Hart v Hart [2017] EWCA Civ 1306

Case No B6/2015/2271[2017] EWCA Civ 1306
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
HIS HONOUR JUDGE WILDBLOOD QC
SITTING AS A DEPUTY HIGH COURT JUDGE
FAMILY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 31/08/2017
Before
LORD JUSTICE LLOYD JONESLORD JUSTICE BEATSONLORD JUSTICE MOYLAN
Between
KAREN HARTAppellantJOHN RALPH HARTRespondent
Peter Mitchell (instructed by Irwin Mitchell LLP) for AppellantGrant Armstrong (instructed by The Law Practice UK Ltd.) for RespondentHearing Hearing dates: 11 th May 2017
Judgment

Introduction

[1]This case concerns the approach which the court should take to non-matrimonial property when determining a financial remedy claim by application of the sharing principle. I emphasise that, what I say in this judgment, is confined to this principle. It raises both evidential and legal issues. How is such property to be assessed? What degree of assessment is required? Is the approach formulaic or does the court have a broader discretion?[2]In this judgment, I use the words matrimonial and marital interchangeably. In White v White [2001] AC 596, Lord Nicholls used the expression, “from a source wholly external to the marriage” (p. 994) when referring to non-matrimonial property. He defined matrimonial property in Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186 (paragraph 22) as “the financial product of the parties’ common endeavour”. Lady Hale used the expression “the fruits of the matrimonial partnership” in Miller (paragraph 141). In Charman v Charman (No 4) [2007] 1 FLR 1246 matrimonial property was described as “the property of the parties generated during the marriage otherwise than by external donation” (paragraph 66). Non-matrimonial property can, therefore, be broadly defined in the negative, namely as being assets (or that part of the value of an asset) which are not the financial product of or generated by the parties’ endeavours during the marriage. Examples usually given are assets owned by one spouse before the marriage and assets which have been inherited or otherwise given to a spouse from, typically, a relative of theirs during the marriage.[3]The context is an appeal by the wife (as I will call her) from the final financial remedy order made on 25th June 2015 by His Honour Judge Wildblood QC (“the judge”). He decided that the wife should receive/retain assets with a combined value of approximately £3.5 million out of total resources of just under £9.4 million. The judge undertook what he described as a multi-faceted approach but, ultimately, the sum he awarded the wife was equal to the amount he had calculated as being required to meet her needs.[4]The husband (as I will call him) appeared in person at the hearing before the judge. He has been represented on this appeal by Ms Seddon, who prepared the skeleton argument, and by Mr Armstrong who appeared at the hearing.[5]Mr Mitchell, who appeared on behalf of the wife on this appeal and did below, submitted that there was no justification for the resources being shared other than equally between the parties (save for a property owned by the wife which was not matrimonial property). The evidential deficiencies, for which the husband was responsible, meant that it was impossible fairly to assess the extent of any non-matrimonial property with the result that all the parties’ wealth should be treated as matrimonial property. Further, the judge was wrong to award the wife only the sum required to meet her needs, when other calculations he had made would have led to the wife being awarded a greater sum.[6]Mr Armstrong submitted that the judge was right when he decided that, the fact that the husband was “a wealthy man” at the start of the parties’ relationship, “must be reflected in the outcome of the case”. The evidence was sufficient to support this conclusion and did not require any additional accounting exercise. Further, the percentage awarded to the wife of the parties’ wealth, even though calculated by reference to the wife’s needs, could not be said to be wrong.

Background

[7]At the date of the judgment the husband was aged 80 and the wife 59. They met in 1979 and started living together in about 1983, when the husband was 48 and the wife 27. They married in 1987 and separated in 2006. They have two, now adult, children.[8]When the parties started living together the husband was, as described by the wife, a “man of substance”. He had started working in his father’s business as a market fruit trader in the 1950s. He took over the business when he was aged 19. In the late 1950s or early 1960s he began to trade in used motor vehicles. The property from which this business traded is still owned by one of the husband’s companies. In about 1967 he started an additional business offering financial services in connection with the purchase of cars. In the late 1970s the husband moved offshore and set up two companies in the Channel Islands. He moved into property development at about the time he and the wife started living together. It is clear from the judgment that the history of the husband’s business interests and the development of the wealth was far from a simple progression but involved a number of overlapping strands.[9]The wife’s position when the parties’ relationship started was that she working as an air stewardess and had no assets save for a Porsche.[10]The judge found that the parties’ combined capital resources totalled £9.4 million, comprising assets in the parties’ names valued at £3.9 million and assets in a trust valued at £5.5 million. He found that the assets in the trust should be treated as part of the husband’s resources.[11]The wife commenced proceedings in November 2011. It is an unhappy observation to note that the parties have now been engaged in litigation for nearly 6 years. As at the date of the hearing below they had spent in excess of £500,000 on legal costs.

