MR JUSTICE MOOR
- I have been hearing an application for financial remedies made by AP in Form A on 10 December 2015, following the breakdown of her marriage to ALP. I propose to refer to the parties as "the Wife" and "the Husband". I do so for the sake of convenience and mean no disrespect to either by so doing.
- The Husband was born in Russia in 1958 so he is aged 59. He is a businessman. He has two adult children. A was born on in 1979, so he is aged 38. He is the son of the Husband's previous marriage. B was born in 1989, so he is 27 years old. He is the son of a previous relationship of the Husband that broke down shortly after B was born.
- The Wife was born in Russia in 1963. She is aged 54. She is home-maker and child carer but she was previously a lecturer in economics and an accountant in the Husband's businesses. Her father was also an economist and an expert on the insurance market.
- The Husband graduated in 1981 from University in Russia and became a translator/interpreter for the Peace Committee. By 1985, he was working at the Agency Press News in sales/marketing. The Wife obtained a PhD in economic theory in 1988 and started teaching at an institute in Russia.
- In 1990, the Husband set up a publishing house. In May 1990, the Wife joined the Husband's publishing house as its accountant. They commenced a relationship shortly thereafter and married in 1991 in Moscow.
- In 1991/1992, it appears that the Husband attempted to commence an IT company in Belgium but he soon came to the conclusion that there were better opportunities in Russia. At around this time, the parties set up KV Bank in Russia. The Husband was the Chief Executive Officer and the Wife worked in the compliance department. The Wife says that her father introduced the first commercial clients, one of which became the best client and that her friends from her lecturing provided invaluable help with regulation as they worked for the Central Bank. The Husband says the client introduced by the Wife's father eventually accounted for only about 3% of turnover whereas the best client, which accounted for 85% of turnover, was introduced by a friend of his. Whilst I tend to the view that the Husband is more likely to be correct, it does not seem to matter at all to the exercise I have to perform.
- In 1993, the Husband branched out into insurance by acquiring a company called Bezopasno. There was a banking crisis in 1994 and KV Bank almost went into administration but managed to survive. In mid-1995, the Wife stopped working for the businesses. The parties' first child, C was born in 1995. She is aged 22. She is studying in the USA. The Husband says the total cost of her being there is around $100,000 pa, including college fees of $40,000 pa.
- In 1996, the Wife returned to work but, by 1997, she was running a charitable foundation which was initially financed by the various companies. In approximately 1996, the Husband set up a subsidiary of KV Bank known as Rimski.
- In 1997, a property known as Radost was purchased by the Husband's parents but using money the Husband provided. In 1999, his mother moved out of the property and the family moved in to what became their matrimonial home in Russia.
- There was another financial crisis in Russia in 1998, commencing on 17 August 1998, which has been referred to as Black Tuesday. KV Bank became insolvent but, fortunately, it was possible to save the subsidiary, Rimski and part of the KV Bank team moved to Rimski.
- In 1999, the Husband began to invest, in a small way at first, in a number of companies linked to the wine trade, such as Wine Trade TP and Wine Trade TLP. He also purchased an insurance company, Ada which merged with Bezopasno and became known as Mira. It grew rapidly.
- In 2001, the parties' second child, D was born. He is aged 17 and is a pupil at a school in London.
- In 2003, the Husband purchased a hotel in Germany (hereafter "the German hotel") for 2.2 million. Between 2005 and 2013, he acquired 15 plots of land in Russia (hereafter "the Russian plots of land") for Roubles 22,774,603. His intention was to establish high quality wine and food production in due course.
- Mira had done remarkably well. The Husband instructed VB Bank to see if it could be sold. It appears that VB Bank initially valued the business at $60 million but PB Insurance was very keen to get into the Russian market. In February 2007, PB Insurance purchased MV Ltd, which held 66% of the shares in Mira, for $260 million gross. There were undoubtedly significant deductions from the gross figure. I will have to return to this when I make my findings of fact but the Husband's case is that he received $87.6 million at this point. Given the offshore structure that held Mira, there was no immediate tax on the sale proceeds.
- Although a small point, in July 2007, the Wife says she inherited a ½ share of her aunt's flat. She says that the property was sold and the proceeds paid to the Husband. In 2008, the company known as Sokol was incorporated. Around the same time, the Husband purchased a property in Italy for c2 million.
- Between July and September 2008, SB Bank acquired 50.04% of Rimski. The Husband received 79.6 million for 48% of the shares. His case is that he only got 35.1 million as he had to pay the balance into Rimski pursuant to loan agreements. This is an issue I will have to determine.
- By November 2008, PB Insurance had acquired the Husband's remaining 34% of Mira, that he held via an offshore entity, TV Ltd. The gross price was $240 million. The Husband's case is that he received $197 million after deduction of just under $20 million in commission to VB Bank; c$3million in legal fees and a further payment of $20 million into Rimski to cover losses. If he is right, he received a total net payment from PB Insurance of $284 million.
- His case is that, thereafter, he invested in a number of different business ventures in Russia and Latvia. This included $91,272,422 in food and wine at Sokol; $41,825,648 in Orel; $23,169,674 in Pustelga; and $16,214,693 in land at Milvus on which he built a golf course. This amounts to total investments of $172 million. I will return to his case in relation to these businesses later but, in essence, it is that they have either failed (Orel); been confiscated by Russian officials (a hotel that was the main investment in Pustelga); been given to his son, B (Milvus) or are currently loss-making with no liquidity (Sokol). It is also his case that he has spent very large additional sums over and above the capital investment propping up these businesses and in family expenditure.
- In 2009, the London property was purchased for £15.1 million. It was registered in the name of Krechet Holdings (owned by Ardea Ltd) but the Husband sensibly accepts that he is the 100% beneficial owner. The original mortgage was with LB Bank in the sum of (£6.8 million) but the Husband re-mortgaged with FLB Bank in the sum of (£12,950,000) in October 2015. The property was renovated following its purchase. The Husband says the renovations cost £1.5 million. The London property has recently been valued at £17.5 million but, over and above the outstanding mortgage, there are interest arrears of (£475,961) which increase at £84,000 per quarter.
- Between 2009 and 2013, a property was purchased in Paris. Separate plots and flats were purchased and then amalgamated into one large property. This was done through a French SCI of which the Wife was the owner. The Husband says that a total of 37,386,421 was spent but there was a mortgage of (28 million). In September 2010, the parties moved to Paris, primarily, it appears, so that the children could be educated there. They were not, however, able to move into the property until June 2011. On 26 March 2010, Villa Bellissima, Bellissima Italy was purchased for 5.6 million. The Husband says that 2.5 million was spent on renovations.
- On 30 March 2011, SB Bank entered a Sale and Purchase Agreement with various entities belonging to the Husband to purchase his remaining 49.96% of Rimski for 51.6 million. The arrangements were complicated but the Husband says it required the consent of the Central Bank of Cyprus, which was not given. Nevertheless, he says he had been required, as part of the deal, to enter into a personal guarantee for 21.6 million with SB. I will have to return to this later.
- The Husband says that he gifted various assets in 2011 to his elder son, A due to concern that a dispute with PB Insurance about Mira would lead to litigation and the seizure of his assets. He now says that he has fallen out with A who will not return these assets to him. He says he has not spoken to A since 2013. The Wife alleges that the Husband "parked" assets in exactly the same way with B. The Husband denies this and says that, in B's case, these were gifts as B was taking over the running of the projects. On 13 August 2011, the Husband transferred two plots at Milvus from his entity (Rusa) to that of B (Cygnus). Five further plots were transferred to Cygnus by the Husband's nominee on 5 June 2013 with two more following on 25 February 2014.
- In 2012, the Husband invested around £13.7 million in a 5* hotel project in Russia (hereafter "the Russian hotel"). It appears that a high-ranking Russian official confiscated the land and the building following a dispute with the general contractor. The Husband says the investment was lost. He adds that he had to give the Italian residential properties/warehouse/vineyards a to a high ranking Russian official to repay a debt. The Wife accepts his case as to both these matters.
- In early 2012, PB Insurance filed a Request for Arbitration against the Husband and the company that sold Mira to PB Insurance. The dispute surrounded alleged unpaid Russian taxes prior to the sale of Mira to PB Insurance.
- On 16 April 2012, the Wife entered into a "marriage contract" with the Husband in Russia. She says that he told her it was needed for tax purposes. The document had been pre-prepared and she had no opportunity to take legal advice. The terms of the contract were that the parties would have a separation of property regime. The Husband would own Villa Bellissima in Italy but the Wife would own and be entitled to the proceeds of sale of the French property.
- In August 2012, the family moved to London to occupy the London property. The Wife says that the Husband told her the marriage was over in November 2012. He says that the marriage ran into difficulties around this time but the parties continued to live under the same roof for the sake of the children.
- In March 2014, the Husband sold a plot of land in Belgium for 2,250,000 and on 30 June 2014, the Paris property was sold for 45 million. After payment of the costs of sale and the mortgage, the net proceeds of 14.6 million were paid to the Husband albeit that they were channelled through an account in the Wife's name to accounts in his name. This was, of course, in breach of the marriage contract. The Husband says the parties returned briefly to Russia in July 2014.
