B e f o r e :
J L Harpham Limited
Official Court Reporters and Transcribers
55 Queen Street
Sheffield S1 2DX
MISS SAXTON (instructed by Lake Legal) for the Applicant:
MISS HARRISON QC (instructed by Slater and Gordon) for the Respondent
Crown Copyright ©
MR. JUSTICE MOYLAN:
(i) Falsely pretending to make the Husband redundant in September 2012 whilst reaching a secret agreement with him that he will receive a substantial settlement and/or consultancy work in the future;
(ii) Asserting that the Husband owes TS approximately £1 million, when he does not;
(iii) Asserting, falsely, that the value of the Husband's shares in ABC 2011 should be calculated by reference to net asset values when the full agreement between the Husband and PM provides otherwise.
(a) The remaining net proceeds of sale of the former matrimonial home, now, £424,000. The balance has been spent, principally if not entirely, on the parties' legal costs.
(b) The net equity in a property in Spain of £366,000.
It is agreed that the Wife should be awarded both these assets.
(c) A berth in Morocco with a notional value of £35,000. What it will ultimately realise is somewhat speculative as it has been on the market for sale for some time.
(i) £17,000, said to be due from the Husband in respect of a property development in Spain called La Corta;
(ii) The Husband's liabilities, of £35,000 and £120,000, in respect of F Company;
(iii) The value of the Husband's shares in ABC 2011 Ltd;
(iv) Whether there are, and if so their extent, loans due from the Husband and/or XPS to TS;
(v) The Wife's reattribution case in the sum of £137,000.
Proceedings and Final Hearing
(a) At no point prior to the parties' separation in July 2012 did the Husband give any indication that anything was other than "good" at TS;
(b) The timing of the redundancy "seems terribly convenient";
(c) Why, if TS's business was so bad, did they award the Husband shares only to make him redundant a year later?'
(d) Why did the Husband accept a redundancy package without legal advice or negotiation? "He would not simply have walked away lightly if the redundancy was genuine", given that he was wedded to the company and had a very close relationship with the M family and RT.
(e) The Wife finds it "bizarre" that TS paid the Husband significant sums before any compromise agreement was signed;
(f) In summary, the Wife relies on what she says was: "The quite bizarre way that [the] alleged redundancy was dealt with and how substantial amounts of money were released to him without the signing of a compromise agreement."
"Further to our recent discussions I can confirm that we have made a decision to reduce the activities of the group and as a consequence are looking to significantly reduce costs. We have established that, by reducing the roles and recognizing the future requirements, we can cut costs by £2 million per year and therefore we have sought to reduce these costs as quickly as possible. The key cost reductions are as follows ..."
It then identifies three points, reducing costs from property letting agents, closing one office and retaining only one of a five member property team.
"Finally, we recognise that in light of the reduced activity and a need to further reduce costs that the senior financial resource needs to be reduced and as such the role of FT, FC and Treasurer will be combined with a salary commensurate to the future role offered. This means that costs can be reduced by a further £600,000 per annum. This means that your role along with two others in the financial team will become redundant and we serve notice to you of our intentions.
Likewise we have notified you that we intend to terminate the arrangements with X Property Services Ltd. with immediate effect. In the case of the consulting contract there is no notice term so we can cancel with immediate effect, however believe that 6 months notice is more appropriate.
It is with great regret that we take these actions and the family fully recognises the great job you have done over the last 20 years and hope that you will understand the reasons for this decision and would wish you the very best for the future in your own business endeavours.
We will of course help with the references and recommendations as much as we can. We will also pay the full notice period of 2 years with immediate effect unless you conclude that it will be preferable to receive some of the pay in a different tax year.
In the case of your share interest in ABC 2011 Limited you will be aware that the current value is extremely low at the moment and the shareholders agreement provides for an option to acquire your shares in the event of termination of your employment and we will therefore need to discuss this when we meet."