The Judgment

[12]The judge had 14 files of paper including expert valuation evidence. He was also given 479 pages of authorities. This was an extraordinary, and excessive, volume of evidence. It was also, although some were duplicated, an extraordinary number of authorities for a case of this nature. The judge heard oral evidence from a number of witnesses including the wife, the husband and the man who had been the husband’s accountant from 1966.[13]The judge’s substantive judgment is long and detailed. He also gave a supplemental judgment. I have set out below an extensive summary in order to demonstrate in some detail the judge’s methodology and reasoning.[14]The central factual issue considered by the judge was the relevance of the husband’s pre-marital wealth to the determination of the wife’s claim. In considering this issue it is clear that, although the judge referred to every case as being different and as being decided on its own facts, he felt constrained, as he said at the outset of his judgment, to seek to apply the “formulaic approach” taken in Jones v Jones [2011] 1 FLR 1723. This led him into a long exploration of the extent of the husband’s pre-marital wealth and its value; the manner in which this wealth had developed during the marriage; and the extent to which there had been “mingling”. He did this because he wanted, if possible, to obtain a “baseline figure” to use for the purposes of a mathematical calculation as had occurred in Jones. I note, in passing, that this would also have had to take into account, in some way, the extent to which the parties’ wealth reflected marital endeavour.[15]The judge concluded that it was not possible to carry out the “formulaic approach” from Jones (and N v F) “with any degree of precision”. He continued:
“although I do my best to do so the result, in this case, amounts to multiple speculation and produces a result upon which I could not sensibly rely”
. This was because of a number of difficulties. These included that, although the husband “was undoubtedly wealthy when the parties met, there is no reliable evidence of (the husband’s) worth then and any attempt at quantifying it is guesswork” and that there “has been mingling of assets between the parties and also between (the husband) and his sister”.[16]The judge acknowledged that it was “hardly surprising that there is difficulty in producing reliable documentation from that long ago”, namely the start of the parties’ relationship some 30 years previously. However, he was also very critical of the husband’s approach to disclosure which he described as having been “very poor indeed”. He had produced “a deluge of partial information and patent misinformation”. His evidence had been under-researched and, at times, “deliberately obstructive”; it, and the evidence from his other two witnesses, contained “inaccurate and conflicting information on major matters relating to the past”.[17]Given these difficulties, the judge adopted what he described as a “multi-faceted approach” which gave him a “bracket”. The different facets of this bracket were needs, an analysis of “mingled assets”; an analysis of non-matrimonial property; and the wife’s “current assets” plus a share of the trust’s assets. The judge listed the resources he calculated as being the total due to the wife under each heading. They were listed in, what he described as being, “descending order of cogency”.(i) The “needs figure” was £3.47 million;(ii) the “mingled figure” was £3.5 million;(iii) the non-matrimonial “guess” figure was £3.85 million; and(iv) the figure, comprised of half the assets in the parties’ joint names, the assets in the wife’s name and 25% of the trust’s assets, was £3.94 million.[18]The judge decided that the wife should receive resources totalling £3.56 million being the needs figure of £3.47 million plus arrears of maintenance of £92,000.[19]Following receipt of the draft judgment, Mr Mitchell invited the judge to expand on his reasoning for adopting the needs figure rather than the others. In response, the judge added a further paragraph to his judgment giving the following additional reasons:(i) the “needs based approach (was) the most scientific and also the most principled”:(ii) the difference between the above figure and the “mingled” figure was not material and the latter rested on a “less secure legal foundation”;(iii) the non-matrimonial figure was a “guess” and not reliable; and(iv) the last figure was also unreliable. It ignored the origins of the capital. When the judge conducted an “overview” in accordance with Jones, he considered that this figure was “too high”.[20]Before considering the judgment in a little more detail, it is important to note that it contains, what I would describe as, a significant, overarching, element, namely the judge’s conclusion that an equal division of the assets would be unfair.[21]The wife, as at this appeal, submitted to the judge that the deficiencies in the husband’s evidence, which were of his own making, were such that the husband’s contentions about pre-marital assets were unquantifiable. As a result, that factor should be “ignored and the assets should be divided equally”. The judge rejected this submission. He expressly concluded, as I have said, that “an equal division of the assets would be unfair”. This was because of the existence of the husband’s pre-marital wealth and the weight which the judge clearly considered should be given to this factor. At the start of the parties’ relationship the husband was, as was accepted by the wife, wealthy whilst she had no significant capital assets. This was a factor which, as set out below, the judge expressly concluded “must be reflected in the outcome”.[22]I now turn to consider the judgment in a little more detail.[23]The husband sought to justify an unequal division of the assets in his favour by reference(a) to the extent of his pre-marital wealth and(b) to the contributions he had made to the accrual of those assets in the years since the parties had separated. The latter contention, (b), was rejected by the judge. Unlike other aspects of the judgment, the husband does not appear to have sought permission to appeal this decision. As to the former, (a), the husband contended that his pre-marital wealth should be “uplifted” and given a current value of between £9.7 million and £14.7 million.[24]The judge set out the husband’s “trading history” stating that it was not a full and accurate picture. He then analysed the husband’s pre-marital assets under the headings of “corporate interests” and “other personal assets”.