- In 2015, SB Bank, which was now named the Cyprus SB Bank demanded 21.6 million from the Husband pursuant to the letter of guarantee. There was solicitors' correspondence in 2016. The Husband's commercial solicitors sent a robust response stating that the bank was out of time to make the claim. No reply has been received to that letter.
- The Husband says that the parties reached an agreement in 2015, although he does not say it satisfies the test in Xydhias for him to be able to rely on it. He alleges that the Wife agreed to the sale of the London property and Villa Bellissima with the proceeds being divided equally but with him transferring the Radost property to her. He says that, in consequence, he procured the transfer to the Wife of the house at Radost and approximately two thirds of the land.
- On 2 July 2015, the Husband sold his remaining 49.96% of Rimski to three Bulgarian entities for 3,000 each. He says that, in doing so, he was recognising that there was no value in Rimski. Indeed, he would say that this was vindicated by the decision of the Russian authorities in September 2016 to take away Rimski's licence such that it is now in administration.
- In July 2015, the family was granted indefinite leave to remain in this country. In consequence, the Husband sold UK gilts which had been backing the family's investor visa in this country for £4,514,841. The proceeds went to the joint FLB account. On 14 October 2015, the London property was re-mortgaged to FLB. Equity of £4.8 million was released and £2.8 million of this was paid to the Husband. In October 2015, he sold the German hotel for 2.5 million.
- On 9 November 2015, the Wife instructed FLB to freeze the joint FLB account, which at the time contained over £2 million. The following day, the Husband asked FLB to transfer £2 million to him. The Bank refused on the basis that it needed joint instructions. The Wife then petitioned for divorce on 25 November 2015 and filed her Form A on 10 December 2015. A decree nisi was pronounced on 22 February 2016.
- In January 2016, the parties reached an agreement that the Husband would pay the mortgage on the London property as well as the service charges and £15,000 per month to the Wife. On 18 February 2016, the Husband agreed in correspondence not to deal with the Italian or Belgian properties.
- The parties exchanged their Forms E in March 2016. The Wife's Form E showed her with total assets of £5.6 million. She said her income needs were £770,776 per annum. She added that the family had had an exceptionally high standard of living. The Husband accepts that his Form E, sworn on 16 March 2016 was "incorrect and deficient" in a number of respects. His figure for his net assets was £14.3 million but he said that he received $90 million for the sale of the insurance business and his bank, which was undoubtedly inaccurate. He added that $260 million had been withheld from him. He described the standard of living as modest. He accepted that he wrongly took the net proceeds of the Paris property following its sale.
- The case came before HHJ O'Dwyer on 23 March 2016. In a position statement filed with the court, counsel for the Husband said that the sale proceeds of the two companies came to $200 million. The case was allocated to a High Court Judge.
- On 1 April 2016, a "residential house" and a further plot, Plot 620 at Milvus were transferred from the Husband's nominee to B. Five days later, on 6 April 2016, the Husband's solicitors wrote to the Wife's solicitors to say that the Husband had run out of money. A request was made either to use the frozen money at FLB, then around £2.4 million, or to sell Villa Bellissima for 10 million. The letter added that no further financial support would be provided.
- At the end of the month, the Husband sold a property in Moscow for Roubles 22 million (around £260,000 at the time). He says that the net proceeds of £202,000 were applied to meet business expenses. The following month, May 2016, he entered into a credit line contract with Perdix (Latvia) for 3million. In essence, it is his case that the entire sum went into his businesses. Villa Bellissima was put on the market for sale but, it appears, at an unrealistic price of around 15 million.
- When the Husband filed his replies on 12 July 2016, he said that he had, in fact, received c$330 million from the sale of Mira insurance Company, which he conceded had been owned by himself and the Wife equally.
- The Wife made an application for maintenance pending suit and a legal services order on 20 July 2016. She sought maintenance pending suit of £44,684 pm and a legal services order of £142,740.
- The case came before me for the first time on 27 July 2016. I joined Krechet Holdings Ltd and Ardea Ltd as Second and Third Respondents and made various other directions. By agreement, Keehan J made a freezing injunction in relation to Villa Bellissima on 18 August 2016. It did not prevent a sale of the property but provided that the Husband was not to take any steps to diminish its value. There was to be joint marketing and no sale without agreement. If there was a sale, the proceeds would be frozen.
- On 7 September 2016, the Wife sold a flat in Moscow for Roubles 33.65 million (around £400,000 at the time). The Central Bank of Russia withdrew Rimski's operating licence on 13th September 2016. It appears that the bank is now in administration although it is referred to as bankruptcy in Russia.
- The Husband filed his Replies to the Wife's Schedule of Deficiencies on 27 September 2016. He said that the total consideration for the sale of Mira was $327,600,000 gross although a significant part had been used in covering Rimski losses and VB Bank commission (put at $22 million). He received 35,133,416 for Rimski. He invested $37,560,454 in Orel (Latvia) but the value was likely to be negative and he invested $91,272,422 in Sokol.
- He filed his first statement on 25 October 2016, giving his address as the London property but saying he spent around one week per month in London with the balance of his time split between Moscow, Munich, Geneva, Riga, and St Petersburg. He sets out the investments he has made with the proceeds of sale of the two companies. Sokol Group produces food and wine; Orel owns a metal cutting company; real estate in Latvia which has slumped; ultra-capacitors research and development; a soy and spice export business, which he says is bankrupt; and an electrical imports business (which is also bankrupt). The Pustelga Group owned the Russian hotel which was confiscated by a high-ranking Government Official despite a £13.7 million investment. It also owned a glass factory (in which he invested £3.8 million) and a further hotel, both of which are bankrupt. He said he needed to invest significant extra amounts to make the businesses profitable even though he had invested around £200 million to date. The 3 million loan was nearly all drawn. He said he had provided the Wife with an average of £23,042 per month in the eleven months to January 2016. He conceded that he had offered her £15,000 pm in February 2016.
- I heard the Wife's applications on 31 October 2016. I made a maintenance pending suit order in the sum of £15,000 pm from 21 July 2016 plus £84,000 per quarter for the mortgage interest instalments on the London property and the annual service charge on the property. I directed that the Husband pay the arrears of £45,000 by 30 November 2016. I did so primarily on the basis that this was what he had agreed to pay in February 2016. I relisted the LASPO application for hearing in April 2017 and set the case down for this final hearing with a time estimate of ten days.
- The Husband did not pay my order. On 22 February 2017, the Wife issued a request for a judgment summons saying there were, at that point, arrears of £300,534. The matter came back before me substantively on 28 April 2017. At the time, the Husband was acting in person. An agreement had been reached as to much of what was before me. I directed that the joint FLB account should be used to pay £143,035 to the Husband's solicitors and £270,925 to the Wife's solicitors. Thereafter, each firm would receive £10,000 per month. The Wife would get £15,000 pm for maintenance pending suit. I authorised a further payment of £114,500 to Alvarez Marsal for the Single Joint Expert Accountant's report being prepared by Mr Luke Steadman of that firm. Otherwise, the joint funds would be preserved. I had already adjourned the Judgment Summons generally. On this occasion, I adjourned the Wife's LASPO application with liberty to restore.
- The Wife made her open offer on 2 October 2017. The London property should be sold with the proceeds being paid to her. Villa Bellissima and the Brussels properties should be transferred to her. She should receive the remaining money in the FLB account. The Husband should pay her a lump sum of £13 million by 30 July 2018. She should receive an indemnity in relation to tax on the sale of the Paris property. There should be a clean break. The contents of the Paris property, that have been moved to a purpose-built warehouse on the land at Milvus, should be sold to provide an education fund for the children. The Husband should pay her £25,000 pa for D by way of periodical payments and he should pay her costs.
- On 12 October 2017, the Husband's solicitors told the Wife's solicitors that the Husband would not be relying on the marriage contract. This does not surprise me as, pursuant to the agreement, the Husband would have owed the Wife around 15 million, which he says he does not have.
- He made his open offer on 20 October 2017. He agreed that the London property should be sold but his case is that the equity should be divided equally. Villa Bellissima should also be sold and divided equally as should the remaining funds at FLB. The other assets should "lie where they fall". The Husband should take responsibility for any potential liability pursuant to the SB Bank guarantee of 21 million. There should be a clean break in life and death.
- The Husband replied to the Wife's second schedule of deficiencies on 24 October 2017. He said that he does not have a credit card in his name as he predominately uses cash. He occasionally uses his son's account. His son is reimbursed by TN.
- I heard the Pre-Trial Review on 18 December 2017 along with cross-applications for litigation funding from the joint FLB account. I directed that the Wife's solicitors should receive £256,293 from the account for costs and the Husband's should receive £336,293. This was designed to achieve parity, having taken into account what had already been paid on both sides. I discharged the order for a further £10,000 pm but directed that the £15,000 pm for mps to the Wife should continue.
