Wood v Rost [2007] EWHC 1511 (Fam)

[2007] EWHC 1511 (Fam)Case No FD 248 of 1996Date 18/06/2007
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
Before
Mr. PETER HUGHES QC
BETWEEN:-
Between
KENNETH McDonald WOODPetitionerJAYNE PATRICE ROSTRespondent
James Turner QC and Richard Scarrett (instructed by Crisp & Co) for Applicant/RespondentMr Wood in person for in personHearing Dates 29 th, 30 th, 31 st May, 1 st and 4 th June 2007
Judgment

Mr Peter Hughes QC:

[1]If Charles Dickens were alive today, the twists and turns of this litigation, conducted at vast expense, would provide him with ample copy for a 21st century sequel to Bleak House.[2]The proceedings concern the interpretation and enforcement of an agreement to compromise ancillary relief proceedings, which was incorporated into an order of the court approved by Singer J. as long ago as the 28th November 2001.[3]The parties were at one time husband and wife, and, for ease of reference, I will continue to describe them as such, although they are now divorced. They were married in 1979, and have two children, both of whom are grown up and independent. Following the breakdown of the marriage divorce proceedings were commenced eleven years ago, in 1996. At one stage the proceedings were contested and there were cross petitions, but eventually the divorce was resolved and attention moved on to the ancillary relief proceedings.[4]The parties were equal shareholders in a computer software business carried on through various companies, known collectively as the MIS Group (MIS). It specialised in providing software programmes to the banking industry. In 2001 MIS sold the assets of the business and the intellectual property rights to its software programmes to Thompson Financial Ltd (TFL). The date of completion of the sale was the 26th June 2001. MIS was thereafter to be wound up and dissolved, save for one holding company which was to be retained for pension purposes.[5]The final hearing of the ancillary relief proceedings was fixed for November of the same year. The parties were to be represented by eminent members of the Family Bar specialising in “big money” cases; the wife by Nicholas Mostyn QC and Richard Scarratt, and the husband by Lewis Marks (now QC).[6]The proceedings had been hard fought, and there was a degree of mistrust, particularly on the wife’s side, of the husband. An FDR hearing before Bennett J. had failed to achieve a settlement. In the days leading up to the final hearing various proposals and counter-proposals were made, and Mr Mostyn and Mr Marks had discussions to try and narrow the differences between them.[7]Mr Mostyn, fortified by the decision of the House of Lords in White v White [2001] 1 AC 596 was seeking to achieve an equal distribution of the assets. A particular bone of contention between the parties concerned certain secondary consideration to which the husband might become entitled from TFL. This was contingent on him continuing to work for TFL and on the trading performance of the MIS product after the sale. The wife sought a share of this secondary consideration, and the husband was trying to resist it, his stance having, apparently, received some support from remarks made by Bennett J. at the FDR.[8]From the discussions between counsel emerged the bones of an agreement which each felt able to recommend to his client. Mr Mostyn prepared a draft agreement and order which underwent some revisions and refinements before finally being accepted and presented for approval to Singer J.[9]The present proceedings were directed to three areas of the agreement – the first concerning the terms of the lump sum provision for the wife, the second the terms of a provision for residual assets or liabilities on dissolution of MIS to be shared equally, and the third the terms of the reapportionment of the parties pension rights. Happily, I have not been burdened with the third issue, as it was resolved during the hearing.

The Agreement and Consent Order

[10]The document setting out the agreement and order, which Singer J. was asked to approve extends to over six pages. It contains a definition section, a preamble setting out the agreement, and the order itself. It is, therefore, a carefully constructed and detailed document. I do not propose to quote it in full and will set out only those parts that are relevant to the issues in these proceedings.

