Strand, London, WC2A 2LL
B e f o r e :
||First Respondent/ Husband
|The Trustees/Managers of the CPL Pension PLAN
Deborah Bangay QC and Simon Webster (instructed by DWFM Beckman) for the First Respondent
Hearing dates: 14 25 June 2010
Crown Copyright ©
This judgment is being handed down in private on 5 July 2010. It consists of 151 paragraphs and has been signed and dated by the judge. The judge hereby gives leave for it to be reported as FZ v SZ & Others (ancillary relief: conduct: valuations).
The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them may be identified by name or location and that in particular the anonymity of the children or the expert witnesses and the adult members of their family must be strictly preserved.
Mr Justice Mostyn:
H's background and career
i) 2001 - £2,750,000
ii) 2002 - £5,625,000
iii) 2003 - £7,750,000
iv) 2004 - £6,250,000
i) A monthly retainer of £200,000
ii) A performance fee of £3.1m on 1 April 2007
iii) A performance fee of £3.1m on 1 April 2008.
A total of £11m.
21. Four days after the family meeting, H's father sent H an email in which he said:-
"Please remain steadfast. Please try to put them under tremendous pressure, finnancially (sic), you can dislocate them and pressurise them by all means. Sadly and truly It is only MONEY which is in question. Their intentions were realized very early by me and others. Please put your finnancial house in order, close or leave very small balance joint accounts, credit cards."
22. H's response to this is to say that he cannot be blamed for the sins of his father. Yet, everything that is contained in the e-mail has come to pass. H has indeed put W under "tremendous pressure", particularly by the use of satellite litigation and he now claims to be close to insolvent. The satellite litigation that he has launched will be referred to later.
23. Part of the pressure exerted on W has concerned the protracted contested litigation concerning the occupation of WH and residence of the children. H refused to leave WH and even applied for shared residence of the children. This was surprising given that, since April 2006, he has been non-resident in the UK.
24. There was a seven day hearing before HH Judge Atkinson in July 2009 but the matter was not concluded. It was adjourned until September 2009.
25. H then claimed to have suffered a heart attack saying he was in very poor health (which became a heart episode). At this point, he was residing in Zenda. H's case was that he was too ill to attend court in September so the case had to be adjourned to January 2010.
26. In January 2010, he again said he was too ill to attend, nor could he even give evidence by video link. W then discovered that he had been travelling around the Middle East on business since 21st October 2009.
27. HHJ Atkinson refused to grant H a further adjournment in January 2010. H immediately bowed to the inevitable and agreed to undertake not to return to WH and that W should have a residence order in relation to both children. He now attempts to portray this as being done "voluntarily", having been worn down by W's "campaign of harassment" against him. This is a remarkable position to adopt. W says it was quite clear that "he jumped before he was pushed
Getting evicted today at 1500 hrs. Him not to go quietly. There is a history of domestic violence. Mr SZ. Two children are also at location one is four year old and one is 18 months. Never been aggressive towards children. Can officers pls stay a few doors away from loc to prevent the children from being concerned in any way.
The court may instinctively feel that parts of the occupation order/children proceedings reflect badly on W but:-
(a) Quite impossible for the court to reach any findings as to the character of that litigation without reading the entire files and transcripts to see the context in which it all happened;
(b) Legion allegations and counter allegations were made; virtually none of the pleadings, evidence, transcripts or position statements relating to the proceedings is before the court;
(c) Clearly emotions were running very high at the time on both sides (e.g. H's family camped in the matrimonial home organising dinner parties without reference to W; huge stress on children and W; medical reports were produced in the occupation order proceedings);
(d) Court should not take 26th December incident in isolation.
I am clearly of the view that a joint or shared residence order should be made. Indeed, such an order is nowadays the rule rather than the exception even where the quantum of care undertaken by each parent is decidedly unequal. There is very good reason why such orders should be normative for they avoid the psychological baggage of right, power and control that attends a sole residence order, which was the one of the reasons that we were ridden of the notions of custody and care and control by the Act of 1989.
Nothing has been put before me to explain why H should not have been awarded a shared residence order even if his actual care of the children is decidedly unequal.