[25]Under the former the judge considered a number of assets separately by, for example, looking at the trading accounts for the years prior to the commencement of the parties’ relationship. During the course of this analysis the judge concluded that some assets retained by the husband were clearly not matrimonial property because he owned them when the parties met. The judge concluded by saying that there was no accurate evidence of the value of the husband’s corporate interests at the date of the marriage. However, he accepted that they had some value and the “best guess” he could make was that the husband’s corporate interests were worth £1.5 million at the commencement of the parties’ relationship, then adding that this was “pure speculation”.[26]In respect of other personal (pre-marital) assets, the judge concluded that they were worth £1.18 million when the relationship started. He then calculated that, if indexation to the year 2014/2015 (RPI) was applied to this sum, it would have increased to £3.5 million. He concluded: “Of course some of the property that is included … has become intermingled and I do not find uplifting to that extent informative”.[27]The judge’s ultimate conclusion was to arrive at what he called a “wholly speculative guess” of £2.6 million for the total value of the husband’s wealth at the start of the parties’ relationship. In arriving at this figure, the judge rejected large parts of the husband’s and his accountant’s evidence but he clearly viewed the value he ascribed to the non-corporate assets as significantly more reliable than the corporate assets.[28]The judge then added that, “the most useful thing that the above table shows is that, at the date of the relationship, (the husband) was a wealthy man. That wealth has to be balanced against the fact that (the wife) had no capital assets …, save for the Porsche car. That is why I consider that this factor must be reflected in the outcome of the case”. It appears that the table to which the judge is referring is one which set out the non-corporate wealth of £1.18 million.[29]The judge accepted that all the trust’s current assets, totalling £5.5 million net of tax, should be treated as being available to the husband. It is a discretionary trust in respect of both income and capital. The beneficiaries are the wife, the husband and their two children and the judge found that the trust was set up with the express intention of benefiting all of them. From the evidence, as accepted by the judge, it appears that they each considered that they had a 25% share. This was not formally implemented but, as the judge noted, in his Form E the husband stated that he had a 25% share and the children had spoken of having a 50% share. It also appears that the children had benefited from the trust because the judge referred to it providing them with premises, from which they have traded, and stock and as having been the source of monies paid, via the husband, to assist with the purchase of a house for one of the children. Despite this the judge treated all the assets as available to the husband because he found it highly likely that the husband would continue to treat the trust “as if it were all his own money” and would “direct the trustees accordingly”.[30]The effect of this conclusion was, of course, that the children were found to be unlikely to benefit from the trust so that their interests could be ignored. The judge does not expressly deal with this and it is, in some respects, not entirely consistent with his attribution to the wife of 25% of the trust’s assets for the purposes of two of the calculations he undertook. However, the husband’s application for permission to appeal based on this aspect of the decision has been refused.[31]I have summarised above the calculations undertaken by the judge as part of his multi-faceted approach. Before dealing with them in more detail, I set out a summary of the assets used by him for the purposes of those calculations. Joint assets of £1.64 million; assets in the husband’s name of £490,000; assets in the wife’s name of £1.75 million (of which £928,000 was not matrimonial); and trust assets of £5.5 million. The combined total is just under £9.4 million.[32]The judge calculated the resources the wife would receive by reference to(i) needs;(ii) “mingled assets”;(iii) a “non-matrimonial calculation”; and(iv) the wife’s current proprietary rights plus 25% of the trust’s assets. (i) The first of these was a conventional assessment of the wife’s needs, including a capitalised income fund and a housing fund. The total was £3.47 million.[34](ii) The “mingled assets” calculation was based on providing the wife with half of the assets in the parties’ joint names; half the assets in the wife’s sole name (save for one asset which was not matrimonial property); the wife’s non-matrimonial asset; and 25% of the trust’s assets. The total was £3.53 million.[35](iii) The “non-matrimonial” calculation deducted the figure of £2.6 million (being the husband’s pre-marital wealth as referred to in paragraph 26 above) from the current total wealth of £9.4 million. The judge also deducted the wife’s non-matrimonial property (£928,000) giving a figure of £5.85 million for the matrimonial assets. Dividing this equally and adding the value of the wife’s non-matrimonial asset gave a total of £3.85 million as being the wife’s share of the total capital resources. The judge described this analysis as “thoroughly unreliable” and, as a result, it did not “found the basis of my decision”.[36](iv) The final calculation comprised the assets in the wife’s name, half the joint assets and, again, a 25% share of the trust’s assets, giving a total for the wife of £3.94 million.[37]I have set out above the additional reasons given by the judge for awarding the wife the sum required to meet her needs. He considered this to be the most principled and the most scientific. There was no material difference between the needs and the mingled assets calculations. He considered the non-matrimonial calculation unreliable. The judge also stated that the fourth calculation was “on a shaky foundation” because it ignored the origins of the wealth and, as referred to above, when he conducted an overview in accordance with Jones, “I considered it too high”.[38]In his supplemental judgment, the judge emphasised that his decision was “within the bracket” he had identified: his “multi-faceted approach led (him) to a bracket and the decision that (he) made was within that bracket”. He also reiterated that it was the “overview that I conducted (which) led” him to his determination of the award.