- B filed a statement dated 20 December 2017. He gave an address in Moscow. He had started to work for his father in March 2012, first in the Ukraine in Marketing and Sales before moving, later that year, to Russia to make Sokol (the food and wine business) profitable. It was struggling and had only sold 12,000 bottles in 2012. He had become Head of Sales and Marketing in September 2013 and taken over the management of the business in 2014. It is "haemorrhaging" money due to old machinery; an expensive and inefficient workforce; bad land investment; mismanagement; and the like. When he arrived, the business had 30 managers whereas there are 12 today. There is heavy regulation of wine businesses and he considers investment is needed of $10 million. The previous manager had mismanaged the companies at a cost of around $12 million pa. B had been able to reduce the losses quickly to $3 million pa. He is the sole shareholder in the Abacus vineyard and winery which produces average wine as opposed to premium wine and is profitable. Although B had sourced the business in 2014 and acquired it out of bankruptcy at a 95% discount, the Husband had loaned him $1.6 million to do so. He says that his father recognised his big commitment to the project and that it was on the brink of collapse when he arrived such that he transferred the shares in several of the companies to B. B says he worked tirelessly for five years to turn them around but he recognises that the Husband's loans should be repaid if there are profits. In relation to Milvus, he said that the Husband transferred it to him in 2012/2013 as an unfinished building with a nine-hole golf course. He has done some work on it but it is still unfinished.
- The Husband's section 25 statement is dated 20 December 2017. He says he is based in Russia but divides his time elsewhere for business reasons. He developed a keen interest in wine from his father. PB Insurance discontinued the arbitration against him as he was not a party to the arbitration agreement. He confirmed PB Insurance claimed for unpaid tax against Mirus (the corporate owner of Mira before the sale). There was an award of £7.7 million in PB Insurance's favour. He paid Mirus' costs of £1.5 million. PB Insurance recognised it could not enforce against Mirus, as the company had no assets. An agreement was reached that PB Insurance would not pursue Mirus on the basis that the Husband paid PB Insurance's costs. A refused to return the assets the Husband had placed with him and they have not spoken since 2013. He said that, from 2007 to 2015, he spent $103 million on business and family living expenses. He invested $93 million in Sokol but it will fail if further funds (a minimum of $10 million) are not invested. He lives in Radost in Moscow which the Wife seeks to retain. The Husband has since said that, on 21 December 2017, Perdix issued a claim against him in Latvia for 3,015,452.
- The Wife's section 25 statement is dated 22 December 2017. She complains that the Husband did not account to her for one half of the net proceeds of Mira which were legally hers. Moreover, if there is a tax liability following the sale of the Paris flat, she will be liable even though she did not receive the proceeds of sale. She says she has been told the claim, including interest and penalties, could be as much as 12 million. She therefore seeks an indemnity from the Husband by, if necessary, a declaration. She repeats that the Husband received $465 million from PB Insurance (as the documentation from PB Insurance says this) although she accepts it was subject to some deductions. The Husband then made reckless investments without discussion with her. She says she made it clear she was very much against the Sokol project. The Husband has told her the investment was as high as $110 million. The Husband has given vast sums to his sons. He has failed to disclose a French account that, at one point since the separation, contained 394,000 although it had reduced to 107,162 by June 2016. She adds that the chattels in the warehouse in Russia that had come from France were worth between £2-3 million. She has obtained sales invoices for a minority of the items in the sum of 1,258,000. She does not wish to have any interest in the Husband's business ventures as she does not trust him.
- Luke Steadman of Alvarez and Marsal, produced his final report on 29 December 2017. He confirms that the Husband invested $172.4 million in his businesses. This broadly consisted of equity in Sokol of $30.3 million and $61.9 million in debt (loans); $41.8 million in Orel; $23.2 million in Pustelga; and $16.2 million in Milvus. On a tentative basis, Mr Steadman values the Husband's interest in Sokol LLC at $3,593,000 and in Crex at $204,000. The maximum debt he could recover from S's companies, including Wine FPX, is $35,115,293 although this may be theoretical and depend on a sale of the businesses. At the time, he was unable to place a value on the Orel properties in Riga, Latvia due to a lack of valuations and evidence as to mortgages. He thought there was some hope value in Turnix, which specialises in the production of ultra-capacitors in the Ukraine but the current value is negligible. There is no value in Wine Trade TP but Wine Trade TLP was valued at $744,000. I pause to note, however, that this company has been transferred to A. Pustelga is valued at nil as the two companies are bankrupt. Finally, the value of Milvus is unknown without a specialist land valuation although, again, I note that it is the Husband's case that it has been transferred to B.
- By the time the hearing commenced, valuations had been obtained for the three main properties and they are agreed. The London property is valued at £17.5 million. Villa Bellissima, Italy, is valued at 6.8 million and Radost, Moscow at $1.7 million.
- The Note filed in support of the Wife for this hearing argues that the Husband has either been guilty of non-disclosure or there has been reckless dissipation of assets. The equivalent Note filed on behalf of the Husband says he has produced 22 bundles of documents supporting his case and showing the expenditure since the sales of Mira and Rimski. He says that the difference between his presentation and that of the Wife in relation to the sale proceeds of Mira is that she has failed to recognise that PB Insurance required both the payment of an $80.5 million "non-qualifying asset" reserve into Mira as well as an $80 million escrow account. As there were total deductions of $42.9 million from what the Husband received over and above these sums, the total he got in his hands was $284 million net plus the payment for Rimski. He makes the point that the Wife has not sought to set aside the transactions in favour of the Husband's sons.
- During the first week of the trial, the Wife, the Husband and B all gave evidence. The Husband was cross-examined, perfectly properly by Mr Dyer QC, who appears for the Wife with Ms Chapman, over a period of almost exactly two days. I sensed, by the end of his evidence, that he was feeling the strain. There were two potential reasons for this. The first was that he was disconcerted by the questions he was being asked. The second was that he was unwell. At the conclusion of B's evidence on Friday afternoon, 26 January 2018, Mr Dyer said he intended to apply for an order seizing the Husband's passport in due course. I did not indicate whether this submission found favour with me or not although Mr Peel QC, who appears for the Husband with Ms Williams, indicated it was an ambitious strategy.
- We heard the evidence of Mr Steadman on Monday 29 January 2018. The Husband did not attend. I was informed he was in Moscow receiving treatment from his doctors there for thrombosis, a condition from which he has previously suffered. Mr Dyer asked, rhetorically, why he had not sought treatment in London and wondered if it was related to the Wife's application for a passport order. He later added that the Husband has previously been treated in Germany. It may be that the Husband wished to be treated by doctors in his own country. I have not heard oral evidence on this aspect and cannot therefore come to a conclusion. Nevertheless, I directed that a medical report be filed by 4pm on Wednesday 31 January 2018.
- I received a hospital admission form on the afternoon of 31 January 2018. It was in Russian but I was told it said that the Husband had been admitted to the cardiovascular surgery department of the hospital on 30.01.2018 at 12:45 pm with a diagnosis of acute thrombosis of the inferior vena cava and that he was in a critical condition. I was promised a further medical report in due course.
The Law
- I am asked to make orders pursuant to the Matrimonial Causes Act 1973. My powers are to be found in sections 23 and 24. I must apply section 25. It is the duty of the court to have regard to all the circumstances of the case. D is still a minor so he is my first consideration, although this does not mean that I ignore C who undoubtedly remains highly relevant.
- I must then have particular regard to the matters set out in subsection (2), namely:-
(a) The income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity, any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) The financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) The standard of living enjoyed by the family before the breakdown of the marriage;
(d) The age of each party to the marriage and the duration of the marriage;
(e) Any physical or mental disability of either of the parties to the marriage;
(f) The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) The conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it; and
(h) The value to each of the parties to the marriage of any benefit which, by reason of the dissolution
of the marriage, that party will lose the chance of acquiring.
- I will return to many of these sub-sections hereafter. At this point, I only need mention two. First, I am clear that the contributions of both parties to this marriage have been equal. It was made clear in the seminal House of Lords decision of White v White [2001] 1 AC 596 that there is to be no discrimination in financial remedy cases between the breadwinner and the homemaker, as each, in their respective roles, contribute equally to the family. Indeed, White goes on to decide that, in the absence of good reason to the contrary, the fruits of the marriage are to be divided equally.
- Of course, a distinction has to be made between liquid and illiquid assets. I should at this point make brief reference to the case of Wells v Wells [2002] EWCA Civ 476; [2002] 2 FLR 97. In general, fair sharing is achieved by a fair division of both the copper-bottomed assets and the illiquid and risk-laden assets. In Wells, the court found that the judge at first instance had erred in awarding the wife the bulk of the assets that were readily saleable at stable prices, leaving the husband with those assets which were substantially more illiquid and risk laden. Thorpe LJ said at Paragraph 24:-
"Having read the skeleton arguments and the judgment we were at once struck by the security of the result that the wife had achieved in contrast to the risks confronting the husband's economy. The family's standard of living has throughout been dependent upon the fortunes of the husband's business. Had the marriage survived the family would undoubtedly have shared adversity as it had shared prosperity
"
- Second, it is the Wife's case that the Husband is hiding assets or, if he has not done so, he has recklessly dissipated them. In relation to the hiding of assets, I remind myself that the burden of proof is on he or she who seeks to assert a positive case as to disputed facts, although it is for the respondent to the application to provide to the applicant and the court all the relevant information. This has been described as the duty to provide full and frank disclosure.