(a) The first issue

[11]Paragraph 3 of the order provided - “The husband to pay to the wife three lump sums as follows(a) £100,000 from the Bryan Cave Fund, such sum to be paid within 7 days of the date of this order;(b) Subject to agreement 5 above £200,000 from the first tranche to be paid within 14 days of receipt;(c) Subject to agreement 5 above £200,000 from the second tranche to be paid within 14 days of receipt.” (a) £100,000 from the Bryan Cave Fund, such sum to be paid within 7 days of the date of this order; (b) Subject to agreement 5 above £200,000 from the first tranche to be paid within 14 days of receipt; (c) Subject to agreement 5 above £200,000 from the second tranche to be paid within 14 days of receipt.”[12]The Bryan Cave Fund referred to a sum of US$700,000 held by the solicitors who had acted for MIS on the sale to TFL. It represented part of the primary consideration paid under the sale agreement. The first and second tranches referred to two further instalments of the primary consideration to be paid by TFL under the sale agreement.[13]Clause 5 of the agreement, referred to in paragraph 3 of the order, provided – “The liability of the husband to make the lump sum payments referred to in paragraph 3(b) and (c) below is dependent upon him receiving the first and second tranches. If the husband does not receive the full amount of the first and/or second tranches then his liability shall be rateably reduced.” [the italics are mine][14]The husband’s entitlement to the first and second tranches was governed by the sale agreement. The primary consideration to which he was entitled came to US$2,700,000. By reason of clause 4(2), it was payable in three stages –(i) US$1,200,000 on conclusion of the sale agreement (the 26th June 2001);(ii) US$1,000,000 on the 26th June 2002 [the first anniversary]; and(iii) US$500,000 on the 26th June 2003 [the second anniversary][15]Under an associated service agreement, provision was made for the husband to be employed by TFL on a 2 year contract at a salary of £200,000 per annum [i.e. until the second anniversary of the sale], but terminable by him on three months notice.[16]Clause 4(3) of the sale agreement provided – “In the event that Ken Wood:(a) has terminated or given notice to terminate the Service Agreement; or(b) has been dismissed for a reason set out in clause 15.1 of the Service Agreement, then any part of the Consideration which has not become due and payable shall never become due and payable.” [the italics are mine] (a) has terminated or given notice to terminate the Service Agreement; or (b) has been dismissed for a reason set out in clause 15.1 of the Service Agreement, then any part of the Consideration which has not become due and payable shall never become due and payable.” [the italics are mine][17]The reasons set out in clause 15.1, covered, as one might expect, circumstances such as gross misconduct, fraud and dishonesty.[18]Clause 1 of the agreement provided for the wife to receive 20% of any secondary consideration the husband might receive, net of tax. The secondary consideration was a sum of, potentially, up to US$6,000,000 payable over a period up to December 2005 on an “earn out” basis in accordance with a formula set out in the sale agreement.

(b) The second issue

[19]Clause 8 of the agreement provided – “In the event of any net surplus arising on the MIS liquidation, such is to be divided equally between the husband and the wife. In the event of a shortfall arising, for which the husband and/or the wife is or are personally liable, then they shall contribute equally thereto. The husband and wife hereby warrant to each other that neither has given any guarantee(s) which may give rise to any such personal liability and the husband warrants that he knows of no such liability of a substantive nature which he has not previously disclosed to the wife.” [again the italics are mine].[20]“The MIS liquidation” is defined in the definition section of the agreement to mean “the liquidation presently being undertaken of the subsidiaries of MIS Holdings Ltd and of the Honk Kong MIS Banking Systems Ltd.” (c) The third issue[21]Clause 2 of the agreement provided for £139,000 from the husband’s share of the pension funds to be transferred to the wife’s share. This was in the days before it became possible to make pension sharing orders. The intention behind the provision was to re-allocate the pension assets 60/40 in favour of the husband, who is older than the wife, and £139,000 was the amount required to achieve this at the date of the order.[22]What happened – perhaps inevitably – was that there was delay in implementation, by which time £139,000 was no longer the right figure to achieve a 60/40 re-allocation. The transfer of the £139,000 was only made in July last year. What has been agreed after interminable correspondence and much to-ing and fro-ing is the obvious, sensible, and fair solution that the amount transferred should be further adjusted to ensure a 60/40 re-allocation as at the date of transfer. The hearing before Singer J.[23]The hearing was relatively brief, and typical of such occasions, where an agreement, carefully negotiated and set down in writing by highly experienced practitioners, is put before a judge for approval.[24]The judge was provided with a schedule setting out the assets and the proposed distribution and percentage effect. Mr Mostyn QC took him to that document, and, as the transcript records, said - “So your Lordship can see that … all the liquid assets in this case, excluding pensions, are being divided 50-50, so the parties have just under a million each…..The pensions are being divided 60-40, that is what the 139 does. So the totality of the assets excluding secondary considerations are being divided 53-47.”[25]Mr Marks was invited to add anything he wished, and, from the transcript seems to have been a man of few words and a paragon of economy.[26]Mr Mostyn referred the judge, also, to the provision in clause 8 of the agreement relating to the division of any residual assets or liabilities of MIS. He said that the “liquidation” was going to relate only to the trading companies and that the holding company would remain in being. A little later he continued – “The anticipation is that there will be neither surplus nor deficit. Indeed so far as deficit is concerned, the husband has warranted, as has the wife, that neither has given a guarantee. The husband has also warranted that he does not know of any significant liability which he has not previously disclosed. My client really wants to make this point. She has not seen the closing accounts. She has not had any dealings with the liquidators who are winding up the company, so she is entering into this in good faith and trust of the husband that there is nothing there that has not been revealed of any nature which might expose her to any liability under paragraph 8”[27]It is apparent from that passage that Mr. Mostyn was under the impression that the winding up of MIS was being handled by duly appointed liquidators. No doubt this was also Mr. Marks’ understanding.

