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(Court of Appeal; Longmore, Wilson and Lawrence Collins LJJ; 19 December 2008)
In ancillary relief proceedings involving assets of over £29 million a significant uncertainty had arisen concerning the extent of the couple's liabilities. The husband had made a very large charitable donation to a newly registered charity whose trustees were the husband and wife; the sum in question had then been invested by the charity in the husband's business venture, which subsequently failed. There was a distinct risk that the Charity Commissioners would require the husband and wife, as trustees, to reimburse the charity for the amount lost as a result of their heavy investment in a single business. There was an additional risk that the husband and wife, as trustees, would be required to pay the Inland Revenue sums claimed by the charity under the gift aid scheme. The wife was very keen not to have any future liability to contend with, and did not wish to consider any kind of contingent liability. On the basis of an estimate that the liability would be about £14 million, the judge ordered the husband to pay the wife £6.625 million, as a clean break settlement, which represented about 38% of the assets minus the estimated liability. However, some years later the husband persuaded the Commissioners that there was no liability, arguing that because the donation had been conditional on investment in the business, the trustees (himself and the wife) had had no choice as to where to invest the money. So, instead of paying about £14 million, he had been required to pay only £600,000, which had gone to the Inland Revenue. Some 7 years after the ancillary relief order, the wife attempted to have that order set aside on the basis of mistake and non-deliberate failure to disclose. The original trial judge refused the wife's application, on the basis that the award he had ordered had taken into account the possibility that the liability would be nil. He also ordered the wife to pay one half the husband's costs of the wife's application.
The wife's appeal would be dismissed. In the original ancillary relief proceedings the size of the liability had been a known unknown, and the spectrum within which it might possibly fall had been found by the trial judge to be vast. The makings of a conditionality defence, which would dramatically reduce exposure to the Charity Commissioners, had been there for all to see and to explore at trial, but neither party had done so. The wife had succeeded in transferring her exposure to the liability, to the husband. She had actively sought and secured a solution under which she left the marriage with assets of firm value, leaving the husband to meet the liability, whatever its size might prove to be. Had the liability proved to be in a sum vastly higher than £14 million, there was almost no chance that the husband would have been able to reopen the award and obtain a refund from the wife. For precisely the same reason the wife had shown no interest in the judge's suggestion that her award might be calibrated so as to rise or fall in accordance with the ultimate determination of the size of the liability. The relevant costs rule in such a case was not Family Proceedings Rules 1991, r 2.71, relating to ancillary relief proceedings, because an application to have an ancillary relief order set aside was not itself an application for ancillary relief; nor was it Civil Procedures Rules 1998, r 44.3(2)(a), as that rule did not apply to family proceedings, and these proceedings were family proceedings. That meant no general rule was applicable, and the judge had been entitled to order the wife to pay half the husband's costs.
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