Strand, London, WC2A 2LL
B e f o r e :
| Beverley Anne CHARMAN
|- and -
|John Robert CHARMAN
Mr B Singleton QC, Ms D Eaton & Mr D Nagpal (instructed by Withers) for the Husband
Hearing dates: 13th to 22nd February, 24th May & 21st June 2006
Crown Copyright ©
Mr Justice Coleridge
The hearing and the evidence
The Wife and Husband
The background and chronology
|Vendor||no. of shares in
Ace Ltd that are sold
|sale proceeds in cash
|Dragon Holdings Trust||1,720,805||36,792,945.00|
The Statutory "Balancing Exercise"
The parties resources (assets , liabilities, earning capacity. Subsection 25.1.a)
The husbands American properties; Palm Beach and Atlanta.
Accumulated Income from Dragon Trust
Axis interests and the Dragon Trust.
Q As you told the judge a year ago, your view always was that you were not going to see old bones? A. Sorry, what did you say?
Q You never thought you would live to an old age? A. No, I said I had never expected longevity because my father died when he was 45. I never expected that longevity was something that I could rely on.
Q That is what I am saying to you. A. No, that's not. It meant I had a great regard for every day that I woke up and lived my life.
Q There is nothing there about ongoing generations, is there? A. No, I didn't think that there needed to be. I've said it time and time again.
MR. JUSTICE COLERIDGE: How on earth was anybody going to understand that this was your abiding ambition then? A. The greatest risk I faced, my Lord, is the fact that I died, and I was far too busy trying to create value to worry about my demise.
Q You cannot have cared too much about ---- A. I did care.
Q ---- your ambition, because it is an extraordinary – I do not mean that in a disbelieving sense – it is an extraordinary ambition to wish to leave half your fortune to people who are yet to be born. A. But, my Lord ----
Q That would not be the natural behaviour of people left behind if you were to fall under a bus or crash into the sea to think, "Well, we are not going to benefit his heirs, we are going to hold it all and keep it away from them". A. But that was my intent, my Lord.
Q You kept it to yourself though. A. I did, I am afraid. That is what I said yesterday, if I had known that I would be sitting here today and poring over documents that have been produced over the last ----
Q That is not much of an answer. That is really not much of an answer, Mr. Charman. Nobody in the world knew that this was an ambition of yours, it was not written down anywhere. How was anybody going to act to bring about this intention? It is no good harbouring some deep intention if no one in the world knows about it, is it? A. At that time that was a risk I was prepared to take, my Lord.
Q It is not only that time, it is throughout the entire life of the trust? A. No, I had told Alec Anderson when I went to Bermuda – my Lord, if you go back to Codan, I had a very limited number of discussions with Codan."
The parties respective financial needs and their Standard of Living (25.b. and c).
The conduct of each of the parties if that conduct is such that it would in the opinion of the court be inequitable to disregard it (Subsection (g).
Q I understand. A. I did not change those tax laws in 1998. When I tried to explain the situation to Beverly and that just so great a proportion of the wealth that I had worked so hard over such a long period of time to create was going to be seized and her answer was: "Well, just go and pay the tax".
Q I totally understand that from your point of view as the one who worked hard to generate it, that was an anathema. A. Yes, my Lord.
Q But can you for a moment put yourself in her position? A. I have always tried to put myself in her position, my Lord, and that is why continuously I try to find alternatives, but I did try to find alternatives for the sake of the family, but it is very difficult when the only debate is the fact that Beverley was not going to move from England.
Q I do see you both had your very, very clear views about it. What I have to decide is whether or not one person's view was inherently less reasonable than the other person's view viewed from the particular standpoint that they were at and whether, in any event, that amounts to some factor which affects the result of this case.
MR. POINTER: You agree at any rate, Mr. Charman, that in about October 2003 Mrs. Charman at the pizza restaurant in Sevenoaks suggested that she would come out to Bermuda for two years and see if you and she could make it work? A. I don't remember that at all, my Lord. I am sorry. I just don't remember…..