Submissions

[39]The parties’ respective cases can be summarised as follows.[40]Mr Mitchell submitted that the wife should receive approximately £5.1 million, being half of the assets plus her own non-matrimonial property. The husband would, accordingly, retain approximately £4.3 million.[41]Mr Mitchell submitted that, despite the judge’s reference to other calculations, his award was, in fact, quantified solely by reference to his calculation of the amount required to meet the wife’s needs. As a result, the wife’s award was the lowest of the calculations undertaken by the judge.[42]Two broad grounds of appeal were advanced. First, the judge’s determination that the husband’s pre-marital wealth justified an unequal division is challenged. This was, Mr Mitchell submitted, not permissible because, although the husband was wealthy at the start of the relationship, his litigation misconduct had made it impossible to make necessary findings either as to the “true value” of his pre-marital wealth or as to what had become of it during the marriage. The court was, therefore, unable to carry out the “formulaic approach” suggested by the Court of Appeal in Jones. In those circumstances, the court should have awarded the wife a half share.[43]Secondly, even if a departure from equality in the husband’s favour could be justified, notwithstanding the evidential shortcomings caused by him, the decision to base the award on the wife’s needs was arbitrary and denied her the greater award she would have received had the court been able properly to quantify the extent of the non-matrimonial and matrimonial property. The judge should have awarded the wife one of the higher figures arrived at in his calculations.[44]Mr Mitchell relied on a number of authorities. These included Charman, especially paragraph 66 in which the court dealt with the question of, “To what property does the sharing principle apply?”; and a number of decisions by Mostyn J including FZ v SZ (Ancillary Relief: Conduct: Valuations) [2011] 1 FLR 64; N v F; and JL v SL (No 2)(Appeal: Non-Matrimonial Property) [2015] 2 FLR 1202.[45]Mr Mitchell referred to the “two-step approach” identified by Mostyn J as being the right one in N v F, namely to “identify the scale of the non-matrimonial property to be excluded, leaving the matrimonial property alone to be divided in accordance with the equal sharing principle” (paragraph 11). Mr Mitchell also relied on Mostyn J’s observation that, “If a party is going to assert the existence of pre-marital assets then it is incumbent on him to prove the same by clear documentary evidence” (paragraph 24). This decision is also where the concept, used by Mr Mitchell in his submissions, of “mingling” makes, what I believe is, its first appearance when Mostyn J said (paragraph 9); “… the longer the marriage goes on the easier it is to say that by virtue of the mingling of the property with the product of the parties’ marital endeavours the supplier of that property has, in effect, agreed to share it with his spouse”.[46]Building, in particular on Jones and N v F, Mr Mitchell submitted that, if an unequal division is to be justified, the court must undertake a detailed evidential enquiry to establish a firm factual foundation. Ordinarily, pre-marital assets must be identified with sufficient clarity so that(a) their value at the start of the relationship can be ascertained and(b) the use to which they have been put during the relationship can be considered so as to determine whether they have become matrimonial in character.[47]During the course of his oral submissions, Mr Mitchell referred to the following overlapping evidential issues as being those which a court would need to consider:(a) what part of the current wealth has its origins in pre-marital wealth and what part is independent of it;(b) what part of the current wealth is the product of active management and what the product of passive management; and(c) has the pre-marital wealth been used in such a way that it has become matrimonial in character. Absent investigation of these issues and consequent findings, he submitted that the court would be unable to undertake the first part of the two-step approach referred to in N v F because the court would be unable to quantify what part of the current wealth is non-matrimonial.[48]Mr Mitchell took the court through the judgment below, pointing to references to the deficiencies in the husband’s evidence leading to the judge being unable to do more than arrive at a “wholly speculative” conclusion as to the value of the husband’s pre-marital wealth. The judge was unable, Mr Mitchell submitted, to come to “precise, reasoned evidence-based findings” about the scale of the pre-marital wealth and what had happened to it during the marriage meaning that he was unable properly to address essential issues such as, as referred to above, the extent of the marital acquest and the extent to which any pre-marital assets had become matrimonial in character through mingling or otherwise.[49]The husband had created these evidential difficulties through his litigation misconduct but it was the wife who bore the consequences because the judge took the lowest of his calculations as the basis for his award. Rather, he should have decided that the evidence did not justify a departure from an equal division. In this context, Mr Mitchell referred to the recent re-emphasis of a party’s disclosure obligations and the court’s duties under section 25 of the Matrimonial Causes Act 1973 Act (“the 1973 Act”) in, respectively, Sharland v Sharland [2015] 2 FLR 1367 (paragraph 22) and Gohil v Gohil [2015] 2 FLR 1289 (paragraph 22).[50]Further, Mr Mitchell submitted that a mere finding that the husband was wealthy at the start of the relationship was insufficient to justify an unequal division of the wealth. The evidence was too flawed to provide a reasoned basis for departing from an equal division.[51]Mr Armstrong submitted that the judge’s award was justified by the agreed fact that the husband was wealthy at the start of the parties’ relationship. It was not necessary for the judge to undertake a full accounting exercise. He tested each potential route to an award against the other and adopted an approach which reflected his conclusion that the sum calculated by reference to the wife’s needs was the fair outcome.[52]Mr Armstrong relied on C v C [2008] 1 FLR 8 in which I said, when a Family Division judge, that a financial account of the sources of a family’s wealth was not required in order to achieve a fair award (paragraph 4). I also considered that it would be unhelpful to suggest that the assessment of the extent to which departure from equality could be justified had to be calculated by reference to a formula or clear mathematics (paragraph 94).[53]Mr Armstrong also referred to Jones and JL v SL in support of his submission that the wife could not expect to receive a share of non-matrimonial property and that a court is entitled “to make fair overall allowance” for the husband’s pre-marital wealth and reach an award which accords with “overall fairness”: Jones (paragraphs 34 and 52). He submitted that the judge carried out just such an exercise.[54]The judge, he submitted, was duty bound to take the husband’s pre-marital wealth into account even with his findings as to the husband’s litigation conduct. Notwithstanding the evidential difficulties, this was a factor which was sufficiently evidenced to justify the judge’s approach and his conclusion. The award was within the bracket of reasonable awards.