- The standard of proof is the civil standard, namely the balance of probabilities. There have been a number of authorities over the years as to how the court should deal with cases involving alleged non-disclosure. In J v J [1955] P 215, Sachs J said at p227:-
"In cases of this kind, where the duty of disclosure comes to lie upon the husband; where a husband has and his wife has not detailed knowledge of his complex affairs; where a husband is fully capable of explaining, and has the opportunity to explain, those affairs, and where he seeks to minimise the wife's claim, that husband can hardly complain if when he leaves gaps in the court's knowledge, the court does not draw inferences in his favour. On the contrary, when he leaves a gap in such a state that two alternative inferences may be drawn, the court will normally draw the less favourable inference especially where it seems likely that his able legal advisers would have hastened to put forward affirmatively any facts, had they existed, establishing the more favourable alternative."
- And at p229, he said:-
"
it is as well to state expressly something which underlies the procedure by which husbands are required in such proceedings to disclose their means to the court. Whether that disclosure is by affidavit of facts, by affidavit of documents or by evidence on oath (not least when that evidence is led by those representing the husband), the obligation of the husband is to be full, frank and clear in that disclosure. Any shortcomings of the husband from the requisite standard can and normally should be visited at least by the court drawing inferences against the husband on matters the subject of the shortcomings insofar as such inferences can be properly drawn."
- These passages were approved in Baker v Baker [1995] 2 FLR 829, where Butler-Sloss LJ said that the principle had been accepted for over forty years where a spouse was found to have lied and to have been guilty of material non-disclosure of relevant financial information. It continues to apply. It has been said that it is up to the respondent to open the cupboard door and show that the cupboard is bare. If he does not do so, the court can draw the inference that the cupboard is not bare. As explained in Baker, this is not an improper reversal of the burden of proof. It remains for the applicant to prove her case. A failure by the respondent to discharge the duty of providing full and frank disclosure can, however, lead the court to draw inferences that are appropriate.
- I accept that an allegation of reckless dissipation of assets is an allegation of conduct as defined in section 25(2)(g) namely "conduct that it would in the opinion of the court be inequitable to disregard". Baroness Hale makes clear in Miller/McFarlane [2006] UKHL 24; [2006] 1 FLR 1186 that, for such conduct to be relevant, it has to be "gross and obvious". For the court to "add-back" assets that have been spent, the court has to be satisfied that there has been "wanton dissipation of assets". In Martin v Martin [1976] Fam 335, Cairns LJ said:-
"A spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably".
- I have also been referred to my own dicta in MFP v MAP [2015] EWHC 627 (Fam); [2016] 1 FLR 70 where I said:-
"Mr Molyneux, in closing submissions, argued that there needs to be deliberate, unprovoked and morally culpable conduct. The most obvious example would be where a spouse deliberately dissipates a fund simply to prevent his or her former partner receiving a fair share of that fund. The court cannot permit such conduct. I further accept that there will be other situations where conduct justifies a financial penalty although such cases will undoubtedly be rare.
I am going to have to determine whether or not there was dissipation with a wanton element that justifies intervention by the court. Findings as to motivation are clearly very important. I do, however, accept that a spouse cannot take advantage of all the good characteristics of his or her partner whilst disavowing the bad characteristics. To put it colloquially, you have to take your spouse as you find him or her".
- Finally, in this regard, I remind myself of the decision of the Court of Appeal in Vaughan v Vaughan [2007] EWCA (Civ) 1085; [2008] 1 FLR 1108 where Wilson LJ confined the circumstances in which a court could apply such a doctrine, saying:-
"The only obvious caveats are that a notional reattribution has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) and that the fiction does not extend to treatment of the sums reattributed to a spouse as cash which he can deploy in meeting his needs, for example, the purchase of accommodation."
- There are issues in the case as to the extent to which the Husband has lied to this court and/or to others such as FLB Bank. First, I must decide whether or not he did deliberately tell lies. If I find that he did, I have to ask myself why he lied. The mere fact that someone tells a lie is not in itself evidence that the person concerned has undisclosed assets. An individual may lie for many reasons. They may possibly be "innocent" ones in the sense that they do not denote a false presentation of his current financial position. They may be lies to bolster a true case; or to protect someone else; or to conceal some other disreputable conduct or out of panic, distress or confusion.
- It follows that, if I find that the Husband has lied to me, I must assess whether or not there is an "innocent" explanation for those lies that does not support the Wife's case that he has hidden assets. However, if I am satisfied that there is no such explanation, I can take the lies into account in my assessment of his case.
- In this regard, Mr Peel reminds me of the words of Munby J in H v H [2010] EWHC 158; [2010] 1 FLR 1864 where he said:-
"The Husband was exposed to many, many hours of the most searching cross-examination, an ordeal from which, in my judgment, he emerged substantially unscathed. Almost inevitably, given the mass of complicated financial matters which were being put to him, and most of which he responded to from memory and without going to the documents, the husband on occasions made slips and gave answers which subsequently turned out not to be correct. But having had the opportunity of watching him over many days in court, and not only when he was in the witness box, I am satisfied that the husband was an honest, truthful and, for the vast majority of the time, also an accurate and reliable witness. He did not lie. And on the comparatively few occasions when he was "caught out" it was not for lying but rather, I am satisfied, because, quite genuinely, his memory was at fault."
- There are issues as to whether or not B and A are holding assets for the benefit of the Husband. I was referred to my own decision of Young v Young [2013] EWHC 3637 where I said that:-
"Mr Howling asks me to find on the balance of probabilities that various individuals and corporate entities are holding assets on behalf of the husband
.it is quite clear to me that I am unable to do so for two reasons, one of which if fundamental. None of these individuals or entities has been joined to the proceedings. Although some of the individuals concerned have given evidence, they have not had any opportunity to be formally heard on the issue. There have been no pleadings, so they would not know the case they faced. They cannot therefore be bound by any finding".
- It is, of course, correct that, where a spouse enjoys access to wealth but no absolute entitlement to it, I cannot act in direct invasion of the rights of a third party not can I put a third party under pressure to act in a way that would enhance the means of the maintaining spouse but I need not act in total disregard of the potential availability of wealth from sources owned or administered by others (see Thomas v Thomas [1995] 2 FLR 668).
- Finally, neither party was giving evidence in their first language. Indeed, the Wife gave her evidence throughout with the assistance of an interpreter. The Husband, although his English is excellent, at times had to receive help from the interpreter in understanding the exact meaning of questions put to him. I accept that this means I must take great care in assessing their evidence, given that processing information provided in a foreign language may put the participant at a disadvantage. I must guard against the very real possibility that questions or answers or both are misunderstood or at the least nuances and shades of different meaning are lost in the process. I have taken all this into account in assessing the evidence of both parties.
The witnesses
- I heard from three witnesses of fact, namely the Wife, the Husband and B. I also heard from the Single Joint Expert, Mr Luke Steadman.
- Mr Dyer submits to me that the Wife's credibility was not impugned. I accept that submission. She was an honest witness doing her very best to assist me. It follows that I can accept her evidence in almost all respects although she may, of course, be mistaken or lack the relevant knowledge in certain areas. Moreover, there is no doubt that some of her evidence assisted the Husband. This goes to her great credit and is of real help to me in deciding where the truth lies.
- She told me that she cannot trust the Husband and it would therefore not be right to give her an equal share of illiquid assets such as the Sokol companies and loans. She referred to what she described as his deceit in relation to the 2014 marriage contract and, in particular, the way in which he took the net proceeds of sale notwithstanding the agreement to the contrary. She rightly referred to having no rights or influence. She said she could not trust him due to his hiding assets but I gained the clear impression she was not nearly so confident in this regard. She was slightly hesitant in her responses saying she did think he had hidden some money and then that she thought it was more likely than not that he had hidden money.
- She confirmed that the Husband had told her that his finances were difficult and that business was not going well. She said she was not surprised that he had problems due to the crisis in the whole country, meaning Russia. Mr Peel specifically asked her about the schedule showing how the Husband had invested and spent the proceeds of sale of the two companies. She said that she trusted the Husband's bookkeeper, Z who was an excellent accountant. She said she accepted the figures if they were from Z and confirmed that she knew about a lot of the expenses. She said she knew about the transfer of some assets to A but she did not know which ones had been transferred nor their value. She confirmed that the Husband had a bad relationship now with A and accepted that they had probably not spoken since 2013. She added that she knew nothing about the transfer of assets to B including Milvus. She said she was against the investment in Sokol. She added that the Husband was the father of her children and they would help him and take care of him if he was destitute.
- She complained justifiably about the 2014 marriage contract saying she was deprived of her rights. She said she wrote to the Husband saying it needed to be cancelled. He refused but responding by transferring the house and two-thirds of the land at Radost to her to calm her down. She was asked about the Russian Hotel and she accepted that it was confiscated in 2011. She also confirmed that the second Italian property had been transferred to a high-ranking Russian official saying that she knew the official, respected him and will never claim the property back. She was asked about the Husband's approach to business and she confirmed that it was in his character to take risks. She said it surprised her that he had invested $91 million in Sokol although she then referred to an interview with the Press in which the Husband had said he invested $110 million. Finally, she said that she had no relationship with B although she did not view him as an enemy and they were civil to each other when they met.