MR. JUSTICE COLERIDGE: The tragedy of this case seems to me to be that there was this enormous blockage between you on this point, and there was need for compromise on both sides and when it came to the compromise, or the possibility of compromise, it was all too late. Is that fair? A. Yes, it is fair, my Lord
The second passage I also reproduce in full from the transcript :
MR. JUSTICE COLERIDGE: I heard the evidence and I can see what is written here. What I want to understand is this, and certainly by February 2004 there is nothing left to discuss, I appreciate that, and you have this terrible meeting between the two of you first the night before and then in your hotel room as you are about to leave the country. What she has said is that in fact at no time was there ever a stage where you said: "If you won't come to Bermuda then you must regard the marriage as over." A. No, that's true
Q It died, did it not? It withered. You knew this was a block that she could not get over, and you took the decision really, did you not, that you were going to have to get on with your life in Bermuda. A. Yes.
MR. POINTER: You know that she says that in the autumn of 2003 she suggested buying a house in Bermuda and giving a try for a couple of years, do you not? A. Yes, she said that.
Q Do you agree she said that? A. Sorry? Well, show me where she said it.
Q Of course. It is at E 355. The actual passage is over the page at 356. That is the passage leading up to it in para.48.
"In the autumn of 2003 I suggested to John we buy a property in Bermuda and try living there for a couple of years."
You accept that she said that, do you not? A. I don't remember it but if she said she said it then I'm sure she said it.
Q Is the reality that by the autumn of 2003 you had formed the view that the marriage was over? A. Yes.
"Parliament has drawn the line. It is not for the Courts to redraw the line under the guise of having regard to all the circumstances of the case. It is not as though the statutory boundary line gives rise to injustice. In most cases fairness does not require consideration of the parties' conduct. …..where exceptionally the position is otherwise, so that it would be inequitable to disregard one party's conduct , the statute permits that conduct to be taken into account."
'The answer is that exceptional earnings are to be regarded as a factor pointing away from equality of division when, but only when, it would be inequitable to proceed otherwise. The wholly exceptional nature of the earnings must be, to borrow a phrase more familiar in a different context, gross and obvious. Bodey J encapsulated this neatly when sitting as a judge of the Court of Appeal in Lambert v Lambert 2003. FAM 103 ,127 He described the characteristics or circumstances which would bring about a departure from equality;
'However, those characteristics or circumstances clearly have to be of a wholly exceptional nature, such that it would very obviously inconsistent with the objective of achieving fairness (i.e. it would create an unfair outcome) for them to be ignored'.
…"149. The question, therefore, is whether in the very big money cases, it is fair to take some account of the source and nature of the assets, in the same way that some account is taken of the source of those assets in inherited or family wealth. Is the 'matrimonial property' to consist of everything acquired during the marriage (which should probably include periods of pre-marital cohabitation and engagement) or might a distinction be drawn between 'family' and other assets? Family assets were described by Lord Denning in the landmark case of Wachtel v Wachtel  Fam 72, at 90:
'It refers to those things which are acquired by one or other or both of the parties, with the intention that there should be continuing provision for them and their children during their joint lives, and used for the benefit of the family as a whole.'
Prime examples of family assets of a capital nature were the family home and its contents, while the parties' earning capacities were assets of a revenue nature. But also included are other assets which were obviously acquired for the use and benefit of the whole family, such as holiday homes, caravans, furniture, insurance policies and other family savings. To this list should clearly be added family businesses or joint ventures in which they both work. It is easy to see such assets as the fruits of the marital partnership. It is also easy to see each party's efforts as making a real contribution to the acquisition of such assets. Hence it is not at all surprising that Mr and Mrs McFarlane agreed upon the division of their capital assets, which were mostly of this nature, without prejudice to how Mrs McFarlane's future income provision would be quantified.
