Family analysis: Jennifer Perrins, considers the case of Versteegh v Versteegh which dealt with the importance of legal advice in relation to a pre-marital agreement and whether a party had ‘a full appreciation of the implications’, as well as the appropriateness of making a ‘Wells order’.
Versteegh v Versteegh [2018] EWCA Civ 1050, [2018] All ER (D) 64 (May)
What are the practical implications of this case?
In respect of marital agreements, practitioners will now need to approach the decision of Mostyn J in B v S (Financial Remedy: Marital Property) [2012] EWHC 265 (Fam), [2012] All ER (D) 189 (Mar), with caution, as both King LJ and Lewison LJ held that Mostyn J had ‘set the bar too high’ with respect to the need for specific legal advice about the effect of a pre-marital agreement (PMA) in other countries.
In a case concerning the election of a foreign property regime (as opposed to a detailed nuptial contract), practitioners will need to focus very carefully on pleading every relevant matter to demonstrate that there are specific reasons why the PMA is unfair/whether there are other additional factors which ‘detract from the weight to be accorded to the agreement’—the mere fact that, for example, a party signed just a European country’s standard election of regime without advice will not be enough. However, it may be that the decision in Versteegh is to an extent confined on its facts— as the judge made extremely strong factual findings against the wife that she had deliberately lied about her level of understanding, and that she had been fully aware of the implications of the PMA throughout the marriage. In many cases, such a clear-cut finding of fact may not be possible. There is also, of course, always the ‘safety net’ of needs—and that remains a rather elastic concept, even if the interpretation of needs and/or fairness is impacted by the existence of a PMA.
With regard to sharing, the Court of Appeal made some notable observations about the so-called ‘arithmetical’ and ‘impressionistic’ approaches to the division of matrimonial and non-matrimonial property. The Court of Appeal referred to para [26] of Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] All ER (D) 343 (May), and to the recent judgment of Moylan LJ in Hart v Hart [2017] EWCA Civ 1306, [2017] All ER (D) 14 (Sep) at paras [83–97], to demonstrate that these two approaches are really two sides of the same coin:
Per Lord Nicholls: ‘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.’
Per Moylan LJ: ‘[The different approaches] are examples of the same principle being applied, but applied in a different manner depending on the circumstances of the case…the outcome will be the same, namely, when justified, an unequal division of the parties’ property.’
Hence practitioners should not approach the various first instance authorities on this topic as if they represent divergent or competing disciplines—rather, every case should be assessed on its particular facts, to see whether one or other of the approaches is the more appropriate. In some cases, detailed valuations and calculations of the matrimonial/non-matrimonial property may be appropriate; in others, such an approach may not be possible or proportionate to the issues.
The other important point to note regarding sharing is the fact that the Court of Appeal upheld the judge’s decision not to hold the wife to the terms of the PMA in its entirety, not just on the basis of generously assessed needs, but to the extent that there was an accepted element of sharing. The rationale for this was that per Radmacher v Granatino [2010] UKSC 42, [2010] 2 FLR 1900, a PMA may represent a ‘modification of the sharing principle’—the Court of Appeal said that such an agreement may be an example of a case where ‘upon consideration of all the circumstances of the case per section 25 of the Matrimonial Causes Act 1973 (MCA 1973), a court can conclude that, notwithstanding that the husband does not seek to enforce the PMA in full, and that there is now a sharing element to the case, the assets should be divided unequally’.
The potential difficulty for practitioners, following this judgment, is in giving clear and predictable advice to clients about the effect of any pre/post-nuptial agreement. It has of course always been the case that needs may oust the strict implementation of an agreement (and of course, even that principle does not avoid argument, as needs is such an elastic concept). However, the decision in Versteegh seems to go beyond this, and to approve what could be called a ‘sharing-lite’ approach— arguably similar to the unscientific/intuitive approach to departure from equality in non-matrimonial cases. In Versteegh itself, the impact of this approach was dictated by the particular facts—ie the nature and purpose of the wife’s ultimate award was to allow the husband to protect his business interests from harm. In another case without such an obvious guiding principle, the question must be asked—how will a PMA affect the ultimate award if its terms are broadly ‘taken into account’ under MCA 1973, s 25, but not strictly followed to the letter?