- I did not have the same confidence about the evidence of the Husband. I certainly did not have the confidence that Munby J had in the evidence of Mr H. There were times that I find the Husband was lying to me but, at others, there did appear to be a core truth to what he was saying. I am of the view that I need corroboration before I accept what he says but, in many respects, I consider that he has provided corroboration. I accept that his schedules of expenditure are detailed and supported by a significant number of documents and ledgers. Indeed, I am told he produced 22 lever arch files in response to the various questionnaires and schedules of deficiencies. I accept that quantum of documentation is not, of itself, probative of anything if it is not the relevant documentation but, in this case, the Wife has not challenged the schedules even though she has had them since September 2016. She has not sought to instruct an accountant to verify/discredit them. She has not sought to introduce evidence to dispute or contradict the schedules.
- I make it clear, however, that this does not mean that I give the Husband a clean bill of health. His disclosure was woeful at the start of this case and clearly not full and frank. Moreover, I have significant reservations as to his current day to day financial position in terms of the up to date performance of the businesses and his income/expenditure in Russia.
- He was cross-examined for almost exactly two days. Anybody would find the probing questioning he faced difficult. Initially, he bore up well although I considered he was finding things problematic by the end. I did wonder whether he was not feeling well at times but he did not say this was the case or ask for time. I do not propose to summarise two entire days of extensive and detailed evidence. Instead, I will cover a number of specific topics. In particular, I will consider his explanations for alleged non-disclosure both at the beginning of the case and, in relation to specific items, more recently. I will also cover his evidence as to the investments he has made and their prospects as well as his current and likely future position.
- In relation to the early part of the proceedings, he was constrained to accept he had not behaved well. He admitted he tried to take £2 million out of the joint FLB account, saying he wanted to use it for investment. He said he was doing his every day job and he always paid the bills. He eventually accepted there had been an argument between him and the Wife immediately before he attempted to remove the money although his initial response was, in effect, to deny such an argument. He denied purposely intending to deprive the Wife of this money although that would undoubtedly have been the effect had he succeeded. There is no doubt that this incident shows that he is not trustworthy when it comes to treating his Wife fairly in relation to financial matters. He cannot get away with it by saying it was an "angry moment" as he attempted to do.
- He told me he had been honest in his disclosure at all times and that he did his best but this is simply not correct as reading his Form E immediately proves. He said the reference in his Form E to $90 million was a "mistake", saying he had never completed a Form E before and he did not have the original documents and had to get them with the help of lawyers. He tried to blame it on his memory but I cannot accept that evidence. It was untrue. He had remembered how much he had received when he spoke to FLB in April 2015, although, even then, he misled FLB in the other direction, by exaggerating the amount he received.
- He was asked about his reliance in these proceedings on the marriage contract in 2014, given he had argued that it was "determinative". He accepted that he had done so and that the Wife should have received 15 million from the sale of the Paris property but she did not get the money. He really had no explanation for this failure. He was asked about the disclosure he gave to FLB in April 2015 which was undoubtedly misleading and wrong. He had told FLB his updated assets as of 17 April 2015 were (a) property in London worth £21 million (which ignored the mortgage); (b) property in Italy worth 16 million; (c) 49.96% of Rimski 51 million (whereas he knew full well by then that the shares were next to worthless); (d) cash proceeds of sale of Mira - 467 million (which was an inaccurate gross figure); and (e) investment assets - 50 million in private equity funds (which was, on his case, misleading and inaccurate as to current value). In a letter dated 17 April 2015, he said his annual income from investments was 2 million. That is certainly not his case today. He tried to explain these documents in a number of different ways, claiming mistake and that the 50 million referred to the investment in Orel. He was constrained to accept that the agreement to pay 51 million for the second half of Rimski had been turned down in 2011, four years earlier and that he subsequently sold the shares for only 9,000. As to the income figure, he suggested this might be the sale of assets but that is not what he said. He should have simply admitted that he misled the bank as to his financial position, which he undoubtedly did.
- He was asked about his investments and their current position. He told me he preferred to invest his money rather than have it sit in a bank account. Whilst I accept that is a valid position to adopt, a prudent investor will always leave sufficient cash to ensure he or she does not run out of money. He told me he strongly believes in the Sokol project. He said the balance sheet has become better and better each year since the arrival of B but I do not see how this can be the case given that he says the business has continued to lose money, albeit more slowly. He talked about hoping that it would be profitable last year but now believing it should be profitable this year, although he once said "next year". He said that, "if you don't believe in what you are doing, you should stop but we will succeed".
- He said he had produced all the information to Mr Steadman about Sokol that Sokol had. It soon became clear that this was not the case. Mr Steadman had repeatedly asked for forecasts but had been told there were none. The Husband said to me that they could not produce what they did not have but then said they produced a "budget for the group as a whole". His explanation that it was not supplied as Mr Steadman wanted individual budgets for each company was risible. I am entitled to infer, should I decide it is right to do so, that there was something in the budget that the Husband and B did not want Mr Steadman to see. It is difficult to think of any legitimate reason for not giving him the document unless that is the case. He did say that the budget was not "fulfilled" but, as I will explain later, I cannot rely on that statement without more. He denied that Sokol was out of control, saying they were reducing costs and increasing income. He told me that, even in France, it takes ten to twelve years to make a profit from scratch. He accepted that the website shows some up-market buildings and facilities saying that their laboratory was their pride and joy. He added that he had almost stopped investing as he had no more funds.
- He was then asked about a number of complaints as to his disclosure of his current financial position. He told me he had given all the information that he could and that he had not resisted producing FLB statements in relation to two French accounts. The history behind this is that the Wife says that statements for these accounts were sent to the London property. She told me that, earlier in the proceedings, she saw a statement that showed 394,000 in an account and, more recently another statement showing 107,000. The Husband sent back the statement showing 107,000 under the Imerman protocol but, otherwise, has produced nothing despite seven court orders that he do so. I was shown some attempts to get the statements from FLB last autumn although Mr Dyer says these were sent to an email address that is no longer in operation. Even as the evidence closed, I still did not have any statements although I accept that the most recent delays appear to have been on the part of FLB. The Husband told me that he was not hiding anything as there was no logic to him doing so. He said he had forgotten about the account but I do not accept that evidence as he was reminded about it via the letters from the Wife's solicitor. Mr Dyer made the point that he told this court that he had no money to pay maintenance even though there was over 100,000 in this account. That is a fair point.
- Mr Dyer also asked him extensively about his expenditure and, in particular, his use of credit cards on an account allegedly belonging to his son. On 6 April 2016, his solicitors said he was unable to pay maintenance to the Wife and the outgoings on the London property yet Mr Dyer was able to show that he spent 47,000 in May 2016 in one fortnight on a CAD account on clothes, restaurants and travel. Mr Peel reminds me that the Wife's maintenance was supposed to be £180,000 pa arguing that the Husband's expenditure was not out of kilter with that but it misses the point, namely that he was paying nothing to the Wife.
- Mr Dyer is equally critical of the Husband's disclosure in this regard. He had said that he "occasionally uses his son's card when he cannot pay for items in cash". In evidence, he said that the one credit card that he used was with Colomba Bank and that he used the card and gave it back. Mr Dyer asked to see his wallet. It revealed a second credit card with GVB that had never been disclosed. Moreover, when B gave evidence, he said that his father had a credit card permanently for the Colomba Bank account and that the GVB account belonged to his father and not him. The Husband told me, through his counsel, that B was mistaken. Subsequent disclosure from GVB shows that the account was indeed opened by B but he clearly did not think that this account belonged to him. I find that is because it is, to all intents and purposes, the account of his father.
- Finally, the Husband was criticised in relation to Pustelga which had been a regular conduit of funds to the Husband's CAD accounts. When asked to update the statements at the outset of the case, the Husband said, for the first time, that he had transferred Pustelga to a third party in March 2017 for nil consideration. No logical reason was given for this transaction other than that Pustelga was expensive to run. The Husband said it cost $200,000 per annum but this seems a very high figure. The third party was only identified as a person who works with Orel in Latvia. The Husband added that the agreement said he could continue to use Pustelga to channel 150,000 to pay his personal bills but I believe I was being told the source of this money was the Husband's financial department and originated from the Sokol Group. The suggestion appeared to be that it was necessary to avoid money laundering problems but this seems unlikely if the source really was Sokol.
- The Husband was also asked about tax on the proceeds of sale of the French property. He told me he had instructed lawyers in France and he thought the French tax authorities had missed the deadline for making a claim. He therefore said that, as he didn't see any risk, he did not see why he had to give the Wife an indemnity. He said he would not sign an indemnity on his own. The counter argument is that, if the risk is non-existent, there is no prejudice to him in signing the indemnity.
- He was asked about why he had said he had no valuations of the Orel property assets in Latvia when the valuer revealed, when approached to value them in these proceedings, that he had already valued the assets for Orel. The Husband's response was to say that he did not know the valuations had been obtained by the executives running Orel in Latvia. I accept that the valuations merely revealed that the mortgages on the properties were significantly in excess of market value but I cannot accept that the Husband did not know about the valuations. If he did not, he should have checked when asked for any valuations. It was another silly lie although I cannot see what he gained from it.