What happened after

[28]The second tranche never became payable because before the due date the husband had left his employment with TFL. The wife, therefore, did not receive the third lump sum of £200,000 which she was expecting in July 2002.[29]The effect of this on the balance of the distribution of the assets can be seen in the following table. Wife Husband Percentage (approx) Asset Value Asset Value Home £470,000 Home £250,000 Capital £70,000 Policies £37,167 Lump Sum 1 £100,000 Balance of Cave Fund £352,958 Sub total £640,000 £640,125 50/50 Lump Sum 2 £200,000 Balance – Tranche 1 £363,380 Sub total £840,000 £1,003,505 45/55 Lump Sum 3 £200,000 Balance – Tranche 2 £81,690 Grand total £1,040,000 £1,085,495 50/50 (Mr Mostyn referred at the hearing to the parties having just under £1,000,000 each, but the schedule put before the judge seems not to have included the wife’s capital of £70,000, and to have understated the balance due to the husband after paying the second lump sum by £50,000. The two figures, roughly, cancel out each other.)[30]Whereas the wife should have received £1,040,000, a smidgeon under 50%, plus the possibility of 20% of any secondary consideration, she actually received £200,000 less and her percentage share went down to 45%.[31]Furthermore, when she applied to the court for directions in November 2002 the husband countered with a claim under clause 8 of the agreement for half the shortfall on the dissolution of MIS. Originally he put the overall shortfall at £223,132.37. The amount has come down since. He now says it was, in total, £105, 337.46, and claims half this figure, namely £52,668.73.[32]The path of the litigation, over a period of over 4 ½ years, to the present hearing has been long and tortuous. Initially the husband was representing himself. He then engaged the services of the solicitors who had acted for him in the ancillary relief proceedings, Davenport Lyons, and for a time the services of Mr Andrew Moylan QC (as he then was). Mr Mostyn and Mr Marks both became drawn into the proceedings as witnesses, and filed affidavits of their recollections of the negotiations and discussions prior to the hearing before Singer J. The husband then dispensed with the services of his legal advisers and reverted to representing himself. Hearings were aborted because of the unavailability of counsel or a judge who could hear the case, given that Mr Mostyn and Mr Marks were to be called to give evidence. Eventually it was fixed well in advance for hearing in vacation time before a deputy judge.

The Contentions of the Parties

(a) The first issue

[33]Mr James Turner QC, who has represented the wife together with her original junior counsel, Mr Richard Scarratt, contends that the husband chose to leave his job with TFL thereby depriving the wife of the £200,000 lump sum she was entitled to expect.[34]He puts his case in a number of alternative ways. His primary submission is that the words “save in so far as by reason of circumstances beyond his control” must be read into clause 5 of the agreement. Therefore, only if it was in such circumstances that the husband had been deprived of his right to the second tranche would he have been relieved of his liability to pay the third lump sum. He says that no one would have dreamt that the husband might elect to do what he did, and that it is a classic situation in which to imply an appropriate term to provide for an unforeseen situation that was not specifically addressed.[35]Alternatively, he submits that even if the wife is not entitled to the whole £200,000, clause 5 should be interpreted to entitle her to half of the overall available assets or a rateable adjustment of the two tranches to provide her with the same percentage out of the first tranche as she would have received if both tranches had been paid.[36]Put more simply, in money terms, under the primary submission she would be entitled to the £200,000 she did not receive under paragraph 3 (c) of the order; alternatively, to £81,752 (1/2 of the difference between £1,003,005 and £840,000), or £66,478 (47.3% of tranche 1 less £200,000, 47.3% being the percentage that she would have received of both tranches by way of lump sum had they both been paid).[37]Failing these submissions, Mr Turner submits that the order should be set aside under the principles laid down by the House of Lords in Barder v Caluori [1988] AC 20, or on the basis that the parties were not ad idem and there was no true agreement between them, and the matter reconsidered under the guidelines provided by Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186. These submissions raise the spectre of yet more litigation. I cannot imagine a solution more unattractive and less satisfactory than to condemn these parties to a re-opening of the ancillary relief proceedings. I see no justification for taking such a course. The solution has to lie, in my view, in the interpretation of what the parties agreed.[38]The husband’s case is that the wife is not entitled to the £200,000 or to any adjustment in her favour because the order specifically provided for what was to happen if he did not receive the balance of the primary consideration, in whole or in part – if he did not get the second tranche, she was not to get the third lump sum. He submits that Clause 5 is clear and unambiguous. It means what it says, and no proviso or limitation should be imported into it.[39]He says that it is hard to conceive of circumstances that would be beyond his control, save for death or incapacity, as he was protected from dismissal, other than for cause, and redundancy by his contract of employment, and the possibility of the insolvency of TFL, was so theoretical as to be fanciful.[40]He places reliance on the antecedent negotiations in which Mr Marks e-mailed Mr Mostyn, saying in respect of each of the two £200,000 lump sum payments, that they were to be payable fourteen days after receipt of the respective tranches, and adding “the point being made that if he doesn’t get it, neither does she and interest does not run.”[41]Mr Mostyn does appear to have inserted clause 5 into the drafting of the agreement following receipt of this e-mail.

