Landmark decision where Court of Appeal reduces W’s award by £20 million. Lord Justice Moylan, Lady Justice King and Lord Justice Phillips.

Background

For a full summary of the facts and first instance decision ARQ v YAQ [2022] EWFC 128 please see the FRJ summary.

W appealed and H cross-appealed.

W’s arguments on appeal

Ground 1: Assets transferred in 2017 had not become matrimonial property

W argued the judge was wrong to decide the assets transferred to W in 2017 had become matrimonial property. In support, W submitted there were three types of property: (i) W’s separate property; (ii) H’s separate property; and (iii) marital or partnership property. W argued there was no category of ‘matrimonialised’ property and invited the court to remove it ‘from the lexicon of the law of financial remedies’; [71]. W contended that the effect of H transferring the assets (which were his ‘separate property’) to W in 2017 was to transform the assets into W’s ‘separate property’ that was not subject to the sharing principle; [77].

W also argued that to consider the assets transferred into W’s name as matrimonial property would be ‘an engine for confiscation’ and ‘would be discriminatory and an improper use of the court’s powers because it would place a spouse in a worse position than anyone else, including a cohabitee’; [79].

W relied heavily on respect for the parties’ autonomy. W argued Moor J should have treated the assets in her name as her separate property to give effect to how they had chosen to hold their assets during the marriage; [80].

W conceded that although the assets were not matrimonial property they should be treated as such and shared equally because ‘the nature of their partnership meant that the total of the assets should be divided equally’; [9]. Alternatively, W argued if the assets were matrimonial property they must be shared equally.

As to the Ardenside Angus business, W argued that the judge should have divided this asset equally between the parties in accordance with their equal shareholding as he decided it was matrimonial property.

Ground 2: the Ardenside property was a matrimonial asset

Ground 2 was that the judge should have found Ardenside was a matrimonial asset and shared it equally between the parties because although H owned the property before the marriage, the parties had holidayed there, improved the property and increased the gross value of the land substantially during the marriage; [10].

H’s arguments on cross-appeal

Ground 1: the judge was wrong to find the 2017 Assets and Ardenside Angus were matrimonial property

H’s primary case in respect of W’s first ground of appeal and his cross appeal was that the judge was wrong to find the 2017 Assets and Ardenside Angus were matrimonial property.

H submitted that neither title nor autonomy were relevant to the application of the sharing principle in the way purported by W. H argued ‘to adopt the approach proposed by the wife and exclude assets from the sharing principle on the basis of title’ would ‘wholly undermine the sharing principle’; [90]. Instead, H submitted the focus of the court when applying the sharing principle should be on the parties’ contributions; [90].

In relation to the concept of ‘matrimonialisation’, H submitted that the concept should be applied ‘cautiously and conservatively’ by being confined to the three examples given by Wilson LJ in K v L [2011] EWCA Civ 550 at [18]; [93]. Furthermore, it was emphasised that the fact an asset has been matrimonialised does not mean it must be divided equally; [94].

H submitted that the 2017 transfer did not make those assets matrimonial property and that the judge had confused the transfer of legal title to the assets with the assessment of whether it was fair to treat them as matrimonial; [97]. Furthermore, H submitted that the judge failed to properly apply the test of ‘matrimonialisation’ found in paragraph 18(b) of K v L as the ‘the 2017 Assets had not been appreciably “mixed” with matrimonial property and there was no evidence to suggest that the husband had accepted that they should be treated as matrimonial property’; [99].

H argued the court should reject W’s reliance on autonomy both in principle and on the facts of the case. H submitted that ‘the suggestion the courts should become embroiled in investigations into why an asset was held in a particular way or what the parties had or had not said’ would be to ‘rummage through the attic’ and cause additional expense and delay; [103]. Additionally, in this case H said that ‘there had been no agreement that the wife would receive the assets as her property … no agreement as to what should happen in the event of a divorce’; [103].

Ground 2: If the 2017 Assets were matrimonial property, the judge’s distribution to W was ‘excessive’

H’s second ground of appeal was that if the judge were right to find the assets were matrimonial property, his distribution to W was excessive given ‘the scale of the husband’s unmatched contribution of pre-marital wealth’; [11]. H argued that using a number of methods by which the sharing principle might be applied an award of £25m would be fair and sufficient to meet W’s needs; [106].

Held

W’s appeal dismissed and H’s appeal allowed.