- In re-examination, he accepted the deficiencies in the Form E but said that he considered he had given full disclosure since. He also said that there was no budget yet for Sokol for 2018. He told me that the biggest capital expense in Sokol had been to establish the infrastructure, such as roads and services. He accepted that the Wife was, in principle, against the investments in Russia as being risky but he said, with some force, that he was Russian and so should invest there.
- The final witness of fact was B. In general, I was impressed by him until he came to deal with the financial position of his wine business, Wine FPX. Having said that, I am quite clear that B is relatively inexperienced in business and that he could have achieved next to nothing in Russia without the financial backing of his father.
- The position of Wine FPX is completely unsatisfactory. The case presented by the Husband and B is that B decided to branch out into cheaper wine that could be sold as a supplement to Sokol's premium wine. I was told that a local vineyard was in bankruptcy and that it was possible to buy it for a discount of 95%. B had soon been able to turn it round and make it profitable. Mr Steadman had extracted the figures from the accounts which showed a loss of (Roubles 45 million) in 2014; a loss of (Roubles 52 million) in 2015; but a profit of Roubles 293 million in 2016. The 2016 accounts showed an operating profit of Roubles 104 million increased by "other income" of Roubles 267 million but subject to expenses to reach the Roubles 293 million figure. When asked about this "other income", B was unable to identify it but said that, although the revenue of Wine FPX was increasing every year, the figures in the accounts were not correct. He said they were "massaged" as the company was under a tax investigation. The tax investigation was resolved in November 2017. He then said that they had increased the numbers in some years and reduced them in others. This means that the figures Mr Steadman relied on were completely inaccurate and Mr Steadman had not been told of the inaccuracy. B then said that he believed there was a profit of around Roubles 60 million in 2016 and Roubles 50 million last year. At an exchange rate of 80 roubles to the pound, these figures equate to £750,000 and £625,000 respectively.
- Another significant discrepancy was that the Husband told me that the two companies were kept entirely separate whereas B said that Wine FPX propped up Sokol and that some of the Wine FPX profits had been diverted to Sokol. The consequence of all of this is that I cannot rely on the disclosure given in relation to the Sokol Group at all. The Husband has not disclosed the 2017 budget. The Wine FPX accounts are works of fiction. The true position is shrouded in mystery other than that they have a very good product, excellent facilities and an enormous sum of money has been invested in the business.
- B also told me that the group was negotiating a loan with a large Russian bank. I was told that this was for a modest amount, namely Roubles 10 million (approximately £125,000) which would be spent on new vines. It is a fact that Sokol has vines on only 79 hectares whereas it owns about 4,000 hectares. He indicated that the Russian Government has announced subsidised loans for this purpose and that the idea was "to start small" to build a commercial relationship with the bank.
- He was asked about the transfer of assets to him. He said he did not know if there was a reason although then conceded it could have been because of the PB Insurance litigation. He accepted that assets had been transferred to his brother in 2011 due to that litigation. Initially, he was not sure why Milvus had been transferred to him. He then said he might have got it as "the senior heir" although he was very hesitant and accepted it was intended to be the "family nest". During the course of the case, it was agreed that Milvus should be valued but Mr Dyer told me during submissions that the Valuer had not been able to gain access due to the security at the site not being informed of the visit. I accept that the Husband has not had a chance to respond but I am surprised by a number of aspects. Who is paying for the security guards or the team of gardeners who the Husband accepted were maintaining the golf course there?
- I can deal with Mr Steadman's evidence shortly. He was asked by both leading counsel as to whether or not he got the cooperation he needed. He told Mr Dyer that he got the majority of the information that he asked for but did not get any forecasts for any of the Sokol companies. He said he found it surprising when he was told there weren't any. He was not asked to do a forensic investigation and did not do so. He told Mr Peel that his team did receive cooperation but it took a long time. They had to go back and ask for further information and there were requests that were not addressed but he did not get a sense of unwillingness. He had spoken once to the Husband but had never spoken to B.
- Mr Dyer asked him about his valuation of the Husband's interest in Sokol. I remind myself that the Husband owns various companies in the Group in which he invested $31 million and he also has loans outstanding to the companies transferred to B in the sum of $60 million. Mr Steadman had valued the Husband's companies on the basis of an Enterprise Value using four different scenarios, namely closure of the business; continuation of the business as now; recovery of the business; and expansion of the business. He assigned 25% to each value to give him an overall value which was Roubles 506 million. He then deducted the net debt of the companies of (Roubles 291 million) to give an equity value of Roubles 215 million which is $3.7 million. Mr Dyer referred him to a comparable sale of a company in 2014 in the same region that was loss making but where the price equated to 3.3 times the turnover. Mr Steadman's valuation was between 2.2 times and 2.8 times Sokol's turnover. If the higher multiple was used, said Mr Dyer, the value would increase to $7.9 million. Mr Steadman stuck to his figure saying that it is impossible to know what synergies there may have been in the other sale to make the target company more valuable to the purchasing company than might otherwise have been the case. I remind myself that valuation evidence of this kind is an art not a science. Moreover, if I cannot rely on the figures given for Sokol's turnover, it is all academic. If Wine FPX's figures are unreliable, what confidence can I have in Sokol's? Overall, I accept Mr Steadman's evidence but subject to the caveat that he was using the figures he was given which may well be inaccurate or misstated.
My conclusions
- I now turn to my conclusions. I start with the historical position. It is quite clear to me that the Husband's case today as to the net amount he received from Mira and Rimski is accurate, although I accept he did not give a frank account at the commencement of these proceedings. By the end of closing submissions, Mr Dyer effectively accepted that the Husband's figures were correct. I have come to this conclusion having analysed the documents disclosed. It is clear to me that the $80.5 million "non-qualifying asset payment" and the $80 million escrow account both went back into Mira to recapitalise the business. This is not remotely surprising given the huge sum received by the Husband, particularly when it is remembered that VB Bank's original estimation was that the business was only worth $60 million. It follows that the Husband received:-
Tranche 1 in 2007 $260,000,000
Less
New Capital Amount ($9,500,000)
Non-Qualifying Asset Payment ($80,500,000)
Escrow Account ($80,000,000)
Commission ($2,400,000)
$87,600,000
Tranche 2 in 2008 $240,000,000
- I further accept that he then had to pay commission of ($19,869,255) to VB Bank; ($3 million) in legal fees; and he paid $20 million into Rimski. This means he received a net figure of $284,000,000. I entirely accept that there is no documentary evidence that he paid the $20 million into Rimski but it seems inherently likely to me that he did so, given the requirement that he made a further payment in when the business was sold the same year. In any event, it does not matter very much in the context of the sum he did receive.
- Turning to Rimski, I accept that he received 35,133,416 from the sale in 2008 of half his shares but that the sum of 44 million had to be paid into Rimski for capitalisation purposes as a condition of the agreement. Given the fact that the bank subsequently became worthless, it seems highly likely that he would have had to do so. Initially, Mr Dyer argued that the Husband received the benefit of half this sum but I am satisfied that he got no value out of the company after the first sale. After all, the agreement was that he would get a further 51 million for the remaining shares but this was vetoed in Cyprus. Again, this is not surprising given the subsequent demise of the Bank. I might have had some trouble in accepting that the Husband went on to sell his remaining shares for only 9,000 to the Bulgarian investors in 2015 were it not for the withdrawal of the Bank's licence in September 2016. The writing was on the wall and the Husband appears to have seen that and got out before there was any question of any further personal liability.
- The second significant issue is the use to which the money was put. Has the Husband satisfied me that the schedules he produced with the help of Z are accurate and, in consequence, there is not some large hidden pot of assets? His case is that he spent the entire sum as follows:-
Equity investment in Sokol $30,376,263
Loans made to Sokol $60,896,159
Equity investment in Orel $41,825,648
Equity investment in Pustelga etc $23,169,674
Investment in Milvus $16,214,674
Other Russian investments $ 8,923,232
Western European investments $23,698,881
Business and living expenses $103,601,994
Total $285,101,994
- It is also said that this ignores various associated costs of the sales of the businesses amounting to $46,500,000 although my understanding is that I have largely taken that into account in Paragraph 105 above. There was then a further schedule breaking down the business and living expenses into the Husband's expenses; the Wife's (modest) expenses; salaries; the Russian plots of land; Radost; and Business expenses (including Sokol losses). Mr Peel makes the point that the schedules are backed up by sub-schedules, two files of contemporaneous ledgers and five files of loan agreements.
- I accept entirely that these are mouth-watering sums. Although I am not dealing at the moment with whether or not the Wife has established reckless dissipation, the Husband's case is not helped by the fact that he has undoubtedly misled me as to his current financial position. He also attempted to mislead the court at the outset of this litigation. There is no doubt that I would be entitled to infer hidden assets but I must only do so if such an inference can be properly drawn.
- There is a great deal that suggests that there is no significant hidden pot of money:-
(a) The schedules produced by the Husband were not challenged by the Wife. She did not instruct an accountant to investigate or seek to introduce evidence to dispute the schedules.
(b) Her own evidence was to the effect that she accepted the veracity of the schedules as she trusted the work of Z.
(c) The Wife seems to accept the figures for the investments in the various entities and, in particular, for Sokol and Orel.
(d) Although the $103 million of expenditure is an enormous sum, it does include financing the very large early loses in Sokol which has not been challenged to any great extent.