(b) The second issue

[42]The husband’s case is that the figure of £52,668.73 is based upon the dissolution accounts prepared by the MIS auditors, Bourner Bullock, and he claims to be entitled to this amount under clause 8 of the agreement.[43]Following the sale to TFL, the husband put cash into MIS to enable it to pay certain bills. He also paid other bills himself, such as those of the auditors. As a result the deficit on the completion the winding up is the outstanding amount shown in his director’s loan account - £105,337.46.[44]Much of this figure is attributable to an outstanding claim by the Inland Revenue for PAYE and National Insurance contributions relating to June 2001, the period either side of the date of sale to TFL, the 26th June 2001. The husband’s case is that this was an MIS debt, that it formed part of his personal guarantee to TFL, that he was not aware of its existence until about August 2002, and that he was obliged to meet it personally.[45]The wife resists the claim in a number of ways; by reference to the terms of the sale agreement between MIS and TFL, by reference to the terms of clause 8 itself, and on the facts.[46]Mr Turner contends that clause 8 is confined to a shortfall for which the parties, jointly or severally, are personally liable, and that the amount outstanding in the director’s loan account and owed to the husband is not capable of being such a liability.[47]Even if one adopts a broader construction of the clause, he says that the husband cannot establish that the debts which he funded and which are represented by the balance on the director’s loan account were liabilities of MIS which he, personally, guaranteed.[48]Taking the specific example of the Inland Revenue debt, he contends that as the debt only arose after the sale to TFL, it was a TFL and not an MIS debt by reference to Clause 6 of the Asset Sale Agreement and Clause 8 of the Business Sale Agreement. He points to the definition in the latter of “creditors” as meaning those amounts owed by MIS in connection with the business to creditors at the Effective Time [i.e. the 26th June 2001] (whether or not then due). He says the Inland Revenue debt was not created until the end of the month when the staff were paid and the PAYE and NIC deducted from their pay. Alternatively, he says that even if it was an MIS debt, it was still not one subject to a personal guarantee to TFL.[49]These are all rather fine and technical points of construction, but Mr Turner, also makes one factual submission, which goes right to the heart of the matter in relation to the Inland Revenue debt. He says that the husband must have known about it prior to the agreement, even if his failure to disclose it to the wife was unintentional and he had simply forgotten about it.[50]Before considering these submissions further, it is appropriate to set out my findings on certain aspects of the evidence.

Factual findings

(a) The antecedent negotiations

[51]The evidence related to what discussions had taken place, if any, about the possibility that the husband might leave TFL before the end of his two year contract and thereby forfeit the right to the first and/or second tranches, and the secondary consideration.[52]In his affidavit of the 5th March 2004 – almost two and half years later - Mr Mostyn said that his understanding was that the intention behind the words in the e-mail - “if he doesn’t get it, neither does she and interest does not run” - used by Mr Marks, was to protect the husband against the possibility of “legitimate dismissal/redundancy from his employment.”. By legitimate he meant dismissal other than for gross misconduct etc. He claimed to recall a discussion with Mr Marks to this effect. By the time he came to give evidence, more than a further three years later, he, frankly, conceded that he had no more than the vaguest recollection of any discussion on the matter with Mr Marks. He said that he remembers standing in the corridor outside Singer J’s court with Mr Marks, and some discussion taking place about the circumstances in which the husband might not get the money from TFL, but he is unable to recall the detail. I observe in passing that any discussion at that stage would, in any event, have taken place after they had finished drawing up the agreement and whilst they were waiting to go in to court and invite the judge to approve it.[53]In his affidavit of the 12th May 2004, Mr Marks said that he had no recollection of any such discussion. He said that he was confident that they did not discuss “legitimate dismissal or redundancy. He went on to say that there was a much simpler justification for the words he used in his e-mail – if the husband actually received the remaining payments of primary consideration it would be fair for him to pay the wife; if he did not, it would not be fair for him to do so. His oral evidence was to the same effect. He said that he did not believe that he had any discussion about the possibility of the husband resigning and thereby depriving himself, and his wife, of the additional payments.[54]Mr Mostyn recognised in the course of his evidence that the words, “if he doesn’t get it, neither does she”, could not, logically, have been intended to refer to legitimate dismissal or redundancy. This is because the husband would not have forfeited his right to the balance of the primary consideration in the event of redundancy or dismissal, other than for misconduct etc. The right could only be forfeit by resignation or dismissal for cause, both of which at the time seemed unlikely.[55]For the sake of completeness I should refer to the husband’s own evidence. Although not referred to in any of his witness statements, he said in evidence that he had a recollection of discussing the possibility that he might not like working for TFL with Mr Marks and might resign before the end of his two year contract. He said that it was as a result of that discussion that, at his request, Mr Marks asked for the proviso to be inserted into the agreement ensuring that if he did not get the money, neither would the wife. His recollection is, plainly, unreliable. It is not borne out by the sequence of the e-mails, and Mr Turner has not sought to rely upon it. What the e-mails indicate is that Mr Marks did have a discussion with the husband and as a result of this raised a number of points with Mr Mostyn, but this was only after the proviso had already been requested and inserted into the agreement.[56]All this evidence, based upon fading and potentially mistaken recollections of what may or may not have been said, and potentially tainted by the benefit of hindsight, amply demonstrates the good sense of the basic principle that parol evidence is generally inadmissible as an aid to the construction of written agreements. The justification for adducing it in this case appears to have been based upon the duty of full and frank disclosure of material facts (Livesey v Jenkins [1985] AC 424); i.e. had Mr Marks and/or the husband known that the husband was planning to leave TFL prematurely or even contemplating it, that fact ought to have been disclosed.[57]I do not believe that the possibility of the husband deciding to leave TFL prematurely was ever discussed between Mr Mostyn and Mr Marks. Further, I am satisfied that there was no breach of the obligation of full and frank disclosure. Parties approach negotiations from their own differing perspectives. The wife believed that the husband had the prospect of receiving large sums by way of secondary consideration and would not leave TFL for that reason. It did not occur to her or her advisers that the husband might resign. Mr Mostyn said in cross-examination that he was aware that the husband could resign but he did not believe that he had any intention of doing so. By contrast, although I am satisfied the husband had no intention of resigning in November 2001, as his solicitors “without prejudice” letter of the 1st November 2001 indicates, he was apprehensive about the future. An indication of this is the fact that he was not confident enough to place any value on the secondary consideration for tax purposes, even though, by so doing, he could significantly reduce subsequent tax liabilities.