The Legal Framework

[55]Before I deal with the court’s approach to matrimonial and non-matrimonial property, I propose to summarise the broader context, briefly, because this is a well-trodden path.[56]As Mr Mitchell said in the course of his introductory submissions, the court’s objective, when exercising its discretionary powers under section 25 of the 1973 Act, “must be to achieve a fair outcome”: Lord Nicholls in White (p. 604H). The three underlying principles or rationales, as articulated in Miller, are needs, sharing and compensation.[57]Sharing reflects marriage being a “partnership of equals” with each spouse being “entitled to an equal share of the assets of the partnership, unless there is good reason to the contrary”: Miller, Lord Nicholls (para 16). Lady Hale made similar observations when she referred to “sharing the fruits of the matrimonial partnership” (para 141). An equal partnership did not “necessarily dictate an equal sharing of assets” (para 142) but “there are many cases in which the approach of equal sharing of partnership assets … is … entirely feasible and fair” (para 143).[58]In Charman, this court identified the origins of, what has become the sharing principle, as being in the parties’ contributions (paragraph 66). Building on what had been said in White and Miller, the court concluded (in paragraphs 64 and 65) that a “proper evaluation under s.25(2)(f) of the parties’ different contributions … should generally lead to an equal division of their property unless there was good reason for the division to be unequal”.[59]Mr Mitchell, in the context of contributions, referred to Conran v Conran [1997] 2 FLR 615 in which Wilson J, as he then was, noted that the court “could not sensibly fit an allowance for contribution into an analysis of the wife’s needs” (p. 624C). Indeed, it could be said that, by the date of the decision in Conran, the specific statutory factor of contributions had assumed an unjustifiably diminished role in the determination of financial claims where the resources exceed needs. This resulted from the applicant’s reasonable financial requirements being determinative of the award leading to, what Lord Nicholls described in Miller as, the “glass ceiling” (para 8) which was shattered in White.[60]It is well established, as accepted by Mr Mitchell before us and as he told us he submitted to the judge, that the court’s award is the higher of that reached by the application of the sharing principle and that reached by application of the need principle. Indeed, following the removal of the glass ceiling, any other approach would represent a return to “the error into which the law had fallen before White”: Lady Hale in Miller (para 139).[61]I now turn to the court’s approach to non-matrimonial and matrimonial property when applying the sharing principle. I address the reasons underpinning their different treatment in the discretionary exercise and the question of whether the court’s approach should be formulaic or can be broader. I also address the manner in which, in my view, the court should deal with this issue in practical terms as a matter of case management and determination.[62]The classification of property as non-matrimonial or matrimonial is relevant in the application of the sharing principle because the court is seeking to establish the extent to which the current assets owned by the parties comprise or reflect the product of marital endeavour and the extent to which they do not. This arises because, as explained below, the sharing principle applies with force to matrimonial property but does not apply, or applies with significantly less force, to non-matrimonial property.[63]The court’s approach to non-matrimonial property has developed in the years since the decision in White. In that case such property was viewed as a contribution made by one spouse. The weight to be given to it would depend on the circumstances – such as the “nature and value of the property, and the time when and the circumstances in which the property was acquired”: Lord Nicholls (p. 994).[64]The introduction of the sharing principle in Miller raised the issue of what property was within the scope of this principle. The House of Lords did not directly answer this question but approached the exercise of the statutory discretion from the same perspective as that set out in White, namely whether the existence of such a contribution justified a departure from equality. It is, however, clear from Miller that, as expressed by Lord Nicholls, “there is a real difference, a difference of source, between” matrimonial and non-matrimonial property. Accordingly, when exercising the statutory discretion, the court did not have to “treat all property in the same way”: Lord Nicholls (paragraph 22). Lady Hale observed that, in White, “it was recognised that the source of the assets might be a reason for departing from the yardstick of equality” though “the importance of the source will diminish over time” (paragraph 148).[65]A possible interpretation of Miller could have been that the sharing principle applied only to matrimonial property. This was, however, not the conclusion reached by this court in Charman. The principle applies to “all the parties’ property but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality” (paragraph 66).[66]Having said that, I am not aware of any case decided since Charman in which a spouse has been awarded a share of non-matrimonial property by application of the sharing principle. In K v L (Non-Matrimonial Property: Special Contribution) [2011] 2 FLR 980 Wilson LJ, as he then was, noted the absence of any such decision before commenting that: “Such a decision will no doubt be made – but not in this court today” (paragraph 22). There has still been no such decision and, during the course of the hearing before us, this led to a brief discussion about the “white leopard” referred to by Mostyn J in JL v SL (No 2) (paragraph 22). However, because this issue does not arise directly in this appeal it is not necessary to consider it further. The question of whether, if it is open for this court so to decide, the sharing principle only applies to matrimonial property must await another case although I note, in passing, what Wilson LJ said in K v L about the “ordinary consequences” of the application of the sharing principle (paragraph 21) and what he said in the Privy Council’s decision of Scatliffe v Scatliffe [2017] AC 93 (paragraph 25) about the sharing principle being applied to the matrimonial property in the “ordinary case”.[67]The exercise on which the court is engaged, when applying the sharing principle in this context, is, therefore, to determine whether the current assets owned by the parties, or within the scope of section 25(2)(a), comprise the product of marital endeavour. The court must then decide how that determination should impact on the court’s award. This raises(a) an evidential issue, namely a factual determination which has been described in terms of identifying whether property is matrimonial or is non-matrimonial but which, in my view, is often more nuanced than this because property can be a combination of the two; and(b) an evaluative or discretionary issue, namely the manner in which the factual determination is weighed when the court is undertaking the section 25 exercise and deciding what award to make.[68]Put in simple terms, the court ultimately has to decide, as part of the discretionary exercise, how to weigh or reflect the existence of non-matrimonial property when determining the award. A key question which has emerged, and which is engaged in the current case, is whether this should be undertaken in a formulaic manner or whether the court can adopt a broader approach. Before answering this question, I propose to refer to, what I consider to be, relevant observations or guidance from some of the authorities starting with Miller.[69]In Miller Lord Nicholls addressed the approach which the court should take under the heading “Flexibility”:
“[26] This difference in treatment of matrimonial and non-matrimonial property might suggest that in every case a clear and precise boundary should be drawn between these two categories of property. This is not so. Fairness has a broad horizon. Sometimes, in the case of a business, it can be artificial to attempt to draw a sharp dividing line as at the parties' wedding day. Similarly the ‘equal sharing' principle might suggest that each of the party's assets should be separately and exactly valued. But valuations are often a matter of opinion on which experts differ. A thorough investigation into these differences can be extremely expensive and of doubtful utility. The costs involved can quickly become disproportionate. The case of Mr and Mrs Miller illustrates this only too well. [27] Accordingly, where it becomes necessary to distinguish matrimonial property from non-matrimonial property the court may do so with the degree of particularity or generality appropriate in the case. The judge will then give to the contribution made by one party's non-matrimonial property the weight he considers just. He will do so with such generality or particularity as he considers appropriate in the circumstances of the case.”
[70]Lady Hale noted, as referred to above, that “the importance of the source of the assets will diminish over time”. She also commented that: “As the family’s personal and financial inter-dependence grows, it becomes harder and harder to disentangle what came from where” (paragraph 148).[71]In C v C, I expressed the view that Miller did not require a financial account to be undertaken for the purposes of seeking to establish what element of the parties’ wealth should be characterised as matrimonial property. I also expressed concern about the potential for expensive investigation if the court was required to search for clear and precise boundaries:
