Impressive, but not sufficient: DR v UG
Saying no to special contribution and post-separation accrual arguments
At the heart of Mr Justice Moor’s judgment in DR v UG [2023] EWFC 68 is the following question: When is it appropriate to propose that a party’s special contribution and post-separation endeavour can be used as justification for a departure from equal sharing of the marital assets?
Facts
During the marriage, the husband completed a management buyout of a drug production company, referred to as “A Co”. He purchased his majority shareholding for £310,000. This amount was funded, in part, using borrowings of c£290,000 leveraged against the family home. Not without extreme challenges, H was able to steer the business to success. This culminated in him selling his shareholding after separation but before the final hearing.
At the time of trial, the total assets in this case amounted to c£284m, including the proceeds of the sale of H’s shareholding in A Co, worth c£250m.
Final hearing
The wife’s case at the final hearing was appealing. First, all the assets are marital. Second, the facts of this case do not give rise to any reason to depart from equal sharing.
The husband argued that departing from equality was justified on two grounds: his special contribution to the marital finances, and his post-separation endeavour.
Special contribution – An exceptional, unmatched, extraordinary accumulation of wealth
The concept of special contribution is seldomly pleaded with success in financial remedy proceedings. The concept was borne by Thorpe LJ in Cowan v Cowan [2001] EWCA Civ 679, where he concluded that fairness permits the recognition of “the product of the genius with which only one of the spouses may be endowed”.
The concept wobbles precariously on a tightrope above the principle laid out in White v White [2000] UKHL 54 that the courts must avoid “discrimination between the husband and wife in their respective roles”. Many have criticised the concept as only being available to the breadwinner, and upon examination of the key judgments concerning special contribution, it is indeed only “the breadwinners” who have put this argument forward.
Regardless of the concept’s debatable disposition, as acknowledged by Moor J, special contributions arguments have a common law basis and they will likely remain, save for any intervention from the Supreme Court or Parliament. It is perhaps something for the Law Commission to consider as part of their review of the law on financial remedies.
The test for a special contribution claim is set out in Work v Gray [2017] 2 FLR 1297 by Holman J. The requirements for a successful special contributions argument are as follows:
“The characteristics or circumstances which would result in a departure from equality have to be of a wholly exceptional nature such that it would very obviously be inconsistent with the objective of achieving fairness for them to be ignored…
Only if there is such a disparity in their respective contributions to the welfare of the family that it would be inequitable to disregard it should this be taken into account in determining their shares…
The amount of the wealth alone may be so extraordinary as to make it easy for the party who generated it to claim an exceptional and individual quality which deserves special treatment. Often, however, he or she will need independently to establish such a quality, whether by genius in business or some other field… A windfall is not enough.” [emphases supplied]
The husband sought to argue that his management of A Co was a special contribution that met the test set out in Work v Gray. To boost the fortunes of his newly acquired business the husband promptly closed the research and development side of the business, negotiated lucrative contracts with “Q Co”, and replaced the plant and machinery with modern equipment. Perhaps most crucially, he moved to sell the company’s main product to companies looking to provide specialised therapies.
Mr Justice Moor was unconvinced. He decided that the husband failed to meet any of the criteria for making out a special contribution argument. First, whilst the husband was “undoubtedly a good businessman” his work could not be said to have had the necessary “wholly exceptional nature”. Second, Moor J could not see the necessary disparity in the parties’ contributions given that the wife looked after the children, often by herself, as the husband was away from home for c100 days per annum. Finally, the husband failed to meet the third test. Whilst turning £210,000 into £250m was impressive, this was not sufficient; Moor J remarked soberingly that it “was an enormous achievement, but it did not involve making billions of pounds”. He also remarked that there was an element of a windfall as the husband was “in the right place at the right time”. This defeated any suggestion that the transformation of the company was an act of genius, such that it should be factored into the overall award.
Post-separation endeavour
H argued that his post-separation endeavour was a good reason to depart from equality. The parties separated in January 2019. The sale of the husband’s shares in the business was completed on 30 September 2022. It was not disputed by the wife that the business had grown in value considerably since separation.
The question is, therefore, when should post-separation endeavour be regarded as a good reason to depart from equality? A useful starting point is provided by Coleridge J in B v B [2013] EWHC 1232 wherein he makes clear that for an asset to be excluded simply because it comes into existence after separation is “far too simplistic”, especially in circumstances where the post-separation endeavour is just a “seamless continuum of similar pre-separation activity”. The test was later refined by Mostyn J in JL v SL (No 2) [2015] 2 FLR 1202, where he made clear that post-separation endeavour must be “a truly new venture with no connection to the marital partnership of matrimonial assets”.
The husband, clearly aware of the new venture test, argued that although his company was producing the same product, he was marketing the product to be used in a different field – specialised therapies- meaning the business was a new venture.
Mr Justice Moor did not accept this. Plainly, the husband’s company was producing the same product during the marriage as it was at the time of sale. A different business strategy for an existing product did not give rise to a new venture.
Furthermore, H was seeking to benefit from the increased value of the business following the separation. However, had the business gone down in value, H would have no doubt expected the wife to share in the loss. The husband did not ringfence the wife’s share post-separation. In essence, the husband was trading with the wife’s unallocated share, looking to ringfence any gains and share in any losses. In these circumstances, fairness requires the equal sharing of the post-separation increase in the value of the shareholding.
Equal sharing
Without breaking any new legal ground, Moor J in DR v UG has provided clarity in respect of both special contribution and post-separation endeavour arguments.
With respect to post-separation endeavour, it is clear that more than a cosmetic gloss is required. There is an exceptionality required to make out a special contribution argument, such that we can only expect to see it successfully pleaded in the most extraordinary cases. The justification for this high hurdle, whilst not explicitly made out in the judgment, is clear. It is a shield defending against discriminatory arguments about the differing contributions of each party to a marriage.
This case is significant, albeit it more in its factual matrix, as opposed to any substantive change in the law – it stands alone as the only “reported” big-money case where the wife has received 50% of the parties’ assets. It will be interesting to see how these legal concepts are developed post DR v UG.