(b) The husband’s resignation from TFL

[58]The sequence of events leading up to the husband’s decision to resign is set out in some detail in his affidavit of the 13th March 2003. His account has not been seriously challenged by Mr. Turner. The focus of the wife’s case has been that the husband had a choice whether to stay or leave, that no one was making him leave, and that he did so without warning or any consultation with the wife, or attempt to negotiate with TFL to preserve his right to the balance of the primary consideration.[59]The wife, understandably, looking at things from her own perspective, puts things more directly and critically. In her affidavit of the 28th November 2002 she said that she was extremely sceptical of his motives and believed that his resignation was “a deliberate attempt to compromise my entitlement.”[60]Whilst the husband may be criticised for giving little, if any, though to the consequences for the wife, I do not think that he was motivated by malice against her. Rather, I am satisfied that he genuinely found the conditions under which he was working for TFL to be intolerable. Someone who was shrewder, and driven more by financial considerations, might have sought to negotiate himself out of the contract with TFL to his financial advantage, but that is not in the character of the man.[61]My assessment of Mr Wood, having had the opportunity to observe him both as a witness and litigant in person, is that he is someone who sets himself high principles of decency and fair play (of which he is the arbiter) and expects them of others. Such people have a tendency to suffer disappointment in their expectations. He is the sort of person who is quick to take offence and to get over excited. He admitted in evidence that this was part of his character, although he said that he normally calmed down again quite quickly. Surrendering the business that he had built up to a large conglomerate and becoming an employee was never going to be an easy transition for him to make. In addition, the commercial climate for the business changed suddenly and adversely shortly after the acquisition as a result of the tragic events in the United States on 9/11. This exacerbated the position.[62]I was assisted by the evidence of Miss Wendy Gyngell and Mr Anthony Fiducia. Miss Gyngell had worked for MIS as an accounts manager and transferred to TFL in June 2001. She was made redundant at about the time the husband resigned along with a large number of the old MIS staff.. She contrasted the working environment at TFL unfavourably with that at MIS and said that things were very depressing in the last few weeks. She said that they were not being told things and that the way the redundancies were handled was very prescriptive.[63]Mr Fiducia is a commercial solicitor. He had acted for the husband on the sale to TFL. Mr Wood went to see him. He told him that his once family-run business had become submerged in a larger organisation and that the impact was causing him unhappiness and stress. He asked Mr Fiducia for advice as to whether, if he left, he could make a claim for constructive dismissal. Mr Fiducia consulted a colleague specialising in employment law and advised him that it would be very difficult to make out such a case.[64]Mr. Turner stresses the fact that the husband received this advice before he left and that therefore his resignation was not an impulsive spur of the moment decision. Mr Fiducia’s affidavit contains the following passage, though – “As his legal adviser I raised the commercial point of the further payments due under the Share Sale Agreement. The Petitioner obviously knew this, but was more concerned with the impact and effect upon him and his business, and in particular on his staff at the hands of Thomson. The Petitioner is someone I have known well both professionally and personally for many years. From my close acquaintance with him, his attitude did not surprise me, as whilst he is a successful man he is not driven by money….I believe that the Petitioner’s only motivation was his complete dissatisfaction with the way in which both he and his staff had been treated along with the placement and treatment of his product within Thomson.”[65]I agree with that analysis. In my view it was the redundancy of his former staff, such as Miss Gyngell, and the way in which it was handled, which was the catalyst and final straw. It prompted him to resign without regard for the financial consequences for his wife or himself. He was giving up a secure salary of £200,000 per annum and his share of the final tranche of the primary consideration, and had no job to go to.

