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England and Wales High Court (Family Division) Decisions
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Cite as:  EWHC 3941 (Fam)
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IN THE HIGH COURT OF JUSTICE
B e f o r e :
Robert Peel QC instructed by Alexiou Fisher Phillipps for the Respondent
Hearing dates: 7-11 December 2015
Crown Copyright ©
HIS HONOUR JUDGE LORD MESTON QC:
She hopes then to acquire perhaps 2 further non-executive directorships. It therefore appears that she has future earning potential, albeit probably not at the same level as hitherto.
She is presently living in rented accommodation in Hampstead.
"The parties agree that neither of them will seek a pension sharing order, but instead will invite the court to consider offsetting in its approach to the difference between their respective pension provisions based on cash equivalent values".
Parker J refused an application by the husband for an expert pension sharing report and refused permission to appeal from that decision.
The remaining directions made by Parker J were designed to obtain evidence to assist in the efficient realisation of the assets.
(a) The value of residential properties subject to a report by Savills
(b) Which assets should be retained by either party.
(c) Whether a discount should be applied to the net asset value of CDP Ltd/Avon Trust Ltd if either party retains the shares.
(d) The methodology for offsetting between the parties' pensions.
(e) The value of certain assets.
The assets and liabilities
(a) There are property assets worth a total of £4,333,437 net of mortgages, costs of sale and CGT. This includes High Trees Farm worth £3,500,000 before deductions. The mortgage to Lloyds Bank (formerly the Bank of Scotland) is £1,000,000 which is repayable as to half in December 2015 and half in December 2016, although an extension of the first repayment has been agreed until February 2016.
(b) There are joint accounts and investments of £47,613.
(c) The husband has bank accounts and investments (less liabilities) amounting to £1,973,228. This is subject to an adjustment in respect of the husband's outstanding legal fees to £97,954, and to a dispute as to value of the husband's in a venture in Canada called Lecare.
(d) The wife has bank accounts and investments (less liabilities) amounting to £2,557,098.
(e) The parties' partnership known as High Trees Farm & Consultancy was shown in the schedule as worth £50,000 based on the husband's Form E, although the husband says that this represents fencing, machinery and vehicles now worth £30,000.
(f) The husband's interest in Avon Trust Ltd is valued at £724,759, and the wife's interest at £439,750, both after CGT. The husband has a director's loan to Avon Trust shown as £228,500.
(g) The husband's interest in CDP Ltd is valued at £1,519,008, and a director's loan of £400,000.
(a) Lecare. The husband's Form E stated that he was owed £100,000 representing C$160,000 advanced to Lecare. An answer to a questionnaire indicated this to be the last part of an undocumented loan to a joint venture. The husband now suggests that £50,000 would be more correct. However in his latest statement and in oral evidence he referred to having recently advanced a further C$87,000. Having heard the husband's evidence about this venture there seemed no reason to assume that he could not, in time, recover his original investment and there seems to be no sufficient evidence to justify halving the figure he originally put forward. It should continue to be treated as worth £100,000.
(b) The farm partnership assets. The husband argues for a reduction of £20,000 to £30,000 which the court was asked to endorse based on the husband's knowledge of the equipment concerned. Plainly there is no independent support for either the original or the suggested revised figure. However I will accept the husband's revised figure.
The open offers
The arguments for the wife
(a) The lump sum of £1.5 million contained within Option A is far too low and would leave the husband with much more than half of the assets.
(b) The wife is concerned that the husband's tendency to prevaricate and his expressed difficulties in coping, particularly since the breakdown of the marriage, could lead to delay and problems in his raising and paying the lump sum (particularly if it was to exceed the £1.5 million offered). In evidence she expressed particular concern about the deferral of part of the lump sum, and about the difficulty the husband now found in making business judgements.
(c) The husband had previously agreed to the sale of High Trees Farm and to realisation of the business assets
(d) High Trees Farm is a large, seven bedroom property with outbuildings set in 50 or 60 acres, and exceeds the husband's reasonable needs for accommodation. Indeed it was described in the opening note on behalf of the husband as "substantial and sprawling" and as requiring significant effort and cost to maintain in a good condition. The same note continued: "It is no secret that H finds it an enormous burden to continue to run the house and maintain it in good condition; he has had no assistance from W in this regard (either practical or financial)."
(e) CDP Ltd is a property investment company with a portfolio of commercial units which does not produce an income for the parties, the rental income being used to pay off borrowing.
(f) There is no sufficient basis for any or any significant discount of the value of CDP Ltd on the basis of illiquidity or that it is risk laden.
The arguments for the husband
"It cannot be sold, commuted for cash or offered as security for borrowings. It has no capacity for capital appreciation. The benefit does not survive the death of the scheme member and thus cannot form part of his estate. Thus there are obvious distinctions between a technical value ascribed to a pension in payment and a market value ascribed to a realisable asset ".
He went on (at para  to say that pensions in payment and cash equivalent benefits were to be characterised as 'other financial resources' within section 25(2)(a):
"For they do not sit comfortably in the category of 'property', since they are unrealisable and non-transferable.Nor do they sit comfortably in the category of 'income' because, although purely an income stream, the income does not derive from future endeavour but from past employment or contribution which will generally have been effected during the years of marriage."