Finally, this judgment provides clear authority for the proposition that in an appropriate case, a so-called ‘Wells order’ (per Wells v Wells [2002] All ER (D) 312 (Mar)) may be made, to give a party a share in illiquid/business assets. The Court of Appeal said the making of such an order should be ‘approached with caution’, and the judgment in Versteegh describes some of the practical implications that will have to be addressed in such a case (eg detailed advice on the protection of the receiving party’s interests, or consideration of whether there are any other more suitable alternatives to a minority shareholding). However, in principle, such an order is an option for the court.
What was the background?
This case concerned an appeal by the wife against an order made by Sir Peter Singer at the conclusion of financial remedy proceedings.
Sir Peter Singer had awarded the wife approximately half of the non-business assets (£51.4m) together with a 23.41% interest in a business called H Holdings by way of a so-called ‘Wells-sharing order’. H Holdings had been created by the husband and was run by him under a trust structure.
There were four key issues which arose on the appeal:
- the judge’s treatment of the PMA that had been signed by the wife prior to the marriage
- the judge’s treatment of the non-matrimonial property
- the fact that Sir Peter Singer had found himself unable to assess either the value or the liquidity of H Holdings, and
- whether the judge had been right to make a ‘Wells order’
The factual background was as follows. Both parties were Swedish. They married in Sweden in 1993, but lived in England throughout the marriage. They had three children, all adults by the time of the proceedings. They separated in 2014, after a 21-year marriage. The wife had always been the home-maker.
The day before the wedding, the wife signed a PMA at the husband’s request, which, according to the husband—whose evidence the judge accepted—was a formal and binding PMA that would ‘encompass and keep inviolate not only his prenuptial assets, but anything he acquired thereafter during the marriage’. The wife’s evidence at trial was, in essence, that she had not understood that the PMA covered anything other than pre-marital assets derived from the husband’s family. She said that she had had no disclosure or legal advice at the time, and had not appreciated the consequences of the document until she took it to her English solicitor in the course of the proceedings.
The husband came from a very wealthy background, and had inherited shares in some family companies prior to the marriage. He moved to London in the 1980s, and began building up a number of property and business interests. His business interests at the time of trial were held within a number of ‘complex interlocking entities’ which ran ‘a variety of land and real property related activities through in excess of 30 entities spread across the world’. The businesses were held in large part within a trust structure called the H Settlement, at the top of which sat a company called D Holdings, which in turn owned H Holdings. H Holdings was the ‘main holding company that owned around 90% of the group’s wealth’. (There was no suggestion that the trustees would not agree to the release/transfer of such assets as might be ordered by the court.)
The real issue with the business assets was the difficulty in assessing their value and liquidity. The husband’s businesses comprised long-term land development projects (and the company had high levels of borrowing). As the Court of Appeal acknowledged, these ventures ‘can take many years (if ever) to come to fruition’. At trial, there had been expert evidence from a single joint expert, and the wife had also instructed her own expert. The valuations ranged between the low figure for the single joint expert at £38.2m, and the high valuation of the wife’s expert at £149.6m. There was additionally a serious divergence in views on liquidity, and this was compounded by ‘wildly inaccurate’ forward projections that had previously been made by the company.
The husband’s position at final hearing was that the wife’s needs were more than met by the retention of property held in her own name. He conceded a small element of sharing by offering the wife a total of £38m in liquid resources (as against her needs generously assessed as £22m), plus a share of 23.41% in H Holdings. The husband said that this was a ‘fair’ outcome overall, taking account of the PMA, and the need not to jeopardise his business interests. The wife proposed a small departure from equality overall to reflect the pre-marital/non-matrimonial contributions by the husband, and sought 42.5% of the total assets, with all of that to be paid in liquid form.
At the trial, Sir Peter Singer heard evidence from the parties, and from a mutual friend, regarding the PMA. He was highly critical of the wife’s case. He found that she had told ‘a pack of untruths’ about the circumstances of the PMA and of her understanding of it. He found as a fact that the wife had, contrary to her assertions, ‘known and understood the implications of the PMA throughout the marriage’. It was an accepted fact that the wife had not had disclosure or legal advice at the time she signed the agreement, however, the form of PMA that the wife signed was commonplace in Sweden.
