ON APPEAL FROM THE HIGH COURT OF JUSTICE
FAMILY DIVISION, PRINCIPAL REGISTRY
MR JUSTICE CHARLES
LOWER COURT NO: FD07D00036
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE WILSON
| VICTORIA THERESA JONES
|- and -
|GARETH TELFER JONES
Miss Lucy Stone QC and Mr Marcus Lazarides (instructed by Levison Meltzer Pigott) appeared for the Respondent.
Hearing date: 3 November 2010
Crown Copyright ©
Lord Justice Wilson:
"There are certain challenges each of us should attempt in our lifetime and for most these involve a particular jump, a mountain climb, etc. Akin to these in the legal world would be reading from first to last a judgment of Charles J. One of his most recent is J v. J "
Mr Murray's introductory sentences were witty and brave. In respect at any rate of the judgment in the present case, they were also, I am sorry to say, apposite. The judgment is a monument to the intellectual energy of the judge. Nevertheless, notwithstanding my extreme personal discomfort in saying so, I feel driven to describe it as far too long, too discursive and too unwieldy. I have devoted days to trying to understand it. So have the parties' advisers, at substantial further cost to the parties themselves. With respect to a colleague whom I greatly admire, I refuse to accept that our modern principles of ancillary relief are as complex as the content of the judgment of Charles J implies.
When an asset of a spouse in this case a husband represents the proceeds of sale of a company which he brought into the marriage and built up during it, how is the attribution of part of the proceeds to the husband's ownership of it at the date of the marriage to be conducted for the purposes of the sharing principle and, in particular, does the exercise of attribution permit focus not only on the value of the company at the date of the marriage but also on the husband's personal capacity at that date to build it up in the future?
(a) Mr Pointer's claim for a lump sum equal to 40% of the net assets was inappropriate. Such an approach was arbitrary: . In any event the claimed proportion was too high: .
(b) To the extent that the proposal made by Miss Stone in her closing submissions remained based on the sharing principle her computation was also flawed for two reasons.
(c) The first reason was that valuations at the two suggested dates were likely not to be accurate: [382(ii)].
(d) The second reason was that this was not a case in which, for the purposes of the sharing principle, it was appropriate to treat the vast increase in the value of the company between the date of separation and the date of its sale differently from its value at the date of separation:  and [425(xiv)].
(e) The proper conclusion from the evidence was that 60% of the value of the company at the date of separation represented what the husband had brought into the marriage: .
(f) In the light of (d) above, however, it was proper to extend (e) above so as to become a conclusion that 60% of the net proceeds of the ultimate sale of the company represented what the husband had brought into the marriage:  to .
(g) Thus only 40% of the proceeds represented matrimonial property. The sharing principle suggested its equal division, i.e. an award to the wife of 20% of the proceeds: .
(h) Were one to take the net proceeds of sale at £24m (did the judge perhaps consider that £1m had been spent?) and to take 21% rather than 20% thereof (did he perhaps do so in the interests of arriving at a round sum?) one would arrive at £5m and, were one then to add £0.4m as being half of other matrimonial assets held by the husband and a further £0.4m in respect of the wife's costs, one might conclude, subject to a further adjustment identified at (j) and (k) below, that, if calculated by reference to the sharing principle, the award would be £5.8m:  to .
(i) If calculated by reference to the need principle, however, the award to the wife would be £4.6m inclusive of the provision in respect of costs: .
(j) Where application of the need principle suggested an award lower than was suggested by that of the sharing principle, the lower award based on need might in some cases inform, and in others dictate, the extent of the departure from equality within the sharing principle:  and .
(k) In the present case the lower award of £4.6m suggested by application of the need principle did not dictate, but did inform, the extent of the departure from equality within the sharing principle, with the result that, by application of that principle, the award should exceed £4.6m but should, on the other hand, be less than £5.8m and should be £5.4m: .
(a) in 1967, when aged 15, he had begun a five-year apprenticeship in marine engineering with Brown Brothers;
(b) he had duly completed it;
(c) in 1976 he had taken employment with Seaforth Maritime, being the largest marine engineering company operative in the North Sea;
(d) he had there been placed in charge of 70 other employees;
(e) in 1979 Seaforth had appointed him the manager of a subsidiary business which had 147 employees;
(f) in 1984 he had moved to work for Gas Services Offshore Ltd, by which he had been appointed manager of the Oseberg Transport System project and had thereby come into contact with the leaders of the industry; and
(g) in 1985, in the Court of Session in Edinburgh, he had been found to be the inventor of a helium gas meter which had become of standard use in the industry.