A letter from X Bank dated 18 February 2010 confirms payments to family members effected by Mr Z for the period 2007 until 2009.
That letter confirms the payment of £475,000 to H's father on 21 March 2007. One might have thought that at this point Mr Nedas would concede the point graciously and offer an apology. But what the joint statement of 12 May 2010 records at para 81 is that "Mr Nedas does not accept the statement provided by X Bank without comparing it with the original bank statements". This of itself is astounding: what possible basis did Mr Nedas have for saying that the letter from X Bank was fake?
S swore a Form E in which he deposed to having net assets of only £7,092,813. It is clear that I regard this as a complete misrepresentation of the truth. Mr Nedas has stated that the true figure is £51m and possibly much more. Understatement of this scale has been undertaken for but one purpose: to reduce my award to a minimum
The only sensible explanation is that this "contract" is a fairly transparent attempt to reduce his assets dramatically for the purposes of this litigation
Thus W was plainly alleging that the option agreements were shams.
35. I am extremely concerned that S has tried to put a completely false presentation of the value of his wealth before court. This has plainly been done to produce my award to a minimal level and to protect it from distribution in these proceedings. S has produced a vast quantity of paper, purportedly in support of his assertions. However, as Mr Nedas has observed, within the many pages few are materially relevant to the assessment of his worth.
36. I have come to the very clear view that S is determined to defeat me within these ancillary relief proceedings. This would be in line with the rest of his behaviour since our separation. He has tried to do this by the extreme misrepresentation of his resources and by the suppression of material information. When he comes aware of my intention to seek orders in relation to the assets within his pension, I firmly believe that he will immediately take steps to try to place these assets out of reach
18 As in many cases which come before this Court where international businessmen are concerned, proof of the level of such risk is highly problematic and, to a considerable extent, a matter of impression. There is no doubt that these are proceedings where upon the account of H and his forensic accountant, H's businesses are in decline and, if that is so, there is a clear risk that H may prefer to seek to use finances readily available to him for business purposes rather than meeting W's ancillary relief claim. It is also clear to me that proceedings have reached a stage of considerable bitterness between the parities with hostile proceedings in Zenda which W asserts but H denies are associated with these proceedings. It is also clear that H has received encouragement from his family to minimise his exposure (see the oft-quoted letter of 16 October 2008), whether or not he has succumbed to such advice. What is clear on the other hand, however, is that H denies any intention further to deplete the pension fund or seek to alter the terms of the Rules prior to the final hearing in June.
19 In my view, a risk of dissipation has been demonstrated while, at the same time, on H's professed intentions he will suffer no prejudice if he is made subject to the relief sought by W in respect of the pension fund assets pending the ancillary relief proceedings. Provided the C companies, their assets and trading activities are in no way encumbered or adversely affected and provided the relief granted is worded in a form which in no way inhibits free operation of their business and bank accounts, I think it right to grant to W the protection which she seeks.
This is a case where the "impression" given of the level of risk has turned out to be misplaced.
Conclusions on Conduct
Computation of the assets
The non-Zendan assets
H's Zendan assets and liabilities
The J Business
i) The business will continue.
ii) On its most recently available financial material and valuations it is insolvent to the tune of $5.6m.
iii) H has invested £11.9m in it, and this is the figure that W contends should be taken as to value.
iv) H's accountant says that a fair value to take is £1.8m.
It is impossible for the Court to settle on any firm figure for the value of H's interest in the J Business, either now or in the foreseeable future.
The P Business
Mr Nedas did not dispute that the true present value of the investment in FTL was Z415m. Instead he argued that a present snap shot of value was inapt. This was a project that would acquire its value over time. A more appropriate valuation date lay years in the future. The present state of affairs represented a temporary diminution in value. Therefore the better measure of value is the £2.8m invested by H in it.
 That this was the only viable route became plain during the evidence. Both W's accountant and H agreed that it was impossible to attribute anything other than a wild guess to the value of H's options. H would extend this uncertainty to the rest of his deferred assets. It therefore follows that a Wells sharing is the only way of achieving fairness. Indeed, it would seem to me that this should become standard fare where a case has a significant element of deferred or risk-laden assets. For why should one party receive most of the plums leaving the other with most of the duff?