“[39] It will already be apparent that I am reluctant to encourage such disputes. It would require the courts and the parties, to adopt that well-known metaphor used by Coleridge J in G v G (Financial Provision: Equal Division) [2002] 2 FLR 1143, to ‘rummage around in the attic', but worse, in my view, an even more dusty and opaque part of the attic than that being explored in G v G. Further, the more influential the factual conclusion might be seen to be in determining the outcome, the more the parties would be willing to devote time and money on the investigation with the full panoply, for example, of accountants and other valuers. It also assumes that the concepts being sought are clearly identifiable. [40] I do not consider that this is what the House of Lords in Miller and McFarlane intended when giving the general guidance contained in that decision …”
A bit later I concluded that:
“[48] … a flexible approach is required to ensure that the court's focus remains on achieving a result which is fair. Of course, as the Court of Appeal said in Charman, judges must be loyal to the guidance given on a topic by the House of Lords. However, it is the application of guidance, not the rigid application of any specific formula coupled with a requirement to find clear and precise boundaries. The approach I propose to adopt is to set out the relevant factors drawn from s 25 and then to consider the principles of need and sharing, neither party having submitted that this is a case in which the principle of compensation has any application.”
[72]In FZ v SZ Mostyn J (paragraph 143) expressed the firm view that the non-matrimonial property needed to be identified and quantified in order “to inform the percentage share”. Any other approach ran the risk of “palm-tree justice being applied”.[73]Jones is a decision which featured prominently in the judgment below. The bulk of the wealth at the date of the final hearing had come from the proceeds of the sale of the husband’s company which he had started some 10 years before the marriage and sold just over a year after the parties had separated.[74]In that case Wilson LJ, “in the first instance”, adopted a mathematical, formulaic, approach when dividing the assets into “the part reflective of non-matrimonial assets and that reflective of matrimonial assets” (paragraph 33). Following what Lord Nicholls had “stressed” in Miller, he commented that, “we are unlikely to need, still less to achieve, a precise division” (paragraph 33). Wilson LJ then proposed to “test” the result suggested by that approach against the approach of “identifying, for allocation to the wife, such lesser percentage than 50% of the total assets as seems to make fair overall allowance for the husband’s introduction of his company into the marriage” (paragraph 34).[75]Having conducted the formulaic approach, and arrived at a proposed award of £8 million (being 32% of the wealth), Wilson LJ tested this against the broader approach. His conclusion was (paragraph 52):
“My view of overall fairness to both parties, developed at an early stage and not displaced in the course of protracted subsequent reflection, is that … the bracket fair to both would be between 30% and 36%”
. The proposed award, being within this bracket, survived this test.[76]Wilson LJ viewed both approaches as being, in different ways, “highly arbitrary”. Indeed, he viewed the application of the sharing principle itself as being “inherently arbitrary” (paragraph 35). One specific element in the mathematical approach which he identified as being highly arbitrary was the value he ascribed to the husband’s company at the date of the marriage. Wilson LJ increased the accountants’ agreed valuation of £2 million to £4 million, for reasons set out in the judgment and which I do not propose to repeat. In his view, this reinforced “the need to test against some other approach the conclusion ultimately reached by reference to” the mathematical approach (paragraph 43).[77]In response to Wilson LJ’s use of the word arbitrary, I have previously suggested that he is using the word to refer to the fact that the exercise is discretionary, or has significant discretionary elements, rather than it being susceptible solely to the application of a precise formula: Goddard-Watts v Goddard-Watts [2017] 2 FLR 114. I adhere to that view.[78]Further, however, it is important to note that Jones used both a mathematical and a broad approach to determine the fairness of the proposed award. It is also important to note that both approaches arrived, effectively, at the same outcome. In my view, this demonstrates, through the use of both approaches and by reference to the respective outcomes, that both methods provide a permissible route to arriving at a fair determination. Indeed, the importance of the broad assessment is highlighted in the judgments of the other members of the court. Arden LJ referred to “the cross-check of overall fairness (in paragraph 52) … (as) an essential part of the reasoning for my concurrence in the result in this case” (paragraph 64). Sir Nicholas Wall P also applied his view of “overall fairness to both parties” to arrive at a bracket for the award of between 30% and 36%.[79]Jones refers to another feature of relevance, namely the relevance of passive growth. Wilson LJ, when addressing the difference between matrimonial and non-matrimonial property, endorsed what Mostyn J, then sitting as a deputy High Court judge, had said in Rossi v Rossi [2007] 1 FLR 790 about passive growth. Wilson LJ said (paragraph 46):
“Take a work of art or land with potential for development which a spouse has owned since prior to the marriage and which, without activity on his or her part, has substantially increased in value during it. The court would accept that the increase in its value during the marriage was as much non-matrimonial as its value at the date of the marriage: it would thereby allow for its passive growth. Passive growth is to be contrasted with growth as a result of contributions of one sort or another made during the marriage, i.e. of activity, irrespective of whether such is achieved with the assistance of a springboard already in position. An analogous approach is apt in respect of assets inherited by, or given to, one spouse during the marriage.”
This reflects matrimonial property being, to repeat Lord Nicholls’ description, “the financial product of the parties’ common endeavour”. In Jones itself, an allowance for passive growth was made by increasing the £4 million value, referred to above, by reference to a FTSE index.[80]In K v L, a case in which there was no matrimonial property, the only assets being the wife’s inherited shareholding in a public company, Wilson LJ picked up Lady Hale’s comment in Miller, about the effect of time, and suggested that the “true proposition” was that the “importance of the source may diminish over time” (rather than will). He went on to give three examples (paragraph 18):
“Three situations come to mind: (a) Over time matrimonial property of such value has been acquiredas to diminish the significance of the initial contribution by onespouse of non-matrimonial property. (b) Over time the non-matrimonial property initially contributed hasbeen mixed with matrimonial property in circumstances inwhich the contributor may be said to have accepted that it shouldbe treated as matrimonial property or in which, at any rate, thetask of identifying its current value is too difficult. (c) The contributor of non-matrimonial property has chosen toinvest it in the purchase of a matrimonial home which, althoughvested in his or her sole name, has – as in most cases one wouldexpect – come over time to be treated by the parties as a centralitem of matrimonial property. The situations described in (a) and (b) above were both present in White v White. Bycontrast, there is nothing in the facts of the present case which logicallyjustifies a conclusion that, as the long marriage proceeded, there was adiminution in the importance of the source of the parties’ entire wealth, at alltimes ring-fenced by share certificates in the wife’s sole name which to a largeextent were just kept safely and left to reproduce themselves and to grow invalue.”
[81]In N v F Mostyn J made a number of observations including that “the treatment of pre-marital property is highly fact specific and very discretionary” (paragraph 7). In addition to mingling, as referred to above, Mostyn J also identified what he considered to be “two schools of thought” (paragraph 10):
“Where it is decided that the existence of pre-marital property should be reflected, there are two schools of thought as to how its expression should be worked out. The first is the technique of simply adjusting the percentage from 50%. This technique finds its clearest expression in Charman (No 4) at para [66] …”
Then, after referring to C v C, he continues: 82. [11] The alternative technique is to identify the scale of the non-matrimonial property to be excluded, leaving the matrimonial property alone to be divided in accordance with the equal sharing principle.” He concludes by adhering to his view that the two-step approach is the right one “generally speaking” (paragraph 14). It is also interesting to note that Mostyn J excluded only £1 million of the husband’s pre-marital wealth of £2 million on the broad basis that the marriage was long and the “moneys were well and truly mingled with marital finds” (paragraph 44), although he added that, but for needs, he would have excluded £2 million.