150. More difficult are business or investment assets which have been generated solely or mainly by the efforts of one party. The other party has often made some contribution to the business, at least in its early days, and has continued with her agreed contribution to the welfare of the family (as did Mrs Cowan). But in these non-business-partnership, non-family asset cases, the bulk of the property has been generated by one party. Does this provide a reason for departing from the yardstick of equality? On the one hand is the view, already expressed, that commercial and domestic contributions are intrinsically incommensurable. It is easy to count the money or property which one has acquired. It is impossible to count the value which the other has added to their lives together. One is counted in money or money's worth. The other is counted in domestic comfort and happiness. If the law is to avoid discrimination between the gender roles, it should regard all the assets generated in either way during the marriage as family assets to be divided equally between them unless some other good reason is shown to do otherwise.
151. On the other hand is the view that this is unrealistic. We do not yet have a system of community of property, whether full or deferred. Even modest legislative steps towards this have been strenuously resisted. Ownership and contributions still feature in divorcing couples' own perceptions of a fair result, some drawing a distinction between the home and joint savings accounts, on the one hand, and pensions, individual savings and debts, on the other (Settling Up, para 128 earlier, chapter 5). Some of these are not family assets in the way that the home, its contents and the family savings are family assets. Their value may well be speculative or their possession risky. It is not suggested that the domestic partner should share in the risks or potential liabilities, a problem which bedevils many community of property regimes and can give domestic contributions a negative value. It simply cannot be demonstrated that the domestic contribution, important though it has been to the welfare and happiness of the family as a whole, has contributed to their acquisition. If the money maker had not had a wife to look after him, no doubt he would have found others to do it for him. Further, great wealth can be generated in a very short time, as the Miller case shows; but domestic contributions by their very nature take time to mature into contributions to the welfare of the family.
152. My lords, while I do not think that these arguments can be ignored, I think that they are irrelevant in the great majority of cases. In the very small number of cases where they might make a difference, of which Miller may be one, the answer is the same as that given in White v White  1 AC 596 in connection with pre-marital property, inheritance and gifts. The source of the assets may be taken into account but its importance will diminish over time. Put the other way round, the court is expressly required to take into account the duration of the marriage: section 25(2)(d). If the assets are not 'family assets', or not generated by the joint efforts of the parties, then the duration of the marriage may justify a departure from the yardstick of equality of division. As we are talking here of a departure from that yardstick, I would prefer to put this in terms of a reduction to reflect the period of time over which the domestic contribution has or will continue (see Bailey-Harris, "Comment on GW v RW (Financial Provision: Departure from Equality)"  Fam Law 386, at p 388) rather than in terms of accrual over time (see Eekelaar, "Asset Distribution on Divorce - Time and Property"  Fam Law 828). This avoids the complexities of devising a formula for such accruals.
153. This is simply to recognise that in a matrimonial property regime which still starts with the premise of separate property, there is still some scope for one party to acquire and retain separate property which is not automatically to be shared equally between them. The nature and the source of the property and the way the couple have run their lives may be taken into account in deciding how it should be shared."
"Although conventionally s25(2)(g) is often employed in relation to negative behaviour, there is nothing in its language that requires such a restrictive interpretation. This proposition is confirmed by Wood J in Kokosinski v Kokosinski  Fam. 72 at 83e:
It is argued, and indeed it is true, that the factor of "conduct" has for the most part been used in order to cut down the amount of financial relief which the court might otherwise have awarded to a party, and not for the purpose of increasing that amount. In my judgment there is nothing in the language of the section itself which supports this restricted view. My initial approach, therefore, is that any such restriction is unwarranted. I then turn to authority.
Having reviewed the authorities, Wood J concluded at 85f:
I find nothing therefore in the authorities to suggest that a broad and general approach to the words "conduct" and "in all the circumstances of the case" is undesirable or wrong.
