Strand, London, WC2A 2LL |
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B e f o r e :
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GA |
Applicant |
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EL |
Respondent |
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Jonathan Southgate KC (instructed by Vardags) for the Respondent
Hearing date: 18 October 2023
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Crown Copyright ©
Mr Justice Peel :
Introduction
Non-compliance with the 2016 High Court Efficiency Statement.
"15. Skeleton arguments must:
a. be concise and not exceed
i. for the first appointment, or any other interim hearing, 10 pages (including any attached schedules)."
Permission was not sought in advance to exceed the page limit for this interim hearing. I have said before on countless occasions, in court and publicly, that breaches of the two Efficiency Statements (one for High Court allocated cases, and one for cases allocated below High Court Level) are wholly unacceptable.
The background
i) Did the value of the parties' business interests increase after separation?
ii) If so, was that caused or contributed to by H's asserted post-separation endeavour?
iii) If so, when undertaking the s25 exercise, should the assets be split unequally in H's favour (as he asserts) or equally (as W asserts)?
i) In the main report, that the value of the parties' combined interests in November 2019 was about £14.1m gross on the "present day approach" (compared to £35m on sale a little over two years later).
ii) In Replies to Part 25 questions, that the value of the parties' combined interests in November 2019 was about £18.9m on the "hindsight approach" (compared to £35m on sale a little over two years later).
E v L
"I regard it as unreal, and a likely source of real injustice, for calculations to be undertaken to work out the scale of acquest (and thence the wife's award), on historic figures which with hindsight are shown to be completely wrong. It is not consistent with "a broad analysis of fairness".
W's case on the expert evidence
Value of interest on sale in 2022 | £35m gross |
Value of interest in Nov 2019 | £14.1m gross (SJE) |
£20.5m gross (W's proposed expert) |
In fact, the difference between the SJE and W's expert is much less pronounced if one takes the SJE's higher figure of £18.9 on the "hindsight approach".
i) Per the SJE, the value of the parties' interests has increased by about £21m (£35m-£14.1m). But if one takes his "hindsight approach" it is £16.1m (£35m-£18.9m).
ii) Per W's proposed expert, the value has increased by about £14.5m (£35m - £20.5m).
i) W proposes an equal division of the proceeds of sale, i.e about £17.5m gross for each party (less tax to be apportioned equally).
ii) H proposes a division of 62/5%/37.5% in his favour. Taking a gross figure for the parties' business interests at the point of sale, that translates into:
a) Approximately £22m to H
b) Approximately £13m gross to W.
The law on Daniels v Walker
Control of expert evidence in proceedings other than children proceedings
25.4—(1) This rule applies to proceedings other than children proceedings.
(2) A person may not without the permission of the court put expert evidence (in any form) before the court.
(3) The court may give permission as mentioned in paragraph (2) only if the court is of the opinion that the expert evidence is necessary to assist the court to resolve the proceedings".
i) The party seeking to adduce expert evidence of their own, notwithstanding the fact that a single joint expert has already reported, must advance reasons which are not fanciful for doing so.
ii) It will then be for the court to decide, in the exercise of its discretion, whether to permit the party to adduce such further evidence.
iii) When considering whether to permit the application, the following non-exhaustive list of factors adumbrated in Cosgrove & Anor v Pattison (supra) may fall for consideration:
"... although it would be wrong to pretend that this is an exhaustive list, the factors to be taken into account when considering an application to permit a further expert to be called are these. First, the nature of the issue or issues; secondly, the number of issues between the parties; thirdly, the reason the new expert is wanted; fourthly, the amount at stake and, if it is not purely money, the nature of the issues at stake and their importance; fifthly, the effect of permitting one party to call further expert evidence on the conduct of the trial; sixthly, the delay, if any, in making the application; seventhly, any delay that the instructing and calling of the new expert will cause; eighthly, any special features of the case; and finally, and in a sense all embracing, the overall justice to the parties in the context of the litigation'.
iv) For my own part, I would draw particular attention to the words "the overall justice to the parties in the context of the litigation" which seems to me to encapsulate neatly the court's task.
General observations about historic valuations
i) The extent to which the business was established, and already had a value, at the date of marriage or (if earlier) settled cohabitation. That pre-acquired value, if found by the court, may be relevant to the distribution of assets. I say "may" because of the conventional factors which need to be taken into account as part of the s25 exercise, including the length of the marriage/relationship when compared to the length of the pre-marital endeavour, the contributions by each party inside and outside the business, proportionality, whether the asset has been mingled in, or deployed to sustain, the family economy, and so on.
ii) The extent to which the business has increased in value since separation. If such an increase is found by the court to have taken place, that may be relevant to the distribution of assets. I say "may" because of, again, the various factors which will come into play in the s25 exercise, including the length of time between separation and trial, the reasons for any delay in bringing the case on, proportionality, the contributions of the parties post separation, the impact of market forces, the nature of the work undertaken by the person asserting post separation endeavour, whether the increase in value is a product of active or passive growth, and so on. It will be the court which assesses the specific contributions made by the party asserting that they were responsible for increase in value through their personal efforts, and/or that growth was the product of their active involvement.
i) It has been often said that valuations are fragile. It is the experience of judges that they are a product of art as much as science, and must be approached with caution. For example,
a) In Versteegh v Versteegh [2018] EWCA Civ 1050 Lewison LJ said this at para 185:
"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)."
b) In Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, Lord Nicholls said at para 26:
"… 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".
