It may or it may not have involved a record financial award, but there is much to note from the judgment of Mr Justice Haddon-Cave in AAZ v BBZ. And for those who are asking: Mr Justice Who?, yes you may not have come across Mr Justice Haddon-Cave previously, as he serves in the Queen’s Bench, rather than Family, Division. Presumably, he was called upon to deal with this case due to a shortage of Family Division justices.
The judgment is so clearly laid out that this has been an easy, if somewhat lengthy, post to write. I shall begin with the basic facts, most of which are probably already now well known to readers.
The parties are both originally from Eastern Europe. The husband is now 61 and the wife is 44. They met in Moscow in 1989 and were married in 1993. They moved to London in 1993, where their elder son was born that year. Their younger son was born in 1996, and in that year the husband purchased a property in Surrey, where the wife still resides.
Mr Justice Haddon-Cave explained what each of the parties did during the course of the marriage thus:
“H worked in London as an oil and gas trader and began to travel a great deal. H became very successful in pursuing business interests in the energy sector in Russia through his Russian company. In November 2012, H sold his shares in the Russian company for US$1.375 billion. W has been a housewife and mother throughout the marriage.”
The marriage finally broke down in 2013 and the wife issued divorce proceedings in October that year. The husband initially sought to have the divorce dealt with in Russia, but subsequently submitted to this jurisdiction.
The wife issued her application for financial remedies and the final hearing of the application took place before Mr Justice Haddon-Cave last November and December. Two weeks before the hearing, for reasons that are not clear, the husband decided that he would no longer contest the proceedings. He then chose not to attend the hearing (in breach of orders requiring him to do so), and nor was he represented at the hearing. As we will see, it was not a decision that went well for him.
The wife’s claim was that there were assets worth just over £1 billion, all of which were matrimonial in character, having been acquired and built up during their long marriage by the parties’ equal contributions to the welfare of the family. She sought the sum of £453 million, which amounted to 41.5% of the assets.
Notwithstanding the husband’s non-attendance, Mr Justice Haddon-Cave did give proper consideration to arguments that the husband had raised previously in the proceedings. He identified four such arguments, and I will go through them in detail:
- That the husband was wealthy before the parties married in 1993.
This argument was dealt with quite swiftly by Mr Justice Haddon-Cave. The husband had not supported his assertion by any evidence. “It is axiomatic”, he said, “that if a party is going to assert pre-marital assets, it is incumbent on them to prove the same by clear documentary evidence … H has failed to do this and, accordingly, failed to prove any case on pre-marital assets.”
- That the husband made a special (or ‘stellar’) contribution to the creation of the wealth through his work with the Russian Company.
Again, this was dealt with pretty summarily by Mr Justice Haddon-Cave. He said that whilst the husband clearly worked very hard to create wealth out of the Russian company and was resourceful, his evidence fell far short of the exceptionality (or ‘genius’) test elucidated in previous authorities. He went on:
“…the present case is a paradigm example of what Lord Nicholls was talking about in White when he said: “If, in their different spheres, each contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets” ”
Another failure for the stellar contribution argument.
- That the marriage had actually broken down in 1999 or 2004, i.e. well before the husband sold the Russian company shares, and that the value of the assets at that time was far below that asserted by the wife and, in particular, the Russian company shares were then unsaleable or worthless.
It is true that the marriage did go through what Mr Justice Haddon-Cave described as a ‘rocky patch’ between 1999 and 2003. I would actually describe this hiatus in the marriage in rather more serious terms, as it involved the wife having an affair with a younger man (it should be pointed out that the wife claimed that the husband had had numerous affairs himself during the marriage, and had a child by another woman in 2013), and also issuing divorce proceedings in 2003. However, those proceedings were dismissed, and Mr Justice Haddon-Cave found that the parties had reconciled, and the marriage did not therefore break down until 2013 (actually 2014, as there was another attempted reconciliation after the wife issued her second petition, but this time unsuccessful). Accordingly, the husband’s argument that the sum he realised from the sale of his Russian company shares in November 2012 should not be included in the marital assets because that was after the marriage had broken down, failed.
- Lastly, that in any event, the majority of assets were held in a Trust of which the husband was a mere discretionary beneficiary (i.e., those assets were outside of the husband’s direct control, and he could not force the Trust to pay any sums to him, therefore the Trust assets were not financial resources available for distribution as part of the divorce settlement).
