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You are here: BAILII >> Databases >> England and Wales Family Court Decisions (High Court Judges) >> E v L [2021] EWFC 60 (13 July 2021) URL: https://www.bailii.org/ew/cases/EWFC/HCJ/2021/60.html Cite as: [2021] EWFC 60 |
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Strand, London, WC2A 2LL |
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B e f o r e :
____________________
E |
Applicant |
|
- and - |
||
L |
Respondent |
____________________
Simon Webster QC (instructed by Katz Partners) for the Respondent
Hearing dates: 28 June – 1 July 2021
____________________
Crown Copyright ©
Mr Justice Mostyn:
i) Company E: 45%
ii) Company F: 25% (MX holds 25%) – liquidated in December 2020
iii) Company D: 49% (MX hold 49%)
iv) Company C: 100%
v) Company B: 100% (effectively)
vi) Company A: 100% (effectively)
Childlessness
'There is a consistency of judicial reservation about the sharing principle applying to assets generated over a short childless marriage that sings out from [the] authorities. It is to be remembered that the concept of sharing is a judicial construct, just as are the concepts of matrimonial and non-matrimonial property terms of art, developed and considered in the quest for a fair outcome. The judicial strait jacket may tend to limit the ambit of discretion in long marriage cases or cases where children have been born to the parties. But the short, childless marriage remains a factual matrix where the concept of sharing may well appear alien to or otherwise wholly at odds with any independent, objective appraisal of fairness.
We say that the factual matrix of this case is a paradigm example of a case where the sharing of marital acquest, if indeed there is, on proper analysis, any acquest, is unjustified. This is a husband who, in his autumn years, through this marriage continued in a business in which he has worked for the whole of his adult life. The foundation of that business, the continuation of that business during this short, childless marriage had nothing to do with the joint endeavours of the parties.' (Emphasis added)
'The inescapable conclusion from this analysis of the speeches in Miller, in terms of the possibility of some alteration from, rather than a strict application of, the equal sharing principle in relation to short, childless marriages, where both spouses have largely been in full-time employment and where only some of their finances have been pooled, is that fairness may require a reduction from a full 50% share or the exclusion of some property from the 50% calculation. Of the five members of the Judicial Committee, only Lord Nicholls suggested a contrary view and even on his analysis the potential for some form of relaxation can be seen.'
'141. Returning to Miller, in my view, the substantive focus of Lady Hale's observations, at [147] to [153], is short, childless, marriages. However, even if she left open that they might apply in other than such marriages, we can now see that to apply them in those cases would be discriminatory in the same way that special contribution initially risked being applied in a way which would have significantly undermined the progress made by White.
142. Whilst there may be elements within the above paragraphs in Miller which are capable of a broader interpretation, I am persuaded that they do not require this court to take that approach. I acknowledge, in this discretionary area, that it would be unwise to close doors to the notion that fairness might leave scope for the court to decide not to effect an equal division of marital assets because of a particular factor or combination of factors in an individual case. However, as a matter of general principle, I find it hard to envisage how, in other than short, childless marriages fairness would be achieved if the existence of "business assets" was the basis for justifying an other than equal division.
…
145. Accordingly, it is evident that a broader application of a different approach to a marital asset merely because it was a "business" asset would be, as was identified in Charman, at [83], "deeply discriminatory" and would, therefore, "gravely undermine the sharing principle". The effect would be the same whether property is excluded from the sharing principle, because it is not treated as marital property, or whether the sharing principle is not applied to such property so as to divide it equally. Indeed, it would seem to me likely to be rare for sufficient wealth to have been generated other than through "business efforts and acumen" for the determinative principle to be sharing rather than need. This is why I have concluded that the application of a different approach to business assets, in other than short, childless marriages, would result in the sharing principle being undermined in the same way identified in Charman and, accordingly, that the judge was wrong to take this factor into account, at [239].'
'The reason it exists is because when one tries to take a step back, you say to yourself fairness is ultimately what we're arriving at. Is it fair in the circumstances of a short childless marriage? As Holman J says, having children changes everything.'
'The having of children denotes a completely different category of commitment.'
