The Amazing Disappearing Assets

By Legal Eagle

Anyone who has a superannuation fund or the like has probably watched their assets drop in value to a massive degree over the last year or so. Right now I’m glad I don’t have my money tied up in shares.

The drop has been so sharp that it has produced some interesting legal problems. Take, for example, a divorce settlement between Bryan and Ingrid Myerson, which was awarded in February last year, and divided up their £25.8 million fortune. The Times reports:

She was awarded £9.5 million cash, but he took most of his shares in the couple’s stocks in Principle Capital Holdings (PCH), where Mr Myerson worked as a fund manager.

Since then the share price has plummeted by 90 per cent and the divorce, as it stands, leaves Mrs Myerson with 105 per cent of the couple’s assets. Her former husband, who still owes her £2.5 million in cash, would have to borrow money to pay her.

One of the judges, Lord Justice Thorpe, observed, “That’s a rum do,” when told that if Mr Myerson, 50, complied with the order he would be half-a-million pounds out of pocket instead of receiving £14.6 million from the total assets.

Should the loss lie where it falls? Or should Mr Myerson be entitled to renegotiate the settlement in the light of his changed circumstances?

Mr Myerson might want to argue that Mrs Myerson will be unjustly enriched at his expense if the present distribution stands. He could perhaps argue that the fundamental premise upon which the settlement was based has been removed now that the share price has crashed (absence of basis, failure of consideration, mistake of fact as to the state of the stock market – take your pick according to your preferred kind of unjust enrichment law). Of course, if he did go down a restitutionary track, Mrs Myerson could potentially avail herself of the change of position defence, depending upon what actions she has taken since the settlement.

I’ll be interested to see what happens with this one.


Rob (comment below) has pointed out that this is a classic case of misprediction rather than mistake of fact.

He has also raised the question of whether the failure of consideration would be total (ie, was the divorce also part of the consideration for the settlement). The total/partial failure of consideration point is an interesting one. This is not necessarily fatal: I know that in David Securities the majority of the High Court was willing to apportion different parts of the consideration to different parts of the contract (in effect, sequestering the consideration in question so it was total). The question is whether a court would want to do it in this kind of case.

In some circumstances, a misprediction can constitute a failure of consideration (eg, Fibrosa – contract was frustrated by outbreak of WWII, and plaintiffs therefore were entitled to return of their money – it could be said that this was a misprediction). But if Mr Myerson was found to be a risk taker (that is, he took the chance that the stocks would rise), a claim for failure of consideration would fail.

Ultimately, I think the law is likely be unsympathetic on an unjust enrichment basis – he took a risk and now he bears the consequences. But it depends, as Mr T has commented below, on why he took the shares (was he forced to take them or did he take a risk).

Here’s an interesting question: what would have happened if the stock market boomed sharply shortly after the divorce settlement and his shares had tripled in value? Would he have felt obligated to give his wife some of this extra value?


  1. Posted March 12, 2009 at 2:56 pm | Permalink

    Interesting scenario.

    I actually had a matter against a financial adviser not long ago – the client wanted to pull out of the market in the middle of last year (smart…) but the broker failed to give effect to it. Let’s just say that it settled rather quickly in our client’s favour.

    In the divorce scenario, it seems like a great deal would depend on timing. I don’t know that much about family law – what happens, for example, if one party gets awarded the house and the other cash, but the uninsured house burns down shortly thereafter?

  2. Mr T.
    Posted March 12, 2009 at 3:58 pm | Permalink

    What isn’t clear in the report is why there was a clear difference in the risk profile in what the wife got compared to what the husband got.

    Did the husband voluntarily take on the high risk profile?

    Was it difficult for the husband to hand over part of his PCH share holding because of his employment contract?

    Was the structure of the split mandated by the court?

    If the husband chose to keep all the PCH shares, why should the wife suffer because of such an appalling decision. (would you want this man to be a fund manager of your money if he made such an unbalanced risk decision in his personal account?)

    If he was obligated to keep the shares because of an employment contract, it seems that the family law is unfair in handling this type of situation.

    If the court imposed the structure of the breakup of the assets, that would appear to me to be manifestly unfair because it did not take into account the risk profile of the 2 parts

  3. Rob
    Posted March 14, 2009 at 12:04 am | Permalink

    I can’t see how you could argue mistake of fact; this looks more like a classic misprediction to me.

    Presumably the consideration for the enrichment would have been the divorce and allowing the husband to keep the (albeit now worthless) shares, so it would be hard to argue that consideration had totally failed.

    I don’t think absence of basis would run in the English courts, and you’d face the problem of the consideration being raised.

    As Mr. T says, it probably depends on the circumstances though – if he took the risk, then it’s an unfortunate result for him, but I can’t help but think that the law would be unsympathetic; in any case, I don’t think he would find a remedy in the law of restitution.

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