Value of Husband's ABC 2011 Shares
"From [the husband's] perspective I think he is concerned that the value he obtains could be lower than sitting with the [Europe] arrangements. He understands the risks but also would like the ability to get to £10 million, if possible, so long as the values move in the right direction …
From [the husband's] perspective I think he is very pleased with your offer and wants to be fair but also wants to ensure that he is not prejudiced …
[The husband] also wanted to understand how long we could hold a buyout for and I said as long as you wanted, but you could also provide some loans against some element up front if you both agreed. I said there was nothing to stop you permitting a loan against the shares if you wanted."
"PM has 86.86 shares in ABC 2011 and [the husband] 13.14. If a sale takes place to a third party does the £10 million cap on proceeds to [the husband] get ignored and gross proceeds split 86.86%, 13.14% or is there an underlying commercial agreement that the shares owned by [the husband] should never entitle [the husband]to more than £10 million proceeds on any sale?"
"[The husband] will never get more than £10 million."
"The amount payable on a buyout is described as 90% of the current value of ABC 2011, (a) presumably this is a valuation of all the properties owned by the ABC subsidiary accompanies?"
The answer is yes.
"And (b) is it right that [the husband] gets 90% of this value when his shares only represent 13.14% of the equity?"
"[The husband] gets 90% of 13.14% of the value."
"Has requested that I remind you that we have already committed a great deal of time and effort to this matter and would prefer to spend our time trying to restore the value of the companies to a more acceptable level to all concerned, but he has also requested that I respond on these specific points you have raised.
I will need to go through the specific agreement but I can provide you with the precise understanding of both TS and [the husband] at the time of signing the arrangement as well as the clear arrangements on appropriate valuations at the time [the husband] swapped his JOE interest for shares in ABC 2011 which resulted in the need for the shareholder agreement.
The reference to market value was requested by [the husband] to Addleshaws in respect of the properties to provide certainty on the property valuations, which can be subjective, but it was certainly not expected that the shares be valued only by reference to properties ignoring debt. You will certainly be aware that all debt is secured against the properties so none can be sold without settlement of the debt also.
I do, however, recognise it could have been worded with more clarity. To provide evidence you will know that the percentage of [the husband's] shares received in ABC 2011 was calculated by reference to the net value of the group taking account of the properties as defined in the shareholders agreement (less liabilities) to the company including full reference to the swaps liability. Had we not done that and applied the approach the Wife's lawyers are suggesting would mean that [the husband's] shareholding would be less than 2 percent which you will note it is not.
Further, if the shareholders agreement permitted [the husband] to exit only by reference to gross assets the group would have been obliged to notify HMRC of the fact and [the husband] would have been taxed at 50 percent on the deemed uplift which comes from ignoring the debt. No such notification was made and nor has [the husband] accounted for the tax because of course it is not due because the share value is net of debt not just gross assets.
It is of course a matter of common sense, common practice and commercial reality that shares are valued in a company by reference to all assets and liabilities of the company as well of course the market conditions.
I can assure you that this is the intention and legal obligations of both parties and was and still is the position. We believe that [the husband] can confirm that position to you for you and that there is no need to seek any further clarification from Addleshaws.
I can also confirm that as a partner at Ernst & Young I assisted in this and it was definitely clear to all parties when executed. This is also supported by the actions of all parties since this date and indeed is consistent with [the husband's] own instructions and explanation given to BDO when he asked them to value the group for the purposes of the shares.
To provide some comfort to you I can confirm that the position for PM will be that the value of the shares will be calculated by all assets as defined less all liabilities including bank debt and swap liabilities. At the current time we expect [the husband's] value to be less than the debt he owes the group so we will ensure the monies from PM are used to repay the group debt as provided in the agreement. Then of course we expect the remaining debt to be settled in line with the loan agreement, which as you know we have the capacity to call immediately.
I trust that [the husband] can confirm these points and as you will know from the agreement it is for the shareholders to agree a value in the first instance, which I am sure we will do in due course hopefully when the value is greater than zero."
"The Wife rejects your client's attempt to amend the shareholders agreement. This conduct is plainly a device to reduce the value of the shares and we will invite the court to make findings of fact to that effect at the final hearing."