'The notion that the procreation of children is a chief end of marriage was discredited long ago. In Baxter v Baxter [1948] AC 274 Viscount Jowitt LC said at 286:
"Again, the insistence on the procreation of children as one of the principal ends, if not the principal end, of marriage requires examination. It is indisputable that the institution of marriage generally is not necessary for the procreation of children; nor does it appear to be a principal end of marriage as understood in Christendom, which, as Lord Penzance said in Hyde v. Hyde (1866) L R 1 P & D 130, 133 "may for this purpose be defined as the voluntary union for life of one man and one woman, to the exclusion of all others." As regards the phraseology of the marriage service in the Prayer Book, this House in the recent case of Weatherley v. Weatherley [1947] A C 628, 633 pointed out the dangers of too strict a reliance upon these words. In any view of Christian marriage the essence of the matter, as it seems to me, is that the children, if there be any, should be born into a family, as that word is understood in Christendom generally, and in the case of a marriage between spouses of a particular faith that they should be brought up and nurtured in that faith. But this is not the same thing as saying that a marriage is not consummated unless children are procreated or that procreation of children is the principal end of marriage."
And at 288 he cited an old text:
"It seems to me that the true view of the matter is expressed in Lord Stair's Institutions, 1681 ed., book I., tit. 4, para. 6. That learned and distinguished author put the matter thus: 'So then, it is not the consent of marriage as it relateth to the procreation of children that is requisite; for it may consist, though the woman be far beyond that date; but it is the consent, whereby ariseth that conjugal society, which may have the conjunction of bodies as well as of minds, as the general end of the institution of marriage, is the solace and satisfaction of man.' I am content to adopt these words as my own."
I too would adopt those words, save that nowadays a conjugal society does not necessarily require a conjunction of bodies.'
'In X City Council v MB, NM and MAB Munby J at [62] helpfully reminded us of Briggs v Morgan (1820) 3 Phill Ecc 325 at 331-332, where Sir William Scott said it may be that a marriage "at a time of life when the passions are subdued" is "contracted only for comfortable society", the spouses being "fairly left to just reflection and more placid gratifications". Needless to say, these are all perfectly valid marriages.'
'There can be no question of the marriage being a sham. In short, the marriage is a marriage. The fact that it is platonic, and without a sexual component, is, as a matter of long-established law, neither here nor there and in truth no concern of the judges or of the State. One needs look no further than Nigel Nicholson's Portrait of a Marriage, his acclaimed account of the unusual marriage of his parents, Vita Sackville-West and Harold Nicholson, to see how happy and fulfilling a marriage, more or less conventional, more or less unconventional, can be. But it is really none of our business. As the first Elizabeth put it, we should not make windows into people's souls.'
Shortness of the marriage
'More fundamentally, to allow the duration of a marriage as a relevant factor would cater for the considerations that, while some people may make a large amount of money in a short time, the nature of their work or other factors may mean that they do not do so at a consistent rate over their lives as a whole or for more than a short period of their lives, and furthermore, as Baroness Hale has pointed out, that there may be long-term risks in relation to non-business-partnership, non-family assets which remain with those directly involved in generating them. The longer the marriage, the less likely these are to be significant considerations. In a short marriage, the timing of which may or may not coincide with a period of significant increase in the value of non-business-partnership, non-family assets, such considerations argue in favour of some further flexibility in the application of the yardstick of equality of division. I see force in and would agree with the views expressed by Baroness Hale in paragraphs 152-153 of her judgment to the effect that the duration of a marriage, mentioned expressly in section 25(2)(d) of the Act, cannot be discounted as a relevant factor.'
'In the present case, Mr Miller already had, at the marriage date, real connections in the form of the Jupiter funds which he later took to New Star and real prospects under the gentleman's agreement made with Mr Duffield of acquiring, as he subsequently did, valuable shares in New Star. I would regard these as real contributions brought into the marriage, which should on any view be taken into account accordingly.'
'This [equal sharing] principle is applicable as much to short marriages as to long marriages: see Foster v Foster [2003] EWCA Civ 565; [2003] 2 FLR 299, 305, para 19 per Hale LJ. A short marriage is no less a partnership of equals than a long marriage. The difference is that a short marriage has been less enduring. In the nature of things this will affect the quantum of the financial fruits of the partnership.'
And at [19]:
'I am unable to agree with this approach [of treating domestic contributions as accruing over time]. This approach would mean that on the breakdown of a short marriage the money-earner would have a head start over the home-maker and child-carer. To confine the White approach to the 'fruits of a long marital partnership' would be to re-introduce precisely the sort of discrimination the White case [2001] 1 AC 596 was intended to negate.'