"The proper approach is for the Court to consider all the factors in s25 and determine a fair outcome. The court must cross-check its provisional award against the yardstick of equality to ensure that in the event of an unequal division there are good reasons to justify the difference. The quantification of the provisional award is both a cumulative/incremental approach. The court should look at each of the factors and weigh them into the balance. What the Court cannot do is to assume that the parties (in a long marriage where the resources exceed their needs) are each going to receive 50% and then determine if there is any reason why they should not. Apart from being contrary to White, that approach creates a real risk that each of the factors will not be given the proper consideration that the statute requires."
"Section E: The Law
Mr Coleridge QC on behalf of the husband accepts that, if this wife has made an outstanding contribution, it must be reflected in the award. The questions are: by what process of thought should it be reflected and, of course, to what extent?
There seem now to be alternative processes of thought by which a wife's contribution should be reflected; but I doubt that they lead to a different result and so the point, though interesting, is academic."
Then at page 627
"Section G: Conclusion
I must now conduct an overarching review of all relevant factors in accordance with the subsection. The scale of the husband's wealth and the standard of living during the marriage are already reflected in the figure for the wife's reasonable requirements. But what in particular are not there reflected are the subsistence of the marriage for no less than three decades and the contributions of both parties to the welfare of the family.
I find it far from easy to reflect the wife's outstanding contribution in monetary terms. Nor is there even a reported case vaguely analogous to this. All that I can do is recall the detail of the wife's contribution set out in Section D; to apply to it some general considerations; and to trust that I have the instinct and experience to allow justly for it in the ultimate figure."
And finally at page 628
"… That said, it would be absurd to conclude that the wife played anything approaching an equal role with the husband in the actual generation of his wealth or indeed to seek to ascribe any particular fraction of it to her contribution. That is why I have no appetite for awarding the wife a particular fraction of the joint wealth or even, which would be just legitimate on the authorities, for cross-checking an award, conceived otherwise, against such an approach. It crossed my mind to uplift the wife's reasonable requirements by some fraction of those requirements and to survey whether the result seemed fair; but, when I came to articulate the logic of such an exercise, I began to flounder.
The fact is, as Thorpe LJ has so well demonstrated in Dart at 293F –295B, that every fractional approach is inconsistent with the wide discretion under the Act; a discretion which in my opinion will have served better than any possible alternative provision the interests of those who since 1971 have suffered the heartbreak of arrival at our divorce court.
After protracted thought – and , let me confess, regular commuting between £10m and £11m – I have come to the conclusion that the award should bring the wife's wealth to £10.5m.
Accordingly the husband will pay her a lump sum of £6.2m."
"The starting point is surely not controversial. In the search for a fair outcome it is pertinent to have in mind that fairness generates obligations as well as rights. The financial provision made on divorce by one party for the other, still typically the wife, is not in the nature of largesse. It is not a case of 'taking away' from one party and 'giving' to the other property which 'belongs' to the former. The claimant is not a suppliant. Each party to a marriage is entitled to a fair share of the available property. The search is always for what are the requirements of fairness in the particular case.
But there will be an equally vociferous response from those who say that after a marriage of this length and quality, where all the wealth has been created during its subsistence, there is no reasonable justification for this wife (or any such wife) receiving less than half of the fruits of their combined but different efforts. To those I respond by drawing attention to Lord Nicholls remarks at paragraph 16 of his speech :
16. A third strand is sharing. This 'equal sharing' principle derives
from the basic concept of equality permeating a marriage as understood today. Marriage, it is often said, is a partnership of equals. In 1992 Lord Keith of Kinkel approved Lord Emslie's observation that 'husband and wife are now for all practical purposes equal partners in marriage': R v R  1 AC 599, 617. This is now recognised widely, if not universally. The parties commit themselves to sharing their lives. They live and work together. When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary. Fairness requires no less. But I emphasise the qualifying phrase: 'unless there is good reason to the contrary'. The yardstick of equality is to be applied as an aid, not a rule.
And to both responses I draw attention to Baroness Hale's illustration of this dilemma in paragraphs 150 – 151 of her speech (supra).