(c) The husband’s knowledge of the Inland Revenue debt

[66]The husband was insistent in his evidence that he was unaware of the debt. It worried his sense of honesty and decency that he might have overlooked it in the negotiations. The contemporaneous documentation tends, though, to suggest otherwise.[67]The system was for PAYE and NIC to be deducted when the staff were paid at the end of the month and then accounted for to the Revenue in the middle of the month following. Payments were made by cheque and the husband was the signatory on the account.[68]The MIS payments ledger for July 2001 records cheque no. 6208 to “Inland Revenue” for £72,293.93 as having been issued on the 23rd July. It is one of a number of cheques issued at about the same time after the sale to TFL. There were insufficient funds in the MIS account to meet it, and it appears never to have been presented for payment. It is shown as unpresented in the bank reconciliation statement for July 2001. Other cheques issued at around the same time were presented and met, but only because the husband put £100,000 from his own resources into the account. This enabled the cheques to be met. The injection of funds was made on the same date as the Inland Revenue cheque was issued. For that to be met as well, would have required a larger cash injection.[69]It is difficult, in my view, to avoid the conclusion that the husband knew of the debt to the Revenue at that time. It is something he is likely to have taken into account when deciding how much money to transfer to MIS. TFL had taken over responsibility for other outstanding Revenue debts, and I think the explanation may well be that the husband was hoping that TFL might be persuaded to assume this liability also. It may explain why he omitted to mention it in the negotiations with the wife. In the event TFL refused to accept responsibility and insisted that it was discharged by MIS.[70]There is a requirement to file an annual return in respect of PAYE payments on a form P35. After this was done in May 2002 the Revenue chased the debt. In October the husband wrote to the Revenue disputing the bill for interest. He said that they (i.e. MIS) had paid what they believed was the last amount in June 2001 and that “the underpayment notice came as a surprise to all of us.”[71]His business records were kept by a clerk. She transferred to TFL but continued to maintain the MIS records whilst the business was being wound up. The husband makes the point that she has died and that her evidence, had it been available might have assisted him to establish that he had no knowledge of the debt in November 2001. She was, though, as the records establish aware of the debt, and the fact that it was outstanding. I cannot accept that she would have withheld information about such a large debt from him, at a time when the business’s financial position was so tight.[72]It is accepted that the Inland Revenue debt was not disclosed to the wife. It was of “a substantive nature” (or perhaps, more accurately, “substantial nature”, the description used by Mr Mostyn in explaining the order to Singer J.) I do not find that the husband wilfully concealed the existence of the debt from the wife, but, the onus being on him, he has failed to satisfy me that he had no knowledge of it at the material time. The interpretation of consent orders.[73]Most reported cases concern the question of whether the order constituted a final disposal of an ancillary relief claim, or whether a further application was still permissible; for example see Sandford v Sandford [1986] 1 FLR 412, and Dinch v Dinch [1987] 1 WLR 252 [HL]. The present case raises a somewhat different problem as to the extent to which the court can, or should, intervene to make good defects in the drafting of the order and to provide for situations that the parties ought to, but have failed to, deal with expressly.[74]From the authorities it is, I think, possible to derive a number of principles: - (a) An agreement to compromise ancillary relief proceedings does not give rise to an enforceable contract. The agreement gains its authority from its subsequent approval by the court and incorporation into an order; Xydhias v Xydhias [1999] 1 FLR 683 In Xydhias, Thorpe LJ said (at p.691e) :
“The only way of rendering the bargain enforceable, whether to ensure that the applicant obtains the agreed transfers and payments or whether to protect the respondent from future claims, is to convert the concluded agreement into an order of the court…..The order is absolute unless there is a statutory power to vary or unless vitiated by a fact that would vitiate an order in any other decision. Additionally, as was demonstrated in Robinson v Robinson (Disclosure) (1983) 4 FLR 102 an order in ancillary relief proceedings may be set aside if the product of a material breach of the duty of full and frank disclosure. An even more singular feature of the transition from compromise to order in ancillary relief proceedings is that the court does not either automatically or invariably grant an application to give the bargain the force of an order. The court conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflect the criteria listed in s 25 of the Matrimonial Causes Act 1973 as amended.” (b) It is the duty of the parties and, more importantly, their professional advisers to ensure that orders are drawn up with care so as to ensure that they clearly provide for what the parties have agreed. In Dinch, Lord Oliver of Aylmerton said (at p.255) : “I feel impelled once again to stress in most emphatic terms that it is in all cases the imperative professional duty of those invested with the task of advising the parties to these unfortunate disputes to consider with due care the impact which any terms that they agree on behalf of their clients have and are intended to have upon any outstanding application for ancillary relief and to ensure that such appropriate provision is inserted in any consent order made as will leave no room for any future doubt or misunderstanding or saddle the parties with the wasteful burden of wholly unnecessary costs.”
A similar warning had been sounded by the same judge earlier, as a judge of the Court of Appeal in Sandford (see [1996] 1 FLR p425], which I refer to below. (c) When a court is subsequently called upon to determine what was the true effect of an order the question is one of construction. The court will look at all the surrounding circumstances to give effect to its spirit and purpose (see Foskett on The Law and Practice of Compromise, 6th Edition, para 32-62). In Dinch, Lord Oliver said (the issue being whether the order precluded the wife from seeking further relief) (at p 263): “One has… simply to look at the order and any admissible material available for its construction and determine…in the case of a consent order, what the parties intended….to effect by the order.” (d) The court’s power to correct errors in its orders is not confined to accidental slips and omissions (the “slip rule”). It also has an inherent power to vary its own orders to make the meaning and intention of the order clear (CPR Part 40B)

