A Judgment that was published at the end of June this year, dealt with the issue of what impact bad behaviour (conduct) could have upon a financial settlement upon divorce.
By way of background, when considering the financial settlement, the Court must look at all of the circumstances of the case, one of which is whether a party’s conduct has been so bad that it would be inequitable to disregard it.
Generally speaking, conduct does not usually have an impact on the financial settlement. For example, if someone has had an affair, it does not mean that they will be penalised by the Court and receive less in the divorce settlement for that reason.
The key is that the conduct must, as aforementioned, be so bad that it would be inequitable to disregard it. This was held to be the case in the matter of R and B and Capita Trustee Services Ltd and Hawksford Trustees Jersey Ltd and X and Y, with the Judge in that case, Mr Justice Moor, stating that it was “one of the most remarkable cases that I have ever heard”.
The background
The parties named in the title of this case are R – the husband, B – the wife, two trusts and X and Y – the latter two parties being the husband and wife’s (now adult) children.
The wife’s grandfather had a family business in property, which generated much of the wealth in the marriage. There were various properties, as well as several company structures.
Some years ago there was litigation between CB Bank and the husband in relation to a tenancy that they had in one property, with the husband ultimately losing that litigation and being made the subject of a hefty costs Order. Interestingly, the Judge in that litigation was very scathing of the husband with the Judge stating that “…I found [the husband] to be so unreliable as a witness that I am not prepared to accept as true, on a balance of probabilities, anything that (he) said that is in issue unless it is supported by other evidence… I think this case has been accurately described as a try-on by the plaintiff. It was so grossly exaggerated that, in my judgment, it can be described as in large measure an abuse of process of the court”.
This is just one such example of lengthy and costly litigation that either or both of the parties were involved in which the Judge was understandably vocal about (the legal costs were later said to run into the millions of pounds) due to the impact it had on the overall family finances.
In the beginning of 2005, the parties’ marriage broke down but at that time the husband continued to run the “B Group Companies” (dealing with the various properties) and the wife’s father resigned as MD later that year. The wife’s father then died in June 2010 and it is according to the Judge in this case “from that point, [the husband] ran the B Family Business unfettered”. It was said that the husband continued to take no salary for the following 8 years so question marks arose as to how he financed himself during the relevant period. The Judge said that during the relevant period, the husband was able to “do as he wished”, although the husband however denied doing anything improper. There was also a dispute as to loans taken out – which were used for family expenditure. The Judge said that an analysis of expenditure from the bank accounts showed over £14million going out of the accounts.
In addition, the wife was said to have joined an online dating agency following the parties’ separation and it was on there that she met someone in 2007 who indicated to her that he had been a “barrister, currency trader and property magnate”. She ended up loaning many millions of pounds to him and further, rather oddly, was convinced by him to sell one of the properties to a company which was owned by a Trust belonging to the man, with him later asking her to buy it back – with a £450,000 increase on the price. The increase was said to be due to works that had been carried out at the property – which again, rather oddly, were works that she had paid for. Both parties agreed that the man (the wife’s boyfriend) was dishonest and a fraudster, which led to her suing him and an agreement being reached in May 2013 – although she did not recover all of the monies she had expended in relation to him.
In 2010, the wife petitioned for a divorce and the last part of the divorce ending the marriage was granted in February 2011.
Negotiations took place in 2011 regarding a possible financial settlement between the parties. An agreement was drafted and executed as a Deed by the wife but not by the husband. Interestingly, the document purported to show the wife and husband having both taken (separate) legal advice but the husband denied ever having taken advice upon the document.
The Judge in the current case said that it was rather odd in that the agreement provided that the husband would either pay or procure the payment of £1million to the wife in full and final settlement of all financial claims that she may have against him in connection with the marriage/divorce. The Judge queried how that could be – the husband had no assets himself. The agreement also said that the husband would pay or procure the payment of £150,000 gross per annum to the wife for the benefit of herself and that of the children. Again, this seemed rather odd as the husband purportedly had no income.
The Judge stated that “The money can only have come from the B Family Business to which she had an entitlement but he did not. Having said that, he did arrange for salary payments to be made to her to comply with this agreement. For the first and only time in the marriage, significant income was received by one party and taxed by HMRC. The third provision was that [the husband] would consent to an order in the divorce proceedings whereby his maintenance claims would be dismissed. There was however a term that [the wife] would not disturb or interrupt the existing roles played by [the husband] in the running of all business entities or companies that are, or were, connected with her or any company in which she has an interest. Finally, provided it did not have adverse tax consequences, [the husband] was to discharge all mortgages and charges secured on properties in [the wife’s] name and, pending doing so, he was to discharge all instalments thereon. Quite how he was to do so without any income is hard to understand”.
Essentially, the agreement was not fully executed (although the husband had taken some steps pursuant to the agreement) and how the finances of the parties were to be divided was not a matter for the current Judge to decide. both the husband and the wife respectively ran conduct cases – both saying that the other’s bad conduct should be taken into account.
