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Family Law

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04 AUG 2009

ANCILLARY RELIEF/COSTS: M v M [2009] EWHC 1941 (Fam)

(Family Division; Eleanor King J; 29 July 2009)

Between the wife's claim for ancillary relief and the hearing, the economic downturn meant that the family assets fell from about £150 million to £28 million at trial. Only 7 weeks before the hearing, some time after it had become clear that the value of the company run by the husband had fallen from about £343 million, as set out in the Form E, to about £226.5 million with borrowings of £244.7 million, the wife informed the court that she intended to apply for a transfer to her of the husband's shares in the company. The husband protested vigorously about this claim, which, he argued, not only could not succeed, but also might itself jeopardise the company's commercial future by alarming lenders and business associates. Some weeks later the wife went to see the husband's business partner, who rejected her suggestion that the husband's shares be transferred to her and that she take over the running of the business. Days later the company's bank sent the husband revised loan terms, necessary because the company was in breach of loan to value covenants on certain properties; in these the bank demanded additional fees, in the region of £11.5 million, and specified as a term that the husband, or a company wholly owned by him, should continue as controller of the company. The wife was late in filing her open proposals and her affidavit, and when these were filed, a few days before the hearing, she explained that the letter from the bank had led her to abandon her transfer application, and to replace it with a claim for periodical payments of £420,000 pa. In opening submissions the husband complained about the wife's conduct of the litigation in a number of respects, including her pursuit of the transfer issue, while the wife complained that the transfer application would have succeeded, but for what she described as the husband's 'devious and underhand' stratagem of involving the bank to thwart her application for a transfer of the shares in the company. However, the historic documents which had been disclosed to the wife and to her professional advisers showed that the lending bank had at all time required the husband to remain in control of the business. At the end of the judgment, which included the dismissal of the wife's applications for periodical payments, the husband said that an application for a contribution to his costs was likely, and in due course the husband sought an order that the wife pay half his costs.

Although the party intending to seek a costs order should ordinarily indicate their intention to do so in open correspondence or in a skeleton argument before the date of the hearing, in this case the issue had been raised at the end of the ancillary relief judgment, and had come as no surprise to the wife. The husband's team had made it clear throughout that they regarded the wife's application to transfer the husband's shares to her as a costly waste of time, which might damage the company's future. In the issue based costs application the only two issues upon which the husband could rely were the transfer application and the final application for periodical payments. There had been a number of other findings adverse to the wife in the original judgment, but these were relevant to the costs issue only to the extent that they revealed an approach to the litigation that was neither open nor constructive but was, to some extent, driven by a desire for revenge. This was a case in which an issue based costs order should be made. The transfer application had not simply been a poor decision, or an application that stood little chance of success; it had been a wholly misconceived application, based on a number of false premises arising from misinterpretation of critical information about the company. The transfer application should never have been made, and the husband ought not to suffer the consequences of the decision to make it. Although the wife's expert had failed to appreciate this, it had always been clear from the documents supplied to the wife that the loan arrangements with the husband's bankers were entirely dependent on the husband's involvement in business; this had throughout been an explicit term of the husband's loan agreements. The wife had been told by the husband's partner in terms that he would not agree to the replacement of the husband as his business partner. Finally, although a different expert acting for the wife had failed to appreciate this, the additional sums due to the bank because of the loan to value problem meant that no surplus of rent would have been available for distribution for at least the next 4 years. Even without these features the whole application had been misconceived; the wife had no business experience and neither she nor her advisers could have run the company, given the crucial role played by the husband in dealings with the bank. While the wife might not have had the service to which she had been entitled from her experts, she had to bear the responsibility for the purposes of these proceedings, claiming recompense from her advisors thereafter if she chose to do so. The court accepted that the wife's decision to apply for a transfer, followed by her decision not to pursue the application, had twice necessitated a major shift in the focus of the husband's trial preparation. The wife's shifts of position had led to significant amount of additional work There was no need for a detailed and broken down costs schedule relating specifically to the relevant issues; no detailed analysis of the costs was needed, showing that the raising or continuation of the particular allegation or issue led to identifiable increased costs. The court could express an issue-based order in percentage terms. The wife was to pay £175,000 of the husband's costs of about £916,000.

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