(e) It follows that, if the schedules are largely accurate, the vast majority of the money is accounted for.
(f) After his initial failure to be full and frank, I am satisfied that he has made reasonable efforts to assist the court. The complexity of his financial affairs and the different jurisdictions involved undoubtedly makes it more difficult and almost inevitably leads to a few defaults that can be seized on.
(g) The Wife has not produced convincing evidence to support a case that there are significant amounts of money in concealed bank accounts. There is no paper trail. The Swiss bank account that she believed the Husband held turned out not to exist. The assets that she has found appear not to be case-changing sums. I recognise that I have not seen the FLB statements, although the current delay appears to lie with FLB not the Husband. The statements she did see do not show millions of pounds in the account and I remind myself that he did say he had a current account at FLB in Paris in his Form E.
(h) I have already said that the Wife appeared half-hearted in suggesting large scale non-disclosure. Mr Peel says that the Husband was "barely challenged as to hidden assets" and that "it was not put to him that he had concealed accounts or other resources". I am not sure that is completely accurate but, whereas I was not satisfied as to the detail of the Husband's current financial position, I did not conclude that he was concealing some enormous hidden pot of money. I accept Mr Peel's point that B was not challenged as to the Wife's assertion in her statement that B could be holding money in a bank account in his name on behalf of the Husband.
- It follows that, on the balance of probabilities, the Wife has not established that the Husband does not have game changing amounts of money that he has not disclosed. This does not mean that I am satisfied that he has been entirely frank with me as to his current position. He has not maintained his Wife notwithstanding his own agreement to do so and my order to that effect, yet he has been able to maintain himself at least to as good a level. I am satisfied that he is using B as a conduit. The source of the money from Pustelga is unclear. Indeed, between July 2014 and April 2016, he received 22,750,000 and £3,234,000 as follows:-
(a) Paris flat 15,000,000
(b) Brussels property 2,250,000
(c) London property re-mortgage £ 2,800,000
(d) German Hotel 2,500,000
(e) Perdix loan 3,000,000
(f) Sale of properties £ 434,000
The assets
- I now turn to my computation of the assets. There is little dispute between the parties. I incorporate as Appendix 1 to this judgment the spreadsheet prepared by the parties at the commencement of the trial but I make the following rulings on the matters in dispute:-
(a) The Husband has an interest in a commercial property in a company known as Rimski Invest. His Financial Director puts a value on it of Roubles 55 million which is around £680,000. The Husband discloses this in his statement dated 25 October 2016 without caveats but now says it is caught up in the Rimski liquidation and he will get nothing. I do not believe I have seen any documentation to this effect. He says he owns it and it will therefore remain in the schedule but I accept that it may not be easily realisable and I will not be placing great reliance on it.
(b) The Perdix loan is more difficult. The Husband has produced documentation to show he borrowed this money without security from an entity in Riga that appears to be linked to a hotel there. The documentation suggests that he does not have to repay the loan until 2020 but, rather conveniently, the lender commenced proceedings in December 2017. On the balance of probabilities, this money was loaned to the Husband and it will remain as a liability in the schedule at the figure of (£2,683,752).
(c) The Husband claims a small debt of (Roubles 2 million) to TN which funds his expenditure. Given he owns the company and has funded all his companies to such a huge extent, this item cannot remain as a legitimate liability. A simple accounting exercise could wipe out this debt.
(d) The Wife's cost debt of (£100,000) to a friend will remain in the schedule as will the Husband's debt of (£60,522) to his commercial solicitors and his liability to his solicitors in this litigation (£67,555).
(e) I will deal with the Husband's business assets in due course.
(f) I accept that there should be a figure for the chattels held in the warehouse at Milvus. I reject the Husband's half-hearted suggestion that he had given these assets to B. B did not seem to know anything about it. The fact that the chattels are stored on land held by B is irrelevant to ownership of the chattels. It is far more difficult to ascribe a value to the items. I accept the Wife has produced invoices for around 1/3rd of the items showing a cost of £1.15 million but these items were bought at expensive retail establishments. It follows that the cost may well have been in the order of £3 million but it is very difficult to ascribe any accurate sum to their resale value. The same applies to the antique furniture in Moscow and the other items of personal belongings. Doing the best I can, I ascribe a value of £1 million to the items in the warehouse.
- My calculations are that these adjustments reduce the liquid/property assets to £11,118,559 net. This excludes chattels and business assets but includes the Perdix debt. The main assets are:-
(a) Net equity in the London property £3,625,000
(b) Money at FLB, London £ 883,592
(c) Villa Bellissima £5,567,840
(d) Belgian property £ 481,935
(e) Radost £1,209,975
(f) W other properties in Russia £ 743,779
(g) H other properties in Russia £ 725,754
(h) Russian warehouse chattels £1,000,000
(i) Rimski Property £ 708,825
£14,946,700
- In essence, these are the assets I have to divide.
Wilful dissipation
- I take the view that I should deal with the issue of wilful dissipation before I turn to consider my conclusions as to the value of the Husband's Russian business assets and the income they produce for him.
- I have come to the conclusion that I should not treat the Husband's investments in these Russian businesses as wilful dissipation of assets but that I am entitled to draw inferences as to the state of those businesses from the evidence I have heard. If I am wrong, the Husband has only himself to blame.
- The issue of wilful dissipation in relation to the business assets is finely balanced. On the one hand, the Husband, on his case, has lost an enormous sum of money when this family should have been financially secure for the rest of their respective lives. It is accepted that the Wife had no say in any of this, even though she had been a joint owner of Mira. It is also accepted that she was against the Sokol investment.
- Nevertheless, I accept the Husband's evidence that he is an entrepreneur who made enormous sums from Mira and Rimski through risk taking. It is not surprising that he wished to reinvest in further businesses. If that had not been his approach, he would never have made the money in the first place. I am satisfied that he did not deliberately go out to lose this money. The investments were largely made long before the breakdown of this marriage. He is Russian and had made his money in Russia so it was not unreasonable to invest again in Russia. He has suffered from the difficulties in the Russian economy and, in particular, the problems following the annexation of Crimea, that he could not have anticipated. This has led to a collapse in the Rouble and in business confidence. I accept that he was not experienced in wine and food before he launched Sokol but he was just as inexperienced in banking and insurance before he started KV Bank and Mira. The knowledge of the Wife and her father does not meet this point. Indeed, KV Bank itself went bankrupt and would have brought the family to penury if the Husband had not been able to get it all going again via Rimski.
- It follows that I do not find wilful dissipation. I made the point in MAP v MFP that a wife has to take her husband as she finds him. She cannot take advantage of his entrepreneurial abilities to share in any projects that are valuable whilst not accepting liability in relation to any that are unsuccessful. I accept Mr Peel's point that, had Sokol made huge sums of money, she would have been entitled to share in those profits. I recognise that it is a source of frustration for her that she opposed the Sokol venture and now has to accept a half-share of its losses. Regrettably, there is no perfect solution in many cases. In any event, if I had found wilful dissipation, I would have had to consider the Husband's needs so it would not advance the case very much.
- There is one area, however, where I am not satisfied as to the Husband's presentation and that is the transfer of assets to B. The Husband accepts that he transferred assets to A to avoid possible enforcement in the arbitration proceedings. I do not know the value of these assets but the evidence is clear that the Husband has fallen out with A and will not get the money back. I suppose it could be said he has only himself to blame but there it is. The position with B is not so straightforward. I do not know if the Husband transferred the assets to B to avoid enforcement or, in relation to the latter Milvus transfers, whether the Wife's claim played any part. It does not matter in relation to Sokol because the Husband has retained the benefit of his loans but it does matter in relation to Milvus. The Husband had invested a significant sum ($16.2 million). It is nonsense to suggest that only B could bring the project to fruition. B had no independent finance to enable him to do so and no expertise in this area. I recognise that B told me it was now his asset but it was gifted to him and, if his father needs the money back, I take the view that B owes a moral obligation to his father who has done so much for him. If he refuses like A, the Husband has only himself to blame. If his finances were as dire as he says, he should not have parted with this asset. I recognise I have no valuation but that does not matter. I take the view this is either a resource of the Husband or, if I am wrong about that, it should have been and amounts to wanton dissipation.
The business assets and income
- The quantification of the true value of the Husband's business assets in Russia and the income they provide is, in many respects, an almost impossible task. To use a colloquialism, the position is "as clear as mud". Mr Steadman has, understandably, not been able to perform an audit. The true figures and the way in which the Husband maintains himself and his staff in Russia is shrouded in mystery. It is significantly compounded by the admission that the accounts of Wine FPX misrepresent the true position. If Wine FPX's accounts are fraudulent, how can I be satisfied that Sokol's are accurate and it is indeed loss-making?
- I am particularly mindful that the Husband has had over £20 million in funds from July 2014 to April 2016, including the Perdix loan. I am entirely unclear as to what has happened to that money but I cannot take into account that the Husband has had the Perdix money but then deny the existence of the loan.
- There certainly appears to be money in Russia, whether it be to fund the security guards and the gardeners at Milvus; to pay the Husband's credit card bills; to pay B his salary; or to pay the book-keepers and accountants. The money funnelled through Pustelga came from somewhere.
