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The Court of Appeal decision in Charman v Charman

Date:24 MAY 2007

Alison Bull, Legal Director, Addleshaw Goddard LLP, Manchester, Leeds and London.

The long awaited Court of Appeal judgment in this case was handed down this morning, 24 May 2007, following a three day hearing in March this year before the President and Thorpe and Wilson LJJ. The wife is now celebrating her success, albeit with the spectre of a petition for leave to appeal to the House of Lords by the husband in the background.

John Charman (54) was challenging the decision of Coleridge J to award his wife Beverley (also 54) £48 million of his £131 million fortune. They had been married for 27 years and had 2 children. £68 million of the total assets were held in a Bermudan discretionary trust, The Dragon Holdings Trust, intended (according to the husband), to benefit future generations of Charmans. John Charman is the President and CEO of Axis Capital Holdings Ltd, which is quoted on the New York stock exchange and is the holding company for a global group of specialist insurance and reinsurance companies.

There were two main grounds of appeal by the husband:

1. That the judge made insufficient allowance for the husband's special contribution, and that the manner in which he made that allowance was wrong. At first instance his special contribution reduced the % achieved by the wife to 36.5% of the overall wealth.

2. That the inclusion of the assets in The Dragon Holdings Trust as part of the financial resources available to the husband was inappropriate.

On the first issue, the Court of Appeal endorsed the concept that property should be shared equally in the absence of a good reason for departure from equality. The husband's legal team suggested that the total award should be achieved by building up to it, rather than using a top-down approach from 50%, and proposed alternative methods of achieving this. The Court of Appeal found against the husband both on the issue of methodology and the extent of the discount. In particular, Potter P (giving the judgment of the Court of Appeal) gave guidance as to the likely range of percentage division where there is a successful argument about special contribution, and identified this range as being between 45% and 33.3% (ie a deduction from or addition to equality of 5% to 16.7%). Potter P also quantified the deduction allowed by Coleridge J to reflect the risk-laden assets retained by the husband as being no more than 3%. The Court of Appeal considered in detail the conflicting judgments within the House of Lords' decision in Miller;McFarlane and noted that since the sharing principle means that property should be shared in equal proportions unless there is good reason to depart from such proportions, departure is not from the principle but takes place within the principle.The principle applies to all the parties' property but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality.

On the second issue, and finding against the husband, Potter P said 'It would have been a shameful emasculation of the court's duty to be fair if the assets which the husband built up in Dragon during the marriage had not been attributed to him.'

The argument before Coleridge J was that the trust was dynastic in nature and set up to provide for the future generations of the husband's family. This argument was pursued unsuccessfully and, it would seem, somewhat half-heartedly on appeal. A subsidiary argument was identified during the course of the appeal about the likelihood or otherwise that the trustees would distribute some or all of the funds in the trust to the husband absolutely on request. Potter P found that the judge had concluded that the trustees would do so, and that the husband would have found it difficult to raise a legal argument that he should not have reached that conclusion. He had not raised that argument before the judge in any event. It was therefore too late. A further peripheral argument was raised by the wife's counsel; that the husband's power to remove the trustees of the trust was supportive of the likelihood that the trustees would advance capital to the husband if requested to do so. No decision on this was made or necessary. The husband's counsel also put forward arguments about how the assets within the trust should have been treated, had his main argument in this regard been successful. There were also three further subsidiary grounds of appeal, focussing on the reverse lump sum order made to address the possibility of a further future tax liability being payable by the husband, the methodology employed in the valuation of the business assets, and a post-separation bonus of £1 million that had been included within the assets available for distribution. The Court of Appeal found against the husband on all these issues.

Interestingly (and not at issue at all in the proceedings before the Court of Appeal) at the hearing of the wife's maintenance pending suit application, Coleridge J gave the husband the option of paying maintenance pending suit of £360,000 pa, or £5 million on account. The husband chose the latter option. This possibility is something worth considering, especially where there is the prospect of maintenance pending suit including an element of costs in a situation where there would usually be no order as to costs.

Where does this leave practitioners? No doubt the judgment will be analysed over the next few days and learned counsel and solicitors will extrapolate principles to be used to support legal argument in a wide range of contexts. It remains to be seen whether there is a further appeal to the House of Lords.

In any event, we now know that special contribution is worth 5%-16.7%, that wives will continue to embrace the jurisdiction of England and Wales as their divorce forum of choice, and we can expect pre-marital agreements to continue to increase in popularity.