Strand, London, WC2A 2LL |
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B e f o r e :
sitting as a Deputy High Court Judge
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GA | Applicant | |
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EL | Respondent |
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Jonathan Southgate KC (instructed by Vardags Limited) for the Respondent
Hearing dates: 6 - 10 November 2023
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Crown Copyright ©
Stephen Trowell KC :
a. Which of the values from Fred Brown as at the time of separation is of most assistance to me;
b. To what extent the deferred and uncertain nature of some of the compensation materially reduces the impact of the apparent increase in value;
c. Whether, and to what extent, the apparent change in the value of the business is on the one hand down to a change in the business caused by the Husband's work after the separation or on the other hand due to one or all of (i) the unreliability of Fred Brown's valuation, (ii) passive growth in the business, (iii) a change in market conditions, or (iv) an element of good luck on the sale price that was achieved.
Background and History of the Litigation
The Law
The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family.
a. The sharing of matrimonial property generated by the parties during their marital relationship;
b. Compensation for relationship generated disadvantage; and
c. Needs balanced against ability to pay.
[187] For these purposes, I propose to take March 2012 as both the date of separation and the date when the parties ceased to operate as a partnership qua spouses. Without doubt, their respective roles as parents to their four children continued uninterrupted as did the routine of their daily working lives within TCI and the foundation. However, to the extent that the husband went on outside the marital partnership to claw back the very significant losses made after 2008 and thereafter, predominantly from 2013 onwards, to generate wealth on an exceptional scale, in my judgment fairness requires me to take account of that contribution as one which created wealth which falls outside of the marital acquest. I do not regard the parties' subsequent attempts to explore the prospects of repairing the marriage as part of the continuum of its course. The separation in March 2012 was not a temporary separation but a permanent one. In the 8 months between March and November 2012, I heard about nothing which might persuade me that the marriage was continuing to operate in its essential character as a partnership between spouses.
24.3 Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share. Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property.
24.4 If the post-separation asset is a bonus or other earned income then it is obvious that if the payment relates to a period when the parties were cohabiting then the earner cannot claim it to be non-matrimonial. Even if the payment relates to a period immediately following separation I would myself say that it is too close to the marriage to justify categorisation as non-matrimonial. Moreover, I entirely agree with Coleridge J when he points out that during the period of separation the domestic party carries on making her non-financial contribution but cannot attribute a value thereto which justifies adjustment in her favour. Although there is an element of arbitrariness here I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation.
[41] This approach is to my mind undoubtedly correct for those assets which were in place at the point of separation. They remain matrimonial property but the increase in value achieved in the period of separation may be unequally divided. I emphasise may. Obviously passive growth will not be shared other than equally, and there will be cases where on the facts even active growth will be equally shared, as happened in Kan v Poon.
[73] In my view there are already in this field too many uncertainties and subjective variables. The law needs to be transparent, accessible, readily comprehensible and should propound simple and straightforward principles. In my experience convention and tradition dictate that save in cases where there has been undue delay between the separation and the placing of the matter for trial before the court, the end date for the purposes of calculation of the acquest should be the date of trial. This rule of thumb should apply forcefully to assets in place at the point of separation which have shifted in value between then and trial. For new assets, such as earnings made during separation, I would apply the yardstick in Rossi v Rossi [2006] EWHC 1482 (Fam), [2007] 1 FLR 790, at [24.4] where I stated: 'I would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation'.
'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.'
72. I do further note that Moor J makes clear that he does not consider post separation assets require the creation of a 'truly new venture' 'without the use of matrimonial assets'. What he says is that 'It will depend on the circumstances, although the assets used may be a relevant consideration as to whether the circumstances justifies departure from equality.' In that case Moor J concluded the post separation argument failed in part because the Husband's hand was 'no longer on the tiller' of the business (he had reduced his hours of work to 3 days a week and then 1 day) but mainly that the parties' matrimonial home was charged to fund the MBO of the business in which he alleged post separation accrual, so the 'trading with an undivided share' had a particular resonance.
a. Post separation non marital assets can exist at the date of trial even where there has been no undue delay;
b. In assessing post separation non marital assets I must guard against counting in the product of passive growth;
c. I should remain mindful of the extent to which the person claiming post separation assets is simply benefitting from investing the unallocated funds of the other spouse;
d. I should not overlook the domestic contribution which may be taking place by the other spouse;
e. While a formulaic approach may be better than a 'by and large' approach I will have to make such assessment as I best can on the facts as I find them.
Which value of X Ltd is of most assistance to the court
To what extent the deferred and uncertain nature of some of the compensation materially reduces the impact of the apparent increase in value
Explanations as to the change in value of the business
Parties' arguments and my conclusions
111. The Wife responds by saying that the 'fairest way would be to put the cash [part] of the sale into a joint account' from where any tax or warranties payments are met. She goes onto say that she wants an 'open message from Vardags that states you accept an equal outcome of this divorce and that I am entitled to 50% of any personal or business capital. I have never had that from them, only you saying so.'
a. The unreliability of the accountancy evidence - this is significant but is already factored into my 50% growth figure above.
b. The significant increase in the metrics of the business this too is significant and already factored into the 50% growth figure because the metrics are what is relied on to provide the 2019 valuation and what leads to the 2022 sale price.
c. The findings I have made as to the post separation work of the Husband these too are very material but they lead to the increase in metrics and again are therefore taken into account in the 50% growth figure.
d. The growth deriving from the software created during the marriage which I have said is a significant factor. This leads me to conclude that a sizeable part of the growth is passive.
e. The change in the market this is not as large a factor given that by the time the deal was completed the spike had passed, but as set out above when combined with the market trends it must carry some weight given the 'stickiness' of the terms of the original bid.
f. The weight to be attached to the extra domestic contribution this I have said is a factor but not a large one.