Thorpe LJ said (at para ) that in a case in which a clean break order was inevitable the court had two alternative ways of treating the pensions: either they could be left undisturbed, compensating the wife (in that case) for disparity by offsetting, alternatively the judge could have made a pension sharing order. Thorpe LJ held that in the case then under consideration a pension sharing approach should have been adopted so that the husband's pension rights should be shared to give the wife 57% of the value of their combined pension rights.
"This reflects the reality that the pensions are in truth non-transferable income streams and are quite different in kind from the other assets owned by the parties."
In reaching that conclusion Dyson LJ had rejected (at para ) a submission that it might have been possible for the district judge to have borne in mind the different nature of pensions when conducting his or her appraisal of the parties resources and to have made an adjustment to reflect that. He considered that it was difficult to see how the adjustment would be calculated and that such an approach was unsatisfactory as it lacked transparency.
"I would regard such an approach as unfair and anachronistic in a case where assets exceed the parties' needs. The recent well-publicised changes to pension regulations will mean that pension investments are virtually to be treated as bank accounts to people over 55, as these parties are . In cases where distribution is being made on a basis which is not guided by need it is, in my judgment, incorrect to distribute a pension fund on the basis of equality of income and there is no need for actuarial reports in the overwhelming majority of such cases. I should expect the court is to be most reluctant in the future, in big money cases, to provide permission for actuarial reports on the basis of how to effect equality of income. Moreover I suspect that annuities will, in the overwhelming majority of cases, become a thing of the past."
" I am aware from my general reading that there is at present debate but as yet no conclusion on precisely this topic of appropriately arriving at an offsetting figure. I am not aware from my own knowledge nor have I researched what the competing methods might be. I am thus left in the unsatisfactory position where I must alight upon an amount which will necessarily be arbitrary if, that is, H is indeed to receive as part of the overall distributive process consideration for the fact that during this marriage unequal pension benefits have arisen."
"In the case of a defined benefit scheme or the replacement of benefits under a defined contribution scheme, should the offset value be the value to the member of that pension, or the value to the non-member of having an equivalent pension or share pension?"
" I shrink from the suggestion that a payment in excess of £200,000 should pass from W to H to compensate him for the potential loss in 20+ years of a lifetime income stream of (at today's value) £5,300 annually subject to such tax consequences as may prevail at that time and for that uncertain term."
Accordingly the sum of £60,000 was ordered.
The competing submissions as to pension provision
(1) When considering offsetting it is important to see the exercise in the context of the application of the factors in section 25 of the Matrimonial Causes Act 1973 and the jurisprudence thereon. In this case the court is not concerned with needs because each party will have over £6 million before pension provision is taken into account. This is not a case in which pension provision is, or will, be the only or main source of retirement income.In this case (in particular if Option B is selected) the husband will have capital to buy a home, be able to keep the flat in London, retain and use his own acquired pension funds and receive income from his investments including the Kenyan business.
(2) Offsetting (at least in this case) involves "apples and pears", i.e. does not involve comparing like with like. One party is being required to pay a large sum of money to reflect the other party's loss in not receiving a future share of a pension in payment during the pension scheme member's lifetime.
(3) Any methodology will be based on factors and assumptions which almost certainly will not in fact arise as may be predicted.
(4) The Duxbury calculation has stood the test of time in matrimonial proceedings for capitalisation of future income requirements and should be used, particularly in a case in which a CE valuation is "illusory". The use of the Duxbury algorithm was strongly supported by Mostyn J in JL v. JL (No. 3)  EWHC 555 (Fam),  2 FLR 1220, referring to the decision of the Court of Appeal in H v. H (Financial Remedies)  EWCA Civ 1523,  2 FLR 447.
(a) The husband's pension fund of £970,696 providing a flat 2.5% net return of £24,267 p.a.;
(b) The wife's present net pension in payment being compounded at 2% p.a., rather more than the current RPI; and
(c) A discount for accelerated payment of 25%.
The 3 alternative calculations involved taking (i) the wife's pension income indexed at 2% in 25 years time (£83,015); (ii) the wife's pension income indexed at 2% in 12.5 years time (£64,811); and (iii) the wife's current net pension income (£50,600). To each of those figures was added the husband's notional pension income from his existing funds if providing a flat 2.5% net return of £24,267 p.a. The total pension incomes were then divided in half. The resulting figure, less the husband's £24,267, represented the net lost annual income for the husband if the pensions were to be aggregated and shared equally. What was described as the "net lost annual income" for the husband was then calculated as £29,374 if the 25 year figure was used for the wife's indexed income, as £20,272 if the 12.5 year figure was used, and as £13,166 if her current pension income was used.
a. Based on the CE value the wife's pension is worth about £3.6 million, whereas the husband's is worth just under £1 million. To give the husband half of that difference would require payment to him of £1.3 million.
b. Alternatively, for the husband to buy an annuity to achieve a similar inflation proofed income would cost £3.4 million. Assuming he used his £1 million, to equalise the figures arithmetically and to give him 50% would require payment of £1.2 million.
c. Alternatively, if tax at 40% was deducted from the wife's pension CE value of £3.6 million and from the husband's fund of £1 million, she would have £2.1 million and he would have £600,000. To equalise the figures and give him 50% would require payment of £750,000.
d. Alternatively, if the husband used his existing funds to buy an inflation proofed annuity it would yield £27,000 p.a. gross, some £65,000 gross less than the wife's pension income of £92,000 p.a. gross. To provide the husband with 50% of the difference, i.e. with £32,500 p.a. gross, by means of an annuity would cost £1.3 million.