The case of Rothschild v De Souza  EWCA Civ 1215
In 19 September 2020, The Times published an article with the headline, “Phones entrepreneur forced to give 99% of assets to ex-wife”. Although the headline was not actually a true reflection of the outcome of the case, such a headline would make anyone going through a divorce break out in a cold sweat and, indeed, had many family law solicitors gasping, “What!?”. This headline, and similar headlines in other newspapers, was a reference to the case of Rothschild v De Souza, which had been heard by the Court of Appeal. It was bitterly-contested litigation, which had been drawn out for many years.
During the course of the proceedings, both parties had complained about the other’s litigation conduct. Section 25 of the Matrimonial Causes Act 1973 states that, when the Court decides on the division of the finances upon divorce, it must have regard to various factors. One of those factors is, “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” (s25(2)(g)).
Conduct can be the behaviour of the parties during the relationship. Examples of conduct that the Court has considered serious enough to take into account include situations where one party has shot the other, serious knife attacks have taken place, serious assault and attempted rape of the wife by her husband have occurred, and even murder. Conduct can also relate to how the parties behave during the financial proceedings, namely ‘litigation misconduct’. This could include a lack of disclosure, failure to comply with Court orders and being untruthful in disclosure.
The facts of the case
Richard Rothschild (not his birth name) (now aged 45) and Charmaine De Souza (44) met one another whilst at university. They began to live together in 1995, subsequently married in 2005 and had two children aged 13 and 9. During their time together, the husband-and-wife team had started and built a successful mobile telephone business.
During the summer of 2016, the husband and wife agreed that they would move as a family to Miami, where the parties owned a luxury property. In October 2016, the wife and the children moved from England to Miami and the husband was due to move shortly afterwards. Just prior to their relocation, however, the husband became aware that his wife had started a relationship with another man. The husband remained in the UK and from there he tried to have the wife and the children removed from the property in Miami, claiming that he alone was the legal owner of the property. In addition, the husband claimed that the wife had abducted the children to America. In November 2016, the husband issued his divorce petition, issued (but did not serve) his financial application and he also issued Court proceedings in respect of the children.
The wife and children continued to live in the Miami property and the husband remained based in the UK. Arrangements were made between the wife and husband for the children to see and spend time with their father. During the summer of August 2017, it had been agreed that the children would spend time with their father in the US. Matters took quite a turn when the husband took advantage of the fact that the wife had called to tell him she would be a few hours late in collecting the children. It was at that moment that the husband decided to fly back to the UK with the children.
The wife issued proceedings under the 1980 Hague Child Abduction Convention for the return of the children. The Court found the husband to have abducted the children from Miami and the judge described the husband’s behaviour as “deplorable”. The husband did not appeal that decision, but rather embarked upon what the trial judge called, “a course of conduct seeking to achieve the removal of the children from the mother and the removal of the mother and the children back to England by the making of multiple complaints about her immigration status and the treatment of the children to various US authorities. Suffice to say that his accusations have achieved nothing other than to cause enormous upset to the wife and the children”.
In addition to the proceedings with the husband, his mother, Wanda, had issued proceedings in the Chancery Division in May 2017, before being joined to the Financial Remedy proceedings. Wanda had claimed that she had a beneficial interest in the mobile telephone business and various properties. In addition, the husband also “sought to argue that a significant part of the assets [were] owned by his mother,” as she had provided financial assistance to the parties. The husband attributed “all the success that the parties have had to the help from his mother and his own efforts.” The assertion that Wanda had a beneficial interest in the business or properties was, however, rejected by the Court at an earlier, preliminary hearing, save for one property for which the Court found Wanda to be the beneficial owner. Neither the husband nor Wanda appealed that decision. The trial judge stated that, “everything that the parties now have has been built up during the course of the marriage”. Despite not appealing the earlier decision, the husband continued to feel “aggrieved by that decision”.
Throughout the proceedings, the husband frustrated the legal process as far as possible. He failed to comply with Court orders, failed to meet Court deadlines and even tried to transfer his interest in the Miami property to his mother. In total, 13 costs orders were made against the husband by the Court in favour of the wife, totalling £221,000.
The situation escalated into drawn-out and destructive litigation over a three-year period, which cost the family dearly, both emotionally and financially.