'…in my view, what Lady Hale described in Miller, as the post-White "search … for some reason to stop short of equal sharing, especially in 'big money' cases where the capital had largely been generated by the breadwinner's efforts and enterprise", at [146], has diminished because of the developed appreciation, based on many decisions especially at first instance, that the straightforward application of the sharing principle to the marital property achieves a fair outcome. This is what, in my view, Lord Wilson meant when he referred to the "proper approach" and the "ordinary" application of the sharing principle: Scatliffe v Scatliffe, at [25(x)].'
And that we should keep at the forefront of our minds his comment in [145]:
'…it is evident that a broader application of a different approach to a marital asset merely because it was a 'business' asset would be, as was identified in Charman, at [83], 'deeply discriminatory' and would, therefore, 'gravely undermine the sharing principle''.'
'…where at the beginning (or end) of the marriage an actual transaction is under way or in view which in due course yields a considerable new asset, there is no difficulty in principle (even if there may be some difficulty in valuation) in accepting that part of that asset may have to be excluded from any assessment of the matrimonial acquest or included in what the parties brought into the marriage.'
'In the present case, Mr Miller already had, at the marriage date, real connections in the form of the Jupiter funds which he later took to New Star and real prospects under the gentleman's agreement made with Mr Duffield of acquiring, as he subsequently did, valuable shares in New Star. I would regard these as real contributions brought into the marriage, which should on any view be taken into account accordingly.'
Valuation
'The valuation of private companies is a matter of no little difficulty. In H v H [2008] EWHC 935 (Fam), [2008] 2 FLR 2092 Moylan J said at [5] that "valuations of shares in private companies are among the most fragile valuations which can be obtained." The reasons for this are many. In the first place there is likely to be no obvious market for a private company. Second, even where valuers use the same method of valuation they are likely to produce widely differing results. Third, the profitability of private companies may be volatile, such that a snap shot valuation at a particular date may give an unfair picture. Fourth, the difference in quality between a value attributed to a private company on the basis of opinion evidence and a sum in hard cash is obvious. Fifth, the acid test of any valuation is exposure to the real market, which is simply not possible in the case of a private company where no one suggests that it should be sold. Moylan J is not a lone voice in this respect: see A v A [2004] EWHC 2818 (Fam), [2006] 2 FLR 115 at [61] – [62]; D v D [2007] EWHC 278 (Fam) (both decisions of Charles J).'
'… the 'equal sharing' principle might suggest that each of the party's assets should be separately and exactly valued. But valuations are often a matter of opinion on which experts differ. A thorough investigation into these differences can be extremely expensive and of doubtful utility. The costs involved can quickly become disproportionate.'
'27. Thirdly, the accountants were, among other matters, instructed by the parties to value PCo as at the date of separation (September 2004). Putting to one side the question of whether this exercise was justified in any event, the accountants were instructed, and/or felt constrained, to undertake this exercise without taking into account what happened to PCo thereafter - save that WA used management accounts to the end of October 2004.
28. I expressed surprise, at what appeared to me to be a blinkered approach, at the commencement of the hearing and again during the parties' final submissions. In response, Mr Anelay questioned the whole validity of this artificial process. Mr Mostyn submitted the approach taken by the accountants was justified, or even necessitated, by accountancy orthodoxy. In his closing submissions he referred me to one authority in support of this proposition, Holt v. Inland Revenue Commissioners [1953] 1 WLR 1488. The case concerned the valuation of shares in a private company for the purposes of estate duty. The principles applicable to such a valuation exercise had been settled by the House of Lords in Inland Revenue Commissioners v. Crossman [1937] AC 26.
29. In Holt, Danckwerts J remarked on the exercise which he was required to undertake in the following terms:
"The result is that I must enter a dim world peopled by the indeterminate spirits of fictitious or unborn sales. It is necessary to assume the prophetic vision of a prospective purchaser at the moment of the death of the deceased and firmly to reject the wisdom which might be provided by the knowledge of subsequent events."
He shortly thereafter referred to the accountants' opinions as being "guesswork, though of course intelligent guesswork".
30. I do not see why the Family Division should enter the "dim world" identified by Danckwerts J. Valuations, when required, should be based on real and known events. This approach ensures that valuations are more likely to be closer to the reality of any given situation than the result achieved by ignoring known history. It is difficult also to see how the latter approach, of ignoring known facts, could be consistent with the court's obligation to achieve a fair outcome based on the factors set out in section 25 of the Matrimonial Causes Act 1973. As Wilson LJ said in White v. Withers [2010] 1 FLR 859, if the court is to discharge its duty (I emphasise) under the Act, it must be "furnished with true information about the parties' resources".'