26. The essential differences between the experts in their competing arguments are set out at C91 to 95, which was drawn up by the valuers to isolate the issues between them. The wife proposes a figure of £1,116,000 as the value for the group. The husband proposes a figure of [minus] £1.9 million. The difference is therefore just in excess of £3 million, which takes into account a possible tax liability which arises for reasons which I will develop below.
27. How should the court resolve this? Both accountants concede that what goes into the accounts cannot be decisive by itself. Of course, viewed narrowly and strictly, there can be no doubt that the value on a sale today must be the value calculated by reference to the most up-to-date property valuations. But, is that the end of the matter? Does that really inform the court about the company's true value in the context of this family litigation? I am quite sure it does not. I need to look at the whole background and picture. When I do that, I note the husband's clear evidence that in his view the company was well-placed to move forward; that it was supported by five blue chip clients; that it had an excellent relationship with its bankers; and that it had recently taken on more staff and was attracting new business. All the evidence points to the fact that this is a strong, well-managed, diversified company with a track record of producing profits which, one way or another, provided a very high standard of living for the husband and the wife. Nothing has changed, except of course that the business environment is presently very rocky. I essentially agree with Mr. Levitt that there is a "temporary diminution in value" so far as this company is concerned, but it is likely in the fullness of time to come back strongly when the environment improves, which, on balance, I believe will happen. If I have to put an actual figure on the value of the company, I prefer the wife's approach as providing a more realistic appraisal of the true value to this man and for the purposes of my exercise. I, like the husband's bank manager, am confident about its future.
38. As to Mr Mostyn's principal submission, Mr Marks, in reliance on the dicta in White, emphasises that the judge simply followed the golden rule and did what judges do up and down the land in order to evaluate both equality and fairness. In Charman all contingent tax liabilities were dealt with at trial in precisely the same way as in the present case with the sole exception of the latent liability of up to £11,000,000 which was very late discovered and which was, in any event, disputed. Here the liability is neither late discovered nor disputed.
41. What the judge did precisely complied with the guidance given by the appellate court. Whilst the judge might have imposed a contingent rather than an immediate obligation on the wife, it was certainly not something that she was bound by authority to do. Thus no appealable error has been demonstrated.
46. This appeal was argued with exceptional ability by Mr Mostyn and by Mr Marks. As a generalisation I conclude that Mr Marks' responses to Mr Mostyn's attack were well founded and well expressed. On close analysis no error of principle has been demonstrated. This is an impressive judgment which brings to a close a difficult case in which the judge's perception of the essential issues and her proper conclusion were not assisted by the unorthodox way in which the wife's case developed and fluctuated. Those difficulties did not deflect the judge from a shrewd perception of the essential issues, to which she found an outcome which was very plainly in the ambit of her discretion. I would dismiss this appeal.
 In the light of the failure of a substantial part of Mr Singleton's challenge to the approach of PricewaterhouseCoopers, we will not take long to explain why we reject the rest of it. Insofar as Mr Pointer suggests that the judge's attribution of value to the Axis instruments was a finding of primary fact, and thus particularly hard to disturb on appeal, we disagree with him. We accept nevertheless that the question for us remains whether it was open to the judge to prefer the approach to valuation on the part of PricewaterhouseCoopers. We conclude without hesitation that it was. It contained no methodological error. On the contrary, it reflected, more than did the approach of KPMG, the need for the divorce court to adopt valuations which are realistic and which, in particular, proceed from a premise that the present value of an asset in the hands of a party may sometimes differ both from its value in other hands and from such price as might be achieved in the event of its immediate sale.
 In an assessment of a fair division of assets under the Matrimonial Causes Act problems obviously arise in respect of 'snap shot valuations'. The greater the volatility in value, or the potential for a wide range of valuation, the greater the problem. In respect of private companies, and shareholdings therein, the difficulties and potential unfairness of a 'snap shot valuation' clearly arise and can do so in a stark form. Such valuations turn in large part upon opinions as to prospects, and what multiple and discount should be used in the valuation method adopted. They suffer from the background difficulty that there is generally no open market for the shares. This can regularly give rise to large differences between highly reputable valuers even when they are using the same methodology and these can be compounded by differing views on prospects and methodology. All this, and other problems, flow from the nature of the asset.