- I am minded to accept that Orel has no value although it was a woeful performance by the professional fund-managers who were employed. They have got no value at all for an investment of $41 million as well as the further sum of 12 million which was raised by way of mortgages on the properties in Riga.
- I am not, however, prepared to accept the Husband's presentation of Sokol. He has invested a total of $91 million in the companies plus the financing of the losses that, at one point, was said to be $12 million in a year. The website shows significant impressive assets that must have a value. The Husband and the businesses own at least 4,000 hectares. He values the land at $1,000 per hectare which is $4 million of itself, although some of this is included in the land he owns direct. I am satisfied that Wine FPX and Sokol operate together to their mutual benefit and I accept B's evidence as to the businesses supporting each other.
- I do not know if Sokol is still losing money. I am satisfied that the 2017 budget was not disclosed for good reason. It must have shown significant projected profit. I recognise that projected profit does not always result in actual profit but I am entitled to draw inferences from the failure to disclose. If the Husband is telling the truth, he should have disclosed the document but explained that the actual position was not so favourable. Given the acceptance that the Wine FPX figures are fiction, I am minded to accept that, overall, the group is profitable and financing both the Husband and his son. If it is not, given the amount invested, he again has only himself to blame.
- I have no idea as to value. Mr Steadman valued the Sokol equity companies at $3,593,000 and Crex, the cheesemaker in which the Husband owns 20%, at $204,000. He placed a figure of $35 million on the Sokol debt although I accept that he said that it was "theoretical recovery of loans
.no current liquidity and value may depend on sale." I am quite clear that, if there is liquidity, whether on a sale or otherwise, the Husband is entitled to be repaid and will be repaid. It could hardly be said that the $1.6 million loaned to Wine FPX should not be included although I accept it is a small sum compared to the other loans. It follows that I find there is value in Sokol. In one sense, it is impossible to say how much but I am going to ascribe a value of £5 million to the loans (including Wine FPX) and £2,771,810 to the equity companies and Crex. I accept these sums are not liquid but I have discounted the loans very heavily, particularly given the value of the land and the profitability of Wine FPX. I am satisfied that I am entitled to include these figures, so heavily discounted, in my schedule of assets. Again, if I am wrong, the Husband has only himself to blame. Finally, my overall conclusion is that the Husband is in a position to provide himself with an income from these assets. Mr Peel asks why the Husband should have to go "cap in hand" to his son. The answer is because these businesses were the brain child of the Husband; he set them up and invested enormous sums in them; he structured them in such a way that he might have to go "cap in hand to his son"; and he is owed very significant sums of money from them that he needs as and when it becomes available.
Wells sharing
- I now turn to the question of Wells sharing. Very late in the day, the Husband offered the Wife one half of his Russian business assets and the value of any loans he recovers. This was described as Wells sharing. At various times, it was suggested there could be orders in Russia; injunctions; and the like.
- I am absolutely clear that such a solution is completely impractical and totally inappropriate in this case. There are numerous reasons for this:-
(a) There would be no clean break to the huge disadvantage of both. There would be very significant costs of policing the order if the Wife was to have any chance at all of benefiting from it.
(b) In fact, I am quite satisfied the Wife would never see any benefit from such an order given the presentation of the Husband to this court as to the state of those businesses. His own admission that he is prepared to transfer assets to A to avoid enforcement proves the point of itself. This is reinforced by B's admission as to the fraud in the accounts of Wine FPX.
(c) Sokol is not a business that has been run throughout the marriage as was the business in Wells. The family was not dependant on the fortunes of Sokol whilst they were happily married. Not only that, Sokol is a business that was opposed by the Wife and in which she has had absolutely no say. The Husband chose to invest in it and he must now take the consequences of that.
(d) In consequence, it would be profoundly unfair on the Wife in the circumstances of this particular case to order any form of Wells sharing.
The Husband's assets and needs
- It follows that the Husband must keep the Russian business assets. They will provide him with his income and the return of at least some of his capital in the long term. He does, however, have a need for accommodation and a need to clear the Perdix loan.
- He will retain his Russian property assets, namely the Russian plots of land (put by him at £384,150 net); Apartment (£263,348); and his share of the property where his mother resides (£68,506). I exclude Wine Trade TP as I am satisfied that this was gifted to A. He will also have the benefit of the chattels in the warehouse at Milvus, to which I have given a value of £1 million. He can use these assets to rehouse himself in Russia. He also retains the Rimski property at £708,825. If necessary, he may have to live in the apartment in the short term.
- It follows that he has an outstanding need for £2,683,752 to discharge the Perdix loan and £60,522 to pay his commercial solicitor's costs and £67,555 to his current solicitors. These three items total £2,811,829. I note that one-half of the net proceeds of sale of Villa Bellissima is £2,783,920.
- It follows that, on the basis of my findings, the Husband ends up as follows:-
(a) Sokol debt £5,000,000
(b) Sokol equity and Crex £2,771,810
(c) Russian plots of land £ 384,150
(d) Apartment £ 263,348
(e) Property in which his mother resides £ 68,506
(f) Milvus warehouse chattels £1,000,000
(g) Rimski property £ 708,825
(h) Half of Villa Bellissima £2,783,920
£12,980,559
- From this sum, the Husband has debts of (£2,811,829) giving him net assets of £10,168,730. I am uncertain about Rimski. If that is deducted, the figure reduces to just under £9.5 million. Moreover, I have not factored any value in for the land at Milvus in which he invested $16.2 million and there is approximately 100,000 at FLB Paris.
The Wife's position
- I have come to the clear conclusion that I should order a sale of Villa Bellissima and an equal division of the net proceeds of sale but the Wife should have all the other non-Russian assets.
- On this basis, the Wife would receive:-
(a) The entire proceeds of sale of the London property £3,549,038
(b) A transfer of the joint FLB accounts £ 883,592
(c) Half of the net proceeds of sale of Villa Bellissima £2,783,920
(d) A transfer of the Belgian property £ 481,935
(e) Radost £1,209,975
(f) Her other properties in Russia £ 743,779
£9,652,239
- She must deduct from this sum her outstanding litigation debt to her friend in the sum of (£100,000) meaning she receives broadly £9.5 million. This is clearly sufficient to provide for her needs but I am also clear that it is a fair sharing of the assets on an equal basis. Whilst she does receive largely liquid assets, the Husband has decided to invest in the way that he has. I am not satisfied as to his exact current position. The division is therefore entirely fair.
- The Wife did seek an additional lump sum of £13 million. Such an order was dependant on my finding significant non-disclosed assets. I have not done so. In any event, I cannot see how such an order would be enforced. There will be no such lump sum order.
Indemnity
- The Wife seeks an indemnity in relation to French tax following on from the sale of the French property. I am by no means convinced that there is any tax due. The property was held in a corporate SCI structure and it certainly appears as though the French tax authorities have missed the deadline for a claim. I also tend to accept that it was the obligation of the Notary to ensure any tax due was held. The Notary did not do so.
- Nevertheless, the Husband took the entire proceeds, even though the Marriage Contract provided that the Wife should have them. I am not satisfied as to where the money went and he certainly did not leave any money in France for tax should any be due. I am therefore of the clear view that he must indemnify the Wife for any tax liability. I am satisfied I have jurisdiction to so order (see CH v WH [2017] EWHC 2379). Indeed, if the Husband is right that there is no liability, he has nothing to fear. A claim against the Wife could completely wipe out her assets, particularly if it was for around 12 million as once suggested.
- The Husband must also be responsible for any liability under the SB guarantee. He accepts that but it seems pretty clear that SB are not pursuing the matter given that they have not responded to the Husband's commercial solicitors' letter as long ago as the autumn of 2016.
School fees and periodical payments
- The Wife seeks periodical payments for D of £25,000 per annum. Mr Peel thought £15,000 per annum might be fairer. I have absolutely no idea as to the Husband's income. I order £20,000 per annum.
- Both parties have asked for the ring fencing of assets to pay the education costs of the children. The Wife suggested it come from the sale proceeds of the Milvus chattels. I am clear that it would be totally impractical to do so and would just lead to more litigation. The Husband suggested a fund from the sale proceeds of the London property which I reject as being unreasonable.
- The only question is whether the Husband should pay all the education fees or whether they should be split equally. If the Husband had satisfied me as to his current financial position, it may well have been that equal division was appropriate but he has not. It follows that I make an order that he pays D's school fees and C's education costs in America. He has been doing so and should continue to do so.
Transfer of the Belgium property
- I have decided that the Wife should have the benefit of the property in Brussels. The report of her expert, Tibault Le Hardy, dated 18 January 2018 suggests it is held in joint names but the assets schedule shows it as belonging to the Husband. The expert suggests that both parties must sign the deed of transfer before a notary in Brussels. I do not believe that will happen. It is said that it is "theoretically possible" that the English order could be treated as a deed of transfer and registered direct but that seems inherently unlikely to me.
- I am of the view that an order for sale with payment of the net proceeds to the Wife is far more likely to achieve the result I propose. I therefore make an order for sale and for payment of the proceeds to the Wife. I am prepared to certify that it is for her maintenance pursuant to the wide definition given in Van den Boogard v Laumen [C-220/95). It will be up to her then to enforce it as best she can.
Mr Justice Moor
2 February 2018