'In my view, not as an accountancy exercise, but in the exercise of broad judicial discretion, the only fair way to treat the remaining pre-existing shares (and the three Wimbledon investment properties) is to treat them as to half as the personal non-matrimonial property of the husband, and as to half as the matrimonial property of the parties to be evenly shared.'
'41. I agree with Mr Justice Moylan in SK v WL [2010] EWHC 3768 (Fam) that it is not merely legitimate but is realistic and right to use hindsight when making in family proceedings a historic valuation. Mr Chamberlayne QC rightly says that in any event the pass has been sold in this regard when we uprate a historic figure with passive growth. For passive growth is obviously a post valuation event.
42. It must be remembered that in this respect the court is exercising a pure discretion and whilst the case of Jones v Jones supplies a valuable guideline (that is to say it indicates the direction of travel), it is not supplying a tramline (that is to say a predetermined destination). And, as I have already stated, Jones v Jones is a good exemplar of the exercise of discretion in that the doubling of the initial figure £2 million to £4 million seems to be based more on instinctive feelings of fairness rather than being referable to any particular piece of evidence.'
'126. The judge adopted the straight line approach for the clear reasons expressed in his judgment. As he said in paragraph 14: "the evidence is certainly not confined to a strict black-letter accountancy exercise. It involves a holistic, necessarily retrospective, appraisal of all the facts and then the application of a subjective conception of fairness, overlaid by a legal analysis". I would also agree, as did Mr Pointer, with Mostyn J's analysis of the exercise in which he was engaged, at paragraph 21, which, in my view, mirrors the "fair overall allowance" test referred to in Jones v Jones:
"… my evaluative assessment of what element of the present value of the business should be treated as existing at the time the relationship started and which is therefore certainly to be characterised as non-matrimonial."
This approach seems to me to be entirely consistent with the principles I have referred to above.
127. Whilst it would be an improper fetter on a judge's discretionary powers to elevate this approach above others, I agree with Mostyn J's general observation about "the beneficial side effect of eliminating arid, abstruse and expensive black-letter accountancy valuations of a company many years earlier at the start of the marriage". I also agree that, as he said, it "resonates with fairness" because it takes an overarching view of the weight to be attributed to the husband's contributions to the business throughout its existence. I would add that it is also an approach which would be consistent with the overriding objective not least because it would save expense by limiting the scope for expensive and time consuming investigations of the development of a business. It may be too frequent a refrain in this judgment but the court is engaged on a broad analysis of fairness.'
"In truth the judge was placing a substantial capital value on the husband as a person; I am convinced that such is no function of the divorce court".
In Waggott v Waggott [2018] EWCA Civ 727 at [121] – [128] Moylan LJ roundly dismissed the notion that an earning capacity is capable of being a matrimonial asset to which the sharing principle applies.
'The assessment of assets must be at the date of trial or appeal. The language of the statute requires that. Exceptions to that rule are rare and probably confined to cases where one party has deliberately or recklessly wasted assets in anticipation of trial. In this case the reality is that the husband traded his wife's unascertained share as well as his own between separation and trial, particularly committing those undivided shares to the investment in Baco. The wife's share went on risk and she is plainly entitled to what in the event has proved to be a substantial profit.'
At [132] – [135] Mance LJ agreed, pointing out that to take the date of trial as the end date was traditional. It is true that in Miller Lord Mance (as he had become) at [174] appeared to change his mind and suggested that it was natural to look at the period until separation. However, this was a passing comment. The subject was not addressed by any of the other members of the Committee.