 In general terms it seems to me that these points can easily give rise to the difficulty in ancillary relief proceedings that neither of the clean break solutions urged by both sides by reference to the valuations they advance (or a clean break solution somewhere in the middle) produce a result that the court considers to be fair in all circumstances. That in turn can give rise to the problem that the court is not sufficiently informed as to the possible alternatives to order what it thinks might be the fairest solution and can be left in a position of having to adopt an approach dictated by the solutions advocated by the parties which the court thinks may not include the best result.
 In making these general remarks I am very conscious of the need to seek to do broad justice in ancillary relief proceedings and to minimise expense, and thus of the need to avoid ancillary relief proceedings being converted into company litigation. I, therefore, make these general comments on the basis that in my view they should be part of the process of identifying the issues and what should be provided to the court to enable it to perform its task under the Matrimonial Causes Act 1973.
Until the end of 2007, the Royal Institution of Chartered Surveyors (RICS) only sanctioned one definition of value known as 'market value' (MV). Put simply, this required a valuer to arrive at a level of value which it was reasonable to suppose might be arrived at by a willing seller and buyer in an open market transaction. In the majority of cases this approach is suitable and the figure it produces is fair and appropriate for settlement in divorce proceedings. However, there are situations, particularly when it is intended that a property is to be kept by one of the parties after the divorce, when MV could be thought to be both inappropriate and unfair. Take, for example, a property which has been owned by the parties for many years, is in a poor state of repair and is laid out in an idiosyncratic style. The MV may well be depressed by these factors, yet to the owners they are irrelevant. This means that if the 'displaced' party wanted to replicate their home they would be unable to do so at the MV ascribed, because no such identical property would be obtainable in the marketplace. They would be obliged to purchase a more conventional property, probably in better condition, at a higher price and then alter it. This would mean that they had had to expend additional funds on a condition on which they personally placed no value, meaning that they would be 'out of pocket' on the transaction. When contrasted with the position of the party who retains ownership, the relative position of the parties to one another might well be thought of as unfair.
Perhaps a more usual example is when the parties have comparatively recently acquired a new home and have spent substantial sums on renovations and improvements. Some improvements may add value in excess of cost, but not all. New kitchens, bathrooms and decorations may well fall into this category. Others, such as swimming pools, tennis courts and stables, may only add value in line with cost, while others such as specialist paint finishes, sophisticated wiring systems, extensive landscaping and the renovation of outbuildings might add as little as say 25 pence in the pound. If a divorcing couple have willingly spent £3 million on a property which was bought for £4 million 2 years ago (since when values have appreciated by 25%, ie it is now worth £5 million), is it fair that the husband should be allowed to keep it at its market value of say £6 million when, to them, the property must be worth £8 million, because that is what it would cost them to replace it?
From 1 January 2008 the RICS introduced a new definition of value known appropriately as 'fair value'. Although it is anticipated that the usual application will be for the valuation of the shareholding in a business, the underlying concept is that it should reflect the specific advantages (or disadvantages) of ownership to the parties involved, rather than to the market at large.
The Put and Call option agreements
i) A Call Option agreement whereby they each were entitled but not obliged to buy on 30 September 2010 24m shares from MS at a price per share of Z83. Following a rights and bonus issue the number of shares was adjusted to 35.92m and the price per share to Z58.08.
ii) A Put Option agreement whereby MS was entitled to sell on 30 September 2010 to each of H and GA 36m shares at the same price of Z83. The number of shares was adjusted to 51.725m and the price to Z58.08.
43. H's "liabilities" are quite remarkable. By far and away the largest component is a so called "derivative" investment entered in April 2008. In his Form E, H said that his liability in relation to this "investment" was (£9,620,811) or ($15 million) and "further losses are probable". Ms Wallace-Walker puts the losses now at (£17,174,802). Moreover, GA would have exactly the same level of losses.