(a) that the "success and position [of the company] in the market was based on his early working life and the knowledge and experience he gained at that stage and then on his hard work over the years": ;
(b) that the husband had not disclosed the negotiations for sale because he considered it unjust to have to make payment to the wife out of the sale proceeds of a company which "represented the product of his working lifetime": ; and
(c) that the proceeds of sale of the company were "the product of his life's work, skill and business decisions": [425(iii)].
"50. H here brought into the marriage assets with a value in money today of $781,000
51. H also brought to the marriage a developed career, existing high earnings and an established earning capacity. I cannot see why this should not be treated as much as a non-marital asset as the provision of hard cash. In argument I suggested that H here was in terms of his career "fledged" at the time of the marriage, rather than being the fledgling, which is so often the case. [Counsel for the husband] stated that his client was far more than fledged: he was fully airborne. I tend to agree "
Thus, as a result of his choice of metaphor, Mr Mostyn's approach became known as fledging: if at the date of the marriage the spouse was successfully launched in employment, or fledged, his earning capacity was somehow to be capitalised; then, like the husband's actual capital in GW (which the deputy judge uprated from $500,000 to $781,000), the figure was, I presume, to be uprated for inflation; and then allowance was to be made for it, as a non-matrimonial asset justifying departure from equality, in the application of the sharing principle upon divorce. I am unclear how the earnings were thus to be capitalised; still less how such allowance was thus to be made; and in particular whether, if at the date when the financial proceedings were heard, the spouse still enjoyed an established earning capacity, such also fell to be capitalised and also in some way to be taken into account.
"172. A possible difficulty about this approach is that it reintroduces, at the commencement of the marriage, a requirement to attempt to assess and compare the value of the contributions which each party is or would be likely to make during or apart from the marriage. I am not very confident that an established earning capacity or very valuable acquired expertise and acumen would, if viewed as "assets" brought into a marriage, be easily or reliably measurable or comparable with other qualities, or indeed how far would one carry the enquiry into expertise and acumen. The concept of "fledging" is probably anyway one which would diminish in relevance, the longer the marriage ...
173. On the other hand, where at the beginning (or end) of the marriage an actual transaction is under way or in view which in due course yields a considerable new asset, there is no difficulty in principle (even if there may be some difficulty in valuation) in accepting that part of that asset may have to be excluded from any assessment of the matrimonial acquest or included in what the parties brought into the marriage."
(a) The capacity is not easily measurable in capital terms. The judgment of the judge in the present case is replete with objections to the adoption of arbitrary percentages in application of the sharing principle. In the end, however, without having canvassed such a percentage or in this context any other with counsel, the judge adopted 60% as the proportion of the company's sale price in 2007 which was attributable to a mixture of its value in 1996 and the husband's personal capacity to expand it (or earning capacity) established by 1996. What could have been more arbitrary than that?
(b) The proper depth of any enquiry into a spouse's expertise and acumen is unclear. What contributed to the substantial capacity of this husband to generate earnings (or profits) in his chosen field? The judge rightly laid stress on the knowledge which he had gained during employment in the field from 1967 to 1986. But, without his having other qualities, whether inherited or acquired as a child at home or at school or otherwise, he would not have been able to put his knowledge to profitable use. In truth the judge was placing a substantial capital value on the husband as a person; I am convinced that such is no function of the divorce court. I also consider that a dangerous degree of hindsight is likely to be deployed in analysing the extent of a person's (say a husband's) earning capacity at a date long past. If later (as in this case) he generated substantial earnings, the court would be likely to find that he had had a substantial earning capacity but, if later he failed to generate them, it would be likely to find that he had not had a substantial earning capacity. But neither of those obverse conclusions is necessarily valid.
