By Fatimah Farag
AAZ v BBZ, C Ltd and P Ltd  EWHC 3234 (Fam), a financial relief case heard by Haddon-Cave J in late November and early December 2016 with judgment released on 12 May 2017, sees the High Court make one of the largest awards in an English case. With such large figures, many divorce practitioners may have expected the judgment to contain particular guidance on, and perhaps new interpretation of, principles with which we often grapple in practice to justify a departure from the equal sharing principle, including the ever-controversial special contribution argument. Unfortunately, the decision does not provide new interpretation and application of these principles but does explore English law as it now stands, applying it to an interesting case with eye-watering levels of wealth.
The wife, AAZ, and the husband, BBZ, both of Eastern European origin, had met in 1989 and married in 1993, then relocating to London. Two sons were born, in 1993 and 1996, and the family moved to Surrey. BBZ was a very successful businessman, thriving in the oil and energy sector through his Russian company, whilst AAZ was a “hands on” mother who cared for and brought up the children on her own, together with another of BBZ’s children from his first marriage. In 2012, the husband sold his shares in the Russian company amounting to US$1.375 billion.
The marriage sadly broke down and the wife petitioned for divorce in 2014, applying also for financial orders against the husband. There were two other Respondents to the application, joined in the proceedings at the Pre Trial Review on 25 October 2016. The first, C Ltd, was a Cypriot registered company of which BBZ was the sole director, which was also the trustee of a Bermudian discretionary trust. The second, P Ltd, was a Panamanian company argued by BBZ to fall within the Bermudian trust.
It was AAZ’s case that by the time of the parties’ separation, this date in itself being contended and argued as 2004 by the husband but 2013 by the wife, the total net marital wealth amounted to just over £1 billion. She contended the totality of this was marital acquest by virtue of the parties’ equal contributions to the welfare of the family and therefore subject to equal division by virtue of the sharing principle.
Perhaps fundamentally to Haddon-Cave J’s approach and to the outcome, none of BBZ, C Ltd or P Ltd was represented by the time the matter came to final trial. BBZ’s solicitors came off the Court record on 15 November 2016, shortly before the commencement of the hearing on 28 November.
The Court did not simply accede in the husband’s absence to what the wife requested. It had a duty in law to investigate the facts to make a final decision. This is true whatever the wealth level if a party plays no part in the proceedings. It therefore ascertained from the husband’s previously-lodged documents that there were several contentions he would in theory have made in defence of the wife’s claim. Shortly stated, these were that: part of the marital acquest was pre-marital, he had made a special contribution through his work in the oil and gas sector, the marriage had broken down in 1999 or 2004 (so well in advance of the sale of his Russian shares), the wife had overstated the value of the assets as of their separation (in particular the Russian shares), and that in any event the majority of the assets were held in a trust of which BBZ was a mere discretionary beneficiary.
The scene was therefore set for the Court to consider several significant principles - the proper categorisation of assets as marital or non-marital, trusts, and special contribution - and to make a factual assessment of the arguments put forward at trial in order fairly to distribute the available marital assets.
Unfortunately, the judgment does not quite live up to those expectations. It is, however, very clearly and straightforwardly-written and may prove helpful to practitioners looking for a clear summary of the Court’s approach, but also to law students.
- Summary of the law
Starting with excerpts from Sections 23 to 25 of the Matrimonial Causes Act 1973 (“MCA 1973”) as the statutory basis for the financial orders available to the Court, the judge moved on to explaining that there is then a two-step analysis to be undertaken: first, computation to “assess the available assets” (paragraph 24) before they can then be distributed in whichever form and using whichever financial orders the Court finds appropriate in the circumstances of the case.
The general principles of computation and distribution were discussed in further detail, as well as trust factors and the need for such resources to be accessible in order to be considered part of the marital acquest. The concept of fairness and equal sharing is set out comprehensively with reference to the House of Lords’ judgment in Miller v Miller; McFarlane v McFarlane  UKHL 24 as reiterated in Charman v Charman (No 4)  2 FLR 1246, in light of the White v White  2 FLR 981 overall objective of achieving fairness of distribution. The judge importantly explained that case law sets out that equal sharing may be departed from generally only where there are good reasons for it. The relevant dictum from Miller; McFarlane containing these departure points is included at points (7) and (8) of paragraph 27, together with conduct, passive growth, and needs then being addressed as issues relevant to the computation and distribution exercise.