Application of the sharing principle

Moylan LJ undertook a detailed review of the development of the law starting with White at [109]–[147].

W’s arguments were rejected, and it was held that ‘it is clearly established that, in the application of the sharing principle, the source of an asset is the critical factor and not title’; [149]. W’s approach ran counter to established principles since White and would undermine fairness as it was based on ownership ‘which is not a good guide to fairness’; [151]. It was emphasised that W’s approach would be discriminatory as:

‘it would place undue weight on legal and beneficial title when this is unlikely, or at least may well not, reflect whether the wealth has been generated during the marriage because experience shows that such wealth will often be largely or significantly in the name of the “money-maker” who remains much more likely to be the husband than the wife.’ [152]

W’s submissions in relation to autonomy were rejected as they would require extension of Radmacher which ‘would be contrary to the objective of achieving a fair outcome and would be likely to lead to significant additional cost and uncertainty’; [154]. In particular, the court expressed concern that the approach adopted by W would ‘not promote fairness to require the parties or the court to search through their marriage looking words said or things done which might suggest a greater or less adherence to the sharing principle’ and it would not promote predictability; [156]. Furthermore, it was pointed out by Phillips LJ during the hearing that ‘the underlying policy of the MCA 1973 is to disturb the parties’ autonomy in order to achieve a fair outcome’; [155].

W’s use of the term ‘separate property’ was rejected, and it was held that ‘marital/matrimonial’ and ‘non-marital/matrimonial’ should be used; [160].

Matrimonialisation

Moylan LJ explained that matrimonialisation ‘is about when an asset or assets which were at one stage non-marital property might be included within the sharing principle’ and held that it is a concept that should continue to be applied; [161]. He stated that ‘the concept of matrimonialisation should be applied narrowly’ and proposed a reformulation of the situations referred to by Wilson LJ in K v L at [18] as follows:

‘(a) the percentage of the parties’ assets (or of an asset), which were or which might be said to comprise or reflect the product of non-marital endeavour, is not sufficiently significant to justify an evidential investigation and/or an other than equal division of the wealth; (b) The extent to which and the manner in which non-matrimonial property has been mixed with matrimonial property mean that, in fairness, it should be included within the sharing principle; and (c) Non-marital property has been used in the purchase of the former matrimonial home, an asset which typically stands in a category of its own.’ [163]

It was held that in scenario (a) the sharing principle would apply in the conventional way and in scenario (c) the court will typically, though not always, conclude the former matrimonial should be shared; [164]. As to scenario (b) it was explained that the court would ask itself whether fairness requires ‘the asset being included within the sharing principle?’ but this would not automatically lead to that asset being shared equally; [165]–[166].

Conclusion

The court rejected W’s submission that the 2017 Assets became W’s non-marital property and it was said ‘to be a nonsense to suggest that she became the source of this wealth’ because ‘source is a reflection of when and how an asset was generated, not title’; [168]. The court disagreed with Moor J that the only possibility was the 2017 Assets became matrimonial property and held that there was ‘nothing which justified the conclusion that the importance and relevance of the source of the 2017 Assets being non-matrimonial … was in any way diminished as a result of their transfer to the wife’; [170]. W’s argument that this conclusion would leave W in a worse position than a cohabitee was rejected and it was explained that ‘it is not a matter of better off or worse off, nor indeed is it a matter of “confiscation”. It is the exercise by the courts of their powers under the MCA 1973 in accordance with established principles to achieve a fair outcome’; [170].

It was held that Moor J was entitled to conclude that Ardenside had not become matrimonial property and there was no justification in sharing its value between the parties; [173].

Moylan LJ considered that it would be fair to treat 80% of the value (£6.88m) of the Ardenside Angus business as matrimonial bringing the total matrimonial assets to £30.48m; [176]. In relation to the 2017 Assets it was held that if the judge had adopted the correct approach he would have concluded at least 75% of the total assets were non-matrimonial and adding the balance of 25% (£20m) to the other matrimonial property of £30.48m the matrimonial property would have totalled £50.48m; [178].

Overall, it was concluded that a fair application of the sharing principle would have provided W with approximately £25m (reducing W’s award from £45m) and the husband with £107m.

Remittance

Since the judge did not undertake a needs assessment it was considered that the Court of Appeal could not fairly determine W’s needs, and so the matter must be remitted for determination by application of the needs principle if the parties could not come to an agreement; [183].