Posted: 16/02/2017
This month's Court of Appeal hearing of Work v Gray may decide the fate of the "special contribution" argument in matrimonial cases.
The husband, who had generated a fortune of $300 million during the course of the marriage, argued that he had made a "special contribution" that necessitated a departure from equality in his favour. Mr Justice Holman disagreed, and divided the assets equally between husband and wife (see [2015] EWHC 834 (Fam)). Last year the Court of Appeal granted permission to the husband to appeal (see [2016] EWCA Civ 286).
When considering how to divide family assets in a divorce, judges look to the factors set out in section 25 of the Matrimonial Causes Act 1973. These include "the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family", as well as the conduct of the parties, including any conduct which it would be "inequitable to disregard". The statute does not discriminate between contributions made in the workplace rather than in the home.
In the case of Miller v Miller [2006], the House of Lords recognised that one party may make a "special contribution" - one so significant that the principle of equal division should be departed from in favour of the person who made it. The Court of Appeal gave further guidance in the case of Charman v Charman (No 4) [2007] saying that "special contribution" could not be applied to cases where one party had received a "windfall", by means of an unexpected sale of land or the takeover of a company. There are only a handful of reported cases where a party has succeeded in making a "special contribution" argument, all of which have involved substantial sums. These are set out in the table opposite.
The parties met in 1992 and began living together soon after. They married in the US in 1995, and although both had good jobs neither had substantial assets. In 1997 the husband was offered a job with a private equity company called Lone Star, in Texas. The wife gave up her job in California and moved to Texas to join the husband. Shortly afterwards, the husband was asked to move to the Tokyo office, and began working there in November 1997. The wife joined him in Japan in May 1998. The couple have two children, both of whom were born while the family was living in Japan.
During his time in Japan the husband conceived and implemented new investment strategies at Lone Star, focusing on the distressed debt sector. He headed the Tokyo office, which grew from having zero to four hundred employees under his leadership. In the space of eight years he generated profits for investors of circa $7 billion. His own share of these profits was $300 million.
The family remained living in Japan until 2005, when they moved to Hong Kong. In 2008 they moved to London. The couple separated in early 2013 and divorce proceedings were commenced by the husband later that year. There was a final hearing before Holman J at the High Court in March 2015.
Although the parties had signed two postnuptial agreements five years after the marriage, Holman J held that the provisions of the agreement entitled the wife to seek financial provision from a court with jurisdiction, in lieu of the lump sum provided to her under the terms of the agreement. In considering the issue of "special contribution", Holman J extracted the following guidance from Miller v Miller and Charman v Charman:
|
Case |
Assets |
Was there a "special contribution"? |
|
Sorrell v Sorrell [2005] |
circa £100 million |
Yes. Husband awarded 60% of the assets. |
|
Charman v Charman (No 4) [2007] |
circa £160 million |
This was conceded. Husband awarded 63.5% of the assets. |
|
Cooper-Hohn v Hohn [2014] |
circa $1.35-$1.6 billion |
Yes. Husband awarded 65% of the assets. |
Holman J went on to consider the husband's claim, stating that it had not been unmatched. His wife had moved to Japan with him, and brought up the children there, far away from her family. If she had not agreed to do so, the husband acknowledged that he would not have had children, as he would not have wanted to be separated from them. Moreover, although the husband had been very successful during his time in Japan, and worked extremely hard, he had not established Lone Star, and Lone Star's business had thrived at least in part due to the depressed state of the Japanese economy. He went on to distinguish the husband's achievements from those of Sir Martin Sorrell, saying that they were not, in his view, exceptional in nature. He concluded that it would be unfair, and would in fact discriminate against the wife, if he were to make an unequal award.
Although the husband's initial application for permission to appeal was refused on paper, Lady Justice King granted the husband permission to appeal after an oral hearing. The husband argued at the hearing that Holman J had failed to consider whether the amount of wealth generated would, on its own, be sufficient to constitute a "special contribution" and questioned his conclusion that an element of genius was prerequisite for a finding of "special contribution". The husband has invited the Court of Appeal to substitute the order of Holman J with one that would divide the assets 63.5% to him and 36.5% to the wife.
King LJ was persuaded that Holman J might have erred in his assessment of whether the husband had made a "special contribution" by underestimating the importance of the size of his fortune. She also noted the submissions made by husband's counsel about the difficulties faced by practitioners who were asked to interpret the guidance of the courts on this topic, especially when there was no threshold set for the amount of wealth that was required to make a "special contribution" argument.
Practitioners may be hoping for some general guidance on this matter, but the reality is that cases involving "special contribution" are few and far between, even where the assets are substantial. It remains to be seen whether the Court of Appeal will provide some helpful guidance on this issue or whether it will determine that this case, given the exceptional sums of money involved, simply turns on its very specific set of facts.
This article was published in New Law Journal in February 2017.
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