ii) The further into the past the valuer is asked to inquire, the less robust and more controversial any report is likely to be.
iii) Ultimately, it is for the court, not a valuer, to determine the extent of pre and post marital wealth in accordance with the approach articulated in Hart v Hart [2017] EWCA Civ 1306. Expert evidence may assist, but it is not conclusive. As Moylan J (as he then was) said in H v H [2008] EWHC 935 Fam at para 5:
"I understand, of course, that the application of the sharing principle can be said to raise powerful forces in support of detailed accounting. Why, a party might ask, should my "share" be fixed by reference other than to the real values of the assets? However, this is to misinterpret the exercise in which the court is engaged. The court is engaged in a broad analysis in the application of its jurisdiction under the Matrimonial Causes Act, not a detailed accounting exercise. As Lord Nicholls said, detailed accounting is expensive, often of doubtful utility and, certainly in respect of business valuations, will often result in divergent opinions each of which may be based on sound reasoning. The purpose of valuations, when required, is to assist the court in testing the fairness of the proposed outcome. It is not to ensure mathematical/accounting accuracy, which is invariably no more than a chimera. Further, to seek to construct the whole edifice of an award on a business valuation which is no more than a broad, or even very broad, guide is to risk creating an edifice which is unsound and hence likely to be unfair. In my experience, valuations of shares in private companies are among the most fragile valuations which can be obtained."
iv) Obtaining a historic, black letter accountancy valuation is not the only way of approaching this issue. The straight-line approach adopted by Mostyn J in WM v HM [2017] EWFC 25 received approval in Martin v Martin [2018] EWCA Civ 2866. Calculations by reference to approved indices might be of some utility. But beyond these tools, the court's approach might involve a more nuanced assessment reached after consideration of increase in turnover, number of employees, the genesis of inspirational business ideas, the actual work undertaken by the party, how such work drove the business and the like. Every case, every set of circumstances, is different, and as was explained in H v H [supra] the court is conducting a s25 exercise, within which valuations may assist the court, but are not the be all and end all. Ultimately, the court will need to weigh up a multiplicity of factors with the degree of generality or specificity it thinks fit.
v) The risk of satellite litigation is all too obvious, as this case demonstrates. If the historic valuation is not accepted, a Daniels v Walker application may follow. Issues will likely arise about the other party seeking expert evidence in rebuttal to the Daniels v Walker report. Legal costs will mount. In some cases, a final hearing may need to be adjourned.
This case
i) It is brought too late in the day. That may not be entirely W's fault given that the SJE report was received on 31 July 2023. But the fact is that the Daniels v Walker application was not made until 10 October 2023, a matter of under three weeks before final hearing.
ii) Consequently, it is not possible fairly to accede to the application without jeopardising justice to H, and the justice of the case as a whole. H has very little time between now and the trial to mount a challenge to W's proposed expert report. He will not be able, realistically, to obtain, and seek permission for, his own expert. True, he might seek to rely on the SJE, but it seems to me to be unprincipled that he should be somewhat forced into that corner because the alternative is an unwelcome adjournment. And of course, the SJE is not his own expert, with whom he has been able to sit down and discuss the case in preparation for trial. The SJE might find himself in an uncomfortable position. By contrast, W and her chosen expert are fully aligned.
iii) It is not clear whether the experts would be able to answer questions, meet and prepare a schedule of areas of agreement/disagreement before the trial. The SJE has indicated he would not be able to.
iv) There is nothing to prevent W from putting to the SJE in cross examination the questions and issues which have been raised by her proposed expert who no doubt will remain in place as a shadow accountant to assist. For example, W's counsel will be able to explore the SJE's reluctance to adopt actual figures post 2019, rather than projected or predicted figures which turned out to be incorrect.
v) The historic valuation issue is just one factor among many for the court to consider. It may be relevant to, but is assuredly not determinative of, the issue of post separation accrual. W's case is that even if the value of the business has increased, it would be unfair for her not to receive a full 50%. She advances a number of reasons in her s25 statement which the judge at trial may, or may not, find persuasive. Her own post separation contribution may be relevant. So too will be the length of time since separation, the reasons for the delay to trial, and an evaluation of precisely what personal contributions H made which purportedly enhanced the value. W will argue that a contributory factor in the business's success was a roll out of various products from 2018 onwards, and expansion abroad. The impact of Covid may have enhanced the business profitability, as was commonplace in the tech sector generally. The court will be asked to consider whether any increase in value was the product of passive growth (driven by market forces and natural progression of the company) or active growth (driven by H's personal efforts), or even that the eventual sale price was achievable because the private equity group was a special purchaser.
vi) The difference in figures between the SJE and the proposed new expert is, in my judgment, relatively small (£1.5m on the "hindsight approach") and unlikely to make a material impact on the proceedings. That is particularly so given that the parties appear to agree there was a significant increase in value (they disagree about the reasons why), and H does not make a proposal based on a purely mathematical approach referable to the SJE report. As I have observed, his suggested division provides W with a greater sum than would be applicable even on W's own proposed expert's figures, if the court were to adopt a strict exclusion of all post separation growth. But H does not pursue that strictly mathematical approach, and I therefore see little purpose in more evidence on a somewhat theoretical point. Of course, whether there is merit in any departure from equality in his favour remains to be seen; there may be none. But as his case is presented, detailed accountancy evidence about sets of figures which both show an increase in value, but dispute the precise extent, is unnecessary.