achieved will impact upon the sum which he receives to meet his future housing needs. For the purposes of my judgment, it was agreed that I should work on the basis of a gross sale price of £1.4 million (see paragraph 60). That was the figure which Savills, the marketing agents, had recommended as representing the value of the property at the time. Because the husband’s open proposal was based upon a deferred sale in March 2019, the actual value to be realised was always speculative. As is often the case in financial remedy cases, the court has to proceed on the basis of the best evidence available at the time. It was for this reason that I framed my judgment (and will frame my final order) on the basis of a percentage division of the Property FC proceeds. Insofar as there remains a shortfall below the assumed value of the property when a sale is completed, that shortfall will necessarily be borne between the parties on a pro rata basis. I have assessed their future housing needs to be broadly equal. Budgets for rehousing may have to be trimmed significantly on both sides, even on a needs basis. In this context there is no scope for further adjustment so as to enhance the husband’s share of the net proceeds because to do so would necessarily reduce the funds available to the wife. In this context I can only ask the parties to look to the roles which each has played in the haemorrhage of costs which, over more than five years of increasingly acrimonious litigation, has transformed their financial position from one of relative prosperity to one where each may struggle financially to meet basic needs.