Findings
|
|
31/12/2015 |
31/10/2020 |
accrual ($) |
accrual (£) |
H's share |
Company B |
$ |
256,957 |
(184,714) |
(441,671) |
(316,228) |
(316,228) |
Company C |
£ |
(36,452) |
(27,968) |
8,484 |
8,484 | |
Company D |
£ |
682,716 |
(18,248) |
(700,964) |
(343,472) | |
Company E |
£ |
62,238 |
595,810 |
533,572 |
240,107 | |
total shift in net assets |
|
|
|
|
(411,109) |
|
|
Jan 2016 |
|
|
Apr 2021 |
|
$000 |
Mr Isaacs |
Ms Hotston Moore |
Mr Taylor |
Mr Isaacs |
Ms Hotston Moore |
Mr Taylor |
Maintainable Earnings (A) |
751 |
1,107 |
2,027 |
4,424 |
3,979 |
2,027 |
Multiple (midpoint) (B) |
3 |
3 |
2.5 |
3 |
2.5 |
2.5 |
Enterprise value (A) x (B) = (C) |
2,253 |
3,321 |
5,067 |
11,772 |
9,948 |
5,068 |
Surplus assets (D) |
0 |
553 |
472 |
4,819 |
4,193 |
4,896 |
Equity value (C) + (D) = (E) |
2,253 |
3,874 |
5,539 |
16,591 |
14,141 |
9,964 |
Value of net assets (F) |
783 |
783 |
783 |
6,991 |
6,991 |
6,991 |
Goodwill (E) - (F) |
1,470 |
3,091 |
4,756 |
9,600 |
7,150 |
2,973 |
|
|
|
|
|
|
|
Increases over acquest period | ||||||
$000 |
Mr Isaacs |
Ms Hotston Moore |
Mr Taylor | |||
Enterprise value |
9,519 |
6,627 |
0 | |||
Surplus assets |
4,819 |
3,640 |
4,424 | |||
Value of company |
14,338 |
10,267 |
4,425 | |||
Net assets |
6,208 |
6,208 |
6,208 | |||
Goodwill |
8,130 |
4,059 |
(1,783) |
Disposition
Para 86 | ||||||
H marital property | ||||||
American property |
342,817 | |||||
Banks |
225,363 | |||||
Debts |
(212,774) | |||||
UK pension |
67,115 | |||||
422,521 |
X | |||||
W marital property | ||||||
Flat |
370,270 | |||||
Banks and cash |
376,923 | |||||
debts |
(302,213) | |||||
444,980 |
Y | |||||
Total |
867,501 | |||||
Para 87 | ||||||
Increase in surplus assets | ||||||
Apr 21 ($) |
4,896,000 | |||||
Jan 16 ($) |
(472,000) |
Z | ||||
increase ($) |
4,424,000 | |||||
increase (£) |
3,167,496 | |||||
tax (20%) |
(633,499) | |||||
net increase (£) |
2,533,996 |
A | ||||
Para 90 | ||||||
EV in Jan 2016 | ||||||
FME Jan 16 $ |
2,027,000 | |||||
Multiplier |
2.5 | |||||
EV in Jan 2016 |
5,067,500 | |||||
say |
5,067,000 |
B | ||||
Paras 91 and 97 | ||||||
EV increase | ||||||
R. Isaacs EV |
11,772,000 | |||||
F. Hotston Moore EV |
9,948,000 | |||||
Average |
10,860,000 | |||||
45% discount |
(4,887,000) | |||||
adjusted EV |
5,973,000 |
C | ||||
less start figure (B) |
(5,067,000) | |||||
increase $ |
906,000 | |||||
increase £ |
647,143 |
(at $1.40 = £1) | ||||
less 20% tax |
(129,429) | |||||
net increase |
517,714 | |||||
say |
518,000 |
D | ||||
Para 98 | ||||||
Total Company A increase | ||||||
increase surplus assets (A) |
2,533,996 | |||||
increase EV (D) |
518,000 | |||||
Total increase |
3,051,996 |
E | ||||
Para 99 | ||||||
H previous (X) |
422,521 | |||||
add Company A increase (E) |
3,051,996 | |||||
3,474,517 |
F | |||||
W previous (Y) |
444,980 | |||||
adjusted total |
3,919,497 |
G | ||||
50% |
1,959,749 |
L | ||||
less (Y) |
(444,980) | |||||
lump sum |
1,514,769 | |||||
say |
1,515,000 |
J | ||||
Paras 102 and 103 | ||||||
W assets (L) |
1,959,749 | |||||
less Flat |
(370,270) | |||||
1,589,479 | ||||||
say |
1,590,000 | |||||
less refurb Flat |
(50,000) | |||||
Duxbury calculation p.a. |
1,540,000 90,047 | |||||
Para 104 | ||||||
Calculation total assets H marital property (F) |
3,474,517 | |||||
add minor companies |
364,880 | |||||
add net starting surplus (Z) |
269,714 |
(after tax at 20% and in £) | ||||
add starting EV (B) |
2,895,429 |
(after tax at 20% and in £) | ||||
add pre-marital pensions |
1,750,000 | |||||
H total assets |
8,754,540 | |||||
W total assets (Y) |
444,980 |
(no non-marital assets) | ||||
Total assets |
9,199,520 |
K | ||||
|
|
|
|
| ||
Calculation % receipt |
|
|
|
| ||
W receives overall (L) |
1,959,749 | |||||
% |
21% | |||||
H retains (K-L) |
7,239,772 | |||||
% |
79% | |||||