"It is our client's case that the shares should be valued in accordance with the shareholders agreement, without rectifications, and once we have had all the outstanding evidence referred to in our second letter of today we will invite our expert, Mrs. Howe, to revalue the shares."
"Finally, and perhaps more importantly, our client takes grave exception to your client's assertion that the rectification of the shareholders agreement represents some sort of device to reduce the value of the shares. The suggestion that the liabilities which are secured against the properties are illusory is simply preposterous. The percentage of shares which [the husband] received took full account of all debt, including swaps in the group. We believe that this is by far the most relevant fact for the parties to consider."
"Clearly explained to and warned the Wife that she is running a high risk that the value of the shares and/or the amount receivable by the Husband for them from PM will later be less than the sum currently on offer of £2.85 million."
The risk being run by the Wife could not have been set out more clearly. In fact, later at court and confirmed by email, the offer was increased to £3.15 million, approximately £2.27 million net.
"We should also say at the start that as a group we are a very small team with limited time available and believe that the parties have treated our very generous offers with little respect. In this regard it is fair to say that PM is very offended and has lost patience with the situation where we were trying to leave our ex-FD solvent.
However, we now feel that all goodwill has expired and we wish to make it clear that our previous generous offers will not be repeated as our goodwill has been abused and we are minded now only to pay the market price for the shares when we can.
Based on our calculations we believe that the current value is substantially less than £1 million and as you know the total debt due to us is around £2 million."
"[The wife] must appreciate that unless she identifies the pot of gold she is searching for then the figures are as they are. It is, to borrow a phrase from the courtroom last week, a moment of exceptional importance for the family.
[The wife] can either continue to look for reasons not to trust [the husband] or can work constructively to identify ways in which her concerns might be allayed. For example, she may wish to accept this offer subject to the disclosure on the hard drive not revealing any further assets.
We make clear that [the husband] is prepared to consider any reasonable and cost proportionate proposal of this type which you may wish to put on the agenda for discussion."
After referring to the Family Procedure Rules it continues:
"To be absolutely clear, [the husband] will argue that [the wife] should bear the impact of the difference between the value of the assets at trial and the value that can be evidenced from the schedules attached to this offer.
In addition, when the exhaustive search reveals no hidden assets, he will argue that the costs incurred in such should be met by [the wife] alone."
"… should be in accordance with the documentary evidence that has been obtained in these proceedings that reflect the tenor of the original proposals I believe were agreed between PM and [the husband]."
Accordingly, she concludes as follows: "In my view, as a minimum, the amount that [the husband] should expect from the disposal of his shares would be £6 million". This is based on the use of the word "benchmark" (that the Husband's percentage was calculated on the basis that ensured the benchmark figure could be delivered) and on the email of 31st January 2011 (which related to someone else and a different situation).
"A notional reattribution has to be conducted very cautiously by reference only to clear evidence of dissipation in which there is a wanton element."
Is there in this case clear evidence which establishes dissipation with a wanton element?
"By way of context, TS is a family owned and run business and has a very small office team. Decisions are taken by the small core management team and very little is documented. Of the 13 Staff members employed in the business at the time of [the husband's]' departure 6 of them were notified of redundancy at that time. There are no documents which are requested but the compromise agreement into which [the husband] and the company entered is to be found at attachment 2."
The documents which had been requested included all minutes of meetings, memoranda, correspondence or emails relating to the Husband's redundancy. I have already referred to PM's evidence about the way TS is run.
"(5) Subject to paragraph (6) the general rule in financial remedy proceedings is that the court will not make an order requiring one party to pay the costs of another party.
(6) The Court may make an order requiring one party to pay the costs of another party at any stage of the proceedings where it considers it appropriate to do so because of the conduct of a party in relation to the proceedings.
(7) In deciding what order if any to make under paragraph 6 the court must have regard to..."
There are then listed a number of factors which include:
(b) any open offer to settle made by a party;
(c) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(d) the manner in which a party has pursued or responded to the application or a particular allegation or issue;
(e) any other aspect of a party's conduct in relation to proceedings which the court considers relevant; and
(f) the financial effect on the parties of any costs order.