Then, after referring to C v C, he continues:

[82]The final decision to which I propose to refer is JL v SL (No 2). In that case Mostyn J considered that, what Wilson LJ had said in K v L (paragraph 21) about the “ordinary consequence of the application of the sharing principle to non-matrimonial property (paragraph 21), mandated “that the court should always attempt to determine the partition between matrimonial and non-matrimonial property” (paragraph 25).

Conclusions

[83]I have referred to the cases above to assist with answering the question I posed in paragraph 61 above, namely whether the court’s approach to the impact of non-matrimonial property should be formulaic or can be broader. I now propose to address my conclusions.[84]In my view, the court is not required to adopt a formulaic approach either when determining whether the parties’ wealth comprises both matrimonial and non-matrimonial property or when the court is deciding what award to make. This is not necessary in order to achieve “an acceptable degree of consistency”, Lord Nicholls in Miller (paragraph 6), or to achieve a fair outcome. Indeed, I consider that the present case demonstrates the difficulties which can arise if a court strives to adopt a formulaic approach in circumstances where that is not likely to be easily achieved because of the nature of the financial history.[85]It is, perhaps, worth reflecting that the concept of property being either matrimonial or non-matrimonial property is a legal construct. Moreover, it is a construct which is not always capable of clear identification. An asset can, of course, be entirely the former, as in many cases, or entirely the latter, as in K v L. However, it is also worth repeating that an asset can be comprise both, in the sense that it can be partly the product, or reflective, of marital endeavour and partly the product, or reflective, of a source external to the marriage. I have added the word “reflective” because “reflect” was used by Lord Nicholls in Miller (paragraph 73) and “reflective” was used by Wilson LJ in Jones (paragraph 33). When property is a combination, it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset’s value. The exercise is more of an art than a science.[86]In my view, the guidance given by Lord Nicholls in Miller remains valid today and, indeed, bears increased weight in the light of the courts’ experience since that case was decided. It can, as he said, be artificial to attempt to draw a “sharp dividing line”. Valuations are a matter of opinion on which experts can differ significantly. Investigation can be “extremely expensive and of doubtful utility”. The costs involved can quickly become disproportionate. Proportionality is critical both because it underpins the overriding objective and because, to quote Lord Nicholls again: “Fairness has a broad horizon”.[87]In addition, with due respect to Mostyn J’s extensive experience in this field, I am not sure there are different schools. In my view, the differences which he identifies are examples of the same principle being applied, but applied in a different manner depending on the circumstances of the case. One application may be more specific than the other but this will typically reflect the “degree of particularity or generality appropriate in the case”: Miller (paragraph 27). The outcome will be the same, namely, when justified, an unequal division of the parties’ property.[88]The principle which is being applied is that the sharing principle applies with force to matrimonial property and with limited or no force to non-matrimonial property. How should this principle be applied in practice when the existence of non-matrimonial property is being asserted?[89]First, a case management decision will need to be made as whether, and if so what, proportionate factual investigation is required. As the Supreme Court said in Wyatt v Vince [2015] 1 FLR 972 (paragraph 29) the overriding objective requires the court to manage financial remedy proceedings cases actively and to identify those issues which need full investigation and those which do not. This was reiterated in Sharland v Sharland [2015] 2 FLR 1367 in which Lady Hale refers to there being “enormous flexibility to enable the procedure to fit the case” (paragraph 43).[90]It may be, for example, that the external contribution can immediately be seen to be sufficiently insignificant in the context of the case that it warrants no further enquiry. It may be, at the other end of the spectrum, that there is clearly no matrimonial property so that there is also no need to undertake any further factual investigation. In other words, if the facts clearly demonstrate the existence of a “sharp dividing line” the court will use that line for the purposes of determining what award to make. If, on the other hand, the enquiry would require an account to be undertaken of the marriage and/or some other expensive investigation and/or would be of “doubtful utility”, the court could be expected to decide that such an enquiry was neither proportionate nor required to enable the court to achieve a fair outcome. If some further enquiry is warranted, the court will have to determine what “degree of particularity or generality” is required. Where, in the spectrum, any particular case lies is for the court to decide.[91]Secondly, the court will need to make such factual decisions as the evidence enables it to make. In this context, I do not agree with Mostyn’s comment in N v F that a party would need to prove the existence of pre-marital assets “by clear documentary evidence” (paragraph 24). There is no reason to limit the form or scope of the evidence by which the existence of such property can be established. The normal evidential rules apply. These include the court’s ability to draw inferences if such are warranted.[92]The court may decide that the non-marital contribution is not sufficiently material or bears insufficient weight to justify a finding that any property is non-matrimonial.[93]Alternatively, if the evidence establishes a clear dividing line between matrimonial and non-matrimonial property, the court will obviously apply that differentiation at the next, discretionary stage.[94]If, however, at the other end of the spectrum, there is a complicated continuum, it would be neither proportionate nor feasible to seek to determine a clear line. C v C was an example of such a case. In those circumstances the court will undertake a broad evidential assessment and leave the specific determination of how the parties’ wealth should be divided to the next stage. As I have said, where in the spectrum a case lies depends on the circumstances of the case and is for the judge to decide.[95]The third and final stage of the process is when the court undertakes the section 25 discretionary exercise. Even if the court has made a factual determination as to the extent of the parties’ wealth which is matrimonial property and that which is not, the court still has to fit this determination into the exercise of the discretion having regard to all the relevant factors in this case. This is not to suggest that, by application of the sharing principle, the court will share non-matrimonial property but the court has an obligation to determine that its proposed award is a fair outcome having regard to all the relevant section 25 factors.[96]If the court has not been able to make a specific factual demarcation but has come to the conclusion that the parties’ wealth includes an element of non-matrimonial property, the court will also have to fit this determination into the section 25 discretionary exercise. The court will have to decide, adopting Wilson LJ’s formulation of the broad approach in Jones, what award of such lesser percentage than 50% makes fair allowance for the parties’ wealth in part comprising or reflecting the product of non-marital endeavour. In arriving at this determination, the court does not have to apply any particular mathematical or other specific methodology. The court has a discretion as to how to arrive at a fair division and can simply apply a broad assessment of the division which would affect “overall fairness”. This accords with what Lord Nicholls said in Miller and, in my view, with the decision in Jones.[97]Finally, I would repeat that fairness has a broad horizon. I recognise, of course, the need for clear guidance and principles when the court is given a discretion as wide as that contained in section 25 of the 1973 Act. Such clarity not only assists judges when determining financial claims but also enables those seeking to resolve the consequences of their separation and divorce, as it has been described, “to bargain in the shadow of the law”: Matrimonial Property, Needs and Agreements 2014 (Law Com No 343) paragraph 3.6. However, this should not lead to the imposition of constraints which are not needed to achieve, and which deprive the court of the flexibility required to achieve, a fair outcome.