On the vexed issue of the valuation evidence, Sir Peter Singer found that it was ‘impossible’ to value the business interests or to assess the future liquidity, because the ‘variables were so fickle’ and the expert evidence had not provided him with the necessary ‘probability based assessment of the amount of, or rate at which, funds could be made available to the wife’.
Sir Peter Singer gave one initial judgment and then two supplementary judgments, and eventually made a final order which largely reflected what the husband sought. He divided the matrimonial assets broadly equally (leaving the wife with around £51.4m), and then ordered the transfer to the wife of 23.4% of the shares in H Holdings.
What did the court decide?
In respect of the PMA, the Court of Appeal referred to the judgment of the Supreme Court in Radmacher, and the factors that may ‘detract from the weight to be accorded to the agreement’ (per Lord Phillips at paras [68]–[75]). The main focus of the Court of Appeal was upon the wife’s lack of legal advice and her argument that she could not be said to have had a ‘full appreciation of the implications’ of the PMA. The wife relied upon the decision of Mostyn J in B v S, in which the parties had elected a standard separation of property regime in two different countries prior to their divorce in England. Mostyn J there held that in order to have ‘a full appreciation of the implications’ of such an agreement, a party must have understood that it was intended to have effect even in other countries where a discretionary regime operates, such as England and Wales.
The Court of Appeal preferred the husband’s arguments. Although legal advice is, per Lord Phillips in Radmacher, usually ‘desirable’, the Court of Appeal said that lack of legal advice is just one of ‘a miscellany of factors which a judge considers’ in deciding whether a party had (or had not) a full appreciation of the implications of an agreement. In this particular case, the wife had known full well the meaning and effect of the PMA, and this meant that the absence of legal advice was not critical. The Court of Appeal also observed that if the wife’s/Mostyn J’s approach were approved, it would render ineffective the relatively informal and standard PMAs that are routinely signed in other European countries, absent specific independent legal advice at the time of the PMA so as to satisfy the English court. In that regard the approach of Mostyn J in B v S was disapproved.
On the topic of sharing and non-matrimonial property, the Court of Appeal rejected the wife’s argument that because the husband had put forward an open position which allowed for an element of sharing, the PMA should be entirely ignored and the assets shared as they would be in any other case. It was held that ‘fairness does not require a court to ignore the precept upon which the parties have governed their affairs for over 20 years, anchored as they were to a PMA, simply because the husband, for whatever reason, chose not to hold the wife to that agreement in its entirety’.
The Court of Appeal acknowledged that Sir Peter Singer had assessed the overall ‘fairness’ of his award. The PMA had been an important factor—especially in his decision to make an order that protected the husband’s business operations—and the judge’s ultimate conclusions were upheld. The Court of Appeal also commented that particularly in light of the valuation problems, the judge could not have been expected to take a very detailed and arithmetical calculation of the appropriate discount for non-matrimonial property, and he was entitled to ‘give weight to the non-matrimonial assets in a more general way’.
So far as the valuation evidence and the ‘Wells order’ were concerned, again, the Court of Appeal upheld Sir Peter Singer. The Court of Appeal acknowledged that it was unusual to make no findings at all regarding valuation or liquidity, but on the particular facts of the case, the judge’s difficulties were understandable.
The Court of Appeal accepted that there are disadvantages to such an outcome, but in certain cases it could cause unfairness to one or both parties to do anything other than attempt to share the liquid and illiquid assets in the way suggested by the older case of Wells v Wells.
The Court of Appeal was concerned at the inability of the wife to have a clear ‘exit-route’, as she had been awarded a minority shareholding in ordinary shares, and there was discussion at the hearing (as there had apparently been between the time of the three judgments below) of the option for the wife of having an award of preference shares instead (and at one point the husband had suggested that a nominal value of £18m would have been a figure he could ‘live with’). However, neither party sought this outcome before the appeal court, and the appeal was dismissed without any interference in the form of order that had been made by Sir Peter Singer.
Interviewed by Alex Heshmaty. This article was first published on Lexis®PSL Family on 29 May 2018. Click for a free trial of Lexis®PSL
Jennifer Perrins specialises in private law children work, divorce and finance. She has particular experience and interest in cases involving jurisdictional and international issues.
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