(c) Above all, capitalisation of the earning capacity established by one spouse by the date of the marriage is likely to be unjustly discriminatory if the other had not by then established an earning capacity. In the present case the wife had no earning capacity at all in 1996. What had she been doing in 1967 when the husband was apprenticed to Brown Brothers? The answer is that she had been crawling around the floor aged one. She must have been at school until 1984; thereafter, as we know, she became a wife to her first husband and, ultimately, a mother. Although the generosity of her parents made her early adulthood financially comfortable, was it not discriminatory for the judge to write off, without any real analysis, whatever the wife had achieved by his ascription to the husband of a substantial capitalisation of his earning capacity without making any countervailing ascription to her in other respects?
"In my view, on that basis around 60% of [the company's] value should be attributed to the creative years before the marriage."
There is lively dispute between counsel as to which of the numerous points made by the judge in preceding paragraphs represent the "basis" to which he there referred. Inevitably Mr Pointer also refers to the judge's calculation, at , that:
"In round terms the marriage lasted for one quarter of the husband's working life and one third of the life of his business that he started in 1986 "
The judge's calculation is wrong: for the marriage lasted for nine and a half years, which represents not one third but 45% of the 21-year life of the business. Surely (says Mr Pointer) this error conduced to the judge's conclusion that only 40% of the value of the company was generated following the marriage. No (counters Miss Stone), this was a mere slip by which the judge in no way misled himself and which, had it been noticed, should have been included in the fourteen pages of suggested corrections jointly submitted by counsel to him following dissemination of his judgment in draft. In my view Miss Stone may well be right; it would be unsafe to hang any conclusion on this error.
"413. in my judgment, in a case such as this where a factor that can provide a good reason for departing from an equal division within the application of the sharing principle applies this can favour a conclusion that, in all the circumstances of the case the same result should as a matter of fairness be reached applying the need and sharing principles or provide a cross check or guide to the separate application of the principles.
414. So it seems to me that if in such a case an application of the need principle leads to a result that is less than an equal division of the assets this can in some cases inform or influence the extent of the departure (for good reason) from equality within the sharing principle, and in others dictate such departure and thereby found the same conclusion being reached on the application of both principles."
"In my view, it is likely that if more evidence had been directed to the development of the business over all the years from its creation to its sale, it is unlikely that it would only have been possible to take anything other than a broad approach to the "spring-board effect" of this pre-acquired asset to its value as at separation, and thus to the attribution of its value as at that date between (a) its creation and the work done in its development prior to the marriage, and (b) its further development during the marriage."
It is a difficult sentence; as Mr Pointer suggests, it would become somewhat less difficult if the word "only" were to be omitted from it. At all events it is clear that, on the apparently limited evidence before him, the judge concluded that a spring-board of substantial significance was in place in the company at the date of the marriage. Indeed the quoted sentence immediately precedes his central conclusion that 60% of the proceeds of sale of the company, i.e. £15m, represented a non-matrimonial asset.
"For the purposes of establishing the matrimonial property in respect of which the yardstick of equality will 'forcefully' apply the value of assets brought into the marriage by gift and inheritance (other than the former matrimonial home), together with passive economic growth on those assets, should be excluded as non-matrimonial property."
Lady Justice Arden:
Sir Nicholas Wall P:
81. The judgment under appeal runs to some 223 paragraphs [I interpolate that this was less than half of the length of the judgment in the instant case]
82. A judge's task is not easy . One does often have to spend time absorbing arguments advanced by the parties which in the event turn out not to be central to the decision-making process. Moreover the experienced judge commonly has thoughts about avenues which it might be crucial to explore but which the parties have not themselves examined. It may be his duty to explore these privately in order to satisfy himself whether they are relevant. Having done the intellectual work there is an understandable temptation to which many of us occasionally succumb to record our thoughts for posterity in the judgment or to refrain from shortening a long first draft.
83. However, judges should bear in mind that the primary function of a first instance judgment is to find facts and identify the crucial legal points and to advance reasons for deciding them in a particular way. The longer a judgment is and the more issues with which it deals the greater the likelihood that
i) the losing party, the Court of Appeal and any future readers of the judgment will not be able to identify the crucial matters which swayed the judge;
ii) the judgment will contain something with which the unsuccessful party can legitimately take issue and attempt to launch an appeal;
iv) reading the judgment will occupy a considerable amount of the time of legal advisers to other parties in future cases who again will have to sort out the status of the judicial observation in question. All this adds to the cost of obtaining legal advice.
84. Our system of full judgments has many advantages but one must also be conscious of the disadvantages.