Valuations and Discounts re AXIS interests
See judgment paragraph 84
The first substantive difference between the experts relates to their overall approach to the valuation of H's interest in the shares, options and warrants relating to Axis (V1:242:§ 10). This difference is of central importance as it affects the experts' approach to many other aspects of their valuations.
49. Clokey sets out to estimate what he terms the "economic value" of H's interests, which he defines at V1:145 at § 2.16 as representing "the compensation [H] would require in exchange for not owning the asset, including compensation for any indirect consequences". This thesis may be broken down as follows:
i) Clokey's approach assumes that H is a rational investor (V1:151; § 4.5) who would, in realising his assets, do so in an orderly way rather than by an immediate forced sale (V1:151; § 4.3 and V1: 153; § 4.13) so far as possible.
ii) It is also premised on the assumption that H does not need to realise all his assets now (V1:152; § 4.7).
iii) Thus, it is assumed that where there would be a financial penalty in realising an asset now, such realisation is delayed to minimise such penalty (see V1:153; § 4.14), and a discount is applied to reflect the delay, rather than assuming that H would realise all his assets now and take the immediate and substantial knock on the price achieved.
iv) It is a further consequence of this approach that no attempt is made to put an artificial immediate value (using, for example, a rigid Inland Revenue valuation formula) on assets that after a period of time can be realised for a more readily ascertainable sum (V1:151; § 4.4).
50. KPMG use what they choose to call a "fair market value approach" which actually means the assumption that there is an immediate sale of the assets (V1:62; § 1.5.1). Their approach follows the same lines as when assets are valued for tax purposes in this or other jurisdictions and adopts the tax/Inland Revenue definition of "fair market value". Thus:
Where no immediate sale is possible, a discount is applied to reflect that: formulae from the Inland Revenue or other tax authorities are adopted to provide notional immediate values where immediate sale is not possible.
KPMG further suggest that (i) Clokey's method is not normally applied in matrimonial cases, (ii) has been over-ruled (from an Inland Revenue perspective) by the Finance Act 2003, and (iii) is inconsistent with the approach applied to, say, the former matrimonial home (V1:410; § 2.2.2 et seq.
51. In considering assets of the relative complexity of the Axis interests, it is clear that any attempt to determine a value, as at today's date, of assets that cannot be realised for a period of time is going to include a element of speculation (the only certainty being that any figure fixed upon today will not be what is finally realised in the course of time). Nonetheless, every effort should be made to alight upon the most accurate estimated values……………………………….
52. It is further clear that different assets will require a different approach: for example assessing the current value of the piece of real estate is a wholly different exercise from valuing a current interest in a derivative asset, itself subject to the vagaries of the market and the approach to one cannot be criticised solely on the basis that it differs from the approach taken to another……………..
53.Secondly, the experts agree that were H to sell his interests in Axis shares, bearing in mind his position as the CEO and the restrictions of share sales that that necessitates, the appropriate route for such a sale would be what is referred to as a section 144 "dribble out" approach (see KPMG at V1:119; at § 5.6.2 and Clokey at V1:149; § 3.9). However, a section 144 sale is limited by the average weekly trade figure in Axis shares (the Trading Volume Formula (see KPMG at V1:94; § 5.3.4 and Clokey at V1:154; § 4.18(a)). and in this regard the experts differ:
Clokey, assuming H to be a rational investor and not hypothesising an immediate sale, does not consider that H will be hindered by this limitation, which in any event he calculates at 4.1million shares (Vi:154; § 4.18 et seq.);KPMG state that the figure is 3.5 million shares, and apply a discount based upon the delay that will be suffered by an attempt immediately to sell more that 3.5 million shares (V1:94; § 5.3.4 and V1: 418: § 2.2.37).
54. This affects the period over which any shares could be sold, and thus the discounts for delayed sale which the experts apply.