Discussion

[75]Mr Turner referred me to the modern approach to the construction of contractual agreements as explained by the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co .Ltd [1997 AC 749], and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, and Shaw v Hutton-Shaw [2006] EWCA Civ 1235, 24th November 2006, in which the principles are usefully summarised by Arden L.J.[76]These cases all concern the interpretation of contractual documents, in the case of Shaw, two documents that were described as made in a relatively informal way. Arguably, a broader approach is permissible to the interpretation of contractual documents than to agreements which have been professionally drafted, endorsed by the court, and incorporated into a consent order, but I do not think that any difference is material to the outcome of this case.[77]The essential objective is to ascertain what the parties intended and to make the meaning and intention of the order clear.[78]In his opening note, Mr Turner submits that if the agreement and order is read “in a commonsense way” it requires the husband to make the three lump sum payments to the wife, save in so far as by reason of circumstances beyond his control, he did not himself receive the full sums provided for by his agreement with TFL. He contends that this is “a classic example of a situation” in which a term should be implied to this effect. He contends that no one would have dreamt that the husband might intentionally bring his employment to an end prematurely, and if “asked whether such termination should be covered by recital 5, anyone would have said ‘of course not’.”[79]I feel unable to accept Mr Turner’s submission. Clause 5, mirroring the words in Mr Marks’ earlier e-mail, was plainly worded – the husband’s liability to pay the lump sums was contingent on him receiving the balance of the primary consideration. Further, it made specific provision for what was to happen if the full amount of the two tranches was not received; they were to be “rateably reduced”.[80]If the wife and her advisers wished to incorporate a provision entitling her to the lump sum payments, where the husband had not received them (for what ever reason), they ought to have made that clear. I do not believe that it is possible to assume that a reasonable person with all the background knowledge available to the parties at the time would have, necessarily, interpreted their agreement in the way Mr. Turner contends.[81]I attach no weight to the respective views of Mr Mostyn and Mr Marks, which are diametrically opposed on this point, but it is worthy of note that they differ so widely as to how the agreement which they drew up should be interpreted.[82]During the hearing a number of different scenarios in which the husband might not have received the balance of the primary consideration were discussed. TFL could have become insolvent, unlikely as it might seem. The husband could have been justifiably dismissed for misconduct, another unlikely scenario. He could have been head-hunted and induced to leave TFL by an even more attractive financial package. He could have decided to leave, simply, to spite the wife and deprive her of her share, or, as I have found happened, because he felt unable to continue working for the company.[83]In terms of what is fair and just between the parties these scenarios, plainly, do not all lead to the same answer. Given the significance that they attached to the secondary consideration, I suspect that the wife and her advisers viewed the prospect of the husband not receiving the balance of the primary consideration, for whatever reason, as extremely remote and, hence, they were prepared to accept the caveat proposed by Mr Marks.[84]I, therefore, reject Mr Turner’s primary submission. That is not the end of the matter, though. Clause 5 gives rise to a second question of interpretation, in relation to the words “If the husband does not receive the full amount of the first and/or second tranches then his liability shall be rateably reduced.” Here, I believe, Mr Turner is on stronger ground.[85]What did the parties mean when they said that his liability was to rateably reduced? How should the rateable reduction be made?[86]The husband contends that the tranches are to be treated separately. He received the first and paid the wife her lump sum from it. He never received the second, so no liability to pay the wife arose. Therefore there is nothing to be rateably reduced. The arbitrary unfairness of accepting that interpretation can be seen from the table set out above. Singer J. was told that the wife was to get 50% of the available assets. It was on that basis that he exercised his discretion under section 25, approved the agreement, and made the order. It was not envisaged that the wife would be left with only 45% of the assets, and that is not an outcome which the judge was being invited to endorse.[87]If one rejects that interpretation, as I think one must, was the liability to be rateably reduced confined to the liability out of the two tranches, or the husband’s liability overall?[88]Under the first solution, the husband adjusted liability to the wife would be £66,478, and under the second £81,752.[89]I have come to the conclusion that the proper interpretation, and the one that most fairly reflects the meaning and intention of the order, is the second. I have done so because it provides parity between the parties, which the judge was told was the intention, and restores them to the position in which they would have been if the first tranche had been divided so as to maintain parity.[90]I propose therefore to direct that the husband’s liability in respect of the lump sum payable under paragraph 3(c) of the order is £81,752. Had the agreement been implemented in full, the wife would not have received the final lump sum (of which the £81,752 would have formed a part) until the 10th July 2003, but by the date of her application to this court (the 28th November 2002), it was known that the second tranche of the primary consideration would never be paid. I, therefore, take the view that the relevant date for the calculation of interest is the 28th November 2002. Subject to any submissions the husband may have about the calculation of interest, I propose to direct that the amount payable should bear interest from that date.[91]The husband has drawn attention to the fact that the primary consideration was payable in dollars and that in calculating his liability to the wife an exchange rate of US$1.42 to the pound was used. The agreement provided no mechanism to take account of future fluctuations in the exchange rate. By the time the first tranche became payable in June 2002, the rate had increased to US$1.57, so its value to him in sterling had reduced, yet the amount he was required to pay the wife remained unchanged.[92]It was never suggested in antecedent negotiations on the husband’s behalf that account should be taken of fluctuations in the dollar/sterling exchange rate. Rates can go up or down. The husband took the risk that the rate might change adversely to him. I do not believe that he can complain now of the absence of such a clause from the agreement.

