On 9 November 2021, Mr Justice Mostyn handed down judgment in A v M [2021] EWFC 89, which dealt with a wife’s claim to share in her husband’s carry and co-investment interests in two private equity funds post-divorce. Mr Justice Mostyn outlined a clear method for dealing with carried interests, which would provide precedent moving forward.  

This case was before the court again at the end of July 2024 in A v M (No 2) [2024] EWFC 214 and offers insight into the complexities of dealing with intricate financial structures on divorce. In particular, it considered the challenges in enforcing financial orders post-divorce when unforeseen events arise. Associate Ben Connor examines the court’s decision.

The judgment in A v M [2021] EWFC 89

Mr Justice Mostyn ordered that the wife was to “receive 48.53% of the husband’s share of carry in Fund 1 and 78.19% of the husband’s co-investment in that fund, in each instance when realised. The payments to the wife will be made by way of contingent lump sums from the husband”.

The issue in A v M (No 2) [2024] EWFC 214

The husband paid the wife the full value attributable to her share of his interest in the co-investment and carry pursuant to the judgment of Mr Justice Mostyn. However, as is commonplace in private equity, a ‘continuation fund’ was set up at the fund’s conclusion to hold the remaining fund assets. The husband was required to invest an initial €4.08m in the continuation fund, with another €500,000 subject to a future capital call owing to a contractual agreement with his third-party investors.

Under Mr Justice Mostyn’s order in the original case, the husband was required to provide the wife with a range of financial information relevant to the fund on an ongoing basis until she received full payment of her award. The husband accepted he was in breach of these disclosure obligations. The wife’s case was that this was deliberate and intended to deprive her of the opportunity of sharing in the husband’s interest in the continuation fund. Thus, she was forced to cash out against “what would have been her will if she had known that the husband was to remain invested”.

Sir Jonathan Cohen was tasked with interpreting the order to determine whether or not the wife was entitled to share in the husband’s investments that were not realised but transferred into the continuation fund.

The outcome

The parties agreed that Barnard v Brandon & Others [2023] EWHC 3043 (Ch) represented the applicable law on the approach to the construction of court orders, noting in particular the words of Mr Justice Richards: “The sole question for the court is what the Trial Order means. Issues as to whether the Trial Order should have been made and, if so in what terms, are not relevant to construction”.

Although Sir Jonathan Cohen said the husband’s failure to provide the information and documentary evidence required was “regrettable”, he concluded that the order was clear. The husband’s obligations were to pay the wife the appropriate percentage of proceeds due to her under Mr Justice Mostyn’s order, and that is exactly what he did. The wife received the full value of her interests, and there was no requirement for the husband to give the wife the same opportunity of investing the proceeds into the continuation fund.

The words of the order were clear, and while the existence of the continuation fund was not foreseen at the time of Mr Justice Mostyn’s judgment, the fact that it was not so foreseen did not represent a ground for going behind the words of the order. The wife’s application was dismissed.

Conclusions

Partner Toby Atkinson comments:

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