The first significant difference is the share price adopted by the experts (V1:244; § 14):-
Clokey adopts the mid-market closing price (V1:170; § 5.7 et seq.). This is the price that one finds in the newspapers or other records of the share's price at a particular date – it is the standard price to which any applicable discounts are generally applied.
KPMG use the bid price (V1:90; § 5.2.11). This is based on the premise that H would be a seller, not a buyer.
However, KPMG are constrained to acknowledge, in their second report, that the adoption of the bid-price may require a 1% adjustment to their figures in certain cases (V1:434; § 2.2.104) on the basis that published discounts are generally applied to the mid-market price.
56. There are several discounts considered by the experts as applicable to the valuation of the shares. They are:-
v) discount for delay or restriction on sale;vi) the CEO selling discount; andvii) the volume or blockage discount;
57. As to the discount for delay or restriction on sale:
Clokey proposes a discount of 5% p.a. for the restricted shares (V1:159; § 4.30). This extrapolates, because of the different periods, to 9.7%, 14.8% and 19.9% respectively to the three blocks of restricted shares (C3:867); and 5% for the shares underpinning the warrants (V1:158; §4.30), on the basis that these shares cannot be sold for 12 months.
KPMG propose discounts of 60% and 70% to the three blocks of restricted shares and a 25% discount to the shares underpinning the warrants (V1:94; § 5.3.7 et seq. and C3:843), However, these percentages include the discounts relied upon under the following two headings as well. KPMG respond to Clokey's arguments at (V1:422; § 2.2.54 et seq), acknowledging that Clokey's figure is within the range used in their own dealings with the Inland Revenue, but nonetheless produce a figure of 25% relying heavily, it would seem, on the US tax case of Adair (V2:689 et seq.).
58. As to the CEO selling discount:
Clokey concludes that this discount cannot be meaningfully distinguished from the volume or blockage discount (see below) (V1:163; § 4.44); he concludes that applicable total discount under those combined heads is 2% (V1:168; § 4.60);
KPMG assert that the appropriate discount for a sale of shares by a CEO (i.e. the effect on the market of the CEO selling a large number of shares) is 5% to 10% (V1:102; § 5.3.31 and V1:424; § 2.2.61 et seq.)………………………………..
59. As to the volume or blockage discount:
Clokey – see CEO discount above.
KPMG take the view that a volume or blockage discount is applicable (V1:102; § 5.3.32ff) and their conclusion is 1% to 4% (V1:432; § 2.2.98);
KMPG then treat their figures for CEO and volume/blockage discounts in combination and then arrive at an aggregate 10% (V1:432; § 2.2.98).
A number of differences between the experts are apparent in their valuation of H's options to purchase Axis shares.
61. There are two elements to the value of the options: the "intrinsic value" (that is simply the current share price minus the option price, i.e. the profit margin); but also the "time or potential value" which is the value ascribed to the benefit H derives from the fact that he can retain the options until their expiry, with no risk as to the price, but retaining the right to purchase (and then sell) at any time within the option period.