Things get a little complicated here, but the short story is that Mr Justice Haddon-Cave found that the Trust assets were the husband’s resources. I particularly liked paragraph 72 of his judgment:
“Thus, the way in which the Trust is intended to operate is remarkable in its simplicity: i.e. by H, qua [i.e. in the capacity of] Principal Beneficiary, asking himself, qua sole director of C Ltd, for a distribution and then H, qua Protector, asking himself whether or not such a distribution should be met. The Trustees can ignore the needs of the other beneficiaries and benefit H by transferring the whole or any part of the capital to him. The Trustees (in essence H) owe no duty of care and are free from the self-dealing rule: he can pay money to himself whenever he wishes. The Trust document is not a sham in the sense of pretending to be something that it is not. It is a remarkably candid and pellucid document which makes no pretence to be anything other than what it is, namely what is colloquially called a ‘Dear me’ trust for H for his lifetime.”
In other words, as the wife had claimed, the Trust assets were all resources available to the husband whenever he pleased. Mr Justice Haddon-Cave concluded:
“The legal question as regards the Trust is as follows: If a discretionary beneficiary were to request the Trustee … to advance the whole or part of the capital to him, would the Trustee be likely to do so now or in the foreseeable future? … I am satisfied that the answer on the evidence in this case is ‘yes’ and any funds held in the Trust can be considered to be “financial resources” to H. Accordingly, I find that the so-called Trust assets are “financial resources” … available to H from which H can pay W’s financial award in these proceedings.”
There were other issues relating to the various companies within the structure of the Trust, but I won’t go into those (save for the reference to ‘C Ltd’ above, and the ones to the offshore holding companies and to ‘P Ltd’, below). In short, the husband’s arguments all failed.
Before I move on to the assets and their division, there is one further matter relating to the Trust. In March 2015, just four days before the husband signed his first witness statement in the proceedings, he executed a Deed of Trust assigning (i.e. transferring) to the Trust the entire issued share capital in three offshore holding companies to which he had previously assigned his interest in his yacht (purchased in 2014 for €260m), his private jet (purchased in 2014 for $52.6m) and his helicopter (purchased in 2015 for €10m). The Deed also assigned to the Trust a property in Moscow. The wife claimed that the husband had executed the Deed with the intention of defeating her claim, and therefore asked the court to set it aside. Mr Justice Haddon-Cave agree, saying that: “The March 2015 disposition would appear to be part of a wider pattern of conduct by H designed to put his assets out of the reach of W”.
Moving on, the calculation of the total value of the assets was easy for Mr Justice Haddon-Cave. In the absence of any countervailing evidence from the husband, he simply accepted the wife’s figure, which was (very precisely) £1,092,334,626.
That just left the issue of distribution of those assets. Mr Justice Haddon-Cave could see no reason why there should not be an equal division of the assets. However, as mentioned above, the wife was only claiming £453 million, or 41.5% of the assets. That, therefore, was the amount of her award. The award comprises a lump sum payment from the husband of £350 million, together with the transfer to the wife of various assets.
There remains, of course, the small matter of the wife receiving her award. Mindful of the fact that the bulk of the husband’s wealth was held by P Ltd which has a Swiss bank account (Mr Justice Haddon-Cave ordered that P Ltd should be jointly liable to pay the £350m lump sum), Mr Justice Haddon-Cave wanted to ensure that the wife could utilise the Lugano Convention, which would enable her to take enforcement action in Switzerland. However, there was a small problem with this. The Convention is only concerned with maintenance and not the ‘property consequences’ of divorce. Accordingly, Mr Justice Haddon-Cave separated out from the award of the lump sum order those elements that constitute “maintenance” and those that comprise of a share of the matrimonial assets, by reference to the wife’s claimed “needs” (“needs”, as Mr Justice Mostyn pointed out in the recent case FF v KF, does not have the literal meaning that most people attach to it, but rather has its own meaning in the context of these cases, to include consideration of the standard of living previously enjoyed by the parties). He found that her needs came to some £224 million, including the purchase of an English property for £39 million, the purchase of a French property for £27 million, and a capital fund of £157 million, to provide her with an annual income of £5 million. As Mr Justice Mostyn also said, referring to this case: “Obviously, no-one actually needs … £224m for accommodation and sustenance”. True, but that is what the wife can seek to recover under the Convention.
Notwithstanding this there will still, no doubt, be a long road to travel before the wife receives the full amount of her award. If, indeed, she ever does. There was an indication of what may be in store for her following the handing down of the judgment. The husband’s personal lawyer, attending court pursuant to a witness summons, revealed that the husband had in November transferred his modern art collection (valued at $112m) and P Ltd’s assets to ‘another European country’. Satisfied that this appeared to be another deliberate attempt by the husband to hide his assets and prevent enforcement of the court’s orders, Mr Justice Haddon-Cave also set aside these transfers.
I wish the wife good fortune in her recovery efforts.
Photo by Peter Becker under a Creative Commons licence