Overview of the conduct allegations made by each party
The husband’s case related to what he said was the dissipation of monies, to the tune of £8.362million, to her (now-ex) boyfriend – the purported fraudster/con artist referred to above.
The husband also alleged that the wife removed assets from one of the companies for less than it was worth, non-disclosure and litigation misconduct relating to the alleged suppression of documents.
The wife, on the other hand, alleged that the husband “siphoned off funds from the B Family Business for BGL of £6.1 million; that he set up bank accounts in her name and transferred money from IEG to fund his own spending, including motor vehicles; that he paid no regard for his fiduciary duties or for corporate governance; that his conduct has led to large tax bills together with penalties and interest; and that he has engaged in the reckless management of BGL, doing building works without planning permission such that there is a threat of demolition and up to ten pieces of litigation involving the property”.
The Judge himself also said that the husband hadn’t paid a penny in tax during a very substantial period in which the family enjoyed a very nice lifestyle.
The Judge’s findings
I do not propose to repeat all of the Judge’s findings here (with the Judgment running to some 176 paragraphs) ; however, the main findings in the context of conduct can be set out as follows:
The Judge, as mentioned above, needed to consider all the circumstances of the case, including (but not limited to) the income, earning capacity, property and other financial resources each of the parties to the marriage has or is likely to have in the foreseeable future, financial needs, the standard of living enjoyed during the marriage, contributions which each of the parties has made or is likely to make the foreseeable future and conduct in the context of where it would be unequitable to disregard it. The Judge said that overall fairness is the most important consideration.
The Judge explained that this case was primarily a needs case (rather than sharing or compensation). He explained that “A classic needs case requires the court to consider the reasonable requirements of the applicant, assessed on a generous basis, for both capital and income and to balance those against the ability of the respondent to pay. This case is made far more complicated than that, however, by the conduct allegations each makes against the other and by the tax and other financial consequences of what has happened both during the marriage and what will be needed to ensure compliance with whatever order I make.
…As both sides are alleging conduct, I must briefly set out the law as to that. The conduct allegations are not accepted on either side. The burden of proof is on he or she who seeks to prove a disputed fact. The standard of proof is the civil standard, namely the balance of probabilities. The seriousness of the allegation makes no difference to the standard of proof to be applied in determining the truth of the allegation. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies…
There are three separate main strands to the conduct allegations. First, it is alleged that [the wife] has wantonly dissipated or squandered assets, following her relationship with [the boyfriend]. Second, it is argued that [the husband] has created very significant unnecessary liabilities, including tax liabilities, by reason of his conduct. It is argued that he has been guilty of fraud but Mr Dyer’s fall-back is to argue culpable financial mismanagement. Finally, it is said that [the husband] has been guilty of litigation misconduct by pursuing satellite litigation at huge cost that failed completely.
Both parties accept that these allegations can amount to conduct that it would be inequitable to disregard. Each simply denies that the factual position justifies such a finding in this case”.
The Judge stated that “My overall conclusion on [the husband’s] own contribution case is that he did make an important contribution to this marriage, albeit it not as great as he has contended for. I remind myself that it was not a short marriage, lasting around fifteen years from cohabitation to separation. Moreover, he continued to run the business for a further eight years thereafter. There were two children. I have come to the clear conclusion that this would never have been a sharing case given the huge “inherited wealth” aspect but, absent conduct, I am clear that [the husband’s] contributions would justify an award based on his reasonable requirements generously assessed. The issue for me is the extent to which that is reduced by the conduct allegations and, perhaps more importantly, the ability of [the wife] to pay, given the liabilities that undoubtedly now exist”.
Overall, the Judge did consider the fact that the wife lost funds to the alleged fraudster; however, this was considered against the backdrop that the wife brought a high amount of inherited wealth to the marriage. The Judge said that “Rather than categorising this as conduct, I prefer to look at this as a liability incurred to set against the very significant financial contributions made by [the wife], mostly via her family. I intend to deal with the allegations against [the husband] in the same way. Nevertheless, despite my findings as to [the boyfriend], the balance sheet, so far as [the wife] is concerned, remains still positive rather than negative. Indeed, everything that is left has come from her side of the family”.
The husband’s bad conduct was taken into account. The Judge said that “All in all, I am quite clear that [the husband] has engaged in conduct that it would be inequitable for me to disregard. His substantial contributions have been largely offset by the financial catastrophe that he has brought down upon this family as a result of his behaviour. He still has needs but they must be assessed in the light of what is available because of what he has done and the effect it has had on everyone concerned”.
In this case the Judge therefore did determine that the husband’s conduct had been so bad that it would be inequitable to disregard it when considering the overall financial settlement but it does go to demonstrate that it does generally take quite extreme circumstances in a case for it to be considered as such.