62. As to the valuation of the options Clokey approaches the valuation as follows:-
He uses the binomial valuation model (this is the same valuation model as is then adopted by KPMG (V1:174; § 5.19);
there are minor differences between the experts in the data put into that model but Clokey (and Lawrence) do not consider that these differences merit further consideration (V1:175; § 5.20(b)) save as to the date of exercise of the options, which Clokey assumes to be the end of the option period (V1:173; § 5.14(e));
Clokey runs the model having discounted the share price by 2% (being the figure he adopts for the CEO/volume or blockage discount) and reaches a single aggregate valuation (C3:867) for each of the options, i.e. a value which includes the intrinsic value which is calculated using the same assumptions as set out under "Shares" above;
63. KPMG approach the valuation as follows:
they too use the binomial model (V1:71; § 3.3.2);
they assume that H will exercise his options half way between now and the expiry of the term (V1:77; § 3.6.70);
Having run the model, they then apply a further 60 to 70% (say 65%) discount to the potential element of the value of the basis that the lack of marketability would justify such a discount for tax purposes (V1:74; § 3.5.6); the rationale here is that since the options cannot be transferred (in accordance with their rules) and the potential value attaches to the option rather than the underlying share, there is strictly no market value at all. However, KPMG are again obliged to concede that this does not reflect the reality, which is that the options will become exercisable in due course and the shares marketable in the future (V1:73; § 3.5.3
64. The most significant issue as to the valuation of the options is the impact of the date upon which the experts assume that H will exercise his options:
Clokey explains the economic theory behind his approach (V1:152; § 4.9), justifying the assumption that H will retain the options to the expiry of their respective terms. In simple terms the theory states that in the case of options where the holder does not receive dividends until the option is exercised (which these are) it is always advantageous to retain options for the maximum period unless the loss of dividends suffered on the unexercised options is so great as to outweigh the benefit of retaining the options. With an agreed dividend yield of 2%, the benefit of retention clearly outweighs the dividend loss.
KPMG adopt what they assert to be a "fair value" approach based, they say, upon international accounting practice (but in fact used predominantly for tax related purposes) (V1:416; § 2.2.33) and assume a disposal at the middle of the term. ……………………………………………
KPMG further suggest that Clokey's approach assumes that H will remain an executive of Axis until the expiry of the final term (i.e. 2015)
The valuation of the warrants involves similar considerations to the valuation of options, which will not be repeated here. The summary of the position is:
Clokey incorporates in the binomial model (i) the 2% CEO/volume discount to obtain an aggregate value; and (ii) a 5% restriction on sale discount to represent the 12 months holding period during which the shares cannot be sold after the exercise of the warrants, and thus produces an aggregate value (i.e. including the intrinsic and time/potential values of the warrants);
This underlying share price may need to be modified in the light of the effect of H's retirement announcement on the CEO/volume discount.
KPMG apply the same 60 to 70% discount to the potential/time value, and a 25% delay or restriction on sale discount to the underlying shares (V1:105; Table 8).
66.Personal contribution, or Key Man
The key man argument put forward on behalf of H is an attempt to derive a notional discount to all the Axis interests in which H (including Dragon) has an interest. The discount figure argued for is 7.5%.
67. The argument is not that the interests are in fact worth 7.5% less, but that W is not entitled to any share of 7.5% of their value. Thus its similarity to an exceptional contribution argument is obvious.
68. The argument which KPMG were instructed to consider (V1:57; § 1.1.5) is presented on the following basis:
H has made a personal contribution to Axis (V1:112; § 6.2.2 et seq);
The value of that contribution is hard to measure (and could well be temporary) (V1:125; § 6.2.16);
That H's departure from Axis is not readily foreseeable (V1:125; § 6.2.17) and thus the market expects that he will continue to provide his services for the foreseeable future;
It may take up to 3 years to replace H, and thus dividing his "key man" insurance over 2 to3 years' profits provides a benchmark percentage of 4.2% (V1:126; § 6.2.21);
A figure in the range 5 to 10% is appropriate.
69. We will say that the basis for this argument has been completely undermined by H's announcement of his retirement and consequential effect on the Axis share price.
The reports show that KPMG were expressly instructed to consider "the additional discount relating to the market expectation that [H] will continue to provide his services to Axis for the foreseeable future", considering in particular, (a) the impact were he to leave and (b) the impact of a share sale to fund a divorce settlement (V1:57; § 1.1.5).
H announced his retirement, due to the pending divorce proceedings, on 7 February 2006 after the close of trading;
The fact of H's departure is now not only foreseeable, but plainly in the public domain and must therefore be expressed in the share price;
Axis shares opened up 6.1% the following day; and
In any event, H has given Axis nearly 3 years' notice of his retirement, which allows for the appointment of replacement CEO even on the most pessimistic timetable suggested by KPMG whilst H remains in office and "fully committed to the company".