Determination

[98]Having set out my conclusions on the law and the approach to be taken when non-matrimonial property is raised as an issue, I can deal with my determination of this appeal more shortly.[99]It follows from what I have said above, that the judge was not required to seek to follow the formulaic approach used in Jones. It also follows that I do not accept Mr Mitchell’s submission that the court must undertake a detailed evidential enquiry whenever the issue of non-matrimonial property is raised. The court does not have to investigate the issues referred to by Mr Mitchell as set out in paragraph 47 above. The extent of the enquiry and the manner in which this factor is taken into account when the court is exercising its discretion can have varying degrees of specificity or generality as referred to above.[100]In my view, having regard to the financial history in this case, the judge’s task would have been more proportionate to the issues, if he had felt able to adopt a broader approach both when determining the necessary facts and when applying those in the discretionary exercise. I fully understand why he felt he had to try and apply the formulaic approach but this was not necessary to achieve a fair outcome.[101]Accordingly, I do not accept Mr Mitchell’s first ground of appeal, namely that because the judge was unable to carry out the formulaic approach, in part because the judge was unable to ascertain the “true value” of the husband’s pre-marital wealth, he should have awarded the wife a half share. Deficiencies in evidence and/or litigation conduct do not mandate a particular outcome. A judge still has to make findings on such evidence as there is, including by drawing such fair inferences (as in Prest v Petrodel Resources Ltd [2013] 2 FLR 732, paragraph 47) or adverse inferences as may be appropriate.[102]This applies equally in the present case, notwithstanding the judge’s findings as to the deficiencies in the husband’s evidence. I acknowledge the strength of the judge’s criticisms as to the extent of the husband’s failures but the judge was still required to make such findings as he considered justified. Even in cases where a respondent has failed to engage at all with the process, a court will still have to make findings, however broad or abbreviated, as to the scale of the resources. This is because, inevitably, the judge will have to determine that the proposed award is one which the respondent can meet and which is fair.[103]In making these observations, I fully acknowledge the strength of Mr Mitchell’s submissions as to the effect of the husband’s conduct during the proceedings. Although not referred to during the hearing his point is supported, for example, by what Thorpe J (as he then was) said in F v F (Divorce: Insolvency) [1994] 1 FLR 359. If, what Thorpe J called, “the obscurity of my final vision” has been caused by one party’s conduct and “results in an order that is unfair to him, it is better that than I should be drawn into making an order that is unfair to the wife”: p. 367C/D.[104]However, despite the strength of those submissions, in my view, the judge was nevertheless entitled to reach the conclusions which he did. He concluded that the husband’s pre-marital wealth had to be taken into account and that, as a result, “an equal division of the assets would be unfair”. The judge was plainly entitled to find that the husband had substantial wealth at the commencement of the relationship, because this was agreed. Further, he was also entitled, when determining how to exercise his discretion, to conclude that an equal division would be unfair to the husband and, equally, that an unequal division would be fair to the wife.[105]The judge had a profound understanding of all the evidence and was fully aware of, and clearly took into account, the husband’s litigation misconduct and the effect this had on his ability to make specific additional findings. The judge’s inability to make specific findings, for example, as to the value of the husband’s pre-marital wealth or the course of the husband’s businesses during the marriage or the extent to which the property had become mixed with marital property, did not deprive him of the ability to conclude that an unequal division was fair. None of Mr Mitchell’s submissions undermine this element of the judgment. Indeed, in my view, the judge would have been wrong if he had concluded that all the parties’ wealth should be deemed to be or treated as solely matrimonial property.[106]Mr Mitchell’s submissions have considerably more force when he questions why the judge awarded the wife his needs calculation when all his other calculations were for higher amounts. This part of the wife’s case has made me reflect carefully whether the judge did, indeed, fall into error.[107]After, as I have said, much reflection, I have come to the conclusion that the judge did not fall into error when awarding the wife £3.5 million. Mr Mitchell is entitled to question why the judge did not award the wife the amount reached by his other calculations. But, in my view, the judgment sufficiently demonstrates that, by not doing so, his decision was not flawed.[108]I would first observe that a judge as experienced in financial cases as this judge would be very unlikely to have overlooked the principle that an award should be the greater of the amounts reached by application of the sharing principle and that reached by application of the needs principle. In my view, this would be too fundamental an oversight to be a realistic conclusion, especially as Mr Mitchell specifically reminded the judge of this principle. I would add that, given the circumstances of this case and the nature of the judgment, it would clearly have been better if this had been stated explicitly by the judge.[109]Secondly, I consider that much of the tension in the judgment between the ultimate award and the judge’s other calculations arises from the fact that he felt compelled to seek to apply a formulaic approach. However, as he makes very clear in his judgment, he did not consider that those other calculations were standing on secure foundations. As he said, the last calculation (paragraph 37 above) “ignores the origins of the capital”. He was entitled, indeed I would say he was right, to decide that it was wrong to ignore those origins. As for the non-matrimonial calculation, the judge also considered that this was unreliable. In other words, he must clearly have also decided that it gave insufficient weight to the origins of the capital. I appreciate that this is possibly reading more into the judgment than it currently contains but it fits with an earlier observation the judge made that, if he had underestimated the husband’s past wealth, the husband had only himself to blame.[110]However, the main reason I have concluded that the judge’s award cannot be successfully challenged, is that the judge independently conducted an overview of the case to ensure that his proposed award was fair. He expressly performed the alternative approach endorsed in Jones and which, as set out in Jones, he had to perform at some stage of the process he was seeking to undertake so as to test his other tentative conclusions or as a “cross-check” (although, as I have said, in my view, he could have used this approach directly in any event). This approach required him to assess what weight to give to the husband’s pre-marital wealth when assessing the extent to which the parties’ current wealth reflected marital endeavour and the extent to which it did not. The judge plainly concluded that his proposed award gave proper weight to that factor. Equally, he plainly must have concluded that a higher award, as postulated by his other calculations, would not give proper weight to that factor and, accordingly, would not be fair. This was a conclusion which the judge was entitled to reach and is an evaluative or discretionary decision which is not undermined by Mr Mitchell’s powerfully advanced submissions.[111]I would, finally, reiterate, to deal with one specific submission made by Mr Mitchell, that I do not consider the wife has suffered the consequences of the husband’s litigation misconduct. The judge was plainly aware of this factor and, nevertheless, concluded that his proposed percentage award was fair. His award was not outside the bounds of fairness, as suggested by Mr Mitchell, but was one which was plainly within the bounds of his discretion.[112]Accordingly, I propose that this appeal is dismissed.[113]I agree.[114]I also agree.

Cited in 45 later judgments

and 36 more of the most senior