44. When this "investment" was examined, it emerged that it was a totally nonsensical contract in which H (and GA) can be compelled by a MS to acquire 51.725 million shares in a Zendan quoted company known as AL for Z58.08 each on 30th September 2010, when the quoted price is now only Z15.27. Indeed, he would have to find £23 million to comply with the contract (as would GA).
45. W has always taken the view that this "contract" is now being relied on simply to reduce his assets dramatically for the purposes of this litigation. It will be noted that this contract was not even mentioned in the e-mail dated 1st September 2008. At the time, the share price was Z30.53 as against a call option price then of Z83 per share (a potential loss of £15 million).
46. H never disclosed the identity of MS but W informed the court on 2nd March 2010 (and H accepted) that MS is GA's brother-in-law. Presumably, it is H's case that MS will also require his sister's husband to pay £23 million for shares now worth £6 million.
8. The attraction of ridding themselves of the personal liabilities is a point of leverage that we hope can be used by us to reduce our liabilities in exchange for allowing the MS family to retain the shares which they need to do the deal with the FF or anyone else.
13. While I believe we have some leverage which we can use to try to mitigate our losses there is no doubt that it will be impossible to wipe out the loss .if we are extremely fortunate we may be able to negotiate a reduction in the loss to £10 15m being somewhere around 50p in the £.
Debts owed by H to GA and NS
Treatment of the Zendan assets
13. The fair way of dealing with the Zenda assets is to give W a share of the Convertible Bonds as and when they are repaid to the pension fund (repayment dates are at D-20 but W should share even if repaid later).
14. W accepts that this should not be an equal division to reflect:-
(a) H's Zenda debts (see below);
(b) H's continuing endeavours in creating future value.
15. But there should be sharing because:-
(a) The investments were made from marital funds;
(b) W was not consulted;
(c) H has made (on his case) huge losses which exceed even the recoverable face value of the bonds;
(d) H's reckless behaviour.
16. The court should make a further variation of the post-nuptial settlement to assign to her 30% of the face value of the bonds.
17. This also cuts through much of the valuation dispute in the case.
W's position in relation to Wells sharing of convertible bonds is that, if she must take a share of both bonds and liabilities, she would rather have neither.
Distribution of the non-Zendan assets.
 Mr Mostyn QC submitted that the effect of Lord Nicholls of Birkenhead's words in White, at 989 is that the judge must test his conclusion against the yardstick of equality of all the property, including the non-matrimonial property. I do not agree. I consider that the yardstick is by reference to 50% of the matrimonial property, and that the non-matrimonial property is excluded, and only brought into consideration if needs dictate. However, if I am to measure my conclusion against that yardstick, then the total figure I award to the applicant (exclusive of the payment off of the £500,000 debt) would fall from approximately 40% of the matrimonial, to approximately 35% of the total of matrimonial and non-matrimonial, property. This latter, lesser, percentage would be, in my judgment, more than justified by virtue of the fact that the respondent's financial contribution would then have to be considered to be all the greater if it included, not only his financial contribution to the matrimonial property, but his deemed contribution of the entirety of what is otherwise non-matrimonial property. In either event, against whichever yardstick my award is measured, there is, in my judgment, and by reference to the factors in s. 25 of the 1973 Act, ample good reason for it.
 To what property does the sharing principle apply? The answer might well have been that it applies only to matrimonial property, namely the property of the parties generated during the marriage otherwise than by external donation; and the consequence would have been that non-matrimonial property would have fallen for redistribution by reference only to one of the two other principles of need and compensation to which we refer in para , below. Such an answer might better have reflected the origins of the principle in the parties' contributions to the welfare of the family; and it would have been more consonant with the references of Baroness Hale of Richmond in Miller at paras  and  to 'sharing ... the fruits of the matrimonial partnership' and to 'the approach of roughly equal sharing of partnership assets'. We consider, however, the answer to be that, subject to the exceptions identified in Miller to which we turn in paras -, below, the principle applies to all the parties' property but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality. It is clear that both in White, at 605F-G and 989 respectively, and in Miller, at paras  and , Lord Nicholls of Birkenhead approached the matter in that way; and there was no express suggestion in Miller, even on the part of Baroness Hale of Richmond, that in White the House had set too widely the general application of what was then a yardstick.