Special contribution, a highly topical matter in the wake of the Court of Appeal’s recent judgment in Gray v Work  EWCA Civ 270, is given particular attention. A useful section of Holman J’s first instance judgment ( EWHC 834) setting out how a special contribution might successfully be found was quoted at paragraph 30 together with a paragraph noting that only three reported cases, Sorrell v Sorrell  EWHC 1717, Charman v Charman  EWCA Civ 1606 and Cooper-Hohn v Cooper-Hohn  1 FLR 745, have included a successful argument of special contribution. These are noted as invariably being cases where huge sums of money had been generated by the husband, although often in combination with other and less controversial departure factors such as post-separation accrual of assets.
Whilst signalling that several important principles would be considered, the judgment unfortunately has no real developments in their application which might have shed new light on some of these principles, particularly special contribution.
Looking at pre- and post-separation accrual, Haddon-Cave J found that BBZ failed substantively to support his bare assertions of having contributed pre-acquired assets to the marriage and further found that, even if BBZ had made a contribution (alleged to be £700,000 towards the FMH), this fell into its own unique category. The contribution would rightly be classified as marital. Post-separation accrual was further considered. The judge accepted that the marriage had been through rocky patches, with an affair on AAZ’s part in 1999 followed by a purported Russian decree of divorce obtained by BBZ, but it was clear that there had been a reconciliation between the parties since then. Haddon-Cave J accepted that the couple remained married until 2013 in all senses of the word and that the broad picture of the marriage indicated that the marriage lasted until October 2013 and that the family was an “international” family, seen more and more often in the present day. It is a clear indication that the Court will no longer be persuaded by arguments suggesting an earlier marital breakdown simply because the parties have been based internationally across different countries over an extended period of time.
BBZ had argued that his contribution to the family was so significant that it should be considered “special or stellar” thus justifying a departure from equal division. However, Haddon-Cave J was not persuaded by this. BBZ had “clearly worked very hard to create wealth” and had been “resourceful” (paragraph 53), but the judge found his evidence to fall short of the exceptionality test contained in the relevant case law. Haddon-Cave J instead found this to be a case where each of the husband and wife had contributed equally to the family in their different roles, aside from how the money was built up. His analysis was limited, falling short of the thorough assessment which might have been anticipated given the significant extent of the assets, but this was perhaps to be expected given the little evidence available to the judge in support of this argument. It would undoubtedly have been inappropriate for him to make a finding of a special contribution here, justifying a departure from equality, where the husband had not actively sought it at trial and where the benchmark for such cases is so high.
Having gone through the available departure points, Haddon-Cave J found that the husband had failed to make out a case which would justify departure from equal division and provided a summary of these findings at paragraph 57.
The judge then addressed computation of the assets, accepting the wife’s case that the value of the available assets to be divided equally stood at a total of £1,092,334,626, and looking at trust issues as to whether BBZ’s wealth from the sale of his Russian company shares were held on trust in Bermuda. He produced and annexed a helpful organigram setting out the trust arrangements in the case. There were several strands to AAZ’s arguments in respect of the different companies and the Bermudian discretionary trust, the most significant of these arguments being that the entirety of the trust and company assets were in effect held beneficially for the husband and were therefore resources available to him for the purpose of the proceedings. The Court applied the principles expounded in Prest v Petrodel Resources  UKSC 34 and  EWCA Civ 1395.
Looking at the way in which the Bermudian trust operated, Haddon-Cave J found it to be remarkable in its simplicity. BBZ was the Settlor, principal beneficiary and Protector of the trust, as well as the only director of C Ltd, the trustee company. He, as the primary beneficiary, was able to ask himself, in his capacity as the sole director of C Ltd, for a distribution which he, as the trust’s Protector, would then consider whether or not to meet. In this way, the trust allowed him to pay money to himself whenever he wished – Haddon-Cave J called this a “‘Dear me’ trust” which gave BBZ direct and unrestricted access to the trust funds. Therefore, he found it right to categorise the trust assets as available financial resources to be taken into account as assets from which the husband could meet the wife’s financial award.