The burden of responsibility for such destruction was laid firmly at the feet of the husband by the Court. In his judgment, the trial judge stated that, “there is no avoiding the fact that the husband is very largely responsible for the situation that has arisen. Since the breakdown of the marriage, he has acted destructively and throughout the litigation without any regard to the normal rules”. With the exception of the Final Hearing, the husband had been represented by three firms of solicitors and had the benefit of advice or representation in Court from four different Queen’s Counsel.
The husband had also failed to work during this time, for a period of 3 years. Although he complained that he was frozen out of the business, the trial judge stated that, “he only has himself to blame for that”. Rather than putting his “substantial entrepreneurial skills” to good use, the husband “spent the time travelling the world, visiting over 20 countries per year and staying in the most expensive hotels”.
In preparation for the final hearing, the wife prepared a statement in which she set out the husband’s alleged conduct and the detrimental impact that conduct had had upon the family finances. Such conduct included:
- the husband’s behaviour towards the children and the increase in expenses to meet their needs;
- the husband’s deliberate and wanton overspending and dissipation of assets;
- the husband’s refusal to allow the rental of the property portfolio, which resulted in repossession and other enforcement proceedings;
- the husband’s failure to work for three years and the impact upon finances given the increase in costs for two separate households; and
- the husband’s sustained refusal to engage with the proceedings and the numerous Court orders that he breached and the Court deadlines with which he had failed to comply.
The husband’s response was, in part, an acceptance that he should not have behaved as he did. He stated, “I recognise that we should now be focusing our efforts on a resolution of these protracted and expensive financial remedy proceedings; that we should be seeking to stem the haemorrhaging of legal costs and the resulting depletion of our matrimonial assets and to focus on our lives after divorce; including, not least, the future welfare of [the children].”
In respect of legal fees, the wife had accumulated legal fees of £613,000 in respect of the English proceedings and an additional £34,000 in respect of US legal fees. For his part, the husband had outstanding legal fees of £170,000. Although figures are not available for how much the husband had actually spent in legal fees, it is possible that a total of £1m had been spent in fees between the parties.
The trial judge set out his proposals for the final order, which in summary would provide the wife with assets of £1.73m and the husband with £634,000. The judge was clear that, when distributing the assets, he had tried to eliminate any potential future litigation, to include any issues of enforcement of the order.
The judge was clear that, “he must be confident that the wife and the children are properly looked after and do not find themselves deprived of funds”. The business was transferred to the wife, which would provide her with an “income which will permit her to run her home, pay the children’s school fees and maintain an appropriate standard of living for the children”. The judge needed to be certain that the wife could provide for the children, because the husband, put simply, could not be relied upon to do so.
In respect of the award of £634,000 to the husband, the judge was clear that this would provide the husband with sufficient funds to repay his mother if she “actually calls for the repayment of the money she has advanced”.
The net effect of the awards to the parties was that, “neither party will end up with much, if any, capital but the wife will end up with the business. The husband has brought this upon himself. In so far as there is a departure from equality it is necessary so as to meet the needs of the children and to meet W’s debts which he has created in significant part.”
The husband appealed the decision on the grounds that it was unfair and failed to take into account his own needs. In September last year, the Court of Appeal dismissed the husband’s application. Lord Justice Moylan gave 4 reasons:
- He did not agree that conduct could not lead to one party receiving less than their needs if it could be justified, having regard to all the factors in the case and statute. In this case, it could be justified;
- When looking at the level of costs incurred, the judge believed that an excess amount of at least £600,000 had been spent on costs. The disparity between the wife and the husband would have been much less had the husband not dissipated a further circa £600,000 through his “destructive litigation”;
- The wife would be responsible for ensuring that the children’s needs were met; and
- The “resources allocated to the wife were no more than sufficient to meet her needs both in the short term and the long term”. In addition, the judge “was equally entitled to conclude that the amount allocated to the husband, taking into account the husband’s prospects, and the other material factors such as his conduct, was a just proportion of the assets and was sufficient to meet his needs at a level which was fair to him in the circumstances of this case”.
The husband’s appeal application was rejected and the original Order of the trial judge was upheld to be ‘fair’, given the amount of money the husband “lost to the family through” his conduct and the wasted solicitors’ fees as a result of that conduct.
To suggest that the husband “…gave 99% of assets to ex-wife” is not a headline that reflects reality. This is, however, a good example of a case where poor conduct impacted negatively on the award received by the husband. First, because of his conduct, there were fewer resources to be shared between the parties, and, second, the judge found it reasonable to take conduct into account when giving the wife a greater share of the assets.