The Second Issue

[93]In the light of my findings about the debt to the Revenue, I can deal with this issue relatively briefly.[94]Clause 8 of the agreement provided that any net surplus on the liquidation of MIS was to be divided equally between the parties, but the obligation to contribute equally to any shortfall was confined to “a shortfall arising, for which the husband/or the wife is or are personally liable”.[95]I see no merit in Mr Turner’s point that as there was no liquidation, under the control of a liquidator, there can be no personal liability on the wife. He conceded that had there been a surplus he would not have been making the same point. The term “liquidation” was, in my view, used in a non-technical way to describe the process of the winding up.[96]There is much more substance, though, in his second point that the shortfall was not a personal liability within the meaning of clause 8.[97]The members of a limited liability company are not generally liable for the debts of a company on winding up beyond the extent of their contribution to the company, unless they have personally guaranteed them. That is the whole point of the concept of “limited liability”.[98]On a narrow interpretation of clause 8, as the shortfall relates only to the amount owed by the company to the husband under his director’s loan account, that is not a debt for which either he or the wife bears personal liability. If one adopts a broader construction, though, and interprets the provision to apply to all debts for which either of them had personal liability at the date of the agreement which would have formed part of the shortfall but for the husband’s cash injection, the result is the same. This is because the main debt is the Revenue debt, of which I have held the husband had knowledge, and which should have been disclosed, and the residue relates to penalties and expenses incurred in the winding up after the date of the agreement for which there was no personal liability.[99]Having reached this conclusion I need not explore the more abstruse points of construction of the MIS/TFL agreements to which Mr Turner made reference.

Conclusions

[100]Accordingly, I hold that the husband is liable to pay the wife a further lump sum of £81,752 plus interest under paragraph 3 of the order and dismiss the husband’s claim under clause 8 of the agreement.[101]In Sandford Oliver LJ said (at p.425):
“The case does, however, underline once again the necessity which should be clearly in the minds of solicitors and counsel alike, to ensure that consent orders do truly embody beyond any equivocation what the parties are agreed upon, and should include any provisions which are consequential upon that agreement. If that had been done in this case, not only would this appeal have never come before this court, but the immense, horrifying and wholly wasteful burden of unnecessary and oppressive costs, to which the judge referred in his judgment, would never have been incurred.”
[102]The present case is a stark and sobering example of what Oliver LJ had in mind. The dispute has been going on for over 4 ½ years, since November 2002. The wife’s costs of the litigation, alone, are put at almost £150,000. Such delay and expense is appalling.[103]There needs, in my view, to be a way in which disputes over the interpretation and implementation of orders can be resolved with expedition and economy. Whilst it is the duty of the parties’ legal advisers to make sure that the order is clear and unequivocal, in the pressure to resolve complex and contentious financial disputes, there are bound to be times, when, with the best will in the world, even the most experienced practitioners will miss something which ought to be in the order or express something in terms which, on reflection, could have been clearer and more felicitous.[104]Protracted satellite litigation about the interpretation of orders is not to be encouraged. When problems arise, there needs to be a mechanism to enable them to be resolved efficiently and economically.[105]When problems arise, in my view, the matter ought to be referred back, as a matter of urgency, to the judge who approved the agreement and made the order. If it cannot be resolved in that way, consideration ought to be given to mediation, or, possibly, to a hearing akin to an FDR at which a judge can express a non-binding view of how the matter ought to be resolved. Counsel who negotiated the agreement should only be drawn into the dispute as witnesses in the most exceptional circumstances where this is unavoidable. The overriding objective should be to sort the matter out with the minimum of delay and additional expense. PTH

Cited in 3 later judgments