Further findings were made by the judge in respect of property held on trust by the companies joined in the proceedings, registered in various offshore jurisdictions. Each trust was analysed. Haddon-Cave J found that the property in these companies was held beneficially for the husband and that the companies could be directed to transfer the trust property to AAZ for the purpose of satisfying the financial award. This included a finding that disposals of assets by the husband should be set aside under s37 MCA on the basis that it was fair to presume that his intention in doing so had been to defeat or impede his wife’s claim. It also included an order under s423 Insolvency Act 1986 to reverse a disposal of shares deemed to have been at an undervalue so as to reinstate the status quo. The trust aspect of the case is therefore interesting and the judgment should be applauded for its clarity in explaining the Court’s approach to these matters in similar cases.
Lastly, Haddon-Cave J looked at how to distribute the marital assets of just over £1billion. He had already said he could find no reason to depart from a 50:50 split. However, taking account of the open offers put forward by the wife in the course of the proceedings, he eventually made an order in favour of the wife for 41.5% of the marital assets, this being the total value of AAZ’s claim and amounting to just over £453million. It is a matter of conjecture why the wife did not ask for 50% but perhaps her position allowed for a discount for some fairness in recognition of various factors of the marriage. Perhaps she was also alert to the bigger picture of enforceability based on needs as below. The judge followed the open position, as many judges will, even though a higher order could legitimately have been justified.
Aside from the financial matters to be dealt with by the Court, Haddon-Cave J dealt with some ancillary matters relating to proper service of proceedings, making a finding that the husband and the companies had been properly served and given proper notice of the trial. The particular attention given to this issue should be noted, where matters of service and the particular requirements set out in FPR Part 6 and PDs 6A, 6B and 6C may be less familiar to practitioners.
The judge then looked at how the wife could enforce the order under the Lugano Convention 2007, an apt consideration given the husband’s failure to participate and the resulting expectation of his failure to comply with an order made. Many of his assets were in Switzerland, a signatory to the Lugano Convention, similar to the EU Maintenance Regulation and of which the UK, in the EU, is a signatory. It should be noted that only orders concerned with “maintenance” (i.e. needs) can be enforced under the Lugano Convention, and the judge, taking into account the wife’s income needs schedule, found that her “needs” were just over £224million of the total sum awarded to her as the wife suggested in her schedule.
Practitioners should always be alive to the problem of enforcement, and make sure that clients are aware of this risk in cases where the assets are internationally-based, particularly in any of the EU or Lugano Convention nations. In order to make the process of enforcement easier under the EU Maintenance Regulation or the Lugano Convention, they should ensure that orders are carefully drafted explicitly to state in the recitals the extent to which the award comprises of maintenance.
The judgment did not grapple in detail with newly-emerging legal principles such as special contribution. It did not need to in the circumstances. The husband’s decision to bow out of the proceedings had the significant implication of preventing the Court from engaging in full with arguments for departure from equality, like pre- or post-marital accrual and special contribution. The judge would have undoubtedly come under criticism if he were to have made these findings, the husband having declined to appear and plead these with substantiating evidence. Special contribution did nonetheless get a mention, and its re-appearance here after inclusion in a number of other widely-reported cases perhaps paves the way for it to be claimed again in the near-future. In the meantime, we will have to wait for another case dealing with special contribution – perhaps in the form of an appeal from Mr Work to the Supreme Court.
Fatimah Farag is an Assistant Solicitor with the International Family Law Group LLP, a specialist practice in Covent Garden, London (www.iflg.uk.com) serving the interests of international families and their children. Fatimah undertakes a varied caseload but primarily deals with financial issues arising from the breakdown of a relationship. As well as managing her own caseload Fatimah regularly works as a team member in complex financial cases and those with cross-jurisdictional issues. She is particularly sensitive when acting for clients for whom religion and culture plays a significant part in family life.
A version of this article first appeared on The Law Society here on 23/5/2017.
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© 25 May 17